Commodities are getting destroyed... An opportunity to buy your wife expensive jewelry... And potentially double your money in the future... Why we still like platinum and palladium... Record sales for Mercedes-Benz... Why oil is falling... This tiny oil company is a buy...
Commodities are getting destroyed.
One reason we're seeing a selloff is the recent strength in the dollar. (More on the dollar's parabolic move later.) But in the super-cyclical world of commodities, low prices can present huge opportunities.
We dedicated the entire September 22 Digest to commodities' cyclicality. In that Digest, we also told you how we made 600% on a single investment the last time commodities were this beaten-up.
We get these opportunities in resources because development projects are hugely capital- and time-intensive. Producers are subject to emotional follies like everyone else... They deploy far too much capital when resource prices are high.
As producers rush to bring more resources online at record prices, supply soars and prices fall. As we're seeing today, when certain commodities crash, they can fall by two-thirds or more.
But many companies will continue producing resources even if they're selling below production costs... Because sometimes it's cheaper to lose money than it is to shut down a mine and start it back up again. Or a producer will keep producing, hoping its competition will go out of business... and when prices swing higher, the producer will be in prime position.
Today, we have an opportunity developing in platinum and palladium.
Platinum usually trades at a premium to gold... For one, platinum is about 20 times more rare than gold. And around 80% of total platinum production is used in automobiles (in catalytic converters).
Plus, nearly all of the world's platinum is mined in three countries – Zimbabwe, South Africa, and Russia. As we like to say, going long platinum is like going long political instability in Russia and South Africa – a safe bet.
Platinum hit a 52-week high of $1,550 an ounce in late August. It has since cratered to $1,258 an ounce...
The last time platinum crashed in 2008, the metal lost two-thirds of its value before doubling over the next 18 months.
While we're not at those extreme, oversold conditions today, platinum is starting to become attractive. As Steve Sjuggerud wrote in today's DailyWealth...
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Steve isn't going long platinum yet... He's waiting for an uptrend.
However, he does think it's a good time to consider buying some platinum jewelry for your significant other – as the price is trading in line with more common gold.
Kim Iskyan – who holds the Sprott Physical Platinum & Palladium Trust (SPPP) in the S&A Global Contrarian portfolio – recently updated readers on the precious metals' downturn... He noted the recent strength in the U.S. dollar as a big reason behind their decline.
There are still plenty of reasons to like the precious metals today. For one, there's still plenty of political instability in South Africa and Russia today. As Kim wrote...
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South African mining strikes earlier this year led to a supply crunch and rising platinum and palladium prices. And while the strike has ended, the supply/demand situation for both metals is still bleak. From Kim...
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As we noted, the biggest use for platinum is for catalytic converters, which reduce automobile pollution.
Catalytic converters aren't yet standard in pollution-stricken China. But that's changing... And as the Chinese buy more cars, we'll need more platinum and palladium...
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On the topic of cars...
Automaker Daimler AG said its Mercedes-Benz brand had its best sales month in history in September, boosted by Chinese demand.
Mercedes sales jumped 14% from the same period a year ago. Group sales, including its other brands like Smart, were up 12% over the same time period.
In China, Mercedes sales increased 24%... Chinese sales are up nearly 31% in the first three quarters of the year.
And as an indicator of a major trend we've been covering – the disappearing middle class – Daimler has sold 75,391 S-class sedans (its highest-level sedan) year-to-date... That's twice the number that was sold in the same period last year.
Back to falling commodities...
Oil prices have also been crushed, bringing share prices for most oil-exploration stocks down with it. In the July 28 DailyWealth Trader, Amber Lee Mason warned that oil was getting toppy... Speculators, as measured by the "Commitment of Traders" report, were at record levels of bullishness. As she wrote...
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Since that time, Brent crude oil (the international benchmark for oil prices) is down more than 16%...
Oil prices are facing another major headwind in addition to a strengthening dollar: The record supply coming on line in the various shales across America.
Thanks to the "fracking" revolution, U.S. oil production is at a 28-year high. Exports are at levels last seen in the 1950s... despite the oil export ban.
As we wrote in the September 18 Digest...
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There is one bright spot in oil's decline... One of Dan Ferris' favorite resource companies, a tiny oil and gas firm, is now back in buy range.
Extreme Value research analyst Mike Barrett sent us the below note, updating us on the opportunity...
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Mike and Dan say this oil and gas company has one of the best business models they've ever seen in any industry. This firm is smart with its capital, earning more and spending less. It doesn't take on too much debt or acquire bad businesses. Plus, it rewards shareholders better than almost any other public company.
Most companies issue shares to raise money... This company hasn't issued a single new share (other than share splits) since it went public 35 years ago. And it has paid a regular dividend for more than 50 years.
But that's only half the story. From Mike...
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As Mike noted above, the story gets better... A major American oil company recently announced it discovered a major new shale play in Oklahoma (where it already owns significant mineral rights).
The Oklahoma discovery only means more upside potential for this tiny company... And we doubt it will stay in buy range for long – it has gone up 60-fold just since 1995.
And despite its small size, Dan says this oil company is one of five companies he would put in a set-it-and-forget-it portfolio.
Extreme Value subscribers can find the name of this company in the July issue. If you would like to learn more about a subscription to Extreme Value – which will give you immediate access to this oil and gas stock – click here.
New 52-week highs (as of 10/6/14): Becton Dickinson (BDX), Invesco Value Municipal Income Trust (IIM), Coca-Cola (KO), Altria (MO), and Nuveen Municipal Opportunity Fund (NIO).
Another subscriber wrote in praising Porter for his discussion of the "drawbridge." Do you agree or disagree with his argument? Is your standard of living improving or worsening? Drop us a line at feedback@stansberryresearch.com.
"Well written, Porter. Is it possible that the world will put an end to the way things are? I doubt it. There is too much violence that starts children at video game level. They see it on TV and in the movies and it becomes normal for society as a whole. Likewise, giving people free money. Those of us that get social security have to pay tax on it even though we paid into it throughout our work life. Shouldn't people that get all of the welfare programs pay tax on that too?
"There is no motivation for people to act responsibly. Even the president of the United States shirks responsibility on a regular basis. My oldest daughter who is 31 saw someone that she went to high school with in Wal-Mart yesterday that couldn't pay for her groceries because she didn't have enough food stamps. She has 6 children all by different fathers so they said something to her friend that she was with about not having enough food stamps. A woman behind her paid for all of her groceries.
"We live in an affluent suburb of the Denver metro. It astounds me the difference in mentality. Yet we have seen how people are portrayed these days. Hollywood now makes an awful lot of movies and TV that is intended to appeal to the poor because there are more of them and they are willing to buy the tickets. It is most disappointing.
"Aside from all of that... thanks so much for all that you write. Not only you but everyone at Stansberry. You all have made me feel very fortunate. Not just for the money my family makes. But for the knowledge you have shared with me because it has greatly changed the way I invest. Those years of knowledge that you all share are the real value of all of you. In the few years that I have been a paid subscriber I have gained so very much wisdom." – Paid-up subscriber Jeff Spranger
Regards,
Sean Goldsmith
October 7, 2014
The one thing that could stop the shale revolution in its tracks...
Yesterday, S&A Resource Report editor Matt Badiali explained why he isn't worried about a potential ban on "fracking" in the U.S.
In today's Digest Premium, he explains the one catalyst that could cause a huge downturn in oil prices...
To subscribe to Digest Premium and recieve a free hardback copy of Jim Rogers' latest book, click here.
The one thing that could stop the shale revolution in its tracks...
Editor's note: Yesterday, S&A Resource Report editor Matt Badiali explained why he isn't worried about a potential ban on "fracking" in the U.S. In today's Digest Premium, he explains the one catalyst that could cause a huge downturn in oil prices...
There's one thing I (Matt Badiali) see looming on the horizon that could derail the shale revolution.
In the 1970s, exporting crude oil became illegal. That law was put in place after the Arab oil embargo. Since then, Alaska has been allowed to export some crude oil. The U.S. exports crude oil to Canada. But the law still bans the outright export of crude oil.
The problem with that today is that it distorts the crude oil market. You see, there are two distinct types of crude oil. The light, sweet stuff and the heavier, sour stuff. And we were running out of the former... so the market shifted.
Back in the 1980s and all the way up through 2005 or so, the refiners who turned crude oil into gasoline and diesel fuel realized that light, sweet crude oil was getting harder to find... and more expensive. So they turned to heavier, sour crude.
But sour crude has a lot of sulfur in it... and we have strict sulfur regulations in place. The U.S. Environmental Protection Agency (EPA) passed some rules that said you could only have a minimal amount of sulfur in your oil.
Companies like Valero invested tens of billions of dollars to upgrade their refineries to use the heavy, sour crude, and they did a fantastic job. The U.S. has one of the most technologically advanced refinery industries in the world. We can run the most oil and have a ton of storage.
A refinery can only process so much crude oil. So if you're set up to run more sour crude, you have to run less light, sweet crude. That's where the problem crops up... because all of the oil we're producing through the shale revolution is light, sweet crude.
Ironically, we're running out of refining capacity for light, sweet crude. There is the potential to flood the market to the point where we won't be able to store or refine it. If that happened, we would have far more supply than demand... and the price of oil in the U.S. would collapse.
However, the rest of the world really, really wants that light, sweet oil. There are plenty of refiners around the world who would pay a premium to buy our oil. But thanks to that antiquated export law, we can't sell it to them.
"So what?" you might say. "Cheap oil sounds good. Lower my gas prices and I'm a happy camper." But it doesn't work that way. Like oil prices, gasoline prices are set globally, too.
U.S. refiners have a choice to either sell gasoline to the station on the corner or put it on a ship to Europe. So our price at home is set by the demand abroad.
While that doesn't mean the price of gasoline would fall at the pump, it does mean that companies could stop investing in shale oil. We would see massive layoffs and companies would stop spending money on exploration. They would cut their drilling budgets to save money.
We've been through this before. The oil industry is cyclical and knows how to ride out a downturn in prices. Once these companies stop investing in shale, oil prices will spike higher because the rest of the world still needs this oil.
The scary part about this is that the only direct way out of this is through Congress. And I don't know about you, but I'm not depending on Congress to solve any kind of problems.
– Matt Badiali
Editor's note: Matt doesn't believe that the shale revolution will stop any time soon... In fact, he just released a special report on the five stocks you absolutely must own to participate in the shale boom over the next decade. To learn more about the S&A Resource Report – and how to access Matt's brand-new special report with a risk-free, money-back trial – click here.
The one thing that could stop the shale revolution in its tracks...
Yesterday, S&A Resource Report editor Matt Badiali explained why he isn't worried about a potential ban on "fracking" in the U.S.
In today's Digest Premium, he explains the one catalyst that could cause a huge downturn in oil prices...
To continue reading, scroll down or click here.
Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)
As of 07/21/2014
| Stock | Symbol | Buy Date | Return | Publication | Editor |
| Prestige Brands | PBH | 05/13/09 | 411.6% | Extreme Value | Ferris |
| Enterprise | EPD | 10/15/08 | 316.2% | The 12% Letter | Dyson |
| Constellation Brands | STZ | 06/02/11 | 310.5% | Extreme Value | Ferris |
| Ultra Health Care | RXL | 03/17/11 | 268.2% | True Wealth | Sjuggerud |
| Ultra Health Care | RXL | 01/04/12 | 222.2% | True Wealth Sys | Sjuggerud |
| Altria | MO | 11/19/08 | 210.2% | The 12% Letter | Dyson |
| Targa Resources | TRGP | 12/13/12 | 187.6% | SIA | Stansberry |
| Blackstone Group | BX | 11/15/12 | 179.1% | True Wealth | Sjuggerud |
| McDonald's | MCD | 11/28/06 | 178.1% | The 12% Letter | Dyson |
| Automatic Data Proc | ADP | 10/09/08 | 158.2% | Extreme Value | Ferris |
Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals |
| 3 | Extreme Value | Ferris |
| 3 | The 12% Letter | Dyson |
| 2 | True Wealth | Sjuggerud |
| 1 | True Wealth Sys | Sjuggerud |
| 1 | SIA | Stansberry |