One of our favorite Big Oil shorts is down more than 3% today...
We wrote about Brazil's state-run oil giant, Petrobras, on December 3 – our inaugural Premium issue. At the time, the stock was down 21% in the last year (including dividends), making it the worst-performing oil company with a market capitalization of more than $100 billion. ExxonMobil, for comparison, was up nearly 6%.
Petrobras faces several headwinds (in addition to U.S. shale producers making expensive offshore drillers uneconomical – which we discussed here).
First, the company is 50.2% controlled by the government. And government involvement in a company means poor management and fiscal irresponsibility.
And Petrobras' oilfields are all offshore. They will cost the company hundreds of billions of dollars to develop. Jim Chanos, an outspoken Petrobras short-seller, says that given the company's high capital expenditures, shareholders wouldn't make money even with oil over $100 a barrel. (Oil is at $93 today.)
Finally, the government caps what Petrobras can charge its customers... And this hurt the company today...
Petrobras is selling record amounts of natural gas at huge losses to support its power-generation industry. Due to a drought… the country's hydropower dams are struggling to operate at the lowest water levels in more than a decade.
Reservoirs in Brazil's southeastern and central regions (the most populous and industrial) were 28.9% full in December – the least since 2000. The minimum water level for optimal operations there is 28%. Reservoirs in the northeastern region were 32.1% full – less than the 34% needed for optimal operations.
Lost hydropower capacity is a big problem for Brazil, as it fuels more than 70% of the country's power supply. (Some estimates put the figure as high as 90%.)
So Petrobras is importing gas and selling it to domestic power producers to compensate. It increased natural gas imports to 11.9 billion cubic meters (420 billion cubic feet) last year through November... That's the most since at least 2000, when Brazil's oil regulator began keeping records.
This would all be OK… except the nation's socialist leaders cap how much Petrobras can charge for that imported gas, essentially mandating the company resell it at a loss.
Petrobras would not say how much it was paying for imported liquefied natural gas (LNG). But Marco Tavares, chairman of research firm Gas Energy, estimates the oil giant could be losing $117 million a month. He said the company is paying between $16 and $18 per British thermal unit (BTU) – a common measurement of natural gas – on the global spot market and selling it in Brazil (remember, the government controls its pricing) for $10-$12 per BTU.
Petrobras is also selling imported gasoline at a loss to bolster domestic supplies, meaning losses are likely larger than the estimated $117 million per month.
And it doesn't appear these issues will improve for months...
"Rainfall in January and February is expected to be spotty, poorly distributed," meteorologist Flavia Matioli of weather forecaster Somar Meteorologia told Bloomberg. "Precipitation won't be enough to cover the ongoing deficit."
It's hard enough for offshore oil companies to compete with easily accessible U.S. shale oil and gas. In Petrobras' case, Brazil's socialist government is only making it more difficult.
Our favorite Big Oil short is down...
The government is interfering in one of our favorite oil positions... and it doesn't appear that these conditions will improve for months...
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Our favorite Big Oil short is down...
Our favorite Big Oil short is down...
The government is interfering in one of our favorite oil positions... and it doesn't appear that these conditions will improve for months...
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Gold goes under a new spotlight... Our 'avoid Sears' call from last February... Lampert's Waterloo... Asian gold demand soaring... Record gold trading in Shanghai... Porter's Monsanto call is up 70%...
Appetite for gold is soaring in Asia...
According to the World Gold Council, Japanese pension funds, the second-largest pool of retirement assets ($3.36 trillion) behind the U.S., will more than double their gold holdings over the next two years.
Historically, Japanese investors don't view gold as an inflation hedge. But Japan's new Prime Minister, Shinzo Abe, is forcing them to reconsider... Abe pledged to spur inflation to 2%.
"Bullion's role as an inflation hedge, long ignored by Japanese fund operators, has come under the spotlight thanks to Abe's economic policy," Itsuo Toshima, a former 23-year representative of the Tokyo office of World Gold Council, told Bloomberg. "Gold may be a standard asset-class in the portfolio of Japanese pension funds as Abe's target is realized."
Japanese pensions could increase their holdings of gold-backed exchange traded funds to 100 billion yen ($1.1 billion) by 2015 from less than 45 billion yen today.
Reuters also reported the market for physical gold is booming in Asia this year... Buyers are tempted by the precious metal's recent selloff. (Gold recently fell as low as $1,626 an ounce, down from nearly $1,800 an ounce in October.)
Trading on the Shanghai Gold Exchange's 99.99, gold physical contracts hit a record 19,504.8 kilograms on Monday.
"Physical demand is very strong," said a trader in Beijing. "It's a combination of the attraction of lower prices as well as pre-holiday [Lunar New Year] demand." The trader believes demand could fall if prices recover to $1,700.
And U.S. gold demand is booming so far this year... The U.S. Mint reports it sold 50,000 ounces of gold on the first day of 2013. It sold another 7,000 ounces on the second – almost the entire amount sold in December... and nearly half the amount in January 2012.
Investors are buying gold because they know how global central banks' money printing (and subsequent currency devaluing) will end... It will send gold soaring. Even PIMCO's Bill Gross, who made his fortune in bonds, is advising folks to buy gold.
If you don't own any gold, you have a good opportunity to buy bullion and gold stocks today. This morning, master trader Jeff Clark told Growth Stock Wire readers that the recent drop in gold is offering "a good buying opportunity for the metal – especially if you missed the chance to buy it the last time it was down at this level."
As longtime readers know, when Jeff talks gold, we listen. Though he hasn't recommended a gold-stock trade recently, his track record over the past year is fantastic.
In 2012, his S&A Short Report readers enjoyed gains of 96% in two days on Seabridge… 100% gains in one day on the Market Vectors Gold Miners Fund… 75% in a month on Gold Fields… 128% in two weeks on Barrick Gold… 78% in a week on the iShares Silver Trust… 148% in three weeks on Pan American Silver… and many more.
To find out more about his trading strategies – and get on board before his next gold-stock trade – you can learn about a subscription to the S&A Short Report by clicking here.
I (Dan Ferris) finally bought myself a new guitar amplifier recently. It's a Fender Blues Jr. NOS. It's got a beautiful warm, bluesy sound. Playing my guitar through my new amp is a great way to unwind at the end of the day or on weekends.
I've been shopping online and in stores around the country for guitar amplifiers for the past several months. When I finally bought my amplifier, I didn't go to a music store. I didn't even go to a music store website. The first place I went was the online marketplace, Amazon.com.
There are few better places than Amazon to do comparison shopping for thousands of items. It had a listing for every amplifier I was interested in buying from many different music stores. Not even Musician's Friend, the biggest online music retailer, could make that claim.
Amazon offers a convenience bricks-and-mortar stores can't – merchandise from all over the world, at cheap prices, right at your fingertips. And that is drawing more and more consumers out of bricks-and-mortar stores… and onto the Internet.
It's little wonder that – aside from retail dominators like Wal-Mart, Costco, and Target – many bricks-and-mortar retailers are struggling.
Take Sears Holdings, for example. The story here is ugly and easy to understand. Sears is a declining business with too much debt.
Sears' sales have fallen every year since 2006. Its ability to make interest and other fixed payments has declined as well. Sears' ratio of earnings to fixed charges has declined every year, too… and went negative in 2011.
Bad business and a big debt load that's getting bigger (in relation to earnings)... That's a horrible combination… one investors should avoid. The odds are way against it, and you should not own shares of this company.
One famous hedge-fund investor – Eddie Lampert, Chairman of the Board and now the CEO of Sears – is trying in vain to turn the company around... But it won't work.
As I explained last February, I believe it's more likely Sears under Lampert is a classic case of a great manager in a bad business...
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Lampert is a legend in the hedge-fund business. But in cases like Sears, the business usually keeps its reputation, not the manager. No matter what you think of Lampert or Sears' prospects for the future, it is incontrovertible that Sears is not a wonderful business like Coca-Cola, Wal-Mart, Intel, and Microsoft. Wonderful businesses like those don't change much over the years. They just keep doing what they do and generate consistent profit margins. That's not Sears.
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Lampert took control of K-Mart in 2003 and merged it with Sears in 2005. It was thought that he'd try to build the company into a Berkshire Hathaway-like conglomerate. But that didn't make any sense…
Berkshire is built on insurance, an ideal platform for long-term growth. Sears is a retailer, a poor platform to do anything but retailing... And as bricks-and-mortar retailing has declined, so has Sears. We pointed out the difficulties last year and told you to avoid the stock…
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Maybe Lampert will succeed [in reinventing the company]. Or maybe he'll finally begin to monetize its real estate – perhaps his biggest promise when he took over, and the biggest failure of his tenure. Whatever the case, I won't be onboard. There are too many truly wonderful businesses in the world to bother with Sears.
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Sears' share price was $61 back then. Today, it sits around $40. Clearly, the business is dying.
Sure, there are a few great brands locked inside it, like Kenmore appliances, Craftsman tools, and Diehard auto batteries. But Lampert will need more than those to turn the company around.
The old proverb, "most turnarounds don't" will wind up holding true with Sears. Adopt the mantra, "buy the best, forget the rest." And once again, avoid this stock. It is Lampert's Waterloo.
One of the most controversial companies we've ever recommended, Monsanto (MON), crushed analysts' earnings estimates by 72% this morning. The company earned $0.62 per share against estimates of $0.36. Stansberry's Investment Advisory subscribers were not surprised...
Monsanto is an agriculture company that supplies seeds (corn, soy, etc.) to farmers. But these seeds, as you may know, are genetically modified organisms ("GMOs") Monsanto scientists develop. To us, that makes Monsanto a technology company.
Most agriculture companies have low margins. But Monsanto is as profitable as a technology company. Gross margins for its seed technology business exceed 80%. By comparison, World Dominator Intel's gross margins for its computer-chip business barely exceed 60%. Monsanto's business gushes cash.
Some believe the seed modifications Monsanto scientists make to their stock are harmful... and causing irreparable damage to our feedstock. It's debatable.
What is not debatable is the 70%-plus return Stansberry's Investment Advisory subscribers have made since buying Monsanto shares in November 2010. As part of his "End of America" thesis, Porter explained how food prices were set to surge unless production increased to keep up them in check. Buying shares in Monsanto – which would benefit from sales of its higher yielding GMO seeds to farmers – was the obvious play. Their seeds represent the only real way for supply to keep up with demand, keeping food prices from skyrocketing. So despite the public's views of the company, Porter's thesis was correct.
New 52-week highs (as of 1/7/13): Guggenheim BulletShares 2015 High Yield Corporate Bond Fund (BSJF), iShares Dow Jones U.S. Home Construction Fund (ITB), SPDR Barclays High Yield Fund (JNK), Lucent Technologies (LUTHP), Guggenheim China Real Estate Fund (TAO), Targa Resources (TRGP), RPM International (RPM), Ericsson (ERIC), 3M (MMM), Brookfield Asset Management (BAM), Becton-Dickinson (BDX), Southern Copper (SCCO), Cheniere Energy (LNG), Magellan Midstream Partners (MMP), Sunoco Logistics Partners (SXL), Government Properties Income Trust (GOV), and CVS Caremark (CVS).
In today's mailbag… a subscriber looks to get into one of the safest ways we know to store money – and one that offers a great return – gold bullion. Let us know if you're in the gold game here: feedback@stansberryresearch.com.
"I am a new subscriber having learned much in a short time and look forward to learning much more. After reading the S&A Digest regarding goals for 2013, I realized my portfolio is in line with many of your recommendations. My one question is of owning a 'gold ETF' or being invested in John Doody's Top 10 just as good/protective as owning gold bullion. If not, I would be interested to hear your recommendation on how/where to buy gold bullion." – Paid-up subscriber Cary McDaniel
Goldsmith comment: Owning a gold ETF and/or gold stocks is completely different from owning gold bullion. Each asset class has a different risk profile. And there are different reasons for buying each asset.
Anyone interested in investing in commodities through funds or stocks should first read Matt Badiali's "Essential Toolkit for Resource Investors." It will show you the differences between each, and help you decide which method is best for you…
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There are several ways to make a bullish bet on commodities. Each has its pros and cons... its particular risks and rewards. One investment might be a great idea for some folks, but terrible for others.
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If you're interested in buying gold bullion or collectible gold coins (a different asset class), I recommend you call Van Simmons, President of David Hall Rare Coins. I've been buying from him for years... He's one of the most trustworthy in the business. You can call his firm at 1-800-759-7575 or e-mail him at van@davidhall.com. (We do not receive compensation for mentioning Van or David Hall Rare Coins.)
Also, Digest Premium subscribers shouldn't miss the holiday series interview we did with Van... He shared five of his favorite collectibles to buy today (from gold coins to American art). If you haven't already subscribed to Digest Premium, you can do so here (it only costs $10 per month).
Regards,
