Komrade Obama saves us from oil 'speculators'... The real reason gasoline prices are rising... Coke grows and grows... Tomorrow: A brand new WDDG stock pick... FSLR heads for zero... China is buying gold... Sjug's oil royalty pick: up 94%...
Thank goodness so many great and wise leaders are looking out for us. Where would we be without them?
Our Dear Leader, Komrade Obama, has attempted to curb rising gasoline prices by getting tough on evil oil market "speculators." Oil speculators manipulate the market, driving up the price of crude oil and gasoline, taking their ill-gotten profits, and making life hard for America's middle and lower classes... right?
Wrong. Oil speculators do the same thing in the oil market that all speculators do in every other commodity market. They take risks commodity producers can't afford to take by guaranteeing a price to the producer. If you sell futures to hedge your price, I (the speculator) buy, or "go long." If they fall, you don't lose money producing the commodity. I lose money betting on the price. If prices go up, I win and you get paid the set price.
If you wish to curb speculation, by definition, you wish to make commodities more expensive. It's amazing how politicians are always claiming to do the opposite of what they're really doing... and that the vast, thundering herd never seems to get it.
Of course, as anyone whose memory can reach back all of 12 months or so can tell you, gasoline prices go up every spring. They're practically required by law to rise... Every May 1, upstream suppliers must begin storing "summer blend" gasoline to comply with the Clean Air Act of 1990. Gas stations must start selling them by June 1. Summer blends cost more to produce, so they cost more at the pump, too. Every April, refineries must spend money switching over to summer blends, and then spend more by adding costly additives to gas to comply with the law.
As usual, the reason gas isn't cheaper is mostly on the government's interference in the market, NOT the supplier's alleged greed. Greed makes manufacturers push costs down, not up.
Summer blends are alleged to create less pollution and greenhouse gases, even though any high school chemistry student can tell the difference is negligible. What summer blends really do is make gasoline cost $0.01-$0.20 more, depending on location. If Komrade Obama really wanted lower gasoline prices, the first thing he'd do is repeal summer blending requirements. But he doesn't really want anything to cost less. He wants everything to cost more, so he can run to the rescue of you and me, the benighted masses.
The truth about gasoline prices is as complicated as the price of any other commodity. Inputs are unfathomably varied and complex. For example, in addition to summer blend requirements, people drive more in the summer, as they take long-distance car trips for vacations. Also, the weather interferes more with the supply, since hurricanes generally don't happen in the winter. And finally, refineries like to wait until summer to do maintenance. Shutdowns only add to supply concerns.
So what Komrade Obama should really do is repeal the summer blend requirements, force people to drive less, and stop the weather from existing. Given all the promises he made before winning the election, these three should be no problem. I mean, everybody talks about the weather, but it takes a man like our Dear Leader to step in and do something about it. Or maybe he should force refineries to do maintenance in the winter. That's how you fix things, right? You just force people to do everything the "right" way. It's a good thing we have a great, wise leader like Komrade Obama. Otherwise, we'd be driving around, polluting the ozone layer, and paying a lot less for gasoline.
So if Obama gets his way, those found guilty of "market manipulation" – an undefinable crime – will pay $10 million for every day they're alleged to have committed it. Obama also wants to give financial regulators more power (presumably because that's worked out so well in the past).
Come what may, the demand for carbonated, caramel-colored sugar water is as strong as ever...
Coca-Cola's first-quarter earnings were up 7.9%. The World Dominator of the global beverage industry sold higher volumes in every geographic region, encompassing more than 200 countries. Coke's worldwide sales revenue rose 5.9% in the first quarter of 2012, and it sold 5% more cases during that time.
Coke is not without its challenges. Raw materials and other product costs jumped up 10% last quarter, shaving 1.5% off its gross margin, pulling it down from 62.5% to 61%. That's a substantial drop.
But Coke is doing well by (among other moves) selling a greater variety of sizes. I (Dan Ferris) saw this over the weekend when I ran to the convenience store during my stepdaughter's softball game. Instead of the usual 16-ounce bottle, which always leaves me feeling a little bloated, I was able to buy a bottle just half that size. Sure, the unit price was higher, $0.89 a bottle. But I don't really care what it costs. Coke could raise the price 15% or 20%, and I still wouldn't care.
So while Coke's margins contracted on higher costs, I have no reason to change my opinion that it's one of the greatest businesses in the world.
There aren't many "greatest businesses in the world." So when you find one trading at an attractive price, you should put shares in your portfolio... And I've found another one. That's right... I'm recommending a brand-new World Dominating Dividend Grower (WDDG) in The 12% Letter this month (due out this week).
This company does about $40 billion in sales in an industry of more than $200 billion. It has more than 15,000 competitors, and it's much bigger than every one of them. As is often the case with WDDG businesses, simply by being larger and more efficient than all the competition, this company maintains thick profit margins, gushes free cash flow, and has paid a higher dividend every year for the last 35 years. If there's a secret hiding in plain sight in the stock market, this is it: Buying WDDG stocks when they're cheap and reinvesting the dividends for decades is the surest, safest route to wealth.
The company I plan to recommend in the upcoming 12% Letter issue has grown and continues to grow at nearly double the rate of its overall industry. Its market share today is more than three times what it was in 1990... and it's still expanding. We spoke with an industry insider who agreed it's inevitable this company will continue dominating the industry and will definitely be larger 10 years from now than it is today. To gain access to The 12% Letter and receive a great opportunity to grow your income more than 11% per year, click here.
First Solar announced it would cut 2,000 jobs (30% of its workforce) and shutter its manufacturing operations abroad, blaming "deteriorating market conditions in Europe." The company said it will close its operations in Frankfurt, Germany in the fourth quarter of this year. And it will idle four production lines at its plant in Kulim, Malaysia next month. The company's shares were halted in pre-market trading before the announcement... And they're actually up more than 9% at the time of this writing.
We know First Solar's problems are worse than a "deteriorating" Europe... Its products don't work. And warranty claims will eventually sink the company. And the company alluded that it bribes foreign officials in its regulatory filings. You should read the full story in the March 9, Digest. As Porter wrote at the time, "While nothing in life is certain... I am more and more convinced that First Solar will actually go to zero."
China's gold imports continue soaring... Mainland China's imports from Hong Kong rose 20% in February to 39,663 kilograms (about 43.7 tons), according to the Hong Kong Census and Statistics Department. That's below the record 102,525 kg last November. But combined imports for the first two months of this year increased more than sixfold from last year to 72,612 kg.
China is poised to overtake India as the world's largest gold market this year... Consumer demand in the country rose 20% in 2011, compared to 7% for the rest of the world. Hong Kong shipped 427,877 kg of gold to China last year, up more than three times from a year earlier.
We've been tracking China's gold purchases for some time... They're part of a larger secret strategy to corner the world's gold markets. The country is not only using its immense reserves to buy bullion off the global market... it's also scouring the world to buy prized gold assets in the ground.
This is one of the most important stories in the world right now... Our resource specialist, S&A Resource Report editor Matt Badiali, recently completed an extensive report on what China is doing... And more important... why it's buying so much gold. To learn more about what Matt discovered – and find out how to access his report – click here.
In his September 2010 issue of True Wealth, Steve recommended shares of an unusual land holding company, called Texas Pacific Land Trust (TPL). In the late 19th century, the owners of this company controlled 3.5 million acres in West Texas... And they started dumping to raise cash. Today, the company owns a little less than 1 million acres... And it no longer makes its money from selling land. Instead, it collects cash from royalties it holds on oil drilling that take place on its property.
Because this company simply collects royalties, its profit margins are huge... (Its biggest expense is taxes.) And according to the company's charter, it must return all of that money to shareholders. So the company is buying back stock... Over the last decade, it's repurchased an average of 300,000 shares back a year (approximately 3% of the company). That equals a 3% "stealth dividend," as Steve calls it, the equivalent of a "tax-free" dividend. And these buybacks are how shareholders of Texas Pacific Land Trust will get rich. From Steve's original issue...
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If you buy $10,000 of Texas Pacific Land Trust today and do nothing, that investment could theoretically turn into over $600 million. Here's how... |
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The Trust has roughly a million acres of land, and 10 million shares outstanding. It's been using the income from its oil and gas royalties to buy back (and retire) shares at a rate of 300,000 or more per year. |
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The logical end of that, of course, is in 30 years, the Trust will be down to one share that owns all the land and is worth over $600 million. Don't sell... and you'll have that one share. |
Readers haven't made $600 million yet... But they are up 94% on their position in less than two years. As you can see below, the stock hit a 52-week high yesterday.
Speaking of stocks hitting new highs, we're in the midst of a broad stock market rally in America. Stocks hitting new highs this week include Home Depot (home improvement), Intel (semiconductors), J.B. Hunt (trucking), Sherwin-Williams (paint), Simon Property Group (giant mall REIT), and Diageo (booze).
New 52-week highs (as of 4/16/12): Texas Pacific Land Trust (TPL).
In today's mailbag... just where do all those gold rings and necklaces go once you mail them off for cash? Send your e-mail to feedback@stansberryresearch.com.
"Just a thought, I was reading about China being hungry for gold and just wondering if anybody knew who was behind the 'cash for gold' buy back programs. China maybe?? I don't have time to research it, so I thought maybe you could?" – Paid-up subscriber Tim H.
Goldsmith comment: Cash4Gold is a company run by a guy named Jeff Aronson. According to some quick searches, its revenues are around $100 million a year. China's buying in much bigger volume than Cash4Gold (as noted in the bullet above).
"Going from job fair to job fair interview to interview I couldn't find a job but you guys are going to show me how to get rich I love it." – Paid-up subscriber KH
Ferris comment: Get the best possible job you can find and save 10% or more of everything you make. It's harder than it sounds. But if you can do it, you can get rich in the stock market. Saving money is harder than picking great stocks. Nobody ever tells you that because it's much easier to sell advice about the stock market than advice about saving money. But the ability to amass large sums of cash is the first key to becoming a successful investor. Good luck. I'm rooting for you!
Regards,
Sean Goldsmith and Dan Ferris
New York, New York and Medford, Oregon
April 17, 2012