Never Say No to Money

UFOs, Bigfoot, JFK – and your 401(k)?... Substantial restrictions, but not a scam... 'Never say no to money'... Other examples of tax-advantaged savings and investing... A current opportunity in the stock market... Like tobacco in the early 1990s... A shot at 'probably some of the best [returns] in the market'...

Like most Americans, I (Dan Ferris) love a good conspiracy theory...

A grainy video that appears to show UFOs flying through the night sky...

A reported sighting of Bigfoot by a couple of hikers walking through a national park...

Who really shot John F. Kennedy?...

I'm here for it all.

But I'm also a realist... I know that not everything in life involves a conspiracy theory.

Take this question I received from a Stansberry Investor Hour podcast listener this week...

I've never heard it before, and it caught me by surprise. As Taylor S. asked...

Is the 401(k) a scam?

Recently, I considered withdrawing my 401(k) completely for various reasons. I have since learned from Vanguard that...

• I can't withdraw it EVEN if I wanted to pay the tax and early [withdrawal] penalty based on my compan[y's] contract

• I have to prove a hardship

• I have to be 59 1/2 (if they don't extend the age by my retirement)

• If I take a loan against it, I can only take half and then I will owe it back

• I can't move it unless I leave my job

• I can only contribute up to their limits

• And I can only buy into the funds available to me with fees that are not clearly displayed

With all these restrictions, it got me thinking... is it even my money if I can't freely access it?

I can't imagine wealthy people have or need 401(k) [account]s, so I think it's safe to assume only the middle class does.

Are we locked in just so we can stabilize the market?

I feel like a pawn.

Let me know your thoughts. Thanks!

First and foremost... the 401(k) is not a scam.

Yes, it comes with all kinds of restrictions like the ones that Taylor (and I'm sure countless other Digest readers) has experienced. And as a creation of the government, it's highly unlikely to be without flaws.

But it's still your money...

You're not a "pawn" if you own a 401(k) because nobody forced you to participate. And it's likely that the terms were disclosed to you in writing before you invested a dime. It's a substantial tax break for your money... so naturally, it comes with substantial restrictions.

As with most things that come from the government, the 401(k)'s creation was politically driven. But if politicians did it to "stabilize the market," they've failed miserably... A market that crashes 32% in a month, then rallies 100% in the next 15 months – as the benchmark S&P 500 Index has done since March 2020 – doesn't strike me as a paragon of stability.

Even if you don't have one, you probably know how a 401(k) works...

You contribute regularly to an investment account via pretax payroll deductions. You choose where to invest the money, usually from among various mutual funds or other alternatives offered by the investment firm administering the plan. (For example, my plan's administrator is Fidelity, and the choices are all Fidelity funds.) And since it's a pretax contribution, you avoid some of the negative compounding results caused by taxes.

If you plan on saving and investing for the long term, a 401(k) is a good idea. (And by the way, if you're not saving and investing for the long term... you're making a huge mistake!)

One more thing about 401(k) accounts...

I know from personal experience that Taylor's assumption that "wealthy people" don't use them is incorrect. The wealthiest man I know has one... And I'd bet money that he's the rule, not the exception.

Wealthy people want to hang on to what they have. And of course, they'll always let the government drop a tax break in their laps. Wouldn't we all?

The attractiveness of the 401(k) is related to a valuable lesson I learned while working through college...

(I've told you about this idea before... But since it involves such a powerful life lesson, it bears repeating. And I'll come at it from a totally different angle today than in the past.)

The lesson came during a conversation I had with the late, great Lee Garfield... He was the founder of Baltimore-based ice cream emporium Lee's Ice Cream Factory.

Lee's made its own rich, gourmet ice cream in small batches... The business also pioneered the use of Oreo cookie pieces in its ice cream.

While attending nearby Towson University, I worked the evening shift at the original location in Towson, Maryland... And I briefly served as the first plant manager once the company centralized production for all of its stores.

One day, Lee dropped by the Towson store to chat with me...

Though I no longer remember the exact specifics, I must have told him that I chose to refuse some type of financial benefit. I distinctly remember that part because I'll never forget how he turned, looked me in the eye, and said... "Never say no to money."

Sure, I realize it isn't the best advice unless you qualify it by adding "as long as you don't have to do anything wrong to get it." But Lee implied that at the time... and I understood exactly what he meant. Another implication was... "Don't make life more expensive than it already is. Exploit the advantages you're given."

Summing up my response to Taylor S.'s questions, I'll paraphrase Lee...

Never say no to tax-advantaged saving and investing. Keep your 401(k). Keep using it to your advantage. And don't withdraw from it until you can do so without penalty.

It's designed to be a long-term tool to help you in your later years. Use it that way.

The realm of personal finance includes other examples like the 401(k), too...

Take the 529 college savings plan, for example...

In the most common iteration of this plan, you make pretax contributions to an investment account, and the money remains untaxed as long as you (or your dependents) use it to pay for college tuition. Another type of 529 plan allows you to prepay college tuition (usually to an in-state, public college). You can also avoid paying taxes on the income from Series EE U.S. savings bonds if you use them to pay for college tuition.

If you're planning to invest for retirement or fund a college education anyway, why not cut your tax burden while you're at it by using a 401(k) plan or a 529 plan?

Perhaps my favorite example of "money I can't say no to" in the personal-finance realm is the mortgage interest deduction... I need to pay to live somewhere anyway, so why not reduce my tax bill in the process?

The government has all but forced these benefits into your hands. Some folks think the government is like the mafia (and I don't disagree!)... But in these particular instances, just like Don Corleone in The Godfather, it has certainly made me an offer I can't refuse.

It's better to exploit these offers for all they're worth than to say no to the money. (I hope Lee is smiling down on me right now. He taught me well.)

Of course, personal finance isn't the only place in your life where you need to learn not to say no to money...

The same benefits are available (indirectly) in the stock market, if you know where to look...

My favorite example right now is the energy industry.

As regular readers know, the biggest trend in this industry today is the flow of capital out of fossil fuels (like oil and gas) and into forms of renewable energy (like solar and wind).

Let's skip the political debate. No matter what side of the aisle you're on, you can't deny the fact that massive sums of capital are already flowing into renewable power sources...

In 2014, just 13 multinational corporations had committed to using 100% renewable energy sources. As of this year, 320 multinational corporations have made the pledge.

Plus, eight out of 10 of the world's largest economies have committed to net-zero carbon emissions by 2050. And the U.S. is expected to soon become the ninth.

Meanwhile, a lot of investment money is being routed to these endeavors, too...

BlackRock (BLK), the world's largest asset manager, has roughly $9.5 trillion under management. Last September, at the annual Morningstar Investment Conference in Chicago, BlackRock CEO Larry Fink said that by the end of last year, all of the company's portfolios would start using metrics based on environmental, social, and governance guidelines (so-called "ESG investing").

Even if the announcement is largely window dressing, it wouldn't take a huge percentage of nearly $10 trillion to move the needle on renewables – which have already attracted roughly $300 billion annually in new investments over the past several years.

And of course, this trend isn't going to just disappear anytime soon... Investment bank Goldman Sachs projects that $1.3 trillion will go into renewables between now and 2025.

Similar to your 401(k), all that private capital will be getting a boost from the government...

Earlier this week, Democrats in Congress proposed a $3.5 trillion spending plan. As the Associated Press put it, the plan is designed to...

Move the country toward a carbon-free electric grid by 2035, with 100% of U.S. electricity powered by solar, wind, nuclear, and other clean energy sources.

Type "renewable energy incentives" into a search engine and you'll be busy all day reading the different ways the government wants to put money in your pockets.

But we need to spell out a couple more twists and turns before we can truly channel Lee Garfield's edict to never say no to money...

First, we must understand that money flowing into renewables will not flow into fossil fuels...

That sounds simple, but it's worth spelling out clearly... Moving forward, the renewables movement will therefore lead to less capital investment in fossil-fuel production.

A February 2020 paper by the Institute for Energy Economics and Financial Analysis paints a picture of an industry in long-term decline. As the think tank noted...

In 2019, the five largest integrated oil and gas companies – ExxonMobil, [Royal Dutch] Shell, Chevron, Total and BP – spent a total of $88.7 billion on capital projects, down nearly 50% from... 2013. Not since 2007 have the capital expenditures, or capex, among the five companies been so low.

The paper cited minimal investments in renewable energy as a contributing factor in the decline. In other words, the major oil companies weren't participating in the inevitable transition to more renewables.

That's all changing now...

Last August, BP (BP) announced a 10-fold increase in "low carbon investment by 2030, with up to 8-fold increase by 2025." The company also said that it hopes to make "emissions from [its] operations 30% to 35% lower by 2030."

And it isn't the only one...

Royal Dutch Shell (RDS-B) made a similar announcement in February of this year. The company pledged to reduce its carbon emissions to "net zero" by 2050.

ExxonMobil (XOM) shareholders voted for two new directors on May 26, both from the climate-focused hedge fund Engine No. 1. The fund added a third seat on the board shortly after that. Engine No. 1 had waged an activist campaign based on the idea that ExxonMobil's emphasis on fossil-fuel production was an "existential risk." As the Financial Times put it...

The activist victory marked a huge breakthrough in campaigners' efforts to put the climate crisis at the center of American capitalism and the global oil business, said supporters.

This is where it gets really interesting for investors...

When the government labels an industry as 'dirty' or 'unhealthy,' something strange and wonderful happens...

Tobacco companies provide a great example...

They were targeted in the 1990s because cigarette smoking causes lung cancer. The government outlawed advertising their products on TV back in 1970, but billboards weren't ultimately banned until 1999... And existing tobacco companies were required to make billions of dollars in payments to municipalities across the country over a period of 25 years.

At the time, you probably wouldn't have guessed that the tobacco companies would become fantastic investments for the next couple of decades, but that's what happened. The tarnished image – including a long-term secular decline in smoking – didn't hurt them as investments. It probably even helped...

You see, the tobacco companies had well-established brands. And with the government finally making all forms of advertising illegal, it became virtually impossible to establish new competing brands.

Investors made a ton of money if they only stayed the course... For example, tobacco giant Altria (MO) has returned more than 1,700% in capital gains, regular cash dividends, and spinoffs since 1998. And that's not including the subsequent capital gains and dividends of the spun-off companies like Kraft and Philip Morris. (Ever wonder why Facebook founder Mark Zuckerberg seems so eager for Congress to regulate his business? It's because he doesn't like competition.)

Now, the government is creating a similar dynamic for fossil fuels...

It might not be banning advertising like it did with tobacco companies. But I believe the end result for investors will be the same...

The government wants to discourage fossil-fuel investment. But in effect, it's strongly discouraging new competition for existing oil companies – and it's doing so as overall energy demand continues to grow...

Yesterday, the International Energy Agency ("IEA") announced that global electricity demand is growing faster than renewable energy can fill it. Because of that, the IEA concluded that it "will require more power to be generated from the burning of fossil fuels."

In other words, fossil fuels aren't going away. And completely replacing fossil fuels with renewables by 2050 is highly unlikely to happen...

If you tried it in the U.S. with some combination of wind and solar, you'd fill (i.e., ruin) several hundred miles of pristine, wide-open spaces with millions of tons of steel in windmills and toxic chemicals in solar panels.

And if you tried to replace fossil-fuel power plants by building giant 10-megawatt wind turbines offshore up and down the East Coast of the country, one Category 4 hurricane would leave millions of people without electricity for months.

It would be an environmental nightmare. It's effectively an engineering impossibility. And it's very likely far too expensive to even contemplate. (Keyboard cowboys... Don't bother. I haven't said anything controversial.)

My point is this... We will never replace fossil fuels with renewable energy by 2050.

And as a result, fossil fuels are a more attractive investment today...

Because it's harder for the industry to attract investment dollars, it's worth your money.

Last week, on the Stansberry Investor Hour, portfolio manager Stan Majcher of Hotchkis & Wiley discussed how it's harder to finance new oil production – and why that will lead to higher returns for investors. He used the example of electric vehicles ("EVs") to suggest that oil demand won't fall nearly as much as renewable-energy hyper-bulls assume...

If you think about the cars [and] trucks, roughly they turn over about 7% a year. So maybe the asset life is about 15 years... half of oil demand is transport. Generously, including trucks, etc., today, EVs are [a] single-digit share of the total vehicles sold. Let's assume they were 10%...

So if you multiplied [it all together]... the demand [for fossil fuels] would decline [slightly]. It's really not the very, very large numbers that people assume.

It takes a long time... I think it's arguable that a lot of these technologies are very capital intensive, very long lead time, very energy intensive and we'll consume actually a lot [of] oil in the path to getting [to more renewable energy supply].

Based on everything we discussed, Majcher said he expects around 10% to 20% annualized returns for oil and gas stocks... He called them "probably some of the best in the market."

Majcher also noted that current stock prices imply crude oil in the range of the low- to mid-$50s per barrel... except that oil is around $72 per barrel today. "So we think the returns appear to be pretty high no matter what part of the [oil and gas] market you're looking at."

Majcher brought up a great point when comparing oil and gas stocks with other beloved stocks these days. As he explained...

When I look at the rest of the market, to me, the equity cost of capital with companies trading at 30, 40, 50, 100 times earnings is very low. And there's a lot of risk.

And yet, investors can't get enough of them.

So it is a very strange world where I think there are low-risk, high-return opportunities [in oil and gas stocks], and there's a lot of low-return, high-risk opportunities [elsewhere].

As Majcher spelled it all out during our discussion, it became clear to me...

So the counternarrative, then, is, "Go ahead. Push renewables down our throats and discourage fossil fuel production and investment if you must. But you're just setting up a fantastic contrarian play and a fantastic opportunity to get in that third pricing regime, that third investment regime of higher returns... for some period of time."

In other words... go ahead, make me a bunch of money in oil stocks by discouraging investment in fossil fuels. By doing that, you'll only reduce the supply even as demand continues to grow. You're forcing another opportunity that's set to perform the way tobacco did for the past two decades.

When you add everything up, it's a tremendous setup for oil and gas investors...

The price of oil has more than tripled off its COVID-19 panic bottom. We're already beyond $70 per barrel... Would anyone be surprised if it hits $100 again as early as next year?

The massive push into renewables and subsequent reduction in fossil-fuel investment is not exactly a 401(k) or a 529 plan, but it's close enough... It's money you shouldn't say "no" to.

If Lee Garfield were alive today, he would certainly love oil and gas stocks. Higher returns from these energy producers will likely continue for years to come... perhaps through 2050.

Buy oil.

Inflation Is Far From Its Peak

"This so-called transitory inflation will keep running for multiple quarters... We haven't seen the peak and we may see a rate of 6% to 9%," says Jon Najarian, the founder of Market Rebellion. He explains why to our editor-at-large Daniela Cambone and also shares the best sectors to trade right now...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 7/15/21): Automatic Data Processing (ADP), American Homes 4 Rent (AMH), AutoZone (AZO), Hershey (HSY), Coca-Cola (KO), Novo Nordisk (NVO), TFI International (TFII), Visa (V), and Waste Management (WM).

The mailbag is quiet heading into the weekend. Do you have a comment or question? As always, you can share your thoughts, comments, and observations with us at feedback@stansberryresearch.com.

And one final note as we head into the weekend...

As we wrote about yesterday, Crypto Capital editor Eric Wade has an exciting new (and free) event coming up on Wednesday, July 21, at 8 p.m. Eastern time. He's calling it the "Crypto Cash Summit," and it's a first-of-its-kind event...

In short, Eric plans to detail an area of the cryptocurrency world that 99% of Americans either haven't heard of or haven't invested in yet... But according to Eric, it's one that can give you the chance to generate up to 35% of your annual income, plus the potential to earn 1,000%-plus capital gains.

If you're interested at all in cryptos – and frankly, even if you're not yet – this event will definitely be worth tuning in... And just for registering, you'll get free access to Eric's brand-new three-part "Master Class." Save your spot for Eric's event right here.

Good investing,

Dan Ferris
Eagle Point, Oregon
July 16, 2021