And 2012 wasn't even Tepper's biggest year. In 2009, he earned $4 billion after loading up on bank stocks following the subprime crisis. His fund returned 132% that year.
He remained bullish through 2010 and 2011... In September 2010, after the Federal Reserve declared it would do whatever was necessary to support the economy, Tepper told the financial-news network CNBC: "What, I'm going to say, 'No Fed, I disagree with you, I don't want to be long equities'?... We're a bond place, but we changed up to a little bit more equities recently."
Tepper is still bullish today, and he continues to cite the Federal Reserve as the catalyst... "The guys that are short, they better have a shovel to get themselves out of the grave that they're in," Tepper said on CNBC this week.
Tepper believes – as we do – that the Federal Reserve's quantitative easing will push asset prices higher. If anything, he's worried prices will move too high. "If we don't taper back [on quantitative easing], we're going to get into this hyper-drive market," he said.
"I've written many times over the past decade that I consider Peak Oil to be one of the greatest intellectual frauds ever perpetrated."
Digest readers know Porter has always argued "Peak Oil" – the idea that U.S. oil production was in permanent decline – is a farce… He's written more about it than any other analyst we know. So we're not surprised Forbes mentioned Porter's arguments in an article about Peak Oil. You can read the Forbes article here.
Longtime readers know we follow a simple mandate when investing in natural resources: You're either a contrarian or a victim.
We've spent a lot of time describing the ideal approach to investing in natural resources. Sectors like oil, precious metals, agriculture, and base metals are "highly cyclical." They go through huge booms and busts. Get into the booms early and avoid the busts, and you can make a fortune in the resource market.
Unfortunately, few people have the emotional software for this approach. Buying a natural resource at the right time involves buying assets that are deeply out of favor. Avoiding busts involves selling assets when they are popular with the mainstream. While following this "anti-crowd" strategy makes the average investor uncomfortable, it can be a spectacular way to double or triple your net worth.
We bring this up because our friends at Casey Research believe they've found a huge opportunity to build wealth right now in natural resources. Like most huge opportunities, we're sure most people will let it pass by. Still... we know some contrarians read the Digest... That's why we're passing along details on how you can learn about this huge opportunity – for free – from industry insiders.
When most people talk about U.S. "energy independence," they only think about our importation of foreign oil. This is a simplistic view. What most people don't realize is we are much more dependent on foreign uranium than foreign oil. Nuclear plants produce the electricity that powers one in five U.S. homes. Uranium is the fuel that fires those plants.
More than 40 years ago, the U.S. was the world's largest producer of uranium... as well as its largest consumer. The U.S. is still the biggest consumer, but domestic uranium production has plummeted.
For more than 20 years, we've purchased the bulk of the uranium needed to fire our plants from a post-Cold War agreement with Russia. This program, which breaks down old warheads into usable fuel, is called "Megatons to Megawatts."
The program will end this year. That means Russia will be free to sell its uranium to the highest bidder. Huge, energy-hungry nations like China and India are ready to buy up all of the supply. Despite the negative press nuclear energy has received since the 2011 meltdown at Japan's Fukushima Daiichi plant, it's still a major part of the global energy mix. Yes, the world is addicted to oil. But it's also addicted to uranium.
Casey Research analyst Marin Katusa – who just won 100 ounces of silver from Porter in a bet on the direction of oil prices – believes uranium demand will soar in the coming years. He points out that China, for example, plans to build 200 new nuclear reactors... which will give it twice the number of nuclear plants as the U.S.
Despite the huge source of fresh demand on the horizon, uranium prices are horribly depressed. The market is still reeling from the massive selloff that came after the Japanese earthquake, when Japan decommissioned almost all of its nuclear power plants. Spot prices are lower than the cost of new production.
It's a situation that can't last. As our friend and resource legend Rick Rule puts it: "There are only two options: Either the uranium price goes up... or the lights go out."
So right now, the commodity is deeply depressed, selling for less than the cost of new production. But huge new demand is building… It's a formula for making huge returns in the commodities market.
The story has more moving parts than we can cover in one Digest. That's why we encourage you to check out Marin's ambitious uranium project. He has assembled former U.S. Secretary of Energy Spencer Abraham... Lady Barbara Judge, chairman emeritus of the U.K. Atomic Energy Authority... former Canadian Natural Resources Minister Herb Dhaliwal... and master resource investor Rick Rule to discuss the big supply crunch (and coming price spike) in uranium. With this group, you're hearing things you've never heard before from the highest levels.
Marin and his guests will cover the big picture in uranium in a free webinar that premiers on Tuesday, May 21 at 2 p.m. Eastern time. Attendees will also get a chance to receive – for free – Marin's full report on the coming uranium spike and the three best ways to play it.
Marin has a tremendous track record with getting these "big picture" calls right. And when Rick Rule is bullish on a commodity, we're always interested to hear more. That's why we urge you to look over this video and report. It's zero obligation and totally free. You can register for the event right here.
Tourism-related spending is expected to rise 3.6% this year, according to Bloomberg, outstripping projected U.S. economic growth of 2%. And popular destinations like Las Vegas are reaping the benefits. Our favorite economic indicator for Vegas is casino operator MGM Resorts (MGM).
MGM was destroyed in the financial crisis... Shares fell from nearly $92 in October 2007 to less than $2.50 in March 2009. But things are now on the mend... MGM shares hit a two-year high Tuesday.
"The domestic customer is coming back, they're spending a bit more money," MGM Chief Executive James Murren told Bloomberg. "When you see a strong housing number, that bodes very well. People feel they're wealthy." Home prices are rising at their fastest rate in seven years according to the S&P/Case-Shiller Index of 20 U.S. cities.
Porter and I filed a Digest Premium about Las Vegas and MGM while we were visiting Sin City for the Value Investing Congress. We discussed how inflation will benefit the city and MGM:
If any city in America is a good barometer of inflation, it's Las Vegas. As long as inflation continues, Vegas is going to boom. But when things start to fall apart... as they will... this place is going to become a ghost town.
If you don't believe we're in a period of unprecedented inflation, answer this: What is the largest privately financed real-estate development in the history of the United States?
It's called CityCenter. It's where I stayed during my visit. It's in the heart of Las Vegas. The casino-retail-housing complex encompasses 16.7 million square feet. It has something like 6,600 hotel rooms and another 900 condominiums. It was supposed to cost $4 billion and ended up costing about $8.5 billion.
It's incredible. The largest privately financed real estate development in the history of our country is built on gambling. It's a hallmark of the rising speculative nature of society that goes hand-in-hand with great monetary inflations.
As the currency depreciates, people engage in more and more speculative activities (like gambling). We're already seeing the weakening currency force folks to move their savings into stocks, bonds, art (more on that later), and other riskier assets. Gambling merely represents the extreme case.
And as inflation pushes more money into gambling… the value of the real estate on MGM's balance sheet will rise.
Porter originally recommended MGM in the July 2012 issue of Stansberry's Investment Advisory. He considers MGM's Las Vegas strip properties a one-of-a-kind "trophy" asset. As he wrote at the time…
[MGM] owns most of the Las Vegas strip, including half of City Center, a $9 billion hotel and casino development.
MGM owns a host of similar, one-of-a-kind properties in the world's leading gambling cities, including Macau, the only place in China where gambling is legal.
Against its assets, MGM has borrowed $13 billion. For many companies, this would be too much debt... But in MGM's case, the quality of its assets is so high, the company can easily afford the $1 billion a year it spends in interest. It earned almost $3 billion in profit last year on top of its interest expense. And because so much of the capital it uses is borrowed, the return on equity for investors is astounding – more than 50% last year.
What changes, as you know, is the market's appreciation of these assets. But the assets themselves don't change much. They can always be used as collateral. They always turn a profit. MGM proved this by surviving the crisis. Nevertheless, the stock market hasn't noticed yet. Sooner or later, it will.
All we have to do is wait... The rest will take care of itself.
Investment Advisory subscribers are up 63% on Porter's MGM recommendation.
Like the action in Las Vegas, the price of rare collectibles (wine, jewelry, fine art) is also a good indicator of inflation. And based on the results from last night's Sotheby's auction, we're experiencing some inflation...
A canvas by modern artist Barnett Newman, consigned by Microsoft co-founder Paul Allen, sold for $43.8 million at a Sotheby's auction last night in New York City. The price smashed Newman's previous auction record of $22.5 million, set at Christie's last May.
"The speculative element is returning to the market," Jonathan Binstock, senior adviser in postwar and contemporary art at Citi Private Bank, told Bloomberg. "There's more money to spend on riskier opportunities, ones that would have seemed unappealing just a few years prior."
Artist Gerhard Richter's 1968 work "Domplatz, Mailand" ("Cathedral Square, Milan") sold for $37.1 million, the highest price at auction for a living artist's work. In total, auction records were set for four artists (including Newman and Richter).
As we've discussed in Digest Premium, collectibles (art in particular) are a great way to protect your wealth from the government and transfer wealth over borders. From the February 14 Digest Premium:
Owning collectibles offers one major advantage – one that I think drives 90% of the demand for collectibles: It's a great way to protect your wealth from the IRS. People know that when they die, the IRS won't have any idea what is hanging up on their walls or hiding in their vaults. So they hide money in these trophies to give to their children to avoid estate taxes. Mind you, I'm not passing judgment on these actions, nor am I recommending them... I just believe that's why a lot of demand for collectibles exists.
Collectibles are also easily transferable across borders. You can take a Picasso on a private jet and move $100 million offshore. And no one even knows you have it.
New 52-week highs (as of 5/14/13): Advent Claymore Convertible Securities & Income Fund (AVK), ProShares Ultra Nasdaq Biotechnology Fund (BIB), Berkshire Hathaway (BRK), WisdomTree Japan Hedged Equity Fund (DXJ), Fidelity Select Medical Equipment & Systems Fund (FSMEX), iShares Dow Jones U.S. Insurance Index Fund (IAK), iShares Nasdaq Biotechnology Index Fund (IBB), iShares Dow Jones U.S. Home Construction Index Fund (ITB), AllianzGI Equity & Convertible Income Fund (NIE), PowerShares Buyback Achievers Fund (PKW), ProShares Ultra Health Care Fund (RXL), Sequoia Fund (SEQUX), ProShares Ultra S&P 500 Fund (SSO), V.F. Corp. (VFC), Johnson & Johnson (JNJ), Prestige Brands (PBH), Targacept (TRGT), Automatic Data Processing (ADP), MGM Resorts (MGM), RPM International (RPM), 3M (MMM), Corning (GLW), American Financial Group (AFG), Loews (L), Chubb (CB), Travelers (TRV), Blackstone Group (BX), Becton-Dickinson (BDX), Medtronic (MDT), Chart Industries (GTLS), Cheniere Energy (LNG), Chevron (CVX), Union Pacific (UNP), Washington Real Estate Investment Trust (WRE), Wells Fargo (WFC), CVS Caremark (CVS), Emerson Electric (EMR), Qlik Technologies (QLIK), Altria Group (MO), and Teekay LNG Partners (TGP).
In today's mailbag, a clarification on our gold position... Send any questions or comments to feedback@stansberryresearch.com
"You have been on a soap box about nothing goes up every year for 12 years, gold needs a break... repeat... repeat. Then last night we get: 'This is your last warning. Make sure you've got physical gold, not just the paper receipt.'
"And of course we had your 60 minute 'Goldscam' audio over the weekend. That was calming!
"I get it: Own physical gold! But why the urgency all of a sudden? Did something cross your desk? Inquiring minds want to know." – Paid-up subscriber Vic P.
Goldsmith comment: We've been saying for months that even though gold is expensive, if you don't own any, you have to buy... We view gold as insurance against what the government is doing to paper money. Just as storm insurance premiums go up before a hurricane, gold prices reflect the massive quantitative easing currently under way.
As for owning physical gold over paper gold investments, we discussed that theory this week in Digest Premium. In short, the amount of paper gold being traded in the futures market is 400 times greater than the amount of physical gold backing it up. Should the world lose faith in paper money, it could spark a "run on gold." At that point, nobody will be willing to exchange their gold for dollars. And in that case, you'll want the real bullion... not a piece of paper promising you a certain amount of gold.
Porter recently released a video describing the situation in detail. To view it, click here.
Regards,
Sean Goldsmith
Miami Beach, Florida
May 15, 2013