We wrote it, did you short it?
Porter in the November 7 Digest...
Today, U.S. crude oil production is around 9 million barrels per day. At some point in early 2015, U.S. production will surpass the previous high rate of production.
Here's an even more important data point: In 2008, the U.S. hit a modern low production rate of less than 4 million barrels per day. For the year, average production was 5 million barrels. In 2015, it's very likely that production will reach 10 million barrels per day. That's a double in U.S. production in only seven years.
The last time large-scale U.S. oil production grew this fast was back in the 1920s... And as technology continues to improve – and knowledge of these new shale oilfields grows – I have no doubt production will double again, from 10 million barrels per day in 2015 to 20 million barrels per day. I expect this next double will take seven to 10 years.
As Porter explained, the oil industry's ability to double production from 2008 to 2014 (and then to double it again from 2014 to 2022 or so) will have a tremendous effect on everything from the world economy to our standards of living and domestic energy prices...
High-quality operators in good shale fields report a cost of production between $15 and $20 per barrel. Keep in mind... this is only the operating cost. It doesn't include the capital costs (such as buying the land). But it gives you an idea of how much room there is for prices to fall.
I would be shocked if U.S. oil prices aren't below $60 per barrel by next year. They could fall to as low as $4.
Take a look at the price of oil since Porter's prediction...
Oil is down nearly 5% today to less than $61 a barrel – fast approaching Porter's $60 benchmark. In the December 2 Digest, we discussed plunging oil prices and other deflationary forces at work in the world today.
We also discussed falling government bond yields (which means rising government bond prices) around the world. Today, the global benchmark U.S. 10-year Treasury yield is down to 2.2%. We wouldn't be surprised to see that yield go lower – especially considering the laughable government bond yields elsewhere in the world.
Later in that Digest, we discussed the relative value of 10-years, and the opinion of "The New Bond King," Jeffrey Gundlach...
Gundlach pointed out that interest rates on government bonds in Italy and Spain are around 2%, and interest rates in France are around 1%.
Which would you rather accept:
a) 1.8% interest from the Spanish government, or...
b) 2.2% interest from the U.S. government
Gundlach would take the U.S. government bonds – he sees U.S. government bonds as a better relative value.
It's not just government bonds... Gundlach says that, compared to U.S. corporate bonds and U.S. municipal bonds, U.S. government bonds are still "cheap."
Add China to the list of countries grappling with deflation...
Chinese inflation fell to a five-year low of 1.4% in November, down from 1.6% in October. November's reading was the lowest since December 2009. Now, we'll likely see China ease further to combat weak inflation. That's good news for Steve Sjuggerud's bullish China thesis.
And one more central bank deciding to ease is yet another long-term bullish factor for gold. We mentioned gold could have formed a short-term bottom in the November 26 Digest when the Swiss referendum was voted down.
Rejection of the referendum – which would have required Switzerland to buy more gold to support its currency – was a clear bearish signal for gold... But it rallied anyway. That's a bullish sign.
After bottoming at $1,142 per ounce in mid-November, gold whipsawed higher, held onto its gains, and rallied again to $1,231 per ounce... an 8% move.
Silver – gold's more volatile partner – made a more dramatic move... After reaching a low of $14.15 an ounce, silver is up 21% to around $17.10 today.
Yesterday alone, gold rose 3%. One of the biggest reasons was a return to crisis conditions in Greece...
Greece is in the midst of political uncertainty. The European nation could potentially default on its debt, according to the bond markets.
On Tuesday, Greek Prime Minister Antonis Samaras called for a presidential vote.
If Samaras fails to secure support for his candidate, he will be "forced to call a parliamentary election" that ultra-left party Syriza is likely to win, according to Bloomberg.
Syriza said that in order to receive a bailout from the "Troika" – International Monetary Fund (IMF), European Central Bank (ECB), and European Commission – it would scrap the austerity program Greece previously agreed to.
As a result of the political uncertainty, Greek stocks plummeted...
Tuesday was the largest selloff in the history of Greek stocks. The Athens Exchange fell 13% in a single trading session. It's down another 1% today.
In 2012, Greece agreed to a debt swap deal with the Troika in exchange for the second installment of a 240 billion-euro bailout program.
The uncertainty caused the price of Greek bonds to fall, sending the yields on Greece's 10-year bonds higher. (Remember, yields and prices move in opposite directions.)
The yield on Greek 10-year notes is up to 8.7%. Three-year bonds are yielding 9.6%.
This is called an inverted yield curve. Normally, the longer the maturity of a bond, the more it should yield to compensate investors for the longer time risk.
Today in Greece, we have the opposite situation.
Usually when an inverted yield curve happens, it's considered a turning point in the business cycle... and a predictor of a recession.
In Greece's case, it suggests a possible default as investors see greater risk of losing their money over the short term rather than over the long term.
Investors flocked to German 10-year bonds – the European safe-haven – sending yields to a record-low 0.7%.
Meanwhile, yields on Portuguese, Spanish, and Italian debt edged higher on the uncertainty. Portuguese 10-year bonds rose to 2.9%, Spanish 10-year bonds rose to 1.9%, and Italian 10-year bonds rose to 2.1%.
But despite the deflationary threats in the world today, our "disappearing middle class" theory is still working to the advantage of discount retailer Dollar General (DG).
To recap, the Federal Reserve's easy-money policies help the rich (those who own the assets). These people are able to borrow money cheaply and buy stocks, real estate, and other assets that will appreciate with inflation.
Meanwhile, rising prices squeeze the low-wage earners. Their costs for everything from food to rent increase as their wages stagnate (or fall).
That's why Porter and his team of research analysts recommended a group of companies to profit from this trend... such as companies that own rental homes and discount retailers like Dollar General.
Today, shares of Dollar General hit a new all-time high.
Dollar General doesn't sell everything for $1 like Dollar Tree. It sells everyday consumer goods at low prices. And its large physical presence means the average American is in closer proximity to a Dollar General than he is to the nearest Wal-Mart.
As Porter and his team wrote in the December issue of Stansberry's Investment Advisory...
People are migrating away from supercenter shopping, toward a new breed of smaller discount retailers. These smaller discount retailers are already in the local communities. One in particular stands out as the most effective operator. That company is Dollar General.
And Dollar General continues to outperform. The company just reported solid third-quarter results.
Net sales increased 7.8% to $4.7 billion in the third quarter, compared with $4.4 billion in the same period of 2013. Same-store sales increased 2.8% over the same period. It was Dollar General's 27th consecutive quarter of year-over-year increases in customer traffic and average transaction amounts.
The company's most significant growth came from tobacco products, perishables, candy, and snacks. Plus, the company plans to open 730 new stores and relocate and remodel another 875 stores in 2015.
We weren't the only ones focusing on discount retailers this year...
Activist investor Carl Icahn bought shares of Family Dollar and forced the company into merger talks with Dollar Tree. (Dollar General is still in the running to acquire Family Dollar. But Porter's team doesn't expect it to be successful.)
We wrote about Dollar General's $9.1 billion bid for Family Dollar in the August 18 Digest.
Family Dollar rejected Dollar General's higher bid and went with Dollar Tree's lower bid, citing concerns of regulatory approval.
Dollar Tree is working with the Federal Trade Commission to determine how many stores it will have to sell to win approval for the merger. Dollar Tree expects the number to be small.
We never liked the idea of Dollar General taking over Family Dollar. Stansberry's Investment Advisory analyst E.B. Tucker had this to say about Dollar General today...
I strongly feel it's better for Dollar General not to get the merger bid. It would have to close 3,000-4,000 stores and absorb the cost of existing leases until expiration.
Remember... it leases all of its stores, which is part of why we like Dollar General. Plus, the company would be overpaying for Family Dollar on a per-store basis.Dollar General's customer base continues to expand thanks to America's disappearing middle class. We're certain that customer base is big enough for two dollar stores.
Dollar General will prove a tough competitor for the new Family Dollar/Dollar Tree combination.
Family Dollar shareholders will vote on the merger at a December 23 meeting.
Stansberry's Investment Advisory subscribers are up nearly 15% in a year.
We'll end today's Digest with a quick discussion on oil prices.
Falling oil prices and increased market volatility do offer some benefits... Right now, some of the world's best energy companies have gone "on sale." Ask yourself this question... Are some of the biggest and best-run energy firms worth 30%-50% less than they were a month ago? We don't think so...
And we have our eyes on one energy company in particular...
You've undoubtedly heard of this oil giant before. Its shares are down 30% since the middle of the year... And it's paying one of the biggest dividends in the industry – far more than anything you could get by investing in U.S. Treasurys today.
Oil prices could continue to fall. Demand for OPEC oil is on the decline... and unless OPEC nations band together to decrease production, we won't be surprised to see lower prices ahead. Still, OPEC will only let oil fall so low before turning off the pumps.
In the meantime, we'll take the opportunity to buy a blue-chip oil company at a discount... and collect a massive dividend.
Subscribers to Dr. David "Doc" Eifrig's Income Intelligence advisory can refer back to the November issue to read about this opportunity. If you would like to gain immediate access to this recommendation, you'll need to sign up for a subscription to Income Intelligence. We consider it the world's greatest income advisory. It's only $49 per year... And we offer a four-month, 100% risk-free trial.
Click here to learn more about Income Intelligence (without watching a long presentation).
New 52-week highs (as of 12/9/14): ProShares Ultra Nasdaq Biotechnology Fund (BIB), Cempra (CEMP), Dollar General (DG), Express Scripts (ESRX), Fidelity Select Medical Equipment & Systems Fund (FSMEX), ONE Gas (OGS), ProShares Ultra 20+ Year Treasury Fund (UBT), and UIL Holdings (UIL).
Two more subscribers wrote in to tell us about their investing successes following Dave Lashmet's hugely successful Cubist recommendation. Tell us about your big wins by e-mailing feedback@stansberryresearch.com.
"I just recently signed up for Flex... with the lifetime membership. The 1st Alpha review was the one covering CBST. Just got into CBST about 8 or 9 days ago. I wrote 5 Puts (Jan, 2016) at the $70 Put Price. I did not but the Calls. Instead, I bought 800 shares of CBST at average of $76.16. I will realize about $24,000 on this buyout.
"The only problem is that it happened too fast, and because I'm not getting the MRK stock (they're paying cash), it will be a short term gain... ouch! Now understand that I'm not complaining and I can't expect this every month... the rule is to 'be patient.' CBST has paid for my Lifetime Membership... with 'lots' left over." – Paid-up subscriber Ron Schwartz
"Good Morning Stansberry Research: Since you asked for some feedback on Cubist today I thought I would let you know how delighted I am with both Stansberry's Investment Advisory recommendations on Cubist (CBST) and Durata Therapeutics (DRTX). This is not 'the flood of angry e-mails' that you were expecting regarding Durata Therapeutics. Although CBST is off about 4 percent this morning, I am sitting on open gains of 46.7% holding for 84 days (annualized return of 201.8%)!
"More importantly, as you often state, 'There is no teaching, only learning.' Using the knowledge that I have gained by subscribing to several Stansberry publications over the last several years, I have learned how to enter positions to reduce both initial cost and risk utilizing buy-limit orders. On the DRTX trade, I entered a buy-limit order that executed at $14.80 on September 12, 2014. This was about six weeks after the August Stansberry's Investment Advisory recommendation. It is important to point out that Stansberry's Investment Advisory clearly stated, 'Please don't chase this stock above our price limit' (which was set at $16 per share in the August Stansberry's Investment Advisory).
"I exited the DRTX trade on October 9 at a sell price of $23.70. The gain on DRTX was 60.1% holding for 27 days (annualized return of 812.9%)! This was by far my best trade of 2014. SIA got it right. The lesson is that you occasionally have to wait until the 'Stansberry Pop' has receded to enter the recommended trade. Of course, sometimes you will miss the potential opportunity. However, when these trades work, they are simply spectacular.
That is the learning. One word you often use is critical in this context: 'Patience.'
"A huge 'Thank You' to Stansberry Research for both the learning and the specific recommendations to implement the learning. Incidentally, I just ordered three copies of the Stansberry Research Starter's Guide for New Investors. One copy for me (to review the basics again) and a copy for each of my young-adult children who are just starting the lifetime (investment) learning process. I want to get them started on the right track!" – Paid-up subscriber Tom Sopchak
Regards,
Sean Goldsmith
Baltimore, Maryland
December 10, 2014