The 'End of America' is accelerating...

The 'End of America' is accelerating... Russia wants out of the dollar... Why the Ukraine crisis won't de-escalate...

 

 The U.S. dollar is slowly losing ground as the leading currency in foreign trade...

 

As the world's reserve currency, the majority of global trade must be settled in dollars. If, say, Spain wants to buy oil from Saudi Arabia, it must first change euros into dollars to purchase the commodity.

 

Central banks also amass a huge portion of their foreign reserves in dollars because of its reserve status.

 

 But as we've been covering in the Digest, more and more countries are finding ways to work around the dollar...

 

For a good review of this key facet to what we call "The End of America" – our name for the end of the dollar's status as the world's reserve currency – reread the February 28, 2014 Digest.

 

 China holds most of its nearly $4 trillion of foreign reserves in U.S. dollars... And that makes China vulnerable. As the Federal Reserve continues to debase our currency, China's holdings are worth less and less.

 

China isn't sitting idle, letting U.S. politicians destroy the value of its cash. Already, it has trade agreements with Brazil, the European Union, Australia, and other nations that allow for transactions outside of the dollar.

 

 And the yuan, China's currency, is gaining in international trade. As we wrote on February 28:

 

Last year, the yuan surpassed the euro as the second-most-used currency in the world... It made up 8.7% of global trade in October 2013 compared with 6.6% for the euro. In 2012, the yuan only made up 1.9% of trade compared with the euro's 7.9%.

 

 And consider this: In April 2013, only 0.7% of payments between the U.S. and China/Hong Kong were settled in yuan. This April, that number increased to 2.4%. That is an astounding 229% increase in one year.

 

And we bet that number will increase. China currently settles an estimated 13%-15% of its global trade in yuan. And HSBC expects that number to increase to 30% by the end of 2015.

 

 We're not saying the yuan will replace the dollar as the world's reserve currency... at least not any time soon. However, the International Monetary Fund (IMF) stated that the yuan is already a "de facto" reserve currency based on its level of acceptance in more than 40 central banks already.

 

 And now, thanks to the Ukraine crisis, Russian companies are preparing to switch their contracts to the yuan and other global currencies... They fear U.S. sanctions could keep them from accessing dollars.

 

"Over the last few weeks, there has been a significant interest in the market from large Russian corporations to start using various products in [yuan] and other Asian currencies and to set up accounts in Asian locations," Pavel Teplukhin, head of Deutsche Bank in Russia, told the Financial Times.

 

 The CEO of Russian bank VTB, Andrei Kostin, said expanding into non-dollar currencies was one of his bank's "main tasks."

 

"Given the extent of our bilateral trade with China, developing the use of settlements in roubles and yuan is a priority on the agenda, and so we are working on it now," he told Russia's President Vladimir Putin in a briefing. "Since May, we have been carrying out this work."

 

Even oil giant Gazprom is discussing switching contracts out of dollars with its clients.

 

 You may think Russia's decision to switch out of dollars is a "one-off" reaction to U.S. sanctions. S&A Global Contrarian editor Kim Iskyan thinks it's the beginning of "a structural shift."

 

Kim sent us this note today:

 

Russia is not looking to take some air out of the dollar to get back at the U.S. Instead, Russia recognizes that over the long term, it's a terrible idea for its economy to be tied to the dollar.   As things stand now, any further escalation of Ukraine-related sanctions against Russia (which are likely) would threaten to freeze Russia out of the global financial system, precisely because its economy (like those of most of the rest of the world) is reliant on the dollar as a medium of exchange. If you can't use the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a global network for financial transactions, and you can't send money anywhere, you can't use the dollar... and you're in big trouble.   So diversifying away from the dollar is the only thing that makes sense. Russia and China are even talking about forming their own rating agency... It's not a stretch to see, in a lot less time than most people think, two parallel financial systems operating in the world.

 

 As Kim noted above, he doesn't believe the tensions between Russia and Ukraine are easing, even if it appears that way on the surface...

 

Putin and Ukrainian President Petro Poroshenko had a brief encounter during D-Day commemorations in France last week. Poroshenko was inaugurated over the weekend without major incident... a few weeks after Putin made conciliatory noises about him possibly being someone Russia could work with. As Kim noted, that was a lot more upbeat than Russia's previous stance. And he pointed out…

 

Most Russian troops have been removed from the Ukrainian border, as Putin promised (although it wouldn't take much to move them back there). And contrary to expectations, Gazprom didn't turn off the gas as of June 1, although it remains to be seen whether negotiations on a new payment scheme for Ukraine to pay back what it owes will prevent a shutdown later.

 

Nevertheless, fighting in the south and east of Ukraine has intensified, Kim said. "Russia continues to insist that it is shocked – shocked! – that anyone should think that they're behind pro-Russian separatists," he said.

 

And in the bigger picture, Kim points out Poroshenko's aims are diametrically opposed to those of Russia. "There will be no compromise with anyone on the question of Crimea, [Ukraine's] European choice and our state governance," he said over the weekend. As it happens, those are exactly the issues that matter the most to Russia.

 

Russia isn't going to give back Crimea, which it invaded in February. And Russia will never sit by and let Ukraine join the Western military alliance NATO (or the European Union). Ever since the end of the Cold War, Russia has watched the west slowly creep into its former sphere of influence in Eastern and Central Europe. Ukraine, which borders Russia, is the last stand, and Russia will not tolerate western troops on its border.   Finally, Russia will probably insist that Ukraine rewrite its constitution so that the south and east parts of the country will have veto power over any attempts by Ukraine's federal government to join NATO. So the two sides – what Russia wants, and what Ukraine's new president is willing to concede – look like they don't overlap at all.

 

 

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 In today's mailbag… a young reader expresses gratitude... and an interesting way to trade Tesla. Send your feedback to feedback@stansberryresearch.com.

 

 "I've always wondered what the average age of your subscribers is and what the range might look like. I stumbled across Porter's 'End of America' through a 'theblaze.com' link through my iPod touch one day during a college lecture and it instantly clicked with me – that this firm didn't operate like your typical financial advisory, this was someone (Porter) I could trust and learn from. I subscribed to Stansberry's Investment Advisory and read years' worth not knowing when or if I'd have a dollar to invest.

 

"Since 2010, I have read countless issues, old and present to learn as much as I can. Including Stansberry's Investment Advisory, I have also subscribed to S&A Resource Report, True Wealth, and Small Stock Specialist. I believe each offers incredible, but also different value. I get a blend of natural gas & oil, emerging markets, ETFs, commodities and stocks that will lead Curzio's 'connected world.'

 

"A year ago my mother entrusted me with an old 401k that had been sitting in a money-market savings account for years. Thanks to all the hard work from the S&A team, I have grown that portfolio by 17% in a year's time. Recently, I decided it was time to learn about options and subscribed to Stansberry Alpha, which by the way, came with an incredible welcome package and a free year of Stansberry International.

 

"I have taught my mother that keeping all her stock investments with one of the larger investment banks maybe wasn't the safest nor smartest choice. She agrees and we are now in the process of moving money over to a brokerage firm of which I will manage. I turned 26 last month, and although I only have a bachelors, I have about 5 or 6 years of knowledge passed on from the mighty team members at S&A, which I know for a fact arms me with more ability then most of the licensed bankers I've come across so I'll confidently take my chances." – Paid-up subscriber Kevin McCormick

 

 "How about this wealth planning combination: Buy Tesla for $100K, and Short-sell $100K Tesla stock

 

"In 3 years, sell the Tesla back for, say, $50K; buy the stock back at, say $50K. You've had a risk-free (and maybe totally free) ride. (I'll just keep my Ford)." – Paid-up subscriber Tom Fish

 

Regards,

 

Sean Goldsmith

June 10, 2014

 

How one company is profiting from the Gulf of Mexico's $6 trillion treasure...

 

In yesterday's Digest Premium, Stansberry's Investment Advisory analyst Dave Lashmet discussed a helicopter ride he took in search of a $6 trillion oil deposit... Today, he describes one company that's positioned to profit from the situation now...

 

To subscribe to Digest Premium and receive today's analysis, click here.

How one company is profiting from the Gulf of Mexico's $6 trillion treasure...

 

 In yesterday's Digest Premium... I (Dave) described the helicopter ride I took to research the work being done to tap the $6 trillion of oil hidden beneath the Gulf of Mexico...

 

From the helicopter, I got a bird's-eye view of some of the 5,000 active oil platforms (operated by dozens of major oil firms) at work in the Gulf... Some of the biggest finds are hundreds of miles offshore, but still within the U.S. economic exclusion zone.

 

We could look down into the shallows and see the pipelines running to the shore. The natural gas goes to processing plants with names like Blue Water, Barracuda, Sea Robin, and Venice. The processors take out "drip" – liquids that are gases at high pressure underwater, but that can be cooled into propane, butane, and octane back on shore.

 

 In a perfect market, oil, natural gas, and the liquids would all trade for their energy equivalents. For example, one barrel of oil has about as much energy as 6,000 cubic feet of natural gas. So when oil is $100, each thousand feet of natural gas should sell for $16. But currently gas is $4.50. That's because we're producing so much natural gas from the U.S. shales that we have a supply glut.

 

The U.S. still imports almost half the crude oil we use. That's why U.S. oil prices and global oil prices are roughly on par. But natural gas can't escape the U.S. market, except via pipelines to Canada or Mexico. So domestically, natural gas is three times undervalued based on the energy equivalent in oil. And cheap natural gas has suppressed domestic demand for propane, and thus its price.

 

 Thanks to arcane legal restrictions, the U.S. can't export crude oil. And while it's legal to export natural gas, the process is arduous and elaborate... So liquefied natural gas exports won't be possible for another year.

 

But the U.S. can export propane today...

 

 With propane, you just pressurize it and ship it. Same for butane.

 

Right now, U.S. propane sells for $42 per barrel wholesale, but its energy equivalent value is $68 when compared to $100 oil. So there's at least $25 per barrel of propane in "arbitrage" profits, playing on the difference between U.S. and world prices for natural gas liquids. One company is making huge daily profits off this exchange: Stansberry's Investment Advisory model portfolio holding Targa Resource Partners (NYSE: TRGP).

 

Targa owns Blue Water, Barracuda, Sea Robin, Venice, and five other natural gas processing plants on the shores of the Gulf of Mexico. Targa's net processing capability is 1.8 billion cubic feet of processing per day. And daily, it peels off 45,000 barrels of valuable natural gas liquids, then pays the producers based on the domestic value of the liquids.

 

Targa also owns ports where the natural gas liquids can be exported. That's where the arbitrage happens – when the liquids leave U.S. shores. So if all 45,000 barrels were propane, that shipment would be worth $1.25 million – less shipping costs – every day.

 

 Targa is expanding its export capacity in 2014, with a $165 million port-building effort, which will be complete next fiscal quarter. It's also currently expanding its ability to process the natural gas liquids into their pure forms. Targa's capacity will reach 100,000 barrels per day by mid-2014. It plans for another 200,000 barrels per day of capacity in 2015-16.

 

So when we see all the drilling activity in the Gulf of Mexico – knowing that there's trillions of dollars in hidden assets here – we are also taking a careful measurement of where the pipelines are running back to shore. Targa owns some of these pipelines, which stop directly at Targa's processing plants. That's how Targa gets the drip to its plants, and then to its ports.

 

 All this might not be news to Stansberry's Investment Advisory subscribers. Targa has been part of the model portfolio since December 2012. In that time, the share price has gone from $45 to $120, and the quarterly dividend has grown from $1.83 to $2.59. Investment Advisory readers are up nearly 160%.

 

– Dave Lashmet

How one company is profiting from the Gulf of Mexico's $6 trillion treasure...

 

In yesterday's Digest Premium, Stansberry's Investment Advisory analyst Dave Lashmet discussed a helicopter ride he took in search of a $6 trillion oil deposit... Today, he describes one company that's positioned to profit from the situation now...

 

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