The largest oil field discovery in U.S. history?
"I think it could be the largest oil discovery in the history of the United States," Cactus said of his latest big investment in the Texas oilfields. We were fishing today, off the coast of Panama. We're here with my new global wealth club, the Atlas 400. And the members are passing around lots of good business. But I'm pretty confident what I learned from Cactus today will be the most valuable information shared on this trip. Or perhaps even the most valuable information I've ever been told.
"Cactus... did you say Texas?" Yep, Texas. Most of the oil business has given up on discovering any more large onshore oilfields in the United States. Natural gas – sure, there are the shale plays and new drilling technologies. But black gold? Crude? It'll never happen, they said. Peak oil is what they promised. Declining production curves forever. None of the rhetoric bothered Cactus. "Hell," he said, "if you can convince everyone there's no more oil to find in Texas, it makes it a whole lot cheaper for me to buy up all of the best acreage. And it makes it a whole lot cheaper for me to run drilling rigs too, 'cause nobody else wants the rigs or will employ the drillers..."
In South Texas, Cactus and a handful of smaller, independent oil companies have made a major new discovery. Way down, underneath a major shale play, they've identified a limestone oil reserve that stretches across more than 30 different counties.
Really? Yes. This isn't an April Fools' joke. Of course, I understand your skepticism. And I admit, I'm a little skeptical too. But I've learned over the last 10 years to listen to my friend Cactus when it comes to the oil business. He says, "Porter, I've seen the seismic data. A few of the majors have done test wells that show the pressure and prove the formation... we're sitting in the middle of a giant field." The following chart is the leading public company involved in this new Texas play:
I'll have the full story in my upcoming newsletter. And don't bother trying to figure out the stock based on this chart alone. The company wasn't even in the oil business previously. It's a great story. And it's going to get a whole lot better over the next few weeks. To be the first to know about this company, click here.
The Federal Reserve is preaching deflation, still. The Fed maintained its "extended period" language, keeping interest rates near zero. From the Fed minutes: "The duration of the extended period prior to policy firming might last for quite some time and could even increase if the economic outlook worsened appreciably or if trend inflation appeared to be declining further."
The Fed said a weak labor market, tight credit, and low income growth will continue to constrain household spending. So-called "core" consumer prices rose a record-low 1.5% in February from a year earlier in the 30 countries comprising the Organization for Economic Cooperation and Development.
You should remember two things when reading central bank pronouncements and looking at government stats. First and most importantly, the Fed needs you to believe that prices will be stable – no matter how much money it prints. And secondly, the same governments printing all of the money are the same governments who supposedly "measure" inflation.
If you want to see what happens when the market finally realizes that the government's numbers are completely phony, just watch what will happen to Greece, Spain, and Italy over the next year. Today, the yield on Greek 10-year debt shot up 406 basis points – a huge move down in the price of the bonds. Finance Minister George Papaconstantinou said, "Today was a very bad day for Greek bonds, [but] Greece is not seeking to borrow today." The country needs to raise another $13.4 billion next month. Good luck, Greece...
In yesterday's Digest, Dan overstated Monday's increase in the 10-year Treasury yield... by a mile. Dan must be concentrating too hard on trying to sell his house because the yield on 10-year Treasury notes increased about 1.04% on Monday to close at 3.99%.
Once you get past the obvious error, Dan's point here is worth noting. Through Monday's close, the benchmark 10-year Treasury yield was up 62% from its low of 2.64% in March 2009 (this is the figure Dan was focusing on, but misreported). During that same time, the S&P 500 is up 78%. So now the stock market's earnings yield has fallen to a bit more than 4%... just about what 10-year Treasuries are yielding.
By falling out of love with Treasuries and deep in love with stocks, investors now find themselves offered the same mediocre return from both stocks and Treasuries. Who gets out of bed in the morning and says, "Alright! Let's find out where we can earn 4% on our money!" Most stocks are overpriced these days. And if investors start treating stocks the way they've been treating Treasury bonds, look out below.
New highs: Fairholme Fund (FAIRX), Washington REIT (WRE), Powershares Dynamic Biotech Fund (PBE), Financial SPDR ETF (XLF), Kinder Morgan Energy Partners (KMP), Enterprise Products (EPD), Altria (MO), Banco Latinoamericano (BLX), Longleaf Partners (LLPFX), Altius Minerals (ALS.TO), Akamai (AKAM), Carpenter Technology (CRS), Rainey River (RR.V), Northern Dynasty (NAK), MAG Silver (MVG), Rowan Drilling (RDC).
In the mailbag, a great story about the Tropic Star Lodge.... Send your e-mails to: feedback@stansberryresearch.com.
"I went to Tropic Star Lodge in 1976 and was duly impressed. At that time, 10 rooms and 10 boats. Great captains and a wonderful staff. Back then we landed on PSP at a grass strip and went by boat to the lodge. In on Sat. out on Sat. Met Ed Kennedy whose family owned the place at that time; I believe he still has the Blk Marlin record on 6 lb. test. I was more hooked than the Marlin. I spend 8-10 wks a year fishing for Marlin in Baja.
"Striped Marlin in the spring and Blues in the summer. At last count (bragging now) I had 926 Striped Marlin , 78 Blue Marlin, and 2 Blacks. It has been a 40 yr. journey of discovery and I have loved 'most' every minute. In fact, I tend to find my spirituality on the water w/the rumble of the diesels, a clean wake and the sun pounding down. BTW have your friends and readers join The Billfish Foundation, they work hard to preserve the Fishery." – Paid-up subscriber Jack Duvall
Porter comment: I know how you feel... Nothing clears my mind and lowers my blood pressure more than driving my boat under the Venetian Causeway drawbridge at 7 a.m. on my way down to Government Cut. Congratulations on your marlin tally. I haven't landed my first... yet.
Regards,
Porter Stansberry & Sean Goldsmith
Panama City, Panama
April 7, 2010