Editor's note: If you missed last Friday's Digest, make a point to read it today. In his essay, Porter explains what a trailing stop is and why they are so important for investors. The essay cites a quantitative study we recently commissioned to prove the utility of trailing stops. You can read the essay here.
Digest readers know the municipal-bond crisis is one of our major "End of America" themes. Cities and states across the country took on too much debt to finance local projects. Now, they can't afford the interest payments. In many cases, local governments simply decided to stop paying interest on the debt. You can read more on the topic here and here.
Currently, only a few research outfits – most notably ourselves and Meredith Whitney – are blowing the whistle on the muni crisis. But word is spreading. As you can see from the chart below, courtesy of George Goncalves of the investment bank Nomura, municipal-bond funds have seen net outflows every month since November. And the week ended January 19 was the most severe drawdown yet...
It's one of the clearest trends on Earth today... Earlier this month, we reported China imported 30% more natural gas in the first 11 months of 2010 than the same period in 2009. India's natural gas demand is also soaring. Take a look at the natural gas consumption in China and India (aka "Chindia") over the past 25 years. You'll notice a pattern...
We'll bet demand only increases this year. And China's betting more than $1 billion on the same result... Today, Chinese oil giant CNOOC announced it is buying stakes in several shale oil and gas leases owned by Chesapeake Energy for $570 million. The deal entitles CNOOC to a 33% stake in Chesapeake leases covering 800,000 acres in northeast Colorado and southeast Wyoming. CNOOC will also fund two-thirds of Chesapeake's share of drilling and other costs up to $697 million.
|
The deal is similar to the October 2010 CNOOC-Chesapeake arrangement where the Chinese company bought one-third of Chesapeake's 600,000-acre Eagle Ford shale project for $1.08 billion. (This marked the first major investment by a China state-run company in onshore U.S. energy reserves.) Matt Badiali's Resource Report readers bought into Eagle Ford long before China. (Our friend Cactus Schroeder – a Texas wildcatter – told us about the development.)
Last July, Matt told his readers:
As you may know, drilling shale formations like the Eagle Ford for the natural gas trapped inside has been the most important trend in the U.S. energy sector over the last decade. Developing the tools to extract shale gas is singularly responsible for an explosion of U.S. natural gas reserves. Now, oil and gas explorers are applying those tools to the biggest shale formation in Texas. I'd love to give you some firm figures on the potential Eagle Ford production. But drilling there is so new, it's impossible to make a reliable estimate on how much oil and gas it holds. Just know that the Eagle Ford is going to be a monster. One of the oilmen I rode with said it will easily be the biggest discovery of his more than 30-year career... and maybe the largest in the history of the U.S. oil industry.
Matt recommended EV Energy Partners and Vanguard Natural Resources as Eagle Ford plays. In six months, readers are up 40% and 55%, respectively. More gains are on the way... and both stocks yield more than 7%.
In the January issue of Resource Report, Matt recommended one of the largest owners of gas reserves in the world (only majors like ExxonMobil and ConocoPhillips own more). And it operates in almost all the best shale gas plays in North America. The stock is cheap, shareholder-friendly, and pays a safe and inflation-proof dividend. Its vast portfolio of undeveloped reserves also acts as a large "call option" on rising gas prices. Even if gas rises 25% from these levels, the stock will enjoy a huge uptrend. Matt's next issue is due out tomorrow after market close. In it, he recommends a new "oil insurance" play... which could jump 128% if oil prices spike. To learn more about the S&A Resource Report and access his latest idea, click here.
Increasing global energy demand helped World Dominator ExxonMobil post incredible numbers. The world's largest publicly traded oil company posted $9.3 billion in fourth-quarter 2010 earnings – the best since its record third-quarter 2008 net income of $14.83 billion. Net income grew 53% as it produced more oil to take advantage of higher prices. (Oil prices rose 12% in the fourth quarter.) Exxon's revenue increased 17% to $105 billion.
|
New highs: Atlantic Power (AT), Suncor Energy (SU), CARBO Ceramics (CRR), ConocoPhillips (COP).
It's a regular lovefest in today's mailbag... Which means the negative feedback can't be far away. What's on your mind? Tell us at feedback@stansberrryresearch.com.
"My results are not going to be as impressive sounding, but on the other hand I am retired and use my investment earnings to supplement other income. I have an average draw down once a month of about 0.7% (almost 10% a year) and during the time period bought a new house with down payment of about 5%. Still with those drags on the performance, I increased my total portfolio by about 11.5%. Prior to starting with your advice in 2002, my retirement year, I only achieved mediocre returns. Since retirement I have been able to achieve my goal of growing the portfolio by at least 10% a year and withdrawing 10% a year." – Paid-up subscriber EW
"It would be amazing to have seen that you were giving away the results of the study you commissioned on the effects of using trailing stops for free if I were not already so familiar with the value of the services for which you actually charge.
"I would point out to all of your readers that reading the results of this study and applying that knowledge to their own portfolio management may well be the best investment advice they have ever received; unless, of course, they have an Alliance membership and have come to expect that level of education and more on a regular basis. You and your team really do spoil us." – Paid-up subscriber Ken McGaha
"Tell Steve that I took his recommendation about dealing with Jeff Winn on some variable annuity issues/changes that I wanted to make. Jeff's help has been outstanding. I really enjoy working with him." – Paid-up subscriber Ron Martin
"I just wanted to throw a kudos email to Doc Eifrig. In his latest update he discusses Cafayate. I wanted to say that everything and i mean EVERYTHING Doc says about Cafayate is 100% true. It is truly a gem. I liked it so much that I purchased a lot in La Estancia. The entire experience was wonderful from meeting and sharing a plane ride to Salta with Porter (he found my lost passport!) to driving down beautiful Ru 68 with Bob Cup as my tour-guide. I'd love to hook-up with other subs at the March event Doc speaks of (jamestautfest@sbcglobal.net). Keep up the good work!" – Paid-up subscriber Jim
Good investing,
Sean Goldsmith
Baltimore, MD
January 31, 2011