Why I wanted to liquidate last week... Tepper moves markets again... Spanish yields lower than U.S... Don't bet on the government... Badiali calls it again... Icahn moves on Family Dollar... Why you shouldn't buy puts...
I wanted to sell everything last Friday...
My portfolio is already up big for the year. And I had made more money last Thursday and Friday than I can remember in some time.
It's difficult to stay invested when a bull market is getting long in the tooth. Your emotions tell you to take profits. But you have to ignore your emotions... And let your winners run.
Taking emotion out of investing and following your exit strategies is a far superior strategy. It's already paying off today.
As we'll explain in a moment, investors have once again proved they are horrible market timers.
But first... why the big rally?
On Thursday, European Central Bank (ECB) President Mario Draghi cut the deposit rates in Europe into negative territory. Banks now have to pay the ECB to park cash there. Draghi's trying to spur lending. You can read more in last Thursday's Digest.
The markets didn't move much following the announcement. Draghi's move was priced in.
Enter David Tepper...
Last month, Tepper – the billionaire founder of hedge fund Appaloosa Management – told the audience at a Las Vegas conference "I am nervous." The market shuddered. Still, he advised the conference of hedge-fund managers to stay long... just "don't go too frigging long."
He also noted one thing that could set the markets straight again... "If the ECB does this [easing] thing, the market's probably OK," Tepper said. "If they don't do this thing, it's not OK."
Following Draghi's announcement, CNBC reporter Kate Kelly called Tepper for a quote... He said he was getting less nervous.
It was only after CNBC reported Tepper's comments that the market sprang to life. Stocks ripped higher Thursday and Friday. The S&P 500 is now above 1,950 and appears headed to 2,000 for the first time in history.
But take note... In a normal market, a successful hedge-fund manager shouldn't have more sway in the markets than a central bank president.
Another sign of the absurdities in today's market... 10-year Spanish government bonds are now yielding 2.58%... less than 10-year U.S. Treasurys, which are yielding 2.61%.
Ask yourself, would you rather lend money to a European government with a crumbling economy, crippling unemployment, and few prospects for growth... Or the government that – for all its problems – still controls the world's reserve currency and is currently experiencing a huge boom in energy production?
Regardless, the market is heading higher... and we're along for the ride, cautiously.
As we've pointed out on many occasions, individual investors, as a group, are perpetual underperformers in the stock market...
From the May 12 S&A Digest:
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Why the discrepancy? Most individual investors are emotional creatures. And they're horrible market timers. They put money to work when markets are hot (and expensive). They run for the exits when things get bad (and cheap).
Again, we're not advising dumping cash into the market indiscriminately. But it's a bull market... The trend is up... And global central banks are doing everything they can to make it continue.
So, the S&P 500 keeps ripping higher. Stocks around the world are trading at all-time highs... Meanwhile, Petrobras (PBR), Brazil's state-owned oil company, languishes.
Over the past 52 weeks, the S&P 500 has returned 19%. Petrobras has fallen 9%.
Why the huge spread? Bureaucracy...
For years, we have been telling you to watch out for state-run companies. The bureaucrats running government agencies are not encouraged to produce profits. They are not rewarded for improving the long-term value of a business. Bureaucrats are motivated to spend their entire budgets and grow larger. This allows them to acquire more power... and bigger budgets for next year... which allows them to acquire more power and bigger budgets for the year after that.
Compare this with an entrepreneur who has his own money on the line. He's going to do his best to keep costs down, instead of intentionally blowing his budget. He's going to do his best to hire only the employees he needs... rather than hire as many people as possible. If he doesn't keep a close eye on his cash flow, he'll go broke.
Petrobras has phenomenal assets. It controls some of the biggest untapped oilfields on the planet. But those assets are in offshore oilfields. Developing them will cost huge sums of money. And bureaucrats will oversee this absurdly large amount of spending (tens of billions of dollars). Take a guess how that will turn out.
Recent results show Petrobras is experiencing lackluster oil production. Income and cash flow continue to deteriorate and profit margins are weak. Net income has significantly decreased by 40.8% compared with the same quarter a year ago, falling from $3.9 billion to $2.3 billion. Net operating cash flow has decreased to a little less than $4 billion, down 46.6% from the same quarter last year.
Take a look at this chart to see how Petrobras has performed versus the S&P 500 and ExxonMobil – a bastion of capitalism and private ownership.
The next time you're considering "partnering up with a government" – and buying a state-owned company – remember how government works.
While we're bearish on state-owned oil companies, we're wildly bullish on some of the companies producing in America's oil- and gas-rich shale regions...
And S&A Resource Report editor Matt Badiali has been providing readers with excellent insight from the ground in Texas...
As we told you in the May 28 Digest, Badiali's inside sources in the energy industry believed Enduring Resources, an operator in Texas shale, was going to sell assets in West Texas' Permian Basin.
As part of the sale, Enduring would release data from the region. Matt believed those numbers would reveal a shocking volume of oil being produced there... and send the four companies he recommended soaring.
Last month, rumors started swirling that former Chesapeake Energy CEO Aubrey McClendon was leading a group of investors to buy Enduring for $2 billion. The media said McClendon was trying to buy the whole company.
Matt's sources, as we reported, thought the bid would only be for part of Enduring's production... They were right.
McClendon's new firm just announced it will buy 63,000 net acres of production leases (not the entire company) from Enduring for $2.5 billion.
This deal is a testament to Matt's efforts to bring his readers timely and accurate ideas on which to base their investments.
Matt's four Permian shale recommendations from his March issue are up an average of 19% since he presented them to readers. The biggest winner is up 56% in just three months. In the same issue, Matt recommended an energy income play that benefits from production in the Permian and other profitable energy areas. It is up a safe 16% as we write.
One of Badiali's Permian picks is still in buy range. Like we saw with the reports of the Enduring sale, the market still lacks clarity on the company's prospects. This company increased first-quarter production 43% over the prior year. Sales were up 71%.
Since its shares began trading publicly in 2008, the company has quadrupled daily production. And management told investors it is doubling the number of wells it will drill per rig this year. This is proof of the oil-patch technology improvements Matt reviewed in his June issue.
The stock is up more than 2% today on news of the Enduring sale. The market is just now repricing these Permian stocks... But you still have time to take advantage of this giant shale deposit... and the companies operating there that are going to gush oil and profits.
We encourage you to learn more about why we believe the shale boom has lots of room to run and access the name of a Permian stock that we think is about to soar by subscribing to the S&A Resource Report. To find out more about signing up, click here...
Billionaire investor Carl Icahn revealed a 9.4% stake in discount retailer Family Dollar Stores last Friday.
In a filing, Icahn said he plans to push the company to explore strategic changes. He also may seek a board seat.
Icahn joins other large hedge funds Trian Capital Management (run by Nelson Peltz) and John Paulson's Paulson & Co. investing in Family Dollar.
Rumors abound Icahn may push to merge the underperforming Family Dollar with rival – and Stansberry's Investment Advisory recommendation – Dollar General.
Shares of Family Dollar and Dollar General jumped 13.4% and 7.3%, respectively on the news. Dollar General hit an all-time high today.
Icahn is likely taking advantage of what we see as one of the biggest trends in the market today... The disappearing middle class. As prices rise, wages stagnate, and technology replaces human capital – we're going to see the standard of living for many Americans deteriorate.
And Porter and his research team have loaded the Investment Advisory model portfolio with several companies that will profit from this trend – including rent-to-own stores, landlords, and discount retailers like Dollar General.
While Family Dollar is losing customers and closing stores, Dollar General is ramping up... The company already has some 11,000 locations. And it plans to open another 700 within the year. It also recently began selling tobacco products to attract more people to its stores.
To read more about Dollar General's strategy, and its recent fiscal results, reread the June 3 Digest. Investment Advisory subscribers who bought on Porter's recommendation are up more than 5% on Dollar General.
New 52-week highs (as of 6/6/2014): Alcoa (AA), American Financial Group (AFG), Becton-Dickinson (BDX), Blackstone Mortgage Trust (BXMT), C&J Energy Services (CJES), Carrizo Oil & Gas (CRZO), CVS Caremark (CVS), Discover Financial Services (DFS), ProShares Ultra Oil & Gas Fund (DIG), Energy Transfer Equity (ETE), iShares MSCI Germany Fund (EWG), SPDR Euro Stoxx 50 Fund (FEZ), 1st United Bancorp (FUBC), Cambria Foreign Shareholder Yield Fund (FYLD), WisdomTree Europe Hedged Equity Fund (HEDJ), Halcon Resources (HK), iShares Dow Jones U.S. Insurance Fund (IAK), Intel (INTC), SPDR S&P International Health Care Fund (IRY), Leggett & Platt (LEG), 3M (MMM), Microsoft (MSFT), AllianzGI Equity & Convertible Income Fund (NIE), PowerShares S&P 500 BuyWrite Fund (PBP), PowerShares Buyback Achievers Fund (PKW), PowerShares QQQ Fund (QQQ), ProShares Ultra Technology Fund (ROM), Sabine Royalty Trust (SBR), Market Vectors India Small-Cap Index Fund (SCIF), Superior Energy Services (SPN), ProShares Ultra S&P 500 Fund (SSO), Skyworks Solutions (SWKS), Cambria Shareholder Yield Fund (SYLD), Sysco (SYY), Targa Resources Corp (TRGP), Union Pacific (UNP), and W.R. Berkley (WRB).
In today's mailbag, a reader asks about an alternative to shorting stocks. Send your trading questions to feedback@stansberryresearch.com.
"Thanks for all your great suggestions, most of which I act on. I'm hesitant to short stocks however; would you ever consider using options as an alternative to outright shorting? They feel much safer to me." – Paid-up subscriber Stacey Morris
Goldsmith comment: Amber Mason wrote a great piece on why you should NOT buy put options in the June 5 DailyWealth Trader...
In DailyWealth Trader, selling put options on high-quality companies – a strategy we've covered many times in the Digest – is a key strategy Amber uses. It's a safe and consistent way to make money in the markets.
As she noted in the June 5 issue… when selling puts, "You profit if the stock goes up. You profit if the stock stays the same. And you can even make money if the stock drops a bit."
But buying puts is the opposite. As she wrote:
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In short, we're big believers in selling options... And we generally avoid buying options (certainly as part of a conservative investment strategy). If you'd like to read more of Amber's work and start receiving her daily trading e-mail, click here to subscribe...
Regards,
Sean Goldsmith
June 9, 2014
Taking a helicopter ride to a $6 trillion treasure…
In today's Digest Premium, Stansberry's Investment Advisory analyst Dave Lashmet tells us about a recent adventure he took to research one of the most important investment ideas the team is following.
To subscribe to Digest Premium and access today's analysis, click here.
Taking a helicopter ride to a $6 trillion treasure…
Editor's note: In today's Digest Premium, Stansberry's Investment Advisory analyst Dave Lashmet shares details from his latest research trip… As readers know, Porter and his team have spent years covering the boom in domestic energy production. And they say it's one of the biggest investment trends in the market.
Following the best opportunities in this trend took Dave on a harrowing ride, which he describes today…
We are flying on the deck at 100 knots, and we bank hard left to miss a pair of sea birds. Helicopter engines hate eating feathers. And there's nowhere to set down in an emergency. It's still 10 miles to our target – a red, metal platform jutting out of the sea.
That platform is one of thousands guarding $6 trillion worth of recoverable oil in the U.S. Gulf of Mexico. The problem is, it's under 10,000 feet of water. Even from the ocean bottom, you have to drill another three miles into the Earth to tap that oil.
The deepwater drill ships doing that work cost half a million dollars a day in rental fees. That doesn't count the support ships, pipelines, and a billion-dollar floating platform (called a "spar") needed to bring up the oil. Even so, these deepwater operations are returning 5:1 on invested capital.
That's why the offshore oil business is booming all over the world. 3D seismic readings from survey ships can find promising oil and natural gas deposits before you drill. Test borings can measure the size of the asset and the oil flow you expect before you choose one site for production over a dozen others.
The world's oceans all pose their own hazards… Off Nigeria, it's pirates. In Australia, it's typhoons. Here in the Gulf of Mexico, it's thick blankets of fog. So our chopper is rigged with forward looking infrared radar.
We're riding a "life flight" from global helicopter firm Era. It's essentially a flying ambulance or trauma ward. In addition to the two pilots, its crew includes a rescue swimmer and a crew chief along with a paramedic. And the equipment is as good as you'll find for any emergency responder. The helicopter carries an advanced life-support suite, including oxygen under the gurney. Plus, once you are aboard, the crew has a satellite uplink to an emergency room doctor.
In emergencies on the oil rigs… these life flights are an injured oil worker's only hope. It would be 20 hours by boat to carry you from the deepwater platforms. In contrast, Era's search-and-rescue team can reach most offshore platforms within the "golden hour" that's crucial for heart attack patients or rig workers with internal bleeding.
Today, the pilots are taking it easy on us. This helicopter can fly 50% faster – 175 miles per hour – and it's ready to go within 15 minutes of a call.
Oil rigs on land are dangerous enough, with heavy equipment injuries, fiery explosions, and sometimes both. An offshore rig is much bigger, with a lot more crew members at risk. So having your own private Coast Guard makes perfect sense.
That's why the oil majors pooled together to buy one from Era. As impressive as the life flights are… we didn't travel to the Gulf to learn about the medical care for oil workers. We were there to see the asset this private Coast Guard is protecting…
Anywhere in the world, a quality deepwater well is 100 times more productive than a land well. For example, the last well we visited in West Texas produces 500 barrels per day. When BP's infamous Macondo well exploded tragically in 2010… the spill initially spewed out 65,000 barrels of crude a day, then settled down to 55,000 per day. That's $2 billion in oil per year.
Macondo isn't unique. In the Gulf of Mexico, dozens of wells are tapping reservoirs of 100 million barrels each. "Whales," they call them in boardrooms. From inside a chopper, they look like doll houses.
We're researching what we think will be one of the largest oil discoveries in history... And we'll tell you more about what saw in tomorrow's Digest Premium.
– Dave Lashmet
Taking a helicopter ride to a $6 trillion treasure…
In today's Digest Premium, Stansberry's Investment Advisory analyst Dave Lashmet tells us about a recent adventure he took to research one of the most important investment ideas the team is following.
To continue reading, scroll down or click here.