Ever since Adam Smith wrote Wealth of Nations, we’ve known the first rule of unfettered economics -- supply and demand balance each other.
The second rule is that money moves on.
There are numerous interesting examples of this at work right now. Knowing where money is flowing might help you make some slightly different investment decisions. It also makes some mysteries clear.
Last Thursday, in IDE, for instance, I’d found an interesting study of dollar strength and stock market returns to share with you. That London Business School/ABN Amro study found that the stock markets of strong currency countries tended to do worse than the markets of countries with weak currencies.
It seems counterintuitive. Why would anyone want to invest in a hot market if every drachma, real, rupee, dinar, or whatever that you made would become less valuable the longer you owned them? The second rule explains why.
Money moves where it multiplies best. Judgment does not always go along. While certain investors are super-smart about where to go and what the full, long-term implications are, most money is simply hot money. It’s greedy, spontaneous and slightly irrational.
Need an example? I’ll bet you’ve got one right on the street where you live. Look at all the people around you who said “housing prices here are crazy, nobody could afford this on a normal salary” with one breath and “I bought a house with nothing down and I plan to resell it for a big profit,” with the next breath. Even as they knew the market had gone too far, they saw everyone else’s profits and couldn’t help themselves.
One of the effects of hot money has hit Hollywood. The Brazilian real is very strong right now. According to Bloomberg, the currency has gone up 83% against the dollar in four years. Given the study I showed you last week, you might think twice about investing in Brazil unless the prospect is very solid. But if you are a movie star…
Brazilian marketers are suddenly able to afford stars like Sarah Jessica Parker and Sylvester Stallone because they now come cheaper than their homegrown celebrities. The real is so strong against the dollar that the marketers can buy U.S. stars at lower prices than they have to pay their own.
Some think this is a sure sign that the real is not only overvalued, but ripe for a big fall.
But when you want to talk big hot, hot, hot money, look to the sovereign wealth funds. The International Monetary Fund (that’s the bank, not another wealth fund) believes that these country-owned investment funds control about $3 trillion at present and will rule over $12 trillion by 2012.
If they don’t do anything too stupid, is what I say. Professor Olivia Mitchell of Wharton says that many of these funds are developing big appetites for risk and have “virtually no clarity of objectives” or transparency. And ditto for many hedge funds.
A good example of how this hot money takes big risks is Abu Dhabi’s $7.5 billion investment in Citigroup this year, which has netted a 40% loss so far.
Most of these funds are secretive, so we have no idea how many put big bets down on mortgage-backed securities. In fact, I wouldn’t be surprised if much of the future ugliness that many expect to see among irresponsible banks will actually be elsewhere—in sovereign wealth funds.
But there’s no denying these big spenders know what’s hot. How do we non-billionaire’s get a clue?
For that, I turn to John Murphy… see the market commentary for an example.
Thursday, August 21, 2008
Tuesday, August 12, 2008
The looming water crisis in Beijing
One morning last spring, millions of people in eastern China woke up to find stinking, green sludge oozing from their taps. It looked like blended seaweed and gave off a rotten odor that choked them if they got too close...
Lake Tai is China's third-largest lake. It's in the Jiangsu province, near the East Coast of China, 70 miles upstream from Shanghai. About 30 million Chinese rely on Lake Tai for drinking water. But in May 2007, pollution caused an algae bloom to cover the lake.
For 10 days, 2 million people who live on the shores of Lake Tai had no drinking water. It caused a panic. The price of a two-gallon jug of bottled water in the nearby city of Wuxi jumped from $1 to $6.50 overnight.
For hundreds of years, the locals considered Lake Tai the most beautiful place in China. It held so many fish, they tickled your ankles when you dipped your feet in the water. The richest people in China moved here and built stunning gardens on its banks.
But over the last half century, the shores of Lake Tai have turned into an industrial zone. Thousands of paper mills poured toxic chemicals into the water... so did cement factories, chemical plants, and textile companies. These chemicals killed the fish and removed all the oxygen from the water.
Now the rivers and tributaries that flow from the lake run red or black... and local workers won't tend to their rice paddies without heavy gloves because the water peels away their skin.
Lake Tai is not an exception in China. The Chinese grade water quality by five categories. Grade one is safe for drinking. Grade three is suitable for everyday human use. Grade five is polluted water and not even suitable for agriculture.
A recent survey of seven of China's major river systems by the nation's State Environmental Protection Administration showed 58% of China's water is grade three or below. And 28% of the water fell into grade five... totally useless.
Of China's 662 major cities, 278 have no sewage treatment plants. Only 23% of China's sewage is treated... The rest is discharged into rivers and lakes.
China is moving aggressively to reverse its widespread environmental damage. The government is starting to clamp down hard on offenders... dishing out jail time, handing out fines, and closing thousands of factories.
Take Lake Tai, for example. The rich industrial city on its shores – Wuxi – has kicked out 2,800 companies and levied huge fines on the remaining factories. The government told them to either clean up or leave. Now the city is calling itself a "green" city and says the lake will be clean again in 10 years.
The Chinese government has upgraded the State Environmental Protection Administration to the status of full ministry and given it power to seize salaries of executives at polluter firms. The government changed the law to allow class action lawsuits by victims of water pollution to seek compensation directly from water polluters... And it scrapped the maximum $140,000 fine for water pollution.
But here's the real kicker: The State Environmental Protection Administration estimates China needs to build 10,000 wastewater treatment plants to achieve 50% sewage treatment rates in China.
But the government's five-year plan – ending 2010 – requires Chinese cities to treat 70% of their wastewater... which implies China must build more than 10,000 new wastewater treatment facilities over the next few years. Chinese authorities may spend as much as $125 billion building these facilities...
The Singapore water industry is my favorite way to profit from China's drive to clean up its water. Singapore is a world leader in the water business... and its water companies do most of their business in China.
In my next column, I'll tell you about Singapore's water industry and give you a list of Singapore companies working to clean up China's water...
Good investing,
Lake Tai is China's third-largest lake. It's in the Jiangsu province, near the East Coast of China, 70 miles upstream from Shanghai. About 30 million Chinese rely on Lake Tai for drinking water. But in May 2007, pollution caused an algae bloom to cover the lake.
For 10 days, 2 million people who live on the shores of Lake Tai had no drinking water. It caused a panic. The price of a two-gallon jug of bottled water in the nearby city of Wuxi jumped from $1 to $6.50 overnight.
For hundreds of years, the locals considered Lake Tai the most beautiful place in China. It held so many fish, they tickled your ankles when you dipped your feet in the water. The richest people in China moved here and built stunning gardens on its banks.
But over the last half century, the shores of Lake Tai have turned into an industrial zone. Thousands of paper mills poured toxic chemicals into the water... so did cement factories, chemical plants, and textile companies. These chemicals killed the fish and removed all the oxygen from the water.
Now the rivers and tributaries that flow from the lake run red or black... and local workers won't tend to their rice paddies without heavy gloves because the water peels away their skin.
Lake Tai is not an exception in China. The Chinese grade water quality by five categories. Grade one is safe for drinking. Grade three is suitable for everyday human use. Grade five is polluted water and not even suitable for agriculture.
A recent survey of seven of China's major river systems by the nation's State Environmental Protection Administration showed 58% of China's water is grade three or below. And 28% of the water fell into grade five... totally useless.
Of China's 662 major cities, 278 have no sewage treatment plants. Only 23% of China's sewage is treated... The rest is discharged into rivers and lakes.
China is moving aggressively to reverse its widespread environmental damage. The government is starting to clamp down hard on offenders... dishing out jail time, handing out fines, and closing thousands of factories.
Take Lake Tai, for example. The rich industrial city on its shores – Wuxi – has kicked out 2,800 companies and levied huge fines on the remaining factories. The government told them to either clean up or leave. Now the city is calling itself a "green" city and says the lake will be clean again in 10 years.
The Chinese government has upgraded the State Environmental Protection Administration to the status of full ministry and given it power to seize salaries of executives at polluter firms. The government changed the law to allow class action lawsuits by victims of water pollution to seek compensation directly from water polluters... And it scrapped the maximum $140,000 fine for water pollution.
But here's the real kicker: The State Environmental Protection Administration estimates China needs to build 10,000 wastewater treatment plants to achieve 50% sewage treatment rates in China.
But the government's five-year plan – ending 2010 – requires Chinese cities to treat 70% of their wastewater... which implies China must build more than 10,000 new wastewater treatment facilities over the next few years. Chinese authorities may spend as much as $125 billion building these facilities...
The Singapore water industry is my favorite way to profit from China's drive to clean up its water. Singapore is a world leader in the water business... and its water companies do most of their business in China.
In my next column, I'll tell you about Singapore's water industry and give you a list of Singapore companies working to clean up China's water...
Good investing,
Tuesday, August 5, 2008
Beware of this fraudulent company that pays 14% dividend
Yesterday, I finished the new book by David Einhorn. Einhorn manages a hedge fund named Greenlight Capital. The book is about the fraud committed by a company called Allied Capital. The title of the book is Fooling Some of the People All of the Time.
Allied Capital's is a "Business Development Company" or BDC. Twenty-six BDCs trade in the stock market. Allied Capital is the oldest and one of the largest.
All BDCs do is provide money to very small businesses and receive high interest rates in return.
BDCs are not subject to many of the rules that govern traditional lending institutions, so they can be more flexible than banks and close deals quickly.While terms on the loans vary, they all have one thing in common: The companies BDCs lend to are always small, private, growing fast, and desperate for cash.
The size of the borrowers is the most important factor. First, tiny companies grow fastest... Not only are small businesses the most desperate for cash, but they have the most to gain from a loan. So they'll pay any price to get it... sometimes as much as 20% in annual interest payments, plus an ownership stake in their business.
Secondly, by financing only small companies, BDCs spread their portfolio over a large number of companies, sectors, industries, and locations. Collecting loans and bundling them all together is one of the secrets to finance. Diversification eliminates the risk without hurting the return.
Finally, taxes are the best reason for investing in small companies. The U.S. government thinks small businesses are vital to the economy and gives huge tax breaks to companies that lend money to them. BDCs never have to pay tax on their profits... as long as they distribute their gains to shareholders every quarter in dividends.
BDCs don't use a lot of leverage, so they're low-risk investments. (The government doesn't let them take on more debt than equity. Compare that to most banks and financial institutions in America, which frequently take on debt that totals more than 20 times equity.)
I think the BDC industry is a fantastic investment right now. On average, BDC stock prices have fallen 38% this year. They pay an average 14% dividend yield. Allied Capital is down 61%, and is yielding nearly 19%.
But don't buy Allied Capital. As David Einhorn proves in his book, Allied's senior managers are dishonest. They covered up several frauds, they lied on conference calls, and they even stole Einhorn's telephone records.
Even though the SEC has officially recognized Allied's fraudulent behavior, they haven't punished the crooks. And Allied's bent management is still running the business.
Fortunately, Allied Capital is the exception. Properly run, BDCs make excellent returns on their investments and pay the most stable, high dividend streams you'll find anywhere in the stock market.
If you like income stocks, you should consider investing in a basket of BDCs. They're cheap right now, and they'll pay you an average 14% dividend yield.
Good investing,
Allied Capital's is a "Business Development Company" or BDC. Twenty-six BDCs trade in the stock market. Allied Capital is the oldest and one of the largest.
All BDCs do is provide money to very small businesses and receive high interest rates in return.
BDCs are not subject to many of the rules that govern traditional lending institutions, so they can be more flexible than banks and close deals quickly.While terms on the loans vary, they all have one thing in common: The companies BDCs lend to are always small, private, growing fast, and desperate for cash.
The size of the borrowers is the most important factor. First, tiny companies grow fastest... Not only are small businesses the most desperate for cash, but they have the most to gain from a loan. So they'll pay any price to get it... sometimes as much as 20% in annual interest payments, plus an ownership stake in their business.
Secondly, by financing only small companies, BDCs spread their portfolio over a large number of companies, sectors, industries, and locations. Collecting loans and bundling them all together is one of the secrets to finance. Diversification eliminates the risk without hurting the return.
Finally, taxes are the best reason for investing in small companies. The U.S. government thinks small businesses are vital to the economy and gives huge tax breaks to companies that lend money to them. BDCs never have to pay tax on their profits... as long as they distribute their gains to shareholders every quarter in dividends.
BDCs don't use a lot of leverage, so they're low-risk investments. (The government doesn't let them take on more debt than equity. Compare that to most banks and financial institutions in America, which frequently take on debt that totals more than 20 times equity.)
I think the BDC industry is a fantastic investment right now. On average, BDC stock prices have fallen 38% this year. They pay an average 14% dividend yield. Allied Capital is down 61%, and is yielding nearly 19%.
But don't buy Allied Capital. As David Einhorn proves in his book, Allied's senior managers are dishonest. They covered up several frauds, they lied on conference calls, and they even stole Einhorn's telephone records.
Even though the SEC has officially recognized Allied's fraudulent behavior, they haven't punished the crooks. And Allied's bent management is still running the business.
Fortunately, Allied Capital is the exception. Properly run, BDCs make excellent returns on their investments and pay the most stable, high dividend streams you'll find anywhere in the stock market.
If you like income stocks, you should consider investing in a basket of BDCs. They're cheap right now, and they'll pay you an average 14% dividend yield.
Good investing,
The best place to invest right now is India
Yesterday, I was having high tea near Buckingham Palace with an English colleague. We were talking about the great world empires in history - how they rose up, peaked, and then fell.
All of them - the Hittites, the Greeks, the Romans, the Ottomans, the English and Spanish, and then, in the 20th century, the United States - enjoyed 100 or more years of rapid economic growth. This created huge, wealth-building opportunities for many.
When an economy is growing fast, opportunities are abundant. You don't have to be a genius to make lots of money. You simply have to be at the right place at the right time.
That was true 2,000 years before Christ, and it's equally true right now. Get on an economic tidal wave when it's just a ripple, and before you know it you're 100 feet above your peers, making millions and enjoying the ride.
One hundred years ago, the best place to be - by far - was the U.S. But today that may not be so. The U.S. economy is in big trouble. After surviving the collapse of the Internet bubble, we jumped right into a real estate bubble. That one collapsed too, and its ramifications are just now being felt. The falling dollar is making it much more expensive for Americans to pay for anything made abroad. And the rise in oil and gas prices (and other commodities) is putting the U.S. into a recession that will probably last a long time.
But that's not the worst of it. The U.S. economy is old, and outdated in some respects - just as England's economy was 100 years ago. The 20th century was America's century. Thousands of people became enormously wealthy by getting into oil and gas and railroads and other industries back then.
But the world has totally changed. New technology and major advances in communications have permanently altered the way wealth is and will be created.
So the question my friend and I asked ourselves over tea and scones yesterday is this: If we were in our early twenties and our goal was to become billionaires (forget the measly millions!), where would we go to start our fortune?
For me, there was only one answer: I'd move to India.
Why India?
Because India is, in many ways, like the United States was in 1900... but bigger and better. It has a huge population - about a billion people, of which approximately 200 million are considered middle class. This is more than 10 times the size of the U.S. middle class at the start of the Industrial Revolution. The sheer size of the market is staggering.
A study I read in the International Herald Tribune recently said that there are a million families in India whose income is more than $100,000 a year. That's a very substantial class of wealthy people. Many of these wealthy people are entrepreneurs and investors. And because of India's laws (and lack of laws), they will have few artificial obstacles to keep them from increasing their wealth.
India's positive investment climate and vast consumer markets has resulted in a decade of phenomenal growth. Since I've been tracking it, India has been growing at least twice as fast as the United States. And even today, with oil prices going up and productivity going down on a global scale, India is still growing at almost 7 percent a year. Again, more than twice the rate in the U.S.
China, too, has a huge, fast-growing economy. But I'd choose to move to India over China because of its more democratic government, more homogeneous population, and the prevalence of the English language.
And if I were going to set up shop in India, I'd start something in the communications or technology area. More specifically, I'd start an Internet publishing company there.
Why Internet publishing?
First and foremost, because it's a business I know. And it's always better to start a new business in a field you know.
I also like publishing because it's a growing industry in India. According to that report in the International Herald Tribune, the country's magazine business will increase 20 percent in 2008, up to $302 million.
In the past 12 months, all of the following magazines have been launched in India: Vogue, Rolling Stone, OK!, Maxim, FHM, Golf Digest, People, and Marie Claire. Most of them have been launched through licensing agreements with Indian companies. That's what I'd try to do - get an equity position and put down my stakes in India. That's how you make the big money, not just by passively investing from abroad.
If the publishing industry is doing well, the Internet is doing even better. The growth of the Internet-based side of the information industry in India is impossible to know with certainty because of how many new companies are involved and how fast they are moving. But most insiders I've spoken to estimate the growth at more than 100 percent a year.
To me, India is a long-term play - an opportunity that will continue to get better over the long haul. There will be ups and downs and specific sectors that fail while others succeed. But, overall, the long-term trend is upward - toward the billions!
One of my biggest clients recently acquired a half-interest in an investment publishing business in Mumbai. That was a very smart move on their part. If things work out like I think they might, they will see a 100-to-1 return on their investment over the next five to 10 years... and a 1000s-to-one return over a longer period of time.
If setting up a business in India doesn't appeal to you, Andrew Gordon has another recommendation.
"You could invest in India's high-tech industry," says Andrew. "In its generic drug sector... or its business support center companies. But the company I like best isn't in any of those sectors. It's an auto and truck maker called Tata Motors from Mumbai. Its ticker symbol is TTM, and it's listed on the New York Stock Exchange.
"Tata had the nerve to challenge and then break long-held notions of auto manufacturing. Conventional wisdom argued you couldn't make a quality car for less than $6,000 to $7,000. Perhaps with cheap labor and raw material and everything else going perfectly, you could get that down to $5,000."
But Tata's highly respected CEO - Ratan Tata - did not swallow a word of that, says Andrew. He took advantage of India's top-notch but cheap design capabilities and low-cost labor pool to make a car that costs not $5,000... not $4,000... not $3,000... but $2,500.
Such audacity has its rewards. Tata is proceeding with plans to sell 1 million of these cars every year. Who will buy them? Not people who can already afford a car. But the millions of people in India, China, Vietnam, Indonesia, and other countries who cannot.
"This car will never be confused with a Peugeot," says Andrew. "But let me be clear. It's no Yugo either. It doesn't have power steering, a radio, or air conditioning. It has only one windshield wiper. The car has been stripped to its absolute essentials. But what hasn't been stripped out is the quality. This car is getting good reviews, and should sell like hotcakes when commercial production begins this fall."
Plus, Andrew adds, Tata bought Land Rover and Jaguar from Ford a few months ago. It's attacking the Asian market at its highest and lowest end - where the market is growing the fastest.
"You haven't heard of Tata Motors up until now? It'll be a household name in a couple of years," he says. "The trick is to get on board right now while Tata is still flying under the radar. Its shares are priced to buy, so this is the perfect time to invest."
Investing in India - with Andrew's Tata recommendation or by starting your own information publishing business - is one of the best ways to make a lot of money. This is the right time to profit. You just need to get into position to allow the money to come pouring in.
All of them - the Hittites, the Greeks, the Romans, the Ottomans, the English and Spanish, and then, in the 20th century, the United States - enjoyed 100 or more years of rapid economic growth. This created huge, wealth-building opportunities for many.
When an economy is growing fast, opportunities are abundant. You don't have to be a genius to make lots of money. You simply have to be at the right place at the right time.
That was true 2,000 years before Christ, and it's equally true right now. Get on an economic tidal wave when it's just a ripple, and before you know it you're 100 feet above your peers, making millions and enjoying the ride.
One hundred years ago, the best place to be - by far - was the U.S. But today that may not be so. The U.S. economy is in big trouble. After surviving the collapse of the Internet bubble, we jumped right into a real estate bubble. That one collapsed too, and its ramifications are just now being felt. The falling dollar is making it much more expensive for Americans to pay for anything made abroad. And the rise in oil and gas prices (and other commodities) is putting the U.S. into a recession that will probably last a long time.
But that's not the worst of it. The U.S. economy is old, and outdated in some respects - just as England's economy was 100 years ago. The 20th century was America's century. Thousands of people became enormously wealthy by getting into oil and gas and railroads and other industries back then.
But the world has totally changed. New technology and major advances in communications have permanently altered the way wealth is and will be created.
So the question my friend and I asked ourselves over tea and scones yesterday is this: If we were in our early twenties and our goal was to become billionaires (forget the measly millions!), where would we go to start our fortune?
For me, there was only one answer: I'd move to India.
Why India?
Because India is, in many ways, like the United States was in 1900... but bigger and better. It has a huge population - about a billion people, of which approximately 200 million are considered middle class. This is more than 10 times the size of the U.S. middle class at the start of the Industrial Revolution. The sheer size of the market is staggering.
A study I read in the International Herald Tribune recently said that there are a million families in India whose income is more than $100,000 a year. That's a very substantial class of wealthy people. Many of these wealthy people are entrepreneurs and investors. And because of India's laws (and lack of laws), they will have few artificial obstacles to keep them from increasing their wealth.
India's positive investment climate and vast consumer markets has resulted in a decade of phenomenal growth. Since I've been tracking it, India has been growing at least twice as fast as the United States. And even today, with oil prices going up and productivity going down on a global scale, India is still growing at almost 7 percent a year. Again, more than twice the rate in the U.S.
China, too, has a huge, fast-growing economy. But I'd choose to move to India over China because of its more democratic government, more homogeneous population, and the prevalence of the English language.
And if I were going to set up shop in India, I'd start something in the communications or technology area. More specifically, I'd start an Internet publishing company there.
Why Internet publishing?
First and foremost, because it's a business I know. And it's always better to start a new business in a field you know.
I also like publishing because it's a growing industry in India. According to that report in the International Herald Tribune, the country's magazine business will increase 20 percent in 2008, up to $302 million.
In the past 12 months, all of the following magazines have been launched in India: Vogue, Rolling Stone, OK!, Maxim, FHM, Golf Digest, People, and Marie Claire. Most of them have been launched through licensing agreements with Indian companies. That's what I'd try to do - get an equity position and put down my stakes in India. That's how you make the big money, not just by passively investing from abroad.
If the publishing industry is doing well, the Internet is doing even better. The growth of the Internet-based side of the information industry in India is impossible to know with certainty because of how many new companies are involved and how fast they are moving. But most insiders I've spoken to estimate the growth at more than 100 percent a year.
To me, India is a long-term play - an opportunity that will continue to get better over the long haul. There will be ups and downs and specific sectors that fail while others succeed. But, overall, the long-term trend is upward - toward the billions!
One of my biggest clients recently acquired a half-interest in an investment publishing business in Mumbai. That was a very smart move on their part. If things work out like I think they might, they will see a 100-to-1 return on their investment over the next five to 10 years... and a 1000s-to-one return over a longer period of time.
If setting up a business in India doesn't appeal to you, Andrew Gordon has another recommendation.
"You could invest in India's high-tech industry," says Andrew. "In its generic drug sector... or its business support center companies. But the company I like best isn't in any of those sectors. It's an auto and truck maker called Tata Motors from Mumbai. Its ticker symbol is TTM, and it's listed on the New York Stock Exchange.
"Tata had the nerve to challenge and then break long-held notions of auto manufacturing. Conventional wisdom argued you couldn't make a quality car for less than $6,000 to $7,000. Perhaps with cheap labor and raw material and everything else going perfectly, you could get that down to $5,000."
But Tata's highly respected CEO - Ratan Tata - did not swallow a word of that, says Andrew. He took advantage of India's top-notch but cheap design capabilities and low-cost labor pool to make a car that costs not $5,000... not $4,000... not $3,000... but $2,500.
Such audacity has its rewards. Tata is proceeding with plans to sell 1 million of these cars every year. Who will buy them? Not people who can already afford a car. But the millions of people in India, China, Vietnam, Indonesia, and other countries who cannot.
"This car will never be confused with a Peugeot," says Andrew. "But let me be clear. It's no Yugo either. It doesn't have power steering, a radio, or air conditioning. It has only one windshield wiper. The car has been stripped to its absolute essentials. But what hasn't been stripped out is the quality. This car is getting good reviews, and should sell like hotcakes when commercial production begins this fall."
Plus, Andrew adds, Tata bought Land Rover and Jaguar from Ford a few months ago. It's attacking the Asian market at its highest and lowest end - where the market is growing the fastest.
"You haven't heard of Tata Motors up until now? It'll be a household name in a couple of years," he says. "The trick is to get on board right now while Tata is still flying under the radar. Its shares are priced to buy, so this is the perfect time to invest."
Investing in India - with Andrew's Tata recommendation or by starting your own information publishing business - is one of the best ways to make a lot of money. This is the right time to profit. You just need to get into position to allow the money to come pouring in.
Wednesday, July 30, 2008
Australian GE bonds are triple-A rated - the highest rating bonds can get - which means they come with very little risk, and offer high yield
About a year ago, my father invested in a Merrill Lynch bond. I looked it over... noted its high rating... and saw nothing wrong with it.
Not long after that, I was speaking to a vice president of Bank of Nova Scotia. I asked him about the bank's exposure to the subprime crisis. He said it was negligible. I then asked him about the GMAC loans it had recently bought. He said they were fine... the defaults lower than they had projected. So I added the bank to one of the portfolios I recommend to my subscribers.
The Merrill Lynch bond has since plunged and then rebounded. And the Bank of Nova Scotia's shares are almost exactly where they were when I made my recommendation. That's much better than most North American banks have done over the past year. No harm, no foul?
I'd be the stupidest guy on the planet if I thought there were no lessons to be learned just because those investments didn't turn to mush.
Fact is, my assumptions have changed.
Had I known then what I know now, I would not have touched that Merrill Lynch bond with a 10-foot pole. And I wouldn't have cared if a high-ranking bank official swore to me they weren't exposed to the U.S. subprime mortgage market. I wouldn't have believed him. I definitely would have put off investing.
The housing bust, subprime mess, credit crunch, and resulting financial crisis have done more than just bring the market down. They've led to a stunning collapse of confidence that has infected the entire investment world. Banks don't want to lend to each other... institutional investors no longer know what's safe... and retail investors don't believe anything anymore.
How can they? The rating agencies have proved beyond a shadow of a doubt that they do not understand derivatives. Their ratings are worthless.
And the brokers and analysts who follow every twist and turn the market makes? The last year must have made them so dizzy that they can't see the forest for the trees. They've been making one bad call after another.
A few months ago, for example, Buckingham Research estimated that Bear Stearns had $35 billion in liquid assets and borrowing capacity, enough to operate for 20 months. Turns out it had enough for three days. This is one of dozens of examples I could cite.
There's so much uncertainty in the investment world that we can no longer fall back on our long-held ideas of what makes a safe investment.
Munis? Sorry. Thanks to the shaky status of the monoline insurance companies (which insure munis), they're no longer the safe investments they used to be.
Money market funds? They've been hit too. Some brokerages are covering losses with their own money rather than pass them on to those who invested in these supposedly safe havens.
Good move. I don't blame them.
What's left? Oh, yes. How could I forget U.S. government bonds? Okay, they're still safe... but are they really investments? I mean, can anything you get a negative return on be considered an "investment"?
I don't think so - and that's exactly what you're getting with them. A 10-year Treasury note would give you a 4.01 percent yield. Meanwhile, inflation is running at 4 percent, and that excludes food and energy prices. The real rate of inflation would be much higher.
Investing in U.S. bonds is worse than giving the government a free loan. Instead of the government paying you for the loan, you pay the government for the privilege of loaning it your money.
Do you feel honored? Or cheated? Well, I can't speak for you. But this is the kind of honor that could land me in the poorhouse. I'd say cheated.
So... is there any investment that is truly safe?
There sure is. Australian government bonds have never looked better than they do right now. And this is the perfect time to jump into them...
Not only because Australia has one of the strongest economies in the world. Unemployment is at a 33-year low. And prices of its two big exports - coal and iron ore - are at historical highs. It doesn't hurt that around 66 percent of Australia's exports are commodities.
And not only because Australia is effectively shielded from the problems we're having in the U.S. They trade mostly with fast-growing Asia. In fact, 60 percent of their exports go to Asia.
The biggest reason the timing couldn't be better is because the Aussie government has been raising its key interest rate to stave off inflation. They've raised it all the way to 7.25 percent. They're at or near the top of their rate-raising cycle.
Other interest rates, including bond rates, feed off this basic government rate. If this rate is more than twice as high as the U.S. benchmark interest rate, then most of the other rates will be too - including Australia's government bond rates.
Sure enough, the Queensland 10-year government bond pays a nice 6.99 percent interest. That's not quite twice as high as the equivalent U.S. government bond rate, but it's close.
What's more, you can buy these bonds for a discount. And the discount isn't going to get any better. Here's why...
The Australian government paused its key interest rate hikes three months ago. That means, for now, interest rates have peaked in Australia. The only way they would go higher is if the Reserve Bank of Australia resumed rate hikes. That's possible, but unlikely.
And if you don't want to tie up your money for 10 years? There's another group of Australian bonds that could be perfect for you. I'm talking about corporate bonds, including bonds issued by GE - one of the biggest companies in the world.
These GE bonds are triple-A rated - the highest rating bonds can get - which means they come with very little risk. Usually, the lower the risk the lower the yield. But these highly rated bonds offer high yields of 7.97 percent. (Ask your broker for 8.5 percent coupon February 2011 maturity bonds from GE in Australia.)
Or you might prefer Australian bonds from Nestle, the huge Swiss firm. Its bond is double-A rated and offers a yield of 7.0 percent. (Ask your broker for 7.25 percent coupon January 2011 maturity bonds from Nestle in Australia.)
Because these bonds mature in 2011, they would tie up your money for less than three years. To get in before prices go higher (and yields go lower), you should buy Australian bonds NOW.
Buying international bonds is pretty easy... as long as you go to the right place. You can always go to a full-service brokerage specializing in international bonds. But many of the bigger brokerages are able to trade them, too, so call a few and find out.
You could also call up your broker. Ask him to recommend someone who does overseas bonds.
Not long after that, I was speaking to a vice president of Bank of Nova Scotia. I asked him about the bank's exposure to the subprime crisis. He said it was negligible. I then asked him about the GMAC loans it had recently bought. He said they were fine... the defaults lower than they had projected. So I added the bank to one of the portfolios I recommend to my subscribers.
The Merrill Lynch bond has since plunged and then rebounded. And the Bank of Nova Scotia's shares are almost exactly where they were when I made my recommendation. That's much better than most North American banks have done over the past year. No harm, no foul?
I'd be the stupidest guy on the planet if I thought there were no lessons to be learned just because those investments didn't turn to mush.
Fact is, my assumptions have changed.
Had I known then what I know now, I would not have touched that Merrill Lynch bond with a 10-foot pole. And I wouldn't have cared if a high-ranking bank official swore to me they weren't exposed to the U.S. subprime mortgage market. I wouldn't have believed him. I definitely would have put off investing.
The housing bust, subprime mess, credit crunch, and resulting financial crisis have done more than just bring the market down. They've led to a stunning collapse of confidence that has infected the entire investment world. Banks don't want to lend to each other... institutional investors no longer know what's safe... and retail investors don't believe anything anymore.
How can they? The rating agencies have proved beyond a shadow of a doubt that they do not understand derivatives. Their ratings are worthless.
And the brokers and analysts who follow every twist and turn the market makes? The last year must have made them so dizzy that they can't see the forest for the trees. They've been making one bad call after another.
A few months ago, for example, Buckingham Research estimated that Bear Stearns had $35 billion in liquid assets and borrowing capacity, enough to operate for 20 months. Turns out it had enough for three days. This is one of dozens of examples I could cite.
There's so much uncertainty in the investment world that we can no longer fall back on our long-held ideas of what makes a safe investment.
Munis? Sorry. Thanks to the shaky status of the monoline insurance companies (which insure munis), they're no longer the safe investments they used to be.
Money market funds? They've been hit too. Some brokerages are covering losses with their own money rather than pass them on to those who invested in these supposedly safe havens.
Good move. I don't blame them.
What's left? Oh, yes. How could I forget U.S. government bonds? Okay, they're still safe... but are they really investments? I mean, can anything you get a negative return on be considered an "investment"?
I don't think so - and that's exactly what you're getting with them. A 10-year Treasury note would give you a 4.01 percent yield. Meanwhile, inflation is running at 4 percent, and that excludes food and energy prices. The real rate of inflation would be much higher.
Investing in U.S. bonds is worse than giving the government a free loan. Instead of the government paying you for the loan, you pay the government for the privilege of loaning it your money.
Do you feel honored? Or cheated? Well, I can't speak for you. But this is the kind of honor that could land me in the poorhouse. I'd say cheated.
So... is there any investment that is truly safe?
There sure is. Australian government bonds have never looked better than they do right now. And this is the perfect time to jump into them...
Not only because Australia has one of the strongest economies in the world. Unemployment is at a 33-year low. And prices of its two big exports - coal and iron ore - are at historical highs. It doesn't hurt that around 66 percent of Australia's exports are commodities.
And not only because Australia is effectively shielded from the problems we're having in the U.S. They trade mostly with fast-growing Asia. In fact, 60 percent of their exports go to Asia.
The biggest reason the timing couldn't be better is because the Aussie government has been raising its key interest rate to stave off inflation. They've raised it all the way to 7.25 percent. They're at or near the top of their rate-raising cycle.
Other interest rates, including bond rates, feed off this basic government rate. If this rate is more than twice as high as the U.S. benchmark interest rate, then most of the other rates will be too - including Australia's government bond rates.
Sure enough, the Queensland 10-year government bond pays a nice 6.99 percent interest. That's not quite twice as high as the equivalent U.S. government bond rate, but it's close.
What's more, you can buy these bonds for a discount. And the discount isn't going to get any better. Here's why...
The Australian government paused its key interest rate hikes three months ago. That means, for now, interest rates have peaked in Australia. The only way they would go higher is if the Reserve Bank of Australia resumed rate hikes. That's possible, but unlikely.
And if you don't want to tie up your money for 10 years? There's another group of Australian bonds that could be perfect for you. I'm talking about corporate bonds, including bonds issued by GE - one of the biggest companies in the world.
These GE bonds are triple-A rated - the highest rating bonds can get - which means they come with very little risk. Usually, the lower the risk the lower the yield. But these highly rated bonds offer high yields of 7.97 percent. (Ask your broker for 8.5 percent coupon February 2011 maturity bonds from GE in Australia.)
Or you might prefer Australian bonds from Nestle, the huge Swiss firm. Its bond is double-A rated and offers a yield of 7.0 percent. (Ask your broker for 7.25 percent coupon January 2011 maturity bonds from Nestle in Australia.)
Because these bonds mature in 2011, they would tie up your money for less than three years. To get in before prices go higher (and yields go lower), you should buy Australian bonds NOW.
Buying international bonds is pretty easy... as long as you go to the right place. You can always go to a full-service brokerage specializing in international bonds. But many of the bigger brokerages are able to trade them, too, so call a few and find out.
You could also call up your broker. Ask him to recommend someone who does overseas bonds.
Speculators led oil prices up and now – just as quickly – they’re leading prices down
Even at my favorite neighborhood bar in Maryland, where you can order chicken wings “old bay” style, I couldn’t get away from chatter about Iran and high gas prices.Two guys were going at it right next to me. Then one of the guys suddenly stood up and walked out. He departed in such an agitated state that he left his credit card behind. The aggressor in the discussion looked at me and said, “Hi, I’m Joe and I’m a Republican.” “Hi,” I replied. “I’m Wolex and I’m a Red Sox fan.” In the heart of Orioles territory, I knew those were fighting words – much worse than declaring fealty to Obama. But instead of backing away in disgust and disdain, he asked, “You local?” And that was it. My plans to chill that evening were shot.We talked for the next two hours and we didn’t agree on much. His biggest belly-laugh came when I talked about the auto companies. How they had to start making small gas-sipping cars right now ... how the huge number of Americans buying big cars and trucks was a thing of the past ... how “affordability” went from killing the housing sector to killing the retail sector to killing the auto sector.“’Less is more...’ something right out of the hippie sixties is making a comeback,” I said. And the guy just laughed. “You just wait,” he said. “Once gas prices go lower, we’ll be back buying our muscle cars and pickup trucks again.”He has history on his side. Small cars (all of them from Japan) grew popular in the 1970’s as expensive gas changed our point of view – just like what’s happening now. But as gas prices crept lower ... and lower ... and lower still, our love affair with spacious and powerful cars slowly but surely returned. Could it happen again? If prices head lower like last time, why not? But that’s a big “if.”First of all, it’s jumping the gun to assume we’re at the beginning of a “demand destruction” phase. We’re not. Oil and gas may be more expensive than it was during the last spike in prices – which topped out in 1980. But as a percentage of wage income, we’re at about six percent. In 1980 it was 7-8%. And back then – coming at the end of a decade of stagflation – people were hurting more than they are now.We’re driving about three percent less than we were last summer. So there’s no doubt that high prices are driving gas consumption down. But we’re still driving much more than we did five years ago when gas prices were much cheaper. I think prices still have at least one more leg up before demand gets curtailed in a serious way.Then we’ll see prices fall again. As rational consumers, that should put us right back in the driver’s seat in droves. What’s going to stop us?“An Inconvenient Truth” isn’t that the environment is in trouble. It’s that we respond to prices. Could it be that GM and Chrysler will be rewarded for hanging on to their big gas-guzzling cars?If the oil and gas market were only domestic, I’d say yes. But the energy market is global.Do you think coal prices are so high because demand in the U.S. has spiked? No, the spike is mostly coming from China, not the U.S.Do you think jet-fuel costs so much because carriers in the U.S. have upped their usage? No, Just the opposite has happened. U.S. airlines have cut back on their number of flights.Let’s attack the issue of price from a different angle. Do you think the price of oil costs less now because demand in the U.S. has gone down by a few hundred thousand barrels a day?No. It’s part of the story and not even the most important part.Crude simply went up too fast and was due for a correction. Oil’s chart looked a lot like China’s stock chart before it suffered a 50 percent decline. And, yes, the speculators have something to do with the oil market’s frothiness. They led oil prices up and now – just as quickly – they’re leading prices down.
Monday, July 28, 2008
The tiny hungarian oil company that taught me the essence of dividends
I started my job at Citigroup in London in April 2000... a month after the Nasdaq bubble burst and the beginning of the worst bear market in stocks since 1973-1974.
As a junior accountant, my first job was dividend control. I made sure hundreds of Citigroup stock traders received the correct dividend payments on the positions they held. And when investors didn't get what they were owed, I contacted Citigroup's clearing department and made the claim.
I remember one trader, Nick Rubeiro. He ran an emerging-market high-yield strategy from a desk in New York. He had the most obscure companies in his portfolio, and they always tripped up the computer systems.
"Mol Magyar pays tomorrow," he'd say about the Hungarian oil company. "I'm holding 100 million shares."
Then I'd find out he actually owned 125 million shares. That's a $7.5 million dividend.
I saw dozens of traders come and go on the trading floor that summer. The market was an absolute bloodbath. But every week, I'd get the same call from New York Nick chasing his missed distributions.
Nick's quarterly dividend payments became something of a symbol for me that summer... like a pillar of strength amidst all the carnage of the stock market. They pulled me off dividend control later that year and sent me to fixed income. But I never forgot about Nick's dividends...
Economists define a bear market as a 20% drop in the S&P index. The S&P is the index of the 500 largest companies in America. So it's the best way to determine how American stocks are behaving. In 2008, the S&P entered bear-market territory for the first time since 2002. As I write, the S&P is down 20% since October 2007... but it was down more than 25% two weeks ago. This is only the fifth time in last 100 years we've seen a 25% or greater decline in the S&P 500.
As a junior accountant, my first job was dividend control. I made sure hundreds of Citigroup stock traders received the correct dividend payments on the positions they held. And when investors didn't get what they were owed, I contacted Citigroup's clearing department and made the claim.
I remember one trader, Nick Rubeiro. He ran an emerging-market high-yield strategy from a desk in New York. He had the most obscure companies in his portfolio, and they always tripped up the computer systems.
"Mol Magyar pays tomorrow," he'd say about the Hungarian oil company. "I'm holding 100 million shares."
Then I'd find out he actually owned 125 million shares. That's a $7.5 million dividend.
I saw dozens of traders come and go on the trading floor that summer. The market was an absolute bloodbath. But every week, I'd get the same call from New York Nick chasing his missed distributions.
Nick's quarterly dividend payments became something of a symbol for me that summer... like a pillar of strength amidst all the carnage of the stock market. They pulled me off dividend control later that year and sent me to fixed income. But I never forgot about Nick's dividends...
Economists define a bear market as a 20% drop in the S&P index. The S&P is the index of the 500 largest companies in America. So it's the best way to determine how American stocks are behaving. In 2008, the S&P entered bear-market territory for the first time since 2002. As I write, the S&P is down 20% since October 2007... but it was down more than 25% two weeks ago. This is only the fifth time in last 100 years we've seen a 25% or greater decline in the S&P 500.
Sunday, July 27, 2008
Alternatives like solar, wind, and geothermal simply couldn't compete with coal, oil, and natural gas on cost. But that's all starting to change...
I've just spent the past few days in Vancouver at the annual Agora Financial Investment Symposium. It's always an interesting conference.
This year, Jim Rogers, of Investment Biker fame, spoke at the conference. Rogers, as usual, predicted the bull market in commodities has much further to run. He likes cotton, sugar, and coffee – all are 60% to 80% off their all-time highs. He advised attendees to pocket those little sugar packets that hotels have lying around for coffee and tea.
I spoke as well. The big theme to cover was "Seeking Profits in a Time of Risk and Scarcity," which is something I focus on all the time in my advisories. We own a number of scarce assets – everything from water rights out West, to oddball industrial metals, to office space in Tokyo.
Energy, though, is always the big subject at conferences right now. I think we've reached a point in this investment cycle where the focus will now shift to ideas that ease the high cost of energy through new energy-efficient products and materials.
Alternatives to hydrocarbon fuels also get a lot of attention. Wind, for example, is getting a lot of ink lately thanks to T. Boone Pickens' forceful editorials supporting it. Pickens, who made billions in the oil and gas patch, has focused his latest efforts on water and wind.
To tell you the truth, I haven't closely investigated clean energy since I started investing two decades ago. Alternatives like solar, wind, and geothermal simply couldn't compete with coal, oil, and natural gas on cost. But that's all starting to change...
This year, Jim Rogers, of Investment Biker fame, spoke at the conference. Rogers, as usual, predicted the bull market in commodities has much further to run. He likes cotton, sugar, and coffee – all are 60% to 80% off their all-time highs. He advised attendees to pocket those little sugar packets that hotels have lying around for coffee and tea.
I spoke as well. The big theme to cover was "Seeking Profits in a Time of Risk and Scarcity," which is something I focus on all the time in my advisories. We own a number of scarce assets – everything from water rights out West, to oddball industrial metals, to office space in Tokyo.
Energy, though, is always the big subject at conferences right now. I think we've reached a point in this investment cycle where the focus will now shift to ideas that ease the high cost of energy through new energy-efficient products and materials.
Alternatives to hydrocarbon fuels also get a lot of attention. Wind, for example, is getting a lot of ink lately thanks to T. Boone Pickens' forceful editorials supporting it. Pickens, who made billions in the oil and gas patch, has focused his latest efforts on water and wind.
To tell you the truth, I haven't closely investigated clean energy since I started investing two decades ago. Alternatives like solar, wind, and geothermal simply couldn't compete with coal, oil, and natural gas on cost. But that's all starting to change...
Saturday, July 26, 2008
CHIMERICA companies are better bets right now than ordinary U.S. stocks
Well, one of the things that's so appealing about Chimerica companies is that they are growing by as much as 40% to 80% a year. (That's ten times faster than America's top businesses.)
This gives you the potential to make absolutely incredible gains, in a very short period of time...
»For example, a CHIMERICA company called Jinpan International (JST) has seen its net income soar 66% over the last several months – even as the global economy has slowed down. Why? Because these guys make electricity equipment in China, which the Chinese economy desperately needs – no matter what's happening in the financial markets
Not surprisingly, Jinpan's share price (the stock trades in America) has also SOARED. If you bought shares of Jinpan (JST) in March 2007, you could have seen as much as a 175% return on your investment.
Even better, if you'd bought shares five years ago, you'd have made as much as 21-times your money. That turns a $5,000 stake into $105,000.
As you can see, these "CHIMERICA" companies are China's high-growth superstars of tomorrow – available to you and me on U.S. exchanges today.
But these stocks businesses have long-term plans too. They're not out to make a quick buck and pack it in. They're literally the future Walmarts, Verizons, and Best Buys of China.
That's why Fortune 500 companies like Microsoft, Intel, GlaxoSmithKline, Panasonic, DaimlerChrysler, and close to 50 other business heavyweights are already doing business deals with "CHIMERICA" companies.
Microsoft, for instance, just formed a business partnership with Comtech Group – a "CHIMERICA" company that's quickly cornering China's lucrative video display market. If you'd invested $5,000 in Comtech's stock in 2002, you could be sitting on as much as $125,000 in profit today.
You probably get the point — CHIMERICA companies have incredible growth potential.
So it's pretty clear why these CHIMERICA companies are better bets right now than ordinary U.S. stocks.
This gives you the potential to make absolutely incredible gains, in a very short period of time...
»For example, a CHIMERICA company called Jinpan International (JST) has seen its net income soar 66% over the last several months – even as the global economy has slowed down. Why? Because these guys make electricity equipment in China, which the Chinese economy desperately needs – no matter what's happening in the financial markets
Not surprisingly, Jinpan's share price (the stock trades in America) has also SOARED. If you bought shares of Jinpan (JST) in March 2007, you could have seen as much as a 175% return on your investment.
Even better, if you'd bought shares five years ago, you'd have made as much as 21-times your money. That turns a $5,000 stake into $105,000.
As you can see, these "CHIMERICA" companies are China's high-growth superstars of tomorrow – available to you and me on U.S. exchanges today.
But these stocks businesses have long-term plans too. They're not out to make a quick buck and pack it in. They're literally the future Walmarts, Verizons, and Best Buys of China.
That's why Fortune 500 companies like Microsoft, Intel, GlaxoSmithKline, Panasonic, DaimlerChrysler, and close to 50 other business heavyweights are already doing business deals with "CHIMERICA" companies.
Microsoft, for instance, just formed a business partnership with Comtech Group – a "CHIMERICA" company that's quickly cornering China's lucrative video display market. If you'd invested $5,000 in Comtech's stock in 2002, you could be sitting on as much as $125,000 in profit today.
You probably get the point — CHIMERICA companies have incredible growth potential.
So it's pretty clear why these CHIMERICA companies are better bets right now than ordinary U.S. stocks.
Within the edible oil industry, the Chinese olive oil market is now the focus of global attention
The first US president with a Yale B.A. and Harvard a M.B.A. has finally clarified what led to the country’s crippling bank bailout and credit crisis.
At a closed Republican fund-raiser in Houston last week – one at which video recording was banned, but one attendee captured on a mobile phone – President Bush described what caused the US’s current economic malaise this way:
“Wall Street got drunk – that’s one reason I asked you to turn off your TV cameras – it got drunk, and now it’s got a hangover. The question is, ‘How long will it sober up and not try to do all these fancy financial instruments?’”
On Monday the White House tried to clean up the President's statement.
A Bush spokesperson said,
“The markets were using very complex financial instruments that had grown up over the years, and when confronted with the shock of this housing downturn, they did not fully understand what the consequences were going to be.”
Oh baby, you know this one is right in my wheelhouse.
I can’t stop singing the chorus of The Band’s “Up On Cripple Creek.”
But, other than to reveal my new excuse for getting hammered – “The bartender and bar were using a very complex system of service and pricing while I failed to grow up over the years and when I was confronted with closing time I did not fully understand consequences of ordering three doubles…”
I will demure on this one.
Instead, I’ll just leave this one teed up for you.
On “Wall Street got drunk,” I eagerly await your comments via the exercise of your First Amendment guarantee of free speech – use it while you still have it – this White House still has six months left to work on that.
And, I promise, if you grip it and rip it; I’ll run a bunch of your responses next week.
Now, onto more oily thoughts.
Up, With Two Olives Please
I spent the past two weeks researching Iraq’s oil industry for a story I wanted to run today.
It’s a heck of a story.
Then every financial writer on the planet spent the same time writing, on alternating days, about oil or the failure of deregulation as expressed by federal mortgage lenders.
So, I am going to spike the Iraq piece and save it for a time when the financial media have moved onto to their next obsessions such as – gold that’s found in offshore oil wells that were purchased with loans from Freddy Mac… and about an ex Fannie Mae accountant who’s now a gas station attendant who refuses to let customers buy $4.50 gas with gold or bottles of first growth Bordeaux, because neither are legal tender.
Just like sticks aren’t money… just like birch bark isn’t money… just like yak poo isn’t money… just like gold is not money. Unless, that is you own a website or you write books about grand monetary conspiracies... that’s just pure gold.
Though, I do wonder how the customers of those websites’ manage to pay for the stuff they buy. It must be very time consuming to get all that the gold into the little wires that brings the Internet from house to house.
So, no oil this week, okay, maybe just a drop or two, later, down at the bottom – but nothing heavy like a discussion of Iraq’s geology. Like you, I am simply awash in oil stories.
Instead, this week, I want to share with you a story about outrageous consumption. You see, since 2005, China has been the world’s biggest consumer of oil… edible oils that is.
In fact, the Chinese now annually consume about 44 pounds of edible oil per person.
And, for the past six years that rate has risen at a steady 10% a year, which is a trend that should peak around 2111.
In the next couple of years, the country’s bean oil, palm oil, olive oil and grape seed oil imports will top a combined 350 million tons.
Within the edible oil industry, the Chinese olive oil market is now the focus of global attention.
At a closed Republican fund-raiser in Houston last week – one at which video recording was banned, but one attendee captured on a mobile phone – President Bush described what caused the US’s current economic malaise this way:
“Wall Street got drunk – that’s one reason I asked you to turn off your TV cameras – it got drunk, and now it’s got a hangover. The question is, ‘How long will it sober up and not try to do all these fancy financial instruments?’”
On Monday the White House tried to clean up the President's statement.
A Bush spokesperson said,
“The markets were using very complex financial instruments that had grown up over the years, and when confronted with the shock of this housing downturn, they did not fully understand what the consequences were going to be.”
Oh baby, you know this one is right in my wheelhouse.
I can’t stop singing the chorus of The Band’s “Up On Cripple Creek.”
But, other than to reveal my new excuse for getting hammered – “The bartender and bar were using a very complex system of service and pricing while I failed to grow up over the years and when I was confronted with closing time I did not fully understand consequences of ordering three doubles…”
I will demure on this one.
Instead, I’ll just leave this one teed up for you.
On “Wall Street got drunk,” I eagerly await your comments via the exercise of your First Amendment guarantee of free speech – use it while you still have it – this White House still has six months left to work on that.
And, I promise, if you grip it and rip it; I’ll run a bunch of your responses next week.
Now, onto more oily thoughts.
Up, With Two Olives Please
I spent the past two weeks researching Iraq’s oil industry for a story I wanted to run today.
It’s a heck of a story.
Then every financial writer on the planet spent the same time writing, on alternating days, about oil or the failure of deregulation as expressed by federal mortgage lenders.
So, I am going to spike the Iraq piece and save it for a time when the financial media have moved onto to their next obsessions such as – gold that’s found in offshore oil wells that were purchased with loans from Freddy Mac… and about an ex Fannie Mae accountant who’s now a gas station attendant who refuses to let customers buy $4.50 gas with gold or bottles of first growth Bordeaux, because neither are legal tender.
Just like sticks aren’t money… just like birch bark isn’t money… just like yak poo isn’t money… just like gold is not money. Unless, that is you own a website or you write books about grand monetary conspiracies... that’s just pure gold.
Though, I do wonder how the customers of those websites’ manage to pay for the stuff they buy. It must be very time consuming to get all that the gold into the little wires that brings the Internet from house to house.
So, no oil this week, okay, maybe just a drop or two, later, down at the bottom – but nothing heavy like a discussion of Iraq’s geology. Like you, I am simply awash in oil stories.
Instead, this week, I want to share with you a story about outrageous consumption. You see, since 2005, China has been the world’s biggest consumer of oil… edible oils that is.
In fact, the Chinese now annually consume about 44 pounds of edible oil per person.
And, for the past six years that rate has risen at a steady 10% a year, which is a trend that should peak around 2111.
In the next couple of years, the country’s bean oil, palm oil, olive oil and grape seed oil imports will top a combined 350 million tons.
Within the edible oil industry, the Chinese olive oil market is now the focus of global attention.
Friday, July 25, 2008
Reasons why oil prices have pushed higher
I hope members of Congress are paying attention to this issue of IDE, because I’m about to reveal one of the biggest (and most ignored) reasons why oil prices have pushed higher… and exactly how to fix it.
The best way I can explain it is to compare Congress to a doctor.
When you’re sick and go to the doctor, you tell him how bad you feel.
Your doctor then determines – based on your symptoms – why you’re sick and how to make you feel better. Not only will he work on lessening your symptoms, but he’ll also give you medicine – be it an antibiotic or whatever – that treats the root cause of those symptoms.
Now imagine that you have a bacterial infection and instead of giving you those antibiotics, he simply told you to take some Tylenol for the temperature and some over-the-counter allergy medicine for the stuffy nose.
Sure you’d feel better, but if you stopped taking the medicine you’d feel sick again since the cause of the symptoms – the bacterial infection - was never treated.
This is exactly what’s going on in America. Congress spends too much time trying to eliminate symptoms without curing the underlying disease.
In the case of the oil market, what are the symptoms? Well, higher oil prices for one. And a growing amount of speculation is another.
This week Congress took a good, hard look at those symptoms, and they think that limiting speculation in the oil markets is the cure. But did Congress ever wonder what caused this excessive speculation in the first place?
If speculators see one investment rising 10 percent per month and another by five, they’ll buy the one that gives them the best return. So in reality, speculators are just reacting to higher oil prices by buying and looking for the return. They aren’t the cause of high oil prices, just a symptom.
So what caused higher oil prices? We know the obvious answer of more foreign demand from Brazil, India, Russia and China. But this isn’t the only reason why oil prices have gone up so much…
Considering a barrel of oil is priced in US dollars, wouldn’t the 40 percent devaluation of our dollar over the past eight years contribute to higher oil prices?
You bet it has.
My reasoning is very simple, too. As the devalued dollar pushes oil prices higher and higher, speculators look to the oil market as a place to make some decent gains. So they enter the oil market and make bullish bets. As investment increases and the dollar devalues further, prices move higher.
Now these speculators are getting bold. They’ve made good money in the oil markets and ramp up speculation… and you can see exactly where this is heading.
If it weren’t for Congress’ spending money like a bunch of irresponsible dolts, the value of the dollar may have never dropped by 40 percent and the price of oil would be much, much lower today.
The best way I can explain it is to compare Congress to a doctor.
When you’re sick and go to the doctor, you tell him how bad you feel.
Your doctor then determines – based on your symptoms – why you’re sick and how to make you feel better. Not only will he work on lessening your symptoms, but he’ll also give you medicine – be it an antibiotic or whatever – that treats the root cause of those symptoms.
Now imagine that you have a bacterial infection and instead of giving you those antibiotics, he simply told you to take some Tylenol for the temperature and some over-the-counter allergy medicine for the stuffy nose.
Sure you’d feel better, but if you stopped taking the medicine you’d feel sick again since the cause of the symptoms – the bacterial infection - was never treated.
This is exactly what’s going on in America. Congress spends too much time trying to eliminate symptoms without curing the underlying disease.
In the case of the oil market, what are the symptoms? Well, higher oil prices for one. And a growing amount of speculation is another.
This week Congress took a good, hard look at those symptoms, and they think that limiting speculation in the oil markets is the cure. But did Congress ever wonder what caused this excessive speculation in the first place?
If speculators see one investment rising 10 percent per month and another by five, they’ll buy the one that gives them the best return. So in reality, speculators are just reacting to higher oil prices by buying and looking for the return. They aren’t the cause of high oil prices, just a symptom.
So what caused higher oil prices? We know the obvious answer of more foreign demand from Brazil, India, Russia and China. But this isn’t the only reason why oil prices have gone up so much…
Considering a barrel of oil is priced in US dollars, wouldn’t the 40 percent devaluation of our dollar over the past eight years contribute to higher oil prices?
You bet it has.
My reasoning is very simple, too. As the devalued dollar pushes oil prices higher and higher, speculators look to the oil market as a place to make some decent gains. So they enter the oil market and make bullish bets. As investment increases and the dollar devalues further, prices move higher.
Now these speculators are getting bold. They’ve made good money in the oil markets and ramp up speculation… and you can see exactly where this is heading.
If it weren’t for Congress’ spending money like a bunch of irresponsible dolts, the value of the dollar may have never dropped by 40 percent and the price of oil would be much, much lower today.
When event X takes place, gold soars
People buy gold for all kinds of nutty reasons... But Event X is what actually makes gold go up. Each time it's happened, gold has absolutely soared. So you simply look out for Event X, and then you buy.
It's really simple, as I'll show. It has nothing to do with end-of-the-World paranoia or complicated statistics...
Event X first happened in 1973-75, and gold tripled. Event X happened again in 1978-80, and gold had its steepest ascent ever, rising from $150 to peak at $850.
The only other time we've seen Event X is, well, now. And once again, gold has been soaring.
How high can gold go? Our two historical examples suggest that gold simply keeps going – almost infinitely. In short, as long as Event X is in place, gold just keeps going higher.
So what is Event X? It's simply when interest rates fall so low, they don't keep up with inflation. As long as we're in that situation, gold goes up. The logic is incredibly simple... As soon as people get paid less interest than the rate of inflation, they're willing to own gold (which pays no interest).
It's really simple, as I'll show. It has nothing to do with end-of-the-World paranoia or complicated statistics...
Event X first happened in 1973-75, and gold tripled. Event X happened again in 1978-80, and gold had its steepest ascent ever, rising from $150 to peak at $850.
The only other time we've seen Event X is, well, now. And once again, gold has been soaring.
How high can gold go? Our two historical examples suggest that gold simply keeps going – almost infinitely. In short, as long as Event X is in place, gold just keeps going higher.
So what is Event X? It's simply when interest rates fall so low, they don't keep up with inflation. As long as we're in that situation, gold goes up. The logic is incredibly simple... As soon as people get paid less interest than the rate of inflation, they're willing to own gold (which pays no interest).
Thursday, July 24, 2008
If you catch just one biotech bull market, you will never have to work again
I've said that many times the average biotech bull market has been good for 566% gains in less than three years.
At the moment, biotech is looking incredibly bullish right now. Yesterday was the turning point...
Yesterday, shares of biotech giant Genentech shot up 13% as big pharmaceutical company Roche offered to buy it out completely. Roche will have to up its offer... likely valuing Genentech at over $100 billion.
If $100 billion Genentech can sell to a "Big Pharma" company, then every biotech stock has to be in play right now. And biotech just went from the back pages to the front pages... This is when you want to be a buyer.
Biotech has been the quiet performer this year... Oil, bank stocks, and real estate have garnered all the headlines. But biotech has been the stealth winner... Shares of XBI – the S&P Biotech Index Fund – have quietly hit new highs.
Consider the Rydex Biotech Fund (RYOIX), for example. Back in 2000, during the last biotech peak, this fund had $1.4 billion invested. Then, for eight years, biotech stocks did nothing. Assets in the fund absolutely collapsed... bottoming earlier this year at around $60 million – that's more than a 95% fall in assets.
But, what's this? In just the last few weeks, assets in the fund have more than doubled! Investors are quietly creeping in.
Biotechs are an exceptional bargain now, when you size them up on simple, traditional measures of biotech value (like price-to-sales, for instance).
In short, while the companies' stock prices have done nothing in eight years... their businesses have kept growing, so shares are a great value.
Now biotech meets our three criteria for buying:
1.
It's cheap. The businesses have grown for eight years while the share prices have done nothing.
2.
It's ignored/hated – as the 95% peak-to-trough fall in the assets of the Rydex Biotech Fund suggests.
3.
We're finally seeing an uptrend. The Rydex fund has doubled in size in no time. The XBI Biotech Index Fund is hitting new highs.
At the moment, biotech is looking incredibly bullish right now. Yesterday was the turning point...
Yesterday, shares of biotech giant Genentech shot up 13% as big pharmaceutical company Roche offered to buy it out completely. Roche will have to up its offer... likely valuing Genentech at over $100 billion.
If $100 billion Genentech can sell to a "Big Pharma" company, then every biotech stock has to be in play right now. And biotech just went from the back pages to the front pages... This is when you want to be a buyer.
Biotech has been the quiet performer this year... Oil, bank stocks, and real estate have garnered all the headlines. But biotech has been the stealth winner... Shares of XBI – the S&P Biotech Index Fund – have quietly hit new highs.
Consider the Rydex Biotech Fund (RYOIX), for example. Back in 2000, during the last biotech peak, this fund had $1.4 billion invested. Then, for eight years, biotech stocks did nothing. Assets in the fund absolutely collapsed... bottoming earlier this year at around $60 million – that's more than a 95% fall in assets.
But, what's this? In just the last few weeks, assets in the fund have more than doubled! Investors are quietly creeping in.
Biotechs are an exceptional bargain now, when you size them up on simple, traditional measures of biotech value (like price-to-sales, for instance).
In short, while the companies' stock prices have done nothing in eight years... their businesses have kept growing, so shares are a great value.
Now biotech meets our three criteria for buying:
1.
It's cheap. The businesses have grown for eight years while the share prices have done nothing.
2.
It's ignored/hated – as the 95% peak-to-trough fall in the assets of the Rydex Biotech Fund suggests.
3.
We're finally seeing an uptrend. The Rydex fund has doubled in size in no time. The XBI Biotech Index Fund is hitting new highs.
The trend toward gold is spilling into other financial areas
Of the hundreds of "inflation" stories I've heard of in the past year, the most incredible is the one coming out of Vietnam...
Vietnam is experiencing every problem that causes a rush into precious metals... inflation is an incredible 27%, interest rates are over 8%, the stock market was down every day in May, and unemployment has more than doubled (from 2% in '07 to 5.1% this year). Household wealth is drastically declining.
Now here's the interesting part: How are the Vietnamese people reacting to all of this? Did they buy stocks? Real estate? Maybe inflation-protected securities? Or did they just sit on cash?
None of the above.
Vietnam's economic and monetary problems have sent its people fleeing to gold. Not gold stocks... but physical gold bullion. They're hoarding it and hiding it from their government. Hard figures on the size of the local gold trade aren't available, but current estimates are that the public owns 16 million ounces, including 1.3 million ounces imported in the first quarter of 2008. Of this, only about 10% has been deposited into banks (which actually pay 2.5% interest on gold). The remaining 90% is likely under mattresses or hanging around the owner's neck.
The trend toward gold is spilling into other financial areas. After a long period of quoting land prices in Vietnamese dong (the nation's currency), landlords are now setting prices in gold in order to avoid the devaluation. Nguyen Trung Vu, general director of the Ky Moi Real Estate Co, said that while it is complicated, "I think that making transactions with payment in gold will become a trend."
Vietnam is experiencing every problem that causes a rush into precious metals... inflation is an incredible 27%, interest rates are over 8%, the stock market was down every day in May, and unemployment has more than doubled (from 2% in '07 to 5.1% this year). Household wealth is drastically declining.
Now here's the interesting part: How are the Vietnamese people reacting to all of this? Did they buy stocks? Real estate? Maybe inflation-protected securities? Or did they just sit on cash?
None of the above.
Vietnam's economic and monetary problems have sent its people fleeing to gold. Not gold stocks... but physical gold bullion. They're hoarding it and hiding it from their government. Hard figures on the size of the local gold trade aren't available, but current estimates are that the public owns 16 million ounces, including 1.3 million ounces imported in the first quarter of 2008. Of this, only about 10% has been deposited into banks (which actually pay 2.5% interest on gold). The remaining 90% is likely under mattresses or hanging around the owner's neck.
The trend toward gold is spilling into other financial areas. After a long period of quoting land prices in Vietnamese dong (the nation's currency), landlords are now setting prices in gold in order to avoid the devaluation. Nguyen Trung Vu, general director of the Ky Moi Real Estate Co, said that while it is complicated, "I think that making transactions with payment in gold will become a trend."
Tuesday, April 15, 2008
Opportunity To Make Explosive Gains On Stocks
The Worst Financial Disaster to Rip through The Market in Decades... Has Just Handed You an Opportunity to Make Explosive Gains (With Very Little Downside Risk...!) “THANK YOU WALL STREET!” The Last Time Conditions were This Ripe I Made a 9,323% Return... Today, YOUR OPPORTUNITY is Even Better!
Dear Reader,
Wall Street has just handed you the opportunity of a lifetime.
In the midst of the greatest financial disaster in decades (probably since the Great Depression) you have an opportunity to make hundreds – even thousands – of percent returns, with very little downside risk.
It might be hard to believe, but it’s absolutely true.
Right Now, YOUR Opportunity is Even Better...!
I have an extraordinary opportunity to share with you – one that could easily net you 10... 20... maybe even 100 times your money in the coming years.
And you won’t believe how simple it can be. This does not involve buying options or using leverage. Nor must you put your money at undue risk.
This opportunity is in a market sector that I specialize in. And I didn’t think I would ever be able to say this in my lifetime, but...
It is an even BETTER VALUE TODAY than it was years ago when I got involved!
There has never been a better time to invest in this market than RIGHT NOW.
I’ll explain everything below. But before I do...
Let’s Give Credit Where Credit is Due...
If you want to send a thank you note to those responsible for this once-in-a-lifetime opportunity, address it to the con-artists at Wall Street’s biggest banks.
You see, for years these over-educated charlatans in pin-striped suits have played as if they mastered the art of financial alchemy... turning steaming piles of manure into solid gold bricks.
With their structured investment vehicles (SIVs) and collateralized debt obligations (CDOs) and a whole alphabet soup of exotic scams, the swindlers took over a trillion dollars in toxic mortgages and “structured” them into pristine packages of highly rated debt.
After keeping some for themselves, they sold this debt to hedge funds, foreign investors, other banks and the pension funds that manage the accounts of little old ladies across America.
For a while, everything was humming along smoothly...
As real estate prices continued to climb and the economy continued to grow and the underlying borrowers continued to pay up, the swindle worked just fine.
But you know what happened next...
Real estate prices fell... the economy weakened... and the over-indebted borrowers at the bottom of this giant pyramid began to default on their obligations.
So far, the banks and other holders of these loans have already written off more than $215 billion. And when it’s all said and done, some estimate the write-downs could total well over a TRILLION dollars!
But that’s nothing compared to the $7.7 trillion that has been lost in the global stock markets just since October.
But There is a Bright Side to this Mess... And it Could Hand You 1,000% Returns
You see, in all the confusion and uncertainty caused by this PhD-level financial disaster, masses of investors joined a mad rush to “sell it all”.
In their panic, they pushed prices down across the board. Of course, some sectors, like the financials, deserved to get crushed.
Other sectors were simply caught in the crossfire. And one of the markets that has suffered the most is one that has consumed my time and intellect for the better part of 15 years.
Right now... thanks in large part to the crisis on Wall Street... the values in this sector are positively absurd! Stocks with extraordinary value are trading for pennies on the dollar.
The health of the U.S. economy is on very shaky ground, to put it mildly. I believe we have already entered a recession, and there’s a good chance we’ll see a full-blown depression in the coming years.
And it’s not just our economy. The U.S. dollar is tanking too. And while it may bounce, bounce,
bounce... the long-term trend is down, down, down
If they do anything at all, the bailouts, rate cuts and “stimulus” plans will only delay the pain, making the end result that much worse.
Here is the bottom line: If you do not act quickly and decisively, your personal wealth and even your way of life could be at serious risk.
But the demise of the dollar and a weakening economy won’t be a calamity for everyone. There are some who will do a lot better than survive... they’ll thrive. And I want you to be among them.
So, keep reading, and I’ll show you how to protect your wealth... and potentially make better returns than you have ever imagined!
Let’s get to it...
Let Me Lead You to the Opportunities of a Lifetime
The ongoing bull market in commodities and natural resources will continue to be one of the greatest financial mega-trends of the coming decade and beyond.
But I can already guess what you might be thinking... right now seems a little late to the party.
Gold has cleared $1,000 an ounce... silver is over $20... platinum and copper are at all-time highs... crude oil is more than $100 a barrel.
With most commodities near their record highs, how can I possibly say that NOW is the best time in a decade to get involved?
Let me assure you, it is. Because I’m prepared to lead you to...
The Most Undervalued Sector of The Natural Resources Market (By Far!)
I specialize within a unique (and extremely profitable!) niche of the natural resources market – exploration companies.
These are the highly talented and specialized firms that go out and discover the world’s natural resources. Everything from gold and silver... to oil and gas... diamonds, platinum, nickel, lead, zinc and copper, the exploration companies literally draw the treasure maps.
And during a bull market in natural resources, the payoff to investors in these companies can be astronomical. In the last precious metals bull market, many mining stocks went from under $2 a share to well over $100 a share between 1975 and 1980.
Today, more than 20 years later, we are near the beginning stages of another – this time a MAJOR – bull market in gold, silver and virtually all commodities. And if history is any indication, this bull still has years left to run.
In the last 100 years, there were three major commodities bull markets. The shortest lasted 14 years and the longest lasted 23 years. If this one is simply average, we’ve still got another 10 years to go... at least!
So, if you think you missed out on the commodities boom, think again. Amazingly, you can still get in on the ground floor. But this opportunity won’t last long.
The Buy of a Lifetime is Here and Now!
Because of their significant leverage to the price of gold and silver, mining stocks usually outperform the metals in a precious metals bull market. As the price of gold and silver rise, gold and silver stocks rise even faster.
But that’s not what has happened, recently...
While the price of gold rose roughly 50% between August of 2007 and March of 2008, gold stocks gained only about 40%. That’s still quite a move, but it hasn’t kept up with the metal.
And get this...
During the same time period, the exploration companies (they’re also called the “juniors”) have actually gone DOWN! That’s amazing. These are the companies that typically demonstrate the greatest leverage of all.
Rather than following the metals up, the junior mining stocks have been following the markets down
Amazingly, while gold and silver, oil, copper, platinum, uranium, and a whole host of commodities are soaring in value... the companies that explore for these natural resources have been positively beaten down.
Many companies with extraordinary potential are trading for just pennies on the dollar, priced as if gold is at $400 instead of $1,000.
The global financial crisis has caused investors to sell shares in just about everything, driving prices down. But if anything has value in a world that is awash in paper money, it is hard assets... real tangible things... natural resources.
And that’s where YOUR opportunity lies.
These Companies Might Be Juniors... But Their Returns are Truly GIANT!!
In the midst of a precious metals bull market of historic proportions, the exploration companies are seriously lagging the resources they are exploring for. These companies are due for a major run. And when they get hot, they’ll blast off like rockets.
Why NOW IS THE TIME to Enter the Junior Resource Market
Over the last six years, the bull market in precious metals and commodities has brought billions of dollars in capital to the exploration sector.
This money has already been put to work, and many of these companies are working on highly promising targets and proving reserves. That means there is a lot less risk and less time to wait than if you had bought shares years ago.
And not only that, but the materials these companies will help bring to market... gold, silver, platinum, oil, uranium, copper... you name it... these resources are at or near their all-time highs.
There has never been a greater reward for discovering these resources... and yet the companies that are out there doing it are about as cheap as they have ever been. There is a MAJOR disconnect here... and it’s one that can make you RICH!
Today, you can buy some extraordinary exploration stocks for just pennies a share... stocks that with just a little success, will soon sell for $10 or $20... or even more!
The Junior Exploration Companies are Essential to the World’s Quest for Resources
Currently, the demand for natural resources and precious metals is growing at the fastest rate in history. Now combine that with the fact that most of the world’s biggest mines are experiencing falling reserves.
Take gold, for example. Despite the incentive of the highest prices ever, global gold production fell to its lowest point in 10 years in 2007. This is happening while worldwide gold demand is exploding.
Talk about a squeeze play of massive proportions!
And it’s not just gold... this is happening with many other commodities too. The major mining companies MUST replenish their diminishing reserves. And in most cases, the only way to do that is to buy out or joint venture with the juniors.
The big mining companies need new deposits... and they need them NOW!
And to get them, they are willing to pay up... BIG TIME!
With cash pouring in from high commodity prices, the mining companies will not miss this opportunity to buy the undervalued juniors. In the months and years ahead, there will be a flood of mergers and takeovers as these cash-rich producers go shopping.
This is your chance to get in early.
$2,000 Gold...? Think More Like $6,000 Gold...!
There is no rush quite like a gold rush. And we are about to see a gold rush like never before.
In 1980, the price of gold hit $850 per ounce. We’ve already eclipsed that high-water mark. But don’t forget about inflation. Today’s dollars are worth a lot less than they were 30 years ago.
In fact, if you adjusted for the “official” rate of inflation, gold would have to hit $2,150 an ounce, before it breaks the old all-time high. I believe that’s a given.
Lies, Damned Lies, and Government Statistics
But just about any housewife in charge of the family budget could tell you the “official” rate of inflation is a lie. By taking out food and energy and tinkering with the way it’s calculated, the government has managed to hide the fact that inflation is soaring.
And with the central banks continuing to pump out liquidity, it looks like there is no end in sight.
Even today, with gold near $1,000 an ounce, the yellow metal is still a long, long way from the top.
And just wait until the REAL rush for the lifeboats begins! When the dollar comes under serious pressure, as it certainly will, millions will turn to precious metals as a store of wealth.
When that time comes, the upward pressure on gold and silver and the companies that explore for these metals will be astronomical.
So, let me tell you how to climb on board for a very profitable adventure.
Build a Fortress of Wealth with The World’s Most Valuable Natural Resources
You might have heard that resource exploration stocks can be risky. They are definitely volatile, but they don’t have to be “risky.”
When you buy an exploration stock, there is always the risk the company won’t find a significant deposit before the money runs out.
The way to reduce this ‘company specific’ risk, of course, is to invest in multiple companies. This limits your downside risk while still exposing you to tremendous upside potential.
And when you can buy shares for less than a dollar, you can control thousands of shares with a very small commitment of capital. When these companies are successful, you can make a fortune almost overnight!
It also helps to buy when the sector is out of favor and deeply undervalued... as it is TODAY.
But there is even more you can do besides spreading your risk and buying when the time is right.
A Nine-Step, Well-Proven System for Picking Winning Exploration Stocks
Buying exploration stocks that meet these criteria, can help to dramatically reduce your risk.
Management must have a successful track record – The greatest assets of an exploration company are the talent and motivation of its management team. Just having great properties is not enough. The management team should also have a high level of experience and a proven track record of exploration success.
I primarily choose “project generators” – These are companies whose operating plan is to discover resource assets, retain a significant ownership stake, and then turn those properties over to well-funded joint venture partners for the capital intensive development and production.
The company must have multiple irons in the fire – The safest companies are those that have multiple projects in the works, preferably in multiple countries. That way you get exposure to major discoveries on many fronts.
Management must be invested – You want management working alongside your own interests. You want them to be shareholders, with their own money on the line, not just options grants.
The company must be financially sound – You want companies with sufficient working capital, low or no debt, and the ability to run a tight ship. What you want is STAYING POWER.
I only seek companies that have MASSIVE potential – There’s always the risk that a property won’t pan out. That’s why you invest in companies where every project could host a world-class discovery. You want your companies hunting elephants... in elephant country.
I always buy early... and I buy right – This is not about chasing momentum. You want to buy these stocks early, at a good price. Timing can mean the difference between a $10,000 and a $100,000 windfall.
I am wary of political risk – There are plentiful resources in countries with low political risk. Generally, you should avoid areas with the greatest political risk, and stick to exploration in countries like Mexico, the U.S., Argentina, China, Brazil, Australia, Canada, etc.
The company must have promotional skills – Experienced geologists who can find the deposits are mandatory. But you also want a company that can promote itself and has a plan to tell its story.
By following these simple criteria... and spreading your bets across multiple companies... you achieve extraordinary success.
When you combine this strategy with a bull market of historical proportions (and the fact that these companies are as cheap as they have been in years) the odds of success are decidedly in your favor!
Dear Reader,
Wall Street has just handed you the opportunity of a lifetime.
In the midst of the greatest financial disaster in decades (probably since the Great Depression) you have an opportunity to make hundreds – even thousands – of percent returns, with very little downside risk.
It might be hard to believe, but it’s absolutely true.
Right Now, YOUR Opportunity is Even Better...!
I have an extraordinary opportunity to share with you – one that could easily net you 10... 20... maybe even 100 times your money in the coming years.
And you won’t believe how simple it can be. This does not involve buying options or using leverage. Nor must you put your money at undue risk.
This opportunity is in a market sector that I specialize in. And I didn’t think I would ever be able to say this in my lifetime, but...
It is an even BETTER VALUE TODAY than it was years ago when I got involved!
There has never been a better time to invest in this market than RIGHT NOW.
I’ll explain everything below. But before I do...
Let’s Give Credit Where Credit is Due...
If you want to send a thank you note to those responsible for this once-in-a-lifetime opportunity, address it to the con-artists at Wall Street’s biggest banks.
You see, for years these over-educated charlatans in pin-striped suits have played as if they mastered the art of financial alchemy... turning steaming piles of manure into solid gold bricks.
With their structured investment vehicles (SIVs) and collateralized debt obligations (CDOs) and a whole alphabet soup of exotic scams, the swindlers took over a trillion dollars in toxic mortgages and “structured” them into pristine packages of highly rated debt.
After keeping some for themselves, they sold this debt to hedge funds, foreign investors, other banks and the pension funds that manage the accounts of little old ladies across America.
For a while, everything was humming along smoothly...
As real estate prices continued to climb and the economy continued to grow and the underlying borrowers continued to pay up, the swindle worked just fine.
But you know what happened next...
Real estate prices fell... the economy weakened... and the over-indebted borrowers at the bottom of this giant pyramid began to default on their obligations.
So far, the banks and other holders of these loans have already written off more than $215 billion. And when it’s all said and done, some estimate the write-downs could total well over a TRILLION dollars!
But that’s nothing compared to the $7.7 trillion that has been lost in the global stock markets just since October.
But There is a Bright Side to this Mess... And it Could Hand You 1,000% Returns
You see, in all the confusion and uncertainty caused by this PhD-level financial disaster, masses of investors joined a mad rush to “sell it all”.
In their panic, they pushed prices down across the board. Of course, some sectors, like the financials, deserved to get crushed.
Other sectors were simply caught in the crossfire. And one of the markets that has suffered the most is one that has consumed my time and intellect for the better part of 15 years.
Right now... thanks in large part to the crisis on Wall Street... the values in this sector are positively absurd! Stocks with extraordinary value are trading for pennies on the dollar.
The health of the U.S. economy is on very shaky ground, to put it mildly. I believe we have already entered a recession, and there’s a good chance we’ll see a full-blown depression in the coming years.
And it’s not just our economy. The U.S. dollar is tanking too. And while it may bounce, bounce,
bounce... the long-term trend is down, down, down
If they do anything at all, the bailouts, rate cuts and “stimulus” plans will only delay the pain, making the end result that much worse.
Here is the bottom line: If you do not act quickly and decisively, your personal wealth and even your way of life could be at serious risk.
But the demise of the dollar and a weakening economy won’t be a calamity for everyone. There are some who will do a lot better than survive... they’ll thrive. And I want you to be among them.
So, keep reading, and I’ll show you how to protect your wealth... and potentially make better returns than you have ever imagined!
Let’s get to it...
Let Me Lead You to the Opportunities of a Lifetime
The ongoing bull market in commodities and natural resources will continue to be one of the greatest financial mega-trends of the coming decade and beyond.
But I can already guess what you might be thinking... right now seems a little late to the party.
Gold has cleared $1,000 an ounce... silver is over $20... platinum and copper are at all-time highs... crude oil is more than $100 a barrel.
With most commodities near their record highs, how can I possibly say that NOW is the best time in a decade to get involved?
Let me assure you, it is. Because I’m prepared to lead you to...
The Most Undervalued Sector of The Natural Resources Market (By Far!)
I specialize within a unique (and extremely profitable!) niche of the natural resources market – exploration companies.
These are the highly talented and specialized firms that go out and discover the world’s natural resources. Everything from gold and silver... to oil and gas... diamonds, platinum, nickel, lead, zinc and copper, the exploration companies literally draw the treasure maps.
And during a bull market in natural resources, the payoff to investors in these companies can be astronomical. In the last precious metals bull market, many mining stocks went from under $2 a share to well over $100 a share between 1975 and 1980.
Today, more than 20 years later, we are near the beginning stages of another – this time a MAJOR – bull market in gold, silver and virtually all commodities. And if history is any indication, this bull still has years left to run.
In the last 100 years, there were three major commodities bull markets. The shortest lasted 14 years and the longest lasted 23 years. If this one is simply average, we’ve still got another 10 years to go... at least!
So, if you think you missed out on the commodities boom, think again. Amazingly, you can still get in on the ground floor. But this opportunity won’t last long.
The Buy of a Lifetime is Here and Now!
Because of their significant leverage to the price of gold and silver, mining stocks usually outperform the metals in a precious metals bull market. As the price of gold and silver rise, gold and silver stocks rise even faster.
But that’s not what has happened, recently...
While the price of gold rose roughly 50% between August of 2007 and March of 2008, gold stocks gained only about 40%. That’s still quite a move, but it hasn’t kept up with the metal.
And get this...
During the same time period, the exploration companies (they’re also called the “juniors”) have actually gone DOWN! That’s amazing. These are the companies that typically demonstrate the greatest leverage of all.
Rather than following the metals up, the junior mining stocks have been following the markets down
Amazingly, while gold and silver, oil, copper, platinum, uranium, and a whole host of commodities are soaring in value... the companies that explore for these natural resources have been positively beaten down.
Many companies with extraordinary potential are trading for just pennies on the dollar, priced as if gold is at $400 instead of $1,000.
The global financial crisis has caused investors to sell shares in just about everything, driving prices down. But if anything has value in a world that is awash in paper money, it is hard assets... real tangible things... natural resources.
And that’s where YOUR opportunity lies.
These Companies Might Be Juniors... But Their Returns are Truly GIANT!!
In the midst of a precious metals bull market of historic proportions, the exploration companies are seriously lagging the resources they are exploring for. These companies are due for a major run. And when they get hot, they’ll blast off like rockets.
Why NOW IS THE TIME to Enter the Junior Resource Market
Over the last six years, the bull market in precious metals and commodities has brought billions of dollars in capital to the exploration sector.
This money has already been put to work, and many of these companies are working on highly promising targets and proving reserves. That means there is a lot less risk and less time to wait than if you had bought shares years ago.
And not only that, but the materials these companies will help bring to market... gold, silver, platinum, oil, uranium, copper... you name it... these resources are at or near their all-time highs.
There has never been a greater reward for discovering these resources... and yet the companies that are out there doing it are about as cheap as they have ever been. There is a MAJOR disconnect here... and it’s one that can make you RICH!
Today, you can buy some extraordinary exploration stocks for just pennies a share... stocks that with just a little success, will soon sell for $10 or $20... or even more!
The Junior Exploration Companies are Essential to the World’s Quest for Resources
Currently, the demand for natural resources and precious metals is growing at the fastest rate in history. Now combine that with the fact that most of the world’s biggest mines are experiencing falling reserves.
Take gold, for example. Despite the incentive of the highest prices ever, global gold production fell to its lowest point in 10 years in 2007. This is happening while worldwide gold demand is exploding.
Talk about a squeeze play of massive proportions!
And it’s not just gold... this is happening with many other commodities too. The major mining companies MUST replenish their diminishing reserves. And in most cases, the only way to do that is to buy out or joint venture with the juniors.
The big mining companies need new deposits... and they need them NOW!
And to get them, they are willing to pay up... BIG TIME!
With cash pouring in from high commodity prices, the mining companies will not miss this opportunity to buy the undervalued juniors. In the months and years ahead, there will be a flood of mergers and takeovers as these cash-rich producers go shopping.
This is your chance to get in early.
$2,000 Gold...? Think More Like $6,000 Gold...!
There is no rush quite like a gold rush. And we are about to see a gold rush like never before.
In 1980, the price of gold hit $850 per ounce. We’ve already eclipsed that high-water mark. But don’t forget about inflation. Today’s dollars are worth a lot less than they were 30 years ago.
In fact, if you adjusted for the “official” rate of inflation, gold would have to hit $2,150 an ounce, before it breaks the old all-time high. I believe that’s a given.
Lies, Damned Lies, and Government Statistics
But just about any housewife in charge of the family budget could tell you the “official” rate of inflation is a lie. By taking out food and energy and tinkering with the way it’s calculated, the government has managed to hide the fact that inflation is soaring.
And with the central banks continuing to pump out liquidity, it looks like there is no end in sight.
Even today, with gold near $1,000 an ounce, the yellow metal is still a long, long way from the top.
And just wait until the REAL rush for the lifeboats begins! When the dollar comes under serious pressure, as it certainly will, millions will turn to precious metals as a store of wealth.
When that time comes, the upward pressure on gold and silver and the companies that explore for these metals will be astronomical.
So, let me tell you how to climb on board for a very profitable adventure.
Build a Fortress of Wealth with The World’s Most Valuable Natural Resources
You might have heard that resource exploration stocks can be risky. They are definitely volatile, but they don’t have to be “risky.”
When you buy an exploration stock, there is always the risk the company won’t find a significant deposit before the money runs out.
The way to reduce this ‘company specific’ risk, of course, is to invest in multiple companies. This limits your downside risk while still exposing you to tremendous upside potential.
And when you can buy shares for less than a dollar, you can control thousands of shares with a very small commitment of capital. When these companies are successful, you can make a fortune almost overnight!
It also helps to buy when the sector is out of favor and deeply undervalued... as it is TODAY.
But there is even more you can do besides spreading your risk and buying when the time is right.
A Nine-Step, Well-Proven System for Picking Winning Exploration Stocks
Buying exploration stocks that meet these criteria, can help to dramatically reduce your risk.
Management must have a successful track record – The greatest assets of an exploration company are the talent and motivation of its management team. Just having great properties is not enough. The management team should also have a high level of experience and a proven track record of exploration success.
I primarily choose “project generators” – These are companies whose operating plan is to discover resource assets, retain a significant ownership stake, and then turn those properties over to well-funded joint venture partners for the capital intensive development and production.
The company must have multiple irons in the fire – The safest companies are those that have multiple projects in the works, preferably in multiple countries. That way you get exposure to major discoveries on many fronts.
Management must be invested – You want management working alongside your own interests. You want them to be shareholders, with their own money on the line, not just options grants.
The company must be financially sound – You want companies with sufficient working capital, low or no debt, and the ability to run a tight ship. What you want is STAYING POWER.
I only seek companies that have MASSIVE potential – There’s always the risk that a property won’t pan out. That’s why you invest in companies where every project could host a world-class discovery. You want your companies hunting elephants... in elephant country.
I always buy early... and I buy right – This is not about chasing momentum. You want to buy these stocks early, at a good price. Timing can mean the difference between a $10,000 and a $100,000 windfall.
I am wary of political risk – There are plentiful resources in countries with low political risk. Generally, you should avoid areas with the greatest political risk, and stick to exploration in countries like Mexico, the U.S., Argentina, China, Brazil, Australia, Canada, etc.
The company must have promotional skills – Experienced geologists who can find the deposits are mandatory. But you also want a company that can promote itself and has a plan to tell its story.
By following these simple criteria... and spreading your bets across multiple companies... you achieve extraordinary success.
When you combine this strategy with a bull market of historical proportions (and the fact that these companies are as cheap as they have been in years) the odds of success are decidedly in your favor!
Monday, April 14, 2008
Investors Delight on Income
Only 1 out of 5 Americans has enough savings to cover their living expenses for more than 6 months, according to LexisNexis
To maintain your current lifestyle after you stop working, you'll have to earn between 70% and 75% of your pre-retirement income. YEAH, RIGHT!
Social Security Surprise: Think your benefits will be there when you need them? Think again. Oh -- and your family owes Uncle Sam $473,456, too
Your pension -- GONE? $22.8 billion deficit at government pension insurance agency threatens the security of every hard-working American -- including you
Don't panic -- HELP is here! Make back every dollar you lose in government shortfalls, volatile Wall Street markets, housing bubbles -- and MORE
REVEALED IN THIS REPORT: The names of 3 under-the-radar dividend-paying stocks you MUST BUY in the NEXT 5 DAYS -- that have already rewarded some investors with a total return of 49.21%
GOOD-BYE, OLD MAN STOCKS! These income producers are NOT your father's fuddy-duddy blue chips ... these exciting, little-known companies give you STEADY gains for a safe secure future.
Dear Fellow Market-watcher:
If you ignore this warning and put your faith in government-backed Social Security or a company-sponsored pension in the hope you'll have an easy retirement ... it's just like FLUSHING YOUR FUTURE DOWN THE TOILET.As an advocate for potential investors, I don't want to see you make this mistake. You deserve a better future.
Give me the next five minutes to explain everything in this critical report and I promise to let you in on a guaranteed strategy that can ...
-- protect you from the coming Social Security bankruptcy
-- shield you from the coming blast of inflation
-- guard you against the coming pension debacle
... AND ...
-- fill your mailbox with a steady stream of steady income ... every month ... for the rest of your life.
Best of all, you could begin seeing your first checks in the next 90 days.
It's so easy.
Just imagine:
While other people only have bills to look forward to when they get their mail - YOU COULD BE pulling out a fistful of new cash and getting RICHER every time you open your mailbox -- if you make the right moves NOW.
My specialty is helping early-bird potential investors learn how to rake in reliable and consistent monthly income. Specifically, from dividend-producing stocks.
They're among the SAFEST investments on earth.
They don't involve options, short selling, market timing, betting on commodities, hedge funds, derivatives, the volatility of gold ... or any other high-risk strategy.
As I demonstrate below, this strategy delivers healthy gains ... month after month, year after year ... and can build you a "wealth fortress" for a lifetime of independence and security.
I give you my word: We'll get a total gain from EACH stock of AT LEAST 14% ...and usually more ... or I won't bother with them.
For the past 12 months and counting, my recommendations have been spot-on:
Crescent Real Estate Equities gave us a 27.39% gain in 16 months ... Dominion returned a gain of 14.18% in 14 months ... Inco showered us with a windfall gain of 85.83% in 11 months.
Then there was the 24.82% gain we pocketed from Verizon in only 12 months ... a 24.60% gain in 11 months from OMI ...
I could reveal the names of many more (and I will, in just a second), but first --
Let's put it in perspective:
Just ONE of these stocks would have protected you from the bite of inflation (roughly 2.9%) and still could've handed you a juicy profit!
Can you see why income investors jump for joy every time the mail comes?
There's another reason, too: higher returns.
Standard & Poor's predicts that over the next few years, the average annual appreciation in stock prices will be an anemic 6% -- if that. Let me ask you:
If you were concerned about the total return of your investments, wouldn't YOU zero in on the dividend payout? Wouldn't you hope to do better than 6%?
You bet you would.
Well, WE did.
As investors in dividend-paying stocks, we'd be rewarded with an 9.20% dividend from BP Prudhoe Bay ... more than 8% from American Capital Strategies ... a healthy 10% from MCG Capital ... 9.70% from Genco ... 10.30% from Double Hull ...
Should you rush out and buy these now? Heck, no!
They're great stocks, to be sure, but I have something much better in mind for you.
These stocks have already rewarded us with a combined total gain of 49.21%. If my analysis is correct, they've only BEGUN their rapid climb.
And finally, I'm going to tell you how to gain membership in a unique program that uncovers safe, high-yielding dividend-paying stocks EVERY month.
More on that in a minute. First, I have to ask you ...
Do you want to follow the jittery "record-breaking" Dow ... or do you
want to make real money?
I'm really steamed.
Because honest investors are being handed a line of bull about the Dow's new highs this fall. They're getting a false picture of how things are -- and it could put them at grave risk.
Here's why I'm so riled:
When the Dow hit a new peak in October, the media was all over the story like a cheap suit.
Break out the champagne! The economy is strong. Inflation is under control. Interest rates are going to tumble. Whoopee!
But astute investors saw three things that the media did not dwell on:
First: to get any good news from this spike, your portfolio would have to consist of every one of 30 big-company stocks in the Dow index
How many portfolios are like that? Right: VERY FEW.
Second: The Dow is a price-weighted average. This means that the higher the price of the stock, the more it influences the index itself.
But remember: the Dow is made up of only 30 stocks.
There are over 10,000 publicly-traded stocks in the U.S. Bottom line: having the most closely watched index comprised of only 30 is ludicrous and paints a PHONY picture of prosperity.
Third and MOST SIGNIFICANT: Of the 30 stocks in the Dow, only 10 are actually higher today than they were back on its high on January 14, 2000.
That means that TWO-THIRDS of the stocks sitting in the Dow's "record high" are LOWER than they were SIX YEARS AGO.
For investors, the news is grossly misleading. It gives a false sense of security. The benefits are as much of an illusion as Enron's ethics. And just as deceitful.
A better indicator of overall market conditions is the S&P 500. But when you look closely at this index, the picture looks worse:
The broader-based S&P 500 is still about 11% BELOW its record March 24, 2000 high of 1552.87.
Forget about the Nasdaq:
It's off more than 54% from its peak above 5000 that it reached in March 2000. Put another way: it hasn't even made it back to half of its all-time high.
How many Wall Street bulls told you this? You guessed it: NONE!
But I WILL -- because I'm concerned about your welfare. I'm determined -- no, make that committed -- to do everything I can to ensure that you don't fall victim to this double-talk and nonsense.
But first I want to prove why I'm firmly convinced that ...
Income stocks will be the hottest investments in 2007 ... and beyond
I was flabbergasted to see the number of investors who ditched dividend-paying stocks in the 1990s.
Clearly, this was abnormal. It certainly wasn't the case for most of the last century. Since 1926, history teaches us that dividends made up 41% of investors' total returns.
In other words, people like you and me made almost HALF of our wealth during the past 100 years from dividends of companies who gave out cash to their shareholders. Not just in boom times either. Even during the worst economic downturns in our history, the prime "way to wealth" was dividends:
After the Crash of '29, corporations paid out as much as 80% of their earnings in dividends to win back investor confidence.
During the Market Slaughter of 2000-2002, companies that paid dividends fared better than non-dividend paying companies.
Much, much better.
While non-dividend paying stocks fell 35%, dividend payers broke even on average -- and only a few companies lowered their payouts. Which proves that they're ultra-reliable.
Believe it or not, corporations love to pay them. Once they start handing them out, companies would rather die than omit them or even cut them.
Even if stock prices fall, investors can still count on a quarterly payment. Which means that dividend-paying stocks are less volatile because the companies pay out CASH.
Amazing, wouldn't you agree?Dividends made investors rich and secure for almost 100 years. So I couldn't understand what happened next, when ...
... investors were seduced by the glitz and false promises of growth companies, particularly in the tech field.
Suddenly, fundamentals didn't matter anymore. Earnings didn't matter. Profits didn't matter.
Even after they heard people like Fidelity superstar manager Peter Lynch and others push stocks that paid dividends -- investors stayed away in droves.
Until the 2000-2002 market collapse.
Then everything changed.
Six years later, the markets still haven't recovered
Between March 2000 and October 2002, U.S. stocks lost HALF THEIR VALUE -- or $7.4 trillion.
In just two years, the S&P 500 lost 49% of its value.
The Nasdaq got creamed, plunging 78%. In fact, the Nasdaq had the worst performance of ANY U.S. index in 70 years. And as you and I just saw ... the S&P and the Nasdaq are languishing.
When the market fizzled in March 2000, the biotech and tech stocks that didn't pay dividends got hurt the most.
I don't have to tell you: investors got wiped out. Lives were ruined and savings vaporized.
Suddenly investors turned back to -- no, they demanded -- the reliable income that dividends provide. Fortunately, corporations who had never issued a dividend payout in their history saw the handwriting on the wall and acted.
If you were in their shoes, what would YOU do?
To stem an investor exodus, wouldn't YOU start paying dividends to hold onto shareholders?
Of course you would! That's exactly what happened, too.
Luckily for investors, the timing couldn't be better:
Since the Bush administration lowered the tax rate on dividends from 38.6% to a maximum rate of 15%, investors are able to keep MORE dividend income now than ever before.
With the lower tax rate, even the dividend-averse tech sector has come around. Now more than 24 U.S.-based tech companies have started paying dividends. What was unthinkable 6 years ago is now commonplace.
Corporations love paying dividends. Because corporate honchos own a lot of their company's stock, they get a windfall at the lower tax rate, too.
From January 2003 through March 2005, 36 companies paid out dividends for the first time. Of those, 24 went on to INCREASE them. That's almost 7 out of 10 companies.
In 2004, more than 1,740 companies tracked by Standard & Poors increased their dividends. That's about 1 out of 4 companies in the index.
During the 2001-2004 period, when the market crash gave way to recovery, the total returns of dividend-paying stocks in the S&P 500 rose 40.5%, compared to only 27.4% for non-dividend payers.
The facts are clear: After years of fear and craziness in the markets ... after wild interest rate spikes and an accelerating meltdown in real estate ... after deceptive news about the Dow and the S&P and the Nasdaq ...
... investors are RUNNING BACK to dividend-paying stocks because ...
They want the safety.
They want the security.
And most of all: they want to PUT MONEY IN THEIR POCKETS.
PLUS: More and more companies than ever before are jumping on the bandwagon and paying
dividends. And the trend shows no signs of slowing down.
So let me ask you ...
"Why invest in high-risk growth equities when you can let dividend stocks make you RICHER by 404% ... 553% ... 1,367% and MORE?"
WARNING: Growth stocks may be flashy -- but history proves beyond a doubt: an income stock strategy PUMPS OUT ABOVE AVERAGE total returns over time.
From 1975 to 2005, dividend payers in the SP 500 grew at an annual rate of 10.2% ... while non-dividend paying stocks advanced by a pathetic 4.4%
A dividend stock strategy is ULTRA-SAFE.
Instead of plunging into high-risk options trading or commodities or margins or hedge funds, investors EXPLOIT soaring dividend returns to build wealth by an order of magnitude.
Let me demonstrate.
Had you invested in stocks that pay dividends from 1995 to 2005, you would have raked in returns of:
404% in ACE Limited ... 332% in Alberto-Culver ... 553% in American International Group ... 251% in Becton, Dickinson ... 1,660% in Citigroup ... 1,018% in Doral Financial ...
1,367% in Federal Home Loan ... 930% in First National Lincoln ... 1,011% in Harley-Davidson ... 848% in Home Depot ...
261% in Illinois Tool Works ... 256% in Johnson & Johnson ... 967% in Linear Technology ... 319% in McDonald's ... 1,365% in Paychex ...
1,438% in Pier 1 Imports ... 1,145% in Royal Bancshares ... 800% in Stryker ... 445% in Sysco ... 1,227% in USB Holding ... 441% in Wal-Mart ...
These stocks -- and dozens more -- raised their yields annually for 10 years. Does that mean that they -- or ANY income stock -- will continue to do that forever?No, you and I both know that there are no guarantees when it comes to investing. The risk of losing money never goes away completely.
But those returns weren't a fluke either...
Get a 50% dividend increase with your next Big Mac from McDonald's
I can tell you for a fact: many companies tend to INCREASE their dividends year after year.
More than 100 companies have raised their dividends for 30 years in a row ... 22 companies have done it for 40 years.
In September of 2006, McDonald's hiked its annual dividend almost 50%. This means that the fast food giant raised its yield EVERY YEAR since mailing out the first dividend check 30 years ago.
Microchip Technology, an Arizona-based maker of microcontroller and analog semiconductors, boosted its dividend every quarter since November 2003 -- a hefty total of 850%.
Analog Devices, which makes chips that convert real-world information into electrical signals, jacked up its dividends by 300% since it began paying them.
American Express, Pepsi, Target, Wal-Mart, State Street, Microsoft, Intersil, Guidant, eExclon ... and dozens more ... all PUMPED UP THEIR DIVIDENDS in 2006.
While 10 companies in the Dow "surged" and inflation crept up, dividend investors got more bang for their buck.
Much, much more.
Sweet, isn't it?
As sweet as it is, though, you can have it EVEN BETTER. That's because ...
When you invest in dividend stocks, it's like getting them for FREE!
How?
Because of the power of compounding.
Let's say you own shares in a company that pays you a dividend of $1 a share.
And let's say the payment goes up 10% a year (as we've just seen, that's VERY common). That means your dividend alone will DOUBLE every 7 years. It is this extra bit of compounding that helps your money to grow exponentially. Your original investment increases because you're earning a return on what you originally invested PLUS the dividends you've accumulated.
Over time, it's like PAYING NOTHING for a stock -- but you're still cleaning up on the returns.
When you add price appreciation to dividends, the amount of money you pile up is even more dramatic ...
From 1983 to 2003, the S&P gained 370%.
But if you had re-invested your dividends, your gain more than doubles to 880%! Talk about building a "wealth fortress"!
To maintain your current lifestyle after you stop working, you'll have to earn between 70% and 75% of your pre-retirement income. YEAH, RIGHT!
Social Security Surprise: Think your benefits will be there when you need them? Think again. Oh -- and your family owes Uncle Sam $473,456, too
Your pension -- GONE? $22.8 billion deficit at government pension insurance agency threatens the security of every hard-working American -- including you
Don't panic -- HELP is here! Make back every dollar you lose in government shortfalls, volatile Wall Street markets, housing bubbles -- and MORE
REVEALED IN THIS REPORT: The names of 3 under-the-radar dividend-paying stocks you MUST BUY in the NEXT 5 DAYS -- that have already rewarded some investors with a total return of 49.21%
GOOD-BYE, OLD MAN STOCKS! These income producers are NOT your father's fuddy-duddy blue chips ... these exciting, little-known companies give you STEADY gains for a safe secure future.
Dear Fellow Market-watcher:
If you ignore this warning and put your faith in government-backed Social Security or a company-sponsored pension in the hope you'll have an easy retirement ... it's just like FLUSHING YOUR FUTURE DOWN THE TOILET.As an advocate for potential investors, I don't want to see you make this mistake. You deserve a better future.
Give me the next five minutes to explain everything in this critical report and I promise to let you in on a guaranteed strategy that can ...
-- protect you from the coming Social Security bankruptcy
-- shield you from the coming blast of inflation
-- guard you against the coming pension debacle
... AND ...
-- fill your mailbox with a steady stream of steady income ... every month ... for the rest of your life.
Best of all, you could begin seeing your first checks in the next 90 days.
It's so easy.
Just imagine:
While other people only have bills to look forward to when they get their mail - YOU COULD BE pulling out a fistful of new cash and getting RICHER every time you open your mailbox -- if you make the right moves NOW.
My specialty is helping early-bird potential investors learn how to rake in reliable and consistent monthly income. Specifically, from dividend-producing stocks.
They're among the SAFEST investments on earth.
They don't involve options, short selling, market timing, betting on commodities, hedge funds, derivatives, the volatility of gold ... or any other high-risk strategy.
As I demonstrate below, this strategy delivers healthy gains ... month after month, year after year ... and can build you a "wealth fortress" for a lifetime of independence and security.
I give you my word: We'll get a total gain from EACH stock of AT LEAST 14% ...and usually more ... or I won't bother with them.
For the past 12 months and counting, my recommendations have been spot-on:
Crescent Real Estate Equities gave us a 27.39% gain in 16 months ... Dominion returned a gain of 14.18% in 14 months ... Inco showered us with a windfall gain of 85.83% in 11 months.
Then there was the 24.82% gain we pocketed from Verizon in only 12 months ... a 24.60% gain in 11 months from OMI ...
I could reveal the names of many more (and I will, in just a second), but first --
Let's put it in perspective:
Just ONE of these stocks would have protected you from the bite of inflation (roughly 2.9%) and still could've handed you a juicy profit!
Can you see why income investors jump for joy every time the mail comes?
There's another reason, too: higher returns.
Standard & Poor's predicts that over the next few years, the average annual appreciation in stock prices will be an anemic 6% -- if that. Let me ask you:
If you were concerned about the total return of your investments, wouldn't YOU zero in on the dividend payout? Wouldn't you hope to do better than 6%?
You bet you would.
Well, WE did.
As investors in dividend-paying stocks, we'd be rewarded with an 9.20% dividend from BP Prudhoe Bay ... more than 8% from American Capital Strategies ... a healthy 10% from MCG Capital ... 9.70% from Genco ... 10.30% from Double Hull ...
Should you rush out and buy these now? Heck, no!
They're great stocks, to be sure, but I have something much better in mind for you.
These stocks have already rewarded us with a combined total gain of 49.21%. If my analysis is correct, they've only BEGUN their rapid climb.
And finally, I'm going to tell you how to gain membership in a unique program that uncovers safe, high-yielding dividend-paying stocks EVERY month.
More on that in a minute. First, I have to ask you ...
Do you want to follow the jittery "record-breaking" Dow ... or do you
want to make real money?
I'm really steamed.
Because honest investors are being handed a line of bull about the Dow's new highs this fall. They're getting a false picture of how things are -- and it could put them at grave risk.
Here's why I'm so riled:
When the Dow hit a new peak in October, the media was all over the story like a cheap suit.
Break out the champagne! The economy is strong. Inflation is under control. Interest rates are going to tumble. Whoopee!
But astute investors saw three things that the media did not dwell on:
First: to get any good news from this spike, your portfolio would have to consist of every one of 30 big-company stocks in the Dow index
How many portfolios are like that? Right: VERY FEW.
Second: The Dow is a price-weighted average. This means that the higher the price of the stock, the more it influences the index itself.
But remember: the Dow is made up of only 30 stocks.
There are over 10,000 publicly-traded stocks in the U.S. Bottom line: having the most closely watched index comprised of only 30 is ludicrous and paints a PHONY picture of prosperity.
Third and MOST SIGNIFICANT: Of the 30 stocks in the Dow, only 10 are actually higher today than they were back on its high on January 14, 2000.
That means that TWO-THIRDS of the stocks sitting in the Dow's "record high" are LOWER than they were SIX YEARS AGO.
For investors, the news is grossly misleading. It gives a false sense of security. The benefits are as much of an illusion as Enron's ethics. And just as deceitful.
A better indicator of overall market conditions is the S&P 500. But when you look closely at this index, the picture looks worse:
The broader-based S&P 500 is still about 11% BELOW its record March 24, 2000 high of 1552.87.
Forget about the Nasdaq:
It's off more than 54% from its peak above 5000 that it reached in March 2000. Put another way: it hasn't even made it back to half of its all-time high.
How many Wall Street bulls told you this? You guessed it: NONE!
But I WILL -- because I'm concerned about your welfare. I'm determined -- no, make that committed -- to do everything I can to ensure that you don't fall victim to this double-talk and nonsense.
But first I want to prove why I'm firmly convinced that ...
Income stocks will be the hottest investments in 2007 ... and beyond
I was flabbergasted to see the number of investors who ditched dividend-paying stocks in the 1990s.
Clearly, this was abnormal. It certainly wasn't the case for most of the last century. Since 1926, history teaches us that dividends made up 41% of investors' total returns.
In other words, people like you and me made almost HALF of our wealth during the past 100 years from dividends of companies who gave out cash to their shareholders. Not just in boom times either. Even during the worst economic downturns in our history, the prime "way to wealth" was dividends:
After the Crash of '29, corporations paid out as much as 80% of their earnings in dividends to win back investor confidence.
During the Market Slaughter of 2000-2002, companies that paid dividends fared better than non-dividend paying companies.
Much, much better.
While non-dividend paying stocks fell 35%, dividend payers broke even on average -- and only a few companies lowered their payouts. Which proves that they're ultra-reliable.
Believe it or not, corporations love to pay them. Once they start handing them out, companies would rather die than omit them or even cut them.
Even if stock prices fall, investors can still count on a quarterly payment. Which means that dividend-paying stocks are less volatile because the companies pay out CASH.
Amazing, wouldn't you agree?Dividends made investors rich and secure for almost 100 years. So I couldn't understand what happened next, when ...
... investors were seduced by the glitz and false promises of growth companies, particularly in the tech field.
Suddenly, fundamentals didn't matter anymore. Earnings didn't matter. Profits didn't matter.
Even after they heard people like Fidelity superstar manager Peter Lynch and others push stocks that paid dividends -- investors stayed away in droves.
Until the 2000-2002 market collapse.
Then everything changed.
Six years later, the markets still haven't recovered
Between March 2000 and October 2002, U.S. stocks lost HALF THEIR VALUE -- or $7.4 trillion.
In just two years, the S&P 500 lost 49% of its value.
The Nasdaq got creamed, plunging 78%. In fact, the Nasdaq had the worst performance of ANY U.S. index in 70 years. And as you and I just saw ... the S&P and the Nasdaq are languishing.
When the market fizzled in March 2000, the biotech and tech stocks that didn't pay dividends got hurt the most.
I don't have to tell you: investors got wiped out. Lives were ruined and savings vaporized.
Suddenly investors turned back to -- no, they demanded -- the reliable income that dividends provide. Fortunately, corporations who had never issued a dividend payout in their history saw the handwriting on the wall and acted.
If you were in their shoes, what would YOU do?
To stem an investor exodus, wouldn't YOU start paying dividends to hold onto shareholders?
Of course you would! That's exactly what happened, too.
Luckily for investors, the timing couldn't be better:
Since the Bush administration lowered the tax rate on dividends from 38.6% to a maximum rate of 15%, investors are able to keep MORE dividend income now than ever before.
With the lower tax rate, even the dividend-averse tech sector has come around. Now more than 24 U.S.-based tech companies have started paying dividends. What was unthinkable 6 years ago is now commonplace.
Corporations love paying dividends. Because corporate honchos own a lot of their company's stock, they get a windfall at the lower tax rate, too.
From January 2003 through March 2005, 36 companies paid out dividends for the first time. Of those, 24 went on to INCREASE them. That's almost 7 out of 10 companies.
In 2004, more than 1,740 companies tracked by Standard & Poors increased their dividends. That's about 1 out of 4 companies in the index.
During the 2001-2004 period, when the market crash gave way to recovery, the total returns of dividend-paying stocks in the S&P 500 rose 40.5%, compared to only 27.4% for non-dividend payers.
The facts are clear: After years of fear and craziness in the markets ... after wild interest rate spikes and an accelerating meltdown in real estate ... after deceptive news about the Dow and the S&P and the Nasdaq ...
... investors are RUNNING BACK to dividend-paying stocks because ...
They want the safety.
They want the security.
And most of all: they want to PUT MONEY IN THEIR POCKETS.
PLUS: More and more companies than ever before are jumping on the bandwagon and paying
dividends. And the trend shows no signs of slowing down.
So let me ask you ...
"Why invest in high-risk growth equities when you can let dividend stocks make you RICHER by 404% ... 553% ... 1,367% and MORE?"
WARNING: Growth stocks may be flashy -- but history proves beyond a doubt: an income stock strategy PUMPS OUT ABOVE AVERAGE total returns over time.
From 1975 to 2005, dividend payers in the SP 500 grew at an annual rate of 10.2% ... while non-dividend paying stocks advanced by a pathetic 4.4%
A dividend stock strategy is ULTRA-SAFE.
Instead of plunging into high-risk options trading or commodities or margins or hedge funds, investors EXPLOIT soaring dividend returns to build wealth by an order of magnitude.
Let me demonstrate.
Had you invested in stocks that pay dividends from 1995 to 2005, you would have raked in returns of:
404% in ACE Limited ... 332% in Alberto-Culver ... 553% in American International Group ... 251% in Becton, Dickinson ... 1,660% in Citigroup ... 1,018% in Doral Financial ...
1,367% in Federal Home Loan ... 930% in First National Lincoln ... 1,011% in Harley-Davidson ... 848% in Home Depot ...
261% in Illinois Tool Works ... 256% in Johnson & Johnson ... 967% in Linear Technology ... 319% in McDonald's ... 1,365% in Paychex ...
1,438% in Pier 1 Imports ... 1,145% in Royal Bancshares ... 800% in Stryker ... 445% in Sysco ... 1,227% in USB Holding ... 441% in Wal-Mart ...
These stocks -- and dozens more -- raised their yields annually for 10 years. Does that mean that they -- or ANY income stock -- will continue to do that forever?No, you and I both know that there are no guarantees when it comes to investing. The risk of losing money never goes away completely.
But those returns weren't a fluke either...
Get a 50% dividend increase with your next Big Mac from McDonald's
I can tell you for a fact: many companies tend to INCREASE their dividends year after year.
More than 100 companies have raised their dividends for 30 years in a row ... 22 companies have done it for 40 years.
In September of 2006, McDonald's hiked its annual dividend almost 50%. This means that the fast food giant raised its yield EVERY YEAR since mailing out the first dividend check 30 years ago.
Microchip Technology, an Arizona-based maker of microcontroller and analog semiconductors, boosted its dividend every quarter since November 2003 -- a hefty total of 850%.
Analog Devices, which makes chips that convert real-world information into electrical signals, jacked up its dividends by 300% since it began paying them.
American Express, Pepsi, Target, Wal-Mart, State Street, Microsoft, Intersil, Guidant, eExclon ... and dozens more ... all PUMPED UP THEIR DIVIDENDS in 2006.
While 10 companies in the Dow "surged" and inflation crept up, dividend investors got more bang for their buck.
Much, much more.
Sweet, isn't it?
As sweet as it is, though, you can have it EVEN BETTER. That's because ...
When you invest in dividend stocks, it's like getting them for FREE!
How?
Because of the power of compounding.
Let's say you own shares in a company that pays you a dividend of $1 a share.
And let's say the payment goes up 10% a year (as we've just seen, that's VERY common). That means your dividend alone will DOUBLE every 7 years. It is this extra bit of compounding that helps your money to grow exponentially. Your original investment increases because you're earning a return on what you originally invested PLUS the dividends you've accumulated.
Over time, it's like PAYING NOTHING for a stock -- but you're still cleaning up on the returns.
When you add price appreciation to dividends, the amount of money you pile up is even more dramatic ...
From 1983 to 2003, the S&P gained 370%.
But if you had re-invested your dividends, your gain more than doubles to 880%! Talk about building a "wealth fortress"!
The 2 Commodities That Can Offer You Perpetual Income
Commodity companies have been making a fortune for their shareholders for years.
But what few investors realize is that the best way to profit from the ongoing commodity boom isn't the obvious one – of buying companies that produce or own the natural resources.
Rather, there are several "backdoor" commodity plays that I believe will be much more profitable in the months and years ahead.
(A backdoor play is a way of participating in a popular investment idea that few other people have thought of. It's covert. It attracts scant attention. The "investing herd" has no idea it exists. But it's the absolute best way to invest in a hot idea.)
Today, I'm going to share two of them with you.
The two companies are perfect for income-seeking investors, because they provide a constant stream of cash in the form of hefty dividends. This means you can receive checks in the mail every quarter – or even every month – while you sit back and watch your invested capital grow.
So let's get started...
Opportunity #1:The Oil Sands Story No One Is Telling
Canada's oil sands make up a gargantuan oil deposit in the western province of Alberta.
Trapped beneath the frozen tundra lies seven times more oil than Saudi Arabia's proven reserves... enough oil to last us 4,896 years.
It's not as cheap to produce oil from the oil sands as it is to pump it from conventional deposits. But as long as the international price for crude oil is more than $40 a barrel, it's profitable.
With oil prices around $100 a barrel, business in the Canadian oil sands is absolutely booming. More than $125 billion has been committed to projects in the area. That's 19 times the total U.S. investment in the alternative energy sector.
Of course, this probably isn't news to you. The huge boom in the Canadian oil sands has been widely reported in the press.
And it has made some investors very rich. Big companies like Suncor and Petro-Canada are up more than 1,000% since 2000.
But instead of buying into the obvious investment story that everyone already understands, I've got something much more interesting to tell you about...
The Absolute Best Way to Playthe Oil Sands Boom
Not many people realize this, but it takes huge quantities of natural gas to produce oil from the oil sands. Steam is used to separate the oil from the sand after the workers have dug it up from the ground. And to make that steam, you need natural gas... a thousand cubic feet of natural gas for every barrel of oil processed.
In other words, the Canadian oil-sands industry consumes about 1.1 billion cubic feet of natural gas every day. Of all the gas consumed in Canada every day, more than half of it is used to turn bitumen – oil sand – into oil.
Canada's National Energy Board says, "Natural gas requirements for the oil sands industry are projected to increase to 2.1 billion cubic feet (bcf) per day in 2015."
Currently, the area produces one million barrels of oil a day. Experts believe oil production in the region will quadruple over the next 18 years. That means demand for natural gas will multiply, too... probably to around 3 billion cubic feet per day by 2025.
Here's the thing... Up until now, the major oil companies have either produced their own natural gas or bought it straight from the main pipelines running across Canada.
But sourcing your own is a major pain in the neck. For starters, you have to find it. And it's usually located in some desolate corner of the frozen Canadian tundra.
Then you have to compress it on location and bring it back home in pipelines that could be several hundred miles long. All this work requires lots of heavy equipment, which must be dragged around western Canada, where there aren't many roads and the weather conditions are awful.
Do you really think the major oil companies operating in the oil sands want this hassle? I don't, especially given their ambitious plans in the oil sands.
The answer? Hire a specialist gas provider and secure long-term supplies. That specialist is
AltaGas (TSX: ALA-UN), my first backdoor oil recommendation.
AltaGas is a natural-gas transportation business. It has a fleet of 74 skid-mounted gas plants and compressor stations that it drags around the Canadian countryside.
It also owns a 6,000-kilometer pipeline network that brings gas from the wellheads in the field to the oil companies in the oil sands. AltaGas never owns the gas – it simply collects a fee every time someone wants to use its equipment.
Heading Full Speed into aNatural Gas Supply Crunch
Some investors get nervous about natural gas. But it's important to remember that the natural gas market is cyclical.
Take the current situation, for example. In 2005, natural gas prices rocketed to $15 per thousand cubic feet (mcf) – an astronomical rise. That led to a flood of investment in natural gas projects. By early 2006, the price of natural gas declined, undercutting many of those projects.
But the investment boom left so much infrastructure in the field, it seemed Alberta would never need another oil company, gas well, or pumping station again. Abnormal supplies pushed down prices.
That's about to change. Soon the market will face a deficit, and the whole cycle will repeat itself. Depressed stocks will be highfliers again. We need to get into this trend before the herd...
It looks to me like we're charging headlong into a supply crunch in the natural gas market... and that makes me very bullish on the price of natural gas. In fact, the market is already showing signs of perking up:
In sum, I think there's a good chance natural gas may rise above $10/mcf in the next 24 months. Although AltaGas never actually owns the natural gas, it will profit when higher prices stimulate drillers and explorers to start looking for more gas. More driller activity means more business for AltaGas.
Since AltaGas started business in 1994, it has increased net income every single quarter. Last year, AltaGas brought in C$115 million in net revenue from its combined businesses and paid out C$110 million in dividends. It has never reduced its dividend. Currently, the monthly dividend is 17.5 cents per share – an 8.5% yield.
Action to take: Buy AltaGas (ALA-UN.TO) below C$30.
Buying Canadian stocks is easy – and no riskier than buying American stocks. All good discount brokers can trade them. The fee structure may vary from regular U.S. stocks, but there won't be a big difference. You can trade Canadian stocks online, too. Just call up you broker and ask him for the correct symbol.AltaGas' symbol is ALA-UN.TO. But that's its symbol in Toronto. If you're buying AltaGas through an American broker, he'll give you its U.S. symbol. For AltaGas, that will probably be ATGFF.
Opportunity #2:Oil Patch Banking
The second income-producing commodity-related opportunity I'm excited about is closer to home. It is a predictable money-lending operation that will generate 22% this year from the Texas oil patch... pay no tax... and distribute 95% of its profit back to shareholders.
The company is NGP Capital Resources Company (Nasdaq: NGPC).
NGPC is going to generate an 8% dividend – with an additional 15% jump in the share price by the end of 2007. Beyond 2007, its average annual returns should settle down to around 20%, with 6.5% coming to you in dividends and 13.5% in price appreciation.
How can I be so accurate with my forecast? Suffice it to say, money lending is a very stable, predictable business... as long as people want to borrow.
Houston-based NGPC specializes in energy-patch money lending. All it does is provide financing to very small businesses in the oil patch... These companies are almost always private, fast-growing, and desperate for cash.
NGPC's loans range in size between $10 million and $50 million, and terms vary. NGPC is not subject to many of the limitations that govern traditional lending institutions, so it can be more flexible and close deals quickly.
We don't need to delve into the ins and outs of corporate finance in this report. All you need to know is that NGPC lends money to cash-dry energy companies at exorbitant interest rates.
And, there is very little risk associated with the loans because NGPC demands collateral, equity kickers (shares), and a senior position in the pecking order during liquidations.
NGPC only lends money to very small companies. This is a very important feature of its business for four reasons:
•
For starters, tiny companies don't have access to capital markets. They can't issue stock or bonds, and banks aren't interested. So they have a hard time borrowing money and accept high rates to get it.
•
Secondly, tiny companies grow fastest... Not only are small companies the most desperate companies in the market for cash, but they have the most to gain from a loan. So they'll pay any price to get it... sometimes as much as 20% in annual interest payments, plus a piece of the ownership.
•
Third, investing in small companies allows NGPC to spreads its portfolio over a large number of companies, sectors, industries, and geographical locations. Diversification is one of the secrets of the lending business. The more companies you hold, the more stable your returns become. NGPC has approximately 15 investments and considers companies in oil, gas, coal, electricity, transport, development, production, exploration, and pipelines.
•
Finally, tax is the best reason for investing in small companies. The U.S. government thinks small businesses are vital to the economy and gives huge tax breaks to companies that lend money to them. NGPC is one of these companies.
The official term for NGPC is a Business Development Company (BDC) that has elected to be treated as a Regulated Investment Company (RIC) instead of a corporation for tax purposes. As a result, NGPC doesn't have to pay any corporate tax.
In return for its tax exemption, NGPC must invest in a diversified portfolio of small companies and it must pay out at least 90% of its revenue to shareholders in the form of distributions.
I've already given you many reasons to like NGPC... but I saved the best until last:NGPC's management is the best in the business.
I could tell you about the deep Ivy League, Wall Street, and Big Oil footprint that's all over these guys' resumes. According to the CEO John Homier, "the seniors in our group probably bring together 70 or 80 years, if not more, of cumulative experience in the energy finance business."
But I have something far better: I contacted one of its competitors and asked him what he thought of NGPC's management team. His name is Rick Rule, founder of Global Resource Investments. Global Resources was one of the very few boutique investment firms that survived the 20-year-plus bear market in resource investing.
It's no exaggeration to say that Rick knows every single important executive in the resource business, because for years and years he was the only person in the world who could raise a significant amount of money for small resource companies like the sort NGPC deal with.
Rick gave them the perfect reference. He told me these guys are the best in the business and they're very, very good at what they do.
Action to take: Buy NGP Capital . This is Resources Company (Nasdaq: NGPC) below $16.50ery important: NGPC is a small company with a $270 million market cap. Do not chase this stock above $16.50. Use a trailing stop.
But what few investors realize is that the best way to profit from the ongoing commodity boom isn't the obvious one – of buying companies that produce or own the natural resources.
Rather, there are several "backdoor" commodity plays that I believe will be much more profitable in the months and years ahead.
(A backdoor play is a way of participating in a popular investment idea that few other people have thought of. It's covert. It attracts scant attention. The "investing herd" has no idea it exists. But it's the absolute best way to invest in a hot idea.)
Today, I'm going to share two of them with you.
The two companies are perfect for income-seeking investors, because they provide a constant stream of cash in the form of hefty dividends. This means you can receive checks in the mail every quarter – or even every month – while you sit back and watch your invested capital grow.
So let's get started...
Opportunity #1:The Oil Sands Story No One Is Telling
Canada's oil sands make up a gargantuan oil deposit in the western province of Alberta.
Trapped beneath the frozen tundra lies seven times more oil than Saudi Arabia's proven reserves... enough oil to last us 4,896 years.
It's not as cheap to produce oil from the oil sands as it is to pump it from conventional deposits. But as long as the international price for crude oil is more than $40 a barrel, it's profitable.
With oil prices around $100 a barrel, business in the Canadian oil sands is absolutely booming. More than $125 billion has been committed to projects in the area. That's 19 times the total U.S. investment in the alternative energy sector.
Of course, this probably isn't news to you. The huge boom in the Canadian oil sands has been widely reported in the press.
And it has made some investors very rich. Big companies like Suncor and Petro-Canada are up more than 1,000% since 2000.
But instead of buying into the obvious investment story that everyone already understands, I've got something much more interesting to tell you about...
The Absolute Best Way to Playthe Oil Sands Boom
Not many people realize this, but it takes huge quantities of natural gas to produce oil from the oil sands. Steam is used to separate the oil from the sand after the workers have dug it up from the ground. And to make that steam, you need natural gas... a thousand cubic feet of natural gas for every barrel of oil processed.
In other words, the Canadian oil-sands industry consumes about 1.1 billion cubic feet of natural gas every day. Of all the gas consumed in Canada every day, more than half of it is used to turn bitumen – oil sand – into oil.
Canada's National Energy Board says, "Natural gas requirements for the oil sands industry are projected to increase to 2.1 billion cubic feet (bcf) per day in 2015."
Currently, the area produces one million barrels of oil a day. Experts believe oil production in the region will quadruple over the next 18 years. That means demand for natural gas will multiply, too... probably to around 3 billion cubic feet per day by 2025.
Here's the thing... Up until now, the major oil companies have either produced their own natural gas or bought it straight from the main pipelines running across Canada.
But sourcing your own is a major pain in the neck. For starters, you have to find it. And it's usually located in some desolate corner of the frozen Canadian tundra.
Then you have to compress it on location and bring it back home in pipelines that could be several hundred miles long. All this work requires lots of heavy equipment, which must be dragged around western Canada, where there aren't many roads and the weather conditions are awful.
Do you really think the major oil companies operating in the oil sands want this hassle? I don't, especially given their ambitious plans in the oil sands.
The answer? Hire a specialist gas provider and secure long-term supplies. That specialist is
AltaGas (TSX: ALA-UN), my first backdoor oil recommendation.
AltaGas is a natural-gas transportation business. It has a fleet of 74 skid-mounted gas plants and compressor stations that it drags around the Canadian countryside.
It also owns a 6,000-kilometer pipeline network that brings gas from the wellheads in the field to the oil companies in the oil sands. AltaGas never owns the gas – it simply collects a fee every time someone wants to use its equipment.
Heading Full Speed into aNatural Gas Supply Crunch
Some investors get nervous about natural gas. But it's important to remember that the natural gas market is cyclical.
Take the current situation, for example. In 2005, natural gas prices rocketed to $15 per thousand cubic feet (mcf) – an astronomical rise. That led to a flood of investment in natural gas projects. By early 2006, the price of natural gas declined, undercutting many of those projects.
But the investment boom left so much infrastructure in the field, it seemed Alberta would never need another oil company, gas well, or pumping station again. Abnormal supplies pushed down prices.
That's about to change. Soon the market will face a deficit, and the whole cycle will repeat itself. Depressed stocks will be highfliers again. We need to get into this trend before the herd...
It looks to me like we're charging headlong into a supply crunch in the natural gas market... and that makes me very bullish on the price of natural gas. In fact, the market is already showing signs of perking up:
In sum, I think there's a good chance natural gas may rise above $10/mcf in the next 24 months. Although AltaGas never actually owns the natural gas, it will profit when higher prices stimulate drillers and explorers to start looking for more gas. More driller activity means more business for AltaGas.
Since AltaGas started business in 1994, it has increased net income every single quarter. Last year, AltaGas brought in C$115 million in net revenue from its combined businesses and paid out C$110 million in dividends. It has never reduced its dividend. Currently, the monthly dividend is 17.5 cents per share – an 8.5% yield.
Action to take: Buy AltaGas (ALA-UN.TO) below C$30.
Buying Canadian stocks is easy – and no riskier than buying American stocks. All good discount brokers can trade them. The fee structure may vary from regular U.S. stocks, but there won't be a big difference. You can trade Canadian stocks online, too. Just call up you broker and ask him for the correct symbol.AltaGas' symbol is ALA-UN.TO. But that's its symbol in Toronto. If you're buying AltaGas through an American broker, he'll give you its U.S. symbol. For AltaGas, that will probably be ATGFF.
Opportunity #2:Oil Patch Banking
The second income-producing commodity-related opportunity I'm excited about is closer to home. It is a predictable money-lending operation that will generate 22% this year from the Texas oil patch... pay no tax... and distribute 95% of its profit back to shareholders.
The company is NGP Capital Resources Company (Nasdaq: NGPC).
NGPC is going to generate an 8% dividend – with an additional 15% jump in the share price by the end of 2007. Beyond 2007, its average annual returns should settle down to around 20%, with 6.5% coming to you in dividends and 13.5% in price appreciation.
How can I be so accurate with my forecast? Suffice it to say, money lending is a very stable, predictable business... as long as people want to borrow.
Houston-based NGPC specializes in energy-patch money lending. All it does is provide financing to very small businesses in the oil patch... These companies are almost always private, fast-growing, and desperate for cash.
NGPC's loans range in size between $10 million and $50 million, and terms vary. NGPC is not subject to many of the limitations that govern traditional lending institutions, so it can be more flexible and close deals quickly.
We don't need to delve into the ins and outs of corporate finance in this report. All you need to know is that NGPC lends money to cash-dry energy companies at exorbitant interest rates.
And, there is very little risk associated with the loans because NGPC demands collateral, equity kickers (shares), and a senior position in the pecking order during liquidations.
NGPC only lends money to very small companies. This is a very important feature of its business for four reasons:
•
For starters, tiny companies don't have access to capital markets. They can't issue stock or bonds, and banks aren't interested. So they have a hard time borrowing money and accept high rates to get it.
•
Secondly, tiny companies grow fastest... Not only are small companies the most desperate companies in the market for cash, but they have the most to gain from a loan. So they'll pay any price to get it... sometimes as much as 20% in annual interest payments, plus a piece of the ownership.
•
Third, investing in small companies allows NGPC to spreads its portfolio over a large number of companies, sectors, industries, and geographical locations. Diversification is one of the secrets of the lending business. The more companies you hold, the more stable your returns become. NGPC has approximately 15 investments and considers companies in oil, gas, coal, electricity, transport, development, production, exploration, and pipelines.
•
Finally, tax is the best reason for investing in small companies. The U.S. government thinks small businesses are vital to the economy and gives huge tax breaks to companies that lend money to them. NGPC is one of these companies.
The official term for NGPC is a Business Development Company (BDC) that has elected to be treated as a Regulated Investment Company (RIC) instead of a corporation for tax purposes. As a result, NGPC doesn't have to pay any corporate tax.
In return for its tax exemption, NGPC must invest in a diversified portfolio of small companies and it must pay out at least 90% of its revenue to shareholders in the form of distributions.
I've already given you many reasons to like NGPC... but I saved the best until last:NGPC's management is the best in the business.
I could tell you about the deep Ivy League, Wall Street, and Big Oil footprint that's all over these guys' resumes. According to the CEO John Homier, "the seniors in our group probably bring together 70 or 80 years, if not more, of cumulative experience in the energy finance business."
But I have something far better: I contacted one of its competitors and asked him what he thought of NGPC's management team. His name is Rick Rule, founder of Global Resource Investments. Global Resources was one of the very few boutique investment firms that survived the 20-year-plus bear market in resource investing.
It's no exaggeration to say that Rick knows every single important executive in the resource business, because for years and years he was the only person in the world who could raise a significant amount of money for small resource companies like the sort NGPC deal with.
Rick gave them the perfect reference. He told me these guys are the best in the business and they're very, very good at what they do.
Action to take: Buy NGP Capital . This is Resources Company (Nasdaq: NGPC) below $16.50ery important: NGPC is a small company with a $270 million market cap. Do not chase this stock above $16.50. Use a trailing stop.
Subscribe to:
Posts (Atom)
