Visionary Makes His Move

by Addison Wiggin

  • Oil pioneer on the verge of his second big breakthrough… 3,800 miles away from his first
  • Alan Knuckman with a chart showing how commodity prices have much more room to run
  • Buying at the top? Chris Mayer with an indicator that might signal the start of a major sell-off
  • Since when did the “American Dream” become all about collective bargaining and government checks?
  • “It’s not about the writing”… Readers explain the appeal of Atlas Shrugged


We interrupt our recent litanies — rising raw materials prices, Middle East uprisings, state and local government meltdowns — to note a signal event on the frontier of energy production: The Oil Kitchen is getting hot.


The Brazilian oil firm HRT — the brainchild of Vancouver sensation Marcio Mello — is buying out the Canadian-traded firm UNX Energy for $782 million.

This is big news… for a select lot.

If you’re not hip to the story, here’s the short version: Mello is the guy known in the oil business as “Mr. Drill Deep.” His prodding led executives at the Brazilian oil giant Petrobras to explore the ocean at depths no one else had the guts to imagine — beneath 7,000 feet of ocean water… and another 16,000 feet of rock, salt and sand.

The Petrobras payoff came in 2007 with the discovery of the Tupi field — the largest oil discovery in the Western Hemisphere for 30 years.

Having blazed the trail, Mello left Petrobras to pursue the “next big thing.” He founded his own firm, HRT, and acquired drilling rights off the coast of Namibia, in southwestern Africa.

Back in the day — that is, 250 million years ago — the world’s continents were smashed up together as a single land mass called Pangaea. Pangaea was, at the time, surrounded by a single ocean:


As time passed, the continents separated into the world map you recognize from your elementary geography class.

The result: Geological formations found in one location — like off the coast of Brazil — can be very similar in another location far away — like off the coast of Namibia.

That is, Mello knew if huge quantities of oil lay under the “pre-salt” formations off South America, there was a good chance the same was true off the coast of southwestern Africa. That’s why he picked up the drilling rights to 920 square miles in a backwater almost no one else cared about.

Now, with the UNX acquisition, HRT’s territory nearly triples.

Byron King recommended UNX to readers of his premium advisory Energy & Scarcity Investor in September 2009. The price was then 75 cents a share.


“If things play out with this offshore story,” he wrote, “one of these days, you won’t remember what you paid for the shares.”

HRT is offering $6.17 per share.

That’s a 723% gain.

“Byron King is an extraordinary researcher and analyst,” writes a reader. “He has managed to ferret out and unlock the hidden values of many companies that he has discovered well before other analysts and the market have, so I have profited mightily from his ‘boots on the ground’ approach and acute analysis.”

“I invested $41,030 in nine stocks,” another reader wrote us late last year, “and they are now at $65,095, for a $24,071 gain, or 58%, since Oct. 13.”

Energy & Scarcity Investor is without question my best advisory service,” writes a third. “I have made more money with Byron than anyone else.”

Dig it.

Oil prices are stabilizing after yesterday’s run-up and pullback. WTI trades just below $97 a barrel and Brent a shade above $111, although nothing in Libya has changed fundamentally in the last 24 hours.


The blogosphere is rife with speculation that both the Nymex and ICE exchanges engineered the pullback by choosing yesterday to raise margin requirements.

Then again, Col. Gaddafi’s latest rants may have awakened traders to a sequence of three absurd truths…

  1. Roughly 2% of world oil production lies in the hands of Gaddafi. 
  2. Gaddafi blames the revolt in his country on teenagers whose instant coffee is spiked with hallucinogens — and he says Osama bin Laden is behind it all. 
  3. Gee, maybe that 2% was never very reliable in the first place and the world can get along without it until things settle down.

“Oil is still 34% below its 2008 highs,” says Alan Knuckman, by way of making a larger — and undoubtedly controversial — point. “I personally do not believe in the evils of inflation being an issue for the current economy.

“Prices have recovered from catastrophic near-deflation lows with the increase overblown by renewed commodity attention. The last six months do not signal out-of-control spiraling rising costs. It is still difficult to name any specific goods that have become extremely expensive over the last five years.

“One fact is that the soft commodity complex highs were made in the mid-1970s, over 30 years ago. Take a look:


Bottom line: There’s still huge upside potential in the commodities space, says Alan — “not because of destructive inflationary forces, but a return to previous highs from decades ago.”

You don’t have to buy into Alan’s thesis to make money from his trades. In just one three-month stretch during 2010, he bagged nine winners in a row… for an average gain of 157%… in an average holding time of 14 weeks. So far this year, he’s closed positions for gains of 95% and 217%… and his readers are holding out for bigger gains on a heating oil play already up 223%.

For the next three days… you have a chance to snag a membership to Alan’s Resource Trader Alert… plus Byron King’s Energy & Scarcity Investor… plus our flagship resource publication Outstanding Investments — just named the top-performing letter over the last 10 years by the independent Hulbert Financial Digest — all for one low price… so low it makes me want to gag while writing this.

The suite of services we call the Resource Reserve — everything you need to profit from the rising prices of raw materials. For a one-time fee, you get all three services for life — plus free admission every year to our confab in Vancouver.

We’re holding a limited number of slots open for the Resource Reserve… after all, there’s only so much space in Vancouver. And the fact that it’s so cheap, we’d bankrupt ourselves if every reader took us up on the offer. The slots will likely fill up before we close this offer on Monday. Take the opportunity to review all the benefits of Resource Reserve membership in this invitation.

The Commerce Department issued its second guess this morning on GDP during the fourth quarter, revising it downward from an annualized 3.2% to 2.8%. Whoops, the Street was counting on an upward revision to 3.4%.

Turns out consumer spending wasn’t as robust as first thought. And the decline in spending by state and local governments was steeper than first thought.

Notwithstanding that disappointment, stocks are generally up today — the Dow back above 12,100.


Investors who call the U.S. home are piling back into domestic mutual funds. Data from Lipper show $7 billion flowed into domestic equities funds in the most recent week. That’s as much as flowed in during all of last year.

That sounds about right… Joe Six-pack jumping in after the S&P has already run up 100% for only the third time in 100 years.

“Mutual fund investors are the worst kind of investors, statistically speaking,” Chris Mayer muses. “They don’t even earn the posted returns on their mutual funds, because they have a tendency to take their money out after a fall and put it back in after a rise.

“Thinking in contrary fashion, I’d say the market is due for a good pullback.”

Of course, there are always special situations that buck the overall trend. Chris shares one of his favorites with you — a company with a $1 billion market cap sitting on $51 billion in assets — right here.

We can’t allow the week to close without taking note of the spectacle in Wisconsin — seeing as it will hit all 50 state capitals tomorrow.

In case your eyes are about to glaze over, here’s a three-sentence update: The lower chamber of Wisconsin’s legislature passed Gov. Scott Walker’s emergency budget shortly after 1 a.m. today. It includes the provision that strips the government-employee unions of the collective-bargaining authority. Democratic senators remain camped outside the state, stalling the vote in that chamber.

In our overstuffed inbox this morning is a press release trumpeting “Save The American Dream’ Rallies to Take Place in All 50 State Capitals This Saturday” organized by MoveOn and similar groups.

Yes, because collective bargaining is the essence of the American Dream.


Oy. And you thought it couldn’t happen here?

“Participants will protest the attack on workers’ rights,” reads the press release, “and proposed dangerous budget cuts, and demand an investment in decent jobs.” Yes, because government checks and government “investment” in “decent jobs” is also the essence of the American Dream.

“Bring it on!” we say. If there ever were a worthy public discourse, this is it: Is the American Dream about self-determination and political freedom? Or… the “right” to a decent job, education, home, health care and retirement… and government debt…?

We suspect in the end it will all be a waste of time. Only one of these directions is within the government’s power to deliver, regardless of what your local representative says before you cast your ballot. But it will sure be fun to watch the carnage along the way, don’t you think?

More bread. More circuses. And down we go.

“I find it rather strange that The 5, along with most other financial newsletters, are crediting Julian Assange and his WikiLeaks for revealing that Saudi oil reserves are far less than claimed.

“Apparently, you have all forgotten that Matthew Simmons revealed that fact in 2005 in a well-documented book titled Twilight in the Desert.”

The 5: We find it rather strange that you didn’t actually read what we wrote before commenting on it. We share an editor at Wiley with Simmons, may he rest in peace. And his research was central to a report we first issued in 2006 called The Great Oil Hoax. WikiLeaks only confirmed that the U.S. State Department was and is aware of the sham too.

What’s even more interesting: Like you, the rest of the world seems to have the attention span of a flea: As soon as an anonymous Saudi lackey promised to fill the Libyan void yesterday, the oil price fell. Investing is not always about being right.

“Perhaps I can explain Atlas Shrugged a bit to the reader who panned the book,” writes another reader. “First, it’s not about the writing. Rand’s writing is only passable and, obviously, a style 50 years old. You read it for the ideas.

“She writes her characters in this two-dimensional way to highlight the characteristics that illustrate her point. Ever seen a Bond movie? He’s a bit two-dimensional, right? Because it’s different from real life, and a form of idealism…

“If you don’t understand the point of productive people gathering, then yes, you should have read to the last page, or reread the first 300.

“Rand’s ideas for society are not perfect, but a society of producers is exactly what makes a country great. The leftist utopias, while similarly romanticized and two-dimensional, never celebrated the productive owning their output to the point of individual wealth, as Rand does, and as we strive to continue to in the U.S. and other free places.

“I find it interesting that you say the two are similar — Rand’s utopia and the leftist ones — since dropping the leftism and adopting more capitalism is exactly what has saved China, communist leadership or not.

“Rand isn’t perfect, and Atlas Shrugged is somewhat difficult reading for today’s audience. But the messages are valuable, the primary one being that producers provide everything and most of the rest are, in Rand’s words, looters, or, in Bill Bonner’s parlance, zombies.

“Love The 5. Keep it coming.”

The 5: No, Rand isn’t perfect. Some of the passages in Atlas Shrugged and The Fountainhead are insufferable. And the whole “Cult of Rand” thing is… well, weird… as are allegations that Alan Greenspan was, while chairman of the Federal Reserve, intentionally leading the U.S. to the precipice of bankruptcy in order to fulfill some Randian fantasy he cooked up while bedding her.

But her books do have legs, don’t they? A testament to the ideas, perhaps, as you suggest.

“There are truths in the book whether you can see them or not,” a Reserve member chimes in.Atlas Shrugged is a romantic novel in the heroic sense. As stated, the heroes are too perfect and the statists and bureaucrats are… well, exactly as statists and bureaucrats are. The villains in Atlas Shrugged are all too real.

“Therein lies the ‘truth’ in Atlas Shrugged. The motivation of the statists is inherently ugly and dishonest. Although couched in compassion, it serves to cripple, and they know it.

“Obviously, whether you’d enjoy it or not, a ‘Galt’s Gulch’ would never exist, unless we evolved in a few million years. But the reader’s assertion that this is a banal text is, I suspect, bred of lack of experience in dealing with people like Philip Rearden and the crony ‘capitalists’ from the book.

“Being a physician practicing in the U.S. and having experience with all walks of life, I can tell you that the world is filled with people just like him. Those who would take responsibility are an ever-dwindling breed.”

“It is comments like this that make The 5 a priority on my reading list every day,” says another reader who appreciated the final sentence of our riposte to the idealistic young lady currently living in Nicaragua yesterday. “Thanks (chuckle).”



Addison Wiggin

The 5 Min. Forecast


P.S.: We’ll state it unequivocally: The Resource Reserve is by far the best deal in the industry if you want advice on making money from the rise in commodities and natural resources — a trend we suspect will be in place for several more years. We’re closing this limited-time offer on Monday night, so dig in while you can. (This short window for enrollment was the first in four years… so you may want to jump on the offer right now. Go.)

P.P.S.: “I’ve been taking some time over the holidays to reflect and catch my breath, and have been rereading Atlas Shrugged, “a friend wrote to me just after the holidays, “I don’t know how long it has been since you’ve read it, but I assume you are a fan. It has been over 25 years for me, but the message has never been more appropriate for our culture.

“With the perspective I now have after having battled bureaucrats and ‘looters’ for over two decades, Ayn Rand’s message means more than ever. In particular, I have heavily underlined Francisco d’Anconia’s speech at the wedding…”

Forthwith, for your consideration, we reproduce Francisco’s speech:

Rearden heard Bertram Scudder, outside the group, say to a girl who made some sound of indignation, “Don’t let him disturb you. You know, money is the root of all evil — and he’s the typical product of money.” 

Rearden did not think that Francisco could have heard it, but he saw Francisco turning to them with a gravely courteous smile.

“So you think that money is the root of all evil?” said Francisco d’Aconia. “Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?

“When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor — your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money. Is this what you consider evil?

“Have you ever looked for the root of production? Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover it for the first time. Try to obtain your food by means of nothing but physical motions — and you’ll learn that man’s mind is the root of all the goods produced and of all the wealth that has ever existed on earth.

“But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man’s capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made — before it can be looted or mooched — made by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can’t consume more than he has produced.

“To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except by the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders. Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss — the recognition that they are not beasts of burden, born to carry the weight of your misery — that you must offer them values, not wounds — that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men’s stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best your money can find. And when men live by trade — with reason, not force, as their final arbiter — it is the best product that wins, the best performance, then man of best judgment and highest ability — and the degree of a man’s productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil?

“But money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desires. Money is the scourge of the men who attempt to reverse the law of causality — the men who seek to replace the mind by seizing the products of the mind.

“Money will not purchase happiness for the man who has no concept of what he wants; money will not give him a code of values, if he’s evaded the knowledge of what to value, and it will not provide him with a purpose, if he’s evaded the choice of what to seek. Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money. Is this the reason why you call it evil?

“Only the man who does not need it, is fit to inherit wealth — the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money? Do not envy a worthless heir; his wealth is not yours and you would have done no better with it. Do not think that it should have been distributed among you; loading the world with fifty parasites instead of one would not bring back the dead virtue which was the fortune. Money is a living power that dies without its root. Money will not serve that mind that cannot match it. Is this the reason why you call it evil?

“Money is your means of survival. The verdict which you pronounce upon the source of your livelihood is the verdict you pronounce upon your life. If the source is corrupt, you have damned your own existence. Did you get your money by fraud? By pandering to men’s vices or men’s stupidity? By catering to fools, in the hope of getting more than your ability deserves? By lowering your standards? By doing work you despise for purchasers you scorn? If so, then your money will not give you a moment’s or a penny’s worth of joy. Then all the things you buy will become, not a tribute to you, but a reproach; not an achievement, but a reminder of shame. Then you’ll scream that money is evil. Evil, because it would not pinch-hit for your self-respect? Evil, because it would not let you enjoy your depravity? Is this the root of your hatred of money?

“Money will always remain an effect and refuse to replace you as the cause. Money is the product of virtue, but it will not give you virtue and it will not redeem your vices. Money will not give you the unearned, neither in matter nor in spirit. Is this the root of your hatred of money?

“Or did you say it’s the love of money that’s the root of all evil? To love a thing is to know and love its nature. To love money is to know and love the fact that money is the creation of the best power within you, and your passkey to trade your effort for the effort of the best among men. It’s the person who would sell his soul for a nickel, who is the loudest in proclaiming his hatred of money — and he has good reason to hate it. The lovers of money are willing to work for it. They know they are able to deserve it.

“Let me give you a tip on a clue to men’s characters: the man who damns money has obtained it dishonorably; the man who respects it has earned it.

“Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter. So long as men live together on earth and need means to deal with one another — their only substitute, if they abandon money, is the muzzle of a gun.

“But money demands of you the highest virtues, if you wish to make it or to keep it. Men who have no courage, pride, or self-esteem, men who have no moral sense of their right to their money and are not willing to defend it as they defend their life, men who apologize for being rich — will not remain rich for long. They are the natural bait for the swarms of looters that stay under rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of the guilt — and of his life, as he deserves.

“Then you will see the rise of the double standard — the men who live by force, yet count on those who live by trade to create the value of their looted money — the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law — men who use force to seize the wealth of disarmed victims — then money becomes its creators’ avenger. Such looters believe it safe to rob defenseless men, once they’ve passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.

“Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see that money is flowing to those who deal, not in goods, but in favors — when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.

“Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it becomes, marked: ‘Account overdrawn.’

“When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, ‘Who is destroying the world?’ You are.

“You stand in the midst of the greatest achievements of the greatest productive civilization and you wonder why it’s crumbling around you, while you’re damning its life-blood — money. You look upon money as the savages did before you, and you wonder why the jungle is creeping back to the edge of your cities. Throughout men’s history, money was always seized by looters of one brand or another, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves — slaves who repeated the motions once discovered by somebody’s mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers — as industrialists.

“To the glory of mankind, there was, for the first and only time in history, a country of money — and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man’s mind and money were set free, and there were no fortunes-by-conquest, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being — the self-made man — the American industrialist.

“If you ask me to name the proudest distinction of Americans, I would choose — because it contains all the others — the fact that they were the people who created the phrase ‘to make money’. No other language or nation had ever used these words before; men had always thought of wealth as a static quantity — to be seized, begged, inherited, shared, looted, or obtained as a favor. Americans were the first to understand that wealth has to be created. The words ‘to make money’ hold the essence of human morality.

“Yet these were the words for which Americans were denounced by the rotted cultures of the looters’ continents. Now the looters’ credo has brought you to regard your proudest achievements as a hallmark of shame, your prosperity as guilt, your greatest men, the industrialists, as blackguards, and your magnificent factories as the product and property of muscular labor, the labor of whip-driven slaves, like the pyramids of Egypt. The rotter who simpers that he sees no difference between the power of the dollar and the power of the whip, ought to learn the difference on his own hide — as, I think, he will.

“Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns — or dollars. Take your choice — there is no other — and your time is running out.”


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