OPEC’s Loss, Your Gain

October 17, 2013

  • The OPEC embargo 40 years later… Wow, what a difference!
  • Short-term play on U.S. energy that could triple your money before year-end
  • Budget “crisis” resolved, Chinese again make the wisest assessment
  • Three new “deadlines” looming… and one the mainstream overlooks
  • Oh yeah, it’s earnings season: Guenthner finds cause for bullishness
  • “Freemasons forever!” or something like that… reader rants on term limits… and more!

  “America has come a long way since 1973,” Time magazine said yesterday. “The U.S. is an energy superpower today.”

Cause for celebration, right? The president doesn’t want to hear about it.

As we write, he’s prattling about how the shutdown-debt ceiling mashup — now in pause for three months — inflicted “completely unnecessary damage” on the U.S. economy.

Of course, the president, like the rest of the Beltway class, is obsessed with GDP as a measure of economic health. Government spending is one of GDP’s four components. Less government spending equals less GDP.

But as we’ve taken pains to point out, the rest of the country has kept on truckin’ the last 16 days — waking up, going to work, creating, achieving. And the achievements in America’s shale energy patch have opened up a lucrative play — with a brief window of opportunity.

  Forty years ago this week, OPEC imposed its infamous oil embargo on the United States — retaliation for Washington backing Israel against Egypt and Syria in the 1973 Yom Kippur War.

Oil prices leaped from less than $4 a barrel to more than $12. U.S. production had peaked in 1970; crude imports had doubled by 1975. Gas lines, the 55-mile-an-hour speed limit… You remember all that.

But the “fracking” boom has changed that in a dramatic way. No, it’s not 1970 again, but as the current issue of Apogee Advisory points out, imports made up 60% of U.S. oil consumption in 2006. Now that’s down to 41%.

Still, the most dramatic impact of shale energy has been on the natural gas market. The U.S. price has cratered from $13 per thousand cubic feet in 2008 to below $4 today. The rest of the world pays prices up to four times as high as we do.

We’ve been hammering away at the resulting investment possibility all week; if you need to get caught up, we direct you to Tuesday’s episode. But do so now, because we’re mere hours away from Agora Financial’s first live online event — in which we spell out the details.

To recap: Four companies have already secured federal permission to export $4 American gas to Europeans and Asians accustomed to paying as much as $16. When Dominion Resources won such approval last month, you could have played it for 193% gains in 48 hours. We know an energy industry insider who’s convinced two or three more approvals are on the way… and he’s pinpointing the likely winners.

Reuters has now confirmed this thesis: “This speed at which the latest approval was reached — just five weeks after the previous project — puts the Department of Energy on a potential pace to rule on several more projects before year’s end.” And now that the shutdown is over, the bureaucratic wheels are returning to full speed. We urge you to join us for the full story — including a comprehensive briefing from our insider, plus reader Q&A — tonight at 6:00 p.m. EDT. If you can’t make it, we’ll replay the event at 9:00 p.m. EDT.

It costs nothing to take part; all you need to do is sign up in advance. Here’s where to do so.

  “The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and gross domestic product remains unchanged,” reads the report from China.

The syntax is a little mangled, but once again, the Chinese are making more sense of events in Washington than anyone in Washington. After the faux resolution to the faux budget crisis overnight, the Chinese rating agency Dagong downgraded U.S. Treasury debt. Again. From A to A-minus.

We’ve been following Dagong ever since it began rating sovereign debt more than three years ago. The outfit never did give Uncle Sam’s sorry rear end a AAA rating. It started at AA and has been downhill ever since.

  “Goose egg, nothing, we got nothing,” Rep. Thomas Massie (R-Ky.) told The New York Times.

Mr. Massie was among the Republican freshmen hoping to “defund” Obamacare when the budget melodrama began at the start of October. Alas, “the deal emerging from [the battle] made no major change to the health law and contained no new deficit-reduction measures,” reports The Wall Street Journal.

The outcome was foreordained, but along the way, there was some excitement during the roll call late last night as a House stenographer decided to take to the microphone.

The rant was amusing. This is not: She was “interviewed” by Capitol Police and hauled away to a hospital for a mental health evaluation.

  Now we can look forward to a rerun of the entire farce three months from now. Here’s what the new law sets in motion…

  • Dec. 13, 2013: Supposedly, a bipartisan panel of congressional greybeards will come up with a 10-year budget blueprint. But because there’s no “or else” mechanism to give the deadline teeth, we’ll hurtle down the rails to…
  • Jan. 15, 2014: This is when a new “continuing resolution” funding the government will expire, triggering another “partial government shutdown”
  • Feb. 7, 2014: This is when the debt ceiling will once again kick in, “global economic catastrophe” will ensue and the sun will cease to shine upon the Earth.

Along the way, we’ll have some year-end excitement no one’s caught onto yet: Extended unemployment benefits — the straight-up welfare program that kicks in after the 26 weeks of insurance runs out — expire on Dec. 31.

Who knows what other issues might get sucked into that?

  “Let’s get to two things that really matter,” says Greg Guenthner: “earnings and performance.”

Earnings season has been underway the last nine days. “Expectations are low — just as they were in the second quarter,” Greg writes in this morning’s Rude Awakening. “Thanks to crappy performance over the summer, analysts have already braced investors for a bad trip…

“The revisions are startling. Analysts were expecting to see third-quarter earnings for the S&P 500 rise to 5.1% growth as recently as this summer, according to MarketWatch. As of today, the consensus is 1.4% growth.

“Once again, they’ve set the bar low enough to take a lot of the worry of huge misses out of earnings season. Rocky financial performance probably won’t derail stocks this quarter.”

 “In fact,” says Greg, “I’m guessing sold-out bulls will fight hard to get back into stocks.

“Mutual funds still can’t seem to catch their benchmarks. While third-quarter performance was a little better, it’s important to realize these fund managers are fighting for their jobs…

“This isn’t some fairy tale I’m concocting out of thin air. It’s just how the market works. Big money will chase what works into the end of the year. Look for tech stocks to ramp higher along with other outperforming sectors.”

  After a big run-up yesterday anticipating a deal in Washington, most of the major U.S. stock indexes are flat this morning.

The exception: The Dow, down nearly a half percent, to 15,300. After the close yesterday, Dow component IBM delivered an earnings “beat” that fooled no one; Big Blue is down nearly 6% as we write.

  Checking in with other asset classes now that the proverbial can has been kicked down the road in Washington…

  • Precious metals ramped up about three hours after the president signed the bill into law. At last check, gold is up more than $35, to $1,320. Silver’s at $21.84
  • Crude is down to $100.98 — a level last seen just before the July 3 coup in Egypt
  • Treasury yields are tumbling, the 10-year back to 2.6%
  • The greenback’s been crushed; the dollar index is down nearly 1%, to 79.6.

  While the machinery of the federal bureaucracy creaks back to life, traders have two numbers to chew on this morning, unaffected by the shutdown:

  • First-time unemployment claims: Last week’s massive increase to 373,000 has climbed down, but not much, to 358,000. Blame it on California’s backlog and shutdown-related layoffs of government contractors
  • Philly Fed survey: This measure of mid-Atlantic manufacturing is down from last month, but still in solidly above-zero territory at 19.8. The number’s on a four-month run the likes of which we haven’t seen since early 2011.

  “Praise for you this time,” a reader writes in our defense after another reader took us to task yesterday for “applauding” China’s downer drumbeat about the dollar.

“Please keep the China/reserve currency info coming. Besides being of global importance, I also find it to be the most consistently entertaining of your current subjects.”

  “I’ve said it before,” a reader checks in, “and I repeat: We the people have let this country come to be run by professional politicians, and politicians are, by definition, liars and very often crooks.

“We deserve what we have gotten as a result. No president and no member of Congress should be allowed to serve more than one term. Period!!”

  “For years,” chimes in a second, “I have been in favor of a single-term limit for every political office. I don’t care if you are Abe Lincoln. If you are that good, we will re-elect you the next time you are eligible. The phrase ‘professional politician’ should disappear forever.

“Of course, political power is built on longevity in office. There is no real hope for my crusade, except from the voters themselves.”

  “I couldn’t agree more,” echoes a third, “with yesterday’s reader who wrote, ‘We keep re-electing the idiots!’ We are all part to blame if we do keep any of these idiots in office now and don’t vote them out.

“There is no chance of a term limits. We will, unfortunately, have to hope the masses don’t re-elect the current incumbents. I have my doubts.”

  “I have a better idea,” a third writes on the suggestion of term limits — “one I’ve advocated for a long time and been scoffed at: public funding of all federal elections.

“The major objection I always hear is how expensive to the taxpayer it would be. Really? How about all the special-interest legislation that gets passed now because our ‘elected’ officials are beholden to those that bought them and paid for their election.

“I think we would have far better, more responsive, responsible government if our elected officials were beholden to no one but we the people. They wouldn’t have to start their first day after election raising money for their next election; they might be able to focus on the true needs of the nation instead of their donors’ ‘needs.’ And when it came around to re-election, they would have no advantage over a challenger(s). If they have displeased their true constituents, they could not hide behind the power of money.”

The 5: We have an even better suggestion to keep influential players from buying politicians: Slash the power of government to pick winners and losers in the first place.

Alas, term limits stand a better chance than that…

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. Final reminder: Our live and exclusive online event — cluing you in to a chance to triple your money in 48 hours between now and year-end on the back of America’s new energy boom — is tonight at 6:00 p.m. EDT.

We’ll keep the sign-up page open right up until then… so take advantage and secure your spot right now.

rspertzel

Recent Alerts

Black Box: 1929

Iconic investor Warren Buffett’s preferred market indicator is in the danger zone. Read More

Censorship 2021 Style

Our main topic today: the “alternative” social media platform Parler. But really, it’s about the nature of “private enterprise” in the 21st century. Read More

Stupidity Hedge

“The year 1971 was the start of the first global ‘money printing,’” says personal finance guru Robert Kiyosaki… ushering in unsupportable prosperity. Read More

Biden: Picking Winners and Losers

On this Inauguration Day, we make a subtle distinction: It’s important to pay attention to politics… but you can’t let your political biases drive your investing decisions. Read More

Golden Touch

This billionaire social media architect — and critic — has become one of the most interesting people in all of finance. Read More

Passing the Baton

Biotech experienced a monster run-up coming out of the 2007–09 financial crisis. But for the last five years, the sector went nowhere. Now? biotech is getting a booster shot… Read More

“Variants” vs. Vaccines

As the virus mutates to survive, questions arise about the efficacy of the three main vaccines that have already been approved. Read More

China 2021

Is the great Chinese growth engine slowing down? The virus notwithstanding, by nearly every measure, George Gilder says China comes out ahead. Read More

The Road to Dow 50k

“I don’t believe the Federal Reserve alone explains record-breaking stock prices,” says our resident futurist Robert Williams. Read More

Business as Usual

Nomi Prins on Wall Street mainlining Fed money… while Main Street languishes. Read More