August 20, 2014
- The totally legal American energy export that just made some of our readers 50% in 20 days
- How to handle a market event that’s happening for the fifth time in a decade
- Playing an industry that should be booming… but isn’t
- Tracing a direct line from Wall Street to Ferguson, Mo.
- When a dollar is not a dollar: Map reveals state-by-state purchasing power
“Every day, over $380 million worth of lucrative exports leave American soil,” says our Matt Insley. “I’m not talking about Barbie dolls or Buicks, either.”
Once again, this morning we find ourselves contemplating the “Tale of Two Americas” — stupendous wealth creation even in the face of what our friend Jim Rickards calls “a depression”.
We start with the wealth creation side…
“Ten years ago,” says Matt, “this looked to be a dying breed of American export — at about one-fourth the size of today’s total.
“I’m talking about American petroleum product exports — things like gasoline, diesel, jet fuel, kerosene, liquefied petroleum gas, heating oil, lubricants and more.”
Fact is, even though exports of crude oil have been illegal for decades, exports of refined product are A-OK. And with America’s newfound shale energy bounty, those exports have indeed grown fourfold in a decade…
“For companies in the right place, it’s a flood of profits — with no end in sight,” Matt goes on. “If you’ve been plugged into the energy sector for the past few years, you’ll know that refiners have been turning America’s oil and gas comeback into cold, hard cash.
“The players to keep an eye on in this space are Valero Energy Corp. (NYSE: VLO), Phillips 66 (NYSE: PSX) and Marathon Petroleum Corp. (NYSE: MPC).”
The rest of 2014 looks especially promising for the refiners.
“The second half of the year is when refiners ramp up their exports,” Matt explains. “From the Southern Hemisphere’s driving season to heating fuel exports to Europe, refiners cash in during the second half.
“The other reason to like refiners is a longer-term trend. You see, the key to refiners’ profit margins is cheap, abundant U.S. crude and natural gas (while much of the rest of the world has to pay much higher prices). With the majority of the world’s oil and natural gas production growth coming from the U.S. (not abroad), American refiners will continue to have an edge.”
Yesterday, Matt urged readers of Real Wealth Trader to cash in a cool 50% gain in only 20 days playing call options on the aforementioned Phillips 66.
Yes, there’s more where that came from. In fact, Matt has launched a mission to show our readers how they can pull down a total $1 million in profits from America’s new energy boom before year-end.
That’s right… $1 million in the next four months and change. Want to grab your share? Here’s where to go.
The stock market’s three-day rally has shifted into neutral for the moment. Most of the major indexes are flat as traders await the release of minutes from the Federal Reserve’s July meeting this afternoon.
At 1,982, the S&P is six points away from its record close set last month. The one outlier among the indexes is the small-cap Russell 2000 — down nearly three-quarters of a percent as we write.
Bond yields are inching up, the 10-year Treasury now 2.42%. Gold is flat at $1,294. Crude, which slipped below $95 yesterday for the first time since January, has recovered to $95.60.
Just like that, the dollar is rallying to highs last seen nearly a year ago. The dollar index — an admittedly flawed yardstick, but handy nonetheless — has huffed and puffed above 82 for the first time since early September last year.
“As I look over the currency screens, it appears that pound sterling and Indian rupees are the only two currencies with gains versus the dollar this morning,” writes Chuck Butler from his post at EverBank World Markets.
“Goldman Sachs issued a report that calls for higher interest rates in the U.S. and further gains in the dollar. And we all know better than to step in front of the Goldman Sachs bus when they make a call.”
It was only two weeks ago Chuck told his Daily Pfennig readers to get ready for a month or two of dollar strength. He’s seen it all before — dollar rallies in 2012, 2010, 2008, 2005. His advice for long-term dollar bears is the same now as it was then — “battening down the hatches and looking for opportunities to pick up more currencies and metals at cheaper prices.”
“You’d think it would be a great time to invest in a shipping business,” says our income specialist Neil George.
Yes, you’d think: Containership traffic is up 6% in Asia for the first half of the year… 7% in the Americas… 8% in Europe. And as we mentioned yesterday, the Panama Canal is undergoing an expansion.
“Yet all is not well for shipping companies,” Neil writes. Bloomberg’s container shipping index tracked the stock market’s rise very nicely in 2009-10. But no more.
“Despite the improving economic climate,” Neil explains, “the companies’ balance sheets haven’t risen as much as investors expected.”
That’s because shippers are getting eaten alive with the cost of building new ships.
“Shipping companies have been expanding to keep up with business,” Neil tells us, “with tonnage capacity ramping up some 67% through 2014 alone. They’re building not just more ships, but bigger ships — up to 1,300 feet long and some 20 stories tall. They are also more fuel-efficient, with fuel costs down some 35% from older and smaller ships.
“But these ships aren’t cheap. They cost millions of dollars to buy and maintain, which is why so many shipping companies have terrible balance sheets.”
One solution is to lease or charter ships to other companies under 10-year contracts. “That’s a decade of locked-in cash flow,” Neil points out. He recently got his Lifetime Income Report subscribers into a firm doing just that — via preferred shares yielding 7.9%.
[Time-sensitive announcement: Neil’s premium income service is available through the end of this week at a special discounted rate. If you want to pull down regular payouts of as much as $10,000 a month, you owe it to yourself to check it out. Please note: The offer comes off the table at midnight Friday night. That’s less than 72 hours from now. So it behooves you to give it a look right away.]
“The looting and chaos in Ferguson, Missouri, is not justifiable … but it’s largely caused and inspired by the looting on Wall Street,” asserts the prolific blogger who goes by the pen name “George Washington.”
It’s the second time in 24 hours we’ve seen someone make the connection. The first was our colleague Peter Coyne at The Daily Reckoning. “Are the Ferguson riots even about race or something deeper and more troubling?” he asked. “Say, an outlash at severe economic decay?”
No, we haven’t forgotten about the flip side of the “Tale of Two Americas” we mentioned shortly after we began running our 5 Min. stopwatch. So here goes…
Peter dug up research from the Brookings Institution that found poverty rates in every Ferguson neighborhood under 16% a decade ago. Now in all but one, it’s over 20%. Brookings fellow Elizabeth Kneebone tells Time that 20% “is the point at which typical social ills associated with poverty like poor health outcomes, high crime rates and failing schools start to appear.”
It comes back to the “mother of all financial bubbles” forecast we issued three years ago: “Total
economic failure could bring the violence to your city… your neighborhood… your front door.”
That was a long-range forecast. Ferguson looks like an early warning. There’s no shortage of “inner-ring” suburbs just like it that have gone to seed in the same way.
And once it does come to your front door? Well, there’s a meme going around the Web this week…
Meanwhile, “This will not end soon,” writes Ryan Devereaux of The Intercept, covering the situation in Ferguson.
Police shot Devereaux with a rubber bullet Monday night before arresting him and hauling him off to jail. He was released the following morning with no charges and no explanation.
The journalistic brotherhood is frequently an adjunct of the police state — as your editor knows from 20 years in “mainstream media.” Most local TV reporters and photographers, for instance, jump at the chance to accompany a SWAT team on a raid. Sexy visuals, high drama, etc.
But in Ferguson, the police state turned on the media. Reporters have been intimidated, tear-gassed and arrested. They are transmitting their outrage to their viewership and readership. “It is becoming clear that police in Ferguson are targeting journalists, using intimidation, arbitrary arrests and physical force,” writes Max Fisher at Vox.
Now comes news from the other side of the world about a far more horrific attack on the media. Chances are you’ve heard by now about the berserkers from ISIS beheading a U.S. journalist named James Foley and putting the video online.
I’ve been out of traditional journalism for 7½ years now, and I’ve lost touch with almost all my old colleagues. But I can imagine the takeaway most of the brotherhood will have: “Wow, and we complain about our treatment in Ferguson. We should be grateful for the freedoms we can still exercise.”
Turn on CNN tonight. If there’s a navel-gazing panel discussion going on, I bet you’ll hear something just like that. And all the talk about police militarization in recent days? ISIS might well have just killed it as decisively as Mr. Foley.
Your fiat dollars go farther in Mississippi.
[OK, back on more comfortable finance-and-economics turf. But as we intimated earlier, sometimes events in the social and political sphere start bumping up against the financial and economic, however uncomfortably.]
The good folks at the Tax Foundation recently crunched some numbers from the Commerce Department assessing the cost of living state by state. “Because average prices for similar goods are much higher in California or New York than in Mississippi or South Dakota,” writes the group’s research team, “the same amount of dollars will buy you comparatively less in the high-price states, or comparatively more in low-price states.”
Then they put together a nifty map, showing the real value of $100 in each state…
The busybodies in Washington, D.C., are surely reaping the whirlwind of their economic misdeeds: That’s where $100 is worth the least… followed by Hawaii and New York. Your Benjamin buys the most in Missouri, Arkansas, Mississippi and Alabama.
It’s all interesting… but somehow incomplete. There are many differences within states too. Surely, $100 buys less in Chicago than in downstate Illinois.
What’s your experience where you live? How does it compare with places you visit, or where your children or grandchildren live? Drop us a line. Seriously, please do. We know it’s the summer doldrums and all, but our mailbag is looking a little sad of late. It’s getting mighty lonely around here…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Rumor has it the next-generation iPhone will come out on Sept. 9.
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