Saturday, December 19, 2009
In its biggest takeover since acquiring Mobil in 1999, Extreme Value pick ExxonMobil (XOM) will buy the largest U.S. natural gas producer, XTO Energy, in an all-stock deal valued at $31 billion. Exxon is betting U.S. emissions restrictions will spur natural gas demand.
Will the fabled cap-and-trade legislation pass, proving ExxonMobil right? Probably not. The political movement is losing steam.
In the recent "Climategate" scandal, thousands of leaked e-mails from influential British scientists showed they omitted data that contradicted their global warming hypothesis and attempted to discredit anyone speaking against global warming. Climategate has shaken the foundations of avid global-warming supporters. And Obama, cap and trade's biggest cheerleader, is rapidly losing popularity.
But truthfully, that doesn't matter to ExxonMobil. It views XTO as a cheap hedge against the possibility that cap and trade does pass. Exxon is a $360 billion company. It earned nearly $60 billion in cash last year, it can borrow money cheaply, thanks to its triple-A credit rating, and it's using stock for this purchase. Plus, natural gas is still around 70% below its 2005 high.
XTO Energy has nothing on Matt Badiali's latest discovery... As Digest readers know, Badiali recently returned from a site visit at what could be the largest natural gas deposit in the world.
Porter, Steve Sjuggerud, and I were talking about this company last night. We all agreed, this stock is likely a 10-bagger. Badiali likes to say you can "add a zero" to its current market cap. While we don't know exactly how much this company's stock will increase, we know it will be huge. Badiali is still writing his report for this stock, and you're not going to want to miss it. To sign up for Badiali's Resource Report and be the first to own this little-known natural gas giant, click here...
A couple of months ago, I was out in the woods shooting a bunch of different handguns at a target with my friend Tim. Tim owns dozens of handguns and rifles and has hunted just about everything that moves. In one day, we shot three different .22s, a .38/.357, a .44 and a 1911-style .45. It was a real education for me.
I asked Tim about buying a shotgun and told him I didn't want the kick of a 12-gauge, for fear of aggravating a shoulder injury. So he recommended I use a 20-gauge shotgun. This morning, our own Daily Crux confirmed the wisdom of this choice with a little math showing the 20-gauge gun kicks 55% as much as the 12-gauge, but packs 62.5% of the punch, a 7.5% benefit for those of us who want to keep our aging shoulders intact a little bit longer.
Absurdly high valuations are the very definition of bubbles. But it takes credit excesses to create a really devastating bubble. The Great Depression, Japan's lost decade, and the current U.S. crisis were all products of loose money policies – something only government can create – which led to widespread abuse of credit.
As long as credit is flowing, prices will increase. But as we've seen, when the music stops, the aftermath is painful. Asset values across the board plunge, businesses fail, unemployment soars.
The U.S. government's cure for this crisis? More credit. Low interest rates and nonstop money printing have inflated asset values, but at the expense of the U.S. dollar. Now, the U.S. government has loaded itself with so much debt, it can't raise interest rates. It simply couldn't afford the interest payments. The government is caught in a dangerous inflationary cycle.
Our friend David Galland at Casey Research received a copy of John Paulson's presentation for his new gold fund. Slide No. 2 of the presentation reads as follows:
* Printing money will lead to paper currency depreciation
* Demand for gold as a reserve currency will increase
* Demand will overwhelm supply, causing price to rise sharply
Paulson's theses on gold are no secret. And we've covered them ad infinitum. But we still find it amazing the most respected money manager of our day is so brazen with calls to short the U.S. government.
Unfortunately for Paulson, it doesn't make much sense to invest in his gold fund. You could spend less than $200 on subscriptions to PSIA and the S&A Resource Report and get all the gold-related investment recommendations you'd need. Or you could just buy bullion and the gold ETF (GLD). If we're all right about the gold boom – and with the current rush to print dollars we inevitably will be – every type of gold investment will soar. You don't need to pay a hedge-fund manager "2 and 20" for alpha.
Date Range:12/10/2009 to 12/17/2009
Date Range:12/10/2009 to 12/17/2009