Ep 167: Get Ready for $150 Oil Prices

 

 

S&A Investor Radio looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on Main Street.

 

Frank Curzio: How’s it going out there? It’s Wednesday, January 23rd, and I’m Frank Curzio, host of the S&A Investor Podcast, where I break down the headlines and tell you what’s really moving these markets. What a week on the news front. Had a president inauguration. Man, did you see how many people attended that?

 

It was over a million people – I mean, not as much as 2009 for Obama, which shattered records, but just amazing. I always say that President Obama is like a god. He just has a gift of inspiring people. I mean, it’s a compliment. It’s just unbelievable how many people show up and you just see their faces, and yeah, it’s just – it’s remarkable just looking at just people beyond people beyond people, but unbelievable.

 

I don’t know, if Porter’s right, there may be an even bigger crowd four years from now, because he thinks President Obama will get elected for a third term as president. He talked about this on the podcast probably about four or five weeks ago with his buddy, Aaron. He believes as our new oil discoveries create windfall profits for America, we basically pull ourselves out of this enormous deficit. He believes the 22nd amendment could get repealed. It’s funny, because his prediction was picked up by major news sources, including Chris Matthews’ Hardball, who poked fun – and I’m being nice by saying that – at Porter’s idea on his show.

 

But, it’s a pretty amazing prediction, and I really – I don’t doubt Porter anymore. I think it’s pretty crazy, to be honest with you, but I don’t doubt him, because he has a great track record for making these calls. I mean, before I even came to Stansberry, I was reading Porter’s research on GM, which is fantastic, and he called for GM, he said, “Listen, they’re gonna bankrupt themselves.” He actually pretended he was the president and wrote a letter, saying, “Listen, I’m so sorry I’m going to go bankrupt. This is why we’re gonna go bankrupt,” and people wrote in and thought it was the real president of General Motors speaking.

 

It was hilarious, and this was about two years, three years before I was actually at the company, at Stansberry, and it was fantastic research, which made me dig deeper into it. And I said, “Wow, he’s right,” and then on my podcast street.com, I was like, “Look, the numbers suggest, based on Porter’s research, and based on the research that I kept doing afterwards is that GM looks like they’re gonna go bankrupt,” and they did. And he also called for the bankruptcies of Fannie Mae, Freddie Mac well before there was problems in 2006, 2007, so interesting calls. So, I don’t doubt him anymore, although this prediction, ahh, I don’t know. I won’t say – I’m not really on board here that it’s gonna happen, but I don’t doubt him, so it’s gonna be interesting.

 

But, the inauguration, that was like the third biggest event this week. You got Lance Armstrong admitted to doping for each of his Tour de France victories. What a major surprise. Still don’t know why this was such a big deal – I mean, not the fact that he lied then tried to sue anyone who actually saw him doping, but everyone in the sport was doing it. If Lance Armstrong wasn’t in the Tour de France, would – I don’t know, most people know that sport even existed?

 

I mean, seriously, name the people that won the last two Tour de France. I challenge you. I bet you 95 percent of the people on this podcast can’t name it. I mean, I never watched it, unless Lance Armstrong was in it. It was pretty – I mean, I’m a sports junkie.

 

I really don’t know anything about the Tour de France. Anyway, the interview with Oprah, big deal. I thought it was funny. It had huge ratings. I mean, she was throwing around the term “arrogant” about Lance Armstrong.

 

I was kind of laughing about that from a woman who could pretty much have done the interview in about 20 minutes. She stretched it out to, what, four and a half, five hours, two days to get as many commercials as possible on her network now that has declining ratings and – you know, to me, that’s arrogant. Anyway, I have no idea why Lance admitted to doping. I mean, the upside is I guess if you have a really sincere apology, there’s upside there. People start forgiving.

 

You can get your life back together. I don’t know, I thought Tiger Woods did a pretty good job on this, but he didn’t seem sorry. He’s like the – for him to say, “I define cheating as gaining an unfair advantage on someone, so basically I did nothing wrong,” it’s pretty insane. He’s not sorry. I mean, why you come out if you’re not sorry for?

 

I don’t know, I just don’t get it. It’s almost like Barry Bonds, Roger Clemens admitted to steroid use. Why would you do it now? You’ve come so far, lied about it, why admit it now? There’s no upside.

 

For me, to be honest, I really don’t care. What I do know is I can’t watch a baseball game anymore. I really can’t, because there’s hardly any hitting of homeruns. Man, I love baseball, McGwire and Sosa going at it head to head, hitting homeruns. Who hit the homerun today.

 

Every week, every game they were nailing homeruns, and they were juiced up to the max. It was great, but sports is entertainment. I mean, they don’t care about the fans or they wouldn’t charge $9.00 for a cup of beer and $7.00 for a hotdog at Yankee Stadium. So, I say let them take steroids. It’s more fun.

 

I know, I’m gonna get a ton of e-mails. Feel free to send them to me, fcurzio@stansberryresearch.com, but I’m telling you, the only reason why I watch the Tour de France is because Lance Armstrong was so great, and really, baseball, I don’t wanna see a one-nothing game. I don’t. Maybe diehard baseball fans do, but I love seeing the homeruns and everything. You don’t see them anymore.

 

I mean, look at Shea Stadium. I mean, can’t even hit a homerun. How many homeruns they had at Shea Stadium? It’s unbelievable. And to top that off, Lance wasn’t even the biggest story of the week.

 

Manti Te’o said he was part of a huge hoax. Reported that his girlfriend of two years died, but now she’s not dead. In fact, she never even existed. He only talked to her on the phone, through e-mails, but never used, what, Skype, which is pretty much for free, by the way, and every computer comes with a camera attached, and he didn’t use FaceTime. I mean, the best linebacker in football, right, in college football, really smart reading defenses.

 

Now he says he’s part of a hoax. I mean, for me, I think it would be better for this guy if he admitted to being part of the hoax, but man, really, you’re totally in love for a girl for two years and every time he tried to see her, which is dozen of times, she never showed up. Amazing someone could be this naïve and that the media, who loves a great story, did not fact check this before reporting. Instead, the whole Notre Dame fan base, millions of others mourn with Te’o. I mean, I don’t know, for me, I don’t know if that’s good for him or his future, but I can tell you who it is good for, the guy who perpetrated the hoax.

 

I mean, that guy’s gonna get a great job, right, for two years. How do you fool somebody for two years? I mean, how can someone be that naïve just for two years? Amazing in this day and age, but really crazy week. Anyway, that’s all I’m gonna say about stories unrelated to stocks.

 

Now, let’s get to the fun stuff. Got a awesome podcast for you today, and my guest is Dr. Kent Moors. Dr. Moors was on my show a few months back. I have to say, it was one of the best interviews, because he’s one of the smartest men on the planet when it comes to energy. That says a lot, because I have a lot of people come on this podcast.

 

A lot of energy analysts come on. This guy, by far – he’s brilliant. I’m not putting anyone down. He’s just brilliant. For over 35 years – you know, people say they’ve been in the business for 20 years, 30 years.

 

For more than 30 years he’s been an advisor to some of the largest oil company, also some of the biggest oil-producing nations, and he travels the world – Middle East, U.S., Canada, Russia, goes to Iraq. He talks to these governments about energy policy. He’s written a bunch of books, appeared over 1,000 times on TV, radio shows, and Dr. Moors is gonna break down the latest surge in oil production. Is it for real? Can it be maintained?

 

Will the U.S be energy independent one day? We’re gonna talk about the natural gas markets, how much of the clean fuel we actually have in the U.S. Remember, had a big debate couple weeks ago, Arthur Berman, right. It’s gonna be a lot different this time. He’s also gonna share some of his favorite ideas – I mean, awesome, awesome interview, guys.

 

Companies pay a lot of money to hear Dr. Moors speak. You are going to get him for free. Then, gonna break down the markets. Still earnings season, and we’re not getting good reports, especially from one large-cap tech leader, which I think investors should avoid at all costs. Gonna break that down.

 

Also, take some of your questions on bonds, Chris Mayer’s special promo from last week. Hopefully, you’re all taking advantage of it. I don’t get any money off of Chris, one of the best newsletter writers in the countries, in the world, offer fantastic, fantastic deal. Also, I’m gonna go over stop losses with you. Get a lot of questions on stop losses.

 

This was a real good one. Finally, in my educational segment, I’m gonna teach you about comparative analysis. Sounds like a big term. I also covered it once before. I’m gonna get into more detail.

 

It’s basically buying a stock that’s the best in a particular industry compared to everybody else, which many people really do not do, including very smart analysts. They just do their research on a company and say, “This is the one I’m buying.” Well, take it another step further. I’m gonna teach you how to do this, do comparable analysis before you buy any stock, the segment where I provide real-time examples, why using this method has helped my subscribers double their returns in one stock. And before I get to all of that, let’s start with my fantastic interview with Dr. Kent Moors. I start by asking him…

 

[Beginning of interview]

 

Could the U.S. ever become energy independent?

 

Kent Moors: Well, that’s a discussion that’s been ongoing now for almost two years. We have an advent of far more unconventional oil and gas than we had anticipated. We’ve known about the shale gas now for a bit, but it’s the tight or shale oil that actually has been surprising folks. It is conceivable that 30 years down the road, given the current indications, we could provide for most of our domestic needs through our own domestic production with the remainder of about 30 percent of what we need each day essentially coming from imports from Canada. So, the answer is yes, that is conceivable.

 

Frank Curzio: Now, talk a little bit about the technology side, which I know you’re real familiar with. What are you seeing in the markets that make you think that we could see much more production on the oil side, because I think a lot of people out there don’t really understand the technology and how much oil we’re actually starting to find the in U.S.

 

Kent Moors: Right. Most people still think of what we have to call now conventional oil, and that is having a traditional oil reservoir and essentially sticking its straw down there and sucking it up, in other words, drilling vertical oil wells. The future of oil in not simply in the United States, but in North America and many other parts of the world, is actually in horizontal drilling and in horizontal drilling through unconventional reservoirs. Now, here you essentially have oil or gas that’s locked in rock or sandstone. These are structures in which if you use conventional drilling, you might be lucky if you take ten percent of the available hydrocarbons out of the ground, and that’s entirely dependent on how wide the pay zone is, in other words, how deep the reservoir may be once you hit it. The horizontal drilling, however, allows you to go parallel below the surface or parallel to the surface, allowing you to tap far more of what’s available in the rock.

 

Now, to do this, you need to be able to blow open the rock, because normally that rock makes traditional drilling extremely difficult. For that, the process that has been introduced is known as hydraulic fracking. The process both has great additional promise for improved performance, but it also comes with a considerable amount of environmental angst. There have been some difficulties. There are some very legitimate concerns about the hydrocarbons polluting water tables, et cetera, and so the technology moving forward, that will be decisive.

 

And the breakthroughs that we have been seeing recently are in the combination of the horizontal drilling and the hydrofracking that allows us to increase the amount of extractable reserves while, at the same time, we are minimizing or removing the environmental difficulties. And I’ll just give you one simple example. We have companies out there now that are developing hydrofracking techniques that allow us to remove the need for moving some nasty chemicals down hole to accomplish certain things you need in these wells. By not putting these chemicals down hole, we don’t have to worry about the chemicals coming back up with the flow-back water. This is the water that comes back with the hydrocarbons.

 

We also have other hydrofracking, other fracking techniques that are using gels and even carbon dioxide to depart from having to use the water base. These are not, in many cases, yet financially effective, but at least the technologies are advancing. So, we have a combination of better drilling techniques and better fracking techniques that I think hold the key for the future.

 

Frank Curzio: Now, it’s interesting, because you see all this new production coming online, and even though, like you said, it comes online at a much higher cost, but that has resulted – and you know as well as I do, there’s a lot of people saying, “We’re gonna see $40.00, $50.00 oil, $60.00 oil in the future. It’s gonna stay that low.” Yet, you’ve been convincing, and I’ve been researching, like I do with all my guests – I was fascinated, because I just kept reading a lot of your articles. Usually, it takes me five minutes to get a good profile on somebody. I was just interested, and I went back a couple months and started reading a lot of things that you were saying, which are actually true today, because a lot of people are calling for much lower oil prices.

 

You think that over the long term, over the next ten years, you’re saying oil prices are going to go a lot higher. Why is that with all the new production coming online?

 

Kent Moors: Well, first off, many of the people who are telling us the days of high oil prices are over are actually other – are actually people who are shorting the oil markets. So, the more they can convince you that oil is going down, the more money they’re making, but aside from that, we have a number of categories that are kicking in here. Let’s just talk about oil. Let’s forget about natural gas for a moment, because the dynamics are very different. If we just talk about oil, number one, it is true that we have more unconventional oil sources than we ever thought attainable.

 

But, as you’ve already mentioned, it costs more to get that out of the ground. It costs more to treat it, to process it. Much of this is actually heavy oil. It’s oil that you have to take a considerable amount of extraneous material out of. The separation is higher.

 

If it is particularly heavy oil, then you really need to upgrade that oil into a synthetic flow before you can even get it to a refinery, and then when you get it to a refinery, only those refineries that are equipped to deal with this sort of crude can actually process it. So, you can’t simply look at how much it costs to take the oil out of the ground. In other words, you can’t simply look at the cost at the wellhead. The cost of processing, of transporting, of refining, of distributing, all of these factor in as well. That’s number one.

 

Number two, we have a considerable amount of infrastructure expense that will be required to allow a better exploitation of this new oil sourcing. We have insufficient pipeline capacity. We already have essentially full capacity, pipeline capacity being utilized in several parts of the country. In the Midwest, for example, the reason why they’ve been forced to discount synthetic oil coming out of Canada is essentially they’ve run out of pipeline capacity. The building of the pipeline networks, the building of the gathering and the separation and feeder pipeline systems and the terminals and the movements to the refineries and so on, all of this is gonna cost a considerable amount of money.

 

This is multi, multi, multi, multibillion dollar capital investments needed, all of which is gonna push up the price. Then, we have some other factors. Even if we became essentially self-sufficient in crude oil, and that’s not really a possibility for decades yet, but even if we could get there, what it is that’s occurring internationally still has an impact on the prices in the United States, even though we may be receiving most of our crude oil domestically. Once we take a look at the pricing that’s taking place internationally, there are several factors that are colliding with the current status of the oil market. One continues to be the geopolitical situation, and for those who say that the price is considerably going down, if you ask them, “Well, what about the geopolitical hotspots?” their only answer is, “Well, those are probably gonna be resolved at some point in the future.”

 

In point of fact, they’re not. They’re getting worse. We have regional imbalances. We have political difficulties. The Iranian sanctions have been significantly rebalancing the international market, and while the price increases from that have been minimal in the U.S., they have been significant in places like India and South Asia that are dependent on Iranian crude, but now can’t receive it.

 

So, that’s another factor. And then, the overriding situation here is the only reason prices have been well below $100.00 in the United States and the fact that Brent has been below $120.00 in Europe has been because of sluggish overall economic demand. We keep looking at demand figures to see when that spike is going to hit. Let me tell you a couple of things here – or let me just give you the bottom line. If you take a look at the forward indicators, these are the economic indicators we look at to try to predict what the market’s gonna look like a little bit into the future.

 

Of those, an absolute majority are energy sensitive. That means when these economic indicators start to improve, the need for energy has actually improved prior to the figures improving themselves. Sixty percent of those indicators are now strongly going up. It means that we’re finally coming out of this grand recession we’ve been in, and the sluggish demand is going to be replaced by a rising demand across the board for energy. That is going to increase prices even further.

 

To give you a final indication here of something that may be a bit disconcerting, if you take the top the ten oil producers in the world, and, by the way, they’re all state oil companies – Exxon is the largest private producer in the world, and they’re 14th on the list. If you take the top ten, over the last three years, these companies have replaced 72 percent of the oil they’ve taken out of the ground. To replace the reserves, you need to develop new fields, but new fields are not a good economic proposition when people can’t see the demand out there to justify the new supply. When this demand spike hits, and we’re seeing the indicators forming that this is going to start taking place over 2013, the volume isn’t going to be there initially to meet it. That is going to create a disorientation in the market and will kick up prices even further.

 

Frank Curzio: Now, to replace these reserves, what are these actual state-owned companies doing? Are you seeing more investments? We hear about all the time more investments in Canada. And now, Canada, the government says, “Okay, that’s – we’re a little nervous here.” It seems like they’re a little nervous, and they’re like, “That’s okay. You have to – ”

 

I think it was Nexen – now don’t quote me on that – that was just invested in from China. But, what are they doing to replace these reserves that’s just getting more difficult? Do you see more acquisitions in certain countries or maybe investments in the U.S.?

 

Kent Moors: Right. I mean, and that’s – we see considerable foreign interest in investing in unconventional oil and gas in the United States. In fact, a number of the major state oil companies from abroad are quite happy to take a 25 percent minority position in a North American project, shell out $1 billion or more. And they’re not overly interested in controlling a percentage of the extractions. They’re actually more interested in getting used to the new technology and being able to import the technology abroad. I keep telling companies in the United States, one of the biggest export market potentials out there is the exporting of American technology and knowhow in unconventional production to other parts of the world, and we’re beginning to see that, so that’s one thing.

 

Clearly, Chinese companies are out looking to acquire companies throughout the world, but they’re also – it’s also necessary for main producers, such as Saudi Aramco, to be able to guarantee the integrity of their own reservoirs. One of the things that’s bothered me for years about the Saudis is that if you go out and see a new field, and they love to show you a new field when you go over there just to indicate we’ve got so much oil we haven’t even tapped yet, and we can open up new fields anytime we feel like it. The last time I saw one of these, there were 22 drilling derricks, apparently drilling derricks. There were 22 derricks out there, but when I went out in the jeep to look at them more closely, 16 of them were actually injection wells, which meant from the very beginning of the reservoir they were going into what is called secondary recovery technique. In order to guarantee the amount of oil coming out of the ground, they already had to resort to water flooding at the very beginning.

 

Now, what you – the damage you do to a reservoir, to the geological integrity of a reservoir when you move to water flooding at the very beginning of production is just disastrous. You’re gonna be cutting down the overall volume that you’re gonna be able to get out of the ground. There are several reasons why companies would do this. What bothers me is Saudi Aramco has never given us an official reserve figure since they took over the company in 1979 since they nationalized it. And my concern is they may be creaming some of these fields, taking out the readily available oil, but overall reducing the medium- to longer-term extraction potential of the reservoirs themselves.

 

This is really a market in which the capital investment is so heavy in developing new fields that a company will attempt to wait until the indicators in the market very clearly are pointing either to increased or decreased volume needs. The problem is that if you do that, and there’s a lot of good economic sense why you would, but if you do that, you actually cannot fulfill the initial spike in demand. There will be supply shortages. There will be aberrations, bubbles bouncing throughout the international market. Saudi Aramco, for example, will continue to provide a greater amount of crude to Western Europe to replace, for example, the Iranian crude they no longer purchase, but at the expense of increasing prices considerably that go to India.

 

So, you’re gonna have these distortions that are forming, and the distortions will be paralleled by frequently changing directions to the oil flow itself. These inconveniences increase price for the simple reason that market inefficiency in a demand-expanding environment will always increase the overall price of the underlying commodity. That’s one of the other elements we’re gonna be seeing.

 

Frank Curzio: We’re talking to Dr. Kent Moors, energy expert, who’s been advising some of the largest oil companies, also some of the biggest oil-producing nations for more than three decades. The question that I wanna ask you right now is for someone who’s been in this industry such a long time and travels all the time, how concerned are you about geopolitical risks, because I’ve been in the field, and I was fortunate enough to drive 600 miles through the Eagle Ford and get a really good perspective of what’s going on there, and also in the Permian Basin, and a lot of – all they talked about what Iraq, the political risks. What are your concerns there? Are they for real? Do you think this could really push oil prices up?

 

And I know you touched on it a little bit and said you don’t think they’re going away soon, but how concerned are you?

 

Kent Moors: I’m very concerned. This is the worst geopolitical environment I’ve seen in decades. We have an advantage, which is not of our doing, but we have an advantage right now with Iran because of the subdued international market, but that’s not going to remain. The Iranians are now producing and exporting at levels lower than anything we’ve seen since the end of the Iran-Iraq War in 1988. Their exports may have easily been cut by 55, even 60 percent because of these sanctions.

 

Now, what that does, of course, inside Iran is it decimates an economy, because about 80 percent effectively of that general budget in Iran is determined by the proceeds of oil exports. And these sanctions not only prevent the oil from arriving, they also make it far more difficult and expensive for the Iranians to access the international banking network, which you absolutely need, because virtually all of the oil that’s traded on a daily basis is denominated in dollars, but you have to exchange that currency into currencies you either use for your own imports or currency that you need domestically. And the Iranians have a new election coming in June, a new presidential election. We hope that someone a bit more amenable will come into office, but the leverage of the Iranian presidency is limited given the actual structure of power there.

 

And this is classical Persia. You have 5,000 years of Persian history on the other side of the table. The decisions are not always made based on what the financial efficiency may be of the moment. They may be based on very traditional or religious grounds, and that uncertainty is creating difficulties. We have a situation where pockets of geopolitical unrest in the world are no longer aberrations.

 

They’re no longer exceptions to a normal market. We haven’t had a normal oil market in years, and it gets to the point where the only normal market I genuinely see is the one in theory you present in a classroom. The real world is one that essentially is right on the brink of several major crises with several of these overlapping and several of these taking place at the same time. Now, if we only take a look at the Persian Gulf – there are certainly other hotspots – but, if we only take a look at the Persian Gulf, 20 percent of the oil traffic on an average day goes through the Strait of Hormuz. At its narrowest point, that strait is less than two miles wide.

 

The increased problem with Iran, and that strait, by the way, has Iran on the one side and the United Arab Emirates on the other, if the problems with Iran increase, if the regional tension increases, then 20 percent of the world’s daily oil supply is at risk. And even if the strait doesn’t close, even if the Iranians don’t actually close the straight, the concern about interruptions of traffic through the strait will spike prices. If that strait is closed, the Iranians will not be able to sustain it for very long, but if they attempt to close the strait, that will easily produce a $25.00 to $40.00 per barrel spike in price if that would last 48 hours or longer. That’s how sensitive the world is. It’s not simply a geopolitical result produces X amount of genuine, absolute, documented economic problems.

 

The fear factor expands the impact of the geopolitical considerably. We see this in other elements as well. Every time there’s a problem, every time people go to the streets in Athens, there is a decline in worldwide oil prices, the fear that this may have an impact on overall demand levels in an already credit-starved Europe. We all know that you can’t document that with figures for at least a quarter, but markets no longer wait for the figures. Markets are operating on sentiment, and if things look like they’re going up or if things look like they’re going down, that’s the way in which the lemmings are going to run, that’s how the market operates these days.

 

So, geopolitical impacts actually have a magnifying effect well beyond what it is they may actually be accomplishing.

 

Frank Curzio: Yeah, that’s great stuff, especially the comment that you made that it’s the worst geopolitical climate you’ve seen in decades, and the fear factor, too, it’s – because that’s how markets work. Just the fear of that strait being closed could push up prices, and amazing stuff. There’s one thing I wanna talk about here, and it’s an article that you wrote in Money Morning. That’s a free e-letter, guys. Get a chance, go to moneymorning.com.

 

See a lot of great stuff, a lot of great editors, including Dr. Kent Moors. And I love the way you started this article out. You say, “While folks back in the U.S. were sitting down for Thanksgiving dinner, I was making my way back to Frankfurt, Germany, from Poland. My discussions in the Polish capital were with – I think it’s PGNiG is the company, national state-run gas company, and the government’s designated partner in all domestic drilling operations, and you say they’re about to start their first horizontal drilling program. One, I wanna say it’s a great opening paragraph to a story that you’re someplace else for Thanksgiving and really boots-on-the-ground approach.

 

But, what does this mean for the state-run companies where they’re just starting to get into their first horizontal drilling programs?

 

Kent Moors: Well, in Poland, we have every reason to suspect there’s a considerable amount of shale gas. They have five known basins. The basins are only beginning to be tapped. Some foreign companies have already been over there. ExxonMobil, for example, has been involved in the early drilling.

 

All their early wells have come in dry, which simply indicates the geology isn’t wrong. We simply haven’t found out where the sweet spots are yet. We all know where the shale is. Mother Nature has this irritating habit of indifferently placing the hydrocarbons inside the shale, so, I mean, you have to spud several wells before you get an idea of what actually the return is likely to be in a given area. The poles are in a very interesting situation.

 

They have been dependent upon the importing of natural gas, especially from Russia. Any discovery of domestic sources will, obviously, improve their domestic energy balance. It will make them less dependent on somebody they still don’t really trust, but it also requires that they be very careful in how they develop this. Unlike other places, there is no environmental opposition to drilling at all in Poland, but the reason for that is there really hasn’t been any drilling. I mean, once the drilling comes and some problems result, then people are gonna start looking at it again with a more sanguine eye.

 

What the Polish government has done is to say, “Okay, we have a responsibility to meet and resolve these environmental problems before we even start drilling.” It’s one of the few places in the world where government has said, “Everything’s fine now, but we know it’s not gonna be in the future, and if there are difficulties here, we need to know about them and resolve them.” So, PGNiG, the national natural gas company, will have a part to play in every single drilling operation in the country. They’ve been given their marching orders by the Polish government to, number one, find the most effective ways of doing this, and, number two, meet and solve problems of an environmental, a social, a logistical nature before they even start. This is an amazing opportunity for – forget about American gas companies.

 

This is an amazing opportunity for the American technological base to start major exports into a region of the world that will be expanding. My latest estimates are that by the time we get to as early as 2025, maybe even earlier, the Poles potentially could be self-sufficient in gas, which is a major change, and start exporting gas to other places in Western Europe. That’s how much of a deal changer this is. Now, people will say, “Well, I mean, that’s great, I guess, for the Poles, but they’re gonna end up having a problem, just as North America may have a problem, if we have so much gas. Aren’t we actually going to be permanently depressing the domestic price for that gas?

 

“And by depressing that price, aren’t we actually going to be costing us potential economic development and expansion?” And my answer to that, simply, is no. There are a number of new demand sources that are coming on board rather quickly that require significantly greater amounts of gas moving forward, and I’ll simply mention one of them. The traffic in liquefied natural gas is already transforming the global energy balance. Normally, when you move gas, you’re stuck with you can only move it as far as your pipelines are, because it’s in a gaseous state.

 

With liquefied natural gas, you cool it to a liquid, and you can move it by tankers anywhere in the world, and then you regasify it on the other end and simply inject it in the pipeline systems that already exist. The use of liquefied natural gas is expanding considerably. It is the single biggest game changer of the next two decades in international energy. It’s going to be – have a major impact, for example, in the United States, and it’s gonna do the same thing in places like Poland. In the United States, we now have enough recoverable, unconventional gas so that we could increase the overall production of gas 25 percent each year into the foreseeable future.

 

Now, we wouldn’t wanna do that. It would destroy our market, but we could if we wanted to. What do we do with all this excess? Well, the LNG exporting market is gonna be draining a considerable amount of this into a new very profit-intensive international market. We already have companies that have set up or retrofitted terminals.

 

They’re prepared to begin operating in 2014. At that point, the expansion and the dredging of the Panama Canal will be finished, so now you can have an LNG facility on the U.S. Gulf Coast. You can move the LNG to either Europe or to Asia, and you’re suddenly playing in a far new ballgame. The latest estimates given – and these aren’t mine. These are by Gazprom, the huge Russian natural gas company.

 

They note that currently the United States accounts for zero percent of the international LNG trade. By 2020, they estimate that 9 to 12 percent of all the LNG traded in the world will be coming from the United States, and virtually all of that is going to be LNG that has been developed through unconventional shale gas. Poland will be doing the same thing. We also have unconventional – if we take a look at the top four nations in the world that have the greatest amount of shale gas, China is actually number one. We’re number two.

 

Mexico is number three, and PEMEX has just begun its major projects in northern Mexico, which is just an extension of the Eagle Ford south, and Argentina is number four, and they haven’t even begun yet in Argentina. The last worldwide survey that was done surveyed basically barely 50 percent of the world and concluded there are 82 major shale gas basins that are available for extraction. We’re gonna see different types of trading arrangements. What we need in that is the volume, which we currently have, which we certainly have, but we also need the technology, the logistics and the expertise, and the United States is about eight years ahead of the rest of the world in that, and in this business, eight years is light years. We ought to be making an absolute fortune internationally by exporting what it is that we already do to other countries that are gonna be needing it.

 

I tell people around here, I’m based in Pittsburgh, right in the middle of the Marcellus Shale. I keep telling the companies here, “You know, within a year or so, what you take out of the ground here in western Pennsylvania is gonna have an impact on LNG prices going into Singapore.” That’s how quickly this market is changing, and that makes it really exciting.

 

Frank Curzio: Now, and this is the last question here, but we have about two, three minutes left. There’s a lot of stories out there, actually one in particular, saying that natural gas, that market is in a bubble. We don’t have as much natural gas in the U.S. as statistics suggest, most of the noise coming from a gentleman named Arthur Berman, who I interviewed a few weeks ago. What are your thoughts on this in terms of how much production do we have in natural gas industry, where this gentleman’s saying we have maybe 20 years, and he thinks it’s an enormous bubble, and it’s drawing a lot of attention out there. And I think it’s more well past 100 years. What are your thoughts from being in the field?

 

Kent Moors: I’d be siding with you. My latest estimate, for example, is that we have I think it was 88 years of available volume at an eight percent annual increase in production. Putting in eight percent of an increase annually in production, we still have 88 years. Here’s what you have to remember. Every year – every year – I mean, just about every month we have new technology breakthroughs, and these are small things, but each one of these is increasing the overall recoverability from wells, from basins.

 

It used to be that you would never have a well in which you could expect to extract more than 50 percent of what you know is there. These days, we can go well beyond that with the existing basins, with the existing pads. When you do shale gas, you actually clear out a section, and you put several wells in the same location. Well, where we used to be doing 4 wells per pad, we now can do 6 to 8 wells per pad, and where we used to be doing 2 frack stages, we now can do 4, 8, 12 frack stages. Remember, this is horizontal.

 

So, you can put a single well down or a single pad with multiple drilling locations, and with the improved technology, you can now get a considerably greater amount of the natural gas than you could before. That’s number one. Number two, we keep finding new basins. The number of new basins – if we were having this conversation two years ago, I would tell you, “Look, there are 28 major basins in North America we’re taking shale gas out of.” Today, we’re upwards to somewhere around 42, and we’re counting from there, but that’s just shale gas.

 

We’ve got huge reserves of coalbed methane. We have tight gas, which is developed, extracted with the same procedures as shale gas, except the gases here are located in very thin lenses and sandstone, so as you go down, it’s almost like you have to use horizontal drilling to connect the dots rather than go down, cut at 90 degrees and run through rock, which is what you do with shale gas. And if we ever needed anything else, which we don’t at the moment, we have huge reserves of offshore hydrates. So, the answer is, we’ve got plenty of natural gas, most of which we haven’t even tapped yet in basins we haven’t even discovered. Now, do we run out of this?

 

Well, it’s a nonrenewable asset, so, at some point, you’re likely to start running out, but that’s not gonna be – I don’t think it’s gonna be in our great-grandchildren’s lifetimes. And remember, we’ve got plenty of coal, and when we start running out of natural gas, we’ve got all these developments in coal gasification, so there are other ways of developing this. So, the answer is, the old idea of this is gonna be done in 10 or 20 years, that’s based on very old statistics with very outmoded technology.

 

Frank Curzio: Well, great stuff. I’ll be honest with you, Dr. Moors, I could probably talk to you for another hour, but we gotta cut it there. Thank you so much for being on the podcast. My audience always learns a lot – I do, too – from a person that’s been in this industry for such a long time and travels the world. I wanna thank you for taking the time to be on the podcast.

 

Kent Moors: Well, thank you. I enjoy it.

 

Frank Curzio: All right, take care.

 

Kent Moors: Bye-bye.

 

[End of interview]

 

Frank Curzio: All right, guys, awesome, really awesome interview. I enjoy it a lot. Again, it’s not about me. It’s about you. Send me e-mails, fcurzio@stansberryresearch.com.

 

Let me know what you thought. Thought it was interesting. LNG is a trend that I think is just as big. It’s nice to see Dr. Moors also think that’s one of the biggest game-changing trends in years. I have a variety of stocks in my Small Stock Specialist newsletter, ideas that you can make a lot of money on due to the LNG trend.

 

He also said there’s 16 major companies, even state-owned companies that are joined together that now have filed permits for approval. Only one company has approval for LNG export facility, Cheniere Energy. That stock’s at a 52-week high. There’s 16 companies, most of them large caps – ExxonMobil, BP, every big energy company you could think of – they all filed permits. They’re waiting for the U.S., waiting for the government to say, “Hey, okay, you guys can start building these.”

 

Once they do, there’s a few companies that are gonna benefit immediately and other companies that are gonna benefit long term when these things are actually built, which take anywhere from three to five years, fantastic industry. Another thing that I talked about with Dr. Moors that you didn’t get a chance to hear, he was talking about research from Sanford Bernstein. Sanford Bernstein is an investment research firm. I don’t know if you heard of it, but he said they’re the best in energy. They get the best rankings from all kinds of sources at being the best in energy, and he – they predict, over the next ten years, oil prices are gonna be over $150.00 – not quickly, slowly, gradually uptrend, going to $150.00.

 

And the reason why I think that’s important is because people look at Goldman Sachs, people look at J.P. Morgan, Citigroup, these research firms. I read thousands of these research reports every year on specific companies, on macro views. I mean, they’re fantastic reports, because these guys have research teams of 200, 300 sometimes that send 100 guys into China, you know, go visit hundreds of companies, and they come back and report it. Helps a lot on the research end.

 

But, if you look at specific companies, you can’t say, “Well, Goldman research sucks. It’s terrible. It’s horrible,” because that’s not true, because there’s a couple of analysts that I cited, technology analysts that are fantastic, have some of the best ratings. I love reading technology research from Goldman Sachs. Sanford Bernstein he says the best at energy. So, be careful when people say, “Well, Citi is terrible.”

 

I mean, they have a ton of analysts, and some analysts have 30 years of experience in a particular industry and have fantastic ratings, so just try to weed between the good analysts and the bad analysts when it comes to sell-side research, because not all of it is terrible. Not all of it is terrible. Some of these guys really do a good job, and it’s interesting to hear that from them. I just wanted to share that with you, because we talked about that offline.

 

Now, let’s get to the markets. European stocks at two-year highs. Thought Europe was terrible. Just goes to show you, being a contrarian can make you a lot of money. If you bought in, what, 2010, even in 2011 when newspapers were reporting every day about the European debt crisis, “Companies are in huge trouble. Europe is dead. It’s gonna be like that for a long time.”

 

You know, if you did the opposite, you’d be sitting on some really nice gains right now. In the U.S., we’re, what, close to five-year highs even though earnings have been, well, in my opinion, lackluster. Morgan Stanley, great quarter, blew out the numbers, but Citi was terrible. AmEx, in line. GE was strong.

 

Verizon, terrible. J&J also saw slower sales, but for me, the worst report of earnings season thus far, by far, was Intel. I mean, company basically manipulated earnings. When I say “manipulated,” I mean did it legally, cutbacks, buy back shares, just like how Cisco beat the quarter. If they didn’t buy back shares, they wouldn’t have beat the quarter on the earnings end.

 

Call that manipulating earnings. You do a good job, companies, especially large companies, they have so many divisions, it’s pretty easy to do. They cut cost, do whatever. But, anyway, company manipulated earnings and show a slight gain compared to the consensus. Then, Intel said something interesting.

 

They said they’re going to spend $13 billion on capex this year. That’s more than some of the largest oil companies are spending to replace their reserves, $13 billion this year. And even better, they said they expect zero sales growth. Now, let’s say that you have $200,000.00 in a savings account. That’s your life savings.

 

Imagine spending $125,000.00 and you’re basically saying that, “I’m gonna spending $125,000.00 out of that $200,000.00, and I’m not gonna see any return this year.” What are you left with? A much smaller savings account, right? It’s the same thing. I mean, you wanna be able to spend that money to make money, and maybe Intel will make money in the future off of this, but I don’t know.

 

I don’t know. I mean, how can you spend $13 billion and have no growth? That’s their forecast this year. And this type of scenario has consequences. Look at Intel.

 

They make the parts for companies like Dell, Hewlett-Packard, which are dying breeds. I mean, they’re just getting into Samsung Mobile – I mean, not just getting into mobile, but getting into the products that sell, just getting into late to the tablet market. I mean, they’re gonna be in tablets, but who knows how tablets are gonna do later on. I mean, Apple has such a great market share. Today, the balance sheet’s getting weaker.

 

In 2010, even you go back then, Intel spent $9 billion, which was a record back then, and the company was growing earnings. I mean, today, $13 billion, that’s what they expect to spend in 2013, so the balance sheet is getting weaker. People look at companies, say, “Wow, what a good balance sheet.” If you look at Chanos, I mean, he looks at companies like Exxon, who is shorting right now. I mean, I don’t really agree with it.

 

Exxon is doing well. If oil prices go higher, Exxon’s gonna do great, but it’s costing them a fortune to replace reserves, and their balance sheet is getting weaker and weaker, weaker every year. And if you look at Intel, that’s the trend that’s going on. I mean, think Kodak. Kodak had a great balance sheet at one time, but if your products aren’t selling, they’re – and Intel is not Kodak.

 

They’re not gonna go bankrupt. I mean, they’re not gonna follow the same fate, but they’re going through some serious cash burn. I mean, I have them at anywhere from $4 to $6 billion in cash burn next year. If my analysis is correct, the company would have a net debt position for the first time in, what, I wanna say decades. Someone has this stat, e-mail.

 

I mean, I’ll have it at the end of the show, fcurzio@stansberryresearch.com. I mean, maybe there’s a great product on the horizon and Intel is able to capitalize, I don’t know, but right now you have a large-cap tech stock that is the number one player in a secular declining market. I don’t wanna be the number one player in a secular declining market. I mean, you’re looking at PC sales, right, declined for the first time in 11 years. A lot of analysts predict it’s gonna continue to decline – I mean, you could argue forever.

 

Either way, it’s at the top of its curve going down. And you’re looking at valuations, you say Intel, stock trades at ten times. It’s such a discount to the S&P 500 trading at, what, 14, 15 times. Guys, never, ever – if I can give you one rule, one rule to live by in stocks – it’ll avoid you losing a lot of money, because people look at P/E ratios and think a stock is cheap. Never, ever look at a P/E ratio without looking at a company’s growth, because it’s meaningless.

 

It’s absolutely meaningless. I mean, people look at companies that are trading at 40 times earnings and say, “This is so expensive,” yet they’re growing those earnings by 30 percent. It’s not that expensive. I mean, some people pay two times the growth rate, which is fine. Intel is trading at ten times earnings with zero growth.

 

It’s horrible. Again, you can’t just look at a P/E ratio and be like, “Wow, it’s trading at a discount.” You have to look at those growth figures, and they’re expecting no growth, and they’re expecting margins to increase. How will Intel increase margins? I have no idea.

 

I have no idea how you’re gonna increase margins. How are you gonna charge more for – and you’re making products for a market that’s in a secular decline? How are your margins gonna increase? Well, I’m sure there’s gonna be a lot of manipulation – there again, legally. Not gonna do anything illegal.

 

But, you’re gonna see quarters like Cisco beaten by a penny or beaten by two cents here, but we bought back a crap ton of stock here. But, at $21.00, $22.00, I mean, I think that’s six percent decline after earnings. What was that, on Friday? It was nothing. You’re looking at Intel right now, I think it’s significantly overvalued and could decline by more than 20 percent in 2013.

 

So, guys, I suggest avoiding Intel. There’s just so many better stocks than Intel right now in that category, and I have a couple in my portfolio that I think are gonna do much, much better, where insiders are actually buying, where the stock’s down 40 percent from its highs. The companies are trading near book value. For Intel, just incredibly overvalued here, I mean, based on the stats, so it’s gonna – maybe that market changed, I don’t know. Right now, I’d suggest avoid Intel.

 

I could see a $15.00 stock raise to $21.00 pretty easily, in my opinion. What do I know, right? You wanna e-mail me about that, fcurzio@stansberryresearch.com. Now, let’s move on to some of your questions. I’m not gonna take that many, because that Kent Moors interview went a little bit longer.

 

I thought it was fantastic, so I kept it going a little bit longer. I like to keep interviews from 15 to 20 minutes. That went to about 30 minutes, a little bit over. I just thought it was fantastic, and he was providing great insight, so I didn’t wanna cut that short, so I’m not gonna take as many questions today. This way we don’t end up having an hour-and-a-half podcast, which I know half of you won’t listen to.

 

I don’t know if I’d listen to an hour-and-a-half podcast. I try to keep it to an hour. But, the first question is from – I’m gonna say his name is Theodore, even though it’s different, because if I pronounce his name, I try to – his name is not a common name, and I don’t want everybody to know that he asked this question, just in case. A lot of people don’t like me to use their names, but I’m gonna call him Theodore.

 

And he says, “Hi, Frank. I listened to your last podcast. I’m interested in getting the Capital & Crisis newsletter from Chris Mayer for $39.00 with a copy of his new book, World Right Side Up. I visited the website you mention on air, investorradio3.com, but the $39.00 option does not include the book. The newsletter and book option is $59.00.

 

“Is the $39.00 newsletter and book option still available? The show mentioned it would be available for a week or so.” We actually made a little bit of mistake. It’s not $39.00 for one year. The offer is $59.00 for two years, and you get the book for free, so it’s $59.00 for two years, which is even better, right, $59.00 for two years of Capital & Crisis.

 

Like I said, Chris is amazing. I’m not making any money personally off of selling this. I just think it’s awesome, and his book is one of the best that I’ve read on international investing, and he actually quoted me on that and threw it on the back of his book, which I’m honored. So, if you get a chance, go to investorradio3.com. That’s gonna be up for like a week or so, and I said it would be up a week or so last week.

 

I’m gonna extend it for another week because most people subscribed to the $59.00 for two years. I said it was $39.00 for one year with his book, but you’re gonna subscribe for two whole years to Chris – again, fantastic interview. As you see, he travels the world and writes about it and gives you great ideas that nobody else ever heard of, so it’s really cool. Again, you wanna take advantage of that offer, investorradio3.com.

 

Alan says, “Don’t beat yourself too much about China calls. Even Caterpillar found out the hard way.” Interesting, Alan. Alan also says, “Watching the Clippers dominate, Lakers who?” Well, I’ll address the second part first, because he talks about the Clippers dominating, which they are fantastic, best bench in basketball by far, but don’t – the Lakers comment, don’t be bossing Red Sox fans who go crazy.

 

After you beat the Yankees, you became more arrogant than anyone I’ve ever known on this planet. Don’t get arrogant. Don’t rank on the Lakers. I’m not a Laker fan, but it’s cool the Clippers are doing good, and man, it seems like if they keep that team intact, they’re gonna be very, very good. Let’s see regular season.

 

A lot different in playoffs. As for Caterpillar, Caterpillar reported took a huge loss, $500 million loss on a China subsidy that was basically lying about its inventories. For long-term subscribers, I got burned. I went to China, and I recommended a company. I thought I did all the homework.

 

I did all the research. It was the first time that I ever got burned. I took it personally. I was really upset, because I did a lot of homework, a lot of research, as you guys know from listening to this podcast, and now you’re seeing a company like Caterpillar get completely blindsided. My advice is if you’re gonna invest in China, do it through the ETF, or do it – I would – I used to say do it through investing in Caterpillar, but even Caterpillar got burnt.

 

I don’t think you’re gonna see a lot of this, but I think you just have to avoid China. From a person that went there, there is no way, even if you know the right people, that you don’t know if they’re lying. I mean, coming from a guy that went there, that saw the assets, talked to sell-side analysts that their clients had millions and millions and millions of dollars invested in these companies, even watching these companies defend themselves, it’s amazing, because the CEO has ties to government. And when they do, these CEOs, they could do whatever they want. They could sell off parts of their businesses and not even tell you in their filings, so you really don’t know.

 

You have no clue what’s going on that even if you’re the best research analyst in world – I’m not making excuses, because I was wrong. Caterpillar got it wrong. A lot of people got it wrong in China, but you have to be careful, because there’s no foolproof way. Here we have rules, regulations. You see a lot of great exchanges, even the Toronto Exchange, our exchanges here where there’s rules in place.

 

CEOs have to sign off on the fundamentals and the financials, where you don’t really see that too much anymore, after Enron, anyway. But, it’s a situation, when you’re seeing a company like Caterpillar that has hundreds and hundreds of analysts to analyze this stuff and people that visit these sites, it’s amazing that they can get caught and take a $500 million write-down, and that stock was down about two percent on Monday because of it, and it impacted their earnings. So, be careful with China. It’s very difficult, coming from a guy that has personal experience there who thought he got it right and did all the research there. It’s a market where you’re looking at something that’s not real, and it’s very, very dangerous for investors, so just be aware of that and be very, very careful for the China market.

 

Next question is from Pierce. He says, “Hey, Frank, can you talk about the bond bubble I keep hearing about? Porter and others have been discussing this, and I’d like your take on it. I think I would get why there is a bubble, zero interest rates, but what will the burst look like? I’m a 26-year-old with a decent stock portfolio.

 

“I know asset allocation and diversity are important, but this seems like the wrong time to get into bonds of any type. Generally speaking, of course, should an investor wait this out or buy some bonds that are recommended by good analysts, like Marc Ford, who has a bond ladder in his portfolio? Any insights would be greatly appreciated.” Pierce, I would say at your age, at 26, I wouldn’t be focusing on bonds too much. I think stocks are a much better market, but I will talk about the bond market a little bit.

 

And if you punch in “bond bubble,” and I actually did this in Google, you’re gonna see articles from smart – from the smartest investors in the world that date back probably two years. Their predictions of a bond collapse have been going on for – ever since interest rates have been low, and they’ve been dead wrong, and I’m not picking on those analysts, because I’ve been wrong about certain things as well. The bond market I don’t really comment about. It’s not my expertise. I deal in stocks, but I could tell you, the one thing is it’s a pretty crazy market, and a lot of the smartest guys, the smartest investors that I know have gotten it wrong.

 

Everybody, people tried – not everybody, but people have tried to make money on this trade just – I’ve seen it, time and time again, get killed. I’ve seen them talking about it for two years. Like I said, record low interest rates, pundits suggest that rising inflation, rising rates could result in I know I’ve seen 30, 40 percent collapse in the bond market. I have bond professionals, one particular that listen to this podcast, who is fantastic, who helped me with research when it comes to distressed debt investing, which led to – I tried to find a way to actually buy stocks in this industry, or buy bonds, and I really couldn’t, but I did recommend KKR, and I’m up a lot on it for my subscribers. This is a investment company that was in Europe buying distressed assets that had to be sold, and this person – I’m not gonna mention his name, he manages a lot of money – but he could probably attest to this and probably give me more information.

 

If he does, I’ll pass it on, but yeah, I’ve seen so many people try to predict this, and it makes sense. I mean, if you look at the fundamentals, these guys seem right. I mean, ten-year treasuries yield, what, 1.7 percent. The annual run on inflation is above two percent, so you basically – that’s destruction of purchasing power, and it can’t last. Now, you have to realize that when you’re looking at bubbles, fundamentals don’t matter.

 

They eventually matter, but they really don’t matter. I mean, if you’re looking at the NASDAQ from 1995 to 1998, the NASDAQ doubled, which was an amazing move, but from 1999 to 2000, it doubled again. It went from 2,500 to 5,000, so – I’ve known so many analysts that are actually correct, saying, “This is absolutely crazy at 3,000, 3,500, 4,000, 45 – and they were wrong, and they got blown out of the water. It didn’t have to do with fundamentals. It has to do with sentiment, and I know that the time when everybody gives up on this bond bubble and says, “Okay, forget it. I’m throwing in the towel,” that’s when it’s gonna crash.

 

But, right now there’s so many people on that trade, I don’t know if it’s gonna happen. Another example, when it comes to momentum or you’re looking at a bubble, I mean, look at Netflix. It’s overvalued at 100 in 2010. Then, it hit 200 and almost 300 one year later, and then it fell back to, what, $60.00. I mean, so people were right saying at 100, 150, 200 it was overvalued.

 

I mean, Netflix is at 100 today, but they got killed. I mean, it went all the way up to 300, so you have to be careful. One thing I would say, you say you’re 26 years old, don’t really worry so much about bonds now. I just think there’s so many great opportunities in the stock market, I really believe that, and it’s important, because you look at the stock market and you might say, “It’s overvalued at 14, 15 times earnings,” but you have to take things into consideration. When we have high growth markets and the economy is doing well and growing, you see the P/E ratio go up to 18, 19, 20 times, and we’re still at 15 times.

 

And you say, “Well, Frank, the economy’s not really growing. We’re growing, what, like one and a half, two percent.” But, there are other factors. Where you have zero percent interest rates, where bonds are not that attractive and other investments aren’t attractive, you’re going to see more money go into stocks, so I think stocks could demand a 16, 17, 18 percent P/E based on the market conditions, and you have to take that in perspective. So, if you’re looking at that, I think stocks are a great investment.

 

You have to be careful what you buy. Went over in podcast last week, like I wouldn’t be buying McDonald’s and Coca-Cola at 17 times forward earnings, but there are really good stocks out there trading at 10, 11, 12 times earnings that are growing, large-cap stocks that look good. So, you could buy those or, more important, subscribe to my newsletter, very – I wrote one of the best issues a month ago showing you alternatives to McDonald’s and Coca-Cola that pay three, four percent yields, and if you compound year after year and you’re earnings these yields, these are companies that are growing much faster than the large-cap index, and they’re trading much cheaper than them as well, some of these high-dividend paying stocks. I mean, this is a great alternative. These are small-cap, well-known names that you heard of.

 

You use their products every day. I think it’s a fantastic opportunity. Do that. I mean, even if you don’t subscribe to my newsletter, try to find small caps that pay a high dividend, that are good name-brand companies. I found 100 of these.

 

I recommended two. There will probably be about 7 or 8 in my portfolio over the next 2 years that I’m gonna tell people to hold for the next 20 years, and I’m sure that it’s gonna make them a ton of money, where they could be the next Coca-Cola, McDonald’s. So, I didn’t mean to get that far into that question, but, hopefully, that helps. I had more questions that I wanted to answer, but we’re running a little late here, and I wanted to get on to my next segment.

 

And that next segment is my educational segment. Gonna go over this really quick. It’s on comparable analysis, and it sounds like big words, and I’m gonna make this as interesting as possible, I promise, but it’s not. It sounds like big words; it’s not. I think investors make a huge mistake buying a company they analyzed thoroughly that is cheap and maybe looks good on a technical level, but you should always take this final test.

 

When you find your company, and even if you say, “Well, I think I’m gonna buy this company if it falls down 30 percent,” before you buy it, I want you to do one thing. I want you to compare that stock to its peers, because you may find an even better deal. It’s happened to me many times. It’s a step that a lot of people don’t take. Now, here’s the example.

 

Early November, energy services play, a lot of you’ve heard of it, Weatherford International reported horrible earnings, been reporting horrible earnings. The stock, I believe, is $20.00. It fell to like $8.50, and it was around $10.50, $11.00 when I started looking at it. It’s a little bit above my small-cap level, but I always promise myself if I found a stock that I think people could make a lot of money on, even if it was $7 or $8 billion market cap, I’m gonna recommend it. That’s my job, to try to make – to have you guys make money on stocks, and I’m not gonna buy a worse company with a smaller market cap in the same industry if I think this company has much more upside.

 

Anyway, before you’re buying these companies, you may even find a better deal. Now, I thought Weatherford was a steal at $10.50, $11.00. If you look at the chart today, I was right. I mean, the stock’s doing well. Weatherford was cheap, hated, had another earnings miss.

 

Insiders were buying. I mean, sentiment on it was terrible. I like being a contrarian investor. A lot of people just ripping the company apart, and before I pulled the trigger, recommended the stock for my Small Stock Specialist subscribers, I looked at a few of Weatherford’s competitors, and one name that came up was Superior Energy Services. The symbol is SPN.

 

Giving this company away. I know subscribers pay for this, but it’s a lot higher now than my buy-up-to price. That’s why I’m giving it away, just to show you how this works. Now, I’m sure Superior Energy is probably a company that you’re not too familiar with. I mean, most of the oil services plays and the energy services plays are Halliburton, Baker Hughes, Schlumberger.

 

But, you never really hear Superior Energy Services, so it was the first time I was researching the company. If you look at the company’s career opportunities web page, one of the first job openings you’ll find is for an able-bodied seaman. I can go a lot of places with that, but I won’t, but basically Superior spent decades handling the dirty work involved in oil wells, including repair, maintenance and early-stage drilling preparation. Now, Superior is also a global energy services company. The company is a big player in the Gulf of Mexico.

 

Also has operations in Saudi Arabia, Asia, West Africa, South America, something I like to see with small-cap companies. Their client base include a list of who’s who – Exxon, Anadarko, Devon, Chesapeake. I mean, all the majors that you could possibly think of, most of them, anyway, are the clients of Superior. Now, the stock was down 40 percent over the past 12 months. Management, starting to see growth both internationally and the U.S.

 

It’s also cutting spending, which will result in much higher earnings. Now, this is key, because a lot of companies say they’re gonna cut spending. This company has $1 billion spending plan, and they’re cutting drastically, where the spending cuts are gonna be more like $300 million in savings. That’s a ton of money for a company with a $3 billion market cap. And there are also some big insider buys months before we bought shares at like 30 percent higher than the current price, and we bought at under $19.00.

 

I mean, I saw it at $24.00, $25.00, $26.00, where insiders were really buying months ago, and this company collapsed from that level. Now, more important, Superior got so depressed and hated, shares traded at seven times earnings. That was a 40 percent discount to its peers, including Weatherford, yet it’s expected to grow much faster than Weatherford. It was also trading at a 27 percent discount to its book value, huge discount to its book value, something I love to see. I thought the company was a steal under $19.00.

 

Today, less than three months later, my subscribers are sitting on 30 percent gains. Weatherford, on the other hand, is up about 15 percent, so I was right on Weatherford, and I could say, “Wow, I got 15 percent gains over the last three months, much higher than the S&P 500,” but that’s a huge difference, right, 15 percent to 30 percent, I mean, unbelievable difference. So, before you buy any stock, analyze its peers. It’s really important. Even if you think you have a great company on your hands, there may be a better one.

 

If you’re looking at electronic arts, I mean, check out Activision and Take-Two before buying. If you like Intel, check out Qualcomm, Texas Instruments, even AMD, which is a terrible company. Anyways, they’re trading at $2.50, but if it goes down to $1.40 or its book value, maybe it’s a buy. Maybe insiders start buying. You may wanna follow.

 

I mean, insiders aren’t buying AMD now. The stock crashed, and insiders aren’t buying. It’s not a good sign. I’m just saying, before you buy that company and you think you have the perfect stock, just take a look at its peers, because it makes a big difference, as you can see. I mean, Weatherford turned out to be a good pick for me.

 

It was good, but there was a much, much better play, and my subscribers are getting even more gains. It’s important. It’ll take you about 30 minutes to do that extra step. You could probably go on Google and put competitors – I know competitors, they have a competitor feature on Yahoo! Finance, but they’ll probably provide the large-cap competitors. I mean, you could dig a little deeper.

 

It’s not too hard, take a little longer. And I have search engines, like Capital IQ, that could bring up every competitor in any country within three minutes. Some people don’t have access to that, but use your screens to find competitors. Then, go through the fundamentals to research, see if insiders are buying. See if it’s a better play than what you’re buying.

 

Maybe it’s not and you’re fine. Just buy that stock, but it’s worth it. It’s worth the extra 30 minutes, I mean, because I’m sitting on 100 percent gains that are higher than if I would have bought Weatherford for my subscribers. This could mean a huge difference in your returns, like what my subscribers are seeing with Superior Energy Services.

 

Okay, guys, should be a really good Super Bowl. Congratulations to the Ravens and Niners. I think the Niners have an edge just about every position, but who knows? Ravens got momentum, and they really put a smackdown on New England. The game wasn’t even close, which many considered New England the team to beat this year, so it was an impressive win. Anyway, it should be a fun Super Bowl.

 

So, any questions, comments, e-mail, fcurzio@stansberryresearch.com. Tweet me, @FrankCurzio. Be sure to visit our site, stansberryradio.com. We have transcripts of the podcast, pictures of guests – I don’t know if that’s good or bad – links to get on our mailing list, which is important, because that gets the best offers for our Stansberry products, which is pretty cool. I know a lot of you guys take advantage of those offers.

 

Again, if you wanna take advantage, that’s fine, even Chris Mayer’s deal, that’s fine, investorradio3.com. If not, no worries. It’s cool. I just try to provide the best offers for you for some of my listeners if there’s deal out there, and if you wanna take advantage, that’s fine. If not, it’s perfectly cool.

 

Just wanna say thanks for listening. Also, thanks for all of your kinds e-mails about my wife. She’s gonna go through radiation treatment now, over the next two months. I got some fantastic e-mails, which was really cool, and I really appreciate it, and I will [music playing] keep you updated on her health.

 

That’s it for me. I’ll see you in seven days. Take care.

 

The information presented on S&A Investor Radio is the opinion of its hosts and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.

 

S&A Investor Radio is produced by Stansberry & Associates Investment Research, the leader in investment newsletters.

 

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