Weekend Edition
The Best of The S&A Digest
May 24, 2008
Oil hit $135 a barrel this week. The New York Mercantile Exchange says traders covering short positions are responsible for the run-up. When a trader incorrectly bets short, he has to buy shares at the market price to cover his position. The added buying volume pushes the price even higher.
And now, the International Energy Agency is preparing a downward revision of its oil-supply forecast. The report, due out in November, will assess the condition of the world's top 400 oil fields. A pessimistic outlook from the IEA could easily send oil prices higher.
T. Boone Pickens is calling for $150 oil.
The world's most famous oilman talked up his book this week on CNBC. He says the bull market in oil comes down to just two numbers: The world can't produce more than 85 million barrels of oil per day. The world wants 87 million barrels of oil per day.
The world's second-largest producer, Russia, is now experiencing a production decline. The Saudis can't pump any more oil. Forget hedge-fund speculation and the value of the dollar, that's what it all comes down to.
Oil at $150 would mean even bigger profits for Matt Badiali's S&A Oil Report. He's already sitting on huge gains for the year. He's up more than 200% on Brazilian oil giant Petrobras (PBR), 125% on Stone Energy (SGY), and 110% on Occidental Petroleum (OXY). And he expects his latest recommendation is worth 140% more than current prices, solely based on the oil it has in the ground.
This week, Badiali journeyed into Canada looking for the next triple-digit winner. In addition to one of the market's most promising penny oil-sands stocks, Matt has found a way to collect large cash payouts for years from oil-sand development. Click here to learn the full story.
Warren Buffett started his European tour this week in Frankfurt. He wants "to be on the radar screen of private companies." Buffett will hit Lausanne (Switzerland), Madrid, and Milan. He wouldn't identify any specific targets, but he needs to find ways to invest his $35 billion pile of cash.
More Buffett watch: The world's best investor was buying banks (Wells Fargo, US Bancorp) and railroads (Burlington Northern Santa Fe).
This week, I re-read an excellent Wall Street Journal article from last year. It's about a super-secretive department within Goldman Sachs called the "special-situations group."
Mark McGoldrick, who earned $70 million in 2006 – more than CEO Lloyd Blankfein – ran the department. McGoldrick went against the groupthink of Wall Street and invested the firm's money in anything that was cheap. He bought Japanese golf courses, securitized them, and sold them off at a huge profit. He also bought Thai auto loans and hired thousands of locals to collect payment.
In 2006, his group was responsible for one-fifth of Goldman's net income. It's curious to think an obscure department like this could make up so much of a bank's profits. In a more recent example, a small Goldman trading department made huge money shorting subprime mortgages, while the bank's salesmen were peddling them to clients. As always, Wall Street banks are looking out for No. 1.
Jeff Clark is trading bright rubber shoes. In his latest Advanced Income, Jeff noticed that Crocs (CROX), which recently traded for 100 times earnings, is now trading for eight times earnings. The stock has been beaten down. Just look at this chart...
This is a great buying opportunity for value investors. But they don't seem willing to step up to the plate just yet. Jeff has built a trade that will soar once they pour in. And it will return double digits even if the stock doesn't move.
Jeff made a similar trade on Frontier Oil last month, and Advanced Income readers are up 32%. Click here to learn how to access Jeff's CROX trade.
Good investing,
S&A Research
The S&A Digest is written by Porter Stansberry, Dan Ferris, and Sean Goldsmith.
