The folks in Washington and on Wall Street should be more
careful about what they wish for.
They may actually get what they want … plus much more.
For at least two years, they’ve been wishing for a stronger
Chinese currency, supposedly to help make Chinese goods
more expensive.
Yesterday, they got it.
Plus, they’re also getting five MAJOR consequences they did
NOT wish for:
1. NEW PHASE IN THE DOLLAR DECLINE!
Wall Street and Washington don’t seem to be too worried
about a decline in the dollar against the Chinese yuan.
But they’re missing the point.
Now, the dollar is going to fall not only against the yuan,
but also against all major Asian currencies.
In just ONE day of trading yesterday, the dollar plunged
2.6% against the Japanese yen and even more sharply against
the Korean won.
On top of that, two OTHER Asian nations immediately
announced revaluations in their own currencies — Malaysia
and Singapore. This sets the stage for a dollar plunge
throughout Southeast Asia.
2. BIGGER UPWARD PRESSURES ON ENERGY PRICES!
Until now, OPEC was at least making an effort to hold down
oil prices. No more!
When the members of OPEC and other oil exporting nations
sell their oil, they collect U.S. dollars. But if those
dollars are worth less, they immediately suffer a loss. So
to compensate for that loss, they have only one
alternative: To jack up the price they charge for oil.
This is what happened every time the dollar fell against
European currencies. It’s also going to happen every time
the dollar falls against Asian currencies.
I see no other alternative.
3. FASTER INFLATION!
In this morning’s papers, experts on Wall Street and in
Washington are saying that the meager 2% rise in the
Chinese currency won’t make that much of a difference in
the prices you pay at Wal-Mart.
Maybe not. But what about a TEN percent rise in the yuan, a
very real possibility in coming months? And what about a
20% rise in the yen, the won and other Asian currencies?
What will that do to the prices you pay — not only for
apparel at Wal-Mart, but for Nissans and Panasonics …
Hyundais and Samsungs?
Never forget: One of the big factors that had been holding
down inflation in the United States was cheap Asian
imports. Now, in their infinite wisdom, our leaders have
found a way to end that protection against rapidly rising
inflation in the United States.
4. PLUNGING U.S. BONDS AND HIGHER LONG-TERM RATES!
Just yesterday, 30-year Treasury bond prices plunged by a
full point, driving their yield up by more than a tenth of
a percent. And that’s on TOP of the bond price declines and
rate rises I’ve been telling you about in recent weeks.
Wall Street analysts pooh-poohed the bond market plunge.
They say we can handle any reduced buying of U.S. Treasury
bonds from China.
But again, they’re missing the point. This is not just
about all the capital that’s been flowing into U.S. bonds
from China. It’s also about the money flowing into U.S.
bonds from Japan, Korea, Malaysia, Singapore, Taiwan, and
the rest of Asia.
Remember? This is the capital that’s been keeping our long-
term interest rates low and financing much of our housing
boom.
As long as the dollar was stable against their currencies,
it made sense for Asian investors to put their money in
U.S. bonds. But now, will they continue to invest in the
U.S. at the same pace? I doubt it.
In fact, yesterday’s landmark revaluation by three Asian
nations may foreshadow the day when they actually begin to
pull money OUT of our bond market.
Result: Falling bond prices and rising long-term rates.
5. MORE TAKEOVER FRENZY IN THE OIL INDUSTRY!
Larry Edelson
While CNOOC was making its bid in June, Unocal’s shares
shot up from $58 to $65. If you owned the shares, you’d
have enjoyed a 12% gain — not bad for just a few weeks’
work.
But that pales in comparison to the profit you could have
made with Unocal’s options.
Throughout May and early June, you could have bought call
options on Unocal for an average price of just $30 each.
Then, after the news hit, the calls went ballistic, soaring
to $295 each by July 12.
That’s a gain of 883% — SEVENTY-THREE times the gain in
the share price!
If you bought 100 of these call options (your cost: about
$3,000 plus your broker’s commissions), you’d be sitting on
a position worth $29,500.
Suppose your timing wasn’t perfect. No problem. You could
have bought these options at almost any time in May or
early June and you still could have gotten them cheap
– between $10 and $55 each.
Plus, you could have sold them any time between June 23 and
July 5, and I figure you still would have gotten about $290
per contract.
Of course, you can’t go back in time and grab those
profits, and neither can I. But in a few minutes, I’ll tell
you about another modest investment that could turn a
$2,360 investment into as much as $24,040, even if oil does
NOT surge.
First, let me explain why there’s so much profit potential
in select oil shares right now …
THE REAL REASON CNOOC WANTS TO BUY A
U.S. OIL COMPANY ASAP
Right now, it looks like Chevron may outbid CNOOC for
Unocal.
But that’s not dissuading China from moving quickly to buy
a major U.S. oil company. Quite to the contrary, China has
its sights on even larger companies, like Marathon Oil.
And with yesterday’s revaluation of the yuan, China now has
even MORE buying power to pursue its agenda.
Everyone thinks they’re doing it to secure oil supplies.
True, but why are they in the market to buy now when they
could have bought years ago?
I’ll tell you why. Because, in terms of their oil reserves,
it’s actually cheaper to buy an oil company like Unocal
now.
Two years ago, when oil was trading at much lower levels,
Unocal’s reserves, based on the price-per-barrel of crude,
were valued at $64 billion. But the total value of Unocal’s
shares was just $11.38 billion. So, in effect, by buying
its shares, you could have bought its reserves for the
equivalent of just 14.8 cents on the dollar.
That was cheap.
Now, with oil trading at much higher levels, I figure
Unocal’s reserves are at $102 billion. So you can buy the
reserves for a puny 9.5 cents on the dollar.
That’s even cheaper.
The price of oil has shot up from $38 to around $60 a
barrel, but the relative value of Unocal’s oil reserves has
actually declined from 14 cents on the dollar to just 9.5
cents on the dollar!
Politics aside, can you blame the Chinese for wanting to
buy this company? Wouldn’t you be a buyer too? Heck, I’d
buy oil reserves at 9.5 cents — or even 20 to 30 cents on
the dollar — any day of the year.
THREE OTHER OIL COMPANIES IN A SITUATION VERY
SIMILAR TO UNOCAL’S
There are three companies that are likely targets, for
takeover, just like Unocal.
The first company I’m looking at has over 2.3 billion
barrels of oil-equivalent reserves. They’re all over the
globe — in 12 different countries.
Their balance sheet is a gem to behold. Hardly any
long-
term debt and plenty of cash on hand.
The share price is trading at just 2.14 times book value
and just 11.37 times earnings. I think that’s peanuts for a
company whose earnings are exploding to the upside.
The real clincher is how the company’s oil reserves are
valued. Based on the current market value of this company’s
shares, its oil is being valued at a mere $6.57 a barrel,
or just 11 cents on the dollar — VERY SIMILAR TO THE
VALUATION OF UNOCAL’S OIL RESERVES.
The second company I’m looking at owns 2.1 billion barrels
in oil and oil equivalent reserves. But its market cap —
at $25 billion — is also puny in comparison to the value
of its reserves.
At $60 oil, I figure its reserves are worth $126 billion.
But, based on the company’s share value, they’re valued at
a mere $8.57 per barrel, or just 14.3 cents on the dollar.
A bit more than Unocal but still dirt cheap.
The third company is an international oil explorer and
producer, with 1.2 billion barrels of oil reserves. Their
cost in terms of the company’s market value: Just 15 cents
on the dollar.
A BUNDLE OF CALL OPTIONS THAT COULD TURN A $2,430
INVESTMENT INTO AS MUCH AS $26,070
Right now, based on yesterday’s prices, you can buy a
bundle of call options on these three takeover candidates
for as little as $2,430, plus some commissions.
That represents 300 shares in each company. But if you were
to buy the equivalent shares outright, it would cost you at
least $52,000. So I figure options let you do it for just
5% of the capital.
Let’s talk about the worst case. Let’s say I’m completely
wrong on all three of these companies. They fall hard and
don’t recover.
Even in that worst-case scenario, the most you can lose in
these options is your investment of $2,430 (plus broker’s
commissions). Not a penny more.
But on the profit side, if I’m right and these shares
become takeover candidates, I figure that $2,430 could be
worth as much as $26,070.
INTRODUCING ENERGY OPTIONS ALERT:
DESIGNED TO HELP YOU TURN THE COMING TAKEOVER FRENZY
IN THE OIL SECTOR INTO A FEAST OF PROFITS
The coming takeover frenzy in the oil industry is a unique
opportunity to apply maximum leverage.
If that meant investing on margin, borrowing money, or
exposing you to unlimited risk, I would be dead set against
it. But with the purchase of stock options, your risk is
ALWAYS strictly limited to the amount you invest.
You CAN lose the entire amount you pay for an option, but
never a penny more. Meanwhile, your upside potential is
virtually unlimited.
In unique situations — like the oil industry is in today
– energy stock options are ideal; and it’s also the ideal
time to launch a brand new service dedicated to trading
them — Energy Options Alert.
Energy Options Alert is exclusively for trading options on
oil and energy shares.
Right now, the focus is on oil companies. But soon, I
expect this takeover frenzy to spill over into other energy
sectors. Refineries. Natural gas distributors. Oil shipping
companies. And more.
As many of the oil companies get bigger through mergers and
acquisitions, I believe they will also want to vertically
integrate their operations. So in the future, you will not
only see explorers and producers, but also mega oil
companies that do it all — from exploring … to producing
… to refining … to shipping … and to distribution.
When you join Energy Options Alert …
FIRST, you get the Energy Options Alert Trading Manual. The
manual gives you the A-B-Cs on the various types of energy
options and how they work: How they provide you with
incredibly powerful leverage on the upside. How they limit
your risk. How you can maximize profits … and much, much
more.
SECOND, you get my special report — “TAKEOVER FRENZY” —
which gives you all the ins and outs of how to identify a
takeover candidate in the energy markets.
THIRD, whenever I see a hot opportunity with short-term
leveraged profit potential and limited risk, I’ll rush you
an email detailing what to buy, when to buy it, how much to
buy, what to pay for it, and precisely what instructions to
give your broker. Then it’s up to you to pull the trigger,
or not.
FOURTH, you’ll get follow-up instructions on when to roll
over positions, take profits, add new positions, or get out
of a position to cut a loss.
The reports aren’t fancy, but they’re very readable and
easy to understand. Besides, the idea isn’t to win a beauty
contest; it’s to make you money.
The price of the service is $5,000. No discounts. If you
can’t afford the subscription fee without jeopardizing your
liquidity, then this service isn’t for you. But if you have
some speculative funds available, I believe the profit
potential is many times the cost of the subscription.
MEMBERSHIP STRICTLY LIMITED TO 1,000
I wish I could grant a membership in Energy Options Alert
to everyone, but I simply can’t.
Many of the oil stock options we’ll be trading are like
tightly coiled springs. They typically make big moves on
just rumors of a buy-out in the underlying stock. Sending
my trades to too many people would make it more difficult
for everyone to buy at the lowest price or to sell at the
highest price.
That’s why I can accept only 1,000 members in Energy
Options Alert. Once those 1,000 slots are gone — and I
fully expect them to be filled — the service will be
closed to new members.
The ONLY way I can promise you a place in this breakthrough
new service is if you reserve your membership slot NOW!
Pick up the phone, call Hubert at 877-719-3477. Or order
online via our secure website — either a one-year
subscription or a 6-month trial.
Yours truly,
Larry Edelson
Editor, Energy Options Alert
P.S. Warning: After the first 1,000 subscribers have
secured their slots in Energy Options Alert, all future
orders will be returned. I do it reluctantly — I hate
returning $5,000 checks — but it must be done. Some of
these investments have clear liquidity limits. So I have to
limit the number of slots to help make sure you can get
good prices on your orders.
———————————————————-
About MONEY AND MARKETS
MONEY AND MARKETS is written by the editors and financial
analysts at Weiss Research. To avoid any conflict of
interest, our editors and research staff do not hold
positions in companies recommended in MAM. Nor does MAM
and its staff accept any compensation whatsoever for such
recommendations. Unless otherwise stated, the graphs,
forecasts, and indices published in MAM are originally
developed and researched by the staff of MAM based upon
data whose accuracy is deemed reliable but not guaranteed.
Any and all performance returns cited must be considered
hypothetical. Contributors: Marie Albin, John Burke,
Michael Burnick, Beth Cain, Amber Dakar, Larry Edelson,
Scot Galvin, Michael Larson, Monica
Lewman-Garcia, Julie
Trudeau, Martin Weiss.
Copyright 2005 by Weiss Research, Inc. All rights reserved.
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