|Dow||+75.65 to 17,076.87
|S&P 500||+9.54 to 1,997.94|
|Nasdaq||+18.80 to 4,557.35|
|10-YR Yield||-0.016 to 2.387%
|Gold||-$3.30 to $1,276.90|
|Crude Oil||-$0.25 to $93.40|
Is Russia’s Vladimir Putin invading Ukraine? That’s basically what Ukrainian officials are charging.
Putin already sent one “humanitarian relief” column into Ukrainian territory without Ukraine’s permission or the Red Cross’ blessing late last week. Now, Russia just said it will send a second column across the border this week.
At the same time, Ukraine just accused Russia of sending more military vehicles — including tanks (!) — into Ukrainian territory. The incursion was reportedly accompanied by cross-border shelling near the city of Novoazovsk.
Meanwhile, ISIS rebels just overran a Syrian air force base in the northeastern portion of that country. The capture of the Al-Tabqa base solidifies ISIS’ control of a broader region of territory in Syria and Iraq. It also ratchets up pressure on the U.S. to respond by expanding airstrikes into Syrian territory.
These tensions only underscore Martin’s message from this morning — namely, that fear of spreading wars and conflicts is causing investors to move money faster than ever before.
One potential huge beneficiary is select oil and gas stocks. In fact, this could be the best time to buy select oil and gas stocks in decades.
Why? Because high-profile energy stocks pulled back somewhat in July and early August, making them rare bargains.
|Aid for the hungry or a military invasion?|
It’s critical to understand that the pullback was a fluke; based on misinformation. Investors pulled back on energy stock purchases primarily due to concerns over economic growth in Europe.
But let’s face it — one reason everyone is so worried about Europe is that Putin is throwing his weight around in Ukraine and elsewhere in Eastern Europe. And one way he could get even with Europe is to cut off supplies of natural gas and oil!
Let me ask you: Does that sound bearish for energy prices? Of course not!
Russia produces around 10.5 million barrels of oil per day and 21.4 trillion cubic feet of natural gas per day. If it curtails even a tenth of that production, it’ll help send energy prices skyward!
“Does that sound bearish for energy prices? Of course not!”
And as I noted at the outset, Eastern Europe isn’t the only major flashpoint in key energy-production regions.
Fact #1: Before Muammar Gaddafi was overthrown in Libya, the country produced roughly 1.7 million barrels per day of oil. Now it’s producing less than 500,000 … and even that output is at risk.
Just today, airstrikes and fires swept through the Libyan capital of Tripoli and the international airport. A whopping 1.5 million gallons of gasoline went up in smoke thanks to one rocket attack, and there’s no end in sight to the tribal violence rocking that nation.
Fact #2: Iraq is the second-largest OPEC producer behind Saudi Arabia, with production of around 3.3 million barrels per day. ISIS is already gaining territory and strength as I mentioned earlier.
In a worst-case scenario where ISIS overruns multiple Iraqi fields and the country plunges further into chaos, it could slash output by 1.5 million barrels. One economic forecasting firm estimates that would raise global oil prices by a whopping $50 per barrel.
Fact #3: OPEC output declined 2.5 percent last year. It’s going to drop another 300,000 barrels per day this year — and that’s according to estimates from OPEC, which has every reason to pump out optimistic forecasts. You and I both know geopolitical tensions, a lack of investment, and declining reserves will likely crimp their output even more.
Fact #4: Demand is growing. Here in the U.S., crude oil consumption rose 1.3 percent from a year ago to 19.3 million barrels a day in July — the highest level for that month in four years. Diesel and heating oil demand jumped almost 7 percent — to the highest since 2007.
That’s a clear reason why energy prices should remain high. It certainly bolsters the case for investing in energy. But the plain truth is, domestic energy stocks don’t even need high oil prices to spin off huge profits for you.
Thanks to America’s massive reserves — the largest in the world — U.S. energy companies are producing, transporting and refining more oil and gas than we’ve seen in decades — and that alone is more than enough to drive their stocks through the roof.
Get this: In July, U.S. crude oil imports plunged 12 percent to the lowest level for the month in 19 years. Meanwhile, U.S. domestic production surged 14 percent year-over-year to 8.5 million barrels per day.
Domestic energy producers, transporters, refiners, and storage companies are making an absolute killing as a result. Oil and gas spending in this country has soared to $200 billion at an annual rate. That’s 20 percent of U.S. fixed investment — the first time ever that has happened.
Hopefully, that helps you understand why I’m so excited about the domestic energy industry. I believe this is a huge, long-lasting opportunity rather than a short-term, flash-in-the-pan cycle.
How about you? Are Putin’s latest moves — and ISIS’ ongoing offensives in Iraq and Syria — a major threat to global energy supplies? Do you believe they’ll help prop up oil and gas prices? What can we do here in America to offset that pressure? And what are your favorite ways to profit? Let me know at the Money and Markets website here.
|OUR READERS SPEAK|
Mondays always seem to bring out great comments about the previous week’s columns, and today was no different.
Reader Robert weighed in on the zero percent interest/car buying article from last week, saying: “I always buy a car with a 5-yr loan, because the payoff rate is in line with the depreciation, and then I get about another five years of driving without paying the bank or exorbitant insurance charges. This has been my strategy for 30 years, except for a moderately long period when my pay didn’t keep up with inflation.”
Thanks for sharing, Robert. The trick to successful car buying is to make sure you’re getting a good deal on the sales price, regardless of what kind of financing you choose. You also want to make sure you don’t get upside down on the loan, then have to roll that unpaid balance into a new loan on a new car a couple years later!
With regards to my piece on the Federal Reserve and Janet Yellen’s speech on Friday, Reader Frank E. said:
“They will not raise rates quickly as so many of the new jobs are only part-time ones, and the large increases in taxes coming soon because of Obamacare will keep the economy in a slow growth mode or maybe even no real growth over the next few years. The average person out here has less and less disposable income all the time.”
Frank, the economy isn’t booming like it was in the 1990s. But it’s in much better shape in 2014 than it was in the depths of the Great Recession in 2008.
Yet for some reason, the Fed is still using 2008-era monetary policy. It makes no sense whatsoever! And that’s why I believe they’ll have to raise rates sooner rather than later.
Finally, Reader Francis C. expressed his outrage about the banking sector and the massive fines and settlements they’re dishing out. His comments:
“What kind of bad activity (and how much of it) can a bank have been up to that they merit paying $16 billion — and more importantly, why are they still in business? They should be hounded out of the market place, and never be allowed to threaten the economic welfare of ordinary citizens again.
“I think it is an absolute disgrace that virtually (or is that actually?) no one has done any jail time for the disgraceful behavior, and outrageous greed, displayed by the financial industry in both the U.S. and the U.K.”
Amen! It is disgraceful, and until we see more perp walks, bad behavior will persist throughout the banking sector! Any other thoughts are always welcome at the website; just click here to share!
|OTHER DEVELOPMENTS OF THE DAY|
Break out those “S&P 500 2,000” hats! The broad U.S. index topped that milestone in early trading, albeit with less celebration than when the Dow Industrials first breached 10,000 back in 1999.
Clean up continues in California following a magnitude 6.1 quake centered 51 miles southwest of Sacramento. Damage was reported throughout the wine-producing Napa Valley region, with more than 120 people injured.
This was the strongest quake to strike the San Francisco bay area since the infamous magnitude 6.9 Loma Prieta temblor in 1989. It killed 63 people and caused around $6 billion in damage.
Burgers and … donuts? That’s the kind of fast-food empire that Burger King Worldwide (BKW, Weiss Ratings: B) is trying to build by pursuing Tim Hortons (THI, Weiss Ratings: B) for an unspecified price.
Burger King wants to adopt Tim Hortons’ Canadian home base as well. That makes this just the latest “inversion” deal partially motivated by a desire among U.S. firms to cut taxes by relocating their headquarters to foreign territories.
In other deal news, pharmaceutical firm Roche Holdings (RHHBY, Weiss Ratings: Not rated) agreed to buy the biotech company InterMune (ITMN, Weiss Ratings: D) for $8.3 billion. The move would bolster Roche’s exposure to the respiratory disorder market.
Reminder: You can let me know what you think by putting your comments here.
Until next time,