| | Monday, January 25, 2016 | Issue #2724 | | | The First Company Ever to Do It...
The government recently granted a single company one of the greatest competitive advantages of all time...
In short, it has the right to operate a business that no other company can without the government's OK.
And in the months ahead, it could hand this company an unthinkable amount of money.
In fact, the first six contracts alone - already signed, mind you - contain "fixed fees" guaranteeing revenues of at least $2.9 billion per year.
That's a near 1,000% increase in current revenue. To see just how much this could affect the stock, go here. | |
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How Investors Are Misreading the Drop in Oil Alexander Green, Chief Investment Strategist, The Oxford Club
 The rapid collapse in oil prices to 12-year lows has taken investors by surprise and convinced many that we are headed for a recession.
After all, the stock market is a leading indicator for the economy - and the signal it is sending is hardly the best.
Many investors are misreading the drop in oil, however. There is a strong case to be made that a recession is not looming in the U.S. and the worst of this equity sell-off may already be behind us. (In fact, my colleague Matthew Carr thinks we may even be close to a market bottom.)
Here's why...
Economist Paul Samuelson famously said that the stock market had predicted "nine of the last five recessions." Translation: Not every market correction - or bear market - is a prelude to an economic downturn. Sometimes we get a false signal.
This may well be one of those times.
For example, pessimists point to the slowdown in China, the world's second-largest economy, as a particularly inauspicious development. Yet U.S. businesses export roughly $500 billion a year to that country. Even if exports plunge 20%, that's a relative pittance to our $18 trillion economy.
Another alarm bell is the so-called "earnings recession." An economic recession is two consecutive quarters of negative GDP growth. An earnings recession is two consecutive quarters of negative profit growth. That's exactly what we've had the past two quarters. And we may soon get a third.
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However, the primary cause has been the collapse in oil, gas, copper and other commodities. The earnings recession is confined almost entirely to energy and basic materials. Energy earnings, in particular, are off more than two-thirds from a year ago. That's because oil is at a 12-year low and natural gas is near a 20-year low.
Some analysts believe the fall-off demonstrates growing economic weakness around the globe. That's partially true but hardly the whole story.
Oil is also cheap because new technologies - horizontal drilling and hydraulic We noted the incredible rise in airline stocks back in November, after it was reported that these companies stood to collect $59.2 billion in passenger fees.
With cheap fuel set to spur airline stocks even higher, you may want to revisit this piece from one of our senior researchers. | |
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fracturing - have made it more economical to recover shale deposits. (A little over a year ago, we surpassed Russia to become the world's largest oil and gas producer.) The inability of OPEC to control production - thanks to Saudi Arabia keeping the spigots wide open to protect market share - has also boosted supply. And the removal of economic sanctions against Iran means its oil is now hitting the market too, adding to the glut.
Lower oil prices are bad for exploration and production companies. It also means capital spending will fall along with jobs in the sector.
However, low oil and gas prices are an enormous positive for the vast majority of households, businesses and governments. We will all pay less to drive, fly, and heat and cool our homes and offices.
The misreading comes from people who insist that the sell-off in oil is due to weak demand. But demand is not weak. As you'd expect, when the price of something vital plunges - like oil and gas - demand goes up not down.
U.S. car sales jumped to a record last year with 17.5 million vehicles sold, clearing a peak last reached 15 years ago. Moreover, with prices under $2 at the pump, many consumers opted for gas-guzzling trucks and SUVs.
In short, oil is falling not because of a big change in demand - although it has lessened in China - but because we now have a massive oversupply of oil. We are using up all the available on-land storage and are now pricing in floating storage.
Here's the good news. This is a self-correcting problem. Highly leveraged and undercapitalized producers will go bankrupt. (Editorial Note: David Fessler has compiled a list of the 17 firms most likely to bite the dust first. Click here for details.) And while their assets will be taken over, they will not stay in production.
As production wanes, supply declines and prices stabilize. This will not happen overnight. But as soon as the market recognizes that it is happening, oil will stop falling and probably stocks as well.
In the meantime, lower fuel prices are only beginning to work their magic. With prices near these levels, we're looking at a roughly $1 trillion global stimulus.
And that's a positive, not a negative.
Good investing,
Alex
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The Death of an Industry
 When the horse and buggy "died out," investing in the automobile business could have turned $2,400 into $14 million!!!
When computers replaced typewriters, it happened again.
And when MP3s replaced CDs, a whole new crop of investors got filthy rich.
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But the truth is, we believe the next great moneymaking opportunity could be upon us right now with "The Death of Cable TV."
Click here to see more details. | | |
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Investing is scary. It can take hard work. And the unpredictable moves are frustrating. But if you're going to find success, you need to answer these three questions first. Read On... | | | |
As Alex mentioned, one industry that's benefiting majorly from falling oil is airlines. Today, Investment U Plus subscribers are discovering Alex's favorite airline play - a company that's growing fast and already pays a handsome dividend. To find out how you can get all the details, click here. | | | |
Many people have a tendency to imagine a certain financial outcome and then invest as if it's a virtual certainty. Here's why that's killing your portfolio. Read On... | | |
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