|
Protecting Your "Benjamins" |
Laguna Beach, California
Thursday, January 17, 2008
Precious metals and
energy plays to hedge your waning Benjamins,
Avoiding the daylight robbery of inflation tax,
Celebrating a great American's 302nd birthday and plenty more...
-------------------------
Joel Bowman, from
Dubai, UAE...
Did you know the phrase
"daylight robbery" actually comes from a time in England when taxes
were levied on windows? The tax was such that only the richest
residents could afford to have the sun peer into their city dwellings.
The poor, literally, were "kept in the dark."
The term "turncoat" is
another interesting one. It stems back to post WWII Europe, where
Hungarian officials saved their hides by switching to communist
uniforms after the Russian booted out the Nazis.
In the column below, Byron
King takes a look at how observing the old adage, "a penny saved is a
penny earned" could end up saving you a "whole lotta Benjamins."
Enjoy...
--- Byron King's Energy &
Scarcity Investor ---
A California Energy So
Secret, You Can't Even See it Without a Top-Level U.S. Navy
Clearance...
But a former Navy 'insider'
is now ready to disclose the names of five 'secret' energy companies
that could make you $372,340...
The Navy has already
collected $194 million from this discovery.
And CNNMoney.com reports
that 'Investments in [this 'secret' energy sector] jumped nearly
four-fold over the last two years, to about $100 million last year...
Because it's [still] so small, there's large growth potential here...'
Here's the Full Report .
--------------------------------------------
Protecting Your "Benjamins"
By Byron King
Today is the 302nd birthday
of Benjamin Franklin, author of the famous phrase, "A penny saved is a
penny earned." If Franklin were alive today, he might have added a few
words about protecting ones pennies from the ravages of inflation and
reckless monetary policies. But since he cannot add these refinements,
we will…after first paying our respects to this great American.
Early in his life, Benjamin
Franklin spent a bitter period of time as an indentured servant. He
became well acquainted with scarcity and privation in a colonial
economy at the frontier of the British Empire. After gaining his
freedom, Franklin went on to become a printer, editor and merchant.
(At one point, Franklin had a government contract to print the paper
currency of Pennsylvania.) Franklin was also a natural scientist,
scholar, writer and inventor -- coming up with an array of things
ranging from the lightning rod to the glass harmonica. It was Ben
Franklin who came up with many social innovations that we take for
granted, such as America's first lending library and the first
volunteer fire department.
And Franklin was a
politician, diplomat, philosopher, ambassador and Founding Father of
the United States of America. It was Franklin who famously summed up
the form of U.S. federal government – if not its ultimate fate – as he
walked out of the proceedings of the Constitutional Convention of
1787. When asked what sort of government had been established,
Franklin replied, "A republic, if you can keep it." More than two
centuries after his death, Franklin is among the most revered and
respected figures in American history.
Indeed, Franklin is among
the best-known Americans throughout the world. Certainly, Franklin's
intellect and accomplishments are the foundation of his fame. But one
aspect of Franklin's worldwide fame comes from the fact that his image
is printed on the U.S. $100 bill. Thus, Ben Franklin is ubiquitous in
international trade and commerce.
This monetary aspect of
Franklin's fame is worth bearing in mind. Because it now takes about
one of those $100 bills to purchase one of these barrels of oil.
And it takes nine of those
$100 bills to purchase an ounce of gold.
Just a year ago, a
"Benjamin" would buy nearly two barrels of oil, not one. And it took
just a bit more than six Benjamins to buy that gold coin illustrated
above. While we are thinking about it, how much food can you buy this
year at the grocery store for the amount indicated on one Ben Franklin
$100 bill? Less than you could last year, right?
Simply put, the value of
your U.S. currency is declining, while the costs for the things you
buy are rising. So what's the cure? In my investment letter,
Outstanding Investments, we recommend heavy doses of selected gold
mining stocks. Most of the stocks we have recommended have been on a
tear lately. But I believe that there is more room for these shares to
appreciate in the rising price environment for gold.
Oil and gas stocks also seem
like excellent candidates to preserve the value of your pennies. One
great natural gas-producing firm in the Outstanding Investments
portfolio is Chesapeake Energy Corp. (CHK: NYSE) – a company that is
rapidly increasing its output from the Barnett Shale play. Chesapeake
has produced a return of almost 40% in just over two years since we
added it to the portfolio. Keep in mind that this was during a time
of, essentially, flat natural gas prices. [Eric's Note: Faithful Rude
Awakening readers may recall that Byron's predecessor at Outstanding
Investments also admired Chesapeake Energy, and he told us so in the
September 28, 2006 edition .
Chesapeake stock is
currently selling at about $38.50 per share, with a price-to-earnings
ratio of about 12. During the past couple of years Chesapeake embarked
on a phenomenally successful drilling and production program within
the heart of the U.S. And the future appears even brighter for this
Oklahoma City-based company. Using between 38-40 drilling rigs that it
either owns outright or operates under contract, Chesapeake expects to
complete – on average – a gas well in the Barnett Shale play about
every 15 hours through at least 2010!
Aubrey McClendon,
Cheasapeake's CEO, recently stated that the company plans to continue
acquiring leaseholds in Tarrant, Johnson and Dallas counties in Texas.
So Chesapeake will be drilling its additional acreage in due course.
In 2007, Chesapeake's gross production from the Barnett Shale was 600
million cubic feet of gas equivalent (400 million cubic feet per day
net), compared with 2006 gross production of 250 million cubic feet
per day. According to CEO McClendon, "We now will focus on achieving
our 2008 gross production exit rate target of 900-1,000 million cubic
feet per day." This is an output increase of over 60%.
In other words, Chesapeake
will be increasing gas output, in all likelihood in an environment of
rising energy and natural gas prices. Hmmm…seems like the sort of
stock that could protect your pennies, or maybe even hand you a few
more…especially if the global supplies of oil and gas begin to
decline. How dire is the global outlook for oil and gas supplies?
Houston's own Matt Simmons provides a few hints. Mr. Simmons is a
leading light of the energy industry, and one of the smartest oil and
gas guys you will ever encounter. This is what Mr. Simmons had to say
in a recent interview about the world's energy situation, discussing
whether or not the world increase oil output over the next 10 years:
"If we were lucky enough to
open up the entire outer continental shelf, and then we were lucky
enough to invent quickly enough seismic equipment to start doing some
sort of a high-grading of where we should drill, and then we were
lucky enough to have a growing fleet of newer offshore rigs that could
drill wells, and we just discovered two new North Seas, then there's
grounds that we could basically spend $400 or $500 billion and maybe
end up 10 years from now with 6 million barrels per day of fresh
supply. But the problem is that each one of those things that I said,
'If we were lucky enough,' we don't have. And 10-15 years from now,
our 73 million barrels per day of current crude production could
easily be down to 50 or 45. So you say even if you had another 6
million barrels per day, you can't climb back out of the hole."
Needless to say, none of the
politicians who are running for U.S. president says anything even
remotely like this in any of their speeches. Really, where are the
modern Benjamin Franklins? Do you think that the face of any modern-
day politicians will ever appear on any form of American legal tender?
If that happened, we would probably be living in a "banana republic,"
and not the U.S. republic that Ben Franklin helped to found. Then
again, in a banana republic, at least they produce bananas.
So it behooves you to look
after your own financial future. If you protect your wealth by
investing in precious metals and energy plays, you will be acting out
the wisdom of Benjamin Franklin. Invest in gold. Invest in energy.
Invest for your own future.
Happy birthday, Benjamin
Franklin!
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Rude Endnote: So, here's a
question. How many "Benjamins" will it take to buy a barrel of oil,
ounce of gold and bushel of wheat by this time next year?
Send comments and
predictions to your managing editor at the address below.
