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A Cyclical Shift in Energy Prices Creates Opportunity for San Juan Basin Royalty Trust (NYSE: SJT)
If you're looking for higher yields than what the U.S. Treasury market, or for that matter your local bank's CD rates, are paying, San Juan Basin Royalty Trust (NYSE: SJT) is an interesting alternative source of cash flow.
Currently the company is yielding about 6.3% on an annualized basis. This yield is generated from the overriding royalties the trust owns on current natural gas production.
Additionally, the company is poised to profit from a seasonal shift in energy prices.
You see, San Juan Trust has the rights to 75% of the revenue generated by an oil-and-gas property owned by Burlington Resources Oil & Gas Company LP, a subsidiary of ConocoPhillips (NYSE: COP). It also has royalty interests in 119,000 net producing acres located in northwestern New Mexico's San Juan Basin.
The cash flow from these properties is returned to investors once the trust's costs and capital budgets are deducted.
This makes the company compelling to me as I review its mix of assets and yield, as well as the seasonality of natural gas at this point in the year. I love to buy yield that can appreciate in price and quantity, with a bull market in the out-of-favor underlying asset.
In simple terms, if natural gas goes up in value, so should the dividend rate paid per share of the trust. So investors will enjoy a double gain if the stock rises: One in share price, another in cash flow. This offers you a great way to play natural gas without using margin or futures.
How You Can Beat 'The Street'
I can't tell you how many times during the ugly trading days we've seen in recent weeks that I've heard someone say that the little guy can no longer compete – that he or she can't beat "The Street' – in today's stock market.
In fact, I hear it all the time: Wall Street has rigged the game, has turned Washington into its lapdog, and only wants to separate the retail investor from his or her money.
I guess such defeatist sentiments are understandable – especially on days like Thursday when the Dow Jones Industrial Average plunges more than 419 points. But they're also misguided.
You see, while most retail investors believe that they can't beat The Street because the "little guy" is disadvantaged, I hold just the opposite view. I know you can beat The Street, and beat the Big Boys at their own game, precisely because you are the "little guy."
How do I know this? Simple. I've helped tens of thousands of investors around the world do just that.
So let's deep-six the defeatist attitude and get down to business: The person who can most help your bid to outfox Wall Street is the one who's looking back at you from the mirror every morning. Just remember:
1) The playing field is level – even if you think it's not.
2) Small investors can be more nimble.
3) Professionals face risks that you don't have.
4) A proven portfolio approach can make you steadier than the markets.
5) You need to have the courage to participate to get started.
It's a Better Playing Field Than You Think
The typical personal computer available to retail investors has more power than the entire NASA Apollo Mission profile and the data you can pull off the Internet is truly stunning.
- The SEC and Wall Street: Cozier Than You Thought
Don't Bet Against U.S. Treasury Bonds… Yet
The yield on the benchmark 10-year Treasury bond fell as low as 1.976% on Thursday – the lowest yield in recent history.
This is not a surprise. In fact, I predicted this would happen in a column that appeared in Money Morning nearly a year ago.
I'm not bringing this up to brag, but rather as a warning to stay tuned. Because now that we've broken the 2% barrier, it's not difficult to imagine yields as low as 1.5%.
Remember your history.
During the Great Depression U.S. bonds actually traded at a negative yield as investors paid the government to keep their money. The idea was that they could get their money back from the government, but by leaving it in a bank or corporate bond they risked losing everything.
And that speaks to the core of what's rattled the markets recently.
U.S. Federal Reserve Chairman Ben S. Bernanke and our leaders continue to believe this crisis is all about liquidity, which is how they are trying to fight it. The markets, on the other hand, have figured out what I said when it started – that this is really about solvency.
Threat of Stagflation Looms as Prices Rise Despite Bad Economy
Few are willing to acknowledge the threat of stagflation, but reports showing inflation rising more quickly than expected – even as growth is slowing – indicate that this scourge of the 1970s may be stalking the U.S. economy.
Every economic report nudges the United States closer to the definition of stagflation – a condition marked by slow economic growth, high unemployment, and soaring prices.
Although many economists believe the sluggish economy will moderate inflation, that's not what happened in the 1970s.
"The belief that you can't have inflation and high unemployment is nonsense; we had 25% inflation in the U.K. in 1975, in the middle of a recession," said Money Morning Global Investment Strategist Martin Hutchinson.
Hutchinson has repeatedly warned Money Morning readers that the U.S. Federal Reserve's easy money policies would lead to inflation without fostering economic growth.
In the past couple of months, Hutchinson's fears have been realized.
The New Abnormal: Permanently Engineered Market Volatility
If the gut-wrenching market volatility of the past few weeks has made you sick to your stomach , I have some bad news for you: violent volatility is the new normal – or more precisely, the new ab-normal.
After massive market moves last week, the Dow Jones Industrial Average tumbled 419.63 points yesterday (Thursday). And, while t hat may be bad news for average investors, it's something Wall Street wants.
If you're not a day-trader, high-frequency trader, hedge-fund manager, or institutional desk trader, reading this is going to make you mad as hell. But it's something you have to know, understand, and accept if you're going to be a successful investor going forward.
The reality is that in their crusade to manufacture extraordinary personal wealth, Wall Street insiders have engineered volatility into the capital markets.
This change is permanent.
Indeed, the same dangerous volatility that destabilizes markets creates innumerable trading opportunities for Wall Street's proprietary traders. These traders feed off each other and off their banking-industry clients.
The game is simple: Wall Street creates market volatility, some of which leads to panic. Panicked investors, in desperate searches for safety, turn to "experts" for protection. And Wall Street rakes in the profits – not just from their market-crushing trades, but from the investment fees they charge individual investors, companies and nations.
It's similar to how the mafia might trash your business and then offer to "sell" you their protection services.
By increasing volatility in stock, bond, commodity and real estate markets, The Street has created a self-perpetuating moneymaking machine.
Obviously, without the manufactured volatility, markets would be more stable, predictable and better serve economic development and growth. But there are no extraordinary gains to be made in calm and stable markets.
So Wall Street for decades has worked to make market volatility the norm.
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Gold Prices Skyrocket To New Highs: The No. 1 Stock To Deliver Premium Gold Profits Right Now
Gold has risen steadily since the start of 2009, when it was trading at a bit less than $900 an ounce.
And gold's advance has accelerated of late. The price of gold increased 21% in the year's first half.
Many investors and investment pundits are claiming this gold-plated party is destined to end: When the Eurozone gets its house in order and our elected leaders in Washington finally reach a federal budget accord, these gloom-and-doomers say, the price of gold will plummet.
But I say they're wrong.
Why Oil Prices Won't Stay Down For Long
Oil prices, like stocks, took a few big hits last week.
West Texas Intermediate crude last week dropped below $80 a barrel before bouncing back up to $87 a barrel this week. Meanwhile, Brent crude fell to a six-month low below $100 a barrel before climbing back to $110 a barrel this week.
To hear the mainstream media tell it, much of the drop is based on the assumption that global growth is waning and oil demand is soon to follow.
But that couldn't be more wrong.
Energy is one of the most highly leveraged and most liquid trading vehicles on the planet. A good portion of the decline we've experienced in recent weeks can be explained by nothing more than trading houses raising cash to meet margin calls or redemption requests from hedge funds, pension funds, and other investors.
That's all there is to it. Firms simply need cash and are selling the most easily sellable assets they've got. In the past that's been gold, but lately it's been oil.
Longer-term, demand is still going up and $120 a barrel oil is our next stop, followed by prices of $150 or more in the years ahead.
What's happening now with the markets and energy prices is like being in the eye of a hurricane.
That is, it won't be long before we're once again caught up in the whirlwind growth of emerging markets and energy demand shoots sharply higher.
The Looming Demand Downpour
Global demand is still rising – and it's not going to slow down any time soon. There are huge swaths of the world now adopting gasoline engines.
Let me give you two examples.
Take the farmers in Cambodia. Many put up sheets in their fields at sunset. They then mount small incandescent light bulbs on sticks behind the sheets. The bulbs are powered by small gasoline generators to ensure they stay on all night.
In the morning, those farmers go back and harvest the thousands of crickets that have collided with the sheet after having been drawn to the lights. They wrap up the fallen bugs and head to the markets where they are sold as food.
It's much the same situation in Africa, where small villages require simple engines to pump water.
You may think bugs and small farm pumps are no big deal, but there's an even greater energy revolution going on in the transportation industry.