InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

Renowned Economist Paints Startling Portrait of the Future

Renowned Economist Paints Startling Portrait of the FutureRenowned economist Dr. Stephen Leeb has predicted the last 5 major market shifts. And he’s just revealed his latest prediction: “A market meltdown will wipe out the savings of millions of Americans.” In his latest report, he details which stocks will come crashing down in the coming months, as well as a select few that could double or even triple in value over the next few years. Get your copy here.

 

Why Everyone Needs to Watch These Companies

By Stephen Leeb on January 29, 2018

Are a recession and brutal market correction closer at hand than most people think? One region of the U.S. likely holds the answer. And it isn’t Washington, D.C.

It’s the Permian Basin, a vast oil shale formation located in southwestern Texas and adjacent parts of New Mexico. In the past year the Permian added more barrels of oil to production than any other shale formation currently produces. Its ability to continue to add rapidly to production may be all that stands between today and a market crash.

For investors, one message is to focus on the companies discussed below. As long as they do well, it will signal the economy and market are relatively safe.

Oil’s Pivotal Role

To understand these predictions, you need to understand the critical role of oil prices in the economy. More than a decade ago my wife and I wrote a book titled “The Oil Factor”. Written when oil was trading near $30, it was the first to forecast triple-digit oil prices.

The book also set forth an observation some analysts have dubbed “Leeb’s Law” (as Dave Harder and Janice Dorn did in their book “Mind, Money, and Markets”). That observation: if oil prices rise sharply in too brief a time, the market tanks. Often a recession follows as well.

Specifically, if oil prices double within a 12-month stretch, watch out. One example: the horrific 1973-75 recession that began with the OPEC oil embargo and soaring oil prices. Another: the 1987 crash, which followed a doubling in oil prices. And another: the 2000 market crash, which also followed a big jump in oil.

A few years after the book’s release, our thesis continued to hold true. Skyrocketing oil prices were a major culprit in the 2008 Great Recession, the worst economic debacle since the Depression.

Can the Permian Keep It Up?

This brings us back to the Permian Basin. Today it accounts for more than 50% of total U.S. fracking output. Even more to the point, it accounted for nearly 60% of the increase in fracking output for the 12 months projected through February by the EIA. Increasingly the Permian will be the critical factor in fracking output and overall U.S. oil production.

In fact, over the next three to five years, the Permian likely will be the largest source of additional oil supply in the world. We should all keep our fingers crossed that the basin will live up to the hopes of the optimists. As demand burgeons, the world will likely need all the excess oil it can get.

A big reason for rising demand will be China’s continued push to create infrastructure in the East and throughout the developing world. Science magazine recently termed today “the most explosive era of infrastructure expansion in human history.” Some 90% of that expansion, according to Science, is occurring in the developing world.

A Recipe for Disaster

Many analysts were surprised by how strong oil demand has been over the past several years. They shouldn’t have been. Nor should they be shocked to see demand continue to ratchet up. A gain in demand in 2018 of 1.5 million or even 1.7 million barrels a day could easily happen. And a comparable rise in following years also wouldn’t surprise me.

Meanwhile, OPEC and friends have very little excess capacity, though Brazil and Canada, perhaps, may be able to hike oil production a bit. And oil inventories in the developed world are close to five-year averages.

In other words, we face the possible combination of no inventory buffer and a market increasingly aware that global oil supply will start to lag rising demand. That’s a recipe for soaring oil prices and potential economic catastrophe.

It’s why the Permian is the world’s best hope of avoiding a potential train wreck. We estimate the basin will have to increase its production by about 1 million barrels a day to keep worldwide supply and demand roughly in balance.

Market Bellwethers

Stocks with the biggest stakes in the Permian are the ones to watch. If they fly in the market, we’d heave a sigh of relief. If they falter, take shelter.

Two plays that stand out as such barometers are Pioneer Natural Resources (NYSE: PXD) and Diamondback Energy (NYSE: FANG). Both are well-managed companies whose operations focus on the Permian. They will be excellent bellwethers to how the basin is performing. Imagine that – two companies will tell you more about the market’s future than any economist or market guru.

If you’re an income-oriented investor, the Permian has companies of interest for you, too. Two big companies with large stakes in it are Chevron (NYSE: CVX) and Occidental Petroleum (NYSE: OXY). Both will spend about $2 billion to $3 billion in the Permian in 2018 but will have plenty left over to pay investors very decent incomes. Chevron yields 3.3% and Occidental more than 4%. I expect a dividend increase from both in 2018.


You might also enjoy…

 

Forget Buy and Hold. Here’s how to retire faster…

I’m not a fan of “buy and hold.” Gurus like to tell you that patience is the key, but I call horse puckey.

We’ve discovered an investing technique that consistently pays out easy-to-repeat profits.

One that’s proven to beat the market 2,082% in head-to-head testing.

And one that’s generated over 488 winners since 2011.

This method is so powerful, in fact, some of the investors we’ve let use it reported back to us saying they’ve made $71,425… $82,371… and even as much as $151,000 in a single year thanks to this “trick.”

That’s how powerful this investing technique is!

What what exactly is this mysterious method? I’ve put all the details together here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.

Stock Talk

  1. avatar
    Hazelnut Reply February 1, 2018 at 4:06 AM EDT

    I’m rather confused. It seems like I don’t have to put out anything, but will get this “windfall” by just adding my name to the list of people who will. But then there’s a blurb about sending $22.00 to get started. And another blurb about if you send them bigger amounts you get bigger checks.
    Would you please clarify this for me?
    Thank you.

  2. avatar
    Marlene Rizzuto Reply January 29, 2018 at 11:03 AM EDT

    how do I get into this market