How to Make a Fortune in the ‘New American Revolution’

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

I have a confession to make.

Advertisement.

Like other market watchers, I’ve spent the last few years digesting the consequences of the financial meltdown of 2008.

In the meantime, I’ve barely paid attention to a more lasting and fundamental shift in the U.S. economy — the emergence of the U.S. economy as the world’s #1 “petrostate.”

This shift has serious implications for where to invest your money in the coming decade.

Advertisement.

President Richard M. Nixon first called for U.S. energy independence in 1973 after OPEC’s oil embargo. Forty years later, the United States is well on its way toward achieving Nixon’s seemingly unattainable goal.

Up until recently, U.S. oil production was in serious decline, falling from a peak of 9.6 million barrels a day in 1970 to just under 5 million by 2008. Since 2008, shale oil production in America has soared from 600,000 to 3.5 million barrels per day, pushing overall oil production to 7.4 million barrels a day last year.

The United States has already overtaken Russia as the world’s largest natural gas producer. By 2020, the United States will have displaced Saudi Arabia as the world’s biggest oil producer, pumping 11.6 million barrels a day.

The ‘New American Revolution’

Advertisement.

Revolutions can happen at surprising times — and in surprising ways.

Even as Lehman Brothers’ bankers were given pink slips in 2008, small independent oil producers in the United States were furiously adapting the new technologies of hydraulic fracturing (“fracking”) and horizontal drilling to oil.

Fast-forward to today, and the United States has drilled 150,000 horizontal wells costing $1 trillion. The rest of the world together has drilled only about 0.1% of that number.

That’s a surprise.

After all, God only put 15% of the planet’s recoverable shale in the United States. In fact, China has more shale gas than the United States. Russia’s shale oil potential is about 50% higher than U.S. shale oil.

Advertisement.

So why is fracking a uniquely American Revolution?

First, fracking is an entrepreneurial venture that thrives in the absence of government interference. It took an independent, wildcatting oil man, George Mitchell, motivated by “enlightened self-interest,” to develop fracking in the first place.

In no other country on the planet do landowners also own mineral rights. Throw in open capital markets — and relatively flexible regulations — and suddenly you have 6,000 small independent oil companies — all competing with each other in trying to make a fortune.

Meanwhile, any shale reserves in Russia, China and Brazil would be exploited by a handful of state-owned enterprises. And the only ones to get rich would be the (usually corrupt) bureaucrats running them.

Second, global rivals are taking themselves out of the race before the starting pistol has fired. France has banned shale oil production. Germany has placed a moratorium on it. The United Kingdom has drilled only a single well.

Third, it’s a happy accident of geology that most U.S. reserves are in low-regulation states like Texas, Oklahoma and North Dakota.

Advertisement.

If all of the United States were like New York or California, which stand essentially where France does, there would be no energy revolution in the United States.

Energy as a Game Changer

Energy booms matter to a country’s prosperity. Left wingers in the United Kingdom love to argue that it was the discovery of North Sea oil — and not Margaret Thatcher’s free-market revolution — that allowed it to emerge from under the long shadow of the Second World War.

By 2020, the U.S. “fracking” revolution will have added 2-4% to gross domestic product (GDP) and created twice as many jobs as what automobile manufacturing provides today.

The “fracking” revolution has shifted the U.S. energy landscape in ways not thought possible as recently as a decade ago.

First, fracking puts to bed the “peak oil” argument that doom-and-gloomers trotted out for decades about the inevitable collapse of the U.S. economy. (Don’t worry… there are plenty of other arguments left.)

Second, a new energy boom creates millions of new, well-paid jobs — 3 million by the end of the decade. And if the White House ever approves the Keystone pipeline, that number could grow by another 140,000.

Third, energy bills will fall as cheap gas replaces coal and oil. U.S. natural gas prices are already one-third of their level in Europe and a quarter of that in Japan. Gas costs could drop by 30%, putting $750 more in the pocket of the average U.S. household. Efficiency gains in the fracking sector are improving and pushing the long-term price of oil down toward $50.

Finally, without oil as its hostage, OPEC loses the stranglehold it had over U.S. foreign policy. The future price of oil and gas won’t be determined by whether it’s a friendly government sitting on oil or gas supplies. Instead, it’ll depend on the manufacturing costs of extraction.

How to Make Your Fortune in Energy

Five years ago, the Western oil majors were focused on developing oil reserves in far-off and unstable lands. Emerging market energy giants were the most valuable companies in the world. In July 2007, Gazprom (OGZPY) head Alexei Miller boasted that the Russian natural gas giant would be the world’s first $1 trillion market cap company. PetroChina (PTR) beat it to the punch, hitting that level by November 2007.

Today, Gazprom would have to rise over 10x to reach its goal. PetroChina is down almost 80% from its peak. Brazil’s Petrobras (PBR) — which spent billions on the right to explore offshore oil — is the best of the bunch. And its five-year chart isn’t pretty, either.

PBR_051314

The bottom line?

Stay away from these lumbering emerging market dinosaurs.

The fracking revolution will unleash a tidal wave of small energy companies that are destined to generate the biggest, most lasting gains in the energy sector in the years ahead.

And this month’s Alpha Investor Letter recommendation includes my #1 bet on how to profit from the United States as the world’s new #1 “Petrostate.”

In case you missed it, I encourage you to read my e-letter column from last week about what a leading economist says about why you lost so much money in China. I also invite you to comment in the space provided below.

NOTE: Global Guru Capital is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Financial Publications.

share on:

Like This Article?
Now Get Our FREE Special Report:
Alternative Investing: Investing in Timber

Stock Investor editor Paul Dykewicz reveals why investing in timber may be one of the best long-term portfolio strategies you'll find today.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle
LEARN MORE HERE

DayTradeSPY

DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops
LEARN MORE HERE