Dear Reader,

I hope that everyone had an enjoyable Valentine’s Day. Yesterday reminded me of a wise lecture from a few years ago. A team from Morgan Stanley came to my college to give a presentation on the company. Accompanying the younger team members was the senior manager of their entire department. He gave an enlightening lecture about the future of the financial industry… but one answer in the Q&A segment stood out, and I didn’t see it coming.

A student from the audience asked the senior manager, “What was the most important factor to your success at the company?” I expected a long-winded answer about the financial industry and important lessons learned from the trenches. Or perhaps he would extol the virtues of hard work and reliability. But instead, he replied, “My wife.” 

And then he went on to explain, “If you think that any woman will stay with you year after year of 80-hour work weeks, you’re just wrong. And if you think that you’ll be able to excel at the most important and stressful projects of your career while having a screaming match with your spouse every night, you’re just wrong. And if you think anyone will follow you to Singapore for a promotion, you’re just wrong.”

He then went on not only to bestow praises on his wife, but to share cautionary tales of careers gone downhill as a result of divorces and sour marriages. A bad relationship can easily derail a career, and even a simple mismatch between a world traveler and someone mentally confined to a 10-mile radius can have a serious impact on lifetime wealth. 

It’s easy to think that success is all your own doing, but more often than not a husband or wife has a lot to do with it. What if your spouse couldn’t stand your long work hours? What if she had spending habits that didn’t align with your investment goals? Most young people don’t understand the huge role finding the right person plays into career success and wealth-planning. (The common warning of possible divorce is only the most obvious factor in a marriage that will leave one poorer.)

This may sound crude, but marriage is the biggest investment and career decision in life. Whether one should invest in the S&P 500 for the next two years is small potatoes in comparison.

Many of our readers learned this lesson long ago, but I thought the manager’s approach was worth sharing with some younger subscribers. Next, the Casey Research Energy Team will report on new opportunities for Canadian natural gas in Asia. Currently, Canada is restricted to the North American market where prices have been depressed for an extended period of time. If trade with China began, this would change the dynamics of the entire Canadian natural gas industry. Then, Alex Daley will briefly discuss two charts showing inflows and outflows in gold funds. Last, I’ll touch on the news.

Canadian Natural Gas Sees a Trade Partner in China

By the Casey Research Energy Team

A $5.4 billion investment by a Chinese company in one of Encana’s massive shale gas properties in northern British Columbia and Alberta is another sign that Canada wants Asia to become a major importer of its natural gas.

Encana is a leader in one of the things the Casey Energy team loves: unconventional natural gas production. Natural gas is a cleaner energy source than oil or coal because it releases less carbon dioxide and fewer pollutants when burned, so it is becoming an important component in global clean-energy plans. And unconventional technologies have already played a major role in the gas scene of late, a trend that we expect to continue with both gas and oil.

The $5.4 billion will buy half of Encana’s Cutbank Ridge shale gas properties, which cover 635,000 acres. The properties currently produce 255 million cubic feet of natural gas per day and contain proven reserves of more than 1 trillion cubic feet. The joint venture also covers about 700 million cubic feet per day of processing capacity, some 2,100 miles of pipelines, and a gas storage facility.

The deal is the largest foreign gas deal to date by a Chinese company. China is hunting around the world for gas reserves to support its plan to triple natural gas usage over the next decade. Chinese firms have pumped about $14 billion into Canadian oil and gas companies over the last two years. On its website, PetroChina says it has been trying for years to work with major Canadian energy companies and expects the Encana deal “to provide a platform for entering the major market in North America.”

For Encana, the deal will let the company accelerate production while keeping a lid on costs. Encana has been struggling with low North American gas prices because, unlike oil, North American gas is not a globally priced commodity. Instead it trades largely only within the continent because transportation limitations keep it here. Natural gas can only be moved via pipelines because of its huge volume; when condensed into liquefied natural gas (LNG), it can be sent via ship, but there are no LNG facilities in North America. 

Canada sends the majority of its oil and gas exports to the United States, which means Canadian energy producers depend on U.S. demand for the bulk of their revenues. Relying on one customer is never a good business model, especially when that customer has concerns about one of Canada’s most important energy sources (the oil sands) and about a proposed pipeline expansion.

To diversify its customer base, Canada has been eyeing increasing trade with Asia. Two proposed oil pipelines and one proposed liquefied natural gas facility would all enable Canada to export energy from the west coast straight to Asia. None are permitted yet, and all face significant opposition from environmental groups.

This PetroChina deal, though, adds some fuel to the developers’ fires. It is only sensible to assume that PetroChina’s decision to make such a major investment in Canadian gas, at a time when North American gas prices are low because of a supply glut, was based on a strategic premise: to secure gas supplies for China in the future. In particular the proposal to build a LNG facility in Kitimat likely encouraged the Chinese to move ahead with the deal, which has apparently been in the works for nine months.

Encana’s investors were very happy with the deal, lifting the company’s share price 4.5% in a day to reach $32.02. The lift came despite the company reporting a US$42 million net loss for the fourth quarter.

In the bigger picture, the news is nothing but positive for Canadian natural gas. The advent of fracking has led to major oversupplies of natural gas in the United States. Investment like this can only encourage Canada to develop the infrastructure needed to export gas to Asia, where demand and prices are higher.

The Encana news lifted other companies producing natural gas in B.C. and Alberta, including Encana’s sister company Cenovus. Cenovus was born when Encana spun its conventional oil and gas assets out into a new company. The Casey Energy team recommended buying Cenovus in mid-2010, when the company was trading at $27.40. Including the 98¢ it gained on the Encana news, Cenovus’ share price now stands at $34.80, which means a 27% gain for our subscribers. Learn more about the gains you can get from top-quality energy stocks here.

Gold Sees First Major Outflow in Over a Year

By Alex Daley

In an interesting bit of news in the gold markets, the most recent week’s reporting saw a drop-off of fund investments of the yellow metal. For the first time in over a year, gold ETFs saw a substantial net outflow (greater than 1%). Totaling 53 tonnes, or 2.8% of total ETF gold holdings, the drop in investment may simply be a sign of profit taking as gold flirts with $1,400/ounce. Or it might mean something more. Only time will tell. 

Until then, see the change for yourself in this graph, which Citi analyst Johan Steyn flagged in a recent research report.

 

Steyn draws attention to the difference between gold and platinum in his notes, showing that the more industrial metal is still growing. One week is hardly a trend. But for anyone heavily invested in gold, it is a data point worth watching closely.

 

Buffett Exits BofA

By Vedran Vuk

With Warren Buffett being a champion of the bank bailouts, Berkshire Hathaway’s exit from Bank of America seems noteworthy. Furthermore, this is a troubling sign from a long-term investment perspective. The financial industry always has its pulse on the economy. If Buffett isn’t happy with BofA, what does that say for the rest of the financials – and more importantly, what does that say for the economy as a whole?

In the current market rally, we might be witnessing the first signs of confidence cracking. If markets are expected to go through the roof, BofA would seem like a fairly good investment. The company is wired to the entire U.S. economy. We’ll have to keep a close ear to the ground in the next couple of weeks. Perhaps, Buffett is just dissatisfied with firm-specific problems, and I might be overanalyzing the decision. Then again, this isn’t the same as his exit from Nestle. 

Deutsche Boerse Buys the NYSE

By Vedran Vuk

When speculating on market movements, timing is the most difficult part. Even with a correct prediction, an analyst can be off my months, if not years. Predicting the future is a difficult business. But I couldn’t believe that my musings on February 9 came true before the issue of the Daily Dispatch even reached your inbox. In the issue, I reported on the London Stock Exchange’s offer for the Toronto Stock Exchange. From there, I noted:

“It makes me wonder whether there’s an opportunity here to purchase stock exchanges in hopes of further consolidation and mergers. Perhaps a diversified portfolio of various stock exchanges might be worth holding. I’ll have to take a closer look at that possibility.”

    While the issue was still in the final editing process, rumors emerged over a possible Deutsche Boerse (German Stock Exchange) and NYSE merger. Stock exchange prices across the globe immediately jumped. And now, less than a week later, the Deutsche Boerse has purchased the NYSE Euronext for an all-share deal of $9.53 billion. (Read about the details here.)

    I never imagined that these events would occur so soon and leave my correct speculation in the dust. There’s nothing worse than being right and not getting the chance to make a buck on the idea. I’ll simply have to plan ahead next time. I’m sure that this won’t be the last major consolidation of stock exchanges in the next few years.

    That’s it for today. I just need to make a quick note on personal portfolio changes of the Casey Research team. Per our disclosure policy, a member of the Casey Research team will be doing some portfolio reallocation, most likely selling some percentage of shares held in Almaden Minerals and Alexco Resources later this week or next. This is no reflection on the companies, just a periodic portfolio rebalancing. 

    Also, our next Casey Research Summit titled “The Next Few Years” is coming up fast. If you’re thinking about joining the Casey Research team in sunny Boca Raton, Florida, on April 29 – May 1, act fast. Right now you can save $200 off the regular price with our early-bird discount, but only until February 25.

    You won’t regret signing up – our faculty and topics so far include: John Williams of Shadow Stats fame on “The True State of the U.S. Economy”; resource pro Rick Rule on “A Portfolio Approach to Crisis Investing”; James G. Rickards, senior managing director of Tangent Capital Partners on “Gold, Geopolitics and the Gold Standard”; and many more.

    If you want to see the whole list – and we’ll still add to it – as well as more details about the Summit, click here.

    Thank you for reading and subscribing to Casey’s Daily Dispatch.

    Vedran Vuk
    Casey’s Daily Dispatch Editor