“Rob the Kremlin” with Teeka Tiwari

How will the "Daring crew" from Palm Beach's Mega Trends letter steal from Putin?

By Travis Johnson, Stock Gumshoe, April 20, 2015

I love these kinds of ads.

It’s the perfect mix of intrigue, drama, patriotism, greed and fun — it makes you feel like you’re in a Tom Clancy novel instead of pecking away at your keyboard, looking for a half decent investing idea.

Teeka Tiwari moved to the Palm Beach Research Group last year (I think) and has had a couple fun promotions for them — including the “Internet of Things” and “embedded circuits in 3-D printing” pitch a few months ago that got so many readers excited about the mysterious facility in California that led to breakthroughs by Apple and Microsoft and so many others, but this one is very different. This one will make you feel like you’re Liam Neeson, sneaking into the Kremlin to bop Putin on the nose.

So how is it that you can “rob the Kremlin” and get rich? Let me give you a little taste of the ad, then we’ll get into the details. Here’s how it opens:

“Wanted: A Daring Crew to Help Us ‘Rob the Kremlin’

“In 1998, I ‘stole’ $1.2 million as Russia collapsed. Now, I’m going in for even more — and I’m bringing you along with me….

“I’m in a makeshift recording studio on the backside of a mountain filming a message I hope will reach you in time.

“In less than two weeks, my crew and I will attempt the heist of the century:

“We’re going behind enemy lines, straight into the fortress of America’s oldest and cruelest rival. Those who join us could walk away with a fortune.”

He even provides the latitude and longitude of his secret recording studio (which, if I’m reading the numbers right, means he’s in the parking lot outside the Sears at a mall in Stroudsburg, PA — presumably that’s just misdirection to throw us off the scent and make sure we can’t locate his lair).

There’s a pretty long spiel about how this isn’t just a way to make money — it’s the right thing to do, because it will be a way to fight back against the Russian Bear. You can read that yourself if you want, but here’s just a little taste:

“If you love the idea of doing your part to keep your friends and family safe…

“Then this ‘heist’ may be right for you….

“We’re citizen soldiers carrying out our patriotic duty to fight back in any way we can….

“Even though part of our team includes an experienced operative within the U.S. Department of Defense, the U.S. government has NOT sanctioned this mission. That’s why there are some risks, and you should consider this mission carefully.

“But if you’re tired of Obama’s pussyfooting around, and would like to link up with real Americans who want to fight back… then this operation may be right for you.”

Don’t worry, Mr. Tiwari is not trying to recruit you for the next Bay of Pigs invasion — this is all really just drama to get you excited, and make you feel like this is both right and lucrative. He lays out the way the Russia is trying to fight against the power of the US dollar, by collaborating with other countries (like China and Iran) to trade oil outside of the “petrodollar” system that has been one of the key underpinnings (but certainly not the only cause) of dollar strength since the 1980s. He says that Putin has been “plotting revenge” for decades, dumping dollars and using cyberattacks and whatever else he can do to try to weaken the dollar and increase Russian hegemony.

And the primary weapon Russia and Putin are using, as you probably have surmised, is energy — they are still a major oil and gas producer, and they supply a huge amount of the natural gas for the Western European markets (to say nothing of their former satellites like Ukraine, who are even more dependent on Gazprom’s export pipelines than are Germany and the UK). Here’s a bit more from the ad:

“Putin has been secretly plotting against the U.S. for decades. Now he has enough cash and clout to really be a threat to America and our way of life.

“But, as I’ll show you a bit later… that just means there’s more money up for grabs—more cash that we can ‘steal’ straight from the pockets of Putin and his cronies in Moscow.

“In fact, the U.S. government is our ally on this mission.

“You see, Russia has a stranglehold on the European energy market. They control more than 40% of it in Western Europe.

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“This is like a financial weapon aimed squarely at our best friend’s forehead. And Putin hasn’t been afraid to use it.”

Which means… yes, this is another “resource company that’s going to shatter Putin’s dreams” teaser. We saw quite a few of these from 2008-2012 or so, ranging from European shale gas explorers to Australian or other LNG exporters to the actual LNG tanker companies. The notion that Europe could buy LNG from somewhere else and become less reliant on natural gas from Russia is an easy sell, and it makes a certain amount of logical sense because of the price disparities between natural gas surplus and deficit countries (though Russian gas in Germany right now is only going for about $9, versus $14 for LNG imports in Japan, that’s still about three times the US Henry Hub price of near $3 — and reports are that more LNG cargoes from Qatar and elsewhere are going to the UK and other European customers than has been the case for years, partly because demand from China isn’t growing as much as expected so the Europeans can pay near-competitive prices).

So how does this work?

“… the U.S. is preparing to launch a major weapon against Russia…

“… the calculated manipulation of energy and currency markets. I’m talking about modern warfare.

“And those are Speaker of the House John Boehner’s words—not mine.

“In a March op-ed in the Wall Street Journal, he called for Washington to ‘liberate’ its ‘natural energy’ as a weapon against Putin.”

Which means, really, just that the US can disrupt the natural gas market by exporting more gas — particularly to Europe. Here’s more:

“… it costs us very little to produce gas here. And even when you add the cost of liquefying it and transporting it… American gas is still cheaper than what Putin can offer… and what most countries can purchase anywhere else….

“Gazprom—Putin’s energy money wagon—needs to charge about $12 per 1,000 cubic feet of natural gas just to break even. And they sell it $16 per thousand cubic feet in Eastern Europe.

“And America?

“The cost to pull gas out of the ground here is as low as just 75 cents per thousand cubic feet.

“When you add in the cost of turning it into LNG and shipping it…

“That tacks on another approximately $6-7… bringing the total cost to between $7-8. So, still half the price of what it sells for in Russia.”

The data I’ve seen, from the IMF (made easily charted by Index Mundi here), indicates that Russian gas in Germany is at $9.29 right now, so if you tack on the cost of LNG transport (pipeline, liquefaction, chilling, transport tanker, gasification, pipeline) that’s… about the same as the US spot price. Perhaps Gazprom is really getting $12, I don’t know — the IMF prices were the only long-term dataset I saw for Russian gas, but the general move in LNG prices is lower because production is up in most areas around the world and prices are lower in local markets (the ones that can be served by pipelines), and there are more LNG export projects… even before the US exports its first LNG cargo.

But that’s just my quick look at the data, presumably Tiwari has spent more time on this analysis than I have. And there are several LNG export projects that are permitted or are likely to be permitted in the next couple years as US politicians have opened up and sped up that process… though it’s still not necessarily an easy permitting process, particularly near populated areas (like Dominion’s Cove Point LNG facility in Chesapeake Bay — it’s got an export license, and used to be an LNG import facility, but the permitting and construction will still generate a lot of local and environmental opposition). There are several projects that are at least partially approved by the Feds for export that are not yet being actively built and may or may not be operational within the next five years, including Leucadia’s proposed Oregon LNG plant. None of this stuff moves fast, and the large export facilities planned are huge and expensive projects, but the price differentials between the US and our potential European and Asian customers remain substantial so the export projects (some of them, at least) are still economically attractive.

What’s Teeka Tiwari’s play on this “robbery” of Russia via exporting LNG? We finally get into some clues…

“How to Prosper From the Coming U.S. LNG Boom

“Inside, you’ll learn how to own the most strategically significant and potentially lucrative businesses and assets in the LNG boom.

“One is a company that has already established itself as a major transporter of natural gas in the States. They have over 10,000 miles of natural gas pipelines… and over 5,000 miles of electric transmission lines….

“What’s really exciting about this company…. I won’t name names here… but they just inked 20-year deals to export LNG to a couple of major countries.

“Even more exciting, they recently received permission from the Federal Energy Regulatory Commission (FERC) to build an LNG export facility….

“Owning shares of it is like taking money out of Putin’s pockets… and putting it right into yours.”

He doesn’t drop any clues about other companies he might like, but this one is almost certainly Dominion Resources — though it’s not particularly clear from the clues whether he prefers the parent company, Dominion Resources (D) or their new spun-off MLP Dominion Midstream Partners (DM) that went public late last year to raise money to build the Cove Point LNG export plant that they’re hoping to complete sometime in 2017.

DM has shot upward over the last several months, since it’s now one of two pure play LNG export terminal plays investors can buy (the other is Cheniere Energy, ticker LNG or MLPs CQH or CQP, which will almost certainly be the first liquefaction plant owner in operation with their Sabine Pass facility on the Gulf Coast), but so far as I can tell DM is really just a play on the first $50 million in annual cash distributions from Cove Point. That doesn’t sound all that appealing for a $2.5 billion investment even if it is a MLP… that’s about 78 cents of potential cash distributions from the project per share, and each share is now trading at $41. I have no idea if those numbers are reflective of what the eventual capital structure will be once Dominion has perhaps sold more of the MLP units (they still own most of them now), or after more capital is raised, but it doesn’t look all that appealing after my admittedly superficial glance at their financials — owning the parent, which is a large and established pipeline and local utility company, looks much more appealing to me with their 3.5% yield and steady history of dividend increases.

But, of course, utilities are scary during times of rising interest rates. Investors generally own utilities for the dividend income, so if the 10-year bond gets back to 4% will people still find D shares appealing with a yield of 3.5%? Maybe, since the dividend rises every year… but the trepidation among income investors is that the share price will get whacked if and when “risk free” assets like treasury notes or CDs get back to historical normal yields of 3-5% or more, since if investors demanded a current dividend yield of 5% from D shares right now that would mean driving the share price down to $52. That’s much more abrupt than any kind of consensus expectation about interest rates, but that possible trend of interest rates rising faster than D can raise their dividend is the major risk for most utility stocks (and REITs and other income-focused investments).

I think that interest rate fear is probably overstated, since I think the most likely outcome is a very, very gradual rise in interest rates that will be fine for strong REITs and utilities… but there’s certainly risk, and it’s a well-known and heavily-pundited risk that gets talked about on CNBC all the time, which means investors will probably continue to overreact to interest rate chatter.

Perhaps that means there will be another freakout in the markets next time interest rate fears spike, like happened two years ago, and you’ll be able to buy utilities and REITs 10% cheaper. I hope so. Dominion has already fallen 10% or so from its peak near $80 back in January, and it also had a 10% drop in the “taper tantrum” in May/June 2013… call me greedy, but I’d kinda like to see it drop a bit more.

Tiwari also says that he thinks this company and two others he’s identified will be the ones that make investors “gobs of money” in the LNG export boom — the other two likely candidates are Cheniere (LNG) and Sempra (SRE), the Southern California utility that’s also building an LNG export terminal, or he could be teasing the tanker companies (Teekay LNG Partners is usually the one that comes to mind first for LNG shipping, ticker TGP) or the companies who are building natural gas infrastructure and export facilities (Chicago Bridge and Iron, CBI, is probably the best-priced stock in that category). He doesn’t provide any more clues, so that’s just guessing.

He does, however, also hint at one more idea that’s sort of similar — a UK importer of LNG who will benefit from getting it somewhat cheaper because of new US supply. Here’s how he teases that bit:

“There will be many beneficiaries of this energy shift in Europe… but one of the biggest will be European utility companies.

“Consider one of Britain’s largest electric utility providers. They just signed a 20-year, multi-billion-dollar deal to buy American LNG. This is a major shift… and should be a major boon to that utility company… this is a game changer in a country that has historically been dependent on Russia for gas….

“The utility companies we’ve identified in Europe have supercharged yields. The UK company I just mentioned pays out twice as much income as the average U.S. utility.

“What’s more, because these 3 utilities all trade in the U.S., they’re just as easy to invest in as Hershey’s or Coca-Cola.”

Well, several of the large pan-European utility companies have 20-year LNG purchase agreements with US companies, mostly with Cheniere, but the one with the largest customer base in the UK that also has a 20-year LNG purchase agreement and a 7%ish trailing dividend yield (roughly twice the US utility stock average) is Centrica, and I think that’s the likely solution. They do trade in the US through an OTC ADR at CPYYY, or at CNA in London. The trailing yield in London is about 6.6%, and the announcement of their purchase agreement with Cheniere is here if you’re curious (it’s not new — they made the deal almost two years ago, and it’s for the fifth train at Sabine Pass so it won’t start until at least 2018). I’m pretty sure that’s the largest signed offtake agreement for a European utility to buy LNG from the US.

Other possibilities are Electricite de France, which has a 20-year deal probably starting in 2019 or 2020 and also is a major electricity provider in England, their ticker is EDF in Paris, ECIFY for the US ADR, has almost exactly the same dividend yield; E.ON (EOAN in Germany, EONGY OTC in the US), the major German utility that also owns some UK electricity operations and has some smaller 20-year LNG deals… but their yield is much lower, more like a US utility; Iberdrola, the Spanish utility with lots of international (including UK and US) operations plus a recent 20-year LNG deal, their ticker is IBE in Spain, IBDRY for the US ADR, and their yield is substantially lower as well.

I don’t know what the regulatory situation is the UK or elsewhere in Europe for utility companies, but these look, for the most part, similar to the large US utilities in terms of yield and stability. Centrica is quite large, a $20 billion company, and that yield is tempting at first glance — another related company, if you’re curious, is the much larger National Grid (NGG), which has been recommended quite a few times by the Motley Fool as an appealing income stock and which owns a bunch of US and UK utilities… it also owns the LNG import facility on Isle of Grain near London that would be used, it seems, by Centrica to import their LNG.

There was quite a bit of chatter about the LNG market, and the shift from Asia to Europe, a week or two ago when Shell and BG Group were announcing their tie-up — there’s one good WSJ article here on the status of things… I don’t know whether I’d be inclined to bet heavily on LNG being a big deal this year, since pricing has come down a bit, but most of these LNG export projects in the US are many years from loading tankers (which is why there’s a bit of a tanker glut at the moment — they built the tankers faster than they built the liquefaction plants) but are very long-term in nature with these offtake agreements and do appear, at least at current prices, to have reasonable economics (and most of the capacity is tied up at whatever the current Henry Hub price is plus a set fee, so they’re dependent on a continuing arbitrage opportunity between US and European/Russian or Asian local natural gas prices but they’re not dependent on a specific price).

It is possible, I suppose, that Russia or Qatar could “pull a Saudi Arabia” to maintain market share and dramatically cut prices or boost gas exports to Europe, and there are other large LNG export projects coming online elsewhere in the world, particularly in Australia, that might bring supply increases that increase competition and help to smooth out the global differences in natural gas prices. Neither would necessarily crush the LNG export market right away, given the long-term and strategic nature of most of these projects and the billions of dollars being sunk into building liquefaction facilities in the US, but anything abrupt that impacts prices would almost certainly bring the “pure play” US LNG export stocks down sharply. Cheniere (LNG) has been the poster boy for US exports, and that has helped their stock shoot up dramatically over the last five years even as their first tanker hasn’t loaded yet (that’s expected late this year)… but I remain a little skeptical about the chances of that kind of stock gain repeating itself for Sempra or Dominion or the other planned LNG projects. We’ll see… I was skeptical about Cheniere, too, so I missed that particular train.

So… does that make you want to join this gang to “rob the Kremlin?” Interested in investing in any of the LNG-associated stocks? Let us know with a comment below. And Tiwari has a pitch about gold, too, that I’ll get to in a future piece… stay tuned!

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