Two Total Wealth Tactics to Profit from the One Favor the Fed Has Done for America

Keith Fitz-Gerald Jul 08, 2015
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I’ve made no bones about my feelings when it comes to quantitative easing, or “QE” for short.

Plainly put, QE violates the very principles of capitalism – namely that there is success and failure- and it’s akin to monetary drunk driving. Rather than letting dead companies die, the Fed has created legions of financial zombies that will ultimately come back to bite everybody in the rear end.

Still, I’m glad to have the Fed’s meddling for one reason and one reason only – because learning to harness QE can be one of the most profitable Total Wealth Tactics of all.

Especially when it comes to finding companies like we did recently in our sister publication, the Money Map Report and right here in Total Wealth.

The first was a relatively unknown biotech firm that popped more than 50% in just eight short weeks while the latter was none other than the Williams Co Inc. (NYSE:WMB), which has returned a slightly lower but still impressive 41.9% since January.

Today I want to share two more companies with you that are poised for exactly the same sort of take-off under very similar circumstances.

You’ve got to act quickly, however. That’s because the window of opportunity will close with a thud when the first whiff of a rate hike hits.

Here’s how to profit from the Fed’s actions.

The Fed’s Flood of Cheap Money Is Fueling Historic M&A Activity

The Federal Reserve began buying bonds in October 2008 as part of a program known euphemistically as quantitative easing. Officially a monetary policy intended to stimulate the economy when conventional measures fail, it’s little more than an act of financial desperation.

Long story short, some $3.7 trillion later the Fed has done the impossible and inflated everything from the stock markets to houses. At once.

Legions of investors fought the Fed morally, intellectually, and philosophically by not investing and not spending money. Many still are, with good reason.

History shows very clearly that QE and the zero-interest rate policies that are intertwined with it ultimately fail. Instead of enriching the masses, they are little more than a “get rich quick” card for the uber-wealthy.

The real reason the Fed did what it did was to clear trillions in toxic debt from corporate balance sheets and those of the big banks that traded that schlock.

The Fed provided the “liquidity” you’ve heard so much about because its fancy economic models said that companies would use that money to borrow new debt cheaply, then subsequently invest in new productive capacity.

Only it never dawned on those in the halls of power that companies never behave like academic models, let alone the fancy ones used by the so-called smartest guys in the room. They’re in business to profit.

So what CEOs actually did is hardly surprising – they didn’t invest in productivity. They bought it.

The biggest corporations in America took all that “free” cash and used it to fuel a mergers and acquisitions bender that continues today, with a record $242 billion in deals inked last May alone.

According to KPMG’s 2015 M&A Report, some 44% of deal value hit the United States in a trend that’s expected to continue through the end of the year.


Click to Enlarge
Source: KPMG M&A 2015 Survey Report

That’s logical. Buying growth is always cheaper and faster than creating it yourself.

And that’s your entry.

As long as there is a pile of cheap money available, stronger companies will buy weaker companies in a move that’s intended to make both stronger and create a whole lot more wealth for anybody playing along.

Any company that sports decent numbers is potentially a target, particularly if they’ve got an innovative breakthrough product, exclusive contracts, or some other defining feature that makes them attractive.

Here are two with great potential.

Potential Buyout Target No. 1: BioMarin Pharmaceutical Inc. (NasdaqGS:BMRN)

Rumors of pending acquisition deals have been swirling around this $22 billion biotech company ever since March, when a loose cannon analyst cited “top sources (and I mean top)” as confirmation that a buyout deal from Shire PLC was in the works.

However, as American humorist Mark Twain might have said, rumors of BioMarin’s buyout were highly exaggerated. The company presumably told whatever potential buyout suitors it engaged with for negotiations to go fishing.

Yet, in the months since, BioMarin’s drugs and treatments have passed various stages of the FDA review process that only increase its attractiveness.

Two of the most exciting developments are the FDA’s acceptance of its filing of drisaspersen, a drug designed to treat muscular dystrophy, and positive findings for its Phase 2 trials of its experimental injectable drug for achondroplasia, a disorder colloquially known as “dwarfism.”

BMRN tends to develop treatments targeted at rare but severe disorders and afflictions, so there’s a pent-up and guaranteed demand for its treatments.

Naturally the biotech giants would love to acquire this innovative team – which is why companies like Shire PLC are willing to offer buyout prices based on projections that BMRN will triple its value in the next year.

Best of all, CEO Rob Eyler over the Marin Economic Forum, noted that no one will be shocked if they’re a buyout in the next few months… except, I think, possibly anybody who doesn’t own shares.

Potential Buyout Target No. 2: Cabot Oil & Gas Corp. (NYSE:COG)

Last January CNBC’s Kate Kelly asked me if I was worried about smaller players in the energy sector “just plain going out of business.”

I replied that not only was I not afraid of the weaker players folding and being absorbed by stronger players, I was counting on it.

As you might imagine, that raised more than a few eyebrows at a time when oil had fallen 51% to only $52/barrel at the time. When it came to energy companies, it seemed investors couldn’t hit the sell button fast enough.

But I had studied my history carefully and knew something too many observers had forgotten – the strong always survive.

Speaking of which, that brings me to my second buyout target: Cabot Oil & Gas Corp. (NYSE:COG)

The company shows every sign of growing more efficient on the surface. It reported $264.5 million in cash flow from operations in Q1/2015, compared to $255.4 million in Q1/2014. That seems formidable, given the collapse in oil prices between the two quarters.

But discretionary cash flow – the amount of money left over after every possible capital project that could benefit the company’s bottom line is attended to – shrank more than 33%. That’s a sign that the company is exhausting its ability to expand in the tough times and may be prepared to do the next best thing – fold up and surrender to a company that’s still thriving.

I think it’s a great acquisition target when you consider that it’s got 5.4 trillion cubic feet of proved reserves in natural gas. And, thanks to a dip in market cap of more than 10% over the past three weeks, I’ve got to believe bigger players are circling.

So fight the Fed if you want.

I’d rather hunt down the profits it’s making possible.

Until next time,

Keith Fitz-Gerald

6 Responses to Two Total Wealth Tactics to Profit from the One Favor the Fed Has Done for America

  1. Annonymous says:

    You’re right far more than wrong, Kieth. The Fed’s “pump and dump” is insanity, and it doesn’t have our best interest in mind.

    With that said, I was not exuberant on the Apple watch, a total bomb, and ESKO. But leaving that aside, the unelected world government, The IMF, has given indications that it wants to reduce the dollar weighting in the reserve currency basket, adding the Yuan.

    First, China will not politely ask that it’s reserve currency weight increase; it will demand it. Second, a coalition of of nations, including the Arab crescent, Asia, Russia, and South America will come together and declare the dollar hegemony over.

    What is the Total Wealth Strategy here, when our fiat currency is worthless, other than knowing how to bet against it? And why is no one talking about it, at least other than James Rickards?

    All of the smart stock plays are well and good; that is, until we have social unrest, martial law, internment camps, and the regime’s steel boot over society.

    Think it can’t happen here?

    Think again.

    • Keith says:

      Good afternoon and thank you.

      It would appear that we have some common ground on our thinking but differ on our execution. The differentiator may well be time.

      However, to your point about discussing these issues, I’ve been covering these topics with subscribers and readers around the world in article, presentations and more since at least 2005 which, if I’m not mistaken, actually predates James Rickards. That’s in fact why the Unstoppable Trends are what they are…because they offer the best possible offense AND defense against a worthless dollar.

      As for the civil unrest and steel boots, there is no doubt that’s possible in my mind. But probable is another issue entirely and one that depends on a good many variables.

      Let’s continue the discussion because it’s clearly something that you’ve thought about in great detail.

      I look forward to it!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. Annonymous says:

    Thank you for the courtesy of your reply, Kieth. I am a fairly new reader of your work, and I find your writing and perspective accurate and enjoyable.

    My brief missive was not to exclude you from approaching these topics by any means, so I apologize if my wording gave that impression. Again, it was not my intention.

    While Greece’s fiscal irresponsibility is, as you have written, a relatively small weighting in the global marketplace, the EU has also been kicking the can down the road for a number of years.

    All of this leads me to look at America’s fiscal, monetary, and foreign policy, and it seems insane, leaving me to wonder how long the money masters (or the money manipulators, the FED) can keep the charade going. There seems to be no exit plan. And, as you have stated, policy is based on archaic modeling – the assumption cyclical tends – when, in fact, it is structural.

    With that said, we can move on and allow others to comment on your very well written article.

    Again, thank you for your great work.

    Have a great day 🙂

    • Keith says:

      You are very welcome. No offense taken whatsoever.

      The ongoing dialogue we share with so many Total Wealth Family members makes this a tremendous place to be…and hopefully very valuable, too.

      Please keep the comments, observations and great thinking coming!

      All the best regards for a great weekend, Keith 🙂

  3. mike cieply says:

    KT, I learn something new every time a read or hear one of reports. About 15 years ago while attending a severe weather seminar at the Fermi Lab in Batavia, ill. i asked highly respected weatherman Tom Schilling about what he thought was the”final ingredient ” for a tornado to touch down, and that salient fact remains until this day: is we have have all the best technology at our hands, but we still can’t pin point the spot or exact timing of a touch down of such a catastrophic weather occurrence.

    In any case, its perhaps a good time to review your outlook for this years’ investments’ that quality companies are the ones savvy investors should be looking at for possible opportunities of investment ;among other basic and sound fundamentals.. I will review again core data and and what should be on all of our radar screens.

    thanks,
    mike from Indiana

  4. Ron says:

    It’s astonishing to watch how much we’re all willing to obscure the obvious and pretend that our minds are simply wrong when we know they’re right. Investing instead of standing silently by with cash seems like a child riding his bike speedily through raging traffic. Everyone seems to be having fun showing others his courage in the face of danger. Nobody wants to acknowledge that six and a half years of this administration hasn’t produced a coherent word about Iran getting a nuclear bomb and nobody has been touting a plan to prevent it until now. None of us will admit that this president is precisely where he and his advisors want to be. Namely, watching countries bang their heads together while pieces fly off into the universe. To liten to people speaking sincerely and analytically about stocks and companies and investments and takeovers makes sense in the usual day-to-day small-talk of our society. It means little when the Gorgon is coming over the hill. What should we do in the realization that stronger forces want to turn this country into the world’s bread basket and a grassy vacation spot after its system of government has been ripped apart and destroyed from within? What is the solution to that?

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