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Richard Rainwater Goes Long Oil

Written By Brian Hicks

Posted October 14, 2008

In May 2008, as oil traded at $129, billionaire Richard Rainwater sold all of the energy stocks he owned. And to many, it was probably one of the worst moves he could’ve made, as oil would soon skyrocket well above $147 a barrel.

But what traders didn’t know was that they should’ve followed the billionaire’s lead, and sold, too.  Oil was setting up to plummet sub-80 just months later.

And to be honest with you, following billionaires is one of the easiest ways to make money.

You’re simply buying and holding the same stocks that the billionaires are buying in the open market.

My publisher, Brian Hicks, and I followed Sumner Redstone religiously in 2002 and 2003, as he bought millions of shares of Midway Games and WMS Industries in the open market, as part of our "Billionaire Boys Club" system.

And it turned out to be one of the best trades we made all year.

·        Midway games (MWY) quadrupled in price in 2003, flying from $3 to more than $12.

·        WMS Industries (WMS) went from $12 to $21 inside of six months.

And when T. Boone Pickens increased his holdings in a beaten down oil play, called Interoil, with opportunities in Papua New Guinea, we knew better than to question the move.  Instead, we bought along with him. 

It turned out to be one of our greatest buys, producing 24%, 35%, 63% and 83% in just a couple months for Pure Energy Trader readers.

And when Carl Icahn bought 2.74 million shares of Biogen for $146.5 billion in mid-August 2007, we knew better than to question that move, too.  Instead, we bought along with him.  Buying around $55 produced a $30 gain just two months later.

Who was I to argue with billionaire logic? This was the same man who increased his stake in MedImmune by 50% before it was sold to AstraZeneca for $15 billion, doubling MedImmune’s market value.

In any case, when a billionaire goes shopping, pay close attention. They didn’t make their money by investing in just anything . . . which leads us to Richard Rainwater.

Why Richard Rainwater is Bullish on Oil

Rainwater may have made a bold move to sell oil ahead of $147.  But he’s back with another bold move.

He’s long oil again… and we’re following him.

Like we said, when a billionaire goes shopping pay close attention.  They didn’t make their money investing in just anything.

Just a few weeks ago, as oil tested lows of $90, Rainwater found his re-entry point.  "I reinvested back in the oil business, and it’s worked out really well for me," he said.  "I bought Exxon stock under $75.  I bought ConocoPhillips under $68.  I bought Pioneer Natural Resources under $50.  I bought BP.  I bought Statoil.  I made a big bet on the sector.  I bought a lot of stocks back."

And considering the billionaire’s past, you’d be remiss not to follow.

This is the guy who made his reputation managing money for the Bass brothers of Fort Worth, with bets on Disney to the cell phone boom.  He later made a fortune in hospital and real estate, and would later, as oil priced below $20, invest $100 million into stocks and $200 million in oil futures… a move that would make him filthy rich.

And he’s back again, convinced that oil prices will go higher long-term on scarce resources.  Sure, he may have sold energy stocks earlier this year, but he only did so because oil prices had run up too far, too fast.

While we agree with Rainwater’s latest opinion, we also believe he left off two great buying opportunities, including two of the latest Pure Energy Trader buys, which you can read more about here. 

The Other Catalyst for Oil

Oil is also being supported by a weaker dollar and expectations that OPEC could tighten production in an effort to slow the crude oil decline.  As I’m sure you’re aware, crude plummeted more than $16 last week alone to levels not seen since September 2007.  Half of the losses came on Friday alone.

The other catalyst… After European central banks began to take actions to ease the long-standing credit crisis, global markets are rallying hard. 

European governments are planning to buy stakes in their banks and hopefully guarantee inter-bank lending again.  The nations also said they would protect individual depositor accounts and move to ease accounting regulations that determine how assets are valued.

Even the Bush Administration is rushing to implement the $700 billion rescue program, including consultations on how to buy ownership shares in banks.  The Treasury Department even outlined a multi-pronged effort to bail out the financial system here in the U.S. and hopefully resuscitate the economy.

The plan is to buy troubled mortgage-backed securities, buy mortgages, insure mortgage-backed securities and mortgages, buy equity in financial institutions, and help delinquent borrowers stay in their homes.

If all goes according to plan, we may see renewed and sustained buying across all global markets.  Unless the timetable for these plans is longer than anticipated—or governments drag their feet to get things done—rally sustainability shouldn’t be a problem. 

Good Investing,

Ian L. Cooper