Thu, Jul 31, 2014|Sean Goldsmith

A sovereign default...

A sovereign default... 'It can't get any worse than this'... What's the U.S.' next move against Russia?... Big earnings from Integrated Device Technologies and Express Scripts... How to invest in muni bonds...

Argentina defaulted on its sovereign debt for the second time since 2001 yesterday...

S&A Global Contrarian editor Kim Iskyan says the default will likely lead to further economic recession, an inflation rate higher than the existing 37%, and another currency devaluation.

Here's what he told me in an e-mail this morning...

"The prices of Argentine stocks – both traded in Buenos Aires, and American Depository Receipts (ADRs) traded in New York – and bonds have been bid up sharply in recent months in anticipation of the country not defaulting. There's probably going to be a market correction. Meanwhile, cash-starved companies in Argentina will continue to be locked out of the international capital markets – or pay far more than they would have had to if the country had not defaulted again."

Despite the selloff, Kim believes Argentina's suffering may be almost be over.

He recently returned from a trip to Argentina... and said he repeatedly heard people there saying "it can't get any worse than this."

Right now, Argentina's stock market is hated. It's cheap. And Kim believes there's an upcoming catalyst that could send shares soaring higher.

Kim sent S&A Global Contrarian subscribers a special update today with all the details. If you want to read about Kim's findings in Argentina (and Thailand, Ukraine, Russia, South Africa, etc.), click here to learn about a subscription to the S&A Global Contrarian.

Kim also shared his thoughts with us on further sanctions hitting Russia...

It seems the U.S. is getting serious about making Russia pay. Is pressure on the price of oil next? Consider this... The latest sanctions – which include the European Union reluctantly being dragged along – will delay Russia's exploration of nonconventional energy sources for years.

It will become difficult for Russian companies (like Rosneft, the world's largest publicly traded oil producer) to raise money in Western markets. Sanctions will hurt Russia's banks, which have money to lend to domestic, state-owned entities, but can't last forever.

Even though plenty of Russian corporations can still borrow in international markets or roll over existing debt, the costs will rise in the coming weeks. China will lend Russia money until it's no longer in China's best interest.

Kim believes Russia's big pressure point is oil prices...

The Russian federal budget balances at a price of around $110 per barrel. Revenues from energy taxation account for around 45% of the federal budget. About a quarter of GDP is linked to the energy sector. When oil trades for less than $110 a barrel, Russia faces a deficit. The farther it falls, the more Russia chokes. And when big social-spending programs are cut, Putin's popularity suffers.

The U.S. wants to bring down the price of oil, which would crush Russia's economy. The U.S. may open its strategic reserves and quietly pressure OPEC to increase production.

One company to keep your eye on through all of this? Oil giant BP, which owns 20% of Rosneft. Plenty of other oil companies (like ExxonMobil) have been deeply involved in Russia over the years... but no one has a stake as large as BP.

Shares of the nation's largest pharmacy benefit manager Express Scripts (ESRX) jumped nearly 5% on earning results yesterday...

Express Scripts handles more than 1 billion prescriptions a year and offers health care management and administration services, too. Doc Eifrig recommended shares in the November issue of Retirement Millionaire...

The growth of the health care industry is one of the inevitable trends over the coming generation (and perhaps even longer).

Health care spending currently accounts for about 18% of U.S. GDP. That should easily grow to 24% by 2040. It's happening due to shifting demographics. There will be an additional 32 million elderly by 2030. Just about everyone spends more money on health care as they age. For example, older people use three to four times the amount of prescription drugs as folks under 50.

Pharmacy benefit managers (PBMs) take a $1-$2 fee on each transaction. In 2013, 90% of Americans get their drugs through a PBM. So those transaction fees add up to a huge amount of money and a great business.

No matter how the new federal health care regime – "Obamacare" – plays out, the U.S. health care system needs middlemen like Express Scripts.

Yesterday, Express Scripts reported that second-quarter earnings actually fell 5.1% from $543 million a year earlier to $515 million due to higher expenses related to acquisitions and transactions. In April 2012, the company paid $29 billion to acquire fellow PBM Medco Health Solutions. Revenues were down too, falling 4.9% year-over-year to $25.1 billion (but still beat estimates of $24.6 billion).

The declining numbers weren't unexpected. At the end of 2013, one of Express Scripts' clients, UnitedHealth Group, launched its own PBM services division, which became a direct competitor to Express Scripts.

Still, Express Scripts expects growth of 17%-19% year-over-year going forward.

Express Scripts' earnings weren't all bad, though. Cash generated from operating activities rose from $454 million in the first quarter of 2014 to $736 million. Earnings per share rose from $0.66 to $0.67.

And the company has repurchased nearly 30 million shares. As of the end of June, Express Scripts is still authorized to buy back 43 million shares.

Although Express Scripts is still in the process of fully integrating Medco and dealing with the challenges of new health care regulatory requirements, Doc is bullish on the company's long-term outlook. Retirement Millionaire subscribers are up 13%.

Phase 1 Investor holding Integrated Device Technology (IDTI) jumped nearly 11% on strong earnings Tuesday...

Revenue from continuing operations was up from $118.6 million last quarter and $117.5 million in the second quarter of 2013 to $126.3 million this quarter.

The company's income rose from $21.7 million ($0.14 per share) last quarter and $10.6 million ($0.07 per share) in the same period a year ago to $26.7 million ($0.17 per share) this quarter.

IDTI designs, develops, and manufactures a variety of semiconductors that go into consumer devices like personal computers, tablets, notebooks, smartphones, and video game consoles.

The company specializes in timing-related products. In any complicated electronic device, multiple processes run simultaneously. Synchronizing and regulating these processes is critical for any computer to function properly.

In the February 2011 issue of Phase 1 Investor, Frank Curzio recommended IDTI based on huge growth in the tablet and mobile-device market...

The best way to think of IDTI is a "jack of all trades" with a market leadership position in timing products. IDTI has partnerships with nearly every large-cap tablet manufacturer in China. Each upgrade provides another opportunity for part-making companies like IDTI to gain market share.

Frank's analysis was dead-on. IDTI's partnerships are paying off. The company recently announced that LG Electronics built one of its wireless power receivers into its flagship G3 smartphone.

Phase 1 subscribers are up 105% in just under three-and-a-half years.

New 52-week highs (as of 7/30/14): Brookfield Asset Management (BAM) and EMC Corp (EMC).

A subscriber complains that we don't give away stock picks... Even though we do... Send your thoughts (or gripes) to feedback@stansberryresearch.com.

"I see several references to muni bonds in your recommendations, but no solid advice as to how to invest in the munis. Please provide some detailed information about buying munis." – Paid-up subscriber Jim

Goldsmith comment: Retirement Millionaire and Income Intelligence readers have received loads of specific advice for how to invest in municipal bonds. In short, there are many different municipal bond funds... But you have to be careful which you buy, because they all hold different debt. We even threw out a "freebie" in the July 8 Digest...

Regards,

Sean Goldsmith

July 31, 2014

Two fantastic trading opportunities today...

In today's Digest Premium, DailyWealth Trader editor Amber Lee Mason reveals which areas of the market she's focusing on today...

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

Two fantastic trading opportunities today...

Editor's note: In today's Digest Premium, DailyWealth Trader editor Amber Lee Mason reveals which areas of the market she's focusing on today...

One of the best trades I (Amber) am seeing in the market is in commodities, because most of them – except for oil – have been beaten up lately. A lot of them have been in bear markets since 2011.

If you're looking for bargains, gold is a great spot to start. I'm not convinced the next huge leg of a gold bull market is beginning, but it looks like gold has stopped falling. So, I'm more interested in making trades in gold today than I was six months to a year ago.

Right now might be a good time to sell puts on certain gold stocks to generate some income. Other S&A editors are recommending that strategy and they will probably do very well with it. But I try to stick to super-high-quality blue-chip stocks in DailyWealth Trader. Gold stocks are too volatile for us to sell puts.

Plus, when you sell options, you get income upfront, but you're limiting your upside. As a result, your risk is lower than buying shares. But your upside is a lot higher when you buy shares outright. And when gold stocks take off, you can make much bigger gains buying shares rather than selling puts.

Another area I'm keeping my eye on is the "spread" between Treasurys and high-yield (aka "junk") bonds.

I put a Treasury trade on after attending Jim Grant's investment conference. The Dean of Junk Bonds, Marty Fridson, gave a presentation about why junk bonds are setting up for an implosion. Junk bonds are loans to low-quality companies that usually pay high interest rates. Because folks are so starved for yield today, they have bought junk bonds. The spread between Treasurys and junk bonds is a lot lower than it should really be.

Fridson argued that a lot of bond funds have been buying junk bonds and selling Treasury bonds short. They're collecting the spread (or difference). So they have to pay the interest on Treasurys and they're collecting the interest on junk bonds.

When folks realize how crappy these companies that they've loaned money to are... junk bonds will falter and bond funds will have to sell them and buy Treasurys. Fridson said that this will lead to the biggest price melt-up in Treasury-bond history.

– Amber Lee Mason

Two fantastic trading opportunities today...

In today's Digest Premium, DailyWealth Trader editor Amber Lee Mason reveals which areas of the market she's focusing on today...

To continue reading, scroll down or click here.