We've been encouraging you to short stocks for months now. But we still don't think you're doing it. So we're dedicating today's Digest to more proof of how toppy the current market is. All of our best analysts are positioning their portfolios for a downturn – either through selling short, buying gold, or buying defensive stocks. And before you ask, "If everyone is saying sell short, shouldn't you go long?" realize we are the contrarians. Wall Street is still advising its clients to buy stocks (likely the issues they've underwritten). It's irrational to have an unhedged portfolio. Below, we've collected a few telling excerpts:
The stock market is clearly overvalued by the three measures that count: price-to-earnings ratios, dividend yields, and the value of stocks relative to the whole economy. – Dan Ferris, June 2010, Extreme Value
Right now is one of the most dangerous moments to be an investor. Stocks (and everything else) have soared. Volatility has been low, so investors have been lulled into thinking the waters are safe. They are not. – Steve Sjuggerud, May 2010, True Wealth
[A]lmost every investment asset you can imagine is going to fall in value... Think of it as a giant yard sale where the heavily indebted are forced to sell their best assets at low prices to the few people left with cash. – Tom Dyson, June 2010, The 12% Letter
Dan is recommending his readers buy World Dominators (large-cap, super-safe stocks that can increase prices with inflation). He's also researching short-sale opportunities in a sector whose products "no one can afford." Steve recommended his readers short the euro (a trade that's made a huge profit), buy gold, and invest in an uncorrelated opportunity that returns a safe 18%. Tom is recommending preferred shares in companies with healthy balance sheets.
And, of course, there's Porter. He's been recommending short sales across every sector and predicting the end of the world for the past three years in his letter. Just look at Friday's Digest for a glimpse. He explains why the euro, and ultimately the global paper-money system, is doomed.
Porter currently has eight short recommendations in his portfolio. Only one is moving against him. If the government has its way, Porter's recent short sale of USAToday publisher, Gannett, could move against him, too. In his March issue, Porter wrote:
Gannett is a rare treasure for the short seller: It's the leading business in an undeniably obsolete business, it holds a tremendous amount of debt, and on its balance sheet you will find an array of worthless assets purchased at all-time high prices. In short, there's no way this business can succeed and there are dozens of ways it can fail.
Since then, the recommendation is up 14%. But today, shares jumped more than 4%. The company announced it expects second-quarter earnings to hit the high-end of forecasts. But more importantly, last week, the Federal Trade Commission (FTC) said it was looking for ways to "reinvent" journalism. The FTC is worried the Internet is providing readers with too much information. Instead of forcing companies like Gannett to adapt their business models and perhaps even provide useful content, the government wants to subsidize them...
"There are reasons for concern that experimentation may not produce a robust and sustainable business model for commercial journalism," states the FTC's draft proposal, according to a Washington Times editorial. Experimentation is the only way these businesses could hope to "produce a robust and sustainable business model."
The government wants to give failing media companies tax exemptions, establish a national fund for local news organizations and an AmeriCorps for reporters. The money for these efforts would come from new taxes. The FTC is considering making aggregators (like our Daily Crux) pay for content. It is also considering a 5% tax on consumer electronic devices like the iPad and Kindle. This entire proposal is absurd and wildly socialist. All the government really wants to achieve through these measures is control of the media. If the government is paying the tab, it can dictate what the country's largest news sources publish.
In the latest Daily Crux interview, Elliot Wave theorist and noted "deflationista" Robert Prechter tells readers why he believes our economy is heading for a massive deflation. And he tells readers exactly how to protect their portfolios from deflation.
On the way to lunch today, Porter said he "couldn't believe" what Prechter was saying. He promised to counter Prechter's interview in Friday's Digest. Don't miss it. To read our interview with Robert Prechter, sign up here. It's completely free.
Advanced Income editor Jeff Clark has discovered a way for investors to make nearly $2,000 a month in extra income. He's used this exact strategy to make tens of millions of dollars for his brokerage clients... and a small fortune for himself. But anyone can use this strategy. It's simple. Several of our subscribers are making $5,000 or more in a single day. Jeff's income strategy isn't for everyone, but if you're interested in learning more, and producing $20,000-$50,000 in extra income each year, click here...
New highs: ProShares UltraShort Euro (EUO), Fairfax Financial Series C (FFH.PR.C).
In today's mailbag, one reader underscores the beauty of big-dividend payers and others take a swipe at big government and the voters who love it. Send your messages to feedback@stansberryresearch.com.
"In reference to you recent discussion on including your dividend when calculating you trailing stop loss point on dividend paying stocks (March 5), if you have been in the stock for several years would you include all the dividends you have received, or just 1 year's worth. As you can see, depending on how long you've been in the stock, you might have a stop loss point of $0. In my case, I've been Reality Income (O) for over 15 years." – Paid-up subscriber J. Anderson
Goldsmith comment: If your stop loss hits a point of zero, you've recouped 100% of your initial investment. You can now collect the dividend payments indefinitely with zero capital at risk.
"I've not been a subscriber for very long, but I've come to appreciate the thought you put into your newsletter. You're not always right (who is?) but when you're wrong, you admit it. That's a lot more than I can say about government officials. Of particular outrage to me is the fact that your lawsuit has cost me money (as a taxpayer) when they could have been spending my money going after the real crooks. The SEC has historically been inept; now it would seem that they are abusing power in a criminal way. You have my support and I will remain a subscriber – if for no other reason that to see you vindicated in court." – Paid-up subscriber John Butler
"I subscribe to several of your services, and faithfully read the S&A Digest. I would like to explain something to your readers who appear disgruntled. The value of your services to me is the trading/investing ideas contained therein. If I buy into your analysis and rationale for the recommendation, I put on the trade, otherwise I don't. Perhaps some of the upset folk who write to you are the very sheeple you caution against; they want to blindly follow recommendations without any analysis or independent thought. They also clearly do not understand how markets work.
"Regarding the misdirected anger at persons who are successful – since when did we become a nation of bitter, envious, mean-spirited people? We used to embrace success, admire those that achieved it, and strived for it ourselves. It was our successes that allowed us to open our hearts and minds and wallets to our neighbors, both domestically and abroad. We grew stronger on our can-do attitude. Now an increasingly large percentage of our population wants a free pass at everything, through their entire lives. And those that strive and labor have to shoulder an increasingly larger burden to support them. Sadly, this is becoming a global epidemic, one nobody talks about." – Paid-up subscriber CB
Regards,
Sean Goldsmith
Baltimore, Maryland
June 7, 2010