Another Mind-Boggling Record Has Fallen
Another mind-boggling record has fallen... The massive risk in government bonds today... Forget rate hikes, a rate cut is now more likely... What we mean by 'high conviction' ideas... A potential cure for one of the world's most devastating diseases... Your next 100% winner?...
Editor's note: Be sure to read to the end of today's Digest for a brand-new essay from best-selling author and Stansberry Research contributing editor P.J. O'Rourke.
This morning, Japanese government bonds ("JGB") became the first sovereign debt in history to offer yields of less than 0.1% across all maturities.
That's right... Even the "longest" Japanese debt – the 40-year JGB – is now yielding just 0.065%. The country's benchmark debt – the 10-year JGB – dropped to a new record of negative 0.23%.
As regular Digest readers know, these record-low yields are a result of central-bank manipulation.
In short, Japan's central bank – the Bank of Japan ("BOJ") – has pushed short-term interest rates deep into negative territory. This has caused money to flee into bonds with longer and longer maturities in search of higher yields.
But remember, bond prices and yields move inversely. So the increased demand for longer-term debt pushes up prices of those bonds, and pushes down yields.
At the same time, the BOJ's quantitative easing program is buying record amounts of these bonds every month. This has dramatically reduced the available supply, and amplified the moves in yields.
We don't know why anyone would willingly lend money to the Japanese (or any other) government for 40 years at just 0.065%. That represents a total return of less than 3%.
Sure, that's better than paying the government to hold your money, like investors in shorter-duration debt with negative yields. And certainly, few of these folks actually intend to hold these bonds for 40 years. They probably figure they can just sell them when or if interest rates start to rise, and collect a little yield in the meantime.
This argument makes some sense, at least, in theory. But we suspect many of these folks don't realize just how much more risk they're actually taking.
As we've discussed, this is because of something called "duration," a measure of a bond's interest-rate risk. Bonds with longer maturities generally have higher durations. This means they're more sensitive to changes in interest rates.
Just how sensitive? Consider this: If the yield on the 40-year JGB rose just by 0.1 percentage point – which could happen in a single day – prices would fall by 4%. This would more than wipe out the total expected return if held to maturity. But it only gets worse from there...
If rates rose by one percentage point – which could reasonably happen over just a few weeks or months – the price of the 40-year JGB would plunge 32%. An increase of two percentage points would result in a 54% decline. And an increase of three percentage points would wipe out 69% of the bond's value.
This would still place 40-year yields at just more than 3%... a yield many would agree is still far below an adequate rate of return.
So much for "risk free" government securities.
Of course, it's not just the BOJ that's following this perverted playbook. A similar situation is playing out across Europe thanks to the European Central Bank ("ECB") and others. And we believe it's only a matter of time before it happens in the U.S., too.
In fact, for months now, we've predicted that the Federal Reserve was more likely to cut interest rates than raise them again this year.
As recently as last week, this opinion would've been ridiculed by most in the financial media. But suddenly, it's not only possible, it's now considered likely. As business magazine Fortune reported last night...
The probability of a federal funds rate hike at the Fed's next three monthly meetings has collapsed to 0%, and traders are assigning a less than 8% chance of a rate increase at all this year.
Earlier in June, Fed policymakers had indicated that they expected to raise rates twice this year, following their last increase in late 2015. But investors worry that Britain's decision creates too much economic uncertainty and market turmoil to keep the Fed's plans on track.
Meanwhile, the likelihood of the Fed actually slashing interest rates further is soaring. The probability of an interest rate cut, which stood at 0% before the Brexit vote, has now eclipsed the odds of a rate increase this year. Traders are assigning a 10% probability to the Fed cutting interest rates at its July meeting, and a more than 20% chance of a rate cut at subsequent meetings later this year and in early 2017.
We expect to see these odds move even higher from here. But remember... because the Fed kept rates so low for so long, it doesn't have much room to cut today. A single 0.25% rate cut would push rates back to near zero.
In other words, despite Fed Chair Janet Yellen's recent comments that the Fed is not considering negative interest rates, don't be surprised if they're suddenly back on the table soon.
By now, every Digest reader should know our recommendations by heart. They aren't complicated...
Raise plenty of cash by selling risky or expensive positions... maintain long positions in great businesses like capital-efficient stocks and "World Dominators"... "hedge" your portfolio with a few short sales, physical gold and silver, and select precious metals stocks... and reserve new money for "high conviction" opportunities.
The latter includes things like high-quality stocks or "trophy" assets trading at fire-sale prices, and distressed bonds trading at big discounts.
But it can also include speculations... the kind of calculated, high-risk but even higher-reward bets that can return hundreds of percent virtually overnight... no matter what's happening in the broad market.
Today, we'd like to point out one such opportunity. In fact, it may be the single best speculation we've ever seen.
But first, a warning... This opportunity is NOT for everyone.
Novice investors and those who can't afford to take big risks have no business speculating. You can do well sticking to the strategies above.
But for advanced investors with larger portfolios and higher risk tolerance, there is no faster way to make a potential fortune in the stock market than through appropriate speculation.
Longtime readers won't be surprised to hear today's opportunity comes from our colleague Dave Lashmet. Dave is a senior analyst for Porter's research team... and the editor of Stansberry Venture, our most elite (and most expensive) research service.
He's also one of the smartest investors we've ever met... with one of the most impressive track records in the business. Last year alone, Dave recommended four separate companies just weeks or months before they soared 100% or more.
And that was out of just 11 total recommendations in 2015. In other words, 36% of Dave's Stansberry Venture recommendations doubled last year.
Dave tells us he recently found one of the most promising speculations of his career. Stansberry Venture subscribers have been able to close out gains of 105%, 130%, and 140% within a few months of similar opportunities.
But Dave says this one could be even better... He believes investors could double their money within a few weeks – or even days.
In short, Dave says a company you've never heard of could soon end Alzheimer's disease... and make its investors a fortune in the process.
If you're not familiar, Alzheimer's disease is a terrible form of dementia afflicting 5 million Americans today. The disease usually begins in the brain's memory center before spreading to the areas that control judgment and motor skills.
Worse, it's a degenerative disease. The damage grows over time... steals a loved one's mind, personality, and memory... and turns family members into strangers.
Unfortunately, there is currently no cure for this devastating disease.
No drug or treatment has been able to slow down its advance. There are a few drugs that help some patients with some of the symptoms... but they can't cure, prevent, or reverse the disease. As the nonprofit Alzheimer's Association told AARP, the lobbying group for older Americans: "There's never been a patient who recovered from Alzheimer's." And it's only becoming more common...
Two years ago, the New Republic magazine declared: "We are entering the age of Alzheimer's... You and everyone you know will be touched by the disease."
The likelihood of developing Alzheimer's more or less doubles every five years past 65. Should you make it to 85, you will have, roughly, a 50/50 shot at retaining your memory.
But Dave says there is now hope...
Governments around the world are pouring hundreds of millions of dollars annually into Alzheimer's research. And a number of drug companies are fighting to be the first to a breakthrough treatment.
Right now, Americans spend more than $200 billion every year on direct and indirect costs of Alzheimer's and dementia care, according to the Alzheimer's Association.
It is probably the largest underserved market in medicine. And without a cure, millions of older Americans will be diagnosed with Alzheimer's in the next decade.
So the first drug company to bring a successful cure to market will reap billions in revenue at high margins...
Days ago, a new approach to a potential Alzheimer's cure – a specialized form of immunotherapy – was classified as a medical breakthrough by Europe's drug regulators. Dave believes this treatment could soon be "fast tracked" for FDA approval... and headed straight to market earlier than almost anyone believed possible. And he has uncovered the one company that should benefit most if this new form of treatment for Alzheimer's disease is approved.
He says it's the most promising way he knows of to potentially double your money in just a few weeks.
Next month, he'll fly to Toronto to witness what could be one of the biggest announcements in medical history...
He'll be there covering the Alzheimer's Association International Conference firsthand, and will be one of the first analysts in the world to hear whether regulators have agreed to let this drug's clinical trials end ahead of schedule.
He plans to make this story the focus of his next issue of Stansberry Venture.
But you should not wait until the regularly published issue. The stock may skyrocket as soon as Wall Street gets wind of the news. Instead, if you're interested in profiting from the drug that could cure Alzheimer's disease, you must buy this company now – before the news breaks.
There's just one catch... This opportunity does not trade on the New York Stock Exchange or the Nasdaq. Most folks have probably never even heard of this company.
So to make sure that you're aware of the special circumstances surrounding this trade... there is no link for you to click today to learn more.
Instead, the only way to take advantage of this opportunity right now is to call our member-services team today at (888) 863-9356.
These are bright, college-educated individuals based in our Baltimore headquarters. They'll tell you about the special offer we've set up for you, so you'll know exactly how to take advantage of the urgent opportunity surrounding this Alzheimer's drug.
To be clear, there's no obligation if you call... If you're not interested in the opportunity, you can simply hang up and return to your day.
But if you're interested in investing in a potential cure for one of the world's most devastating diseases... and the opportunity to make up to 100% or more in a matter of weeks... we urge you to give us a quick call.
Again, the number is (888) 863-9356. Please note: This opportunity won't last long. If you're interested, please call today.
New 52-week highs (as of 6/27/16): Central Fund of Canada (CEF), short position in Capital One Financial (COF), Deutsche Bank Gold Double Long Fund (DGP), Franco-Nevada (FNV), short position in Fossil (FOSL), VanEck Vectors Junior Gold Miners Fund (GDXJ), SPDR Gold Shares Trust (GLD), Invesco Value Municipal Income Trust (IIM), Kaminak Gold (KAM.V), Altria (MO), Newmont Mining (NEM), OceanaGold (OGC.TO), Pretium Resources (PVG), SEMAFO (SMF.TO), AT&T (T), Vanguard Inflation-Protected Securities Fund (VIPSX), and PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund (ZROZ).
The mailbag is overflowing today... One subscriber sends a question about gold stocks, and several others tell us how their portfolios are holding up after the recent "Brexit" volatility. We'd love to hear from you. Let us know how you're doing at feedback@stansberryresearch.com.
"Hello, is it still possible to buy gold stocks? Thanks." – Paid-up subscriber N.A.
Brill comment: Absolutely. As regular readers know, several Stansberry Research analysts think a new bull market in gold is just getting started. There will be corrections and pullbacks along the way, but we believe there is virtually no way gold and silver won't trade much, much higher over the next several years. And the best precious metals stocks could soar 10, 20, or even 50 times more.
You can get instant access to our best gold and silver research service – Stansberry Gold Investor – right here.
If you're not in a position to take advantage of our top-of-the-line service, but are still interested in hedge-fund-quality precious metals research, consider a subscription to Stansberry Resource Report. You can get all the details by clicking here.
"I am happy to say that I took your advice and bought gold mining stocks a month ago. I also own several muni funds. So I am weathering the storm well." – Paid-up subscriber BFM
"I love the volatility, can't wait to get up every morning at 5am to see what the gold market is doing, been making a lot of money every day lately. I've been waiting for something like this to happen for 3 years now, glad I stayed the course." – Paid-up subscriber George M.
"Following advice of Jeff, Steve, and Ben my portfolio gained about 3.5% on Friday. Thanks for all you do!!!" – Paid-up subscriber Mark Henry, MD
"Thought Mr. Westenson would like to know that I am a small time investor, but follower of the Stansberry Family recommendations, I moved 40% of my investments into Gold bullion a year ago and since that time, 12 months if one is counting, I have now made up the 40% value of the sale plus an additional 10% into my stock account and I still have the gold coins too! Gotta love it! Rock on Porter and team!" – Anonymous
"It would be entirely ungracious of me not to let you know how thankful I am for the education I have received as a subscriber. My own sense was that the British voters would indeed vote to leave, but I felt I was amply prepared for either outcome.
"As a final touch to the portfolio, I purchased additional gold and silver when the gold price dropped just prior to the [vote]. The subsequent runup in gold prices made that move appear prescient and brilliant but it was actually the result of a decision to take advantage of the drop in price to bring my allocation of physical gold up to the recommended level. Since I don't intend to sell the gold but rather use it as a chaos hedge, I would have been quite happy had the price remained the same or even dropped a little, but I am also not complaining about the enhancement of my balance sheet.
"I did not get into the gold stocks right away, but I was able to build out my portfolio over the month of May and I am now up about 14% across all of the gold stocks while the gold itself is up about $100 per ounce from my cost basis. That alone would have been enough to insulate me from the market downdraft of the past few days, but I also have about 20% in short equities and about 20% in the recommended bonds, so on a pair of days in which the Dow is off by nearly a thousand points, my Stansberry portfolio is within a few tenths of a percent of its high.
"Before becoming a Stansberry subscriber, I was familiar with all of the tools but what I had not done effectively was to create an overall plan. I was adept at using options, had a good understanding of both technical and fundamental analysis, and had done reasonably well through several business cycles. But I didn't have a unifying plan. That was the missing piece. Now I have an overall plan in which each strategy and tool has a place. I did add a TradeStops subscription to bring more science to my risk management, but otherwise I am using the same tools and the same brokerages but with vastly better results because my decisions are guided by the overall strategy and the bedrock principles of position sizing, recognition of risk, and diversification.
"In addition to the overall strategy, I think I have also learned to constantly evaluate for risk. I recently had a huge gain in a position that resulted in too much risk to continue to carry at that size; in the past, I would likely have been too ecstatic about the gain to notice the risk." – Paid-up subscriber Paul W.
Regards,
Justin Brill
Baltimore, Maryland
June 28, 2016
Looking Forward to the Stansberry Conference in Las Vegas
I want to see you Digest readers – every single one of you – at the Stansberry Conference from September 19-20 in Las Vegas.
If you weren't planning on coming, damn it, change your plans. It's an ideal way to begin the fall. You'll be getting back to work and having fun at what I think of as a "vacation with brains."
The timing is perfect. You've closed the lake cottage and gotten rid of the freeloading relatives and guests. The kids are back in school. The bass-fishing tournaments are over and deer season hasn't begun. Your hometown baseball team is probably out of the running, and the NFL is still at that point when it looks like every team will be in the Super Bowl.
Plus, attending the conference will give you all the analysis and insights you'll need for the inevitable election year "October Surprise" that will send markets into some kind of tizzy.
Last year was my first Stansberry Conference event. I was expecting good, but what I got was even better...
Comic magician Penn Jillette of Penn & Teller fame performed an amazing trick: He made political stupidity disappear!
Penn gave a hilarious talk about his libertarian politics. He said sure, we're a democracy, a government of the people. But that doesn't mean everything the government does is OK. Democracy means you're responsible for everything the government does. The government is you.
But one difference between you-the-individual and the collective you-the-government is that you-the-government can use force to make other people do what you want. You have a gun and no one can stop you from using it.
So whenever you want government to do anything, you have to ask yourself, "Will I use my gun?"
Will I use my gun to keep a woman from being raped? Yes.
Will I use my gun to keep a man from being murdered? Yes.
Will I use my gun to protect private property? Yes to that, too.
Will I use my gun to make grade-school children eat a healthy lunch with low salt, sugar, and fat content, and fresh green vegetables? How would you feel about somebody who came into your kid's school and did that?
By the time Penn was done, even Hillary Clinton would have understood libertarianism... if she had been there... which, for the sake of the friendly and festive atmosphere, I'm glad to say she wasn't.
But former congressman Dr. Ron Paul was, and I got to meet him. Here's a person I've occasionally disagreed with but invariably admired. It turns out he's not only a Great Man, he's a good guy.
The greatest thing about Dr. Paul is he reminds us that loving freedom isn't mere selfishness. We love freedom because a free market is the only place where honest people can make a good living. But we're not just financial creatures – we're moral creatures, too. We love freedom because a free society is the only place where honest people can make a good life.
Memory expert Joshua Foer gave a fabulous presentation about... um... I forget.
Just kidding. He had all sorts of memorable techniques to improve memory.
This is why I can – despite a good deal of evening fun with Stansberry subscribers and Alliance members – remember what Mick Ebeling had to say. He's the CEO of Not Impossible Labs ("NIPL"), a company devoted to practical solutions for "impossible" problems.
How can a person who's totally paralyzed communicate fluently? By writing on a computer with his or her eye movements, thanks to NIPL's Eyewriter.
How can we help the war-victim amputee children in remote parts of Africa, miles from any sophisticated medical facilities? Through NIPL's "Project Daniel," an effort to use 3D printers to create inexpensive, custom-fitted prosthetic limbs for patients half a world away.
Ebeling explained how few things are really "impossible" once you start breaking down the one "big impossibility" into all its "little possibles."
Even something as basic as weaving cloth was "impossible" for our ancient ancestors wearing itchy, smelly animal hides. But animals have hair, so fibers were possible. Twirling fibers together into threads was possible. Making one thread go over another thread and under the next thread and over the thread after that – that was possible. And the next thing you know, we had clothes.
Ebeling's talk was professionally inspiring as well as personally uplifting. Keep a lookout for companies that are working on "little possibles" – like connecting two computers – that might lead to "big impossibilities" – such as creating a World Wide Web. Those are good investments.
Scott Fearon and Carlo Cannell are hedge-fund managers who specialize in short-selling. They explained how they're able to consistently spot "doomed" companies. I don't have space here to do justice to their expertise, but it comes down to three words: frauds, fads, and failures.
They were talking to the right guy. I don't go in much for frauds or fads, but I did once have a stepfather who was the general manager of an Edsel dealership. We ate a lot of Hamburger Helper for dinner that year. (Or would have, if Hamburger Helper had been invented in 1958. And by the way, Hamburger Helper is a good example of a "small possible" leading to a "big impossibility," such as making me capable of cooking things the kids will eat.)
Fearon and Cannell were also great on the dangers of buying "story" stocks.
My stepfather came away from the Edsel dealership with some hard-won wisdom on that subject...
When a car salesman tells you a car's price and options, he is probably being more or less truthful. But when a car salesman starts telling you a car's "story" – how Edsel was Henry Ford's favorite son and it's an all-new design, not just a Mercury with a toilet-seat grille – walk out the door.
Fearon and Cannell will be back this year with more stories that are even worse than that.
Then there was the epic "Prediction Friction" duel of investment forecasts between Digest namesake and pessimist Porter Stansberry and his unspellable buddy, the optimistic editor of True Wealth and True Wealth Systems, Steve Sjuggerud.
"Sunny-side up" Steve told us we would find lots of profitable opportunities in the coming year – especially in residential real estate and solid stock picks.
"Over hard" Porter told us trouble was coming in subprime loans and emerging-market bond debt. Central banks can't keep rolling out money like Charmin rolls out bumwad.
Turns out, they were both right. And everybody who listened to Porter and Steve learned something useful from each. At a Stansberry Conference, you don't hear, "The glass is half-empty." And you don't hear, "The glass is half-full." What you hear is, "Order another round."
You can do that by coming to this year's conference. This year's lineup features...
Political slugger Dr. Ron Paul. He'll be back, and I can't wait to see him knock Hillary and Donald out of the park.
Steve Eisman is coming. He's the real-life "Mark Baum" played by Steve Carell in The Big Short. When everybody was looking at the "prime" in subprime mortgages, Eisman saw the "sub" that was about to torpedo them.
Todd Buchholz was the White House director of economic policy for Bush 41. In those days, the White House had an economic policy. Todd knows everything about economics. And he can explain it.
I was a former English major who couldn't count to 11 without taking a sock off until I read Todd's book New Ideas From Dead Economists. It's an evening or two of fun and funny reading that will earn you a PhD in the history of economics while you sit in your favorite easy chair.
Andrew Left is the genius short-seller who the Wall Street Journal called "The 'Short' Who Sank Valeant Stock." Bless the short-sellers. The real secret to capitalism is failure – getting rid of bad ideas about how to use money, time, and effort. When the government has a bad idea about how to use money, time, and effort, it lasts forever. The free market disposes of bad ideas. And we couldn't "take out the trash" if we didn't have short-sellers.
Turney Duff is the author of the acclaimed book The Buy Side, a memoir of the high life and the low life on Wall Street. Bless the buyers. The other real secret of capitalism is nurturing good ideas about how to use money, time, and effort. Somebody has to buy those good ideas.
Alec Ross was the secretary of state's senior advisor for innovation. He traveled to 41 countries looking for just what his title said he was looking for. Want to find out which edge will be the cutting one in robotics, genomics, big data, digital money, or cybersecurity? Ross knows.
Brad Krevoy co-founded the Motion Picture Corporation of America (MPCA). If capitalism has a third real secret, it's finding maximum young talent and putting it to work with modest budgets. The MPCA did just that with Jim Carrey and the Farrelly brothers in the box-office hit Dumb and Dumber.
Speaking of which, I'll be talking about the presidential election and giving you a preview of my next book. I intend to finish the book on the night of Tuesday, November 11. Of course, I don't know the ending yet. But I do know the title: How the Hell Did This Happen?
But this is not all Stansberry has in store at the futuristic ARIA Resort and Casino. (The brochure tells me every room is a "smart room." I could use one. In fact, it sounds like something I might tell my children – or my wife might tell me – "Go sit in the Smart Room.")
Anyway, as I was saying, we'll also be getting inspiration and excitement from people like Mike Ritland, founder of the Warrior Dog Foundation. Mike is a former Navy SEAL and a disabled combat veteran who went on to an amazing career breeding, raising, and training dogs for police, military, and private protection. (Gosh, I wish America's two major political parties had gone to see what Mike had in his kennels before they picked their presidential nominees.)
And...
Robert Edsel, author of the book The Monuments Men chronicling the recovery of artwork stolen by the Nazis during World War II. We'll get the story behind the movie of the same name, directed by and starring George Clooney, without having to listen to any of Looney Clooney's political opinions.
Chris Davenport, two-time world champion extreme skier who is also a renowned risk-management expert. (What better preparation for risk management could there be than extreme skiing?)
Hugh Herr, head of MIT's Biomechatronics research group. Herr, a double amputee himself, is the world's leading expert on combining human physiology with electromechanics to give real-life "bionic man" mobility to people with physical disabilities.
Craig Ballantyne, editor of the Early to Rise newsletter. He's a strength-and-conditioning coach who doesn't just want to strengthen your body – he wants to strengthen your attitude, your happiness, and your portfolio. Craig will make you glad to see what condition your condition is in.
And naturally, the conference will feature a full lineup of Stansberry Research editors, including David Lashmet (Stansberry Venture), Jeff Clark (Stansberry Short Report), Dr. David Eifrig, Jr., (Retirement Millionaire), Matt Badiali (Stansberry Resource Report), and Porter Stansberry (Stansberry's Investment Advisory).
But most important, you will be there.
That's the part I'm looking forward to most. I want to put a face and a name to Stansberry Digest's readers. I want to meet you. If you like what I've been writing for the Digest, you can buy me a drink. (Famous Grouse and soda, please.) Or if you don't like what I've been writing, you can buy a Famous Grouse and soda anyway and toss it in my face. Either way, it should be exciting. Register for the event here.
Regards,
P.J. O'Rourke
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