Buffett's latest lessons...

Can anything make the market fall?...

People argue the Fed will continue to push the market higher by continuing to purchase $85 billion a month in bonds. Others argue tapering those purchases will push the market higher.

In today's Digest Premium, Chris Mayer offers his opinion... and discusses what people's faith in the Fed means for the market.

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

Buffett's latest lessons... Our advantage over Buffett... This 'permabear' sees 20% market upside... Is a strong economy good for stocks?... One of our favorite business models...

 Last month, Berkshire Hathaway founder Warren Buffett met with 20 MBA students from eight different universities to answer questions.

Dr. David Kass, professor at the University of Maryland's Robert H. Smith School of Business, posted his notes from the meeting on his blog.

 Buffett is the greatest investor of all time. He has grown Berkshire Hathaway into a $290 billion behemoth that controls everything from railroads to insurance. From 1965 to 2012, Buffett grew Berkshire's book value – his favorite measure of value – by nearly 20% annually.

His annual letters are required reading for every investor. They're available for free on the Berkshire website.

So anytime he shares market wisdom, you should listen...

 One student asked about Buffett converting his Goldman Sachs warrants (which he picked up as part of a financing deal in the midst of the 2008-09 financial crisis) into a smaller stake in the company. While answering the question, Buffett painted a picture of the economy at the time... and shared a lesson that's especially true today [emphasis added is our own]...

 To borrow one of Buffett's famous quips, "Be fearful when others are greedy and greedy when others are fearful." Many of the largest private-equity firms are heeding Buffett's advice today...

Private-equity shops Clayton Dubilier & Rice and Kohlberg Kravis Roberts sold U.S. Foods to food-distribution giant Sysco for $3.5 billion.

In the last quarter, Blackstone Group sold stakes in three companies (General Growth Properties, Nielsen, and PBF Energy) and brought another three public. It's also selling real estate, including plans to take Hilton Hotels (which it acquired in 2007) public.

But billionaire private-equity honcho Leon Black of Apollo Group said it best...

"It's almost biblical: There is a time to reap and there's a time to sow," Black said at a conference in April. "We think it's a fabulous environment to be selling. We're selling everything that's not nailed down in our portfolio."

 These giant institutional investors clearly want cash at hand in case of a correction. For now, we recommend you stay the course and mind your trailing stops. But understand that this market is only being driven higher by the Federal Reserve's easy-money policy.

 And take solace in knowing that one of the market's greatest "permabears" thinks the S&P 500 could rise another 20% from here.

In an interview with media website King World News, Marc Faber, editor of the Gloom Boom & Doom Report, said he thinks stocks have more upside left today. But Faber says it's too risky to buy U.S. stocks at today's levels...

 The economy is improving today. Most of the recent economic data – from employment to construction numbers – is heading higher.

Most financial pundits think a strengthening economy is good for the stock market... Companies will earn more and that will be reflected in their stock prices. But in today's DailyWealth, Steve Sjuggerud shows that's not the case...

 A strengthening economy also means higher interest rates. And higher interest rates compress the market's price-to-earnings ratio.

Porter briefly summed up the relationship between interest rates and stocks in the August 2 Digest Premium...

Porter says that if earnings fall and the market places less value on them, it will hurt stocks.

 For a complete rundown on how interest rates affect stock prices, be sure to read the August 15 Digest.

 We've often said the royalty business model is one of the best in the world. You may remember us talking about this model when highlighting precious-metals royalty companies like Royal Gold...

Companies like Royal Gold have significant advantages over gold and silver producers.

Unlike conventional gold miners, royalty firms don't mine any gold or silver of their own. Instead, they finance lots of early-stage mining projects, then earn royalties on mine production if things work out. It's a safer, more diversified way to invest in the gold-mining business than owning a company focused on one big strike.

 But the royalty model exists beyond the mining sector... There are royalty companies in the pharmaceutical and technology sectors, to name a few.

For example, Frank Curzio recommended shares of Ligand Pharmaceuticals to his Phase 1 Investor subscribers in May.

Ligand works the same way as Royal Gold, but with drugs rather than gold mines... Instead of putting all of its time and resources into bringing one drug to market, it has invested in a portfolio of 85 near-term royalty-generating drugs.

Phase 1 readers are up 107% on the recommendation.

 New 52-week highs (as of 12/9/13): American Financial Group (AFG), Fluidigm (FLDM), Genel Energy (GENL.L), Kohlberg Kravis Roberts (KKR), ProShares Ultra Technology Fund (ROM), ProShares Ultra S&P 500 Fund (SSO), Sysco (SYY), Union Pacific (UNP), and ExxonMobil (XOM).

 Slow day in the mailbag... Do we need to start discussing Social Security again? Maybe George Soros? What will get you riled up? Let us know at feedback@stansberryresearch.com.

 "Ahhh, Detroit... At least my cousin has a good job there – he's the tailgunner on a Budweiser truck." – Paid-up subscriber Karl Bauknight

Regards,

Sean Goldsmith
Miami Beach, Florida
December 10, 2013

Can anything make the market fall?...

Editor's note: We continue today's Digest Premium with another excerpt from Frank Curzio's S&A Investor Radio interview with Capital & Crisis editor Chris Mayer. Yesterday, Chris explained why most stocks actually lose money. Today, he looks at the key factors driving the market to all-time highs...

 The biggest story in the market today is when the Federal Reserve will taper its $85 billion in monthly bond purchases. Some people believe no tapering is bullish for the stock market. Others argue a taper would be good for the market, because it means the economy is improving. In short, whatever happens, people are bullish.

It's funny. A lot of the commentary is like that. It can't be bad for stocks, whatever it is. Either it continues to do the bond-buying program and that pushes up the market... or the Fed doesn't do it and that's good because it would only pull it back if the economy was much stronger.

 The tapering story is really the story for this bull market that we've had. You can plot out the Federal Reserve's balance sheet against the market, and you can see that as the Fed has grown larger, as it continues to buy assets, the market has followed right along.

 And there are different times when [the first round of quantitative easing] ended and the market took a pretty good correction. Heck, earlier this year in May, they were just going to talk about not doing the taper and we suddenly had the markets get all riled up and real estate investment trusts and stocks that are sensitive to interest rates fell.

So it's important, but there's nothing you can really do about it. It's hard to predict what the outcome is. There are a lot of distortions in this market because of what the Fed has done. But to predict when and how that plays out is really difficult.

 And now we have Janet Yellen replacing Ben Bernanke as the head of the Federal Reserve. A major part of this bull market is our faith in central bankers has reached epic proportions. People just assume that they're going to somehow make the call.

Yellen to me was the safe choice. She's the establishment figure. She has been in the Fed [and] academia her whole life. She is going to pull from the same playbook as Bernanke. If anything, she'll be more prone to doing quantitative easing than Bernanke.

And the other interesting thing about Yellen – and there are a lot of interesting quotes from her – she clearly didn't see the 2008 crisis, and she admits as much. So that's pretty telling. I mean, here we have the biggest financial crisis in the U.S. since the Great Depression and she didn't see it. And she's out there now saying that there's no bubble and trying to calm the market. So I think she'll just step right in line with the people like [former Fed chairman Alan] Greenspan who also didn't see bubbles forming.

– Chris Mayer

Editor's Note: Every month in his Capital & Crisis newsletter, Chris offers unusual investment ideas you won't find anywhere else. To learn more about a subscription, click here.

Can anything make the market fall?...

People argue the Fed will continue to push the market higher by continuing to purchase $85 billion a month in bonds. Others argue tapering those purchases will push the market higher.

In today's Digest Premium, Chris Mayer offers his opinion... and discusses what people's faith in the Fed means for the market.

To continue reading, scroll down or click here.

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