Don't panic... Jeff Clark nails it... Falcone crushed again... Natural gas hits a 10-year low... Lottery and food stamps... Lots of folks buying houses...
The S&P 500 and Dow Jones both fell more than 1.5% yesterday... Don't panic. It was a healthy correction. And it was the first 1% down day this year. (It's the longest the S&P has gone without a one-day drop of at least 1% since 1995.)
Before yesterday, the S&P 500 was up 8.5% for the year. The Dow was up more than 6%. And volatility had been nonexistent... Even in the midst of yesterday's drop, the Volatility Index (the market's fear gauge) closed at 20.84 – below its year-to-date high of 22.97.
Yesterday morning, Jeff Clark sent his S&A Short Report subscribers an important update... He was ready for the decline...
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If the stock market is finally going to decline, now is as good a time as any for it to get started. |
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The Dow Jones Transportation Average peaked in early February and ended the month down 4%. Banking stocks may have peaked last week. And the following chart of the S&P 500 shows it's on the verge of breaking down from a rising-wedge pattern... |
On February 7, Jeff recommended put options on what he called "the most vulnerable sector in the market," the transportation sector. After yesterday's rout, his put options on the iShares Transportation Index Fund (IYT) were up 80%.
Hedge-fund manager Phil Falcone, who may be in the process of losing his "billionaire" status, took another punch to the face today... On February 16, we told you about Falcone's mounting problems with his $3 billion investment in wireless company LightSquared. Last year, he wrote down that position to $1.5 billion. Then on February 14, the FCC banned LightSquared from operating because its signals interfere with GPS devices. (Analysts expected this government interference would cause Falcone to write down his position by another $1 billion to $500 million.) But following the announcement, Falcone said he planned to sell LightSquared's broadband spectrum.
And today, news came out saying Sprint Nextel plans to end a network-sharing agreement with LightSquared... Last June, Sprint and LightSquared struck an 11-year deal to share expansion costs. As part of the deal, Sprint would build and operate LightSquared's network for 11 years in return for $9 billion in payments and another $4.5 billion in service credits. Two insiders familiar with the matter told the Bloomberg financial news service that if Sprint doesn't meet certain conditions by March 15, the deal is off.
The mild winter (it's sunny and 61 degrees in Baltimore today) has been beautiful… But it's wreaking havoc on the natural gas market... Last week, the government said supplies were 45% higher than average for this time of year. Today, natural gas prices fell 2% to $2.31 per 1,000 cubic feet – the lowest price since February 25, 2002. The government will update its supply numbers tomorrow.
Commodities guru Stephen Schork told the Associated Press that natural gas could drop even more... "There's just too much out there," Schork said. "And there won't be enough demand out there to solve the supply issue this summer."
While natural gas is at 10-year lows, oil is trading for more than $106 a barrel. Take a look at the chart below… It's the 20-year ratio between the prices of West Texas Intermediate crude and natural gas. For years, this ratio stayed in the six-to-10 range. A spike to the low "teens" meant natural gas was really cheap...
Recently, the ratio spiked past 45. Natural gas has never been this cheap compared with oil… not by a mile.
Small Stock Specialist editor Frank Curzio has been covering this natural gas megatrend. The boom in supplies and historic low prices are encouraging industries of all types to opt for natural gas as their preferred fuel source. For example, long-haul trucking operations are in the process of converting their fleets from diesel to natural gas. Frank has prepared a special report outlining exactly which companies will profit from a huge boom in natural gas. To learn more about a subscription to Small Stock Specialist – and how to access his special report – click here...
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New 52-week highs (as of 3/6/12): None.
Sjuggerud can rest easy... Based on the huge mailbag response, lots of you are buying houses. Thanks for the feedback. Keep it coming... feedback@stansberryresearch.com.
"Sure hope you can get some relief with your back. Once the damage is there, it seems hard to repair. I look forward to your Friday Digests (and the daily S&A Digests). I am a financial advisor that has been in the business since 1986. Started off doing mostly life insurance, then mutual funds and now work as an [registered investment advisor] on a fee basis for my clients. Most of my client's don't want to manage their own investments, they are just looking for someone that can deliver a reasonable return and not rip them off.
"I find most investors just want to make a fast buck, but don't realize how hard it is to trade/invest in stocks. They aren't willing to get educated or do the homework, so their emotions cause them to buy high and sell low. I feel I can add value if I can keep client's from making stupid mistakes like that. If I can keep them in the mutual funds to earn the 9%, rather than trading and ending up with 3%.
"A couple of years ago, a client suggested I watch your End of America video. Agreed with what you had to say in it. I also watch Jim Cramer's Mad Money every night. He also educates me and makes me laugh. Given that I did not get trained by a wire house firm on Wall Street, I like the insight you and Jim give on what is going on in the markets. Thanks for the education and trying to keep your client's from making stupid mistakes. Love to meet you face to face if you are ever in San Diego." – Paid-up subscriber James H.
"Rental property AKA the greatest investment I have ever made. I starting actively investing in securities right out of college 7 years ago. I have been very fortunate to follow your advice and my own research to earn more than 10% a year since I started investing. Although the true corner of my wealth building had been in real estate.
"A little over 2 years ago I bought my first home and for a great deal at 30% market value in Roanoke, VA where I live. Roanoke has been a bit sheltered from the big swings of the national market. Well, after my wife and I purchased our personal residence we started looking for a rental property. I ended up partnering with a friend and peer of mine to create a company focused on investing in rental property. We put $20k in the bank and acquired our first property in an owner financing deal on a quadraplex that is a cash cow! We then used our personal HELOC's to purchase properties in parts of town where WE WOULD LIVE and once purchased rehabbed and rented we could finance our cash out pay off our Heloc and go onto the next deal.
"We both have full time jobs in the banking industry and our company is a money printing machine that operates smoothly and other then rehabbing properties requires very little attention. In two years we have acquired 6 properties and 10 units. We buy property for anywhere from 30 to 65 cents on the dollar. All our deals need two times DSC for us to look at. I live and breathe real estate it is a true passion. My wife and I just bought a new personal residence that appraised for 205k after renovations and we paid 90k and are putting ~40k into it. This means that when we sell our current home and make ~30k we will be left with a wonderful home on a tree lined street in the heart of Roanoke with only 100k debt!
"I love investing in the market and will continue to do so. I am heavily focused in strong dividend payers that will make me money year after year but real estate is a wonderful thing to diversify with that I can put my hands on and show my children one day. I know you asked for advice on being a landlord and this email is far from that but I would love to answer any questions you have or things you are curious about. I love real estate and love talking about it especially when it is going to get other people involved." – Paid-up subscriber Bobby Mountcastle
"Just in response to your request for feedback from those that have bought houses. We've recently purchased a lovely 4-bed house in the middle of town, in a ski resort in France. Loan was at 3.05% variable, and capped at 5% over 30 years (330k euro), and will be completely covered by 8-10 weeks rent each year during the ski season. This means the place is free for us to enjoy the rest of the year. We decided to diversify to a new currency, as being based in the UK we're getting a little tired of seeing sterling's decline. This way, when sterling is strong, we can overpay the mortgage in £. And when € is strong, it means the value of the equity in the house is larger. [We predicted the euro to fall apart, so we could pay the loan back with pocket change, not happened yet, but hey... ]
"My thought on property at the moment is that it's more important than ever to choose the location carefully. Here in London, there are permanently strong areas (such as Mayfair, being propped by the Chinese and Russians), and only a mile or two away, regions of huge speculation (eg. Near the Olympics site) where the prices have been pushed to unaffordable levels. (Even at 2-3%, rent will not cover a repayment mortgage.) So, although I agree with Steve Sjuggerud's advice wholeheartedly, it's prudent for people to spend a decent amount of time researching the area before they dive in.?" – Paid-up subscriber Matt
"My wife and I have bought two foreclosed houses in December for $38k both in great shape. Did some fixing up and both are rented out in less than 2 weeks with rental income of $1775/ month starting March 1st. We have a contact on house No. 3 with my self-directed IRA dollars buying the foreclosure for $39.5k. All three properties on the south side of Atlanta sold in the last 12 months over $120k each Great time to buy below bargain price housing. Great advice." – Paid-up subscriber Mark S.
Regards,
Sean Goldsmith
Baltimore, Maryland
March 7, 2012