Cymax, an online vendor of furniture and home décor, sent me an e-mail this morning: "Euro-style BLOWOUT SALE!" They're selling all kinds of European-style furniture for up to 79% off.
Makes me wonder... Have European styles lost their appeal to American buyers? All my life, labeling something "European" was how you told everyone you paid more than they did, and therefore must have more money (or at least a higher credit card balance).
Certainly, European stocks have lost their appeal...
French stocks are about 26% below their 52-week highs, German stocks are down 24%. The Dow Jones Portugal Index is down about 39%, and Italian stocks are down about 36%. Spanish stocks are off about 32%.
Even at current discounted prices, it's hard to get interested in European stocks. Even before the current crisis, Europe always seemed so sclerotic and sickly, due to pervasive horrible attitudes about work and money and enormous bureaucratic waste. For example, a country like France that makes it illegal to work too many hours a week might not be a great place to buy equity in a publicly traded business.
Europe is like a spoiled rich kid. He could grow up and make something of himself, but he's got no incentive to change as long as his trust fund holds out. He won't change until he hits rock bottom. Well... now his trust fund is drying up, and he's in debt up to his eyeballs.
The rich kid's genius plan at the moment for getting his life back on track is to print his own money. That's to be expected. He's lived his whole life as though money had magically appeared and was his to spend freely. Now that the money is gone, instead of facing reality, he's looking for new magic! Trouble is, there are adults in the room, and they don't believe in magic...
German chancellor Angela Merkel thinks there ought to be some limits put on magic money-making. According to Bloomberg, the euro is hitting 11-month lows against the U.S. dollar, after Merkel rejected a proposal to raise limits on the amount of money available for bailouts. She says 500 billion euro ($654 billion) is enough.
It's strange, isn't it? Governments trash their economies by borrowing and printing, and when it all falls apart, everyone turns to them... not to chastise and censure them... but to beg for more and more of the same borrowing and printing.
In his October 2011 Stansberry's Investment Advisory newsletter, Porter recommended shares of video-game giant Activison Blizzard – the result of a merger between gaming companies Vivendi Games and Activision. He argued technology would improve margins of these companies (as their core franchises continued to draw huge numbers of buyers)...
|
As a publisher... I know this is a great business. Technology is making video games into active, online communities where people spend hours of leisure time. These communities are growing. And they are powerful, allowing publishers to increase prices and fees. That's a trend I believe will continue at the same time technology allows richer experiences and lower connectivity costs. |
|
Technology will also allow these publishers to adopt higher-margin distribution models, where players are able to pay the publisher directly, buying the game through subscription, instead of through a retail outlet. These trends are why I'm extremely bullish on the long-term future of the video game business. |
|
Consider this: In the five days following the company's last major game franchise release, it sold $650 million worth of the title. That's not total sales for the year – that's just five days of sales. |
Activision Blizzard was trading at 52-week highs last month. It's pulled back with the market. But the latest installment of its star franchise, Call of Duty: Modern Warfare 3 (MW3), hit $1 billion in sales in 16 days – outpacing blockbuster films like Avatar and Harry Potter. MW3 also outsold the company's two previous Call of Duty games, Black Ops and Modern Warfare 2, which boasted $400 million in first-day sales and $775 million in the first five days, respectively.
Some analysts worry MW3's huge opening will translate into lower future sales. But Bobby Kotick, CEO of Activision Blizzard, told the Financial Times that sales of Black Ops (the previous installment) remain stronger than he expected due to online gaming... as Porter predicted. "Those prior releases are continuing to sell at rates higher than what we've seen previously," Kotick said. "Even though MW3 is selling faster, the thing driving the success of those games is the social experience and online play."
On November 21, the market realized Europe could fail. Markets plunged. And oddly, so did gold (falling almost 3%). One would expect gold to rise as central bank money-printing becomes more certain. We explained then why gold fell: "Europe is in the midst of a financial crisis. It needs money. The continent is struggling to raise funds in credit markets. But it has lots of gold. And it's selling."
While we all know the dollar is worthless paper, it's still the international medium of exchange. And when you need liquidity, you will trade absolutely anything (yes, even gold) for paper.
And that's exactly what Europe is doing. According to the Financial Times, gold dealers said banks (primarily based in France and Italy) have been lending gold for dollars over the past week. In fact, there's such a rush to trade gold for dollars that the one-month leasing rate fell to a low of -0.57% last Tuesday (meaning banks are paying more than half a percent, annualized, to trade their gold for paper).
You wouldn't expect European banks to lend gold considering the swap arrangements made by the world's major central banks. (We thoroughly explained that situation here.) In short, European banks can trade approved collateral for U.S. dollars through a Federal Reserve/European Central Bank agreement.
The fact that despite the swap agreement, banks are trading their gold for more dollars implies: 1) They don't have enough collateral to obtain the credit they need through the central bank, and 2) To get credit in the free market, gold is one of the few things they can offer.
In addition to unloading their gold, European banks are also selling their best, most-profitable businesses to raise capital, which will hinder long-term profitability... The same thing happened during the U.S. financial crisis. For example, Bank of America sold its profitable international credit card business to raise cash.
When a crisis hits, regulators make banks increase reserves (the money held on the books to protect from losses). So banks try to sell their crap loans first (in Europe's case, Italian debt). But the market price for that debt is abysmal. So they turn to their best, most-profitable businesses... the only assets competitors will pay a fair price for.
Bloomberg reports Spain's Banco Santander sold its Colombian unit last week to Chile's Corpbanca for $1.16 billion. Deutsche Bank is considering selling the majority of its asset-management division. These divestitures leave the ailing banks with nothing but garbage on their balance sheets and less earning power. Take a look at this five-year chart of Bank of America. Shares plunged in the midst of the crisis, rebounded, then fell back near their 2009 lows (two years after we're "out of the crisis").
|
New 52-week highs (as of 12/13/11): McDonald's (MCD), Altria (MO).
The new year is almost here... Let us know what you think will happen to the stock market (or any other market you're interested in) next year. Send your e-mail to feedback@stansberryresearch.com.
"My husband began buying large quantities of gold coins at $400/oz. He filled large glass jars and buried them in the back yard. He was diagnosed with Alzheimer's and two years ago we sold that house and could not locate one jar of gold. We asked a kid who was helping us with the final clean out, if he knew where we could get a metal detector. He said he had one. We told him where to look, he quickly located the spot and did the digging. My husband was so relieved, he gave him two coins – maybe $2,000. I was so glad to move – everyone in the neighborhood heard that story.
"We now have a house safe for his collection and a Safe Deposit Box at the local bank for mine. Shortly after we relocated, he insisted his sons drive here for a visit. They both left with large bags filled with stacks of coins. He kept more than enough to take care of us – but there's an advantage to taking care of your children while you're still alive. Last year, to save space, I exchanged some Gold for Platinum – which isn't doing well – I wonder why." – Paid-up subscriber SC
Ferris comment: We appreciate the story, but you might want to change hiding places one more time, and this time... DON'T TELL ANYBODY.
(And note, investing in platinum is not the same as holding gold. Platinum, unlike gold, has significant industrial uses, notably in catalytic convertors for cars. Fears of a global recession, which would hurt car sales, have caused traders to dump positions in platinum.)
"I am retired and have been researching differences between both parties. My conclusion is both are very corrupt and have their own agendas, they use political office to line their pockets. Both have very different views about how a government should function but in the end, it is all about them and not you. I suggest you do your own research and take care of yourself and family. Don't think for a minute the elected politicians we keep putting in Washington are going to be looking out for your best interest, they have been robbing the American taxpayers for decades. Wake up America!" – Paid-up subscriber Jerry Black
Goldsmith comment: Hopefully, you didn't spend too much time researching this.
"Every time the stock market takes a hit due to the euro crises, gold and silver seem to also take a hit. I think gold dropped around 2% yesterday... If gold and silver are real money and supposedly are a safe haven compared to the euro and U.S. dollar; why do they drop every time there is a new 'crisis moment' (I think we all know that it is an enduring crisis of many months or even years..)? The related question is why are gold and silver not going up? Can someone please answer this question?" – Paid-up subscriber David C.
Goldsmith comment: As we wrote above, when a crisis hits, people need cash. And they'll sell anything, including valuable precious metals, to raise it.
Also, our "real money" argument for gold takes a longer-term view... As the world's governments create more and more paper dollars, it will require more and more of those dollars to buy gold. No trend proceeds in a straight line up or down, so the price of gold will fluctuate from week to week. But over the course of time... your ounces of gold will hold their value, while the value of the dollars in your mattress steadily erode.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
December 13, 2011
Euro stocks on sale (no thanks)... The rich kid who went broke... Merkel limits 'magic'... Porter's Activision call... When all they want is dollars...