Germany calls the U.S. 'stupid'...
Germany calls the U.S. 'stupid'… Why your stocks are falling 30% in one week… How to make 400% the easy way… Jeff Clark's latest forecast… OBAMA!'s new tax…
One of the big stories in finance this morning is a huge "run for the exits" movement out of funds operated by Man Group, a U.K.-based investment management firm.
Man Group, which is publicly traded, is one of the most important financial companies Americans have never heard of. It manages more than $60 billion in assets with currency, commodity, stock, and bond trading strategies.
Shares fell 20% in European trading after the company announced investors pulled $2.6 billion out of its funds between June and September. This is a stupendous drop for one of the world's most powerful financial companies.
This is important to you because the Man story is happening all over the world. Investors are panicking. They're pulling money out of "fast money" hedge funds because asset prices are falling. This forces the hedge funds to sell stocks and commodities to raise cash and return it to investors. This selling forces prices lower... which causes more investors to pull their money out of the market... which creates more selling... which... you get the idea.
All this is what causes your favorite emerging market and resource stocks to fall 30% in one week. It's why gold dropped from $1,900 to $1,600 in weeks. It's why silver suffered a one-week collapse. It's what causes the average investor to keep a bottle of TUMS beside his computer... or abandon the market altogether.
As longtime Digest readers know, times of panic and crisis produce extraordinary opportunities. Investors who took us up on our recommendation to buy stocks in late 2008/early 2009 made huge gains in a short period of time.
Porter's recommendation in the March 2009 issue of Stansberry's Investment Advisory to buy power company Calpine (which was cheap due to the crisis) doubled readers' money in 10 months. Dan Ferris recommended Intel in his April 2009 issue of Extreme Value. It climbed 50% in a year. His readers are now earning a 5.5% yield on their purchase price... in one of the world's best, safest stocks. Matt Badiali got his S&A Resource Report readers into elite silver company Silver Wheaton shortly after the crisis. Shares climbed 400% in less than two years.
We point out these gains not to gloat... but to illustrate how profitable it can be to maintain a buy list of world-class "trophy" assets... and being ready to buy them when they go on sale. When you can buy an elite "World Dominator" – like Intel – for a 40% discount to its intrinsic value, you do it. When you can buy a trophy silver stock – like Silver Wheaton – when nobody wants it, you do it.
We'll keep you updated on when the time is right to buy our favorite trophies... many of which are being dumped by panicked investors and their hedge-fund managers.
What's OBAMA!'s solution to the financial crisis at the root of all this liquidation?
Tax airline passengers, of course.
Last week, the White House proposed a new round of taxation on airlines to help reduce the deficit. The new plan would impose a $100 fee each time a commercial or private jet takes off. It would also raise the per-passenger security fee from $2.50 for each leg of a flight to $5. This fee would rise $0.50 per year from 2013 to 2017. The airline industry estimates taxes represent 20% of the cost of an airline ticket.
"This is going to hit the middle class right in the pocketbook," said Charles Leocha, the head of advocacy group Consumer Travel Alliance.
This new tax is one more confirmation of our End of America thesis... Washington D.C. is going to make things worse and worse through increased spending, increased borrowing, and increased taxes. It's like a bankrupt alcoholic trying to fix his problems by purchasing a gallon of gin on credit.
This isn't the only bad idea coming from the White House. German finance minister Wolfgang Schauble made world headlines yesterday when he told Washington that urging Europe to drastically increase the size of its bank bailout facility is "stupid." As Ambrose Evans-Pritchard writes in British newspaper The Telegraph…
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German finance minister Wolfgang Schauble said it would be a folly to boost the EU's bail-out machinery (EFSF) beyond its €440 billion lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank. |
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"I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense," he said. |
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Mr Schauble told Washington to mind its own business after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is "scaring the world." |
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"It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the U.S. government," he said. |
In an editorial, the German magazine Bild chimed in…
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Obama's lecture on the euro crisis … is overbearing, arrogant and absurd. … In a nutshell, he is claiming that Europe is to blame for the current financial crisis, which is 'scaring the world.' Excuse me? |
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The American president seems to have forgotten a few details. The most important trigger of the financial and economic crisis was US banks and their insane real-estate dealings. The US is still piling up debt … The American congress is crippled by a battle between the right and the left. The banks are gambling just as recklessly as they did before the crisis. The president's scolding is a pathetic attempt to distract attention from his own failures. How embarrassing. |
Despite all the blustering and the back and forth, we remind readers of our prediction of how the European crisis will ultimately play out – by the Federal Reserve of the United States (aka you, the taxpayer) acting as the "bailer-outer of last resort."
Porter has been warning readers for more than a year that a U.S.-sponsored bailout of Europe was on the way. We don't know of any other analyst who was as early and as vocal with this forecast. As he said in an interview with The Gold Report in July 2010…
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… Because it's the world's largest economic bloc, you're not going to see global growth rebound until some kind of drastic restructuring of Europe's sovereign debts takes place, or until the euro massively devalues. As more creditors come to doubt these debt structures, you're going to see a really big problem because Europe will be forced to monetize a lot of debt. That eventually will result in a lot of devaluation and a lot of inflation. Investors see all this coming, and of course are withdrawing from that currency zone... |
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I think eventually you'll see some global solution to the sovereign debt problem... What I foresee is the Fed opening big swap lines with the ECB, and the European Central Bank buying sovereign debts of all these garbage states as they did with Greece. They're just going to do their very best to inflate it away. |
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Will they be successful? I can't say; this is a huge experiment in central banking. But if and when the Fed starts buying up Spanish debt, the American people will go haywire. They won't stand for it. I don't want to be long in stocks that day, I'll tell you that. |
One trader who isn't panicking is our own Jeff Clark. Today, he updated his S&A Short Report readers on how he expects the stock market to play out over the next several weeks. Jeff expects one last major "shakeout," followed by a big rally through the end of the year. He notes…
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... It looks to me like the odds favor a strong move to the downside starting soon. There's an old saying on Wall Street, "Sell on Rosh Hashanah and buy on Yom Kippur." This saying highlights the seasonal weakness that often occurs between these Jewish holidays. The market doesn't selloff every year. But it happens often enough for there to be a saying about it. |
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Today is Rosh Hashanah. Yom Kippur is October 7. So for the next week and a half, the seasonal trend is bearish. The stock market is already highly charged over the headlines coming out of Europe. Investors are skittish over the market's recent volatility. The Volatility Index is persisting at elevated levels. And, the global markets are coming unglued. |
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These are the types of conditions that often lead to exhaustive and capitulatory declines. We've been waiting for a move down to 1100 or lower for the S&P 500. If it's going to happen, then I can't imagine a better time than now for it to occur. |
Jeff thinks the chance of a big decline over the next few weeks is high. This could lead to a big opportunity to buy the kind of "trophy assets" we described above. You can read more of Jeff's commentary and get his best trading ideas for this environment with a subscription to the S&A Short Report. You can learn more about the service here.
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New 52-week highs (as of 9/26/11): V.F. Corp. (VFC) and Dominion Resources (D).
In today's mailbag… One reader flags an all-too-common example of corporate greed… and Porter notes one you may not know about… Send your e-mail to feedback@stansberryresearch.com.
"Having spent eight years getting overeducated (and undertrained) at these two fine institutions, may I provide the following perspective to a recent subscriber's communication. Be humble – if you are not, the market will make you so – and without remorse." – Paid-up subscriber Charles Kaminski, MIT (BSEE, MSEE, EE); Harvard (MBA)
Porter comment: It's often difficult for our most educated subscribers to adopt the type of investment strategy we endorse – diversified positions and stop-loss discipline. As you recognize, our approach requires humility and the recognition that, as passive common stock investors, we will always be at a disadvantage to other members of the marketplace.
"At Pebble Beach for a golf thing and could not help but notice a huge private party in the most expensive restaurant in an already expensive resort for GE. Probably wouldn't have thought twice before reading your recent newsletter, but now it makes you think… I guess when your in company's in that much trouble you just keeping the party (spending) going?" – Paid-up subscriber Justin T. Thompson
Porter comment: No, it's not surprising. I see it all the time. Executives of privately held companies (like mine) are constantly shocked by the way publicly owned companies are run – particularly by the way management spends money. I believe the structure of public companies, where the board is accountable to no one (which is why things like this go on), is a critical weakness in our current version of shareholder capitalism. Here's a simple suggestion: Make public company directors personally liable for corporate obligations in the event of a bankruptcy or liquidation. That would solve most of the problem overnight.
"Your marketing worked. I was listening to the radio a few months ago on my way to school and just had to see what this 'End of America' stuff was about…
"The exposure to you and subsequently to Doug Casey and Mark Ford has changed my life. I am married, starting my own business, relatively young and I have no fear of the future. Because of your writings I have taken it upon myself to learn how the world functions and how money drives it… It makes me laugh to myself when I see all the negativity you get for you opinions and your attempts to educate your subscribers. Nobody has all the answers and the process of learning is acquiring others' experience and making it one's own.
"Regardless of one's final view, it can do nothing but help to educate oneself from all sides of a position. To me it just seems that people don't want to bear any responsibility for themselves or their position in life. I find their letters encouraging because I know there will always be opportunities out there for those that think differently… I wish you all the best." – Paid-up subscriber W. Palmer
"Porter – just in case you didn't notice, [redacted] painted a glorious picture of First Solar in yesterday's issue (Sept. 26) of his [redacted] newsletter. His stated credentials include that he has 'been profiting from solar for close to a decade now' and 'I know the industry like the back of my hand.' And while he acknowledges that the Chinese can produce solar panels far cheaper than the USA companies, he pointed out that First Solar is an exception with its recent '15.3% efficient' solar cell – producing thin-film panels for $0.73 per watt (Q4 production) vs. Trina Solar's Q2 costs of $1.16 a watt – one of his Chinese references (others being Suntech Power and JA Solar – 'the darlings among analysts'). And Trina Solar's 'higher efficiencies are expected to drive down costs even further.' Obviously, you will want to close out all short positions in First Solar and go long to take advantage of [redacted] predictions." – Paid-up subscriber "C"
Porter comment: This note was sent tongue in cheek and reminds me to point out that many of the people promoting solar and solar companies are on the take. We don't normally redact the names of our competitors. But we did in this case because we know, for a fact, that the publishing company in question accepts large sums of compensation from the companies touted in its newsletter.
You should know that not only has Stansberry & Associates Investment Research never accepted a single penny from any of the companies we recommend or endorse… we also refuse to cooperate with any other newsletter publisher who accepts such compensation. We don't believe you can serve your readers well when your business model requires selling them down the river... It's our firm belief that over the long-term, these unscrupulous publishers will fail. We hope it happens quickly.
Regards,
Brian Hunt
Delray Beach, Florida
September 28, 2011