Gold at $1,600... Europe's financial crisis... 36% two-year bonds... Signs of a top on the farm... The best way to get rich in a gold bull market... U.S. downgraded...
The U.S. is at a standstill regarding its debt limit... Europe is crashing... the world is worried China's a bubble... And on top of all these economic disasters, it seems the world has lost faith in paper money…
Gold hit a record $1,607.70 an ounce today – climbing for the 10th straight day. And while the dollar has also gained over the past two weeks, it's lagging behind gold...
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The difference is even more severe over the past year...
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Gold seems dear right now – especially considering its two-week run. It's soaring in the face of the U.S. and European crises. Once the government announces solutions (albeit short-term ones), the metal will correct.
Silver, on the other hand, does not seem overextended. Although "the other metal" continues its steady rise – crossing to more than $40 an ounce today – it's still nowhere near its record high of $50 an ounce, which it hit in April.
Despite the glowing stress-test results from its banks, the market has no confidence in Europe. The euro-to-Swiss franc ratio hit an all-time low over the weekend. Remember, the Swiss franc is the closest proxy to gold in the fiat currency market. And while the euro has appreciated roughly 4% against the dollar since the beginning of this year, we expect that trend to reverse.
In addition to a sinking currency, European sovereign yields are soaring. The Greek two-year bond yields a record 35.19%. Perhaps that yield sounds attractive to some… but we're staying away. Greece must restructure soon. Only then will we start looking at its bonds.
Spanish 10-year bonds are yielding a euro-era record 6.31% – driven in part by an editorial published by Spanish newspaper El Pais urging the Spanish prime minister to resign for the good of the country.
Italian 10-year bonds are now yielding 6%. Our favorite Italian bellwether, UniCredit, is down more than 6% today. And reports today say certain Italian stocks, including bank Intesa Sanpaolo, have once again suspended trading. Eventually, the European regulators will have to stop halting trading and deal with their banks' capital issues...
Sean Egan, founder of Egan-Jones Ratings – probably the only trustworthy, independent ratings agency out there – weighed in on Europe's bank situation in Barron's over the weekend…
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The thing most people miss is how little control governments have over this economic problem. The headlines would indicate that the governments are in control. The market, however, drives them. The sovereign-debt problem and the European bank-stability dilemma are intertwined. Any default will lead to write-downs that will show the European banks as actual or near zombies – the walking dead, with big impending losses and little capital. |
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Painful as it will be, the situation must be addressed time and again when peripheral sovereigns like Greece, Ireland and Portugal default on their debt – as they inevitably must. The truth is, the debt holders will only receive a token amount of repayment – between 10% and 22% of face value. And that's nowhere near the level of recovery people are talking about now. |
Signs of a top... A recent USA Today story titled "Down on the farm, investors see big potential." The article profiles a 33-year-old software entrepreneur who is buying farmland – paying 25% more than the next-highest bidder at one auction. When speculators and know-nothings are beating out knowledgeable bidders by 25% at auctions... you're nearing a top.
And as in most bubbles, the buyer – in this case Braden Janowski – thinks he's smart because asset prices are rising. The article concludes with this quote from Janowski: "I'm probably on the fringe of being a nutjob... But as each month goes by, I become less nutty."
If you're bullish on gold (as we are), you should own the physical metal – not to get rich... but to protect yourself from the deterioration of paper currencies around the world. It's a form of savings.
But once you're protected… how do you use rising gold prices to get rich? You buy junior mining stocks. Buying junior mining stocks in a gold bull market is one of the easiest ways to make tons of money in the stock market. These stocks, while volatile, can increase in value by thousands of percent... not hundreds of percent... thousands.
One of the most important aspects to buying junior mining stocks is knowing when to buy. And considering how cheap gold stocks currently are compared to the metal, we've got a major opportunity today.
In his latest S&A Junior Resource Trader, Matt Badiali said "gold is in bull mode." And the junior mining stocks are also "flashing" buy. Now is the perfect time to start speculating in junior miners. As world governments continue printing money to handle their respective crises, gold and gold stocks will only march higher. If you'd like a realistic shot at making many times your initial investment in gold stocks, I'd recommend you start reading Matt's S&A Junior Resource Trader. And… today is the last day to sign up for this advisory at a generous discount. To learn more, click here...
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New 52-week highs (as of 7/15/11): Westport Innovations (WPRT), Prestige Brands (PBH), CARBO Ceramics (CRR), Royal Gold (RGLD), SPDR Gold Trust (GLD), EV Energy Partners (EVEP).
Lots of positive feedback in today's mailbag. The booze must have been flowing this weekend. Send your notes to feedback@stansberryresearch.com.
"Thanks for the Petrohawk recommendation. I bought some stock, as well as some long-dated call options. I was pleasantly surprised when I checked the market Friday morning and saw it up 62%. I immediately sold half my call options (for an average 249% gain), but held on to the other half, as well as my stock. I also made a decent profit recently on EUO call options. Thanks, and keep up the good work!" – Paid-up subscriber Tracy Horn
"I am sure you saw Larry Summers' blog today that 'It seemed highly unrealistic even 10 days ago that Italy's solvency would come into substantial doubt.' He states that the Italian debt problem 'now threatens both European integration and the global recovery.' Perhaps, Larry should read PSIA. In June 2010, Porter wrote 'I believe the crisis in Europe will continue until Italy fails... as it is the largest country that's most likely to default. It's the Argentina of the "real world" crisis.'
"I despise Larry Summers, not because I think he is stupid, but because I think he is dishonest and corrupt. He has known all along that Italy is a disaster. Fortunately, Summers and the rest of his gang behave quite predictably, which allows those of us who read your newsletters and implement the recommendations to profit. Thanks for helping me fix my retirement portfolio, and learn how the financial world works. I used to be a victim. Not anymore!" – Paid-up subscriber Paul A. Grayburn
"I am a veteran of Marines, currently going to college on the new GI Bill. While I was serving in Iraq in 2007, I decided that I want to be rich. I began reading up on finance and investing basics, and began investing in a diversified mutual fund in December. Over the roller coaster ride of the next three years, my total $12,600 contribution grew into about $16040, a not-terrible 27.3% increase.
"When I saw your 'End of America' ad in December of last year, my blood ran cold and my pulse began racing. I stayed up until 5 AM on a school night reading, much to the irritation of my wife. It crystallized in a clear and meaningful way the concerns lingering in my mind. My time in Iraq and growing interest in world affairs left me with a weird taste in my mouth, and I realize now I had been feeling what you call the End of America. I subscribed to Stansberry's Advisory, and later Resource Report. I took my money out of the 'safety' of mutual funds and put it into Stansberry recommendations. It is seven months later, and I want to let you know how your recommendations have done.
"I am overweight silver, whose value in dollars has appreciated by 19.7%. The value of my gold has increased 12% in dollar terms in seven months. I have a modest stock allocation, consisting mostly of Resource Report picks (I am overweight natural gas) and World Dominators. I had a few false starts before I got comfortable with my stock arrangement, but my overall return in seven months has been 10.6%. All told, selected Stansberry recommendations have returned 15.9% in seven months, and that's after all brokerage fees, delivery charges, and insurance costs are considered.
"To compare, the same money would have grown by a pathetic 4.3% had I kept it in mutual funds, and unlike with mutual funds, I feel safer against the violent swings in the market. Since it's not a profit until it's off the table, I carefully watch my stops and have an exit strategy for every position. As my resources grow, I will look into your other services, as I see enormous potential in your work.
"I am very grateful for the gains you've helped me earn, but I am more grateful for the way you cut through government and financial media bullshit and explain complex ideas clearly. I feel more confident about my wealth over the long term, even as I see the endless shenanigans coming out of Washington and Brussels. Thank you for what you do." – Paid-up subscriber Allan MacLeod
Goldsmith comment: Thanks for the note, Allan. We're happy you're so successful using our work. And thank you for all you do for our country.
Regards,
Sean Goldsmith
Baltimore, Maryland
July 18, 2011