A couple of months ago, I was out in the woods shooting a bunch of different handguns at a target with my friend Tim. Tim owns dozens of handguns and rifles and has hunted just about everything that moves. In one day, we shot three different .22s, a .38/.357, a .44 and a 1911-style .45. It was a real education for me.
I asked Tim about buying a shotgun and told him I didn't want the kick of a 12-gauge, for fear of aggravating a shoulder injury. So he recommended I use a 20-gauge shotgun. This morning, our own Daily Crux confirmed the wisdom of this choice with a little math showing the 20-gauge gun kicks 55% as much as the 12-gauge, but packs 62.5% of the punch, a 7.5% benefit for those of us who want to keep our aging shoulders intact a little bit longer.
Absurdly high valuations are the very definition of bubbles. But it takes credit excesses to create a really devastating bubble. The Great Depression, Japan's lost decade, and the current U.S. crisis were all products of loose money policies – something only government can create – which led to widespread abuse of credit. As long as credit is flowing, prices will increase. But as we've seen, when the music stops, the aftermath is painful. Asset values across the board plunge, businesses fail, unemployment soars.
The U.S. government's cure for this crisis? More credit. Low interest rates and nonstop money printing have inflated asset values, but at the expense of the U.S. dollar. Now, the U.S. government has loaded itself with so much debt, it can't raise interest rates. It simply couldn't afford the interest payments. The government is caught in a dangerous inflationary cycle.
Some of the more economically sound countries have already started raising interest rates to stymie inflation. In October, commodity-rich Australia raised rates. And today, Norway, which is both oil- and cash-rich, unexpectedly raised rates 0.25 points to 1.75%. While these rate increases won't do much to slow deal flow in Australia and Norway, they're an important indicator for the currency markets. Money will start flowing into the countries that have signaled early on they're committed to a stronger currency.
A stronger currency is one way to go. A brand new currency is another... Saudi Arabia, Kuwait, Bahrain, and Qatar, four members of the six-member Gulf Cooperation Council, have agreed to a monetary union with a single common currency – the "Gulfo."
Nahed Taher, the head honcho at Bahrain's Gulf One Investment Bank, didn't mince words. He told a reporter, "The U.S. dollar has failed. We need to delink."
Of course, recognizing you can't get into the paper-money game without hiring a counterfeiter (and proving it has learned nothing from the sum of recorded monetary history)... the new monetary union will also have its own central bank.
I've commented a few times on the enormous purchasing power of Extreme Value World Dominator pick ExxonMobil, due to all the stock it's repurchased over the years. The Wall Street Journal pointed out this morning ExxonMobil paid about $50 each for share it is using to buy XTO Energy... yet XTO Energy shareholders receive, at this morning's price, about $70 a share in value.
ExxonMobil could have easily borrowed $31 billion to buy XTO Energy. But using its own shares was cheaper... despite the dilution to existing ExxonMobil shareholders. That's because ExxonMobil's currency gets it $1.40 worth of stuff for every $1 spent. If it borrowed dollar bills to buy XTO, it would only get $1 for each $1 spent.
In a competitive market for money, where would you rather trade and store your wealth, in a U.S. dollar that will buy less than $1 worth of goods and services in the future, or an ExxonMobil share that buys $1.40 worth of value for each $1 spent today? Which one would you rather receive in payment for your own goods and services?
I've heard of mutual-fund managers parking cash in ExxonMobil for short periods of time, due to the stock's liquidity and triple-A credit rating. Acquisition targets are vulnerable to credit downgrades, especially in leveraged deals, but XTO's rating was upgraded by Egan-Jones from triple-B to A-, due to ExxonMobil's stellar credit.
I've been telling Extreme Value readers for three years what the whole world has suddenly learned in the past week: ExxonMobil is money-good.
Another good thing about ExxonMobil as a currency: Hillary Clinton can't affect how much might need to be printed. With developed countries like the U.S. and Japan already teetering under massive debt loads, Clinton says rich countries should pony up $100 billion over the next 10 years and give it to poor countries... not to feed their starving masses... not to save them from malaria and AIDS... not to teach them about free markets (never!)... but to "fight climate change," i.e., stop talking about the weather and do something about it!
Secretary of State Clinton made the proposal at the Copenhagen climate change talks. That's the meeting over in Europe (where else?) in which hundreds of people with the power to steal and spend other people's money sit around pretending they can predict the weather 10 years from now and how they're going to change it by making you drive less, eat less, do less... live less.
When the TV weatherman does his job, you get the benefit of his knowledge at a cost of little more than a few minutes of your time, as well as a tiny allocated portion of the cost of your TV set. Using his insight, you might decide you need gloves, a parka, a raincoat, sunscreen, or some other item, all of which also have a modest cost. You derive a net benefit in the form of increased comfort and better physical health.
But when a politician gets involved in predicting the weather, it costs $100 billion and they still can't tell you if you need sunscreen or mittens.
After covering his automotive short sales in late 2008 and early 2009, Kynikos Associates founder Jim Chanos is jumping back in. In a recent CNBC interview, the short-selling guru said the automotive sector – here and in Europe – is in trouble. The sector has historically lost money, and it's currently dealing with a massive, worldwide overcapacity and legacy costs. While he wouldn't give specific picks, Chanos said he wouldn't "be long" Fiat or Ford.
Chanos also believes a massive bubble is forming in China. He thinks China is misstating its GDP numbers by "underdepreciating a shaky capital base." Just last night, Chinese authorities talked about increasing loan volume by another $1.2 trillion. On the topic of credit excesses, not valuation excesses, signaling inflation... Chanos says there's "no bigger credit excess than China right now."
Chanos is shorting China through the Hong Kong-listed "H shares." He also sees short "opportunities in all commodities producers." If, as Chanos predicts, China is fudging its numbers, its forecasted commodity demands will be much lower than expected. He's shorting copper, cement, and iron-ore producers worldwide.
Inside Strategist editor Braden Copeland is on a roll... On Tuesday, he closed his European Goldfields recommendation for an 84% gain. And his Steak 'n Shake recommendation jumped 18% in two days after announcing great yearend results. Readers are up a total 36% in three months. And that's one of the smaller gains...
Inside Strategist subscribers have already booked 62%, 84%, and 104% winners this year. Open positions are up an average 20%. At just $4 per recommendation, Inside Strategist is one of our most affordable services.
Braden's latest recommendation is the world leader in its industry. A major director at the company recently tripled his stake in the stock. And when he bought last time – at almost the same price – the stock soared. Braden expects this company to return at least 50%. To sign up for Inside Strategist, click here...
New highs: Cresud (CRESY), iShares High Yield Bond Fund (HYG), Visa (V), Kinder Morgan Energy Partners (KMP), Enterprise Partners (EPD), Keyera Facilities (KEY-UN.TO), Longleaf Partners (LLPFX), Prospect Capital (PSEC), Akamai (AKAM), Steak 'n Shake (SNS), Jinshan (JIN.TO), Rex Energy (REXX), Encore Acquisition (EAC).
Lots of nice notes in the mailbag... and we know what that means (someone's handing around the holiday spirits, again). Send your e-mail to feedback@stansberryresearch.com.
"You can tell Anonymous that if he wants something for nothing, you usually get what you pay for. I'm just a registered nurse with a lot of bills and I can still afford your publications. I'd love to be an Alliance member but cannot afford it at this time. I'm trying to earn it through the wisdom I've gotten from your articles. I'm much the wiser from them and it has been worth every penny that I have paid. This guy doesn't know what he's missing or is just another person looking for a handout (sounds like today's America!)" – Paid-up subscriber Gary Alvarez
"I make my own wine for $3.00 a bottle. Got two naked women to stomp the grapes for me. You can enjoy the finer things in life even at low income levels." – Paid-up subscriber Ignorant Dupe
Ferris comment: You are wealthy beyond measure. Congratulations.
"In response to 'anonymous' in The Digest on Dec. 16. You have a problem with someone advertising their product? You say that the 'mention of your name to other investors I know brings loud boos.' I suspect that these folks you call investors are really just suckers throwing their money at the stock market. You also state that Stansberry is 'hated' almost as much as the 'financial institutions.' In our house, we love Porter and the whole lot of his associates.
"Though I understand, and agree, with what Porter said about 'the quickest way to make anything worthless is to give it away free,' I am afraid that it does not apply in this case. Let me tell you what I have gotten, for free, from S&A Research. First, I learned how to be a real investor, for free, from reading what Porter, Dan, Steve, et al, write in DailyWealth and the S&A Digest. From position sizing (no more than 4% in any one position) to stop losses and trailing stops, looking down as well as up. Then, I was out of the market entirely when it all came down last year. Again, all from free advice from Porter. Then, thanks to prodding (free) from the gang, I entered the fray again in Nov. 2008. Picked up, for free, from the Digest or Daily Wealth, FMO (up 35% not including dividends).
"Dan, answering a critic of his pick of MSFT as a 'World Dominator,' convinced me to buy it. Up 49%. Free. For free, GDX, up 60%. Best value of any newsletter, anywhere, is Matt's Resource Report. For $99, I have the best silver miner on the planet, up 98%, and three little oil companies, up 13% and 25%, down 4%. They did trick me into Phase 1 with Matt's little gold miners... Down 5% on one, up 67% and 35% on other two, paid for Phase 1 and much more. My biggest problem now? Too many good stocks to buy, and too little cash to buy with. I have lowered my position size to accommodate. There is not a better value in finance, don't bother looking. Thanks, Porter." – Paid-up subscriber Mark Hines
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
December 17, 2009