How to receive a priceless trading education...
A look at the "long view" on gold... What Warren Buffett is buying... Jim Chanos is making a lot of money in oil... How to receive a priceless trading education...
With the Facebook initial public offering (IPO) dominating the news, the market herd is locked in "risk off" mode.
Crude oil is falling... copper is falling... stocks are falling. Because of the European debt crisis, people are fleeing assets that are sensitive to economic growth... and flocking to "safe havens" like bonds and the U.S. dollar (cash). As you can see in the chart, the dollar is currently winning the world's "least ugly" paper currency contest. It's gained around 9% from its August lows. This doesn't sound like much to most people, but it's actually a huge gain for a major currency.
Of course, as the dollar rises, gold falls. The yellow metal traded for $1,750 an ounce in February. It's now trading for $1,530. That's a decline of 12.5% in three months.
On the surface, gold is falling because people are dumping assets to raise cash. Gold is a liquid asset, just like stocks and crude oil. So it gets thrown overboard when people are desperate for liquidity. But the "big picture" reason gold is experiencing a decline is that it's simply "due" for a substantial period of sideways (or lower) prices. Gold has risen in price every single year for the past 11 years. No other widely traded asset or index can match that record of consistent gains. Gold is up more than six-fold during this relentless, relatively calm bull market.
With this amazing, once-in-a-century bull market in mind, we remind you that markets are like runners. They can't run flat-out for miles without a break. The long-term picture for gold hasn't changed. Western governments still have massive, unfunded debts and obligations that cannot be paid with sound, honest money. The people of Asia (especially China and India) are getting a little richer every year. These people have a centuries-old affinity for precious metals, like gold and silver... and they are still buying. Again, gold is simply due for a break.
To put its recent decline into perspective, let's look at the "long view." Below is a 12-year chart of gold. As you can see, gold could fall all the way down to $1,300 an ounce and remain in a bull market. That's where it was in late 2010. In the context of gold's massive bull market, even the latest decline isn't severe...
Another bit of perspective: Rich, sophisticated investors don't view gold as a conventional investment. It's not like owning an income-producing rental property. It's not like owning shares in a dividend-paying, blue-chip company like Coca-Cola. Gold is real money. It's a form of "crisis insurance." Rich people buy gold and hope they never have to use it. They don't buy it with the hope that they'll make hundreds of percent on their holdings. You can read more about the "rich guy" way to view gold in this short interview.
Speaking of rich people and what they buy...
This morning, the news services are reporting on the latest moves by billionaire investor Warren Buffett. His company, Berkshire Hathaway, has just filed reports with the Securities and Exchange Commission showing it has new stakes in automaker General Motors and media company Viacom. Buffett also increased his stake in global discount retailer Wal-Mart – one of Dan Ferris' favorite World Dominating Dividend Growers. Buffett recently said he doesn't think the Mexico bribery scandal will harm the company's long-term earnings power. Dan agrees. He sees the recent selloff as a good buying opportunity.
Following the investments of legends like Buffett is a great way to find potential low-risk, high-reward ideas. The world's best investors and traders have massive research budgets. They have the best contacts. They have the best computers and the most extensive databases. They're able to achieve a tremendous "information edge" in the market. That's why looking over their shoulders makes sense.
Over the past few days, we've told you a few details about our newest service, DailyWealth Trader. We have several goals with DailyWealth Trader. The main goal is to educate readers on the best ways to make low-risk, high-reward trades. The service also acts as a "digest" of ideas from the world's best investors and traders.
For example, in the May 1 issue (which was made available only to Alliance memebers), we discussed one of the top ideas from legendary trader Jim Chanos. As one of the world's best short sellers, Chanos makes money by betting on a company's stock price falling. We highlighted his short position in Brazilian oil producer Petrobras. Chanos says the company is the picture of how government mismanagement wrecks companies. It's also spending hundreds of billions of dollars to develop high-cost offshore oilfields. Chanos is bearish...
As you can see from the chart below, shorting Petrobras was a heck of an idea. The stock has collapsed from $30 per share to less than $20 per share in just a few months. As of yesterday's close, that trade is up 17.5% in just two weeks.
Again, with a subscription to DailyWealth Trader, you'll receive ideas from the world's best investors and traders. You'll also receive a priceless education on how to act on those ideas. If you're new to trading... or interested in furthering your market education, you'll get tremendous insights from DailyWealth Trader... at a very low price. You can sign up for our upcoming educational video and receive information on a trading technique we normally charge at least $1,000 to teach here.
New 52-week highs (as of 5/15/2012): Vanguard Inflation Protected Securities Fund (VIPSX) and W.R. Berkley (WRB).
In today's mailbag... Another "boots on the ground" e-mail about China... plus a modest proposal for Warren Buffett. Send your messages to feedback@stansberryresearch.com.
"The comparison between Greece's GDP and Walmart's revenues was eye-opening. It is funny how the media has to find some reason every day why the stock market went up or down." – Paid-up subscriber Robert Eisenschmidt
"I have been a paid-up subscriber for a few years now and have found what I read in your S&A Digest very helpful. I am a small-business owner so I gamble every day with my finances and have no use for the Wall Street or the Stock Market. I am all in with my own business every day of my life. The Stock Market are for working stiffs that need to find a place to 'hopefully' help their hard-worked money grow, 'hopefully' being the key word.
"I have an export agent in China that I have worked closely for several years in terms of what I import from there for my niche business and today I got an e-mail of PANIC. He says that the economy has hit the skids big time, and he was pleading for me to give him an order for anything or if I had any business associates that I could refer to him. He is in the Guangdong province, which is a major manufacturing area in China. He is in the breed of the new middle class of the Chinese and bought a new home a couple of years ago and is now fearing losing it all.
"He speaks and writes English which makes him quite valuable in China and he is seriously worried about his, wife, and child's future. This is a story of a person in the actual trenches over there – never mind the media propaganda.
"China is only as strong as the USA and Europe are, and that is pretty clear now. Who will buy all their 'stuff' if not us? They built their entire economy on our backs and now we are not buying from them, so what will become of their economy? We were the fuel for their economic engine for many years and now our tanks are on empty, not a good scenario for the Chinese economy." – Paid-up subscriber Michael von Trampe
"Just to let you know. I am not an occupy wall street guy or anything like that. My wife and I both work 60 hrs a week to provide for ourselves and our family. We took in her parents for the last seven years. We're trying to get our children on their way into the world of work with an education and a work ethic. We have one debt and that's a mortgage. So you can pretty much fill in the rest of our bio.
"But the other day I had an epiphany. Warren Buffett is so hell bent on taxing the rich. When politicians say that, I reach for my wallet because their definition of 'rich' these days is anyone who works and isn't on some form of public assistance. Anyway, Buffett wants to increase taxes. So my plan is simple and it helps everyone. Buffett can easily afford to give every working family one million dollars. Yes, that is what I said and here's how it works (i.e.; there are approx. 90 million families in the US).
"He should give every WORKING family, proof is with tax returns for the last 5 years, a million dollars. Well, the government will take half, there's your taxes. The family would get the rest to pay off mortgages and student loans. Housing crisis solved, student loan problem solved. Then we can use some of Bill Gates's money same issue. If you think this is crazy and absurd, then you know how I feel about Buffett and his ideas as well as the politicians." – Paid-up subscriber Tom Lee
Regards,
Brian Hunt
Baltimore, Maryland
May 16, 2012