It's good to be nervous...

It's good to be nervous... Nothing fazes this market... Understand the risk... See Jim Rickards live... The American consumer is recovering... This 'portfolio of everything' hit a new high...
 

 There's a lot to be nervous about in the world today...

 

But you wouldn't know it looking at the market. Low volatility and a steadily rising market have lulled investors into complacency.

 

The market is near its all-time highs... interest rates remain near zero... we haven't seen a 10%-plus correction in the market in nearly three years... and the Volatility Index (the "VIX") – the market's fear gauge – is low...

 

All signs point to a rosy global economy.

 

 The reality is different. Yes, we're seeing a gradual economic recovery. But there are problems bubbling beneath the surface.

 

Europe's economy is a wreck... The European Central Bank is currently trying to paper over that problem, though its efforts have yet to spur inflation. China is also pursuing massive quantitative easing (QE) to boost its lagging economy, including the recent announcement of an $81 billion liquidity injection for banks. The U.S. will soon see how the economy reacts to the end of QE, and, eventually, rising interest rates.

 

 It's not much better on the geopolitical front, where the U.S. has engaged with terrorist group ISIS. Russia continues its conflict with Ukraine. Argentina is in default. Scotland nearly seceded from the United Kingdom. Catalonia may look to gain independence from Spain in a couple months. The Ebola virus is running rampant in Africa.

 

And yet, the markets rise.

 

The Federal Reserve has made it impossible to earn a decent return in bonds. But fear not... If you need income to live, just take on debt and buy more junk bonds at record-high prices.

 

Don't worry about the fleeting values in equities... Just buy shares of Alibaba – the Chinese Internet company that recently completed the largest initial public offering (IPO) in history, raising $25 billion. The IPO was reportedly oversubscribed by six times.

 

 It seems obvious that buying risky assets at inflated prices calls for caution. But investors continue to throw mountains of cash at any new equity or bond offering.

 

Unfortunately, most investors have no choice... Negative interest rates have forced them to gamble. Pair that with the huge amount of cash sloshing around today's economy thanks to the Fed's QE, and you have the recipe for what's happening in the market.

 

 Just look at what happened today...

 

The U.S. bombed terrorist group ISIS in Syria. Israel shot down a Syrian war plane. Russian Prime Minister Dmitry Medvedev urged the BRIC countries (Brazil, Russia, India, and China) to conduct transactions in national currencies to avoid the U.S. dollar. Russia is conducting a military "drill" with a ridiculous 155,000 troops and 4,000 armored vehicles. Plus, manufacturing in Germany and China contracted... And monthly U.S. housing sales slowed in August.

 

But the markets didn't budge.

 

 Several of the world's best investors have noted a similar phenomenon...

 

We already noted the views of billionaire real estate mogul Sam Zell, hedge-fund titan David Tepper, and distressed-debt investor Howard Marks... Tepper says the bull market in bonds is over. Zell and Marks are worried about mounting risks around the world.

 

Today, we'll share the views of billionaire hedge-fund manager Seth Klarman. Klarman is a value investor who founded Baupost Group, one of the most successful hedge funds in history. He has returned around 19% a year since his fund's inception in 1982... And he has achieved those returns often holding a large portion of the fund – currently around $25 billion – in cash.

 

 Like us, Klarman is worried about the malaise in today's market... In a recent letter to investors, he said we're in a "Goldilocks stock market as a result of relentlessly low interest rates." He says investors are ignoring warning signs of inflation, low volatility, and a U.S. gross domestic product (GDP) revision to minus 2.9%... "Contrary to claims from the Obama Administration," he wrote, "the world is not a tranquil place at present."

 

 Investors no longer fear a slowdown... "Investors have grown weary of worrying about risky scenarios that never seem to materialize or, when they do, don't seem to matter to anyone else."

 

Still, Klarman warns that risks to investors are rising but are not yet priced into the markets...

 

The higher the level of valuations and the greater the level of complacency, the more there is to be concerned about. Even as reported inflation remains subdued, signs of cost increases are more evident. We are seeing them, for example, in apartment rents and construction costs.

 

According to Klarman, bond yields in European countries are at multi-century lows and yields on junk bonds can't go much lower. Even a hint of instability – such as a sudden change in interest rates or investor sentiment – may throw markets in turmoil...

 

While we are not predicting imminent collapse (market timing is not our thing), we are saying that a selloff, greater volatility, and investor losses would hardly be surprising from today's levels.

 

 Note that Klarman isn't trying to time the markets. The smartest investors rarely do. Instead, they understand risk and adjust accordingly. They raise cash to take advantage of future opportunities. They dump risky assets and prepare for adverse scenarios.

 

Howard Marks is currently raising $10 billion for a new distressed-debt fund... He plans to invest $3 billion and hold $7 billion on the sidelines. In addition to corporate debt, the fund will invest in distressed shipping, power plants, and real estate.

 

According to Oaktree's managing principal John Frank, "Aggressive extensions of credit of the sort we're seeing today have always been a precursor to substantial distressed-debt opportunity."

 

 We repeat this message not to scare you, but to warn you. We want you to understand there is risk in the market today... and any number of negative scenarios could send prices plunging. We want you to be prepared.

 

 With that said, if you want to understand what's happening in the economy today, I can't recommend financial expert Jim Rickards' new book – The Death of Money – highly enough.

 

Jim is a hedge-fund manager, a lawyer, and a financial consultant for the government. He has seen how monetary policy operates from the inside.

 

In The Death of Money, Jim lays out a clear case of why current monetary policy will lead to inflation, and which assets you need to own to protect yourself in the future. Plus, he wrote an extra chapter exclusively for Stansberry Research subscribers.

 

You can get a free copy of The Death of Money by clicking here. (We only ask that you pay $4.95 to cover the shipping and handling.)

 

 Jim is also set to present at our upcoming Stansberry Conference event in Nashville, Tennessee on October 18.

 

You can get your ticket to see Jim, former presidential candidate Ron Paul, Agora founder Bill Bonner, Porter, and many more for just $250. Click here to learn more.

 

 We'll end today's Digest with a bit of good economic news...

 

In mid-2013, DailyWealth Trader editor Amber Lee Mason recommended shares of credit-card company Discover Financial Services (DFS).

 

Discover profits by borrowing money at low interest rates (2%-3%) and lending it to consumers at high interest rates (15%-20%). It's a fantastic business model... as long as customers can pay you back.

 

From the September 18 issue of DailyWealth Trader...

 

Eighteen months ago, most folks would have told you the American consumer was in trouble. But we knew the economy wasn't as bad as the pessimists would have you believe. And today, the numbers are proving us right.   The American consumer has bounced back from tough times. Personal disposable income is at a new high. Required debt payments are at their lowest level relative to disposable income in over 30 years. And the credit-card delinquency rate is at just 2.3% – its lowest in over 20 years.   All these figures point to a healthy American consumer. And it's great news for Discover. The size of Discover's business (measured by credit-card balances) has grown 6% over the last year. Earnings climbed 13%.

 

In 2009, the average charge-off rate was 9.4% and the delinquency rate was at 6.5%, according to the Federal Reserve Bank of St. Louis.

 

Those numbers have steadily improved over the past five years. And as of the first quarter of this year, the average charge-off rate on credit-card loans from the top 100 banks was 3.3%.

 

Discover is at the low end of the industry average, with a 1.5% delinquency rate and a 1.8% charge-off rate as of this August, according to Reuters.

 

Total U.S. outstanding consumer debt is $3.2 trillion and the average annual percentage rate (APR) on credit cards with a balance is 12.7%, according to the Fed's August 7 report on consumer credit.

 

The average credit-card debt per U.S. adult is $4,878, according to TransUnion, a consumer-credit agency. Subscribers who followed Amber's advice are up as much as 52%.

 

 And Warren Buffett's holding company, Berkshire Hathaway (BRK-A), is trading at a new all-time high...

 

Berkshire is a "portfolio of everything." It owns railroads, housing, insurance, carpets, bricks, planes, restaurants, etc. And it, too, shows the economy is steadily grinding higher.

 

Dr. David "Doc" Eifrig recommended shares of Berkshire Hathaway in the April 2009 issue of Retirement Millionaire. He wrote that "Berkshire Hathaway is not into flash-in-the-pan businesses... It's the meat and potatoes of the U.S." Berkshire Hathaway is up 147% since Doc's recommendation.

 New 52-week highs (as of 9/22/14): WisdomTree Japan Hedged Equity Fund (DXJ) and Altria (MO).

 

 The e-mails to Devon Energy's management continue to pour in as a result of Porter's fantastic Friday Digest from last week. It's a must-read, regardless if you own shares of Devon. Keep the e-mails to Devon coming... and send your thoughts on the situation to feedback@stansberryresearch.com.

 

 "Dear Directors, I am a current Devon shareholder (I have an option position too) and I believe the company is being managed in a way that is not in the best interest of shareholders, in fact I believe the current management is negligent. It surely begs some questioning of management competence when the company is valued at 1.4 times book value when comparable companies such as EOG Resources with similar holdings is valued at 3.5 times book value.

 

"I would like to see Devon greatly increase its operating margins and its return on equity by continuing to sell its low-margin operations, most importantly, sell its Jackfish Canadian oil-sands operations. In regard to the points I raise in the first paragraph nearly all of the other management teams at similarly positioned, low-margin energy producers (like Chesapeake and Hess) have been replaced because they were not responsive to investor demands to improve results. I plan to vote against ALL of the incumbent directors next year unless immediate changes are made to improve Devon's profitability by selling the Canadian oil-sands project.

 

"Please evaluate the direction of Devon compared to its competitors in the Bakken and similar shale plays in Texas. Devon is declining in value while your competitors are increasing. Senior management in this company need to seriously re-evaluate the company's direction as the shareholders will not stand idling longer and we will take action." – Paid-up subscriber Alberto Bertolino

 

 "Dear Directors: In agreement with Porter Stansberry's S&A Digest of Sept 19:

 

 

 

 

"Thank you in advance for your affirmative response." – Paid-up subscriber Rita Grolitzer

 

 "Porter, your criticism of Devon's leadership rings true. To play the devil's advocate though... When I read Badiali's most recent report on Reckoning Day, I thought to myself: The short-term solution is to blend the excess sweet light crude with the highest sulfur crude possible. In a scenario where you have excess cheap sweet crude that can't be exported, it is the high sulfur that would be in demand and the medium sulfur would become undesirable to import (this is of course temporary and caused by government meddling. The market will solve the problem eventually or the government could change export restrictions). I work at a large plant that was designed for a certain high sulfur level feed. While it's not oil, blending in the highest sulfur material we have is exactly what we would do if we unexpectedly had a large supply of cheap low sulfur, high grade feed.

 

"Reading between the lines of the excerpted statements from Devon, perhaps they're banking on synbit becoming necessary to blend with the excess sweet produced by the USA? If what Badiali claims is true, if there isn't sufficient capacity to refine the sweet crude, and they can't export it, either the price of sweet crude will drop to a point where some production becomes un-economic OR some very high sulfur feed is blended in to average out the sulfur levels. It is likely your observations and conclusions are correct. But maybe, just maybe, they know something you don't know." – Paid-up subscriber Scott Geer

 

Regards,

 

Sean Goldsmith

September 23, 2014

 

These companies could offer investors 'life-changing gains'...

 

Yesterday, Small Stock Specialist editor Frank Curzio explained the strategy he uses to deliver his subscribers winner after winner.

 

In today's Digest Premium, he discusses one of the most intriguing industries in the market... and why companies in this sector could offer once-in-a-lifetime gains...

 

To subscribe to Digest Premium and receive a free, hardback copy of Jim Rogers' latest book, click here.

These companies could offer investors 'life-changing gains'...
 

Editor's note: Yesterday, Small Stock Specialist editor Frank Curzio explained the strategy he uses to consistently deliver his subscribers big winners in the market. In today's Digest Premium, he discusses one of the most intriguing industries in the market... and why companies in this sector could offer once-in-a-lifetime gains...

 

 

 Over the past 70 to 100 years, our only cancer treatments have been surgery, radiation, and chemotherapy... nothing new.

 

Think about what has happened in that time frame: we put a man on the moon and we created the Internet. And yet we haven't really seen many advances in cancer treatment.

 

Radiation and chemotherapy have punishing side effects. Patients often experience uncontrollable vomiting, hair and tooth loss, heart and lung damage, memory loss, and infertility. They may even develop a secondary cancer.

 

Let me be clear: I (Frank Curzio) am not against these treatments. Without question, they help extend people's lives – including my father. He passed away from lung cancer 10 years ago.

 

But today, we're seeing real progress in cancer treatment. New technologies are manipulating our immune systems to kill cancer cells while still keeping your healthy cells intact.

 

 A good comparison is the HIV virus, which used to be a death sentence. Today, with the right treatment, you can live a regular life. Look at Magic Johnson. It has been nearly 25 years since he announced he was infected.

 

The same thing is starting to happen with cancer, where melanoma and pancreatic cancer used to be an immediate death sentence. Today, patients are starting to live longer. Instead of chemotherapy and radiation, which are still being used, of course, these new technologies are helping your immune system to fight only the bad cells.

 

You see, cancer is one of the rare diseases that "tricks" the immune system.

 

Tumors flourish because the body doesn't initially recognize them as invaders or threats. When the body does recognize them, it attacks for a while and then gives up and decides the battle is not worth fighting.

 

Immunotherapy is finding powerful ways to overcome these obstacles.

 

 So we're finally seeing breakthroughs in cancer treatment. From an investment standpoint, companies that are targeting cancer cells and extending patients' lives could give investors life-changing gains.

 

In the August issue of Small Stock Specialist, I recommended four small-cap companies working on emerging cancer treatments more powerful than anything that has evolved in the industry over the past 100 years. I also consulted with biotech experts and Doc Eifrig, who recently wrote a great Retirement Millionaire issue on immunotherapy.

 

Big health care companies are pouring billions of dollars into this space. That's because we're finally starting to see results from this amazing technology. Immunotherapy treatments are helping cancer patients live longer.

 

Cancer is a $130 billion-a-year market. And the small-cap stocks I recommended are trading at cheap prices. They have solid balance sheets with great management teams. We've done our homework. If one or two of these companies hit, they could offer life-changing gains. They have huge upside potential.

 

– Frank Curzio

 

 

Editor's note: If you're interested in making potentially "life-changing gains" as these companies continue to develop cancer treatments, consider a subscription to Small Stock Specialist. The companies Frank recommended could easily return 100%... 200%... even 500% in the coming years. Learn about this megatrend – and how to access these names – with a risk-free, four-month trial to Small Stock Specialist. Click here for more.

These companies could offer investors 'life-changing gains'...

 

Yesterday, Small Stock Specialist editor Frank Curzio explained the strategy he uses to deliver his subscribers winner after winner.

 

In today's Digest Premium, he discusses one of the most intriguing industries in the market... and why companies in this sector could offer once-in-a-lifetime gains...

 

To continue reading, scroll down or click here.