It's in the air...

It's in the air... Waiting for the Fed... The 'Bonfire Brigade'... Four ways to prepare... The most contrarian trade of all... More 'signs of a top'... Grantham: 'It's different this time'... Greece yields 22.48%...

Editor's note: Porter Stansberry will appear on Alex Jones' radio show tomorrow at 2:30PM EST. Porter will be discussing the possibility of a third round of quantitative easing and what it will mean for the world economy. You can listen at www.infowars.com.

 This morning, I walked our two dogs in the park across the street, as I do every morning. And once again, I ran into the same few neighbors out walking their dogs.

One older fellow has two Shih-Tzus. He always says hello and usually comments on the weather. But this morning, he stopped, looked me in the eye, and asked out of the clear blue, "What do you do for a living?"

I assume he asked because when I'm in town, I'm home every day of the week. So I told him. Without hesitation, he asked with a desperate look in his eye, "Do you know what's going to happen?"

That's all he said. He didn't have to establish a context. We all know the context. It's in the air. The context right now is: The Fed is buying $75 billion of Treasurys and mortgage bonds every month. Everyone wants to know what will happen next. Will the Fed cut short the current round of quantitative easing (QE2)? Will it stop as scheduled on June 30? Will it initiate QE3 immediately? Will it wait weeks or months to do so?

I told him anybody who says he knows exactly what will happen isn't credible. The simple fact is, the entire financial and economic world is sitting around, playing cards, twiddling its thumbs, waiting to see what the Federal Reserve will do.

That's where we are. To pretend otherwise is as bad as pretending the Fed has the power to control the economy, to know precisely when to put on the brakes and step on the gas and carry us one and all to the perfect destination, right on time. It's silly to even entertain such nonsense.

 The Fed is like the rest of the modern financial complex – a bunch of brainiacs from Ivy League schools using complicated math to print mountains of money and then light it on fire. The Fed and Wall Street amount to a Bonfire Brigade. They build bonfires with money – much of it yours.

 In the current issue of Extreme Value, I've got a four-pronged strategy for keeping your assets away from the Bonfire Brigade. The first prong is something nobody ever wants to do: Hold cash. I can't think of anything anyone wants less than U.S. dollars right now. The dollar hit a new three-year low against six competing currencies today and is getting near all-time lows. And everyone is worried about inflation.

For at least the near term, holding cash is likely the most contrarian trade of all. If you're holding cash, at least you're not buying overvalued stocks, bonds, or commodities. And you're betting the value of your assets will be at least preserved well enough for a time, which is probably true.

But it's more than that. Holding cash isn't just a contrarian trade. Nobody ever likes to hold cash. Everybody loves to spend it – either on new, know-nothing speculations, or new cars, clothes, and iPads. Holding onto a large sum of cash is one of the most emotionally difficult thing you'll ever do as an investor. But if you master it, you can do anything.

 We've been tracking "signs of a top" in the commodities market for the past couple weeks. Most recently, we mentioned Barrick Gold's takeover of Equinox, a giant copper miner. Market peaks are always littered with the same warning signs... Giant takeovers at rich valuations, initial public offerings from the leaders in the industry, bottomless financing from Wall Street, and, of course, soaring asset prices.

Then, just before the market breaks, one of the most respected players in the field makes a ludicrous announcement... Remember private-equity powerhouse Henry Kravis declaring "the golden age" of private equity in April 2007, months before the market peaked?

Yesterday, we got that announcement...

The above statement comes from Jeremy Grantham, the highly regarded principal of GMO. Jeremy Grantham is a brilliant investor. He correctly called the top of stocks in 2007. And he re-entered the market near the bottom. In addition to excellent fundamental analysis, Grantham also relies on "mean reversion" to form his investment theses. "Mean reversion" simply means things tend to revert to their historical averages.

Whether it's market prices, equity valuations, or profit margins… Grantham knows trees don't grow to the sky and the world never comes to an end. For example, Grantham forecast the technology bubble, noting how far from the "mean" technology stock prices had wandered. They must, he posed, return to earth. He was right.

 But with his most recent investor letter, Jeremy Grantham has left his wheelhouse. Instead of the value investing he's known for, Grantham drones on like a typical Wall Street government shill about Peak Oil, global warming, income redistribution, and the world's need for a strict energy policy. And he says commodity prices have made a "paradigm shift"... Or in other words, high and rising commodity prices are here to stay. They will not revert to the mean.

Whenever an investor strays so far from his circle of competence and/or dismisses a core belief, it's a bad sign. And let me say, we don't entirely disagree with Grantham on the topic of rising commodity costs. We think commodities will trend higher (not without corrections) – but it'll be due to inflation, not a global shortage. We do agree with Grantham that commodities will have a major correction in the next few years. Grantham believes, as we do, that a Chinese slowdown and good weather (we're coming off one of the worst years for weather in decades) will push commodity prices down. And we'll buy then. In the meantime, we're holding onto our gold.

 We're not surprised Greece's austerity measures didn't work... We've yet to see a government anywhere in the world actually meet projected numbers. But the market was caught off guard. Greece announced a 2010 budget deficit of 10.5% of gross domestic product (GDP). Meanwhile, the Greek government was projecting a deficit of 9.4% of GDP. The five-year credit default swap (CDS) spread on Greece reached a record-high level of 1,345 basis points – up 47 basis points from yesterday's close. Put simply, it costs $1.35 million to insure $10 million of Greek debt for five years. And the yield on two-year Greek bonds is now a euro-era high of 22.48%.

This will be a good lesson for investors. No one is ever going to earn those 22.48% yields. Greece will have to restructure its debt. There's no way it can afford to refinance at current rates. And there's no way it can successfully control its finances. 

 New 52-week highs (as of 4/25/11): Continental Minerals (KMK.V), Automatic Data Processing (ADP), iShares Silver (SLV), SVB Financial (SIVB).

 Once again, we're accused of fraud... How do you feel about us? Tell us here: feedback@stansberryresearch.com.

 "Let me give you the bottom line first: Nothing is perfect. But to criticize your advisory info along with the newsletter is absurd. I filter out what I have no interest in, and do the homework on the rest. For all of the Nay Sayers, I say if things are to boring, or if your looking for the crystal ball picks do as I do. Trade the S&P E- Minis. Thanks I'm staying with you. Your Service is an absolute STEAL!" – Anonymous

 "I was a eight month subscriber to your S&A newsletter, but because of its success I took the plunge and bought your End of America package and have never more pleased. My only disappointment is I wish I had had more money to start with as I'm up over 150% on all of the recommendations I could afford. The SLV alone doubled my portfolio. So look forward to building my portfolio further as I read each of the newsletters from the all of the newsletters. I hope someday to buy the Grail. I know it is the best of all, but building my End of America portfolio protection first is the thing to do now. Buying your newsletters is the best things I've done investing for over 30 years. Thanks Porter and the rest of your advisors." – Paid-up subscriber MS

 "I just watched your long video/lecture concerning the state of the dollar economy. I liked what you wrote because I can understand what you write. I agree and I subscribed as a thank you for this education. And I will not unsubscribe this time despite my personal feelings. Now that I have been here for two days, I remember that I once before ordered your service only to find that you sell other services more than to give information. Well – maybe not MORE, but as much as. That makes me feel as if I have been scammed. And that the scam is continuing.

"Of course we all want to know the things that you advise from other authors, but why can you not just tell us yourself without the come- on for more subscription money? It is almost a bait and switch profile. Perhaps I will feel differently after some time has past but at this point I wonder if the big profit money from the 'gold rush' comes more from the gold found, or, from the shovels sold. I did appreciate the video and have sent it to my family members also. Thanks for that!" – Paid-up subscriber James Diffley

Porter comment: No, it's not bait-and-switch. We give you all we have promised – and much, much more. But just like a restaurant with a good wine list, we hope you'll buy something that's higher priced, so we offer it.

If you decide to never pay us another penny, we will still continue to deliver everything we promised, without question. Nevertheless, you label our business a "scam"… on what basis? That we'd like to earn more of your business? That we believe we can serve your interests (and ours) in other ways?

I can't imagine how we – with a long operating history and thousands of happy lifetime customers in dozens of countries, not to mention a money-back guarantee on every product – could ever warrant such a term.

Please... take your business elsewhere. I'd much rather die in poverty than ever do business with someone like you.

Ferris comment: I can't help chiming in here...

To be clear, "bait and switch" is when you advertise a product, fail to deliver it, then attempt to "switch" to another product in fulfillment of the original offer. We never, ever do that.

Consider how we advertise the Black Market Income strategy we've developed in The 12% Letter...

When I promise my readers five ways to take advantage of our Black Market Income Strategy, that's exactly what they get. You get a special dedicated website with password-protected content that helps you (1) buy stocks without paying commission and potentially quadruple the income you collect, (2) earn "overnight dividends," (3) participate in private equity deals normally unavailable to the small investor, (4) use "The Fed Trade" to profit directly from the Fed's policy of ultra-low interest rates, and (5) participate in "Toronto's 13% Income Secret."

It costs less than $100 for a whole year of monthly reports and weekly updates. You get six months to try it or we'll give you a 100% refund. A scam? I think not. It's as great a deal as we've ever put together. 

And this offer for The 12% Letter is similar to every other offer we make for every other product we sell. It's not a scam. It's a great deal… one I'm proud to offer, and one I know Porter is proud to offer as well.

Regards,

Dan Ferris, Sean Goldsmith, and Porter Stansberry

Medford, Oregon and Baltimore, Maryland

April 26, 2011