It's Not Too Late to Profit... Yet
Is Sjug's latest call already playing out?... Six-month highs for Chinese blue chips... The 'New China' economy is surging... It's not too late to profit... yet...P.J. O'Rourke's trip to South America...
Is Sjug's latest call already playing out?
Chinese stocks jumped again today, pushing the country's blue-chip index to a fresh six-month high.
Shares have been moving higher ahead of a June 20 deadline, when index provider MSCI will decide whether to include domestic Chinese stocks in its emerging markets indexes.
As we've discussed, inclusion will essentially force hundreds of billions – possibly trillions – of dollars into Chinese stocks over the next few years. MSCI has been considering this move for several years now. But our colleague Steve Sjuggerud believes this is the year they will finally vote in China's favor... and it appears others are beginning to catch on.
Today's rally also followed reports of better-than-expected economic data in May, suggesting concerns about a slowdown may be overblown. As news service Reuters reported this morning...
China stocks extended gains on Thursday, with the blue-chip CSI 300 Index settling at a fresh six-month high, buoyed by stronger-than-expected foreign exchange [forex] and trade data...
Data on Wednesday showed China's foreign exchange reserves rose more than expected in May to a seven-month high as tougher capital restrictions and a weak dollar reduced pressure from capital outflows.
Analysts expect forex reserves to increase further as the yuan has sharply rebounded against the U.S. dollar in recent weeks after the central bank declared war on speculators.
Further boosting sentiment, China reported stronger-than-anticipated exports and imports for May despite falling commodity prices, suggesting the economy is holding up better than expected despite rising lending rates and a cooling property market.
The market also got some good news from e-commerce giant Alibaba (BABA)...
The "eBay of China" forecast dramatic sales growth during its annual investor day this morning. As financial-news network CNBC reported...
Shares of the e-commerce company's stock soared more than 10% in early U.S. trading Thursday, after management upped its outlook for Alibaba's revenue growth for the full year.
The Chinese conglomerate is now forecasting total sales growth of 45% to 49% this year, a target that tops analysts' expectations by 10 percentage points. The new forecast on Wednesday from the CFO drew "gasps of wow" from investors at Alibaba's Hangzhou headquarters.
This is clearly a great sign for BABA shareholders. But it's also confirmation of an important trend: China is rapidly changing from an export-driven economy to a consumer-driven economy. And the Internet is leading this change. As the New York Times noted this morning...
Alibaba signaled on Thursday that for all the global worries about China's rising debt and bloated state industries, its economy still enjoys a strong pillar of support...
Alibaba's forecast illustrates the power of China's vast and cutting-edge online culture. Though the government strictly controls political content and entertainment, China has evolved into the world's largest group of Internet users who comfortably shop, transfer money, invest and even rent bicycles with the tap of a smartphone. Online shopping has been a bright spot as economists worry about China's rising corporate debt and overcapacity in its old-line industries like steel and glass.
This should sound familiar to Steve's True Wealth China Opportunities subscribers...
He says it is one of four critical trends – including the upcoming MSCI decision – that virtually guarantee Chinese stocks will soar over the next several years. As he wrote in the March issue of True Wealth China Opportunities...
You can call it e-commerce, the Internet, or the "New China" economy. Whatever you call it, it's changing the day-to-day life of Chinese citizens. And it's completely reshaping China's overall economy.
Honestly, this is what blew me away when I visited China last summer. And while we launched China Opportunities to take advantage of several trends, the "New China" economy is the most exciting.
The integration of technology into everyday life in China is remarkable... In major cities, the Chinese use their phones for everything: entertainment, banking, paying for goods and services, and just about everything else. This trend is unstoppable...
People are doing more and more with their phones because it's easier. And unlike the U.S., China doesn't have legacy industries to get in the way of technology. Banking, entertainment, and shopping have all seamlessly moved to mobile.
The Chinese are quick to adapt, so switching to completely mobile payments happened fast – in just a few years. The same is true with technology adoption in general in China.
As Steve explained, online shopping is already huge in China. But it still has plenty of room to grow, particularly outside of the major cities. More from the issue...
Folks in smaller cities shop online at a lower rate. But there are tons of them... 183 million people shop online in major cities, while 257 million shop online in smaller cities. And that number can grow dramatically as adoption increases.
The simple fact is that the e-commerce trend is quickly moving west throughout China. For the first time, these folks have disposable income... and mobile plans with 3G and 4G service that allow greater use.
That's why rural e-commerce will grow dramatically. And it means that hundreds of millions more people will be taking advantage of the New China economy in the coming years.
This is the reason our New China theme is the most exciting of the four major themes in China Opportunities... [These "New China" companies] are no-brainer long-term investments. They are all performing well. And they're set to transform China's economy in the coming years.
Folks who have already taken Steve's advice are doing well...
True Wealth China Opportunities subscribers are up an average of 17% in less than nine months. This includes 16 double-digit winners and gains on 20 out of 21 recommendations so far. And some subscribers are doing even better (as you'll see in today's mailbag).
But if you aren't already a China Opportunities subscriber, take note. Steve still rates every single one of these stocks a "buy" today... And he believes they'll ultimately return hundreds of percent over the next several years.
In other words, it's not too late. You haven't missed anything yet. If you've been on the fence about this opportunity, we urge you to take another look at Steve's research today. Click here to learn more about True Wealth China Opportunities. (This does not lead to a video presentation.)
New 52-week highs (as of 6/7/17): AbbVie (ABBV), Alibaba (BABA), Morgan Stanley China A Share Fund (CAF), First Trust Nasdaq Cybersecurity Fund (CIBR), Ctrip.com (CTRP), Fidelity Select Medical Equipment and Systems Fund (FSMEX), iShares MSCI China Index Fund (MCHI), Annaly Capital Management (NLY), Nvidia (NVDA), PowerShares S&P 500 BuyWrite Fund (PBP), ProShares Ultra Technology Fund (ROM), Weight Watchers (WTW), and short position in Canadian Natural Resources (CNQ).
At least one subscriber has already made a fortune from Steve's China recommendations. Are you benefiting, too? Let us know at feedback@stansberryresearch.com. And be sure to read on past the mailbag for the latest essay from famed satirist and Digest contributing editor P.J. O'Rourke.
"I have been trading for over 40 years, so I am not easy to impress, nor do I follow your '4% of portfolio max' guideline for individual issue exposure. That's why I put a ton of money into [one of Steve Sjuggerud's favorite China recommendations]. I have always thought Sjug was probably your best analyst (amongst many good ones, I might add), but his reasoning on China stocks seemed impeccable to me, and his banging the table on it and often stating his certainty on it did not hurt my willingness to take a large position.
"I am a hybrid – both a trader and investor. I like to hold what's working [investor] but play with very tight stops on each added position [trader]. If I catch a trend and add right, I wind up with a large position in something well ahead that I can just hold (NAK .35 to 2.80, FCX 4.40 to 14.0 last year). I have added to [this position] since I started buying it at 17.0 last year. It is now 20% of my net worth, but I am far enough ahead my risk is non-existent at this point, except for a chunk of my paper profits. Knowing when to sell is always harder, but that is a very happy problem.
"BTW, just as a perhaps interesting aside, given my tight stop strategy, it took me about 25 tries to nail FCX the last couple of years. My wife started calling me 'Ahab'. 🙂 But I finally got a large position I was able to ride from 4 to 14. It's a strategy that enables large gains with small risk, but does require monitoring of positions till they get going, and the ability to know when to add (usually during a modest correction to an uptrending 10 or 20 DMA). In any event... Thanks! [This one China recommendation] pays for a few hundred years of subscription fees! (so far)..." – Paid-up subscriber David G.
Brill comment: Congratulations, David! While we certainly don't recommend this approach for most folks – particularly those who are new to investing – we're thrilled to hear of your success.
For our other readers, we'll also remind you once again it's not too late to profit from this trend. In fact, the recommendation David referenced is up less than 20% since Steve originally recommended it last September.
While that's an excellent return in less than a year, Steve believes it and other True Wealth China Opportunities recommendations are likely to rise hundreds of percent over the next several years. Again, Steve still rates every single one of them a "buy" today... But that may not be the case much longer. Click here to learn more about True Wealth China Opportunities now.
Regards,
Justin Brill
Baltimore, Maryland
June 8, 2017
Thoughts While Watching a Rocket Launch Deep in the Jungle of French Guiana
It was a rainy night and I was standing with about 50 scientists and engineers on a raised platform surrounded by jungle so primitive and wild and cinematically picture-perfect (hanging vines included) that you could film Tarzan in it.
Five kilometers away, towering over the primeval foliage, was a temple to modernity. The pure white seamless steeple of an Ariane 5 main stage and payload capsule stood as tall as a 20-story building. Flanking this technological spire were a pair of massive, 100-foot-high streamlined columns containing the Ariane's solid fuel boosters.
Here was 780 tons of civilization's greatest ingenuity, highest intelligence, and finest electronic, technical, and mechanical precision plopped down in the midst of what things looked like when proto-humans were still living in trees.
It made me think. Actually, no it didn't. All thoughts were swept from my head once the countdown began. "Dix, neuf, huit, sept..." (Arianespace is a French corporation.)
"Six... cinq... quatre..." Steam billowed around the Ariane as immense hoses sprayed water on the nozzles of the rocket engines to act as a damper for the vibration of liftoff and keep the launch pad from melting.
"Trois... deux... un..."
AND THERE WAS LIGHT...
"The light of the world," or as close as we mortals can get to making it. The Ariane's rocket engines radiated a glare like the flashbulb of an old-fashioned Speed Graphic newspaper camera – if all of the newspaper photographers on Earth snapped a picture at once and the flashbulbs wouldn't go out. Vast luminosity reflected from the low cloud cover and French Guiana was lit like day.
We could have read small print on the jungle platform (if anybody had been calm enough to read). Maybe something in French appropriate for the occasion, such as Jean-Paul Sartre's Being and Nothingness, given how anxious we were that the launch would result in the former and not the latter.
The Ariane seemed for a moment to hover lovingly over its own shining incandescence. Then 2.9 billion pounds of thrust kicked in. No one watching it could take a breath. No one watching it could hear a thing, either. A pure silence seemed to last forever. In fact, it lasted 4.1 seconds... the time it took the sound waves to reach us.
When they did, it was like nothing you've ever heard before. The noise was not so much loud as it was deep, swelling, surging, rolling. Sound waves are waves. It was a pounding surf of a noise. No audio recording could do justice to a sound that was more felt than heard.
We were awash in a second boom. The speed of sound had been reached in less than 45 seconds.
The Ariane streaked toward orbit atop an arch of blazing fire supporting the firmament.
Excuse me for waxing lyrical. Digest readers who've witnessed a rocket launch will understand. Those who haven't should go out and do so immediately. It's a few minutes that you'll remember forever.
A payload engineer was standing next to me. "When you see power like that, your first impression is destruction and evil," she said. "But we've captured it for productive good."
That's when I began having thoughts again.
"Capturing something for productive good" – the miracle of the free market in a nutshell.
The Ariane launch was the most up-to-date possible example of Adam Smith's three basic free-market principles...
Pursuit of self-interest: Arianespace is a profit-making corporation, and the Ariane 5 payload contained two separate privately funded, commercial communications satellites, one each for ViaSat and Eutelsat. (Note that when governments had monopolies on space flights, they used them... first to attack London with the V-2, and then for Moscow and Washington to threaten each other with Dr. Strangelove movie plots.)
Division of labor: It took untold thousands of workers with a myriad of different skills to build the Ariane, its payload satellites, and the Centre Spatial Guyanais launch facilities. (And some of those skills might not be the ones you're thinking of. The Centre Spatial is guarded by the French Foreign Legion.)
Freedom of trade: The launch was the result of a highly complex trade deal involving Arianespace, the European Eutelsat satellite provider, the American ViaSat communications company plus Boeing, which built ViaSat's satellite, and Airbus, which is the prime contractor for building the Ariane 5.
Many people think the free market is all about competition. Especially politicians, the liberal college professoriate, too many media commentators, and the cement-head kids demonstrating in the street against this, that, and the other thing. They're wrong... The free market is all about cooperation. ViaSat and Eutelsat are trade rivals, not to mention Boeing and Airbus.
This cooperation and Adam Smith's three basic principles are the timeless heart of the free market, which has been around since humankind began. People were engaged in the free market before anyone ever wrote anything about it (or knew how to write).
At the moment I was watching the Ariane launch, primitive folks in the far reaches of that jungle were probably "capturing something for productive good." (There is evidence that French Guiana contains isolated groups of Wayampi indigenous people who have never been in contact with the outside world.) Maybe they were pursuing self-interest, divvying up the work, trading, and cooperating to capture a jaguar. The productive good being that it wouldn't eat them – and they could eat it.
Nor is the free market all about price, as it is often criticized for being. I had an interesting talk with Arianespace's CEO, the charming and relaxed Stephané Israël. Ariane is supposedly being undercut in payload cost by newcomers such as SpaceX. M. Israël had a six-word response to the challenge: "Eighty successful launches in a row."
Reliability is an integral part of value. We free-market capitalists have only ourselves to blame that most market-exchange pricing doesn't adequately factor in reliability. The only place where reliability is as determinate as it should be is on the Volatility Index (VIX). And when reliability is high, the VIX is low.
The free market also isn't all about what's new and novel and catches the eye of the fickle public. I asked M. Israël about the reusable rockets that have gotten so much age-of-recycling press attention. "We have looked into the cost and reliability of that," M. Israël said. "Why doesn't Coca-Cola refill its old bottles anymore?"
My last thought from French Guiana was about the idea that the free market is somehow "soulless" and "unspiritual."
Not at all! (Or as the locals would put it, "Pas de tout!") On the night before the launch the scientists and engineers drank deep libations to the sure and certain hope of success and then went down to the beach for a solemn ceremony.
The ceremony is based upon an ancient legend that comes down through the mists of time from the earliest days of space exploration, maybe from as long ago as the Titan I missile program in the early 1960s.
The story, as the "space elders" tell it, is that the Titan I scientists and engineers at Cape Canaveral got stinking drunk. They were in a lousy mood. They had to scrub their mission each day for the previous eight days because of weather. They decided that something had to be done. They stole a steak knife from the restaurant where they were drinking, went out on Cocoa Beach, and buried it with the tip pointed toward the rocket trajectory's azimuth.
(Yes, I had to look up "azimuth" in the dictionary. It means "The direction of a celestial object, expressed as the angular distance from the north or south point of the horizon to the point at which a vertical circle passing through the object intersects the horizon." Got that? Me either. But spiritual truths aren't supposed to be easy to understand.)
And the next morning, the Titan I launch went off without a hitch.
The Ariane scientists and engineers dug a hole in the sand and placed a knife at the bottom of the hole with its tip pointing toward the Ariane's azimuth (whatever that may be). Then they lined up and each dropped a handful of sand into the hole until the knife was buried.
Perhaps in the far reaches of the jungle isolated groups of Wayampi indigenous people were just then bowing down to the distant "Lightning-Thunder-Three-Sticks-Magic" in expectation that it would please them with its brilliance the following evening. If so, they weren't being any more mystical than the scientists and engineers.
Regards,
P.J. O'Rourke