It's Time to Panic
A new record high for Microsoft... McDonald's trounces earnings... Porter's 'no risk' investment continues to reward shareholders... The best way to buy gold stocks now... An urgent 'gold trigger' alert... P.J. O'Rourke: It's time to panic...
Editor's note: Be sure to read to the end of today's Digest for a brand-new essay from bestselling satirist and Stansberry Research contributing editor P.J. O'Rourke.
A new record high for Microsoft...
For the first time since December 1999, Microsoft (MSFT) shares are trading at a new all-time high today...
The software behemoth reported earnings after market close yesterday. Sales and earnings both beat analyst expectations, largely due to growth in its "cloud services" division. Businesses use the cloud to offload the hosting of their websites, apps, or data rather than keep the necessary extra computers and backup servers on-site.
The Wall Street Journal reports that cloud services made up much of Microsoft's $8.3 billion in capital expenditures last year, and seems to be driving the stock. The company's major cloud offering, called Azure, more than doubled its revenue, while the entire cloud segment climbed about 8%...
Mr. Nadella, on the company's earnings conference call Thursday, highlighted the progress of the company's cloud business.
"Once enterprise customers choose one of our cloud services, they continue to adopt more services," he said. He noted that Microsoft's cloud business has annualized revenue of more than $13 billion and that the company remains on track to expand that to $20 billion in fiscal 2018.
The company also said it would finish its acquisition of professional social-network firm LinkedIn (LNKD) in the second quarter of next year. As Porter and his research team detailed in the July issue of Stansberry's Investment Advisory, this acquisition is still a question mark for the company...
Microsoft expects LinkedIn to have little effect (less than 1%) on its financials in 2017 and 2018, but will start adding to earnings in 2019. The deal is expected to close later this year.
Three years is a long time. So it's too early to gauge how successful Microsoft will be integrating LinkedIn with its other product offerings... or whether it overpaid for the company. In the meantime, Microsoft continues to generate plenty of cash for shareholders.
Microsoft CEO Satya Nadella has been refocusing the company on its cloud-based software and services for businesses... and so far it appears to be working.
In addition, the company is currently finishing up one of the largest share buybacks in history... Last month, it said it was on track to complete its full $40 billion stock buyback by the end of the year.
Stansberry's Investment Advisory subscribers are up more than 100% since Porter recommended buying Microsoft in 2012... and the company has outperformed the S&P 500 Index by about four-to-one in the past year.
But Microsoft isn't the only one of Porter's recommendations in the news today...
Porter's "no risk" recommendation continues to reward shareholders...
Regular readers may recall Porter recommended shares of fast-food giant McDonald's (MCD) last April. As he wrote in the April 10, 2015 Digest, he believed shares were virtually risk-free at that time...
So far, investors who bought McDonald's way back in 2006 – just before the worst financial Armageddon of our lifetimes – have already made nearly 200% on their money. I'm confident that based on its current share price, similar (or even superior) returns are currently available to any investor wise enough and patient enough to buy the stock today.
There's essentially no risk to this investment at this price, given McDonald's brand, locations, price point, margins, and capital efficiency. So... if you're looking to protect your wealth during a financial crisis (you should be), look no further than the oldest recommendations still sitting in our Top 10 list. These types of companies are a great way to get rich, no matter what happens to the economy or to the stock market.
As Porter discussed at that time, the company had suffered under poor leadership for several years. But it had recently hired a new CEO – Steve Easterbrook – who promised to return the company to growth. And that's exactly what he did...
Existing-restaurant sales started growing again by the third quarter of last year, and accelerated through the first quarter of 2016. Shares hit new all-time highs throughout the spring.
But sales growth slowed in the second quarter of the year... And shares have been moving lower ever since. Through yesterday's close, shares had fallen nearly 16% since hitting a new high of nearly $132 per share in May.
Many analysts suggested Easterbrook's improvements – including paring down the company's menu and introducing "all day" breakfast – were no longer having the same impact. And most expected the company to report slower growth again this quarter. Those folks were wrong...
Today, McDonald's shares jumped 3% after the company reported existing-restaurant sales grew by 3.5% last quarter. This is more than double analyst estimates of just 1.5%... and higher than the company's second-quarter sales growth. These numbers are particularly impressive given the growing weakness in the broad restaurant industry.
In short, despite fears to the contrary, it appears the company's turnaround plan is going strong. Of course, as Porter explained in his original recommendation, shareholders are likely to do well even if the company's current strategy doesn't pan out...
Incredibly, over the last three years (all of which came during the previous CEO's reign), McDonald's was able to return more than $15 billion to its investors via dividends and share buybacks... without growing. Even at this reduced pace, McDonald's shareholders will receive capital returns (via dividends and buybacks) equal to the entire value of the company today in about 17 years...
Of course, it won't actually take that long. The new management team will reboot the company's franchise. Perhaps it will buy growing burger chain Shake Shack, similar to its previous stake in burrito chain Chipotle. Or maybe it will create some new product or promotion that takes off. Brands like McDonald's don't just go away. They come back. There's a big growth spurt at least once a decade. And when that happens, these cash distributions will soar.
My prediction is that over the next decade, McDonald's shareholders will receive returns of capital worth at least $100 billion – more than the entire business is worth today. If you're a shareholder, do you have to worry about what the stock price will do tomorrow or next week? Nope. You're going to get paid no matter what happens. And even after you've been paid back more than 100% of what you put up to buy the business, you'll still own a piece of the company, which by then will surely be worth a lot more.
Readers who took Porter's advice are up about 22% so far. Congratulations to Porter and his subscribers on two great calls.
The best way to buy gold stocks now...
Before we turn it over to P.J., we want to alert you to an urgent potential opportunity in the gold market...
Regular readers know we're incredibly bullish on the long-term outlook for gold and silver. As we've explained, they are virtually certain to trade hundreds of percent higher as the massive global credit bubble pops and the paper money system unravels.
But we have also been relatively cautious on precious metals in the near term... Gold and silver had soared higher for much of the year. And several measures of investor sentiment had risen to bullish extremes. A correction was long overdue.
As we noted last week, despite the recent pullback, bullish sentiment remains elevated. So further downside is possible before a longer-term bottom is formed.
Again, this means if you don't yet own precious metals, this correction is a great time to start building your portfolio. But if you've already taken our advice, we generally recommend waiting for sentiment to fall further before adding to precious metals positions today.
But this advice comes with one huge caveat...
From time to time, a specific opportunity occurs in a small handful of precious metals stocks. When it does, it often leads to incredible gains – gains as high as 100% or more in a single day – in those particular stocks.
More important, these opportunities can pop up regardless of what's happening to the actual prices of gold and silver. These rallies are often as likely to occur when prices are falling as they are when prices are rising.
Again, these situations are relatively rare... But Porter and his team recently found not one, but THREE of these opportunities in the market right now. They believe these stocks could absolutely soar at any time... even if gold and silver continue lower
In short, if you're looking to put new money into gold and silver stocks today, this may be the best opportunity anywhere in the world.
Porter and his team just published a brand-new report for Stansberry Gold & Silver Investor subscriber detailing everything investors need to know to profit.
If you aren't a Stansberry Gold & Silver Investor subscriber yet, click here to learn more about this time-sensitive opportunity.
New 52-week highs (as of 10/20/16): ProShares Ultra MSCI Brazil Capped Fund (UBR) and short position in Hertz Global (HTZ).
In today's mailbag, big gains on Microsoft... more feedback on the new Stansberry Research subscriber website... and praise for Doug Casey's new book, Speculator. Let us know what you think at feedback@stansberryresearch.com.
"Just a quick note of thanks... I am now UP 209% on Microsoft... Thanks for helping keeping my trading account happily in the green for many years! All the best." – Paid-up subscriber Matt
"Team, I love the new website!! Short, sweet and concise enough that I don't have to spend a lot of time searching. As busy as we all are, I like to see the condensed version and then read more if I need to. Keep up the good work of always striving for perfection." – Paid-up subscriber Dave P.
"Hello Stansberry & Company: I just checked out the 'Beta' version of the new Stansberry website. I love it! It is much clearer to read, easy to access all my Alliance publications and also to quickly scan the top stories. This is a major improvement from the old website. Launch!!!" – Paid-up subscriber Tom Sopchak
"I like the new website; it's not as busy on the home-page like the old design. I think it will be easier to navigate and use. As for Speculator: I already bought several books on release day, and gave away one to my nephew, who is also in the process of reading Atlas Shrugged, which he says is his favorite book ever. I told him that he'll find Speculator to be very much in the same mold. I also pointed my nephew in the direction of some recent interviews Doug has given about the book, and he has enjoyed those." – Paid-up subscriber Kevin Beck
"I finished the Speculator last night. A true page burner. Like Porter I felt the ghost of Ayn Rand stalking through the pages. As a young man (now in my 80's) I read Atlas Shrugged. It had a profound impact on my entire thought process. As a rookie stock broker required reading was Extraordinary Popular Delusions and the Madness of Crowds. Words are indeed powerful. Speculator is a great read. Holidays are coming... great gift idea." – Paid-up subscriber J.T.
Regards,
Justin Brill
Baltimore, Maryland
October 21, 2016
Time to Panic!
The first lesson we learn from Porter and the other wise men at Stansberry is: "Don't panic." Stick to your plan. Be calm. Stay cool.
Oh, the hell with it!
If ever there was a moment to flip out and get hysterical, this is it.
The 2016 election campaign is in a death spiral. Donald Trump is shooting himself in the foot while his foot is in his mouth. Hillary Clinton is on record as being willing to say and do anything to gain the kind of absolute political power in America that no one has had since King George III.
Things may go as wrong as they can go. (Certainly nothing that has happened in this election cycle indicates things can't go that wrong.)
One political party might wind up in complete control of all three branches of the U.S. government: the executive branch, both houses of the legislative branch, and, what with Supreme Court vacancies to be filled, the judicial branch as well.
No matter what your politics are – and no matter if you don't have any politics – turning America into a One-Party State is a terrible idea.
There go your checks (except for the big checks you'll be sending to the IRS) and there go your balances (especially those in your investment accounts).
How bad can things get?
Really, really bad.
How high could taxes go? In 1954, the federal tax rate for income greater than $200,000 was 91%. That's the kind of thing that can happen in a One-Party State. Never mind that the One Party in control at the time was supposed to be pro-business. Ike was president, and Republicans had majorities in the Senate and the House of Representatives.
How dizzying could inflation become? In Germany during 1921 and 1922, the inflation rate was in the tens of thousands of percent per month.
Germany was a developed country with smart central bankers. Inflation rates have been even worse in third-world countries. And maybe America is turning into one – judging by the kind of election we're having.
Framed on the wall in my office, I have a reminder of what can happen with government-controlled fiat money. It's a banknote from Zimbabwe in the denomination of $100 trillion. If you had one when it was issued, I believe you could, if you rushed to a bar fast enough, buy a beer with it.
How awful could the Supreme Court be? It has been awful before. From the beginning of our republic until 1864, the Supreme Court maintained that slavery was constitutional. The Supreme Court would go on to allow the enforcement of discriminatory Jim Crow laws until the Brown v. Board of Education case in 1954. And famed Supreme Court Justice Oliver Wendell Holmes, Jr. voted with the majority to let states forcibly operate on "undesirables" to keep them from having babies. Holmes upheld the Virginia Sterilization Act of 1924, saying "three generations of idiots are enough." (I'm glad he never met my family.)
We're going to get a Supreme Court packed with appointees who think the Constitution gives the federal government the power to make anybody do anything it damn well pleases.
Even the supposedly conservative Supreme Court of President Obama's first term ruled that the government could force everybody to buy health insurance. What will the government make us all buy next?
Maybe we'll all have to buy a cat. Nothing against cats, but I have three large dogs who love to chase things. My house will be a wreck. Also, my three large dogs are mostly toothless. When they catch the cat, the cat is going to tear them to shreds. My vet bills will be through the roof.
Although, by then, Hillary will have passed the "Affordable Veterinary Care Act" and we'll all have to buy pet-care insurance.
If the government can force us to buy things, then the government can force us to sell things, too. The Gold Reserve Act of 1934 required every individual in America to surrender all of his or her gold and gold certificates to the U.S. Treasury. In return for the gold, the Treasury paid individuals $35 per ounce in U.S. currency. That's $624.32 in 2015 dollars – about half the spot price of gold as of this writing. The government's confiscation of gold wasn't reversed until 1975.
If you have any gold, maybe you had better quickly turn it into dental fillings and tooth crowns. The government won't go around prying the teeth out of people's mouths. Or will it? We'll find out when the "Affordable Dental Care Act" is passed.
But we won't need any more "Affordable Care" acts. Medical treatment of every kind will be completely free in the new One-Party State.
How will doctors get paid? Poorly. Won't this cause a doctor shortage? Nah. The government will quickly call "alternative-medicine practitioners" into service – herbalists, homeopaths, phrenologists, tribal shamans, yoga instructors.
Get ready to have your appendix removed by an aroma therapist cutting open your abdomen with a healing crystal.
Will things really get this bad?
No, probably not. Our nation – and the free market for which it stands – has always shown a remarkable ability to bounce back from rotten politics, crummy politicians, and lousy government rules and regulations.
When the sun comes up on November 9, we'll do it again.
But nothing is wrong with having an anxiety attack in the meantime. Sometimes panicking is cathartic. It gets the fear out of our systems.
The results of the 2016 election won't turn out to be as horrible as we were afraid they were going to be. And we'll feel relieved. We'll say, "It could have been worse."
Then we'll roll up our sleeves and get to work repairing the damage that politics has done to our nation.
Regards,
P.J. O'Rourke