Leaving Napa Valley... Europe imploding... A 100% bond... A subtle hint to buy gold... Faber says gold is 'dirt-cheap'...
Our Atlas 400 Napa event ends today... As I write this, a few members and I are having breakfast on the balcony of the Auberge du Soleil, a beautiful hotel cut into the hillside. It overlooks all of Napa Valley. If you've got to work, doing so with this as your backdrop is the way to go...
A few Atlas events – like Oktoberfest and car racing in Germany – make our schedule every year or two. Traveling to Napa Valley during "crush" is one. Thanks to some friends in the area, we were granted inside access to some of the greatest restaurants, wineries, and winemakers in the area. Our first night in town last Thursday, we dined in the private room of The French Laundry. After a marathon dinner (we were probably served 11 courses), we spent 20 minutes in the kitchen with chef/owner Thomas Keller... a special occasion for your food- and wine-loving editor. For as much as he's revered by "foodies" like me, Chef Keller is unbelievably humble and gracious.
The next day we had a VIP tasting at the Harlan Estate, one of the top wineries in Napa (if not the world). We tasted the entire portfolio of Bond wines, a collection of five wines from five different vineyards in Napa. The idea behind Bond was to replicate the famous "Grand Crus" of France in California. We also barrel-tasted the 2009 vintage of a new Harlan wine, which has yet to be released (or even spoken of). Hardly anyone knows this wine exists (including a friend who works in the wine business in Napa). When this wine does premier, you'll want to load up.
And if you're a California cabernet fan, you know Andy Erickson, the winemaker at Screaming Eagle. Andy, who is as close to a rock star as Napa Valley has, joined our group for dinner Saturday night. He was among the top-notch winemakers invited by our hosts at the Sonoma winery Lookout Ridge. (Later this week, I'll dedicate more space to our incredible event at Lookout Ridge, which donates wheelchairs to those in need.) If Screaming Eagle is out of your price range (at several thousand dollars a bottle on most menus), you should try Andy's other wines, Leviathan and Favia. Both are delicious and affordable.
I hope you enjoyed a little talk about fine food and wine... because the rest of today's Digest is bleak. Europe is imploding. It seems every day the market becomes more accepting of the continent's problems... and the possibility that the euro zone could dissolve. You may recall we began discussing Europe's debt problems in March of last year...
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Like dominoes, the highly indebted economies of Europe are going to topple. Greece was first. But plenty more problems are coming. Italy has no way to meet its obligations. Nor do Portugal or Spain. Iceland still has no plan to reimburse Great Britain and The Netherlands for the $5 billion those governments lent it to cover the collapse of its banking system. Events over the past two weeks in Greece should give you plenty of warning governments all over the world have too much debt. What will the U.S. do when a major European financial institution, like Italy's UniCredit – the predecessor of Kredit-Anstalt – fails? If the resulting contagion causes one of America's major banks to fail, what will the U.S. government do? The answer, my friends, is simple: It will print, print, print, and print. – Porter Stansberry, March 2010, Stansberry's Investment Advisory |
In that issue, Porter told the story of Kreditanstalt, the predecessor bank to UniCredit. As Digest readers know, UniCredit is our favorite bellwether of a deteriorating Europe. We'd short the bank if we could, but its U.S.-traded shares are much less liquid than some other European banks. Regardless, shares dropped 11% today to $0.69 a share, a new low...
While we can't short UniCredit, we can – and did – short Deutsche Bank and Royal Bank of Scotland. Since shorting both stocks in mid-July, Investment Advisory readers are up 44% and 55%, respectively.
European shares fell today as Philipp Roesler, Germany's economy minister, said we could see an "orderly default" in Greece to stabilize the euro. He also said the country's deficit-reduction measures to date have been "insufficient." We don't think there's any question whether Greece will default. The country's two-year paper is now yielding 70% (a rate we'd argue Greece can't afford). And one-year Greek debt is yielding more than 100%.
We do, however, believe one could argue the "orderly" aspect of that default... Roesler said a Greek default would mean "re-establishing the affected state's ability to function, perhaps with a temporary restriction of its sovereign rights." In other words, the euro as we know it is toast.
While not as extreme as Greece's borrowing costs, Italian yields rose in the latest auction... The likely next of the PIIGS (referring to the weak euro-nations of Portugal, Ireland, Italy, Greece, and Spain) to tumble saw the interest rate for its 12-month bonds rise to 4.153% from 2.959% in last month's auction... That's the highest yield since September 2008. Credit default swaps, insurance against default, on Greece, Italy, Spain, and France all hit a record today.
So what's the solution to the ongoing problems in Europe? As we said in March 2010, "print, print, print." And according to the G7 association of finance ministers from the top seven Western industrialized nations... we're not far off. In a statement following its most recent meeting, the G7 said...
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There are now clear signs of a slowdown in global growth. We are committed to a strong and coordinated international response to these challenges... Concerns over the pace and future of the recovery underscore the need for a concerted effort at a global level in support of strong, sustainable and balanced growth. We must all set out and implement ambitious and growth-friendly fiscal consolidation plans rooted within credible fiscal frameworks. |
In case you have any doubts about what the above statement means... the G7 continued, "Central Banks stand ready to provide liquidity to banks as required." World governments are about to print tons of cash. Buy gold.
In an interview with Yahoo Finance, Marc Faber – editor of the Gloom Boom & Doom report – said gold could hit $10,000 per ounce... He said "gold will be very well supported" in the long term because of the continual debasement of fiat money. "According to some statistics," he continued, "the gold price today should be worth between $6,000 and $10,000 per ounce," making the metal at today's prices "dirt-cheap."
When we have questions about which gold mining stocks to buy, we ask Gold Stock Analyst editor John Doody. He regularly publishes his Top 10 list of gold stocks for subscribers... The 10 best buys based on resources in the ground and cost per ounce. Buying this portfolio of gold stocks is a sure way to outperform the market. To learn more about John Doody, click here...
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New 52-week highs (as of 9/9/11): General Electric (GE) and Deutsche Bank (DB).
In today's mailbag, we have a plea for us to continue publishing True Income. Don't worry folks... it's sticking around. Send your feedback to feedback@stansberryresearch.com.
"A day or two ago I read your comments and Mike Williams' comments about True Income. I currently have about a quarter of my portfolio in True Income recommendations and hope that you keep this newsletter forever (or at least till the end of my life). I like the way that the bonds reduced the volatility of my portfolio and the steady income that comes from clipping coupons." – Paid-up subscriber Mike
Goldsmith comment: We plan on publishing True Income for as long as we're in business. To re-read Friday's Digest about True Income, click here.
"Porter: a truly fascinating history lesson, thank you very much. I lived in England until 1974 but history was never my strong suit.
"It takes a great deal of research to analyze the world's economic woes and you set everything out so clearly and in a language that laymen understand. I sometimes feel as if I am in a time warp as I read avidly your articles and then hear such contrarian views from nearly all the talking heads on television and in the press. The only reason I take any notice of them at all is that I am retired and I want to make sure that what I learn is fair and balanced – you are fair and balanced, they are in a different world entirely and from now onwards will be ignored.
"Keep up the great work; I really appreciate all the information." – Paid-up subscriber Richard Giles
Porter comment: Don't ignore the twits on TV... Everyone needs a laugh.
Regards,
Sean Goldsmith
September 12, 2011
Oakville, CA