Like a waiter in a good restaurant...

One landlord defends the rental business...

In yesterday's Digest Premium, we discussed the huge amount of money institutional investors are pouring into the rental-home market... And how some investors question private-equity firms' ability to manage tens of thousands of these properties...

Michael Stein, the real estate professional we recently interviewed, is one such skeptic.

David Neithercut – CEO of apartment Equity Residential, a real estate investment trust (REIT) that owns apartment buildings – is another skeptic of the single-family rental business.

"I think that they will be more challenging to manage than people think. I think that it's likely they will underestimate tenant credit quality, turn costs [i.e., cleaning, painting, repair], re-leasing expenses, capex [or capital expenditures] and maintenance," Neithercut said during his company's second-quarter conference call. "Not that it can't be done. But the notion that it can be done as efficiently and with the same profit margins as apartments is comical."

That's strong language from a corporate CEO.

Remember, the managers of apartment REITs are "talking their book" when they point out the shortcomings of the single-family rental business... It's a competitor to their business.

Edwin Tucker is Porter's newest analyst. A landlord himself, he provided key research behind Stansberry's Investment Advisory's recent recommendation of single-family-home rental company American Homes 4 Rent (AMH).

Edwin offered his thoughts on negative pieces filtering through the media about the single-family rental sector:

American Homes 4 Rent announced earnings after market close yesterday. The company just missed on net income (losing $0.05 per share, which is up from the first half of the year). The company also signed 4,602 leases in the quarter... And occupancy is over 96% for homes that have been rent-ready for 90-plus days.

AMH will also initiate its first dividend payment of $0.05 per share on January 14, 2014. The stock was flat on the news. Edwin had this to say about the announcement…

– Porter Stansberry with Sean Goldsmith

One landlord defends the rental business...

There are lots of skeptics surrounding the single-family home-for-rent business... But one of Porter's analysts (a landlord himself) explains why he thinks the business model is viable and healthy.

To continue reading, scroll down or click here.

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One landlord defends the rental business...

There are lots of skeptics surrounding the single-family home-for-rent business... But one of Porter's analysts (a landlord himself) explains why he thinks the business model is viable and healthy.

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

Like a waiter in a good restaurant... Yet another warning about inflation... Why finance loves irony... Looking for celebrity subscribers...

In today's Friday Digest... another warning that everyone will ignore...

Normally, as longtime readers know, we do our best to deliver something useful in these pages. It is our quest to share with you the information we'd want if our roles were reversed.

Think of the Friday Digest like you would your favorite waiter at the best restaurant in town. You don't bother looking at the menu. You just ask the waiter what you should have for dinner. You know he's been in the kitchen. He has seen the food and the chef's dishes. The waiter knows what's good. You only know what looks good on paper. There's usually a huge difference.

The same is true in finance... only financial markets love irony. In finance, the best thing on the menu is always the thing that looks worst. It's this paradox of finance that makes it so interesting... and such a great subject for writers. People don't get what they expect from the markets. They get what they deserve.

The same, of course, is true in politics. The voters don't get what they expect. The joke is on them. It seems obvious to us that nearly everything the government says or promises is a lie. Lately, the lies have become so big and bold that it's hard for us to fathom how people take any of it seriously.

Like the big lie behind Obamacare. How could this big new law be anything other than a scheme to get healthy people to pay for health care that they don't need and won't use? How else were you going to finance the universal coverage? If you're healthy and have a low-cost, high-deductible plan… you can't keep it. Otherwise, the whole system will fail because the majority of young, healthy folks won't pay nearly enough to finance everyone else's care. What else did you think the law was for?

It's a funny thing about people and lies. If a lie lasts long enough... and is repeated enough... it becomes a kind of truth. Not a real truth of course... just a lie that's become accepted and respectable. That's what's happening right now to the idea of inflation.

Long (and rightfully) seen as the bane of the working man, the inevitable consequence of paper money, and a hidden tax… inflation has suddenly become not only acceptable, but lauded. In fact, central bankers and economic leaders – people who should really know better – are now saying in public that what we really need is more inflation.

Two weeks ago, The New York Times published what I would describe as an ode to inflation. Said the Gray Lady:

People who believe that inflation will lead to an increase in prosperity or our standard of living are simply fools. Cutting more slices out of a pizza doesn't create more pizza.

What inflation does accomplish is shift the dynamics of who wins and loses in our economy. Very simply: People whose incomes and wealth are manufactured through their asset base become vastly wealthier on a relative basis. People whose wealth is tied to their labor and wages become vastly poorer.

For example, retailers want inflation because it enables them to mark up their goods. And combined with negative real interest rates (like we have now), they can maintain inventories for free (or even to produce a carrying profit). The school board knows that inflation will eat away at the real costs of the wages it must pay. And the federal government – the world's largest debtor – needs both inflation and negative real interest rates to pay for the absurd promises it has made to voters.

In current dollars, based on the net present value of all of its current and future obligations, the federal government owes more than $1 million to every citizen of the United States. Hopefully, you realize that these promises cannot be kept. What you might not realize is, absent negative real interest rates (driven by inflation), the federal government's current obligations couldn't be financed.

Inflation, unlike what our economic leaders seem to believe, isn't Santa Claus. It can't bring gifts to everyone. All it does is shift the benefits of our economy around. In the immortal words of President OBAMA!... inflation "spreads the wealth around a little."

Inflation penalizes wage earners to the benefit of asset owners. It benefits debtors at the expense of creditors. There's no net increase in the nation's wealth. One group is merely taxed for the benefit of the other. This is sold as a benefit to the country by our government. It has to sell it to us because without inflation it couldn't pay its bills. Ironically (because politics loves irony just as much as finance does), left-leaning middle-class citizens believe in the benefits of mild inflation most fervently. They are simply bad at math.

Since 1971, when we left the gold standard currency system, wages have stopped tracking gains to productivity. In the past, when innovations would cost some workers their jobs, there was a reciprocal benefit: The real value of wages increased at the same pace as productivity. Thus, they could be nearly assured higher wages in their next position. The fact that wages were tied to productivity through a stable, gold-backed currency was what propelled the middle class to prosperity. And it led to the United States' political dominance.

But as you can see in this chart, based on one originally published by the Economic Policy Institute think tank... when we took the dollar off gold and allowed the central bank to continuously debase the currency, the dollar and the wages paid in the dollar no longer kept pace with inflation. Thus today, when trade or innovation leads to a gain in productivity (and the loss of a job), there is no reciprocal benefit to wages for the middle class. The replacement job is sure to come at a much lower real wage.

It's this gutting of wages that most appeals to corporate America. To the wealthy, inflation provides easy ways of increasing the size of their asset base: All they have to do is borrow money at a negative real rate of interest and buy up productive assets. That's why farm prices have soared, why private-equity funds now control trillions in assets, and why the wealthy now dominate the middle class politically.

There are two good reasons to believe our current love affair with inflation will end badly. First, real wages have fallen so far and for so long that they are no longer attractive to many workers. The lack of labor participation has become an enormous burden with a record number of healthy Americans no longer working and instead living on taxpayer-funded assistance.

The other, even more powerful reason is that negative real interest rates have enabled our government to borrow truly unbelievable amounts of money. Not only will this eventually lead to a crisis in the U.S. Treasury market (with soaring interest rates), but this chronic borrowing has transformed America from the world's largest creditor nation (with massive income from global investment) into the world's largest debtor nation.

Foreign investors now own $5 trillion more of America's best assets than we own of foreign assets. Generations of Americans will be sending foreigners net investment income, month after month. If these capital flows continue, it won't be long before no one wants to hold a U.S. dollar.

What's the trigger? When will my dark fears about the future of our economy come to fruition? When will the inevitable next crisis strike? No one knows, of course. My "canary in the coal mine" is the dynamic between the price of gold (which represents sound money) and the price of U.S. long-dated Treasury bonds (which represents the global paper money system).

You can track long-dated Treasury bonds (which mature in 20 years or more) by tracking TLT on the stock market. It's an exchange-traded index fund that holds a basket of long-dated U.S. Treasury bonds. Today, TLT fell by more than 2%. Over the last year, it's down by 15%. You can track gold using the SPDR Gold Shares Fund (GLD), which holds gold bullion. Over the last year, gold has corrected significantly (after a massive 12-year bull market) and is down about 25%. Today, gold was down about 1.5%.

When the market finally realizes that inflation isn't good for the economy... that wages are far too low... that debts are far too high... you won't want to be holding U.S. long-dated Treasury bonds. I expect within the next few years, we'll see a real panic in Treasury bonds, with annual yields reaching more than 10%. Many investors will flee into gold, as the U.S. dollar will be seen as unstable.

You'll see a dramatic inversion between TLT (which will collapse) and GLD (which will soar). This prediction, by the way, isn't really a prediction at all. It's a trend. Over the last five years, gold has outperformed the long bond by more than 100%. That tells you all you really need to know about inflation.

My friend and colleague, True Wealth editor Steve Sjuggerud has been showing his subscribers how to profit from our government's money-printing... a phenomenon he calls the "Bernanke Asset Bubble."

But Steve agrees the good times can't last and the U.S. dollar is in serious trouble... The government's massive borrowing will ultimately lead to a crash. So he has also begun showing subscribers how to protect themselves and prosper when the inevitable collapse begins...

It's an offshoot of a presentation he gave at the New York Stock Exchange... He was the only "outsider" to present. You can learn more about what happened at the meeting, and get the details on a risk-free trial subscription to True Wealth, right here.

New 52-week highs (as of 11/7/2013): none.

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We're looking for famous people who are subscribers and would be willing to come on the show and talk about their experiences as investors. Maybe you are a movie star... or a best-selling author... or a famous athlete... or a global supermodel. Or maybe you know someone like this who reads our newsletters. Please reach out to us... get in touch. We'd like to talk with you about investing and use your experiences to help motivate and educate our audience. Just send an email to us at: feedback@stansberryradio.com.

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"[Regarding the October 29 Digest], the problem with politics cannot be solved at the federal level, but at the local level. For example, PA once had a strong state constitution with a small part-time legislature, term limits, etc. After the last state constitutional convention, every common sense protection was gutted.

"We are left with modeling our government after the dysfunction around us (other states). Both parties have local committee members who filter up through the state and federal levels. Regardless of how one is registered, get involved at the local level of politics if you want to reform it. If the foundation is not fixed, the 'upper levels' of government can never be reformed." – Paid-up subscriber Brian s.

"How about forcing every candidate, win or lose, to turn over all unspent campaign donations to the general treasury? Since they are responsible for increasing our debt, it would at least help to offset some of their damage. It might also help to unseat some of these entrenched career politicians that we hear so many complaints about since they would have to start raising cash along with any potential opponents… I know, fat chance." – Paid-up subscriber Ron Chandler

"Thank you for speaking up against the extortion of SAC Capital. Equally outraging was the extortion of JPMorgan for having a trader that dared to lose money on a trade! Unfortunately the billion-dollar settlement in that case pales in comparison to the extortion of $13 billion for selling mortgage-backed securities, many of which were on the books of banks that JPMorgan took over without time for proper due diligence when compelled to by the government.

"Ayn Rand described the hatred that people have of businessmen who do so much to improve our standard of living as 'Hatred of the good for being the good.' She observed that those who have this hatred share goals that are nihilistic – i.e. they do not want to help the poor to succeed, but rather want to see the successful man be punished for success.

"Personally, I think a lot of the left's hatred for successful people comes from their own sense of inadequacy. They cannot bear to see people who have achieved so much more than them because the high achievers show in contrast just how pathetic they are. Rather than admire them for their success and thank them for what they have done to improve the level of wealth in the world, they seek to destroy them." – Paid-up subscriber Joe

Porter comment: Joe's referring to a recent episode (No. 107) of my weekly Stansberry Radio podcast. On that episode, we interviewed author John Tepper… Our conversation turned to the federal government and the tactics it used to take down hedge-fund manager Steve Cohen. If you haven't listened, I encourage you to check it out. It's one of my favorite discussions we've had recently…

Regards,

Porter Stansberry
Baltimore, Maryland
November 8, 2013