Nailing the gold trade... A 15% dividend... Steve's favorite virtual bank... Emerging markets love scotch... More positive feedback...
Kudos to Brian Hunt and Amber Lee Mason, co-editors of DailyWealth Trader, our newest, daily trading service.
Brian and Amber expertly traded the huge rally in gold stocks over the past few weeks, showing subscribers how to make a small fortune along the way...
On May 21, DailyWealth Trader called the bottom in gold stocks... The Market Vectors Gold Miners Fund (GDX) – an exchange-traded fund that holds a basket of large gold-mining stocks – had jumped from less than $40 a share the previous week to $43.01 the day we published.
In that issue, Brian and Amber explained how gold stocks were rallying from a support level around $39, following a huge selloff since March. (GDX fell 30% peak to trough.)
Then... in a May 29 essay titled "A 'Shout It from the Rooftops' Moment for Gold Stocks"... DailyWealth Trader reiterated its call to go long gold. (GDX had rallied from $43 to nearly $45 in the meantime.)
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This action is part of why master trader Jeff Clark, editor of Advanced Income, is telling his readers, "I am pounding my fists. I am stomping my feet. And I am telling you without any hesitation whatsoever... YOU HAVE TO OWN GOLD STOCKS HERE." |
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Jeff also points to how cheap these stocks have gotten. "Most of the big names are trading below 10 times earnings and paying dividends of 1.8% or more." |
On June 1, gold and gold stocks popped higher again... Poor employment numbers led the market to anticipate another round of quantitative easing. GDX spiked from $43.78 to $46.58 in one day. We wrote about in Monday's Digest.
DailyWealth Trader continued advising readers to "stay long" gold stocks... "Gold stocks are still cheap... still hated... and now they're moving higher."
And gold stocks continued moving higher. As of yesterday's close, GDX is up 10% from when we called the bottom. DailyWealth Trader readers could have made more than 20% in a little more than two weeks trading junior gold miner ATAC Resources... And another 10% trading small, African miner Keegan Resources.
Longtime S&A readers know our affinity for mortgage real-estate investment trusts (REITs), or "virtual banks"... We call them virtual banks because they make money like a traditional bank... but without all the physical trappings of a bank (like branch offices or ATMs). Specifically, virtual banks borrow money from the Fed and other lenders for almost no interest. Then, they invest that money in higher-yielding 100%-government-guaranteed mortgage securities.
For investors, these stocks pay huge dividends... Annaly, the bellwether of the industry, pays a 13.4% dividend, for example.
The time to buy virtual banks is when the interest-rate spread – the difference between the rate the company pays to borrow money and the rate at which it loans money – is wide...
And today that spread is artificially wide because Federal Reserve Chairman Ben Bernanke is holding short-term interest rates artificially low... near zero. Meanwhile, companies like Annaly and fellow virtual bank Hatteras Financial can make almost 5% investing in mortgages.
I asked Retirement Millionaire editor Dr. David "Doc" Eifrig, who along with True Wealth's Steve Sjuggerud is a big proponent of virtual banks, what he thought about the sector today...
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One of the greatest trades in the market is buying companies like these that pay interest of mid- to high teens annually and are trading right at book value. Of course, the risk is that government financing of short-term interest rates lessens. That would raise borrowing costs and quickly hammer these stocks... But how likely is that over the next year or two? Slim to none according to the stock market and the Fed itself. |
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These are great securities to have in your portfolio, and I've recommended them in Retirement Millionaire several times over the past few years. I still love this trade. It doesn't get much easier than this... buying government protected/guaranteed paper, financed by the government... |
You can think of virtual banks as a "back door" way to take advantage of the Fed's super-low interest rates. As we said above, Annaly and Hatteras are two virtual banks you can buy. But Steve Sjuggerud likes another virtual bank better. He discussed it in the July 2011 issue of True Wealth...
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Right now, thanks to a government-caused distortion, the interest rate spread is artificially wide. Ben Bernanke has cut short-term interest rates to the lowest levels in history. So banks can take in money at an artificially low interest rate and lend it out at a much higher one. Bernanke has cut short-term rates close to zero. Meanwhile, mortgage rates are close to 5%. |
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In the past, Annaly and Hatteras have been our favorite ways to play it when the interest rate spread gets artificially wide. |
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These two have been my favorites because they take on no credit risk at all. Like I said, they invest 100% of their money in government-guaranteed investments. And once again, they both performed fantastically for us – up over 30% in the year we've owned them. |
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But there's a new company doing this type of thing... And it has done better than both Annaly and Hatteras... |
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[This company] pays a higher dividend: 15% versus about 14% for Annaly and Hatteras. It also uses less leverage than Annaly and Hatteras use. And it appears to be dramatically less risky in the face of rising interest rates. If interest rates rise, Annaly and Hatteras could get hurt, but thanks to some sophisticated hedging techniques, [this company] won't move much. |
In his latest issue, Steve recommended a sector with huge upside potential... He thinks readers could double their money. You can access Steve's latest pick by signing up for True Wealth. And if you decide it's not for you, we'll grant you a full refund any time during the first four months of your trial subscription, no questions asked. Click here to sign up (without watching a long promotional video)...
The world's largest booze producer, Diageo, rallied 4% today on news it would expand its scotch production over the next five years to meet demand from emerging markets. Diageo announced plans to invest 1.54 billion pounds to build a new malt distillery in Scotland and expand existing facilities. The company, which makes Johnnie Walker, J&B, and Bells whisky, has seen scotch sales grow 50% over the last five years... Sales are approaching 3 billion pounds.
"We expect that success to continue, particularly in the high-growth markets around the world, which is why we are announcing this major investment in Scotch whisky production, committing over 1 billion [pounds] in the next five years, to seize that opportunity for global growth," CEO Paul Walsh said in a statement.
Diageo expects emerging-market consumption to make up 50% of revenue by 2015, up from 40% today.
New 52-week highs (as of 6/5/12): None.
We've been getting lots of positive feedback lately, but it never lasts for long... Send your notes to feedback@stansberryresearch.com.
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Regards,
Sean Goldsmith
New York, New York
June 6, 2012