New high for one of our favorite income producers...

New high for one of our favorite income producers... Three more winners for Doc... Dollar General goes hostile... Visit Nicaragua and get a free Stansberry Society membership... Doc debates a subscriber on 'munis'...
 

 As regular Digest readers know, Dr. David "Doc" Eifrig has been an outspoken bull on municipal (or "muni") bonds for years.

 

Munis are issued by state and municipal governments to fund everything from roads to stadiums. To encourage people to invest their money with the government, interest on muni bonds is tax-exempt.

 

Muni bonds are traditionally one of the safest corners of the bond market. As Doc wrote in the September 5 DailyWealth...

 

"Junk bonds from 1970 to 2011 showed a cumulative default rate of 25.27%. Muni bonds of the same credit rating had a cumulative default of 15.2%. But when you talk about better-rated munis, like the average A-rated bonds that make up the bulk of the Invesco Muni Value Fund's (IIM) portfolio, the default rate drops to 0.02%."

 

 Despite the low default rate, munis took a major hit in 2010 after financial analyst Meredith Whitney issued a dire warning. Whitney gained fame after she correctly predicted Citigroup would cut its dividend prior to the subprime crisis. Then she turned her focus on the muni-bond market. As we wrote in the July 24, 2013 Digest...

 

In late 2010, Whitney started warning investors about municipal bonds... She told CBS news program 60 Minutes we would see 50 to 100 sizable defaults in the municipal bond market that "will amount to hundreds of billions of dollars' worth of defaults."   In the six months following Whitney's comments, investors pulled nearly $50 billion from muni funds.

 

 But Doc didn't buy the doom and gloom. He told his Retirement Millionaire subscribers that it was still a great time to buy munis.

 

Then Whitney took another swipe at munis following Detroit's bankruptcy in July 2013. She wrote in the Financial Times...

 

As jarring as the reality may be to accept, Detroit's decision last week to declare bankruptcy should not be regarded as a one-off in the U.S. municipal market – which is what the bond-peddlers are now telling their clients. The aftershocks of the largest municipal bankruptcy in U.S. history will be staggering, and Detroit will set important precedents.   Municipal bankruptcies have historically been rare for a number of reasons – including the states' determination to preserve their credit ratings, their access to cheap funding and the stigma of bankruptcy. But, these days, things are very different in the world of municipal finance.

 

 Again, Doc still thought munis were a great vehicle for folks looking to collect tax-equivalent, double-digit yields.

 

 Today, Puerto Rico is facing possible default, which has roiled the muni bond market. And again, Doc is staying the course. He doesn't believe Puerto Rico defaulting would jolt the market. In a recent issue of Income Intelligence, he wrote...

 

Puerto Rico's slow-moving bond default means that it's unlikely the territory will cause big turmoil in muni markets. Municipal-bond mutual funds have unloaded their holdings and now hold only 52% of the bonds outstanding. The rest are held by hedge funds and other special-situation investors. You should still check your bond funds so you know your exposure.

 

 In general, an improving economy is pushing muni bonds higher. As Doc wrote in the May issue of Income Intelligence...

 

Since we bought municipal bonds last summer, everything has gone right for the sector. An improving economy has led to rising tax revenues for municipalities at the state and local level, and the financial conditions of local governments has never been better. At the same time, the number of newly issued municipal bonds has dropped, keeping supply low and prices rising.   Meanwhile, fears of Detroit's bankruptcy and Puerto Rico's near-bankruptcy are no longer spooking the market. Investors are flocking to munis to earn extra (tax-free) yield. If munis have one thing going against them, it's that they are rising too fast. But we think there's still a little more room to run higher.

 

 And the trade has worked... Yesterday, shares of one of Doc's preferred muni-bond funds – the Nuveen Municipal Opportunity Fund (NIO) – hit a fresh 52-week high.

 

You can still buy certain muni-bond funds (like IIM and NIO) at large discounts to their net asset values... And they're still paying near double-digit tax-equivalent yields.

 

 Also, be sure to read today's mailbag, where Doc takes on a skeptical reader's fears about munis. (Yes, Doc still thinks they're a great vehicle if you're looking for large income.)

 

 On the topic of Doc, he's about to close three more winning positions in Retirement Trader...

 

As we mentioned in yesterday's Digest, Doc has already closed 181 of 183 positions for a gain for his subscribers... with an average annualized return of more than 50%. And his track record will soon improve...

 

Next week, Doc expects to close positions in Occidental Petroleum for a 10.9% gain on margin in less than three months (annualized gain of more than 71%), Oracle for a 16.8% gain on margin in about two months (annualized gain of more than 95%), and the Technology Select Sector SPDR Fund for a 12% gain on margin in less than three months (about 33% annualized).

 

 Here's the latest from the Dollar General/Family Dollar saga...

 

To recap, Porter and his analysts recommended shares of Dollar General as a way to profit from the "disappearing middle class."

 

 We told you about Dollar General's increased offer to purchase fellow discount retailer Family Dollar (FDO) in the September 2 Digest.

 

Now, Dollar General (DG) is taking its offer to acquire Family Dollar directly to shareholders. Dollar General is offering $80 per share for a total offer of $9.1 billion.

 

Family Dollar previously agreed to sell itself to Dollar Tree (DLTR), which sells everything for $1.

 

Dollar Tree's offer is not as good – the company is offering $74.50 a share for a total offer of $8.5 billion.

 

The Family Dollar board rejected Dollar General's offer based on antitrust concerns, claiming proximity of Dollar General stores affects pricing. This is in spite of the fact that Dollar General has agreed to sell up to 1,500 stores to win antitrust approval and has committed to paying a $500 million reverse breakup fee if the deal does not close.

 

The tender offer (to shareholders) allows Dollar General to start antitrust discussions with the Federal Trade Commission... which may provide insight into the difficulty in getting the deal cleared and possible divestitures.

 

Now it's up to individual shareholders to decide whether to accept the offer.

 

While the potential merger would create a $30 billion sales leader in the retail space with more than 20,000 locations, we're not entirely thrilled with the combination. In tomorrow's Digest, we'll explain why. For now, Stansberry's Investment Advisory subscribers are sitting on a 5% gain.

 

 As we noted in last Friday's Digest, our readers are worried today... They're only responding to predictions of doom and gloom. Meanwhile, our pleas to buy conservative, income-producing assets like muni bonds and European blue-chip stocks yielding nearly 5% are falling on deaf ears.

 

So we'll try another vehicle... Moving money offshore through international real estate.

 

 For years, we have taken small groups to Agora founder Bill Bonner's oceanfront Rancho Santana development in Nicaragua. Investors have bought property to get money outside the U.S. and own a beautiful piece of property with huge upside potential.

 

We wrote about the property and its tremendous developments in the area in the July 1 Digest, so we won't dwell on it today. In short, they're building an airport just down the road from the property... Rancho is also building a luxury inn on the property, which should be complete by year's end. And the richest man in Nicaragua built a five-star resort a few miles away from "The Ranch." He's bringing a paved road to our doorstep. The government is dedicated to developing this beautiful strip of land... And the media is catching on... We've graced the pages of the New York Times, Conde Nast Traveler, the Wall Street Journal, and more.

 

 For the full story, be sure to reread the July 1 Digest. And if you would like to see Rancho Santana in person, I hope you'll join us there for an event we're hosting November 12-16. While in Los Angeles for our Stansberry Conference Series event, I spoke with an executive from The Ranch about putting together a special package for Stansberry & Associates subscribers. It's an unbelievably generous offer... But it's only available to four of you.

 

If you join us in November – and you purchase a property from the developer for more than $150,000 – you'll receive the following benefits...

 

First, Rancho Santana will pay for your Stansberry Society membership for 2015 (a $10,000 value). As a Society member, you'll receive VIP access to every event we host next year... All the parties, all the private access to speakers and editors, and all the VIP information we save for Society members.

 

This year, Society members heard from T. Boone Pickens in Dallas, a Tesla cofounder in Los Angeles, and WikiLeaks founder Julian Assange, to name a few. Next month in Nashville, we're hosting Ron Paul and Jim Rickards for our final conference of the year.

 

You'll also be reimbursed for your travel to The Ranch... You get four free nights at the Ranch's new oceanfront inn and four free rounds of golf at the David Kidd-designed golf course down the street.

 

Plus, they're offering some other financial incentives I'll let you discuss privately with Rancho Santana director Marc Brown.

 

 I've been taking groups to Rancho Santana for years, and they've never made an offer like this. So I hope you'll consider visiting Rancho Santana with me in November. To get the full details and reserve your spot for the trip, please contact Marc Brown at marcb@ranchosantana.com. Remember... the offer is only available to the first four folks who purchase... and Marc controls the guest list.

 

 New 52-week highs (as of 9/9/14): Enterprise Products Partners (EPD), Medtronic (MDT), Altria Group (MO), Microsoft (MSFT), and Nuveen Municipal Opportunity Fund (NIO).

 

 In today's mailbag, Doc Eifrig gets feisty with a subscriber about bonds... Send your comments (or questions for Doc) to feedback@stansberryresearch.com.

 

 "Ok I had to chime in on munis for the benefit of subscribers since I've been trading them for 33 years... not that Doc is wrong, BUT, if you agree with Mr. Cooperman that returns on treasuries and corporates are going to be negative going forward then to believe that munis will be excluded is silly and in fact could be MUCH WORSE. Munis are a one-way trade because they cannot be shorted and therefore they are very dependent on fund flows and when they reverse the "long only" product adjusts violently and painfully since there is no buffer of a short base as with corporates and treasuries. Kudos to Doc for his muni recommendation after the last muni sell-off in summer of 2013 but the funds he has use leverage, credit risk and are very illiquid on the way down... fellow subscriber beware if Mr. Cooperman is correct." – Paid-up subscriber AJ Tulp

 

Eifrig comment: When was the last time Leon Cooperman held bonds in his portfolio? I've traded more bonds at Goldman Sachs than Cooperman ever did. We're not buying munis anymore for capital gains... And it was never a big part of the trade. The trade was closed-end funds – which don't have to redeem as people sell – at a discount.

 

If bonds fall, net asset values may drop... People shouldn't (and most people don't) buy bonds to trade. The largest financial market in the world is "buy and hold." It doesn't matter if you buy a 10-year muni bond and the price drops to $80 three years from now. You're holding it for the tax-free income.

 

Plus, when the bond matures at par, your yield to maturity is actually higher... If rates go higher, you can simply reinvest the coupons and eventual returning principal at higher interest rates. We welcome higher rates.

 

This is the same thing people said one, two, and three years ago. Let me know when you're buying munis. That's when I'll be selling.

 

Regards,

 

Sean Goldsmith

Baltimore, Maryland

September 10, 2014

 

Resource billionaire: How to protect your assets from the fall of the U.S. dollar...

 

In today's Digest Premium, billionaire fund manager Eric Sprott explains how to protect your wealth when things take a turn for the worst...

 

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

Resource billionaire: How to protect your assets from the fall of the U.S. dollar...
 

 

 

 I (Eric Sprott) have 70% or 80% of my assets in gold and silver. I think that at a minimum, people should have 5% to 10%. But I actually think that the answer is a much higher number. The more you can protect, the better off you will be.

 

 I happen to have a predisposition toward silver, so I think silver stocks are probably the No. 1 place I would want to be today. It's the No. 1 place where I am.

 

But there are many vehicles. Frankly, I don't recommend the exchange-traded funds (ETFs) in the U.S. – GLD and SLV. I think Sprott's trusts are way better – from a tax perspective, and the fact that we have the gold available. We store it in Canada. A person can redeem them.

 

In the case of GLD, only authorized participants can redeem them. We've had people redeem our trust and it works well. If somebody wants to redeem a 400-ounce bar of gold, they can redeem it.

 

We also have an ETF listed in New York called the Sprott Gold Miners Fund (SGDM). It's a little different from the Market Vectors Gold Miners Fund (GDX), which is stuck holding a certain number of securities. Ours change every quarter, and we think by active management, we can outperform GDX.

 

As you can see, there are lots of ways for people to participate in precious metals. You can buy gold and silver from your banks or brokers. And I would always suggest that you should have some gold and silver readily available. Not a piece of paper saying you have it, but the real thing.

 

 Then, of course, you have platinum and palladium. There's one major difference between gold and silver versus platinum and palladium. Gold and silver are regarded as money. Platinum and palladium aren't. But they do have that same attribute where you have a coin in your hand that is most likely to maintain (or increase in) value.

 

There's a place for platinum and palladium. They're small markets. That we're at a five-year high in palladium speaks wonders to what really happens when there's a supply/demand deficit. All we need to see is that manifested in the gold and silver markets.

 

Unfortunately, central banks don't like the price of gold going up, because it makes people wonder about the real value of currencies. Most thinking people realize that money printing makes currencies less valuable. The lucky thing about currencies is that they are compared to each other on a daily basis.

 

Right now, the euro is weak and the dollar is strong. At another time, the euro will be strong and the dollar will be weak. And of course, there's never much discussion about the fact that they can also be compared with gold. Since 2000, gold is up around 400%, whereas the purchasing power of currencies has undoubtedly gone down in that time.

 

– Eric Sprott

Resource billionaire: How to protect your assets from the fall of the U.S. dollar...

 

Yesterday, billionaire fund manager Eric Sprott offered his take on the "End of America"... and explained why the U.S. government cannot possibly cover its enormous obligations.

 

In today's Digest Premium, he explains how to protect your wealth when things take a turn for the worst...

 

To continue reading, scroll down or click here.