Obamacare vs. pizza prices... Steve's housing call on fire!... Union Pacific shipping more to homebuilders... Jeff Clark's bearish bond trade (and hot trading streak)...
Obamacare will make pizza more expensive.
That's what pizza delivery giant Papa John's CEO John Schnatter said last week at a shareholders meeting. Schnatter told shareholders, "Our best estimate is that Obamacare will cost 11 to 14 cents per pizza." Schnatter said it's in the best interests of shareholders to pass the added cost along to customers. Papa John's also warned investors about the costs of Obamacare in its latest 10-K.
One of the unintended consequences of the new federal health care regime will be to make all sorts of goods more expensive.
Under the Patient Protection and Affordable Care Act of 2010, employers like Papa John's will have to pay a $2,000 fine per employee, if even one full-time employee is not offered coverage starting in 2014. "Full time" is defined as 30 hours per week or more.
According to an article in the trade publication Business Insurance, Papa John's isn't alone. A survey released this week by human resources consulting firm Mercer LLC indicated that 46% of employers in the hospitality industry expect health care costs to rise by at least 3% when Obamacare goes into effect in 2014.
Steve Sjuggerud has urged readers to invest in housing all year... We've written a lot about Steve's opinion on housing. He described his thesis in this February essay in our free e-letter DailyWealth...
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The basic story is that housing is an incredible value right this moment: With mortgage rates at record lows TODAY (at 3.87%) and with a record "bust" in home prices, housing is more affordable than ever. PLUS, we're at the "puke" point – where banks are giving up properties at any price, just to get rid of 'em. PLUS, the government is getting in on the act, trying to help. |
Steve shares this opinion with some of the best investors in the world. Earlier this year, legendary investor Warren Buffett told the world, "Single family homes are really cheap now." Yesterday, news broke that billionaire hedge-fund manager John Paulson bought 875 acres of a resort community near Las Vegas for $17 million. He's been buying lots of raw land in his Paulson Real Estate Recovery Fund.
The data is supporting Steve's thesis... Homebuilder sentiment is soaring. Prices are increasing. And sales volumes are increasing. For example, in June, Bloomberg reported home prices in Phoenix, Arizona (one of the worst-hit U.S. housing markets) had increased at a 26% annual rate in the three months ended in April. And purchases jumped 43% in April from a year earlier. The inventory of previously owned homes for sale in Phoenix fell 54% in April from a year earlier.
Today, a slew of bullish housing news sent homebuilder stocks soaring. On CNBC, Spencer Rascoff, CEO of online real estate marketplace Zillow, said real estate had bottomed... "So five years into the housing recession and down 25% from the peak, we are finally at a bottom," Rascoff said.
The North Jersey Record newspaper reported railroad giant Union Pacific was taking railcars from storage for the first time in four years to transport lumber for homebuilders.
North American rail carloads of wood and lumber were up 10% this year through July 28 compared with the same period last year, according to the Association of American Railroads. That's compared with a 1.4% drop in total carloads.
"The expectation is for continued growth in construction-related activity, whether it's lumber or aggregates, to help support rail volumes in 2013 and beyond,'' said Ben Hartford, an analyst for the asset-management and private-equity firm Robert W. Baird & Co.
Analytics firm CoreLogic released its monthly report this week on its Home Price Index. The June numbers mark the fourth consecutive increase in home prices on a year-over-year and month-over-month basis.
"At the halfway point, 2012 is increasingly looking like the year that the residential housing market may have turned the corner," said Anand Nallathambi, president and CEO of CoreLogic. "While first-half gains have given way to second-half declines over the past three years, we see encouraging signs that modest price gains are supportable across the country in the second half of 2012."
Last month, Jeff Clark presented an important idea to readers of his trading advisory, the S&A Short Report... It was so important, we published nearly his entire issue in the July 16 Digest. Jeff was calling for a downturn in the bond market. He believed rates would rise. He issued this warning days before the Federal Reserve was scheduled to make an important announcement.
People normally pay $4,000 a year to receive Jeff's trading insights. But we believed in this idea so strongly, we wanted everyone to read it...
The bond market has been in a 30-year bull market. And with 10-year Treasury yields around 1.4%, Jeff was betting the trend had to reverse. He wrote...
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Ever since QE2 ended in July 2011, investors have been betting on QE3. It has to happen. The Fed has to keep up the charade. So folks have been piling into the bond market at record-high prices and record-low rates because they're discounting QE3. |
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Long-term bond prices are up nearly 40% since QE2 ended last July. They're up almost 20% in just the past three months. |
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This is a remarkable move. It's the epitome of a "risk-on" trade. Investors are speculating the Fed will announce another QE program, and they're bidding up bond prices to insane levels ahead of the event. |
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This is going to end badly. And I'm willing to bet it ends next week – after Fed Chairman Ben Bernanke's scheduled Congressional testimony on Wednesday. |
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You see, it seems just about everybody is expecting more QE this year. The past two monthly employment reports have been disappointing. Other economic indicators are weakening. And there's a presidential election coming up in November, so now is the ideal time to try to goose the stock market higher with a QE announcement. |
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If it doesn't happen on Wednesday, investors are likely to be disappointed and the bond market is going to sell off. |
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If we do get a QE announcement next week, we'll likely have another "sell on the news" event. |
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Either way, it seems no matter what happens with the Fed, next week should mark at least a short-term top in the bond market – if not something even more significant. – Jeff Clark, July 13, S&A Short Report |
Federal Reserve Chairman Ben Bernanke did not announce further easing in July. He did, however, say he would closely monitor the economy and stand ready to print more money if needed. Bond prices, as Jeff predicted, fell following the announcement.
Jeff sent another update to subscribers today closing out his short bond trade... His readers made 50% in less than a month. He thinks this particular security is now due for a short-term correction.
Jeff also recently recommended another way to take advantage of rising bond yields. He further discussed his thesis in today's Growth Stock Wire...
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The yield on the 10-year Treasury note bottomed at an historic low rate of 1.4% two weeks ago. Yesterday, it closed at 1.62%. That's a 15% increase in borrowing costs. And it likely signals an intermediate reversal in the direction of interest rates. Take a look... |
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In two weeks, the 10-year yield has recovered everything it lost in the previous two months. More significant, we now have a new series of higher highs and higher lows on the chart. We haven't seen that happen off a deeply oversold level since last September, when rates bottomed at 1.7% and then rallied to 2.4% six weeks later. |
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A similar move this time would prop the 10-year note yield to 2% – basically right back to where it was in April. That's horrible news for bond investors. It'll wipe out all the gains of the past few months. And anyone who bought bonds recently as a gamble that the Fed would announce a new quantitative easing program will suffer large losses. |
Jeff is on a hot streak right now... Just two days ago, he recommended going long gold stocks. The options he recommended are up more than 30%. He also went long silver stocks on July 31. We discussed that trade here. The calls Jeff recommended on Pan American Silver are now up 56% in a little more than one week.
In his latest S&A Short Report issue, Jeff is shorting a sector of the stock market that's particularly sensitive to rising interest rates. The Volatility Index (which tracks the prices people are paying for options and reflects the market's level of fear) is low today. So buying puts on this sector is cheap. Jeff believes this trade could make readers more than 250%.
New 52-week highs (as of 8/8/12): Guggenheim BulletShares 2015 High Yield Corporate Bond Fund (BSJF), BlackRock Corporate High Yield Fund (HYV), Brookfield Asset Management (BAM), Chevron (CVX), ExxonMobil (XOM), Target (TGT), and GenMark Diagnostics (GNMK).
In today's mailbag, Dan answers reader questions about equity research tools and holding World Dominating Dividend Growers... Any questions for Dan? Send them to feedback@stansberryresearch.com.
"What sources for checking on stock prices (NYSE, etc,), on the internet, do you recommend? I know that you can do so through any stock market firm, but are there other and maybe better sources to obtain this information?" – Paid-up subscriber Bill Bowman
Ferris comment: If you have an online brokerage account, that's probably the best place. There's also nothing wrong with Yahoo Finance or Google Finance.
But I think subscribers should try to spend less time worrying about tiny daily movements in the stock price and more time thinking about the long-term performance of the businesses they invest in. What happened to the business in the last year or two means a lot more than what happened to the share price in a given day. And you should know it cold before investing a penny.
The best information about the company's financial performance is in the reports it files with the Securities & Exchange Commission. You can look at the "10-Q" and "10-K" filings under the company's ticker symbol here. Most companies also have websites where you can access their quarterly and annual reports.
"I subscribe to The 12% Letter and after reading about it takes years and years then this is not for people entering retirement and will be drawing out money to live on?" – Paid-up subscriber Donna Shepherd
Ferris comment: Is that a question? In addition to holding safe World Dominating Dividend Grower stocks, retirees can also benefit from tax-advantaged stocks that pay high current yields. The most recent addition to The 12% Letter portfolio is an energy stock that's currently yielding more than 8%. We did a full report on it in the July issue (which subscribers can find online here). In that report, you'll see the reasons I believe the stock's already high dividend payout will grow even higher in the coming year.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
August 9, 2012