Jittery markets before election... Obama's second-term power grab... 'Doc's' subscribers were prepared for pre-election volatility... New high for Prestige Brands...
One day before the U.S. presidential election, the markets are jittery... U.S., Japanese, and European markets are down.
The Volatility Index – which reflects fear in the marketplace – is up nearly 5% to above 18.
Gold is up 0.5% to more than $1,680 an ounce.
And government bond yields are going negative for the first time in months...
Yields on two-year German bonds fell to less than zero. (An important parliamentary vote in debt-stricken Greece is also pushing German bond yields – the safest in the European Union – down.) Two-year yields fell to minus 0.01%.
U.S. Treasury yields are also down four basis points (a basis point is 1/100th of a percent) from 1.72% to 1.68%. Meanwhile, as of last week, speculative long exposure in 10-year Treasurys jumped from 79,296 to 169,456 net contracts, the highest level since March 2009. This means investors are looking for the perceived safety of U.S. government debt.
Faced with the uncertainty of a presidential election, you'd expect U.S. markets to get a little jittery… But it's unusual for global markets to take much notice. So what's everyone afraid of? Well…
OBAMA! just leaked plans of his initial second-term power grab... And before you vote tomorrow, you'll want to read this...
The Wall Street Journal's "Washington Wire" blog reports that the White House plans to create a new cabinet-level position – the "Secretary of Business." The president intends to combine nine federal agencies, including the Small Business Administration. This is yet another example of OBAMA! trying to consolidate power over our country and businesspeople…
The president is indignant that other parts of government have been slow in ceding total control to the executive. He's chastised lawmakers for being "very protective about not giving up their jurisdiction over various pieces of government."
The nerve of these people... to think that some members of Congress are not willing to surrender all their authority to the president...
You may be worried by what may unfold in a second OBAMA! administration... but Porter is more concerned about what will happen in his third. That's not a typo. Porter believes an unstoppable economic transformation over the next few years could lead to OBAMA! seeking a third term… in various forms. It's one of his most controversial predictions yet. Whatever your thoughts on the possibility, Porter's research is extremely compelling... and you may be shocked by what you learn. Click here to learn more...
Politics aside… subscribers to Dr. David "Doc" Eifrig's Retirement Trader were prepared for a spike in market volatility leading up to the election. In an e-mail to subscribers last month, he predicted investors would get jumpy as the presidential race neared the finish line…
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The election is starting to heat things up in the markets.
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Since September 1, we had four spikes in the Volatility Index (VIX) – which represents the amount of money (in option premiums) people will pay for the time value embedded in options. Remember... spikes in volatility generally represent an uptick in investor fear. They reflect periods when investors are willing to pay more for options that protect them in a falling market.
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So far, the spikes have only taken us above a still-mild level of 16 (with one to 18)... But it's just a matter of time before volatility builds up and sustains a higher level.
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Something will trigger a spike in volatility... and with it, a downdraft in stock prices. When that happens, we'll be ready, waiting to take advantage of the suddenly rich premiums available.
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But regardless of how the election turns out, Doc is still bullish on the economy...
Last month, Doc showed readers of his other service – Retirement Millionaire – how many of his favorite economic indicators show the economy is "grinding higher."
The service sector is improving. The Institute of Supply Management trade association compiled a figure called the "non-manufacturing business activity." When the number is above 50, the service sector is growing. Below 50 means it's shrinking. The figure is now 60, and it's spiked higher in the past months.
Manufacturing is also growing. The Federal Reserve of Philadelphia's "Leading Index" – which combines data on things like housing permits, unemployment insurance claims, interest-rate spreads, and manufacturing surveys – shows the economy is performing above recession levels.
Doc thinks now is a great time to sell puts. And in his latest Retirement Trader, he used the market's recent selloff to establish new positions in some of his favorite companies (one financial firm and a technology company). To learn more about Retirement Trader and sell puts along with Doc, click here...
Last Friday, Extreme Value pick Prestige Brands Holdings hit a seven-year high. Here's what Dan Ferris wrote about Prestige (from his May 2009 original recommendation)…
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Prestige is so cheap right now, it's worth at least twice and probably three times what it's trading for today.
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Prestige owns several well-known consumer brands. All of its products are either personal health care products or household cleaning products, the sort of thing you find in grocery, convenience, and drug stores.
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About 78% of Prestige's 2008 sales came from brands that were either No. 1 or No. 2 in their markets. Six of Prestige's 15 major brands are No. 1 in their markets. Four are No. 2.
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There's not much risk in selling simple everyday products that are leaders in their market. When you're No. 1 or No. 2 in your market, it's hard to displace that brand name in the consumer's mind. Once people find something that works, they don't like to change.
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Prestige shares soared 19% last Friday after the company announced blockbuster earnings... Net income increased 49% in the second quarter after the company acquired new brands from pharmaceutical giant GlaxoSmithKline (GSK).
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Earlier in the year, Prestige paid $660 million to buy 17 over-the-counter (OTC) products from GSK – including Beano and Goody's pain relievers. As a result, the company's OTC revenue jumped 74% in the quarter. Prestige also raised its net income guidance to between $1.37 and $1.42 per share over the 12 months ending in March – up from $1.22 to $1.32 per share the year before.
Extreme Value readers are up 235% on Dan's recommendation. If it weren't for Dan's deep value analysis and patience, their gains could be much less...
In the February 22 Digest, we wrote about Mexican drug company Genomma Lab Internacional's $16.60-a-share offer for Prestige Brands (a 23% premium). Shares immediately traded near the buyout price, closing at $16.50 on February 23. Most investors would have used the quick bump to unload their positions... And Extreme Value readers could have pocketed gains of around 165%. But Dan believed the company was worth more. From the February 22 Digest...
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The offer "is a classic setup for a bidding war," Dan wrote in an e-mail to me (Sean Goldsmith) commenting on the offer. "A weak company (Genomma) that has done four acquisitions in three and a half years makes a lowball bid without telling us how it's going to finance an $834 million deal."
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Dan said if a higher offer doesn't arrive, the stock still has upside potential... as it will continue to gush free cash flow. "Most of the time, you cut and run when an offer like this is made," Dan wrote. "But when you're absolutely certain you're holding onto a great business, one that gushes cash flow and could easily attract other, higher offers, you stay and wait. In short, you hold onto an excellent business as long as you can."
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The Genomma offer fell through. And shares of Prestige Brands declined... But Dan knew the company was worth more. So he continued holding. Now, his readers have more than tripled their money on the stock.
New 52-week highs (as of 11/2/12): Prestige Brands Holdings (PBH).
We received lots of feedback from Porter's GM essay last Friday. We'd love to hear your thoughts... Send them here: feedback@stansberryresearch.com.
"Porter, I agree with your position on GM. It's one thing to pay UAW (United Against Work) workers top wages and benefits of $56, and then to have to put up with all the crap and frustration in dealing with the union. Having spent a number of years working in the automotive supply industry in Detroit, it was disgusting to see how a labor organization could be so counterproductive, even to the extent of closing plants and losing thousands of jobs. And yes, Rick Wagoner and the incompetent GM Board at the time lacked the courage to accept the facts and do the right thing, but instead got into bed with the devil." – Paid-up subscriber John McKinley
"I want to thank you again for another great Alliance annual meeting. Great information, great meals, great people and a really beautiful meeting location. A special thanks for the new book Contrarian Investment Strategies, I am almost through it and really appreciate it. Thanks again for all you do for us." – Paid-up subscriber Richard Woodall
Regards,