Once-in-a-Decade Opportunity for Income Investors
A big night at Stansberry Research... A once-in-a-decade opportunity for income investors... The biggest income gains in a generation... Great news for real estate... The $100 billion windfall is about to begin...
Thank you to all the Digest readers who attended our live event last night. Thousands of folks joined us to hear Steve Sjuggerud reveal his latest "fat pitch" investment opportunity.
It was one of the largest live events in Stansberry Research history. And judging from the early feedback, it may have been our most popular event to date. Did you attend? What did you think? We'd love to hear from you at feedback@stansberryresearch.com.
If you weren't able to join us last night, don't worry... You can still get all the details on Steve's brand-new opportunity right here.
We're also working on a transcript and replay of last night's event. We plan to share that with you in the Digest as soon as it's available.
In the meantime, we'd like to highlight a high-conviction idea from another Stansberry Research editor...
In short, our colleague Dr. David "Doc" Eifrig believes the "stars are aligning" for one of his favorite income-producing sectors.
But first, a little background...
This week, the U.S. Census Bureau reported that median household income rose to $56,516 in 2015. This is a 5.2% gain from the prior year, and the first significant gain after seven years of stagnant or declining earnings. It's also the single biggest yearly jump since record keeping began in 1967.
Of course, income is still down from its inflation-adjusted peaks of $57,900 in 1999 and $57,400 in 2007. So the average household is still officially worse off than 16 years ago. But Doc says this news is important. As he notes in the September issue of his Income Intelligence advisory, out this evening...
For years, we've claimed the economy has been slowly "grinding higher." We also know recessions that are paired with a financial crisis take a much longer time to work out than a recession alone.
So for eight years, the economy has been growing without an increase in income for consumers, who are the bedrock of the economy. Now that incomes are rising, this could be the start of when the recovery stops grinding and really starts moving.
It's also important to note: incomes don't bubble. When income grows quickly, it doesn't mean the economy is "too hot" and needs to "cool off." Rather, household income is what fuels the economy. Rising incomes typically lead to rising incomes in a positive feedback loop.
Meanwhile, Doc says the employment numbers are looking a little better, too...
Last week's initial jobless claims – a measure of how many folks are applying for unemployment – dropped to 259,000. This is the lowest level since mid-July. It also marks a 75-week streak of initial claims under the 300,000 mark... the longest since 1970.
The Wall Street Journal reports that hiring is running near its highest level of the year, with 182,000 jobs added per month on average.
And according to the Atlanta Federal Reserve, this is the best time in 14 years to find a new job. Its data show job hoppers who moved from one job to another saw an average pay bump of 4.2% over the 12 months ending in July... while folks who stayed saw paychecks rise by just 3%. That's one of the biggest "switch versus stay" differences since the early 2000s.
So what does this have to do with income investing? Doc says these two factors – more jobs and more income – are incredibly bullish signals for the real estate market. As he explained in the June issue of Income Intelligence...
When people get hired, they want offices or industrial space to work in. Not only is unemployment at 4.9%, but the total number of employed people has been rising, and even the labor force participation rate has risen from a 30-year low.
And when folks start making money and the economy gets better, they move out of their parents' basements and into their own apartments. Over the last year, the average monthly new household formation has averaged more than 1 million. Three years ago, it was 832,000.
And Doc says there's an easy way for income investors to take advantage of this trend today...
Real estate investment trusts ("REITs") give income investors many of the benefits of owning real estate without the hassles of being a landlord. Here's more from Doc...
With REITs, you can diversify between scores of properties with a single share, rather than needing to put hundreds of thousands of dollars into a single home. You can sell your shares in minutes with a simple broker's fee. You don't need to find tenants, collect rent checks, or do any maintenance work.
Despite some significant headwinds – including the mortgage crisis and slowly "grinding" recovery – Doc notes REITs have done incredibly well in recent years. In fact, the Dow Jones Equity REIT Index is the best-performing index over the past 15 years...
REITs have compounded at an impressive 11% per year... despite crashing 70% when the housing bubble popped. Can you say that about any of your other income investments?
Despite this strong performance, Doc believes it's still an incredible time to buy REITs for income...
First, unlike many income investments today, REITs haven't been bid up to absurd valuations.
Doc notes they aren't "dirt cheap" like they were during the crash, but they're still on the low end of the valuation range they've traded in for years. They also offer relatively generous income streams of 4% or more compared with the paltry yields you'll find most everywhere else.
Second, he expects REITs to do even better as incomes rise and the recovery picks up speed. And this is true even if interest rates begin to rise.
You see, Doc says the research is clear: The conventional wisdom – that rising interest rates hurt REITs – is flat-out wrong...
The logic goes that higher interest rates make other investments more attractive, so investors pull money from REITs. At the same time, higher rates increase the borrowing cost of REITs, so REITs get less profitable.
In the real world, however, it simply isn't true. By testing daily and monthly returns, it turns out that over the past 11 years, interest rates and the MSCI U.S. REIT Index actually have a positive correlation. When interest rates rose, so did REIT prices...
We can also show you three distinct rising interest rate environments since 1993, which is when the modern REIT really took shape. In all three of these periods, REITs posted positive returns, as you can see in the following chart.
To sum up... Doc says REITs have a strong history of outperformance... offer solid yields at reasonable prices today... and could absolutely soar over the next few years.
If you're an investor looking for more income, you're unlikely to find a better combination anywhere else in the world right now.
But Doc says there's one more big reason REITs are a "no brainer" investment today...
In short, a flood of new money is bound for this segment of the market, starting tomorrow...
As regular Digest readers may recall, two of the biggest market index companies – S&P 500 Dow Jones and MSCI – are breaking REITs out of the "financial" category and into their own category. This means funds that track those indexes will need to realign their holdings to reflect this change.
The last of these changes take effect tomorrow, Friday, September 16. The flood is about to begin...
Of course, this move won't happen overnight. But as the Financial Times reported yesterday, it's likely to have a huge long-term effect...
Real estate is an unusual sector with its own vocabulary, tax rules and valuation metrics. Many good active managers leave it alone and stick to what they know. Under the current GICS classification, they can avoid REITs altogether without attracting attention.
From now on, a zero REITs weighting will carry with it some career risk. Active managers are nervous about taking positions that deviate significantly from their benchmark.
So the odds are that, over the next few months, before the next report on their portfolios goes out to clients, a lot of active managers will buy [REITs] for the first time.
As we discussed last week in the September 7 Digest, research from investment bank JPMorgan shows big funds currently have just 2.3% of their holdings in real estate. But their benchmark is 4.4%. This means funds will need to nearly double their real estate holdings, beginning tomorrow.
In total, funds will have to move an estimated $100 billion or more into real estate stocks in the coming weeks and months. And according to JPMorgan, we could see the entire U.S. REIT sector grow by a massive 12% or more before they're done.
Doc says it's not too late to take a position ahead of this move... But time is quickly running out.
He has put together a special report – titled "The $100 Billion Windfall" – explaining everything investors need to know to profit from this special opportunity.
This exclusive report is only available to his Income Intelligence subscribers...
But to ensure as many folks as possible can take advantage of this opportunity, Doc has agreed to dramatically reduce the cost of his Income Intelligence service.
Click here for all the details, including how you can get instant access to Doc's special report before tomorrow's deadline.
One final note before we end today's Digest. We're featuring the latest essay from renowned humorist and Stansberry Research contributing editor P.J. O'Rourke, who offers some practical advice to anyone considering escaping our next president by relocating to "Oz."
New 52-week highs (as of 9/14/16): Alacer Gold (ASR.TO) and Dalradian Resources (DNA.TO).
In today's mailbag, one subscriber shares his bearish bet on bonds... another gives reader C.B. some career advice... and two more send kudos for last night's webinar. Did you join us? Let us know what you thought at feedback@stansberryresearch.com.
"If you think bonds will go down in price, buy [the ProShares Short 20+ Year Treasury ETF (TBF)]... I am long TBF and will buy more on every dip, and intend to hold for a very long time and get richer. It's a no-brainer for those with any patience." – Paid-up subscriber R.B.
"That letter from C.B. about desiring to find a new career path got me to thinking. There is a shortage of real estate appraisers out there and many current real estate appraisers graduated with degrees in urban planning. C.B. could apprentice with an active appraiser and follow that career path.
"Better yet, go into eminent domain real estate appraising by applying for an entry level position with state or local government agencies who need 'right of way agents' in the appraisal field. An eminent domain appraiser measures just compensation for the taking of privately owned realty for public use. Thus, such agents are performing a constitutional public service while getting paid well to do so... The main criteria needed for such a career is being able to think and write coherently. Good Luck, C.B." – Paid-up subscriber Joe
"Steve, Porter, Brett and Jared... Thank you so much for yet another very informative webinar tonight. You answered a lot of questions and concerns, and gave thousands of us something nice to chew on. These are exciting times. Cheers to you!" – Paid-up subscriber B.T.
"Good presentation [last night]. Thanks very much!" – Paid-up subscriber J.H.
Regards,
Justin Brill
Baltimore, Maryland
September 15, 2016
'If So-and-So Wins, I'm Moving to Australia,' Part II
America is having a frustrating presidential campaign. So a lot of people are saying they're going to move to the far side of the globe "if [reviled candidate] wins."
In the first installment of this column, I explained why my family and I love Australia so much that we really would move there.
But should we move there? And could we move there?
First, Australia is expensive. Australian taxes are high. The marginal rate is 45% for income over $180,000 (approximately US$136,260) a year. Also, the cost of living is 10% higher than in America.
If we're paying with U.S. currency, we can laugh at the Aussies' cost of living. One U.S. dollar is worth $1.32 in Australian dollars. And the high taxes buy Australia an Epcot Center-level of national infrastructure, a well-regarded educational system, a dearth of homeless on the streets, and other things that taxes are supposed to buy in America but never do.
Plus, the high rate of taxation doesn't seem to do the economic damage to Australia that you would expect. Australia made it through the 2008 financial crisis without going into a recession. In fact, Australia hasn't had a recession in 25 years.
Australia's per-capita gross domestic product (GDP) is US$56,324 – about $500 higher than America's. Last year, despite Asia's cooling economies, Australia's GDP grew by 3.1%. Median gross household income in Australia is US$9,000 higher than in America. Australia's inflation rate is 1%, and the unemployment rate is an acceptable 5.7%.
(Maybe the reason Australia can get away with taxing its people so much is that – unlike some countries I could name – it uses the tax money to pay its bills. Australia's national debt is 23.3% of its GDP. America's federal debt is 105.1% of GDP.)
So moving to Australia would be expensive. But just because something is expensive doesn't mean it isn't worth considering. I, for instance, got married and had three children. Money well spent! (Most of the time.)
So should we move to Australia? Maybe. But could we move to Australia?
Australia has a lot of complicated visa rules. And unlike America, Australia has an immigration system that works. Not only is the bureaucracy efficient, but the country is surrounded by the Indian Ocean and the Coral Sea. You can't just wander in through the Great North Woods forest or wade into the Rio Grande, like you can do to get into the U.S. Australia's borders are oceans with breaking waves so big that they make the most resolute surfer consider the kiddy pool and a pair of water wings.
Also, instead of a border wall that may or may not get built, Australia has saltwater crocodiles that grow to a length of more than 20 feet. You have to obey Australia's complicated visa rules.
(Click here to see an efficient bureaucracy being really, really bureaucratic.)
Basically, Australia wants "workers in skilled occupations." All I do for a living is make fun of things. So I'm out on that basis.
You can essentially buy an Australian visa by investing in the country. But you have to make a serious investment. According to a 2015 article in the Financial Times, Australia cracked down on this type of visa because every Asian business person with any worries about the political situation in his or her home country (which is most Asian business people) wanted to "invest" in Australia.
This investment used to mean buying an apartment in Sydney and leaving it empty in case the business person had to make a run for it. Now, Australia requires that $500,000 be deposited in an Australian-run venture-capital or private-equity company and that an additional $1.5 million be invested in "emerging companies."
I have no idea what the Australian definition of an "emerging company" is. It may have to do with lambs being born. Not only do I not have $1.5 million handy, I know nothing about giving birth to sheep.
Of course, there are numerous investment opportunities in Australia that don't involve giving birth to sheep. Well actually, they do involve giving birth to sheep – and other things in that general field of endeavor.
We have an old friend, John, who lives in Hong Kong. He flew down to see us while we were in Australia. John is very successful and has been investing in Australia for many years. Most of John's investments have been in coal and iron ore. But now he has completely switched his investment strategy.
"I've gone from mining to dining," said John. He has put a fortune into (and, if I know John, he'll make a fortune out of) exporting food from Australia and New Zealand to mainland China.
I said to John, "I thought the market for luxury imports was down in China."
"Oh, yeah," he said, "if you mean Chanel handbags and Louis Vuitton luggage." Then John went on to explain how the Chinese middle class doesn't trust the Chinese food chain – for good reason. To give just one example, in 2008, large quantities of powdered milk made in China were found to be contaminated with a chemical used in pesticides. Six babies died and more than 54,000 were hospitalized.
Wholesome and high-quality food products are a "necessary luxury" for the growing Chinese middle class. And as John pointed out, that Chinese middle class is still growing. China itself is still growing – at a rate of about 6.5% a year. The Chinese may consider this a "cooling economy," but President Obama would kiss Sarah Palin on the lips to get economic results like that.
"Besides, good food is not like a Chanel bag," said John, "no matter how long you marinate the purse."
I have, however, failed to mention one fairly easy Australian visa work-around. If you're 55 or older (and I sure am), you and your spouse (who is allowed to be as young as he or she likes) can apply for a "retirement visa."
You'll have to transfer assets worth at least $500,000 Australian dollars to Australia. In other words, you'll have to buy a decent house or apartment. And you'll have to show an annual net income stream of at least $50,000 in Australian dollars. (Which, if you've been reading the Stansberry Digest attentively, you darn well ought to be able to do.)
Australians will tell you their country is in the midst of a "property bubble." But it doesn't look excessively foamy by American standards.
In just a few minutes of fiddling around on the Internet, I found a great apartment in Byron Bay. It's a little seaside town, about a 100 miles south of Brisbane, and it's Australia's "surfing capital" (meaning the waves here can be even bigger than merely enormous).
We spent a long weekend in Byron Bay. I had to practically drag my wife and children away from the beach, even though this was "the offseason" with "bad" weather. (It was 70 degrees, and on only one day, it rained.)
The apartment is a five-minute walk from town in a small, new "high design" complex with a pool. It has two bedrooms, two full baths, a two-car garage, and an ocean view. The price is $770,000 (US$581,350).
But there is a drawback to the retirement visa. You can't have any dependents other than your spouse.
I say it's about time my two teenage daughters got jobs. (I'm assuming that spending the whole day with one's face pressed to an iPhone and sending text messages is a "skilled occupation." I mean, I can never get that little touchscreen keypad thing to work.)
This leaves us with our youngest, 12-year-old Buster. I tried to have a talk with Buster. First, I had him watch "Oliver!," the 1968 movie musical based on the Charles Dickens novel Oliver Twist. Then I said, "Wasn't Oliver having lots of fun singing and dancing at the workhouse?"
"I don't want to be a pickpocket," Buster said. "I want to be an astronaut." So it looks like, until we get Buster signed up with NASA, the O'Rourkes won't be moving to Australia.
Not even if you-know-who wins the election.
Regards,
P.J. O'Rourke
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