The Fed announced it would buy $600 billion in Treasurys through next June (on top of the $1.7 trillion in government securities it purchased through last March). Add the $300 billion of maturing mortgage bonds the Fed will reinvest, and you've got a $900 billion stimulus (or $110 billion a month). This isn't far from what the market was expecting (the consensus was $500 billion).
Newly weakened paper dollars ran for the exits and made haste for new protective clothing. Dollar holders sought the protection of real assets, so they sold dollars and bought oil, gold, etc... Oil is up 1.6%. Gold and silver are up 3% and 4.3%, respectively. Corn – the basis for the U.S. food system – is up 60% in the past five months. Coffee is at a five-year high. Cotton, orange juice, and sugar are at all-time highs.
Aside from observing rising commodity prices... If you want to know exactly what folks thought of the dollar, just check out the headline I saw today on the Financial Times website: "Markets cheer the Fed's action on QE2: Dollar weaker, but almost all other asset classes gain."
QE2 refers, of course, to the Fed's newest round of quantitative easing. The only market that didn't cheer the Fed's action was the market for dollars. Even other paper currencies grew more appealing today... The euro hit its highest level since January, and the Australian dollar reached a fresh 27-year high.
Otherwise, what else would you do with freshly debased dollars but sell them and buy the most valuable thing you could get your hands on? So, yes, all other asset classes will look more attractive. There are exceptions, of course. If you're earning a fixed income stream of any kind, the present value of those cash flows is falling as inflation rises. That means most bonds are less attractive today than ever... at just the moment when the thundering herd is clamoring for them the loudest. The bond market is a big, bright balloon, bouncing along, awaiting its inevitable landing on the point of a pin.
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Why stocks should rise is a bit of a mystery. Inflation is bad for business, and what's bad for business ought to be bad for stocks. There's at least some evidence suggesting stocks hate inflation... The S&P 500 stayed cheap on average throughout the 1970s and early 1980s, when inflation was high. During that stretch, the S&P 500 maintained an average price-to-earnings ratio under 10 times – much lower than the long-term average of 16 times earnings.
Right now, the S&P 500 is around 15 times earnings, neither inviting nor unattractive. With a dividend yield less than 2%, though... what are you really buying in most cases, but the promise of another trip around the world on the good ship QE2? I'm afraid rising equity prices means the thundering herd believes the Fed really can fix the economy by printing paper money. The herd thinks it's heading back to its comfortable home, but it's probably closing in on the edge of the cliff...
Helicopter Ben's gift means big profits for readers of Matt Badiali's S&A Resource Report... Oil prices are near six-month highs. InterOil, Badiali's controversial natural gas play, is up more than 35% since late August.
And his metals trades are skyrocketing... Silver Wheaton is up almost 7% today, bringing subscribers' returns to more than 310%. Silvercorp is up almost 10%, for a total gain of 240%.
We doubt Bernanke will ease off the printing press anytime soon (housing and unemployment, the country's biggest problems, have been immune to QE so far). And that means Matt's commodity recommendations will only soar higher. You may be hesitant to buy commodities after this meteoric rise. You shouldn't be. But if collecting high income while owning commodities makes the decision easier, Badiali details an incredible discovery for you in his latest issue...
Badiali has discovered the absolute best way to collect income from the oil sector. He's found a way to receive huge paychecks from certain publicly traded oil producers and defer taxes on up to 80% of the income. This is a trick the super-wealthy have used for years to shield their income from taxes... And this method will only become more important as the government continues to print our nation into destruction (taxes will surely rise). To learn more about the Resource Report and get access to this income secret, click here...
If you'd prefer buying commodity stocks with enormous upside potential, Badiali has you covered there, too. I spoke with him this morning about the highest potential stocks in his portfolio. His favorite is a tiny silver company.
As we pointed out in yesterday's Digest, silver is in a raging bull market. And Chris Weber thinks it's still a buy (when Chris tells you to buy a precious metal, you do it... He's produced amazing wealth for himself and readers with his prescient calls). Matt's tiny silver stock will likely double just from the rising silver price, but there's a kicker...
This company is waiting to hear if its major partner is going to build a mine on their property. If the mine's a "go," Matt's silver company will begin collecting huge royalties from this larger company. Early investors will make a fortune. And even if the answer is no, the company holds lots of other promising assets. Like I said, this is a small company, so it's only available to Phase 1 readers. If you'd like to learn more, click here...
The one sector that isn't soaring today... for-profit education. Investors thought a Republican House could help this sector by easing proposed regulations on federal grants and loans. But Apollo Group, the industry bellwether, disclosed yesterday the Education Department plans to review its financial aid administration. Shares are down more than 8% today. DeVry and ITT Educational are down 3.5% and 4%, respectively.
New highs: Denison Mines (DNN), Fronteer Gold (FRG), ProShares Ultra Technology (ROM), Silvercorp (SVM), Claymore China Real Estate (TAO), Coca-Cola (KO), DirecTV (DTV), Penn Virginia Resource Partners (PVR), Altria (MO).
In the mailbag... home-schoolers turnout to defend their choices... Send your messages to feedback@stansberryresearch.com.
"I take exception to 'It would be interesting to know how many home-schooled kids have been indoctrinated with creationism and other religious claptrap...' – Paid-up subscriber Martha Perkins.
"The Theory of Evolution is just that, a theory, not proven but they can teach that crap to our kids in school. The reason are country is in a shambles is because we have taken got out of everything. God meant for us to educate our own kids not to rely on the state." – Paid-up subscriber Bruce Hartrich
"Teaching children on God is NOT claptrap. Whether you believe it or not, it is so and your not believing is not going to change the fact that God is God, any more than you can say there is no wind. I am glad God created. We wouldn't be here, had he not. I serve Him, not money. Money is just a tool to be able to have what is needed. God is my all in all, money can't touch that. I hope you open your heart as well as your head. Yes, God allowed the money to be created, just so you could become wealthy." – Paid-up subscriber Carol Thome
"I first ran into home schoolers as the captain of an educational vessel that ran field trips on the Chesapeake Bay. We had ran a 4hr program with 4 versions geared toward grade school, middle school, high school, and college students. When we had a homeschool group we always used the collage program regardless of the age because the kids were always full of questions. They didn't just want the answers, they wanted to figure things out.
"My wife and I now homeschool our two with the primary goal of teaching them to think for themselves, question, research and be able to defend their positions. When the failed public school system is finally abolished we might finally end up with an educated population." – Anonymous
"The voters of California re-elected Jenny Oropeza quite possibly knowing she was dead. She can't hurt them from the other side. Can she?" – Paid-up subscriber Raoul Simon
"You state 'what do these elections mean for the market' and you reply 'nothing.' If that's the case, why don't you stick to market analysis in the Digest? I would bet that your subscribers don't really care what you think about your politics anyway." – Paid-up subscriber Joe Hoover
Goldsmith comment: Actually, Joe, we get more reader feedback about politics than we do about investing topics. It seems our readers do want to talk about politics and what it means for their wealth.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
November 4, 2010