Spain (miraculously!) borrows $3.4 billion...
Spain (miraculously!) borrows $3.4 billion... The Fed vs. Coke?!... Sell gold or hold it?... Readers' success with World Dominating Dividend Grower stocks...
If you're Coca-Cola, you can borrow money at 0.75% these days. If you're Spain… well... at least you can still borrow money. The Wall Street Journal reports that the Spanish bond auction yesterday was disappointing. It only raised $3.4 billion, at the low end of Spain's target volume for the sale, according to the Wall Street Journal.
It's funny how often I read the facts exactly the opposite of what the financial media intended. I thought, "Wow, Spain can still borrow money. It's a miracle!" The whole world believes Europe is going over a cliff and that countries like Italy, Portugal, and Spain will lead the way. Yet there are brave souls out there, willing to lend Spain a little more than $3.4 billion at interest rates of less than 5.7% a year. The financial press also reported a "jump" in Spanish interest rates to 5.68% from 5.45% the previous day. If that qualifies as horrendous news, maybe we should all pile into Spanish stocks while blood is running in the streets.
It's as though your unemployed brother just called you and said he got a $400,000, 30-year fixed-rate mortgage at 3.9%, but he's disappointed because he wanted to borrow $500,000 at 3.5%. You would wonder what the bank was thinking, not why they didn't give him what he wanted...
The Federal Reserve said in so many words on Tuesday afternoon that it's now less likely to print money so it can buy bonds for the purpose of keeping interest rates low. So naturally, the stock market sold off. Even Coca-Cola sold off a little, like we're all going to drink fewer sodas because the 10-Year Treasury yield ticked up 0.12 percentage points on Tuesday. Coke sells 1.7 billion servings of everything from sugary sodas and energy drinks to orange juice and bottled water every day. It can raise prices and customers would hardly notice.
I can't imagine anyone would think, "The Fed might not prop up the bond market anymore... Therefore, Coca-Cola is no longer a wonderful business, and I must sell it immediately."
I'd hate to come off as one of those delusional souls who claims to know what causes every 100-point move in the Dow Jones Industrial Average. I leave that impossible (yet obviously irresistible) task to CNBC anchor Maria Bartiromo and her ilk…
But it was impossible to miss the sharp selloff right at 2 p.m. on Tuesday, as the Fed disclosed that only two of the 10 members of the Federal Open Market Committee (a name straight out of Atlas Shrugged) believe further quantitative easing ("securities purchases" in Fed parlance) is necessary. There was an obvious relationship between the Fed's words and the movement of securities prices.
Tell me... Would you trust Fed Chairman Ben Bernanke to manage your money? He must be revered far and wide as a genius because all appearances point to massive amounts of capital moving on his say-so. Maybe the Fed should start a hedge fund.
Oh, wait. It already did that. Quantitative easing and Operation Twist are demented attempts to short the dollar and buy economic growth. Is the Fed any better than the high-frequency traders, who account for most stock trading on any given day? The high-frequency traders are only trying to make money. The Fed is trying to run a world that doesn't need running and defies attempts to run it.
As we noted yesterday, gold sold off, too. It continues to sell off today. Once again, I can't imagine what anyone is thinking... "Hey, great! The Federal Reserve isn't going to print money anymore. I'm selling all my gold!"
I suppose if you fancy yourself a trader (and haven't lost everything yet), that's an understandable reaction. But if you're buying gold because you understand it's a form of money, one far superior to easily printable U.S. dollars, you have no reason to sell.
There's no reason whatsoever to believe the neverending decline of the U.S. dollar is over. The Fed can print, therefore, it will print. That is 100% certain, no matter what anyone says. The U.S. dollar has lost 95% of its value since the Fed was created in 1913. That's not a coincidence. And now, the Fed says it's targeting 2% inflation. In other words, the Fed has pledged to manage our currency in a way that causes it to lose 2% of its value annually. I'll never sell my gold. I don't care if the price goes back to $300 an ounce.
New 52-week highs (as of 4/4/12): Constellation Brands (STZ), Abbott Labs (ABT), and Philip Morris International (PM).
Do you make buy and sell decisions based on the pronouncements of Ben Bernanke and his Federal Reserve? Tell us why or why not at feedback@stansberryresearch.com.
"I started buying dividend-paying stocks 25 years ago. I could never figure out why my colleagues and acquaintances could not figure out or would not even try to understand this simplistic concept. I do not have my cost basis for Philip Morris, Altria, Exxon Mobil, Chevron, WalMart, or a host of others I have in my portfolio.
"But I do know this... The stocks are higher and the payout is higher than when I bought them. My biggest concern is when do my positions in these equities get too large or do I just keep compounding. This a good problem to have I suppose but I do think about it from time to time. Any insight on this?" – Paid-up subscriber Dave Wanner
Ferris comment: I can't speak for other editors at Stansberry & Associates... But in general, I don't base my sell recommendations strictly on fluctuations in a stock's share price. I focus on the company's (and its stock's) inherent value. I recommend buying when the stock trades for much less than its true value... and sell when it is expensive compared to that value.
Right now, World Dominators as a group aren't anywhere near overvalued. So investors shouldn't worry too much about selling their shares.
"I have been managing my Retirement Plan since the mid-1980s and regret the poor decisions I made. I never paid any attention to dividends. And while I bought JNJ, WMT, and some other dividend-paying stocks, I didn't keep them very long because they just weren't exciting and didn't move up, like many other shares in my portfolio. Instead, I was looking for gains, big moves up, and bought stocks like FSLR. The day after I bought FSLR, it went up 68 points, and my broker called me to congratulate me. I was making money; I was picking 'winners;' and it was like riding a rocket.
"But unfortunately, what goes up also comes down. I ended up losing more than I'd gained, when the market turned in 2008. I didn't have stop-losses then, either, because it's hard to argue with success, when it's yours. I figured I'd bought good stocks that would come back, that the downturn would only be temporary. Yeah, right.
"Since then, I've changed my entire approach to investing, and about 95% of my portfolio is invested in large, American blue-chip companies, with international exposure and long histories of paying and growing their dividends. I don't trade anymore, and I don't gamble. While the market may have some better opportunities, I'm content to be up almost 18% and believe, like the tortoise and the hare, slow and sure wins the race. I only wish I'd done this 27 years ago, but there's hope: I've got at least 10 years to go, and my 32 year-old son is paying attention to me. Thanks for the wake-up call." – Paid-up subscriber Van Wyck Taylor
Ferris comment: Beware of phone calls from brokers to congratulate you... especially those that come after holding for only one day. I don't know him… But he sounds like he might be more of a casino dealer than a responsible fiduciary.
Regards,
Dan Ferris
Medford, Oregon
April 5, 2012