Standard and who?... The mother of all backlogs... Got Intel?... Gold: Ahead of S&P... A 48% Grail 'geyser'... Blackstone's IPO signal... Glencore calls the top... Rogers to short Treasurys... Socialism has arrived...
Editor's note: In today's essay, Mark Ford invites you to join an exclusive investment club he belongs to. This club is made up of some of the richest men in Florida... And they meet every month to share their best investment ideas. Make sure to read today's essay to discover the club's favorite investment today.
By now, you're probably aware that Standard & Poor's, the credit-ratings agency, announced its "negative outlook" on U.S. Treasury debt Monday. As a result, the stock market fell 2% during early trading, and some Treasury bonds were down, too. It was a panicky moment.
Now, let me see... Standard & Poor's... Standard & Poor's... Gee, that name sounds familiar... Now I remember! They're the people who slapped their coveted triple-A credit rating on all those risky mortgage derivatives that blew up in the financial crisis. Are those fools still in business?
When I heard S&P say what it said Monday and see the stock market react rather violently to it, I start to wonder... Who doesn't already know the U.S. government has no prayer of paying back all its debt? Who doesn't already know Treasurys are toast?
Somebody must know it. Today, the U.S. dollar fell to its lowest point since August 2008 against a basket of major currencies, including an all-time low against the Swiss franc.
China knew Treasurys were toast months ago. A Chinese government-backed credit-rating agency downgraded the United States' credit rating last November, when QE2 was announced.
PIMCO – the world's biggest bond-fund manager – knows it, too. It sold all its U.S. Treasurys and is now net short Treasurys.
But S&P doesn't know it. It wants us to think it's run by a bunch of geniuses who understand advanced mathematics. They might know the math, but they're using it to design new deck chairs for the Titanic. They should be using it to figure out how to get all those people off that boat in a hurry.
S&P said it now has a negative outlook on the unsecured debt of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Those entities have received something like $145 billion in government bailouts. But – just like with U.S. Treasury debt – S&P still gives them its highest rating: triple-A.
It's ridiculous. It's like they're telling the smartest kid in the class they know he's cheating, but for now, he's still the smartest.
Apple nearly doubled its quarterly earnings from a year ago. Net income for the second quarter was $5.99 billion, up from $3.07 billion a year earlier. Sales increased 83% to $24.7 billion. The iPhone and iPad 2 are responsible for the blockbuster numbers. Verizon started selling the iPhone in February, helping Apple move 18.7 million phones in the quarter. (Analysts expected 16.3 million units for the quarter.)
After Apple introduced the iPad 2 on March 11, the company couldn't keep up with demand. It's ramping up production to launch the iPad 2 in 13 additional countries this month. COO Tim Cook said, "The iPad has the mother of all backlogs."
Intel also announced blockbuster earnings. The world's largest chipmaker announced first-quarter net income increased 29% to $3.16 billion from $2.44 billion a year ago. Sales jumped 25% to $12.8 billion. Sales of mobile devices including Apple's iPad are boosting demand for online services powered by Intel. The company estimated current quarter revenue will be $12.8 billion, compared to analysts' estimate of $11.9 billion.
Intel stock jumped more than 6% on the news. It's now trading around 10 times earnings, which is absurdly cheap for such a great business. The dividend has been growing at 23% a year. The business has maintained thick margins for decades. It gushes free cash flow. It's a financial fortress. And it owns 80% of the global semiconductor market. Who wouldn't want to own this?
Phase 1 Investor analyst Larsen Kusick was bullish on the tech sector in January. He especially liked Intel. The stock was cheap and had huge growth potential. Here's what he told Growth Stock Wire readers…
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Wall Street analysts expect Intel to earn $2.11 per share in 2011. That's a modest 3% growth rate. Intel's actual 2011 results could easily surpass this estimate thanks to the company's server segment and its Atom processors. |
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Meanwhile, Intel's stock is cheap. Based on the conservative $2.11 estimate, shares are trading at less than 10 times earnings. Over the last five years, Intel's stock has traded at an average of more than 21 times earnings. Even factoring in the slower growth in the PC market, shares of Intel are a steal if you can get them around $20. |
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With billions of devices coming online, it's an exciting time to be a tech investor. The only question is whether you want to pay up for riskier, high-growth names. Right now, Intel looks like the better bargain. |
Tech companies VMWare, EMC Corp, and Juniper Networks also announced solid earnings as corporate computer demand returns. Companies are building data centers for their cloud-computing needs... Research firm Gartner estimates the global market for "cloud-related" services may more than double to $148.8 billion in 2014 from $58.6 billion in 2009.
Gold traded for more than $1,500 an ounce for the fifth day in a row today, reaching a record $1,508.88 an ounce. And silver crossed $46 an ounce today. Seems the precious metals markets are a million miles ahead of S&P.
On March 1, the S&A Grail Trader noticed a "geyser" taking place in biotech stock Biogen Idec (BIIB). A "geyser" occurs when a stock price is stagnant, but "pressure" is building. It's a great indicator of a security that's about to explode. And on the recommendation day, the Grail noticed volume was about 50% above average.
Today, Biogen soared nearly 20% on a good earnings announcement. And the Grail is taking profits... Subscribers made 48% in less than two months.
That's what the Grail – a proprietary system developed by two expert traders – does... It analyzes several key components to a stock’s price in order to find precise areas where stocks are about to break out. With stocks and commodities moving a choppy, lockstep fashion recently, the Grail is finding many more buying opportunities in biotech than it is in conventional stocks. Individual biotechs like Biogen Idec tend to trade on their own merits and business conditions than other sectors.
Right now, the Grail is flashing "buy" on several other biotech companies, which the next issue of the S&A Grail Trader will cover. To learn more about the S&A Grail Trader, click here...
We wrote it, did you short it?
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Private-equity powerhouse Blackstone Group is set to go public the week of June 25. The offering will raise as much as $4.75 billion. New shareholders will hold a 12.2% stake, while the Chinese government will hold a 9.7% stake. Why would a successful business like Blackstone look to sell? |
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Our thoughts: Chief Executive Stephen Schwarzman and his partner Peter Peterson started this company in 1985 with $400,000. They've worked hard for 22 years. And they're no dummies. They've seen a top in the credit markets before... and this time they're cashing out. – Porter Stansberry, June 13, 2007, S&A Digest |
When the smartest guys in a market are racing to go public, it's a clear sign of a market top. Blackstone shares started trading on June 22, 2007 for as much as $38. Then, the financial crisis hit, sending shares to less than $4 in February 2009. It didn't matter to the company's founders, who both pulled billions of dollars out of the market near the peak. If you missed shorting the Blackstone initial public offering (IPO), you may have another chance...
Glencore International – one of the world's best and biggest commodity trading firms – is preparing an $11 billion IPO this year. The infamous Mark Rich started Glencore, then known as March Rich + Co. in 1974. Rich, as you may know, revolutionized the way the world trades oil... He invented the spot oil market we use today. He made his fortune because he and his firm knew more about commodities than anyone else in the world.
And he knew the most important men in the world's largest oil-producing nations. He had done most of them favors at some point. So when one corner of the world had an oil shortage, the people there called Rich. Ensuring his access to oil meant Rich had to deal with "shady" countries like Iran and some African nations... This eventually led to his downfall (and exit from his eponymous firm). The U.S. accused Rich of illegal trading with Iran and tax evasion. He fled to Zug, Switzerland.
Mark Rich's story is a great one. And you can learn more about it in the book, The King of Oil. A group of employees forced Rich to resign from his company, and changed its name to Glencore. That's the quick story of the company's origin. The point is, Glencore knows the commodity markets. And if it's going public, can a top be far away?
Add Jim Rogers to the list of famous investors to short U.S. Treasurys. Rogers told Reuters he'll short Treasurys if they rise another three or four points. Rogers said, "People are going to realize it's absurd to lend money to the United States government for 30 years in U.S. dollars at 3% or 4% or 5% or 6% interest."
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New 52-week highs (as of 4/20/11): Cambria Global (GTAA), Royal Gold (RGLD), iShares Silver (SLV), EV Energy Partners (EVEP).
Are you ultra-bullish on commodities? If so, drop us a line to tell us what commodities and commodity-based investments you like best. Send your e-mail to feedback@stansberryresearch.com.
"I am a PWA member. I note that steve as late as April 15 recommended buying Royal Gold, yet Inside Strategist on April 20 is recommending a Hold on it. Which one is it going to be???" – Paid-up subscriber DD
Goldsmith comment: Well... If you bought on April 15, you're up nearly 13% already. And as we've said many times, our analysts' opinions do not need to conform with each other. We don't hire the best so we can tell them what to write.
"I bought a year subscription to the S&A Digest in order to get some free reports from you. I do like what you write but you have as of yet to give me any advice on how or where to invest my money. You talk about the demise of our system, etc but no concrete suggestions.
"What you do give me, every week is a pitch to buy another and another paid subscription. Did I miss something" – Paid-up subscriber Stuart Lane
Goldsmith comment: Yes, you missed something. You signed up for one of our paid newsletters. The S&A Digest is a free publication sent to subscribers of our paid products.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon, and Baltimore, Maryland
April 21, 2011
You Are Invited to Join a Very Exclusive Club
By Mark Ford
I want to invite you to become a member of a little club I belong to. It's an exclusive club. Right now, we only have about a dozen members.
It was created spontaneously – an outgrowth of an all-men's book club I belong to. About a year ago, I noticed our conversations were drifting from literature to finance. Try as I did, I couldn't get the guys to focus on the books.
We all had the same problem. Because of the economy, we could no longer invest like we used to in our "underground economy" deals. Not having good things to invest in, we were accumulating too much cash.
We all had the same question: "Where can I put my money and get high yields safely?"
We knew we weren't going to find them in Barron's or the Wall Street Journal. So we decided to have a separate meeting every month to answer that question. We would each bring ideas to the table – ideas we would normally keep to ourselves.
We called it The Palm Beach Boys Club, as our group is all men. It's a fairly impressive group of guys. They're all well-educated, cultured, and... well... rich.
Let me explain something. I don't normally hang out with rich people. For the most part, I don't like them. I find them snobby and sometimes full of crap. My usual cronies are working-class folks. But my book club happened to be populated with rich guys. Nice guys, but very rich.
Steve, for example, is the founder and president of one of the most successful retail catalog businesses in America. He lives a few blocks from me in a $5 million mansion overlooking the Intracoastal Waterway.
Bob also lives near Steve. He's a commercial real estate developer. He does big deals – nothing less than $100 million. He's super-smart and collects art like I do. (His collection must be worth $10 million.)
There's young Brian, a former protégé and current partner of mine. Brian's PR business has grown from nothing to first in its sector. Brian's just moved into a $6 million home on the ocean just north of me.
And then there's Kevin, who made a fortune in natural resources… Greg, a senior vice president at Deutschbank… David, the CEO of a billion-dollar company that arbitrages commodities… John, a retired vice president and bond specialist from Merrill Lynch… Mike, a stock expert for Raymond James… and Al, an M.D. who is fast becoming one of the most successful publishers of health information in the country.
What I like best about this group is neither its business experience (which is great), nor its wealth (which is vast)… but the members' attitudes toward investing. They all share my two-pronged approach to investing: (1) Invest only in what you know, and (2) Don't buy what everybody else is buying.
We are able to do that by tapping into the knowledge of all our members. Between the 12 of us, we have expertise in just about every financial sector. And each of us usually can find one or two deals a year that are true insider opportunities. Deals nobody else is talking about.
For example, in the most recent meeting, I told them about an investment I was making in a start-up publishing company. I was putting up $50,000 for a 39% stake in the business. Because I know this particular industry well and have confidence in the entrepreneur behind it, I was confident my investment would one day be worth $1 million. "I won't let you in on this one," I said. "But I might let you in on the next one."
In the same meeting, John shared with us a secret about municipal bond investing. He told us that, although most people don't realize it, municipal bonds have underwriting spreads. The underwriting spread is the difference between the price at which a bond issue is bought (the purchase paid) and the price at which the bonds are sold to investors. In other words, the bond price you are quoted by your broker includes a mark-up. This can sometimes be as much as one basis point. You won't see this on the transaction sheets. You have to ask about it.
And here's another tip about buying municipal bonds. If you have a good relationship with your bond broker, you can ask him to put you in municipal bonds when they are first issued. Issuing municipalities usually have a "retail order period" of one or two weeks before the bond offering. When you buy at first issue, you don't buy at a mark-up. The broker you buy from gets only the underwriter's discount.
I've been buying bonds for more than 20 years, and I didn't know that. As a result, I was able to negotiate a much better deal with my broker that will save me thousands of dollars a year.
There's plenty more exciting stuff to tell you. If you'd like to get in on the discussions, I invite you to "join" us through my new advisory. I'll be reporting on what I learn each month in The Palm Beach Letter.
Good investing,
Mark
P.S. One of the things I'm sure my club will be talking about in the next few weeks is a savings strategy I figured out how to use a few years ago. It's extremely safe, and has the ability to multiply your savings by several hundred percent over the next few years.
So far, I've put about $1 million into this investment, which has grown in value by about 150%. What's nice is this has nothing to do with stocks or bonds. You can get started with just a few hundred bucks. I've written about this opportunity here in more detail if you are interested.