The first 100 billion euros is the hardest... Time traveling... Goldman likes commodities... A trading update from Jeff Clark... A special offer in your inbox... Feedback on our 'Masters Series'...
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Over the weekend, Spanish Prime Minister Mariano Rajoy asked for a 100 billion-euro bailout...
Digest readers – or anyone with an elementary-school-level math education – knew Spain would require some kind of bailout to stave off collapse. The country has nearly $2 trillion in debt (more than its $1.2 trillion GDP). And almost one in four Spaniards is unemployed. (Youth unemployment exceeds 50%.) So there's no possibility for Spain to grow its way out of debt... The only options are to inflate it away or default. We're betting on the former.
The first 100 billion euros is the hardest...
Think back long ago, when a Spanish bailout was deemed impossible... We're talking about all the way back on June 5, 2012...
That's the date Emilio Botin, chairman of Spain's biggest bank, Banco Santander, told the world, "There is no financial crisis in Spain." We noted our skepticism at the time.
As recently as May 28, Rajoy said Spanish banks wouldn't need a bailout. And on May 11, Economy Minister Luis De Guindos said $15 billion would solve the problem. Once again, the world's financial executives and government leaders prove they can't be trusted.
Even with the 100 billion-euro injection, the IBEX 35, Spain's benchmark equity index, is only up 1% (it jumped as high as 3.6% before reality set in). The bond market isn't as bullish...
Initially, the yield on Spanish 10-year government bonds dropped to 6.05%... Then it soared to 6.44%, a net 19-basis-point (0.19 percentage points) increase on the day. The cost to insure against a Spanish default also rose.
And if Spain needs a bailout, so does Italy... Italian 10-year yields rose 21 basis points (0.21 percentage points) on the day to 6.04%.
As we predicted, we're about to see another huge round of liquidity flood the market. We knew the government wouldn't let Europe's banking system fail. It's too big. From Stansberry's Investment Advisory...
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Europe's banking system holds $55 trillion in assets – roughly equal to the total debt (public, private, corporate) in the United States. Europe's banking system is four times larger than the U.S. banking system. And it is stuffed to the brim with sovereign debts that will never be repaid... |
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We're not talking about the failure of a single bank – though it seems more and more likely that a single bank (UniCredit) will be first. We're talking about the failure of an entire system, the largest system of credit and banking on Earth. Why, then, don't we simply short everything? Because shorting the sovereign is incredibly risky. |
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The paper currency system we have in place means there is no actual limit to the size of the bailout that can (and in my view, will) be organized. Yes, the ECB has rules against bailing out countries. But those rules will be changed, you can bet on it. The Federal Reserve cannot allow U.S. money-market funds to lose $500 billion. It cannot allow Europe's entire economy to collapse. Whatever the other risks – inflation, a panic out of euros and dollars – anything will be tolerated except a complete collapse... |
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My core recommendation is for you to own plenty of gold (and silver) bullion. Consider this: Total central bank gold purchases in the third quarter more than doubled over the third quarter of 2010. This is the world fleeing to gold. This is the death of the U.S. dollar as the world's reserve currency. – Stansberry's Investment Advisory, November 2011 |
Our recommendation to own gold and silver still stands (make sure to read tomorrow's Digest, where we'll discuss one of our favorite gold stocks to own today). But the coming liquidity will lift all commodities. And we're not the only ones who are bullish...
Goldman Sachs thinks commodities – as measured by the S&P GSCI Enhanced Commodity Index – will return 29% over the next 12 months. In particular, the investment bank likes energy and base metals. "Although the macroeconomic backdrop still remains uncertain, particularly in Europe, we believe that the sell-off in commodity prices is likely overdone and the price risks are shifting more to the upside," said Jeffrey Currie, Goldman's head of commodities research in New York.
Master trader Jeff Clark sent me this market update last Friday... He thinks it's time to buy...
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Sometimes you just have to hold your nose and buy. This is one of those times. |
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I've been arguing all year that the market is acting out the same script as last year and 2010. We got the big first quarter rally – where stocks seemed to move higher nearly every day. We just got the move back down that erased all of those gains. Now, we're set up for another rally attempt. |
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It's easy to be bearish right now. More than 45% of the folks surveyed by the American Association of Individual Investors expect stocks to fall over the next six months. But the easy trade is usually the wrong trade. |
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I'm buying now and on any weakness over the next couple of weeks. |
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One of my favorite trades right now is a giant technology stock that looks a lot like the way Cisco Systems (CSCO) did last year at about this same time – when it was trading below $14 per share. We made 80% in three weeks last year trading options on CSCO in the S&A Short Report. I think we'll do even better with this stock this time around. |
As Jeff said, he made 80% trading Cisco last year. And he thinks the opportunity is here again. (Cisco is also on Dan Ferris' Extreme Value World Dominator list... It's one of the few World Dominators currently in buy range.) S&A Short Report subscribers can access Jeff's trade in his latest issue.
The S&A Short Report's recommendations focus on taking advantage of Jeff's market trend-reading and using options to generate large returns over short holding periods...
However, Jeff writes another newsletter... Advanced Income... that helps subscribers use options to generate large, safe streams of income...
In particular, Jeff focuses on one of the safest options-trading strategies in the market... one he's dubbed "The single best income strategy ever created." It's a trading strategy that Jeff says he uses for 80% of his personal investing portfolio. The approach is called "selling covered calls."
Selling covered calls is one of our favorite investing strategies... one we've urged readers to try many times. It's one that can generate thousands of dollars of income at a time... and protects your investments from modest downturns in the stock market.
Jeff frequently writes about how to perform these safe and lucrative trades... Among our favorite essays on the topic is one he wrote in 2008 for our free, daily e-letter DailyWealth. It's called "The Single Best Income Strategy Ever Created Just Got Better," and we've reprinted it below...
For more on Jeff Clark and his strategy of selling covered calls... keep your eyes on your inbox tonight... We're sending you a special offer to sign up for Jeff's Advanced Income. If you sign up now... you'll get a full-year subscription to Advanced Income. And you'll get access to his plain-language, step-by-step guide to selling covered calls. (It's called "Unlock Your Brokerage Account for Instant Cash.")
Right now, we're offering Jeff's Advanced Income at a huge discount. As I said... we'll be e-mailing you details on this offer later this evening... But to make sure you get the discount price now... and start learning about covered calls... you can sign up for Advanced Income (without watching a long promotional video) by clicking here.
New 52-week highs (as of 6/8/12): Utilities Select Sector SPDR Fund (XLU), Integrys Energy Group (TEG), Wal-Mart (WMT), Target (TGT), and Altria Group (MO).
We got a huge amount of feedback about our new Masters Series we published last weekend. Did you read our Masters Series essays? Let us know whether you liked them... feedback@stansberryresearch.com.
"Yes, I got that joke, and very good one it was, but you need to pass on to Mr. Bonner who evidently passed over a few days in Latin class that verbs are not declined, they are conjugated. Nouns and adjectives are declined (which are both forms of changing the ending of a word called inflection). I do have to admit though, I did not know what hock is – I do now (an English term for German wine)." – Paid-up subscriber Patrick Mulloy
Goldsmith comment: As we mentioned on Saturday, our goal with the "Masters Series" is to bring Digest readers the world's best insights on investment, economics, politics, and history. Our aim is to bring readers classic, "best of the best" ideas and insights. To accomplish our goal, we've invited our friends in the investment and publishing world to send us their greatest essays. We kicked off our series on Saturday with a brilliant essay from our friend and mentor Bill Bonner (which reader Patrick references above). But by far, the biggest generator of "buzz" was the essay we published Sunday by our friend Mark Ford...
As many Digest readers know, Mark Ford is one of the most successful entrepreneurs and investors in the world. Mark founded his newsletter, the Palm Beach Letter, to share his wealth-building secrets. Mark doesn't write about wealth and investment to earn an income... he does it because he genuinely loves to teach. At this point in his life, making another million dollars isn't on Mark's "to do" list. His goal is to make sure as many people as possible understand his controversial (but common sense) ideas on wealth and happiness. His essay, published on Sunday, was a big hit. You can make sure to read it here.
"Seems to me the gist of Mr. Bonner's essay can be summed up in this one simple truth: 'For one to receive without earning, another must earn without receiving.' I cannot find a proper attribution for that observation, but I am certain I cannot claim it as my own." – Paid-up subscriber John Chase
"I have been an investor for over 20 years. Only after being a successful investor have I branched out into trading – using money which I can afford to lose, a luxury I didn't have in my earlier years. I have to admit that I was not as good at investing in my earlier years as I am now. And thanks to Stansberry & Associates, I have identified with several of the analysts who focus on investing, and that has been a great help. This is particularly true of Dan Ferris, although Porter and Doc, to a lesser extent, have also helped me become an even better investor.
"I am not so sure I have done all that well as a trader. Sure, I have made money, more than I have lost, but don't feel very confident as a trader and so have starting cutting back on trading to focus on investing and using options. I rarely did options before reading Jeff Clark and Doc Eifrig, and would never do them were it not for all the wonderful learning tools Stansberry & Associates has made available.
"While it is probably only in the area of options that Stansberry & Associates has greatly changed what I do, the expert analysis and advice they give me in the investing arena greatly helps me stay the course, and in the trading arena, it has helped me make some money and saved me from doing the hard lifting. So thanks Stansberry and Associates – you've been worth every penny and then some!" – Paid-up subscriber Mike Chase
"I want to share with you a free tool I have been using that aids in keeping up with investments. I have found it difficult (time consuming) in the past to keep up with multiple portfolios in one brokerage account. I have a large account at Interactive Brokers and in that account I buy and sell ideas from my Stansberry letters.
"I organized the account according to Porter's 50-30-20 rule. 50% cash generation, 30% World Dominating Dividend growers, and 20% Speculative. So how am I to keep up with sub portfolios? I found this free accounting spreadsheet. Now, I can easily subdivide a portfolio (Brokerage Account) into as many sub-accounts as I want and see how each piece is performing. By manipulating the initial number of NAV units in each sub account I can even have all the sub accounts start with an initial NAV/unit that is the same so I can see a heads up plot of the subportfolios. I can move cash among the sub accounts with no tedious restating of past results. It has many accounting benefits and is easy to understand and use. I believe it is important to track results and compare to benchmarks so that you can demonstrate your results are headed in the right direction.
"I know I will never hear back from you on this but I had to pass along this unique free accounting tool. It is very helpful. I am in no way connected to the web site above and derive no benefit from it." – Paid-up subscriber John Prather
Regards,
Sean Goldsmith
New York, New York
June 11, 2012
Editor's Note: As we said above... Selling covered calls is among our favorite conservative strategies for generating big, safe streams of income. No one is better at showing subscribers how to perform these trades than Advanced Income editor Jeff Clark.
To introduce subscribers to this approach, we're republishing one of our favorite pieces by Jeff. We first published it in 2008 (so the trades he describes are no longer available)... But the information is timeless...
The Single Best Income Strategy Ever Created
Just Got Better
By Jeff Clark, editor, Advanced Income
Thursday, October 2, 2008
Everybody needs cash.
Wall Street needs it. Big businesses need it. And small businesses are hurting for it.
But no one needs cash more desperately than the individual investor. At least, that's the take I got from reading September's Money Magazine.
In The Best (And Worst) Ways To Raise Cash Right Now, the authors suggest investors who need cash can "withdraw money from your 401(k) plan" or "borrow money from your parents."
Huh? Why not just tell readers to "sell your blood" or "enroll in an experimental drug trial?"
The truth is, there's a much better way for investors to generate cash. You won't find it in Money Magazine. But I'll share it with you today.
It's called covered call writing and it's the single best income generating strategy ever created.
The idea is simple. You buy a high-quality stock at a cheap price and then sell to someone else the right to buy the stock from you at a higher price. You collect cash up front for selling that "right," and the money appears in your account immediately.
I've used this strategy for years to generate income, protect my portfolio from any modest downside moves, and create high rates of return. It's a wonderful strategy that works best when stocks are cheap and options are expensive.
And there's no better time than right now for selling covered calls.
Stocks are cheap. The S&P 500 is trading at the same level it was nearly five years ago. High-quality blue-chip stocks are trading for less than 10 times earnings. And much of the downside risk has been taken out of the market.
Buying stocks today is certainly less risky than buying them last October, when the S&P 500 was 25% higher.
And option premiums are expensive. In fact, options are more expensive now than they have been in the past 10 years.
Take a look at this chart of the CBOE Volatility Index (VIX)...
The VIX helps measure the price traders are willing to pay to buy stock options. The higher the chart, the higher the price of the options.
As you can see, option prices are higher today than they have been in years. So sellers of covered calls can pocket more cash.
Here's an example of some of the opportunities in today's market...
You can buy Intel (INTC), the country's largest semiconductor manufacturer, at about $18.50 per share. The stock yields 3% and is at the bottom of most historical valuation measurements. And you can collect an immediate cash return of $1.20 per share by giving someone else the right to buy INTC from you for $20 between now and January 18.
That's instant income of 6.5% for giving someone the right to buy the stock from you at an 8% gain in just over three months.
You can also collect a 6% immediate cash payment by buying Microsoft (MSFT) at $26.60 and selling someone else the right to buy it from you between now and November 21 at $27 per share. That's a 6% return in just six weeks... and you can collect it tomorrow.
Once all of these options expire, you can sell some more calls against your shares and raise even more cash. It's as if the option market is erupting in cash. And all you have to do is reach out your hand and grab some.
Buy cheap stocks and give someone else the right to buy them from you at a higher price. You'll get paid cash right away, reduce your downside risk, and still have the potential to profit on modest upside moves.
It sure beats asking your parents for a loan – or selling your blood.
Best regards and good trading,
Jeff Clark
As we said, right now you can sign up for Advanced Income at a significant discount... To subscribe, click here.