The Gold Correction Is Here
Negative interest rates are spreading... A 'revolt' at the Federal Reserve?... More 'fallout' from Valeant Pharmaceuticals... The gold correction is here...
Yet another central bank has "gone negative"...
Yesterday, Hungary became the latest country – and first emerging market – to push short-term interest rates below zero. Its central bank lowered its overnight deposit rate from 0.10% to -0.05%.
It joins the 19 eurozone countries, along with Japan, Switzerland, Sweden, and Denmark, as those with negative interest rates today.
Meanwhile, it appears the U.S. central bank is as confused as ever...
In recent months, the Federal Reserve has flip-flopped between a so-called "dovish" stance (in favor of lower rates and "easier" monetary policies) and a more "hawkish" stance (in favor of higher rates and "tighter" policies) several times.
As we've noted, it was just three months ago that Fed officials voted to raise interest rates for the first time in nearly a decade. The Fed also predicted it would increase them up to four more times this year, and as many as 18 times over the next three years.
In January and February, several Fed officials went on record suggesting more rate cuts rather than rate increases could be coming... even suggesting negative rates were a possibility.
By its March policy meeting last week, the Fed was slightly less cautious. It said further rate increases are now likely. But it also said it expects to raise rates just one or two times in 2016 – rather than the four it anticipated at its December meeting – and not until later in the year.
Today, we learned that several Fed officials disagree with last week's official policy statement and believe it should "get on with" rate hikes now and consider another increase at next month's meeting.
As always, we wouldn't put too much weight on what Fed officials say...
Despite its rhetoric, the Fed has turned dovish at the first signs of market trouble for years. There's no reason to believe that will change.
If another round of volatility is starting now, don't be surprised if these officials change their minds again next month.
Speaking of rate hikes, a new study reveals a surprising fact about gold and interest rates...
The conventional wisdom is that higher interest rates are bad for gold. But according to HSBC Securities analyst Jim Steel, that isn't necessarily the case.
In fact, the data show gold has historically rallied at least 100 trading days following the first rate hike of a "tightening cycle" by the Federal Reserve. Because interest rates remain near record lows and gold has already suffered a brutal bear market, it's likely this rally could go on even longer.
Sooner or later, we expect the Fed will continue easing as it has always done. This will be incredibly bullish for gold, as more and more folks lose faith in paper currencies and the central banks behind them.
But even if the Fed continues to pursue a rate hike, history says that doesn't mean the gold rally will end.
Since we first warned about troubled drug company Valeant Pharmaceuticals (VRX) last week, more news has come out confirming our concerns...
Yesterday, we shared ratings agency Moody's warning that Valeant's troubles could cause big problems in collateralized loan obligations (or "CLOs"). Today, the Wall Street Journal says they could also cause significant losses in the retirement accounts of many unsuspecting investors.
If you're not familiar, the Sequoia Fund is an exclusive, value-focused mutual fund founded by Bill Ruane, a close friend of investing legend Warren Buffett. From its creation in 1970 through 2015, the fund earned annualized returns of more than 14%, giving it one of the best long-term track records on Wall Street.
Because of this elite performance, the fund was extremely popular. It has been mostly closed to new investors for years. But it seems some companies were able to pull some strings and grant their employees access.
According to the Journal, more than 50 companies – including Disney (DIS) and Berkshire Hathaway-owned National Indemnity – have offered the fund in their employee retirement plans.
Unfortunately, as we mentioned in our original warning last week, Sequoia was the single largest holder of Valeant shares. The fund held as much as 30% of its portfolio in Valeant shares. Even after the recent bounce in Valeant shares, the fund is down more than 11% this year... and has underperformed 98% of other funds.
Considering the fund's reputation, we were surprised to learn it owns Valeant shares at all... We suspect many of the fund's investors may be surprised when they open their 401(k) statements this month.
Fortunately, most stock mutual funds don't make such concentrated bets... But this story is still a great reminder to take a closer look at what you own.
If you've followed our advice to avoid most money-market and bond mutual funds and taken a few simple steps to prepare your portfolio, you have little reason to worry today.
If not, consider this your wake-up call. You may not get another chance.
You can learn more about our complete Bear Market Survival Program right here.
And if you're ready to take your bear market education to the next level, be sure to try our new Bear Market Trading Program. It will show you step-by-step how to make big, short-term profits regardless of the market's direction.
This Friday, we'll be publishing the third module, which discusses an unusual way to bet on a market crash without risking any capital upfront. If you believe a correction is likely, this is a strategy you should know.
If you sign up today, you'll get instant access to the first two modules in this series – which explain two different ways to make quick, double-digit gains in today's market – and you'll be the first to receive Module 3 when it's published this Friday. Click here for the details.
Finally, regular Digest readers know we've been sharing our colleague Jeff Clark's thoughts on the stock market this week. In short, Jeff says the market has become incredibly overbought... and several of his most trusted indicators suggest another market correction could begin at any time.
But Jeff has also been closely following the action in gold...
Like several other Stansberry Research analysts, Jeff believes gold (and gold stocks) have just started a major new rally phase. But like us, Jeff also thinks the sector has been overdue for a "breather" after running nearly straight up over the past several weeks.
As of today, that pullback could now be here...
Both gold and gold stocks fell today. Gold fell as much as 2%, while gold stocks – represented by the Market Vectors Gold Miners Fund (GDX) – fell more than 5%.
Jeff says these declines are likely the start of the pullback we've been waiting for. If you've been waiting for a great opportunity to buy more gold or gold stocks, you could soon get your chance.
As usual, Jeff will be sharing his latest thoughts on gold, gold stocks, and the broad market throughout the day in his Direct Line service. If you're not familiar, the Direct Line gives readers real-time access to Jeff's market insights and best trading ideas.
Typically, access to Jeff's Direct Line is limited only to his Stansberry Short Report subscribers. But for the next few days, Jeff has agreed to give every Stansberry Research reader access to this premium service – along with several of his subscriber-only trading lessons – absolutely free. Click here to gain access.
New 52-week highs (as of 3/22/16): Market Vectors Junior Gold Miners Fund (GDXJ), Kaminak Gold (KAM.V), Lundin Gold (LUG.TO), Nuveen AMT-Free Municipal Income Fund (NEA), Nuveen Premium Income Municipal Fund 2 (NPM), Sturm, Ruger (RGR), Reservoir Minerals (RMC.V), Travelers (TRV), and Wells Fargo – Series W (WFC-PW).
Several more subscribers share their thoughts on Jeff Clark and his Stansberry Short Report service. Send your comments to feedback@stansberryresearch.com.
"Jeff... I find your report very, very helpful in my understanding of the ebbs and flows of the market. Your reviews help reinforce Porter's overall strategic insights – position limits, stop losses, and that no one really knows what will happen. Your explanations of the shorter-term indicators are very educational and helpful in the larger context. I have learned more from you than I think just about anyone in the newsletter business, and I have gone through a ton. So keep up the good work – please!" – Paid-up subscriber Gary W.
"I log into the Direct Line every trading day that I am home (not working), and find your insights very helpful. Potential targets and direction help me assess my personal portfolio, in addition to doing some shorter trades on the indexes... Of all the writers I receive info from, you are one whose opinion I respect a great deal. Thanks for all you do to help us!" – Paid-up subscriber Patty D.
"Greetings Mr. Clark, I am pleased to be a [Stansberry Short Report] subscriber and believe you offer a great service to us. We have made money on some recommended trades but more importantly I believe your Direct Line service continues to be a great education in understanding, interpreting, and trading the markets. Thank you very much for this service!" – Paid-up subscriber Steve Z.
"I find I am not a trader, so with a few exceptions (such as his options trade with Yahoo that I made a bundle on), I don't do his short-term trades very much. But I still read [Jeff's services] closely, because they inform when I execute other trades – like waiting to buy when he thinks a downturn is nigh. In effect, he is a key guide for short term market dynamics, which is part of timing trades I am going to make for other reasons." – Paid-up subscriber Al H.
Regards,
Justin Brill
Baltimore, Maryland
March 23, 2016
P.S. There are just five days left to claim your free OneBlade razor, valued at $299. Get the details here.
|