Tue, Jul 14, 2015|Justin Brill

The latest on interest rates and the Federal Reserve...

The latest on interest rates and the Federal Reserve... The Fed's biggest 'dove' speaks out... Doc Eifrig on interest rates... Another big sign of 'froth'...

The chances of a September interest-rate hike could be greater than most folks believe...

According to the Wall Street Journal, the market puts the odds of an increase at just one in three today. But recent comments from the Federal Reserve suggest it may be much more likely.

In a speech last Friday, Federal Reserve Chair Janet Yellen said the Fed is still on track to raise short-term rates this year. From the Journal...

"I expect that it will be appropriate at some point later this year to take the first step to raise the federal-funds rate and thus begin normalizing monetary policy," she said in remarks to the City Club of Cleveland.

The speech was her first since the recent turmoil in China and Greece, and suggests the Fed doesn't think those problems will hurt the U.S. economy. In fact, she made no mention of China at all, and mentioned Greece just once.

Perhaps more important, she was "cautiously upbeat" on jobs, noting "some tentative hints of a pickup in the pace of wage gains may indicate that the objective of full employment is coming closer into view."

This is important because the Fed sees getting the economy to "full employment" as part of its job description – this, along with keeping inflation "stable," is known as the "dual mandate."

But Yellen isn't the only Fed official speaking out about interest rates...

Boston Federal Reserve President Eric Rosengren also spoke on Friday. In an interview with news service Reuters, Rosengren said the Fed could begin raising interest rates at any time, including the September meeting. "I don't rule out any of the meetings from here on out," he said.

He also thinks it's unlikely the Fed will delay rate hikes until next year, barring any unexpected data on the economy.

Rosengren is not a voting member of the Fed this year, so he won't be directly involved in the decision to raise rates. But he is known as one of the Federal Reserve's most "dovish" officials. In other words, he's been one of the biggest proponents of low interest rates and "easy money" policies.

If Rosengren thinks it's finally time for higher interest rates, it's likely other Fed officials agree.

If the Fed does raise rates this year, it's important to understand what it could mean for your investments.

As we've mentioned, our colleague Steve Sjuggerud's research shows a Federal Reserve rate hike doesn't mean the bull market has to end. Instead, Steve says a rate hike could actually be bullish for stocks.

But Steve isn't the only Stansberry Research analyst who thinks so...

Longtime readers know Dr. David "Doc" Eifrig has been bullish for the past several years. In the latest issue of Retirement Millionaire, Doc explained why a Federal Reserve rate hike could be a great buying opportunity...

Stocks do react negatively to rising rates in the short term. But the truth is there's no better time to be in the stock market than when interest rates are rising...

The Fed only raises rates when we've got a healthy, vibrant economy. That overcomes any headwinds that interest rates may cause. Just take a look at the last 30 years.

While we believe the market is likely headed higher, there are plenty of signs it's getting a little "frothy." The latest comes from an article in the Financial Times this morning...

Daily fantasy sports website FanDuel has drawn the attention of major investors. It just completed its latest round of funding for $275 million (which makes more than $360 million in total) and is now being valued at nearly $1.3 billion, despite generating just $57 million in revenue last year.

The company – which has increased its active user base by 300% in the past 12 months – has secured investments from several NFL and NBA team owners. From an article in the Financial Times...

Founder Nigel Eccles said FanDuel's growth justified the billion-dollar valuation for a company that made just $57 million of revenue last year and has yet to turn a profit.

"We are growing incredibly quickly," he said. "This year we have four times the activations of last year. If you ask investors what they are excited about, they are excited about the growth."

In June, FanDuel's largest competitor, DraftKings, signed an exclusive advertising deal with ESPN. But the sports network backed out of its investment after its parent company, Disney, grew concerned that associating itself with a company that closely resembles online sports betting would harm its brand. Still, DraftKings has already raised more than $125 million and is also being valued at more than $1 billion, according to the Wall Street Journal, despite generating just $30 million in revenues in 2014.

Though online poker and sports betting are illegal, FanDuel and DraftKings are taking advantage of a 2006 ruling that classified them as skill-based games. Today, they're legal in 45 U.S. states. And the industry is rapidly growing...

As reported by the Financial Times, gaming research firm Eilers Research estimates that the daily fantasy sports market could be worth upwards of $14 billion in five years. That unrealized potential has piqued the interest of fantasy sports giant Yahoo, which announced its plans to enter the daily fantasy sports market last week.

While we can't say for certain this is a sign of a top, seeing online gaming sites with no profits trading at 20-30 times sales and billion-dollar valuations is concerning.

That this situation has become so normal that major investors are comfortable piling in is worse.

Of course, that doesn't mean the stock market can't go higher...

As we've said, we're cautiously bullish today. And as Steve Sjuggerud has explained, the biggest gains often come in the "final innings" of a bull market.

Assuming you're practicing proper asset allocation and position sizing, we recommend staying long today... but be sure to keep a close eye on your trailing stops.

New 52-week highs (as of 7/13/15): American Financial Group (AFG), Bristol-Myers Squibb (BMY), CVS Health (CVS), Dollar General (DG), eBay (EBAY), iShares U.S. Insurance Fund (IAK), Prestige Brands Holdings (PBH), Scorpio Tankers (STNG), and Valero Energy (VLO).

In the mailbag, praise for Doc Eifrig... and a complaint about his take on the economy. Send your notes – compliments and complaints alike – to feedback@stansberryresearch.com.

"Doc, you are an absolute genius. I had to resign my job in human protection in medical research three years ago when I had a severe relapse of a traumatic brain injury (TBI). As my health improved (well, 4 surgeries in 6 months following that recovery, but no cancer now and two other problems found and taken care of), I knew I needed to do something to contribute to the family income and that would keep my mind stimulated. My father started me investing when I was in high school and all we had was the WSJ and slide rulers. And I learned about bond ladders and clipping coupons! Those were good times.

"Today my investments are still a core of Dad's favorites with added sector and global exposure. I also day trade, which is great fun as long as risks are considered and rules set and followed.

"I just want you to know that with all the investment materials I get, what you write is my favorite. And I am loving Income Intelligence. I had some of what you recommended and am adding to those. I hit 61 next week, and while my husband and I have been smart and frugal, the investments allowed us to give our two children fine educations and we have some SEP IRAs rolled into annuities for the future.

"That doesn't mean there is nothing left to invest. Your letters are incredibly educational and, gee, I love your sense of humor! I enjoyed listening to your 'pitch' tonight, and anyone listening who had any spare cash struck out if they did not take you up on your deal. Mind boggling and short-sighted, IMHO.

"I'm sure you probably get way more mail than you have time to read, but I want to tell you what an inspiration you are and how solid I feel about our assets and the way they are invested. Thank you for sharing your bright mind with the rest of us! I have always loved to learn, then share what I learned. I think that's part of why I was so good with medical research – the young investigators would come in and have me run through their proposals for scientific merit and human protections before turning them in for review. Very stimulating and satisfying work.

"Now I am finding the same with you, and feel privileged to have the honor of having you as a mentor! I feel so much more confident – actually the best I have since Dad died in Dec 2008. He was sharp as a tack and invested all his life. So with apologies for being repetitious, thank you so much for being who you are and for continuing to be such a spirited fellow with what I suspect is a thirst for knowledge and a great deal of curiosity." – Paid-up subscriber Ginger

"Doc's a very astute, intelligent guy – but the numbers he's seeing 'ain't' the ones I see people 'living and breathing' from my perspective. Remember, number's lie, and liars use numbers (certainly not calling out the doc as a liar!) – it seems that sometimes folks with s@#$loads of money, either always had it, or have selective amnesia about where they once were. Ignorance is indeed bliss. Just musings of a common sense kinda' guy. – Paid-up subscriber George Miller

Doc Eifrig comment: I'm aware that parts of the country haven't hit on all cylinders since the crash and sectors like housing are still below 2007 boom levels... But many other parts are at all-time highs – train ridership, for one. And the four flights I took last week were all filled in coach class. New restaurants are starting to pop up in Baltimore, Augusta, Buffalo, Raleigh, Jensen Beach, Miami, Sonoma, Madison... just a few of the places I've been in the past months.

What I'm seeing on the ground and hearing from the people I interact with confirms many of the numbers. Where the heck are you living that things are so bad? I'm open to the facts from common-sense kind of folks like you... just tell me where you're seeing such hard times, George!

Regards,

Justin Brill
Baltimore, Maryland
July 14, 2015

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