The market isn't overreacting to Bernanke's announcement...
On Wednesday, Ben Bernanke announced the Fed may taper its bond-buying. The market panicked... Stocks and gold fell, while interest rates soared.
In today's Digest Premium, Porter explains why the market's response was appropriate.
To subscribe to Digest Premium and access today's analysis, click here.
The market hates GLD... Chinese stocks are selling off... One investing legend is bullish on China... Feedback on Altucher's book...
The precious metal fell another $20 per ounce today to less than $1,210, hitting its lowest level since late 2010.
The SPDR Gold Trust (GLD) is the largest and most popular gold ETF in the world. It's designed to track price movements in gold bullion. Since last October, GLD (and the price of gold) has fallen more than 30%. (It's down 12% in the last two weeks.)
But beyond simple price action, there's another thing to consider with GLD... The number of shares outstanding.
When gold was getting crushed in 2008, GLD saw net inflows of nearly 30%... Meaning investors still wanted to buy gold. At the time, everyone thought the world was ending and saw gold as a safe haven.
Today, sentiment has reversed. Take a look at the following chart...
GLD's managed assets grew in a straight line until mid-2011 (around the time the Federal Reserve finished up its second round of quantitative easing). Assets fell before recovering again to new highs. But today, they're falling off a cliff.
GLD's assets are down 47% this year. On June 25, investors pulled $667 million from GLD, bringing assets under management below $40 billion. GLD was the most heavily sold ETF that day.
What's changed? Why the sudden disdain for the precious metal?
Last Wednesday, the Fed said it may start tapering its $85-billion-a-month bond-buying, which would lead to higher long-term interest rates. Higher interest rates makes owning gold (which pays no interest) less attractive.
And several economic indicators (like housing) are improving. Many folks view gold as a crisis hedge (not as "real money," like we do)... and they don't see a crisis coming.
It's a perfect storm for falling gold prices. And it's not surprising. As Editor in Chief Brian Hunt noted in today's DailyWealth Market Notes, gold has registered 12 straight years of gains. "No widely traded asset of the past 100 years has registered that many consecutive winning years," he writes. "After such a stupendous run, it was only reasonable to expect a big gold correction.
As Porter wrote in the June 7 Digest...
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S&A Short Report editor Jeff Clark updated subscribers on gold this morning...
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For the first time since 2006, no Chinese companies appear among the world's 10 biggest stocks by market value, according to Bloomberg. In October 2007, five Chinese firms were on the list. Today, U.S companies make up the entire list.
Chinese oil firm PetroChina, for example, fell from No. 6 in May to No. 12 today. The company has lost $35 billion in market cap this month. Another, Industrial & Commercial Bank of China, lost $28 billion off its market cap, falling from No. 9 to No. 13.
Chinese stocks fell roughly 10% last week. The Chinese market is declining due to fears that the Chinese government may stop expanding credit.
According to Bloomberg, ratings agency Fitch Ratings estimated that China's total credit has ballooned to 198% of the country's 2012 GDP.
But some investors think China's violent selloff is a good opportunity to load up...
Legendary emerging-markets investor Mark Mobius is one of them. He said he's now on the lookout for bargains...
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New 52-week highs (as of 6/26/13): Ligand Pharmaceuticals (LGND).
In today's mailbag, one reader lets us know James Altucher's book is "fantastic." Send your notes – good or bad – to feedback@stansberryresearch.com.
"As an Alliance member, I have no idea if I am entitled to James Altucher's books and the special report. Who cares!! I bought the package anyways and intend to give the book to my son who is 20, and finishing his nutrition sciences degree off in University. I have already read most of the book and it is fantastic, filled with great ideas. A much better education for my son. I am thrilled to spend the money for two and a half ham sandwiches for this opportunity. Thank you." – Paid-up subscriber Leslie Kasza
Goldsmith comment: We're glad you liked the book, Leslie. And we hope your son enjoys it as well. If anyone else would like to purchase a copy of James Altucher's book, Choose Yourself, you can do so by clicking here...
Regards,
Sean Goldsmith
Miami Beach, Florida
June 27, 2013
The market isn't overreacting to Bernanke's announcement...
The market panicked last Wednesday after Federal Reserve Chairman Ben Bernanke announced the Fed could begin tapering its bond-buying. And since the announcements, markets have fallen further, gold has been crushed, and interest rates have continued to rise.
Many folks think this was an overreaction. But I (Porter) don't think the market overreacted at all...
For many years, people have believed there were no consequences to tripling the money supply in the U.S., the U.K., the eurozone, Japan, and Switzerland... and that there were no consequences to China and Russia buying every piece of gold they can... They believed all these things are normal. But they're not.
We've seen unbelievably risky moves in the market. They foreshadow a massive change in the economic structure of the world. So when do we begin to see the consequences of these policies?
The question isn't how much the Fed can buy... It has unlimited buying power. It can print as much money as it wants, and it can buy as many bonds as it chooses. There is nothing to stop it.
And there is no cultural restraint in the United States. The population is always in favor of more stimulus and inflation... That's been true throughout history...
The question is, how can it sell? Just hinting that it may one day have to slow down purchases has moved the entire market.
We've seen an unprecedented price move in the U.S. bond market (specifically the 10-year Treasury bond, the asset upon which all other fixed income is priced).
And back in April, gold fell more than $210 an ounce, from $1,560 to $1,350. It was an event so rare, it should happen just once every 6,800 years or so. There was a similar event with the Japanese yen.
So it's not just about the movement in the 10-year bond. There have been many indications of massive monetary unrest... enormous amounts of volatility in markets that shouldn't be moving the way they are today.
– Porter Stansberry with Sean Goldsmith
The market isn't overreacting to Bernanke's announcement...
On Wednesday, Ben Bernanke announced the Fed may taper its bond-buying. The market panicked... Stocks and gold fell, while interest rates soared.
In today's Digest Premium, Porter explains why the market's response was appropriate.
To continue reading, scroll down or click here.