Editor's note: Today's Digest will be brief, as we're in New York City for important meetings. We'll look forward to updating you on the outcome of these meetings in future Digests.
There is only one position across all S&A publications hitting a new 52-week high... Porter's short position in the iShares Barclays 20+ Year Treasury Fund (TLT).
Regular Digest readers know we've been watching the rising yield on U.S. government bonds with interest and worry... Porter has been warning about the consequences of an inevitable collapse in the bond market – and corresponding explosion in interest rates – since 2009. He's termed it "the most important trend in finance."
The 10-year Treasury yield (the so-called "risk-free rate") is the interest rate from which everything else is priced. And rising yields mean debt is more expensive, credit tightens, and stocks fall. (We wrote about the relationship between interest rates and stock prices here.)
Yesterday, 10-year Treasury yields hit nearly 3% – the highest point in more than two years. (Remember, as bond yields rise, prices fall... and Porter's short position profits. That was a painful position to hold while bond yields were historically low. But with interest rates on the rise, it has become a regular fixture on our new highs list.)
And Porter warned in last Friday's Digest that we're about to see a sustained increase in interest rates. This fear caused him to reiterate his "trade of the decade" – to short the long bond and buy gold.
We continue to watch these rising interest rates with caution. But the following chart – showing the falling price of TLT (bond prices fall as yields rise) – isn't promising:
Shares of electric automaker Tesla jumped today to nearly an all-time high. The company's Model S car received the highest safety rating in the National Highway Traffic Safety Administration's history.
And yet... Tesla has no earnings. The company lost nearly $400 million last year, $254 million in 2011, and $154 million in 2010.
But the stock's upward trajectory continues...
We've long been wary of Tesla's soaring stock price. Its cars are an extreme luxury... They cost around $100,000, and you can't use them like an average car. (You can't easily drive them across the country, for example.) When the economy struggles, we think folks will quickly cut $100,000 electric cars from their budgets.
Tesla also has a huge debt load. It's losing hundreds of millions of dollars a year. And although sales are growing, expenses are growing faster, too.
We've written more about Tesla in Digest Premium here and here. (If you'd like to sign up to receive Digest Premium and access Porter's thoughts on the company, you can click here.)
We haven't officially recommended shorting Tesla. Shorting based solely on valuation is a losing proposition... Popular, overvalued stocks can always run higher.
But we're not the only ones questioning Tesla's share price... Barron's magazine put the carmaker on its cover with the headline "Trouble Ahead at Tesla."
Barron's questions the company's ability to deliver its less expensive Gen 3 car (which currently goes for $35,000) and said the stock could fall all the way to $50 a share – a nearly 70% fall from today's levels.
Barron's also takes a harder look at Tesla's "positive" second-quarter earnings...
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We're dedicating every day this week in DailyWealth to one of the most important ideas in investing – compounding your wealth by buying and holding high-quality stocks that pay healthy and increasing dividends.
12% Letter editor Dan Ferris refers to these stocks as World Dominating Dividend Growers (WDDGs). Many are also what Porter calls "capital efficient." However you look at them, simply buying and holding these elite stocks is the surest way to get rich in the markets.
You know the names of these companies... They're the dominant players in the space... Coca-Cola, Microsoft, and Wal-Mart, among others.
These companies gush free cash flow... And they're able to return more and more of that cash to shareholders over time (because they require little reinvestment to maintain the business).
Plus, owning these stocks is also a great way to protect yourself from inflation... Because of their strong brands and positioning, they can raise their prices to combat inflation. And in many cases, they raise their dividends at inflation-beating rates.
We've written more on this topic than anyone else we know. And we've collected a week's worth of our best essays on World Dominating Dividend Growers to run in DailyWealth all week.
Why the sudden interest in WDDGs?
As we said, buying and holding these companies is the best way to get rich in the market. But it's imperative you buy these companies at a good price. That's why Dan maintains strict buy-up-to prices.
Now... for the first time in several months... you can add two of Dan's favorite WDDGs to your portfolio. The WDDGs in Dan's portfolio have all been too expensive to buy since spring... But in his latest issue of The 12% Letter (published Thursday), Dan identified two of these elite, blue-chip stocks that are now cheap enough to make excellent investments.
You can buy these two stocks today and collect safe (and growing) dividends. And remember... as WDDGs, both companies have a long history of raising their dividends.
This type of opportunity rarely happens, so I'd encourage you to read as much as you can about The 12% Letter and Dan's World Dominating Dividend Growers.
You can start by reading yesterday and today's DailyWealth issues on the subject here and here.
You can also sign up for The 12% Letter to see which WDDGs Dan recommends buying right now. He recently released a report detailing why both companies are worth much more than the market thinks... and how you can use them to earn double-digit returns in just a few years. Click here to learn more...
New 52-week highs (as of 8/19/13): short position in iShares Barclays 20+ Year Treasury Fund (TLT).
A thoughtful note in today's mailbag from a loyal subscriber... Please send your e-mails to feedback@stansberryresearch.com.
"Having served four years during the Korean 'Conflict' I read a book by Major General Dean recounting his capture and extraordinary escape from the North Koreans. In it he told of a time he was brought before the commander and told he was going to executed at dawn. He was given one piece of paper, a pencil and told the letter would be delivered to the U.S. Army. Thinking he was going to die he wrote his wife, 'Tell Billy the word is integrity.' I cannot think of another single word that conveys so many admirable human qualities. To me you are the personification of that word. I greatly admire you and, like so many of your readers, appreciate all the revelations, opinions and helpful guidance you give." – Paid-up subscriber Robert Hallock
Regards,
Sean Goldsmith
New York, New York
August 20, 2013
In yesterday's Digest Premium, I (Porter) shared my concerns about Larry Summers – the frontrunner to replace Federal Reserve Chairman Ben Bernanke. As I said, I believe Summers is one of the stupidest people ever placed in a position of leadership in the history of the United States.
Still, realistically, there will be a new chairman and the Federal Reserve will continue to exist. So working within the confines of the current system... what would be the best moves that the incoming chairman could take?
Step 2 is that you have to set an interest rate that encourages people to save. No country in the world ever became wealthier by spending money. We need to encourage saving so that we have capital for investment, which is the root of all growth, productivity, and wealth.