The value of global stocks hits an all-time high... An important way to look at margin debt... The 'Bond God' speaks in New York... Fed tapering is bad for stocks... The greatest short squeeze in history?... Big news and big tops... Where to earn 7% today... Lots of feedback on Tesla...
The value of the world's stock markets hit an all-time high...
The Paris-based World Federation of Exchanges (WFE), a group consisting of 60 publicly regulated stock market exchanges, just released its latest data... And the market capitalization of the 60 global stock exchanges hit a record $62.4 trillion.
This is the first time the total value has surpassed $62 trillion... We're now $2.2 trillion above the previous record of $60.2 trillion set in October 2007.
Global stock markets have added nearly $35 trillion since bottoming at $27.7 trillion in early 2009. And they added $7.3 trillion in the year since March 2013.
It's amazing what a little central-bank money printing can do.
As we've been updating you in these pages, we also have record New York Stock Exchange margin debt today ($465.7 billion) – meaning investors are borrowing record amounts of money to buy stocks. That has also helped drive up stock prices.
Lots of readers ask what to think about margin debt... We've certainly expressed concern about what it means in the current environment. But are rising debt levels on their own a bearish sign? Not necessarily...
In the April 3 Digest, we shared the views of Jason Goepfert, editor of advisory service SentimenTrader (one of our favorite sources of research). We wrote:
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Jeffrey Gundlach, the so-called "Bond God" who founded asset manager DoubleLine Capital, shared another way to look at margin debt...
In a luncheon presentation for DoubleLine investors recently, he said his firm watches margin debt closely... But the firm is looking for it to turn down. That's a sure sign of contraction and people hitting margin calls, he said.
Gundlach was one of the best presenters at the Grant's conference we attended earlier this month in New York City. We're not allowed to share details of that conference until Jim Grant does... But his talk for DoubleLine investors was very similar.
The presentation warned investors about the effects of the Federal Reserve's quantitative easing. Gundlach showed a chart of the S&P 500 divided by the Fed's balance sheet... As the balance sheet grows, the S&P goes up. It's a strong correlation, and a bearish case for the Fed's current path of tapering, according to Gundlach.
But Gundlach's biggest prediction is that we'll see one of the greatest short coverings in history soon...
Corporate and junk bonds have never been more overvalued compared with Treasurys. And lots of funds today buy these bonds (along with most other types of bonds) and short out Treasurys. Funds that are making leveraged bets against Treasurys are also popular with investors today. Gundlach thinks a market trauma (like a civil war in Ukraine, perhaps) could cause these fund managers to cover their shorts and send Treasury bond yields plummeting as investors rush to safety.
If markets dump riskier assets and flock to Treasurys, shareholders of Tesla (and other stocks that have run up wildly) could be in for a big fall. No, today we're not going to further espouse on Tesla's crazy valuation or that it loses money every quarter. However, we do want to point to one amusing fact...
Tesla announced its $5 billion "gigafactory" on February 26. The company said on its website:
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Tesla thinks the factory could produce more batteries in 2020 than the entire global production of 2013. And it could reduce the cost of the batteries by 30%.
Take a look at Tesla's stock price since announcing the gigafactory, and the huge volume spike that took place on the announcement...
Our Editor in Chief Brian Hunt and I were recently speaking with True Wealth editor Steve Sjuggerud about where to find yield in today's zero-interest world...
As we noted above, junk and corporate bonds are trading at record spreads to Treasurys... And it's risky buying low-grade debt today just to earn an extra percentage point.
You can still earn healthy dividends in blue-chip stocks... But mountains of cash have moved into that trade, pushing dividend yields on stocks like Microsoft down below 3%. Not to mention, stocks are trading at record highs.
So where are the outstanding yields today?
One company in Steve's True Wealth portfolio yields nearly 7% – almost 4.5 percentage points higher than 10-year Treasurys. And it's in one of the safest businesses we know.
This company's business is incredibly simple and consistent... It buys property and leases it to government entities (like the IRS, for example) for long periods of time. And it pays no income tax on its rents, so it's able to pass big profits through to the shareholder.
Commercial real estate looks great today... Inventory is currently running at about half its historical levels. And demand is on the rise. When there's rising demand and low inventory, property owners can raise rents. And for the company Steve likes, it means more money for the shareholders.
Steve first recommended this company in the September 2012 issue of True Wealth... and subscribers who bought at that time are up about 29%. It is one of the safest and highest-yielding securities you can buy today. But Steve still recommends it as a "buy," so we can't give away the name of this company in the Digest.
If you'd like to move some cash from your zero-percent savings account into this company paying a nearly 7% dividend, you'll have to sign up for True Wealth. You can start your no-risk trial for only $39 by clicking here...
New 52-week highs (as of 4/15/14): Alcoa (AA), Brookfield Asset Management (BAM), Callon Petroleum (CPE), Comstock Resources (CRK), Dorchester Minerals (DMLP), Devon Energy (DVN), Enterprise Products Partners (EPD), Johnson & Johnson (JNJ), Range Resources (RRC), Superior Energy Services (SPN), Targa Resources (TRGP), ProShares Ultra Utilities Fund (UPW), and Utilities Select Sector SPDR Fund (XLU).
We received a huge amount of feedback regarding Tesla... Some positive, some negative. We share some of the response today. As always, send your feedback to feedback@stansberryresearch.com.
"Great looking car, and people I know who own one love it. They really love the subsidy we taxpayers give them to own and operate it. Elon Musk sure knows how to work the system to line his pockets. Between Tesla and Solar City, he has legally bilked the US taxpayers out of enormous sums of money. I suspect these companies will go the way of Solyndra. In fact, I think Tesla took over the Solyndra plant in Fremont." – Paid-up subscriber MT
"In response to the negative feedback you've received about Tesla, my advice is to hang tough. I think your analysis has been spot on and applaud your honest evaluation of this company. If I wanted a Pollyanna-istic analysis of Tesla, I would have cancelled my subscription a long time ago and be watching CNBC with a bag of popcorn every day.
"While I'm not a stock analysis expert (that's what I pay you to do), I learned two valuable lessons a long time ago that continue to serve me well in building a successful portfolio: 1) Never let emotions color the facts, and 2) Most market changing innovators don't do well over the long run (anyone remember Netscape?).
"While I admire Mr. Musk's vision and am a huge fan of his big persona (I'd love to share a cigar and Scotch with him while pontificating the future), the fact is his vision is ahead of current technology. From a long term investment perspective, I'm waiting for the number two 'Tesla' company to emerge and stand on the shoulders of Tesla's ground work. Right now, Tesla is a hip brand to brag about and they're riding on a wave of ostentatious 'Green' goodwill. The company I'm looking for will develop a 'Tesla' that my mailman can afford and he'll be able to 'fill up' at a 7-Eleven.
"By the way, I bought Tesla at $22 and sold at $91 when I thought the valuations became unfounded. Keep up the great work... I'm saving a lot of money not having to buy popcorn." – Paid-up subscriber Hans M. van den Brink
"I've just read the April 15 edition of the S&A Digest Premium and thought I'd chime in. I, too, am a Tesla owner. I actually purchased my Model S for some of the same reasons as Mr. Silverman (performance and 'cheap' cost of ownership being the most compelling), but I've never for the moment thought that the stock was a good investment nor (in the long run) that the company even survives.
"My reasoning (very thin analysis I have to admit) is that there just aren't enough knuckleheads like me (in the entire world) willing to plunk down $110k on what amounts to a gadget (not unlike an iPhone in some ways). Fun to drive/own, but not really a mass market product.
"But here's the reason why I felt compelled to write this email. Every time I see someone comment that the car is comfortable/well-appointed I laugh out loud. It is more than obvious that 'these people' don't know what $100k gets you these days (this is likely their first purchase of a luxury vehicle).
"My previous daily driver (which I still own) is a 2004 Lexus LS430 (100,000 miles). It is quieter (not even close – especially at highway speeds – and remember, the Lexus is 10 years old and has 100,000 miles on it), more comfortable to sit in and just an all-around better driving experience. The Lexus has (and Tesla does not have – and should have for $100k), dynamic cruise control, parking sensors, soft-close doors, electric retracting mirrors, not to mention a better-sounding sound system. My Lexus cost $72k in 2004 (so about what the Tesla costs today in inflation adjusted dollars).
"The Tesla is what it is – $100k (mine cost a bit more) electric sled that goes from 0 to 60 in 4 seconds. It 'feels' high tech but so does my iPad Air and it cost $109,500 less.
"Am I happy I own the Tesla? Of course. On that odd occasion when I want to zoom around the town it's kind of fun. Also, I can afford it (what I lack in (environmental) green bona fides, I make up with green (financial) bona fides so my neighbors think I'm a real swell guy).
"However, don't try and tell me that there enough consumers out there who are willing to shell out that kind of money just to get 100 mpg equivalent for their nice Buicks (that's about how the Tesla feels to me when I look around the interior). I'd have to drive 30,000 miles/year for it to pay off and in five years my battery pack would be shot and I'd be out $20k to replace that (wiping out my savings from using cheap night-time consumed electricity)." – Paid-up subscriber JSW
Regards,
Sean Goldsmith
Baltimore, Maryland
April 16, 2014
Why you probably have too much money in the U.S...
In today's Digest Premium, fund manager Meb Faber explains why it's a bad idea to have too much money invested in the U.S. today. And he makes a special offer to S&A subscribers...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
Why you probably have too much money in the U.S...
Editor's note: Today's Digest Premium is from Meb Faber, chief investment officer of Cambria Investment Management. Cambria manages equity and global tactical asset allocation portfolios. He's a frequent speaker at many of the top investment conferences (including S&A conferences). And he's been featured in Barron's, the New York Times, and other media outlets.
My new book – Global Value: How to Spot Bubbles, Avoid Market Crashes, and Earn Big Returns in the Stock Market – starts from the standpoint that a lot of people think markets are efficient, and that all known information is already reflected in prices. From a global perspective, we try to disprove that theory.
Most people invest the vast majority of their wealth in their own country. In other words, American investors tend to concentrate their wealth in U.S. investments. It's known as "home country bias." This is usually a terrible thing to do.
But we wanted to start with this idea of the home country bias and think about how investors invest (or most likely don't invest) globally... while taking into account the opportunities that bubbles and depressions present in markets around the world.
From the U.S. perspective, there's little interest to invest outside the home market. U.S. investors invest around 70% of their wealth in their home market... And it's a similar percentage for the rest of the world.
But the U.S., as a percentage of the world market cap, is around 50%. Based on that percentage, even if you're a Vanguard-index-type of investor, you should still invest half of your assets in foreign stocks to achieve the proper weighting. But nobody does that because of this bias.
And once you account for valuation – which is the argument of the entire book – the U.S. appears to be an even worse place to have the bulk of your wealth...
Out of the 45 countries we track (excluding about a dozen under-developed "frontier" markets), the U.S. is the most expensive in the world. And investing in the world's most expensive market probably isn't a good thing to do.
In tomorrow's Digest Premium, I'll discuss why it's important to diversify your risk across a basket of countries. And I'll describe the exchange traded fund my company, Cambria Investment Management, launched to invest in global markets.
– Meb Faber
Editor's note: Meb Faber was kind enough to offer his newest book for free to S&A subscribers for the next five days. To get your free copy, click here.
You can also get a free copy of his previous book, Shareholder Yield: A Better Approach to Dividend Investing, here.
Why you probably have too much money in the U.S...
In today's Digest Premium, fund manager Meb Faber explains why it's a bad idea to have too much money invested in the U.S. today. And he makes a special offer to S&A subscribers...
To continue reading, scroll down or click here.
Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)
As of 04/15/2014
| Stock | Symbol | Buy Date | Return | Publication | Editor |
| Prestige Brands | PBH | 05/13/09 | 352.6% | Extreme Value | Ferris |
| Enterprise | EPD | 10/15/08 | 289.7% | The 12% Letter | Dyson |
| Constellation Brands | STZ | 06/02/11 | 267.1% | Extreme Value | Ferris |
| Ultra Health Care | RXL | 03/17/11 | 215.0% | True Wealth | Sjuggerud |
| Altria | MO | 11/19/08 | 184.3% | The 12% Letter | Dyson |
| McDonald's | MCD | 11/28/06 | 184.0% | The 12% Letter | Dyson |
| Ultra Health Care | RXL | 01/04/12 | 175.1% | True Wealth Sys | Sjuggerud |
| Hershey | HSY | 12/06/07 | 167.3% | SIA | Stansberry |
| Automatic Data Proc | ADP | 10/09/08 | 139.9% | Extreme Value | Ferris |
| Fluidigm | FLDM | 08/04/11 | 137.8% | Phase 1 | Curzio |
Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals |
| 3 | Extreme Value | Ferris |
| 3 | The 12% Letter | Dyson |
| 1 | True Wealth | Sjuggerud |
| 1 | True Wealth Sys | Sjuggerud |
| 1 | SIA | Stansberry |
| 1 | Phase 1 | Curzio |
Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)
| Investment | Sym | Holding Period | Gain | Publication | Editor |
| Seabridge Gold | SA | 4 years, 73 days | 995% | Sjug Conf. | Sjuggerud |
| Rite Aid 8.5% bond | 4 years, 356 days | 773% | True Income | Williams | |
| ATAC Resources | ATC | 313 days | 597% | Phase 1 | Badiali |
| JDS Uniphase | JDSU | 1 year, 266 days | 592% | SIA | Stansberry |
| Silver Wheaton | SLW | 1 year, 185 days | 345% | Resource Rpt | Badiali |
| Jinshan Gold Mines | JIN | 290 days | 339% | Resource Rpt | Badiali |
| Medis Tech | MDTL | 4 years, 110 days | 333% | Diligence | Ferris |
| ID Biomedical | IDBE | 5 years, 38 days | 331% | Diligence | Lashmet |
| Northern Dynasty | NAK | 1 year, 343 days | 322% | Resource Rpt | Badiali |
| Texas Instr. | TXN | 270 days | 301% | SIA | Stansberry |