The World's Smartest Investors Are Still Piling Into Gold
Berkshire's latest billion-dollar investment... Doc Eifrig: An incredible opportunity for your retirement money... The world's smartest investors are still piling into gold... A fool-proof system for gold and gold stocks... P.J. O'Rourke: What life will be like under Hillary or Trump...
Warren Buffett's Berkshire Hathaway (BRK) just announced a surprising new bet...
The company reported yesterday that it had taken a $1 billion position in consumer-technology giant Apple (AAPL) in the first quarter of the year.
The news pushed shares up nearly 4% and added a massive $18.4 billion to the company's $500 billion-plus market cap.
But according to multiple reports, it wasn't Buffett himself who made the investment. It was his Berkshire Hathaway "heirs" – former hedge-fund managers Todd Combs and Ted Weschler – who many believe are likely to run the company's stock portfolio when Buffett retires.
The move also represents a departure for Buffett's Berkshire, which has always avoided technology stocks – outside of its big 2011 investment in IBM (IBM). As the Wall Street Journal reported last night...
Mr. Buffett has long voiced his aversion to investing in technology companies. Four years ago, he specifically ruled out investing in Apple.
But Todd Combs, who joined Berkshire in 2011, and Ted Weschler, who arrived a year later, have shown a willingness to wade into corners of the market that Mr. Buffett won't touch, including the tech sector.
The investment shows the amount of rope Mr. Buffett is willing to give his protégés, as the legendary stock picker, who turns 86 years old in August, prepares Berkshire for a future without him at the helm.
Hedge-fund manager David Einhorn and billionaire George Soros also disclosed big purchases of Apple stock during the first quarter.
These large buys follow news late last month that billionaire activist investor Carl Icahn had sold his entire position in the company.
Regular Digest readers know several Stansberry Research analysts have been bullish on Apple for months now. Given its recent performance, you may be wondering if that's still the case.
After all, shares have been incredibly volatile of late... the company just posted its first quarterly decline in earnings in 13 years... And before yesterday's news, the stock was sitting near multiyear lows.
In his latest issue of Retirement Trader (published last Friday), Dr. David "Doc" Eifrig explained why he remains incredibly bullish on Apple today...
Sometimes you can get too big for your own good. Apple has flirted with being the largest company in the world for a while. The consumer-tech giant makes some of the best and most successful products in the world.
That's the problem. Nearly everyone who wants an iPhone (and can afford it) already has one in his or her pocket. Now that the company has sold 821.8 million iPhones, the question becomes: Who's left to buy one?
This quarter, for the first time since 2012, Apple missed earnings expectations. Year-over-year revenue declined for the first time since 2003. Shares fell from around $104 to $95, and they've since drifted closer to $90.
As Doc explained, Apple's growth clearly appears to be slowing today. But there's more to the story.
First, just because Apple had a terrible quarter doesn't necessarily mean it can't grow. In particular, Doc noted that China alone deserves most of the blame for the poor quarterly results...
Sales in China fell 25.8%. Apple reported mixed sales everywhere: up big in Japan, down less severely in Europe and the Americas.
Now, we can't predict what will happen with China's economy. It may get worse. But company struggles that come from a particular economic shift in one country should worry you less than if customers around the world stopped liking its products.
People still love Apple. And they're going to keep replacing their iPhones every two years.
But more important, Doc says it doesn't really matter...
Apple is already a $500 billion company. Businesses that big will inevitably struggle to keep growing. Even if Apple's growth isn't slowing today, sooner or later it will. That shouldn't be a surprise to anyone.
Yes, stocks are priced for growth... In general, the more a stock is expected to grow, the greater the premium investors are willing to pay. But Doc says that doesn't mean a business with little to no growth can't be a fantastic investment. It just means you have to buy it at the right price.
According to Doc's research, even if Apple grows cash flows by just 1% a year going forward, it could still be worth hundreds of billions of dollars more than its current $500 billion valuation.
In addition, he notes that between dividends and buybacks alone, Apple will return $83 billion a year to shareholders over the next three years. Even if earnings don't grow at all, the stock should return 16% a year in "shareholder yield."
And of course, these conservative estimates assign no value to the possibility that Apple comes up with another big hit like the iPhone or iPad. If the company somehow finds a way to develop an Apple car or some other blockbuster product, the company's growth could take off again.
No matter how you look at it, Doc says Apple shares are extraordinarily cheap today. Even before shares plunged again following last month's disappointing earnings, they were priced at just 5.4 times earnings before interest, taxes, depreciation, and amortization ("EBITDA").
His bottom line for investors is simple...
No rational investor bought Apple with expectations of fast-growing revenue and earnings. Rather, he bought it for the cash flow and the yield. The folks who are selling because of this earnings report – and driving the price down – are reactionaries. They are selling on headlines. And they will regret it.
There's no reasonable explanation for why Apple isn't worth more than its current valuation.
People are obsessed with growth these days and are hypersensitive to the news. The headlines trumpeted Apple's earnings miss as if it were the death of the company. Short-sighted investors sold. But Apple remains one of the most profitable and healthiest companies in the history of the world. No headline or tweet should cause you to forget that.
Meanwhile, gold is on a tear...
The precious metal is coming off its best first quarter in 30 years – gaining 16%.
The spot price has jumped from $1,082 an ounce to nearly $1,300 today.
But many of the smartest men in the world – those with the deepest understanding of our financial system – are still piling in.
Yesterday, George Soros disclosed a $264 million stake in the world's largest bullion producer – Barrick Gold (ABX). It's the firm's single-largest position. Soros also bought $124 million worth of the SPDR Gold Trust (GLD).
At the same time, Soros doubled his bet against the S&P 500. He now owns 2.1 million put options in the index fund.
Eton Park – a $9 billion hedge fund run by Eric Mindich (the youngest partner in Goldman Sachs' history) – initiated a massive $422 million position in GLD.
And we already highlighted billionaire Stanley Druckenmiller's views on gold. He explained at the recent Sohn Investment Conference in New York City why he believes the bull market is exhausted. In short, he told the audience to sell stocks and buy gold.
Druckenmiller has 30% of his personal fortune (more than $300 million) in the precious metal. And he explained at the conference that negative interest rates around the world make him more bullish on gold than ever...
It has traded for 5,000 years and for the first time has a positive carry in many parts of the globe as bankers are now experimenting with the absurd notion of negative interest rates. Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation.
But it's not just the billionaires who are buying gold.
As we highlighted in the May 12 Digest, global gold demand is hitting records...
In its quarterly Gold Demand Trends report published this morning, the World Gold Council said global gold demand surged 21% to 1,290 metric tons... the largest quarterly increase on record.
The report said it was primarily investment demand – physical gold bars and coins and gold investments like exchange-traded funds – that was responsible for the increase. Jewelry demand – which is typically one of the biggest drivers of global demand – actually fell 19% in the quarter.
Gold has been on a massive run... People are buying the physical metal hand over fist... Gold stocks have soared from their lows...
Is it too late to get into the gold market?
That's the question we posed to True Wealth Systems editor Steve Sjuggerud.
And it turns out that gold, like every other asset out there, has a tell...
Before every major move (both up and down), gold displays a certain metric – something Steve calls the "Magic Number." And it forecasts these big moves with extreme precision.
How did Steve discover this Magic Number? Well, he hired some of the smartest mathematical minds in the world and spent around $1.5 million to process massive amounts of financial data.
The result is a foolproof system for predicting big moves across the market – including gold and gold stocks.
To see how Steve's Magic Number has performed with gold – and to learn Steve's current thoughts on gold stocks – click here.
New 52-week highs (as of 5/16/16): Becton Dickinson (BDX), Bristol-Myers Squibb (BMY), Kaminak Gold (KAM.V), Medtronic (MDT), Newmont Mining (NEM), Annaly Capital Management (NLY), Pretium Resources (PVG), Ritchie Bros. Auctioneers (RBA), Regions Financial – Series B (RF-PB), SEMAFO (SMF.TO), and Silver Standard Resources (SSRI).
In today's mailbag, a longtime subscriber shares his experience with our customer service team, and a novice investor has a question about gold stocks. Send your notes to feedback@stansberryresearch.com. As always, we're prohibited from providing individual investment advice, but we read every e-mail.
"I have always appreciated the world class financial information from Stansberry Research I read every morning with my cup of coffee. I endured a bit of panic yesterday morning when my account was not available to me. I sent a quick email to Customer Service and I received an email reply BEFORE 9:00 AM that same morning stating that my account was suspended due to non-payment of my annual fee. I had assumed that it was set up on auto-draft but this was not the case...
"I was not aware of it... In fact, I called Customer Service a couple of times on other matters after that invoice was due and no one ever refused me service because of an unpaid bill... So, yesterday morning a very wise and polite lady took my information, re-activated my account and asked me what else she could do for me. There was no questioning why the bill wasn't paid. It was all about what she could do to get me back in business. Thank you again for all that you do... and how you do it!" – Paid-up subscriber Bob B.
"Am I really getting this good at stock picking as a novice investor? Yes, as I watch my brokerage account climb to a more than 30% profit since I began investing seriously, I have to wonder if it will all come crashing down when gold and silver starts a major pullback. So far there's no sign of it coming soon.
"I'd like to know if anyone else is investing almost exclusively in gold and silver mining stocks and ETFs. So far it's working even with a few option trades that didn't go my way. I have a list of about 20 stocks and ETFs that I follow and choose from, buying and selling as the market seems to indicate.
"And unlike Porter who was adamant when he said, 'never invest in leveraged gold stocks' I've been watching two of them hit home run after home run – both up over 100% this year. Of course I know they can't be bought and just left on their own with the volatility in this sector, but it's usually not too difficult to predict which way they're heading based on the direction of individual stocks on my watch list. I'd like to hear your comments." – Paid-up subscriber David G.
Brill comment: David, we're glad you're having success with gold and silver stocks, but we're concerned you're taking far bigger risks than you realize.
We believe every investor should own some gold and silver today. But our analysts generally recommend putting somewhere between 10% and 20% of your total portfolio in these assets. And this portion of your portfolio should include a significant percentage of physical gold and silver, too.
Remember, the real reason to own gold and silver is to protect the value of your savings. And for that purpose, there is no substitute for real, hold-in-your-hand physical bullion. Throughout history, gold has been the most enduring and least volatile form of money.
But gold and silver stocks are different. They are speculative vehicles that are far more volatile than the physical metals... And we would never recommend putting your entire portfolio in these stocks.
While these stocks could absolutely soar in the months and years ahead, no bull market goes up in a straight line forever. There are sure to be sharp, violent corrections along the way.
As we've seen this year, these stocks can rally three, four, or five times more than gold and silver on the way up. They could easily fall many times more than the metals on the way down, too.
If gold and silver pull back by 10% or more, will you have the stomach to see your portfolio lose 30%, 40%, or 50% of its total value in a short time?
If the answer is no, consider lightening up immediately.
And to answer your question about your stock-picking prowess, we suggest you become acquainted with this classic Wall Street advice: "Never confuse brains with a bull market."
Regards,
Justin Brill
Baltimore, Maryland
May 17, 2016
The Clinton/Trump Conundrum
Voting is a kind of investment...
You're buying into a government. And a government costs money. But you're trusting that this government will pay dividends in the form of national security, rule of law, and various sensible policies. You're even hoping that your stake in government will appreciate – by making America a better country.
But big differences distinguish the political market from financial markets.
You can't get out of the political market. You can't go to cash. You can't go to gold. You can't wait for the "fat pitch."
Politics will be throwing things at your head no matter what.
And unlike real markets, political markets offer limited choices. It's as if you're an investor and some massive bully has you in a headlock saying, "Put your money in Peabody Energy or Valeant."
You say, "Isn't there something else I could do?"
Politics says, "No."
This year, we're faced with two bad choices.
Hillary is wrong about everything. She is to politics what the Inquisition was to Galileo. She thinks the sun revolves around her.
But Trump Earth™ is flat. We might sail over the edge. Here be monsters.
A Hillary presidency means four more years of the Obama administration... or worse, given her record of political cunning, deception, and guile.
Anyway, we'll be traveling down the same path.
The deficit will test how many zeros there are in arithmetic.
Principal and interest on the national debt will pile up as if the whole nation had taken out a $19 trillion payday loan.
The economy will continue to be a stagnant pond, scummy and stinking and breeding only a small swarm of jobs and business opportunities the size of gnats and mosquitoes.
The Federal Reserve will go on playing with Monopoly money like kids who've lost the Parker Brothers board-game rules.
The giant squid of federal regulation will thrive and grow, its suckers grasping all aspects of free enterprise and its tentacles poking into every orifice of private life.
And entitlement programs will expand until everyone is entitled to everything. Obamacare will cover your pets when they have fleas and your houseplants when they need watering. The poverty threshold will be raised until Mitt Romney qualifies for food stamps.
On the other hand, we have Trump. Which means we don't know what we have.
Trump's policy positions seem to be chosen by covering Trump Towers with ideas written on Post-it notes while he throws darts at them with his eyes closed.
When I do know where Trump stands, I wish he wouldn't stand there.
I'm disturbed by his protectionism. The international economy has climbed out the window and is teetering on the ledge. Trump makes a good point about the U.S. loss of manufacturing jobs. But he's making his point by standing on the sidewalk yelling, "Jump!"
Trump is supposed to be a good businessman. But he's acting like Bernie Madoff when he tries to sell us on the Medicare and Social Security Ponzi schemes.
We don't need more useless federal spending to build a wall on our border. What we need is to fire everyone in the U.S. Citizenship and Immigration Services. The mission of this government agency is, as far as I can tell, to keep all the best and hardest-working immigrants out of America, while making sure the worst sneak in and get to stay.
I'm glad to see Trump attack the political-correctness brat pack. They're idiots. But Trump replaces idiocy with vulgarity. When kids say something stupid, you don't wash their mouths out with #%@*.
And Trump's populism smacks too much of the angry mob for me. Mobs are notoriously unpredictable. And so far, the style of presidency that Trump promises sounds like mob rule by a one-man mob.
I said we're faced with two bad choices. Actually, we have three. We can cast no vote at all.
I've been known to advocate it. I titled one of my books, Don't Vote, It Just Encourages the Bastards.
Stansberry Research founder Porter Stansberry is eloquent on the pointlessness of political involvement. As individual citizens, our degree of control over the political process is statistically insignificant. Elections are a "random walk." We have better things to do with our lives than play politics. And, when it comes to political donations, we certainly have better things to do with our money.
Stuffing our money down the kitchen InSinkErator would be better, as far as I'm concerned.
But this year's presidential campaign has been breaking all the rules, including my rule of "Don't Get Involved."
And against all odds... I think a Hillary presidency would be better for the markets. (I would have bet $1 million six months ago that I'd never write those words.)
Why? More than anything, markets hate uncertainty... and if nothing else, a Hillary presidency would be predictable.
Things will be lousy under Hillary, but the lousiness will be familiar. We've had eight years of it and we know how to cope. For me, the 2008 election of Obama and a Democratic Congress was like the first time my children got head lice. Shock! Horror! The election of Hillary will be like the third time my children got head lice. Oh, darn it, boil the sheets and pillowcases, buy the smelly shampoo, and get out the magnifying glass and tweezers.
Things will be surprising under Trump. In a world where the field of foreign policy is planted with land mines, economic trends are a riddle wrapped in a mystery, and domestic social antagonisms are a lit fuse leading who knows where...
In investment terms, we've already discounted Hillary. The Volatility Index ("VIX") on Trump is too high.
Would a Trump presidency have upside potential? Definitely. Trump is a much-needed shock-therapy treatment for a deeply depressed Republican Party. (That is, Republican voters are depressed. Republican leaders are suffering from something else – hearing problems. They're deaf to their constituents, and are all ears to special interests.)
However, a Hillary presidency would have an upside, too. I've seen the GOP die and be buried before – with Richard Nixon, Gerald Ford, and Watergate. All it took was four short years, and it was Morning in America.
I've got my fingers crossed. I'm hoping Hillary is Jimmy Carter in a pantsuit.
Regards,
P.J. O'Rourke
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