Tue, Jan 7, 2020|Corey McLaughlin

Time to Dust Off the 'War Chest'

A quick cyberattack response... Thoughts from a Stansberry Research editor who has been to Iran... Time to dust off the 'War Chest'... Our Lockheed Martin bulls... The silver lining of a major confrontation... How best to make sense of it all...

Well, that didn't take long...

In last Friday's Digest about the escalating tensions between the U.S. and Iran and the impact on the stock market, I (Corey McLaughlin) mentioned a few possible ramifications...

For one, I noted that Iranian sympathizers might retaliate for the killing of Qassem Soleimani, the country's top general, in part through cyberwarfare.

Roughly 24 hours later, it happened...

On Saturday night, the website of the relatively obscure Federal Depository Library Program ("FDLP") – which makes U.S. federal government documents and information available to the public – displayed a doctored image of a bloody President Donald Trump with an Iranian Revolutionary Guard fist in his face.

A group that identified itself as "Iran Cyber Security Group Hackers" claimed responsibility... Now, we don't know if these people actually have any direct connection to the Iranian government, but that's not really the point.

This small hack is hardly the last we'll hear about the conflict. As anyone paying attention to the news recently knows, this clash between major world actors isn't going away anytime soon... and it has plenty of potential repercussions.

And all the pundits certainly have their opinions...

But we haven't heard any detail from someone who has actually set foot in Iran before...

That is, until an e-mail from Kim Iskyan, our international editor, arrived in a few of our inboxes on Monday morning.

Kim reminded us that he once dedicated an entire newsletter issue to a "boots on the ground" trip to Iran back in early 2014. And he shared a few pieces of his past work related to the country (part of which we've included below), with this main idea...

Sometimes it's important to remember that when two countries are at each other's throats, the reality is that the vast majority of the population has absolutely no beef at all with the "enemy."

Through all the rhetoric and posturing, it's easy to forget that these sorts of conflicts aren't between the people of countries... They're 99% between the leaders of countries.

I'm as alarmed as everyone else at what's happening with Iran – while I'm also remembering the incredible time I had when I visited Iran in 2014, and how nobody (and I mean, zero, nada, nobody) gave me a second glance for being a foreigner.

Kim – who has nearly 25 years of experience as a stock analyst, hedge-fund manager, and political risk consultant in emerging and frontier markets – recalled tasting the local non-alcoholic "beer" and the lack of Western influences. There's no McDonald's to be found.

More relevant, Kim spoke to many regular folks and business leaders on the ground who welcomed greater economic opportunity. At the time, they were hopeful that the nuclear sanctions that were crippling the economy would soon be lifted. (And they were for a time.) Here's part of what he wrote in his newsletter back then...

As far as I can tell, a lot more Iranians want to experience the benefits of joining the world community. One young engineer I met wants more than anything to design cars... but there's no way for him to leave the country. I'm sure there are millions of similar stories out there.

Big businesses in Iran know how much sanctions are costing them. In Tehran, I met with one of the country's wealthiest businessmen. That morning, he was on the front page of the newspaper for overseeing the signing of a major trade deal with China.

But he's immensely frustrated by sanctions and the politicians who are standing in the way of private sector wealth creation.

Iran's president [the moderate Hassan Rouhani] is stuck in the middle – between the will of most of the people and the supreme leader.

He seems to understand that Iranians will suffer for only so long... so he has pushed for some reforms and changes – sometimes going head-to-head with conservatives who don't want change.

The same split persists today, almost six years later...

Iran did reach a nuclear agreement in 2015 with world powers, but the terms didn't last long. Trump pulled the U.S. out of the agreement in 2017. And on Monday, Iran said it was backing away from the limits on uranium development set by the agreement.

Kim wanted to go back to Iran after his initial trip. But in his last report about the country in February 2017, he noted that tensions between Iran and the U.S. were already getting hotter... and he said he would stay away until things cooled...

This is another pinch of uncertainty added to a global environment that is getting more unpredictable all the time.

Time to dust off the 'War Chest'?...

One answer to the uncertainty, Kim wrote back in 2017...

Look for investment opportunities that stand to benefit from escalating rhetoric from Donald Trump.

Left, middle, or right... we can all agree those words look on the nose today.

Let us acknowledge that talking about money and finance in the face of a looming military conflict can seem tacky... or even ghoulish. A military fight between the U.S. and Iran would be extremely costly. Depending on how it plays out, the body count could be horrific.

No one is rooting for that.

But it's undeniable that the stakes involved would create monumental shifts in national political and economic priorities. And those shifts do create opportunities for investors... the types of opportunities you pay us to uncover and recommend.

Our editors and analysts have long included research about military and defense-related companies in our newsletters and model portfolio offerings.

After all, money sloshes around the industry... In fiscal year 2019, the U.S. Department of Defense budget was roughly $690 billion, and actual spending is projected to well exceed that.

The military's budget has increased over the past few years under Trump.

This is all part of the reason our Dr. David "Doc" Eifrig created an entire "War Chest" portfolio in the summer of 2017 in his Retirement Millionaire portfolio. As Doc wrote then...

The Department of Defense budget request for 2018 included a $52 billion increase in the budget – an increase of nearly 10%. It's fully backed by Trump...

Even a shift to average levels of 4.5% to 5% of GDP spending would be an increase of $90 billion to $200 billion per year.

With the defense industry so consolidated, those billions flow very quickly into the pockets of a small group of companies and their shareholders.

Even big, established businesses can get pushed very quickly by waves of cash that big – even though it's a minor increase from the government's perspective.

Doc recommended a handful of defense-related stocks in 2017, and he still holds two of them today... massive defense contractor Lockheed Martin (LMT) and shipbuilding and shipyard company Huntington Ingalls (HII), the U.S. Navy's biggest contractor.

Lockheed touches just about every part of the military. Demand for its F-35 fighter jet, which accounts for 25% of the company's revenue, is higher than ever. And just last month, Huntington Ingalls was awarded a pair of Navy contracts worth up to $908 million.

Both stocks have spent much of the past six months hitting new highs. Through Monday's close, Lockheed and Huntington were up 52% and 43%, respectively, since Doc's recommendations in 2017.

Doc wasn't the only one bullish on Lockheed Martin recently...

Last May, the Stansberry Innovations Report team also recommended buying shares of the company for a variety of reasons. They explained that the U.S. military was in the market for the company's new generation of helicopters, and Lockheed stood to profit big...

This analysis was based in part from more on-the-ground reporting – this time from Innovations Report senior analyst Christian Olsen. He attended a leading military innovations summit in April. The conference featured more than 330 U.S. military contractor exhibitors, and Christian was the only civilian in the room...

In the exhibition hall, he saw pilots consistently gravitating toward a simulator for Sikorsky's Raider helicopter, which is fueled by a promising, likely industry-changing technology. It just so happens that Sikorsky was a private company that was purchased for $9 billion in 2015... by Lockheed Martin.

Lockheed Martin's stock is up 24% since the Innovations Report team's recommendation.

Finally, what about oil? We can't talk about the Middle East without mentioning it, of course...

Stansberry NewsWire editor C. Scott Garliss first brought up the idea of cybersecurity stocks benefiting from Iran-U.S. tensions in a phone call with us on Friday.

In that same discussion, he said an increase in oil prices – which has already happened and could continue during an extended conflict – might help debt-ridden American oil companies...

The U.S. became a net exporter of oil in November, meaning we're less reliant on the natural resources of the Middle East and their associated headaches than ever before... On the other hand, European countries and China are more reliant on Middle East oil.

After the initial spike on Friday, crude-oil prices have plateaued near $70 per barrel, as of Monday's trading. But again, prices may spike even higher amid a lengthy conflict... For example, if production facilities in Saudi Arabia (a U.S. ally) or elsewhere are attacked, or if the Middle East's flow of oil in general is strongly disrupted.

As Scott pointed out, that's what happened in the 1970s... when the U.S.-backed government in Iran was overthrown in the Islamic Revolution. Back then, only 4% of the global oil supply was interrupted, but oil prices more than doubled during the conflict.

Today, Iran holds 10% of the world's oil reserves.

So should you go 'all in' on the 'War Chest' stocks in your portfolio today?

Not exactly.

This is all just part of a bigger-picture discussion that we suggest investors should always be having with themselves... Always be smart about your allocations and position sizes.

Along those lines, this is always one of the toughest topics for us to cover...

First off, we can't provide individual investment advice. Second, we know we publish a lot of different recommendations. Many folks tell us they struggle to keep up with everything.

That's exactly why we launched our suite of Stansberry Portfolio Solutions products...

These are completely built-out portfolios that include the best ideas from our leading publications – including our flagship Stansberry's Investment Advisory, as well as Doc's Retirement Millionaire, and the Stansberry Innovations Report that we mentioned earlier.

Our portfolio manager Austin Root hand-picks the "best of the best" from what Stansberry Research has to offer, and he manages various portfolio products specifically designed for capital, income, defensive, and total portfolio approaches.

Over the years, the returns have been market-beating...

In 2019, The Capital Portfolio returned 42% – beating the broader S&P 500 Index by a little more than 11 percentage points... The Income Portfolio returned more than 27%, including nearly 5% in safe, sturdy income... and The Total Portfolio was up more than 32%, ahead of the S&P 500 despite being much less volatile and more safely invested.

There's simply no better way to put our recommendations into action than to subscribe to these products. And if you don't already, there's no better time to do so than right now.

On that note... Porter, Doc, and True Wealth editor Steve Sjuggerud will sit down for a live event next Tuesday, January 14, at 8 p.m. Eastern time.

They'll share their thoughts on where they think the market is headed over the next year... help you learn what's next for the "Melt Up," gold, and cryptos... detail the only place you should put your money to work this year... reveal their No. 1 favorite stocks for 2020... and more.

They'll also talk about how their big ideas fit into a smartly allocated portfolio – "War Chest" stocks or not. It's free to attend... Click here to save your seat for what we expect will be an informative and entertaining event.

New 52-week highs (as of 1/6/20): Electronic Arts (EA), New Oriental Education & Technology (EDU), Western Asset Emerging Markets Debt Fund (EMD), Facebook (FB), Franco-Nevada (FNV), SPDR Gold Shares (GLD), Alphabet (GOOGL), Huntington Ingalls (HII), JD.com (JD), Medtronic (MDT), Norilsk Nickel (NILSY), New Pacific Metals (NUPMF), Splunk (SPLK), and TAL Education (TAL).

In today's mailbag, several subscribers share their thoughts on yesterday's Digest from Dan Ferris about economists and what you think may happen this year in the markets... As always, let us know your thoughts at feedback@stansberryresearch.com.

"Timeless advice in the Monday Digest. The same thing your grandparents would tell you, especially if they had lived through the depression." – Paid-up subscriber Sheldon S.

"I'm of the opinion that the stock market is going to start pulling back when these banks come up lame again as history does repeat itself, and especially with these low mortgages, as well as other loans that are available. There has to be more room for the prime lending rates to absorb defaults." – Paid-up subscriber Gary D.

"I believe it was Yogi [Berra] who said, and I paraphrase; 'Accurate predictions are very difficult to make; especially when they're about the future.'

"So what's the No. 1 story going to be in 2020 you ask? I can't predict it will be in 2020, but the No. 1 story, when it breaks, will be the end of the Fed's attempt to transition the U.S. dollar to a fiat currency...

"No one alive today has experienced a global loss of confidence in Uncle Sam's Greenback. The fact it was backed by gold meant it was equivalent to gold and gold is global. The No. 1 story will be when it's not; and then look out below... Imagine a bucket in the NBA being worth seven points and a three-pointer being worth 10. Scores on the nightly sports report would be Knicks 386, Lakers 412. It won't make any sense. Old things will pass away and everything will be new. But that's just the crash...

"What is already on paper, in the shadows, is a global rescue plan from the [International Monetary Fund ("IMF")]... Amidst global financial panic, the IMF will step forward and explain that governments can't seem to police themselves when their currency floats. From Zimbabwe to Venezuela to the United States, the trend is clear; politicians and bureaucrats will eventually destroy citizens' confidence in their currency. The answer, once and for all, is a global 'currency standard' defined and administered by the IMF." – Paid-up subscriber Russell R.

"I always enjoyed [Dennis] Gartman. I loved his 'Buy gold in yen' or 'buy gold in dollars,' never just buying. But he reminds me of Morgan Stanley at their best, always early to the party. Plus he is from Virginia Beach, just a few steps from the Peppermint Lounge and the Rogues Gallery in times gone by. Good article.

"Which brings me to the number one story this year. I think it will be about how we recovered from a hard correction and everything is lovely until 2021." – Paid-up subscriber Bill B.

All the best,

Corey McLaughlin
Baltimore, Maryland
January 7, 2020