Two major trends playing out today... Dollar General ups its bid for Family Dollar... Einhorn on the takeover bonanza... Euro hits new low... More from Draghi... Hear from Rick Rule, John Doody, and Eric Sprott...
We're seeing two of America's biggest trends play out in the market today...
Stansberry's Investment Advisory recommendation Dollar General (DG) increased its offer to acquire rival discount retailer Family Dollar (FDO).
Porter and his analysts recommended Dollar General to profit from a trend we've discussed in depth in the Digest – the "disappearing middle class."
To read more about how the middle class is getting wiped out – and about Dollar General's original bid for Family Dollar – be sure to re-read the August 18 Digest.
Dollar General increased its bid to $9.1 billion, which translates to $80 per share (versus its previous offer of $78.50 a share). Dollar General will also pay a $500 million reverse termination fee should the deal fall apart due to antitrust concerns. This tops rival suitor Dollar Tree's initial $8.5 billion bid for Family Dollar.
Dollar General said it was willing to go hostile, taking the offer to shareholders directly, if Family Dollar's board of directors refuses to accept the offer.
It's clear that Dollar General understands how important a deal with Family Dollar is. Remember... Dollar General is the leader in the discount retail space, with approximately 11,000 stores. It's an all-around better company than Family Dollar, with higher sales per store, thicker margins, and better store locations.
Both companies are in the business of selling everyday goods at low prices in neighborhood stores. Dollar Tree sells everything for $1. A Dollar General/Family Dollar merger makes more sense.
But selling to the poor is a big business. And it will only become more profitable as the "disappearing middle class" plays out.
The potential merger would create a $30 billion sales leader in the retail space with more than 20,000 locations.
Dollar General rose slightly on the news and is nearing an all-time high. Stansberry's Investment Advisory subscribers are up 6%.
The other trend Dollar General's increased takeover bid supports is the boom in acquisition and merger activity we're seeing today...
Every week, more and more multibillion-dollar deals are being announced. It's a manifestation of the disappearing middle class playing out on the corporate level...
Interest rates are at record lows and cash is earning nothing sitting in the bank... So big corporations are paying ever-increasing prices for producing assets (other companies). As we noted in the July 9 Digest...
|
Just last week, we saw fast-food icon Burger King announce a takeover of Canada's Tim Hortons for $10 billion... Cable company Comcast offered to buy Time Warner for $45 billion... Cigarette giant Reynolds American bought Lorillard... And Japanese distiller Suntory bought Beam (maker of Jim Beam)... just to name a few.
Plus, don't forget Facebook, which spent $19 billion on messaging service Whatsapp (a company with $20 million in annual revenue).
Again, it all comes down to cheap financing...
In a second-quarter earnings call for his hedge fund Greenlight Capital, billionaire David Einhorn (one of the brightest guys out there) said his short positions suffered...
|
The euro hit a one-year low of $1.31 versus the U.S. dollar today...
In other words, European Central Bank (ECB) President Mario Draghi is getting his wish. In December, Draghi told the world he would do everything in his power to inflate the European economy and push the euro lower. Steve Sjuggerud dubbed this phenomenon the "Draghi Asset Bubble" – the sequel to the "Bernanke Asset Bubble" we saw in the U.S. thanks to former Federal Reserve Chairman Ben Bernanke.
At a meeting last month in Jackson Hole, Wyoming, Draghi said the ECB needs to do more to boost inflation... And he noted that European austerity measures need to be reversed. Once again, Draghi's language was clear... He said he the ECB would use "all the available instruments needed to ensure price stability" and it is "ready to adjust our policy stance further."
When a central banker is hell bent on inflating an economy, get out of the way. As Steve Sjuggerud said in the June issue of True Wealth...
|
Draghi still has work to do... Annual inflation in the European currency union is currently 0.4% versus his targeted 2%.
Draghi could announce further stimulus Thursday at a meeting in Frankfurt, Germany. And the market is already reacting to the possibilities...
Yields on Europe's benchmark government bond – the German 10-year bund – fell to a record 0.866% on August 28. It remains below 1% today. The yield on French debt hit 1.217%... Spain's 10-year debt dropped to 2.25%.
That's lower than the 10-year U.S. Treasury's 2.41% yield.
We have no doubt Draghi will achieve his goal... The euro will fall and European stocks will rise (and True Wealth subscribers who follow Steve's advice will profit handsomely along the way).
But we know there are still deep flaws in the European economy. And papering these problems over is only a temporary solution. Consider the latest from Italy's largest bank, UniCredit...
Porter first wrote about the bank, and its long history of failure, in the March 2010 issue of Stansberry's Investment Advisory...
|
Since then, the bank has experienced multiple bailouts and huge asset write-downs, and has been on the brink of failure several times (read more here and here).
And the problems continue...
UniCredit's Chief Executive Officer Federico Ghizzoni said the bank will seek €15 billion from the ECB this year in so-called "cheap cash loans."
The loans are officially known as targeted longer-term refinancing operations (TLTROs)... but are called "cheap cash loans" because the interest rate is only 10 basis points (one basis point is one-hundredth of one percent) higher than the benchmark interest rate (which sits at a record-low 0.15%).
The maximum size of the program is €1 trillion.
UniCredit is requesting €7 billion in the ECB's first auction in September, for loans to be made in Italy, and €8 billion at the second auction for loans linked to Germany and Austria, according to Bloomberg.
In total, Italy's seven biggest banks are expected to borrow €40 billion in the ECB's first auction in September.
Our bet: Draghi will make sure these loans go through. And once again, UniCredit will trudge along... until the next bailout.
This is all great news for gold, which, coincidentally, is down to $1,280 an ounce today. While the precious metal is volatile in the short term, we know constant government manipulation of currencies will eventually push gold far higher from here.
Speaking of which, it's "gold week" in Digest Premium this week...
We're featuring exclusive content from several of the world's best gold investors, including billionaire resource investor Rick Rule... Sprott Inc. founder Eric Sprott... and Gold Stock Analyst editor John Doody.
All three experts offer their views on gold stocks, exchange-traded funds, and investing in the physical metal... And all three are bullish today. Today, for instance, Rick discusses how he would put together a "starter portfolio" in gold.
Again, this content is exclusively for Digest Premium subscribers. To gain instant access to these gold experts' thoughts – and to start your 30-day, 100% risk-free trial to Digest Premium – click here.
New 52-week highs (as of 8/29/2014): Apple (AAPL), American Financial Group (AFG), Anadarko Petroleum (APC), Activision Blizzard (ATVI), Bank of Montreal (BMO), Berkshire Hathaway (BRK), Enterprise Products Partners (EPD), Lynden Energy (LVL.V), Microsoft (MSFT), ONEOK (OKE), PowerShares S&P 500 BuyWrite Fund (PBP), PowerShares Buyback Achievers Fund (PKW), PowerShares QQQ Fund (QQQ), ProShares Ultra Technology Fund (ROM), ProShares Ultra Health Care Fund (RXL), ProShares Ultra S&P 500 Fund (SSO), Skyworks Solutions (SWKS), Cambria Shareholder Yield Fund (SYLD), Whiting Petroleum (WLL), and W.R. Berkley (WRB).
In today's mailbag, one subscriber shares a sign of the top and another discusses how S&A is helping his portfolio grow. Send your e-mails to feedback@stansberryresearch.com.
"A sign of the top surely is the Amazon Fire commercial with 9 year old kids talking about real estate and selling a startup? Funny commercial, but a sign of the top." – Paid–up subscriber Dan Stringer
"To all at S&A Research, I was reviewing my 20 open positions this morning and reveling in the fact that all of them are profitable. Unrealized gains are at incredible annualized levels (and of course subject to change). Short naked Puts, Covered Calls, Alpha plays and Long & Short Equities. That's pretty good news, but more amazing are my graphs associated with each; they show an awesome correlation where entry dates, based on your research, closely match the hook in a classic hockey stick chart that is the dream of every manager. Up and to the right.
"I am an alliance member who primarily follows the research, in no particular order, of Mason, Sjuggerud, Eifrig, Stansberry, Clark and Curzio and then picks and chooses based on my own research, experience and goals. My mistakes have been few but they are mine, such as over-extending on 'can't lose' WTW and RCII. But overall my successes are many thanks to your outstanding research, in spite of my limited discipline to follow the basics. I am and have been learning.
"I'm 70 yrs. of age and retired with a small portfolio that I want to grow 'for the fun of it'. It was a hard decision to part with the money to become an Alliance member but it was the best investment decision of my life. Adhering to the 'rules' was the second best decision. Had I known the discipline and strategies that you all profess, and had practiced them for the past 20 years, I can assure you that I would be 70 with a large portfolio. Now if I can just impart this new found wisdom to my son. Oh, and Sjuggerud's guitar solos are entrancing. So, thanks for what you do and please enjoy this Labor Day weekend." – Paid-up subscriber Art Linaschke
Regards,
Sean Goldsmith
September 2, 2014
Rick Rule: How to construct a precious-metals portfolio...
It's "gold week" in Digest Premium. We're kicking it off with a conversation Porter recently had with natural resources-investing legend Rick Rule.
In today's Digest Premium, adapted from that conversation, Rick discusses the opportunities in precious metals today... and shares his top ways to gain exposure to a rising gold price...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
Rick Rule: How to construct a precious-metals portfolio...
We're seeing two of America's biggest trends play out in the market today...
Stansberry's Investment Advisory recommendation Dollar General (DG) increased its offer to acquire rival discount retailer Family Dollar (FDO).
Porter and his analysts recommended Dollar General to profit from a trend we've discussed in depth in the Digest – the "disappearing middle class."
To read more about how the middle class is getting wiped out – and about Dollar General's original bid for Family Dollar – be sure to re-read the August 18 Digest.
Dollar General increased its bid to $9.1 billion, which translates to $80 per share (versus its previous offer of $78.50 a share). Dollar General will also pay a $500 million reverse termination fee should the deal fall apart due to antitrust concerns. This tops rival suitor Dollar Tree's initial $8.5 billion bid for Family Dollar.
Dollar General said it was willing to go hostile, taking the offer to shareholders directly, if Family Dollar's board of directors refuses to accept the offer.
It's clear that Dollar General understands how important a deal with Family Dollar is. Remember... Dollar General is the leader in the discount retail space, with approximately 11,000 stores. It's an all-around better company than Family Dollar, with higher sales per store, thicker margins, and better store locations.
Both companies are in the business of selling everyday goods at low prices in neighborhood stores. Dollar Tree sells everything for $1. A Dollar General/Family Dollar merger makes more sense.
But selling to the poor is a big business. And it will only become more profitable as the "disappearing middle class" plays out.
The potential merger would create a $30 billion sales leader in the retail space with more than 20,000 locations.
Dollar General rose slightly on the news and is nearing an all-time high. Stansberry's Investment Advisory subscribers are up 6%.
The other trend Dollar General's increased takeover bid supports is the boom in acquisition and merger activity we're seeing today...
Every week, more and more multibillion-dollar deals are being announced. It's a manifestation of the disappearing middle class playing out on the corporate level...
Interest rates are at record lows and cash is earning nothing sitting in the bank... So big corporations are paying ever-increasing prices for producing assets (other companies). As we noted in the July 9 Digest...
|
Just last week, we saw fast-food icon Burger King announce a takeover of Canada's Tim Hortons for $10 billion... Cable company Comcast offered to buy Time Warner for $45 billion... Cigarette giant Reynolds American bought Lorillard... And Japanese distiller Suntory bought Beam (maker of Jim Beam)... just to name a few.
Plus, don't forget Facebook, which spent $19 billion on messaging service Whatsapp (a company with $20 million in annual revenue).
Again, it all comes down to cheap financing...
In a second-quarter earnings call for his hedge fund Greenlight Capital, billionaire David Einhorn (one of the brightest guys out there) said his short positions suffered...
|
The euro hit a one-year low of $1.31 versus the U.S. dollar today...
In other words, European Central Bank (ECB) President Mario Draghi is getting his wish. In December, Draghi told the world he would do everything in his power to inflate the European economy and push the euro lower. Steve Sjuggerud dubbed this phenomenon the "Draghi Asset Bubble" – the sequel to the "Bernanke Asset Bubble" we saw in the U.S. thanks to former Federal Reserve Chairman Ben Bernanke.
At a meeting last month in Jackson Hole, Wyoming, Draghi said the ECB needs to do more to boost inflation... And he noted that European austerity measures need to be reversed. Once again, Draghi's language was clear... He said he the ECB would use "all the available instruments needed to ensure price stability" and it is "ready to adjust our policy stance further."
When a central banker is hell bent on inflating an economy, get out of the way. As Steve Sjuggerud said in the June issue of True Wealth...
|
Draghi still has work to do... Annual inflation in the European currency union is currently 0.4% versus his targeted 2%.
Draghi could announce further stimulus Thursday at a meeting in Frankfurt, Germany. And the market is already reacting to the possibilities...
Yields on Europe's benchmark government bond – the German 10-year bund – fell to a record 0.866% on August 28. It remains below 1% today. The yield on French debt hit 1.217%... Spain's 10-year debt dropped to 2.25%.
That's lower than the 10-year U.S. Treasury's 2.41% yield.
We have no doubt Draghi will achieve his goal... The euro will fall and European stocks will rise (and True Wealth subscribers who follow Steve's advice will profit handsomely along the way).
But we know there are still deep flaws in the European economy. And papering these problems over is only a temporary solution. Consider the latest from Italy's largest bank, UniCredit...
Porter first wrote about the bank, and its long history of failure, in the March 2010 issue of Stansberry's Investment Advisory...
|
Since then, the bank has experienced multiple bailouts and huge asset write-downs, and has been on the brink of failure several times (read more here and here).
And the problems continue...
UniCredit's Chief Executive Officer Federico Ghizzoni said the bank will seek €15 billion from the ECB this year in so-called "cheap cash loans."
The loans are officially known as targeted longer-term refinancing operations (TLTROs)... but are called "cheap cash loans" because the interest rate is only 10 basis points (one basis point is one-hundredth of one percent) higher than the benchmark interest rate (which sits at a record-low 0.15%).
The maximum size of the program is €1 trillion.
UniCredit is requesting €7 billion in the ECB's first auction in September, for loans to be made in Italy, and €8 billion at the second auction for loans linked to Germany and Austria, according to Bloomberg.
In total, Italy's seven biggest banks are expected to borrow €40 billion in the ECB's first auction in September.
Our bet: Draghi will make sure these loans go through. And once again, UniCredit will trudge along... until the next bailout.
This is all great news for gold, which, coincidentally, is down to $1,280 an ounce today. While the precious metal is volatile in the short term, we know constant government manipulation of currencies will eventually push gold far higher from here.
Speaking of which, it's "gold week" in Digest Premium this week...
We're featuring exclusive content from several of the world's best gold investors, including billionaire resource investor Rick Rule... Sprott Inc. founder Eric Sprott... and Gold Stock Analyst editor John Doody.
All three experts offer their views on gold stocks, exchange-traded funds, and investing in the physical metal... And all three are bullish today. Today, for instance, Rick discusses how he would put together a "starter portfolio" in gold.
New 52-week highs (as of 8/29/2014): Apple (AAPL), American Financial Group (AFG), Anadarko Petroleum (APC), Activision Blizzard (ATVI), Bank of Montreal (BMO), Berkshire Hathaway (BRK), Enterprise Products Partners (EPD), Lynden Energy (LVL.V), Microsoft (MSFT), ONEOK (OKE), PowerShares S&P 500 BuyWrite Fund (PBP), PowerShares Buyback Achievers Fund (PKW), PowerShares QQQ Fund (QQQ), ProShares Ultra Technology Fund (ROM), ProShares Ultra Health Care Fund (RXL), ProShares Ultra S&P 500 Fund (SSO), Skyworks Solutions (SWKS), Cambria Shareholder Yield Fund (SYLD), Whiting Petroleum (WLL), and W.R. Berkley (WRB).
In today's mailbag, one subscriber shares a sign of the top and another discusses how S&A is helping his portfolio grow. Send your e-mails to feedback@stansberryresearch.com.
"A sign of the top surely is the Amazon Fire commercial with 9 year old kids talking about real estate and selling a startup? Funny commercial, but a sign of the top." – Paid–up subscriber Dan Stringer
"To all at S&A Research, I was reviewing my 20 open positions this morning and reveling in the fact that all of them are profitable. Unrealized gains are at incredible annualized levels (and of course subject to change). Short naked Puts, Covered Calls, Alpha plays and Long & Short Equities. That's pretty good news, but more amazing are my graphs associated with each; they show an awesome correlation where entry dates, based on your research, closely match the hook in a classic hockey stick chart that is the dream of every manager. Up and to the right.
"I am an alliance member who primarily follows the research, in no particular order, of Mason, Sjuggerud, Eifrig, Stansberry, Clark and Curzio and then picks and chooses based on my own research, experience and goals. My mistakes have been few but they are mine, such as over-extending on 'can't lose' WTW and RCII. But overall my successes are many thanks to your outstanding research, in spite of my limited discipline to follow the basics. I am and have been learning.
"I'm 70 yrs. of age and retired with a small portfolio that I want to grow 'for the fun of it'. It was a hard decision to part with the money to become an Alliance member but it was the best investment decision of my life. Adhering to the 'rules' was the second best decision. Had I known the discipline and strategies that you all profess, and had practiced them for the past 20 years, I can assure you that I would be 70 with a large portfolio. Now if I can just impart this new found wisdom to my son. Oh, and Sjuggerud's guitar solos are entrancing. So, thanks for what you do and please enjoy this Labor Day weekend." – Paid-up subscriber Art Linaschke
Regards,
Sean Goldsmith
September 2, 2014
Editor's note: It's "gold week" in Digest Premium. We're kicking it off with a conversation Porter recently had with natural resources-investing legend Rick Rule on episode 176 of his Stansberry Radio program.
In today's Digest Premium, adapted from that conversation, Rick discusses the opportunities in precious metals today... and shares his top ways to gain exposure to a rising gold price...
There is a lot to be said for buying physical gold and ignoring the ups and downs of the equities market. But if you want to be involved in gold stocks, the last 20 years have shown us that the free cash flow generation has first benefited the royalty companies, then the streaming companies, and lastly the producers.
Our new Sprott exchange-traded fund (ETF) – the Sprott Gold Miners Trust (SGDM) – is performance-related, rather than market-cap-weighted. Not surprisingly, it's heavily weighted in Franco-Nevada (16%), Royal Gold (4%), and Silver Wheaton (3%)... the royalty and streaming companies.
At Sprott, we looked at the existing product on the market – the Market Vectors Gold Miners Fund (GDX) – which is a fine product, by the way, for what it is. It's an easy way to play the sector. We looked at GDX and we tried to figure out what we didn't like about it. We came to the conclusion that simply rewarding size in the mining sector wasn't going to work very well.
We looked at about 20 factors that we had used to pick stocks on an individual basis. We tried to pick several that you could index that back-tested well against GDX. Not surprisingly, we came up with revenue growth, free cash flow, and free cash flow relative to enterprise value (market cap and total debt).
I believe it's possible to construct indexes that are performance-weighted in other sectors. We're looking to employ hundreds of millions of dollars in capital in that space. There is a ton of room in the market for passive, low-fee investments that have performance-based valuation matrixes rather than market-cap-based, which is what the ETF business has been thus far.
If you believe the price of gold is going up, which I do, you can start in your portfolio by either owning physical gold – whether it's a certificate of gold or one of the physical ETFs (like SGDM).
You can move from there to a carefully chosen equity portfolio of gold producers. Too often, people who think that the gold price is going up just buy a collection of penny stocks that only have gold as a component of the name. So you need to be careful about selecting stocks that involve ownership in businesses that are good businesses apart from the fact that they are in the gold game.
– Rick Rule
Rick Rule: How to construct a precious-metals portfolio...
It's "gold week" in Digest Premium. We're kicking it off with a conversation Porter recently had with natural resources-investing legend Rick Rule.
In today's Digest Premium, adapted from that conversation, Rick discusses the opportunities in precious metals today... and shares his top ways to gain exposure to a rising gold price...
To continue reading, scroll down or click here.