The news is abuzz with talk of bank bailout repayments. My head swims at the thought of it... The banks take enormous risks with depositors' and shareholders' money. They lose big. They get a government bailout, essentially a massive reward for their massive failure. The government jacks up the stock market by inflating the currency, making you and me poorer as it purports to make us richer. The higher market level allows banks to raise equity to pay back the government loans, diluting shareholders in the process.
In the end, the odds are better than ever you're out of a job, even though you didn't try to wreck the country's finances. Oh yeah, and everything from your electric bill to your grocery bill to your rapidly rising tax bill costs you more.
Is it just me, or do I hear a huge F-You! emanating from the corridors of Washington and echoing down the canyons of Wall Street? I could have sworn I heard it on the wind late last night as I let out my two dogs. If I treated my dogs the way Washington treats Wall Street, rewarding them every time they soiled the carpet, my house would smell about as bad as Komrade Obama's plans to take over our lives and leave us with nothing.
Speaking of that which is emitted from dogs, Komrade Obama accepted his Nobel Peace Prize today, just days after announcing an escalation of the Afghan war. Komrade Obama told the world, "I cannot stand idle," easily the understatement of the year. Obama is the most meddling government busybody we've seen in decades. He's taken over banking, manufacturing (GM), the mortgage industry (FANNIE and FREDDIE), health care... what's next?
There's nothing like an ongoing credit crisis to make debt cheap... Since Dubai World asked lenders for a debt standstill on November 25, prices of bonds sold by Middle Eastern governments and state-controlled companies hit record lows. Emerging-market debt has fallen farther from its peak than at any time since records began in 1993.
Some of the world's best emerging-market investors, sensing overblown fears, are jumping in. PIMCO, manager of the world's largest bond fund, is buying the debt of Abu Dhabi, Qatar, and Ras Laffan Liquefied Natural Gas Co. Michael Gomez, co-head of emerging markets at PIMCO, said his firm will accumulate "even more" in any selloff because the assets are "cheap."
The debt of Abu Dhabi and Qatar are better credit risks than Dubai. They both have lots of oil and enormous sovereign wealth funds. Abu Dhabi controls 8% of the world's oil, and its sovereign wealth fund has $627 billion – enough to cover interest payments.
Mark Mobius, executive chairman of Templeton Asset Management and an emerging-markets expert, said he'd buy the Middle East, including Dubai, if prices decline to a "reasonable" level... "The companies in Dubai will continue to operate and could present good earnings opportunities," he said. "Dubai's status as a trading and tourism hub will not vanish."
"It's taken all of recorded history, but this year China finally looks set to overtake India as the world's number one gold consumer." That's according to a December 8, 2009, Reuters article. This is the first time since the Roman age that India wasn't the world's largest gold consumer. Following a rough monsoon season, Indians reduced their gold consumption this year. At the same time, the Chinese government encouraged its people to buy gold. China's gold consumption is up 8% year to date, enough to take the number one position.
China is worried about the value of its massive U.S. dollar reserves. That's why the Chinese government and its citizens are plowing their cash into gold. S&A Resource Report editor Matt Badiali has been following the China gold craze for months. He has recommended a handful of stocks that will benefit the most from China's buying. To find out more, click here.
While China's loading up on gold, Jim Rogers is at a standstill. Instead, he's buying gold's antithesis, the U.S. dollar... "Over the past couple of months, I have been accumulating U.S. dollars... because there are too many bears," Rogers said on Wednesday. Rogers believes the dollar crisis is only temporarily abating. Eventually, he says U.S. government bond yields will reach double digits, like in the early 1980s. The U.S. 10-year Treasury note's yield hit a high of 15.8% in 1981. When rates get that high again, perhaps we'll shout from the highest mountain that it's time to buy Treasuries.
I'm not a trader, so I don't advocate trying to buy dollars hoping for a rally. I'd rather wait out weakness in the gold price and buy more of it. That's essentially what I'm telling readers in the next issue of Extreme Value, which comes out tomorrow after market close.
I've also got the latest, most updated information for Extreme Value readers on the International Royalty buyout and its implications for one of our other holdings. To find out more about Extreme Value, click here.
Jim Rogers is nothing if not contrarian... Today's Treasury auction showed lukewarm interest in the greenback, pushing the yield curve to its widest since 1980. At 372 basis points (3.72%), the spread between two- and 30-year Treasury obligations was at its widest point in at least 29 years. William Larkin of Cabot Money Management in Salem, Mass., told Bloomberg, "This was a mediocre auction where the yield needed to be tweaked a little on the high side to get it done."
New highs: Johnson & Johnson (JNJ), iShares High Yield Bond Fund (HYG), Burlington Northern Santa Fe (BNI), Enterprise Partners (EPD), Keyera Facilities (KEY-UN.TO), Altria (MO), International Royalty (ROY), Providence Service Corporation (PRSC).
Love and kisses in the mailbag... which we all know means some of you are hittin' the bottle again. Send your e-mails to feedback@stansberryresearch.com.
"Thought I better go on record thanking you and the whole crew for the success I have had following your recommendations such as BUD, ROY, SEA, IDBE, GDX, CEF, and many others that I can't remember so well anymore. Been an Alliance member since it was first offered and more than paid for itself long ago. I have also been retired for 14 yrs and have made up for what the 'gummit' isn't sending me and really like Doc Effrig. Do keep up the good work 'cuz don't know what I would do without it." – Paid-up subscriber Art Aitken
"2009 was a tremendous year: I am up about 60% (not from the March lows, but from January 1) which covered 2008 losses plus 50%. In 2009 alone, I have paid for my $5K Alliance membership by more than 30x. Yes, THIRTY TIMES just this year. I am on a path to be financially secure by 45 thanks to the tremendous research and education from being an Alliance member. Please keep the doors open, the lights on, and the newsletters flowing. And don't stop the DIGEST!
"You guys ROCK!
"One thing that maybe other readers don't realize: one can mix and match the Alliance newsletters to structure any portfolio to meet any risk tolerance and still have great returns: Extreme Value, Advance Income, True Wealth, and The 12% Letter are great ways to safely park cash earning big dividends... Middle of the road risk and diversity with excellent returns come from PSIA, True Wealth, FDA Report, and the Put report... More speculative parts of a portfolio can be put to work in the Resource Report, Short Report, Inside Strategist, Penny Trends, and Penny Stocks.
"Buy real gold (and bury it).
"All one has to do is divide one's portfolio into these basic categories, attaching percentages according to risk tolerance and then choose which newsletter(s) to follow. Even the most risk-averse investor should think about this: $500K invested in recommendations from even the safest of these newsletters will get you $50K a year safely.
"And that is before any Social Security, pension, or other such income is considered. You don't need to be a millionaire to achieve financial security. Of course, all the usual rules apply (position sizing, invest in what you know, trailing stops, etc.). Rebalance each year as needed (of course with every newsletter doing well, that won't be necessary for a while!)" – Paid-up subscriber Jeff Persson
Ferris comment: Thanks, Jeff. It seems like you've intelligently figured out how to use your Alliance membership... especially since you listed Extreme Value first. Everyone should do that, in my humble, selfless opinion.
You seem to have had a harder time putting down the bottle. Baby steps, Jeff... baby steps...
"I have been following a few of your newsletters since last July and started investing in some of the recommendations from 5 of your more economical newsletters in February. Since then I have been able to increase my investment account by 70%. I have decided to take some of the profits and join the Alliance. I can't help but believe that I can do much better than 70% getting investment advice from nearly all of your current and future offerings. I look forward to a long and prosperous partnership." – Paid-up subscriber Tom Meeker
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
December 10, 2009