When we'll see QE3... Thursday's deadline for Greek debt deal... 1,006% yields... China bearish on everything... Natural gas-powered pickups on the way... How we met Doc...
Marc Faber, editor of the Gloom Boom & Doom newsletter, recently told CNBC the future of our money – and a resumption of the Federal Reserve's quantitative easing (QE) money-printing – depends on the stock market...
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If the [Standard & Poor's 500 stock index] drops 100-200 points, then yes, for sure we will have QE3," Faber said. "But if the S&P stays here or even goes up, the likelihood of QE3 diminishes. |
Faber said Fed Chairman Ben Bernanke "doesn't admit" it, but he "targets assets prices" with his quantitative easing. The first two rounds of quantitative easing pushed the S&P 500 up from 666 on March 6, 2009 to 1,362 today. A 10% or 15% drop in the index would be more than enough for Bernanke to crank up the printing press, he said.
And it may happen sooner than Bernanke thinks... "Markets are overbought. Technically, they have deteriorated," Faber said. "And we have very heavy insider selling, so I think a correction is coming... I don't think (investors) should be shooting for huge gains, but rather for preservation in capital."
Faber sees high volatility in all asset classes over the next few years. And he recommends a portfolio of 25% each in equities, real estate or real-estate-related equities, cash, and gold.
Now... it's the private banks' turn to try to rescue the Greeks... The 12 financial institutions that form the steering committee of the bank lobbying group – the Institute of International Finance (IIF) – agreed to take part in the Greek bond exchange. An IIF spokesman said the 12 institutions represent nearly half of the 206 billion euros of Greek bonds held by the private sector. (A leaked IIF memo, titled "Implications of a Disorderly Greek Default and Euro Exit," estimated the costs of a Greek default at 1 trillion euros.)
The rest of the bondholders have until Thursday to decide whether to take part in the swap, which would reduce Greece's debt by approximately 100 billion euros. The deal involves trading current Greek sovereign debt for new, longer-maturity debt with a smaller coupon. Debtholders that accept the deal will lose 53.5% on their principal.
What if, as a private-sector Greek debt holder, you don't want to volunteer for a 54% haircut? The European Central Bank (ECB) thought some might balk at the idea, so it retroactively inserted collective-action clauses (CACs) into the bonds last week. These CACs would force all private Greek debtholders to accept the deal if 66% of debtholders approve the swap.
The ECB expects the participation rate will be too low and that the CACs will have to be invoked, according to sources at the central bank who spoke to the Wall Street Journal.
Despite the evidence to the contrary, one source close to the bondholders told the Financial Times, "Some investors seem to think they will be rescued. That just isn't the case."
The central banks will do everything in their power to save Greece... But that doesn't begin to address the other tenuous European Union members like Portugal, Italy, and Spain. As Porter explained to his subscribers last November...
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Europe's banking system holds $55 trillion in assets – roughly equal to the total debt (public, private, corporate) in the United States. Europe's banking system is four times larger than the U.S. banking system. And it is stuffed to the brim with sovereign debts that will never be repaid... |
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We're not talking about the failure of a single bank – though it seems more and more likely that a single bank (UniCredit) will be first. We're talking about the failure of an entire system, the largest system of credit and banking on Earth. Why, then, don't we simply short everything? Because shorting the sovereign is incredibly risky. |
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The paper currency system we have in place means there is no actual limit to the size of the bailout that can (and in my view, will) be organized. Yes, the ECB has rules against bailing out countries. But those rules will be changed, you can bet on it. The Federal Reserve cannot allow U.S. money-market funds to lose $500 billion. It cannot allow Europe's entire economy to collapse. Whatever the other risks – inflation, a panic out of euros and dollars – anything will be tolerated except a complete collapse... |
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My core recommendation is for you to own plenty of gold (and silver) bullion. Consider this: Total central bank gold purchases in the third quarter more than doubled over the third quarter of 2010. This is the world fleeing to gold. This is the death of the U.S. dollar as the world's reserve currency. |
All of this liquidity from goosed equity markets...
But the credit markets aren't fooled. Greek one-year bonds now yield 1,006%. And Portuguese sovereign spreads are up 200 basis points (a basis point is one one-hundredth of a percent) to 1,200 bps over German government debt.
You may have seen the headlines today about China lowering its gross domestic product (GDP) target to 7.5% from 8% – acknowledging a slowing economy. More interesting to us... today, Bloomberg reported the country is curbing auto-manufacturing capacity... Deliveries of passenger automobiles in China fell 3% in the first two months of 2012 from a year earlier. That's the biggest drop since 2005, when deliveries plunged 8.9%.
To prevent overcapacity, China removed preferential treatment for foreign automakers on Chinese plants. In addition to cars, the Chinese government is also curbing capacity in three other industries – steelmaking, shipbuilding, and cement production. In other words, China is bearish on its consumers, international trade, and construction.
While China is curbing its automobile production, the U.S. is ramping up production of a certain type of vehicle... Those powered by natural gas.
According to the Wall Street Journal, Chrysler Group plans to build the first production pickup truck fueled by natural gas. Beginning in June, the company will build at least 2,000 bi-fuel Ram trucks. "Bi-fuel" means the truck will use a combination of compressed natural gas (CNG) and gasoline. And General Motors today is also planning bi-fuel versions of the Chevrolet Silverado and GMC Sierra 2500 pickups in the fourth quarter of 2012.
"For us, this is the first step and if the opportunity presents itself we wouldn't turn our back on a CNG-powered passenger car," said Peter Grady, Chrysler vice president of network development and fleet. "We aren't working on it now but we do have it in the back of our minds."
Frank Curzio has been following the natural gas as transportation fuel megatrend in his Small Stock Specialist advisory. In short, Frank believes natural gas' low price and abundance will make it a more attractive fuel than traditional gasoline for automobiles. And the U.S. will spend billions of dollars building natural gas-fueling stations. (The U.S. has only 1,000 today.) The companies involved in this trend will soar as the large, U.S. auto manufacturers start producing more natural-gas powered cars. Frank's prepared a special report outlining his favorite companies to benefit from this trend. To learn about a subscription to Small Stock Specialist – and how to get a copy of his natural gas report – click here.
Last week, we received loads of positive feedback about Dr. David Eifrig's trading service, Retirement Trader... probably more positive feedback than we've ever received about any service. The reason for the feedback is simple... "Doc" (as we call him) has closed an amazing 61 out of 61 trades in a row since launching his service in April 2010. And his readers have made huge returns.
In honor of Doc, we're republishing an excerpt from the most popular essay Porter has ever written about the benefits of selling puts... and why Doc is so good. As some of you may know, Doc used to be a super-successful trader at Goldman Sachs. And he taught Porter much of what he knows about selling puts (in addition to convincing most S&A employees that selling puts is one of the best and safest ways to generate steady returns)...
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How did I come to hire one of Goldman's former top traders? Why would someone with these skills ever go to work for anyone else? You'd have to know Doc (as I call him) to understand. You see, he actually got tired of making millions of dollars by "ripping people's faces off" – which is what they call it when you make a good trade. He didn't want to spend his life focused on making money – and taking it from other investors who were less sophisticated. He walked away from the life – from the fancy dinners, the Rangers hockey tickets, the private planes, etc. He left finance completely and became a medical doctor – an eye doctor to be specific. Medicine was the family business, and Doc wanted to do something he felt was better for society than just making money. |
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I met Doc about 10 years ago through mutual friends at the beginning of his medical career. He was a mentor to me in many ways – especially in understanding how to make a lot of money safely with my own trading. As Doc explained these strategies to me, I realized how perfect they were for people who are retired. A retired person needs income to live on. A short-term trading system that can produce small gains, quickly and safely, would be perfect for our audience, which is filled with retired investors. The more Doc and I talked over the years, the more excited he became about sharing his secrets with more people – especially folks like him who are retired. (Doc has now retired twice: once from Wall Street and more recently from practicing medicine.) |
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Are you retired? Or are you simply tired of having to put so much capital at risk to earn a decent amount of investment income? Wouldn't you like to have a trading record that's more like Goldman Sachs' and less like the poor saps who get their faces ripped off by Wall Street's prop-trading desk every day? Who better to teach you the right way to trade than a former Goldman trader? |
Even if you never imagined yourself as a trader before, I hope you'll take the time today to sign up for Doc's Retirement Trader. Doc's super-safe and consistent trading style is perfect for retirees. And we're currently offering the service at a generous discount, but only until midnight tonight. Click here to learn more...
New 52-week highs (as of 3/2/2012): Abbott Laboratories (ABT), Prestige Brand Holdings (PBH), and Philip Morris International (PM).
Porter's Friday Digests are getting more and more popular it seems... Do you enjoy the investment education we try to deliver? Let us know here... feedback@stansberryresearch.com.
"Porter, in response to Friday 3/2/12 Digest; I have followed the advisory letters PSIA and TW for several years; while I didn't have a tremendous amount of funds to invest, I did as much as I could consistently and doubled my money between 2004 and 2009. Thank goodness, because business has been rough over the past two years and have had to essentially draw down all of those profits (and then some) to survive. Things are looking better this year for business, thankfully. I believe the psychology of investing is paramount to success; investments certainly need to be monitored and tweaked as you do them, not micromanaged. I did the latter for years with bad results before I started reading your newsletters. Not all of your recommendations were profitable, but more than enough of it was to have those results. Thank you and I look forward to many good years ahead. Keep up the good work." – Paid-up subscriber Su Sfuatt
"I am a relatively new subscriber, but I am incredibly impressed with your service and your investment philosophy. Your Friday essay was brilliant, and very thought provoking. Please continue this on a regular, and maybe consider a series on investment philosophy. I can see that this information and mindset, could easily be more important or as important than specific recommendations.
"I have also really enjoyed Jeff Clark's option video series, he is clearly a genius, and I like his direct approach, and no nonsense analysis. As a physician, I can certainly relate.
"Keep up the good work, and I wish you a speedy recovery from your back issues. I am a neuroradiologist, so I see MRI studies on patients such as yourself everyday. I would be happy to review any radiology you have had, if that would be helpful to you.
"Please don't hesitate to contact me." – Paid-up subscriber Peter Wenig, M.D.
Regards,
Sean Goldsmith
New York, New York
March 5, 2012