Why it's good to be scared... Black swans are lurking... Can the market rise for seven straight years?... Porter: 'As bearish as I have ever been in my entire life'... Major hedge-fund manager sees a financial disaster... Today's bearish activity... Your playbook for the crisis...
Today's Digest may scare you... And that's a good thing.
Yesterday, we told you one of our greatest fears is coming true... Global currencies are collapsing as central banks continue to drown their economies in debt. Commodities are plunging as global growth slows and the dollar strengthens. Meanwhile, volatility is returning to the market.
Plus, Switzerland's central bank – the Swiss National Bank – unpegged the franc from the euro, causing a huge swing in the currency. As we noted yesterday, we've seen massive moves in most major currencies. Crude oil has fallen 60% from its peak. Copper and iron ore are both at multiyear lows.
And there are plenty of "black swans" lurking...
We could see Venezuela default as oil prices plunge and inflation takes hold. We could see Greece leave the euro. The situation in Russia could further deteriorate. We could see major defaults in the energy sector. We could see a highly leveraged hedge fund blow up – like Long Term Capital Management during the last Russian crisis in 1998. (More on that later.)
To be clear, we're not saying the world is ending. The overall trend is up in this market. But it's getting long in the tooth. The market has gone up for six years in a row. If it closes up in 2015, that will be an unprecedented seven straight years of stocks rising... something the market has never done before, according to DoubleLine Capital founder Jeff Gundlach.
But there's a lot to be fearful about today. And it's time to start preparing your portfolio for what could be a vicious correction.
Yesterday, we featured a quote from Porter's latest "Advisory Roundtable" episode on his new radio show, The Porter Stansberry Show. Porter recently rebranded his radio show. It's only for paid listeners. But he has agreed to let us feature some of its content in today's Digest.
In short, Porter is super-bearish today. And he has good reason to be. From last week's episode (edited slightly for syntax)...
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Porter pointed out a few examples of the madness in the stock market today. First, the largest buyer of U.S. equities last year was S&P 500 companies. They borrowed record amounts of money to repurchase their own stock.
That, of course, drove stock prices higher. But it also sacrifices future growth... because these companies are shifting spending from capital expenditures to share buybacks.
As a result of the stock market inflation, stocks today are the most expensive in the U.S. – relative to the size of our economy – since the 2000 bubble.
Porter also points to Facebook's $20 billion purchase of messaging service WhatsApp... and the fact that Germany tried to repatriate 700 tons of gold from the U.S. but only received five tons.
It's possible that stocks could inflate a larger bubble than we saw in 2000. But the bigger the bubble, the larger the drop. More from Porter...
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If you haven't listened to Porter's latest radio show, it's a must. It's classic Porter. He lays out an incredibly compelling bear case (including much more information than we featured in today's Digest)... And he tells listeners what they should do about it.
The Porter Stansberry Show costs just $10 per month. With it, you'll get exclusive access to Porter's latest thoughts, in addition to what he's writing in his monthly advisory. You can sign up for a risk-free 30-day trial by clicking here.
Hedge-fund guru Crispin Odey is also worried we're on the cusp of a big bear market. In his December 31 letter to investors, he wrote...
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Like Porter, Odey also points to many of the same bearish signs: Stocks are "priced for perfection," commodities look "dangerous," volatility is rising, etc.
Odey says we're early in the bear market, but it's time to start preparing...
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And there's plenty to be bearish about in the stock market today...
Software giant Microsoft fell nearly 9.5% after disappointing earnings (an insane move for a stock of its size and stature). Global construction bellwether Caterpillar – which we discussed in the January 21 Digest, fell around 7% on disappointing earnings. Mining giant Freeport McMoRan fell almost 6% as copper and other commodities continued their downward plunge. Semiconductor giant Intel fell 4.5%.
We'll discuss some of these earnings in more detail in tomorrow's Digest.
Regular readers know we've been urging you to buy gold and gold stocks recently. You can read more of our reasoning in the January 19 Digest.
We're happy to see the positive price action today while the rest of the market is tanking. Gold is up more than 1% to $1,295 an ounce. And the Market Vectors Gold Miners Fund (GDX) was up more than 3% today.
But we think the biggest gains in gold and gold stocks are yet to come. So does our friend and currency expert Jim Rickards. He says gold will hit $7,000 an ounce as the global economy deteriorates.
Yesterday, we discussed the plunging currencies around the world. Jim literally wrote the book on the topic – called Currency Wars. Like us, he predicted central banks would race to print money and devalue their currencies. (And like us, he knew the end result was disaster.)
Jim has special insights into today's economic environment...
Earlier, we briefly mentioned the collapse of hedge fund Long Term Capital Management. The highly leveraged hedge fund was run by some of the smartest men in the world. Jim was their general counsel.
The firm had so much exposure to derivatives that it was considered a systemic risk. So Jim sat down with 14 of the world's largest banks to arrange a $3.6 billion bailout.
Remember, the Russian currency crisis of the late 1990s cratered the company. And while Jim doesn't think Russia will default, he does think the financial crisis in the country will have ripple effects – hurting everything from European banks to emerging-market funds.
In short, if you need a "crisis playbook," Jim is your man. He has been at the epicenter of a major crisis before. And he understands the ramifications of trigger-happy central bankers.
In his latest book, The Death of Money, Jim explains why we'll eventually see massive inflation as the world further loses faith in fiat money.
We've discussed Jim's new book a lot in the Digest... but only because we think it's so important. If you are an investor in the markets today, you need to understand the macroeconomic risks... and how quickly things can implode.
The global monetary experiment of the past six years will shape the investment landscape for decades to come.
We've arranged for you to get a free copy of The Death of Money. We ask that you cover the $4.95 for shipping and handling. Plus, Jim agreed to write a special chapter exclusively for Stansberry Research subscribers... It explains the handful of assets he recommends owning to protect yourself from a financial disaster. (It shouldn't surprise you that gold is one of them.)
Again, if you haven't yet read this book, we can't urge you strongly enough to pick up a copy. Get yours here.
New 52-week highs (as of 1/26/15): Axis Capital (AXS), ProShares Ultra Nasdaq Biotech Fund (BIB), Anheuser-Busch InBev (BUD), Blackstone Group (BX), CDK Global (CDK), CVS Health (CVS), WisdomTree Europe Hedged Equity Fund (HEDJ), Invesco Value Municipal Income Trust (IIM), Nuveen Municipal Value Fund (NUV), ProShares Ultra Health Care Fund (RXL), Constellation Brands (STZ), and ProShares Ultra Utilities Fund (UPW).
In today's mailbag, four subscribers answer Porter's call for feedback on the new format of his Stansberry Radio program. Send your thoughts to feedback@stansberryresearch.com.
"Porter, thanks for the two new episodes on Stansberry Radio, they were very informative and I appreciate you getting right into the issues and not having a lot of fluff.
"One comment, you mentioned on both shows that we should be buying physical gold. I think it would be a good idea to let your listeners know where they should go to buy that gold (website, store location, etc.). Also, you should let us know if we should be buying gold bars or coins (American eagles, etc.). Finally, should we also buy some silver bars and coins as well. It might even make sense if you could have a deal (purchase coins or gold at a better price the typical) from the companies you recommend. Thanks for your consideration for my questions." – Paid-up subscriber Jim
"Dear Porter, Stansberry Radio is my favorite way to learn about your thinking. I do miss Aaron's banter with you based on your long history together. I'm also impressed that you keep cutting the 'losers' from your publications no matter what. It's an incredible discipline that most are not willing to adhere to." – Paid-up subscriber Mackay Rippey
"The new format for the premium radio was well received here. The content was absolutely consistent with your stated goal of providing us with the information that you'd want if our roles were reversed. I have great faith that future broadcasts will be even better. There was, however, a twinge of remorse as I missed Aaron and the interplay between you. I hope the Black Label Show can continue. Even with serious topics some irreverence and humor makes the message more understandable and memorable.
"Many broadcasts back I remember a teaser that you offered that in a future show you would take on the issue of racism, observing that black athletes have been able to succeed in America in spite of overt discrimination. You wondered why the rest of that community does not seem to be able to repeat that success. While I especially enjoyed your social and political commentary I can understand why those subjects might be off topic now. Maybe that's just more evidence that I'll miss the old format." – Paid-up subscriber Bob
"Porter, just listened to your latest podcast with Erez Kalir – that interview alone was worth the price of admission. Thanks for putting that out there for us listeners. It was truly one of the most informative learning sessions I've had in the last few years. However, you asked for suggestions on the radio show: How about a 3-way conference call interview with Richard Russell, James Grant, and yourself?? The three best newsletter writers in the industry all on one panel – talk about a great podcast!
One more suggestion: Get an insider from the P&C insurance industry on your podcast. I don't recall you ever having insurance be the subject of the podcast. As a side note, ever since your stint of daily Digests last summer when you were filling in for Goldsmith, I've totally restructured my investment portfolio – you really swayed me with your plea to learn and understand the P&C industry. The only stocks I now hold are P&C companies that fit the underwriting criteria you laid out. I can't wait to reap the rewards of buying and holding onto these companies over the long haul." – Paid-up subscriber Ryan M.
Regards,
Sean Goldsmith
January 27, 2015
