A Frightening New Record in the Credit Markets
The 'Escher Economy' rolls on... The central-bank buying spree continues... A frightening new record in the credit markets... 'Finally, a good setup for gold stocks'... The real reason Atlas 400 trips are so special...
The 'Escher Economy' rolls on...
A couple months back, Porter introduced a new term to describe today's financial markets. As he wrote in the June 9 Digest...
In M.C. Escher's most famous paintings, the viewer can't figure out which way is up... In his painting "Relativity," a maze of stairs interconnects, each with a different gravity orientation. The paths wind and intertwine. There is no "up" or "down"...
When central banks around the world begin to spend trillions on financial assets, the same thing happens to the world's financial markets. When stocks themselves become the basis of our global financial system... when stocks are the money we use... there's no way to exit the risks of the equity markets.
There's no up. There's no down. There's no limit to the resulting possible inflation. And there's no way to predict when the value of the currency will collapse. When money has no firm value, it's impossible to know what something's actually worth... or if an investment makes sense... or is safe.
Regular readers may recall he cited the unprecedented behavior of the Swiss National Bank ("SNB") as a prime example. More from that Digest...
What will happen around the world as more countries try to emulate Japan, and begin buying equities? Switzerland, long-known for its currency rectitude, is going to find out...
In 2014, Switzerland's central bank began buying equities, too. But its domestic economy is so small that it decided to invest globally.
Today, the Swiss central bank owns more than $60 billion worth of U.S. stocks, including a huge $1.7 billion position in iPhone maker Apple (AAPL) and $800 million in social-media titan Facebook (FB). The Swiss central bank continues to expand its balance sheet at almost $100 billion a year. Its total balance sheet has now grown to around $700 billion – almost $90,000 in securities per Swiss citizen. And it's growing every year... just by printing more Swiss francs.
Does that make any sense?
Incredibly, these mind-boggling numbers have only become more absurd since then...
Like all other large investors in U.S. stocks, the SNB is required to disclose its holdings to the U.S. Securities and Exchange Commission each quarter. And according to its latest submission, its portfolio managers have been busy.
As you can see in the following chart, the SNB now owns a record $84 billion worth of U.S. stocks...
Of course, some of this increase can be attributed to the rally in stocks over this time. But the SNB has continued to add billions of dollars' worth of new equities to its holdings, too.
In the second quarter alone, it bought 275,000 shares of Apple (AAPL), 800,000 shares of Microsoft (MSFT), 50,000 shares of Amazon (AMZN), 300,000 shares of Facebook (FB), and 80,000 shares of Alphabet (GOOGL), among others.
As of the end of June – the latest data available – the SNB's balance sheet had grown to nearly $750 billion. And it now owns a staggering $2.8 billion of Apple and $1.3 billion of Facebook.
A frightening new record in the credit markets...
Of course, central-bank manipulation hasn't been limited to stocks alone... It has also warped the global bond markets like never before.
Central banks have purchased trillions of dollars' worth of sovereign and corporate debt. This has pushed global interest rates to unheard-of lows – even below zero in many cases – and allowed companies and consumers alike to binge on record amounts of debt.
Nowhere has this manipulation been more apparent than the high-yield ("junk") bond market. Junk-bond "spreads" – the premium investors earn to hold risky debt versus "risk-free" sovereign debt, like U.S. Treasury bonds – have been sitting near record lows for months.
None of this is news to regular Digest readers. But even here, we're seeing new records.
Thanks to the European Central Bank's ongoing bond-buying program, junk-bond yields have continued to fall. And today – for the first time ever – a huge swath of European high-yield debt yields as little as U.S. Treasurys.
Yes, you read that correctly... Right now, investors are getting paid no more to hold risky European corporate debt than they would to own the safest government bonds in the world. Take a look...
As shocking as this chart is, the reality is actually worse... You see, more than half of this debt – 60% in fact – yields less than U.S. Treasurys today.
This will not end well.
Big news on gold stocks...
These absurd records are why we continue to urge everyone to own some financial disaster "insurance" in the form of physical gold and silver. As we continue to write, if you don't yet own enough – or worse, any at all – now is a terrific time to buy.
But regular readers also know we've been cautious on precious metals in the near term. Gold and silver got a little "frothy" earlier this year, so we've suggested holding off on adding to positions – particularly those in speculative vehicles like gold stocks – until things settled down.
If you're among those who have been waiting to buy, we have some good news... Our colleague Steve Sjuggerud says we now have our first good chance to buy gold stocks in months. As he explained this morning in our free DailyWealth e-letter...
Gold-stock investors are a stubborn bunch. Gold stocks started falling last August, and gold-stock investors kept buying all the way down. It took until April for them to finally give up on gold stocks and start selling.
The chart below tells the story. It shows the shares outstanding for the VanEck Vectors Gold Miners Fund (GDX)...
When the shares outstanding are rising, it typically means investor demand exceeds supply – in short, investors love gold stocks. And when this number is falling, it typically means investors are throwing in the towel.
In short, Steve says gold stocks are now "cheap" and "hated" again – two of his three favorite investment criteria – for the first time since this bull market began. He's still waiting for a clear uptrend before making an official recommendation. But he says folks who don't want to wait around can take advantage of a low-risk opportunity today...
If you are determined to make a trade in gold stocks, I can suggest a low-risk, high-return trade for you to put on today. Take a look at this chart. It tells the story...
You can see GDX's big fall in late 2016. But this year, something unusual has happened: Every time GDX has fallen to $21, it has recovered and bounced higher.
So your good trade "setup" today is to buy GDX, and use a hard stop of $21. If GDX CLOSES any day below $21, sell it the next day.
Your downside risk is about 5% from today's levels. But your upside potential is many times that.
New 52-week highs (as of 8/9/17): Apple (AAPL), American Financial Group (AFG), Aflac (AFL), Baidu (BIDU), PowerShares Chinese Yuan Dim Sum Bond Fund (DSUM), Emerging Markets Internet & Ecommerce Fund (EMQQ), KraneShares E Fund China Commercial Paper Fund (KCNY), KraneShares CSI China Internet Fund (KWEB), Lockheed Martin (LMT), Procter & Gamble (PG), Guggenheim China Real Estate Fund (TAO), Tencent (TCEHY), Travelers (TRV), Weight Watchers (WTW), short position in Brinker International (EAT), and short position in IBM (IBM).
In today's mailbag, a clarification from a longtime Stansberry Alliance member... and the lovefest continues. We'll enjoy it while it lasts. Send your questions and comments to feedback@stansberryresearch.com. And be sure to read on past the mailbag for an exciting update from Gray Zurbruegg, president of The Atlas 400.
"Hello Stansberry: Clarification on [the] 'worthless e-mails' commentary.' I MUST point out that my name is [also] 'Tom S.' Fortunately, I have never been married to anyone named 'Jeneen B.' Thank God." – Paid-up Stansberry Alliance member Tom S.
"...I agree with the fire fighter. Your team has helped me tremendously. But let's be realistic. You all work at the market for 60 hours a week. I'll bet... the average investor spends 60 hours a year and no one has the access to the data banks you possess. Your service is down right cheap for what you offer. Thanks again." – Paid-up subscriber Kenny Gussion
"Porter and team, I'm a big fan of the human-interest stories that you occasionally include in your research and publications. It reminds us all of the POINT of getting wealthy. Porter's fishing boat provides amazing opportunities and time with friends and family. Is it expensive? Hell yeah it is. I don't hear bragging, I read the purpose of working hard and investing well. Please report back to us about your adventures. Steve's passion for guitars and traveling and surfing always makes for good relevant reading. As an aside I've met your friend Kelly Slater twice now in the last two years in the Marshall Islands... not that he'd remember me. But it's neat to meet someone that 'knew you guys when.'
"Recently, I read elsewhere that the point of investing well and making money is to buy time... time to make memories, time to work less, time to experience more. This idea resonates with me. Flavious' Commodity Supercycles is full of stories that set the stage for his analysis. I feel like I'm sitting down to read a book or long magazine article when his work is published. And that's a good thing. It might seem counterintuitive, but that extra time I spend reading his work is rewarding. Of course the point of being a subscriber is the basic nuts and bolts of investing and trailing stops and position sizes (and buying when something is cheap, hated and in an uptrend). But, speaking for myself, the human interest pieces help make all this effort more relevant and accessible. Keep it up!" – Paid-up subscriber Trent W.
Brill comment: Thank you for the kind words, Trent. We couldn't agree more.
Regards,
Justin Brill
Baltimore, Maryland
August 10, 2017
The Real Reason Atlas 400 Trips Are So Special
Thump... thump... thump... thump...
We had just landed on the remote airport tarmac. You could hear them coming.
Like a scene straight out of Apocalypse Now, four helicopters crested the tree line in tight formation and landed 50 feet away.
Our shuttle to Nimmo Bay Resort had arrived.
This world-class fishing lodge – located in a remote cove just a few hundred yards from the Pacific Ocean – is one of my favorite places on Earth.
And it's one of the most remote places I've been... requiring a one-hour private flight from Vancouver, Canada and an additional 20-minute chopper from Port Hardy. You can't get there by land. And there's no cell service.
That's why it's so great.
In three weeks, members of The Atlas 400 are returning to nature's "Shangri-La."
We'll fill our five-day trip at Nimmo Bay with sea kayaking, glacier trekking, guided wilderness tours, fly-fishing, and much more. We've arranged exclusive use of the lodge... so we can do whatever we'd like.
But what really has members excited is that the lodge comes with the aforementioned fleet of helicopters. They'll take members to the best fishing locations... the tops of the most scenic ridgelines... and the middle of massive glaciers.
If you think this trip sounds exciting, listen to what we have planned for November...
We're headed to the lowest latitudinal point on Earth – the South Pole.
This is not the Antarctica trip that 37,000 tourists visit annually. It's the South Pole adventure that fewer than 75 people in the world get to experience each year.
Our itinerary is completely tailor-made. Only a few hundred people in history have had the opportunity to explore Antarctica in such fashion.
We're flying from Cape Town, South Africa on a Gulfstream V. On descent, we'll watch night turn to day as we pass into 24 hours of sunshine.
Our camp consists of 12 "sleeping pods"... heated fiberglass domes with bamboo headboards, Saarinen chairs, fur throws, and en suite bathrooms stocked with sustainable toiletries created by a scion of the Rothschild family. Wooden skis adorn the walls. Thick parkas for each guest hang from freestanding coat racks.
Each suite stands alone on a rugged strip of land in the interior of Antarctica, midway between a frozen lake and towering walls of ice.
The lodge's lounge and dining room are a more formal affair. Fur throws cover chairs that wouldn't feel out of place in a Brooklyn Heights apartment. After spending our day hanging out with 6,000 emperor penguins, this is where we'll share three-course meals comprising ingredients and wines flown in from Cape Town.
And we won't want to miss a single meal... The in-house chef boasts a Michelin star.
Our professional polar explorers will guide us through each day's custom itinerary... gentle treks and picnics overlooking ice waves... adrenalin-fueled activities, like kite-skiing and ice climbing.
But keep in mind, these trips are merely the best way to facilitate the true meaning of The Atlas 400.
The real reason these trips are so special is because of our members.
It has been a busy year for the club. We've already taken five trips, our rosters filled with old members, new members, spouses, and guests.
What has stuck out more so than any vista or activity is the compliment I've received over and over again from first-time travelers, "I'm so impressed at your ability to attract such high-quality people."
It's incredibly rewarding to hear.
At one point during an evening on our June trip to the Galapagos, I paused to look around and saw all these happy people engaged in interesting conversations and building relationships with folks that they would have never met before.
Yet here they were, excited and buzzing. It's incredible to feed on all that positive energy.
It has become clear to me that good people want to be around other good people.
You see, our goal is simple. We're building a network of friends... people who are like you... who love ideas and adventure, have never conformed or settled, and don't want to be like others.
It's simply about finding out how good life can be, together. That's The Atlas 400.
To learn more about membership in The Atlas 400, click here. Or feel free to reach out to me directly at gzurbruegg@theatlas400.com. I look forward to hearing from you. And who knows what adventures we'll share in the future...
Regards,
Gray Zurbruegg
President, The Atlas 400