A major misunderstanding...

A major misunderstanding... It's all about the timing... ECB cuts rates... Euro falls and stocks rise... When you'll make the biggest gains... CVS hits an all-time high... Will the world wake up to major geopolitical risks?...​
 

 It has been one of the biggest misunderstandings in our business...

 

For years, Porter has urged readers to proceed with caution – while still making his Investment Advisory subscribers a fortune in everything from the shale boom to insurance stocks. As regular Digest readers know, Porter is worried the massive amount of debt taken on by the U.S. government will eventually cause the world to lose faith in the U.S. dollar – a thesis he calls the "End of America," which he believes will lead to rising interest rates and falling stock prices.

 

 Steve Sjuggerud, on the other hand, has been a raging bull. He predicted the Federal Reserve's quantitative easing would cause the "Bernanke Asset Bubble" – an across-the-board inflation of asset prices of all kinds. Likewise, his subscribers made a fortune... Including gains of 167% on private-equity company Blackstone Group, 304% in health care stocks, and 134% in technology stocks.

 

We dedicated the August 21, 2013 Digest to Porter and Steve's debate. To sum it up, Porter and Steve agreed on the fundamentals... They simply disagreed on timing. As we wrote in that Digest...

 

In many ways, Steve and Porter agree on how this will all play out... the debate is more about when it will start to unfold. Steve knows this rally will end... And he agrees interest rates are heading higher.   But he has a longer time frame than Porter... And he thinks big profits are still available in stocks and real estate.

 

 Steve further discussed the topic in today's DailyWealth, titled "I Don't Like You, Steve." Steve is still worried about our government's debts... And he still thinks we have an opportunity to make big money in the market. As he wrote...

 

Porter and I are on the same page, for sure. The only question is timing... I believe asset prices can still go up – possibly a lot – before it's time to batten down the hatches. I have said this for a while. But I am sitting tight.   "Men who can both be right and sit tight are uncommon," Jesse Livermore explained in the classic 1923 investing book Reminiscences of a Stock Operator, explaining how to REALLY make money in the markets. "It was never my thinking that made the big money for me," Livermore explained. "It always was my sitting."

 

 As Steve has explained many times, the big money is made just before the blow-off top... For example, in late 1999, the Nasdaq soared about 80% in five months before peaking in March 2000. We also recently wrote a Digest about making money in bubbles (and why we're not there yet).

 

 Steve is still finding pockets of value around the world... and making big gains for his True Wealth subscribers. He recommended small-cap Indian stocks and a gold company in January... They're up 54% and 40%, respectively.

 

He has also recommended readers move some of their portfolio into hard assets like precious metals and agricultural assets.

 

 But Steve's biggest prediction this year is that the Bernanke Asset Bubble would cross the Atlantic... And Bernanke's European counterpart – European Central Bank (ECB) President Mario Draghi – would inflate European equities and destroy the euro.

 

Why the bold prediction? Well, Draghi told the world he was going to do everything in his power to boost the European economy and weaken the euro. We don't have much faith in central bankers... But when they say they're going to print money and lower interest rates to destroy a currency, it pays to get on board.

 

 Today, we learned Draghi wasn't bluffing...

 

At its meeting in Frankfurt, Germany, the ECB announced it would cut interest rates by 10 basis points across the board. (A basis point is one-hundredth of 1%.) The benchmark interest rate is now 0.05%, down from 0.15%.

 

And now banks have to pay the ECB even more to park cash there... Deposit rates were already at -0.1%. Going forward, the rate is -0.2% (meaning banks pay 20 basis points for the safety of depositing rate with the central bank).

 

 In other words, banks can borrow money even cheaper now... And they're even more incentivized (via negative deposit rates) to lend that money out.

 

Additionally, Draghi said the ECB will start purchasing asset-backed securities (bundled debt products) in October. He also said the ECB may start buying government bonds – outright quantitative easing (QE).

 

So the ECB is doing everything in its power to force investors to pour money into the European economy... The Draghi Asset Bubble is in full effect.

 

 That money has already found its way into European government bonds (remember, as bond prices rise, yields decline)... Yields on Italian 10-year bonds fell 11 basis points to 2.36%. Spanish 10-year bonds dropped 11 basis points to 2.16%.

 

It's also moving into European equities... Steve's top way to play European stocks (which hedges out the euro's decline) was up more than 1.6% as of midday trading.

 

Draghi also caused the euro to fall to $1.2995 versus the U.S. dollar… its lowest level in more than a year.

 

 For now, the market marches upward... And we still have gains ahead.

 

In the latest issue of True Wealth, Steve reiterated his call to "stay the course" and not fight the trend...

 

Looking at the big picture, our investment script is largely unchanged... This great bull market in U.S. stocks and real estate – largely driven by zero-percent interest rates around the globe – should continue.   Why? Because the "free money" from central banks (in the form of zero-percent interest rates) will continue.   Don't make it more complicated than that. Play the hand you're dealt. The world's central banks are dealing out money, and they want to see that money push asset prices higher. Oblige them! Continue to hold (and buy) U.S. stocks and property.   Yes, we are getting into the late innings of this great boom... But the biggest fireworks usually happen in the final innings. You definitely want to be on board for that. This boom will end someday... Booms always do.

 

 However, Steve has pinpointed a date early next year when he believes his investment script will change... It's the beginning of the "ninth inning."

 

If Steve is right, after this date, the easy money will be over... and the risks of staying in stocks will increase. However, after this date, Steve believes properly positioned investors will make their biggest gains yet... That's when the "blow-off top" will come.

 

But it's important to be in the right assets... And Steve has prepared a new report to share the details. We're making it available for the first time today. To get the full details, click here.

 

 Now, onto today's market updates...

 

Pharmacy giant CVS Caremark (CVS) hit an all-time high of $81.16 today. Dr. David "Doc" Eifrig recommended CVS in the June 2011 issue of Retirement Millionaire as a way to profit from our aging population's need for prescription drugs...

 

Older people use three to four times the amount of prescription drugs as folks under 50. And more than 30 million people will gain Medicare coverage by 2014. This means an increasing number of written prescriptions.   The pharmacy benefits management (PBM) business of Caremark is growing as employers and government look for ways to get cheaper drugs (generics) and manage the prescription and drug costs more efficiently. 75% of the U.S. population lives within three miles of a CVS store.

 

 Yesterday, CVS went a step further to market itself toward aging Baby Boomers. The pharmacy chain announced it would change its name to CVS Health to more accurately reflect the company's operations.

 

CVS is no longer just a pharmacy... though it has 7,700 retail locations. It is a pharmacy-benefits manager, with nearly 65 million plan members. CVS also has 900 walk-in medical clinics called CVS Minute Clinics. And it's growing its specialty pharmacy services, CVS Specialty – a team of nurses and pharmacists who provide care to people with complex conditions.

 

 As we wrote in the February 5 Digest, CVS announced last September that it would stop selling tobacco products. It was the only national pharmacy to do so. And now we know why... The company said in a press release the move is a demonstration of its commitment to the health and wellbeing of its customers.

 

That strategy is working in Retirement Millionaire subscribers' favor... They're up 117% on CVS to date.

 

 Earlier this week, Russian President Vladimir Putin announced a seven-point peace plan to end the conflict in Ukraine. Is this the real thing? The Russian stock market, which bounced more than 5% on Wednesday, seemed to think so.

 

S&A Global Contrarian editor Kim Iskyan sent us a brief update on the latest...

 

Talking about peace was a sharp turnaround from what has been going on. In recent weeks, fighting has intensified between separatist rebels (who most believe have Russian support) and Ukraine's military. Ukraine's defense minister said last week that Russia was launching a "full-scale invasion."   Putin casually reminded listeners that Russia has nuclear weapons... and was quoted as saying that Russia could take control of Ukraine's capital (Kiev) in two weeks. He recently called for a discussion about granting statehood to southeastern Ukraine, which is at the epicenter of the conflict.   Putin's apparent sudden change of heart came days before the European Union (EU) said it would impose another round of sanctions on Russia. The U.S. wouldn't be far behind. Further sanctions would likely include measures to make it more difficult for Russian companies to raise capital in Western markets. Russian exports – like vodka, caviar, and diamonds – to the West may also be banned. And there was even some preliminary talk about boycotting the 2018 World Cup, which Russia is set to host.   Ukraine matters less to the West than it does to Russia... Ukraine wasn't even on the U.S. or EU's radar until Putin started talking about annexing Ukrainian territory Crimea earlier this year. Despite the talk, sanctions on Russia won't be too tough.

 

 Kim doesn't think there's an easy solution to the conflict... He says Russia will hunker down for a long battle with Ukraine. And he doesn't think the U.S. or EU will back down for fear of being seen as "losers" in the conflict.

 

And while Russian stocks are as cheap as they've ever been (at a price-to-earnings ratio around 5), they could still get cheaper. As for the larger picture, Kim says the world may wake up to the massive geopolitical risks today...

 

The most serious conflict in Europe in decades in Ukraine between Cold War foes is just one situation that could spin out of control. There's a real risk of Iraq further deteriorating. Israel and Gaza are in the midst of a cease-fire, but there's no telling how long that will last. The deadly Ebola virus has so far stayed confined to a handful of African countries... Any spread to a major Western country could shake markets up.   And don't forget that the U.K. recently elevated its terrorist risk level to the second-highest level. On the U.S. domestic front, Congress is returning from its summer break, and midterm congressional elections could hold some unexpected surprises.

 New 52-week highs (as of 9/03/14): Activision Blizzard (ATVI), SPDR S&P BRIC 40 Fund (BIK), Bank of Montreal (BMO), CVS Caremark (CVS), Dollar General (DG), ProShares Ultra MSCI Emerging Markets Fund (EET), Energy Transfer Equity (ETE), iShares MSCI Australia Fund (EWA), Greenlight Capital Re (GLRE), KLA-Tencor (KLAC), ONEOK (OKE), ProShares Ultra Health Care Fund (RXL), Steel Dynamics (STLD), Sysco (SYY), Guggenheim China Real Estate Fund (TAO), Union Pacific (UNP), and ProShares Ultra FTSE China 25 Fund (XPP).

 

 In today's mailbag, a subscriber gives us his take on the "disappearing middle class" we've been writing about recently. Is the disappearing middle class affecting your lifestyle? Have you shopped at a discount retailer lately? Send your experiences and stories to feedback@stansberryresearch.com.

 

 "Hey guys, I have really enjoyed your recent research and commentary on the 'disappearing middle class' theme and, in particular, the commentaries and opinions concerning Dollar General and Family Dollar. I am in the retail packaging business and have plenty of experience in dealing with both companies directly. I think you are mostly on target with your analysis but have a few points of contention based on my knowledge of these retailers and common sense.

 

"First, the middle class is being re-shaped, not necessary disappearing, at least with regard to the DG/FD situation. I'll use myself as an example. I make a good living ($200k+ most years for the past 10 years). With 3 kids and wife, I'm warming up to the idea of purchasing consumer products from these yucky stores. Heck, I wish my wife would come around to the idea. They do sell the same brands for less in most cases. High income earners like me (no fat cats like you) will be sucked down into a lower lifestyle due to the de-valuation of the dollar. My income range won't necessarily benefit as much as those making $200k more than me from the insane monetary policies playing out in the market.

 

"Things are really tight in my household. We have to scratch for every advantage we can get, even if that means shopping for staple items at low-income stores such as these so that we can still afford private school for kids, occasional vacation, and some investments. Is it possible that enough people with similar income get sucked into the middle class that it doesn't significantly change in number?

 

"Second, I don't think Dollar General has a great advantage over Family Dollar in terms of store location. Just about every time I see a Dollar General store, I see a Family Dollar Store right across the street. I realize their strategies for determining store location are different but they always end up beside each other or right across the street from each other. What's the big advantage that DG has in store location? And, how can two very similar stores (same products, same format, same locations, etc.) become stronger when they consolidate? Don't you think they will shut down 1 of every 2 that exist when they become 1? And won't that lack of competition naturally make them less dominant? With total respect to your opinions based on your track record, I don't see how DG buying FD will result in a better business for DG long-term.

 

"And finally, your entire Advisory panel opening scoffs at the idea of ever entering these stores. Don't you think that giving advice strictly based on financial records alone is a bit short-sited? Shouldn't you experience the stores before giving investment advice? All this with total respect and admiration to you rich bastards for your great work and I do appreciate your advice on many investment ideas that have made me much wealthier..." – Paid-up subscriber Jason R.

 

Goldsmith comment: Thanks for the interesting perspective... Not all of us "scoff" at the idea of shopping at Dollar General. In fact, Stansberry's Investment Advisory analysts Bryan Beach and E.B. Tucker both visited many of Dollar General's retail locations. We love a good bargain.

 

Regards,

 

Sean Goldsmith

Baltimore, Maryland

September 4, 2014

 

John Doody: Why gold is likely headed higher from here...

 

In yesterday's edition of our "gold week" series, gold expert John Doody shared the criteria he uses to recommend gold stocks.

 

Today, he discusses the catalysts that should push gold higher from here... and how much of your money you should hold in gold...

 

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

John Doody: Why gold is likely headed higher from here...
 

Editor's note: In yesterday's edition of our "gold week" series, gold expert John Doody shared the criteria he uses to recommend gold stocks. Today, he discusses the catalysts that should push gold higher from here... and how much of your money you should hold in gold...

 

 

 We believe gold will be modestly higher in 2014 and 2015. Sometimes the stocks lead the metal, and sometimes the metal leads the stocks. In this case, not all of the stocks are leading the metal... but our "Top 10" has had a pretty good record so far this year.

 

On a related note, I think we saw a double-bottom in the high $1,100s, just under $1,200 per ounce. That sort of coincides with the absolute cost of getting the metal out of the ground without profit.

 

If it costs $1,200 to get the metal out of the ground and the price falls below that, you're not going to be able to keep mining it without depleting your cash. That bottom is pretty much in place. We're building a good base around $1,300, which represents a springboard to higher prices.

 

 Plus, we're moving into the best season for gold buying, because of the religious holidays and various festivals right now in Asia. And then we have the buying for Christmas gift-giving.

 

So the next few months are typically the strongest for gold, and I would expect we're going to get some higher movement ahead. Gold hits upward resistance just below $1,340, but if we can get through that, it's pretty clear sailing to $1,600, although it might take a little while to get there.

 

 Lately, gold has been performing a little bit better than silver. Silver is a derivative of gold. If gold goes nowhere, silver won't go anywhere on its own. It's a poor man's substitute for gold.

 

As gold moves higher, people start to look at silver as a way to play a higher gold market. We tell people never to put more than 20% of your precious-metals investments into silver. It's much more volatile than gold, and as a result, it's more risky.

 

I personally am 100% invested in gold through the precious-metal and gold stocks. Other people have more of a balanced approach. I think in general, the rule would be to hold 10% of your money in gold. A lot of our Gold Stock Analyst subscribers are much more heavily invested than 10%, but that is a good target for the casual investor who is looking for a diversified portfolio.

 

But frankly, this year, that would have been a pretty poor performance. The S&P 500 is up about 6% this year, and our Top 10 is up 69%. Gold is up 9% this year, so it has outperformed the S&P 500, too.

 

– John Doody

 

 

Editor's note: John's track record speaks for itself. This year, his Gold Stock Analyst "Top 10" stocks are up 69% versus the S&P 500's 6% return. And right now, he's offering a special 30-day trial exclusively for S&A subscribers. To learn more about a subscription to Gold Stock Analyst – and how to access John's current Top 10 list – click here.

John Doody: Why gold is likely headed higher from here...

 

In yesterday's edition of our "gold week" series, gold expert John Doody shared the criteria he uses to recommend gold stocks.

 

Today, he discusses the catalysts that should push gold higher from here... and how much of your money you should hold in gold...

 

To continue reading, scroll down or click here.