A Repeat of Last Fall's 18% Decline?
Moody's echoes our warning... Huge news for silver... A repeat of last fall's 18% decline?... For a limited time, access our most popular trading site for FREE... Reader feedback: Following Jeff Clark's advice...
Seven out of eight of these "safe" investments could be in trouble...
So says ratings agency Moody's, which yesterday warned that nearly 700 out of the 800 collateralized loan obligations ("CLOs") it rates contain debt from troubled drug company Valeant Pharmaceuticals (VRX).
This should sound familiar to regular Digest readers...
As we explained last week, Valeant loans are the most widely held debt in CLOs issued since the financial crisis.
Again, CLOs are a type of "securitized" asset, where debt – in this case, business loans – are pooled together, sliced up into tiers, and sold off to investors. This process is incredibly complicated, but a key point to understand is that it allows managers to package up lower-quality debt (much of which is rated worse than investment-grade) and sell it to investors as higher-quality – even "triple-A"-rated – debt.
According to Moody's, Valeant loans make up an average of 1.1% of all CLOs outstanding... with some individual CLOs holding as much as 5%.
Making matters worse, many of these same CLOs hold some other "unsavory" debt as well. From the Moody's report...
A large majority of outstanding U.S. CLOs will feel a negative effect from Valeant's woes... Several CLOs with large exposures to Valeant are also among the most heavily exposed to the oil and gas industry, particularly the exploration and production and oilfield services sectors, which have been in turmoil since last year.
If Valeant defaults, there's no telling how far the losses may spread.
And while things still look grim for the credit markets, we're seeing potentially great news for silver...
As longtime readers know, the "gold-to-silver ratio" is a measure of how many ounces of silver you can buy with one ounce of gold. It serves as a rough way to determine value between the two precious metals. When the ratio is low, gold is relatively cheap. When the ratio is high, silver is relatively cheap.
We should note there is some disagreement about the "normal" value of this ratio. For most of history, one ounce of gold would buy you an average of about 16 ounces of silver (which is reportedly close to the natural 17.5-to-1 ratio of silver to gold found in the Earth's crust). Over the past 30 or so years, the ratio has stayed higher, averaging somewhere around 50.
Still, extremes in this ratio can be useful indicators...
For example, late last month, the gold-to-silver ratio jumped above 80 for the first time since the 2008 financial crisis. Last week, it reversed and fell back below.
As you can see in the chart below, this has happened only two other times in the last 16 years...
In each of those instances, silver dramatically outperformed gold over the next few years... Following 2003's signal, silver rallied 182% (compared with 69% in gold). Following 2008's signal, silver soared an incredible 407% (versus a 105% rise for gold).
Silver has lagged gold since both metals peaked in 2011. This latest signal suggests that trend is now reversing... and it's one more sign the long bear market could finally be over.
Yesterday, we noted that our colleague Jeff Clark recently warned his Stansberry Short Report subscribers about multiple signs of an impending decline. Today, he shared several more.
In addition to seeing even more technical indicators hitting overbought extremes, Jeff says the market appears to be repeating the same pattern that led to last fall's declines. As he wrote in the latest issue of the Stansberry Short Report, published this morning...
The bounce off the February lows has the exact same characteristics as the rally we saw last October...
Both rallies started from deeply oversold levels following a sharp selloff in the stock market. Both formed dangerous rising-wedge patterns on the chart. And both pushed the daily momentum indicators – like the moving average convergence divergence ("MACD") indicator, relative strength index ("RSI"), and full stochastics – into extreme overbought territory.
If the similarities continue, the stock market is likely headed for a rough period – starting soon.
As we mentioned yesterday, no one has a better bear market track record than Jeff... 2008 was the single best year of his career. But you don't have to take our word for it...
Because we want to give every subscriber an opportunity to learn more about his trading strategies (and hopefully, convince you to give his service a try), we're doing something we've never done before.
We've set up a special site where all interested readers can get unprecedented access to Jeff's research... absolutely FREE.
For the next few days only, you can view Jeff's training video explaining the basics of options trading... review his strategies for profiting from bear markets... and even follow along with his exclusive, subscriber-only Direct Line service, which provides regular, real-time market updates throughout the trading day. Click here to access it for free.
New 52-week highs (as of 3/21/16): Kaminak Gold (KAM.V), PNC Financial Services – Series P (PNC-PP), Travelers (TRV), and Wells Fargo – Series W (WFC-PW).
In the mailbag, one subscriber weighs in on the oil market... and several more share their thoughts on Jeff Clark and his Stansberry Short Report service. Have you followed Jeff's recommendations lately? Let us know how you've done at feedback@stansberryresearch.com.
"Just a short note from Texas. Your Digest states that some new production is coming on line and I want to confirm that for me two new wells came on line in the Permian Basin this past month with Pioneer that were a surprise and welcome news. Both were horizontal and were in the well established Spraberry Trend area southeast of Midland.
"While I have made no attempt to get drilling plans from the company my news is the result of drilling which started several weeks ago. These wells are on leases I obtained an interest in almost 40 years ago and have been held by production for that period. Since "luck" is not in my dictionary, I attribute this news to a gracious Lord who provides good things.
"This is my 40th anniversary in the P&C insurance business so I can't decide which has been the greatest blessing, oil and gas or insurance. I enjoy your work. You may be a little early on the debt bubble, but I think you are right... I prefer to be early than late on commitments in investing." – Paid-up subscriber David B.
"I read [Jeff Clark's] daily posts religiously and do many of his trades. The key thing is that he has a great feel for market trends. I use his ideas to adjust my portfolio." – Paid-up subscriber J.M.
"I'm a new Alliance member and Jeff Clark's work was a big part of my decision to join. I've been enjoying and, more importantly, benefiting from several Stansberry Research products for the past several months. I took the opportunity to sample all the Stansberry services during the Flex Open House. The problem was I wanted to continue receiving more than five products and I didn't want to abuse the Flex program.
"During the Open House, I took advantage of one of Jeff's long trades in ESPR. Made a quick $2,500 in a few days which made the initial Alliance membership fee even more palatable to me and more justifiable to my wife. Now I get to enjoy Jeff, Ben Morris, and others in addition to what I was already getting from Porter, Steve, and Doc. Looking forward to meeting other Alliance members next month in Miami and Tampa. Thanks for all you do and keep up the good work!" – Paid-up subscriber John Restaino
"Jeff, just wanted to give a quick thank you for all you do. From your Options Training videos to the Stansberry Short Report, and down to the Direct Line, I utilize everything on a regular basis. In particular, the Direct Line has become my main source for the short term pulse on the broad market which I use for shorter term trades as well and entry and exit points for my longer term positions. I'm not a blind follower on every trade you recommend but you definitely give me further confirmation on thesis that I am following. Thanks again for all you do." – Paid-up subscriber Scott H.
Regards,
Justin Brill
Baltimore, Maryland
March 22, 2016
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