A 'Shocking' Update From Doc Eifrig

Finally, a little good news for housing... Two reasons Steve Sjuggerud remains bullish today... A 'shocking' update from Doc Eifrig... Why he's going short for the first time... In the mailbag: A wonderful letter from a longtime subscriber...

We'll begin today with a little good news for housing...

As regular Digest readers know, the U.S. housing market has been showing signs of slowing for nearly a year. And several data points from December – including existing home sales, pending home sales, and housing starts – suggested this slowdown was accelerating into the end of the year.

However, the latest round of data from January provided some reason for optimism...

Existing home sales were extremely weak once again. They fell another 1.2% month-over-month in January to a fresh three-year low.

But pending home sales – an indicator of closings one to two months in the future – improved on a monthly basis for the first time since last summer. And housing starts jumped by the most in nearly three years. As the Wall Street Journal reported late last week...

Housing starts rose 18.6% in January from the prior month to a seasonally adjusted annual rate of 1.230 million, the Commerce Department said Friday. Residential building permits, which can signal how much construction is in the pipeline, rose a more modest 1.4% from December to an annual pace of 1.345 million...

Housing-starts data are volatile from month to month and can be subject to large revisions. Despite volatility in recent months, Mike Fratantoni, chief economist at the Mortgage Bankers Association, said that a 4.5% year-over-year increase in single-family units is a promising sign for the housing market.

This rebound has followed a significant pullback in mortgage rates...

After rising from roughly 4% in January 2018 to nearly 5% last November, the average rate on a 30-year, fixed-rate mortgage has now fallen back to near 4.4% today.

It's still early, of course. But barring another sharp move higher in interest rates, these data suggest the housing boom could still have some legs.

You can count our colleague Steve Sjuggerud among those who remain bullish today...

He shared his latest thoughts on housing with True Wealth subscribers back in January.

While Steve admits housing is no longer the "generational opportunity" it was back in 2012, he believes there's still plenty of potential upside left. In particular, he says two important bullish tailwinds remain intact today.

First, despite higher mortgage rates, he says housing remains relatively affordable today. From the issue...

Affordability looks at a few figures (home prices, interest rates, and incomes) to determine if average folks can afford a home or not.

When home prices and interest rates rise – like they have in recent years – affordability falls. And if affordability gets too low, folks simply can't afford to buy. That's an obvious sign of a housing slowdown. But today's situation isn't nearly as dire as you might expect.

The chart below shows housing affordability over the last few decades. Today's market isn't as affordable as recent years, but housing is far from out of reach. Take a look...

Historically, housing affordability has averaged a reading of around 140. And despite a dramatic decline in affordability in recent years, current levels remain above long-term averages.

Steve also believes that basic supply and demand still suggests higher prices are likely as well...

Despite a strong rebound over the past several years, both housing starts and existing housing supply remain historically low today. More from Steve...

New housing starts plunged after the housing crisis. They hit all-time lows after the bust and have recovered consistently since then. But despite the rise in starts over the past decade, the number of new homes is still going up at a slower-than-normal pace.

Housing starts have averaged more than 1.4 million per year since 1959. Today's pace is just 1.26 million... And as the chart shows, that leaves plenty of room before we even hit the average pace.

And as Steve explained, this slowdown in homebuilding has led to a dearth of existing homes on the market. He shared the following chart, which shows how many months it would take to sell the entire supply of available homes today, based on current sales rates...

As you can see, existing housing supply soared after the housing bust a decade ago. But today, it's nearly non-existent. It would take less than four months to deplete the entire inventory at the current rate.

With low supply, Steve says we're almost certain to see higher housing prices. And he believes homebuilders are in a great position to continue growing. After all, if the U.S. needs more houses, those companies are the ones that will meet the demand.

In the issue, Steve recommended shares of the single-best homebuilder in the market today...

It's a name that should sound familiar to longtime Digest readers. As Steve explained...

I wish I could take all the credit for this idea. But I've got to share the spotlight...

You see, my team and I identified the big-picture opportunity in housing and homebuilders. But it was my partner and friend Porter Stansberry who correctly identified the absolute best homebuilder.

He did it more than a decade ago. But the idea he wrote about back then is still a great opportunity today.

That company is NVR (NVR). And as Porter correctly identified in October 2007 in his Stansberry's Investment Advisory newsletter, "NVR is not only the best company in the homebuilder sector, it is one of the truly exceptional businesses in the world."

As you may recall, NVR's capital-efficient business model offers some unique advantages...

Here's how Porter explained it back in 2007...

NVR pioneered a "land-lite" homebuilding business model. While most homebuilders buy vast tracts of land and develop them over years, NVR doesn't own any raw land – none. Instead it options finished lots from land developers that specialize in cutting lots.

NVR pays the developer a small deposit up front to hold the lots and pays the rest only when it's ready to start building homes. As a result, NVR only maintains a small amount of lot inventory compared to other builders.

In short, NVR is an ideal "late cycle" housing investment. It should do incredibly well if the housing boom continues as Steve expects. But it is also better insulated than any other homebuilder... should last year's weakness resume.

Of course, this doesn't mean the stock can't go down. It fell along with other homebuilders last year. But it tends to fall less, and as Steve noted, its "asset-light" business means the company will never go bankrupt because of a housing bust.

Better yet, thanks to last year's weakness, the company was cheap and hated, and – as of January – back in a clear uptrend for the first time in more than a year.

True Wealth subscribers who followed Steve's advice are already doing well. Shares are up more than 8% in a little less than two months so far. But if you weren't among them, it's not too late to get in on this trade... Steve still rates NVR a "buy" today.

Switching gears, regular readers know our colleague Dr. David 'Doc' Eifrig has grown more cautious lately...

While he was not yet predicting a bear market or a recession, Doc did advise his readers to raise some cash and increase their exposure to gold for the first time since the long bull market began.

And this week, he went even further...

In the latest issue of his Advanced Options advisory, just published yesterday, Doc did something he's never done before in his decadelong newsletter-writing career. As he explained...

If you've been following my work for long, you may be shocked at the recommendation we're making in today's issue...

Today, we're going short.

I started writing Retirement Millionaire back in 2008. If you've been with me since the beginning, you'll know I was one of the biggest supporters of this bull market. Over the years, I've often sounded like a broken record... "The economy is still strong... This bull market still has room to run... You need to buy stocks now."

[But] my tone has changed over the past few months. I can see we're closer to the end of this bull market than the beginning.

Now before you get too worried, there's something you should know...

Doc is still not predicting an imminent recession or stock market crash.

Instead, his first-ever short recommendation was due to an important near-term concern... He believes the market is due for a sharp pullback.

In the issue, Doc went on to note that the benchmark S&P 500 Index is up more than 10% so far this year. At that rate, the market would return nearly 75% for the year. This is nearly double the largest annual gain for the S&P 500 in history... a 45% gain in 1933, coming off the lows of the Great Depression.

This is not likely to happen... which means the market's pace must slow. And when the market pulls back, Doc wants his subscribers to profit from the move.

As Doc noted, though, successful shorting is difficult...

To really nail a short sale, you must have a solid reason to think the market will fall. And ideally, you need a "crappy" company that's likely to underperform the market regardless.

Fortunately, Doc says we can meet both of those criteria today. The market is extremely "overheated" and due for at least a short-term pullback. And he and his team have identified an ideal short candidate... It's in a dying industry, has products hardly anyone uses, and is loaded with debt.

Of course, since it's Advanced Options, Doc recommended a unique way to take advantage...

It could allow subscribers to earn bigger, faster returns than shorting a stock the usual way... while also risking less of your money than simply buying put options like many folks do.

All told, Doc believes Advanced Options subscribers could lock in gains of as much as 233% over the next two months, while risking as little as $75 on the trade.

And as usual in Advanced Options, Doc provided all the necessary education as well, so even a total novice can make this trade with confidence.

If you're looking for a relatively low-risk way to "hedge" your portfolio for a broad-market pullback – or you're simply interested in adding a new short strategy to your investing "toolkit" – this month's issue of Advanced Options is a great place to start. Click here to learn more about a subscription.

New 52-week highs (as of 3/11/19): Equity Commonwealth (EQC), Essex Property Trust (ESS), Invesco Value Municipal Income Trust (IIM), Ionis Pharmaceuticals (IONS), Nestlé (NSRGY), Nuveen Municipal Value Fund (NUV), and New York Times (NYT).

In today's mailbag, a longtime subscriber shares one of the best letters we've received in some time. Send your comments, questions, and concerns to feedback@stansberryresearch.com. As always, we can't provide individual investment advice, but we read every word.

"Porter, a letter of thanks to you. After reading [Monday's] Digest combining the main read about debt with a mail bag mention of 'free stock picks,' I felt compelled to relay my story to you in order to thank you and your staff for what you have done in my life.

"I have subscribed to at least one of your newsletters for almost ten years now. Why? Well initially, it was guilt. Way back around 2006 or so I was reading some of Bill Bonner's online stuff, articles etc. and somehow ended up discovering your free daily newsletter, DailyWealth. I began reading it daily (along with your other now defunct daily newsletter, GrowthStockWire).

"The amount of information, business education, personal finance, stock picks, how-to's on selling options and overall market analysis was absolutely fantastic! I learned how to sell options (puts and covered calls) just from DailyWealth alone when Doc would guest write. I have been selling them on my own since 2009 (Doc, I WILL eventually subscribe to Retirement Trader).

"There was so much information not to mention stock picks, and even sector picks (buy natural gas NOW!) that as I began making money – and at the same time feeling more confident in my investing – I could not believe it was all free! So, I eventually opened up the wallet and subscribed to Stansberry's Investment Advisory purely out of guilt, because I felt I owed you something for all the education in your free newsletters. That's when things really took off.

"Now fast forward to now. Over the years that I have subscribed, I have used your info and training and methods to actually break even during 2008, pay for my 2 sons to go to and graduate from private school, pad my retirement accounts, pay off ALL my bills including 3 cars in that time, and last month I PAID OFF MY MORTGAGE!

"I am now 50 years old and tonight, reading about the couple in your Digest made me want to cry for those folks, even if it was their own doing. They are a microcosm of everything I see today. When I started my journey toward financial independence about 10 years ago, I was a bit envious of people my age living in big houses and driving way nicer cars. But with my wife by my side and reading Porter (and Doc and Steve) every night I was able to break free of the trap. Now, patience and diligence has paid off for me. I am trying to point some of my friends toward you and others who teach investing while staying balanced with keeping debt under control and refining proper financial savvy.

"Anyhow Porter, I feel like a kid again, my wife and I are planning trips, while still investing and following your information. So glad to hear your health is improving. You look great in the picture you included in one of your recent Digests. God bless you and your family. And thanks again." – Paid-up subscriber Mike S.

Porter comment: It's people like Mike that led Steve Sjuggerud and me into this business and away from Wall Street 23 years ago. Lots of people questioned us back then...

"Why would two young guys like yourselves, with so much going for you, want to write a newsletter that no one will ever read?"

But we saw what investment newsletters should be: a sincere and thorough attempt to serve subscribers with the kind of information and insight that nobody else has an incentive to publish. We love investing. The markets are a constant intellectual and emotional challenge for us. But we love helping people like Mike even more.

Mike, thanks for taking the time to write. And thank you for giving us and everyone else at Stansberry Research the opportunity to serve you faithfully for so many years.

Regards,

Justin Brill
Baltimore, Maryland
March 12, 2019