All's well... Our Dear Leader speaks... Violence in my streets... What to do right now... Sean from St. Maarten... Porter's latest... Einhorn and the FSA...
Everything is going to be just fine. The Federal Reserve is going to keep interest rates low forever. And Our Dear Leader Komrade Obama is going to subsidize more solar-panel companies.
So really, what are you worried about? It's practically your patriotic duty to buy stocks after yesterday's Fed meeting. Previously, the Fed said it expected to keep interest rates super-low until mid-2013. On Tuesday, it said... "How about we shoot for late-2014 before we start thinking about raising interest rates?"
Of course, the market rose on the news. At yesterday's peak, the S&P 500 was up 1% and closed up 0.8%.
The S&P 500 went up this morning, then backed off. It's almost like Mr. Market doesn't trust the Fed to follow through. Or worse, maybe Mr. Market does trust the Fed and knows its money-printing endeavors won't amount to a hill of real beans.
Did you see Our Dear Leader's address on Tuesday night? I tried to watch the whole thing. But, while I had enjoyed my dinner, I didn't want to taste it again. So I turned the TV off. I read the whole speech this morning. It was possibly the most jingoistic State of the Union address in at least a dozen years – Obama used the word "America" 87 times. (George W. Bush's record was 72 mentions.)
Obama started out like any good fascist, praising the military and telling us all we should be more like them. The police where I live are way ahead of Komrade Obama. They're taking target practice in my town's poor neighborhoods. (More on this in today's End of America Watch box.)
You can read Obama's speech here, so I won't detail the entire sordid paean to big government and the superiority of speech-making politicos. But if you want to know what Obama should have said, check in with John Stossel… one of the few reporters in America who consistently illuminates government interference in our lives.
As Stossel points out, one of the worst things Obama did Tuesday night was promise us "a blueprint for an economy." But there is no such thing as a blueprint for an economy. Blueprints destroy economies. Even Alan Greenspan knows that much...
Nobody tried harder to execute a flawed blueprint for the U.S. economy than Greenspan, who served as chairman of the Federal Reserve from 1987-2006... Yet Greenspan, like Stossel, made his own condemnation yesterday of the futility of government interference in the economy.
In an editorial published by the Financial Times, Greenspan said, "Meddle with the market at your peril." He decried crony capitalism as corruption, noting how poorly bankers managed their assets during the housing bubble. Greenspan conveniently never mentions his own culpability in creating the bubble.
He did point out the huge difference between East and West Germany, though. Anybody who sees what happened to those two economies while the Berlin Wall was up and believes there's anything better than a market economy for creating widespread prosperity is simply not paying attention. East Germany's planned economy fell apart and created widespread corruption and poverty. West Germany did just fine, thank you very much. I'm appalled there are adults in the world who don't understand the profound implications of this example.
So what are we supposed to do with our money now that we're guaranteed more Fed money-printing and more "economic blueprints" from Our Dear Leader? Nothing too different… I think you should keep focusing your equity purchases on the best businesses and be exceedingly careful about buying anything else. You should be certain to keep plenty of cash handy… not for investments, but for financial emergencies. And you definitely need to continue buying and holding plenty of physical gold and silver.
The Fed's announcement that low interest rates are likely to prevail longer than previously expected is simply its way of saying it intends to juice the system with money and see to it that plenty of cheap credit remains available… And that never works out well.
The juice is already starting to flow... Yesterday, the day after the Fed meeting… I went to make a deposit at the bank, and the teller offered me a credit card with 0% on balance transfers – for 18 months. That's never happened before… six or 12 months, yes... But not 18 months.
I shook my head and left the bank. Maybe I should have taken my deposit up to the coin shop to buy some Krugerrands. I visit the shop every month. Maybe I'll step that up to every two weeks...
Billionaire resource investor Eric Sprott gave some good reasons to expect gold to rise, including heavy buying by the Chinese and its use as currency in Iranian oil sales. He also says there's about seven times the physical amount of silver supply as gold... and that investors are buying silver at 50 times the amount of gold. If you like to speculate on gold and silver prices, Sprott thinks you're going to see some "serious fireworks" pretty soon.
As you could probably tell from Porter's poolside commentary yesterday, he isn't doing too much work while on vacation in St. Maarten. Yesterday, while I (Sean Goldsmith) was writing the Digest from the balcony above the pool, I called down to Porter with the news... "The Fed will keep rates at zero through 2014. Treasurys are down. Gold is up, and gold stocks are ripping."
In particular, the gold stock Porter recommended in his latest newsletter was up 7%. (On a side note, one of the titanium-dioxide stocks our hedge fund friend, Austin Root, told us about – Kronos – was also up a lot.)
In the most recent issue of Stansberry's Investment Advisory, Porter had just told readers he expects debt to remain high and commodities to soar this year…
|
As I look around at the world economy today, I see two dominant trends in place. First, the major Western economies are being impoverished by their debts and struggling to avoid a collapse via a desperate attempt to print their way out of perdition. Second, I see the rise of the world's largest future economy that's in the midst of a massive effort to buy gold and control its global market. |
|
These two trends will become much more apparent to world markets this year. So after urging extreme caution since February 2010, I am now ready to take several aggressive steps to capitalize on what I believe will be a "frothy" year in the markets – particularly in commodities. |
|
This year will be dominated by surges in economic activity around the world, on the heels of massive monetary stimulus. I want to reposition our portfolio from extremely bearish back to the long-inflation bias we had prior to February 2010. It's time to get long commodity-related stocks – gold, silver, and oil. It's also time to start preparing for what's likely to be a massive increase in inflation. |
Needless to say, the St. Maarten revelers received a live update on Porter's thesis for the next hour... Oh, and he also closed his short euro position for a 15% gain. The euro has rallied to $1.32 since then. To access Porter's latest issue, click here...
We received several e-mails yesterday asking about hedge-fund manager David Einhorn's $11 million fine from Britain's Financial Services Authority (FSA) for insider trading. Many asked if Einhorn's offense was anything like Steve Rattner's, the former Obama car czar. Rattner was fined for bribing people to invest in his private-equity firm, Quadrangle. That's blatant fraud.
Einhorn allegedly traded on inside information. According to the facts of the case, Einhorn learned British pub company Punch Taverns (one of his positions) was considering large equity fundraising. This prompted Einhorn to sell his shares. The company announced a capital raise of 375 million pounds and shares fell by 29.9%. His sale allowed Einhorn to avoid 5.8 million pounds in losses.
In his defense, Einhorn told his investors on a conference call, "It was unambiguous. Nothing had been decided. Nothing was imminent. I was told no decision had been made and Punch was simply exploring strategic alternatives [to raise capital]."
We don't know if Einhorn is guilty or innocent. We have met him several times. And he seems to be one of the most upstanding men we know in finance. And if Einhorn wasn't a fiduciary – a person legally authorized to hold assets in trust for another – he didn't have any obligation not to trade. But the laws surrounding insider trading are extremely nebulous... It's basically whatever the government says it is...
Even the FSA's case is flimsy... "The FSA accepted that Einhorn's trading was not deliberate because he did not believe that it was inside information. However, this was not a reasonable belief," the regulator said.
|
New 52-week highs (as of 1/25/12): PowerShares Buyback Achievers (PKW), Westport Innovations (WPRT), Automatic Data Processing (ADP), Monsanto (MON), Enterprise Products (EPD), Union Pacific (UNP), and Wal-Mart (WMT).
In today's mailbag… one subscriber gives us a ground-level view on our End of America thesis. Send your comments to feedback@stansberryresearch.com.
"Now that I have been an SIA subscriber for almost a year, I must say that I was particularly unmoved by the State of the Union address last night. Since SIA has kept me informed of the real state of the union, it really came to no surprise and I took the speech in stride for what it was... a promise to give everyone what they want except for those who are going to get soaked for it. Margaret Thatcher once said that socialism is great until you run out of other people's money.
"So while we are marching to Zion, that beautiful city on a hill somewhere, I would like to express a few monetary issue we are having here in Alabama... In our State, we have a balance budget amendment that will not allow for deficit spending. If we have a short fall in tax revenue, the budget must be cut to allow for diminished funds. Presently, we need to cut or, axe might be a better word, about $400 million which is about 25% of the budget. That means available money for roads, bridges, senior citizens, etc. will be cut in about half.
"Now this is not the first budget cut we've seen, but we're starting to get down to the bone on this one. We presently have 196 State agencies with duplication in some and so I expect a number of those to be cut, merged into other departments and possible suspension of some services. In addition, if Obamacare comes to Alabama in 2014, its going to cost us $1 billion annually... at least. That tells me that our present budget need to be cut from $1.6 billion to $1.2 billion only to be raised in 2014 to $2.2 billion to cover additional federal mandates. This will lead to a major tax increase and eventually more job losses and lower spending to offset the increase in taxes spirally ever downward.
"The decrease in State revenue is a function of our State's economy which is way down and I do know what I'm talking about. Where's the prosperity now? But then, the State may default on its Medicaid obligation and the federal government steps in to administrate the program and the State while they're here... maybe that's what they're really after – just another power grab.
"The thing I could never understand about socialism, fascism or communism, is that the folks at the top don't care if anyone below them has a pit to hiss in just as long as they maintain their position of power. What I always liked about capitalism is that they feel we are better workers when we're well fed and get to keep a larger portion of what we earn to spend on our family as we see fit.
"On another note, don't be too hard on Matt Badiali. The SA Resource Report happens to be one of my favorite newsletters. Sure, things last year were down more than we thought but commodities are volatile and I think his research is spot on. After I listened to Stansberry Radio, I admit there must be a little Rick Rule in me... I didn't sell off and they are slowly creeping up again. When the rest of the world finally catches on, Resource readers will be well rewarded. We just take a longer position to get in early if you can take the ups and downs." – Paid-up subscriber Dan
Ferris comment: It's refreshing to hear that you understand you must learn to deal with huge volatility if you're going to buy small mining stocks. I own some of these myself… and have made more money on them than any other stocks. If you wait until they get killed and buy them, you can make huge profits. And they've just been destroyed...
Also remember, our annual Report Card is about short-term performance, not competence. The report only tells you what recently happened. It can't tell you what will happen in the future. The Report Card will love me at the top and hate me at the bottom, just like all other rearview-mirror assessments. But to make money, you must never stop looking forward.
Matt knows plenty about mining and mining stocks. His work has helped me make many times my money more than once. The fact that he had one bad year means little. Everyone has bad years. Even if you're a great investor, one of the very best, you'll have bad years and good years. But overall, you'll make plenty of money. That's what I've seen in my own accounts and in the results of the best investors. It's a marathon, not a sprint.
"In the last couple of weeks I paid $ 10,000 plus for a lifetime membership. Since we all know the world will end December 21, 2012, I followed the advice in that lifetime membership like there was no tomorrow... result I am up some $35,000 in 14 days. – Paid-up subscriber WC
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Philipsburg, St. Maarten
January 26, 2012