An unprecedented shift in the retirement industry...
An unprecedented shift in the retirement industry... Big news for Europe... A warning from the 'Buffett Indicator'... Two blue chips go 'on sale'... This could become the biggest winner in Stansberry Research history...
For the first time in history, American savers are withdrawing more money from 401(k) plans than they're adding in new contributions...
According to a report in the Wall Street Journal, investors took out a net $11.4 billion from these plans in 2013 (the most recent data available). The shift is being driven by a surge of "Baby Boomers" hitting retirement age, and is only expected to accelerate over the next 10 years as more folks retire.
This is bad news for large money-management companies that earn fees for operating these plans... But it could ultimately be good news for investors. These companies will likely be forced to lower fees and offer better investment choices to entice more folks to invest in their plans.
But the news also confirms some troubling facts: Americans in general aren't saving enough for retirement. Worse, many are missing out on the single best opportunity to easily save more. They're throwing away free money...
Our colleague Dr. David "Doc" Eifrig has been urging readers to take advantage of this opportunity for years. As Doc explained...
If you're like the vast majority of Americans, chances are good that you're flushing money down the drain right now. Most U.S. employers offer a simple way for workers to immediately boost their income. It takes no effort beyond filling out a simple form. Yet nearly two-thirds of Americans say, "Thanks, but no thanks." It's pure laziness…
One of the easiest decisions you can make in retirement investing is enrolling in your 401(k) plan. If your employer offers any sort of matching plan, this is an investment that simply can't be beat. It's literally free money. There is no better strategy out there than letting someone else enlarge your deposits and compounding it tax-free. Here at my company, employees earn an immediate 50% return on the first 6% they tuck away for retirement. Many companies across the country work the same way.
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Fortunately, taking advantage of your 401(k) isn't nearly as complicated as most people think. Doc says there are only three things you really need to think about:
1. Proper asset allocation
2. Minimizing the fees you pay
3. Taking advantage of low-cost index funds when possible
In the June issue of Retirement Millionaire, Doc made it even easier for folks to take his advice. He walked subscribers through a simple step-by-step plan to set up a low-cost 401(k) plan. Doc says readers who follow his advice could earn an additional six figures for retirement with no additional work.
If you aren't taking advantage of your company's 401(k) plan, we urge you to start today.
Doc's Retirement Millionaire subscribers can access the June issue right here. And if you're not yet a Retirement Millionaire subscriber, you can access a great free summary of Doc's advice in last Friday's DailyWealth.
Greek worries are making headlines again today...
As we noted yesterday, Greek Prime Minister Alexis Tsipras is refusing to accept the latest demands for a new bailout from the European Union (EU). As a result, markets are selling off.
The general fear is that Greece will be forced to leave the euro, which could result in unexpected losses elsewhere – such as in banks that hold European debt – and could lead other highly indebted countries like Italy, Spain, and Portugal to leave the euro, too.
We can't say how the latest standoff will end. We don't have a crystal ball. But as our colleague Paul Mampilly noted yesterday, it's in Europe's best interest to keep Greece in the EU... and most Greeks want to stay. We wouldn't be surprised if they strike a deal.
Meanwhile, a potentially much more important story for the European markets received less attention today...
This morning, Europe's highest court – The EU Court of Justice – ruled that one of the most controversial parts of the European Central Bank's (ECB) "quantitative easing" bond-buying program is legal.
Longtime Digest readers know the ECB started its own version of quantitative easing ("QE") in March. Since then, the ECB has been buying 60 billion euros of bonds per month.
But the area's first bond-buying program was originally announced during the peak of the euro crisis in September 2012, when ECB head Mario Draghi promised to do "whatever it takes" to save the euro.
This plan involved a program known as "Outright Monetary Transactions," or OMT, that has never been used. In short, OMT would allow the ECB to buy government bonds – including those of troubled "periphery" countries like Greece – in unlimited quantities if necessary.
Just the announcement of the program was enough to reassure markets at the time, and the ECB never used it. It has been working its way through European courts ever since.
Today's ruling gives the ECB legal cover to step in and buy unlimited quantities of bonds should the Greek crisis grow worse.
As we've mentioned several times recently, True Wealth editor Steve Sjuggerud is bullish on Europe. He believes Draghi is determined to engineer his own version of the "Bernanke Asset Bubble" in Europe. Today's news is just one more reason to believe he'll be successful.
Back in the U.S., we have another reason to be cautious on stocks...
The so-called "Buffett Indicator" – referring to legendary investor Warren Buffett – is flashing a warning.
In the past, Buffett has said his preferred measure for deciding if the market is expensive or cheap is the ratio of the value of all publicly traded stocks in the U.S. divided by the country's gross national product ("GNP").
According to the Wall Street Journal, the Buffett Indicator says stocks are more expensive than they have been in years. From the article...
As of the end of the first quarter, the market capitalization of the companies listed on the New York Stock Exchange and the Nasdaq is about 150%, or 1.5, of GNP. By that calculation, the metric some have called the "Buffett Indicator" is now at its highest level since the dot-com era and above its historic norm of 119% over the past two decades.
"If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well," the Berkshire Hathaway Inc. chairman wrote in a 2001 essay co-authored by his longtime friend, Fortune journalist Carol Loomis. "If the ratio approaches 200% – as it did in 1999 and a part of 2000 – you are playing with fire."
Of course, while many stocks are expensive today, there are still some good bargains available... if you know where to look. Two blue-chip stocks have gone "on sale" recently... and several Stansberry Research analysts have noticed...
One of those companies is Wal-Mart (WMT). The retail giant is in the midst of its biggest pullback since the financial crisis in 2008...
As Steve Sjuggerud noted last week in his True Wealth Systems Market Extremes, Wal-Mart shares are trading at a 24% discount to the S&P 500 on a price-to-earnings (P/E) basis. "That's the largest discount we've seen since Wal-Mart's financial-crisis crash," he wrote.
Steve says Wal-Mart shares are cheap, but he's not ready to buy just yet...
Wal-Mart is still a "falling knife" today. We never buy assets or companies that are in the middle of a fall. We'd rather wait for the smoke to clear and then buy shares. And as the first chart above shows, the smoke has not cleared for Wal-Mart yet.
Wal-Mart will be a great blue-chip to add your portfolio. But the company is currently in a 2008-style decline. I suggest waiting for an uptrend to emerge before buying.
Stansberry's Investment Advisory senior analyst Bryan Beach agrees that Wal-Mart shares are cheap. But the recent pullback isn't deterring him today. In an update to Stansberry Alpha subscribers last week, he wrote...
Like McDonald's, Wal-Mart is a global giant. It gushes free cash flow, producing more than $16 billion last year alone. The stock's enterprise value (EV) now trades at a conservative 7.7 times earnings before interest, taxes, depreciation, and amortization (EBITDA).
That is a great price for the world's largest retailer, and investors would do well buying the stock at these levels. Our Alpha trade is slightly in the red this month. However, we don't expect it to stay there long. If you've not yet opened a position, we encourage you to consider it. Wal-Mart is a buy.
The other blue-chip company "on sale" today is Chevron (CVX)...
Today, the oil giant is even cheaper than Wal-Mart, trading at an EV/EBITDA ratio of 6.6. (Porter's team says that as a rule of thumb, an EV/EBITDA ratio lower than 10 is considered cheap.) Its P/E ratio sits at 11 – a staggering 43% discount to the S&P 500.
Doc Eifrig laid out the bullish case for the company in the March issue of Retirement Millionaire...
Declining oil prices are pushing investors away from Chevron.
Chevron does produce oil, which makes it susceptible to price changes. But it also has refining and distribution operations, which gives it some insulation against falling prices. It also has a safer profile than its competitors. It has a low debt-to-equity ratio... meaning it doesn't have a lot of loans it needs to pay interest on.
Oil prices appear to have turned around for now, though they could certainly head back down at any time. Either way, Chevron's a profitable company at a bargain price today.
Doc says now is a great time to establish a new position in Chevron. And DailyWealth Trader co-editors Brian Hunt and Ben Morris agree. They believe the company is trading near a "price floor" today. As they explained to DailyWealth Trader subscribers earlier this month...
Just take a look at the chart below. Today, Chevron trades just above its lowest price of the last three years. Every time Chevron drops to these levels, traders and investors step in to buy... and push shares higher. This is called a "price floor." And Chevron has one at around $100.
As Brian and Ben noted, one primary reason why investors buy shares at these levels is due to Chevron's big dividend. Right now, Chevron yields a huge 4.3% (versus 2.3% in 10-year U.S. Treasurys or less than 1% on your savings in the bank).
Even better, Chevron has increased its dividend every year for the last 27 years, making it a member of the elite "Dividend Aristocrats." As they explained...
As you can see in the 20-year chart below, a 4% dividend yield is a special level for Chevron. The stock rarely trades low enough to have that big of a dividend yield... And when it does, the stock rebounds.
A quick "heads up" to end today's Digest.
Your chance to take advantage of one of Stansberry Research's highest-conviction ideas ends this week...
You may have seen usmention Extreme Value editor Dan Ferris' No. 1 recommendation today. Dan is so confident about this idea that he has gone on the record saying if he had to put all of his money in one stock, this would be it.
That's a bold claim... and Dan doesn't actually recommend anyone put all of their money into a single stock. Like us, he believes you should follow proper sizing and never put too much of your portfolio into any single investment. But longtime readers know Dan has never said anything like this before.
That's how bullish he is today.
Dan says this stock could easily climb five or 10 times over the next few years to become the single most profitable recommendation in Stansberry Research history.
If you'd like to learn more about Dan's top recommendation today, click here. Please note this offer ends this Thursday at midnight Eastern time.
New 52-week high (as of 6/15/15): Energy Transfer Equity (ETE).
In the mailbag, True Wealth research analyst Brett Eversole clarifies some investment "lingo." Send your questions and comments to feedback@stansberryresearch.com.
"A quote from Steve S follows, who I've been reading for years now. I must have seen this quote before, but didn't realize until it was in the Digest today that I don't know what 'shares outstanding' means! I thought it meant the total number of shares that could be bought on the open market, if all current owners put them up for sale, on a given security. That definition doesn't seem to fit the way Steve uses the phrase twice below. Please tell me what this means!
One easy way to see this is through the shares outstanding of the major Greek stock fund... the Global X FTSE Greece 20 Fund (GREK).
Since peaking in March 2014, GREK is down 50%. But that hasn't kept investors away. Shares outstanding have doubled in just the past two months! U.S. investors are pouring in as the market crashes. This is a bearish sign. And it's why we're not interested in investing is this particular crisis yet...
The story is the same today: Greece is in crisis mode, but U.S. investors continue to put money to work in Greece. GREK shares outstanding are up 82% since February... Greek stocks have fallen 8% since then.
"The way that I understand 'shares outstanding' ... if it were correct, would indicate that GREK was issuing new shares, diluting current owners, for it to increase so much, while investment is flowing into GREK. Please tell me what I'm missing here. Thanks for all you do to help all of us be better investors!" – Paid-up subscriber Jon Pike
Brett Eversole comment: When we refer to shares outstanding, we're talking about exchange-traded funds (ETFs) like GREK, not common stocks. ETFs are open-ended funds, which means they can take in as many dollars as investors are willing to give them. And that's where shares outstanding come into play...
When investors buy large quantities of an ETF, the fund creates new shares to fulfill the demand. This doesn't dilute the existing shares, it simply creates new identical shares. Similarly, when investors take money out of an ETF, the fund will liquidate the shares it no longer needs. So the number of shares outstanding becomes a sentiment gauge for an investment idea.
Rising share counts show that investors are interested in an idea. They are putting new money into a fund, which causes that fund to issue new shares. A falling share count shows the opposite... that investors have pulled money out and that they're negative on that investment idea.
As contrarian investors, we never like to follow the crowd. So rapidly rising shares outstanding – like we're seeing in GREK today – are a warning sign. Investors are too interested in Greek stocks, and we expect declines to continue until that changes.
Regards,
Justin Brill
Baltimore, Maryland
June 16, 2015