Another Legendary Investor Is Getting Worried

Another legendary investor is getting worried... The 'Brexit' is back in the news... A new reserve currency is here... The best way to profit from China right now...

Another legendary investor is getting worried...

Many of the world's most successful investors have been speaking out about the massive and growing risks in the market today. In recent months, we've shared warnings from legendary managers like Carl Icahn, Stanley Druckenmiller, George Soros, Paul Singer, and Ray Dalio, just to name a few.

You can now add Julian Robertson to the list...

Robertson – the billionaire founder of famed hedge fund Tiger Management – earned an annualized 32% for nearly two decades... making him one of the top investors of all time. In other words, when he speaks, we always listen.

In a lengthy interview with Bloomberg last week, Robertson issued several warnings that should sound familiar to regular Digest readers.

He singled out super-low interest rates as one of the biggest problems in the world today, and said they are certain to end in disaster...

I would tell [investors] that in my opinion, there is going to be chaos created by the negative and low interest rates... Rates don't have to be negative to be too low. We don't have negative rates here in the States yet, but I think it's tragic that we've taken rates down this far.

[With negative rates] you're not only not rewarded for saving, but you're penalized for saving. I don't think that's good... Negative rates have also caused a huge bubble in the bond market because people have nowhere else to put their money.

I know [central banks] all over the world are trying to ensure prosperity, but in doing so I think they are ensuring a huge bubble, which will be pricked, and we are all going to be hurt very badly by it.

He also warned that the risks of central-bank manipulation aren't limited to the bond market alone. He said investors have been "forced" to invest in equities as well, which has caused most stocks to become expensive today...

I think this "forced equity investing" is not a good thing. It creates the bubble... Janet Yellen is just unwilling to see the American public take any pain at all. Because of that, I think she is creating a serious bubble where serious pain is going to come.

But if you think he recommends selling everything and moving to cash, think again. In fact, Robertson said "stocks are the only game in town, [so investors] have to play." Instead, like us, he recommends staying long stocks, but taking a "conservative attitude."

To Robertson, this means focusing on cheap stocks and "hedging" your portfolio appropriately. Whether this means investing in hedge funds or simply shorting risky stocks "is up to the individual investors," but he thinks everyone needs to protect his portfolio today.

Of course, regular readers know that Porter has been preaching the importance of proper hedging for months. In fact, he believes it's so critical today, he's launching a brand-new service called Stansberry's Big Trade to make it as easy as possible for individual investors to do just that. As he explained on Friday...

I'm not talking about "betting the farm" that you can nail the timing of the next big market turn. I'm only talking about setting up a portion of your portfolio so that when the huge wave of corporate credit defaults hits, your portfolio will be well-protected – insured, if you will – against losses...

Just as a handful of major investors made billions and billions in the last Big Trade (shorting mortgage securities), a handful of hedge funds and big investors will make a killing as the corporate debt mania blows up. I'd like to help you be one of them...

This isn't just the best way for you to hedge your portfolio. It's the best opportunity for huge speculative gains I've ever seen in my career.

We'll be hosting a live webinar next month where Porter will share more details.

The "Brexit" is back in the news...

The ongoing troubles for German lender Deutsche Bank aren't the only worries out of Europe this week.

This morning, the British pound fell to a fresh 31-year low. It traded as low as 1.2735 versus the U.S. dollar. The pound has now fallen 15% since the U.K. voted to leave the European Union ("EU") on June 23, a huge move for a major currency.

The latest decline follows a weekend announcement from U.K. Prime Minister Theresa May. In a speech on Sunday, May said that the U.K. would invoke "Article 50" – a move that would kick off the formal process of leaving the EU – no later than March 2017.

Analysts believe this short timeline increases the odds of a so-called "hard" Brexit, where the U.K. splits entirely from the EU economy. As Esther Reichelt, currency strategist at Commerzbank, explained to BBC News this morning...

This increases fears of a "hard" Brexit because so far nobody sees a possibility of achieving this without May having to accept notable restrictions when it comes to accessing the single market.

While this news isn't great for most U.K. savers, the weaker currency is boosting British stocks. The FTSE 100 Index – the benchmark London exchange – closed within a few points of a record high today. The index is up nearly 14% year to date, and more than 20% since its post-Brexit drop.

This is because the U.K.'s biggest companies make most of their profits – about 70%, according to the Wall Street Journal – from outside of the U.K. So a weaker pound relative to the dollar, euro, and other currencies translates into higher pound-based earnings for these firms.

In real terms, the picture isn't as rosy... The FTSE 100 is still down more than 1% this year when measured in dollars.

On the bright side, folks who own gold are doing much better... So far this year, an ounce of gold priced in British pounds is up more than 40%, compared with a little more than 20% in the U.S...

In short, gold is behaving exactly as expected... It's protecting the purchasing power of U.K. savers just as it has for 5,000 years.

A new reserve currency is here...

Speaking of currencies, China's currency, the yuan – also known as the renminbi – has officially gained reserve-currency status.

In a little-noticed announcement over the weekend, the International Monetary Fund ("IMF") added the yuan to its Special Drawing Rights global currency basket, alongside the British pound, euro, Japanese yen, and the U.S. dollar.

This is the IMF's first change to the basket since the euro was launched in 1999. As of Saturday, the yuan now makes up about 11% of the basket, giving it the third-highest weighting behind only the U.S. dollar, (42%) and the euro (31%).

While the move has largely been overlooked by investors so far, it could have huge implications for the global economy, and the Chinese economy in particular. As Bloomberg reported...

The yuan's inclusion in the Special Drawing Rights basket will prompt central banks and fund managers to buy more Chinese assets, with estimates of as much as $1 trillion of inflows in a five-year period.

The best way to profit from China right now...

Our colleague Steve Sjuggerud says this weekend's move is just a small piece of a much bigger story in China.

Steve is especially bullish on the opportunity in Chinese stocks – or more specifically, a select group of Chinese stocks – and calls it his single favorite investment idea in the world right now.

Steve says it is your best shot to make up to five times your money in the market today, and he has been virtually begging all Stansberry Research readers to put at least a small portion of their portfolio in these companies. He even launched a brand-new service – True Wealth China Opportunities – to focus exclusively on this idea.

But if you've been on the fence about trying it, we must hear from you soon.

Tonight is your very last chance to become a charter member of True Wealth China Opportunities at a substantial discount. This offer closes permanently at midnight Eastern. Click here to sign up now.

One final note... Be sure to read past the mailbag for a brand-new essay from bestselling author and Digest contributing editor P.J. O'Rourke...

New 52-week highs (as of 10/3/16): BlackRock Floating Rate Income Strategies Fund (FRA) and Ritchie Bros. Auctioneers (RBA).

In today's mailbag, more great feedback on Porter's "Big Trade"... and several subscribers respond to subscriber Marcia G.'s complaints. Let us hear from you at feedback@stansberryresearch.com.

"Porter, I just want to comment on one of your subscribers claim that 'once again the little guy gets shafted.' Her 'woe is me' tale is as tiresome to me as I'm sure it is to you. Like her, I simply can't afford your Big Trade service. Raising three kids with a 9 to 5 job, a mortgage, insurance, auto loans, and every other middle class expense leaves me very little to risk in the market, and certainly not enough to pay for some of your premium services. But unlike her, I'm not going to b*tch and moan about it. It is what it is, as they say.

"All I have available to me (which is probably less than she has available to her) is a measly $60,000 tied up in a company sponsored 401K. That is all the money I have to work with. Or I should say, that is all the money I HAD to work with. You see, since I subscribed to your Stansberry's Investment Advisory, and began to trade based on your recommendations, I have turned that $66,000 into almost $110,000 over the past four years! I won't bore you by reciting the individual trades, (and admittedly I put far more into a couple of recommendations than I should have), but I will say that my losses have been irregular and quite small, while my gains have been consistent and sometimes quite large. For what little your service costs me, I simply can't imagine a better deal!

"Would I like to have the resources to play your Big Trade? Of course! But I'm a rational person and I recognize that it isn't likely to ever happen. I don't sit around kidding myself that someday I'll be an Atlas 400 member, but neither do I sit around and whine that it just isn't fair that I'm not! I guess what I'm trying to say is this: Thank you for the services you provide that I CAN afford. Thank you for making your knowledge and experience available to us 'little guys.' There are some of us who REALLY do appreciate it." – Paid-up subscriber Korte Y.

"I wanted to respond to those crying poverty and being 'disgusted' that the fare is so high to ride your 'gravy train.' I'm actually surprised that a subscriber to any of your newsletters would have such a 'lack' mentality. I learned from Stansberry that we all make choices in life, and sometimes you have to make choices that go against what you've always done.

"I wanted to be an Alliance member, but I had no idea how I would pay for it. Still, I kept it in my mind, all the while continuing to subscribe to your lower cost newsletters and realizing some very nice returns. I didn't grouse about the fact that I didn't have the money, I told myself to find a way to get the money.

"It is because of Stansberry teachings that I was finally able to become an Alliance member this year. Yes, it was a huge sacrifice, and yes for me, it was very scary to spend so much money on a research service. But you don't make big changes in your life by continuing to doing what you've always done. I am so happy that I made this decision because it has impacted my life in such a positive way. I feel it was an investment in myself, and I'm worth it.

"So to all those who are disgusted, and think they are left out because they are the 'little guy' I say your first problem is thinking you are the 'little guy'. There's no difference between you and the 'big guy' except your poverty mentality. All I did was convince myself I was the 'big guy' (or in my case, gal) and the opportunities began presenting themselves. Thank you Stansberry." – Paid-up subscriber Jeffie P.

"Your words ring very true, Porter. I could not agree more. I have signed on for all of the less expensive services you offer and I learn more and more each day from my subscriptions than I do from any other source, especially from your Bear Market Survival Guide (because I actually listened this time and did not let my emotions get the better of me). And not only that, but you and your team provide more than a fantastic financial education, you are my source for unbiased, worldwide news. Keep doing what you're doing and if all goes well, I too will one day be able to afford the big-ticket items and play with the big boys. Cheers!" – Paid-up subscriber Brian R.

"Porter, with your 2 newest services on China and [the 'Big Trade'] you are providing what I've long been looking for... opportunistic 'fat pitch' investing. You point out the no-brainers that every investor should wait for, and offer them when they are relevant. In response to your frustrated, low-funds subscribers: I can empathize. I used to wrestle with this problem and still deal with these types of issues with retirement and educational savings accounts with their low contribution limits and crappy restrictions to mutual funds.

"I would point out that you are already taking the responsible step of recognizing that these new services are not economically feasible given your portfolio size. That's an advantage. You just have to look at what you do have, and work with it: (1) You have access to some of the best research on the web. Most people dream about having someone competent they can trust and just fall for that efficient market garbage. (2) You live in a time with unparalleled access to low cost brokerage services. (3) You don't have to trade! (You can't imagine how powerful that really is!). (4) You can read. (see http://stansberryresearch.com/recommended-reading/). Etc.

"Now take responsibility for your future and figure out the best game plan for you. Many of the greatest investors in history never used gold or puts or anything else. They just cashed out in bubbly markets and waited for the bear market values to come out in spades. Your biggest obstacle is probably your attitude. (Why is it Porter's responsibility to play Robin Hood for your needs?) Cheers." – Paid-up subscriber C.C.

Regards,

Justin Brill
Baltimore, Maryland
October 4, 2016

What's the Matter With the Libertarians?

By P.J. O'Rourke

Why isn't the Libertarian Party doing better in the 2016 presidential election?

As of the latest polling, the Gary Johnson/Bill Weld ticket is only attracting 7%-8% support from likely voters.

A strong streak of libertarianism runs through the American character. It's something we seem to be born with. If you have kids, you hear it all the time. Almost the first things kids say when they learn to talk are three phrases that might as well be slogans for libertarianism: "Leave me alone!" "Quit telling me what to do!" and "That's mine!"

And yet, Libertarians aren't attracting the kind of attention you would expect in an election where the two major-party candidates are so disliked that they seem to be engaged in a competition to see who can get "unfriended" most on Facebook.

The Libertarian Party has an excellent campaign platform.

The platform starts with a Statement of Principles...

We hold that all individuals have the right to exercise sole dominion over their own lives, and have the right to live in whatever manner they choose, so long as they do not forcibly interfere with the equal right of others to live in whatever manner they choose.

It's impossible to disagree with that.

The platform is solid in its support for economic liberties...

The only proper role of government in the economic realm is to protect property rights, adjudicate disputes, and provide a legal framework in which voluntary trade is protected. All efforts by government to redistribute wealth, or to control or manage trade, are improper in a free society.

The platform also goes right to the monetary heart of economic liberty...

We favor free-market banking... We support a halt to inflationary monetary policies and unconstitutional legal tender laws.

And it minces no words about government finance and spending...

We call for the repeal of the income tax, the abolishment of the Internal Revenue Service and all federal programs and services not required under the U.S. Constitution... Government should not incur debt, which burdens future generations without their consent. We support the passage of a "Balanced Budget Amendment"... provided that the budget is balanced exclusively by cutting expenditures, and not by raising taxes.

The Libertarian platform is forthright on gun control...

We affirm the individual right recognized by the Second Amendment to keep and bear arms, and oppose the prosecution of individuals for exercising their rights of self-defense.

It addresses environmental concerns with intelligence...

Governments are unaccountable for damage done to our environment and have a terrible track record when it comes to environmental protection. Protecting the environment requires a clear definition and enforcement of individual rights and responsibilities.

And it carefully handles tricky issues like abortion...

Recognizing that... people can hold good-faith views on all sides, we believe that government should be kept out of the matter, leaving the question to each person for their conscientious consideration.

It's only on matters of foreign policy that I'm not sure I'm fully in step with the Libertarians...

American foreign policy should seek an America at peace with the world. Our foreign policy should emphasize defense... and enhance the likelihood of peace by avoiding foreign entanglements.

I detect a little wishful thinking there, given the lunatic behavior of America's foreign adversaries. But better some Libertarian wishful thinking than the bad thinking or no thinking of Trump and Hillary.

Meanwhile, the Libertarian candidates have plenty of experience in government leadership.

Gary Johnson was the Republican governor of normally Democratic New Mexico from 1995 to 2003. He supported marijuana legalization in a socially conservative region and pushed school vouchers, ignoring powerful opposition from an entrenched public-education establishment. He allowed no tax increases, vetoed 750 spending bills sent to him by the state legislature (more vetoes than the other 49 states' governors put together), laid off 1,200 state employees, eliminated New Mexico's budget deficit, and left the state with a $1 billion budget surplus.

If you're worried about a candidate's "real-world experience," before Johnson entered politics, he founded one of New Mexico's largest construction firms.

If you're worried about a candidate's health and fitness, Johnson has climbed Mt. Everest.

Bill Weld was the Republican governor of invariably Democratic Massachusetts from 1991 to 1997, making him the first GOP governor of the state since 1970. And he was re-elected by the largest margin in the state's history. He cut state spending and taxes and privatized many state services. During his tenure, the number of Massachusetts CEOs who rated their state's business climate as "good" or "excellent" went from 33% to 83%.

But never mind how good the platforms and candidates are. It isn't working.

You would think, given the wholesale socialist statism of Hillary Clinton and the imperious, bossy demagoguery of Donald Trump, that the 2016 presidential election would be teaching us a lesson in the value of individual liberty.

But it hasn't been.

My theory is that we aren't learning our lesson in individual liberty because the world is such a scary place. We're beset by the alarming speed of technological change, worrisome economic instability, threatening global instability, and terrifying violent fanaticism.

Fear is a bad schoolmarm. We've got a monster at the blackboard. How can we learn even "two plus two" if all we can think about is, "EEEEK, the teacher is huge and slimy and scaly and has three heads!"

So we turn to the big, stupid bullies at the back of the classroom for help – Trump and Hillary.

We don't know where else to turn.

Libertarianism doesn't seem to be the answer because libertarianism depends on civil society. Lately, our society has been anything but civil.

But we've abandoned libertarianism for another reason besides fear. The expansion of public politics leaves little room for private association – for civil society – where libertarianism can thrive.

Our community organizations, clubs, lodges, fellowships, brotherhoods, and churches no longer play important roles in the drama of civics. They've been upstaged by politics.

Every grievance, no matter how minor – such as the speed of our Internet connection – results in a political demonstration.

Politics has expanded. Politics has taken over.

Politics has become such an obese operatic performer warbling so loudly that none of us individual bit players can be heard. Politics is so fat that we individuals are shoved off the stage into the orchestra pit. It is over when the fat lady sings.

Of course, I have to acknowledge Gary Johnson and Bill Weld have not exactly been setting the campaign trail on fire.

I mean, they're good guys. But Johnson does seem as if he maybe not only advocated the legalization but also practiced the utilization of a certain recreational substance. Plus, he thinks "Aleppo" is a brand of dog food.

And I'm not sure what a centrist Republican like Weld is doing on a Libertarian slate. But he is known to like to have a good time. Maybe running for vice president gets him invited to more cocktail parties.

Gary Johnson and Bill Weld – I think of them as the "Toke and Tipple Ticket."

Well, we don't endorse candidates in the Stansberry Digest. As someone put it, "Our job isn't to back a horse. Our job is to change the racecourse."

But come election day, I wouldn't absolutely surprise myself if I turned out to be having a tipple. Or even (after searching my teenagers' bedrooms and backpacks) a toke.

And, since we now know that one or the other of the major-party candidates is going to win, I'll need it.

Regards,

P.J. O'Rourke