Another market legend agrees... What Jim Grant is thinking now... 'Praying' for the market to fall... One opportunity you can buy today...
Legendary investor Carl Icahn isn't the only one who agrees with Porter...
Regular readers know revered newsletter publisher Jim Grant is one of Porter's professional role models. And in a recent interview, he warned of many of the same problems you've read about in the Digest...
In an interview with Swiss newspaper Finanz und Wirtschaft last week, Grant called the government's presence in the stock market "larger than life," referring to increased regulations and "the management and the production and the manipulation of money."
Grant, who hosts a popular twice-annual conference in New York City, blamed irresponsible central banks around the world for pushing interest rates to zero (or worse) and stock markets artificially higher...
Central bankers have taken it upon themselves to sponsor great bull markets in the hopes of making people spend more because they will feel richer. That was the theory. But they neglected to think through the full consequences of these policies.
China is particularly troubling, Grant noted. The country is following in the footsteps of the Bernanke Asset Bubble by "manipulating interest rates, administering asset prices through [quantitative easing] and inducing people through broad winks and nudges to take risks and thereby seeding bull markets," he said.
But as Grant explained, China is doing things differently...
The macroeconomic data [in China] are largely made up and their methods are almost predestined to fail as the methods of command and control and suppression of the price mechanism are always predestined to fail.
And then, on top of that, what's scary is the reaction of the West: Instead of questioning those principles, we [say] that the Chinese are just not as proficient in these techniques.
While central banks around the world propped up stock markets through various forms of quantitative easing, Grant says they failed to recognize the inevitable downside of offering "free money" to people, countries, and businesses that aren't creditworthy.
Grant also agrees with Porter's warnings that many of these problems can be traced to the flood of "free money" into the oil sector...
The central banks lifted off the stock market so that aggregate demand is going to rise. But they forgot to consider that aggregate supply is likely also to rise: Oil drillers will have it easier to find financing with which to drill the marginal well and to produce the marginal barrel of oil. This will weigh on the market, causing lower oil prices, which will lead the central bankers in return to print still more money to save us from what they call "the risk of deflation."
So it's seemingly a never-ending, circular process of so-called stimulus leading to still more stimulus and unconventional ideas leading to radical ideas. I dare to say that we have not yet seen the most radical brainwaves of the mandarins running our central banks.
All this monetary stimulus does two things in a reciprocal way: It pushes failure into the future and brings consumption into the present. Providing marginal businesses with very cheap credit is inviting companies that have passed the useful days of their commercial lives to pretending some kind of an afterlife thanks to the subsidies from the central banks.
Like Porter, Grant is also growing worried about the high-yield (or "junk") bond market...
The junk-bond market has been characterized by very loose protections to the creditors. Those protections have been mainly eviscerated or weakened during this cycle of very aggressive lending and borrowing. That's why I think the recovery rates on junk bonds in default will be lower and the final permanent losses to capital will be higher this cycle.
But Grant also agrees this isn't the "end of the world"... and investors who are prepared could have an incredible buying opportunity. More from Grant...
This should not be confused with the apocalypse. This is how finance works. This is the cycle of psychology of bull markets and bear markets, of boom and bust: There is euphoria and that mellows to complacency and at length it ripens to apprehension and then to fear and finally to abject terror – and that's when you buy!
If that sounds familiar to regular Digest readers, it should. We've told you over and over to hold plenty of cash for a potential market crash, giving you plenty of "dry powder" to buy high-quality stocks that go on sale.
Asked about opportunities in the market today, Grant highlighted one asset that should also sound familiar if you've been with us for long: gold. As he explained (emphasis added)...
This is a monetary moment. I think we are looking at the beginning of the world's reappraisal of the words and deeds of central bankers like Janet Yellen and Mario Draghi. What we're waiting for is a sufficient recognition of the monetary disorder.
You see monetary disorder manifested in super-low interest rates, in the mispricing of credit broadly, and you see it in the escalation of radical monetary nostrums that are floating out of the various central banks and established temples of thought: Negative real rates, negative nominal rates, and the idea of helicopter money.
So you need some hedge against things not going according to the script and that makes gold and gold-mining equities terrifically interesting now.
We agree. You can learn more about why we like gold as a way to preserve your wealth in this free interview from the Stansberry Research Education Center... and why Porter thinks small positions in high-quality gold stocks could be a great way to hedge your portfolio in the July 24 Digest.
Switching gears, our colleague Dan Ferris also believes a rare buying opportunity could be approaching...
If you're not familiar with Dan, he is the editor of Extreme Value, a service dedicated exclusively to finding little-known stocks trading for far less than their intrinsic values. In other words, Dan only recommends stocks that are incredibly cheap and safe... literally the market's most "extreme values"...
As the market surged higher over past several years, more and more stocks became expensive. So you won't be surprised to hear Dan has found fewer and fewer stocks that meet his strict requirements today.
Even after the recent market declines, only a small handful of stocks is cheap and safe enough for him to recommend. But if Porter's warnings are correct, that could soon change.
Dan explained why he would be "thrilled" to see the market head even lower in the September issue of Extreme Value...
I'm praying for another couple of months like August in the stock market. The S&P 500 fell 6% from August 17 to August 31 – dropping as much as 11% at the bottom. August 24 was the best day for rational investors, with all the big stock indexes down 4% in a single trading session...
Like Porter, Dan reminded readers that big stock market declines – even crashes – aren't something to be feared. They're incredible opportunities for investors who are prepared. From Dan...
Falling markets are good because they make stocks cheap enough to recommend buying.
If the S&P 500 falls 20% from its May 20 high (2,132), the words "bear market" and "volatility" will be published online dozens of times per hour and repeated 100 times a day by every talking head on CNBC and Fox Business News. This will make many great businesses trade for cheaper prices – which, as regular readers know, is the strategy we use in Extreme Value.
Bottom line: Don't be afraid of the stock market. Be ready to exploit it when everyone else is acting irrationally.
While most stocks are still too expensive to recommend in Extreme Value, Dan says there's one stock in particular you can safely buy today...
He says it's the single best opportunity he has found in his entire career of recommending stocks. In fact, he says if he had to pick just one stock to put all his money into, this would be it.
Dan says it's safe, cheap, and exceptionally well-managed... a legitimate, low-risk opportunity with 1,000% upside.
If you know Dan like we do, you know he's incredibly conservative and doesn't make statements like that often. He has prepared a presentation explaining more about this rare opportunity. Click here to watch it.
A final note to end today's Digest...
As you'll see in the mailbag below, Porter's special Tuesday Digest received a ton of subscriber support... but it also generated a flood of new questions. We received so many, Porter has agreed to write a special "Q&A" to address many of the most common questions. Look for it in tomorrow's issue.
New 52-week highs (as of 9/29/15): National Beverage (FIZZ).
In the mailbag, readers weigh in on yesterday's warning. Send your questions, comments, and concerns to feedback@stansberryresearch.com. Remember, we can't respond to every e-mail – and we aren't allowed to provide individual investment advice – but we read them all.
"Porter, wow, hard to put into words my feelings after reading your digest and watching Carl Icahn's video. If I was only allowed a few words to describe my feelings I'd have to choose 'Bone Chilling.' Thanks for sharing your knowledge and perspective. I'll be raising cash. I appreciate you and your staff." – Paid-up subscriber Todd Colucy
"Thank you, Porter!!! That is about the clearest a warning can be! The Icahn video was worth viewing to the end also. BTW, the Santayana quote is usually rendered as 'Those who will not learn from history are doomed to repeat it,' but what he actually said is FAR more depressing: 'History teaches us that men do not learn from history.' So I think he would have agreed with you that there is no teaching, only learning. I have a very small account, but thanks to what I have learned from you, I think I'll survive and even prosper. When is 'Distressed Credit Opportunity' coming out? I'm really looking forward to it. Thank you again!" – Paid-up subscriber Edward Simpson
Brill comment: We don't have a firm "relaunch" date yet, but we'll be sure to let Digest readers know as soon as we do.
"Porter, in [yesterday's] Digest the term 'the greatest transfer of wealth in history' is used for at least the second time in the recent past. Your warning is clear as to who will lose. Your recommendations are clear on how to protect one's self. What is unspoken is: Who are the beneficiaries during the great transfer? In keeping with your policy – no names, just sectors or type tradable instruments. Thank you in advance for your response." – Paid-up subscriber Charles M. 'Skip' Brennan
Brill comment: The beneficiaries will be those investors who are prepared and have cash available to purchase high-quality assets at steep discounts. Bargains are likely to appear in a number of sectors and assets. Porter shared some potential stocks to keep an eye on in the August 28 Digest... and he'll be covering a number of these opportunities in his upcoming Stansberry Distressed Credit Opportunity service.
"Hello, I am a new subscriber to the Stansberry Digest. Please would you produce a weekly update (daily would be better but probably impractical) of current portfolio recommendations. Thanks." – Paid-up subscriber Vince
Brill comment: Vince, it appears you might be confused...
The Stansberry Digest isn't a paid-subscription service. Instead, it's a daily letter we provide free of charge to all of our paid subscribers, designed to help busy readers keep up with what really matters.
Our goal in the Digest is to cover the most important and interesting news in the markets – while filtering out the "noise" – and keep you informed about the latest research and recommendations from Stansberry Research analysts. Think of the Digest as your guide to Stansberry Research and the markets each day.
While we often provide actionable investment advice, we don't make official portfolio recommendations like our paid-research services do.
On the other hand, you can always access all of your paid-subscription materials – including all your monthly issues, special reports, current portfolios, and more – by logging into the subscriber website here.
Regards,
Justin Brill
Baltimore, Maryland
September 30, 2015
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