Bank of Japan is determined to do its part to keep the gold price high. The BoJ says it'll pump 10 trillion yen of new money (US$115 billion) into the Japanese economy.
Ironically, Alan Greenspan told Japan many years ago it should write off uncollectible debts so a recovery could get underway in earnest. Japan didn't do so, and now it's saddled with the highest debt of any developed nation, approximately 170% of GDP.
Such debts are never paid off. They're always inflated away. Of today's action, BoJ Governor and Chief Inflator Masaaki Shirakawa says there's more where that came from, "If there is a shortage of liquidity..." And let's face it, folks. When you've borrowed more money than anyone on Earth and there's no way it can ever be repaid, you're pretty much in a perpetual liquidity shortage.
If you're looking for inflation-fighting investments in the hard-asset sector, few people deliver like our resident geologist, Matt Badiali. Matt just sent us an update from his current research trip. We can't divulge Matt's location or the name of the company he's visiting until his research is complete. However, if this company's natural gas field is as large as Matt suspects, shares could easily return 10 times your money.
The well test was the most incredible thing I've ever seen – it nearly doubled the standing Guinness Book world record for a natural gas flow test. The well flowed over 700 million cubic feet of natural gas per day and 12,000 barrels of condensate per day.
That equals a flame easily 100 feet long and a roar like a jet engine. The heat was so intense, it set a couple hundred yards of jungle on fire.
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To put it into perspective, they ran the well for 20 minutes, which burned about 9 million cubic feet of natural gas... about $35,000 worth at today's prices.
The next milestone is on [this company's major] well. It still has 1,000 feet left to drill to hit the gas/oil contact. If it gets oil, it's a game changer. Priorities shift, development happens sooner, the company tacks a zero on to the end of its market cap...
To get to the well, we flew out early this morning on little puddle jumper planes then took helicopters to the well site. We chartered three planes to get us all out to the site. It was an event – press, local dignitaries, Morgan Stanley analysts...
Tomorrow, I'll spend the day with technical staff looking over the seismic and cores. We'll also tour the refinery and meet the downstream folks.
Matt's putting together notes for next month's S&A Resource Report. You can learn more about the Resource Report and sign up to receive Matt's research here...
Hedge funds are buying stocks at a record pace as individual investors sell them at a record pace. The last time individual investors exited at this rate (before 2007) was back in early 2003, just as a five-year rally was getting underway. In the three months ending in September, the hedge-fund industry added $1.1 billion of new investments, net of withdrawals.
The most popular long bets among hedge funds are Pfizer, Bank of America, and Apple, with 147 funds reporting stakes, according to a Goldman Sachs survey of 13F filings. Apple is up 141% since the market bottomed in March.
But still, U.S. stocks on the whole are unquestionably overvalued, selling for about 29 times earnings. So, what gives?
I can't be sure, but I have a clue about what's going on: Hedge funds aren't just buying stocks in record numbers. They're also shorting stocks in record numbers and buying record amounts of put options.
And the move into hedge funds makes sense, especially if we're close to a market top. Overall, hedge funds have outperformed the market since it started falling apart. Hedge funds lost about half as much as the S&P 500 since the index peaked in October 2007.
I've got a couple of stocks in Extreme Value very much like publicly traded hedge funds.
One of them is a World Dominating financial company with perhaps the strongest balance sheet of any public company in the world. It just made the largest and most brilliant new investment in its history, one that's designed to beat the tar out of inflation. It also recently took a stake in another of my World Dominator stock picks.
Another hedge-fund-like stock I recommended to Extreme Value readers is run by one of the world's greatest distressed debt and distressed real estate investors. It's up about 120% and has plenty of room to run.
To get access to Extreme Value's hedge-fund stocks (and to find out which one is still cheap enough to buy today), click here.
Junk bonds are defaulting at their highest rate since the Great Depression, according to Moody's Investors Service. A few weeks ago, Moody's said the junk bond default rate would peak in November at 12.5%. With spreads to Treasury bonds well below default rates (at less than 8%), it looks like you're practically guaranteed to lose money in a diversified junk bond portfolio these days. If you're not an expert in high-yield bonds, you'd better steer clear of this sector... and especially avoid junk bond funds that preach diversification as a way to reduce risk.
Credit-card defaults are also rising, so, naturally, banks are providing cardholders with incentives to use them more often by charging inactivity fees to cardholders who don't use their cards often enough. A spokesperson for Fifth Third Bancorp was unashamed when she told Bloomberg, "We want to encourage active use and management of the accounts."
Active use and management. That's what the financial industry wants from you.
It wants you to actively use and manage every dime you own. The more active you are, the more fees it charges. The more ATMs you use, the more money you borrow, the more currency you exchange, the more stocks and options you trade, the more money you move anywhere for any reason, the more the financial industry loves you.
The most successful investors I know rarely trade. They make big, concentrated bets and sit on them for years. Like Warren Buffett, their investment style is "lethargy bordering on sloth."
Banks weren't always like this, or at least there have been some good apples in the past. Take, for example, the Farmers & Merchants Bank of Los Angeles. James Grant tells us in his recent letter that, when real estate speculation took hold in the Los Angeles area in the late 1880s, Farmers & Merchants didn't respond by charging new fees for account inactivity. Instead, it simply refused to lend to real estate speculators. (Imagine! Turning down a loan! Apparently, this used to happen in the U.S.)
Today, government has removed all incentives to behave so rationally. With one in four residential mortgages underwater and 124 banks failing so far this year, it's clear the industry doesn't thrive on its underwriting expertise. No wonder banks are creating new fees. Without fees, they've got bubkes.
Also in the perverted incentives department... The government is offering homeowners $1,500 to sell their home for less than the mortgage balance (so-called "short sales"). The goal is to reduce foreclosures and push home prices higher.
It's all part of Komrade Obama's $75 billion foreclosure-prevention program. With the FHA guaranteeing 37% of all new mortgages, it makes you wonder who's buying all these homes. Nobody you'd want to live next door to, I bet.
Not everyone is gloomy on real estate...
Billionaire real estate investor Sam Zell sold his Equity Office Properties real estate portfolio to Blackstone Group for $36 billion in November 2006. The Grave Dancer, as Zell is known, was cashing out at the exact top of the market. And yield-hungry investors were willing to pay any price for prime properties. The ensuing real estate crisis erased as much as 50% from the price tag of top commercial real estate across the country. Non prime properties suffered worse.
Now, Zell says fears surrounding the commercial real estate market are overblown. He says owners aren't selling because they're underwater on their loans. And the country hasn't "had a new real estate asset of any significance committed since July 2007." Zell added it could take another two to three years before a major project is committed.
Zell says the worst-hit areas will recover first... "I think that probably the most severe slowdown has been in office real estate," he said, "and I'd suspect that probably that would be the first to recover."
When the Grave Dancer starts buying office properties, there's a good chance we've seen the bottom in commercial real estate...
Something we're looking forward to in 2010: The introduction of DailyWealth Premium.
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New highs: Vanguard Inflation Protected Securities (VIPSX), Kinder Morgan Energy Partners (KMP).
In the mailbag: a cheerful drunk, our favorite kind. What's your poison? feedback@stansberryresearch.com.
"Porter, this is the first year that I was able to attend the Alliance annual conference. Now I already knew that I had made one of the greatest investment decisions of my life when I joined the Alliance. But, if I ever had any doubts, the conference wiped them out. I really wanted to see the people that I was putting so much faith in. I was not disappointed. I wonder how many people out there considering an Alliance membership realize what they would have to pay to attend a conference like the annual Alliance conference. I have never priced such a thing and I really have no idea, but I would be willing to bet that there are people out there who would spend the cost of the Alliance membership just to attend a conference like that.
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"Ok I said I was going to stop gushing, but I can't stop without talking about Jeff Clark. On a day when Jeff isn't available on his 'Direct Line,' I usually don't even bother trading, as I rely heavily on his keen insights. Ooh, ooh, did I mention the basic knowledge Stansberry has provided me with? I knew nothing about investing other than mutual funds prior to joining Stansberry. Since then I have learned so many things. Position sizing, stop losses, trailing stop losses, short selling, options trading (not just what to trade, but actual step by step instructions on how to do it). Perhaps this is really the biggest benefit. I was petrified of options and had absolutely no idea how to go about it.
"Today I made a 100% profit trading Jeff's latest option recommendation. I of course made a relatively small bet, as Jeff always tells us to do, but if I had invested only 1% of my portfolio, I would have more than paid for my Alliance membership." – Paid-up subscriber Dave
Ferris comment: Thanks, Dave. I tend to drink more around the holidays, too.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
December 1, 2009BoJ's printing press fired up... Badiali: "record natural gas flows"... Hedgies buy, moms & pops sell... Junk bonds junkier... Credit-card 'inactivity' fees?!... Zell: fear overblown... DailyWealth Premium...