Buffett: 'Buy a house now'... Housing getting cheaper (more attractive)... Sjug pounds the table... France's limit on achievement... Wyoming plans for the End of America...
The key to finding the world's safest and most profitable businesses is to learn how to identify "bad to less bad" trades – as longtime True Wealth subscribers know well. It's how editor Steve Sjuggerud just led his readers to a big gain in copper giant Freeport-McMoRan.
As we recently explained... in October, Steve "called the bottom" in copper. Last fall, he saw investors had given up on copper. The slowing Chinese economy had tamped down demand for the industrial metal, and the price had plummeted dramatically in just three months. It was priced for catastrophe... But, as Steve told readers, if catastrophe never came, copper could soar.
To play this "bad to less bad" situation, Steve recommended shares of Freeport-McMoRan, which owns the world's largest copper mine. Since then, True Wealth subscribers are up more than 25%.
Today… Steve sees big potential in a different "bad to less bad" situation… and one of the world's best investors says he's right…
"Single-family homes are really cheap now, too," Warren Buffett said yesterday in a CNBC appearance. The other cheap asset class he previously referred to was equities. Buffett said he would personally buy "a couple hundred thousand" homes if it were practical. And if you hold houses for the long term and purchased at today's low rates, he says housing is even better than stocks. Buffett advises taking out a 30-year mortgage and refinancing if rates go down.
Buffett is bullish on housing even after saying he was "dead wrong" about a housing recovery occurring last year. From his annual letter…
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Last year, I told you that "a housing recovery will probably begin within a year or so." I was dead wrong. We have five businesses whose results are significantly influenced by housing activity. The connection is direct at Clayton Homes, which is the largest producer of homes in the country, accounting for about 7% of those constructed during 2011. |
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Additionally, Acme Brick, Shaw (carpet), Johns Manville (insulation) and MiTek (building products, primarily connector plates used in roofing) are all materially affected by construction activity. In aggregate, our five housing-related companies had pre-tax profits of $513 million in 2011. That's similar to 2010 but down from $1.8 billion in 2006. |
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Housing will come back – you can be sure of that. Over time, the number of housing units necessarily matches the number of households (after allowing for a normal level of vacancies). For a period of years prior to 2008, however, America added more housing units than households. Inevitably, we ended up with far too many units and the bubble popped with a violence that shook the entire economy. That created still another problem for housing: Early in a recession, household formations slow, and in 2009 the decrease was dramatic. |
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That devastating supply/demand equation is now reversed: Every day we are creating more households than housing units. |
The latest data from the Standard & Poor's/Case-Shiller home-price index (the bellwether) shows housing prices are still falling... Home prices fell 0.5% in December – the fourth down month in a row. On a year-over-year basis, home prices fell 3.99%, worse than the 3.65% expected. Of the 20 cities tracked in the index, only Detroit showed a year-over-year gain. Meanwhile, prices in Atlanta, Las Vegas, Seattle, and Tampa dropped to their lowest point since the housing crisis began. Overall, home prices have fallen 34% since the crisis, down to 2002 levels.
While prices are still falling, sales are increasing. The index measuring pending home sales increased 2% in January, besting expectations and pushing the index to its highest point since April 2010, according to the National Association of Realtors.
And yes… despite falling prices, Steve Sjuggerud is every bit as bullish on housing as Warren Buffett. Steve wrote a February 21 DailyWealth essay called "This Is the Moment I Live For as an Investor." Steve's been excited about housing for months. He told readers, "I'm more convinced of what I'm saying here than I have been about any other investment in my two decades of studying investments." He continues…
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The basic story is that housing is an incredible value right this moment: With mortgage rates at record lows TODAY (at 3.87%) and with a record "bust" in home prices, housing is more affordable than ever. PLUS, we're at the "puke" point – where banks are giving up properties at any price, just to get rid of 'em. PLUS, the government is getting in on the act, trying to help. |
In addition to his DailyWealth writings, Steve incorporated his housing commentary in the most recent issue of his flagship advisory, True Wealth. Steve launched True Wealth based on his belief that subscribers can make big returns without taking big risks. Recently, Steve released a series of reports on investments that can give you incredible gains... but come with virtually no risk of going down. Click here for the details.
Just be thankful you don't live in France... Francois Hollande, the French presidential candidate for the Socialist party, is making Obama's proposed tax increases seem paltry. BBC reported Hollande's tax plans in a primetime interview on French television: "Above 1 million euros [$1.3 million], the tax rate should be 75% because it's not possible to have that level of income."
What's scarier? A proposed 75% tax rate or a presidential candidate who doesn't think it's possible to make $1.3 million a year?
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New 52-week highs (as of 2/27/12): Guggenheim BulletShares (BSJF), Gold Standard Ventures (GV.V), ProShares Ultra Technology (ROM), V.F. Corp (VFC), Prestige Brands Holdings (PBH), BLADEX (BLX), Clean Energy Fuels (CLNE), Philip Morris International (PM), and Tetra Teck (TTEK).
The chorus sings out in support of selling puts. Have you made money with this strategy? We'd love to hear about it. Write to us at feedback@stansberryresearch.com.
"My experience in put selling if done prudently, on solid companies, is more risk averse than buying these companies outright. This is a great way to create income. Mr. Stansberry's initial advice on how to do this procedure (2008) has been transformational for my investments. The only downfall are the taxes. Thank you again!!" – Paid-up subscriber Mark Brugner
"'Selling put is dangerous'? I've been selling put options for a year now. No loses to date. Sure investing has some risk, but after being a 10-year swing trader I find selling put options to be one of the best ways to increase your income each month." – Paid-up subscriber Willie Redmond
"Selling puts probably can be dangerous if used improperly, but so is taking antibiotics. Before I started selling puts, I lost money in a large variety of ways. I subscribe to the good doc efrig's put selling newsletter. I sell the ones he sells and then some I pick on my own. I follow some old saws like (don't risk more than five percent of your portfolio on one trade) so I only make a few thousand a month but it beats what I used to do. Thanks!" – Paid-up subscriber Steve Smith
"No no no. I have been pocketing 3%-plus per month since March of 2009 selling puts on stocks like Intel, Microsoft, ConocoPhilips, Wal-Mart, and a bunch of gold/silver/oil stocks. The key to this strategy is to sell them after the stock tanks a bit (like Wal-Mart just did), only go one month out and only go with great dividend paying stocks that you want to own.
"This strategy works month after month after month. If you are so worried about a major market decline… This is the best money making strategy I have ever found and I intend to sell my business and do the full time as soon as my account hits 500k." – Paid-up subscriber Peter Esposito
"I have for the past 15 years sold puts on high-quality companies. I am self-taught in this specialty and consider myself very seasoned and a professional, learned mostly through my mistakes and now have allocated a 7 figure sum just for my put selling margin account.
"Once I learned how to avoid the mistakes that can be inherit to selling or writing puts, my portfolio performance is unmatched. It should be noted I have sold puts through the worse of markets, including all of 2008 and previous crashes. If one chooses to follow Doc Elfrig's advice, it is my opinion you can do it successfully given his recommendations. I have my own strategies that I follow which somewhat waiver from Doc's advice.
"If you are a novice or have some experience you will benefit from following his trades while controlling risk. My number one advice is don't sell puts on your own until you have considerable knowledge and experienced all types of market conditions. Follow a seasoned professional without exception for at least two years and a bear market while learning this investment strategy." – Paid-up subscriber KH
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
February 28, 2012