Europe vs. reality...
If you want a sure sign Europe is bound to collapse, here's one...
Investment firm Bespoke Investment Group says this morning it's hearing talk of a European-wide ban on short selling of financial stocks... maybe even all stocks. We tried that in the U.S. when the market was falling. Remember how it saved the country?
Of course, the short ban didn't do anything good. During the U.S. Securities and Exchange Commission's (SEC) ban on shorting financial stocks from September 2008 to March 2009, financials fell 70%. The ban had no effect whatsoever, beyond a one-day 11% rally in financials.
What happened on Tuesday after the Fed issued its two-year low interest rate call? The market rallied, of course. What happened the day after? The market continued plummeting. The government is no match for reality.
If the U.S.'s 2008 experiment with short bans is any guide, a good time to short European bank stocks would be the day a short selling ban on European financial stocks is announced. It'll be a classic "buy the rumor, sell the news" opportunity.
Today, on a mere rumor of a short-selling ban, European bank stocks are rising. RBS is up 8%. Societe Generale is up 6%. Deutsche Bank is up 4.5%. Unicredit is up 2.4%. I imagine an actual ban would send them even higher... at first… Then, reality would get involved and short sellers would make money.
Blaming short sellers is the typical political move of people intent on sloughing off onto others the responsibility for the mess they created. And that's the world in which we live, isn't it? If you watch too much TV, our world seems totally devoid of adults. Nobody takes responsibility for his actions anymore. Everybody blames everyone but himself.
The blame game is at work on the streets of London, too... The rioters in London are saying rich people caused the violence. The rioters aren't to blame for their vandalism and theft. Rich people pushed them into it.
Who'd have thought European regulatory authorities and London rioters would be birds of a feather? Our glorious Komrade Obama is one of them, too...
Looking for someone to blame for the U.S.'s woes, El Presidente recently chose (who else?) the rich. He said we need to tax corporate jets and other luxury goods immediately to rectify the injustice.
Obama is economically and historically illiterate. He forgets what happened the last time we tried to tax the rich by taxing their jets and jewelry.
In 1990, we passed a 10% tax on yachts, luxury airplanes, jewelry, furs, and expensive cars. It was touted as a fair, easy way to soak the rich without harming the working man.
Within eight months, the largest U.S. yacht company, Viking Yachts, closed one of its two plants and laid off more than 1,100 of its 1,400-member workforce. Within 12 months, one-third of all yacht builders in the U.S. ceased production. The industry lost 7,600 jobs in the first year. Before the tax was finally repealed, 25,000 workers lost their jobs. The U.S. went from exporting yachts to importing them. Viking Yachts shrank to just 68 employees. Congress estimated the tax would generate $5 million in revenue the first year. Reality didn't read the estimate… The Treasury lost $24 million in tax revenue because all the yacht makers either closed up or left the U.S. Congress repealed the tax in 1993.
If you think that was an isolated example, you'll learn otherwise when our glorious Komrade starts raising taxes. When FDR raised taxes in the Great Depression, the Depression deepened, and more people found themselves out of work.
The lesson is clear. Eat the rich only if you're certain it's your last meal.
When you're financially scared out of your wits, what do you do? Most folks hoard cash. That's exactly what corporate America is doing...
In the third quarter of 2008, nonfinancial companies in the S&P 500 were holding a little more than $700 billion in cash. Today, they've got $1.12 trillion, 59% more cash than just three years ago.
If you want them to spend their cash and invest in their businesses, you've got to give them a reason to believe their investments won't be eaten up by taxes and regulatory burdens. Or maybe you'll have to let them know their investments will be returned in a currency that's worth something.
Embattled media giant News Corp. is boldly deploying some cash. News Corp. announced a 27% dividend hike. It also said it would buy back stock on its previously announced $5 billion share repurchase plan. For today at least, the moves are working… News Corp.'s stock rose 16%.
If you were holding lots of big, blue-chip, dividend-growing stocks recently, you did much better than the overall market. The S&P 500 fell about 17% from late July through Monday. During that time, stocks like Coca-Cola (-6.6%), Altria Group (-6.9%), and Pepsi (-4.2%) fell much less than the overall market.
We've covered both Altria Group and Coca-Cola in The 12% Letter. If you want access to The 12% Letter's list of stocks that pay growing dividends and outperformed the crash, click here.
It seems the only way to make a decent profit during this summer's crash was to hold plenty of gold. Since July 1, gold is up about 9%.
I hold plenty of gold. But when I went to the coin shop a couple days ago, gold was soaring... Silver was down. So I bought silver.
The coin shop is really half coin shop, half jewelry store. The jewelry portion of the place was deserted. The coin half was a hive of activity. It hasn't been that busy in 10 years. Since my last visit less than two months ago, they've hired an armed security guard.
Everyone in line ahead of me held something in his arms, which I assume he wanted to sell. It looked like everyone was selling gold. That's what the common man is doing. He's selling gold.
As usually happens after a big run in any commodity, the margin requirements for gold futures were raised today, causing gold to sell off.
I'm buying silver. Silver soars when things get really bad. But you've heard that in these pages before. Porter's been talking about silver since 2006. He's going to talk about it again, and why he thinks it's a better buy than gold (with which I wholeheartedly agree) in the August issue of Stansberry's Investment Advisory, due out tomorrow. To get access to some advice everybody ought to be following right now, click here.
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New Highs: iShares Lehman Brothers 20+YR ETF (TLT), SPDR Gold Trust ETF (GLD).
Many people seem to have bailed out of stocks in a panic. Please let us know if you still have money in the stock market. Send your e-mail to feedback@stansberryresearch.com.
”Dear Dan – Have been a subscriber for a number of years. Your August issue [of Extreme Value] is one of your most provocative and valuable; thank you." – Paid-up subscriber Martin Mellish
Ferris comment: Thanks, Martin. I must credit my research partner, the intrepid Mike Barrett, with the idea of an American Industrial Renaissance. If you liked this issue, you're going to love the next issue or two. We're going to show you which companies will benefit from the cost advantages we spelled out this month.
"I am totally befuddled how stocks such as Freeport-McMoRan (FCX) and ETF's such as SPDR S&P Metals & Mining (XME) are taking such a bath lately given the rapid price increases of precious metals, particularly Gold. Can you shed some light on this?" – Paid-up subscriber Chuck Citron
Ferris comment: I'd guess it's because everybody wants the assets, but nobody wants to own any stocks right now.
"'How have you done hedging your portfolio?' My 'portfolio' IS hedges! I own essentially no stocks, but I'm short DB and RBS per your recommendation. I'm also long the price of gold via DGP, and short the euro via EUO, all per your recommendations.
"That combo has put my online account up by 17% during the course of this market crash. Most of my wealth is in gold and silver coin, and I don't care to trust it to the world of electronic commerce. After the recent big plunge I did buy some of Matt's trophy recommendations, i.e. SCP and ECA. Maybe I jumped in too soon, as per Jeff's wise advice to wait for the retest, but they are still minor position. Your newsletters and e-mail are a great and wise guide to navigating these troubled waters." – Paid-up subscriber Stephen K.
"I have shorted 3 stocks. Salesforce (CRM), Pulte (PHM) and the IShares Barclays 20+ yr Treasury (TLT) based on your recommendations. I admit, I was nervous about shorting the stocks, having not done so in the past. I agree with your fundamental analyses on all three of the stocks, but when you haven't actually shorted a stock before, yes there is hesitation in pulling the trigger.
"Well, at the moment, I am up 7% on Salesforce, 47% on Pulte and down 18% on TLT. Overall, I am up a weighted average of 8% on the three.
"I loaded up more on the Salesforce, because it just appears to be a no-brainer. Even when it almost hit the stop, I considered ignoring the stop for one reason – a P/E ratio of 458. The stock was selling at close to (I think) $160 and when I checked out the P/E and saw the 458, I damn near spit coffee on my screen. 458? Talk about a train wreck waiting to happen.
"Living in Southeastern Michigan, the Pulte trade made all kinds of sense. And, it has paid off the most. I am seriously considering buying the stock to close the deal with the gain I have now. The greed thing is tough to kick, hehehe.
"With the Fed making its claim to low interest rates through mid-2013 (if they can actually sustain that), TLT is likely to stay in the loser bracket. With everyone bailing out of the markets the last week, TLT is apparently where a lot of folks are turning for 'safety.'
"Overall, I am happy with the experience. I love the opinions expressed in your newsletters. It is truly refreshing to read objective and intelligent arguments about investing and the world at large. I find largely that your view of the world matches my own, so you guys must know your stuff, hehehe. I am learning, and I am slowly beginning to take on more of the ideas and trading strategies you recommend in most all of your publications. Keep up the good work." – Paid-up subscriber Jeff H.
Regards,
Dan Ferris
Medford, Oregon
August 11, 2011
Europe vs. reality... Obama: Don't know much about history... S&P 500: Hoarding cash... News Corp. is up 16%... Gold sellers mob coin shop...