Why food prices could soar... Germany's latest bond auction sets record-low yield... Another municipal bankruptcy... Doc's contrarian move... Mega-REITs hit new highs... Blackstone dumping real estate... How U.S. presidents make millions... Can you trade stock splits?...
Corn prices are up 33% over the past month... and sit near 10-year highs. This week, the U.S. Department of Agriculture (USDA) cut the corn crop forecast by 12% to 13 billion bushels... The market expected 13.5 billion. Those expectations were down from the USDA's June outlook of a record 14.79 billion bushels. Droughts and extreme heat across the Midwest have damaged the crop.
Our Editor in Chief Brian Hunt, a former Iowa farm boy, knows the importance of the corn crop and how rising food prices can cause chaos around the world. As he wrote in DailyWealth...
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... one of the great fears of dictators around the world is a big spike in food prices. After all, the average Joe – whether he lives in Madrid, Mumbai, or Mexico City – will willingly march to war for the craziest reasons. He will endure punitive tax rates. He will cheer on the dumbest government actions. But should his food become expensive, he'll be rioting tomorrow... alongside every one of his neighbors. |
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As we've detailed in the past, one of the foundations of the global food system is the massive annual crop of calorie-dense, nutrient-lite corn that comes from the Midwest. |
Should grain prices continue to remain elevated (and it’s likely they will) expect more and more "unrest" around the world. To state again, high food prices can bring down governments.
Investors continue to seek the safety of Germany government bonds after the European Central Bank announced it would lend directly to European banks... Germany sold 4.15 billion euros worth of 10-year bonds at a yield of 1.31% today, the lowest bond yield the country has ever received though an auction.
Yesterday, San Bernardino, California voted to seek bankruptcy to "solve" its $45 million budget deficit. This is the third California municipality to go bankrupt – Stockton and Mammoth Lakes are the others.
Market gurus like Meredith Whitney, who called the Citigroup dividend cut, have been predicting a collapse in the municipal bond market. Some have said default rates could hit double digits. (Historically, less than 1% of "munis" default.)
But Retirement Millionaire editor Dr. David "Doc" Eifrig ignored the hype. He believed high-quality municipal bonds would continue paying tax-free income. And he used fears of a collapse in the muni-bond market to get great deals on some of his favorite bond investments.
So far, Doc's readers have made 65% on munis... And in his June issue of Retirement Millionaire, Doc reiterated his favorite muni-bond fund as a "strong buy."
In today's DailyWealth, Doc discussed his current views on the municipal bond market. He believes "if you can focus on facts instead of hype, you'll realize you can still make terrific amounts of tax-free income in municipal bonds."
Doc knows about the municipal defaults happening around the U.S., but he's not worried. The municipal bond market is greater than $3 trillion. Stockton, the largest city to declare bankruptcy to date, had about $500 million in debt – a tiny fraction of the total muni market. From today's DailyWealth...
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[A]lthough I'd expect a few more defaults this year, the numbers will still be miniscule – perhaps 0.5%-1% of the total municipal bond market. But many of the muni bonds are priced as if they're expecting 10%-14% default rates. To put that into perspective, in 2011, defaults totaled $2.8 billion... less than 1% of the total market. So even if defaults doubled (to $5.6 billion), that is still less than 1% of the market... and a long way away from 10%-14% the talking heads are yelling about. |
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Plus, even with defaults, the deals are worked out, sometimes people still get new terms that provide 80 to 90 cents on the original dollars. Don't let the graft and corruption of California's ugliest city scare you out of a great investment... |
As you may know… Doc started off his career trading derivatives at Goldman Sachs. After about a decade on Wall Street, he left to attend medical school. After becoming a board-eligible eye surgeon, he "retired" again and has spent the last few years showing subscribers how to improve their health, manage their finances, and enjoy a prosperous retirement.
Questioning conventional wisdom and fighting the impulse to follow the herd is one of his constant themes… Going against the consensus that munis were going to blow up was a quintessential example.
In last month's issue of Retirement Millionaire, Doc returned to the fixed-income market. In it, he showed subscribers a way to make 7.6% a year with a type of security that most individual investors don't know anything about. If you want to add super-safe income to your portfolio, you should take a look at this opportunity. Click here to sign up immediately for Retirement Millionaire. You'll get immediate access to all his monthly issues... And if you decide Retirement Millionaire isn't for you, we'll refund 100% of your money within 30 days, no questions asked.
In February 2007, billionaire investor Sam Zell completed the sale of Equity Office Properties, his giant real estate company, to private-equity firm Blackstone Group for $40 billion. And the sale of his gem – the country's largest collection of commercial real estate – marked the top of the real estate market.
Zell is dubbed "the grave dancer" for his ability to make fortunes investing in the world's most beaten-down assets. He's notoriously shrewd. Zell figured he gave up 6%-7% of the upside, a deal he told attendees of the 2007 Grant's Interest Rate Observer conference he'd take "all day long."
But Blackstone is no patsy... After inking the deal, the private-equity shop quickly flipped as much of the property as it could (including most of the highest-quality "trophy" assets, which are more liquid and carry higher premiums).
Yesterday, the two largest U.S. real estate investment trusts (REITs), General Growth Properties and Simon Property Group, hit 52-week highs. Simon, a giant mall owner, has increased sixfold since its 2009 bottom. General Growth went bankrupt in April 2009 and exited bankruptcy in November 2010. Folks like hedge-fund manager Bill Ackman, who invested in the bankrupt entity, have made more than 20 times their money.
Nobody's really talking about these two real estate giants hitting new highs... But Blackstone noticed. The Wall Street Journal today reported Blackstone is preparing to sell 100 commercial buildings – a combined 50 million square feet – for around $22 billion. That's more than half the company's real estate holdings. (As of the latest quarterly filing, Blackstone had $36.7 billion of real estate holdings.) The last time Blackstone participated in a giant commercial real estate deal, it marked the top of the market. It could be a similar situation this time...
Check your inbox tonight... We're sending you an e-mail to tell you about an income strategy that U.S. presidents – including Clinton and Obama – have used to make millions of dollars. We've compiled a report that shows how individuals can access this steady, and potentially lucrative, income stream. Don't miss our e-mail... Or if you want to get the details now, you can simply click here to learn more...
A slowdown in the mailbag today... What can we write about to rile you up? Let us know here... feedback@stansberryresearch.com.
New 52-week highs (as of 7/10/12): Abbott Labs (ABT), Wal-Mart (WMT), Target (TGT), Altria Group (MO), and Philip Morris International (PM).
"One prominent stock announced a split today... Are there general trends, money making opportunities, tax issues, etc. regarding stock splits?" – Paid-up subscriber Mike
Goldsmith comment: Generally, there are no benefits to a stock split from the investors' perspective. The market adjusts accordingly. Stock splits are simply a way for a company to increase its share count and bring down the stock price to attract more investors.
Regards,
Sean Goldsmith
New York, New York
July 11, 2012