Gross dumping Treasuries
Editor's note: Porter is busy preparing his latest issue of PSIA, so today's Digest will be short.
Another blow for the deflationists: Bond King Bill Gross is dumping Treasuries, voting we'll see massive inflation in the future... "Americans have assumed the [interest rate] roller coaster goes one way," said Gross. "It's been a great thrill as rates descended, but now we face an extended climb." In addition to a strengthening economy, Gross thinks the glut of new government debt will outpace demand.
Nine months ago, U.S. government debt comprised 50% of Gross' PIMCO Total Return fund. Today, the number is 30% – the lowest in the fund's 23-year history. Gross now favors European debt, particularly Germany, and debt from developing economies like Brazil.
Ten-year Treasuries are currently hovering around 3.9% – up around 180-basis points from the December 2008 low. As Dan pointed out last week, mortgage rates are also on the rise. A 30-year fixed-rate mortgage is now 5.2%, up from less than 4% earlier in the year. (An interesting fact from the New York Times today: Each increase of one percentage point in mortgage rates adds as much as 19% to the total cost of a home.)
Last week, the Federal Reserve announced the average interest rate on credit cards hit 14.26% in February, the highest since 2001. That's up from 12.03% when rates bottomed in the fourth quarter of 2008. And auto finance companies are now charging 4.72%, up from 3.26% in December.
Readers who watch our "top ten" list have been treated to the "Matt Badiali Show" over the past few months...
Our resource and geology expert, Matt Badiali, has claimed five of the top 10 spots on the open position list, including a monster 420% gain in Jinshan Gold Mines, a 200% gain in the tiny exploration company Rainey River, and two silver companies that have doubled since his original recommendations.
Jinshan was the focus of a report Matt sent to readers of the S&A Resource Report this January, titled "Government-Backed Gold and Silver: How to Make 10-Times Your Money in China." Matt's investment thesis was simple: When the Chinese government decides to support an industry, it goes "all in" with special regulatory, tax, and other government favors. China desperately wants to develop its domestic mining industry, and Jinshan is one of China's anointed gold companies. Matt originally recommended the stock around $1. It's now around $5.50.
Matt has Jinshan rated as a "hold" right now. Lately, he's more bullish on a little-known region called the "Golden Triangle." Most folks have no idea the place exists, but it's home to the largest untapped gold deposit in Canada. Altogether, the Triangle has 15 world-class deposits – all of them virtually untapped. But as Matt tells us, that's all about to change.
The Golden Triangle has been mostly impossible to mine for the past 150 years because of its remote location and lack of power infrastructure (I had to visit by helicopter). While many folks get excited about big gold discoveries, they often forget that roads and power lines are as important to a mine as ore grades.
But just a few years ago, the British Columbia provincial government – in conjunction with the federal government of Canada – has approved the construction of a 200-mile power line. The new high-voltage Northwest Transmission Line is scheduled to cut right through the heart of the Golden Triangle... and it's going to bring a mining boom along with it.
It will also send the shares of companies that own prospective stakes in these potential mines soaring. Neither Main Street nor Wall Street know about the region, so shares in the best Golden Triangle plays are still cheap.
To any S&A reader who hasn't hedged himself against the coming dollar crisis with gold, silver, and selected precious metals stocks, Matt's report on this situation is a must read. Matt has found several companies operating in the Golden Triangle with spectacular undeveloped gold and silver deposits. It's a way to own a tremendous amount of precious metals in the ground (in a safe, stable country), while exposing yourself to hundreds of percent upside when gold and silver go to the moon. You can learn more about his report here.
New highs: Washington REIT (WRE), WisdomTree Japan (DFJ), Financial SPDR ETF (XLF), Hershey (HSY), ConocoPhillips (COP), San Juan Basin (SJT), Kinder Morgan Energy Partners (KMP), Enterprise Partners (EPD), Markel (MKL), St. Joe Company (JOE), Longleaf Partners (LLPFX), Sequoia Fund (SEQUX), Altius Minerals (ALS.TO), WD-40 (WDFC), Akamai (AKAM), Biglari Holdings (BH), Dana Holding (DAN), Carpenter Technology (CRS), DirecTV (DTV), Silver Wheaton (SLW), Eastern Platinum (ELR.TO).
Subscribers weigh in on Steve Sjuggerud in today's mailbag. We love all types of criticism. Send some here: feedback@stansberryresearch.com.
"Maybe it's just the margaritas kicking in – but I strongly disagree with your claim in today's Digest: 'Steve Sjuggerud is the smartest and most conservative investment writer in our group.' As a long time subscriber & Alliance Member who has not only read every word over ?how many? years, but has had the pleasure to hear & meet all the editors at the annual Alliance meeting, I contend that Porter is the smartest of the group (no, we are not related), Dan Ferris the most conservative.
"I would, however, endorse the claim that Dr. Steve is the wisest and most innovative writer in the (any) group. To us greybeards – with accumulated investing successes (and scars) – intelligence tempered by wisdom and integrated with outside the box innovation – is priceless. And you are only asking 5 bucks a month. What a steal.
"I also take issue with your further statement: 'He has successfully led investors through bull and bear markets for nearly 20 years. He has been a stockbroker. He has been a mutual-fund manager. He has been a hedge-fund manager.' You left out the most important part: 'He is rock solid and one of the best friends I have ever had.' When you've been around the block a time or two you realize there are things far more valuable than 'annualized return.'" – Paid-up subscriber Donn
"You finally hit my hot button. Your statement that 'as you know Steve is the smartest and most conservative writer in our group' may be so – but tell us how you decide it. Regardless of 'As you know,' it's not obvious to me. My vote and record supports that Dan Ferris owns that spot, beyond all Alliance products including the earlier Diligence, Rebound and now Phase 1, but I'm judging only by Extreme Value's contribution to my bottom line. What's your criteria? Incidentally I have nothing against Steve – I just reject your unsupported assertion." – Paid-up subscriber Joe Myers
Regards,
Sean Goldsmith
Baltimore, Maryland
April 12, 2010