Here comes the taper...

My thoughts on gold today...

Gold has fallen from a peak of $1,900 an ounce in 2011 to a little more than $1,200 today...
 

In today's Digest Premium, Porter shares his thoughts on the precious metal – including when he plans to buy more and what he thinks will signal the end of the bear market.

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

Here comes the taper... The VIX plunges... Porter and Bill Bonner's thoughts on tapering... Buying and holding – and holding...

 Yesterday, the Federal Reserve announced it would taper its monthly bond purchases by $10 billion to $75 billion.

So for 2014, the Federal Reserve will purchase $900 billion in bonds, not $1.02 trillion.

Fed Chairman Ben Bernanke knows he's on fragile ground... and there's an unprecedented amount of money floating around in the economy. He knows eventually the stimulus will have to end. So he's gingerly moving in that direction...

The Fed is testing the waters on the taper. But the reduction in bond-buying doesn't mean much in terms of the size of the Fed's balance sheet... Just take a look at this chart (which is based on one published today by the financial blog Zero Hedge)...

 The Fed also will keep interest rates low "well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below" the Fed's goal of 2%, Bernanke said.

"The action today is intended to keep the level of accommodation the same overall and to push the economy forward," he said. "We are committed to doing what is necessary to getting inflation back to target."

 A quick recap of what happened in the markets...

The Dow and the S&P 500 closed at record highs yesterday. The CBOE Volatility Index (the "VIX"), which we call the market's "fear gauge," plunged 15% to below 14.

Today, gold is down more than 3% to less than $1,200 an ounce – its lowest level in six months. Silver is down 1% to $19.20 an ounce. Platinum is down 1% from $1,336 an ounce to $1,314 an ounce.

 The VIX is also down another 2% today to 13.50... The market believes a Fed taper means the economy is getting better. And it is, on the surface. But remember, this prosperity has been manufactured by an overeager Federal Reserve with its hand on the print button. This low VIX suggests the market is too complacent today.

 The most important number in finance, the yield on the 10-year Treasury, spiked... Yields hit 2.93% today, up nine basis points (0.09%) from Tuesday.

Still... what does the taper mean for you? How do you play it?

First off, this minor reduction is a nonevent.

I asked Porter for his thoughts on the taper this morning...

"It suggests a strategy where the Fed will slowly starve the market of its stimulus," Porter responded. "The question is: Will turning off the spigot slowly prevent a substantial rise in rates or merely slow their spiral higher?"

 Luckily, our analysts have been preparing for a taper... And we've already written lots of material telling you what a reduction in monthly bond purchases – and an increase in interest rates – means.

Porter tackled the topic in his latest issue of Stansberry's Investment Advisory. DailyWealth borrowed from that issue today, which we're excerpting here:

Porter and his team analyzed market data going back to 2007 to assess how stocks performed in periods when the Fed paused its money printing. They found that...

We encourage you to read the entire essay... which includes a breakdown of how each sector performed. You can find it here.

 Agora founder Bill Bonner also tackled the taper in today's Diary of a Rogue Economist... In short, like us, he just sees more of the same...

As always, you can sign up to receive Bill's free daily writings here.

 New 52-week highs (as of 12/18/13): BLADEX (BLX), Blackstone Group (BX), Chicago Bridge & Iron (CBI), CVS Caremark (CVS), Energy Transfer Equity (ETE), Fluidigm (FLDM), 3M (MMM), Altria Group (MO), Prestige Brands Holdings (PBH), PowerShares Buyback Achievers Fund (PKW), RPM International (RPM), Sequoia Fund (SEQUX), ProShares Ultra S&P 500 Fund (SSO), Targa Resources (TRGP), Virginia Gold Mines (VGQ.TO), Wells Fargo (WFC), and ExxonMobil (XOM).

 A few readers won the "buy and hold" game... How have you fared? Let us know here... feedback@stansberryresearch.com.

 "I am responding to your recent S&A Digest and your request for feedback.

"I first bought BRK in 1997, I have been adding to my position over the years including dips. My last purchase was in January 2009. BRK is 40% of my portfolio (stock, bond and cash). I bought and held it for 16 years and I never sold a single share. I hope to continue to do so for the next 20 years. All of my other holdings are always up for review and sale, including recommendations from Stansberry newsletters." – Paid-up subscriber Bobby Joseph

Porter comment: Very wise.

 "I grew up in the 70s and 80s during a period of high interest rates and learned the value of compounding first hand. However, I did not apply this knowledge to the stock market. First I tried buy and hold investing, but I didn't have the experience nor the knowledge to value a business. My results were dismal.

"Then I found you guys and really began to learn how to invest. I started to diversify and use stop losses, and my results improved. However, my results were still lagging because I did not do a good job of tracking my stops and executing the trade in a timely manner. I would miss the stop, and what should have been only a 25% loss would turn into a 50% loss or more. This lead me to develop a program to track my stocks and alert me if they hit my stop loss or my buy target. (I wish Tradestops would have been around back then it would have saved me the time and effort of development since it does the same thing).

"Finally, after studying Warren Buffett and with the teachings from my Alliance membership I started to combine the diversity with buy and hold. At the end of 2008 through March of 2009 I bought into six businesses using 60% of my stock portfolio that I plan to hold forever with the dividends reinvested. The dividend increases on these six stocks has been 17% per year since that time not counting capital gains. The only way I would sell one these six core positions from my portfolio is if the business itself changed. If all six of these stocks dropped by 50% today I would only be down 26% because of the dividends and my entry price.

"The remainder of my stock portfolio is half in cash with the rest used for selling puts, buying bonds, and buying or shorting stocks. With this portion of my portfolio I have averaged gains of 11% a year since 2008, which lags my boring buy it and forget 60%. I hope we get another big market correction. It sure would be nice to add a couple of more exceptional businesses to my core portfolio." – Paid-up subscriber Dennis

Porter comment: YES! Victory! Thanks for sharing.

Regards,

Sean Goldsmith and Porter Stansberry
Miami Beach, Florida and Baltimore, Maryland
December 19, 2013

Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)

My thoughts on gold today...

 I (Porter) have been saying for a long time that you don't do very well buying an asset after it goes up 12 years in a row (which gold has). And I have been saying for some time that I would be more interested in gold when it's at less than $1,200 an ounce. Gold is approaching that level today.

So I'm more inclined to be a gold buyer than a seller at today's prices, but I'm not rushing in.

 We've had a lot of people call the bottom in gold and gold stocks... And they've been doing so for two years. But again, I don't think that you'll see a 12-year bull market resume after a six-month bear market. You're going to have to see a little more pain.

One of the things I believe about big bear markets like the one we're experiencing in gold is that it isn't ever over until whomever – or whatever – was the major bull gets gored.

 The last time I urged subscribers to buy gold and gold stocks was 2008... three major gold and gold-stock investors who I knew had just committed suicide. Unfortunately, a lot of times, that's what happens at the bottom of a market. You see major firms collapse and major people destroyed. And we might have our first victim...

 I understand from sources that Eric Sprott, the founder of Sprott Resources – a large Canadian resource investment firm – is going to step down from his role as an asset manager.

Sprott is a major silver and gold bull... His main fund has dropped more than 50% this year. And hedge-fund assets managed by his firm have fallen to $350 million this year, down from around $3 billion in 2008.

Trust me, I take no pleasure in writing this. You never want to forecast someone else's doom. And in this case, I admire Eric and wish him the best. But I've been expecting that he would have to go out of business before this bear market in silver and gold ends. So we might be seeing the first tentative signs of a bottom in gold and silver. But I'm not really willing to declare we're there yet...

 Having said all that, let me repeat the advice I always give when it comes to gold and gold stocks: I tend to buy gold every single year. At the end of the year, however much money I have left over in my checking account – after all the Christmas bills have been paid – I call my bullion dealer and put that amount of money into gold. So I am a long-term consistent buyer of gold and I plan to always be one.

Nothing changes the fact that the U.S. dollar's intrinsic value is zero. That means the intrinsic implied value of gold is infinite. So as long as you just buy gold over time, I believe you'll do well.

– Porter Stansberry

My thoughts on gold today...

Gold has fallen from a peak of $1,900 an ounce in 2011 to a little more than $1,200 today...

In today's Digest Premium, Porter shares his thoughts on the precious metal – including when he plans to buy more and what he thinks will signal the end of the bear market.

To continue reading, scroll down or click here.

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As of 12/18/2013

Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.