We're seeing lots of conflicting signals from investors right now...
The American Association of Individual Investors (AAII) sentiment survey says investors are 49% bullish and 17% bearish. That's extreme bullish sentiment... well beyond the average levels of 39% bullish and 30% bearish.
In a simple weekly survey, AAII asks a self-selected group of investors if they're bullish, bearish, or neutral on stocks for the next six months. It tends to be a decent contrarian indicator. So the bullish sentiment right now appears to be a near-term sell signal.
But hold on a minute...
If you take a slightly longer time frame into consideration, maybe investors look really scared, not bullish...
Through December 2011, investors made net withdrawals from equity mutual funds for eight months in a row – eight months of selling. That's the first time that's happened in at least 20 years, according to Bloomberg. That's really bearish sentiment. The market bottomed in early October... but investors just kept selling.
Investors' actions last year have yielded a clear result: Stocks are cheaper than they were a year ago. Last year at this time, the S&P 500 was trading for more than 15 times earnings. Now, it's less than 14 times earnings.
If you're a trader, you should be careful going long stocks right now. But if you're a long-term, value-oriented investor, you're probably finding some good deals.
I (Dan Ferris) have found a fantastic deal for 12% Letter readers. It's a great American business. It's consistently profitable year after year, gushing billions of dollars in profit. It treats shareholders better than the vast majority of companies do… buying back billions of dollars' of stock and increasing its dividend by 20% last year (a pace I expect to continue for at least five more years). It earns a consistent profit margin, year after year like clockwork, a huge hint that it's got a huge advantage over its competition.
And you can get all this for less than 12 times earnings. That's an absurdly cheap price for a business so resilient that it grew every year, right through the financial crisis. Readers of my 12% Letter will receive my research on this company in my next issue, due out Thursday. To find out more about this safe, cheap, high-quality company, try a subscription to The 12% Letter by clicking here.
"I don't trust paper money anymore... And I will never sell my gold. Never ever. I don't mind if it goes down 50%," permabear investment guru Marc Faber said on the latest installment of Stansberry Radio. "I would rather lose 50% in gold than 100% in paper currencies."
Faber also told listeners his favorite city in the world for nightlife... and why the U.S. education system is completely corrupt. You don't want to miss this interview, for both the investment aspect and nightlife stories. You can listen here.
To make sure you never miss another episode of Stansberry Radio, be sure to subscribe, completely free, at www.StansberryRadio.com.
"Euroland downgrades make investrs aware countries can default 2! Centuries of histry prove the point & #Greece wl be most recnt example"
Bond King Bill Gross posted this (grammatically poor) message to the Twitter account of his money-management firm PIMCO. (Twitter is a social media website that allows its members to distribute short messages to their followers.) It's no surprise that Gross, who manages the world's largest bond fund for PIMCO, is bearish on Europe. He believes Greece will default. And he's positioned his portfolio to profit from the country's demise.
Gross increased the holdings of U.S. government debt in his $244 billion Total Return Fund to 30% of assets in December, the most in 13 months. "The bulk of sovereign-bond holdings should be in the U.S... as long as European credit implosion is possible," he wrote on PIMCO's website on June 4. And as evidenced by 10-year Treasurys hitting a low yield of 1.71% last week, Gross is correct. (Bond yields fall when bond prices rise.)
Gross making controversial market calls is nothing new. He was one of the most outspoken adversaries to the U.S. government's quantitative easing programs. He repeatedly bashed U.S. financial policy in his personal writings and through every mainstream media outlet that would convey his message.
While we expect these bold calls from a man like Gross... we don't expect them from the credit ratings agencies. But the major credit ratings agencies (Moody's, Standard & Poor's, and Fitch) have become increasingly bold since the start of the financial crisis. Leading up to 2008, these companies would slap a triple-A rating (their highest) on every pool of mortgages (and certainly every sovereign issue) Wall Street wanted to sell.
Coming out of the crisis, one ratings agency has downgraded the U.S. On the surface, that seems like a monumental decision. In fact, Treasurys rallied in the face of the downgrade. We shouldn't be surprised. The ratings agencies downgrade debt only after everyone already knows there are massive problems.
Now, in typical fashion, more horses have left the barn… and the ratings agencies are rushing to slam the door shut... They've downgraded sovereigns across Europe – including France, which is often viewed as the second-strongest nation behind Germany. And they're calling for outright default in Greece. Fitch Ratings Managing Director Edward Parker believes – correctly – Greece is insolvent. Parker, in an interview with Bloomberg in Stockholm, said he doesn't believe Greece will meet its March 20 bond payment of 14.5 billion euros.
As for the private-sector deal, whereby Greece's creditors would take 50% haircuts on their holdings... "The so-called private sector involvement, for us, would count as a default, it clearly is a default in our book," Parker said. "So it won't be a surprise when the Greek default actually happens. We expect it one way or the other to be relatively soon."
The whole world knows Greece is broke. Most, if not all, of the bad news is priced in. Like most of the financial industry, if it was really honest about its value to its clients, Fitch would close up shop and its employees would have to go do something much more useful, like making French fries or sweeping floors.
In the midst of the Greek default chatter, Europeans are doing the same thing Bill Gross and all the other scared investors in the world are doing – going to cash. Overnight deposits at the European Central Bank hit another all-time high... Deposits hit 502 billion euros today, up from 493 billion euros Monday. I bet the folks putting all that cash in the bank have never even heard of Fitch. They don't need an overpaid MBA to tell them something is very, very wrong.
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New 52-week highs (as of 1/16/12): None. (Markets were closed for the holiday.)
In today's mailbag... subscribers write in with questions about our strategies and Porter's Report Card. Send your messages to feedback@stansberryresearch.com.
"I recall that you suggest we do not put stops online. However, it is difficult to manage about 50 individual stops manually. What is wrong with using a 'stoplimit' number online. I know the computer makes the decision (my price) but it surely takes the emotion out of it and I'm guaranteed a price as long as it comes back to my limit if it passes it on the way down. I need protection when things happen at computer speed." – Paid-up subscriber Ray
Goldsmith comment: If you enter your stops in the market, you give some market maker the opportunity to "pick off" your shares at your stop... then bring the market right back up. It's not worth risking. If you're having trouble tracking your stops, we recommend a service developed by a trusted associate called TradeStops. It will keep your information private and secure and alert you when any stops are hit. You can learn more here...
"I noticed that 'True Income' was not included in your annual review. Is there a reason for its exclusion?" Paid-up subscriber Don Chapman
Goldsmith comment: Porter will review the rest of our publications, including True Income, on Friday.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
January 17, 2012
Individual investors: Scared or elated?... A fantastic business is dirt-cheap... Stansberry Radio: Faber on paper money... Gross 'tweets' Greek default... PIMCO buys U.S. bonds... Fitch is late to the party... Europeans go to cash... Bankers go to gold...