Interest rates are still dropping...

 Quantitative easing has been a gift to the wealthy. As the Fed boosted asset prices across the board, those who owned assets grew richer. And low interest rates allowed them to borrow more money to buy more productive assets.

 

It seems no target is too large. We've already seen takeovers involving brewer Anheuser-Busch InBev, food-processing company Heinz, and media mogul Time Warner, to name a few. We saw biotech giant Pfizer try (and fail) to purchase fellow competitor AstraZeneca for an astounding $118 billion.

 

Much like the savers who are forced to put their cash into stocks and bonds, corporations have lots of cash... and they want out.

 

These companies can borrow tons of money cheaply and buy out their competitors for massive amounts of money, consolidating the field.

 

 In the October 2013 issue of Stansberry's Investment Advisory, Porter wrote a thank-you letter to former Fed Chairman Ben Bernanke. No other man in history has done so much to benefit the wealthy...

 

Bernanke dropped real interest rates well into negative territory. That allowed the world's wealthiest capitalists – like renowned investor Warren Buffett and Stephen Schwartzman, head of the private-equity firm Blackstone Group – access to unprecedented amounts of capital at rates of interest that literally paid them to borrow.   They did the only logical thing... they responded with a wave of leveraged buyouts that dwarfed every other private-capital cycle in history. Immediately following Bernanke's ascension to the Fed chairman's seat in February 2006, U.S. private-equity firms bought out 654 U.S. companies, spending $375 billion (of mostly borrowed money) in just over a year.   To give you some idea of the scale of this Bernanke-led boom, this series of deals involved 18 times more money than all of the private-equity deals done in 2003. This was a massive aggregation of wealth. Almost none of these deals would have been possible without Ben Bernanke's policies.

 

As Porter explained, Bernanke was as good as his word. When the debt bubble burst, he followed through on his promises, matching the Treasury's deficit spending with newly created money. The Fed bought more than $3 trillion in Treasury bonds and mortgage bonds...

 

At the end, Ben's policies had grown so completely out of control, it was possible for Brazilian entrepreneurs to borrow immense sums at such low rates that they began buying out iconic American brands, literally our country's greatest businesses – like Budweiser and later Heinz. The Chinese, powered by the same wave of Bernanke dollars, opted to begin buying out our oilfields. Soon, we believe, they will begin buying private homes.   Yes, for rich people all around the world, Ben has been a living saint. Thank you, Ben!

 

  The hunt for giant takeovers continues...

 

Private-equity groups are now looking to partner with major investors (like state-owned sovereign wealth funds) to buy global companies with great brands.

 

Private-equity firms traditionally raise funds from investors and lenders to buy companies. They try to improve the company and sell it for 20% annual returns within five years.

 

Now, they want to invest like the world's greatest investor, Warren Buffett – buying large and stable companies with excellent brands. As David Rubenstein – founder of private-equity firm Carlyle – said on a July conference call...

 

Everybody is looking for something that somebody else doesn't have... High rates of return are less important to some investors than the steadiness of rates of return.

 

 And they're competing against the sovereign wealth funds themselves... These funds have hired their own managers to invest directly into stable companies. For example, in September, Singaporean sovereign wealth fund GIC bought half of British roadside-recovery specialist RAC from Carlyle for $3.2 billion (in U.S. dollars).

 

 And with $464 billion in dry powder, private equity has plenty of cash to buy blue-chip firms.

 

More great American companies are on the chopping block – with more deep-pocketed bidders on the sidelines.

 

The concentration of wealth continues. As Porter wrote earlier this month, there's a drawbridge opening in America. Which side will you be on?

 

 

 New 52-week highs (as of 10/13/14): National Beverage (FIZZ), ProShares Ultra 20+ Year Treasury Fund (UBT), and short position in Washington Prime Group (WPG).

 

 In today's mailbag, one subscriber tells us he enjoyed Porter's Friday Digest, another asks about trailing stops, and a third finds one of our recommendations immoral. Tell us what's on your mind at feedback@stansberryresearch.com.

 

 "Porter, the Friday Digest on 'The worst investment mistake in history' is another great lesson to us, your subscribers. You don't want to call it teaching, but let me assure you the learning continues. These examples of real mistakes are a profound way to convey the traps that are so easy to fall into. If Buffett can screw up this badly, imagine what happens to the more casual investor who spends 60 hours of their week on a day job and squeezes in investment research after hours.

 

"Value is the trap. How you value things is very tricky business as Warren learned with his textile looms. Who would have thought modern equipment was worth less than scrap metal? This one will stay with me a LONG time, as I'm sure it has with Buffett.

 

"Speaking of mistakes, I'm writing you from Shanghai where I'm on business travel to our supplier factories. Shanghai and even more Beijing are engulfed in dense smog this week and public controversy rages on how to deal with their competing priorities of air quality and economic growth. Somewhere in this is another great book for you to write... Lessons on High Quality Living. Thanks for all your efforts on our behalf." – Paid-up subscriber Bud Jenkins

 

 "As oil and energy related stocks drop I have received alerts from TradeStops (an outstanding program by the way) that I have reached the 25% stop loss. I immediately sell those stocks and don't look back per your advice. However I often ponder on that theory of when you own stock in good companies that you feel have a good future, shouldn't you be buying on the dips instead of selling? Do you ever make exceptions to your stop loss rule? Thanks for a great service and ongoing education." – Paid-up subscriber Tom G.

 

Goldsmith comment: We don't make exceptions. Following your trailing stops and using proper position sizing helps to avoid any catastrophic losses in your portfolio. Trailing stops exist to take the emotion out of investing. Holding onto a 25% loss in your portfolio is when your emotions often run the highest. For those reasons, we don't recommend ignoring your trailing stops.

 

Plus, if you feel strongly about a position, you can always re-open it down the road – though we recommend taking a month or two to "cool off" and reevaluate the company.

 

 "I just received a mailing from S&A encouraging me to cash in on the marijuana industry. That spoke volumes to me about the moral standing of this company. No regard whatever for the moral decline and all for the buck. Your stand will soon become far too expensive before the Throne. Nuff Said. DON'T SEND any more amoral garbage to me EVER. I am indescribably incensed at this action." – Paid-up subscriber Joseph Aldridge

 

Goldsmith comment: We're in the business of recommending stocks, not making moral choices for our subscribers. We've never apologized for recommending controversial stocks. Some of Extreme Value editor Dan Ferris' top-performing recommendations are in stocks that some people might consider controversial, including tobacco giants Altria (up 144%) and Philip Morris International (up 106%) and alcohol icons Anheuser-Busch InBev (up 130%) and Constellation Brands (up 297%).

 

The decision to follow our recommendations is your own... If you're uncomfortable with the idea of owning these companies, don't buy them.

 

Regards,

 

Sean Goldsmith

October 14, 2014