Investors are scared about gold...

 Over the past week, we've received numerous e-mails from readers concerned about their gold and gold-stock holdings. Gold's performance has been a black eye on an otherwise upward-trending market.

We addressed the situation here. And Porter explained why gold is dropping in today's Growth Stock Wire (which we adapted from a previous Digest Premium).

In short, we believe it's too risky not to own gold today, regardless of price. Global central banks are dedicated to destroying their currencies. And gold will eventually prove the victor as paper currencies are worth less and less.

 One of the biggest advocates of owning precious metals, billionaire resource investor Eric Sprott, says we're seeing an exodus of gold from the West to the East as central banks quietly sell their gold to Asia. Sprott discussed what he sees happening with central banks' gold in an interview with the research firm Peak Prosperity…

When I see China buying 95 tons of gold in December and I read that India bought 100 tons in the month of January, when we all collectively know there's only about 200 tons a month available – you have to conclude that [Europe's major] central banks continue to sell their gold in a very non-transparent fashion.

Sprott also said the West's central banks – including the U.S. Federal Reserve – are selling more gold than they acknowledge… Earlier this month, the Department of Commerce reported that U.S. exports of privately held "nonmonetary" gold hit $4 billion in December… a record one-month total and a 43% jump from November. In the interview, Sprott questioned if all that gold really came from private sources… or if that includes "monetary" gold from the Fed's vault…

We exported 2.5 million ounces of gold. And where it comes from, God knows. The country only produces 8.8 million, and most of that's used internally. So I don't know how you just come up with 2.5 million ounces that you're able to export. So I believe that even though it's described as nonmonetary gold, my guess is that it is monetary gold…

There's lots afoot here in central banking to try to keep it organized. And I think one of those things is to keep the price suppressed.

 Sprott noted that when he first "got involved in the gold market"… conventional wisdom held that central banks owned about 36,000 tons of gold. Research by Frank Veneroso, a consultant to the Gold Anti-Trust Action Committee advocacy group, suggests 18,000 of those tons don't exist anymore. Sprott suggested the central banks can't continue feeding gold into the market indefinitely. (Unlike paper dollars… the central banks can't create more gold bars. At some point, they'd have to buy more or risk running out.)

The [global] central banks are sellers of 400 tons in an overt fashion. Now we see buying of over 500 tons. That, just in itself, is a 900-ton change in a 4,000-ton market, if I'm including recyclables here. And yet there's been no increase in supply.

So I have to assume that these central banks are running low, and the question in my mind is, do they just go down to zero and then give up?

Or do they look in the cupboards one day and say, 'Look, this is just not going to work because the intensity of buying by people – like China in particular – has just gone absolutely bonkers…

So I think there's enough element of the world who get it that the pressure's going to continue to be on the price of gold going higher... So I think that the day can't be far off. We can't predict when it's going to be, but the natural stage should be that the price of gold is going up, and we're in such a tremendous financial crisis that it hasn't been allowed to manifest itself because they're putting out fires all the time.

This isn't Sprott's first bold prediction about the metals market... In February 2011, he announced the world is running out of silver.

He concluded that speech by noting, "There's $22 billion of silver available in the world, of which the [exchange-traded funds] already own half. And between you guys and us, we probably own the other half... which means there's nothing left."

 In what could be the second-largest default in Spain's corporate history, real estate firm Reyal Urbis filed for bankruptcy protection today. The company's debts currently total €3.6 billion ($4.8 billion). Martinsa-Fadesa, another Spanish property developer, holds the all-time record for Spain's largest default when it reached an agreement with creditors to restructure €7 billion in debt in 2011.

According to a Wall Street Journal article, Reyal Urbis' creditors include Spanish banks Santander, Banco Popular, and Sareb, along with David Tepper's Appaloosa Management hedge fund.

 Reyal Urbis' primary business was developing residential properties. The WSJ reports that for the nine-month period between January and September 2007, the company sold €588 million in property. During the same period in 2012, it sold €35 million. Regulators suspended shares yesterday while trading at €0.12 – down from €10 back in 2007.

 Last week, we dedicated a Digest to explaining Steve Sjuggerud's proprietary, computer-based trading service, True Wealth Systems. Steve has spent years – and more than $1 million – developing the computer system that supports this advisory... In True Wealth Systems, Steve processes decades of financial data to find simple, actionable trading systems across all sectors.

To date, Steve has found more than three dozen of these systems. He's now profitably trading gold, homebuilders, virtual banks, and health-care stocks… just to name a few.

 Because we think this information is so valuable, we are going to dedicate space this week in the Digest to show what True Wealth Systems is and the many ways it can help you make money…

Over the past week, several of our top analysts have challenged Steve with a special series of requests. We challenged him to analyze dozens of popular investment ideas. We challenged him to cut through the vague claims and theories you hear in the mainstream press… and simply let the numbers do the talking. We also asked a handful of our best readers to challenge Steve with questions and ideas. The answers that came back will probably shock you…

 For example, every day, you can count on a fund manager to appear on CNBC and say he's buying stocks in a particular country because of its "strong economic growth." But did you know there is no correlation between economic growth and stock market returns?

Or… did you know that during a period of low interest rates, the standard valuation metrics of the stock market are close to useless? Steve will prove that in the Digest this week. He'll show you why he believes stocks are an amazing value right now.

Over the coming days, you'll see Steve use his system to analyze the world's most important investment ideas. In today's world of political flim-flam, baseless Internet claims, and Wall Street doublespeak, putting ideas to the test – and letting the numbers speak clearly for themselves – is more important than ever.

We have a lot of ideas to cover. But if you have a suggestion for Steve to test, please send them to feedback@stansberryresearch.com. (We cannot answer individual questions… and we cannot run individualized portfolio tests.)

 To start… we're republishing an essay Steve wrote for today's edition of our e-letter DailyWealth…

In the essay, Steve debunks a common misconception in the markets... that stocks do well when the economy is doing well. As Steve explains… when he hears an "expert" spout this misguided concept, it's his first clue the "expert" doesn't understand investing.

You can find the essay at the end of today's Digest… Don't miss it…

 New 52-week highs (as of 2/22/13): Berkshire Hathaway (BRK), W.R. Berkley (WRB), Constellation Brands (STZ), Pepsico (PEP), Dominion Resources (D), American Financial Group (AFG), Chubb (CB), Travelers (TRV), and Sysco (SYY).

 Two bullish notes in today's feedback. Are you making big returns? Let us know at feedback@stansberryresearch.com.

 "I started my options trading with Doc and Retirement Millionaire, and love it. Now, as an Alliance member, I am also using recommendations from Porter and Jeff in Stansberry Alpha and Pro Trader as well, and also with remarkable success. Sincere thanks to all of them! My question is, given the advantage of multi-legged trades, why doesn't Doc use them in Retirement Trader? Even though his record is impeccable, it seems like he might be able to juice his returns a bit." Anonymous

Goldsmith comment: Our different services focus on different strategies. And in Retirement Trader, Doc Eifrig focuses on selling puts. As the saying goes, "if it ain't broke, don't fix it." Doc has closed 108 consecutive winning trading positions in Retirement Trader, an unparalleled track record.

 "You once ran a series of articles on the [building a retirement nest egg by reinvesting the dividends of blue-chip stocks like Wal-Mart]. In June of 2009, I started my [own] plan when I went to work for the company.

"I left a prior career which was imploding around me to go to work as a (lowest level) supervisor for a Walmart subsidiary. My wife and I retrenched financially (in our mid-50s) and figured out a way to contribute to the Walmart stock purchase plan.

"On June 20 of 2009 I purchased 'Share 1' of Walmart at $48.54 per share. With the 15% company match, my cost was $41.26. At that time, WMT was paying a quarterly dividend of $0.2725. This week, the company announced an 18% dividend increase to $0.47 per quarter (up over 72% since my first purchase). 'Share 1' has now paid me $4.805 in dividends in 14 quarters (11.6%). The annual yield on 'Share 1' is now 4.55%. The share price is also up 45%, but that is secondary to me.

"I am now a manager with the company making almost what I made in my prior career, and believe that (once again), my retirement dreams are possible, though maybe deferred by a few years.

"To those who love to hate Walmart, I say opportunity is where you find it." – Anonymous

Regards,

Sean Goldsmith
Baltimore, Maryland
February 25, 2013

The Biggest Lie in Investing... That You Actually Believe
By Dr. Steve Sjuggerud

You hear it all the time... but it's completely wrong.

I know, I know... It sounds so right and sensible, it must be true. But it's completely false.

It drives me nuts.

"Expert" after "expert" repeats this lie on the financial news... and the "experts" sitting across from them never correct the lie.

For me, it's an easy way to know if an "expert" is legitimate or not. If he spouts this lie, he doesn't know investing.

The simple, innocent lie goes something like this: "Well... the economy is doing better, so the stock market should do better, too."

Sounds believable. But it is simply not correct!

The truth is, to make the biggest gains going forward, you want to buy into a "bad" economy – one where economic growth is zero or lower. The lesson of history is clear:

• When the economy is doing great, chances are stocks will underperform over the next year.
• When the economy is doing badly, chances are you'll do very well in stocks over the next year.

This isn't just my opinion, this is a fact...

You see, with my True Wealth Systems service, I have access to the best financial databases in the world. So to answer this question as completely as possible, I looked at U.S. stock prices versus the U.S. economy going back to 1800.

Astoundingly, since 1800, when the economy has been doing really well (when "real GDP" has grown at 6% a year or more over the preceding 12 months), you would have lost money in stocks over the next 12 months.

On the flip side, when the economy was contracting (shrinking), you'd have made a lot of money in stocks. The compound annual gain in the S&P 500 Index a year later was 50% higher than the gain in the index with "buy and hold."

You might say, "Steve, what happened in the 1800s doesn't matter as much here in the 2000s."

OK. Well let's take a closer look... Quarterly data for U.S. economic growth starts in 1947. So let's start in 1947 instead of 1800. The results turn out the same.

Since 1947, simply buying and holding stocks would have earned you a 7.3% compound annual gain.

But when the economic times are great – when the economy has grown at 6% a year or faster over the preceding four quarters – stocks have delivered a compound annual gain of 4.2% over the next 12 months.

Meanwhile, when the economy has contracted over the preceding four quarters, stocks have delivered an astounding 18.5% compound annual gain over the next 12 months.

Look... You've even experienced this effect – recently.

The economy was shrinking for all of 2009... Stocks bottomed in early 2009 and then soared.

You know what I'm saying is true.

You see, great conditions get "priced in" to the stock market. By the time things are great, stocks are usually too expensive (and due for a big fall). When things are terrible, stocks become very cheap. You want to buy when things seem terrible.

You do make money in "normal" times, of course... But the biggest gains come after the economy has been shrinking. And stocks perform their worst after the economy has had a great run of growth.

Don't let the "experts" tell you any different!

Good investing,

Steve Sjuggerud

 Most investors obsess about growth. They want to hear about companies poised to experience massive growth. And yes, growth is very good. But you can't forget that the point of growth is to generate capital for shareholders. How many Internet companies actually did anything to enrich their shareholders? Out of hundreds, maybe a handful. Their growth was a mirage.

 Thus, we judge companies primarily by how efficiently they produce cash. We're interested in how much cash a company generates per unit of sales. And we're interested in how much of this profit is reinvested into the business (through capital expenditures or acquisitions) versus how much is simply returned to the company's real owners – its shareholders. And we're very interested in the price per share we have to pay to capture our share of the cash the underlying business is producing.

 Let us show you, again, how to do it.

 Below, you'll find our most basic screen for capital-efficient companies. [Digest Premium readers have seen this ranking once before… But it's extremely valuable, and worth a second look…]

 When it comes to price, we prefer to pay as little as possible (obviously). But in our experience, high-quality businesses don't normally trade for much below 10 years of cash profits. We measure price by looking at a company's enterprise value (which includes the price of all its outstanding shares, plus all its net debt) and then dividing by its current annual cash earnings.