'It's time to set some goals'...

The market shuddered yesterday after the Federal Reserve released the minutes of its most recent Federal Open Market Committee meeting… Several members voted to stop the Fed's open-ended quantitative easing program before the end of this year (as opposed to tying it to an unemployment rate of 6.5%). Others wanted to wait until the end of the year to stop the easing… Either option would end the Fed's money printing sooner than expected.

But we don't think the Fed will change course any time soon. Even if it did end its easing this year, the damage has already been done… The Fed's balance sheet will be approximately $4 trillion by the end of 2013 (assuming it continues its monthly purchases of $85 billion).

Rather, we expect only more of the same inflationary policies… And that's why we continue to believe bank stocks and the financial sector represent a great investment opportunity…

Accounting for all capital, the banking sector's capital as a percent of assets is the highest it's been since 1938… so these institutions are sitting on huge reserves.

Bank liquidity is also at a 25-year high. Liquidity measures how much cash and short-term assets are available to use. In bad times, liquidity means a bank has cash to cover its needs. In good times, like today, strong liquidity means the bank can make loans and other profitable deals. As the pace of lending picks up… so will bank profits.

Yesterday… Bank of America CEO Brian Moynihan said his institution is gearing up to do just that… The bank announced it is ramping up mortgage and corporate lending. This is big news… For the past two years, the bank has focused on repairing its capital levels and cutting costs to appease regulators following the bank's 2008 purchase of mortgage lender Countrywide.

Bank of America's total mortgage originations fell 37% to $21.3 billion in the third quarter from a year ago. It originated $53.4 billion of retail mortgages in the first nine months of 2012. That ranks it behind No. 1 originator Wells Fargo's $189 billion and No. 2 JPMorgan's $81.5 billion in originations.

But Moynihan says his bank should overtake JPMorgan in direct-to-consumer mortgage lending in the next six months.

The company will also be "more aggressive" in lending to companies (in yesterday's Digest Premium, we discussed the increase in banks' commercial lending).

As inflation takes hold, and long-term rates rise, the bank's lending will become more profitable. (Ten-year Treasury yields hit 1.9% yesterday, the highest level since May 2012.)

In addition to ramping up lending, Bank of America is also working to put all crisis-related lawsuits (mostly tied to Countrywide) behind it… "Our job is to get them put away at a reasonable basis for shareholders," Moynihan said. "Doesn't mean we won't fight if people aren't reasonable. But it's in our best interests… to get all this stuff behind us."

Bank of America was also recently the first large Wall Street bank to surpass new international capital requirements… And Moynihan is ready to return capital to shareholders. The bank currently pays a $0.01 quarterly dividend after the government forced the bank to slash its dividend… "The minute I get approval from the Fed, you'll know," Moynihan said in his announcement.

When buying big banks, we want to make sure the bank we're investing in has plenty of high-quality capital and is trading for less than tangible book value – that's the value of its tangible assets (cash, property, receivables, etc.) minus its liabilities. In particular, we're focusing on so-called "Tier 1" capital.

Bank regulators define several different "capital" tiers when evaluating the quality of a bank's finances. Just know, Tier 1 is the highest quality. It's the amount of real reserves banks hold against total assets.

Right now, Bank of America is currently trading for only 80% of its tangible book value (up from 73.4% last April, but still a considerable discount). And its Tier 1 capital makes up 13.6% of its total assets, as of its third-quarter filing (up from 12.4% when we covered the stock last April)…

And now, the company is deploying its capital aggressively… As we said yesterday, Bank of America shares have plenty of room to run higher, even after doubling in 2012.

Will the Fed really stop easing?... Why bank profits could rise quickly this year…

In today's Digest Premium, we continue our look at the huge opportunity we see in bank stocks – and Bank of America, in particular.

To continue reading, scroll down or click here.

Will the Fed really stop easing?... Why bank profits could rise quickly this year…

Will the Fed really stop easing?... Why bank profits could rise quickly this year…

In today's Digest Premium, we continue our look at the huge opportunity we see in bank stocks – and Bank of America, in particular.

To subscribe to Digest Premium and access today's analysis, click here.

'It's time to set some goals'… Three ways to not lose money… One list to keep handy this year… Put yourself on the gold standard…

It's the first Friday Digest of 2013... and it's time to set some goals.

Although we can't guarantee investment success, we can deserve it. We deserve it by following a few simple, key guidelines. If you don't have these things taped up on your computer screen yet, it's time.

First and foremost, the No. 1 goal for 2013 is to not lose money. We manage the risk of loss in three important ways. First, we do our best to only buy investments when they are attractively priced. That means, you have to know how to value operating companies (on the basis of their cash flows), asset development companies (on the basis of their proven reserves), and bonds (on their discount to par and yield to maturity). We've written about these topics many times. This year, promise yourself that you will fully understand the value of what you're buying. And no matter what… don't pay too much for your investments.

The second way we avoid losses is by using trailing stop losses. These are mechanical exit points where we will sell a stock if the price has moved against us by a predetermined amount – normally 25%. We don't tell our brokers about our stop-loss points. We don't enter the stops into the market, either. Telling the market where your stops are is just like showing your poker buddies your hand before you start the bidding.

Keep your stops on a spreadsheet. Or even better, use software like TradeStops to manage your portfolio. Make 2013 the year you fully embrace trailing stops. Make this the year you don't ignore any stops or hold onto any losing positions.

The third and most important way we minimize risk with our investing is by having a relatively diversified portfolio. It's difficult to give any useful advice about position sizing and portfolio allocation to a broad audience because everyone's asset base is unique. But I recommend everyone understand two important rules of thumb...

First, it's OK to have a big asset – like a business or a ranch – that dominates your balance sheet, if you're in control of the asset and if you have positive carry (positive cash flow). Looking at my own balance sheet, for example, I have two very large assets (compared with everything else): my publishing company and real estate holdings. That's OK because I have total control over both assets, and they provide me a significant amount of cash flow.

On the other hand, when it comes to passive, minority stakes in companies (like holding shares of stock), I never buy a position size larger than 5% of my portfolio. I don't have control over these assets. And as an outside, passive investor, I will always have an information gap. I must diversify.

All passive equity investors ought to have at least 12 stocks. You should have a note card made up about each one, so you can easily explain each business, your reason for investing, and the conditions that would cause you to sell. Maintaining your portfolio shouldn't take more than an hour a month, if you're organized. Make 2013 the year you do it.

At the beginning of each year, my long-term wealth-building goal is to make one substantial investment in a very high-quality, capital-efficient business. To do so at the right price (less than 10x average annual free cash flow) takes a bit of luck... I can't manufacture a great opportunity to buy a company like Hershey, McDonald's, or Coke. But I can be prepared so that if such an opportunity comes along, I'll be ready.

I suggest you do the same by keeping at least 10% of your portfolio in cash. This will allow you to make a big bet (double the normal position size) if the right opportunity comes along.

Take an hour this week and review our work on capital efficiency. Write down the names of five or 10 companies you'd love to own for the next 10, 20, or 30 years. Keep the list somewhere handy... you never know when a big market correction will come along.

One final goal for 2013... Make sure you've purchased some kind of paper dollar hedge. Although you can hedge against the growing risk of inflation (and a collapse in the bond market) in a number of ways… the best is to simply buy gold bullion. I strongly suggest that if you haven't put 5%-10% of your portfolio in gold yet, you should do so now. Store the gold outside the banks. I recommend self-storage facilities that are secure.

Our political leaders are now on a runaway, suicide course. They've come to believe that narrowing the tax base and printing billions and billions of dollars is the formula for prosperity. It's complete madness.

The latest example is the trillion-dollar coin nonsense that's being pushed by certain folks on Wall Street. They say Treasury Secretary Tim Geithner should just mint up a $1 trillion face-value coin and deposit it with the Treasury... That, these idiots claim, will circumvent the debt ceiling.

These theories have all been tried in many other places around the world – Zimbabwe, Argentina, Germany after World War I... and they never work. No nation in history ever became wealthier by going deeply into debt and then printing the money required to repay the loans. It will not work here, either.

Unfortunately, the success the Fed has enjoyed (so far) in expanding the monetary base and manipulating the Treasury bond market has greatly emboldened our politicians. These men are crazy, stupid fools... who are completely blind to the inevitable catastrophe they will cause. Protect yourself from the coming monetary mayhem while you still can. Make 2013 the year you put yourself on a gold standard.

Next week, we'll review how we did last year with our annual Report Card. Don't miss it.

New 52-week highs (as of 1/3/13): Berkshire Hathaway (BRK), iShares Dow Jones U.S. Home Construction Fund (ITB), Sequoia Fund (SEQUX), Targa Resources (TRGP), Cheniere Energy (LNG), Union Pacific (UNP), and Government Properties Income Trust (GOV).

In the mailbag... a reader who knows more about how money works than Congress. Send your comments to feedback@stansberryresearch.com.

"I find it interesting to look at the U.S.A. dollar value today. A U.S. silver dollar today is now worth $27 of our 'paper' money dollars. If my IRA is worth one million dollars today, it's only worth about $37,000 in silver dollars. 'Houdini has made a laughing stock of our money system.' And, he struck again this week. The true three enemies of the American people remain: 1. The U.S. Congress, 2. The Federal Reserve, and 3. the U.S. Supreme Court. Our enemies are from within. What the hell has happened to us? I am now 76 years old and continually worry about the future of this Country." – Paid-up subscriber James Marta, Ph.D.

"Thank you very much for your insightful and accurate work during 2012. I am a new subscriber and still learning but your guidance has proven to be most helpful. Best wishes to you and your gang for a Happy and Profitable new year." – Paid-up subscriber Bill Coates

Porter comment: We got lots of very thoughtful and kind holiday wishes. We read them all and greatly appreciated them. But... we must say... as contrarians, we get very worried when our positive mail so vastly outnumbers our negative.

Since 2009, stocks have basically gone straight up. Commodities, too. Bonds even more so. That makes for a lot of happy subscribers. We worry that 2013 might prove to be a lot more challenging. And although we hope the best for everyone, we suspect a fair number of our subscribers might end 2013 thinking much less of us. Again, we hope that doesn't happen... but it always does. Just remember, we're not as smart as we seem during bull markets. And we're not as dumb as we look during bear markets.

Regards,