Mr. Market at the bar... World's biggest fund is raising cash... Porter's bearish call on Treasurys... Hunt on 'real stuff'... Clark: 100%-plus in one week... Another muni bear...
Mr. Market hiccupped and staggered a bit today. Looks like he's imbibed quite enough for the moment. The S&P 500 was down as much as 2% today. Gold was down. Crude oil was down. The only thing up was the dollar. Oh well, nothing goes to the moon or falls to Earth in a straight line.
Today's little bump wasn't nearly enough to get me interested in most stocks. They're still too expensive, with the S&P 500 up around 23 times earnings. It's not truly dirt-cheap until it's selling for less than 10 times earnings (like in 1974), though 12 or 13 times earnings – like we saw in March 2009 – is cheap enough to get bullish about.
You rarely hear reports of big mutual funds selling anything when stocks are expensive and bond yields are low, like today. Most mutual fund managers just follow the herd. They buy when stocks and bonds are up and sell when they're down.
But when the biggest mutual fund in the world sells out completely of U.S. Treasury securities because he believes they're not safe, it's a big, fat, hairy deal...
Bill Gross, manager of the $236.93 billion PIMCO Total Return Fund, is outspoken in his dislike of quantitative easing. In his latest letter to investors, Gross said June 30, 2011 – the day the government will end its second round of quantitative easing (QE2) – will be "like D-Day." Like us, Gross believes stock and bond prices are artificially inflated by the government stimulus. With the Federal Reserve currently purchasing 70% of government bonds issued since QE2 began, Gross wonders, "Who will buy Treasurys when the Fed doesn't?" Gross concluded his letter saying, "PIMCO's not sticking around" to see the result.
Gross proved he's more than just talk... Yesterday, news came out that he sold ALL Treasury securities in the Total Return Fund (the fund was 12% in Treasurys in January). He also raised cash levels to 23% from 5% in January. Gross thinks yields will rise 1.5% without government intervention.
The yield on 10-year Treasurys hit a high of 3.56% yesterday, but fell to 3.43% today (lower yields indicate higher Treasury bond prices). Why the surge? Well, the manager of the world's largest bond fund no longer has any Treasurys to sell... And with the market rout of the past two days, investors want the "safety" of Treasurys. Also, Gross' bearish view was well known.
We recently reported that billionaire investor Carl Icahn is returning all his hedge fund investors' capital, a bearish sign. Bill Gross is bearish too, raising cash and selling Treasury bonds. But what should you do? Porter recently answered that question and updated his outlook on the U.S. dollar...
Porter dedicated several pages of his latest Stansberry's Investment Advisory to discussing the U.S. debt troubles and why he believes gold will once again become the world's reserve currency...
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The best criminals convince the world that they don't exist. |
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The Federal Reserve has done the same thing with its paper dollar. The best counterfeiters convinced the world there's no real money. |
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The world used gold as its monetary foundation for at least 4,000 years. Only since 1971 has the world's reserve currency had no connection to gold. And yet, only 40 years later, it seems as though most people have forgotten gold is the only real money. |
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We think this is the greatest financial crime in human history. The U.S. government convinced the world gold didn't matter, that its paper (which it can legally print) is better than gold. It convinced all of its creditors that counterfeiting was better than sound money. |
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What do you think is going to happen when our creditors wake up and realize how they've been duped? One thing is certain; they won't trust us again. And they won't buy our bonds. – Porter Stansberry, February 2011, Stansberry's Investment Advisory |
To see how Porter is playing the collapse of the U.S. dollar and read about a stock he says "you may hold for your grandkids," click here...
One of the difficulties in explaining the End of America thesis is many of the debt figures involved are impossibly large. You've heard or read about these figures so many times, we won't repeat them here today. But we will repeat recent comments S&A editor in chief Brian Hunt made in DailyWealth... He made it "impossibly easy" for anyone to understand how our debt burden has carried us straight into a currency crisis:
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... When it comes to major currencies, a crisis isn't like a wildfire that burns for a few weeks and exhausts itself. A crisis of this sort is more like a glacier that grinds its way across a continent. It takes years and years to play out. You can see this grinding action by looking at the past 10 years of the U.S. dollar index, which measures the dollar against a basket of foreign currencies like the Japanese yen, Canadian dollar, and euro. |
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In 2001, the dollar index sat at 120. It then began a debt-driven bear market, which has lopped off 35% of its value. This is a spectacular decline in the purchasing power of a major currency... and it's why Porter tells anyone who will listen to own plenty of gold and silver, which are soaring in response. |
Brian has also added:
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... the dollar isn't just losing its value against paper. It's also buying a lot less "real stuff" these days. For a picture of this idea, note the past 10 years of the dollar's performance measured against the benchmark commodity index, the CRB. The CRB is a widely followed basket of commodity prices, including oil, copper, gold, coffee, cotton, silver, soybeans, corn, and cattle. |
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As you can see, the dollar is locked in a long bear market when measured against natural resources. Going by the CRB, the dollar buys you less than 50% of what it did in 2001. It's hard to get your head around the giant U.S. debt numbers quoted in the media, but this picture is clear... it's easy to get your head around it... and it speaks a thousand words. Two of them are "bear market." |
Kudos to Jeff Clark, who nailed the downturn in commodities. On March 1, Jeff recommended buying puts on Freeport McMoRan, the world's largest copper producer. Copper hit a two-week high of $450.95 a pound the day of Jeff's recommendation. Starting March 2, the metal fell for six straight days, closing at $421.25 a pound yesterday.
Jeff closed half his Freeport position yesterday for a more than 100% gain in one week... And copper's down another 1.19% today, bringing the return on the remaining half to more than 140%.
This is the second time Jeff's made a fortune shorting Freeport... Just a week before his latest recommendation, he closed his original Freeport put option trade for a 96% gain.
While Jeff's bearish on copper, he's bullish on another industrial commodity. At the beginning of the year, this commodity was overbought. But for the past 10 weeks, it's been consolidating, preparing for another move higher. Jeff believes readers could make as much as 280% on this trade. For the full details, click here...
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New highs (as of 3/9/2011): Prestige Brands (PBH), Automatic Data Processing (ADP), Calpine (CPN), Hershey (HSY), HMS Holdings (HMSY), Molina Healthcare (MOH), iShares Silver (SLV), Walter Investment Management (WAC), Brunswick (BC), Philip Morris International (PM).
Two notes of support in today's mailbag... We like to joke that any positive feedback comes from folks who have been drinking or relatives. We don't know either of the below authors. Send your letters of support to feedback@stansberryresearch.com.
"I never cease to be stunned by the ignorance displayed by some of the writers of letters you publish in the Digest.
"Even of greater concern is that, as these people are reading investment advice, one would tend to think they would be above average on the intelligence scale of the overall population. Talk about a concept that can cause one to lose sleep at night."It is sad enough that these people are so clueless as to how to acquire their own wealth; but, what is truly unfortunate is they resent others having anything they don't and wish for the government to seize it from its rightful owners, just so everyone will be 'equal.'
"It must create a truly unhappy and unfortunate circumstance of life to harbor such feelings." – Paid-up subscriber Ken McGaha
Ferris comment: Thanks, Mary. I'm glad you're pleased with our work.
It's especially difficult to find new ideas among high-yielding stocks right now. I expect that'll continue as long as stock prices remain relatively high. But as you and all the other 12% Letter subscribers know, I sent out a weekly update today containing my top four stock picks right now for investors looking for safe yield. All four of the companies are financial fortresses, generate large amounts of free cash flow, and have histories of raising dividends. One of them just raised its dividend by more than 20%. If it keeps that up, you'll be earning a super-safe double-digit income in a few years.
Good investing,
Sean Goldsmith and Dan Ferris
Baltimore, Maryland
March 10, 2011