One Thing Republicans and Democrats Agree on Today
Porter's latest warning comes true... GE is in the crosshairs... The shutdown is over (for now)... One thing Republicans and Democrats agree on today... Doc says this trend is just beginning... Your last chance to hear from Porter, Doc, and Steve...
Was it something we said?
Regular Digest readers know that Porter dedicated his latest Friday missive to the massive (and ongoing) fraud at blue-chip darling General Electric (GE).
In short, this beloved "industrial" firm used financial sleight-of-hand to generate "earnings" and hit its targets, quarter after quarter, for decades. As Porter noted, this is the same playbook the folks at Enron used. GE simply had many more assets to play with – and substantial influence in Washington, D.C. – so it was able to keep the game going much longer.
However, despite what you may have heard about a turnaround under the company's new CEO – a return to its industrial "roots," if you will – Porter warned that serious problems remain...
GE still holds billions in financial assets of dubious quality, financed by more than $130 billion in debt. Meanwhile, the company's cash return on assets is only 1%. In other words, as interest rates rise, the company is going to have a hard time financing its portfolio of financial assets.
But that's not the big problem. The big problem is what lies at the center of this company, hidden in those financial assets, is an enormous fraud.
The latest example is a $6.2 billion charge in its insurance unit... that will require another $15 billion in reserves over the next seven years. The charge and the demand for new reserves came from a Kansas Insurance Department investigation.
As Porter explained, state insurance regulators require companies like GE to post collateral to prove that they can fulfill their promises to pay. More from Porter...
Essentially, Kansas called GE out for having preposterously little capital... and required it post another $15 billion in capital.
Are you kidding me? It wasn't the U.S. Securities and Exchange Commission. It wasn't the New York Times. It wasn't the Washington Post. It was those famous "gumshoes" in Kansas who discovered the fraud. And so, what was formerly the largest company in America – a AAA-rated financial business – relied on the insurance regulator in Kansas to tell it that it will require more than $20 billion in additional capital. You just can't make this stuff up.
According to Porter, it is likely just a matter of time before the full extent of this fraud is exposed...
What else is hidden in those billions of dollars of financial assets the company holds? And what are they really worth?
Investors are going to want to know. And sooner or later, the government will have to come off the bench and start to do its job. GE can't hide the truth forever. Kansas won't save investors.
It appears Porter was right...
This morning, GE announced it will now be "restating" its full-year earnings for both 2016 and 2017. More important, the company also revealed that the U.S. Securities and Exchange Commission ("SEC") has opened an official probe into its accounting practices. As Bloomberg reported...
General Electric said it's under investigation by the SEC after taking a $6.2 billion charge related to an old insurance business...
"We've been notified by the SEC that they are investigating the process leading to the insurance-reserve increase and fourth-quarter charge, as well as GE's revenue recognition and controls for long-term service agreements," [Chief Financial Officer Jamie] Miller said on a conference call with analysts and investors.
The company said it's cooperating fully with the probe, which is in the early stages... Miller said she was not "overly concerned" about the issues under scrutiny.
We suspect she may eventually regret that remark.
In other news, the government shutdown is over (for now)...
A little less than three days after
We aren't too worried... We have little doubt lawmakers will eventually find a way to put their differences aside and keep the government's "bar tab" running. (And as we mentioned last week, history shows shutdowns have
However, this latest skirmish did highlight one notable trend...
Political differences aside, Republicans and Democrats alike conceded that not continuing to pay the men and women in the U.S. military was unacceptable.
During the previous shutdown in 2013, Congress appropriated funds to make sure the troops would get paid. This time around, Congress wants to do more. Members of both parties introduced legislation to ensure members of the armed forces would continue to be paid during any future shutdowns.
These moves follow comments from Paul Ryan reaffirming the need to strengthen the U.S. military...
As the Speaker of the House said during a talk at the Center for Strategic and International Studies event last Thursday...
We have simply pushed our military past the breaking point. Instead of upgrading our hardware, we have let our equipment age. Instead of equipping our troops for tomorrow's fight, we have let them become woefully underequipped... This is why rebuilding the military is one of the highest priorities of our unified government.
In short, regardless of your personal stance on the matter, more and more evidence suggests the government is committed to directing more money and resources to the defense sector over the next several years.
Our colleague Dr. David Eifrig has been keeping a close eye on this story for months...
"Doc" prepared a detailed report on this trend for his Retirement Millionaire subscribers last summer. And he allowed us to share a portion of the report with Digest readers in July. As he wrote...
If you think, like most Americans do, that we've got an insurmountable military advantage, you're in for a shocking revelation.
National defense has declined sharply since 2010...
We can spend more... and we will. That's because as a percentage of the economy, our spending is at its lowest point in more than 70 years.
And the number of military personnel hasn't been this low since the troops came back from WWII.
Now, we don't typically recommend making investments that depend on the government...
We've seen time and time again that betting on one big government contract or a single piece of legislation can get you into trouble. Often, these outcomes are difficult to predict and have a binary "win or lose" outcome.
But Doc does believe it's worth betting when it comes to a big trend with bipartisan support and powerful public opinion behind it.
For example, as we noted in Monday's
Doc feels the same way about defense spending...
He says we're seeing more agreement now than we have in recent years that spending has to rise for the U.S. military to keep up.
Tensions are building with North Korea and ISIS,
As a result, investors have been piling into defense stocks – as measured by the SPDR S&P Aerospace and Defense Fund (XAR) – over the last two years...
But Doc thinks this is just the beginning... And he has identified five specific defense stocks with massive potential upside due to the huge amounts of money that will flow into this sector over the next several years.
He believes this trend is so important that he recently put together a short presentation with all of the details. You can watch it right here.
Finally, our second annual Stansberry Portfolio Solutions event kicks off in less than two hours...
As you've likely heard, Porter, Doc, and Steve Sjuggerud will be sitting down for this rare roundtable discussion beginning at 8 p.m. Eastern time.
Like last year, they'll each share their No. 1 prediction for this year. (All three of their 2017 predictions came true.)
They'll discuss their current thoughts on the market, including the boom in cryptocurrencies... the recent moves in the U.S. dollar... and the latest on Steve's "
And of course, they'll pull back the curtain on our exclusive Stansberry Portfolio Solutions product. They'll discuss how these portfolios performed in 2017, and – if you're interested – show you how to take advantage of a special offer to try Stansberry Portfolio Solutions for yourself.
Again, this event is absolutely free to attend. There are no obligations to buy anything at all. You'll even get a free report from Porter, Doc, and Steve detailing their top predictions, just for showing up.
If you'd like to join us, simply click here a little before 8 p.m. Eastern time tonight. We hope to see you there.
New 52-week highs (as of 1/23/18): American Financial (AFG), AMETEK (AME), Amazon (AMZN), Allianz (AZSEY), Alibaba (BABA), iShares MSCI BRIC Fund (BKF), Blackstone (BX), Morgan Stanley China A Share Fund (CAF), CBRE Group (CBG), Global X China Financials Fund (CHIX), First Trust Nasdaq Cybersecurity Fund (CIBR), Cisco (CSCO), WisdomTree Emerging Markets High Dividend Fund (DEM), PowerShares Chinese Yuan Dim Sum Bond Fund (DSUM), iShares Select Dividend Fund (DVY), Emerging Markets Internet & Ecommerce Fund (EMQQ), iShares MSCI Japan Fund (EWJ), iShares MSCI Spain Capped Fund (EWP), iShares MSCI Singapore Capped Fund (EWS), Facebook (FB), CurrencyShares British Pound Sterling Fund (FXB), iShares China Large-Cap Fund (FXI), Alphabet (GOOGL), Global X MSCI Greece Fund (GREK), iShares Currency Hedged MSCI Germany Fund (HEWG), iShares Nasdaq Biotechnology Fund (IBB), iShares Core S&P Small-Cap Fund (IJR), KraneShares Bosera MSCI China A Share Fund (KBA), Coca-Cola (KO), VanEck Vectors Coal Fund (KOL), KraneShares CSI China Internet Fund (KWEB), Mobile TeleSystems (MBT), McDonald's (MCD), iShares MSCI China Index Fund (MCHI), MercadoLibre (MELI), Microsoft (MSFT), Match Group (MTCH), Newmont Mining (NEM), AllianzGI Equity & Convertible Income Fund (NIE), New York Times (NYT), Adams Natural Resources Fund (PEO), PNC Financial Warrants (PNC-WT), Ralph Lauren (RL), ProShares Ultra Technology Fund (ROM), Sandstorm Gold (SAND), ALPS Medical Breakthroughs Fund (SBIO), Sabine Royalty Trust (SBR), ProShares Ultra S&P 500 Fund (SSO), Guggenheim China Real Estate Fund (TAO), Tencent (TCEHY), Travelers (TRV), ProShares Ultra Semiconductors Fund (USD), ProShares Ultra Financials Fund (UYG), VF Corporation (VFC), Wal-Mart (WMT), ProShares Ultra FTSE China 50 Fund (XPP), Direxion Daily FTSE China Bull 3X Fund (YINN), and short position in Sprint (S).
A busy day in the mailbag: More feedback on Porter's Friday Digest on GE... praise for Steve Sjuggerud's China research... and two longtime subscribers share their experiences with Stansberry Portfolio Solutions. How have you done? Let us know at feedback@stansberryreseach.com.
"Porter, I was employed by GE in the early 80's as an engineer building nuclear plants. As part of their savings & investment plan (one of the best I've seen in my career) I obtained GE stock. It always sat there, reinvesting the dividend, while everyone said, 'GE is a stock you buy and forget about.'
"That is probably what I would have done if it were not for your service. It was sad and a hard thing to do, having fond memories of a good company that treated me very
"GE is the only stock I've owned that I did not treat as an investment. It was a memento of better times. You convinced me that some mementos are not worth it. You should know that your work is held in high regard by many of us. Keep it up. Thanks!" – Paid-up subscriber Stan P.
"Porter, I used your analysis of GE a different way. I paid attention to what you had to say but made money on possibly the only timed trade I have ever made. What did I do? I bought in 2009 after the market collapse, paid attention to the Fed and watched management. The share price grew for years after that. What changed? Immelt. I considered him to be the canary in the coal mine. I expected your analysis to come home to roost when he retired, and it has. I thought he would keep the balls in the air as long as he was there, and the financial world would follow him since they created his stardom. They did. He left the company and the curtain was then down. I sold with his retirement and made over 100% on my investment. So you see, you did help me do that because I had the right intel to judge the situation and the right time to get in and out." – Paid-up subscriber F.B.
"Hey Steve, I just wanted to drop a note of observation... [One of your True Wealth China Opportunities recommendations] is exploding to the upside. I'm showing a 51.68% return in the last 5 weeks. My portfolio is largely a result of your recommendations, and it's up more than double the S&P 500 year to date. If by some miracle we end up continuing similarly all year, I'll end up nearly doubling my retirement account to over $500k thanks to you. I can't thank you, Porter, and everyone at Stansberry enough for making my life so much better." – Paid-up subscriber Marc D.
"I think [Stansberry Portfolio Solutions] is a real gift to subscribers, as it shows us how the 'Big 3' (Porter, Doc, and Steve) combine their different approaches into a common portfolio. I haven't followed any of the portfolios exactly, but I have adopted the approach tempered with TradeStops adjustments. And my results are quite similar." – Paid-up Stansberry Alliance member Al Hammond
"My small investment
Regards,
Justin Brill
Baltimore, Maryland
January 24, 2018