Please take it easy on me...
Please take it easy on me... What to do if you couldn't join Porter last night... What you missed this week... 'A green light to raise rates'... A troubling sign for the global economy... 'Junk' is falling again...
As you likely know, Porter has personally written the last several Digests.
Yesterday, he finished the last installment of a special five-part series on the bond market, leading up to last night's live webinar on our new distressed-bond service, Stansberry's Credit Opportunities. If you happened to miss Porter's series, be sure to go here and read those essays today. Then print them out for reference later. (Seriously... they're that important.)
Following Porter's act is never easy. So I (Justin) hope you'll take it easy on me today after some of the best and most important Digests he has ever written.
If you weren't able to join Porter for the webinar last night, you're not entirely out of luck. Porter has prepared a video presentation in which he discusses many of the same ideas he explained last night. You can watch it – and learn more about Stansberry's Credit Opportunities – right here.
Now, as we often mention, much of what passes for news in the financial media is little more than noise. Most investors would do much better to ignore 99% of the headlines and focus instead on the quality of the businesses and investments they own.
And one of our goals in the Digest is to help you do that... Not only do we aim to keep you up to date on the latest research and happenings here at Stansberry Research, we do our best to cut through the noise and share the information that really matters for you and your wealth.
So today, we want to cover some of the important stories you may have missed while we were running Porter's series.
But don't worry... We know Porter has given you plenty to read and study over the past several days, so we'll keep today's Digest brief...
The big headlines last week were about the economy...
First, on Friday morning, the U.S. Bureau of Labor Statistics ("BLS") reported that employers added 271,000 jobs in October – well above analysts' expectations of 183,000, and the strongest pace so far this year. In addition, the BLS said the unemployment rate fell to 5% and wage growth is finally showing signs of picking up.
Now, some folks have been critical of these numbers. But regardless if you believe the BLS numbers paint a realistic picture of the economy, it's important to remember that the Federal Reserve does. And the numbers have now improved to levels where the Fed likely has the "green light" to raise interest rates next month. As one economist told the Wall Street Journal on Friday, "This is the kind of employment report that even the most diehard doves on the [Fed] cannot ignore."
History shows a Fed rate hike isn't necessarily bearish for stocks, but there are reasons for concern today...
The U.S. dollar has already been rallying strongly against most other currencies. This has crushed the prices of many commodities and led to turmoil in emerging markets – one of the "lions" leading the recent correction in stocks. As Porter explained in the September 11 Digest...
The "lions" in the current stock market correction have been the oil industry, the ongoing bear market in emerging-market stocks, and falling prices of speculative corporate debt. These downward trends are powerful. The shale-fracking fund (FRAK) is down almost 50% in the last year. High-yield bonds are down almost 10% over the last year – a massive move for bonds. Emerging-market stocks are down nearly 25% over the last year. These "lions" have, and will continue to have, a major influence on the U.S. stock market.
A Federal Reserve rate increase will likely only strengthen the dollar further and could lead to even more trouble for emerging markets.
And unfortunately, despite the recent rally in many emerging markets, the underlying problems in their economies have continued...
You may not be familiar with A.P. Moller-Maersk. The company owns the world's biggest global shipping fleet. It's single-handedly responsible for shipping nearly 15% of the world's consumer goods transported by sea and is considered a "bellwether" for the global economy.
Over the weekend, CEO Nils Smedegaard Andersen shared some troubling news. As he said in an interview with Bloomberg...
We believe that global growth is slowing down. Trade is currently significantly weaker than it normally would be under the growth forecasts we see.
We conduct a string of our own macro-economic forecasts and we see less growth – particularly in developing nations, but perhaps also in Europe – than other people expect in 2015. [Also for 2016,] we're a little bit more pessimistic than most forecasters.
At the same time, news from another "lion" – the oil industry – is getting worse, too...
According to credit-ratings agency Moody's, 23 energy companies have defaulted on their debt so far this year, with six filing for bankruptcy protection. And if a separate article from Bloomberg this week is any indication, another big wave of energy defaults could be about to begin. From the article...
Four firms owing a combined $4.8 billion warned this week that they may be at the brink, with Penn Virginia Corp., Paragon Offshore Plc, Magnum Hunter Resources Corp. and Emerald Oil Inc. saying their auditors have expressed doubts that they can continue as going concerns. Falling oil prices are squeezing access to credit, they said...
Barclays said in a Nov. 6 research note that the market is anticipating "a near-term wave of defaults" among energy companies. Those can't be avoided unless commodity prices make "a very large" and "unexpected" resurgence.
"Everybody's liquidity is worse than it was at this time last year," said Jason Mudrick, founder of Mudrick Capital Management. "It's a much more dire situation than it was 12 months ago."
Finally, perhaps the most important "lion" – the falling prices of speculative corporate debt – has recently returned as well...
As we've discussed many times in recent weeks, stocks have rallied strongly off the lows in August... but high-yield bonds haven't. As you can see in the following chart, these bonds – as represented by the iShares iBoxx High Yield Corporate Bond Fund (HYG) – have dramatically lagged the stock market since its August lows...
And unlike in stocks, the "bounce" in these bonds stopped well short of the recent summer highs. And prices are falling again...
As Porter has explained many times recently, it's unlikely that stocks can continue to rally unless bonds stop falling... or at least stabilize. We continue to urge caution about stocks.
New 52-week highs (as of 11/11/15): McDonald's (MCD), Sinclair Broadcast (SBGI), short position in Santander Consumer USA (SC), Travelers (TRV), and Alleghany (Y).
Praise for Porter's recent bond series continues to flood the mailbag. What's on your mind? Send your questions, comments, and criticisms to feedback@stansberryresearch.com.
"Thank you for the lessons on bonds. I'm embarrassed to say I spent about 9 months modifying a software application enabling bond brokers at a major financial institution and at the end my time bonds were even more mysterious than when I started.
"While I don't believe I have mastered anything, even if you had I think you have to take that humble approach if you want to keep improving, I do believe I have learned a significant amount in these few Digests to give me a very solid understanding. To the point my previous work with the bond brokers now starts to make a lot of sense!
"And I am not overstating things when I say the value of this knowledge alone is more than commensurate for the services I subscribe to... though they too more than stand on their own. So a very sincere thanks to you!" – Paid-up subscriber Ben
"Porter, the 'Bond Series' of Digests and the Webinar are easily the most informative and insightful works I've partaken from Stansberry Research since joining the Stansberry Alliance a few years ago. Before these, my exposure to bonds had been only the Fidelity Intermediate Bond Fund in my 401(k). Since retiring in Feb. 2015, I've 'rolled over' the 401(k) into my IRA, which I manage through Interactive Brokers.
"Thanks to Brett Aitken's 'tip' in the Webinar, I was able to display the bond information from the inaugural issue of Stansberry's Credit Opportunities in my Interactive Brokers 'watch list', and from there it was 'just a few mouse clicks' to enter a good-'til-cancelled limit BUY order for the inaugural recommendation. So now that one's 'on autopilot'.
"BTW, I think I've figured out why bond quotes 'drop a zero': They're quoting a percentage of par rather than a dollar (or other currency) amount. Thus, a bond quoted at '98.6' would trade at US$986 if denominated in U.S. Dollars with par at US$1,000, or (say) JPY4,930 if denominated in Japanese Yen with par at JPY5,000. Either way, the bond is trading at 98.6% of par, or a 1.4% discount to/from par. Makes sense to me, anyway." – Paid-up subscriber John Chase
"Porter, I never even THOUGHT about bonds, except the U.S. war bonds of my youth (I'm 85). It is a VERY interesting series, read carefully. Thank you. I won't do the seminar, Usually they are too sloppy, wordy. I'd rather read your emails, again thanks." – Paid-up subscriber David Scherer
"Hello Porter, it doesn't get better than this... I've been quietly adding gold to my pile and making good money on puts for years as I sail around the world saving cash. For a long time now I've been worried about a crash so cash seemed safest to me as I do not always have Internet access due to the unreliable nature of communications at sea by satellite.
"I've known about bonds for years – but just not had enough inside knowledge to step up to the plate. Then out of the blue comes your new Credit Crisis Alert and the five days of training by missive followed by last night's live event training. I've been waiting for this for years – just did not know what I was waiting for or where to find it until now.
"And then last night I get 'given' free access to your work on bonds as part of my Alliance membership – that's about a 40% return on my Alliance fee that I never expected... And to hear that this service will continue long after we get through the next credit crunch was really sweet news as by then I'll be stepping into retirement – what great timing.
"I also heard a snippet of one of you guys saying that they were all in cash. Boy, did that make me feel good as I've been like that for a while and have sometimes wondered if there was 'something wrong with my thinking'. It does not get better than this. Thanks a million." – Paid-up subscriber Roy Cooper
Regards,
Justin Brill
Baltimore, Maryland
November 12, 2015
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