Precious Metals Rally
Precious metals rally... Tesla's latest stunt... Elon Musk's 'fantasy ship' is crashing... Why Swiss companies are hoarding cash... Congrats to Income Intelligence subscribers... Doc Eifrig: A wave of new money is about to flood this sector...
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What a difference a week makes...
As recently as last Thursday, many gold investors – including several Digest readers – were downright despondent. After soaring for most of the year, precious metals pulled back in August's "mini panic." And the mailbag was full of worried and angry folks asking us why gold and silver were falling.
This week, precious metals have been rallying again...
Gold closed at a new three-week high yesterday, while silver closed at its highest price in a month. Gold stocks – as tracked by the VanEck Vectors Gold Miners Fund (GDX) – are up nearly 12% from their lows last Thursday. And suddenly, the worried and angry e-mails have stopped.
So, is that it for the correction? We can't say for certain...
There could be further downside ahead before the bull market resumes. If you were panicking last week because you owned too much and couldn't stomach the volatility, considering using the recent rally to lighten up.
On the other hand, this may be all we get this time. While gold and silver fell just 4% and 10%, respectively, GDX fell more than 20% through last Thursday. If you've been kicking yourself for missing the rally this year, now is the time to start building positions in the very best gold and silver stocks.
One of our favorite whipping boys – electric-car maker Tesla Motors (TSLA) – is back in the news again. This time, it's because CEO Elon Musk is begging his employees to cut costs for the next several weeks.
That might be admirable if it weren't a transparent attempt to produce positive cash flow in the third quarter... before Musk has to raise money from investors yet again. But you don't have to take our word for it. Bloomberg obtained an e-mail Musk sent last week...
The simple reality of it is that we will be in a far better position to convince potential investors to bet on us if the headline is not "Tesla Loses Money Again," but rather "Tesla Defies All Expectations and Achieves Profitability."
It would be awesome to throw a pie in the face of all naysayers on Wall Street who keep insisting that Tesla will always be a money loser!
Sure, most Tesla shareholders probably agree it would be awesome if the company stopped losing money. But aside from any short-term tricks that Musk or his accountants might come up with, that's unlikely to happen.
In the first half of 2016, Tesla has already burned through more than $600 million in cash... following $2.2 billion last year. Consider us skeptical.
Of course, Tesla is just one of Musk's growing problems today. As Porter and his team wrote in the September issue of Stansberry's Investment Advisory...
The Elon Musk fantasy ship is crashing on the hard rocks of economic realities... the realities we've been warning about for four years.
Those realities hit hard yesterday, a day Musk would like to forget. First, one of his SpaceX rockets blew up. The rocket exploded on the launch pad as it was being fueled for launch this weekend. Fortunately, no one was injured.
Then, he watched as $390 million of his net worth disappeared when the stock prices of both luxury electric-car maker Tesla and solar-panel lessor SolarCity (SCTY) crashed after Tesla disclosed in a securities filing that SolarCity is having trouble raising cash. It also disclosed that there were no other bidders for the solar company.
As we have discussed, both Tesla and SolarCity are in serious trouble. But don't be surprised to see more shenanigans from Musk as he tries to stave off reality a while longer.
Meanwhile, we see the unintended consequences of negative interest rates continue to grow.
Bloomberg reports more and more Swiss companies are no longer keeping their cash in banks. Instead, they're taking out insurance policies to protect their cash hoards... Why? Because it's cheaper than what banks charge to keep their money.
For example, one large insurer – Helvetia Holding AG – charges about 1,000 francs ($1,020) a year to insure 1 million francs. But it currently costs 7,500 francs to keep the same amount in a bank for a year. Even adding in the costs of transportation and security, it's now often cheaper to hoard cash.
Swiss currency makes it more convenient, too... Because Switzerland still uses the 1,000 franc high-denomination note, Bloomberg notes that $1 million can fit in a small box – a little more than seven inches long, three inches wide, and roughly four inches high.
But Swiss companies may not be alone for long... Several Swiss banks are now warning they may soon have to start charging ordinary savers – not just big customers – on the cash in their bank accounts, too.
When everyday folks start to see their bank balances shrink, a true global "run on the bank" could begin as folks rush to hoard currency and precious metals like never before.
Finally, we have some big news from the pipeline sector...
This week, Income Intelligence recommendation Spectra Energy (SE) jumped 14% on a $28 billion buyout offer from Canadian pipeline operator Enbridge (ENB).
The transaction will create the largest energy infrastructure company in North America. On closing, Enbridge shareholders will own about 57% of the combined company, with Spectra Energy shareholders owning the remaining 43%. As Bloomberg explained...
Marrying Enbridge's liquids-focused infrastructure with Spectra's 88,000 miles of natural-gas pipelines also makes for a more diversified set of customers and markets, both in terms of the fuels being transported and geography.
In addition, 96% of the two companies' combined cash flow will come from long-term contracts, with only a minor portion directly exposed to movements in commodity prices.
When our colleague Dr. David "Doc" Eifrig recommended Spectra to his Income Intelligence subscribers in April, he called it the "anti-risk approach to a 5% yield."
He wrote that it was the safest operator in the space. In particular, he noted that if you looked back to see what companies have survived the oil crash and paid all of their pipeline "bills," you would be looking at a list of Spectra's customers. From that issue...
Spectra hasn't aggressively ramped up its debt level to build energy infrastructure like other oil patch companies. It has maintained its investment-grade rating ("BBB" with a "Stable" outlook from debt-rating agency Standard & Poor's) and has open revolving lines of credit that it can tap if it needs to.
Pair that with the stability of its incoming fee payments from contracts, and Spectra is on the safe end of the oil market. That's why the yield on its bonds is low – investors consider them safe. And while other stocks suffered in the oil crash, Spectra outperformed over the last three years...
Since Doc's recommendation of Spectra Energy, shares are up about 35% in a little more than four months. Congrats to Doc for the great call. Income Intelligence subscribers should expect an update on Spectra tomorrow with Doc's latest Income Triggers update.
If you're not yet an Income Intelligence subscriber, don't worry... While Spectra is no longer a "buy" at these levels, Doc says there are still some incredible high-income opportunities for new investors today.
In fact, he recently detailed one of the most exciting "special situations" that he has uncovered in 10 years at Stansberry Research...
In short, Doc says a wave of new money – up to $100 billion – is about to flood one of the best income-producing sectors in the market: real estate investment trusts (or "REITs").
If you're not familiar, REITs are just a special way to structure real estate holdings... The trust gets big tax breaks in exchange for passing on the vast majority of its annual income to shareholders. This allows REITs to pay relatively big dividends... and makes them a great way to invest in real estate without having to deal with the headache of actually managing properties.
Since the bottom of the market in March 2009, REITs in the S&P 500 have rallied about 360%... compared with about 200% gains for the S&P 500.
As we discussed in the June 29 Digest, a new change to mutual-fund rules will essentially force fund managers to buy REITs. The first of these changes went into effect on August 31. But the second, and much more important, change goes into effect next Friday, September 16.
Doc shared his latest thoughts on the situation in today's issue of his free Retirement Millionaire Daily e-letter...
As Doc explained, any fund that tracks the S&P 500 Dow Jones and MSCI indexes must take steps to align with the new sectors. Right now, the "big players" don't own enough of these assets. They literally have to buy real estate... meaning REITs are virtually certain to move higher. Here's more from Doc...
Lots of big funds have a mandate to reflect the overall composition of the market. A certain percentage of their holdings must be in health care stocks... a certain percentage in energy stocks, and so on.
Right now, they might be hitting their target for "Financials" – where real estate currently resides – by owning millions of shares of Citigroup or Bank of America.
But in August, the S&P 500 Dow Jones and the MSCI indexes broke real estate off into its own category. That means any fund that tracks those indexes must take steps to align with the new sectors. And according to research from JPMorgan and others... equity funds are significantly "underweight" when it comes to real estate.
According to research from financial-services giant JPMorgan, big funds only have about 2.3% of their holdings in real estate. But Doc notes their benchmark is 4.4%.
This means they'll need to nearly double their real estate holdings, beginning on September 16. Doc recommends you get there first, if you aren't already.
Again, Doc says this is one of the best "special situation" opportunities he has come across during his time at Stansberry Research. This is a major opportunity for investors and shareholders.
But please note: Not all REITs are created equal.
For example, one of the biggest mistakes you can possibly make is just going out and buying the REITs with the highest dividend yields. In fact, Porter and his team just recommended shorting one of those REITs in the September issue of Stansberry's Investment Advisory.
So please don't act on this special situation without knowing which REITs to buy... and which ones to stay far away from.
Doc sees incredible upside opportunity in four specific REITs... And he has detailed all four of these investments in a special report, "The $100 Billion Windfall."
To explain this opportunity in more detail, he has put together a special presentation that completely changes the way that Stansberry Research is selling his monthly income-investing letter, Income Intelligence.
To receive this research, you will no longer have to pay $1,500 a year. You'll pay much, much less. For the details on this brand-new offer, click here. (This link doesn't go to a long video presentation.)
New 52-week highs (as of 9/6/16): Bancroft Fund (BCV), Becton Dickinson (BDX), Bank of Montreal (BMO), Black Stone Minerals (BSM), Cisco (CSCO), WisdomTree SmallCap Dividend Fund (DES), ProShares Ultra MSCI Emerging Markets Fund (EET), EOG Resources (EOG), Western Asset Emerging Markets Debt Fund (ESD), First Trust Developed Markets Small Cap AlphaDex Fund (FEMS), Fidelity Select Medical Equipment and Systems Fund (FSMEX), KraneShares CSI China Internet Fund (KWEB), Procter & Gamble (PG), VanEck Vectors Russia Fund (RSX), Spectra Energy (SE), Shopify (SHOP), Sysco (SYY), Guggenheim China Real Estate Fund (TAO), Travelers (TRV), ProShares Ultra MSCI Brazil Capped Fund (UBR), and Invesco High Income Trust (VLT).
A quiet day in the mailbag. Are you an Income Intelligence subscriber who has benefited from Doc's advice? If so, drop us a note at feedback@stansberryresearch.com.
Regards,
Justin Brill
Baltimore, Maryland
September 7, 2016
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