Editor's note: We closed our Alliance offer last week, but we've received several e-mails from people saying they weren't able to reach us by phone to place their orders. I spoke with our sales team this morning, and they confirmed the phone lines were jammed for two straight days. If you weren't able to get through or you left our sales team a message, you can call our head of sales, Michael Cottet, at 1-888-863-9356. He'll do his best to accommodate you. And don't miss more stellar Alliance feedback below.
Porter is currently researching the power grid, and he wants to talk to someone with decades of experience in large-scale power plants... He has a particular interest in understanding the maintenance expenses of coal-fired power plants. If you have experience in the area, please contact us at feedback@stansberryresearch.com.
In his January 2010 issue, Porter proclaimed, "The best trade in the world is shorting U.S. government long bonds." He also said the trend toward higher interest rates in the U.S. is "the single most important trend in finance." Interest rates on 10-year Treasurys have fallen since then, but that's only blowing the bond bubble bigger. The 10-year Treasury is below 2.5%. I was just quoted 4.25% for a 30-year mortgage. The Federal Reserve has already started printing money (the cause of the recent market rally). And it will print much more at the first signs of trouble. The bond market is a lagging indicator of inflation in this case. But if you look at stocks and commodities, you see a different story.
The market is gearing up for "quantitative easing, part two" and the inevitable rising interest rates that will follow. When the big announcement comes, you'll want to be in stocks, like hedge-fund manager David Tepper. Take a look at this chart from one of our subscribers showing how the market reacts to quantitative easing. The vertical blue lines show the exact dates of the Fed's intervention.
Gold is moving in lockstep with the market. Meanwhile, the dollar is getting crushed in preparation for the money flood... But we think it's ready for a short-term bounce. The line at the bottom of this chart is the Relative Strength Index (RSI). Put simply, it shows how overbought or oversold something is. As you can see, the dollar is at its most oversold in a year... much like a rubber band that has been pulled to its max. We don't like the dollar for the long term, but it could make a good short-term trade.
A quick update on the commercial real estate market... Mega-REIT Boston Properties announced it would buy the John Hancock Tower – a premier commercial property in Boston – for $930 million ($289.5 million cash and $640.5 million in debt). A private-equity joint venture bought the building for $660.6 million at a foreclosure auction last year. That's a 41% premium in a year.
We often warn our readers of the impracticality of the "two and 20" most hedge funds charge their clients... That is 2% of total assets and 20% of any gains. This fee structure guarantees the fund manager gets paid regardless of performance. For example, a manager with $1 billion under management earns $20 million just for walking in the door on January 1. And the 20% "kicker" encourages excessive risk. A recent article in the British newspaper the Telegraph quantifies how damaging "two and 20" is to the investor using Warren Buffett's historical returns. An excerpt from the article is below:
As you are aware, Warren Buffett has produced a stellar investment performance over the past 45 years, compounding returns at 20.46 per cent per annum. If you had invested $1,000 in the shares of Berkshire Hathaway when Buffett began running it in 1965, by the end of 2009 your investment would have been worth $4.8m.
However, if instead of running Berkshire Hathaway as a company in which he co-invests with you, Buffett had set it up as a hedge fund and charged 2 per cent of the value of the funds as an annual fee plus 20 per cent of any gains, of that $4.8m, $4.4m would belong to him as manager and only $400,000 would belong to you, the investor. And this is the result you would get if your hedge fund manager had equalled Warren Buffett’s performance. Believe me, he or she won't.
So, $1,000 invested alongside Buffett earned you $4.8 million over the past 45 years. That same $1,000 invested with Buffett while paying "2 and 20," earns $400,000. I know the numbers seem unbelievable, but it shows you the power of compounding.
New highs: Keyera Facilities (KEY-UN.TO), Coca-Cola (KO), Freeport McMoRan (FCX), HMS Holdings (HMSY), iShares Silver (SLV), Enterprise Products (EPD).
In today's mailbag, some feedback on Steve Sjuggerud's new service and great Alliance stories. Get in touch... feedback@stansberryresearch.com.
"Fascinated by the coming True Wealth System. As a military contemporary of Steve’s dad, I first met him in Florida when he was on the same soccer team and had the same piano teacher as our youngest son. One could see at that early age the Steve would be good at whatever he did – he had both the brains and the personality. What a surprise many years later to find he was a PhD writing a newsletter. I jumped right in to the Alliance, figuring that it was a better deal than the other newsletters I had subscribed to over the years. I like the style, like the politics, like the advice. BTW, is the new 'System' going to have an automated feature so one could simply pick a direction and let it do the deals without calling one's broker?" – Paid-up subscriber Dan Eliason
"Do not let Steve's easy going personality fool you. He is from Menomonie, Wi., which is known for their legendary Football and Wrestling teams. Both sports require intense discipline. Even here, over in the Gopher State, I would not be without Cheesehead Steve's advise. Remember that home town Karma, MEN-O-MONIE, leads to successful investing." – Paid-up subscriber Jim McLeod
"I'm an extremely satisfied Alliance member. At this point, I can't imagine why EVERYONE doesn't join. As Paid-up subscriber Fred Fleming said today, 'I would STRONGLY suggest that you borrow the money, if necessary, to join the Alliance program.'
"What I've learned has paid for my membership at least 20 times over in less than a year and a half. Many individual reco's have covered the cost by themselves! So, since I can't imagine why more people aren't taking advantage of the Alliance program, I was wondering if you'd be kind(?) enough to print some letters from people who are NOT satisfied with their Alliance membership. Not the folks who are disgruntled with your politics, or your traveling, or your boat, but with the Alliance membership.
"Maybe they feel it's not worth the cost? Or they feel they could do better things with the money? Or they resent the annual cost for mail when they can get everything on Internet? Or is it possible that ALL members are content? If so, this should be the best advertising subject yet: 100% satisfaction. My only regret is having not joined years sooner." – Paid-up subscriber CW
"Please tell me The True Wealth Systems will be in the Alliance lineup! Sounds awesome." – Paid-up subscriber Richard Hanna
Goldsmith comment: Alliance members will be the first to receive Steve's True Wealth Systems. It is included in the Alliance at no additional cost. As an Alliance member, you receive everything we publish (excluding Phase 1 Investor) and will publish in the future.
"In the Sept 29 Digest you solicited Alliance members to write in with how their portfolios are performing using Stansberry research. Here goes: I became a Private Wealth member in Feb '09 and an Alliance member in July of '09. Its fair for me to credit my performance in '09 and '10 to having access to your research.
"In 2009 my Stansberry portfolio was up 60% for a profit of $1,060,000. Based on my confidence in the work of your firm I added some money to the portfolio to start this year, a starting balance of $3,135,000. On the close of the third quarter (Sept. 30) the account has gained $526,000, a 16.78% increase in value.
"Combining last year and this year (a 21 month period) the profit of $1,586,000 averages $75,523 per month. I will say that I did dial back the risk significantly this year on Porter's advice to concentrate on preserving my savings ahead of his forecast storm. The results have been achieved with a beta much lower than the S&P 500. On days with big moves I am experiencing a beta of roughly .5. The ballast in my portfolio are bonds and precious metals. I am not counting gains made in bullion that I hold on your advice.
"The late John Facenda, voice of NFL Films in the 1960's and 1970's, would get a mediocre script from the writers and yell at them, 'Give me a horse I can ride!' Stansberry research is a horse I can ride." – Paid-up subscriber RL
Regards,
Sean Goldsmith
Baltimore, Maryland
October 4, 2010