Starting in 2006, we began peppering our Digests with "signs of the top."
These were stories we saw in the news, thoughts on valuations, examples of extreme price action, and other things that led us to believe we were nearing a market top.
Yes, we were early... But these observations provided readers with the context needed to understand the dislocations that occurred in 2007 and 2008.
Today, the market has surpassed its pre-crisis highs. The Dow is above 15,000. The S&P 500 is above 1,630. Junk bonds have soared in value. The real estate market is recovering. But the entire recovery is a result of the Federal Reserve (and other central banks around the world) printing trillions of dollars. It cannot end well.
Once again, we're starting to see ludicrous market actions that point to a top. Mind you, we're not saying the market will turn tomorrow (nobody can time market tops and bottoms). As Porter said in last Friday's Digest, he thinks the downturn – specifically, the crash in corporate bonds – will come "at some point in the next year." At the latest, we believe a major dislocation will occur in the next two years.
We'll continue to ask you to be cautious and mind your trailing stops while enjoying this meteoric rise in asset prices.
And with our old "signs of the top" theme in mind, we must point out that U.S. companies are on track to raise the most capital through initial public offerings (IPOs) since before the financial crisis, according to the Wall Street Journal.
So far this year, 64 U.S.-listed offerings raised $16.8 billion. In the same period in 2012, companies raised $13.1 billion. Just last week, 11 U.S. firms went public – the busiest week since December 2007.
"This is the busiest market we've seen in the last 10 years," said Hank Erbe, head of equity origination and syndicate at Fidelity Capital Markets.
According to the Journal, investors are turning to IPOs because they're able to buy new stocks at cheaper valuations than shares of already listed firms...
"A lot of things have run up in this market, which really provides that natural appetite to find an opportunity to pick up a new name," said Jeff Morris, head of U.S. equities at Standard Life Investments.
These IPOs have also benefited as more and more money flows into equities... U.S. long-term stock funds received inflows of $73 billion through April – the largest inflow since 2007, according to the industry trade group the Investment Company Institute.
This is all part of what Steve Sjuggerud calls "the Great Migration." This is Steve's belief that – thanks to the government's manipulation of the monetary base – record-low interest rates will force mom-and-pop investors out of cash and bonds and into stocks.
In the May 2 issue of DailyWealth, Steve told readers we're currently in "Act II" of the three-act migration... In Act I, "Mom and Pop" bought shares of super-safe, dividend-paying stocks, like Johnson & Johnson and Merck. Steve says opportunity right now is in shares of Big Tech stocks, like Intel and Apple.
And in today's DailyWealth, Steve told readers where he sees the greatest values...
In the U.S., the famous Dow Jones stock index is above 15,000 – hitting new all-time highs. And in Japan, stocks are up 67% in the last six months. (Yes, that is 67% in six months.)
Everyone is worried stocks have run up too far, too fast... and that you can't find decent value anywhere. So where is the value?
My friend, you have come to the right person... I've made a name for myself in this business by finding value in all kinds of ideas OUTSIDE of the stock market, all over the globe. I have bought some crazy ideas in some crazy places on the planet.
But you don't need to do that today. The best value on the planet is right here in PLAIN SIGHT. More important, it's easy to buy. Let me spell it out for you...
The BIGGEST STOCKS on the planet are still RIDICULOUSLY cheap... They are the best investment value today.
One sector benefiting from the public's appetite for IPOs is private equity.
Last week in Digest Premium, Porter declared private-equity firms were "the greatest way to be an investor in the United States today"...
The way [private equity firms] do it is simple... They borrow money to buy assets. Then they use the earnings from those assets to pay back the debt. After a few years, they're left owning the assets outright and can sell them back to the public via a new public offering. In short... they engineer deals that enable them to transform debt into equity.
So... our government's loose money is a godsend for these firms. With Bernanke keeping interest rates near zero percent, these companies can essentially get unlimited amounts of credit for almost nothing. They can borrow money for next to nothing and invest it to earn 6%-8% a year with little risk.
If you'd like to sign up for Digest Premium and receive daily insight from Porter, click here…
Steve Sjuggerud and Frank Curzio recommended private-equity powerhouses Blackstone Group and Kohlberg Kravis Roberts, respectively. They're up 68% since November and 57% since July on the recommendations.
Based on the latest numbers from private-equity firm Oaktree Capital Group, the business model is still gushing cash...
Oaktree, founded by billionaire investor Howard Marks, said first-quarter profit more than tripled as it realized gains on investments (several through IPOs) and collected more fees. Net income was $57.6 million in the quarter, up from $18.6 million a year earlier. Assets under management rose to $78.8 billion from $77.1 billion at the end of 2012... Oaktree raised $2.6 billion of new money for the year.
"It's a great time to sell debt. And it's even a great time to sell stocks, so that's what we're doing," John Frank, Oaktree's managing principal, said on a conference call today. "As long as the markets remain strong, as they have been, I would imagine you will continue to see significant realizations."
Oaktree isn't the only private-equity firm taking profits... We also discussed other major players taking cautious stances on the stock market in the May 2 Digest.
The firm is currently looking for investments in Europe. And it's raising a fund to deploy more capital on the continent. It's also raising $3 billion for a fund to take control of mid-sized, distressed companies. The company expects to raise billions more dollars for various other investment funds – all of which equate to more fees and higher profits for Oaktree.
While Oaktree and other private equity firms are enjoying this record-low cost of capital… Bill Gross, manager of the world's largest bond fund at the investment management firm PIMCO, believes the cheap money might not be available much longer…
Gross sent out a message on the social networking site Twitter that the three-decade bull market in bonds "likely ended" on April 29.
Gross has blamed the Federal Reserve's near-zero interest rates and quantitative easing policy for lowering yields to record levels. The Fed has been buying $85 billion a month in government debt to spur economic growth.
"Current policies come with cost, even as they magically float asset prices higher," Gross said in his May 1 Investment Outlook letter, posted on PIMCO's website. "Negative real interest rates, inflation, currency devaluation, capital controls and outright default" are the results of adventurous central bank policies, he said.
It's a bold call, especially putting a date on the top in the bond market. While we respect Gross' track record as an investor and his willingness to challenge our government's fiscal policy in a public forum, we still believe the world's central banks will try to keep rates low for as long as they can... Governments around the world are engaged in a "race to the bottom." Every country wants to devalue its currency to gain an economic advantage. But it's a dangerous game.
As Porter pointed out in the April 19 Digest Premium...
The system inevitably breaks down for lots of reasons, but mostly because people eventually lose faith in that paper. They lose faith because their wages continue to fall as prices continue to rise. They lose faith because it fosters in a kind of cronyism.
Through its expansion, paper money creates wealth and power for the few, but in the process, it is debauched and debased.
In the meantime, we'll enjoy the fruits of global monetary easing, however artificial they may be.
New 52-week highs (as of 5/10/13): Advent Claymore Convertible Securities & Income Fund (AVK), ProShares Ultra Nasdaq Biotechnology Fund (BIB), Berkshire Hathaway (BRK), WisdomTree Japan Hedged Equity Fund (DXJ), Fidelity Select Medical Equipment & Systems Fund (FSMEX), iShares Nasdaq Biotechnology Index Fund (IBB), iShares Dow Jones U.S. Home Construction Index Fund (ITB), AllianzGI Equity & Convertible Income Fund (NIE), PowerShares Buyback Achievers Fund (PKW), Sequoia Fund (SEQUX), ProShares Ultra S&P 500 Fund (SSO), Targa Resources (TRGP), V.F. Corp. (VFC), Johnson & Johnson (JNJ), Prestige Brands (PBH), Automatic Data Processing (ADP), MGM Resorts International (MGM), 3M (MMM), Corning (GLW), Becton-Dickinson (BDX), Medtronic (MDT), Chart Industries (GTLS), Enterprise Product Partners (EPD), Cheniere Energy (LNG), Qlik Technologies (QLIK), Altria Group (MO), and Teekay LNG Partners (TGP).
In today's mailbag, an unprecedented three subscribers value our work. What a start to the week! Send your notes of support – or disapproval – to feedback@stansberryresearch.com.
"Even though I disagree totally about some of the comments you make on contemporary affairs, this May 10th S&A Digest Premium is one of the best things I've ever read and, perhaps, the best article you've ever written." – Paid-up Subscriber Fred Wiedemann
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Regards,
Sean Goldsmith
Miami Beach, Florida
May 13, 2013
Gold has been in a quandary of late. Prices have been falling, while demand for physical bullion is off the charts.
A much larger distributor of gold coins, the U.S. Mint, was also experiencing increased demand... It ran out of the smallest American Eagle gold coins (one-tenth of an ounce) on April 25. Once the data is released, April will likely be the busiest month in terms of volume sold for the U.S. Mint.
This dichotomy in gold prices and bullion demand underscores a very important concept. If I (Porter) was a reader, I would put this at the top of my list of reasons that the world is falling apart.
The reason that concept is so important is its relationship to gold, specifically physical gold… for every 400 ounces of gold that are traded via "futures" contracts on the American commodities exchange (known as COMEX), only one ounce actually exists in the exchange's vaults. That's around $1,600 worth of assets covering $640,000 worth of trades.
Before going any further, I must acknowledge that many people view this as an extreme position... There are even some analysts on my staff who disagree with me. But I think we're approaching a day when people will no longer exchange their dollars for gold.