It's snowing like crazy in southern Oregon's Rogue Valley. It almost never snows down here. And it's never cold enough to accumulate… It just hits the ground and melts. But that doesn't keep folks from crowding into Lowe's and Home Depot, buying up snow shovels and other snow removal gear. I'm sure bread and milk are flying off the shelves at the grocery stores, too.
It's just like the financial markets, isn't it? The markets are a gigantic horde of procrastinating ignoramuses, reacting to the latest fear shooting up their spines.
And may God in his wisdom bless them and keep them from growing wiser, so I can make a living… and you can make a fortune. Amen.
Just when you think you know something, the Wall Street Journal intervenes...
I thought Tinker Bell was a little fairy in J.M. Barrie's story, Peter and Wendy (known today as Peter Pan). That Tinker Bell was a common fairy who repaired pots and kettles, who could make you fly by sprinkling you with fairy dust... and who Walt Disney turned into a scantily clad, anime-style sex siren (no doubt to help the fashion industry sell corsets, tights, and g-strings to your 12-year-old daughter).
But according to the Wall Street Journal, "Tinker Bell economics" is when everyone believes inflation will come true... and so it does. The theory says, if you expect inflation, you'll seek higher wages, prices, and rents and voila! Inflation arrives, conjured up from our fears and expectations alone.
It's funny they call it Tinker Bell economics since fairies aren't real. To me, an expectation of inflation is a simple acknowledgment of reality. We all know what's coming. We all know you can't print money to beat the band without creating massive inflation. So we prepare by trying to squeeze more value out of... well... everything… our time... our pocketbooks… the value of our homes.
We do that all the time, don't we? I'm not sure why we need to evoke a fairy to describe a common economic phenomenon (perhaps so someone can later blame inflation on speculators and frightened consumers).
J.M. Barrie's original Tinker Bell would have put Mr. Market to shame. Barrie's Tinker Bell was so small her little body could only hold one emotion at a time. So when she was angry, no counterbalancing emotion restrained her. She could be bitterly vindictive and spiteful at times and utterly ecstatic other times.
Right now, Tinker Bell investors are as happy as can be, flitting from stock to bond to ETF... Tinker Bell is happy to own stocks. She's happy to own corporate bonds. She's even happy to own junk bonds, whose yields are hitting all-time lows well under 10%. She's happy to own the junkiest stocks, with the Russell 2000 just a short 7% rise from its all-time October 2007 high of 852. And she is positively in love with the S&P 500, trading lately around 24 times earnings... perhaps because she'll delight in making money disappear with a wave of her wand, when valuations revert to the mean.
That's not to say all stocks are bad. Though Kohl's, the discount department store, is pricey by my standards, it taught us a lesson today about what to spend most of your time looking for… and most of your investment capital investing in...
Today, Kohl's announced it would start paying a $0.25 per share quarterly dividend. With the stock in the low $50s, the annual yield is less than 2%. The stock rose about 1.5% today... which usually happens when companies initiate dividends.
The equity research firm Ned Davis Research did a study about this a few years ago. It looked at the S&P 500's performance from 1972-2004, grouping stocks by dividend policy.
The best-performing group was stocks that grew or initiated dividends. They returned 10.6% per year during the period studied. Almost as good were all S&P 500 stocks that pay dividends, which returned 10.1% per year. The worst group? Stocks that paid no dividend returned 4.3% per year.
It's a bad idea not to get paid for owning stocks. Share prices send the value of your savings soaring and then plummeting then soaring again. If you're not getting paid cash to hold stocks, you're gambling, not investing (with paltry few exceptions, like Berkshire Hathaway).
Don't gamble on the market. Earn dividends. Earn income. Don't pay to be a speculator. Get paid to be an investor.
In the current issue of Extreme Value, I report on a company most folks don't like much today. But it's the World Dominator of an industry without which the Internet would cease to exist... The company just initiated dividend payments. You can bet that, as it continues to deliver a rising stream of dividends, the shares will outpace most of the S&P 500, which accounts for about 80% of U.S. stocks by market cap.
It's a super-safe financial fortress. It holds about 40% of its market cap in cash and securities, and its debt totals less than half of its market value. It's so loaded with investments, and interest rates on its debt are so low, the interest it earns covers about 97% of its interest expense.
Unlike most companies, these guys know how to make acquisitions. It has made more than 150 of them since it went public and its market value has risen 229-fold during that time. It's not well-loved by the thundering herd of investment know-nothings right now, so it's a perfect time to buy it. To read my full report on this opportunity, click here.
We found a video this morning of expert resource investor Eric Sprott, of Sprott Resources, discussing precious metals. Sprott's a precious metals bull… He holds 70% to 80% of his fund in gold and silver (though he says silver is his largest holding). In this short video, Sprott makes the most compelling argument to buy silver I've ever heard.
In short, the world is out of silver. Sprott says aggregate investment demand for silver between 2000 and 2009 was 293.8 million ounces (according to the GFMS, the world's foremost precious metals consultancy). Using his own numbers, Sprott compiles the silver holdings for seven large investors, including himself, iShares Silver Trust, ZKB, GoldMoney, etc. Just those seven entities own 519.6 million ounces of silver… That's 225.8 million missing ounces. And again… That's only seven investors. It doesn't include central banks, individuals, hedge funds, etc.
It's obvious, as Sprott notes, silver data has been "very, very misstated." Sprott ends his speech saying, "There's $22 billion of silver available in the world, of which the ETFs already own half, and between you guys and us we probably own the other half... Which means there's nothing left."
Sprott's comments remind me of a conversation I had with a friend yesterday (he's one of the largest gold and silver coin dealers in the country). He said he hopes silver retreats, because the coins are going crazy. "People have no idea how small the market is… I've seen prices jump 10% in the last week," he said.
We've been asking readers to buy gold and silver for a decade. And if you haven't already bought, it's not too late. Yes, precious metals are more popular than they were a few years ago, but we're far from a top. If you bring up your bullion ownership to a table of friends, you probably won't get the weird looks you would have years ago… But there will still be dissenters.
I had some gold in my pocket while having breakfast with a group of investment bankers a few months ago (I was on my way to store it). We were talking the markets, the conversation turned to gold, and I pulled out my coins. I had to rationalize my gold to a bunch of angry bankers who thought gold was "stupid" and "at the top." I asked if any of them owned gold. None of them did.
Don't speculate on gold and silver prices. Gold is money. Silver is money. Buy them as a form of savings, setting aside a chunk of cash each month just for bullion. Store your bullion somewhere safe (like self storage). And leave it. Before you realize it, you'll have considerable wealth in precious metals. You should also keep a considerable amount of your net worth in cash, so you can take advantage of opportunities as they arise. We wrote an excellent Digest last week on why cash is so important… And how our friend, Chris Weber, has generated huge wealth by holding cash. You can read it here.
Sprott's argument only takes the investment demand for silver into account. And while investors do hoard silver, today more than 95% of the demand for silver comes from industry. And when that silver is consumed, it's gone forever. Silver's current production is just enough to meet the industrial demand. In other words, there is virtually zero new silver available for investment purposes.
The U.S. Congress established its monetary system in 1792 and agreed to mint coins using both gold and silver. At the time, you needed 15 ounces of silver to buy one ounce of gold. (In other words, what we call the "silver-to-gold ratio" was 15:1.) But in the early 20th century, world governments stopped backing their currency with gold. The ratio went haywire, cracking 71:1 during the Great Depression. Today, the silver-to-gold ratio is 43:1.
But for the first time in decades, people are viewing silver as a monetary asset again. And when silver's viewed as money, the ratio contracts. Will we return to the 18th century ratio of 15 to 1? Probably not. Even if silver doubled, the ratio would still only be 22:1.
What's the best way to buy silver? You can buy bullion or collectible coins. But this option is expensive for a lot of people (especially with silver prices near 30-year highs). You can also buy silver stocks or an ETF (like iShares Silver). But considering Eric Sprott's research, I wouldn't trust a silver ETF to deliver the silver it supposedly owns. Retirement Millionaire editor Dr. David Eifrig discovered a different – and much cheaper – way for our readers to purchase physical silver. Doc, as we call him, detailed his strategy for buying this inexpensive silver in his report, "How to Buy U.S. Government-Created Silver for $2.08." Retirement Millionaire subscribers can find it posted under the "Special Reports" section on our website. If you don't subscribe and want to learn more about this little-known strategy for investing in silver, click here…
In addition to Doc's silver report, Retirement Millionaire subscribers also get his top-notch financial advice. (Before earning his M.D., Eifrig worked for a decade on Wall Street as a proprietary trader for banks like Goldman Sachs.) He aims to make readers a super-safe and consistent 8%-10% a year. But he's killing his goals…
Since March 2009, Doc's made 35 recommendations… and 30 of them made money. That's an 85% win rate… an incredible feat. The average gain through December 31 was 22%. In his latest issue, Doc shares a super-safe, blue chip company that has steadily grown revenue throughout the financial crisis and maintained its nearly 4% dividend. He also tells readers how to receive double market rates for certificates of deposit (CDs). Again, to learn more about Retirement Millionaire, click here…
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New highs: Cenovus Energy (CVE), Mirasol Resources (MRZ.V), Silver Wheaton (SLW), Suncor Energy (SU), DirecTV (DTV), Paramount Gold & Silver (PZG), iShares Silver Trust (SLV), ConocoPhillips (COP), ExxonMobil (XOM), Abraxas Petroleum (AXAS), Vanguard Natural Resources (VNR), North American Energy Partners (NOA), Philip Morris International (PM).
Lots of our readers have taken our advice, and invested in gold and silver. If you haven't done so, or better still, if you are bearish on gold and/or silver and think they're generally horrible investments, we'd really like to hear your side of the story. Write us at feedback@stansberryresearch.com.
"As an S&A Alliance member, I have made more money and the best return from True income ideas. I find this a great niche area. Mike Williams has the depth of knowledge and the guts to identify and recommend great opportunities. Thank you for all your great work." – Paid-up subscriber Anne Morris
"Would you please explain your math reference: Texas Inst (TXN). In S&A Hall of Fame, you show gains of '301% in 270 days.' Am I reading that incorrectly? I show TXN 270 days ago was in the low $20s and now in the mid $30s. An increase if $15 +/-. I don't see 300+/-%. Using my 'old math': TXN 1 year 'total' return 48.5%, 3 yr = 27.6%, 5 yr = 24.0%. Maybe it's 'New Math?'" Paid-up subscriber Hal Dennis
Ferris comment: The chart you're referring to is called the "Stansberry & Associates Hall of Fame." It's followed by this explanation: Top 10 all-time, highest-returning closed positions across all S&A portfolios.
We're talking about closed positions. It doesn't mean the 270 days before today. It means that, at some point since the founding of Stansberry & Associates in 1998, Porter recommended Texas Instruments. The stock went up 301% in 270 days after the recommendation. Then, he told subscribers to sell it and book the huge gain.
"Your so called 'videos' may be effective, but for me they are an instant turn-off. Now when I see a video, I delete even before the thing starts. But if they get subscriptions, I don't expect you to stop using them. Just wanted you to have another opinion (and I realize and appreciate that subscriptions are your only source of revenue)." – Paid-up subscriber Dick
Porter comment: No problem with me. Sooner or later, they will stop working.... and then we'll come up with something new. Maybe you'll like the next format better.
Regards,
Dan Ferris, Sean Goldsmith, and Porter Stansberry
Medford, Oregon and Baltimore, Maryland
February 24, 2011Snow shovels and stock prices... 'Tinker Bell' economics... Dividends always matter... A 229-fold increase... Sprott: 'We're out of silver'... Eifrig: Buy silver for $2.08... India's food protests... 884 banks in trouble...