PIMCO's Bill Gross, manager of the world's largest bond fund, argues the government is destroying our economy. He believes June 30, 2011 – when the latest round of quantitative easing (QE2) ends – will be the new D-Day. He's recently posed the question, "Who will buy Treasurys when the Fed doesn't?" Supporting his thesis, Gross sold out of long-term debt in February. And today, news broke that as of March, Gross had a short position – negative three percent – in long-term government debt (including Treasurys). His fund held 12% long-term government debt in January. His largest position is $73 billion (or 31% of assets) in cash.
It's a bold move for Gross. While he's "putting his money where his mouth is," he also risks massive withdrawals. Most investors aren't keen on paying money managers to hold cash (though it's smart at this point).
The precious metals markets are supporting Gross' thesis today. Silver hit another 31-year high of $41.93 an ounce. Gold touched a record $1,476 an ounce before dropping to less than $1,470.
On a side note, Porter and co-editor Braden Copeland dedicated the majority of their April Stansberry's Investment Advisory to silver and why it's headed much higher. At lunch today, Porter said he "keeps expecting to walk into the office one morning and see gold jump $20."
Two major announcements sent crude oil down more than 2% today to $110 a barrel (retreating from its 30-month high). The International Monetary Fund (IMF) cut its growth forecasts for the U.S. and Japan. And Libyan leader Moammar Gadhafi agreed to a cease-fire plan.
Oil refiners have delayed passing on higher oil costs to consumers at the pump, but they're starting to slip. Gasoline is nearing $4 a gallon (it's already there in some cities), up more than $0.19 since mid-March. The national average price of self-serve, regular unleaded gas was $3.765 on Friday – less than 10% below the record high of $4.112 set on July 11, 2008.
With asset prices soaring across the board, investors are once again reaching for yield. Across the globe, $1.47 billion flowed into junk-bond funds last week – the largest weekly inflow in history. "All major high-yield markets have seen fund inflows in the search for yield," analysts at Barclays Capital said. And companies sold a record $50 billion of new junk bonds in March. The average U.S. junk bond yields around 7%, about 25 basis points (bps) above all-time lows. The premium over government debt is around 465 basis points, about 60 bps less than the historical average spread.
This thirst for junk bonds is allowing the "walking dead" – heavily indebted companies on the verge of collapse – to delay the inevitable. Take newspaper publisher Lee Enterprises (LEE)... A group of vulture investors, including Alden Global Capital and Marblegate Asset Management (a Goldman Sachs division), bought Lee's bonds expecting the company to default and its debt stakes to be converted to equity. The company has $1 billion in debt, but will soon issue a new round of junk bonds to repay current obligations. Other companies, like radio broadcaster Emmis Communications, use the threat of issuing junk bonds to convince their creditors to extend debt maturities. It's more "extend and pretend."
When so much capital is sloshing around, it's tough to find short-sale targets. However, we recommend holding some shorts in your portfolio for hedging.
It's important to study your winners in the market, but it's even more important to study your losers. In a piece for the Harvard Business Review, billionaire Carl Icahn called Blockbuster "the worst investment I ever made."
Why so bad? Icahn wrote:
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[Blockbuster] failed because of too much debt and changes in the industry. It had too many stores, Netflix created a better business model, and then Redbox kiosks and the whole digital phenomenon eliminated the need for consumers to go to a separate DVD store. Maybe the board did make a mistake in picking Jim Keyes as [John] Antioco's successor – Keyes knows retailing and did an excellent job with the stores, but he isn't a digital guy. |
It doesn't matter how good a manager is... If you're coming into a company with too much debt and an obsolete business model, you're going to lose.
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New 52-week highs (as of 4/8/11): Market Vectors Gold Miners Fund (GDX), Silver Wheaton (SLW), Calpine (CPN), Hershey (HSY), iShares Silver (SLV), Texas Pacific Land Trust (TPL), ConocoPhillips (COP), Cenovus Energy (CVE), EV Energy Partners (EVEP), Philip Morris International (PM).
We get lectured for your cussing in today's mailbag. How do you feel about bad language? Tell us here: feedback@stansberryresearch.com.
"In the early 70s I got a copy of Harry Brown's book, How You Can Profit from the Coming Devaluation. As a young school teacher earning $7000 per year, with three small children, coming up with $1000 cash money to get into the silver market was like going to the moon. Not to mention that the brokers were laughing at me too. I did it by cashing in life insurance, selling whatever I could to rake that princely sum together, and then bought 1000 ounces of silver on margin.
"Had to meet several margin calls along the way, but I never gave up. I could see Gresham's law at work and knew that silver was going to go to the moon. At the same time Doug Casey was touting gold, but on our income there was no way to get into that game. I stayed in up to $50/ounce, but you (and Brown) were not there to tell me about stop losses, so I learned the hard way about selling on the way down well below the top. There were lessons learned, aside from a still handsome return.
"The point of all of this is to say that if one is willing to learn, and with patience money can be made. It is all in being in the right place at the right time. If you dont know how to invest, you either pay someone to do it for you, or you subscribe to a tutorial, and use it for education, and do your own investing.
"I have subscribed to many a newsletter in the last forty years, and have never found the degree of quality information that is here. I am still learning. For Mr Hamper, and the impatient, I counsel an open mind, and a maturity to realize that there are very few ten baggers out there. It takes persistence, patience and commitment to build a nest egg. My silver journey was over a period of at least 6 years, but multiplied my money 12-fold even though I sold late in the game the last time around. I have been waiting 30 years for another chance. (Those who have not lived through 20% inflation, and business loans at 23% – prime plus one – have a giddy experience awaiting in the near future). Your stable of newsletters has enabled me to recoup the losses that our 401k 'managers' lost in the last downdraft. (I fired them and used your letters as my guide). We are up over 100% from where I started in trying to rebuild. Rule number one for me is not to lose money. If I lose 50%, I have to gain 100% just to get back to where I was. This caution is what I find lacking in the brokerage houses and so many mutual fund managers. Thank you. Keep on keeping on." – Paid-up subscriber RH
"I am certainly not surprised you would defend Dan, I don't think he is pompous either. That doesn't change the fact that wealthy people, YOU, Dan and probably most of your editors, have a very different mind set. When I am broke I don't have $100. When a rich man is broke he doesn't have $100,000. I know as I have associated with many and they are ALL that way.
"You tell the world your trying to educate. I say you trying to make as much money as you can. Nothing wrong with that, just don't present a false face. I offered you an opportunity as a paying subscriber that isn't planning on cancelling, to show you are not all about the money. The route you took was, ALL ABOUT THE MONEY. No problem. That is exactly what I expected from you. Nothing I asked for as a Private Wealth Alliance subscriber would have cost you, but you chose not to take me up on the challenge.
"No hard feelings. I will certainly remain a subscriber. Just NOT as well-educated as I would like to have been." – Paid-up subscriber Don Hubbard
Porter comment: There's no doubt about it. We're in business to do well. Doing good is just a luxury we indulge in.
"I understand the rush to get your report out on Friday, but a quick review of content for offensive language ($%^# ) would be advisable. An investment advisory as upscale as the Digest should have automatic obscenity screening for offensive and vulgar words – no need to list them here – especially when quoting from the mailbag, which sometimes includes responses from individuals who appear to have just exited a leftist web site or blog which are ripe with foul language. Allowing certain words to be published uncensored demeans your advisory.
"Since I have not previously noted the use of the f-word, I assume this was an honest oversight, so invest in a profanity filter and activate it." – Paid-up subscriber Dave Kean
Porter comment: I've never understood why grown men would be offended by words on a page. I mean this sincerely.
They're just words. They're just sitting there on the page. They can't hurt you. You don't have to "listen" to them being spoken. You don't have to interact, in any way, with the person who actually wrote them. And besides... doesn't it seem silly and childish to put $%^# over bad words? Everyone knows what was originally written... so what's the difference?
I can understand you might not want to read a profanity-laced newsletter... and that you wouldn't take any advice from someone who routinely speaks or writes this way. But these letters are obviously from our customers, not us. And they are obviously written by folks who are... ahem... not all that bright or well-mannered – which is why we published them. It's entertaining to realize there's a reason why most people are poor. They live in denial, like this poor soul. And they have terrible manners... So no one would want to do them a favor or help them.
My question to you is why do we have to pretend people like this don't curse? How does that help anything? And doesn't editing his language take away part of the message?
Regards,
Sean Goldsmith and Porter Stansberry
Baltimore, Maryland
April 11, 2011
The best offer we make... Gross shorts Treasurys... $4 gasoline... Investors crave yield... Carl Icahn's 'worst investment'... Return of Rattner...