The best trader Porter's ever met... Your last chance... Guns and pizza in Detroit... A warning from Caterpillar... A can't-miss interview...
"Jeff [Clark] is, hands down, the best trader I have ever met. He is so good at what he does, he makes the rest of us look like children learning to ride a bike."
Digest readers know the respect we have for S&A Short Report editor Jeff Clark. Every year, he does what few people in the world can do... He consistently makes money buying naked options.
As if that achievement wasn't special enough, the above quote praising Jeff is from our founder, Porter Stansberry – a man with no shortage of ego himself. Porter has awarded Jeff's S&A Short Report an "A+" in our last two annual Report Cards. (You can see them here and here.)
Most professional traders will tell you they're happy if they make money half the time. Huge fortunes have been built on "win rates" of 50% and lower. (The important thing is cutting your losses while they're small and letting your winners run.)
Between March 2010 and the end of 2011 – a period that includes the beginning of the European bank crisis – 56% of Jeff's trades were winners. The average return on those trades was 13% with a holding period of a little more than two weeks.
And in the period before that – from March 2009 to the end of 2010 – an astounding 63% of Jeff's trades were winners. And the average gain was 27% with a holding period of 20 days. In the Report Card evaluating that run, Porter wrote of Jeff: "If you want to make money trading – especially in options – the finest 'school' you could ever attend is waiting for you in the pages and the online updates of Jeff Clark's S&A Short Report."
Like any other trader, Jeff can go through streaks, both up and down... But history shows if you stick with him for the year, you will make huge returns. And right now, Jeff is "in the zone."
This morning, Jeff sent an update to readers telling them to take profits on two trades... He recommended calls on gold-mining giant Barrick Gold about two weeks ago. That recommendation returned 110%. Subscribers also could have made 105% gains in about three weeks on Jeff's Pan American Silver recommendation.
In today's Growth Stock Wire, he told readers gold is ready for a breakout…
As we've noted in the Digest before… Jeff's been dead-on trading precious metals in the past. Earlier this year, he recommended a trade on the mining company Gold Fields that returned more than 75% in a month and another on the exploration company Seabridge Gold that returned 95% in one week. Last year, subscribers could have booked three 100%-plus gains on gold-related trades that he held for less than a month (SPDR Gold Shares Fund, Seabridge Gold, and Gold Fields).
If Jeff's right again… readers will likely make triple-digit gains on this one trade. That should cover a one-year subscription to the S&A Short Report for many subscribers.
In addition to weekly updates, S&A Short Report subscribers also have access to what we call the Direct Line – a "blog" that allows Jeff to instantly update readers about what the market is doing during the trading day. Jeff's thoughts are immediately available throughout the day to all S&A Short Report subscribers. Some people think that alone is worth the price of a subscription.
"They usually send somebody with a guy... who carries a gun," Joan McKenna told a Detroit radio station. Her son, 19-year old Tim McKenna, was recently shot while delivering pizzas in the beleaguered city.
"Usually, they have to go into Detroit after dark, if they have a delivery... One guy has a legal, he can carry a gun," she said. "That night, Timmy was the only one left. They had this one run to do. He said, 'Yeah, I'll do it.' He's a kid. He doesn't think anything's going to happen to him."
After dropping off his delivery, McKenna was shot in the ribs by a man who approached his car, demanding money, according to a report from the Detroit television station Fox 2. The bullet hit his lung, but McKenna survived. Following the shooting, Jets Pizza – the franchise McKenna works for – in Dearborn, Michigan decided it will no longer deliver in Detroit after dark.
The McKenna incident is just one more in a string of sad stories that underscores the decline of Detroit... a formerly great city that has collapsed under financial duress and miserable government.
Porter wrote one of the best essays on the decline of Detroit we've ever seen. It's one of the most popular essays he's ever written. You can read the original piece here.
If you think it's hard to tell what's going on with the world economy, you're not alone. The Financial Times quotes Doug Oberhelman, CEO of the heavy-equipment manufacturer Caterpillar, saying right now, it's harder to predict what will happen to the world economy than at any other time in his 37-year career with the company.
Caterpillar is the world's largest maker of construction equipment. If there is digging, hauling, or bulldozing on a construction project, chances are good there's a "Cat" product around. We've always viewed the company as a bellwether for infrastructure spending.
"There's never been a more unpredictable set of tea leaves than right now," Oberhelman said. "Even in 2008 and 2009, U.S. housing was already dying and had been for two years. We saw that."
Oberhelman isn't alone. With the U.S. election just months away, the European recession getting worse, and plenty of debate over China's economic health… many investors are paralyzed by uncertainty. They're not selling... But they're not buying either. History shows that when "uncertainty" is this high, stocks rise.
We've always viewed widespread pessimism and uncertainty as "buy" signals, rather than "sell" signals... And our friend Jason Goepfert recently put this idea into perspective. Goepfert runs SentimenTrader, an excellent service that monitors investor sentiment.
In his August 13 update, Jason noted work performed by Stanford University faculty and students. Stanford has developed an "Economic Policy Uncertainty Index." Using 27 years of data, the index studies economic forecasts, newspaper coverage, and possible tax code changes in order to arrive at a number that displays overall economic uncertainty.
According to the Stanford model, economic uncertainty is at one of the highest recorded levels. And you might think that's bad for stocks… but actually, the opposite is true. The index recently closed above a "highly uncertain" level of 170. Jason notes…
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Six months after the [Economic Policy Uncertainty Index] closed above 170, the S&P 500 was positive after 27 of 28 months, with a median return that was triple that of a random six-month return during the study period. |
Jason's update goes on to display how buying during times of uncertainty is an effective strategy. Regular S&A readers are familiar with this idea. As Steve Sjuggerud frequently says, you never make money buying when it "feels good." You make money when buying makes you uncomfortable.
It's the same idea behind one of our favorite trading maxims: "The hard trade is the right trade." If you're unfamiliar with this idea, make sure to read our educational interview about it right here.
New 52-week highs (as of 8/20/12): Guggenheim BulletShares 2015 High Yield Corporate Bond Fund (BSJF), BlackRock Corporate High Yield Fund (HYV), Sandstorm Gold (SSL.V), and Medtronic (MDT).
In today's mailbag… a disturbing "boots on the ground" story from France. Send your feedback to feedback@stansberryresearch.com.
"I enjoyed your analysis – which I started listening to last night, and had to finish over my breakfast.
"You were unflattering about Europe. I thought you'd like to know what a long standing French client was recently telling me about her niece, who has had three children, each from different fathers. She now has a new benefit-scrounging live-in lover. In addition to his own benefits, she provides him with free housing (which he won't get independently) and pays him 500 Euros a month of her 1500 Euro state handout, to try, out of pathetic desperation, to persuade him to stick around. They plan a fourth child, quite openly for additional revenue generation purposes. Meanwhile the first three play truant and run free, mostly to avoid being hit by this 'stepfather'. They are feral.
"You might wonder how this happened. Well, I met the niece, and her mother, many years ago, when the girl was 12. She was a lovely, bright child who wanted to work in a bank. But she was conceived simply to get her 18-year-old mother into public housing and gradually she came to realise her function and her value. Eventually it was human isolation, which dragged her into depending on every waster that crossed her path.
"People don't always translate the dependency culture to the misery it is responsible for. But this is the reality of a highly developed system of state benefits in France. It is desperately sad.
"Rather than dwell on that let me thank you for an informative and beautifully written piece of research on insurance. I have been looking for this kind of value-driven insight to drive some investment diversification. I want to buy good businesses with sound finances, which will benefit from hyperinflation. I'd like them to be undervalued for identifiable and poor reasons. If this is a foretaste of what you offer I will be looking very carefully at what comes next. As value goes $49.50 is looking pretty good.
"I continue to be up to my ears in gold, mostly bought a long time ago. I guess, if I am to be very picky, I disagree with you on $5,000 gold. I think if it gets there quite soon, and it probably will, the dollar will be spiraling into unstoppable decline. $5,000 cannot possibly be a stable price. It looks like currency will break here (UK) first of all, or possibly in Japan, but when it goes the mechanics of the failure will be clearly understood by everyone.
"In the U.S., this will generate resistance to re-depositing Treasury redemptions, and a very real funding crisis – which will mean a spike in the interest bill and force cash printing or default. Too few people have understood that bond market sterilization of the cash currently injected by public sector money creation is only possible with complicit savers. In the end, it all gets unsterilised again.
"Thanks again for one great read. You write with what can only be sincere concern for the future. I look forward to investigating your website for many days." – Paid-up subscriber Paul Tustain
Regards,
Sean Goldsmith
New York, New York
August 21, 2012