The biggest IPO in U.S. history gets bigger... S&A Short Report subscribers are still profiting... Why Jeff Clark sees a major correction next year... Bill Gross: Borrow money... Steve Sjuggerud says what to buy... Exclusive access to our Los Angeles presentations...
The fervor surrounding Alibaba's initial public offering (IPO) on Friday continues... And Jeff Clark's S&A Short Report subscribers are still enjoying huge gains.
We call Alibaba the "Amazon of China." That's only part of its business. Alibaba is like a combination of Amazon, auction house eBay, online-payment service PayPal, travel site Orbitz, and others. It's a giant... And U.S. markets can't get enough.
The company's IPO was likely going to be the largest in U.S. history... Now it will probably be the biggest IPO in the history of the world (sign of a top, anyone?)... Alibaba raised the $21 billion it was seeking in just two days. Reuters, citing an unnamed insider, said there was "overwhelming" demand for the deal.
Alibaba planned to price shares between $60 and $66. But the plan has changed...
Company founder Jack Ma told investors he wouldn't seek an absurd valuation for Alibaba... He wants to leave room for shares to run after the IPO. Still, the company plans to re-price its IPO to $70 a share.
And while Alibaba shares won't trade publicly until Friday, S&A Short Report subscribers have been profiting for months off the soon-to-be-largest IPO in U.S. history.
As we wrote in the September 9 Digest, Jeff recommended going long Yahoo, which owns more than 22% of Alibaba.
Jeff thought Yahoo was undervalued relative to the amount of its ownership of Alibaba... And that the IPO would unlock that value, sending shares of Yahoo soaring.
Jeff was right...
On the news Alibaba would re-price its IPO, shares of Yahoo jumped to more than $44 a share this morning... its highest price since 2000.
Jeff recommended several Yahoo option trades... But S&A Short Report subscribers who followed his original advice are up 85%. And larger gains could be on the way. We'll have a better idea after Alibaba's Friday IPO.
While Jeff is bullish on Yahoo, he believes the market is due for a correction...
He is hosting a free webinar live on Thursday to share his views. He'll discuss his views on Yahoo today... But more importantly, he'll tell you why he thinks we'll see a large market correction toward the end of next April.
It's an event you need to prepare for... And learn what you can do to profit when the correction comes.
On the webinar, Jeff will explain how he is playing the market correction he is predicting... And he'll share how you can position yourself in precious metals, coal, uranium, and other commodities.
Again, the webinar is completely free. You can learn more about Thursday's event right here. (It's not a sales pitch.)
Last Thursday, we noted an absurd sign of the top...
Citigroup recommended you borrow money to buy junk bonds. The analysts even went on to say "high yield is less risky than Treasurys."
Let me put that into perspective... Lots of investors (like pension funds) require minimum returns of around 8% to meet obligations. That's not available in the debt markets today. But if you take on lots of debt and buy the riskiest corporate credits, you can achieve that return.
(And to be fair, Citi meant that high yield is safer than Treasurys only in that you would have to borrow more money to achieve that return in lower-yielding Treasurys. Still, taking on leverage to buy assets near all-time high prices – especially low-quality assets – is toppy thinking.)
Especially when one of the smartest men in high yield, Oaktree's Howard Marks, says he thinks the risks in junk bonds are outsized today. Marks said on a recent interview with Bloomberg Television...
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Following Citi's report, one of the final bastions of reason in the markets today, Bond King Bill Gross, said something similar...
In an interview with Bloomberg, Gross advised taking on leverage "in a mild sort of way." It's a way to borrow money at short-term rates (which are near zero) and buy something paying a higher rate.
Mind you, Gross is one of those investors who needs to achieve certain returns. He's the world's biggest bond investor. And his investors have been leaving in droves as his fund's returns have suffered.
In today's DailyWealth, Steve Sjuggerud outlined another way to take advantage of today's ultra-low rates. Don't worry, it doesn't involve buying overpriced bonds. As he wrote...
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This week, we're featuring new content from Steve in Digest Premium... At our Stansberry Conference event in Los Angeles, he told the audience when he thinks a major market correction is coming... and how to play it.
In today's Digest Premium – adapted from a presentation in Los Angeles – Porter shares two indicators he watches to tell when stocks are due to correct.
But Digest Premium is more than just added value from S&A's editors... We also get exclusive content from some of the best investors in the world... In the past month, we've spoken with resource guru Eric Sprott, gold-stock expert John Doody, and resource-investing legend Rick Rule. Again, this content is exclusive for Digest Premium subscribers only.
New 52-week highs (as of 9/12/14): Eli Lilly (LLY).
In today's mailbag, the discussion of America's "disappearing middle class" heats up. Send your observations to feedback@stansberryresearch.com.
"The rants on this structural change in the American economy would be more shrill by orders of magnitude if government statistics were more accurate. And if the disability and unemployment benefits were not so liberally distributed. This is an age of pacification, or political appeasement – more to the point. If the process of decimating the middle class has been managed by policy-makers in any way, then there many who should hang. But the sad truth is likely that in pursuing profit the 'educated' middlers have simply been expected to 'keep up' – find ways to rise with the tide of the financial industry, for instance, or the friendly ghosts of the internet! Those who have not had the education, or the inclination, to scratch out and up from the 'means to an end' work they once had, are now in competition with the 'teeming masses' from our southern neighbors for the construction and general service work. They're willing, and able with their entry level wages ($5-$10/hour), to live 6 – 12 or 20+ in hostel type homes.
"This was well known well before the housing market meltdown, giving special culpability to policy makers who ignored the disappearing floor of work prospects for the middlers. As far as the two party system was concerned, ironically both bases got what they wanted, cheap labor to build their mansions, and more dependent prospects to vote their self-interests. Win-win – right! If you love living in caves, being kept and fed horsesh*t in the dark like mushrooms, then relax and enjoy – someone will come along and offer to put you up in government housing someday. In the meantime, get used to the damp, dim and cool – someone will surely come along to harvest (capitalize on) your dynamic growth. Mushrooms do grow quickly, don't they?" – Paid-up subscriber Ken
"I read with interest the comments from Joe Granger regarding the negative impact he sees from a potential increase in the minimum wage to $15/hr. I would like to counter his assertions and explain how a $15/hr. minimum wage would contribute to the creation of better, higher paying jobs. First of all, business is about economics. Businesses exist for only one purpose and that purpose is to return value to the shareholders. After all, who in their right mind is going to place their capital in a business that provides them with no potential for profit. In difficult economic conditions, it is tough to raise prices; so, cost reduction becomes of utmost importance. Automation of any repetitive process performed by expensive labor is an attractive possibility for cost savings.
"Let's say we have an employee simply taking orders from customers and entering those orders on a touch screen terminal with pictures of the items and collecting money for the purchase. If that employee is making $15/hour and working 2,000 hours/year, the cost of that employee to the business is $30,000/year, plus Social Security Taxes, Worker's Compensation Insurance, etc. which can conservatively add 20% to the cost of that employee. This would bring the cost of those employees to $36,000/year each. Now that many of these establishments operate 24 hours a day, that would mean each employee function automated would save the business the cost of 3 employees (1 per shift). This means each functions to be automated could potentially save a business $108,000/year. A capital investment of $1,944,000 that eliminated a line of three people taking counter orders from customers for 3 shifts a day/5 days/week and replaced them with an automated process where the customers entered their own orders and swipe their own credit cards would pay for itself in about 2 years while providing a 40% annualized return on capital.
"How does this create jobs? What do you think people like me do for a living? Cost reduction and productivity enhancement specialist need jobs too! For those who think this will not happen, tell that to the young kids who used to get their start by pumping gas at the local filling stations. The higher the minimum wage goes and the more cash and benefits that are demanded by low-skilled workers, the busier I get. I think we should push for $20/hour; then I could really just coast." – Paid-up subscriber Ken McGaha
Regards,
Sean Goldsmith
September 15, 2014
How to measure market complacency...
Porter and his Investment Advisory research analysts recently unveiled the "Stansberry Complacency Indicator," which helps capture the mindset of the average investor.
In today's Digest Premium, Porter shares the theory behind this model... and discusses where it suggests we are in today's market...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
How to measure market complacency...
Editor's note: Porter and his Investment Advisory research analysts recently unveiled the "Stansberry Complacency Indicator," which helps capture the mindset of the average investor. In today's Digest Premium, Porter shares the theory behind this model... and discusses where it suggests we are in today's market...
As the writer of Stansberry's Investment Advisory and the head of the S&A research group, I (Porter) am challenged to do a better job of understanding when we should add more hedge protection to our portfolios – when we should be shorting more and when we should be shorting less.
I want to be clear: I don't believe there is anything we can do to actually predict the stock market. I can't tell you where the market is going to be six months from now. But I can tell you whether the odds favor a higher or lower market.
One thing we use in my Investment Advisory is what we call the SIA Money Flow Gauge. This measures how money is flowing into equity mutual funds versus money-market funds. When credit flows into cash, stocks and mutual funds are going to fall. When money is going into equity funds, stocks are going to rise.
I try to make things black and white with these models so that you can see them visually and understand that you need to be able to retain cash until other people are panicking. This will allow you to buy high-quality businesses at low prices.
In the spring of 2009, you could have bought jewelry firm Tiffany (TIF) for less than the value of its inventory, minus its stock and debt. It was an unbelievably cheap stock at $20 per share. Incredibly, we were able to sell puts on the stock with a $15 strike price and get $1 in premium for 90 days. People were so panicked. It was something I'll probably never see again in my investing lifetime.
I recently asked my staff to build me a better model, which we've named the "Stansberry Complacency Indicator." This measures the ratio of put options to call options, the difference in long-term bond rates versus shorter-term rates (the "yield curve"), and interest-rate spreads.
Over the last 25 years, there have been nine corrections in the stock market of more than 10%. This model predicted seven of them. The average warning time the model gave us was 5.1 months. The average decline following the signal was 26% from peak to trough.
This is as good as I can get. We're not going to be able to do much better than this, because if we made the model more sensitive, we would get false signals. We wanted a model that would only signal when there was a significant event.
The model tells us when conditions are euphoric. It's not designed to tell us when credit is tight – it's designed to tell us when credit is too easy and sentiment is too bullish. When the market has reached a period of unsustainable euphoria, you can bet there's going to be a correction.
As we wrote in the September issue of my Investment Advisory, "Today... the indicator is generating a complacency score in the 40s. That means investors are not overly complacent today."
– Porter Stansberry
Editor's note: At our Stansberry Conference event in Dallas, Porter showed up dressed as General Motors CEO Mary Barra and gave his entire speech in drag. In Los Angeles, he drove in on a Tesla and called it a "Segway with four wheels" before discussing the company with one of its cofounders. And in Nashville, he promises to kick things off with his most outrageous move yet. To secure your "early bird" ticket for the event before we raise prices, click here.
How to measure market complacency...
Porter and his Investment Advisory research analysts recently unveiled the "Stansberry Complacency Indicator," which helps capture the mindset of the average investor.
In today's Digest Premium, Porter shares the theory behind this model... and discusses where it suggests we are in today's market...
To continue reading, scroll down or click here.