The carnage continues... Gold stocks approach 2008 levels... Is it time to buy?... Badiali weighs in... Stalwart hits an all-time high... From the ground in Macau...
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The dollar staged a strong rally following the Fed's announcement yesterday that it would end quantitative easing... And commodities, once again, got crushed.
The dollar and commodities have an inverse relationship... As the dollar goes up, commodity prices generally go down, and vice versa.
The main reason for this relationship is simple: Commodities are priced in dollars. A stronger dollar means it takes fewer dollars to a buy a given commodity. Likewise, when the dollar rises against a basket of foreign currencies, foreign buyers have less buying power.
In the September 30 Digest, we explained how the dollar's recent parabolic move had crushed gold and silver. Gold and, to a lesser extent, silver are particularly vulnerable to dollar fluctuations. As we saw during the subprime crisis, gold prices soared as the world feared a collapse in the dollar.
Take a look at this chart of the dollar versus gold and silver over the past four months...
Gold stocks are in the doldrums. Gold stocks – as measured by the Market Vectors Gold Miners Fund (GDX) – hit their lowest point since the crisis in October 2008...
Even with the massive selloff in gold stocks, is it time to buy? We asked S&A Resource Report editor Matt Badiali for his thoughts...
Citing geology expert Brent Cook's presentation at the New Orleans Investment Conference last week, Matt noted that all-in gold production costs for major developers are more than $1,400 an ounce today. Meanwhile, the price of gold is less than $1,200 an ounce. Gold companies are selling every ounce of gold at a large loss... And miners are trying to stop the bleeding by cutting exploration and development costs. Think about that for a minute...
The only way these mining companies make money is by selling gold. Today, they're cutting spending on finding and building new gold deposits. Their shortsightedness today will ensure that when the market finally moves higher, they will have little gold to sell on the upswing. It's the classic commodities cycle.
In addition to cutting exploration, mining companies are only producing their highest-grade deposits, known as "high grading."
A typical mine has high- and low-grade deposits. The producers plan to mine the entire project and blend all the resources into an average grade. This production mix adds years of production and loads of extra reserves to a project.
But the miners can't afford to mine the whole thing today, so they're just taking the best rock and leaving a shell of a project with a bunch of low-grade gold that won't be economic until gold prices move much, much higher.
As Matt concluded...
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We're staying away from mining stocks and focusing on quality in today's market. And one of Dr. David "Doc" Eifrig's top Retirement Millionaire recommendations hit an all-time high yesterday...
3M is a $97 billion diversified technology company. When he first recommended shares in October 2011, Doc noted that 3M has a history of innovation. It makes products that people and industries use every day, like abrasives (sandpaper), adhesives (glues, masking tape, and Scotch tape), filters, drug-delivery systems, cleaning products (Scotch-Brite), reflective coatings (Scotchlite), fabric protectors (Scotchgard), and even the granules for roofing shingles. But 3M's most famous invention is Post-it notes.
And the company just announced a stellar quarter...
Revenues for the quarter ending on September 30 were up 2.8%, from $7.9 billion in the same quarter a year ago to $8.1 billion today.
Revenue was up for all business segments. Health care was up 5.4%, electronics and energy were up 4.3%, industrial was up 4.2%, and consumer, safety, and graphics were up 3.1%.
Plus, sales margins are improving... Operating income margins increased to 23.4%, up from 22% over the same period a year ago.
Third-quarter earnings increased 11.2%, from $1.78 per share in the third quarter of 2013 to $1.98 today. The company also increased guidance for 2014.
3M also continued its legacy of rewarding shareholders. The company paid $550 million in cash dividends to shareholders and repurchased $1.2 billion of its own shares during the third quarter.
When Doc recommended 3M, it paid a $2.20 annual dividend. Three years later, 3M has increased its dividend 55% to $3.42 a share. Subscribers who bought on Doc's original recommendation are earning 4.4% on their invested capital in a super-safe company.
A long history of dividend increases is nothing new for 3M. It has paid a dividend to shareholders for 98 straight years, increasing it in each of the last 56 years. A sustainable dividend increasing 55% in the past three years is astounding.
Plus, this figure doesn't include share buybacks. Since 2004, 3M has reduced its share count nearly 20%.
You can see why buying and holding these types of companies is the best way to get rich in the stock market... Doc's Retirement Millionaire subscribers are up nearly 104% since October 2011.
We'll end today's Digest with an update from S&A Global Contrarian editor Kim Iskyan. He is currently gearing up for a visit to one of the most dangerous countries in the world... Venezuela. Kim recently returned from a trip to the world's gambling mecca: Macau, China. Today, he shares some thoughts on Macau...
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And unlike Vegas, where revelers go to eat, party, see shows, and gamble, folks who visit Macau have one single interest: to gamble...
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You can see the decline in Macau looking at the one-year chart of casino giant Wynn Resorts (WYNN), which earns 70% of its revenue from Macau...
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While Wynn shares are down, some smaller companies have been hit much harder. And as things in Macau improve – which Kim feels is likely – these smaller companies will rise much faster than the $19 billion Wynn...
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To read more about Kim's travels throughout the world – and to gain access to the name of this small Macau casino company – you must be an S&A Global Contrarian subscriber. Click here to learn more.
New 52-week highs (as of 10/29/14): Apple (AAPL), Fidelity Select Medical Equipment & Systems Fund (FSMEX), Medtronic (MDT), Nuveen AMT-Free Municipal Income Fund (NEA), Procter & Gamble (PG), and ProShares Ultra Health Care Fund (RXL).
In today's mailbag, one subscriber tells us how he's doing from selling puts... and another writes a long letter explaining why FINRA is stacked against the little guy. Send your thoughts to feedback@stansberryresearch.com.
In answer to your question about how we're doing selling puts, I started November 1, 2011 using Doc [Eifrig's] trading letter. I now use DailyWealth Trader plus my own ideas. I've had 3 big losers along the way because I thought selling puts on gold and silver stocks was a good idea. Wrong. I've completed 105 trades in the three years and am up $76,632. Doing this keeps my 85 year old brain active, it's very interesting and I get a little walking around money to boot. Thank you very much for eight years of learning. I've enjoyed it very much and my bottom line shows the results." – Paid-up subscriber Weldon Frederick
"In an interview with the Wall Street Journal, James L. Buckley, one of the very few men to have served in all three branches of government, noted that the US Code, the entire body of federal statutory law, has gone from one volume before the New Deal to 33 or 34 volumes by the 2012 edition, which is still being printed. But that's only the tip of the regulatory iceberg. 'There are now 235 volumes of regulations that occupy... 17 feet of shelf space of six-point or seven-point type,' says Buckley. He points out, 'You can find yourself in jail for violating a statute you would never have any reason to know existed.'
"The slide into the morass of incomprehensible rules began with the Supreme Court ruling multiple times that convictions need not be supported by criminal intent or a guilty mind. Clueless Americans can now be fined and jailed for activities they have no idea are unlawful, and eager regulators are quick to entrap honest people to achieve goals set to justify government's existence. Take for instance the Financial Industry Regulatory Authority, or FINRA®, which has a target on small stock brokerage firms. At FreedomFest in Las Vegas a few weeks ago, I spoke with two brokers who complained about the FINRA cops. One who owns his own firm but is being forced to leave the business, because FINRA's proposed fine for ticky-tacky paperwork irregularities is more than what his firm is worth.
"Another gentleman who works for a larger firm told me FINRA regulators do not respond to complaints as much as creating complaints to respond to. He related stories of regulators cold calling brokerage clients, who get rattled when a government gumshoe grills them over the phone. Eventually the customer gives the regulator enough of a reason to pursue the customer's firm, and the next day, FINRA storms in, announces that a complaint has been filed, and demands reams of paperwork. When the broker reasonably asks, 'Who complained? Let me take care of it.' The FINRA cops refuse to tell him and begin their investigation in search of assessing a fat fine.
"'I've been fighting with FINRA for years. In some ways it's like an organized crime group,' said John Busacca, founder of the Securities Industry Professional Association, told the New York Post. 'It's like paying protection money in Bensonhurst.' Busacca believes large firms get a pass from FINRA, while FINRA focuses on harassing small firms.
"The Post's John Crudele points out that a couple years ago, there were more than 6,000 small independent brokerage firms. Now the number is around 4,100, 'and there's been a big drop-off in just the last few months.' Of course, FINRA claims it 'regulates all firms equally, regardless of size, and investigates problematic conduct where it is found.' But an owner of an independent broker told the Post, 'It's the old story. The big guys get to skate. To look tough, [FINRA] beats up the little guy.'
"That broker didn't want to be named, because he's been harassed by FINRA for months already, has been made to comply with regulations outside of FINRA's authority, and doesn't want to be targeted for more punishment. He's heard similar stories from other firms his size. 'He believes it's either a vendetta against small firms, or just plain ignorance of the rules on the part of FINRA representatives,' writes Crudele. FINRA's heavy-handedness has a lot to do with the agency's attempt to seize oversight of America's investment advisors from the Securities and Exchange Commission (SEC).
"What's telling, in the words of Mark Eizweig, writing for Investment News, is that 'this regulator eats what it kills.' These fines are what keep the agency in business, as 'the number of disciplinary actions has been rising at a rapid clip, up 43% from 2008, to 1,535 in 2013.' Eizweig explains, 'FINRA thereby has an incentive to pile on one rule after another, because each new regulation is a kind of regulatory tripwire that affords FINRA more opportunity to ring the cash register... It's no wonder that FINRA is regarded less as a consultative partner in helping broker-dealers adopt policies and procedures to protect investors, and more as an aggressive bounty hunter with an agenda to levy fines,' writes Eizweig.
"Without big legal departments to withstand FINRA assaults, small broker-dealers are throwing in the towel. How many small firms can spend $55,000 in filing fees, creating 50,000 PDFs to comply with FINRA's advertising rules? FINRA is not interested in allowing customers to take investment risk for reward, or keeping up with economic cycles or trends. The agency claims its agenda is to 'protect customers,' whether they need or want protection or not. FINRA's agenda is a protection racket generating funds to feed FINRA employees and their families." – Paid-up subscriber Henry Bendinell
Regards,
Sean Goldsmith
October 30, 2014
What our Stansberry International indicators are saying today...
Editor's note: This week, we've shared insight from Stansberry International editor Brett Aitken on some of the best investment opportunities across the globe. So far, he has discussed why he believes European stocks are headed higher... one blue chip that just went on sale... and why your portfolio should have international exposure. In today's Digest Premium, he explains some of the keys to investing internationally... and which markets are offering great value today...
Yesterday, I (Brett Aitken) mentioned that the U.S. is not one of the 40 cheapest markets of the countries we monitor at Stansberry International.
We use the 2015 estimated price-to-sales (P/S) ratio because accounting and taxation rules on earnings in each country vary. A dollar in sales in the U.S. is a dollar of sales in Spain, Greece, or Brazil.
Based on the P/S ratio across the markets we monitor, Ukraine ranks No. 1 at a mere 0.2 times sales, based on today's prices. Greece is next at 0.4. South Korea comes in third with 0.5 times. The other countries that make up the top 10 are Hungary, Italy, Japan, Russia, Austria, Portugal, and Germany, in that order.
Germany sits at just 0.7 times sales. For comparison, the S&P 500 index trades for 1.6 times sales... more than double Germany's valuation.
On Monday, I mentioned that I visited Hungary earlier this month. Its stock market is tiny, with a market cap of around $20 billion. (For comparison's sake, fast-food giant McDonald's has a market cap of around $90 billion.) Hungary's market has just four publicly traded companies with decent-sized market caps.
Ukraine and Russia are so cheap because of the geopolitical situation. That brings me to an important piece to our strategy when investing in bombed-out markets: We want a catalyst that will attract investors to start pouring cash back into the market and send stocks higher.
We also compare market valuations with real interest rates (the 10-year bond yield minus inflation, in most cases). High real interest rates are a sign of a market in crisis. When you find high real interest rates with a cheap market, you are often looking at a stock market about to take off.
Another key to success is waiting. Most investors don't have the patience for this type of investing. They want results in weeks or months. Patience is critical to your overall success as an investor... even more so with global investing.
When we compare real interest rates with each market's P/S ratio, we see that Greece is No. 1. Brazil, Hungary, Portugal, and Italy also appear in the sweet spot.
Brazil is an interesting case, as it went through a close general election, with the incumbent – Dilma Rousseff – barely getting reelected. The market hasn't performed well with her at the helm. Brazilian stocks are down more than 20% since she was elected in 2011. For buy-and-hold investors, it has been a tough few years. But sooner or later, we expect that we will buy into Brazil.
Another interesting market is South Korea. It trades at a cheap 0.5 times next year's sales and 0.95 times next year's book value. It has some of the world's leading industrial companies, like steel giant Posco, electronics firm Samsung, shipping company Daewoo, and car manufacturer Hyundai, among others.
Since launching Stansberry International, we've recommended stocks in Spain, Italy, and Greece. Greece remains attractive. And the recent selloff has created some fantastic buying opportunities.
Over the next few months, we expect to find some great investment opportunities to share with our readers from these countries.
– Brett Aitken
Editor's note: In the latest issue of Stansberry International, Porter and Brett recommended shares of a Greek company whose products are recognizable around the world. It's a brand you probably have in your home right now. This company is trading for less than its price-to-sales ratio... and yields 2%. If things go from bad to less bad in Europe, this stock could quickly move higher. You can gain access to the latest recommendation with a four-month, risk-free trial subscription to Stansberry International. Click here to learn more.
What our Stansberry International indicators are saying today...
This week, we've shared insight from Stansberry International editor Brett Aitken on some of the best investment opportunities across the globe. So far, he has discussed why he believes European stocks are headed higher... one blue chip that just went on sale... and why your portfolio should have international exposure.
In today's Digest Premium, he explains some of the keys to investing internationally... and what markets are offering great value today...
To continue reading, scroll down or click here.