In Thursday's Digest, we issued a warning on the euro. We wondered why the euro was rallying, when so many euro-zone nations are broke. We wrote:
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The world knows Greece is doomed. The only question is how it'll get bailed out. Portugal, Ireland, and Spain are also drowning in debt... "Saving" them will cost trillions. But you can't paper over problems forever. The European Union and European Central Bank have two options: Continue funding the follies of the weaker euro nations or cut them off. Either way, the euro is in trouble. One path leads to inflation and de facto default, the other to actual default.– Dan Ferris and Sean Goldsmith, May 19, S&A Digest |
The horrible – and evident – fundamental flaws in the euro zone weren't enough to scare investors from the currency. European sovereign yields – along with credit default swap premiums – were soaring... But so was the euro. However, a "warning" last week from a proven inept organization finally smashed the euro.
Last Friday night, S&P cut Italy's credit-rating outlook from "stable" to "negative." The warning sent global markets tumbling. Greece's 10-year debt hit a record 17%. Ireland's 10-year bonds hit a record 10.76%. The euro fell against all currencies, breaking $1.40 against the dollar.
Our views on the major credit rating agencies are well-known... They're a lagging indicator. Why anyone still pays attention to these groups, which were silent throughout the largest credit-fueled disaster of our lifetimes, we don't know. We're just happy the markets are waking up.
If the above news about the euro isn't enough to convince you it's doomed… perhaps listening to the Euro Group President admit he lied and justify it by saying God would have wanted it that way, will convince you...
In an interview with German newspaper Der Spiegel, Euro Group President Jean-Claude Juncker said, "Athens is not broke." He then defended his lying about a secret meeting to save Greece. Der Spiegel asked, "Are you saying that, as a finance minister in the age of global capital markets, you cannot tell people the truth?"
Juncker replied:
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I do not have a ready answer to your question. My main concern is to protect people from detriment. That's why I feel practically compelled to make sure that no dangerous rumors begin to circulate. I'm certainly not going to go to confession because of a false denial. God understands more about the financial markets than many who write about them. |
When politicians lie about financial matters, then claim divine justification… grab your wallets.
And while the euro is just now breaking down against the dollar, it's been in a bear market against gold for the past three years. Today, gold hit a record-high €1,080.21 an ounce.
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Despite the negative sentiment in today's markets, hedge-fund manager Barton Biggs is buying. He noted analysts' estimates for S&P 500 earnings have increased by the largest margin in a year (to $104.73 a share from $96.92 at the beginning of January).
"Investors are overreacting," Biggs said. He believes the fears surrounding the European debt crisis and housing are overblown. "All those worries are true, but I can see a number of them will be resolved in the next two months, and I do not think the global economy will slow down significantly. Stocks are very reasonably priced on earnings for next year." Biggs, who manages $1.3 billion at Traxxis Partners, likes Deere & Co., General Electric, and Caterpillar.
Our own Steve Sjuggerud agrees. In his latest issue of True Wealth, Steve said the values he sees in certain sectors (including U.S. stocks) are "the best [he's] seen in [his] entire career." Several factors support Steve's bullishness. He notes certain stocks are trading at "record-low" valuations. Interest rates are near zero. Housing prices are more affordable than ever, with all-time low mortgage rates. Also, some gold investments are super-cheap despite the bull market in gold.
Steve also says the fearful public is a sure sign the rally isn't over yet. In all, he says it's a "perfect storm" of opportunity. To read Steve's latest True Wealth, where he recommends several of his favorite investments today, click here...
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New 52-week highs (as of 5/20/11): Forest Laboratories (FRX), Sprint (S).
In today's mailbag, a reaction to Porter's Friday Digest… "This is Why There are No Jobs in America." If you missed the essay, you can reread it here. Send your feedback to feedback@stansberryresearch.com.
"As an owner of two small businesses I thank you for this article. In days past, most Americans believed owning their own business was the road to wealth, this idea has been washed out of the American mindset via our schools of higher learning.
"Now the path to wealth for the great majority of Americans is accomplished by robbing their employer or robbing someone else's employer.
"If America could once again understand there are no American jobs without small business, and there will be no future large or small corporations hungry for hires if the government continues to stifle companies with regulation and taxation.
"It has become very difficult to grow and maintain a business in the Philadelphia, PA area, so I decided about 10 years ago to start buying assets needing little or no employee participation. I am just a couple of deals away from being able to throw in the towel in one of my most labor-intensive businesses. This will result in the loss a few more well paying quality jobs in America.
"The hidden cost of losing small businesses like the one I own, is the loss of the major source of the 5 years of on the job experience larger employers in my field demand for entry level positions. I have chosen not to grow this business in our present economy.
"I know this might seem selfish to some Americans, but I went into business for the express purpose of personal gain, not for the purpose of spreading the wealth around in Washington, DC." – Paid-up subscriber Dennis Treacy
"I subscribe to several of your newsletters. I like your political stance. I like the idea of continuing to work & be productive. I worked for the same pharmaceutical company for 35 years and retired; now that I'm 80 I'm still working. I have a fun job, I sell yachts.
"Last year my wife and I took our 40-foot sailboat to the Bahamas for 3 months and had a great time. With computers & e-mail I was able to stay in touch with my office and actually sold a 300,000 boat while on vacation.
"Now to the crux of the situation. Several months ago Steve Sjuggerud recommended American Capital (AGNC). I have not seen anything from him that recants that recommendation. However, you and Ferris knock REITs all the time. I understand if interest rates go up these companies will not do as well. However, for the past year I've laughed all the way to the bank with the 19% return. Apparently, I'm missing something. I've noticed other folks have complained about this conflict of advice before. " – Paid-up subscriber RT
Porter comment: First... I wish I had your job! I've long thought yacht sales was the perfect future "retirement" job for me. I love my 36-foot CC (Everglades) fishing boat. 700 horsepower, all the fishing room I need. Perfect. But at some point in the next five years, I want to buy a 60- or 70-foot (or maybe bigger) fishing yacht. I want to cruise and fish the Bahamas in comfort. Looking around, it seems like the best deal is to buy a 10-year-old boat and refit. I'd love your opinion.
Regarding REITs... I'm not allowed to discuss securities with individuals. I wish I could, but the Securities and Exchange Commission won't let me do that and publish a letter at the same time.
In any case, if you read what Dan Ferris and I have written, you'll come to understand our skepticism. At the end of the day, you have to make your own decisions.
Steve may have a different view. As I've written many times, I don't employ the best analysts in the business so I can dictate what they write…
Our job is to educate you on what we believe and why we believe it. I hope you'll understand that to do that job honestly and with integrity, we sometimes end up disagreeing.
"I am a subscriber to a fistful of your letters, and I find your commentaries and advice to be first rate. I appreciate your sincerity and your forthrightness. I also am a subscriber to several Casey Research letters, and I purchased the audio recordings for the latest Casey conference. I did listen to your presentation, and enjoyed it. However, I have a question and a comment about a comment you made near the end of your talk. You recommended a book by Patrick Buchanan and, in the same breath called him a sonofabitch. Interesting, he must be your kind of 'sonofabitch,' right?" Paid-up subscriber Victor Kiklowicz
Porter comment: I don't care for Pat's politics. He is against free trade, for example. But more important to me, he is anti-freedom and anti-liberty. He has a bias that I don't share: He thinks the government ought to tell me how to live my life and have the power to force me to do so.
I disagree. And in my experience... people like Pat can't be trusted.
But his book about Churchill is superb.
Regards,
Sean Goldsmith and Porter Stansberry
Baltimore, Maryland
May 23, 2011
The euro breaks down... S&P warns Italy... Euro Group President lies... Biggs buying stocks... Sjuggerud sees cheapest stocks in his "entire career"... Utah is the first state to recognize gold as money...