The market is in freefall... How quality is performing today... And hyped stocks... What the data says about the current correction... Why we repeat ourselves... What's Buffett doing?... Lock in a safe 5%-plus dividend...
The market is in a freefall...
The S&P 500 is down 8% since hitting an all-time high on September 18. Nearly every sector has pulled back with it... even blue-chip stocks.
Semiconductor giant Intel (INTC) recently announced a blowout quarter. Third-quarter revenue rose 8% versus the same period a year ago. Operating income rose 30% and net income rose 12% over the same time frame. Despite great earnings, Intel hasn't been immune to the overall correction. Shares are down 11% since September 8.
Another one of our favorite blue-chip companies – pharmaceutical behemoth Johnson & Johnson (JNJ) – is down 11% since September 24... despite recently increasing its 2014 earnings forecast for a third time. The company is even more bullish after seeing positive results from its hepatitis C drug Olysio, which has earned Johnson & Johnson nearly $2 billion this year.
Coca-Cola (KO) is the world's largest beverage company, worth about $188 billion. It's one of the top brands in the world and controls nearly half of the U.S. soda market and more than 25% of the world market. Yet even Coke isn't immune to the recent pullback. Shares are down 4% since October 8.
But market darlings are getting crushed even worse...
Shares of mobile-camera maker GoPro (GPRO) are down 26% since October 7. Electric-car maker Tesla (TSLA) is down 21% since September 4. Internet-streaming firm Netflix (NFLX) is down 25% in the last month.
We know it's difficult to be in the market right now... As always, we recommend following your trailing stops. But don't panic... We're in the midst of one of the longest bull markets in history.
We've noted multiple times how the market has gone nearly three years without a 10%-plus correction. That's still the case today. Markets could indeed fall farther. But the trend is still up. Remember, no market goes straight up forever without any hiccups.
In yesterday's True Wealth Systems Review of Market Extremes, Steve Sjuggerud and his research team showed subscribers what the hard facts – not emotion – are saying. They agreed to let us excerpt part of that for today's Digest...
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As Steve noted, it's rare to see a stock market boom for as long and as consistently as the one we've seen over the past few years. And until last week, the S&P 500 had stayed above its 200-DMA for 477 trading days. That's the second-longest streak since 1980...
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The table Steve published shows the difference in returns on stocks over different time frames versus buying after extended bull markets end. The conclusion is clear: Buying stocks after a long bull market ends nearly doubles the typical return on stocks across all durations. As Steve put it...
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Sometimes it may seem like we repeat ourselves... telling you to buy the same thing, to follow a specific strategy, and to focus on quality again and again. But trust me, it's not that we have run out of good ideas, or that we're simply trying to hit a word count.
We have one goal at Stansberry Research: To provide you with our best investment ideas and strategies. As Porter often says, we tell you what we would want to know if our roles were reversed.
So if you find us hammering a particular idea in the Digest, pay attention. It's only because we think it's a fantastic opportunity. We know we have to repeat ourselves over and over again before an idea finally sinks in. Then you'll understand these valuable financial concepts and improve your investment performance.
I can't think of another idea we've covered with more regularity in the Digest than municipal bonds. You're probably groaning at the thought of me broaching the topic yet again. We covered them earlier this month, too.
We've told you that municipal bonds are super-safe – the highest-quality bonds have a historical default rate of just 0.02%. We've told you how you can buy certain muni-bond funds for double-digit discounts to their net asset values... and how you can collect double-digit, tax-equivalent yields.
We hope you listened. One of Retirement Millionaire editor Dr. David "Doc" Eifrig's favorite muni-bond funds is up nearly 1.5% today. While the rest of the market has sold off, munis have soared. Just take a look at this chart...
Doc agrees with Steve and Brett... He believes this selloff is temporary. Last week, he told subscribers...
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As I write, Doc is scouring the market for opportunities. As fear grips the market, selling put options and capturing large premiums only gets easier. Doc says his magic number for the Volatility Index ("VIX") – the market's "fear gauge" – is 30. That's when the premiums get juicy. Today, it's around 26. We're close.
In the meantime, Doc's Retirement Millionaire portfolio is loaded with high-quality names paying large and growing streams of income. And you can take advantage of the recent selloff and buy these stocks on sale right now.
The companies we've discussed today – and other World Dominators like Big Cheap Tech firms Intel and Microsoft – will still gush billions of dollars of free cash flow. They'll still pay large and safe dividends. They'll still buy back stock.
Investment legend Warren Buffett lives for down days. He bought stocks last week. As he told CNBC, "The more [the market] goes down, the more I like to buy."
We bet Buffett is buying again today... You should be buying, too.
In his latest issue, Doc recommended one of the most dominant businesses in America... It's a household name that provides a service we all use. It's paying a 5%-plus dividend today. Plus, shares have fallen more than 4% over the past six trading days, making it a great time to scoop up shares right now.
You can access Doc's latest recommendation with a subscription to Retirement Millionaire. Find out how to get started with your four-month, 100%-risk-free trial subscription by clicking here. (You won't have to watch a long promotional video.)
New 52-week highs (as of 10/15/14): National Beverage (FIZZ) and ProShares Ultra 20+ Year Treasury Fund (UBT).
In today's mailbag, two subscribers share how investment discipline improved their performance in the market. How is your portfolio holding up during this market correction? Are you following your stops? Send your notes to feedback@stansberryresearch.com.
"Porter, among the many disciplines you teach, the importance of the stop-loss has been driven home in this recent downturn. In the past three weeks, I had 20 positions hit their trailing stop-loss. I closed each one without reservation. Had I held them, my portfolio would be down another $40,000 today. The next best thing to making money in stocks is not losing money in stocks. Thanks for the sage advice." – Paid-up subscriber LB
"Just a quick note in response to last week's Stansberry Radio episode and Porter's suggestion that people should save half their income. In short, I'm that guy. I never set out to save a specific percentage of the money I earned, but I make enough that I can save a lot. I live simply, in a house that I paid for in 5½ years. I own a Toyota Land Cruiser, bought when it was three years old and had lost about half its value. And I buy anything I want, with money still left over.
"I started a business from a bedroom in my parents' house in 1991, and it has grown to allow me to make about $200,000 a year. I give at least 10% away and if I had to guess, I save about half after taxes, charity, and whatever else it is that makes me happy. I've never had a budget, I've never missed a meal, and always have money in my wallet. I don't feel the need to buy things to make me happy, and when I buy something for me or for others, those things are generally of better quality and they last. I have $800 suits, a couple $200 pairs of shoes, a $1500 mattress, a nice stash of collectibles, and a positive net worth.
"I've made all kinds of investment mistakes and with the help of Stansberry, and others, I am learning to buy when things are cheap, hated, and in an uptrend, despite my other tendencies. And I'm still very much learning that. For that reason though, I have lots of dry powder, and am probably about 60% invested into stocks with the other 40% in cash and/or business net worth (much of which is cash). I don't add it up, because I don't need to, but I'd guess that my net worth is within about 10% of $2M.
"Had I followed S&A principles from 20 years ago to today, I'd have more money, but wouldn't be any happier. I might have a newer Land Cruiser parked at a house with a bigger garage, but I can afford all of that, too. I just haven't found it yet. So yes, it can be done, and if managed properly, the result can be even better than it has been for me. I have taken the ups and downs of the late 90's to early 2000's and 2007-present. In at the top out on the way down. In the last couple years, TradeStops has really helped manage my positions. And I'm learning to manage my buying opportunities better.
"If you are serious about putting together a service for subscribers in my shoes, count me in. I'd be glad to Beta test. I have no problem saving enough. I do have problems investing into overvalued equities, built on a currency of dubious value, but do fully recognize the power of compounding wealth with great businesses. That realization came about 10 years later than I might have hoped." – Paid-up subscriber Dave Horn
Regards,
Sean Goldsmith
October 16, 2014
Why there is potential for another crisis...
This week, Kroll Bond Ratings managing director Christopher Whalen has discussed the slowdown in consumer-credit demand and what effect rising interest rates will have on U.S. banks.
In today's Digest Premium, Whalen explains why rising rates could lead to another massive crisis...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
Why there is potential for another crisis...
Editor's note: This week, Kroll Bond Ratings managing director Christopher Whalen has discussed the slowdown in consumer-credit demand and what effect rising interest rates will have on U.S. banks. In today's Digest Premium, Whalen explains why rising rates could lead to another massive crisis...
The end of the last two-term presidencies – Bill Clinton and George Bush – resulted in crises. We had the dot-com bubble, which essentially was an equity bubble generated because we didn't have anywhere else to effectively put the money. We didn't have much growth. Investors had a relatively limited number of options.
There was also a speculative phenomenon fueled by the belief that these tech companies were creating value out of thin air. We had the crisis in 2000 and the September 11 attacks, and the Federal Reserve dropped interest rates dramatically and kept them down until the end of 2004.
This created the boom in housing, which coincided with a lot of policies in Washington D.C. that generated home ownership and increased the percentage of adults who owned a home. Then there were the bad lending practices and another housing boom, which started to crack around 2005 or 2006.
The area I worry about is the transition from a low-interest-rate environment to something that looks normal. That could be tricky, because the whole market has been asleep. People have seen low rates for so long that unless you were extremely cautious, you wouldn't bother to hedge your interest-rate risk.
If the market starts to move – even just in terms of volatility – we could see substantial losses. Think about the summer of 2013, when Fed Chairman Ben Bernanke had his famous press conference. Right before the quarter ended, we had enormous losses in the financial and mortgage sectors because 10-year Treasurys moved 1.5 points and the TBA market – which is where people hedge mortgage risk – moved two times that.
Some of the bigger non-bank mortgage companies lost billions of dollars on interest-rate risk they didn't hedge properly. Looking at that example and thinking about how a real move in rates would apply to today's markets, you can see how there could be some serious losses.
With the rest of the world, the story is deflation. The whole world is slowing down. This is largely because we still have a lot of debt. The debt burden on all of these countries is making it hard for them to create jobs and opportunities for their people.
I fully expect Italy to try and leave the European Union at some point because it cannot live like Germany. Italy cannot live without some degree of inflation to help it – at least in the short term – deal with its debt burden.
– Christopher Whalen
Why there is potential for another crisis...
This week, Kroll Bond Ratings managing director Christopher Whalen has discussed the slowdown in consumer-credit demand and what effect rising interest rates will have on U.S. banks.
In today's Digest Premium, Whalen explains why rising rates could lead to another massive crisis...
To continue reading, scroll down or click here.