You can't sell stocks short effectively in a world where the Fed is printing as much money as it is today and inflating the dollar at an unprecedented rate.
So we're not... It's been six months since I (Porter) recommended a short sale to my Investment Advisory subscribers. And we've only recommended two since January 2012.
Still, I'm always looking for opportunities to go short. When you find the right set of circumstances, you can feel confident that while loose-money policies may delay losses... eventually the printing will stop and the stocks' fundamental flaws will win out...
I like to short three different types of companies: Companies with fraudulent business models, companies with overly indebted balance sheets, and companies with obsolete technologies. Let's look at examples from those above categories...
Industrial conglomerate General Electric is massively over-indebted. Even with all the refinancing GE's been able to do at the current low rates, I believe the long-term intrinsic value of the company is zero.
And I still believe First Solar, the bellwether of the solar energy sector, is a fraudulent company. To be clear... I'm not accusing it of a crime. I don't have any evidence that it's committed any legal fraud in the sense that Enron or Bernie Madoff did.
What I mean is, its business model is fundamentally flawed. It's making promises about its technology that it can't produce. And it's experiencing enormous warranty claims because of it. (You can read more of my analysis of First Solar here and here.) I expect First Solar will go to zero some day as well.
In terms of obsolete businesses, I would point to the big department stores... Sears and J.C. Penney are the two most obvious ones. I believe the Internet and other technologies have made the big box retailers – where you can buy a broad array of goods at a single location – obsolete. And I don't think the management teams will be able to save these companies.
We've written about the J.C. Penney saga in Digest Premium here and here.
Having said all that, I'm not currently shorting this market. And I'm not shorting any of the stocks I mentioned above. They're just good examples of short positions I'd look to add when the money printing stops.
– Porter Stansberry with Sean Goldsmith
Three companies I'd consider shorting...
Three companies I'd consider shorting…
It's difficult to successfully sell stocks short when the Fed is printing money. The new dollars flooding the economy lift asset prices, including stocks. But eventually the printing press will stop. And as Porter explains in today's Digest Premium, when it does, these three companies will suffer… and make some short-seller a big profit.
To subscribe to Digest Premium and access today's analysis, click here.
Shares of semiconductor giant Intel jumped nearly 3% yesterday on news about a new online paid-television service. Shares are up another 1% today.
Intel is in talks with Time Warner, NBC Universal, and Viacom to obtain rights to TV shows and movies for a first-of-its-kind online paid-TV service. According to people familiar with the matter, Bloomberg says Intel is currently negotiating financial terms with the media companies, who have already agreed to the outline of the service.
Intel would manufacture its own set-top box, which would offer viewers an alternative to the current on-demand TV offerings like Hulu and Netflix. Intel Vice President of Media Erik Huggers said last month the company plans to offer an online product this year.
"Intel is betting it can create a more flexible service, delivered through consumers' broadband accounts, that gives subscribers more choices over the channels they receive and offers an easier-to-use electronic programming guide," Huggers told Bloomberg.
Intel is about to begin negotiations with News Corp. And it's currently in preliminary discussions with Walt Disney and CBS.
The online TV service would be a new revenue stream for the world's largest chipmaker. Intel is trying to diversify out of its core business of PCs. PC sales have declined over the past two years as smartphones and tablets have taken a greater share of the market.
Gold stocks peaked in September 2011 (around the same time gold hit its all-time high of more than $1,900 an ounce). They've been in a grinding bear market since then... Look at this five-year chart of the Market Vectors Gold Miners Fund (GDX)...
Throughout this downturn, many financial pundits – including several of us here at Stansberry & Associates – noted how cheap gold stocks were relative to the price of the underlying metal. Still, gold stocks continued their decline as selling begat more selling.
Almost every day, a friend or subscriber contacts me (Sean Goldsmith) about gold stocks, asking when they're going to bottom. It happened again this morning. Based purely on sentiment, it seems like we're reaching the "puke point" in gold stocks.
Nobody can know that answer for sure. But two of our top editors, Porter and Jeff Clark, believe the bottom is coming soon. And they're basing their opinions on their decades of experience and financial analysis.
In Porter's latest issue of his Investment Advisory, he wrote...
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Compared with the value of their gold production, gold stocks, as a whole, are as cheap today as they were at the bottom of the gold-stock market during the crisis of 2008. Back then, we recommended buying a basket of gold-mining stocks (GDX) to take advantage of this very unusual situation. ... That recommendation doubled speculators' money in about a year. (We eventually closed the position in May 2011 for a 91% gain.)
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Right now, the market cap [of the gold stock I recommended] is 32% less than the value of its assets... discounts this steep in the share price have happened only seven other times since 1994. The average return 12 months later if you bought in these dips is more than 50%.
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And Jeff is going long gold in his S&A Short Report and Advanced Income newsletters... In fact, Jeff named buying undervalued gold stocks and selling calls against them his "top trading idea for 2013."
And in last week's S&A Short Report, Jeff said the technical buy signal for gold stocks is finally here...
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It took a few months, but we finally got a gold-stock buy signal. Take a look...
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Buy signals occur when the gold sector bullish percent index (the BPGDM) dips into oversold territory – below 30 – and then turns higher. The blue arrows on the chart show each of the buy signals over the past two years.
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This next chart shows how the Market Vectors Gold Miners Fund (GDX) performed following each of those signals...
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Four of the five previous BPGDM buy signals immediately marked important intermediate-term bottoms for gold stocks. GDX shot higher, with 15%-20% gains in just a few weeks following the "buy" signals. The signal last April was an exception. GDX dropped even lower after the BPGDM turned higher. But the gold sector bottomed a couple weeks later... And the signal turned profitable within a few weeks.
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So I like the odds of adding more exposure to the gold sector here.
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If you want to invest in gold stocks, which advisory should you read?
Without a doubt, John Doody is the best gold-stock analyst we know. He used to be a college economics professor. But he wasn't getting wealthy there... So he dedicated the next several years to studying the markets – and where he could make the most money.
John eventually developed a proprietary method for investing in gold stocks. And it's made him a fortune. He now has a Ferrari, a yacht, international vacation homes, and a 10-figure net worth.
Of course, we can't share John's exact methods for picking gold stocks. But his returns speak for themselves... From 2000 through the end of 2012, John's method for investing in gold stocks has returned 1,239%... Crushing the returns from the S&P 500 (13%), gold (515%), and the XAU gold-stock fund (222%).
In short, John is one of the few gold-stock analysts we trust. We've worked with him for years... And he's produced huge returns for our readers.
If you believe now is the time to start buying gold stocks, as we do, you should consider a subscription to John's Gold Stock Analyst newsletter. He's currently offering the service at a large discount. To learn more about John and his proprietary method for picking winning gold stocks, click here...
Private-equity firm and Small Stock Specialist holding Kohlberg Kravis Roberts (KKR) just sold Japanese recruitment firm Intelligence Holding to rival Temp Holdings for $720 million – five times the initial purchase price from three years ago.
Leading up to the sale, KKR increased Intelligence's staffing by 37% and invested heavily in areas like information technology. Under KKR's ownership, Intelligence increased EBITDA (earnings before interest, depreciation, tax, and amortization) by 170% and revenues by 45%.
KKR wouldn't comment on the deal, as it's still raising funds for its latest Asia fund. (It has raised $6 billion to-date.) But KKR investors say the company is about to sell its investment in a South Korean beer maker for a huge profit as well. Frank's readers are up 44% in eight months.
We're still bullish on private equity today. As we've explained before, it's the perfect economic environment for these companies. They can borrow money for next to nothing... and use that cash to make huge deals.
In addition to Frank's KKR recommendation… in November, Steve Sjuggerud recommended his True Wealth readers buy shares of the world's largest private-equity company, Blackstone Group (BX). His readers are up 51% on Blackstone in four months.
Jeff Gundlach – the CEO and co-founder of bond manager DoubleLine – recently appeared on Southern California Public Radio and gave his views on that state's housing market. We discussed how quickly housing prices were moving in some markets on Monday. And Gundlach, who lives in Southern California, confirms that view...
"People are fighting with other people," he said, explaining how bidding wars are breaking out on houses in Southern California. "It's almost the same type of environment I remember from the late 1980s... People would be writing out offers on the roofs of their cars – and there would always be several cars lined up."
New 52-week highs (as of 3/26/13): WisdomTree Japan SmallCap Dividend Fund (DFJ), SPDR International Health Care Fund (IRY), ProShares Ultra Health Care Fund (RXL), Sequoia Fund (SEQUX), ProShares Ultra S&P 500 Fund (SSO), Targa Resources (TRGP), W.R. Berkley (WRB), Utilities Select Sector SPDR Fund (XLU), Anheuser-Busch InBev (BUD), Constellation Brands (STZ), Coca-Cola (KO), Pepsico (PEP), Johnson & Johnson (JNJ), Chicago Bridge & Iron (CBI), Dominion Resources (D), Hershey (HSY), Chubb (CB), Becton-Dickinson (BDX), Texas Pacific Land Trust (TPL), Enterprise Products Partners (EPD), and Cheniere Energy (LNG).
Do you have any crazy real estate stories from your area? We'd love to hear them... feedback@stansberryresearch.com.
"As little as SIX MONTHS ago, your articles were spouting that home foreclosures were higher than they have ever been, and that there were literally 'MILLIONS' of foreclosed homes out there for the pickings. NOW, you are saying in today's article in today's DailyWealth, Steve Sjuggerud, that they have all dried up. WHICH IS IT? Are you trying to tell us that in a short 6 months, virtually MILLIONS of homes have sold, in an economy that Nobody has any money? WHICH IS IT?" – Paid-up subscriber Lynn Eggett
Goldsmith comment: Yes, that's what we're telling you. Some of the largest investors in the world – like Blackstone Group and JPMorgan – are spending billions of dollars buying single-family homes. The residential real estate market has never seen this level of institutional capital. Blackstone is spending $100 million a week on houses alone.
Rest assured, these firms have plenty of access to capital... as do many individuals, who are rushing to get 30-year fixed mortgages for 3.5%.
I spoke with Steve today about the housing market, and he said the housing supply seems to be shrinking overnight. It's anecdotal, but it's clear... Houses are flying off the market.
Regards,
Sean Goldsmith
Miami Beach, Florida
March 27, 2013