You're signing up to be robbed...
While the market has been rallying to new all-time highs, a few sectors have been lagging behind...
As we discussed on Thursday, gold stocks are in a rut... one we believe may soon reverse.
But another, much less-publicized sector is also on the decline. Editor in Chief Brian Hunt wrote about it in today's Growth Stock Wire...
Over the past few years, the steel industry has faced a sluggish worldwide economy and excess production capacity. This has caused prices to fall more than 30% from their pre-financial crisis levels. It's also producing big losses for large players like ArcelorMittal (MT).
ArcelorMittal is the world's largest public steelmaker. As you can see from the chart below, the stock has declined from $45 to $12 in just the past few years. Last week, shares struck a new 52-week low... which is even lower than the panic 2009 low.
To read the rest of Brian's commentary – and to see what this means for the economy – click here.
While the Fed's "easy money" policy has failed to boost the steel market, it has done wonders for global equities... The S&P 500 stock index is trading near all-time highs. And Japan's benchmark stock index, the Nikkei, hit its highest level since August 2008. The yen-to-dollar ratio also fell to its lowest level since May 2009.
As we discussed last week, Haruhiko Kuroda, governor of Japan's central bank, the Bank of Japan (BoJ), announced plans to purchase 7.5 trillion yen ($78.6 billion) of bonds per month and double the monetary base within two years. The BoJ's purchases were much larger than anyone expected.
Hedge-fund manager and longtime Japanese bear Kyle Bass told the financial news network CNBC last week that Japan would get crushed under the weight of its own debt... "They are essentially doubling the monetary base by the end of 2014," Bass said.
Bass noted Japan is already insolvent... And there's no way it can keep up this kind of money printing, especially considering the country's size. "[T]he BoJ is monetizing at a rate around 75% of the Fed on an economy that is one-third the size of the U.S.," he said.
Still, these events take some time to play out. And our own Steve Sjuggerud says there are still more gains to come. I (Sean Goldsmith) asked Steve for his thoughts following Kuroda's announcement...
|
When events like this occur, the day of reckoning is typically much farther away than people warn. Meanwhile, we are profiting on our investment. We will let it ride as long as possible. And we have our trailing stops in place to protect us. Even if we were stopped out, we'd still pocket a profit in one of our Japanese trades in True Wealth and almost a profit in the other.
|
|
Bass is right, if he is stating the obvious about Japan's debts. I just think we could make good money before the day of reckoning arrives.
|
Another respected hedge-fund manager, Leon Cooperman of Omega Advisors, recently spoke at a fundraiser for the nonprofit organization Portfolios with Purpose. Cooperman has made billions of dollars picking stocks for Omega. During his speech, he said he's still optimistic about equities. "I've been very bullish about the market for the last three or four years," he said. "I'm a bit less bullish now, but I don't think it's over yet."
Two of the companies Cooperman likes are shoe company Crocs and mortgage REIT Chimera. "I don't see a better alternative [to equities]," he added.
Cooperman and Steve share similar viewpoints. Steve believes equities have room to run... In fact, he thinks we could see a dot-com-style boom in stocks over the next three years, which will lead to what he's calling the "Great Migration"...
|
One by one, Mom and Pop will soon realize that near-zero-percent interest on money in the bank and in bond funds isn't good enough. You can't live on that in retirement... and you need to do something else.
|
|
They'll look around to see what they can do with their money... and they will rediscover stocks. They will eventually figure out they've been left with no other options.
|
Health care stocks continue to hit new highs...
Several of our analysts are bullish on health care stocks today. It's a noncyclical sector... And as Baby Boomers head toward retirement, their health care expenses will skyrocket.
S&A readers have seen the ProShares Ultra Health Care Fund and Fidelity Select Medical Equipment & Systems Fund hit new highs. Shares of individual companies – like drugstore chain Walgreens, medical-device company Becton-Dickinson, and health care product giants Johnson & Johnson and Abbott Laboratories – have thrived as well.
We asked Retirement Millionaire editor Dr. David Eifrig, who's recommended several health care stocks, for his latest thoughts on the industry...
|
The theme hasn't changed for me. Health care's booming amid the belief that an institution can save you. It's much easier for us as a country to give someone a pill than a personal trainer. The reality is, it's good for investing.
The advantage of the health care exchange-traded fund (ETF) is you get instant diversification on a basket of stocks, which is an easy way to spread things out. The international ETFs are also interesting. Eli Lilly, GlaxoSmithKline, and Johnson & Johnson have significant international businesses so that's something to look at.
I still like United Health and the large health care providers that get money from the government. They'll have a huge cohort of people needing their services, which means more money for the insurers, and we the people will be paying for that. The pound of flesh in this space will be exacted by these companies. I wouldn't be surprised if United became the deliverer of nationalized health care and covered everyone in the U.S. 15 years from now.
|
New 52-week highs (as of 4/5/13): Wisdom Tree Japan Hedged Equity Fund (DXJ), SPDR Utilities Sector Fund (XLU), Dominion Resources (D), McDonald's (MCD), and CVS Caremark (CVS).
In today's mailbag, one subscriber calls Porter an "arrogant luddite"... As always, send your feedback to feedback@stansberryresearch.com.
"Breathe deeply, you arrogant luddite, and consider doing some actual research, about which you love to brag. Normally, I would never be so harsh; but your comments reek of haughty ignorance. Go back and do some homework, at least more than blindly blabbing some inane comment like: 'I mean, it isn't backed by anything. It can't be exchanged for silver or gold.'
"Are you suggesting there's a currency today that is backed by anything other than the government jack-boot and/or can be exchanged for silver or gold? I look forward to a more informed discussion after you've done some real research." – Paid-up subscriber Jim
Goldsmith comment: You're not going to fix the problems of paper money by simply getting rid of the paper. The problem with the dollar is its inherent value is zero and more can be created with a few clicks of a bureaucrat's computer mouse. An electronic currency with no inherent value that can be created with the click of a mouse doesn't solve anything.
So what are we suggesting? We're suggesting you own gold and silver.
"Please warn the gentleman, DB, who wrote in on Friday that he WILL get his face handed to him! I did the same stupid thing and borrowed $10K from my 401k at 1.3% last summer to invest in Apple options as well as the mining complex. I have almost lost every single cent and that's WITH honoring stop losses. I'd have been better off doing with the money what I do with my Roth IRA account – buy capital-efficient companies on sale, corporate bonds when they offer a good setup and sell puts on WDDG stocks I'd like to own someday.
"But noooooooo… I just HAD to gamble with that money by thinking that I would use Apple options as an ATM machine. I had 'cracked the code.' Yeah, right. I cracked my dome piece on something. I am almost ashamed to say that I have such a stellar IRA account with a bonehead portfolio in my nontaxable account making it look bad. If it weren't for my MLPs anchoring the nontaxable account, I'd probably been issued a margin call twice this year already. Listen to the advice that the S&A analysts and editors beat into your thick dome pieces on a daily basis! If you want to gamble, go to a casino!" – Paid-up subscriber D.V.
Regards,
We've discussed the sorry situation in Cyprus on several occasions. As part of its bailout deal... the Cypriot government is notoriously going to take 60% of deposits in accounts of more than 100,000 euros. That opens up the question of whether you're safe holding large deposits of cash in the United States and whether that cash is fair game for authorities...
I (Porter) can't get over the fascination with Cyprus. By my reckoning, the dollar has lost 25%-40% of its purchasing power over the last four years. So every person holding dollars during that time was subject to a 25%-40% haircut... in other words, a loss almost as bad as a depositor in Cyprus.
To make things worse, it's not as though the actions of our central bank are a secret. The Fed has flat out said, "We're increasing the monetary base here by 30%." Well, if you increase the monetary base by 30%, sooner or later, you increase the amount of money in circulation by a much larger measure.
That trend is going to continue, and it's going to get worse. If you hold more dollars than you absolutely need to pay your bills, you're a fool...
So what do I suggest? It depends on your cash needs... But my first piece of advice would be "don't hold a lot of dollars." If you wanted to hold on to dollars... say, you were afraid of deflation or thought a central bank was buying more debt each year than was being issued... then you ought to buy Treasury bonds and put them someplace secure, like a safe deposit box.
But I believe the government is bankrupt and would be insolvent except for the actions of the Federal Reserve. And the Fed's actions – to increase the money supply by around $1 trillion a year – are massively inflationary. They are designed to steal the purchasing power you've accumulated in your savings. By holding on to large amounts of dollars, you're signing up to be robbed.
Legendary investor Warren Buffett has said he thinks of cash as having value. He's happy to pay to be in cash because he's able to pounce quickly on deals. If there's a crisis, he can get in. But remember... Buffett's talking about the huge advantage to having "liquidity."
I'm not Buffett's treasurer... but let me assure you, he isn't talking about holding millions of dollars in a checking account. He's talking about short-term, fixed-income securities. And if we get to the point where the feds start seizing short-term sovereign bonds, you know the world has already ended.
Again, we're talking about how much money is safe to hold in your checking account... The answer is just enough to cover obligations. And believe me, nobody out there – unless you have outrageous operating expenses – needs to have more than $100,000 in checking.
You shouldn't have cash in the bank, period. If you do, you're volunteering to be sheared or taxed. So I don't really care what happens to my checking account. What I care about is holding my savings in a way that it can't be pilfered by either the bank or the government (in the form of inflation).
I wouldn't be looking for a "safe" bank. I'd be looking for a safe currency. There are several out there. The Singapore dollar seems very, very sound to me. The Canadian dollar is very sound. The Canadian banks are very sound, for that matter. There is not as much leverage in their economies or banks.
I would also hold assets like gold or silver... or unleveraged real estate... or productive assets, like apartments or farms. Unfortunately, because of the duplicity of our own government, you can't simply hold on to cash. It's not safe.
– Porter Stansberry with Sean Goldsmith