It's one of the great dot-com success stories… and it just got better…
In today's Digest Premium… we highlight one of the top retailers in the world and why its growth prospects are so enticing – even at a $100 billion-plus market cap.
To subscribe to Digest Premium and access today's analysis, click here.
The VIX's record drop... Everyone is bullish and leveraged... Bill Gross' latest outlook... Aussie dollar hits a new high... Awaiting the return of volatility...
It seems investors are ready to embrace risk in 2013...
Volatility Index (the "VIX") had its largest drop on record last week...
The VIX serves as a sort of "fear gauge" for the stock market... The index measures the prices people are willing to pay for options that protect the value of their stock holdings. The higher the VIX, the more people will pay to insure their stocks... Hence, the more scared they feel. As you can see in the chart below, folks are suddenly flush with confidence...
The Chicago Board Options Exchange, manager of the VIX, reported the index fell 39.1% in the week ended January 4... It was the largest weekly decline since the index was launched in January 1990. The VIX closed last week at 13.83. (For perspective, the index hit 80 during the 2008 financial crisis.)
In addition to a low VIX, equity futures traders are also the most net long in six years... And in late December, the New York Stock Exchange reported margin debt at a five-year high of $327 billion, a sign of confidence in the stock market's future.
Also, JPMorgan's speculative position indicator (a measure that combines net positioning across eight "risky" and seven "safe" assets) is the most "risk on" since just before the crisis in the third quarter of 2007.
The message is clear... The market is in "risk on" mode. Not only are traders overwhelmingly long... They're using record leverage at the same time.
As contrarians, we'd normally say these stats point to a market correction. But we think they're all signs of what True Wealth editor Steve Sjuggerud calls the "Bernanke Asset Bubble" in action. Steve defined the Bernanke Asset Bubble as follows in the September 17 issue of S&A's free e-letter DailyWealth:
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The basic idea is that Federal Reserve Chairman Ben Bernanke will keep interest rates lower than anyone can imagine, for longer than anyone can imagine... and that will cause asset prices to soar. That includes stocks... as well as real estate and precious metals. |
We've even started exporting the Bernanke Asset Bubble overseas, as evidenced by the new highs in German stocks, Australian stocks, and Chinese real estate. (We discussed this so-called "Global Bernanke Asset Bubble" here.)
While we believe money printing by the world's central banks will boost asset classes across the board (for potentially several more years), we know how it will end... Eventually, all this credit creation will result in inflation and a subsequent market bust.
And Bill Gross, the world's largest bond investor and longtime skeptic of the Fed's easy-money policies, agrees with us. In his latest Investment Outlook – a monthly commentary posted on the website of his firm PIMCO – the Bond King said he was bullish on short- to intermediate-term Treasurys and hard assets like gold. From the Outlook (emphasis from Gross)…
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Well ultimately, government financing schemes such as today's QE's or England's early 1700s South Sea Bubble [will] end badly. At the time Sir Isaac Newton was asked about the apparent success of the government's plan and he responded by saying that "I can calculate the movement of the stars but not the madness of men." The madness he referred to was the rather blatant acceptance by government and its citizen investors, that they had discovered the key to perpetual prosperity: "essentially costless" debt financing. The plan's originator, Scotsman John Law, could not have conceived of helicopters like Ben Bernanke did 300 years later, but the concept was the same: writing checks for free.
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Yet the common sense of John Law – and likewise that of Ben Bernanke – must have known that only air comes for free and is "essentially costless." The future price tag of printing six trillion dollars' worth of checks comes in the form of inflation and devaluation of currencies either relative to each other, or to commodities in less limitless supply such as oil or gold. To date, central banks have been willing to accept that cost – nay – have even encouraged it.
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In his December 2011 issue of True Wealth, Steve Sjuggerud explained why he thought Australia was "the last safe country on Earth"…
Australia is mineral rich. And the government owns the country's resources (giving it a strong financial position). Plus, Steve believes Australia could become the next Switzerland (a safe-haven for banking). Here's what he wrote:
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Australia leads the world in "economically recoverable reserves" in many commodities... lead, zinc, uranium, nickel, and more. It ranks second in the world in economically recoverable reserves in gold, silver, copper, and more, according to the Australian Bureau of Statistics.
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And then there's "China's Gold" – iron ore... the raw material in steel making. China needs it. Australia's got it.
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It turns out, the Australian government owns the mineral and petroleum resources of Australia. (That's different from the U.S., where mineral rights can be privately owned.) And that makes Australia rich.
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It also makes Australia a safe country for your money. In a way, the nation's currency – the Australian dollar issued by the government – is solidly "backed" by the country's vast natural resources, owned by the government.
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By the year 2020, America's national debt will have grown to over $20 trillion (according to the Congressional Budget Office). But in 2020... astoundingly, Australia as a nation will be net debt free (according to the IMF)...
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The situation in Australia today shares a lot of similarities with what caused Switzerland's currency to soar:
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Australia is rich (it owns its gold and resources). It's a safe haven (it likely won't be invaded). It has strong banks today (particularly after the economic crisis). It has a legitimate rule of law. It has a strong currency (implicitly backed by resources). Its people enjoy a high standard of living, with solid health care, culture, and education systems...
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Steve recommended going long the Australian dollar via the CurrencyShares Australian Dollar Trust Fund (FXA). And today, the Australian dollar hit a four-year high against the Japanese yen.
The Aussie dollar hit 92.83 yen, its highest since September 2008, on expectations of further easing from the Bank of Japan (traders sold yen on expectations of still lower rates)... The Aussie dollar jumped 10% against the yen in the past two months.
True Wealth readers are up 8% on the recommendation.
We'd like to clarify something we published in this weekend's Masters Series.
On Sunday, we republished excerpts from Dr. David "Doc" Eifrig's report on diversifying your assets overseas, "Four Investment Assets You Don't Have to Report to the U.S. Government."
Doc originally published the report in 2009, and we've updated it several times since then. However, it has come to our attention that some of the information regarding investing in gold overseas is no longer accurate. The bank we cited – Switzerland's Zürcher Kantonalbank (ZKB) – no longer accepts investments from Americans for its exchange-traded gold fund. We apologize for the error.
However, Doc still believes it's important for Americans to hold a little gold outside the U.S. He's recently suggested subscribers can do so in Canada...
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One of the simplest ways to do this is opening a safe deposit box in Canada. All you need to open a Canadian safe deposit box are two forms of identification – a passport and driver's license works – and visiting the bank in person. (This can vary slightly depending on the bank, so call the bank you're interested in first.)
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One bank you can open a safe deposit box with is the Royal Bank of Canada (www.rbcroyalbank.com). Some banks do not allow you to store currency or legal tender in a safe deposit box. So again, call the bank before making the trip.
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You can use your box to store precious metals, cash, and other items you want out of the U.S. government's eyes. And the box fees are similar to the fees you'd pay at an American bank.
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Transporting your gold to Canada may seem frightening to some people. I've heard stories of people having their gold confiscated by ignorant customs officials. But taking gold into Canada is 100% legal as long as you declare it to customs. (You have to declare any amount of currency more than $10,000.) Of course, it's also risky to carry large amounts of gold as you travel. So...
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If you don't want to handle transporting precious metals or cash to Canada yourself, you can use a professional transport service although this can be expensive if you're only moving a small amount of wealth.
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A third option is to purchase your gold or silver in Canada. This means you don't have to carry large amounts of cash or precious metals while you travel.
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New 52-week highs (as of 1/4/13): Berkshire Hathaway (BRK), iShares Dow Jones U.S. Insurance Fund (IAK), iShares Dow Jones U.S. Home Construction Fund (ITB), Lucent Technologies (LUTHP), PowerShares Buyback Achievers Fund (PKW), Sequoia Fund (SEQUX), ProShares Ultra S&P 500 Fund (SSO), Guggenheim China Real Estate Fund (TAO), Targa Resources (TRGP), RPM International (RPM), Ericsson (ERIC), American Financial Group (AFG), Brookfield Asset Management (BAM), Cheniere Energy (LNG), Magellan Midstream Partners (MMP), Sunoco Logistics Partners (SXL), Union Pacific (UNP), CVS Caremark (CVS), Home Federal Bancorp (HOME), and Emerson Electric (EMR).
More positive feedback to start the year... We know it won't last long. Send us your feedback – good or bad – to feedback@stansberryresearch.com.
"I'm patiently waiting for a return to high volatility in the markets. I look forward to selling puts on company stock that I'd love to own, like Microsoft, Cisco, Intel, Wal-Mart, ADP, Johnson & Johnson, and Proctor & Gamble, to name a few. I've come to love Dan Ferris' approach to investing in World Dominators; it makes things incredibly simple. His Extreme Value publication certainly delivers on that promise.
"Wrapping Dan's approach with selling puts and covered calls to generate additional income is just an exciting activity. As an Alliance member, having access to Jeff Clark's S&A Short Report, Advanced Income, and Doc Eifrig's Retirement Trader has just been wonderful, as I am slowly beginning to learn how to apply the techniques used by each to Dan's style of investing.
"I personally think those four newsletters alone has made the cost of becoming a life time Alliance member well worth it. The fact that Alliance members get so much more, though, only makes it an even more incredible value.
"I'm no longer afraid of down markets. I look forward to the opportunities they will create. And I, for one, will not think less of you at the end of 2013. I am learning how to invest and the successful application of what I have learned is all on my shoulders. It's a shame so many others may not end the year thinking the same." – Paid-up subscriber Jerry G. Young II
"Your astute comment: 'We're not as smart as we seem during bull markets, and we're not as dumb as we look during bear markets' just about says it all, not only for you but for all of us investors also. Well said." – Paid-up subscriber Henry Walker
Regards,
It's one of the great dot-com success stories… and it just got better…
In today's Digest Premium… we highlight one of the top retailers in the world and why its growth prospects are so enticing – even at a $100 billion-plus market cap.
To continue reading, scroll down or click here.
In the December 6 Digest Premium, we told you about the single-largest threat to department store J.C. Penney... the Internet.
Recall… billionaire hedge-fund manager Bill Ackman has taken a large position in the struggling store. He hired a new CEO, the former head of Apple's retail division, Ron Johnson. And he changed the strategy...
Ackman and Johnson discontinued coupon promotions at the store (which they reinstated before Christmas due to plunging sales). They changed the company identity to "JCP." And they're moving the store to a more upscale, "store within a store" retail concept.
But none of it has worked. We posited Ackman and Johnson were missing a key component to growing the business – online sales.
As you can see from the chart below, online sales growth dwarfs brick-and-mortar over the past decade. (Though it still represents about 10% of all retail sales in the U.S.)
It's an obvious trend. And we wonder why Ackman doesn't focus his efforts on the web instead of undertaking expensive renovations to make J.C. Penney seem more "hip."
If you want to profit from the megatrend of online retailing, Amazon is your best bet. It's the world's largest online retailer.
The company has more than doubled its sales since 2007. And net profits are up around 70% over the same period. And with a market capitalization of $120 billion, it's one of the greatest dot-com success stories in the world.
The story got better today... Amazon hit an all-time high after Morgan Stanley upgraded the company from "equal" to "overweight."
The investment bank believes Amazon shares will hit $325 a share (up from $265 today).
In a note to clients, Morgan Stanley analyst Scott Devitt said Amazon's order fulfillment network will be a key driver of the company's growth over the next decade, calling it "an underappreciated, strategic asset."
Think how seamless your transactions are on Amazon. That, Devitt believes, is a competitive advantage Amazon will exploit to further growth.
Devitt also said he saw international growth potential for the online retailer, specifically in China...
"When considering the countries where Amazon does have [order] fulfillment assets, it is important to note that there is not a single other company in the world that operates in all of the same regions," Devitt said. "This may lead to sustainable barriers to any other global entrant."
Amazon is currently the fourth-largest online retailer in China based on volume sold (behind Asian-based firms Tmall, 360buy, and Suning).
For the full year 2011, $21.37 billion of the company's $48 billion in sales were "International." Amazon doesn't further break down its sales, so we can't get specific numbers for China.
Amazon shares are at an all-time high. But the company still has growth potential. In the third quarter of 2012 (the most recently reported), the company grew sales 27% from the year before.
Between its international growth potential and the general stock market surge we expect to see as a result of the Bernanke Asset Bubble, we're putting our money with Morgan Stanley. Amazon will continue its uptrend this year...
It's one of the great dot-com success stories… and it just got better…