The votes are in... Markets calm on Ukraine... Hedge-fund manager Odey: End of quantitative easing will crush emerging markets... Blackstone slows home purchases 70%...
On Sunday, the people of Crimea voted on their future with Russia or Ukraine...
As the votes rolled in, nearly 97% of the people voted for Crimea to join Russia. Obama called Putin and said the vote "would never be recognized by the United States and the international community," according to the White House. Claims of fraud abound. (Bloomberg cited "pre-marked" ballots in some locations.) Both the U.S. and European Union threatened sanctions should Russia annex Crimea.
More than anything, the markets hate uncertainty. And Sunday's vote gives the markets an idea of where things are heading for Ukraine.
The S&P 500 and Dow Jones both jumped nearly 1%. Gold was down (predictably, considering the "fear trade" was off), then went slightly into the black.
Kim Iskyan, editor of the S&A Global Contrarian, shared his views on the latest out of Ukraine... He says that Russia will likely move to annex Crimea in the coming weeks. Or Russia could recognize Crimea as an independent republic... but Russian President Vladimir Putin is unlikely to settle for a watered-down outcome now that he has come this far.
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According to Kim, Russia wants Ukraine to remain in its orbit... and not align itself more closely with Europe. Ukraine borders Russia. And Russia believes NATO and the European Union (EU) have been slowly encroaching upon its former realm of economic, geopolitical, and military influence ever since the dissolution of the Soviet Union. Poland, the Czech Republic, the Baltics all used to be behind the Iron Curtain. Now, they're firmly in the western camp. As Kim put it to us...
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And make no mistake... Ukraine is still edging west. This week, the EU will sign the first parts of Ukraine's association agreement, which represents the first steps toward Ukraine tightening its ties to Europe. The International Monetary Fund is currently in Kiev, discussing a big support package for Ukraine. The U.S. has pledged a measly $1 billion to Ukraine, but at least it's a start. And don't forget that conflict started in November when former Ukrainian President Viktor Yanukovych decided to move toward Russia instead of Europe. A lot of Ukrainians see their future tied to Europe in the west more than Russia in the east.
Kim predicts more diplomatic wrangling... The U.S. and EU will likely step up sanctions on Russia, mostly via visa bans and freezing the assets of Russian individuals involved in the annexation of Crimea. Russia could seize assets of western companies operating in Russia. Kim said so-called "Iran-style" sanctions (which would entail closing Russian banks off from the west altogether) wouldn't work with Russia... and he doesn't believe the situation will deteriorate that far. "But now is not a good time to hold an American passport or assets in Russia," he said.
Russian shares are cheap... and they'll only get cheaper, Kim says. And if things go down the less-likely path of Russia going for broke by invading eastern Ukraine, it's time to reshuffle the deck... Anything could be on the table.
In January and February, investors pulled $33 billion out of Russian equities, according to Russian investment bank Renaissance Capital. The bank estimates outflows could hit $55 billion by the end of March.
Russian stocks, as measured by the Market Vectors Russia Fund (RSX), recovered nearly 2% today. But the chart is still ugly...
Crispin Odey, who manages the Odey Asset Management hedge fund, believes the real pain has yet to hit emerging markets.
Odey thinks emerging markets – especially those with current account deficits (when a country's imports are greater than exports) – "have to have their recession" as the U.S. economy strengthens and quantitative easing (QE) stops.
On a side note... Federal Reserve Chair Janet Yellen will have her first Federal Open Market Committee meeting this week. The general consensus is that she will dial back the central banks bond buying (quantitative easing) by another $10 billion to $55 billion a month.
The Fed's QE has pushed interest rates to a record low... and has stimulated investors' appetite. With few enticing yields at home, investors turned to emerging-market securities for extra juice. The inflow of capital helped boost the economies. But Odey explains how it will end, using South Africa as an example (as told to U.K. publication Wealth Manager):
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The nation's largest landlord is dialing down its purchases...
Private-equity firm Blackstone Group has invested $8 billion since April 2012 to purchase 43,000 homes in 14 U.S. cities. At its peak, Blackstone was spending $100 million a week.
But according to the firm's global head of real estate Jonathan Gray, spending is down 70% from the peak. And Blackstone is now focusing most of its purchases on Seattle, Miami, Tampa, Atlanta, and Orlando.
"The institutional wave has passed," Gray told Bloomberg. "It's at a much lower level than it was 12 or 24 months ago."
Buying by institutional investors hit a 22-month low in January. In total, institutions have spent around $20 billion to purchase more than 200,000 homes over the past two years. That helped to drive home prices up 24% from the post-bubble low of March 2012.
Perhaps they see better opportunities elsewhere... Or they simply learned some lessons in their two years of being landlords. Regardless, Porter and his research team are still happy to hold American Homes 4 Rent (AMH) in the Stansberry's Investment Advisory model portfolio.
It was one of several companies the Investment Advisory team recommended to take advantage of a slowing U.S. consumer in the face of QE's demise. From the February 2014 Stansberry's Investment Advisory:
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AMH is the second-largest single-family landlord in the nation behind Blackstone with more than 25,000 homes. But it too is slowing purchases... AMH bought 2,001 homes in the quarter ending December 31, down 32% from the previous quarter.
CEO David Singelyn said on an earnings conference call the company would likely slow its purchases "until we have a better view or actual certainty of the capital being available."
Although some market pundits are describing AMH and Blackstone's slowed purchases as a sign the companies have done something wrong... Investment Advisory analyst E.B. Tucker (who headed the research into this position) says to the contrary, AMH's actions were predictable and show the firm is sticking to its business model.
Digest Premium subscribers note... we're featuring more of E.B.'s work on AMH in today's premium section. If you don't currently subscribe to Digest Premium, you can learn about signing up, which will give you access to E.B.'s analysis, here.
New 52-week highs (as of 3/14/14): Activision Blizzard (ATVI), Callon Petroleum (CPE), Diebold (DBD), Enterprise Products Partners (EPD), Energy Transfer Equity (ETE), Novagold Resources (NG), Range Resources (RRC), ProShares Ultra Utilities Fund (UPW), and Vocus (VOCS).
In today's mailbag, one subscriber writes his own "chairman's letter"... and another shares some of his trading success. Send your e-mail to feedback@stansberryresearch.com.
"Porter, this was really a great letter. Thanks for your always great quality. A little addition to your brief mention of IBM. As an IBM insider I have watched IBM busily destroying its business. And after watching one of your favorites GM do the same thing, I have learned what to look for.
"Between cost cutting to make their numbers and cost cutting their products, they have become second rate in a world where you can't afford it. They recently lost a government contract for cloud storage to Amazon. In fact, they sued to try to get the contract. I am of the opinion that if you have to file suit to get a contract you are headed for a great fall.
"As of last Thursday I have left IBM. I did an internal website for the Software Group for 16 years. Over the last 2 years, IBM has purchased significantly fewer analyst reports. That has shown me that the deterioration has gotten much deeper. The damage has come from the loss of quality and the purchase of companies instead of developing new products.
"By constantly laying off quality employees with lots of knowledge and skill in favor of lower-cost engineering in countries like India, Slovenia, China, Argentina, and Brazil, they have undermined any hope of recovery over the long term. It has gotten to the point where they are laying off employees in India in large amounts.
"And just like the Roger Smith regime at GM, IBMs senior management has stayed with the same course since the late '90s. Actually, I would enjoy writing an IBM version of your GM CEO letter. I enjoy it immensely.
"I am most happy to see that the Wall Street analysts are catching on to the fact that IBM has lied to their shareholders for a very long time and that IBM is paying the price in the form of loss of respect and eroding margins.
"Enough of my chatter... thanks again for the quality of what you produce." – Paid-up subscriber Jeff Spranger
"I have done very, very well in the market ever since I took over the management of my own portfolio from a friend at Edward Jones in 2009. The huge bull market over the last several years has helped erase his losses of my money.
"Each year's result has gotten better over the year prior thanks to the information produced by S&A.
"In 2013, my 'investment' accounts were all up right at 25% (WDDG strategy using DRIPs). My 'trading' accounts were up:
| • | 110% (Short Report's Direct Line), |
| • | 65% (Retirement Trader, Alpha, and True Wealth Systems, Short Report), and |
| • | 94% (my own wacky ideas – mostly trend-following). |
"Those trading results even include my spectacular losses in April and June due to gold's drops.
"Once each year, I move the profits from the trading portfolios over to the investment portfolios.
"Thanks for all your hard work, I have learned a lot." – Paid-up subscriber Rich
Regards,
Sean Goldsmith
New York, New York
March 17, 2014
Why Wall Street's misunderstanding of the landlord business is our opportunity...
Institutions have purchased $20 billion of single-family homes in the past two years... But Wall Street still doesn't understand what these businesses are doing.
In today's Digest Premium, Investment Advisory analyst E.B. Tucker explains the opportunity that created...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here
Why Wall Street's misunderstanding of the landlord business is our opportunity...
Editor's note: In today's Digest, Investment Advisory analyst E.B. Tucker discussed the latest news from American Homes 4 Rent, America's second-largest single-family-home lessor. Now, we're featuring more of his thoughts on what the firm is doing right...
In the October 2013 issue of Stansberry's Investment Advisory, we told you about American Homes 4 Rent (NYSE: AMH) in a segment titled, "The Simplest Business in the World."
Since that time, AMH's share price has increased 11%. The company also announced a $0.05-per-share dividend for the first quarter of 2014. That's an annual yield of 1.2% based on today's share price.
When done properly, the business of renting houses is simple, boring, and profitable.
AMH is running its business the right way. It has been disciplined with acquisitions as well as focused on minimizing operating expenses.
However, the mainstream Wall Street press still doesn't seem to grasp this business...
I bought rental homes from 2009-2011. Financing was unavailable because of the 2008 bust. I paid cash. When you pay cash for something, you tend to be a lot more careful about your decision. Using someone else's money is much easier.
I used a disciplined model to come up with the price I was willing to pay for a home. The first consideration was rent. How much could I get for that house in that neighborhood? Then repairs... How much would I spend to get the house ready?
After I put these in my model, I could accurately determine what my return would look like. I want to make a minimum of 20% per year on rental property. That gave me plenty of room to deal with surprises. That's my approach to the business.
AMH is slightly more liberal than I was. But AMH has a model, and it's sticking to it. AMH's target leverage is about 30%. So it is still paying cash for 70% of each home purchase. That will keep you disciplined.
In early 2011, my model began telling me the expected returns were less than what I was looking for. When I stopped buying homes, people thought I was nuts.
In the case of AMH, the press tells the story as if the company has done something wrong. Not at all... It is just sticking to its model. Just like I only wanted to own homes that would generate a certain rate of return... AMH is doing the same.
It is still in the market for homes. The approach is changing. It formed a joint venture last fall with a firm focused on buying mortgage debt. This will allow it to take control of homes before the foreclosure process begins.
AMH and its peers (like Blackstone Group and Colony Capital) are frequently mentioned in articles referencing "a new bubble" or other 2008 housing bust comparisons. But nothing could be further from the truth...
AMH can't possibly blow up a new housing bubble when 70% of its home purchases are made with cash. Liberal use of debt is what ultimately gets people in trouble... It triggers margin calls when prices go down. And in the case of homeowners, no skin in the game makes it easier to walk away. The 2008 crisis was fueled uncreditworthy borrowers borrowing 100% of the purchase price to buy houses with inflated prices.
This misunderstanding is what gave us an opportunity. Although AMH is now a hold in the Stansberry's Investment Advisory portfolio... you can see how it has done since we recommended it.
– E.B. Tucker
Why Wall Street's misunderstanding of the landlord business is our opportunity...
Institutions have purchased $20 billion of single-family homes in the past two years... But Wall Street still doesn't understand what these businesses are doing.
In today's Digest Premium, Investment Advisory analyst E.B. Tucker explains the opportunity that created...
To continue reading, scroll down or click here.
Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)
As of 03/17/2014
| Stock | Symbol | Buy Date | Return | Publication | Editor |
| Prestige Brands | PBH | 05/13/09 | 375.6% | Extreme Value | Ferris |
| Constellation Brands | STZ | 06/02/11 | 288.4% | Extreme Value | Ferris |
| Enterprise | EPD | 10/15/08 | 268.6% | The 12% Letter | Dyson |
| Ultra Health Care | RXL | 03/17/11 | 238.4% | True Wealth | Sjuggerud |
| Fluidigm | FLDM | 08/04/11 | 224.8% | Phase 1 | Curzio |
| Nasdaq Biotech | BIB | 12/05/12 | 215.5% | True Wealth Sys | Sjuggerud |
| Ultra Health Care | RXL | 01/04/12 | 195.6% | True Wealth Sys | Sjuggerud |
| Hershey | HSY | 12/06/07 | 183.8% | SIA | Stansberry |
| McDonald's | MCD | 11/28/06 | 176.2% | The 12% Letter | Dyson |
| Altria | MO | 11/19/08 | 173.0% | The 12% Letter | Dyson |
Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals |
| 2 | Extreme Value | Ferris |
| 3 | The 12% Letter | Dyson |
| 1 | True Wealth | Sjuggerud |
| 1 | Phase 1 | Curzio |
| 2 | True Wealth Sys | Sjuggerud |
| 1 | SIA | Stansberry |
Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)
| Investment | Sym | Holding Period | Gain | Publication | Editor |
| Seabridge Gold | SA | 4 years, 73 days | 995% | Sjug Conf. | Sjuggerud |
| Rite Aid 8.5% bond | 4 years, 356 days | 773% | True Income | Williams | |
| ATAC Resources | ATC | 313 days | 597% | Phase 1 | Badiali |
| JDS Uniphase | JDSU | 1 year, 266 days | 592% | SIA | Stansberry |
| Silver Wheaton | SLW | 1 year, 185 days | 345% | Resource Rpt | Badiali |
| Jinshan Gold Mines | JIN | 290 days | 339% | Resource Rpt | Badiali |
| Medis Tech | MDTL | 4 years, 110 days | 333% | Diligence | Ferris |
| ID Biomedical | IDBE | 5 years, 38 days | 331% | Diligence | Lashmet |
| Northern Dynasty | NAK | 1 year, 343 days | 322% | Resource Rpt | Badiali |
| Texas Instr. | TXN | 270 days | 301% | SIA | Stansberry |