The World's Best China Fund Manager Agrees With Sjug

Confirmed: Auto sales are rolling over... SUVs are piling up... Ford is doing what?!... The world's best China fund manager agrees with Sjug... 'You have the next 12 months to make up for lost time'...

The skies continue to darken over the auto industry...

Regular Digest readers know the warning signs have been piling up for months. Auto sales are clearly slowing. And it's getting harder and harder for the industry insiders and pundits to come up with excuses...

On Friday, Japanese automaker Toyota warned that U.S. sales of luxury sedans are now slowing for the first time since the boom began. As news service Reuters reported...

[Toyota] said its luxury Lexus brand suffered its first fall in half-year global sales in six years as demand for its sedans tumbled in the United States, its biggest market...

Toyota said it sold 305,169 Lexus vehicles worldwide in the six months to June, down 4.4% from 319,275 vehicles a year earlier. Sales slumped 10% in the United States, which comprises nearly half of Lexus's global sales, and 23% in Japan, while jumping 30% in China.

"The U.S. passenger car market has been very challenging, and this has affected sales," Toyota spokesman Maki Niimi said.

One of the few remaining bright spots in the industry now appears to be fading, too...

As the Wall Street Journal reported on Saturday, sales of popular SUVs are suddenly showing signs of stress...

As auto-industry growth stalls and family sedans go the way of the flip phone, one silver lining had been the trusty "crossover" SUV. Sales in the category boomed amid lower gasoline prices and higher demand for spacious wagons with all-wheel drive.

But more clouds seem to be gathering as the summer car-selling season comes to an end... Automakers report sales on Friday, and August volume is expected to rise 2% compared with the same month in 2016, but only because dealers have an extra selling day this year. On an adjusted basis, the rate of retail sales—stripping out deliveries to fleet buyers – will hit the lowest point of 2017, according to J.D. Power, despite hefty sales incentives and new model offerings.

And the incentives are hefty indeed... According to auto-research firm Edmunds, incentives for SUVs rose a massive 33% over the first six months of the year. They now stand at an average of nearly $3,200.

Yet as you can see in the following chart, despite these record incentives, dealer inventories are surging...

It's only a matter of time before truck and SUV sales roll over, too. And when they do, nobody will be able to deny that the auto boom has peaked.

In the meantime, automakers are desperate to delay the inevitable...

What do you do when even record incentives and deep subprime lending aren't enough to keep the "party" going? If you're Ford Motor (F), you apparently throw out credit scores altogether. From another Wall Street Journal article on Friday...

A major auto lender has decided to change its approval process to look beyond credit scores in an effort to pump up sales.

The move by Ford's financing unit, announced Friday, is expected to unfold in coming years, even as concerns mount about rising auto-loan losses in the industry.

Ford says it is looking at ways to increase loan and lease approvals for applicants with limited credit histories. These consumers are often denied credit because they lack a history of managing debt and as a result have low credit scores. Ford's credit division plans to review new data to try to determine whether these customers, as well as those with more robust borrowing histories, are likely to repay their loans.

Ford said the move was meant to "better predict risk among a broad array of borrowers." To us, it seems little more than a thinly veiled attempt to push even deeper into subprime lending.

We wish them luck. They're going to need it.

The world's best-performing China fund manager agrees with Steve Sjuggerud...

Dawid Krige manages the best-performing China-equities mutual fund in the world this year. His Cederberg Greater China Equity Fund is up more than 46% year to date.

What's his secret? According to Krige, when he finds a great idea, he likes to make a big, concentrated bet and hold it as long as possible. Just 10 stocks account for more than 70% of his fund's holdings. And he has bought only three new stocks this year.

Why do we bring this up? Because two of Krige's recent bets should sound familiar to regular Digest readers. As Bloomberg reported last week...

In a market where swings are notoriously large and gains can be dominated by a handful of companies, it helps to double down on your picks and sit tight. Two of Cederberg's new investments this year were Tencent and Alibaba, which have both treated the fund well, jumping more than 70%.

"Good ideas are scarce," Krige said in an interview from London. "It is easier to identify a wonderful company and own it for the very long run, especially in a place like China where there will be multiyear winners."

Cederberg only started buying Tencent and Alibaba this year, as well as Hong Kong-listed Beijing Tong Ren Tang Chinese Medicine, which is flat this year. With regard to the two Internet juggernauts, it's better to be five years late than 10 years late, Krige said. The fund's performance compares with a 40% gain in the MSCI China Index.

"They're immensely dominant, so it's very hard to see them getting disrupted," he said. "The monetization opportunity is immense, and that is just talking about what we know today."

Of course, Tencent (TCEHY) and Alibaba (BABA) are two of Steve's favorite "New China" investments. And he has recommended each – either directly or through an exchange-traded fund ("ETF") – to both his True Wealth and True Wealth China Opportunities subscribers.

As of Friday's close, Steve's China Opportunities subscribers are up 55% and 68%, respectively, while his True Wealth subscribers are up 48% on Tencent and 60% on his preferred "New China" ETF.

But Steve says these gains are likely just getting started...

In this morning's edition of our free DailyWealth e-letter, he explained why these companies – technology stocks that build "ecosystems" – will continue to soar as the "Melt Up" plays out...

The list of the world's biggest companies has changed dramatically in recent years. All but one of them (No. 7, Warren Buffett's Berkshire Hathaway) are "new economy" companies that want to keep you in their ecosystems. Take a look:

Rank	Company	Country
1	Apple (AAPL)	U.S.
2	Google (GOOGL)	U.S.
3	Microsoft (MSFT)	U.S.
4	Facebook (FB)	U.S.
5	Amazon (AMZN)	U.S.
6	Alibaba (BABA)	China
7	Berkshire Hathaway (BRK-B)	U.S.
8	Tencent (TCEHY)	China

Tencent – which I've predicted will be the world's largest company someday – is up 73% this year and is now the world's eighth-largest company. And Alibaba (which is a bit like Amazon) has performed even better – up 99% this year. Alibaba is now No. 6.

Those are huge gains – especially when you realize that these are two extremely large companies. They are now among the top eight largest in the world (based on stock market value). Companies that size don't usually see these kinds of gains.

Our China recommendations have absolutely soared. I'm happy for the success of our subscribers that were bold enough to listen to me about China. The crazy part is, I believe my Melt Up theme still has plenty of upside... We could be just getting started...

The Melt Up is here. It won't be here forever. Get on board, now...

If you've missed out on the big gains in China this year – or even in U.S. stocks over the past several years – you're still in luck. Last week, Steve introduced his brand-new "Melt Up Millionaire" project... your second chance to make a fortune as the final inning of the bull market plays out. Steve is so confident this service could double your money or better in the next 12 months, he's willing to guarantee it in a way we've never done before. Click here for the details.

New 52-week highs (as of 8/25/17): iShares MSCI BRIC Fund (BKF), Global X China Financials Fund (CHIX), WisdomTree Emerging Markets High Dividend Fund (DEM), First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS), iShares China Large-Cap Fund (FXI), iPath Bloomberg Copper Subindex Total Return Fund (JJC), KraneShares Bosera MSCI China A Fund (KBA), iShares MSCI China Index Fund (MCHI), iShares MSCI Global Metals & Mining Producers Fund (PICK), ProShares Ultra FTSE China 50 Fund (XPP), and Direxion Daily FTSE China Bull 3X Fund (YINN).

In the mailbag, more on Steve's "Melt Up Millionaire" project... including one of the most foolish complaints we've ever received. Send your questions, comments, and baseless accusations to feedback@stansberryresearch.com. As always, we can't offer individual investment advice.

"Bet on whatever you want, but I wouldn't bet AGAINST Steve. Seriously." – Paid-up subscriber Rob Typher

Brill comment: We couldn't agree more. Steve's track record speaks for itself.

"Steve says no worries because the Russell 2000 is still looking good, but another service [I read] shows that the Russell 2000 has broken below its 200-day moving average, which historically 'has been a sign that we could be headed for a market pull back.' Just pointing out that maybe the Russell isn't looking so great. Thanks for all your work!" – Paid-up subscriber Bob Kerr

Brill comment: That's correct, Bob. But we need to note an important distinction... Steve's small-cap indicator compares the Russell 2000 with the large-cap S&P 500. As he explained in this weekend's Digest Masters Series, small caps often diverge from large caps ahead of an important market peak. This hasn't happened yet, which – along with similar "all clear" signals from Steve's other indicators – suggests the Melt Up has further to run.

But that doesn't mean we can't experience a pullback in the meantime. We've already seen several corrections and pullbacks during this eight-year bull market. We could easily see another before it ends.

It's also important to remember that a breakdown below a 200-day moving average ("DMA") isn't necessarily a bearish sign. For example, the Russell last fell below its 200-DMA in early May 2016. It then spent most of that month – and two days following the "Brexit" vote in late June – below it. But the rally resumed in July, and the Russell ended the year more than 20% higher.

"Steve: I learned about, and invested in [Tencent] more than six months ago, so why are you so late with this recommendation. I subscribe to your True Wealth and I don't remember seeing this recommendation there. So, why are you cheating on your paying customers??? If you can't do better, then I will cancel my subscription. Yes, I know you have another newsletter that costs $2500 so I would bet that those subscribers got the recommendation.

"BTW, I have 30 years experience as a financial planner, so I know that good information and recommendations need to be paid for, but some of the charges being demanded by you and others are outrageous. Yes, I do benefit, but not that much more than I would with a good planner." – Paid-up subscriber Frank T.

Brill comment: Frank, before you lob accusations, perhaps you should make the slightest effort to confirm that it's not you who has made the error.

As we mentioned above, Steve recommended Tencent and several other "New China" stocks to his True Wealth subscribers over one year ago in July 2016. This was weeks before he even decided to launch his new, higher-priced True Wealth China Opportunities advisory last fall. He later recommended buying Tencent shares directly in March. And True Wealth subscribers are up 60% and 48%, respectively, as of Friday's close.

Of course, a 30-second search of the True Wealth archives would have quickly cleared up your confusion. Or if you were too busy even for that, one click on the True Wealth portfolio would've shown you Tencent was recommended months ago.

What would you have us do, Frank? For your clients' sake, we hope you haven't been as careless during your "30 years experience as a financial planner."

Regards,

Justin Brill
Baltimore, Maryland
August 28, 2017