How you're likely flushing money down the drain today...
How you're likely flushing money down the drain today...
Right now, almost every American has the opportunity to make a guaranteed return on his money. It's one of the simplest things any investor can do...
And yet... most Americans never take advantage of this wonderful system. In today's Digest Premium, we explain a simple step you can take to immediately start earning more money...
To continue reading, scroll down or click here.
How you're likely flushing money down the drain today...
Right now, almost every American has the opportunity to make a guaranteed return on his money. It's one of the simplest things any investor can do...
And yet... most Americans never take advantage of this wonderful system. In today's Digest Premium, we explain a simple step you can take to immediately start earning more money...
To subscribe to Digest Premium and access today's analysis, click here.
Wednesday's big announcement... Why Porter is selling... Higher yields hurting high-yielding equities... Major housing milestone... Homebuilder Toll Brothers CEO: 'We're back'... Paulson bullish on real estate...
The market is holding its breath to see what Federal Reserve Chairman Ben Bernanke says on Wednesday...
Bernanke is holed up with the Federal Reserve governors and presidents of its district banks for a two-day policy meeting. On Wednesday, Bernanke will make a policy statement and update the Fed's economic forecast.
Should the economy appear too rosy, the market fears the Fed could pull back on its $85 billion a month in bond-buying. It's the so-called "taper risk."
In the latest issue of Stansberry's Investment Advisory, which came out Friday, Porter said he believes the top in bond prices is here. And he says the taper risk could be part of the reason so many economic indicators are pointing to a top in the bond markets – high-yield bond prices are crashing, mortgage real estate investment trust (REIT) prices are falling, and Treasury bond prices are declining for the first time since the European crisis in 2011.
But Porter believes something much bigger is actually happening. As he wrote…
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Over his career, Porter has proven to be especially prescient when it comes to calling tops... He correctly called the collapse of Fannie Mae and Freddie Mac... and General Motors. He predicted the housing and banking collapse. He warned subscribers of the risks in Europe before the economy fell apart.
And today, he says we've returned to crisis conditions in the U.S.
In the issue, Porter recommends one short sale to readers… He believes the company's CEO is a "psychopath" whose shady accounting practices are stealing profits from shareholders. He also moves several of his favorite businesses to a "hold" in the portfolio and sells some positions that he thinks could be volatile in the coming months.
Yes, Porter could be early. But he's not the only one taking a defensive position... As we noted in the May 2 Digest, some top private-equity managers in the world are selling assets and refinancing debt at low rates.
As any seasoned investor will tell you, it's impossible to consistently call exact tops and bottoms. And being early can be a lonely feeling...
Leading up to the tech bubble, investing legend Warren Buffett looked "foolish" because he didn't invest in technology stocks. His investment performance suffered... as did shares of his holding company, Berkshire Hathaway.
But when the crash came, he was largely unscathed. He was able to deploy loads of capital to buy high-quality assets at bargain prices.
Leading up to the tech crash, investors were polled about the annual returns they expected over the coming decade. The average answer was 19%.
In his 2000 letter to Berkshire Hathaway shareholders, Buffett warned the huge returns investors had experienced in 1998 and 1999 had made them complacent:
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Investors today aren't expecting anywhere near 19% annual returns... Most folks would be happy with 5%. Still, there's a great level of complacency. Stock prices have gone straight up for the past two years. It's wise to start raising some cash in your portfolio...
Shorter-term rates have ticked higher over the past months… and that's hurting popular income investments, like REITs and master limited partnerships (MLPs)…
Investors in the first part of 2013 pumped more than $40 billion into equity offerings from REITs and MLPs – a record pace, according to research firm Dealogic. But as Treasury yields started rising on fears of "tapering," the sectors were crushed... And many firms considering public offerings have pulled back.
For example, Colony America Homes – a REIT that rents single-family homes across the U.S. – postponed its initial public offering earlier this month. This was the first time a REIT delayed a U.S. offering since November.
The $545 billion market cap MSCI U.S. REIT Index reflects the value of about two-thirds of the U.S. REIT sector and yields about 3.6%. Since May, the index has fallen 7%.
The $231 billion Alerian MLP Index is a basket of the 50 most prominent publicly traded MLP pipeline and energy infrastructure partnerships and yields about 5.6%. It's fallen 2.2% over the same period.
"REITs and MLPs have been a significant driver of the IPO market, but as interest rates have begun to rise, we have seen more choppiness in investors' appetite for high-yielding equity securities," Richard Truesdell, co-head of the international law firm Davis Polk & Wardwell's global capital markets practice, told the Financial Times. "It's not that near-term rates have risen that much. But when you look forward, there's an anticipation of even higher rates making these securities less attractive to the long-term investor."
One standout in the real estate sector is still U.S. housing...
For the first time in seven years, the National Association of Home Builders/Wells Fargo Housing Market index (a key index) crossed above the milestone "50" – a reading above 50 means homebuilders view the current environment as favorable.
The index jumped from 44 in May to 52 in June – the biggest one-month increase since 2002.
Doug Yearley, CEO of luxury homebuilder Toll Brothers, appeared on CNBC this morning with the message: "We're back."
Yearley said his firm has pricing power in most of its markets... and 60% of communities are seeing price increases. His biggest problem now is finding land. All the large homebuilders "are well-capitalized and looking for land."
And as long as interest rates rise slowly, Yearley's still bullish... He likens slow rate increases to price increases. They spur people to make a purchase for fear they may have to pay more if they wait too long.
Yearley said housing is still in the "early stage of this recovery" and has a "long way to go." Builders have produced 1.5 million houses per year for decades (leading up to the housing crisis). Today, the U.S. is producing around 800,000 homes annually, based on April's numbers.
Of course, you'd expect the CEO of a homebuilder to offer a bright outlook on his sector. But he's not the only housing bull out there... Billionaire hedge-fund manager John Paulson – who made his reputation shorting the mortgage market in advance of the 2008 bust – is also making huge money from investments in housing and housing securities...
The Paulson Recovery Fund, which holds a variety of assets that benefit from rebounding real estate prices, has returned 27% year-to-date. His positions in mortgage-insurance holdings MGIC, Radian, and Genworth posted some of his biggest gains. These companies are pure plays on housing... They make money as long as borrowers continue paying their mortgages.
"Radian's new business is highly profitable as a result of conservative underwriting standards introduced in late 2008," Paulson wrote to clients in his first-quarter letter. "Mortgage insurance stocks remained depressed through the end of 2012 amid lingering uncertainty as to whether they had sufficient capital to absorb losses on delinquent loans originated before the crisis. However, as house prices began to recover, losses started to decline."
Paulson believes Radian, which currently trades at $13 a shares, will be worth $20 by 2015.
Paulson also formed a second real-estate fund to buy raw land. Remember Toll Brothers CEO Yearley's comments from above... Homebuilders are well-capitalized, and they're running out of land to purchase for their developments. Sooner or later, they'll come knocking on Paulson's door...
True Wealth editor Steve Sjuggerud has been bullish on U.S. housing for nearly three years. And U.S. housing is still one of his favorite places to put money today. As he said in the May 2013 issue...
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New 52-week highs (as of 6/14/13): DCP Midstream Partners (DPM) and Medtronic (MDT).
More positive feedback in today's mailbag... Must have been a boozy weekend. Send your feedback, good or bad, to feedback@stansberryresearch.com.
"After reading JC's criticism earlier this week that the newsletters he's subscribing to don't have enough recommendations, I felt I should add a few pennies to the tip (opinion) jar and comment on this.
"The first idea that needs to be considered is the overall mood of Mr. Market. Years ago, William O'Neill (of Investor's Business Daily) pointed out that the overall market direction accounts for 90% of the movement in individual stocks at any time. Therefore, the objective of any stock newsletter writer is to find the 10% anomalies that exist from time to time. It's the anomalies that are supposed to produce the outsize results. Not that it always happens that way; if it did, this alone would justify the subscription prices you would pay for any newsletter.
"The second idea that needs to be mentioned (and I thank Doug Casey for illustrating this about 15 years ago) is that individual investment decisions do not always fit a publisher's timetable for monthly issues. It's my understanding that this is why he stopped writing his original Crisis Investing newsletter, as his publisher was getting too many subscriber complaints about lack of new issues.
"A third, important point to also remember is that if things go bad, then keeping what you have is more important than augmenting your positions with new ones. If you keep in mind the regular recommendations about position sizing, you should never have more than 20 stock investments at any time; you're not trying to operate an index fund. You don't need to rent a hotel room for every girl you see on the street. You also don't need to just keep adding to your positions just because something new comes along.
"And now, a parting thought on the matter: Let your winners ride, and get out of your losers." – Paid-up subscriber Kevin Beck
"Your essay in the Palm Beach Weekender [Editor's Note: The Weekender is an e-letter published by our corporate affiliate, the Palm Beach Letter] made me go look up your Dec 2011 Stansberry's Investment Advisory. I've read many parts of it in the past but I think this is the first time I have read the whole thing.
First, let me say I agree with everything you wrote. But I will argue one point with you. In that essay you wrote, and I quote extensively:
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"I submit to you that the IRS scandal, abusing the freedoms of the press (AP, Fox News, and now Sharyl Atkisson's proven revelations that her computer was hacked multiple times), the NSA's sweeping and unconstitutional raiding of American's phone records for no probably cause, and even Benghazi and Fast and Furious, the forced bankruptcy of GM that overturned jurisprudence on secure creditors are evidence of a centralized, autocratic government headed by a leader who wishes to be a dictator. (Look at is nonrecess recess appointments, refusing to enforce the defense of marriage act, his executive orders that essentially overturn constitutionally enacted and never contest laws like the 1990s welfare reform act – I could go on and on.) These are acts of forcible suppression of opposition – the IRS acted to keep Tea Party and conservative groups silenced during the election. He wants to severely regiment economics – bankrupt coal-fired power plants while rewarding his cronies in "green energy."
"And what about exalting nation and race? The whole 'war on women' diatribe from the '12 election fits into that meme, as does the claim that everything Obama's opponents do is racism. (See Biden's comments "They gonna put y'all back in chains...," as an example.) Meanwhile, the country suffers an exceedingly poor economy, limited job growth, etc.
"Obama is a fascist (did you get that, NSA? I wrote that he's a fascist!). He's not full-throated now because he can only go so far. But if the Democrats win the House in 2014 and if they continue to control the Senate (esp. if they somehow got 60 votes, which seems unlikely), then we'll see more things like Obamacare ramrodded down our throats.
"And isn't Obamacare itself a tool for social regimentation, and now that that same IRS will enforce Obamacare, a potential tool for the suppression of opposition?
"I realize this is being analyzed in hindsight. What I just wrote about wasn't visible in 2011. [And not] one of us really wants to think that our own American government could do this to us. But really, your whole essay was about fascism, wasn't it? From the fascism of one-party cities (and now states) that impoverish their residents to the fascism of Obama." – Paid-up subscriber Mark Pittman
Regards,
Sean Goldsmith
Miami Beach, Florida
June 17, 2013
Editor's note: Porter is on vacation this week. So we're taking the opportunity to share the top recent insight from several S&A editors. Today... we feature some thoughts Dr. David "Doc" Eifrig offered subscribers in his most recent issue of Retirement Millionaire.
If you're like the vast majority of Americans, chances are good that you're flushing money down the drain right now.
Most U.S. employers offer a simple way for workers to immediately boost their income. It takes no effort beyond filling out a simple form. Yet nearly two-thirds of Americans say, "Thanks, but no thanks."
It's pure laziness...
One of the easiest decisions you can make in retirement investing is enrolling in your 401(k) plan. If your employer offers any sort of matching plan, this is an investment that simply can't be beat. It's literally free money. There is no better strategy out there than letting someone else enlarge your deposits and compounding it tax-free. Here at my company, employees earn an immediate 50% return on the first 6% they tuck away for retirement.
Many companies across the country work the same way. Yet many Americans balk at the opportunity. According to the nonprofit National Bureau of Economic Research, only about one-third of American workers enroll in 401(k) programs. (I've seen numbers that say a measly 23% participate.) Yet when employers install automatic enrollment programs – which allow employees to opt out – enrollment jumps to more than 85%.
It's not usually a calculated, intentional decision that keeps employees from saving in their 401(k)s. It's just inertia that prevents people from making what's clearly the best financial decision for their future.
And the inaction isn't limited just to 401(k)s, either.
Rather than spend a few hours per year keeping our financial house in order, we procrastinate... We promise ourselves that we'll figure it out next month or the month after that. In part, we're frozen by the fear of making the wrong decision. And if you know mistakes lurk within our statements, admitting it and changing course is even harder.
I've spent decades in medicine and finance. I've worked for the "best" on Wall Street and spent time at the top medical schools in the country. I've been inside these industries and seen the personal risks that people take on when they mindlessly trust these institutions to take care of them. Don't. Your wealth and your health depend on it.
Many people entrust their entire future to their broker, bank, or other institution... and pay exorbitant fees in the process. They assume they don't have the intelligence, education, or intuition that a Wall Street big shot has. Believe me, you do.
Take the "smartest" guys on Wall Street: hedge-fund managers. Hedge funds are fantastic at making money... for themselves. From 1998 to 2010, hedge-fund managers pocketed $379 billion in fees. But their investors gained just $70 billion. In other words, hedge-funds made five times more money for themselves than for the people who entrusted them with their money.
This just doesn't make sense... especially when you realize that most funds underperform the market. For example, on average, hedge funds have made about 5% for their clients this year, lagging behind the S&P 500 benchmark index's 15% gain, according to a recent Goldman Sachs report. That kind of performance is typical.
Now, it's true that you need a little bit of knowledge in economics and finance to truly stay ahead of the game. But that's what we're here for. To teach and empower you. Despite what the Wall Street fee machine will tell you, it only takes a little bit of common sense and attention to the things you're investing in to take control. And today, we're going over a couple ideas that will help you.
But as we do our part, you need to do yours and take your financial future into your own hands. Don't let your future quality of life be determined by whether your employer does an opt-in or opt-out of your 401(k). And don't pay exorbitant fees to arrogant fund managers who lag the market. Remember... you determine your future.
– Sean Goldsmith
Editor's note: Taking control of your wealth and health has been a constant theme in Doc's work since we launched Retirement Millionaire more than four years ago…
In his latest issue, Doc explains several moves you can make right now to protect your portfolio from rising interest rates. If you follow his advice, you'll still earn a healthy interest payment. But you'll be better-shielded from higher interest rates down the road. To learn more about Retirement Millionaire, click here...