We're in a bull market, aren't we?... Big money sits on the sidelines... India is still surging... Gambling and art are still soaring... Blackstone buys a casino... Chanos is shorting Macau... Porter serves up some mailbag justice...
We're in the midst of a bull market...
U.S. stock prices are at all-time highs, emerging markets are rallying, and Treasury yields are heading lower. Still, nobody wants to believe it...
According to the American Association of Individual Investors, around 28% of investors are bullish today. For the sake of comparison, 60% were bullish before the tech bubble popped, and 50%-plus were bullish prior to the subprime-mortgage crisis.
Some of the biggest and smartest investors in the world – like hedge-fund manager David Tepper – are getting "nervous."
In Friday's Digest, Porter sounded another alarm... He advised readers to watch for a collapse in the corporate bond market (meaning higher yields). He wrote...
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With stocks and bonds hitting new highs, it's good to be cautious. But as any wise investor knows, these rallies can last a long time. As the old saying goes, "bull markets climb a wall of worry." And people are worried right now, especially institutional investors...
According to a recent survey by Bank of America Merrill Lynch, asset managers have the most cash they've had in two years.
"Walls of worry are everywhere," Robert Doll, chief equity strategist at Nuveen Asset Management told Bloomberg Radio last week. Doll, whose firm manages $118 billion, said, "This is the least believed bull market that I've ever seen. From here it's earnings, it's fundamentals, it's can the economy grow? And my guess is the answer to that question is yes."
We're not advising you start throwing darts at a list of stocks because everything is marching higher. In fact, we urge caution here. It's a good time to shed risk from your portfolio and raise some cash. Hold on to quality... And let your winners run.
Several S&A analysts agree that we're definitely closer to the end of this bull market than we are to the beginning... But we have yet to see that "warm and fuzzy" feeling toward stocks that usually marks the top.
The rally in Indian stocks continues...
Narendra Modi won the race to become the newest Prime Minister of India. And the stock market is joyous.
For a good summary of what's happening in India, read the May 5 Digest. In short, its market had fallen around 80%, inflation was high, the currency was falling, and nobody wanted anything to do with Indian stocks.
But the election of Modi, who is known for being business-friendly, has given India a big boost.
Since the Bharatiya Janata party announced Modi as its candidate on September 13, Indian stocks have climbed 37%. And foreigners invested $14.4 billion in the country's stock market over that period. Today, India's benchmark Sensex index closed at a record high.
But some folks think the rally is just beginning...
"We will be in a bull run for next three to five years," IIFL Wealth Management director Shishir Bajpai, told Bloomberg. "We will look closely at shares of banks, utilities, and industrials, as they are likely to perform better."
Steve's True Wealth recommendation – the Market Vectors India Small-Cap Fund (SCIF) – hit another new high today. It's up more than 5% today. True Wealth readers are up nearly 40% in four months.
When a currency is being debased, people flee...
Smarter folks look to swap their paper for valuable hard assets that will protect them during inflation – anything from real estate to watches to fine art.
Others simply turn to gambling... In an environment like today's – with low interest rates, rising asset prices, and stagnant wages – how else can you make a reasonable return on your money?
We've written about this trend – the rise of gambling and "collecting" – many times over the years.
To see how gambling has performed over the years, just look at a chart of Las Vegas Sands (LVS), the $60 billion casino operator that owns premier properties in Las Vegas, Singapore, and Macau...
And private-equity giant Blackstone Group wants in on the game...
Last week, Blackstone announced it would pay $1.7 billion to purchase the Cosmopolitan of Las Vegas, a 3,000-room hotel and casino, from Deutsche Bank.
Deutsche Bank spent around $4 billion building the development. It first loaned money to develop the Cosmopolitan, then foreclosed and finished the casino on its own. The sale to Blackstone would mark one of the largest losses on a single project in Las Vegas history.
People familiar with the deal say Blackstone is betting on a recovering Las Vegas... The gambling mecca drew 3.7 million visitors in March, a new single-month record. And hotel-room occupancy is back up to 90%.
Plus, Blackstone is following the cardinal rule of real-estate guru Jonathan Gray: Buy assets at 50% of replacement cost.
Quantitative easing and inflation benefit the wealthy. They own the assets, so they benefit from price inflation. As they accumulate more paper wealth, they shift more into high-end collectibles like wine, jewelry, and art.
The zenith of the collectibles market has incredibly low supply, global allure, and unrelenting demand from the world's wealthiest people.
Christie's held the highest-grossing auction in history last week... The auction house took in $744.9 million and set records for a number of artists, including Frank Stella, Alexander Calder, and Barnett Newman.
Christie's beat its own record of $691.6 million, which it set in November.
One piece at the auction, "Popeye," a six-and-a-half-foot-tall stainless-steel sculpture of the character by Jeff Koons, sold to casino mogul Steve Wynn.
Wynn is the chairman of the $20 billion gaming giant Wynn Resorts. And he's also one of the world's leading art collectors. He's hedging against inflation... and he paid $28.1 million for Popeye, more than its $25 million estimate.
However, one man is calling the top in both gaming and art – short-selling whiz Jim Chanos. He says the art market is "getting silly."
As we discussed in the April 3 Digest, Chanos is shorting Christie's publicly traded counterpart, Sotheby's. He noted that Sotheby's stock peaks with every bubble...
And at the SkyBridge Alternatives ("SALT") Conference last week in Las Vegas, Chanos said he was bearish on Chinese gambling hub Macau, which currently dwarfs Vegas in terms of revenue.
Chanos is bearish on Macau because Chinese President Xi Jinping is cracking down on corruption... Chanos said the first wave of the crackdown hurt hotels, luxury goods, and real estate. But, "Macau is next."
In addition to a gaming hub, Macau is also popular for money laundering... according to the 2013 Congressional Executive Commission on China Annual Report, $202 billion in "ill-gotten funds are channeled through Macau each year."
Chanos wouldn't tell CNBC what he was shorting... "No comment on what we're shorting in Macau. I'm sitting in a casino, if you haven't noticed," he said, talking from the conference.
New 52-week highs (as of 5/16/14): Brookfield Asset Management (BAM), BP (BP), Energy Transfer Equity (ETE), Altria (MO), ProShares S&P 500 Buy Write Fund (PBP), Market Vectors India Small Cap Fund (SCIF), Targa Resources (TRGP), and Union Pacific (UNP).
In today's mailbag, one subscriber tells us to be more careful... and Porter responds. Send your notes to feedback@stansberryresearch.com.
"One of the difficulties I find with S&A publications is the use of exaggerations passed as true statements as well as using terms carelessly. If one is not careful, one can get into a lot of trouble relying on what you say. Below is an example.
"In [last week's] Digest Premium, the following statement was made, 'It's tough to find value in U.S. markets, which are trading at all-time highs.' A few sentences later, it was followed by this statement, 'The S&P 500 trades at an average price-to-earnings (P/E) ratio of 18, with an average dividend yield of 2%. Compare that with a conservative 15 times earnings for Microsoft, which pays a 2.8% dividend.'
"I was curious: just how expensive are U.S. stocks right now? ... The S&P 500 P/E ratio as of today (5/14/2014) is at 18.85. I would agree that U.S. stocks are trading near all-time highs in absolute terms, but since you decided to then associate this with the P/E ratio you leave the reader with the impression that you are saying the current P/E ratio for U.S. stocks is at an all-time high.
"I see the same disregard for accuracy in several of your monthly recommendations. It's as if the editors want the subscribers to believe in their recommendations to the point they are willing to exaggerate on some things. I, as I am sure many of your subscribers, rely on the information you provide to form general opinions about what is happening in the markets. We should not have to double check what you say because we don't trust what you are saying. I think you owe your subscribers to be more careful. I think you will agree that on a P/E basis, the U.S. stocks are not at all-time highs." – Paid-up subscriber Luis Anderson
Porter comment: So... let me get this straight... You want us to be responsible for the connections you make in your own mind? What we wrote was accurate. We didn't exaggerate anything. Nor did we use any terms "carelessly." You conflated our argument, not us. And you stretched our words, not us. Are we supposed to edit your mind? How so?
Regards,
Sean Goldsmith
New York, New York
May 19, 2014
These real-world indicators show the economy is improving...
Retirement Millionaire editor Dr. David "Doc" Eifrig says a few real-world indicators suggest the U.S. economy is growing. In today's Digest Premium, he explains how these improvements could also lead to higher inflation down the road...
To subscribe to Digest Premium and access today's analysis, click here.
These real-world indicators show the economy is improving...
My general thoughts on the economy are that things are still good. There are a couple of interesting touchstones. One of those is my "cabbie index," where I (Doc Eifrig) ask cab drivers around the world how business is going. And the three guys in Vegas so far have all said business is as good, if not better, than it was at the peak... They say the tourists and conventions are back.
They're all a little bummed going into summer, because it's not the peak time for people to visit Vegas. Conventions die down around the second week of June.
I also look at airplane travel as a real-world indicator...
And right now, last-minute tickets are very expensive. But flights are full, even if you buy them ahead of time. Prices are holding up. Airlines are making money.
I was looking to fly to Rome this summer, but tickets were so expensive, I decided to go to Seattle instead.
Lastly, I'm also seeing some positive signs in California wine country...
I know a guy in wine country who does vineyard management. He can normally get 25 guys to work for 10 days at a time during the time of year when you're pruning the vines while the blooms are coming on. He said he could use 50 people right now because he's so far behind... and he can't find anybody.
I don't know the exact reasons for it, but all the guys that hire the laborers say it's because of the new regulations from the Obama administration cracking down on immigrants. And there's no cheap immigrant labor out there anymore.
So we have growing labor costs, and at the same time, government regulations preventing cheap labor from entering the marketplace. The government is also looking at increasing the minimum wage.
So we're seeing an improving economy, as evidenced by my cabbie index and strong airline travel, paired with higher labor costs and the government limiting the workforce. These are all major inflation pressures in the market today.
– Doc Eifrig
These real-world indicators show the economy is improving...
Retirement Millionaire editor Dr. David "Doc" Eifrig says a few real-world indicators suggest the U.S. economy is growing. In today's Digest Premium, he explains how these improvements could also lead to higher inflation down the road...
To continue reading, scroll down or click here.