Our readers regularly send in questions on one topic more than just about anything else...
"Porter is bearish, but Steve is bullish... What should I do?"
It's not just Steve and Porter... Our analysts often have different opinions about macroeconomic issues – and sometimes even individual securities.
Keep in mind, what seems like a conflict may simply be a difference of time frame or strategy. (For example,Jeff Clark's short-term tradingmay lead him to take positions that seem tocontradict investments that DanFerris has recommended based on hislong-term, value-focused approach.)
Yes, it can be confusing at times... But it's part of the beauty of our business. We don't tell our analysts what to say. Unlike many other research firms and banks, we're not beholden to advertisers or the companies we're analyzing. We are only beholden to you, the subscriber.
So while at times it may be difficult tobalance these opposing views, it ultimately allows us to provide you with the best research possible. We're allowing our analysts to share their true opinions.
Still, I'd like to take a moment today to discuss Porter and Steve Sjuggerud's differing views of today's economy...
Porter is bearish. He believes we're going to see rising interest rates and lower stock prices. For more on this subject, you can read last Friday's Digest.
Mind you, he's not advising you to sell everything and go into hiding. He's still finding value in certain corners of the market and he's still recommending going long some stocks. But he also recommends lightening up on riskier, volatile positions. Porter also advises adding a few short sales to your portfolio to hedge in case of a downturn.
On the other hand, Steve is bullish. For years, he's written about the Bernanke Asset Bubble– his belief that the Federal Reserve's quantitative easing would drive up asset prices across the board. With the S&P 500 trading near an all-time high, Steve has been correct.
In many ways,Steve and Porter agree on how this will all play out... the debate ismore aboutwhen it will start to unfold.Steve knows this rally will end... Andheagrees interest rates are heading higher. (In the September issue of True Wealth, he showed how stocks have fared historically when interest rates are rising. To learn more about a subscription to True Wealth, click here.)
But he has a longer time frame than Porter... And he thinks big profits are still available in stocks and real estate.
He's been particularly bullish on U.S. housing. He's written about the idea for over two years, most recently in the July issue of True Wealth...
TWO once-in-a-lifetime situations have come together for real estate buyers now... We're coming off 1) the worst bust in house prices in generations, and 2) the lowest mortgage rates in history.
I don't think we will ever see an opportunity this good again in U.S. housing... Not in my lifetime.
The story is similar across the country... Nationwide, the median existing home price is up dramatically in the last year – up 15.4% to $208,000. But even at this price, homes are going fast... Houses are only on the market for 41 days before they sell (versus 72 days a year ago... these numbers are nationwide medians).
It's simple... The demand for homes is back, but we don't have enough supply yet. This means higher prices are ahead!
Today, we received a slew of economic news supporting Steve's housing thesis...
First, existing home sales in the U.S. increased in July to their highest level in more than three years... The National Association of Realtors said "resales" rose 6.5% to an annual rate of 5.4 million units.
It seems the sudden increase in mortgage rates hasn't hampered demand yet.
Luxury homebuilder Toll Brothers also announced solid earnings...
The company earned $0.26 per share, beating $0.25-per-share estimates. Revenue soared 24% to $689 million... Units sold increased 10%. And CEO Doug Yeardley is more bullish than ever. During the earnings call, he said...
Sales volumes and pricing power both increased this quarter from one year ago, a pattern consistent with recent quarters... We believe the recovery is real and we are in the early stages of the rebound. Our average sales contracts per community are about where they were in 1997-1998, several years into the previous cyclical recovery.
From there, over the next seven years, through August 2005, a period when mortgage rates averaged between 5.8% and 8.1%, sales contracts per community continued to increase, eventually peaking at twice that pace.
And executive chairman Robert Toll echoed the bullish tone:
Inventory levels are still tight in almost all of our markets and housing remains very affordable. Unemployment trends are slowly improving and demand, based on household formations, is compelling, especially given the still very-low volume of industry home production.
(Of course, you would expect to hear cheerful news on the housing sector from a homebuilder CEO. But we're seeing other data in the market that supports his outlook.)
Home-improvement retailers Lowe's and Home Depot both posted great earnings this week, too...
Earnings were up for Home Depot, the world's largest home-improvement retailer. The company earned $1.5 billion in the second quarter of 2012, compared with $1.8 billion last quarter. And revenue increased 9%, from $20.6 billion to $22.5 billion.
The company also increased its full-year guidance from $3.52 per share to $3.60 per share and a revenue increase from 2.8% to 4.5%.
Likewise, second-quarter earnings for Lowe's increased 26%, from $747 million to $941 million. Revenue increased 10% to $15.7 billion.
The company also increased its full-year fiscal outlook regarding earnings per share from $2.05 to $2.10 and sales growth from 4% to 5%.
We wouldn't want to leave you with too much sunshine following the economic warnings we've presented in most recent Digests... So we're sharing a recent note from Bill Gross, manager of the world's largest bond fund, PIMCO.
Via the social-networking site Twitter, Gross posted the following note:
3 to 4 percent credit growth can't produce much more than 3-4 percent increases in asset prices. No more QE's? No more bull markets.
For now, protect yourself by taking Porter's advice to lighten your holdings on risky assets and sell some stocks short. And take Steve's advice by staying long your strongest-conviction holdings and minding your trailing stops.
We're planning a conference call with Porter, Steve, and a secret guest (one of the brightest finance minds we know). Porter willshare some recent developments that make him particularly bearish, while Steve will present some evidence that makes him more optimistic in the short term...
Stay tuned for more information about this call as we finalize the details.
New 52-week highs (as of 8/20/13): none.
"Porter, I just wanted to let you know I subscribed to your premium radio podcast, and I really appreciated your work on how to value a company. I am a hands-on guy, so this will be a big help in sorting out the good from the not-so-good companies. I have been following your newsletters for some time, and I enjoy the different points of view that are represented by your analysts." – Paid-up subscriber R. Dodd
Goldsmith comment: We're glad you enjoyed Porter's video on how to value a company... A lot of folks think this is the single best piece of research we've ever produced.
One subscriber, David, said the video was "better than my MBA program."
Another subscriber, Kim, said Porter's video, along with Jeff Clark's options tutorial was "worth the price of admission" of his Alliance membership (for which we currently charge around $14,000).
What would you pay for something more valuable than an MBA? Well, we're giving it away for free with a subscription to Stansberry Radio Premium. You can learn more here.
"If Summers is stupid, what can be said about the people who boosted him into important positions, e.g. Clinton, Rubin, etc.?" – Paid-up subscriber Patrick Stanley
Goldsmith comment: Hmm... Good question.
Regards,
Sean Goldsmith
New York, New York
August 21, 2013