Why the market is hitting new highs...

Why one fund manager is nervous about dividend-paying stocks...

Editor's note: In today's Digest Premium, we're sharing part of a conversation Porter had on his Stansberry Radio podcast with Cambria Investment Management firm cofounder and chief investment officer, Meb Faber.

In the show that aired on October 11, Meb explains why high-yielding stocks are trading at huge premiums.

 One of our biggest concerns is what individual and professional investors are herding into. Back in the late 1990s, you couldn't get someone to buy a dividend stock. Everyone wanted tech. They wanted biotech. They wanted the market-cap-weighted portfolio, which ended up being mostly tech.

Fast-forward to today. The bond market has done terribly. But certain areas of the market – like dividend stocks, value stocks, and some small-cap stocks – have done great.

 Historically, dividend stocks have traded at a 20%-40% discount to the overall market, based on price-to-earnings ratios. One reason is that they tend to be steady, good companies that spin off cash flow. They tend to be less volatile and have slower growth.

Today, money has rushed in on these stocks. People are searching for yield with the Federal Reserve's interest rates pegged at zero. And not only are the highest dividend-yield stocks (and sectors like utilities and telecom) no longer trading at a discount, but now they're trading at their highest premiums ever.

 So you're buying these stocks at a premium to the overall market, which is incredibly dangerous.

Here's a simple example... Go to Morningstar. Type in your dividend fund. Scroll down under "portfolio" and look at the metrics. And in almost every value category, it's trading at a premium to the overall market.

So we're really nervous about U.S. dividend stocks in a market we already think is a little expensive today.

– Mebane Faber

Editor's note: We previously ran another excerpt of Porter's interview with Meb in the October 16 Digest Premium. We encourage you to listen to the entire episode (No. 99) on the Stansberry Radio website.

Why one fund manager is nervous about dividend-paying stocks...

In today's Digest Premium, one of our favorite fund managers explains why he thinks dividend-paying stocks are expensive (and dangerous) at current valuations...

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 10/28/2013

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.

Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)

Why one fund manager is nervous about dividend-paying stocks...

In today's Digest Premium, one of our favorite fund managers explains why he thinks dividend-paying stocks are expensive (and dangerous) at current valuations...

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

Why the market is hitting new highs... Money supply is at its 'most extreme ever'... Real estate prices soar in August and are headed higher... A brief look at Apple's earnings... What's happening at Sears?... BP raises its dividend...

 The S&P 500 hit another all-time high today.

The benchmark stock index was up more than seven points as of midday trading, hitting 1,770.88.

And if you're searching for a reason for this swooning market, look no further than this research note from Nikolaos Panigirtzoglou, editor of the Flows and Liquidity publication for investment bank JPMorgan. (Thanks to financial blog Zero Hedge for the piece.)

Excess money supply is currently at record-high positive territory. The residual of the regression turned positive in May 2012 and has risen steadily since then. This is both because of real money supply increasing and money demand decreasing due to lower uncertainty. In particular, global M2 is up $3 trillion or 4.6% since the beginning of the year (to September), outperforming the Global CPI inflation index which is up by only 2% since then. Global M2 reached $66 trillion in September this year.

Of the $3 trillion increase in global M2 money supply in the first three quarters of the year, around $1 trillion is due to G4 countries, i.e. U.S., Euro area, UK, and Japan. The remaining $2 trillion is due to E.M. [emerging market] countries, driven by strong bank lending growth in E.M.

The rise in excess liquidity... is supportive for risky assets especially when we compare the past nine months with the period between the end of 2010 and the beginning of 2012, when excess money supply was negative... we can see three major episodes of excess liquidity (i.e. positive residual): 1993-1995, 2001-2006 and Oct 2008-Sep 2010. These were periods of strong asset price inflation suggesting that excess liquidity could have been a factor supporting markets at the time. The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude.

 To sum up Panigirtzoglou's note, the total amount of money in circulation rose by $3 trillion in the first nine months of 2013. (The M2 he cites is a conventional measure of money in the economy.) Total global money supply is at more than $66 trillion and growing at an annualized rate of 6%-plus. It's the largest amount of money in history.

 With that much money sloshing around, it's natural for asset prices to rise. That's exactly what Steve Sjuggerud predicted would happen with his Bernanke Asset Bubble thesis – that asset prices around the world would soar as global central banks printed more and more money.

In addition to global stock markets, the Bernanke Asset Bubble is also driving real estate prices higher – again, just as Steve predicted.

 According to the latest data from the S&P Case-Shiller housing index, home prices in 20 U.S. cities rose 12.8% from August 2012 to August 2013 – the biggest jump since February 2006. Analysts forecast a 12.3% increase.

As of August, the 20-city index is up 22.7% from its March 2012 low. U.S. home prices are back to mid-2004 levels.

 And Steve thinks prices are still heading higher...

As he wrote in the latest issue of True Wealth...

 If Steve's reasons for another bubble aren't enough to convince you, consider this bit from Robert Shiller, co-founder of the S&P Case-Shiller index and 2013 Nobel Prize winner...

In an interview with Yahoo's The Daily Ticker finance blog, Shiller said he doesn't expect another bubble in real estate for some time. "We just went through the biggest bubble in U.S. history," he said. "So I wouldn't expect that to repeat... maybe not in our lifetimes."

 As we discussed in the October 22 Digest, Steve recently told True Wealth readers about an interesting place to hold cash outside the U.S. dollar...

If you have a U.S. bank account, you understand the need to earn more interest on your money... Inflation today is eating away at your savings.

We can't give away too many details, but Steve says, "China's currency is deeply undervalued. It would have to roughly double just to get to fair value with the rest of the world." It's also paying interest, unlike the U.S. dollar.

Steve has found a safe way to buy China's currency – the renminbi – collect 2.6%-3.3% a year, and benefit as the Chinese currency appreciates against the dollar.

Steve has prepared a True Wealth currency "seminar" that outlines the full details of his trade...

Steve's presentation details how currency fluctuations work... and shows how they affect you. He also reveals several other unusual trades that will allow you to safely build a huge amount of wealth in the midst of currency fluctuations... including what he's calling "The Greatest Currency Trade of the Next 10 Years."

 To learn how to access this seminar – and discover Steve's favorite ways to diversify out of the dollar today and start earning real interest – you'll need to sign up for a subscription to True Wealth. But you can do so at zero risk... We have a four-month, 100% money-back guarantee.

We think you'll agree... Steve's report is one of the best pieces on how to protect yourself from the destruction of the U.S. dollar. You can learn how to sign up by clicking here.

 Apple reported earnings last night. The consumer-products giant earned $8.26 per share in the third quarter, beating analyst expectations of $7.92. Revenues were $37.5 billion, beating expectations of $36.8 billion. Gross margins for the quarter were 37%, slightly beating estimates of 36.9%.

We'll have more on Apple tomorrow after we speak with Dan Ferris, who holds the stock in his Extreme Value portfolio. But there are plenty of other earnings announcements to discuss...

 Stansberry's Investment Advisory recommendation Sears Holdings said it was considering splitting off its Lands' End clothing business and Sears Auto Center business.

The company also provided an update on third-quarter performance... Comparable store sales fell 3.7% in the three months ended October 26. Sears also announced it would evaluate all of its stores, including leased locations about to expire, for continued operations.

 Sears Canada also announced it would sell five store leases to Cadillac Fairview Corporation for $383 million.

Porter's subscribers understand what's going on with Sears... He and analyst Bryan Beach outlined the situation in the August issue. In short, Sears CEO Eddie Lampert is letting the retail business and other unprofitable operations fall away, until all that's left is its very valuable (and little-talked-about) reinsurance and financial businesses. He's following in the footsteps of Berkshire Hathaway's Warren Buffett.

We wrote about the situation in the October 9 Digest. Here's a small excerpt...

 I asked Bryan for his comments on Sears' announcement...

 Readers who followed Porter and Bryan's advice – buying shares of Sears and shorting shares of struggling retailer J.C. Penney as a combined "pairs trade" – were up nearly 40% as of yesterday's close.

 Shares of oil giant BP jumped as much as 5% today after the company announced blowout earnings and a dividend hike. Before we get to the details, we'll outline why Dr. David "Doc" Eifrig recommended BP in the June issue of Retirement Millionaire...

 BP earned $3.7 billion in the third quarter against expectations of $3.2 billion. Earnings were down from $5.3 billion in the same quarter a year earlier due to a drop in refining margins. The company produced $6.3 billion in operating cash flow. It also raised its quarterly dividend 5.6%.

"The strong operational progress we are now seeing across the group, combined with our focus on disciplined investment, also underpins our confidence in growing long-term sustainable free cash flow and being able to increase shareholder distributions," CEO Bob Dudley said today.

 New 52-week highs (as of 10/28/13): Automatic Data Processing (ADP), American Financial Group (AFG), Aflac (AFL), East West Petroleum (EW-V), Expeditors International (EXPD), Fluidigm (FLDM), Hershey (HSY), SPDR International Health Care Fund (IRY), Kohlberg Kravis Roberts (KKR), ProShares Ultra KBW Regional Banking Fund (KRU), 3M (MMM), ONEOK (OKE), PowerShares Buyback Achievers Fund (PKW), ProShares Ultra S&P 500 Fund (SSO), Constellation Brands (STZ), and Walgreens (WAG).

 Many of you think term limits would help solve the issues in government... But we're open to other ideas. Send them to feedback@stansberryresearch.com.

 "I would initiate term limits in both the senate and house. Career politicians tend to lose sight of their mission and purpose which is to serve the people of our country. When your top concern is survival and getting reelected your priorities are wrong! Career politicians also lose touch with reality as they become absorbed by political pressures from all directions, pet projects, lobbyists, etc. Over time, all these distractions can take precedence over clear thinking and serving the best interests of their constituents and the country." – Paid-up subscriber Chuck K.

 "My eyes are welling up as I imagine the thrill you had in those Ferraris. I grew up in an orphanage in North Carolina reading secondhand Road & Track and Car and Driver knowing my life would be complete if I were behind the wheel of a prancing horse. My favorite was the 1984 GTO, and I've never even seen one. Somewhere around 1987/1988, I had the chance to go to a Ferrari club meet at the Charlotte Motor Speedway and was given the most memorable ride in a Daytona, I remember screaming, 'Are we going 300 mph?' The driver calmly said, 'Kilometers, that is 186 mph. This is the same car Paul Newman drove in LeMans.' We were shouting over the terrific exhaust, but I was embarrassed.

"Today, I don't count the days (or the Digests) until I get home, but I love the story of the Atlas 400. I appreciate that you are driving today's masterpieces. My best to you and the Atlas 400." – Paid-up subscriber Eliot Carlson

Regards,