Will we see any "change"?... Buying gold and guns... Jim Rogers on the election... More bond market madness... Suzuki leaves the U.S... It's a trader's market... George Carlin on voting...
The results are in... OBAMA! will lead our nation for another four years. And while many of you were hoping for the opposite outcome, let's look on the bright side...
Historically, markets perform better under Democrats. Look at the table below from data provider S&P Capital IQ…
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Annualized Market Returns Under Each Party
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Democrats
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Republicans
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Years
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Returns
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Years
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Returns
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1933-1952
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12.1%
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1921-1932
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6.6%
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1961-1968
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11.0%
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1953-1960
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5.5%
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1977-1980
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6.7%
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1969-1976
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5.4%
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1993-2000
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19.9%
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1981-1992
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13.5%
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2009-2012
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12.2%
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2001-2008
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3.3%
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Median
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12.4%
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Median
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6.9%
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But will history repeat itself under OBAMA!?
The truth is, neither candidate offered to cut anything or change our budget. They only talked about programs they wanted to keep. As Porter pointed out in his recent essay on GM...
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Economics is all about scarcity. There can never be enough of anything to satisfy everyone. But the central truth of politics in a democracy is exactly the opposite: To get elected, you must promise everything to everyone.
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The Senate and House are still divided. So any real "change" to our fiscal situation will be an arduous process. Meanwhile, the system will inevitably lead to more government, bigger deficits, and higher taxes.
A short note on taxes... Since World War II, tax receipts as a percentage of GDP in the U.S. have averaged around 18%... But the tax rate on things like income, dividends, and the estate tax varied greatly since then.
Raising taxes won't change anything. The government won't "make" any more money. The idea that you can live at the expense of your neighbor will once again be proven false. The wealthy will leave (or at least move to states with less oppressive tax regimes).
Markets hate uncertainty... so the markets opened up this morning, reflecting investors' relief to simply know the general direction of the political environment they'll have to navigate for the next four years. But the stock market quickly reversed course and headed down sharply.
One thing you can be sure of about the next four years… we're going to see lots of quantitative easing (aka "money printing"), and that's a recipe for inflation. That means a weaker dollar and higher gold prices.
Investors should also own "World Dominator" businesses that can maintain and grow their value in that environment… (We'll discuss this later in today's Digest.)
Billionaire investor and outspoken political critic Jim Rogers appeared on the financial news cable network CNBC to share his perspective prior to Obama's victory. And his views align with ours... Rogers didn't vote for Romney or Obama, saying, "They're both evil, as far as I'm concerned."
"If Obama wins, it's going to be more inflation, more money printing, more debt, more spending," Rogers told CNBC. He said he would sell U.S. Treasurys and buy precious metals. "It's not going to be good for you, me, or anybody else... I have to invest based on what's happening and not what I would like."
And despite Romney's pre-election bluster about the Fed and fiscal responsibility… we believe the same thing would have happened under him.
Given that more money printing is inevitable… Porter is sticking to his long-term thesis that rates will rise and Treasurys will get crushed. We know firsthand that shorting Treasurys is the "widowmaker" trade. But he believes it's an economic certainty.
As former Citigroup CEO Charles Prince said before the collapse, "As long as the music is playing, you've got to get up and dance."
And corporate America is certainly dancing... As we showed yesterday, high-quality businesses are rushing to sell debt in today's low-interest-rate environment.
Year-to-date, U.S. companies have raised $1.2 trillion from issuing debt – the busiest year on record. And in the secondary market, bonds of some of the highest-quality blue chips are trading for less than comparable Treasurys.
Last Friday, Microsoft sold five-year bonds at 0.875%, a yield of 27 basis points more than comparable Treasurys – the smallest spread since at least 1994. Like health care giant Abbott Labs, which we discussed yesterday, Microsoft will use the money to pay down existing debt, which yields 2.5%.
In addition to access to cheap money, U.S. corporations are also sitting on a record $1.73 trillion in cash.
The combination of record cash and the lowest borrowing costs in history put World Dominators in a great spot today.
Last Friday, Porter wrote a Digest about the General Motors bailout... and where the company stands today. (You can read it here.) In short, he concluded:
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GM had no chance of success then (and has no chance of success now) if everyone ignores the simple facts of the competitive landscape in which it must operate. It is a fact that GM's operating costs weren't competitive globally. GM's operating costs were way out of line with other American manufacturing companies, too. No government bailout will change this fact. And as you'll see, it is still a huge problem for the company.
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The other critical fact is, the global automotive industry struggles with a vast amount of overcapacity. We know that by looking at the horrible returns on capital earned by the industry as a whole – even by the best carmakers. Economics was trying to tell us that the world didn't need GM, regardless of what we might make of that message. Again, no amount of government-granted capital is going to change this important fact.
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Consider the latest news from Japanese car manufacturer Suzuki. Late yesterday, Suzuki announced it would stop selling cars in the U.S. after 30 years in the country and put its American unit into Chapter 11 bankruptcy.
Suzuki quoted several issues that led to its withdrawal from the U.S. market, including low sales volumes (year-to-date, the company sold 21,188 vehicles, a 4.7% drop), its limited lineup, and unfavorable exchange rates.
The company also blamed "the high costs associated with growing and maintaining an automotive distribution system in the continental United States" and "the disproportionately high" costs associated with meeting government regulations.
We believe the issue is much simpler... Far more cars are flooding the American market than we need (Suzuki only had 0.2% of the market). And the unions make it too expensive for manufacturing companies to survive. Suzuki made the right move... It's too bad GM doesn't realize this.
In closing today's Digest, I'd like to alert you to an opportunity that could potentially make your year... If played correctly, the huge volatility surrounding the presidential election and our country's economic woes could make you a fortune.
Many of the highest-quality companies in the world are getting crushed today... Big bank Wells Fargo is down 3%. Semiconductor blue-chip Intel is down more than 3%. Financial services provider JPMorgan is down more than 5%.
Coal stocks were destroyed. The biggest names in the sector are down double digits.
Meanwhile, the Volatility Index (the "VIX") – the market's "fear gauge" – is up 8% to 19. (We discussed how the VIX would react to the election here.)
It's a trader's market... And Jeff Clark is salivating at the potential opportunities being created by today's extreme selling. This morning in his Direct Line, a live-update feature for S&A Short Report subscribers, Jeff told his readers he's "loving this action right now."
Jeff is a master at trading extreme conditions. And if anyone will make money on an irrational selloff, it's him. He continued:
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Stocks are starting to hit extreme oversold conditions. We're not "ridiculously" oversold yet. So, there's still the possibility for further downside. In fact, I'd love to see more selling pressure into the close today followed by a gap down opening tomorrow. I would happily buy into that sort of action.
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When Jeff tells us he's very excited about a set of trading conditions, we always take notice. A trader only gets a handful of genuinely terrific big opportunities per year. Right now is likely one of those opportunities, according to Jeff.
To access his recommendations in the aftermath of today's selling, make sure you're onboard as an S&A Short Report reader. The next two or three weeks of trading could make your entire year. You can click here to learn more about a subscription.
New 52-week highs (as of 11/6/12): Guggenheim China Real Estate Fund (TAO).
We're looking forward to the deluge of election-related feedback. Just remember to breathe... You can send your notes to feedback@stansberryresearch.com.
"Porter and Company – I hope you had a great evening.
"I just wanted to thank you for all your two-cents that you put out to your subscribers. I am a little disappointed that I missed your current views about voting and your wife's views and Doug Casey's views as I was not all that happy with the two upper choices, but vote for one of them. I guess I would feel more hopeful as a country if all the Senators and Congressman and Executive office were in OUR boat with US, but no they have their OWN GOLDEN boat which leaves us all behind.
"I more so want to thank you for all your help thru the year, my subscription started back in March of this year and I guess you all have been my mentors as to how to prepare for this thing we call 'The downfall of American life.' I have slowly been working on doing global diversification all the way down to my current email address and websites are now hosted in CANADA. I have started to purchase some silver and gold. I opened up an offshore account. I have done a lot of research on neighboring countries and trying to get a visa in the next few months. I hope to make this dream come true by my 50th birthday which is at the end of July of next year to have invested in some property over seas and to start living their to my new permanent residency and my second passport.
"I hope you all keep up the great work and look forward to all of your two-cents down the road. I hope what I have done is taken your two-cents and have made my OWN decisions as to what works best for ME.
"Hope you in Baltimore and Sean in New York are well now, Sandy was a crazy storm." – Paid-up subscriber Daniel McSwiney
"Well stated and oh so true. Your wife, however, is wise in voting for Gary Johnson (I did). It is my hopes that a viable third party will eventually evolve that will be rational. Sounds to me you liked the guy, too bad you didn't let him know it by voting for him. Maybe, just maybe, one of these elections will be won by the margin of votes for a third candidate. That could wake some folks up. Fat chance in my lifetime (I'm 70), but as you say, keep going the way we are, the empire will fall! What a sad day that will be as I have enjoyed the ride, too bad future generations are going to have a rough go of it." – Paid-up subscriber C.K. Baber
"It's people like PORTER that are aiding to running this economy, consider he won't vote he sure as hell can't complain or give suggestions." – Anonymous
Goldsmith comment: Perhaps you missed the point of yesterday's essay... Consider these words from one of the great social commentators of our time, comedian George Carlin...
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I have solved this political dilemma in a very direct way: I don't vote. On Election Day, I stay home. I firmly believe that if you vote, you have no right to complain. Now, some people like to twist that around. They say, 'If you don't vote, you have no right to complain,' but where's the logic in that?
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If you vote, and you elect dishonest, incompetent politicians, and they get into office and screw everything up, you are responsible for what they have done. You voted them in. You caused the problem. You have no right to complain. I, on the other hand, who did not vote – who did not even leave the house on Election Day – am in no way responsible for what these politicians have done and have every right to complain about the mess that you created.
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Regards,