Your latest opportunity to not 'fight the Fed'...

Your latest opportunity to not 'fight the Fed'... China's government wants its stocks to go higher... Why big money hasn't yet entered Chinese shares... Abe secures major victory in Japan... Japanese stocks will move higher as a result... An update to Steve Sjuggerud's investment script...
 

 "What, I'm going to say, 'No, Fed, I disagree with you. I don't want to be long equities'?"

 

Billionaire hedge-fund manager David Tepper gave the above advice on CNBC in September 2010. The Federal Reserve told the world it would print money to boost the economy after the subprime crisis. He was smart enough to understand the implications...

 

When the Fed – which has the power to print unlimited amounts of money – says it's going to push the market higher, it's going to succeed. It became known as the "Tepper Put," because the Fed backstop acted like a put option on the market.

 

Tepper's Appaloosa Management is one of the best-performing hedge funds in history. He made a 132% return in 2009 alone... And his decision to not fight the Fed continued to make him and his investors a fortune.

 

 We have a similar opportunity right now... One of the global central banks is hell-bent on boosting its stock market higher. And once again, we want to go along for the ride...

 

Today, China's central bank – the People's Bank of China (PBOC) – wants to boost its market higher.

 

Steve Sjuggerud's True Wealth subscribers have already made 32% in three months on Chinese stocks... But there's plenty of upside from here.

 

 Barron's summarized the opportunity in China, quoting Francis Cheung, an equity strategist from Asian brokerage firm CLSA...

 

Sagging domestic demand and lower energy prices have brought consumer price inflation in China down to 1.4% in November. China's central bank will have to cut interest rates further to "offset deflationary forces from property market and overcapacity, especially if inflation target is maintained at 3.5%," argued the Asia-based brokerage.   CLSA expects at least one to two more interest rates cuts totaling 50-60 basis points as well as two cuts on the reserve requirement ratios to the tune of 1 percentage point (from 20%).

 

 In addition to cutting rates to fight sagging growth, Cheung also believes the PBOC will provide fiscal stimulus (money printing).

 

As Steve outlined in the October issue of True Wealth, when the PBOC wants to push Chinese stocks higher, they go higher... much higher...

 

On August 25, 2006, the Shanghai Stock Exchange Composite Index stood at 1,623. One year later, it was at 5,150. That's a 217% gain in one year – for the entire stock market. Even better: From its bottom in 2005 until the top in 2007, the index soared more than 600%.   So what happened to make Chinese stocks soar hundreds of percent? In short, the Chinese government decided it wanted the stock market to go much higher.   On August 25, 2006, the Chinese government announced new rules that would allow more foreign investors to invest in "locals-only" Chinese stocks (China has two classes of shares... one locals can buy, called "A" shares, and one foreigners can buy, called "B" shares). That reform was part of a broader scheme by the government to push the stock market higher. It worked. And it's about to happen again...

 

 As we noted in the December 4 Digest, China has been the top-performing market this year.

 

Steve recently wrote that Chinese stocks are the best opportunity for triple-digit gains over the next two years. Remember, in 2006, Chinese stocks returned 600%... But Steve says the conditions are even better today (based on a cheaper valuation and the government's efforts to boost the market).

 

 To increase local participation in its stock market, this month, the PBOC launched a program called "Stock Connect" to link the Shanghai and Hong Kong markets. The program allows foreigners to buy Chinese stocks on the Shanghai Exchange and lets Chinese citizens invest in foreign markets by trading shares in Hong Kong.

 

And it's already working... Chinese retail investors are rushing to open brokerage accounts. Trading volume on the Shanghai Composite Index has soared.

 

Still, large institutional investors are sitting on the sidelines. When they enter, we should see a huge boost to China's market...

 

 Despite the Chinese government's efforts, market-data analytics firm MSCI – whose stock indexes are followed by investors who control trillions of dollars – has yet to include Chinese local shares in its flagship emerging-markets index. If it's not in there, fund managers who benchmark the index typically won't invest in it. As Moody's analyst Stephen Tu told Bloomberg...

 

This recent market rally has really been only local shares in China, and most of the funds, most of the ETFs out there, their Chinese exposure is mostly overseas listed companies. No matter how you measure it, China's economic presence in the world is far greater than the public securities exposure that global investors have of China within their portfolios.

 

 And fund managers aren't yet taking advantage of the link between Shanghai and Hong Kong...

 

The Stock Connect allows foreigners to buy 13 billion yuan ($2.1 billion in U.S. dollars) in local shares each day. But orders have averaged just one-quarter of that volume. Before the Connect, local shares traded at a discount to Hong Kong shares. Now, they're at a premium.

 

Eventually, we'll see institutional money pour into Chinese local shares... And that will be one of several catalysts that could lead True Wealth subscribers to triple-digit gains in Steve's favorite one-click Chinese investment.

 

 Steve's True Wealth subscribers are also sitting on big gains in another Asian market – Japan.

 

Similar to the situation we're seeing unfold in China today, Japanese Prime Minister Shinzo Abe vowed to boost inflation by printing money. Steve took notice – dubbing it "Abe's Revenge" – and urged his subscribers to ride the wave of fiscal stimulus. So far, they're up 35% and 55% on his two recommendations.

 

 Yesterday, Abe and his Liberal Democratic Party scored a big victory in Japanese elections, keeping its supermajority in the lower house (290 out of 475 seats). That gives Abe the power to override bills rejected by the upper house and pass them into law.

 

Despite the win, the Nikkei 225 fell 1.6% to around 17,099. Japanese investors continue to worry about falling oil prices. Brent – the international benchmark – is around $62 per barrel, while West Texas Intermediate oil – the domestic benchmark – is at less than $57 per barrel.

 

The Japanese central bank's quarterly report on sentiment among large manufacturers (also known as the Tankan study) showed declining manufacturing sentiment. Plus, the Yen has strengthened versus the U.S. dollar from around 121.5 a week ago to 118.77 today. In short, deflationary forces are still winning out in Japan – for now...

 

 Steve shared his updated outlook on Japan with us this morning...

 

Prime Minister Abe's re-election is an absolute endorsement of his policy and is super-bullish for Japan. It's a green light for stimulus. Don't try and get too creative with which sector to focus on... simply own Japanese equities.   Japan's stimulus is an incredible experiment – the likes we've never seen in paper money. Whether it's Japan or the U.S., when a central bank decides to stimulate, the end result is reflected in higher stock prices.   Take the WisdomTree Japan Hedged Equity Fund (DXJ), a fund of the largest companies in Japan. There are 384 stocks in the index. Components and weightings include 6% in automaker Toyota, 4% in camera company Canon, and 3% each in automakers Honda and Nissan.   DXJ trades at 13 times trailing earnings, 0.5 times sales, and 1.2 times book value. (The U.S. is trading at 2.7 times book value.) Japanese stocks could easily double and still be cheaper than the U.S.

 

Steve recommended shares of DXJ in December 2012. His True Wealth subscribers are up 55%.

 

 The battle between deflation and inflation has been a dominant topic in the Digest over the past few weeks. That's because we believe understanding these two combating forces at work in today's markets is the single most important factor to your future success in the market.

 

As we've noted in the Digest, deflation is winning today. Europe is in a recession (not to mention Greece is on the verge of collapse), China is slowing down, and falling oil prices are crushing oil-producing nations.

 

Lower commodity prices and a soaring U.S. dollar are crushing emerging markets. We wouldn't be surprised to see the low oil price cause a crisis event in countries like Venezuela or Russia (where the ruble hit a record low against the dollar today).

 

 Of course, inflation and deflation are complex issues. And while deflation is winning today, the global economic slowdown is only giving central bankers more reasons to print money... Take the events we outlined in today's Digest as proof of that.

 

Steve has nailed the "investing script" since the subprime crisis... He correctly predicted the "Bernanke Asset Bubble" – the idea that bond purchases and super-low interest rates would send prices of all types of assets soaring. True Wealth subscribers made a fortune in real estate, health care, and biotech, to name a few...

 

Steve also correctly predicted the surge in Japanese and Chinese stocks. And in the latest issue of True Wealth, he updated subscribers on his investment script, predicting what you can expect from the market through 2017.

 

 In short, Steve believes stocks will soar through the end of 2016. He recommended a way to earn 11% a year in one of the world's strongest currencies.

 

But even more important than Steve's script is an understanding of why he believes stocks will soar through 2017 – the battle between inflation and deflation.

 

Luckily, our friend and currency expert Jim Rickards literally wrote the book on the topic, titled The Death of Money.

 

In it, Jim explains what inflation and deflation actually are... and why he thinks (as we do) that inflation will win out in the end. Plus, Jim agreed to write a special "bonus" chapter exclusively for Stansberry Research subscribers, where he lists his favorite assets to own as the world shifts to inflation.

 

If you haven't read The Death of Money yet, we can't recommend it highly enough. We bought tens of thousands of copies to give Stansberry Research subscribers for free. We just ask you pay $4.95 to cover the shipping and handling costs. You can get your copy right here.

 

 New 52-week highs (as of 12/12/14): Cempra (CEMP), Dollar General (DG), and ProShares Ultra 20+ Year Treasury Fund (UBT).

 

 In today's mailbag, a bit of praise for Porter and some of his bold calls. Have you profited from Porter or Steve's big-picture calls like the ones we discussed today? Let us know at feedback@stansberryresearch.com.

 

 "Porter, I wanted to express my thanks for all of the insight and knowledge you offer in your articles and I like it best when you get fired up and 'pound the table' about something (solar energy, Tesla cars, End of America, etc.). I have found your wisdom and information useful in many areas, not just financial.

 

"I would like to report on one of your recommendations, which now stands as my most profitable stock trade in the ten years I have been dabbling in stocks. Less than two years ago I was able to get a position of LNG at $20.25. I am not sure it was a good time or the right time to sell, but you have me nervous about energy markets and your blacklist totals, so I pulled the trigger on my position a few days ago and sold for $68.00. I may have left some cash on the table, and maybe I should have held the position, but I am very happy with my decision. Great recommendation and research! I just wish at the time I had bought Chicago Bridge and Iron too.

 

"Have you heard anything about Chevron and their new offshore oil platform they are building in the Aransas Pass, TX port, I think they call it 'Bigfoot', and is nearing completion and commissioning. Thank you and all your analysts, keep up the great work. Please tell Doc, my wife loves his Retirement Millionaire newsletter, mainly the life and health suggestions." – Paid-up subscriber A. Vincent May

 

Regards,

 

Sean Goldsmith

December 15, 2014