Short Memories, Rare Opportunities

October 29, 2013

  • 2008? Ancient history!
  • $3.8 billion of mumbo jumbo… and a far better place to put your money
  • Three reasons the silver bull isn’t over yet
  • “Beyond astounding”: Byron King on America’s next great energy frontier
  • Britney Spears stops Somali pirates! (Um, maybe)… hanging separately… how Obamacare resembles the TSA… and more!

  “How can it be that just five years removed from an epic financial crisis,” exclaims Chris Mayer, “we are at it again with this kind of nonsense?”

The Wall Street Journal reports investors recently plowed $225 million into Pinterest — one of the few “social media” companies that hasn’t gone public yet. The CEO describes his site as “a service that everyone uses to inspire their future.”

“What a bunch of mumbo jumbo,” Chris grouses. “Yet this mumbo jumbo has a valuation of $3.8 billion. That’s absurd.” Especially for a firm that has no “meaningful revenue,” as the Journal delicately puts it.

  “The horses pulling the indexes are the most speculative of stocks,” Chris goes on.

As evidence, check out this chart from MacroView, revealing how “concept/social media” companies have outperformed your proverbial “widows and orphans” stocks since Aug. 1:

The chart — and the Pinterest news — only reinforced the impressions Chris came away with last week from the autumn Grant’s conference in New York.

  “There were fewer actionable ideas presented than ever, by my recollection,” he relates. “And I’ve been coming to this conference since 2004.

“The conference room was a Noah’s Ark of bearish personalities. I don’t mean the usual doom and gloomers who don’t ever make any money (except selling their garbage advice). I mean Seth Klarman of Baupost, one of the best investors on the planet. I mean Paul Singer at Elliott Management, who also has an eye-rubbing track record. I mean worriers of the caliber that are worth listening to.

“The market is frothy. It will end badly. That everyone seemed to agree on. Yet as to how and when, well, that was where the shrug came in.

“Klarman has half of his fund in cash. That’s $14 billion worth of cash. He’ll be giving back some to his investors at the end of the year. Dan Loeb’s excellent Third Point hedge fund also announced it would be giving back 10% of its assets to investors.

“These are wise investors with great track records. It is very unusual for a fund to give back money. Yet two of the best are doing it in the same year.”

For his part, Chris has pared the portfolio in his entry-level newsletter to a lean-and-mean seven names.

[Ed. Note: If you’re more speculative-minded and know better than to mess with social media stocks, Chris retains his enthusiasm for “Chaffee Royalty Programs.” They have the potential to perform far better than traditional stocks — often 300-500% higher.

The window of opportunity for these plays can close with little warning… so it behooves you to check them out while there’s still time.]

  Speaking of froth, the S&P 500 is inching further into record territory as we write — 1,767. All the major indexes are in the green, though not by much.

With the “partial government shutdown” over, the feds are catching up on economic numbers this morning. Meanwhile, the Federal Reserve’s Open Market Committee has begun the two-day meeting it conducts every six weeks. If there was any question about whether the Fed would “taper” its $85 billion a month in bond purchases, today’s numbers dispel those doubts handily…

  • Retail sales: Down 0.1% from August to September. But take out the “seasonal adjustments” and the drop was 9.1% — worse than any time since the recession. The 2001 recession, that is
  • Wholesale prices: Down 0.1% in September. The “expert consensus” was looking for a 0.6% increase. Just a slight difference. “Inflation at the producer level remains very soft,”
    Bloomberg sums up, “leaving the Fed plenty of room to keep quantitative easing in place”

Heck, Societe Generale said last week you can’t rule out the possibility the Fed might increase the pace of QE.

  Gold is losing ground, but not much. As we write, the bid is $1,344. Silver’s up a nickel, to $22.56.

  “The bull is alive and well,” says Casey Research’s Jeff Clark of silver.

“Check out the metal holdings of SLV (iShares Silver Trust) versus GLD (SPDR Gold Trust) year to date.

“SLV is down 28.1% year to date, and was off as much as 39% on June 27. Normally, you’d expect to see significant outflows of metal from the fund in such a downdraft — but that didn’t happen, in spite of the exodus that did occur in the major gold ETF, GLD.

“If the bull market in precious metals were over, one would think both funds would see massive selling and outflow of metal from the crash in prices.”

Mr. Clark also points to record silver imports by India… and something we’ve noted in our virtual pages, a pace of U.S. Silver Eagle sales that’s almost certain to set a record by year-end.

“If it were time to exit this industry,” he sums up, “we wouldn’t see SLV holders refusing to sell, Indians buying record amounts of silver and retail investors hoarding silver bullion at historic levels.”

  “It’s payday for cow farmers,” the newspaper reporter told our Byron King.

Byron lives in western Pennsylvania — right on top of the energy-rich Utica and Marcellus shale formations.

He recently attended a conference on energy development in the region. His conclusion: “According to a room full of geologists, lawyers, business executives, bankers, land-men, drillers, engineers, state regulators and more, the oil and gas resources of just these two rock formations are beyond astounding.

“In fact, here in western Pennsylvania, we may be sitting on one of the five largest energy plays in the world — smack in the middle of the old ‘Rust Belt’ of America! This new energy investment cycle will last for a century or more, while enriching countless households.

“Unless someone is close to the energy business, it can all be kind of hard to absorb. In fact, longtime Pittsburgh residents look at me funny when I say that the city — the region, really — is transforming into ‘Houston of the northeast.’ They just don’t get it.”

If public awareness still hasn’t caught on, that means there’s still time to get in on the investing opportunity. Byron shows you the way at this link.

 Maybe it’s the Tom Hanks effect. One of the news stories being bandied about the office this morning is about how Britney Spears’ music is supposed to be keeping the infamous Somali pirates at bay.

The British navy, the story goes, pumps out Spears’ hits “Oops!… I Did It Again” and “…Baby One More Time.” As merchant naval officer Rachel Owens explained to the tabloid Metro: “Her songs were chosen by the security team because they thought the pirates would hate them most. These guys can’t stand Western culture or music, making Britney’s hits perfect. As soon as the pirates get a blast of Britney, they move on as quickly as they can.”

Bane of Somali pirates everywhere? (photo by Wikimedia Commons contributor Glenn Francis)

It’s a good story — and well-timed, with the Captain Phillips movie out now. But at the risk of The 5 being a downer, we have serious doubts the 1990s-era Mouseketeer is keeping the shipping lanes off the Horn of Africa safe for commerce.

For perspective, we turn to the work of Thomas Mountain — one of the few Western reporters who lives in the Horn of Africa. He’s long claimed the Somali pirates were doing the bidding of Ethiopia’s strongman prime minister Meles Zenawi.

“After securing their ransom for the hijacked ships,” he wrote in 2009, “the Somali pirates head directly to their local safe havens, in this case, the Ethiopian military bases, where they make a sizeable contribution to the retirement accounts of the Ethiopian regime headed by Meles Zenawi.”

Zenawi died in August of last year. Wikipedia documents six major Somali pirate attacks since then. In the year and a half before Zenawi died, there were 31. Hmmm….

  “To the people who think that there is nothing in common with the tea party and Occupy Wall Street even on NSA spying,” a reader writes after yesterday’s episode, “let me remind them of another famous Franklin quote besides the one that starts ‘Those who would give up essential liberty…’

“It goes like this: ‘If we do not hang together, we shall surely hang separately.'”

  “I guess we should thank your readers who have given you a hard time for criticizing the so-called Affordable Care Act,” writes another, “and the single-payer ‘fix’ that will follow its failure. They remind us that Big Government proves us libertarians right every day. Does Big Government guarantee (amongst other things) waste and corruption? Yes, and it consistently delivers on that promise.

“We should not be surprised that the website sucks and is overpriced. Health care costs themselves have been inflated greatly thanks to government meddling (direct and indirect) in health care; that started long before Obama. Government drives up the costs in (apparently) must-meddle markets like education and housing, too. If we ever went with the free market, I would not be surprised to see prices in many areas of health care drop by 80%, so I am unimpressed by promises that costs will eventually be cut in half once we give ourselves over completely to the communist utopian single-payer system.

“‘Single-payer’ itself is another euphemism. Another lie. Unless Warren Buffett is going to be the only one filing a 1040 and the rest of us are going to be on the dole, there are going to be lots of payers. Do I even need to make comparisons to the ‘free’ education my kid is getting?

“But even if that promise about keeping your plan and your doctor hadn’t turned out to be a lie, even if everyone’s premiums went down and even if the website worked seamlessly and was worth every penny, that would be beside the point. The point is you are either for freedom or you are not. We pesky libertarians — whose philosophy is proved right every day, every nanosecond, I guess we should say, what with the NSA spying on us and all — we libertarians believe the USA is supposed to be a free country; that is its sole purpose.

“That means the people are free, not the stuff. If you are OK with a little bit of slavery, a little bit of fascism for a noble cause, sure, why not a little more? Why not cheer the passage of the most fascist thing to come out of Washington, D.C., since the war on drugs? Who cares if it was designed to fail, or that it was merely guaranteed to be a disaster, as all government ‘solutions’ are? Slaves, rejoice! This fascism is merely transitional. Soon our masters will ride in on their horses with the next grand solution — the final solution: a more perfect, cost-effective oppression for all.”

  “It would interesting to me,” writes our final correspondent, “to see the screening process, eligibility standards and educational backgrounds of the so called ‘navigators’ out there giving advice on Obamacare.

“Why do I have a sinking feeling that we are looking at another TSA caper?”

The 5: That’s a brilliant observation, and not only because your editor’s bride made the same observation the other day.

Turns out a “navigator” in Lawrence, Kan., had an outstanding warrant… owed back taxes… once faced a civil charge for writing a bad check… and had a 2003 bankruptcy.

Just who you want to trust with your personal financial data, right?

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. You can barely swing a cat today without running into headlines about people who buy health insurance on the individual market getting cancellation notices. And what’s more, the administration knew that as many as 75% of such customers would face that fate.

So much for “If you like your plan, you can keep it.”

Not that it stopped the White House from doubling down as late as last night…

Before Obamacare serves up its next nasty surprise, make sure you’ve done everything you can to protect yourself.

rspertzel

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