June 16, 2014
- Libyan oil offline, Iraq next: Real-time affirmation of a prescient Byron King warning
- The mystery of the GSRHACQN Portfolio
- These instruments helped bring on the Panic of 2008; some of them are now a good buy
- Many statues, few taxes: Chris Mayer in the plucky nation of Macedonia
- The hedge fund manager who’s got Detroit’s goat… yes, the Great Stock Shortage of 2014 is for real… last chance to cancel your subscriptions… and more!
Let’s see if we’ve got this right…
The U.S. government seeks to topple the Assad regime in Syria by funneling money and weapons to Sunni Islamist rebels. Some of those rebels are in league with the berserkers of the Islamic State of Iraq and Syria (ISIS). But that’s supposed to be OK, because if Assad goes, Iran loses a critical ally.
Meanwhile, the U.S. government simultaneously seeks to prop up the Maliki regime in Iraq — which is under threat from the berserkers of ISIS. The situation is so grave U.S. officials are thinking about acting in concert with Maliki’s most crucial ally — Iran.
It would be hilarious if so many people weren’t dying…
“Not long ago,” Byron King recalls, “several speakers at the Platts conference in London made favorable references to how Iraq would soon ramp up oil production and exports.
“This will serve to meet growing global oil demand and moderate prices in years to come. Right?
“Now I see imagery of Islamists chopping off the heads of captured Iraqi government soldiers. Thus, I began to discount that optimistic prediction by the speakers at Platts.”
“Looking elsewhere,” Byron goes on, “I’ve heard predictions that Libya will eventually get back to being a major world oil exporter.
“Then, at the Offshore Technology Conference in Houston last month, former Shell Oil CEO John Hofmeister pointed out that Libyan rebels have managed to seize and hold Libya’s oil exporting terminals. ‘Libyan forces possibly could retake those oil terminals,’ noted Hofmeister, ‘but to my understanding of chemistry, hydrocarbons don’t work well with exploding rocket grenades and tracer bullets.’
“In other words,” Byron clarifies, “if the Libyan troops attempt to retake the oil sites, Libya risks blowing up critical infrastructure, such that it will take years to rebuild, if that happens at all.”
As oil climbs past $107 this morning, Byron’s long-standing guidance — avoid energy companies with exposure to Middle East hot spots — is looking more prescient than ever.
The major U.S. stock indexes are in the green, however slightly, as a new week begins. As we write, the Dow is 10 points away from 16,800.
Traders are chewing on a flurry of merger-and-acquisition activity…
- Medical device maker Medtronic is buying its rival Covidien for $42.9 billion
- Level 3, a big telecom player, is acquiring TW Telecom for $7.3 billion
- In the tech sector, SanDisk is buying Fusion-io for $1.1 billion.
More on the last of those three momentarily…
“You probably haven’t heard of the ‘GSRHACQN Portfolio,’ writes our small-cap specialist Jonas Elmerraji. “And Goldman Sachs wants to keep it that way.”
Shrouded in mystery, these letters — GSRHACQN — are code to identify stocks the mega-firm thinks will be acquired in 2014.
“Deep inside the New York offices of investment banking giant Goldman Sachs,” writes Jonas, “there’s a team called Global Investment Research. Its job is to find the best investment opportunities for some of the world’s biggest and most successful hedge fund managers.
“No, you can’t buy GIR’s research.
“Each year, GIR puts out a list of stocks that they think are likely to get bought out in the year ahead. Fewer than a dozen names from all sorts of sectors and industries make their ‘high probability’ list.”
Late last winter, Jonas managed to get his hands on a copy of Global Investment Research’s latest GSRHACQN Portfolio report. It was there he learned about the aforementioned Fusion-io (FIO).
“The acquisition offer is good news overall,” Jonas wrote his subscribers this morning — “it means that our thesis for buying shares is playing out.
“But frankly, the acquisition price is far too cheap. I can’t fault SanDisk for trying to get a good deal on FIO, but I do fault Fusion-io’s board for agreeing to it.”
Already, there’s buzz another buyer might step in with a better price, so Jonas is urging his readers to hold on…
So far so good for the economy in June — based on two early readings out this morning…
- Empire State Manufacturing Survey: The Fed’s monthly gauge of manufacturing in New York state surprised to the upside, registering a four-year high of 19.3
- Housing Market Index: This sentiment survey from the National Association of Home Builders is up, although at 49 it’s still a hair below break-even.
“The real estate market is set for a recovery, but most investors refuse to see it,” says our income specialist Neil George — who’s spotted a resulting opportunity.
First, a flashback to the housing bubble. Remember mortgage-backed securities (MBSs)? “Smaller banks created the bonds using mortgages they’d made,” Neil reminds us, “and bigger banks scooped up the bonds, expecting to be paid from the mortgages’ interest and principal.”
Worked great, until it didn’t. But you know that part of the story: Banks made increasingly hinky loans, and when homebuyers defaulted, the value of many MBSs collapsed. “Thanks in part to MBSs, the real estate crisis spiraled into a banking crisis.”
The Federal Reserve has been buying MBSs periodically ever since. When Ben Bernanke first started talking about “tapering” those purchases a year ago, MBSs went into a mini-crash.
But the tapering has proceeded apace since December. “I think the market is now able to stand on its own, and MBS investors are in for windfall profits.” Recently, Neil showed Lifetime Income Report readers how to get a piece of the resurgent MBS market — with a double-digit yield, no less.
Gold popped in electronic trading overnight but gave it all back shortly before the Comex open in New York this morning.
At last check, the Midas metal sits where it did around this time on Friday — $1,275.
The thing that stands out about Macedonia is the statues everywhere.
Or so Chris Mayer emails us from his latest investment scouting trip, joined by a handful of his readers. “The number of statues became a running joke among our crew,” he writes. “Big, giant statues and lots of little statues.
“The largest, and signature piece, is the towering eight-story statue of Alexander the Great on horseback with his sword raised and his horse — named Bucephalus — on its hind legs.
As seen from Chris’ dinner table: Alexander the Great dominates the square
“I read that the government spent hundreds of millions of dollars giving the capital city a face-lift. One can’t help but question the wisdom of the giant statues, especially in such a poor country.”
Poor, but with potential. The Balkan nation — once part of Yugoslavia — has one of the lowest tax rates in Europe. “It has a 10% corporate tax rate,” Chris explains, “but only if you distribute those profits. If the business retains the earnings, the tax rate is 0%. There are other such tax incentives and goodies as Macedonia makes a push to bring businesses here. The personal income tax is also 10%.”
In the meantime, though, unemployment is a staggering 29%. And that’s the official figure.
Chris’ investing takeaway? Inconclusive. He’s more confident he’ll find bargains to scoop up on his next stop — Greece. Stay tuned…
[Ed. note: Only a few hours remain in which you can seize on one of our best package deals — delivering you every advisory newsletter we publish.
That includes Chris’ Capital & Crisis, Neil’s Lifetime Income Report, Jonas’ Penny Stock Fortunes and Byron’s Outstanding Investments. Plus Ray Blanco’s Technology Profits Confidential and Addison Wiggin’s Apogee Advisory.
All you need to do to take advantage is to cancel your current subscriptions.
Yes, that sounds counterintuitive. But you’ll understand once you give this a look. We urge you to do so quickly. The offer comes off the table tonight at midnight.]
Because the Detroit city fathers have solved all their other problems, they’re lowering the boom on goats.
From an article at Smithsonian’s website: “Hedge fund manager Mark Spitznagel recently tried to help clear up Detroit’s weed-infested lots by letting 18 goats tidy up the Brightmoor neighborhood in an urban farming experiment. The plan was to hire local residents to help at the farm and, eventually, to sell the goats, with the profits returning to the community.”
The locals loved the idea. “I’ve seen all of these houses burn down and disappear. It’s nice to see something different for a change,” said Jermaine Houser, who’s lived in the neighborhood for 24 years.
City Hall? Not so much. It evicted the goats for running afoul of a city ordinance forbidding the raising of wild or farm animals.
Because it makes too much sense…
Spitznagel isn’t giving up… but he does say for his next attempt, he’ll go through channels.
Ugh…
“As to the shortage of stocks,” a reader writes, circling back to a topic from last week. We cheekily called it “The Great Stock Shortage of 2014,” noting there are 44% fewer stocks today than in 1997… and 10% fewer outstanding shares of stock than in 2010.
We also took note of a survey revealing investors have the lowest percentage of their portfolios invested in stocks since at least 1959.
“I didn’t look up the number,” the reader goes on, “but I believe that there are more mutual funds and ETFs than there are stocks that they invest in. In ‘the study,’ my bet is that they either informed participants to not include mutual funds or 401(k)s or the respondents did not make a connection that they mutual funds own stocks or that their 401(k) invests in mutual funds that invest in stocks.
“I talk to people every day who would say that they don’t have any stock investments because they don’t have a brokerage account. But almost all of them have some sort of IRA or 401(k), or even direct ownership in a mutual fund — all of which are mostly stock based.
“Asking percent-of-portfolio questions of people who do not understand the meaning of the word ‘portfolio’ or understand that mutual funds hold stocks does not constitute a competent study.”
“I have to question your facts,” another reader adds.
“For the past three years, I have subscribed to a stock tracking program. That program was tracking just over 8,200 stocks when I began using this service three years ago, and today it is listing 8,257 stocks. The numbers you cite don’t add up. Please explore further.”
“I can’t tell you what your stock tracking program is showing you,” Paul Mampilly responds. “But I bet it counts ETFs as stocks, which they are not. ETFs are baskets of stocks.
“More ETFs do not create more stock for you to buy. Instead, more ETFs create more demand for stocks. Once again, an ETF is a basket of stocks. The U.S. market as of the end of 2013 had 1,294 ETFs listed, with nearly $1.7 trillion in assets under management.
“And our stock count didn’t come from polling. It came from the World Federation of Exchanges. This is a trade association of the world’s securities exchanges. These people know the difference between a stock and a 401(k) or a mutual fund. So there’s no doubting the underlying data or what they mean. Individual stocks are a scarce thing today.”
“I’m getting an email from you that says you want me to cancel all my subscriptions?” a perplexed reader inquires
“There’s a link to click, with promise of instructions. However, I’m pretty careful about what I click on, and this one just seems suspicious, especially since I haven’t seen anything about this ‘red alert’ in any of your other newsletters that contain ‘other’ typical news.
“Are you really putting this out? Is this trustworthy? And if you want me to cancel my subscriptions, why don’t you just cancel them and do ‘whatever’ from there?”
The 5: We assure you it’s for real. You can click on the link with confidence. But we can’t carry out the subscription cancellation without hearing from you first. Otherwise, you’d be even more perplexed, and so would a lot of your fellow readers…
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Final reminder: The cancellation offer is good only through midnight tonight.