Time-Travel Investing

  • How you could have bought Microsoft in 2003… at 1995 prices
  • Triple- and quadruple-digit gains with blue chips trading as penny stocks
  • Data gods leave a lump of coal in the Fed’s stocking
  • The Coming China Wars: Team Trump’s self-fulfilling prophecy?
  • VW owners get their revenge (and a little extra scratch)… college for everyone (or not)… the VAT debate, continued… and more!

During a week when the Dow industrials are flirting with 20,000, it’s tempting to think about missed opportunities.
The Big Board has more than tripled from its lows in March 2009. Some of the Dow’s component stocks have performed even stronger. Microsoft has quadrupled since that time.
Wouldn’t you love to turn the clock back and collect the big gains that were possible then?
As a matter of fact, it’s possible to turn the clock even further back… and generate even better performance
“Back in 2003, Microsoft offered investors a unique opportunity,” says our small-cap specialist Louis Basenese.
“The company secretly ‘re-listed’ a small group of ultra-low-priced shares on a separate stock exchange. The vast majority of investors didn’t know this happened. But those who did were able to buy shares of the giant tech for just $5.60.”
Louis says the last time MSFT shares were that cheap was 1995 — the year people were lining up for shrink-wrapped boxes of Windows 95 and the most lucrative part of the dot-com boom/bubble was just getting started.
“Anyone who was savvy enough to get in on this opportunity would have locked in an incredible 1,040% gain,” he says. “That’s a 10-fold increase over regular Microsoft shares.
“Essentially, these investors were able to turn back the hands of time and purchase Microsoft for pennies on the dollar — and profit handsomely as a result.”
Another example: Coca-Cola in 2000. “The soft-drink giant gave investors the opportunity to get in on a rare set of penny shares for just $1.82 a share,” Louis says.
At the time, KO’s regular shares were trading for around $30. The last time it was trading as low as $1.82 was 1986 — two years before Warren Buffett made his now-famous investment in the company!
Here too the results paid off handsomely: “The vast majority of investors didn’t have a clue,” says Louis. “But those who did could have secured a 769% profit on Coke’s penny share offering.”

History Repeats

Examples abound of these opportunities to turn back the clock and generate epic gains on blue chip shares — years after most people thought the “easy money” was already made. You just have to look in the right place.
Or you can have Louis do the looking for you. Wall Street does its best to keep these opportunities a closely held secret… but as a recovering Street pro, Louis doesn’t think that’s very fair. He’s spotted four of these “secret penny stocks” ripe for the picking. Learn more about how you can get in on them today when you follow this link.
Barring something unexpected, today won’t be the day for Dow 20,000 either.
Yesterday was a modest down day, and so far that’s how today is shaping up too. At last check, the Big Board has shed 24 points, to 19,918. The rest of the major indexes are also down modestly.
Gold is hanging in there at $1,132. Crude is up 1%, to $53.06.
Apart from a boatload of economic numbers — more on that shortly — the Street chatter is about the increasing likelihood the Italian government will have to bail out that country’s third-largest bank, Monte dei Paschi. And in other news, Generalissimo Francisco Franco is still dead.
From where the Federal Reserve sits, inflation is once again moving in the wrong direction.
This morning, the Commerce Department issued its reading of “core PCE” — the Fed’s favorite measure of inflation. When the Fed talks about its 2% inflation target, it’s core PCE they’re talking about.
After three months in the 1.7% area, core PCE has retreated to 1.6%.

No What Fed Wants

No, it’s too soon to say the Fed is already dialing back its plans for three interest rate increases next year. But if that’s what eventually happens, today’s number is the first signpost on that route.
Meanwhile, another reliable recession predictor says we’re still in the clear.
Yesterday, we took note of the Philadelphia Fed state coincident index. Today it’s the Chicago Fed National Activity Index. Both have a long history of foreshadowing recessions.
The Chicago Fed number is a composite of 85 economic indicators. The three-month moving average clocks in this morning at minus 0.14. That’s “below-trend” economic growth… but nowhere near the minus 0.70 recession warning.
In other economic figures…

  • Leading economic indicators: Pancake-flat, says the Conference Board. Building permits and factory activity are the big drags among the 10 indicators here
  • Durable goods orders: Down 4.6% in November, says the Commerce Department. And the number would have been far worse without a hefty order for military goods from Uncle Sam. The year-over-year change works out to minus 1.9%
  • Third-quarter GDP: The Commerce Department’s third and final guess is an annualized 3.5% increase — driven mostly by consumer spending.

Still other figures reveal the mighty American consumer spending out of an empty pocket in November. Personal incomes were flat, while consumer spending grew 0.2%. That dragged the savings rate down two-tenths of a percentage point, to 5.5%.
In case there was any doubt about the president-elect’s intentions as far as China and trade… he’s forming a new trade bureaucracy and putting a fierce China critic in charge of it.
This body will be called the National Trade Council — sorta has an early 20th-century vibe to it — and its director will be Peter Navarro, an economist at the University of California-Irvine who’s written books with titles like The Coming China Wars and Death by China.
The U.S.-China story isn’t just about cheap imported goods and lost manufacturing jobs: “China’s capital and currency markets are on a collision course with the U.S., and, by extension, the entire world,” Jim Rickards wrote his Currency Wars Alert readers two days ago.
An appointment like that of Navarro only makes that collision more likely. This is one of the major themes we’ll be following in the opening weeks of 2017. The implications for your investments will be far-reaching. Stay tuned…
It was fun while it lasted, but it’s safe to say we’ve reached “Peak Auto” for the post-Panic of 2008 era.
The Big Three Detroit automakers say they will idle some of their factories during January — in some cases, for as long as three weeks. Downtime during the holidays is typical, “but shutting factories for multiple weeks in January is unusual,” says this morning’s Wall Street Journal.
Some of that is the result of Detroit overproducing sedans and minivans at a time when gasoline is relatively inexpensive and consumers would rather splurge on SUVs.
But on the other hand, auto sales are now at the same levels they were before the Panic of 2008, and we’ve been saying for months that nearly everyone who’s wanted to buy a vehicle in recent years has done so by now. “It’s certainly plateauing,” affirms Scott James, president of a dealership chain with locations in three states. “It can’t keep going strong forever.”
Meanwhile, Volkswagen will fork over another $1 billion to repurchase or fix still more diesel cars with emissions-control software that was jimmied to evade the pollution rules.
A court settlement reached this week affects 83,000 vehicles with 3-liter engines. That’s on top of a settlement last June affecting 475,000 vehicles with 2-liter engines costing $14.7 billion. Heck, what’s another billion this week?
The funny thing is what’s happening to many of these cars when people decide to unload them back on VW.
Under the June court settlement, the only requirement of the car owner is that the vehicle be “operable” — that is, it can be driven under its own power.
In other words, you can strip it for parts.

“Quite a few Volkswagen owners, many of whom I’d place squarely in the ‘disgruntled’ category, see this as an opportunity to get back at Volkswagen by turning in a fully gutted s***box, while others just see it as a way to make some extra cash,” writes David Tracy at the auto site Jalopnik.
Tracy tracked down one guy on Reddit who even stripped the front fascia off his Golf. The poster said he “still got paid with no issues.”
“Will they buy back just the carcass with the powertrain in it?” Tracy muses. “I’m not sure, but the terms in the settlement definitely don’t rule out the possibility.”
“About the engineer who learned more in his first 30 days on the job,” a reader writes: “No one ever said that college/university was for everyone.
“There are certainly some people going to college today just to delay going to work for a living, or to avoid going into the military in times of war or for whatever reason except to get a further education. Those people will not benefit at all from spending the time, money and effort to go to college.
“However, think about doctors — medical doctors, veterinarian doctors, psychiatric doctors — as a group. Do they learn things in college that you really don’t want them learning on the job? Of course, they do. Even engineers.
“Those who have the final responsibility for building structures or systems that people will end up entrusting their lives on — do they really learn enough through OJT to earn even your trust? Or would you prefer someone who studied peripheral sciences, such as chemistry, calculus, physics, etc., and can now apply those to what they also learned OJT?
“In short, some of us do learn things in college that support our experience, and we do need to spend the time, money and effort to gain. Others do not need a well-rounded education to support their experience and can well afford not to spend those dollars, those years, learning. College is not for everyone, and it should not be, but it is for some, and that’s the way it should be.”
The 5: An entire book can be written — and should be — about how business sloughed off the costs of training its employees on the university system.
The mentality has become so entrenched that a couple of years ago, Wisconsin Gov. Scott Walker proposed changing the University of Wisconsin’s century-old mission statement about improving “the human condition” and “the search for truth” — substituting the more prosaic goal of meeting “the state’s workforce needs.”
Walker backed off quickly — folks in the Badger State are rather fond of “the Wisconsin Idea” — but all he was doing was affirming the reality of a crony-capitalist system under which a college education is a glorified job-training program, rather than a way to absorb new ideas and broaden one’s horizons.
“Haha, I guess that Canadian likes the VAT,” writes a reader on the value-added tax.
“I am a Canadian and I pay VAT on almost everything I buy. I don’t like it so much. I think it is a drain on the economy. That is 5% that could be spent stimulating the economy rather than buying government pork. They claim it is roughly the same and replaced all kinds of manufacturing taxes; I am not so sure.”
“How about a 10% federal VAT to fund basic health care?” writes an American reader.
“Employers would no longer pay for health care, allowing them to sell their products cheaper and hire more workers. Everyone would be covered without having to come up with a premium each month. Imports would share the burden of health care. Those who want more than basic care buy private insurance. Of course, cost controls would be needed.”
The 5: How about we collapse costs by breaking the grip of the health-care cartel before imposing some new tax? A radical thought, I know…
Best regards,
Dave Gonigam
The 5 Min. Forecast
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Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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