Why Trump's Plans Won't Save Us

 
Trump won.
 
Some people are happy. Some people are acting like someone shot their dog. What happens now?
 
Well, my answer flies in the face of virtually every modern economist and pundit on CNBC…
 
Virtually everyone believes that government spending and/or tax cuts will have a powerfully positive effect on our economy.
 
The people cheering believe that Trump's wall (his announced infrastructure spending), his tax cuts, and his estimated $6 trillion budget deficit over four years will create winners in the stock market and wealth for our nation.
 
In some limited ways, that will prove to be true. The Pentagon, for example, is the world's largest consumer. It buys more oil than any other entity. And if Trump builds a wall across our southern border, he's going to buy a lot of steel.
 
But in other, far more important ways, the idea that government spending and government debt is a positive force in the economy is completely wrong. Fatally wrong
 
As longtime readers know, I believe we're approaching an important new credit-default cycle, which will create the greatest legal transfer of wealth in history. Investors in highly leveraged equities will be wiped out… But investors who can anticipate this massive wave of corporate defaults will make a fortune. And that's my goal – to help you understand why this cycle is inevitable, so you can position yourself to profit from these events.
 
I want to make sure you understand… no matter who is president, no matter which party is in power… the only thing our government can do about a credit crisis is make it worse.
 
You only need to understand two economic ideas to see through the media and know what's really going to happen next.
 
The first concept is easy: It's the declining marginal utility of debt.
 
This won't surprise anyone who has ever owned a business or used a credit card. At first, small amounts of debt create large percentage changes in spending and investment. But, as debts add assets and matching liabilities to your balance sheet, additional debts make a smaller and smaller percentage change in growth.
 
And as your debts (like our government's) tally toward $20 trillion (or more than 100% of GDP), the marginal utility of additional debt can actually become negative.
 
Just look at the following chart. We've taken actual U.S. GDP (the total production of our economy each year) and divided it by total public debt. You can see, as spending and debts grew over time, each dollar of additional debt led to less and less growth in GDP…
 
This isn't controversial or surprising. Mainstream economists tend to ignore the marginal utility of debt… But they don't deny it's true.
 
What follows, however, is extremely controversial.
 
A growing number of academic economists have found that contrary to all conventional Keynesian economic theory, government deficit spending where debt-to-GDP is already more than 70% actually hurts the economy over time. Here's economist Lacy Hunt…
 
Based on academic research, the best evidence suggests the [government expenditure] multiplier is -0.01, which means that an additional dollar of deficit spending will reduce private GDP by $1.01, resulting in a one-cent decline in real GDP.
 
The deficit spending provides a transitory boost to economic activity, but the initial effect is more than reversed in time. Within no more than three years the economy is worse off on a net basis.

While Trump's wall-building and tax cuts can temporarily boost GDP, within three years, the net impact of his spending will cut into GDP at a rate roughly equal to 1% of total government spending. This is completely counterintuitive.
 
Despite the large number of different academic studies that prove a negative government-spending multiplier exists across multiple countries and time periods, many people can't accept the idea.
 
But look at how government spending has changed over time. Hunt points out that since the early 1970s, "mandatory" government spending (on social programs like Medicare and Social Security) has grown from being roughly 50/50 with discretionary government spending (like the Pentagon) to being almost 70% of government spending. The point is, these kinds of transfer payments can't produce any wealth. They're simply a redistribution of income that's being produced elsewhere in our economy.
 
An even more fundamental explanation… research shows that a negative multiplier only exists when we have a large public debt burden – more than 70% of GDP, according to most studies.
 
Studies also suggest that the negative multiplier increases with debt load, but in a non-linear way. This can only be explained by the Austrian School of Economics ideas about game theory (as we discussed yesterday): As individuals in an economy begin to fear a monetary collapse, they act in ways that disrupt things even more – like buying gold, fleeing a currency, or simply withdrawing from the legal economy.
 
When you put these ideas together – the declining marginal utility of additional government debt, the negative multiplier of government spending, and the non-linear impact of massive government debt burdens – it's hard to believe that the president can do anything to alter the course of our ongoing credit-default cycle. The only prediction that's consistent with sound economic theory is that the government is going to make this default cycle a lot worse.
 
Or… to summarize… it's not likely that a government that's facing its own $20 trillion debt burden is going to be able to do much to help the unwinding of $1 trillion to $2 trillion in private obligations over the next three to five years.
 
Regards,
 
Porter Stansberry
 
Editor's note: Tomorrow night, Porter is hosting a free live event where he'll lay out exactly how to make the biggest gains betting against the biggest and most indebted companies in America. He believes gains of 20-30 times your money are possible in some of these names. Reserve your spot here.

Source: DailyWealth

This Is by Far the Most Powerful Force in the Stock Market

 
What really causes the most powerful changes in the financial markets?
 
Trust me, it's not about lines on a chart or earnings announcements in the media.
 
What I'm going to teach you today is just common sense dressed up in a lot of financial jargon. After reading this, I bet that for the first time ever, you won't feel anxious about what might happen to your savings. Instead, you'll be excited about what's going to happen next… because you'll know why it's going to happen.
 
What are we talking about? What is the big underlying force that moves the market forward or causes it to collapse? The answer won't surprise you…
 
A very old school of economic thought – known as the Austrian School of Economics – teaches these concepts.
 
Many of its theories have proven to be extremely powerful. For example, the Austrian School led to the discovery of "game theory," an understanding of human decision-making that guided policy during the Cold War. One Austrian School thinker, Friedrich Hayek, won the Nobel Prize in Economics for his idea that money serves as the primary means of communication in an economy.
 
You don't need to become an Austrian economist to understand two of the most important foundations of their theories…
 
One: The economy can't be understood (or predicted) by the study of groups. It is individuals, making individual decisions to maximize their own utility, that will guide the collective… not the other way around.
 
Now, I know that sounds pretty obvious… But it isn't obvious to government economists, Marxists, or Socialists. Many people around the world continue to believe in policies that try to control or exploit groups without considering the obvious negative implications for the individual.
 
A classic example: when states like Maryland try to increase the rate of income taxes on the rich, only to discover that the amount they collect decreases because individuals simply move rather than let themselves be targeted and treated unfairly.
 
Two: Inflation can't be accurately measured by price indexes. It can only be measured at its root – because all inflation is caused by creating money and credit in excess of savings.
 
This is simple common sense dressed up with math and theory…
 
An individual doesn't enrich himself by borrowing capital. He can only enrich himself by carefully increasing his utility (his skills), saving his excess production, and investing that capital wisely to further increase his production. Nothing could be true of a national economy that isn't also true for the individual.
 
But consider our policies over the past decade… or four decades. Has the United States of America worked diligently to increase its national production? Have we carefully saved our excess capital and invested wisely in further increases to production?
 
No.
 
Instead, every downturn in our economy has been met with more printing and borrowing… until finally the numbers are downright insane.
 
This, the Austrians would teach us, is a recipe for a massive inflationary boom. And we've seen it. The trouble is, the Austrians also teach us that either the inflation must recede to the economy's natural level of savings, or even greater amounts of inflation will be required to sustain the boom. In other words, the boom will eventually peter out, as demand cannot be sustained enough to keep it going.
 
Therefore, it was always only a matter of time before production began to wane… before profits began to recede… and before loans began to sour. And now, it is only a matter of time before a new panic emerges… as every individual tries to salvage whatever remains of the unsustainable boom.
 
OK, enough theory… Let me show you a case study of exactly how this Austrian theory plays out in a real industry.
 
The U.S. auto industry has been a primary beneficiary of the current inflation. As you'll remember, the government spent more than $80 billion to bail out one of the automakers alone – General Motors (GM). It also made guarantees to major banks and finance companies that allowed lending in the sector to grow massively.
 
The result was predictable. We've seen an unprecedented boom in auto sales. And as the cycle aged, auto sellers had to find more and more buyers. That meant loaning to folks who can't actually afford a car. Subprime lending soared in 2013 and 2014. Those loans have started to go bad at a shocking rate. (At least, it's shocking to most people. It seemed inevitable to us, as we warned in 2014.)
 
Most investors don't realize that the entire car-rental business is basically a giant leveraged bet on the value of used cars. That bet is failing. As we explained last month in my flagship newsletter, Stansberry's Investment Advisory
 
Since 2010, Avis and Hertz have spent more than $110 billion on new-car purchases. Meanwhile, their used-car sales generated $85 billion. That's a net cash shortfall of $25 billion…
Where did all of that capital come from? Debt, of course. And as the Austrian economists will tell you… the big problem with debt-led expansions is that nobody ever wants to pay the money back…
 
Of the $30 billion in debt these companies owe, more than 40% of it – $12.6 billion – is due before the end of 2018. That's a mountain of debt for these companies. But it gets even worse when you study their company filings.
 

Avis and Hertz have committed to purchase another $13 billion next year from the major auto manufacturers. So that's an additional $13 billion that has to be raised next year… and paid for by approximately 2020.

As long as the amount of money and credit being pumped into the auto industry is growing, car-rental companies can grow their fleets and keep buying new cars. But the moment the credit spigot gets turned off, they have a big problem. In the first place, when lenders start repossessing cars, used-car prices will collapse.
 
And man oh man, have car loans started to go bad.
 
Last month, credit-ratings agency Fitch shocked the market by reporting that losses on securitized car loans soared 27% over the last year.
 
Fitch now expects capital losses on these loans to exceed 10% of loan values by the end of this year. That will exceed the losses seen during the crisis of 2009. And this is just the beginning. Keep in mind, we predicted this would happen in 2014. We first traded on it in 2015. And we've traded on it successfully again this year – we recommended shorting both Hertz Global (HTZ) and Avis Budget (CAR), a move which led to huge profits in only a month.
 
We didn't get "lucky"… We didn't find a needle in the haystack. We followed a well-known principle of economics. We followed the debt and inflation cycle in the auto industry. We simply connected the obvious dots, and we profitably shorted the weakest and most vulnerable businesses.
 
The principles driving the market today are not new. And these credit trends are by far the most powerful force in the stock market. Ironically, however, they're largely invisible to virtually all investors – even the most sophisticated.
 
Instead of getting hurt by changes you never saw coming in the credit markets… use this knowledge. When you understand what's really driving these market movements, and what comes next… you'll find yourself with the confidence to protect your wealth, and even profit, in the months and years to come.
 
Regards,
 
Porter Stansberry
 
Editor's note: On Wednesday, Porter is hosting a free webinar where he'll show you how to protect yourself – and even profit – from the inevitable crisis he sees coming. Can you afford to miss it? We don't think so. Reserve your spot by clicking here.

Source: DailyWealth

Answer These Three Questions to Rate Your Broker

 
In native cultures, medicine men wield power because their communities believe they have magical powers.
 
To reinforce their mystique, these crafty connivers invent words and phrases that their followers can't understand. The idea is something like: "If you don't understand what I'm saying, how can you doubt my power?"
 
Modern-world medicine men – doctors, lawyers, and, yes, brokers – sometimes do the same thing. Like their primitive predecessors, they often wield power over their clients by verbally intimidating them.
 
Many people (consciously or not) put their brokers on pedestals of reverence. As a result, they are reluctant to question the advice they get, or worse, they feel compelled to follow it out of some sense of submissive gratitude.
 
The truth is that brokers are nothing more than tradesmen. They have knowledge and skills that they sell. To earn their fees, they must work hard and well for you.
 
So starting today, I want you to change the way you think about your broker. Promise yourself that you will not let him bully you – that you will actively and consciously be the boss. Rather than think "Gee, he's such an expert," think "I am paying this guy good money. If he doesn't prove to me that he is an expert, I will fire him."
 
And when you get advice, instead of thinking "I had better do what he says," think, "This guy may know his field, but he doesn't know me. I am the best and sole judge of what is best for me. Only I am qualified to decide what I should do."
 
It starts with these three questions…
 
1.  Does he give you advice that is easy to understand?
A good professional feels obliged to communicate clearly with his clients. That means translating the arcane language of his profession into advice that can be readily understood.
 
You can determine whether your broker has a commitment to communication by asking yourself:
 
Do I feel like I spend enough time with him? Or do I feel like he is usually busy and I'm taking up his precious time?
 
When he sends me documents, does he often attach a cover letter that explains, in layman's terms, what the documents say?
 
Do I frequently feel lost or confused when he gives me advice? (This should rarely happen. And when it does, you should feel free to ask questions and get clear, understandable answers.)
 
2.   Does he understand and care about your concerns and needs?
A good professional doesn't treat all his clients exactly the same. He understands that each client has his own specific concerns, worries, problems, and needs. A good professional takes time to understand this and tailors his advice accordingly.
 
If you feel like you are getting cookie-cutter advice from your broker – or if you feel like he doesn't really care who you are – he is not doing his job.
 
3.  Does he make you feel like you are in charge?
A good professional relationship is one where the client is the boss and feels like the boss. You should be able to figure out how you feel about your broker instantly.
 
If you don't feel in charge, you aren't. If you don't feel you can speak frankly about any fears and concerns you have, you are not in charge. If you don't feel free to criticize him, you are not in charge.
 
Here's what you need to understand: The only way you can feel like the boss is if your broker feels like you are the boss. If he doesn't – if he thinks you are just another schmuck who needs his help – you will never be in charge.
 
How do you feel about your broker now? Are you feeling upset? Are you realizing that you're getting less from him than you deserve?
 
If so, here's what I suggest…
 
Call or e-mail your broker and tell him you want to have a 15-minute meeting about your "professional relationship." If he asks why, say that you want to talk about whether the value you're getting is worth the money you're paying.
 
If he refuses to have the meeting, you don't need to put another thought into it. He isn't doing his job. Get rid of him.
 
If he does give you a meeting, go in prepared. In a few sentences, tell him exactly how and why you are dissatisfied. Don't be judgmental. Express your concerns as statements of your future expectations. Don't say, "You talk in an intimidating way." Say, "I want crystal-clear explanations of all your advice and full and clear answers to all my questions. Can you provide me with that?"
 
That's all you have to do. If you end up "firing" him, don't spend a moment regretting it. Just go out and find someone better. You can do that by interviewing a few different ones and list your expectations and ask if he can meet them.
 
Be the boss. It's your money.
 
Regards,
 
Mark Ford
 
Editor's note: Mark has been writing about the "crafty connivers" in the financial industry for years. It's just one facet of his full wealth-building system. He and his team at the Palm Beach Research Group recently launched a program to teach people everything from preserving money to the fastest way to earn a fortune in America. Learn more here.
 

Source: DailyWealth

Stocks Soar When Republicans Control It All

 
Starting in 2017, the Republican Party will hold the big trifecta…
 
The Republicans will control the Senate, the House of Representatives, and the Presidency.
 
This is an incredibly unusual event… It has only happened twice going back to 1950. (Once for two years, and once for four years.)
 
So what does it mean for the markets?
 
I didn't know. So I crunched the numbers to find out.
 
The answer was shocking…
 
The conventional wisdom is that "a house divided" works out best for the stock market. The general thinking is that "gridlock in Washington is good."
 
If different parties have "control" over Congress and the Presidency, then not much gets done. In theory, that's good for Wall Street – fewer laws are passed to regulate businesses.
 
I get it. But the numbers tell a different story…
 
Surprisingly, the "trifecta" trumps "the conventional wisdom."
 
Here are the actual stock market returns when Republicans controlled the Presidency, the Senate, and the House…
 
Returns During the Republican Trifecta
Years
Return
1953-1954
35.8%
2003-2006
61.2%
These returns are extremely high. That's a 14% compound annual gain! (And these are only price returns – they don't include dividends.)
 
It's not just Republicans…
 
When the Democrats control all three, stock prices perform better than when there is no trifecta. A Democratic trifecta beats "buy and hold." And it beats the conventional wisdom that bipartisan control is good for stocks.
 
Stock returns in a Democratic trifecta aren't nearly as high as they are in a Republican trifecta, based on history… But keep in mind, we're dealing with a small number of occurrences for the Republicans.
 
So how does this affect us today?
 
Investors are now filled with fear and panic… What's going to happen? What's Donald Trump going to do as president?
 
The message from history is this: Don't worry so much about it.
 
The bigger story is the Republican trifecta.
 
Stocks have performed incredibly well under a Republican trifecta. The last time around (from 2003 to 2006), stocks didn't have a single losing year. In five out of the six years that we've seen a Republican trifecta, stocks have only lost money once (in 1953).
 
Today's headlines are all about Trump. But the bigger story is about the Republican trifecta. Using history as our guide, you don't need to worry so much…
 
Good investing,
 

Steve

 

Source: DailyWealth

Buy These Companies and Ignore the Noise

 
Former presidential candidate Mitt Romney responded to a heckler on a warm August day five years ago at the Iowa State Fair…
 
"Corporations are people, my friend…"
 
The press and his opponents ridiculed him for the statement throughout the election. But as he said then…
 
"Everything corporations earn ultimately goes to people. Where do you think it goes?"
 
Behind every investment we make in a company, there is a real business – with real people making decisions and products. Another set of people is deciding what to buy. And the success of your investment depends on the decisions that those folks make.
 
Too often, investors get caught up in macroeconomic trends and the drama of interest rates. It's easy to see why… This election cycle, we have presidential candidates promising to bring jobs to this country – never mind the fact that they have no power to do so.
 
It's no surprise that we've lost sight of what drives the economy. The only forces that can bring jobs… increase economic growth… and provide long-term prosperity for America… are businesses.
 
And behind those businesses are people…
 
At Income Intelligence, we use several tools – like our Income Triggers, portfolio theory, and economic data like interest rates and job reports – to give ourselves an edge. But in the end, you can't earn a dollar unless you have a business that consistently earns money.
 
Every asset – like a stock or bond – owes its growth, dividends, and interest payments to a management team operating in a competitive market for customers.
 
Investors love the story of a breakthrough product that will revolutionize the industry – even though most of those products fall flat. Investors love the discovery of a big gold deposit or a secret government decision that will send billions into a particular industry.
 
But it's far easier to be a great business by simply selling people a product they like… over and over again… for a good profit. And the long-term returns such a business can bring in are incredible.
 
The proof is in the brand…
 
The purpose of building a brand is to differentiate your product so you can charge a premium price.
 
Customers will pay more because they trust a brand to deliver a quality product. For example, while a generic bottle of bleach and a bottle of Clorox (CLX) are chemically identical, Clorox manages to charge about 60% more than the no-name brand.
 
In other cases, the brand is the entire product. Customers will buy clothing solely to display the label.
 
Every business would love to have the power of a strong brand… But developing one is difficult and expensive.
 
You either need to provide a high-quality product for many years or spend millions on marketing to make any headway into the saturated markets competing for consumer attention. Again, most attempts to build a new brand fail.
 
But once you've built a trusted brand, you have a license to sell more products at higher margins than your competitors. Strong brands encourage customer loyalty and boost margins. The concept of branding can be an investment thesis on its own.
 
You can look for these kinds of businesses with minimal analysis of macroeconomic trends… and with no concern for whatever the Federal Reserve or central banks around the world may do with interest rates or monetary policy in the coming months.
 
It's exactly how you should always be thinking of investing.
 
Here's to our health, wealth, and a great retirement,
 

Dr. David Eifrig

 
Editor's note: Doc recently told his Income Intelligence readers about a company with a strong brand and a rapidly growing dividend. Get access to this recommendation with a risk-free trial subscription by clicking here.

Source: DailyWealth

The Simplest Possible Way to Understand Investing

 
Stop making it so complicated!
 
A friend said to me yesterday, "I was thinking about selling stocks now – ahead of the election – and then buying them back afterward."
 
Hey, that's fine, whatever makes him happy. But that's not an investing strategy… that's a speculation. It's not based on an understanding of the markets.
 
Today, I want to show you the simplest possible way to understand investing. And I promise, just about everything you need to know about the stock market is contained in what I'll share with you today.
 
Let me explain…
 
Remember playing the game "four square" as a kid?
 
It was the perfect elementary-school game… You didn't need much: a ball and, well, something to draw four squares to be your playing court. It looked something like this:
 
   
   
Today, I'll show you my schoolyard "four square" investment model.
 
You just need to know the answer to two things:
 
1.   Is the stock market cheap or expensive?
2.   Is the stock market in an uptrend or a downtrend?
We can build our own four square court based on these two things. Take a look…
 
The top-right square is good… That's when stocks are cheap and in an uptrend.
 
The bottom-left square is bad… That is when stocks are expensive and in a downtrend.
 
Let's take a look at the actual historical record on our four squares, going back to 1900…
 
What do you see?
 
It's interesting… You make money in three out of the four states of the market.
 
When do you lose money? When stocks are in the bottom-left square… When they are both expensive AND in a downtrend.
 
Where are we now? Today, stocks are in the bottom-right square, based on this model… They are expensive, but they're still in an uptrend.
 
These numbers cover the time frame from 1900 to 2013 – so it's a long study. (The work was done by my friend Meb Faber and economist John Hussman. You can see the specifics here.)
 
Even after eight straight down days, we are actually still in an uptrend in the stock market. That's because this study only looks at long-term trends. The eight-day fall wasn't enough to break the long-term uptrend in stocks.
 
We are still in the bottom-right corner of the four squares. Based on history, stocks still do extremely well in this corner. Why? Uptrends are POWERFUL. We are still in one.
 
If the uptrend turns into a downtrend, then it's time to seriously worry. That's the only time that stocks tend to lose money.
 
We are not there yet.
 
Good investing,
 
Steve
 

Source: DailyWealth

Eight Straight Down Days… Here's What Happens Next

 
U.S. stocks have fallen for eight straight days in a row…
 
This is an incredibly rare occurrence. It has only happened five times in the last 35 years.
 
So… what happens next? What should we expect?
 
Is eight straight down days an ominous sign? Is it just the beginning of a major downtrend in stocks?
 
Or is eight straight down days the complete exhaustion of a downtrend? Is it the bottom? Should stocks go up from here?
 
The reality is interesting…
 
Going back to 1982, we have had eight down days in a row just five other times. In every single one of those instances, the stock market was higher a year later.
 
The gains one year later were incredible…
 
The average one-year gain after eight down days was 29.9%. And again, the stock market was up – every single time!
 
These results are too good, actually. I've tested lots of investment systems over the years, and these results are off-the-charts good… But because this has only happened five times, we don't have a big sample size.
 
So let's widen our scope to see if these gains are for real…
 
What happens to the stock market one year later after SEVEN down days in a row?
 
Our sample size nearly doubles – from five unique occurrences to nine. And the results are still astounding!
 
The stock market was up 26.6%, on average, in the nine times that stocks fell for seven straight days, going back 35 years.
 
These results are still fantastic. But again, we're still only looking at nine unique instances. No statistician would call those results "significant."
 
So let's widen our scope one more time…
 
What happens after six straight down days?
 
More incredible results.
 
A streak of six straight down days has happened 32 unique times going back to 1982.
 
After six down days, stocks delivered a 21.7% return, on average, one year later.
 
The winning percentage was still extremely high: Stocks were higher one year later 94% of the time.
 
So the takeaway today is clear: Don't be scared. Be bold.
 
Based on history going back to 1982, after a long stretch of losing days, stocks perform incredibly well over the next 12 months.
 
Invest accordingly,
 
Steve
 
P.S. Saving My Life update, at the end of Week 2 of 8: I'm pushing to give myself a great Christmas present – being in the best shape in years. I'm 227.8 pounds today – that's down 4.2 pounds in two weeks. How are you doing? It's just six weeks. You can do anything for six weeks, right? Let's do it!
 

Source: DailyWealth

This 'Biggest Loser' Trade Has Five Times More Upside Than Downside

 
On the first day of 2008, the Greek stock index opened the new year at 1,036 points.
 
In early 2016, it bottomed out – at 15. (Yes, 15!)
 
It's true… The MSCI Greece Index fell by more than 1,000 points (in U.S.-dollar terms).
 
Ultimately, it was a 98.5% fall, peak to trough. Take a look…
 
So let me ask you a simple math question here…
 
If something falls by 95% and then rises by 100%, how much are you up (or down)?
 
Is it back where it started? Let's think about this…
 
Let's say a stock falls 95%, from $100 a share to $5. Then it rises 100%, making it $10 a share. What has happened?
 
The stock has gone up by 100%… But ultimately, it's still down 90% from where it started.
 
This is what we're seeing with Greece… But it's even more extreme…
 
The fall has been so incredible that even a massive move in stock prices will still be almost insignificant. If a stock falls from $100 to $1… and then it goes up 100% to $2… it's still down 98%.
 
I bring this up today because Greece is still down – a lot. The MSCI Greece Index has moved from its all-time low of around 15 to around 20 today. (Remember, this index was above 1,000 in 2008.)
 
"Greece is the cheapest emerging market we track," we said in our latest True Wealth Market Intelligence Emerging Markets Monitor.
 
Nobody is talking about it, either. I like that it's cheap and ignored.
 
The only thing missing from my investing criteria is a solid uptrend.
 
If you are bold, you can still set up a trade here with very limited downside risk and triple-digit upside potential… If you are more conservative, you can wait for the uptrend.
 
In my True Wealth newsletter, we own the main Greece exchange-traded fund (ETF), which is called the Global X MSCI Greece Fund (GREK).
 
We have limited our downside risk with a "hard" stop loss at its all-time low of $5.67. If GREK closes below $5.67, we will sell the next day.
 
As I write, GREK trades around $7.27. So if you enter this trade, your downside risk is roughly 21%. Meanwhile, your upside potential is a triple-digit-percentage profit. Even after a triple-digit-percentage profit, Greece would still be down massively from its highs.
 
Triple-digit upside and 21% downside – that's a reward-to-risk ratio of 5-to-1. I like that kind of setup.
 
As you know, I have been to dozens of countries while checking out investment opportunities during my career. I wish I could tell you that I had some special insight into the Greek stock market… But I don't. All I know right now is that this is likely a "Biggest Loser" moment for Greece – and I know what's possible after Biggest Loser moments…
 
Triple-digit gains are possible. And hundreds-of-percent gains are not out of the question, based on the history of busts as extreme as Greece's.
 
Check out GREK today… If you're bold, join me in the trade. (Otherwise, watch this one… and wait for the uptrend to get in.)
 
Good investing,
 

Steve

 

Source: DailyWealth

Use the 'Warren Buffett Approach' to Safely Grow Your Wealth

 
Keeping it simple.
 
That's how investing legend Warren Buffett became one of the world's richest men.
 
Buffett built his fortune by buying businesses that are easy to understand.
 
Today, his stock portfolio contains some of the best businesses in the world… Meanwhile, he famously avoided Internet stocks during the 1990s dot-com bubble because he didn't understand them.
 
As an investor, you might be afraid of missing out or eager to jump on the latest fad stock. But keeping it simple is how Buffett made his fortune. Today, we'll show you how Buffett made money by investing in the world's best companies… and how you can do the same…
 
The companies Buffett buys have iconic brands… sell their products around the globe… and dominate their industries. They've been around for decades… and won't be going away anytime soon.
 
They have high operating margins and strong balance sheets… generate massive returns for shareholders… continue to grow… and likely won't change much in the coming years.
 
They're safe… and simple.
 
These basic principles form the foundation of Buffett's investing philosophy. After all, he once said, "I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."
 
Take Coca-Cola (KO), for example…
 
Forbes magazine ranks Coca-Cola as the fourth-most-valuable brand on the planet… behind Apple (AAPL), Alphabet (GOOGL), and Microsoft (MSFT).
 
Coca-Cola started selling soft drinks in 1886. It still sells soft drinks today. And if we were betting men, we'd wager that it will still be selling soft drinks a century from now.
 
But the company lost its way in the late 1970s when then-CEO J. Paul Austin decided to put millions of dollars into a stack of unrelated businesses… including shrimp farming and winemaking.
 
The board ultimately got rid of Austin and appointed Roberto Goizueta in the early 1980s to turn things around and focus on Coca-Cola's core business – selling soft drinks.
 
Under Goizueta's watch, the business got back on its feet during the 1980s… And Buffett began buying shares. In 1988, he used more than $1.3 billion – roughly half of his stock portfolio – to buy 8% of Coca-Cola's outstanding shares.
 
Today, he owns 400 million shares – a little more than 9% of the stock. His stake is now worth almost $17 billion. He earned more than $500 million in dividends from Coca-Cola alone last year. That's almost half of what he spent to buy the stock initially.
 
We hope you're starting to get the point…
 
As we said earlier… Buffett's philosophy is easy to understand. And it has rewarded him handsomely. He's worth roughly $65 billion today – which means he's the fourth-richest person in the world, according to Forbes.
 
But few investors have the patience to buy these great businesses like Buffett has done over the past 50-plus years. They're often too boring. Most investors just want the next "hot stock" pick that pundits say could double or triple overnight.
 
Buffett doesn't do that. And neither should you.
 
We want great companies that have a prominent brand or some other quality that allows them to dominate their respective sectors. These companies have healthy margins and strong balance sheets, and they look after their shareholders. We call these companies the "Global Elite."
 
As we've said time and time again… the secret is buying these businesses when they're selling for cheap.
 
It takes patience, but buying great businesses at reasonable values is the key to Buffett's time-tested investing strategy. So remember… Keep it simple.
 
Regards,
 
Brett Aitken
 
Editor's note: Later this month, Brett and Porter are launching Stansberry's Big Trade – a brand-new research service designed to return 10 to 20 times your money on speculative trades as the "greatest legal transfer of wealth in history" begins to unfold. On Wednesday, November 16, we're hosting a FREE live event where we'll share all of the details. Reserve your spot here.

Source: DailyWealth

Six Simple Rules to Spotting Stocks Headed for Zero

 
"They're going broke, boys. Their stock is going to flatline. And I'm going to make a killing when it does."
 
In his book Dead Companies Walking, successful money manager Scott Fearon recalls the above comment from Gary Smith some 25 years ago as being a "seminal" event for his career.
 
It was a conversation that set Fearon on an unexpected new course. In the years since, he has shorted more than 200 companies that eventually went to zero… an incredible track record. And spotting these failures has helped him earn market-beating results for more than two decades…
 
Shorting companies potentially headed for bankruptcy was once a radical idea.
 
But on that night 25 years ago, Smith's logic was undeniable… Prime Motor Inns, a major hotel chain, had taken on more than $500 million in debt by gobbling up mom and pop competitors. Yet revenues continued to shrink.
 
"Pretty soon, they won't be able to service all that debt," Smith said. "They'll go into default… The stock will go to zero and I'll never have to cover my short."
 
A year later, Prime Motor Inns declared bankruptcy.
 
Fearon attributes his success with shorting "dead companies walking" to a focus on the six crucial mistakes their leaders commonly make. Keeping an eye out for these six fatal management blunders can help you spot which businesses are just waiting to fail…
 
1.  Learning only from the recent past
In cyclical boom-and-bust industries (like energy, auto, and housing), Wall Street darlings that binge on debt to grow during the uptrend eventually become prime dead-company-walking candidates during the ensuing downtrend. Fearon calls it "historical myopia" – management's tendency to assume the most recent past is a better predictor of the future than the distant past.
 
Since the 2014 oil bust, for instance, Forbes reports that 70 energy companies have defaulted on $40 billion in debt and gone bankrupt. These management teams clearly underestimated the longer-term boom-and-bust dynamics of the oil business.
 
2.  Relying too heavily on a formula for success
One of Fearon's favorite hunting spots for dead companies walking is the restaurant industry. Fast-food chains are notorious for following a growth-is-always-good formula that isn't always effective.
 
Fearon names Krispy Kreme Doughnuts as a prime example. Rather than granting franchisees one store at a time, years ago, Krispy Kreme made deals with area developers who agreed to open at least 10 stores in their regions – and pay the parent company top dollar for supplies. This juiced store and top-line growth… until several of the developers could no longer live up to the agreements and went bankrupt, dooming Krispy Kreme.
 
3.  Misreading or alienating customers
In 2012, Fearon says JC Penney effectively "fired" its customers. The company decided to eliminate coupons and stock more expensive brand-name merchandise.
 
The abrupt change was the brainchild of newly minted CEO Ron Johnson, the superstar behind Apple's retail-store concept. Johnson confused his own tastes for those of his core customers, and he ignored the fact that most JC Penney stores were located in middle- and working-class areas. As Fearon says, Johnson's actions in effect hung a sign on every store with the caption: "If you aren't a fit, affluent yuppie like me, don't bother coming in here."
 
4.  Falling victim to a mania
Sometimes people just want to believe a good story, whether it stands up to scrutiny or not. That's the way Fearon remembers Shaman Pharmaceuticals in the years leading up to its bankruptcy.
 
Bringing plants and herbs back from remote Amazonian tribes to create pharmaceutical-grade drugs was a seductive idea. But the company never produced a single revenue-generating drug. The current biotech mania is being fueled in part by lots of similar feel-good stories generating zero revenues.
 
5.  Failing to adapt to tectonic industry shifts
Blockbuster Video remains the classic case study for this mistake. In late 2007, the company was clearly in trouble – its 9,000 stores were rapidly losing market share to an upstart named Netflix (NFLX).
 
Rather than formulating a massive online counteroffensive, management instead doubled down on the store concept. They failed to appreciate, then adapt to, the emerging paradigm we now know as online streaming. (In Extreme Value, we hold two open shorts that are perfect examples of companies failing to adapt to tectonic shifts in their respective industries.)
 
6.  Being physically or emotionally removed from company operations
Once again, JC Penney's ex-CEO Ron Johnson is a perfect example of this mistake. After taking the reins of JC Penney, based in Texas, Johnson reportedly refused to move from his primary residence in a high-end Silicon Valley suburb. Instead, he flew the 3,000 miles roundtrip each week on the company's private jet, and he was audacious enough to stay at the Ritz-Carlton in Dallas… all on JC Penney's tab.
 
Shorting stocks is never easy… even when there is clear evidence a management team is making some or all of these blunders. But in business, failure is much more common than success. These six mistakes are a great starting point when looking for stocks to avoid… or short all the way to zero.
 
Good investing,
 
Mike Barrett
 
Editor's note: Over the summer, Mike and Dan Ferris told Extreme Value subscribers about another terrific short candidate. This company has failed to adapt to industry changes… is being led by a clueless management team… has a deteriorating balance sheet… and its primary sales channel is in terminal decline. Get access to this name with a 100% risk-free trial subscription to Extreme Value right here.

Source: DailyWealth