He’s doing WHAT to bimbos? (allegedly)

  • Earnings worsen
  • Golden ‘tiny stocks’
  • In the mailbag

Exciting news from the US presidential race. Politico.com reports:

Bill Clinton’s chief of staff, Tina Flournoy, was home working Sunday evening when Huma Abedin called with [a] request: Could the former president drop his upcoming meetings in Washington, and take over for his pneumonia-felled wife on the campaign trail.

The answer was, of course, yes: The former president filled in at three fundraisers in California on Tuesday and at a rally in northern Las Vegas on Wednesday. While his wife rested in Chappaqua, New York, he tried to make her case that the country has “to vote for the only person with a credible economic plan.”

But with eight weeks to go and Hillary Clinton’s lead slipping, some of her allies have begun to question how much the campaign should lean on him and how bright his legacy star power still is.

“We need to hear directly from the candidate at this point in the election,” a longtime Clinton ally and Democratic National Committee member, said. “It’s nice to have him, but the only real surrogate who works at this point is President Obama.”

We’re sure the sudden and immediate cold shoulder towards Mr Clinton by Mrs Clinton’s campaign team has nothing to do with the recent hacking of the email account of former Secretary of State, Colin [bizarrely pronounced ‘Co-lon’] Powell.

As the New York Post reports of one email exchange from Mr Powell, referring to Mr & Mrs Clinton:

A 70-year person with a long track record, unbridled ambition, greedy, not transformational, with a husband still d—ing bimbos at home (according to the NYP).

As you know, this is a family show. But it doesn’t take a great imagination to guess what Powell was allegedly referring to.

Amongst all this, the presidential election continues. That’s democracy folks. Is it any wonder that every country the US invades in its quest to spread democracy, seems to immediately develop a violent distaste for it?

Now we know why…

Markets

Overnight, the Dow Jones Industrial Average fell 31.98 points, or 0.18%.

The S&P 500 fell 1.25 points, or 0.06%.

In Europe, the Euro Stoxx 50 index dropped 9.9 points, for a 0.33% fall. Meanwhile, the FTSE 100 gained 0.12%, and Germany’s DAX index fell 0.08%.

In Asian markets, Japan’s Nikkei 225 index is down 134.39 points, or 0.81%. China’s CSI 300 index is down 0.66%.

In Australia, the S&P/ASX 200 index is down 11.69 points, or 0.22%.

On the commodities market, West Texas Intermediate crude oil is trading for US$43.72 per barrel. Brent crude is trading for US$46.08 per barrel.

Gold is US$1,322 (AU$1,769) per troy ounce. Silver is US$18.95 (AU$25.35) per troy ounce.

The Aussie dollar is worth 74.77 US cents.

Earnings worsen

After going sideways since mid-July, the US S&P 500 was bound to break out from its range at some point.

That point happened to be last Friday.



chart image

Source: Bloomberg
Click to enlarge


The issue now is whether this is one of those little ‘pullbacks’ the talking heads on CNBC like to talk about, or whether this is the start of a much bigger fall.

If you’ve followed my commentary in Port Phillip Insider, you’ll know that I have grave concerns about the sustainability of the high level of the S&P 500.

The chart above doesn’t give you the true picture of how high the index is right now. But the chart below does:



chart image

Source: Bloomberg
Click to enlarge


The index is currently 36% above the 2007 high, and 214% above the 2009 low.

But that’s not even half the problem. The fact that stocks have gone up over that time isn’t unusual. And the fact that stocks have hit a number of new highs isn’t unusual either.

After all, if stock prices could never reach a new high, the market would never go up!

The biggest problem (as we see it) is what’s going on with earnings for S&P 500 companies. I’ll show you another chart. It’s a chart I’ve shown you versions of many times over the past year or so.



chart image

Source: Bloomberg
Click to enlarge


The chart shows you nominal earnings (not earnings growth) for companies in the S&P 500. The white line to the left of the green line shows you historical earnings. The white line to the right of the green line shows you forecast earnings.

You don’t need to have a Masters in Financial Analysis to see that the declining white line immediately to the left of the green line is a major problem.

It shows you that US company earnings are in decline. And they have been since late 2014. Therefore, it shouldn’t be surprising that US stocks have traded in a sideways pattern since then.

And when they haven’t traded sideways, stocks have fallen heavily on the prospect of interest rate increases by the US Federal Reserve.

Only when the Fed has downplayed the prospect of a rate increase have stocks rebounded. Even so, from early December 2014 through to today, the S&P 500 is up a paltry 2.5%.

That’s hardly a ringing endorsement for the idea that the US economy is recovering, and that it can cope with an interest rate increase.

Based on recent stock market returns, and the continued decline of company earnings, we suggest that maybe things aren’t as promising as mainstream analysts and central bankers would have you believe.

In short, there is one reason why stocks remain high, and why they haven’t yet crashed — the hope among investors that more money printing and stimulus is on the cards.

At the moment, central banks are trying to talk down the prospects of this happening. If they go too far and categorically rule out more money printing, that would likely be the catalyst for much bigger stock market falls.

As we have been for over a year, we remain on high crash alert.

Golden ‘tiny stocks’

Yesterday, I wrote to you in-depth about a certain subsector of the resources sector.

That subsector is gold stocks.

To be more precise, we’re not looking at any old gold stocks, we’re looking at a specific niche of this subsector.

We’re looking at stocks that have the potential for not just double-digit, but triple-digit and even quadruple-digit percentage gains.

What this subsector?

It’s simple. These are the ‘tiny stocks’ of the gold market.

These are the stocks that none of our other investment advisories can possibly recommend. We can’t even recommend them in Microcap Trader (although, that’s because the analysts working on that service, yours truly and Sam Volkering, admit to not knowing a great deal about gold stocks).

We can’t recommend these tiddlers in Resource Speculator. We know that, because we’ve tried. Each time we’ve tried to recommend a stock bordering on microcap status, the share price goes crazy.

If you subscribe to our stock recommendation services, you’ll know we generally set strict buy-up-to price limits. That means, if (for example) a stock is trading for 30 cents, our editors and analysts may tell you to pay no more than 35 cents.

If the stock price trades above that level, they’ll tell you not to buy until it falls to or below the buy-up-to price level. That’s important.

One of the biggest mistakes I’ve seen many of our subscribers make over the years is when they don’t listen to that advice. They just go ahead and buy the stock anyway.

I say that’s a mistake, because they don’t realise how overpaying for a stock can destroy their returns and increase their risk.

Here’s an example. Let’s say we recommend paying up to 35 cents for a stock. And let’s say we have a target price of 80 cents for the stock. If you bought the stock at 35 cents and sold it at 80 cents (assuming our forecast played out), that would be a 128.6% gain.

That’s pretty good.

But what happens if you ignored the advice, and just paid any old price? Let’s say the price shot up after our recommendation, and traded at 45 cents per share. What would that do to your returns?

Well, if we’re right, and the stock climbs to 80 cents, buying at 45 cents has still resulted in a good gain. You would have made a 77.8% return.

That’s pretty good too. But it’s not as good as a near 129% gain.

Not only that, but think about the downside. As much as I believe our editors and analysts provide the best investment analysis and advice anywhere in Australia, there’s no guarantee every recommendation they make will be right on the money.

So what happens if the stock price doesn’t go to 80 cents? What happens if it actually goes the other way…and falls to 20 cents?

This is where paying more than you should for a stock not only harms your returns, but it increases your risk too. Let me show you.

I know that most investors tend to buy tiny stocks according to a dollar amount to invest. Let’s say for this example that’s $5,000.

If you invest $5,000 in a stock, paying 45 cents per share, and it falls to 20 cents per share, you’ll lose $2,777. That’s more than half your capital. It’s a big loss.

On the other hand, if you invest $5,000 in a stock, paying 35 cents per share, and it falls to 20 cents per share, you’ll lose ‘just’ $2,142. It’s still a big loss, but it’s not as big as it would have been if you had overpaid.

You see the point? That’s why I get so angry when I see investors piling into a stock paying any old price.

Getting back to where we were, that’s why it’s impossible for us to write about, analyse, and recommend gold ‘tiny stocks’ in a service like Resource Speculator.

There are just too many subscribers to the service. And all it would take is a few novice or ignorant investors to jump in and pay any old price, for the price to soar, taking it well above any published buy-up-to price.

In order to make a gold ‘tiny stocks’ service work, we have to cordon it off…and make it available to only a relatively small number of investors.

At the same time, I know that resources investing, and particularly gold stock investing, is near and dear to the hearts of many Aussies. In fact, I’d bet that most Aussie investors ‘cut their teeth’ in the market with a punt on gold stocks.

So while we need to limit access, we’re also trying to make these stock recommendations available to as wide a range of investors as possible. I can assure you, that will be a difficult balancing act, but we’re doing our darnedest to do it.

The most stunning thing about this opportunity to me is that Port Phillip Publishing has been advising Aussie investors for over 11 years. Yet, in all that time, we have never published a newsletter solely based around gold and gold stocks.

That’s extraordinary. It would be like a US investment publisher not writing to their customers about technology stocks…or a Saudi Arabian investment publisher (if such a thing exists) not writing to their customers about oil stocks.

For Port Phillip Publishing not to have a service dedicated to gold is — to use the word again — stunning.

The good news is, we’re about to put that right. And we’re doing so in a way that will make this the best gold-focused investment advisory, not just in Australia, but anywhere in the world.

We’re tying up a few loose ends now. We’ll send you more information next week. And if I can, I’ll try to give you advance details in tomorrow’s Port Phillip Insider.

In the mailbag

One of our copy editors labelled the last paragraph of yesterday’s Port Phillip Insider mailbag as ‘savage’.

I agree, it was.

Subscriber, Steve H, writes in about that:

Hi Kris, love your work.

For a long time now the digital world has been much in need of a way to indicate sarcasm in written communications, where one does not have the helpful cues of vocal intonation.

I suggest you use a separate typeface for sarcasm, maybe the yet-to-be invented Sarcastica?

Carry on, I will not be cancelling.

Steve.

Happy subscriber, [who has] a sense of irony.

What an excellent idea.

Cheers,
Kris