October 29, 2015
Silver hit a four-month high yesterday…
It soared early in the day, gaining as much as 3.3% at one point.
Silver gave back some of these gains later in the day, when the Federal Reserve gave an update on its economic outlook. Although the Fed didn’t make any changes to its monetary policy, it did hint at tightening monetary policy at its December meeting. Tighter monetary policy is generally bad for gold and silver prices.
But even after losing some of its gains, silver ended the day up 0.5%. It closed at $15.94/oz, not far from its four-month high of $16.20. Silver is now up 12% since hitting a six-year low on August 26.
• Silver’s rally is boosting silver mining stocks…
Silver mining stocks are leveraged to the price of silver. When the price of silver goes up, silver stocks often go up by two or three- times as much.
In just the last two months, large royalty company Silver Wheaton (SLW.TO) has gained 26%…mid-size miner Fortuna Silver Mines (FVI.TO) has gained 20%…and blue chip silver producer First Majestic (AG) has gained 16%.
International Speculator, our research service focused on small resource companies with explosive upside, currently recommends buying these three silver stocks.
Keep in mind, even after its recent rally silver is still extremely cheap. The price of silver is still down 67% from its 2011 all-time high.
If you get the timing right, silver stocks are known for making big gains in very short periods. And because the silver price is so depressed today, the next rally in silver stocks could be huge. You can get in on our favorite silver stocks by taking a risk-free trial to International Speculator.
• Moving along, Equity Residential, one of the world’s biggest real estate firms, is selling a quarter of its properties…
Self-made billionaire Sam Zell runs Equity Residential (EQR). Zell made a name for himself buying real estate on the cheap during recessions in the 1970s and early 1990s.
He also called the top of the property bubble in 2007. In February 2007, Zell’s firm sold $23 billion worth of office properties to private equity giant The Blackstone Group (BX). Nine months later, U.S. commercial property prices peaked…and went on to collapse by 42%.
On Monday, The Wall Street Journal reported that Equity Residential plans to sell 23,000 units to Starwood Capital Group. The deal is valued at $5.4 billion and represents about one-fourth of Equity Residential’s portfolio. It’s set to be one of the biggest real estate deals since the financial crisis.
• Other major real estate investors are moving to the sidelines as well…
On Monday, The Wall Street Journal explained:
…[R]eal estate giants such as Boston Properties and Vornado Realty Trust have dialed back acquisitions of commercial property, saying they fear prices have grown unreasonably high compared with rents.
“The easy money has been made in this cycle,” Vornado CEO Steven Roth said in an August investor call. “This is a time when the smart guys are starting to build cash…we do acquisitions very carefully at this point in the cycle.”
• Commercial real estate has never been more expensive…
Earlier this month, research firm Real Capital Analytics said its in-house statistics show that commercial real estate prices are now 14.5% above their 2007 highs.
Capitalization rates for commercial property in the U.S. are also at record lows. A capitalization rate is a property’s annual income divided by its purchase price. It’s basically a property’s yield. When property prices go up, capitalization rates fall.
The average capitalization rate for all U.S. property types was 5.25% as of September 1, according to research firm Green Street Advisors. This is an all-time low, breaking the previous record low of 5.65% set in 2007.
Last week, Green Street sent a note to its clients titled “The Ninth Inning.” The firm said that “commercial real-estate prices may soon stall, and probably even drift lower by the time 2016 winds down.”
• Switching gears, Apple just reported the biggest annual profit ever…
Tech giant Apple Inc. (AAPL) is the largest publicly-traded company in the world. It’s worth a staggering $675 billion. Given its colossal size, Apple is worth keeping an eye on.
On Tuesday, the company reported its fiscal fourth-quarter results…
Sales rose 28% over the past twelve months. Earnings jumped 43%.
Apple earned a spectacular $53.4 billion over the past year. That’s the highest annual profit of any publicly-traded company in history. It’s $8.2 billion higher than the previous record set by oil giant Exxon Mobil (XOM) in 2008.
Apple’s share price jumped 4% on the news. It’s now up 163% over the past five years. That’s more than double the S&P 500’s 71% gain during the same period.
• Despite this impressive run, Apple’s stock is cheap…
It’s only trading at 14 times earnings right now. That’s 60% lower than the S&P 500’s price-to-earnings (PE) ratio. A low PE ratio indicates that a stock is cheap.
Apple is cheap right now because investors are worried it will eventually stop growing so fast. Some analysts think the company depends on the iPhone too much, and that iPhones sales will stall. Investment bank Merrill Lynch says, “We rate Apple neutral on risk of upcoming deceleration in iPhones after a strong product cycle…”
Chris Wood, editor of Extraordinary Technology, has a different take:
I think this elephant will continue to dance for a while…
Apple continues to do well in China. In the fourth quarter, iPhone sales in China jumped 120% from a year ago. China accounted for 25% of Apple’s fourth-quarter sales. Apple should continue to grow in China as millions and millions of Chinese people enter the middle class.
Apple also stands to cash in on phone upgrades. The iPhone has 475 million users. People upgrade their phones about every 2 years. And because iPhone users are loyal, many of them will replace their old iPhone with a new one.
Also, the iPhone is still attracting new users. Analysts estimate that 30% of iPhone purchases are from recently converted Android owners. Apple should continue to grow by converting people who use high-end Android devices.
Chris thinks Apple’s stock could rise another 30% before the end of 2017.
Chart of the Day
U.S. commercial real estate prices have never been higher…
Today’s chart shows the performance of the Moody’s/Real Capital Analytics all-property index. This index tracks the prices of all major commercial property types, including office buildings, apartments, and industrial warehouses. It’s adjusted for inflation.
As you can see, the index just hit a new record high. The previous record high was from 2007, during one of the biggest real estate bubbles in U.S. history.
Regards,
Justin Spittler
Delray Beach, Florida
October 29, 2015
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http://www.caseyresearch.com/articles/the-us-property-market-is-in-the-ninth-inning
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The Fed’s Easy Money Has Created a Takeover Mania
November 02, 2015
The deals keep getting bigger…and one of the gravest financial warnings of 2015 keeps growing in relevance.
Last month, legendary investor Carl Icahn publically warned that cheap money is fueling a bubble in dealmaking. Icahn said:
…[W]hat [companies] do with the money is almost perverse. They just go in and buy another company to show analysts on Wall Street that earnings are going up, so their stock will go up and it’s financial engineering at its height.
Icahn is known for buying huge stakes in “broken” companies…taking a seat on the board…and trying to turn the companies around. He knows more than almost anyone about buying companies.
• Last week, we were reminded of Icahn’s warning…
On Thursday, pharmaceutical giant Pfizer (PFE) revealed plans to buy drugmaker Allergan PLC (AGN).
Pfizer is the 12th-largest publicly-traded U.S. company. It’s worth $213 billion. Allergan is another huge drug company. It’s worth $123 billion.
If the deal goes through, it would create the sixth-largest publicly-traded company in the U.S. The new company would dethrone Johnson & Johnson (JNJ) as the world’s largest healthcare company.
Pfizer-Allergan would be biggest deal in a monster year for mergers and acquisitions. On Sunday, Financial Times said 2015 is shaping up to be the biggest year ever for global dealmaking:
With close to $4tn worth of deals already announced this year, 2015 is on track to beat the all-time record of 2007, when the credit bubble helped generate $4.3tn worth of transactions.
• Pfizer has already made a big acquisition this year…
In September, Pfizer completed its $15 billion purchase of pharmaceutical company Hospira.
Pfizer’s management hopes these deals will help the company start growing again. Pfizer’s annual sales have declined, for the last four years, by an average of 6.5% per year.
If management’s track record is any indication, the acquisition of Allergan won’t create value for Pfizer’s shareholders. Since 2000, Pfizer has spent more than $235 billion buying other companies. However, Pfizer is only worth $213 billion today.
Pfizer isn’t the only company in the healthcare sector making big deals. Last week, Financial Times reported global healthcare companies have announced $850 billion worth of deals this year.
In July, health insurance company Anthem (ANTM) agreed to buy rival Cigna (CI) for $48.3 billion. The deal will create the nation’s largest health insurer.
And last Tuesday, pharmacy chain Walgreens (WBA) bought rival Rite Aid (RAD) for $17 billion. It was a pricey acquisition…Walgreens paid more than a 50% premium to Rite Aid’s share price, and 21 times Rite Aid’s book value.
• Record low interest rates are driving the massive increase in dealmaking…
During the 2008 financial crisis, the Federal Reserve dropped its key interest rate to effectively zero. The Fed has held rates near zero ever since.
Seven years of zero percent rates have made it ridiculously cheap to borrow money. Many companies have used this as an opportunity to buy out competitors with borrowed money. According to the Securities Industry and Financial Markets Association, U.S. corporations borrowed a record of $1.2 trillion in the bond market through the first nine months of 2015.
• Buying a competitor can boost sales and profits…
But Carl Icahn notes the “high” usually wears off quick.
Last month, Icahn said buying a company with borrowed money was like “taking a drug.” It can cause sales and profits to jump, but the benefit usually only lasts a year or two.
Icahn says U.S. companies are buying up rivals to goose their earnings numbers. He says this is masking major problems in corporate America. And the facts back up his claim…
Last week, The Wall Street Journal explained how U.S. business investment has stalled since the financial crisis:
Business investment in the real economy is weak. While U.S. gross domestic product rose 8.7% from late 2007 through 2014, gross private investment was a mere 4.3% higher. Growth in nonresidential fixed investment remains substantially lower than the last six post-recession expansions.
Instead of investing to build their businesses, companies are taking a shortcut to growth by buying other companies. In July, Forbes reported that 54% of CEOs in the U.S. plan to complete an acquisition by the end of the year.
• Earnings growth has been sluggish…
Earnings for companies in the S&P 500 have only grown 6.9% annually since 2011. That’s far less than during past economic expansions, according to The Wall Street Journal. Earnings grew 12.9% per year between 2003 and 2007. They grew at 11% per year between 1995 and 1999…
As of Friday, 340 companies in the S&P 500 reported third-quarter results. So far, earnings have declined 2.2% from last year. We can’t know for sure until all the results are in, but it appears that earnings will decline overall this quarter. If that happens, research firm FactSet says it will be the first time since 2009 that earnings have declined two quarters in a row.
If you’ve been listening to Icahn’s warnings, this bad earnings news shouldn’t be a surprise. Instead of investing in their businesses, companies are using cheap money and financial engineering to boost profits. That can work for a while. But once the “high” wears off, you’re left within shrinking profits and no growth.
Chart of the Day
Don’t buy into the “recovery” hype…
Today’s chart shows the number of people enrolled in the U.S. federal food stamp program. As you might expect, the number of people on food stamps surged during the financial crisis.
However, food stamp usage kept rising through 2013. More than forty million Americans are still on food stamps today, nearly double the pre-crisis number. This isn’t what a healthy, growing economy looks like.
Regards,
Justin Spittler
Delray Beach, Florida
November 2, 2015
http://www.caseyresearch.com/articles/the-feds-easy-money-has-created-a-takeover-mania
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“CONSPIRACY THEORY”? Listeners Respond | Episode 173
December 22, 2015 By Bryan Ellis
Did you hear yesterday’s controversial episode, and you’re having a hard time swallowing the possibility that the government could be involved in a long-term plan – a conspiracy theory, of sorts – to take control of the housing market? Listen in today for more evidence… and to see exactly how the newly manufactured “rent crisis” is just the latest step in the process. I’m Bryan Ellis. This is episode 173.
Listen here
Hello, SDI Nation… welcome to the podcast of record for savvy self-directed investors like you!
Wowzha! The response to yesterday’s episode #172 – which you can find at SDIRadio.com/172– was pretty strong. If you’ve not yet heard it, you should listen in now before continuing. Now today’s episode is substantially more politically oriented than most, so if politics totally turns you off, you’ve got my permission to skip today’s show. BUT, I must warn you… you’ll see how, in just a couple of minutes, it all ties back together very directly into your interests as a self-directed investor.
So I got a whole lot of supportive comments to episode #172, but some opposed as well. My favorite oppositional comments were from two extremes of the intellectual spectrum. On the one side, there’s Dean Germeten, who shared these “pearls of wisdom” with me:
“Of COURSE there’s a rental crisis, what with globalism and export of US jobs & factories, renters can’t afford the rent being charged by a**-hole real-estate investors like you, who can’t resist taking advantage of any crisis. House flipping should be illegal, as well as 2nd party owners, so long as there’s one single-family home-owner who wants a place to raise his kids. You’re the lowest form of capitalist parasite there is, hope your karma comes back and bites you hard, like Skreli.”
Wow, Mr. Germeten… how’s life in that bubble of ignorance?
And on the other side was my friend Lee in Florida, who also disagreed with me, but who lends some intellectual substantiation to his argument. Lee’s basic premises are two: first, that the Harvard study declaring a rental crisis could easily be made to reflect any particular opinion; and second, that there’s no way that the folks in the U.S. government are smart enough to effect a long-term – as in multi-decade – plan to silently overtake the U.S. housing market. He then added some comments about the Dodd-Frank law about which he’s totally right and I think justify a show of their own.
So I’m going to address the rest of this show to Lee, because I suspect that the more thoughtful among you who disagree with me have a similar rationale. To set the stage, you should all know that I think very, very highly of Lee and his wife Betty. They’re incredibly bright people… the kind of people that I constantly find myself hoping to get to spend more time with. This is not manufactured praise; I really think very highly of them.
So Lee, here’s the thing… I agree with you in a big way: There’s not a lot of competence on display in Washington. The policies I mentioned yesterday – the Community Reinvestment Act, TARP, ObamaCare – are all really good examples of ideas that were implemented and totally screwed up by the government. So your questioning my assertion that what’s happening today is part of a larger plan is entirely reasonable.
But there are 2 flaws in that criticism that I see:
First, your comments appear to assume that the goal of Congress and various Presidents is to implement strategy that is fiscally and practically wise from a long-term perspective. That simply isn’t the case. The model followed by the government is this: One party suggests an incredibly insane idea. The other party resists it, but not strongly so, in order to avoid being too objectionable. A piece of legislation that is 80% of what was originally demanded is implemented, but it’s structurally incomplete and destined for substantial problems in the future. These problems leave room for the government to swoop in in the future, and further expand the reach, power and influence of the government and the cycle repeats itself. It’s happened that way with healthcare. It’s happened that way with gun rights. It happens every year that way with taxes. And it’s happening that way with housing. My point is this: You don’t have to be a long-term strategic genius in order to design a piece of legislation, the purpose of which is to be inadequate in the near future so as to create the opening for more legislation.
My second point is this: Whether the feds in Washington are strategically intelligent is one question. But one thing that can’t be questioned is this: They are patient. There’s a reason that it’s so important to Washington that it have a huge role in determining how children are educated… that’s the starting point. It can take years to mold a mind into having a particular frame of reference – one of dependency rather than independence – but that’s what government is good for. It’s not just children, either… medicare, social security… both of these huge issues are a function of the fact that the people in Washington are very patient… and are willing to let time play out in their favor, even during the times when legislation isn’t going their way.
So where does this leave us as investors? That’s the big question concerning this “rental crisis” issue that Harvard is drumming up.
Is it possible that rents are getting too high? Sure it is! I don’t know that to be true, but it’s entirely possible… that’s the nature of a free economy… sometimes prices are high, sometimes they’re low, most of the time they’re about right.
But regardless of the pricing, it will adjust, and what we have right now is not a crisis. It’s only a crisis if your definition of crisis is that not everybody can afford everything they want, such as with the intellectually embarrassing comment I cited earlier by Dean Germeten. In that case, there’s a crisis, and the only way to handle that crisis is for the feds to step in and take control of the market.
And remember – an increase in government ALWAYS means a decrease in freedom. There are no exceptions. And that’s antithetical to you as a self-directed investor. It’s a part of your very genetic makeup to be able to make your own decisions.
So where does this leave us? Where it leaves us is in a huge mess concerning our rights as real estate investors… for the moment, this is particularly relevant to you landlords.
Presently, we have a program called Section 8. It’s a program that provides housing vouchers to low-income people so that they can rent a home at little or no cost to themselves. Now, absent any other considerations, I like Section 8 as a landlord because it means I get paid on time every time and it means that I have a huge “stick” to wield against tenants who might want to damage my property, as it’s possible to have vouchers stripped from people who do so.
Having said that, it’s my expectation that at least two really bad things are on the horizon for our rights as property owners. One of them is the potential for a sort of national rent control… which will be softened by the expansion of a form of Section 8 that’s available more broadly than just to the lowest income recipients. And the other is increasing “nationalization” – although in a softer form – of real estate ownership. This latter issue is already under way, and I’ll tell you how in tomorrow’s episode of Self-Directed Investor Radio, in which I’ll conclude this line of thought with some rather scary revelations and some thoughts on how you should consider “playing this” as an investor.
We’ve got some GREAT things planned for you in the coming year… including two new SDI shows that you’re going to LOVE! So please, don’t miss a thing… text the word SDIRADIO with no spaces or periods to 33444. Again, that’s text the word SDIRADIO to 33444 to get on our private update list!
My friends… invest wisely today, and live well forever!
http://sdiradio.com/conspiracy-theory-listeners-respond-episode-173/
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Related previous post on this blog
https://reclaimourrepublic.wordpress.com/2015/12/22/audio-this-is-what-a-financial-crisis-looks-like-what-is-the-rental-crisis/
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