What 10 Baggers (and 100 Baggers) Look Like

By Jeff Clark, Senior Precious Metals Analyst

Now that it appears clear the bottom is in for gold, it’s time to stop fretting about how low prices will drop and how long the correction will last—and start looking at how high they’ll go and when they’ll get there. When viewing the gold market from a historical perspective, one thing that’s clear is that the junior mining stocks tend to fluctuate between extreme boom and bust cycles. As a group, they’ll double in price, then crash by 75%..... then double or triple or even quadruple again, only to crash 90%. Boom, bust, repeat.

Given that we just completed a major bust cycle—and not just any bust cycle, but one of the harshest on record, according to many veteran insiders—the setup for a major rally in gold stocks is right in front of us.

This may sound sensationalistic, but based on past historical patterns and where we think gold prices are headed, the odds are high that, on average, gold producers will trade in the $200 per share range before the next cycle is over. With most of them currently trading between $20 and $40, the returns could be stupendous. And the percentage returns of the typical junior will be greater by an order of magnitude, providing life changing gains to smart investors.

What you’re about to see are historical returns of both producers and juniors during three separate boom cycles. These are factual returns; they are not hypothetical. And if you accept the fact that this market moves in cycles, you know it’s about to happen again.

Gold had a spectacular climb in 1979-1980, and gold stocks in general gave a staggering performance at that time—many of them becoming 10-baggers (1,000% gains and more). While this is a well known fact, few researchers have bothered to identify exact returns from specific companies during this era.

Digging up hard data from before the mid-1980s, especially for the junior explorers, is difficult because the information wasn’t computerized at the time. So I sent my nephew Grant to the library to view the Wall Street Journal on microfiche. We also include information we’ve had from Scott Hunter of Haywood Securities; Larry Page, then-president of the Manex Resource Group; and the dusty archives at the Northern Miner.

Note: This means our tables, while accurate, are not at all comprehensive.

Let’s get started…...

The Quintessential Bull Market: 1979-1980

The granddaddy of gold bull cycles occurred during the 1970s, culminating in an unabashed mania in 1979 and 1980. Gold peaked at $850 an ounce on January 21, 1980, a rise of 276% from the beginning of 1979. (Yes, the price of gold on the last trading day of 1978 was a mere $226 an ounce.)

Here’s a sampling of gold producer stock prices from this era. What you’ll notice in addition to the amazing returns is that gold stocks didn’t peak until nine months after gold did.

Returns of Producers in 1979-1980 Mania
Company	Price on 12/29/1978	Sept. 1980 Peak	Return
Campbell Lake Mines	$28.25	$94.75	235.4%
Dome Mines	$78.25	$154.00	96.8%
Hecla Mining	$5.12	$53.00	935.2%
Homestake Mining	$30.00	$107.50	258.3%
Newmont Mining	$21.50	$60.62	182.0%
Dickinson Mines	$6.88	$27.50	299.7%
Sigma Mines	$36.00	$57.00	58.3%
Giant Yellowknife Mines	$11.13	$39.00	250.4%
AVERAGE			289.5%

Today, GDX is selling for $26.05 (as of February 26, 2014); if it mimicked the average 289.5% return, the price would reach $101.46.

Keep in mind, though, that our data measures the exact top of each company’s price. Most investors, of course, don’t sell at the very peak. If we were to able to grab, say, 80% of the climb, that’s still a return of 231.6%.

Here’s a sampling of how some successful junior gold stocks performed in the same period, along with the month each of them peaked.

Returns of Juniors in 1979-1980 Mania
Company	Price on 12/29/1978	Price Peak	Date of Peak	Return
Carolin Mines	$3.10	$57.00	Oct. 80	1,738.7%
Mosquito Creek Gold	$0.70	$7.50	Oct. 80	971.4%
Northair Mines	$3.00	$10.00	Oct. 80	233.3%
Silver Standard	$0.58	$2.51	Mar. 80	332.8%
Lincoln Resources	$0.78	$20.00	Oct. 80	2,464.1%
Lornex	$15.00	$85.00	Oct. 80	466.7%
Imperial Metals	$0.36	$1.95	Mar. 80	441.7%
Anglo-Bomarc Mines	$1.80	$6.85	Oct. 80	280.6%
Avino Mines	0.33	5.5	Dec. 80	1,566.7%
Copper Lake	$0.08	$10.50	Sep. 80	13,025.0%
David Minerals	$1.15	$21.00	Oct. 80	1,726.1%
Eagle River Mines	$0.19	$6.80	Dec. 80	3,478.9%
Meston Lake Resources	$0.80	$10.50	Oct. 80	1,212.5%
Silverado Mines	$0.26	$10.63	Oct. 80	3,988.5%
Wharf Resources	$0.33	$9.50	Nov. 80	2,778.8%
AVERAGE				2,313.7%

If you had bought a reasonably diversified portfolio of top-performing gold juniors prior to 1979, your initial investment could have grown 23 times in just two years. If you had managed to grab 80% of that move, your gains would still have been over 1,850%.

This means a junior priced at $0.50 today that captured the average gain from this boom would sell for $12 at the top, or $9.75 at 80%. If you own ten juniors, imagine just one of them matching Copper Lake’s better than 100-bagger performance.

Here’s what returns of this magnitude could mean to you. Let’s say your portfolio includes $10,000 in gold juniors that yield spectacular gains such as the above. If the next boom cycle matches the 1979-1980 pattern, your portfolio could be worth $241,370 at its peak… or about $195,000 if you exit at 80% of the top prices.

Note that this does require that you sell to realize your profits. If you don’t take the money and run at some point, you may end up with little more than tears to fill an empty beer mug. In the subsequent bust cycle, many junior gold stocks, including some in the above list, dried up and blew away. Investors who held on to the bitter end not only saw all their gains evaporate, but lost their entire investments.
You have to play the cycle.

Returns from that era have been written about before, so I can hear some investors saying, “Yeah, but that only happened once.”

Au contraire. Read on…...

The Hemlo Rally of 1981-1983

Many investors don’t know that there have been several bull cycles in gold and gold stocks since the 1979-1980 period.

Ironically, gold was flat during the two years of the Hemlo rally. But something else ignited a bull market. Discovery. Here’s how it happened…...

Back in the day, most exploration was done by teams from the major producers. But because of lagging gold prices and the resulting need to cut overhead, they began to slash their exploration budgets, unleashing a swarm of experienced geologists armed with the knowledge of high potential mineral targets they’d explored while working for the majors. Many formed their own companies and went after these targets.

This led to a series of spectacular discoveries, the first of which occurred in mid 1982, when Golden Sceptre and Goliath Gold discovered the Golden Giant deposit in the Hemlo area of eastern Canada. Gold prices rallied that summer, setting off a mini bull market that lasted until the following May. The public got involved, and as you can see, the results were impressive for such a short period of time.

Returns of Producers Related to Hemlo Rally of 1981-1983
Company	1981 Price	Price Peak	Date of High	Return
Agnico-Eagle	$9.50	$21.00	Aug. 83	121.1%
Sigma	$14.13	$24.50	Jan. 83	73.4%
Campbell Red Lake	$16.63	$41.25	May 83	148.0%
Sullivan	$3.85	$6.00	Mar. 84	55.8%
Teck Corp Class B	$17.00	$21.88	Jun. 81	28.7%
Noranda	$33.75	$36.38	Jun. 81	7.8%
AVERAGE				72.5%

Gold producers, on average, returned over 70% on investors’ money during this period. While these aren’t the same spectacular gains from just a few years earlier, keep in mind they occurred over only about 12 months’ time. This would be akin to a $20 gold stock soaring to $34.50 by this time next year, just because it’s located in a significant discovery area.

Once again, it was the juniors that brought the dazzling returns.

Returns of Juniors Related to Hemlo Rally of 1981-1983
Company	1981 Price	Price Peak	Date of High	Return
Corona Resources	$1.10	$61.00	May 83	5,445.5%
Golden Sceptre	$0.40	$31.00	May 83	7,650.0%
Goliath Gold	$0.45	$32.00	Mar 83	7,011.1%
Bel-Air Resources	$0.81	$1.60	Jan. 83	97.5%
Interlake Development	$2.10	$6.40	Mar. 83	204.8%
AVERAGE				4,081.8%

The average return for these junior gold stocks that had a direct interest in the Hemlo area exceeded a whopping 4,000%.

This is especially impressive when you realize that it occurred without the gold stock industry as a whole participating. This tells us that a big discovery can lead to enormous gains, even if the industry as a whole is flat.

In other words, we have historical precedence that humongous returns are possible without a mania, by owning stocks with direct exposure to a discovery area. There are numerous examples of this in the past ten years, as any longtime reader of the International Speculator can attest.

By May 1983, roughly a year after it started, gold prices started back down again, spelling the end of that cycle—another reminder that one must sell to realize a profit.

The Roaring ’90s

By the time the ’90s rolled around, many junior exploration companies had acquired the “intellectual capital” they needed from the majors. Another series of gold discoveries in the mid-1990s set off one of the most stunning bull markets in the current generation.

Companies with big discoveries included Diamet, Diamond Fields, and Arequipa. This was also the time of the famous Bre-X scandal, a company that appeared to have made a stupendous discovery, but that was later found to have been “salting” its drill data (cheating).

By the summer of ’96, these discoveries had sparked another bull cycle, and companies with little more than a few drill holes were selling for $20 a share.

The table below, which includes some of the better-known names of the day, is worth the proverbial thousand words. The average producer more than tripled investors’ money during this period. Once again, these gains occurred in a relatively short period of time, in this case inside of two years.

Returns of Producers in Mid-1990s Bull Market
Company	Pre-Bull Market Price	Price Peak	Date of High	Return
Kinross Gold	$5.00	$14.62	Feb. 96	192.4%
American Barrick	$28.13	$44.25	Feb. 96	57.3%
Placer Dome	$26.50	$41.37	Feb. 96	56.1%
Newmont	$47.26	$82.46	Feb. 96	74.5%
Manhattan	$1.50	$13.00	Nov. 96	766.7%
Cambior	$10.00	$22.35	Jun. 96	123.5%
AVERAGE				211.7%

Here’s how some of the juniors performed. And if you’re the kind of investor with the courage to buy low and the discipline to sell during a frenzy, it can be worth a million dollars. Hold on to your hat.

Returns of Juniors in Mid-1990s Bull Market
Company	Pre-Bull Market Price	Price Peak	Date of High	Return
Cartaway	$0.10	$26.14	May 96	26,040.0%
Golden Star	$6.00	$27.50	Oct. 96	358.3%
Samex Mining	$1.00	$7.20	May 96	620.0%
Pacific Amber	$0.21	$9.40	Aug. 96	4,376.2%
Conquistador	$0.50	$9.87	Mar. 96	1,874.0%
Corriente	$1.00	$19.50	Mar. 97	1,850.0%
Valerie Gold	$1.50	$28.90	May 96	1,826.7%
Arequipa	$0.60	$34.75	May 96	5,691.7%
Bema Gold	$2.00	$12.75	Aug. 96	537.5%
Farallon	$0.80	$20.25	May 96	2,431.3%
Arizona Star	$0.50	$15.95	Aug. 96	3,090.0%
Cream Minerals	$0.30	$9.45	May 96	3,050.0%
Francisco Gold	$1.00	$34.50	Mar. 97	3,350.0%
Mansfield	$0.70	$10.50	Aug. 96	1,400.0%
Oliver Gold	$0.40	$6.80	Oct. 96	1,600.0%
AVERAGE				3,873.0%

Many analysts refer to the 1970s bull market as the granddaddy of them all—and to a certain extent it was—but you’ll notice that the average return of these stocks during the late ’90s bull exceeds what the juniors did in the 1979-1980 boom.

This is akin to that $0.50 junior stock today reaching $19.86… or $16, if you snag 80% of the move. A $10,000 portfolio with similar returns would grow to over $397,000 (or over $319,000 on 80%).

Gold Stocks and Depression

Those of you in the deflation camp may dismiss all this because you’re convinced the Great Deflation is ahead. Fair enough. But you’d be wrong to assume gold stocks can’t do well in that environment.

Take a look at the returns of the two largest producers in the U.S. and Canada, respectively, during the Great Depression of the 1930s, a period that saw significant price deflation.

Returns of Producers During the Great Depression
Company	1929 Price	1933 Price	Total Gain
Homestake Mining	$65	$373	474%
Dome Mines	$6	$39.50	558%

During a period of soup lines, crashing stock markets, and a fixed gold price, large gold producers handed investors five and six times their money in four years. If deflation “wins,” we still think gold equity investors can, too.

How to Capitalize on This Cycle

History shows that precious metals stocks move in cycles. We’ve now completed a major bust cycle and, we believe, are on the cusp of a tremendous boom. The only way to make the kind of money outlined above is to buy before the boom is in full swing. That’s now. For most readers, this is literally a once in a lifetime opportunity.

As you can see above, there can be great variation among the returns of the companies. That’s why, even if you believe we’re destined for an “all boats rise” scenario, you still want to own the better companies.

My colleague Louis James, Casey’s chief metals and mining investment strategist, has identified the nine junior mining stocks that are most likely to become 10 baggers this year in their special report, the 10-Bagger List for 2014. Read more here.

The article What 10-Baggers (and 100-Baggers) Look Like was originally published at Casey Research.

Where Should You Place Your Stops?

Identifying where stops exist in the market is an important lesson to learn because placing a correct stop loss will improve your trading tremendously over the course of time. Nobody knows for sure where stops should be located, however we have learned a couple of things over our 30 year career and we have a general idea where stops are placed and why.

Buy stops are generally placed above the 10 day high as well as above contract highs as the bulls generally are buying more and the short selling are getting stopped out. Sell stops are usually placed at the 10 day low as well as below contract lows which means the shorts are adding to their position and the longs are getting stopped out as they figure they are wrong. The other common places to have stops are at certain moving averages such as the 20 or 100 day moving average where traders think either the trend is turning bullish or the market is starting to break down.

Placing stops to close or not at important price levels can get very frustrating because the market can stop you out and then go the direction that you thought leaving you behind and out of the market. Placing stops is one of the most important aspects of trading in my opinion.

"What 10-Baggers (and 100-Baggers) Look Like"

Maximizing Your IRA: An Interview with Terry Coxon

By Dennis Miller

As working folks get closer to hanging up their spurs, it is easy to become overwhelmed. When should you take Social Security? What type of insurance do you need? Should you buy an annuity? Do you need nursing home insurance? Should you roll over your 401(k) into an IRA? The list goes on and on.


Retirement planning requires many irreversible decisions. We each need to get it right; however, what is right for us is not always right for someone else. And, in addition to basic number crunching, we each make assumptions about life and politics—sometimes without even realizing it.

One of my most significant personal decisions pertained to a Roth IRA. Managing your traditional or Roth IRA is an ongoing process, no matter how near or far you are from retirement. And the options are worth investigating regardless of the size of your portfolio. Making sure your money lasts requires much more than picking the right stocks. Owning those stocks—or whatever else you invest in—inside the right type of account can grow your portfolio faster and save you thousands of dollars in taxes, if not more.

I’m not shy about seeking out experts in different investment niches. In this spirit, I reached out to Terry Coxon, a senior economist and editor at Casey Research and principal in Passport IRA.

In the spirit of full disclosure, I want to add that Terry has taken the time to mentor me on occasion, and he’s encouraged me to bring some of my vast life experience to our readers. As Terry has reminded me from time to time, math is only part of the retirement puzzle—the uncertainties inherent to politics and the law are also integral pieces.

Terry travels the world, and I was lucky to catch him upon his return from a recent trip to the Cook Islands.

Dennis Miller: Terry, welcome. Many investors use a traditional IRA or retired with a lump sum from their 401(k). Can you tell us how a Roth IRA differs from those plans?

Terry Coxon: With a traditional IRA, if your income isn’t too high, you get a tax deduction for your annual contribution. But later, the money you withdraw is taxable as ordinary income, except to the extent of any non-deductible contributions you made. In the meantime, earnings accumulate without current tax, which helps the money grow much faster.

A Roth IRA is different. With a Roth IRA, you don’t get a tax deduction for your contributions; but all the withdrawals you later make can be tax free. The only requirements for keeping withdrawals 100% tax free are: (a) the Roth IRA must be in at least its fifth calendar year of existence; and (b) you must have reached the calendar year in which you will be at least 59 1/2 years old. As with a traditional IRA, earnings accumulate and compound free of current tax – which is the special power source of any retirement plan.
Most 401(k) accounts are similar to a traditional IRA in that contributions are deductible; withdrawals are taxable; and while they stay inside the account, earnings go untaxed. However, there is a variant called a Roth 401(k) that is available to sole proprietors and to participants in employer plans whose rules provide for Roths. With a Roth 401(k), there is no deduction for money that goes in; the money is invested free of current tax; and everything can be tax-free when it comes out.

Fleeing the High Tax Zone

 

Dennis: When I retired, I had a 401(k), and then rolled it over to a traditional IRA. As I began to understand the Roth IRA, I realized there were real benefits to putting my nest egg in a Roth. I had a CPA tell me not to do it, and he ran the numbers to show me why.

In April 2012, you published an article, Doing the Roth Arithmetic, which painted a much different picture. Can you explain all the factors and why they are so important?

Terry: Staying with a traditional plan or going to a Roth is a big decision, and it’s not always an easy or simple one. The decision needs to be based on the individual’s current circumstances, which are a matter of fact, and also on his hard-to-know future circumstances. Make the right decision, and you can come out way ahead. Let’s look at two extreme situations—which is helpful because extreme situations point to clear answers.

Situation #1 is the individual who has all of his investments in an IRA or other retirement plan, who is not in the top tax bracket, who expects that his tax rate is more likely to decline than to rise, and who expects to consume all of his assets in his own lifetime. That individual has nothing to gain by going the Roth route and might be walking into a higher tax bill if he takes it. If that description fits you, sit tight with your traditional IRA or 401(k).

Situation #2 is the individual with substantial investments outside of retirement plans, who is in or near the top tax bracket and expects to stay there, and who has more than he needs to live on for the rest of his life. That individual should definitely convert to a Roth. He’ll have to pay a big tax bill now rather than later, but he’ll get the better of the bargain. He will be buying out his minority partner—the government—that in any case will, sooner or later, collect 40% or so of his traditional IRA in taxes.

The money for the tax bill can and should come out of the individual’s non-IRA assets—which live in a high tax zone. That way, the net effect of converting to a Roth is to move capital from the high-tax zone (direct personal ownership) to the no-tax zone (the Roth).

You can get an added bonus by converting to a Roth IRA, and it’s a lot more valuable than a second ShamWow. A Roth IRA is not subject to the minimum withdrawal requirements that kick in at age 70 1/2 for someone with a traditional IRA. Escaping the minimum withdrawal requirements lets money stay in the no-tax zone longer, especially if you won’t need to spend it all in your own lifetime.

Don’t ask why, but unlike a Roth IRA, a Roth 401(k) is subject to minimum withdrawal requirements. However, you can convert a Roth 401(k) to a Roth IRA without tax cost.

Dennis: I have a friend who has a traditional IRA and is of the age where he has to take a required minimum distribution and pay taxes on the income. He is quite a bit older than his wife and would prefer to leave the money in the sheltered account. With a Roth IRA, are there any required withdrawal times or amounts?

Terry: Your friend is a good candidate for a Roth conversion. If he converts, he can stop making the withdrawals he doesn’t want to make. And once the Roth reaches its fifth calendar year, withdrawals he or his wife take will be tax-free. And if his wife doesn’t use it up, the Roth will be available for tax-free withdrawals by their children or other heirs.

Self-Directed and Open Opportunity IRAs

 

Dennis: A lot of folks think you have to have an IRA with a bank or brokerage company. Can you explain the concept behind self-directed Roth IRAs?

Terry: Quite a few people will be knocked over by the news, but the rules written by Congress allow an IRA to invest in almost anything (there are only a few, easy-to-live-with limitations). But when you go to a bank, broker, mutual fund family, or insurance company, you find that you can only invest in… their stuff. So go elsewhere.

“Self-directed” IRAs are available with a number of IRA custodians that specialize in opening doors to the full world of investment possibilities for IRA participants. They don’t promote any particular investments or investment products. Instead, they earn fees by doing the paperwork for pulling whatever investments you want under the umbrella of your IRA. It could be an apartment house or a farm or gold coins or private loans or tax liens or almost anything else. Rather than buying CDs from a bank, your IRA can be the bank.
It can be even better. A few custodians administer a special type of self-directed IRA called an “Open Opportunity” IRA. The idea is as powerful as it is simple. The IRA owns just one thing—a limited liability company that you manage. Since you are the manager, you have hands-on control, and you are free to buy almost any investment you think is right. You don’t need to wait for anyone’s permission or stamp of approval. The hands on the steering wheel are yours.

Dennis: What tips do you have for folks who want to roll their 401(k) over to a Roth? When should they start? Should they pay the taxes from the proceeds or other funds?

Terry: As I said earlier, the decision to convert isn’t simple. The best single indication that it is the right move is that you are able to pay the tax out of non-retirement-plan assets.

Dennis: I recently wrote an article about encore careers. If a retiree decides on a second career, can he start making contributions to his Roth?

Terry: Yes, no, and yes.

The first yes is: you are as eligible to contribute from your earnings from your encore career as you were during your earlier careers.

The no is: if your income is too high, you are not eligible to contribute to a Roth IRA.

The second yes is: Anyone can convert a traditional IRA to a Roth IRA. There are no income limitations. So you can always get to a Roth by contributing to a traditional IRA and then converting. The required waiting period is less than 15 nanoseconds.

Internationalizing Your IRA

 

Dennis: I’ve recently spoken with Nick Giambruno, senior editor of International Man, about international diversification. Can you help us understand our international options if we have money in a Roth?

Terry: This is one more wonderful thing about the Open Opportunity IRA structure. The LLC that lives inside the IRA can invest anywhere in the world. Want a brokerage account in Singapore? The IRA’s LLC can be the account holder. Want a farm? The LLC can buy it in New Zealand. Want gold? The LLC can keep it in a safe deposit box in Austria. Want your IRA to go into the ski rental business? The IRA’s LLC can open a shop in Chile. And the IRA’s LLC can own—or be—a foreign LLC.

Dennis: I have a good portion of my Roth offshore, but it is not inside an LLC. It is invested in traditional investments—stocks, bonds, etc., except on a worldwide basis and in a variety of foreign currencies. Are there times when an LLC might not be necessary?

Terry: Whatever you want your IRA to buy and wherever you want the investments to reside, doing everything through your IRA’s wholly owned LLC is quicker, easier, and cheaper. With the LLC in place, you don’t need to keeping going back to the IRA custodian for every transaction. You avoid fees and you avoid delays. You are in the driver’s seat.

Using a foreign LLC to hold foreign investments may give you two additional advantages. First, some foreign institutions are more willing to deal with a non-US LLC owned by a US person than they are to deal directly with a US person. Second, if the US government ever imposes currency controls or capital controls or undertakes a program of forced gold sales, an IRA’s foreign LLC—depending on the specifics of the new rules—might go untouched.

Dennis: Terry, I want to thank you on behalf of our readers. You have opened up avenues for real tax savings and additional safety.

Terry: People work hard, and it is tough for some to save money. Understanding their Roth IRA options is a good way for people to keep it and make it last. Enjoyed it, Dennis—glad I could help.

Final Thoughts from Dennis

 

With a traditional IRA, you get a tax deduction when you make your contribution, and that money grows tax-free. When you take it back out, it is subject to taxation.

A Roth works in the opposite manner. There is no tax deduction when you make the contribution, but it also grows tax-free. The difference is that when you take it out, there is no tax as long as you follow a few basic rules, which Terry discussed.

I am a strong advocate of maximizing your 401(k), particularly if your employer matches all or part of your contributions. Save as much money as you possibly can during your working career. At the same time, there are many reasons why, as Terry suggested, you might want buy out your business partner (the government) so you can grow your nest egg tax-free and make tax-free withdrawals as you see fit.

As you’ve just read, as the editor of Miller's Money Forever, I often have the pleasure of interviewing my colleagues on a variety of topics to give our subscribers even greater exposure to different investing sectors. Recent interviews include:

• Energy Profits with Marin Katusa, senior economist and editor at Casey Research;
• The Ultimate Layer of Financial Protection with Nick Giambruno, editor of International Man;
• Juniors for Seniors with Louis James, globe-trotting senior editor of Casey Research's metals and mining publications; and
• Other esteemed colleagues.

Gain access to everything our portfolio has to offer, as well as access to these top minds through occasional interviews and input, with your risk free 90 day trial subscription to Miller's Money Forever.

The article Maximizing Your IRA: An Interview with Terry Coxon was originally published at Millers Money.

Make sure you don't miss "What 10-Baggers [and 100-baggers] Look Like"

How Much Will a 15% Hair Cut Cost Your Investment Capital?

Over the past few weeks I have been watching the DOW and Transportation index closely because it looks and feels like the Dow Theory may play out this year and the stock market could take a 15% haircut.

But what if you skipped on the haircut and opted for a 40% refund?  What? Keep reading to find out how.

Keeping this post short and sweet, I think the U.S. stock market is setting up for a sharp selloff. And it will look a lot like the July 2011 correction. If my calculations are correct this will happen in the next 3-9 weeks and we will see a 15% drop from our current levels. Only time will tell, but I have a way to hedge against this with very little downside risk to you ETF portfolio.

The Dow Theory Live Example for ETF Portfolio

The daily chart of the SP500 index below shows our current trend analysis with green bars signaling an uptrend, orange being neutral, and red signaling bearish price action. Currently the bars are green and we can expect prices to have an upward bias.

The Dow Theory could be  in play. When both the Transports (IYT) and the Dow Jones Industrial Average (DIA) cannot make higher highs and start making lower lows, according to the Dow Theory the broad stock market is topping.

We are watching the market closely because they have both made lower highs and lows.  This rally could stall in the next couple weeks and if so we expect a 15% correction.







Take a look at the 2011 Stock Market Crash



The chart above shows how fearful traders have a delayed reaction to moving money from stocks to a mix of risk-off assets.

The choppy market condition during August and September clearly helped in frustrating investors and created more uncertainty. This helped prices of this ETF portfolio fund rally long after the initial selloff took place. This is something I feel will take place again in the near future and subscribers of my ETF newsletter will benefit from this move.

Because we have a Dow Theory setup, our risk levels are clearly defined as to when to exit the trade if it does not play out in our favor. But with the potential to make 40% and the downside risk only being 4%, it’s the perfect setup for a large portion of our ETF portfolio. And just so you know this is not a precious metals trade as we are already long that sector and up 10% in that position already.

Get My Daily Video Forecasts & ETF Trades Today

Chris Vermeulen
The Gold & Oil Guy.com

The Time of Maximum Pessimism Is the Best Time to Buy

By Nick Giambruno

“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”—Sir John Templeton


As you may have heard, Doug Casey and I traveled to Cyprus in search of crisis driven bargains… and we found them. This has been previously outlined in the articles here and in our specific investment picks in Crisis Investing in Cyprus.

Speaking of those picks, we outlined eight companies on the Cyprus Stock Exchange that we thought were fundamentally sound, but unjustly beaten down by the crisis. And thus far they have performed exactly as we thought they would.

The eight stocks that Doug and I identified are all up since the publication of Crisis Investing in Cyprus. Two of them have more than doubled, including one that’s up 335%ⁱ.

While those returns are nothing to bat an eye at, we believe there is still a lot more room for upside, and that it’s not too late to get in.

The top three catalysts for an economic recovery are still at the very earliest stages of being played out. And if the returns to date on our picks are any indication, we expect them to go much higher once these catalysts are fully under way.

Additionally, for the vast majority of people, there is still an aura of “maximum pessimism” surrounding Cyprus, which is what makes it an excellent contrarian investment. However, it’s clear this sentiment—and the current buying opportunity—won’t last forever.

Here are the three main catalysts to watch for.

Catalyst #1 Elimination of Capital Controls

Cyprus was the first eurozone country to implement official capital controls (but probably not the last). The restrictions put in place during the crisis are still there, though they are being gradually eased.

The first step toward the relaxation of capital controls occurred last week, and it’s possible that they will be fully lifted later this year. While it remains to be seen whether that will actually happen, there has been tangible progress in that direction.

Additionally, Cyprus has been meeting and exceeding its benchmarks set by the Troika (the IMF, the European Commission, and the European Central Bank), including the privatization of inefficient state-run enterprises and quickly enacting reforms, such as cutting government spending. This progress and the gradual relaxation of the capital controls are reasons for guarded optimism.

A couple of points to clarify about the capital controls:

First, they do not apply to new money brought into Cyprus (nor the capital gains and income generated from that money). That money can be taken out of the country without restriction. Second, the bank deposit confiscation only applied to cash balances above the guaranteed amount of €100,000 at the two troubled banks, Laiki Bank and Bank of Cyprus. Relatively sound institutions were not affected. Also, there was no forced selling or conversion of securities held in brokerage accounts. All of the brokers whom we met with held the majority of their cash in institutions outside of the country for additional protection.

Of course, the government could always come up with a new edict or decree, but we view that as unlikely at the moment, since they’re actively encouraging new investments in the island.

Catalyst #2 Offshore Gas Bonanza

In 2011 there was a discovery of a massive gas field about 100 miles south of Cyprus. The resources there are estimated to be worth tens of billions of dollars (not insignificant for a country with a $23 billion GDP)—and are enough to turn Cyprus into an energy exporter. Though it could be a number of years before these resources are monetized, it gives Cypriots a lot to look forward to over the intermediate term.

 

 

Catalyst #3 Relisting of the Bank of Cyprus

Previously the Bank of Cyprus and Laiki Bank accounted for a large chunk of the volume traded on the Cyprus Stock Exchange. Laiki Bank is now defunct, with its good parts having been folded into a restructured Bank of Cyprus—whose shares have been suspended from the stock exchange.
The restructured Bank of Cyprus is expected to start trading again sometime midyear, which will be an important catalyst in rejuvenating the stock market.

This is not to say the Bank of Cyprus is completely out of the woods. Far from it. While it has restored its capital base following the bail-in, it still has major issues with non-performing loans (NPLs).

That said, the Bank of Cyprus is the cornerstone of the Cypriot financial system, which is a major pillar of the Cypriot economy, and it has the backing of the Troika. The IMF believes that, despite the NPLs, the bank will be able to maintain an adequate capital base through at least 2016.

Owning a country’s premier bank—especially after it’s been chastised by a near-death experience—can be a profitable speculation.

It’s Not Too Late to Snatch These Bargains

While our eight investment picks are all up since the publication of Crisis Investing in Cyprus, including two of which that have more than doubled (including one that is up 335%ⁱ), that doesn’t mean it’s too late to get in.

The fact that we’re still at the very early stages of these three catalysts, combined with the continued “maximum pessimism” sentiment tells us that there’s still a lot more upside potential.

With features that make it a popular tourist and retirement destination combined with the potential economic boon from exploiting the offshore gas reserves, the Cypriot economy has a good chance to recover over the medium term.

When you weigh it all together, it’s clear that now is the time to start deploying speculative capital.
In order to invest on the Cyprus Stock Exchange, you’ll need a local brokerage account. Our preferred Cypriot broker can open accounts remotely for online trading, with no minimum balance requirements, and they still accept American clients.

This is information that you won’t find anywhere else. And there’s nobody better to guide you through it all than legendary crisis investor Doug Casey.

You can find out more about Crisis Investing in Cyprus by clicking here.
ⁱReturns denominated in euro terms from 11/6/2013 through 3/4/14

The article The Time of Maximum Pessimism Is the Best Time to Buy was originally published at International Man.

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And the Band Plays On

By Dennis Miller 

Quantitative Easing (QE) is no longer a surprise, but the fact that it's continued for so long is. Like many Miller’s Money readers, I believe the government cannot continue to pay its bills by having the Federal Reserve buy debt with newly created money forever. This has gone on much longer than I'd have ever dreamed possible.

Unemployment numbers dropped in December and the Federal Reserve tapered their money creation from $85 billion to $75 billion per month. Why did the unemployment rate drop? Primarily because people whose benefits have expired are no longer considered unemployed. The government classifies them as merely discouraged, but the fact remains that they don't have jobs.

So, what is the problem? Let's start with the magnitude of money creation. Tim Price sums it up well in an article on Sovereign Man:

"Last year, the U.S. Federal Reserve enjoyed its 100th anniversary, having been founded in a blaze of secrecy in 1913. By 2007, the Fed's balance sheet had grown to $800 billion. Under its current QE program (which may or may not get tapered according to the Fed's current intentions), the Fed is printing $1 trillion a year.

To put it another way, the Fed is printing roughly 100 years' worth of money every 12 months. (Now that's inflation.)"

As Doug Casey likes to remind us: Just because something is inevitable, does not mean it is imminent. Well, sooner or later imminent and inevitable are going to meet. Interest rates are depressed because the Federal Reserve is holding our debt. Eventually those creditors outside the Federal Reserve will demand much higher interest rates.

Currently, 30 year Treasuries are paying 3.59%. If interest rates rose by 2%—still below what was considered "normal" a decade ago—the interest cost to our government would jump by 30% or more. It's hard to imagine the huge budget cuts or tax increases it would take to pay for that.

In the meantime, investors are caught between the proverbial rock and hard place. We cannot invest in long- or medium-term, "safe," fixed income investments because they are no longer safe. They could easily destroy your buying power through inflation.

At the same time, the stock market is not trading on fundamentals. It is on thin ice. Just how thin is that ice? Take a look at what happened when the Federal Reserve stopped propping up the economy with money printing.

Each time they stopped with their stimulus the market dropped. In the summer of 2013, Bernanke made his famous "taper" remark and the market reacted negatively, immediately. The Fed has had to introduce more money into the system to stop the slide.

Investors who need yield know they have virtually no place else to go but the stock market. Most realize it is a huge bubble; they only hope to get out ahead of everyone else when the time comes. And we can't hold cash; inflation would clobber us. So, we've been forced into the market to protect and grow our nest eggs.
It reminds me of playing musical chairs as a kid. The piano player would slow down the tempo. We would all grab the back of a chair and get ready to sit. No one wanted to be the one left standing.

Today the band is playing the "Limbo Rock." Investors are in limbo, knowing the music will stop eventually. We're all going to have to grab a chair quickly—and the stakes are much higher now.

The chart below on margin debt comes courtesy of my friend and colleague at Casey Research, Bud Conrad.

Investors now have a dangerous amount of money invested on margin—meaning they borrowed money from their brokers to buy even more stock. There are strict margin requirements on how much one can borrow as a percentage of their holdings. If the stock price drops, the investor receives a margin call from his broker. That has to take place quickly under SEC requirements. The broker can also sell the holding at market to bring the client's account back into compliance.

Record margin debt, coupled with the thought of traders using computers to read the trend and automatically place orders in fractions of a second, paints an uneasy picture. The unemotional computers will not only sell their holdings, they may well initiate short sales to drive the market down even further.

As the lyrics from the "Limbo Rock" ask, "How low can you go?" When the market limbos down, it will likely be faster and further than we've imagined.

Why is 2014 different? I've been taking stock of 2013 as I prepare our tax filings. Our portfolio did very well last year, thanks in great measure to the analysts at Casey Research. With our Bulletproof Income strategy in place, I am very comfortable with our plans going forward.

At the same time, I am as jittery as a 9-year-old walking slowly around a circle of chairs, knowing that sooner or later the music will stop. The music has played for years now and we are in the game, whether we like it or not. Pundits have gone from saying "this is the year" to more tempered remarks like "this can't go on forever." They place their bets on inevitable, but hedge them on imminent.

What can we do? One of the mantras behind our Bulletproof Income strategy is: "Avoid catastrophic losses." Doug Casey has warned us that in a drastic correction most everyone gets hurt, so our goal is to minimize that damage and its impact on our retirement plans.

Here are a few things you can do to protect yourself.

• Diversify. Not all sectors rise and fall at the same speed. Optimal diversification requires more than just various stock picks across various sectors. Limit your overall stock market exposure according to your age. You don't have to be all in the market. There are still other ways to earn good, safe returns. International diversification will give you an added margin of safety, too, not only from a market downturn but also from inflation.
• Apply strict position limits. No more than 5% of your overall portfolio should be in any single investment. When I look at the record margin debt, I wonder how so many investors can go hog wild on a single investment. Planning for retirement demands a more measured approach.
• Set trailing stop losses. If you set trailing stop losses on your positions at no more than 20%, the most you could lose on any single trade is 1% of your overall portfolio. The beauty of trailing stops is the maximum loss seldom happens. As the stock rises the trailing stop rises with it, which will lock in some additional profits.
• Monitor regularly. As part of my regular annual review, I go over each one of my stop-loss positions. I use an online trading platform to keep track of them. Depending on the stock, you may want to place a stop-loss sell order or use an alert service that will notify you if the stock drops below your set point. Other investors prefer to use a third party for notification.
  
  So, why do I check my stop losses? My particular trading platform accepts the orders "GTC," meaning "good 'til cancelled." But GTC really means "Good for 60 days and then you have to re-enter the notification." Just read the small print.
  
  Also, sometimes stop losses need adjusting. As a stock gets closer to the projected target price, you may want to reduce the trailing stop loss to 15%, or maybe even 10%, to lock in more profits.

We all want to enjoy our retirement years and have some fun. I sleep well knowing we have several good circuit breakers in place. We may get stopped out of several positions and stuck temporarily holding more cash than we'd like. But that means we've avoided catastrophic loss and have cash to take advantage of the real bargains that are bound to appear.

And so the band plays on as baby boomers and retirees continue to limbo.

From the very first issue of Money Forever our goal—my mission­­—has been to help those who truly want to take control of their retirement finances. I want our subscribers to have more wealth, a better understanding of how to create a Bulletproof portfolio, and confidence their money will last throughout retirement.

With that in mind, I’d like to invite you to give Money Forever a try. The current the subscription rate is affordable – less than that of your daily senior vitamin supplements. The best part is you can take advantage of our 90-day, no-risk offer. You can cancel for any reason or even no reason at all, no questions asked, within the first 90 days and receive a full, immediate refund. As you might expect, our cancellation rates are very low, and we aim to keep it that way. Click here to find out more.

The article And the Band Plays On was originally published at Millers Money

Ukraine: Three Views

By John Mauldin

All eyes are on Ukraine as the drama continues to unfold. Today, for an early Outside the Box, I’m going to offer three sources on Ukraine. The first is a note that I got from the head of emerging market trading at one of the world’s largest hedge funds. This is what he sent out last week, ahead of any real action:

My view, Putin is stuck now, cannot easily de-escalate. Further escalation is a possibility, with Ukraine cracking along the obvious ethnic fault lines and the West reacting with measures such as sanctions and visa restrictions. Tit-for-tat follows; gas supplies to the EU are disrupted. Russian capital outflows accelerate and the RUB [ruble] quickly gets to 40/$, fuelling inflation and unnerving the Russian banking system, and also infecting the European banking system, in the manner that Chris Watling has envisaged. 

Meanwhile, the Chinese liabilities residing inside the European banking system are also in trouble, of course, and will continue to deteriorate. The CBR [Central Bank of Russia] hikes repeatedly with very little effect on slowing the RUB slide, further hurting GDP growth and economically sensitive segments of the market. The Russian RTX index revisits the GFC lows of 2008, Gazprom ADR's are already within shouting distance of their 2008 lows today. 

In such a scenario, there is an obvious risk of market contagion spreading throughout Eastern and Western Europe, and in fact the rest of the world. It is likely to resemble something on the order of the 1998 LTCM + RUB collapse + Asian financial crisis magnitude. In fact, a number of hedge funds will fail precisely because they have loaded up so heavily with European debt instruments which will unravel.

Meanwhile, politically, the U.S. ends up looking weaker and weaker, and getting less and less respect internationally. The U.S.-Russia confrontation is taking place under the critical gaze of the leaders of Israel, Saudi Arabia, Egypt, Iran, Syria, Turkey and Hizballah in Lebanon.

They are seeing the following:

1. President Obama is now seen backing off a commitment to U.S. allies for the second time in eight months. They remember his U-turn last August on U.S. military intervention for the removal of Syrian President Bashar Assad for using chemical weapons. They also see Washington shying off from Russia's clear and present use of military force and therefore concluding that Washington is not a reliable partner for safeguarding their national security.
   
2. The Middle East governments and groups which opted to cooperate recently with Vladimir Putin – Damascus, Tehran, Hizballah and Egypt – are ending up on the strong side of the regional equation. Others such as Turkey and Qatar are squirming.
   
3. American weakness on the global front has strengthened the Iranian-Syrian bloc and its ties with Hizballah. Assad is going nowhere.
   
4. Putin standing behind Iran is a serious obstacle to a negotiated and acceptable comprehensive agreement with Iran, just as the international EU- and U.S.-led bid for a political resolution of the Syrian conflict foundered last month, and now is unlikely to ever be revisited.
   

Notice what he said about European banks. Their exposure to emerging-market corporate debt, Chinese debt, and Russian liabilities is going to weaken their balance sheets just as the European central bank stress test will be kicking off.

This is going to be a very interesting period of time and potentially quite dangerous. Very few people saw U.S. market vulnerabilities in early 1998 coming from outside the US. As I said in my 2014 forecast, the United States should be all right until there is a shock to the system. We have to be aware of what can cause shocks. Ukraine in and of itself might not be enough, but notice that the Chinese are preparing to slow their economy down as part of the process of reducing their dependency on bank debt and foreign direct investment in construction and other projects. China has been one of the main engines of global growth, so a slowdown will have effects. It’s all connected, as I wrote in the 2007 letter we reprinted this weekend.

I should note that other very savvy investors and managers think there will be no contagion from current events. That’s what makes a market. It’s why we need to pay attention to Ukraine.

In the second part of today’s Outside the Box we visit a short essay on Ukraine by Anatole Kaletsky, which talks about timing investments during market crises:

Financial markets cannot afford to be so sentimental. While we should always recall at a time like this the famous advice from Nathan Rothschild to “buy at the sound of gunfire,” the drastically risk off response to weekend events in Ukraine makes perfect sense because Russia’s annexation of Crimea is the most dangerous geopolitical event of the post-Cold War era, and perhaps since the Cuban Missile crisis. It can result in only two possible outcomes, either of which will be damaging to European stability in the long-term.

Finally, I got a piece on Ukraine from my friend Ian Bremmer, who says, “[W]e are witnessing the most seismic geopolitical event since 9/11.” His analysis plus background data help us understand what is really going on in Ukraine.

Ian will be at my conference in San Diego, May 13-16, and you should be too. If you don’t have a plan for dealing with what happens when the midterm forecasts begin knocking on the door, you won’t know what to do when the time comes. Our conference offers a wonderful opportunity to bring your plans into focus and perhaps make a few new ones. You can find out more here.

I’m feeling a lot better today than I did this weekend. I am stuck in Miami due to the cancellation of my flight but hope to be able to get to Washington DC tomorrow morning to experience the East Coast version of the polar vortex. But, for the nonce, I guess I will be forced to sit outside at the pool or on the beach and continue my research, which is once again stacking up. You have to love iPads, which are for me great productivity enhancers. I did finish George Gilder’s brilliant must-read book Knowledge and Power this weekend, and I highly recommend it. And I suppose I should research the gym facilities here later this afternoon. I have mastered the trick of reading on my iPad while walking on the treadmill. No excuses. Have a great week.

Your enjoying the Miami weather analyst,

John Mauldin, Editor

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Realpolitik In Ukraine

By Anatole Kaletsky, Gavekal

Oscar Wilde described marriage as the triumph of imagination over intelligence and second marriage as the triumph of hope over experience. In finance and geopolitics, by contrast, experience must always prevail over hope and realism over wishful thinking. A grim case in point is the Russian incursion into Ukraine. What makes this confrontation so dangerous is that US and EU policy seems to be motivated entirely by hope and wishful thinking. Hope that Vladimir Putin will “see sense,” or at least be deterred by the threat of US and EU sanctions to Russia’s economic interests and the personal wealth of his oligarch friends. Wishful thinking about “democracy and freedom” overcoming dictatorship and military bullying.

Financial markets cannot afford to be so sentimental. While we should always recall at a time like this the famous advice from Nathan Rothschild to “buy at the sound of gunfire,” the drastically risk off response to weekend events in Ukraine makes perfect sense because Russia’s annexation of Crimea is the most dangerous geopolitical event of the post- Cold War era, and perhaps since the Cuban Missile crisis. It can result in only two possible outcomes, either of which will be damaging to European stability in the long term. Either Russia will quickly prevail and thereby win the right to redraw borders and exercise veto powers over the governments of its neighbouring countries. Or the Western-backed Ukrainian government will fight back and Europe’s second-largest country by area will descend into a Yugoslav-style civil war that will ultimately draw in Poland, NATO and therefore the US.

No other outcome is possible because it is literally inconceivable that Putin will ever withdraw from Crimea. To give up Crimea now would mean the end of Putin’s presidency, since the Russian public, not to mention the military and security apparatus, believe almost unanimously that Crimea still belongs to Russia, since it was only administratively transferred to Ukraine, almost by accident, in 1954. In fact, many Russians believe, rightly or wrongly, that most of Ukraine “belongs” to them. (The very name of the country in Russian means “at the border” and certainly not “beyond the border”). Under these circumstances, the idea that Putin would respond to Western diplomatic or economic sanctions, no matter how stringent, by giving up his newly gained territory is pure wishful thinking. Putin’s decision to back himself into this corner has been derided by the Western media as a strategic blunder but it is actually a textbook example of realpolitik. Putin has created a situation where the West’s only alternative to acquiescing in the Russian takeover of Crimea is all-out war.

And since a NATO military attack on Russian forces is even more inconceivable than Putin’s withdrawal, it seems that Russia has won this round of the confrontation. The only question now is whether the new Ukrainian government will accept the loss of Crimea quietly or try to retaliate against Russian speakers in Ukraine—offering Putin a pretext for invasion, and thereby precipitating an all-out civil war.

That is the key question investors must consider in deciding whether the Ukraine crisis is a Rothschild style buying opportunity, or a last chance to bail out of risk-assets before it is too late. The balance of probabilities in such situations is usually tilted towards a peaceful solution—in this case, Western acquiescence in the Russian annexation of Crimea and the creation of a new national unity government in Kiev acceptable to Putin. The trouble is that the alternative of a full-scale war, while far less probable, would have much greater impact—on the European and global economies, on energy prices and on the prices of equities and other risk- assets that are already quite highly valued. At present, therefore, it makes sense to stand back and prepare for either outcome by maintaining balanced portfolios of the kind recommended by Charles, with equal weightings of equities and very long-duration U.S. bonds.

Looking back through history at comparable episodes of severe geopolitical confrontation, investors have usually done well to wait for the confrontation to reach some kind of climax before putting on more risk. In the 1962 Cuban Missile Crisis, the S&P 500 fell -6.5% between October 16, when the confrontation started, and October 23, the worst day of the crisis, when President Kennedy issued his nuclear ultimatum to Nikita Khrushchev. The market steadied then, but did not rebound in earnest until four days later, when it became clear that Khrushchev would back down; it went on to gain 30% in the next six months.

Similarly in the 1991 Gulf War, it was not until the bombing of Baghdad actually started and a quick US victory looked certain, that equities bounced back, gaining 25% by the summer. Thus investors did well to buy at the sound of gunfire, but lost nothing by waiting six months after Saddam Hussein’s initial invasion of Kuwait in August, 1990. Even in the worst-case scenario to which the invasion of Crimea has been compared over the weekend—the German annexation of Sudetenland in June 1938—Wall Street only rebounded in earnest, gaining 24% within one month, on September 29, 1938. That was the day before Neville Chamberlain returned from Munich, brandishing his infamous note from Hitler and declaring “peace in our time”. The ultimate triumph of hope over experience.

Special Eurasia Group Update – Ukraine

By Ian Bremmer, Eurasia Group

Dear John,
Russia is conducting direct military intervention in ukraine, following condemnation and threats of sanction/serious consequence from the united states and europe. we're witnessing the most seismic geopolitical events since 9/11.

A little background from the week. russian president vladimir putin provided safety to now ousted Ukrainian president Viktor Yanukovych. the Ukrainian government came together with broadly pro European sentiment...and with few if any representatives of other viewpoints. the west welcomed the developments and prepared to send an imf mission, which would lift the immediate economic challenge. And then, predictably...the russians changed the conversation.

The west – the us and europe – supported the Ukrainian opposition as soon as President Yanukovych fled the country. that also effectively breached the accord that had been signed by the european foreign ministers, opposition and President Yanukovych (a Russian special envoy attended but did not add his name). The immediate american perspective was to take the changed developments on the ground as a win. but a "win" was never on offer in Ukraine, where russian interests are dramatically, even exponentially, greater than those of the americans or europeans. for its part, the new Ukrainian government lost no time in antagonizing the russians – dissolving the Ukrainian special forces, declaring the former president a criminal, and removing russian as a second official language. the immediate russian response was military exercises and work to keep Crimea. president Vladimir Putin kept mum on any details.

Let's focus on crimea for a moment. it's majority ethnic russian, and ukrainians living there are overwhelmingly russian speaking (there's a significant minority population of muslim Crimean tatars, formerly forcibly resettled under Stalin – relevant from a humanitarian perspective, but they'll have no impact on the practical political outcome). Crimea is a firmly russian oriented territory. Crimea has a Russian military base (with a long term lease agreement) and strong, well organized Russian and cossack groups – which they've supplemented with significant numbers of additional troops, as well as military ships sent to the area. Russia has said they will respect ukrainian territorial integrity...and I'm sure they'll have an interpretation of their action which does precisely that. moscow will argue that the ouster of President Yanukovych was illegal, that he's calling for Russian assistance, that the new government wasn't legally formed, and that citizens of Crimea – governed by an illegal government – are requesting russia's help and protection. all of which is technically true. to be sure, there are plenty of things the russians have already done that involve a breach, including clear and surely provable, given sufficient investigation, direct Russian involvement in taking over the parliament and two airports in crimea. but that's not the issue. it's just that if you want to argue over the finer points, the west doesn't have much of a legal case here and couldn't enforce one if it did.

And the finer points aren't what we're going to be arguing about for some time. president obama's response was to strongly condemn reported russian moves, and to imply it was an invasion of sovereignty...promising unspecified consequences to Russia should they breach Ukrainian sovereignty. if that was meant to warn the russians, who have vastly greater stakes in Ukraine (and particularly crimea) than the americans and the europeans, it was a serious miscalculation, as Putin already controlled crimea, it was only a question of how quickly and clearly he wanted to formalize that fact. there's literally zero chance of american military response, with the pentagon quickly clarifying that it had no contingencies for dealing with moscow on the issue – that's surely not true, they have contingencies for everything. but secretary of defense Chuck Hagel just wanted to ensure nobody thought the president meant that all options were on the table. instead, we're seeing discussions of president Obama not attending the G-8 summit in Sochi and targeted sanctions against Russia.

Putin has since acted swiftly, requesting a vote from the Russian upper house to approve military intervention in Ukraine. it was approved, unanimously, within hours. It's a near certainty that the Russians now persist in direct intervention. the remaining related question is whether russian intervention is limited to Crimea – Putin's request included defense of Russia's military base in sevastopol (on the crimean peninsula) and to defend the rights of ethnic russians in Ukraine...which extends far beyond crimea. putin's words may have been intended to deter the west, or he may intend to go into eastern Ukraine, at least securing military assets there. Given that pro-russian demonstrations were hastily organized earlier in the day in three major southeast ukrainian cities, it seems possible the russians are intending a broader incursion. if that happens, we're in an extremely escalatory environment. if it doesn't, it's still possible (though very difficult) that the west could come in financially and stabilize the Keiv government.

Before we get into implications, it's worth taking a step back, as we've seen this before. in 2008, turmoil developed in Georgia under nationalist president mikheil saakashvili, a charismatic figure, fluent english speaker, and husband to a european (from the Netherlands). he made it very clear he wanted to join NATO and the european union (the latter being a pretty fantastic claim). the Russian government was doing its best to make Georgia's president miserable – cutting off energy and economic ties and directly supporting restive Russian speaking republics within Georgia. for his part, saakashvili delighted in directly antagonizing putin – showing up late for a kremlin meeting (while he was busy swimming), insulting him personally, etc.

Saakashvili was a favorite of the west, the us congress particularly feted him. the messages from the united states were positive, making it sound like America had his back. internally, there was a strong debate – vice president dick cheney led the calls to free himself from russia's grip as fast and as loudly as possible, secretary of state Condoleezza Rice thought Saakashvili unpredictable and dangerous, and wanted to urge him to back off (as did former secretary Colin Powell, who lent his view to the white house as well). The Cheney view prevailed, Georgian president already had a habit of hearing what he wanted to out of mixed messages, and he proceeded. on 8 august, the russian tanks rolled into georgia and then the united states was left with a conundrum –  what to do to defend America's "ally" Georgia.

As it turned out, nothing. national security advisor steve hadley chaired a private meeting with president bush and all relevant advisors, most of whom said the united states had to take action. bush was sympathetic. hadley stopped the meeting and asked if anyone was personally prepared to commit military forces to what would be direct confrontation with russia. he went around the room individually and asked if there was a commitment – which would be publicly required of the group afterwards (and uniformly) if they were to recommend that the president take action. there was not – not a single one. and then the meeting quickly moved to how to position diplomacy, since there wasn't any action to take.

That's precisely where we are on ukraine – but with much higher stakes (and with a united states in a generally weaker diplomatic position), since ukraine is more important economically and geopolitically (and to europe specifically on both).

The good news is that russia doesn't matter as much as it used to on the global stage. indeed, a big part of the problem is that Russia is a declining power, and the west's response on ukraine was to make the west's perception of that reality abundantly clear to Putin. which, in Putin's mind, required a decisive response. but this has the potential to undermine american relationships more broadly. to say the U.S. - Russia relationship is broken presently is an understatement – the upper house also voted to recall the russian ambassador to washington (america's ambassador to Moscow had just this past week ended his term – the decision was unrelated to the crisis).

what will be much more interesting is 1) the significance of the west's direct response; 2) whether the Russians will cause trouble on a broader array of fronts for the west; and 3) whether a strongly intentioned Russia can shift the geopolitical balance against the united states.
taking each of these in order.

1) The west's direct response. we won't see much, although there will certainly be some very significant finger pointing. president obama will cancel his trip to sochi for the upcoming G8 summit and it's possible that enough of the other leaders will join him that the meeting is cancelled. it's conceivable the G7 nations would vote to remove Russia from the club. the us would also suspend talks to improve commercial ties with the united states. it's possible we see an emergency united nations security council session to denounce the intervention – which the russians veto (very interesting to see if the Chinese join them, and who abstains...). hard to see significant european powers actually breaking relations with russia at this point, but an action-reaction cycle could spiral. also, nato will have to fashion some response, possibly by sending ships into the black sea. shots won't be fired, but markets will get fired up.

2) International complications from Russia. this will significantly complicate all areas of us-russian ties.
russia doesn't want an iranian nuclear weapon, but they'll be somewhat less cooperative with the americans and europeans around Iranian negotiations...possibly making them more likely to offer a "third way" down the road that undermines the american deal. on syria, an intransigent russia will become very intransigent, making it more difficult to implement the chemical weapons agreement and providing greater direct financial and military support for bashar assad's regime.

On energy issues, a Russian invasion of eastern Ukraine would put in play the integrity of major pipelines. moscow and kyiv would share strong incentives to keep gas and oil flowing, but in the worst case we could see disruptions. Ukraine has gas reserves for a while, but then the situation could become dire. russia could divert some European bound gas through the nord stream line, but volume to Europe would drop. this is all in extremis, but out there.

3) Geopolitical shift. Russia will see its key opportunity as closing ranks more tightly with China. while we may see symbolic coordination from beijing, particularly if there's a security council vote (where the Chinese are reasonably likely to vote with the russians), the chinese are trying hard to maintain a balanced relationship with the united states...and accordingly won't directly support russian actions that could undermine that relationship. leaving aside China, Russia's ability to get other third party states on board with their Ukrainian engagement is largely limited to the "near abroad" – Armenia, Belarus, Tajikistan –  which is not a group the west is particularly concerned with.

But it is, more broadly, a significant hit to american foreign policy credibility. coming only days after secretary of state kerry took strong exception to "asinine", "isolationist" views in congress that acted as if the united states was a "poor country," a direct admonition by the united states and its key allies is willfully and immediately ignored by the russian president. that will send a message of weakness and bring concerns about american commitment to allies around the world. G-zero indeed.


We'll be watching this very closely over coming days. I'm flying to Seoul for a conference on monday, where I'm meeting up with President George W. Bush. should prove interesting on Russia, no question. i'm back on Wednesday, but will be available by phone/email throughout, so feel free to get in touch.
yours truly,

Ian

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The article Outside the Box: Ukraine: Three Views was originally published at Mauldin Economics.

Should You Invest in the Marijuana Boom?

By Dan Steinhart, Managing Editor, The Casey Report

I was planning to explore the investment landscape of the burgeoning marijuana industry today, but it looks like the party’s already over.


Appearing before the Maryland Legislature, Annapolis Police Chief Michael Pristoop testified that 37 people died in Colorado on the first day of legalization from overdosing on marijuana.

What a damn shame. With morbid stats like that, the government can’t possibly allow the legalization trend to proceed any further. People’s lives are at stake!

Except they’re not. Chief Pristoop got those stats from a tongue-in-cheek story in The Daily Currant, a satirical newspaper à la The Onion. He believed it to be legitimate, so he cited it during testimony. Despite the fact that exactly zero people in history have died from overdosing on marijuana.

As you surely know, Colorado and Washington recently became the first states to legalize marijuana for recreational use, joining 18 other states that have legalized it for medical use only. Legalization is gaining steam across the US, and that’s unlikely to change—if only because, other than citing fake facts, opponents of legalization have no argument.

Opposition to legalizing marijuana is dwindling for the same reason that opposition to gay marriage is dwindling: there’s no intelligent reason to oppose either one. Unless, in the case of marijuana, you’re concerned with its potential to cause more car accidents. But if those are your standards, we should criminalize beer, cellphones, and makeup, too.

One thing’s for sure: the investment world is enamored with the idea of a brand new green industry. As an illustration of exactly how hot this infant sector has become, take a look at this screen shot of an email received by a senior Casey Researcher this week. It’s a news release from a mining company, announcing its intent to “diversify” into the legal marijuana business:

An interesting business decision. I’m not sure what synergies exist between mining and marijuana, nor do I have any particular insight into how Next Gen’s management plans to enter the green business. But I applaud its forward thinking.

Apparently, so does the market. Here’s how Next Gen’s share price reacted to the announcement:

It soared over 300%, transforming from a penny stock into a dime stock in one day. Again, Next Gen didn’t grow earnings, discover a new gold deposit, or accomplish anything tangible. It tripled its valuation simply by announcing its entry into the marijuana business. That’s what I call a scorching industry.

So, should you put some speculative money into the hottest cannabis stock? Let’s take a quick tour around the burgeoning industry to get a picture of its investment prospects, focusing on five factors…..

1) Profits Will Plummet

 

Had Al Capone been born in any other era, he would not have amassed a $100 million fortune. It was Prohibition that allowed him to earn extraordinary returns in the otherwise standard business of providing alcohol to people.

Likewise, legal purveyors aren’t going to earn anywhere near the spectacular returns that criminals enjoyed when marijuana was illegal. Drug distributors can become filthy rich because dealing drugs requires taking extraordinary risks. One misstep and you go to jail. Or worse, the rival Mexican cartel mows you down. That risk premium is why illegal drugs are so expensive, and why marijuana costs $300-400/oz in the US. But it won’t for long.

How can I be so sure? Because we already have a glimpse into the future. Uruguay legalized marijuana in December, and an ounce of the stuff costs $28 there, less than 10% of what it costs to obtain it the US.
It’s true that the Uruguayan government controls the marijuana industry tightly and set that $28/oz price. But the cost to produce marijuana there averages just $14/oz. So $28/oz is a reasonable guess as to where the price of marijuana would settle if the market were allowed to clear.

Going forward, profit margins won’t be nearly as fat as they were in the past.

2) The Government Will Be Heavily Involved

 

At least one guy will unquestionably make a killing from marijuana’s legalization. His initials are “U. S.,” and he wears a star-spangled hat.

We’re just two months into legalization, and taxes are already hefty. In Colorado, marijuana is subject to a 2.9% sales tax, plus a 10% tax on retail marijuana sales, plus a 15% excise tax based on the average wholesale price. Washington is no better—it plans to exact a 25% excise tax, plus an 8.75% sales tax.

All told, taxes in these early-adopting states will be in the neighborhood of 30%. And that’s before the feds get their cut (more on that momentarily). Further, taxes are the one exception to the rule, “What goes up must come down.” Someday, tokers might look back longingly at that 30%. After all, the average tax on a pack of cigarettes in the US is 42%.

Last, the marijuana industry isn’t going to be the Wild West. Colorado is working to control pretty much every aspect of the market, as evidenced by its 144-page marijuana Rule Book. You can be sure that other states will follow suit.

3) It’s Still Illegal

 

Though marijuana is now legal in two states, it’s still illegal under federal law. The Obama administration has said it won’t enforce marijuana prohibition in states that legalize it, as long as those states keep it under control. The federal government maintains the same position on medical marijuana, which, somewhat surprisingly, is also still illegal under federal law.

The feds are moving in the right direction, albeit slowly. Two weeks ago, the Treasury Department issued new rules that open the door for banks to do business with legal and licensed marijuana dispensaries.
Of course, once the feds do get on board, they’ll want a piece of the action. So be ready for even higher taxes.

4) Unsavory First Movers

 

It’s an unfortunate fact that, because the industry was just decriminalized recently, those best positioned to jump quickly into the marijuana business are those who were already in the marijuana business. In other words: people who were classified as criminals just two months ago.

Not that they were necessarily doing anything wrong by growing and distributing marijuana before it was legal. I’m sure plenty of growers and sellers are good people trying to earn a buck, just like those who grow and sell any other crop.

But as with any emerging industry, the first movers will be those who already possess an intimate knowledge of said industry. And in the case of marijuana, that means people who were running illegal businesses. So if you invest in their companies, you’re entrusting your capital to someone who’s willing to break the law.

As an investor, that should give you pause. Tread carefully, and dial your skepticism up to maximum.

5) Weak Candidates

 

The investment options in this infant industry are, understandably, limited. We’re a ways off from being able to buy a bushel of hemp on the futures exchange. If you want to invest, you’ll have to go with one of a handful of public companies. And unfortunately, none of them looks compelling.

The six companies in the chart below are the purest plays in the marijuana space. Their performance in 2014 is the stuff of legends—the worst performer gained 243% in the last three months:

But dig into their businesses and you’ll soon find that their value comes from their scientific-sounding names, and not from actually making money.

First, the companies are tiny and only trade on the illiquid over-the-counter markets. Before the share price run-up, only one, CannaVEST, had a market cap above $60 million.

What’s worse, most of them don’t have any revenue. And the ones that do generate revenue spend much more than they earn. Not that this is surprising—hardly any business could become profitable in just two months, so we won’t hold that against them. The problem is their valuations: CannaVEST is worth a staggering $1.8 billion today, and most of the others are all in the hundred-million range.

Let’s put it this way: if an entrepreneur walked into the Shark Tank seeking a $1.8 billion valuation for a company that doesn’t make money, Mark Cuban would laugh him out of the room. Speculative money already took these stocks to the moon. By buying one now, your only hope of profiting is for a greater fool to come along and buy it from you at a higher price.

As I see it, because of sky-high valuations, the risks in this blossoming industry far outweigh the potential reward, at least for a retail investor. I’m sure there are some fantastic private deals out there, and if you’re willing to press the flesh and meet some marijuan-trepreneurs yourself, you could make money.

But for non-full-time investors, you’ll want to watch this trend unfold from the sidelines, waiting for either (1) the speculative bubble to pop, so you can pick up some shares for fractions of a penny; or (2) a leader to emerge and demonstrate it can turn a profit.

Here’s a tip, though: If you’re looking for an investment with potentially spectacular gains, I would like to point you to another drug, this one perfectly legal once it’s FDA approved. What I’m talking about is an impressive biotech startup my colleague Alex Daley, Casey’s chief technology investment strategist, has dug up.

The company is well on its way to launching a breakthrough Alzheimer’s treatment—which, if successful, is sure to be a game changer for the medical industry. Clinical trial results are due out in early March, and should they be positive, the stock could easily double on the news… so right now is a great time to get in. Find out more about the company and its revolutionary product in this report.

The article Should You Invest in the Marijuana Boom? was originally published here at Casey Research.

Weekly Futures Recap With Mike Seery - SP 500, Gold, Coffee, Sugar

We’ve asked our trading partner Michael Seery to give our readers a weekly recap of the Futures market. He has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.

SP 500 Futures
The S&P 500 in the March contract hit another all time record high trading higher by 2 points at 1855 rallying about 16 points in the last 2 trading days as investors are extremely bullish this market due to the fact of low interest rates and a weakening U.S dollar pushing commodity prices higher which also helped push up stock prices. The S&P 500 is trading above its 20 & 100 day moving average telling you that the trend is to the upside as this bull market continues in my opinion as Friday’s remain the most bullish day of the week in equities as investors continue to think that higher prices are ahead with the next major target at 1900 in the next possible couple of months as mergers and acquisitions are taking place with solid earnings across the board and nowhere else to go due to the fact of extremely low interest rates so look to continue to buy the S&P 500 in my opinion especially on dips.

Trend: Higher
Chart Structure: Solid

Gold Futures
Gold futures are trading above their 20 and 100 day moving average basically settling unchanged for the trading week going out this Friday afternoon in New York down about $8 at 1,323 after prices hit 1,345 in Wednesday’s trade as the trend still continues to the upside. I think this is just a possible pause as prices have had a heckuva rally in the last 2 months and I have been recommending a long position in gold for quite some time while placing my stop below the 10 day low which currently stands around 1,315 which is only $8 away so that stop is very tight with a high probability of getting clipped at that price on Monday, however continue to focus on gold and silver to the upside and if you’re lucky enough to get some panic selling I would still be looking at buying as 2013 created the low in gold prices in my opinion.

Trend: Higher
Chart Structure: Excellent

Coffee Futures
This is an actual email that I received from a major coffee producer in Brazil that was sent to me late Thursday night..... “I have been following your comments and suggestions on barchart´s page and have found quite accurate. I live in Machado, state of Minas Gerais, the largest Arabica producing area in Brazil and the lack of rain mixed with unusual hot temperatures are quite scary. However, the worse is yet to come. Even if it the amount of rain gets back to normality by March and April, coffee trees are no longer capable to produce enough energy for the flowering season that must happen between October and November. Having said that, 2015´s crop could be a total disaster if on top of that frost decides to show up by late May".

Coffee could face some corrections but price has no other place to go but up as Brazil alone is consuming around 25 million bags per year. If we´re down to 50 million bags this year ( I like to be optimistic) that will be quite interesting to watch. I continue to recommend a long position either with a futures contract or some type of bull call option spread for the month of July as 2.00 a pound is the next level of resistance as prices closed right as new contract highs at 180.30 a pound in the May contract.

Trend: Higher
Chart Structure: Improving

Sugar Futures
Sugar futures finished lower this Friday afternoon closing around 17.66 a pound in the May contract but rallied about 65 points for the week all due to the drought worsening in central Brazil which is cutting crop estimates which is pushing prices right near 3 ½ month highs. Sugar futures have rallied from 15.00 a pound in late January to all the way above 18.00 in yesterday’s trade as this market remains bullish and I have been recommending a long position when the breakout occurred at 16.58 I would place my stop loss at the 10 day low of 16.00 if you are long. Sugar futures are trading above their 20 and 100 day moving average; however the chart structure is very poor as volatility has entered in the last couple of weeks having wild trading sessions of 80 points or more so make sure you have a proper money management technique in place limiting your risk in case you are wrong but I do believe prices are headed higher.

Trend: Higher
Chart Structure: Poor

So this just isn't enough for you? Click here for more of Mike's calls on commodities this week



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The Ty Cobb Approach to Retirement Investing

By Dennis Miller

When baseball fans talk about players from the early 1900s, Babe Ruth is normally the first person mentioned. He was a great home run hitter with 714 career home runs, a record that stood for almost 40 years. Only two men have surpassed it. Ruth struck out 1,330 times, a record that also stood for several decades.


Most people think of Ty Cobb as a gritty player who held the career stolen base record for many years. But let’s look a bit deeper. Ty Cobb broke into major league baseball in 1905 at the age of 19 and hit .240 his first season. For the next 23 seasons, he hit over .300.

Cobb holds a lifetime batting average of .367, a record that still stands today: 85 years and counting. His career strikeout total is 357. He averaged 14.9 strikeouts per season, striking out 3.1% of the time, a remarkably low average.

Young people love to swing for the fences and hit those huge gains. With retirement money, an occasional home run is nice; however, our overriding goal is to preserve capital and avoid catastrophic losses. Ty Cobb didn’t hit as many home runs as Babe Ruth, but he was a model of consistency.

Once you’ve built your nest egg, you’re not trying to run up the score; you’re trying to stay ahead.
Anyone who has tried to play catch-up with his portfolio can tell you there’s no such thing as a five run homer. Newsletters touting the chance to double or triple your money can grab our attention, but experienced investors realize that those gains are only possible if you’re willing to take on the commensurate risk.

Swinging for the fences with retirement money won’t get the job done. With money that must last forever, putting your emotions aside and focusing on safety and consistency is paramount.

Safety First

 

Have you ever watched a thin-ice rescue scene? A person standing with all of his weight on thin ice can easily fall through as all his weight is concentrated. The rescuer trying to reach this person normally lies flat across the ice, spreading out his weight.

The same approach works for today’s retirement investor. Step one is to spread risk through diversification among (and within) asset classes, selective investments, position limits, and real-time monitoring of your portfolio via stop losses. While we like the income, avoiding catastrophic losses is our mantra.

It’s also worthwhile to reassess just what “safe” means. We can’t count on inflation remaining at historical 2% levels. FDIC insured CDs and US Treasuries are now guaranteed money losers when you factor in inflation. (“FDIC insured” does not shield us from inflation.)

This brings us to the Step two in the Ty Cobb approach: inflation protection. Investing in long-term, fixed-income investments during times of high inflation can result in catastrophic losses, precisely what we need to avoid.

Step three: find investments with low interest-rate sensitivity. Ross Perot coined the phrase “giant sucking sound” to describe jobs leaving the US. That will pale in comparison to the giant sucking sound when interest rates start to rise and everyone tries to exit the market at once. The scene after Bernanke’s tapering remark was a small preview. Interest-rate-sensitive investments will be hit hard and fast.

The long-term bond market offers a good example of interest rate sensitivity. Take an A rated, ten year corporate bond paying 3.68%, for example. Now imagine you bought $10,000 worth; you’d receive $368 per year in interest until maturity. If, however, market interest rates rise during that time, you’d have to discount your selling price to resell that bond in the aftermarket to compensate for its below market interest rate.

“Duration” is the term for calculating that discount. The duration for this bond is 8.41. For every 1% rise in market interest rates, the resale value of your bond will drop 8.41%, or $841.00—more than two years’ accumulated interest. Should this happen, you’d have two lousy choices: You could hold on to the bond at a lower than current market value interest rate until it matures; or you could sell your bond for less than you paid for it.

If inflation is the reason interest rates are rising, that decreases your buying power even further, particularly if you choose to hold on to the bond.

While top quality bonds are considered safe, that safety stops at the borrower’s ability to repay you. It does not protect your investment from a reduced resale value in the aftermarket, nor does it protect you from inflation. At the risk of sounding like a broken record, let me repeat myself: holding long term, low interest paying bonds at the wrong time can produce catastrophic results.

Interest-rate sensitivity isn’t limited to bonds. The stock market now has a similar problem. Many companies paying high dividends are so flooded with cash that they’ve become interest-rate sensitive. Utility stocks, for one, come to mind. When Bernanke said “taper,” the prices of utility stocks tumbled.

It is important to understand that this is a distinct type of risk. Should the market rise dramatically, stocks and bonds with high interest-rate sensitivity will be extremely vulnerable.

The final step in the Ty Cobb approach is finding a way to maintain your quality of life while managing your portfolio. While “set it and forget it” isn’t an option, no one wants to spend all of his or her time fretting about money. Finding ways to accomplish your investment goals and to sleep comfortably at night is what it’s all about.

So, to recap, your overriding objectives are to:

• avoid catastrophic losses;
• protect ourselves from inflation;
• minimize interest rate sensitivity; and
• free up time to enjoy life.

Your Investment Pyramid

 

Core holdings should make up the base your investment pyramid. Core holdings—precious metals, farmland, foreign currencies—are about survival. Hopefully you never have to touch them. No, I’m not suggesting that you prepare for the apocalypse, but we all need survival insurance. Mentally and practically, it should be separate from your active portfolio.

On the other hand, the investments recommended in the Money Forever portfolio are for income and profit. These investments are meant to keep you going for the rest of your life.

Here are the allocations you should use in today’s market. As conditions change, you may have to make adjustments, but we’ll help you do just that as events unfold.

The Ty Cobb approach uses three investment asset classes:

1. Equities providing growth and income and a high margin of safety;
2. Investments made for higher yield coupled with appropriate safety measures; and
3. Conservative, stable income vehicles.

50-20-30 Equals Bulletproof

 

You can balance yield and safety in today’s market. How safe is the Miller’s Money Forever approach? Bulletproof, in my opinion. And that comes from a former Marine who understands that bulletproof is doggone safe—but nuclear trumps all. There are some cataclysmic events that are effectively impossible for individual investors to predict or protect against. So, unless you’re the “build a nuclear bunker” type, our approach should let you sleep well at night and enjoy retirement with minimal financial stress.

We currently recommend holding 50% of your portfolio in solid, diversified stocks. These stocks should provide dividend income and growth through appreciation. Invest no more than 5% in any single pick, and use a 20% trailing stop loss. This way, the most you can lose on any single pick is 1% of your portfolio. Sometimes we recommend tightening our stop losses on specific stocks—we’ll notify you of those circumstances in a timely fashion.

If you follow the 5% rule, you should have no more than 10 stock positions in this 50% slice of your portfolio.

You might be wondering: Why not just invest in an S&P 500 fund? When the market swings, S&P 500 fund investors will be the first ones headed for the door, with the program traders that short the S&P chasing them out. We got our clue with the “taper caper,” and we want to mitigate that risk.

For the Money Forever portfolio, we searched for solid companies that are not so flooded with investor money that they’ve become interest-rate sensitive. Dealing with our picks individually allows us to limit our positions and set stop losses. We’re better off trading a little bit of yield for the safety of investing in solid companies that are less volatile than the market as a whole.

Catching a peek our Bulletproof portfolio is risk free if you try today. Access it now by subscribing to Miller's Money Forever, with a 90 day money back guarantee. If you don't like it, simply return the subscription within those first three months and we'll refund your payment, no questions asked. And the knowledge you gain in those months will be yours to keep forever.

The article The Ty Cobb Approach to Retirement Investing was originally published at Millers Money.

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