“Wealth Fortresses … Profit from Today’s Monetary Crisis”

By Travis Johnson, Stock Gumshoe, April 20, 2010

On this bright and sunny Spring day our thoughts turn … to Mark Skousen. He’s selling subscriptions to his Forecasts & Strategies newsletter, and his pitch is that he predicted the 1980s boom, and warned investors that corporate profits were peaking in early 2007 … and that he’s got the best ideas for you to survive and profit from the current craziness.

Here’s his spiel about where we currently stand:

“Will That be Firing Squad, or Beheading?

“Every day now there’s another story heralding the recovery.

“But as much as I’d like it to be true, look closely and you’ll see it’s corporate America that’s recovering, not you.

“Your stock profits are rising, but they’re on shaky ground.

“As if spiraling debt, a sinking dollar, and microscopic yields aren’t bad enough, our government’s economic ‘fixes’ are putting even your safest money at risk.

“Of course, Wall Street and Washington have always greased each other’s skids.

“But since the 2008 bank bailout they’ve entered into an unholy alliance and private investors like you are barely an afterthought.

“The Treasury is giving banks billions of dollars at near-zero interest so the banks can turn around and loan it back to the Treasury at much higher rates by buying government bonds yielding around 3.5%.

“The dollar is plummeting toward its lowest level in history because Washington wants American workers to get cheap enough to win back manufacturing to our shores, and for foreign goods to become expensive so we buy fewer imports.

“That’s what’s good for America, they tell you. But what’s good for America isn’t always what’s good for you.

“Your choice: Next to zero yields or higher credit risk in a shaky economy….

“That means it’s time for you to protect your profits — and your wealth.”

So what does he think you should do with your hard-earned cash?

“I have identified the three investments to take you to safety and profit. Together they are a fortress that builds and grows your wealth through whatever the economic storm throws at you.

“My subscribers are already starting to building their wealth fortress with these three assets. You should too.

“One is a more solid hedge against trouble than gold, and I expect it to grow 87% in the next 14 months and 200% in the next 3-5 years.

“The second gives you steady 14% yield income that keeps increasing dividends — up165% in just the last two years. Plus unlike most income stocks, capital gains are taking off now with 233% higher returns than the S&P in the 30 days as of this writing.

“The third yields a fantastic 25% and pays monthly, which means a $25,000 purchase gives you $520.83 per month income.”

But of course, he won’t tell you what those three investments are — for that, you’ll have to sign on the dotted line and pony up the cash for his Forecasts & Strategies … or, if you’re feeling a little light in the wallet this month, just read on and we’ll see if we can figure them out for you for free. Don’t worry, we’ll wait while you make up your mind.

You’re back? Good to see you again. So what are those three picks?

The teaser clues, please!

“Wealth Fortress #1

“The Most Underpriced Commodity on the Planet — Now Rocketing Toward 200% Gains.

“You’d have to be living in a cave not to see gold’s spectacular rise over the past five years, outperforming oil and gas, electric utilities, and just about every other investment you can buy or sell.

“Profits in gold funds have been sensational, and my subscribers are enjoying 73% gains in one fund and 18% in a second we added recently.

“Gold is going to keep going up, too.

“But even if it climbs to $1,500 (which I think it will) you can “only” make about 50% more on your money. That’s pretty good, of course, and I have two of the best gold funds as current recommendations for subscribers.

“But there’s something better.

“Like gold, it’s a safe haven against debt and devaluation. And like gold, it’s racking up exceptional growth today.

“But unlike gold, it’s grossly undervalued and unexploited.

“Legendary investor Jim Rogers says, “How can you talk about a bubble when assets such as [this] are 70% below their all-time high?”

“Super-investor Warren Buffet bought in at its lowest point, loading up on enough to turn his original $572 million investment into more than one billion dollars….

“Just as this asset soared 200% during the two worst years of inflation during 1973 and 1974, it could easily do it again now.

“Timing is perfect for it to spring off its historic low — and I mean its historic low since the year 1344! …\

“Plus this hard asset is much scarcer than most people think. The U.S. Geological Survey says it will be the first element on the periodic table to be tapped out.

“Right now this element is essential to some of the most sophisticated — and popular — technologies that exist. From solar panels to iPhones, and possibly the screen you’re reading on now, it is essential to modern technology….

“It gives you all the wealth protection of gold, and three times the potential for capital gains.”

OK, so that’s a long excerpt from the ad … but there’s more! I’ll just have to assume that you get the idea from that spiel, and the idea is …

Silver. Silver is one of the metals that really straddles the line between precious metal and industrial commodity, much like platinum. Gold is almost never “consumed,” it is just turned into coins or jewelry (with some exceptions), but silver or platinum that goes into a catalytic converter or an LCD screen is effectively consumed. Silver was the basis for much of the global monetary system for many years, so there is always a lot of interest in the stuff when inflation or monetary silliness seems to crest, which is why silver coinage and silver ETFs are so popular now, but we also certainly see a lot of volatility in the price of silver, in part because of that dual role as an industrial metal (remember, for a while when we all thought that the global economy was returning to the stone age, platinum actually got cheaper than gold despite the fact that it is far more useful and dramatically more rare).

So how to buy silver? Skousen doesn’t give much detail in his teasing, but the standard candidates are junk silver, physical silver ETFs, silver coins or bars, and silver mining stocks. If you’re curious about any of those I wrote about “junk silver” most recently here, and I’ve written about seemingly dozens of silver miners — the ones that get the most attention are Silver Wheaton (a streaming company, not an actual mine operator), Silver Standard Resources, SilverCorp Metals, Couer d’Alene, Pan American Silver, and I’m sure several others I’m failing to think of at the moment (if you’ve got a favorite, whether listed here or not, let us know with a comment below).

For ETFs that directly track silver, the most popular and highest volume is the Silver Trust (SLV), and there’s also the PowerShares Silver fund (DBS) and if you want to add some leverage to that you could of course use the options on the ETFs (or the stocks), or there is a 2X ETF that’s designed to move twice as much as the silver price (up or down, of course) — that’s the ProShare Ultra Silver fund (AGQ). I don’t think there’s a 3X leveraged ETF for silver yet, so if you need that kind of adrenaline you might just have to start driving faster, without a seatbelt (please don’t! That is not the official advice from Stock Gumshoe!) Of course, the conspiracists will tell you that the ETFs and the futures are rigged, so you need to actually own the silver — if you don’t want to deal with finding junk silver, you can always just buy Silver Eagles from a coin dealer, or coins or bars from someone else like the Northwest Territorial Mint, but all physical silver trades at a pretty decent premium these days so it’s tough to find a bargain — and of course, it gets heavy pretty fast if you want an appreciable amount, and you’ve got to store it somewhere safe.

How about his next idea?

“Wealth Fortress #2

“Government-Guaranteed 14% Yield

“The whole idea of a wealth fortress is to protect you against what’s happening in the market and economy…

“The low interest and high liquidity won’t last forever, but they could last long enough to put a serious dent in your wealth.

“But even though your bond laddering strategy may be ruined for 6 to 12 months and your dividend stocks are paying a pittance, that doesn’t mean you have nowhere to turn….

“… with all the liquidity being poured into the economy today, a river of capital has been directed to one asset class.

“Inflows of close to $17 billion means there’s enough cash to weather the downturn and take advantage of opportunities.

“And thanks to its zero credit risk backing by the U.S. government, it’s one of the safest investments in the world.

“Congress authorized this little-known investable asset category in 1916 with the creation of the Farm Credit System. And it will remain guaranteed by the Federal government as long as it pays out all or nearly all of its cash to investors.

“But don’t let its frumpy structure and extreme safety fool you. It gives you practically unequalled yield and capital gains that can quickly fill the holes in your bank balance.

“The asset I’m recommending gives you a yield that has averaged 10-12% for much of the decade. In fact, it has increased its dividend nearly every quarter, for 263% dividend growth since 2006. In just the last quarter dividends shot up 10%.

“There aren’t many stocks that can claim that! But you’ll have to move quick if you want to lock in a super 16% yield, because share price is climbing fast, so yield may fall a few percent if you’re not quick enough.”

Well, again we’re a little short on specifics … but this sounds like it must be mortgage REITs — these are companies that borrow money at low commercial short-term interest rates, and “lend” money at higher rates by leveraging up their balance sheet with that short term paper to buy mortgage bonds. The ones that are effectively participating in this government “guarantee” are those that buy entirely (or almost entirely) government mortgage paper, as in Fannie Mae, Freddie Mac, Ginnie Mae bonds.

There are several of these companies, and they generally move more or less in unison — the ones that are most often talked about by newsletter writers, at least in my experience, are Capstone Mortgage (CMO), Annaly Capital (NLY), and Hatteras Financial (HTS). Annaly is by far the largest, and all three (and the others) have slightly different strategies for managing their biggest risks, which are generally understood to be prepayment and interest rate risk (prepayment is when you pay off your mortgage early to refinance, which hurts a company that might have paid a premium to get your current mortgage, and interest rate risk is largely related to the yield curve — if short term and long-term interest rates converge, they make less money, and if rates move quickly in either direction they could have a lot of “managing” to do as the value of their portfolio fluctuates).

I won’t go into the detail in all these different companies here, but if you think that interest rates will climb this would be an investment you’d have to keep a close eye on — it’s a great dividend yield, most of them yield between 15-18% right now, but the yield is great because investors fear it’s not sustainable. There were good articles in Forbes and Investors Business Daily last week that highlighted the companies involved, the risks of reductions in those dividends, and the opportunity. Annaly is very open with investors and publishes frequent commentary on their markets that’s worth looking at if you’re interested in any of the companies in this business.

And one more! You’re getting an earful today …

“Wealth Fortress #3

“It’s Not Too Late to Lock in this 25% Yield

“No matter how long you look, and how far you go, you won’t find a better investment than this charging locomotive of a fund.

“The semi-annual report states that based on its recent share price, its dividend yield is 24.91%.”

Wow! OK, that’s a really high yield. Some more info, please?

“it is a fund of global companies that relies on dividend capture with a strategy to rotate holdings until they go ex-dividend.

“Clearly the fund’s managers are good at what they do. Right now 80% of the companies it holds have raised their dividends recently. And 40% of the companies have single-digit P/E.

“And not long ago they went from quarterly to monthly payments, giving you the steadiest income possible! …

“And with holdings in materials, telecom, energy, and utilities among others, it’s diversified between all the top-performing sectors today.

“The fund was launched in mid-2006, which means they barely got off the ground before the market crashed, taking the fund down with it.

“Share price has soared 74% since its low in early 2009. But the stock still has 150% to go before reaching its former pre-crash high! …

“Which is why it is the third wall of the three-sided fortress that will help build and protect your wealth through the tough economic waters today.”

I’m almost certain that this fund must be: Alpine Global Dynamic Dividend (AGD). This is a closed-end fund that uses dividend capture (rotating your investments around to different stocks to “capture” dividends, then selling the stock and moving on to the next one), and it does indeed hold, at any given time, lots of blue-chip foreign stocks … and foreign stocks, as a general rule, are more likely to pay significant dividends than US stocks, so the yield can be pretty good to start with (their largest holding as of October was coincidentally one of my favorite stocks, Seadrill).

And yes, they do reportedly have an income yield of about 25% right now — but the income yield is calculated using the past year’s results and the net asset value of the fund, not the actual share price and the actual distributions. At the current price and distrubition, you’re getting monthly dividends that add up to roughly 11-12%.

That’s largely because AGD is trading at a remarkable — I hesitate to say ridiculous, though I really want to — premium of more than 50%. That means you’re willing to pay $1.50 for each $1 of stocks the fund holds, just because you believe their dividend capture and other strategies are worth that extra price. The risk here seems huge to me, since AGD is trading at a far higher premium than is normal — it’s not shocking to see closed-end funds trade at a premium to their assets in a bull market, or if they’re very well managed, but it’s also common to see them trade at a discount to their assets in a bear market (as in, a year or 18 months ago), so this effectively gives you exposure to a bit potential move — if the fund was liquidated and the proceeds were distributed to investors today, you could immediately lose something like 30% of your investment. The average premium for this closed end fund over the few years it has existed has probably been something like 10-15%, which is a lot easier to accept than the current 54%.

And if you happen to love this strategy or this yield, despite what looks to me like some significant risk of capital losses (thanks especially to that premium) to go along with the great dividend income, do note that Alpine also manages some mutual funds — which are required to trade every day at their net asset value. There isn’t an exact corollary for this international fund in their mutual fund list, but they do have several dividend capture funds that are income focused if you’re interested in looking at those.

So … some “wealth fortress” investments for you, per my interpretations of Mark Skousen’s teaser. What do you think — anything in that group tickle your money bone, or do you have something else to share that you think will do better? Let us know with a comment below.

And if you’ve ever subscribed to Forecasts & Strategies, let us know what you thought by clicking here to post a review of your experience — we’ve heard from only a couple of his subscribers so far, one fan and one foe.


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19 Comments on "“Wealth Fortresses … Profit from Today’s Monetary Crisis”"

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Tejas
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Tejas
April 20, 2010 7:44 pm

I don't understand the reason for analysts downgrading companies like NLY recently. I am aware that their profits might get hurt when the interest rates are going to rise.

But, at the same time with the base interest rates going up, their yield on bonds they purchase will rise as well. So, gap between those 2 interest rates should ideally take care of dividend returns.

I hope I'm not missing anything here in my interpretation…Please don't hesitate to comment.

Herach
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Herach
April 20, 2010 10:12 pm

I agree that silver is vastgly underpriced. As to Nly and peers, fine yields now. My cocern is that the desperate chase for income will prompt the Government to change the rules for MLPs. That would mimic the Cnadian change of rules on income trusts. If you recall, when that change was announced, those trusts collapsed. Good products, but be careful out there. Herach.

John
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John
April 20, 2010 10:16 pm
The yield on bonds they already own will not rise. They may end up holding a bunch of 8% bonds and need to refinance their 1% short-term money at 10%. They could sell the 8% bonds (and buy new 15% bonds), but only for lots less than they paid for them. But, it seems that you could hedge the risk of a dividend drop by selling a deep-in-the-money covered call. Not all of them have such things available, but for HTS you could buy it for $25 and change and sell the $20 call for $5 and change, and if… Read more »
Fabian
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Fabian
April 20, 2010 10:27 pm

As per Skousen video posted last week on Moneyshow.com; it's NLY and AOD (alpine dynamic). His big bet on the most underpriced commodity is Nat Gas if I recall well and the play would be Enerplus Resources Fund (ERF). He also mentioned physical silver comparing a silver dollar and paper dollar's value through the ages.
I hope I was of help. I personally found the webcast interesting and kept his recos under the arm for future study.

advantedges
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advantedges
April 22, 2010 3:07 am
I have to comment on Skousen, because I have followed him for a few years. He has missed the latest bull market, because his "Patriot" and "Freedom" Publisher and colleagues have been avoiding stocks for a year, anticipating The End of the World as we know it. Of course, they blame Obama and the "Socialists" (who apparently have impressed investors in the Stock Market, because it has rallied on the Obama policies!). It is amazing that the Skousens and other folks making more that $250,000 a year have fooled the Tea Party followers into screaming for revenge for Higher Taxes… Read more »
diogeron
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diogeron
April 22, 2010 6:02 pm
Do you see any irony in using the words "typical leftist rhetoric" and "broad sweeping generalizations in successive sentences? Also, I think you mean the "altar" of government, rather than the "alter" of government, or at least I hope so. PAUL O'NEILL SECRETARY OF THE TREASURY, 2001-02 READ THE FULL INTERVIEW » Did you walk into the Oval Office at any point, you and the president, and say, "Mr. President, I've got to put it on the line: For the country and for the administration, this is a terrible idea"? I just kept talking about the facts, you know. I… Read more »
advantedges
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advantedges
April 22, 2010 6:12 pm

JPerry uses the standard attack approach of his "angry" movement, by suggesting that our comments were "leftist." Nothing could be further from the truth. Try "fiscally conservative, entrepreneur interested in investments and my community."
For the success of the Obama policies and the Stock Market, go to Business Week and other financial publications. So far, Mr Market has spoken with approval. To suggest, as Skousen has, that NLY is a safe investment or that SLV should be a core position is irresponsible. Thanks for pointing out the risk to investors here, Travis.

advantedges
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advantedges
April 22, 2010 6:15 pm
So in trying to identify the source of your anger, JPerry, I only needed to go to the recent article in the Los Angeles Times by Tim Rutten. He points out that a recent poll by CBS and the New York Times suggested the following profile for Tea Party Members: "Of the 18% of all adults who expressed support for the tea party, the overwhelming majority were white (89%), male (59%) Republicans over age 45 (75%) and significantly more affluent and better educated than the majority of Americans." Rutten goes on to say: "If all of this is beginning to… Read more »
advantedges
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advantedges
April 22, 2010 6:21 pm

Yes, JPerry, the TeaParty folks embrace social programs like Healthcare. Many of those under 65 who are out of work will definitely benefit,,,,,and so will any children they may have. Those over 65 have been benefiting from government healthcare, and want it to continue. Good for them. They have paid the tab for it, as all legal workers and employers have in the past.
i hope this reality check has not made you more angry, JPerry. Buy some of the stocks in Travis's portfolio, like MKL or BRK.B, and go fishing with your buddies!

Maureen
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Maureen
April 24, 2010 2:59 pm

Okay- here it is. What is the next "Petro China" from Steven Leeb? Sounds interesting. Thanks. P.S. I love your writing style!

Daniel
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Daniel
April 25, 2010 4:11 am
IF YOU BELIEVE, AS I DO, THAT THERE IS A GREATER THAN EVEN CHANCE (SINCE 1979) OF A COMING WAVE OF HYPER-INFLATION OVER THE NEXT TWO-THREE YEARS, ITS REALLY VERY, VERY SIMPLE: BUY JAN 2012 CALL OPTIONS IN SLV AND SLW. I WAS ABLE TO PAY JUST UNDER 2.00 FOR EACH. ITS STILL NOT TOO LATE TO PLACE YOUR BET. YOU MAY HAVE TO ROLL BEFORE THEN TO CAPTURE THE WHOLE CLIMAX IN SILVER WHICH IS AT LEAST A TRIPLE FROM HERE. SILVER DEC 2011 FUTURES ARE LIKEWISE A WISE BET. NOTE… WHILE GOLD HAS ALREADY BROKEN OUT TO NEW… Read more »
Faz
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Faz
June 29, 2013 8:26 am

Hey Daniel – so how is it looking now that the three years have come and gone, and now gold is around $1200 (a bit under actually) and silver is under $20 – any refinement of your timescales and / or ultimate ratios ? Interested to know what you think now after the 3+ years intervening.

martin huber
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martin huber
April 25, 2010 12:26 pm
Good comments,Daniel!! I like to add here some facts about silver….28 percent of silver production worldwide is mined,whereas the rest is derived as a byproduct of gold,zinc,copper,and lead production.A new mining area is just now developing in Mexico,where a lot of mines are being constructed.In this context i lean towards recommending mexican silver producers,like Fresnillo,Pan American silver,Coeur d'Alene Mines,,Endeavour Silver. Orko Silver might be a good bet as they are building a mine-La Preciosa-in Mexico. PE-ratios for 2011 are still in the 15 range,and this might be favorable for an entry into these shares,of course doing some necessary DD before… Read more »
mreditor
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mreditor
April 25, 2010 6:39 pm

“so this effectively gives you exposure to a bit potential move ”

I think you meant to say “big potential move”.

Guest
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Guest
April 26, 2010 1:14 pm

Please note that double ETFs aim to double the 'daily' return from the underlying. This is not at all the same goal or expected result as doubling the overall return over time. In practice, the results are never as "good" due to daily rebalancing.

rekoj
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rekoj
April 20, 2010 10:40 pm

Silver has been touted to death as being undervalued, yet if you just look at a ten year chart, you will surely see it is not. Accompanying the massive deflation heralded by Goldman Sachs problems, (others to follow?) silver and gold will fall like heavy stones. (or even light ones!).
Shorting or putting SLW will make more money than any of Skousen's suggestions.
After a fall to, say, $6 there will be spectacular rises, but few buyers outside of professionals

Guest
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Guest
April 21, 2010 5:40 pm

Any company that borrows short and lends long get gets killed when interest rates rise, because short rates rise faster than long ones and the yield curve inverts. Been the cause of many financial stock bankruptcies in the past.

guest
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guest
April 21, 2010 5:41 pm

If you think Bernanke, the leading scholar on the Great Depression, is going to allow deflation in America, you are nuts.

JPerryE
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JPerryE
April 22, 2010 3:53 pm
Typical leftist rhetoric. Broad sweeping generalizations supported by lots of opinion. “advantages” can neither point to nor explain any “Obama policy” that has created the current stock rally. He also completely misunderstands the varied motivations of those in the Tea Party movement. He claims that Tea Party followers will benefit from (health care reform) policies. Those who worship at the alter of government truly don’t understand those who desire freedom. If the poor simple minded folks would just get in line for government handouts for which they paid nothing, they would reap benefits. Using the same argument, life on the… Read more »
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