Nov. 13, 2014

The global money tsunami we’ve been talking about so forcefully and consistently is now swinging into action with full force.

It’s sapping funds from major foreign markets.

It’s pouring new funds into U.S. stocks.

It’s driving the Dow, the S&P and the Nasdaq to new all-time highs.

And it’s raising a series of urgent questions from investors.

Since we’ve taken the lead in forecasting this unique megatrend and since that trend is now trumping all others, it’s no surprise that we’re getting a large share of those questions — from our loyal readers, from major media, even from total strangers.

I’ll answer the main ones in a moment, prioritizing yours. But first a quick update on the unfolding drama that’s behind the money tsunami …

ISIS on a new bloody rampage. Just because you may not be seeing as many gory headlines about the Iraq/Syria wars on Fox News, CNN or CNBC, doesn’t mean the crisis has faded.

While most American investors have been distracted by elections, wealthy families and big traders all across the Muslim world — from Malaysia to Morocco — have been glued to their TV screens, watching the crisis unfold with ever-greater anxiety.

They see ISIS grabbing new ground in Iraq; massacring hundreds of men, women and children just in the last few days; pouring still more reinforcements into key Syrian battlegrounds in Syria; enlisting new affiliate organizations in Europe, North Africa and beyond.

They see a leading al-Qaeda affiliate (al-Nusra Front), unrelated to ISIS, conquering new territory in Syria, easily routing the few remaining forces loyal to the West.

And they respond with ever-quicker clicks on their online “transfer funds now” buttons, sending most of it to U.S. markets.

Russia quietly conquering Eastern Ukraine. Just in the last few days, Europeans have woken up to the reality that they’ve been duped, absolutely hoodwinked.

On September 5, Vladimir Putin went to Minsk. He met with representatives of the Organization for Security and Cooperation in Europe, with leaders of the break-away provinces of Donetsk and Luhansk in Eastern Ukraine, and with observers from major world powers.

He signed an “historic agreement,” the Minsk Protocol. He promised to support the territorial integrity of the Ukraine.

And then, he promptly proceeded to destroy it.

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Today, just 66 days later, Putin has transformed Donetsk’s and Luhansk’s Western borders — supposedly just a “buffer zone” — into an impenetrable wall that separates it from the rest of Ukraine. At the same time, on their Eastern borders with Russia, he has flung open the floodgates, moving in a constant stream of Russian troops and supplies with impunity. Thus …

Vladimir Putin has effectively annexed two major Ukrainian provinces as part of his “Greater Russia.”

That’s 20,541 square miles — double the size of Ukraine’s Crimea Province, which he officially annexed eight months ago … bigger than New Jersey and New Hampshire combined … larger than all of Switzerland.

So if you’re living anywhere on the Continent, you now have an even stronger reason to move your money. And if you have a lot of cash in Russia, where the economy is sinking and the currency is collapsing, you could be even more motivated to get your money out.

What Should Average Investors Do?

That’s the obvious focus of the questions I’ve been getting. Here they are with my best answers …

Q: I am 85 years old, a widow and have almost $25,000 in savings. Right now, it’s in a fixed annuity with an insurance company that you rate only a B+, earning 5 percent. But your Ultimate Portfolio strategy yields an average annual return that’s ten times bigger. And you say the minimum is $25,000. So it seems perfect for me. I’ll get out of my annuity and put the money in a stock brokerage account to follow your Ultimate Portfolio strategy. Is that a good idea?

A: For someone in your circumstances, I can count three reasons why it would be a bad idea: The $25,000 is your entire savings. The 5 percent yield in a fixed annuity is hard to beat, especially compared to the terrible deals you get with most annuities. And a Weiss Financial Strength Rating of B+ is actually very good. So stick with the annuity.

Q: Dr. Weiss, you’re famous for having warned investors ahead of time about most of the bad things that happened — about insurance company failures, bank failures, and so on. But what about the other side of the coin? How many financial institutions get your high ratings? And how reliable are those high ratings?

A: There are quite a few that merit our high financial strength ratings.

For life insurance, for example, we have over 100 companies rated B+ or better, qualifying them for our recommended list. For health insurance, there are about 300; for homeowners policies, more than 50. Plus, among banks, there are more than 6,500.

Here’s the crux of the issue: When other rating agencies give a company a top rating, it does not always protect you from a bankruptcy. Indeed, a major study by the U.S. Government Accountability Office, the GAO, showed that insurance companies rated “excellent” by S&P and A.M. Best did fail, trapping millions of investors. By contrast, companies that received “A” grades from Weiss Ratings have never failed.

Q:How do you know when a crash is coming?

A. I don’t. My father always used to say: “When the stock market’s going to crash, no one is going to ring any bells.” He was the first to admit that you can’t predict a crash ahead of time. And yet, he probably knew more about stock market crashes than virtually anyone. The point is, you always need to be alert and prepared to some degree. What I can do, though, is clearly identify a bear market in its early stages, which I feel can make all the difference in the world in your long-term results.

Q:What should I do once we’re in a confirmed bear market?

A. First, let me tell you what I do in rising markets: I buy exclusively the stocks that rank at the very peak of my charts, stocks that represent less than one-tenth of one percent of all the stocks on the market. That quality alone helps protect me from the downside.

Then, in a confirmed bear market, I do three things: I move more money to cash. I buy ETFs representing other asset classes that have nothing to do with stocks. And I use inverse ETFs that are designed to actually profit from a bear market.

Q: What are the chances we’ll see a major long-term decline in the stock market sometime soon?”

A. Let me go back to my bear market indicator: To confirm a long-term bear market, you need at least a 10 percent decline in the S&P 500. Plus, you need a confirmation from the economy, such as a 1 percent decline in leading indicators. Right now, we have neither signal! (Our model is more complex than that. But those are among the two most important factors.)

Q: I’m too worried to invest right now. I look around the world, and all I see is blood — literally speaking. Then, I look at our own country, and all I see is a ship of state drifting at sea, with no rudder and no captain. Why should I even be investing a single dime in this environment?

A: To most people, investing means buying some stocks, holding the stocks, and then praying the stocks will turn out OK. If that’s what you mean by “investing” then I agree. Don’t invest a dime that way.

But that’s not what I mean by investing. If you want to truly protect yourself from the threats you’re worried about, then go on the offensive. Turn lemon into lemonade. Take advantage of the massive money flows that these crises are creating and harness them — let them help you multiply your money!

Those money flows are at the core of the current goals of my strategy: We buy the highest possible quality stocks in the world today, stocks that stand to benefit the most from all the money fleeing the frightening things you mentioned. And sometimes, we also buy investments that benefit directly from things that are going down. That’s how you protect yourself from everything you are worried about.

Q: The Fed has printed trillions of dollars and pumped them into the economy. When are we going to see the impact of those trillions?

A: We already are seeing the impact — in the rising value of financial assets. And we are also beginning to see it in the rising value of some (but not all) hard assets, too — art and collectibles, choice real estate and more.

What’s especially interesting right now is the fact that capital inflows from overseas markets are actually larger than the money pumping by the Fed. Don’t forget that! It’s critical to understanding what’s happening in the world today.

Q:Around 15 years ago, I had over $2 million in my brokerage account. Then came the Tech Wreck in 2000, 2001 and 2002, and I saw half of it go up in smoke. It took me about seven years to finally recover most of my losses. But then came 2007 and 2008. I lost money in stocks again. Plus I lost most of the equity in my home. How do I know the same thing won’t happen with your strategy?

A. We cannot guarantee the future. But the entire history of Weiss Research since I founded it 44 years ago is evidence that, if there’s any organization that has the experience to help protect you against those kinds of scenarios, it’s ours.

Q: I see ISIS execute an American, and then I see the president play golf. I see Putin announce he’s building more nukes, and the president plays more golf. Even after his big Ebola speech recently, the president played four hours of golf. How long are global investors going to continue rushing to a country with a president who scoffs at these dire dangers from the comfort of the golf course?

A: No one said our country is going to win the Ms. Universe beauty contest. But we do know that we’re winning the international contest for the least ugly. We still have the biggest markets, the biggest economy and the strongest military, all still growing.

Q:If you were them, what would you be buying in the U.S.?

A: It’s not going to be penny stocks. It’s not going to be third-rate tech stocks with no earnings. It’s going to be the best of the best, the same kind of stocks that I think we can identify better than almost anyone else.

Q: The Weiss Stock Ratings seem to be an important part of your strategy. Where did the Weiss Ratings come from?

A: The Weiss Ratings are originally a legacy I inherited from my father, Irving Weiss, who began his career as a stock broker on Wall Street a few months before the Crash of 1929. He didn’t foresee the crash but he realized something was amiss and kept his clients out of the market.

Then, after the market rallied, in April of 1930, he borrowed $500 from his mother to short the stock market, targeting the weakest stocks. And he developed his own, personal scoring system to pick them out — overvalued, too many high fixed costs, too much debt.

And it worked. Each time the market took a big fall, he made more money, reinvesting his profits along the way. By the time the market hit rock bottom, he had close to $100,000 with the worst stocks. Plus, he told me he also gave back a big piece of his profits during market rallies.

But then, when the market was near its lowest levels of the 20th century, he used that same scoring system in reverse — to select the best of the best, the cream of the cream. That’s when he loaded up with four stocks in particular — General Motors, AT&T, General Electric and Sears. And he paid just pennies on the dollar. All thanks to their high scores — low debt, plenty of cash and unbelievably good value.

About 15 years before he passed away, he and I began a very special project together — to transfer some of the knowledge inside his brain to a program inside the Weiss Research computer. We first launched bank ratings. Then insurance ratings. In 1999, we launched our beta version of stock ratings, and a couple of years later, the Weiss Stock Ratings, which are very similar to what we use today.

Q: I’ve been around for a long time, and I’ve seen a lot of stock ratings coming out of Wall Street. I figure that about half the time they’re right and about half the time they’re wrong. What makes yours different?

A: First, unlike the research that comes out of major Wall Street firms, we are 100 percent independent, 100 percent free of any conflicts of interest. We never accept any payments of any kind from the companies we rate. We have no business relationship with them whatsoever.

Plus, here’s the second difference that’s critical for your retirement — the difference that separates us from all rating agencies, even the independent rating agencies.

Their stock ratings focus almost exclusively on earnings, earnings and more earnings. I don’t deny the importance of earnings. But in our Weiss Stock Ratings, safety is just as important as earnings. In the ratings of other independent firms, safety is far less important.

This is important in bull markets because it steers you away from stocks that can be a drag on your portfolio performance. And of course, it’s especially important in bear markets to protect you from stocks that can sabotage your portfolio from within.

Q: How can we validate the accuracy of your ratings with an outside third-party review that is independent from yours?

A: Let’s start with the Government Accountability Office, the GAO. This is the non-partisan agency of the U.S. government which reports directly to the U.S. Congress and is the only real government watchdog agency in the country. There is simply no other organization anywhere with greater credibility and objectivity.

The GAO studied the Weiss insurance ratings in depth. And they concluded two things: First, Weiss clearly beat AM Best, S&P, and Moody’s in accuracy. And second, that the Weiss Ratings should be the standard against which all the others are compared.

Today, many of the formulas that made the Weiss insurance ratings so accurate are basically the same ones that we’ve used in the safety side of the Weiss Stock Ratings.

That’s one independent validation. Plus, here’s another: Years ago, The Wall Street Journal reported on a study that compared all the major companies that issued stock ratings. And they found that our original Weiss Ratings ranked number one in the United States in terms of performance, beating every single one of the other rating firms.

The bottom line is that if you had been following the Weiss Stock Ratings at the time of this study, you would have made more money with Weiss than you would have made with all of the major and minor firms in this study, including Merrill Lynch, JP Morgan, Goldman Sachs, Credit Suisse First Boston, Morgan Stanley, Standard & Poor’s, and more.

According to this outside, independent study, the one-year performance of Weiss Stock Ratings beat the S&P by 19.73 percentage points. All the others either had inferior outperformance or actually underperformed the S&P.

That was during a bull market. In a bear market, where many other ratings approaches lose money for investors and the Weiss Stock Ratings help investors make money, the contrast is even greater.

Q: I own a stock that you rate A+. Does that mean it will go up — or at least hold up nicely — even if the rest of the market is going down?

A: Actually, we do see many cases of that type of thing happening. Still even the best of our best A+ stocks are also vulnerable, in some degree, to the broad investor selling that you typically see in a bear market, albeit less so than the average stock.

Q: My agent is recommending I buy a fixed annuity with a company that you rate D+. But S&P gives the company an A+, and A.M. Best gives it an A-. He says that you’re either out of whack or just plain wacky. Why is your rating so much lower?

A: Hah! If I could give you one dollar for every time we got a comment like that from the insurance industry and two dollars for every time our “wacky” ratings saved someone from the jaws of failure, you’d have a few extra million dollars today. Our ratings on the weak companies are lower for two reasons.

The first is similar to what we saw before with the conflicted stock ratings. It’s because all the competing ratings agencies — A.M. Best, S&P, Moody’s, Fitch — get paid big fees by the insurance companies for their ratings on those same companies.

The GAO found that Weiss beat A.M. Best by three to one in warning of future failures and that, with Moody’s and S&P, there was no comparison. But it’s not because we’re smarter than they are. We’re not. Rather, I think these conflicts of interest are the main reason.

Q: I know all about how the other ratings agencies get paid by the companies. But I still can’t understand how all those smart analysts I see on TV could have gotten it so wrong so consistently. Especially in the tech wreck and the housing bust.

A: Maybe this will help explain it: You see, the conflicts of interest are not just because of an illicit payment here or payment there under the table. They’re systemic. They’re considered “legal,” and that’s the problem. The entire business model of the rating agencies is based on these payments. So it has a pervasive impact. It can distort virtually all the ratings they give you, including bond ratings.

The main problem is grade inflation. That means their ratings aren’t just too high for some individual companies that should be downgraded. On average, they’re too high for the entire universe of companies they cover.

This happens because they grade nearly everything on a curve. So let’s say, for example, that we’re talking about bonds. And let’s say that, over time, the factors that go into a bond rating — like debt ratios and the balance sheets go down for an entire industry or even for all industries. Rather than downgrade nearly all the companies, they lower their grading standards. That’s the problem.

It’s like a class of students who all fail a test. Instead of giving everyone an F, they give them an easier test.

We don’t do it that way. We set fair standards. Then we stick with them. That’s why, for example, in our Beta version of our stock ratings in late 1999, we gave nearly all tech stocks a bad grade, and sure enough nearly all of them collapsed. Ditto for housing and banks before their big bust in 2008.

Q:You say that you have no conflicts of interest. But you’re rating insurance companies that sell investments. Then you sell investments too. Isn’t that a conflict?”

A: We don’t sell investments. We are not a broker or a money manager. We are exclusively publishers. And all we have to sell is our information, our analysis and other educational materials.

Q: I don’t understand why so many people are so worried. It seems everyone is fighting the last war — the debt crisis or the housing bust or the tech wreck. The way I see it, we’ve been there, done that. Now let’s look ahead. Now let’s just do what you’re saying — find the very best of the best stocks or ETFs and make money. What’s wrong with that?

A: Or better yet, do both: Make money and protect yourself from the crises! Right now, we’re looking at some stocks that get a solid A+ Weiss Stock Rating, that rank #1, #2, #3, #4, #5 and so on in profit performance among 12,000 stocks that have tremendous value.

Q: I want to make a big killing in a bear market like your father did. Why can’t I do that?

A: I’m not saying you can’t. All I’m saying is that’s not the primary goal of this strategy. My Ultimate Portfolio never uses speculative instruments like options or futures or short-selling. It also never uses leverage. It is not designed for your speculative money. It’s designed for your core portfolio, for your nest egg.

Q:Do we need to be concerned with the price of oil going lower?

A: If you’ve been betting on higher oil prices, sure. Otherwise, no.

Q:Will Russia cause our economy or our dollar to crash?

A: Right now, the more threatening their behavior appears, the more money they drive to our markets and to the U.S. dollar, and the better it is for the elite stocks we have in my Ultimate Portfolio.

Q:In a few months, my wife will receive an inheritance from her mother’s estate of somewhere between $50,000 and $60,000. Our financial adviser told us that we should use all but $10,000 to $20,000 to pay off our business and personal debt to remove the debt and cancel the interest payments. I’m not thinking this is the best way to go. I want to invest more of her inheritance and not use so much to pay past debt. What would you recommend?

A: If your adviser were unethical, that’s exactly what he’d be recommending. But he seems to be ethical, and his recommendation to pay off the debts is sound advice.

More Questions?

I welcome your questions — on any investment topic that concerns you. So please don’t hesitate to ask by clicking here.

I sincerely hope I have given you answers that you can use to protect and multiply the size of your nest egg before retirement or add thousands of dollars of income in retirement.

Good luck and God bless!

Martin

http://www.moneyandmarkets.com/global-money-floods-dow-new-highs-67956