It’s A Dangerous Time To Be Overexposed To U.S. Assets

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This is Porter & Co.’s Sunday Investment Chronicles. Every week, the Porter & Co. research team pores over thousands (and thousands) of articles, reports, social media posts, analyses, regulatory filings, and anything else we can get our hands (and eyes) on to understand what’s happening in the world of investing and finance – and to uncover the most original, compelling, and double-head-fake ideas…

… and we curate the best of those here. We do it all the old fashioned way: Hours of reading and brainpower (no AI curation here). We read everything – for you.

In Case You Missed It

In Monday’s Daily Journal, Porter explains that what’s going on in markets now isn’t a vanilla correction… it’s a bona-fide global reset. The tacit “deal” that’s governed the global economy for decades has been…

America will provide you with security and with financing, America will help you keep power in your country, and, America will pay you lots of money in tariffs and the resulting trade surpluses – as long as you agree to always use the U.S. dollar to settle your trading accounts. To participate in this American-led global hegemony, you must continue to buy our Treasury bonds to use as the foundation of the world’s banking system.”

But now… that arrangement is breaking down. And the changes ahead – while ultimately good for American businesses and the economy – will result in a lot of volatility.

What to do as an investor while this is going on?

Porter’s advice:

… just ignore it. Keep investing in great businesses at good prices, just like you would anyway.”

And… in Wednesday’s Daily Journal, Porter presented an idea that fits the bill of a great business trading at an attractive price: One-time The Big Secret On Wall Street portfolio holding Hovnanian Enterprises (HOV), a homebuilder that’s completely changed its business model in recent years. Today it looks a lot like NVR, a homebuilder whose stock Porter first recommended in 2007 that has thrived through good, bad, and terrible markets. But the market hasn’t caught on yet, and right now, Hovnanian is trading at a small fraction of the valuation of NVR. (Readers agreed with Porter’s assessment of the promise of HOV… 34% of respondents to our poll think that HOV shares will return at least 200% over the next five years.)

The main focus of Porter & Co.’s Distressed Investing is bonds – because that’s where the best low-risk, high-return opportunities exist. But Marty Fridson also recommends distressed stocks – often of a company for which he’s previously recommended a bond issue. Frequently, bond investors see a turnaround in a company’s fortunes sooner than stock investors… and Marty takes advantage of this by sometimes recommending the shares of a stock whose bond has performed well in the Distressed Investing portfolio. In this month’s new recommendation – released on Thursday – Marty does just that, adding the shares of a beaten-down airline company to the portfolio.

Also on Thursday… we released a new recommendation in The Big Secret On Wall Street, of the shares of a company that’s following in the footsteps of one of Porter’s all-time favorite stocks – and no, it’s not Hershey (HSY). It’s rolling out new products, and (this rarely happens in the business world!) has the regulatory wind at its back. And even better… the shares are trading at a heavily discounted valuation after a series of missteps that it’s recovering from… but which investors haven’t yet caught on to.

Finally, on Friday, Porter reported that hedge fund management company Citadel, run by the super-talented investor Ken Griffin, bought Paloma Natural Gas, a small U.S. shale gas producer that’s well-positioned to sell into the growing global demand for U.S. LNG… “This is the start of the most important financial trend in the world,” he writes, adding a personal note about a trip he is taking with his sons.

The Best Things We Read Last Week

Out of the hundreds of sources of investment, finance, and economics news and insight we regularly review – our Bloomberg terminal, hedge-fund letters, annual reports, the financial news media, Securities and Exchange Commission (“SEC”) filings, investment newsletters, newspapers, X (Twitter) threads, conferences, podcasts, and more – here’s what we’ve read that we think you might find interesting.