December 2015

1

And Just Like That... China Becomes a World SuperpowerA trillion-dollar shift out of U.S. dollars and into China’s

currency is about to start

Most people don’t even know it happened.It wasn’t widely reported. I didn’t see any mention of it on the

major news networks.But last Friday, China became a world superpower. Finally.China is getting admission into an elite club with just four other

“members.” No new members have been allowed into this club for decades... Until now.

Specifically, last Friday, the head of the International Monetary Fund (“IMF”), Christine Lagarde, said:

“The IMF staff assesses that [China’s currency] meets the require-ments to be... [included] in the SDR basket as a fifth currency, along with the British pound, euro, Japanese yen, and the U.S. dollar.”

At first glance, this seems like no big deal. Nobody actually uses the IMF’s currency.

But when you think about what it means symbolically, it’s huge...One of the world’s most powerful organizations is finally acknowledging China’s status in the

financial world. It’s an unequivocal vote of confidence in the success of China’s drastic reforms. And it’s a major step toward establishing China’s currency – the yuan – as a major reserve-currency asset... that could – one day – challenge the U.S. dollar.

Most folks are blowing off the significance of this. I think that’s a mistake...Importantly, this mistake creates possibly the greatest investing opportunity of my career for us.If you don’t remember anything else from this letter, please remember these three things:1. China is the world’s second-largest economy.2. NOBODY owns its stocks.3. NOBODY holds its currency.Think about the insanity of that...

Inside This Issue• “The Answer Key”

– the secret key to knowing what investors will buy in China in the coming years.

• How we will buy China for 80 cents on the dollar and have triple-digit-upside potential.

Editor: Steve Sjuggerud

2Dr. Steve Sjuggerud’s True Wealth December 2015

I never imagined that – at any point in my career – there’d be a moment when NOBODY owned the stocks and NOBODY owned the currency of the world’s second-largest economy. That makes no sense!

As I will show you today, $1 trillion could flow into China’s currency (through Chinese bonds). And nearly the same amount could flow into Chinese stocks.

So far, nobody seems to care. Let’s get our money there first.

Today, I will show you the timeline for when these things should happen, and where we’ll put our money to work for the safest, biggest profits.

Let’s get started...

A Firsthand View of China’s Drastic Changes

People are completely underestimating what has happened in China...

I’ve been buying and selling Chinese stocks for more than 20 years now. In 1993, I was a broker specializing in international stocks, and I bought and sold China plays trading in Hong Kong on a daily basis. I first set foot on the stock exchanges in Shanghai and Shenzhen in 1996. Back then, if you had told me that China would become the world’s second-largest economy within two decades, I would have laughed...

I remember standing on the banks of the Huangpu River in Shanghai in 1996, looking across to “Pudong New Area.” Chinese officials showed me their scale models and their plans, and I could hardly hold in my laughter. What they were proposing was impossible... What they were proposing would be one of the great-est human achievements ever, in my opinion. It was not possible... Not even close.

I’ve never been so wrong about anything in my career...

The pictures tell the story better than any words I could use to describe it. It is extraordinary. I’ve run it in True Wealth before, but it never ceases to amaze me. Across the river is Pudong New Area. You can see the changes for yourself. I’ve circled a Big Ben-style clock for scale. It’s incredible.

I consider Pudong New Area to be one of the great-est human achievements that I have ever witnessed.

People outside of China have no idea what has hap-pened in such a short time. But it HAS happened...

China is now the world’s leading exporter. It is the world’s second-largest economy. When you think of those two statements, it’s hard to imagine the IMF not giving China its rightful respect in the world. When looked at from the Asian perspective, the IMF (and the Western leaders) would lose credibility if they did NOT allow the yuan into its Special Drawing Rights (“SDR”) reserve currency basket.

Why $1 Trillion Will Move Into China’s Currency

If China gets into the club, $1 trillion will move into China’s currency.

Those aren’t my words... Those are the words of Standard Chartered bank. Insurance giant AXA agrees, saying China could make up 10% of the world’s $12 trillion in government currency reserves. (You can read this story here: http://sbry.co/R1D2E.)

Standard Chartered’s analysts said that the IMF decision “would likely have a significant market impact, driving an immediate sharp increase in global diversifi-cation into renminbi [China’s currency] assets.”

Here’s the timeline for all of this...

3December 2015 Dr. Steve Sjuggerud’s True Wealth

The IMF will OFFICIALLY announce if the yuan gets to join its SDR reverse currency basket on No-vember 30, 2015. If the yuan gets approved, China will “join the club” on October 1, 2016.

The thing is, it’s already a foregone conclusion...There’s no need to wait to hear the answer. You

see, any country protesting this conclusion at this point would look like an idiot. (The U.S. was the major idiot, I mean, protestor here... but once the U.S. realized it was the only bully at the playground trying to hold China down, it backed off.)

So what does this mean? In short, it’s a vote of con-fidence in China’s drastic reforms by the world’s major powers. It’s also a big step toward establishing the yuan as a major reserve-currency asset.

But as I said earlier, NOBODY is invested in Chinese stocks... and NOBODY holds any money in the yuan.

This creates possibly the greatest opportunity of my career. We will see the largest transfer of U.S. dollars into Chinese assets in all of human history.

Ultimately, $1 trillion will move into China’s currency... and according to Standard Chartered, that money will go into China’s bond market.

We already have two positions in the True Wealth portfolio to take advantage of this trillion-dollar shift... the Market Vectors ChinaAMC China Bond Fund (NYSE: CBON) and the KraneShares E Fund China Commercial Paper Fund (NYSE: KCNY).

While both of these funds are relatively safe invest-ments, CBON is the riskier of the two. This fund holds a basket of AAA-rated Chinese bonds. (AAA is the highest credit rating.) However, while these bonds are AAA-rated, with China, it’s tough to know exactly how safe they actually are.

Importantly, our upside potential is large enough to make the risk worth it. I believe we could end up mak-ing roughly 10% a year in CBON. Here’s how...

• 3% a year in dividends.• 1% to 3% a year in currency appreciation.• 4% to 6% a year in capital gains.CBON currently pays around 3% in dividends.

We’ve also seen China’s currency rise roughly 3% a year versus the U.S. dollar over the past decade. With a tril-lion new dollars flowing into China’s currency, it should stay strong.

Similarly, as demand for China’s currency grows,

demand for Chinese bonds will grow as well, which will push up prices. Additionally, China is cutting interest rates, which will push these bond prices up. Conserva-tively, we could make 4% to 6% a year in capital gains on these bonds over the next few years.

When you add it all up, owning shares of CBON gives us exposure to China’s currency and an opportu-nity to earn double-digit annual returns.

But if the idea of owning Chinese bonds scares you, then consider shares of KCNY...

This is the more conservative of our Chinese cur-rency opportunities. This fund holds a basket of short-term bonds denominated in the yuan. These bonds are typically less than six months in length, so they’re much safer. However, that safety limits our ability to earn capital gains as the bonds appreciate. This fund will pay us 3% a year in dividends, and it gets us diversified out of the U.S. dollar.

Both of these funds remain “buys” today. I urge you to own one, or both, based on how much risk you’d like to take on.

The developed world is finally accepting China as a world superpower. It’s a foregone conclusion that the yuan will join the IMF’s SDR basket. And that means $1 trillion will flow into China’s currency over the next few years.

We want to get our money there first!While a trillion dollars will flow into China’s cur-

rency in the coming years, a similar amount of money could be forced to flow into Chinese stocks, as well...

Why $1 Trillion Should Go Into Chinese Stocks

You might not believe me when I tell you this...But most fund managers are wimps.What drives them? The desire to keep their easy

jobs...How do they keep their jobs? By not performing

too poorly in their bosses’ eyes.How do their bosses measure their performance?

Against a benchmark index.To keep his job, the typical fund manager doesn’t

deviate his holdings much from his benchmark index. If you don’t deviate the stocks you hold from the stocks in your benchmark index, then you will never dramatically underperform – and you won’t lose your job.

4Dr. Steve Sjuggerud’s True Wealth December 2015

The world’s leading provider of benchmark indexes is MSCI. $9.5 trillion dollars is benchmarked to MSCI indexes. $1.7 trillion of that is benchmarked to MSCI’s Emerging Markets Index.

Right now, shockingly, stocks trading in China are not part of the MSCI Emerging Markets Index.

China’s stock market – stocks trading in China’s currency – is worth $7 trillion in market value. It makes no sense that these Chinese stocks are NOT part of the major emerging markets index.

Chinese stocks should be THE MAJOR PART of an index of emerging market stocks... instead, they make up zero percent. That’s crazy.

Stocks trading in China make up more than 10% of the world’s stock market value – and NOBODY OWNS THEM. You don’t. I don’t. And no major investors do.

This is about to change. And when it does, it will force a flood of money into stocks trading in China – ultimately hundreds of billions of dollars, as index pro-viders like MSCI start to include local Chinese stocks (called “A-shares”) in their indexes.

MSCI actually DOES include something called “China” in its emerging markets index... But for the most part these are not actually shares trading in China – they are typically businesses trading in Hong Kong.

MSCI is moving toward having more actual Chi-nese companies in its China indexes. It is taking action as we speak...

Just last Friday – the same day as the IMF an-nouncement about China’s currency – MSCI said it would start including “overseas” Chinese companies in its China indexes – starting with names like search engine Baidu and e-commerce company Alibaba. These companies will get included in the MSCI China index starting December 1. But these still aren’t Chinese A-shares – they aren’t China-listed companies.

MSCI recently laid out its “roadmap to a compre-hensive China equity index.” It plans to move from zero percent in Chinese A-shares to 47.2% over time. Here’s what it calls its “end game” for its comprehensive China stock index:

• 47.2% Chinese A-shares.• 46.2% Hong Kong-listed Chinese companies.• 6.6% other stocks (including overseas listings

like Baidu and Alibaba).

So... MSCI is going from zero percent in Chinese A-shares to 47.2% in Chinese A-shares. That’s a huge jump! But it’s the right jump...

Fund company Vanguard wanted to get a “jump” on MSCI – so it added a 5% allocation to Chinese A-shares this year in its emerging-markets fund... That change in one Vanguard fund forced roughly $2.5 bil-lion dollars to flow into Chinese A-shares – since that fund is around $50 billion in size.

$2.5 billion dollars – and that’s one fund! Just imagine what will happen when thousands of fund managers – who are protecting their jobs – have to put money into China in the next few years.

Hundreds of billions of dollars will ultimately flow into Chinese stocks. Keep in mind that money will not necessarily flow into China because it’s the right thing to do... but because fund managers are simply following their benchmark index... they’re protecting their jobs.

MSCI has $9.5 trillion benchmarked to its indexes. But it’s not the only game in town... MSCI’s biggest competitor is FTSE... And FTSE has already added a 5% China component to its emerging markets indexes in anticipation of the day when China-related stocks make up more than 40% of the major emerging mar-kets indexes.

In short, a lot of money is going to flow into Chi-nese stocks in the next five to 10 years as fund managers feel forced to follow the indexes and increase their pur-chases of Chinese stocks. Our plan is to get our money there first.

So how are we going to profit from this?We’re going to do it in two ways...1. With “The Answer Key”... We know what

the future China index will look like.2. With the little-known way to buy Chinese

A-shares at a 20% discount.Let me share these ideas with you...

The Answer Key: What MSCI’s China Index Will Look Like in Five Years

Remember the teacher’s edition of your textbook in school?

Remember how it had “the answer key” at the end of each chapter?

5December 2015 Dr. Steve Sjuggerud’s True Wealth

Remember how you could peek ahead and see the answers?

Interestingly, MSCI has provided us with “The Answer Key.” It didn’t call it that, of course, but that’s what it is... In the appendix to a recent MSCI paper, it showed us what the future MSCI China index would look like. (It called it the Pro Forma MSCI China Index with full inclusion of A-shares.)

I was a bit shocked to see that it looks a lot like an existing exchange-traded fund (ETF) that’s out there already – the iShares China Large-Cap Fund (NYSE: FXI).

When you add the A-shares to the “H-shares” (Hong Kong-listed shares), the future MSCI China index still doesn’t look a lot different from FXI when you look at the order of the largest companies in the index. Take a look:

So today, our first China buy is the “easy” one... We’re buying the well-known China plays. We’re buying the ones from the future’s Answer Key – the ones that everyone will own when they start to buy China.

Fortunately, FXI actually looks great too... It ticks all the boxes for us. It’s 1) cheap, 2) hated, and 3) in the start of an uptrend. Let’s take a brief look at each of these...

Today, FXI is actually cheaper than it was before its big booms in 2005-2007 and in 2008-2009. Take a the chart:

The chart above shows the price-to-earnings (P/E) ratio for the Hang Seng China Enterprises Index (HS-CEI) – which FXI tracks. The HSCEI recently bounced from its cheapest P/E level going all the way back to 2001. And even today we’re at cheaper levels than we saw during each of the last three major booms.

Looking more specifically at FXI’s holdings, we see the same thing. The median company in FXI is ex-tremely cheap. Take a look:

These are incredible valuations... roughly half of what we see in the U.S. today. And this makes China’s H-share market one of the cheapest investable markets in the world right now.

Importantly, nobody is interested in buying Chi-nese stocks after the recent bust... which is good!

Also, we have a great entry point here... We can buy with limited downside risk... And dramatic upside potential. This year’s lows are only 11% below today’s price – but our upside should be 100% or more...

Those odds are unbelievable. We have to take them. Here’s how we’ll do it...

Buy shares of FXI today. Use a stop loss of $33.58 (but do NOT put that order in with your broker). If FXI CLOSES any day below $33.58, then sell THE NEXT DAY. This way, our downside risk is only 11% – but our upside potential is more than 100% as money flows into Chinese stocks. If FXI soars we’ll protect our downside with a smart trail-ing stop. Sell half when you are up 100%. Plan to hold for as long as five years.

MSCI Rank Company FXI Rank1 Tencent Holdings 12 China Mobile 33 ICBC Bank H + A 44 China Construction Bank H 25 Ping An Insurance H + A 66 Baidu Coming7 Bank of China 58 China Life INS H 79 CSR A-share10 China Merchants Bank H + A 1211 Alibaba Coming12 CNOOC 813 Petrochina H 1014 Agricultural Bank of China H + A 1515 China Petroleum & Chemical 9

FXI ValuationsP/E Fwd P/E P/Book P/Sales

Median 9.1 9.3 1.2 1.1

6Dr. Steve Sjuggerud’s True Wealth December 2015

A Little-Known Way to Buy Into China’s Actual A-Share Market – at a 20% Discount!

I can’t make this offer to you all the time...But right now, you can buy a dollar for 80 cents...Specifically, the Morgan Stanley China A Share

Fund (NYSE: CAF) is trading at a 20% discount to liquidation value as I write. That means exactly what you think it means... You can buy a dollar for 80 cents. If the fund closed its doors today, and gave everyone their money, you’d get that dollar.

A fund that is at 80 cents on the dollar would have to rise by 25% just to get to liquidation value. That’s crazy. Take a look at the discount for yourself:

So what’s going on here? American investors don’t believe in Chinese A-shares...

Typically, when investors don’t believe in an asset, they’re not willing to buy it, even when it trades at a massive discount like this fund does.

The reason CAF is able to trade at a massive dis-count is because it’s a closed-end fund. Closed-end funds have a fixed share count. Unlike ETFs, they can’t create or liquidate shares based on demand. Instead they trade at premiums or discounts to the true value of their assets based on investor buying and selling.

CAF currently trades at a massive 20% discount. And that tells us that U.S. investors want nothing to do with Chinese A-shares.

I love to see this. It tells me investors hate Chinese A-shares. And we can make money in two ways... If the discount goes away, and if Chinese stocks go up. We should see both...

Unlike nearly all China funds, which hold mostly Hong Kong stocks, this particular fund is unique... All it holds are Chinese A-Shares – and that’s exactly where

the money will flow over the next five years. This is where the biggest gains will be when they arrive.

Chinese A-shares have soared by more than 100% three separate times in the past 10 years. In each of those three instances, Chinese stocks started at a valuation of below two times book value. When they broke out above two times book value, they often kept going. After the recent bust in Chinese stocks, they fell below two times book value again... and then they started to move higher. Take a look:

These are near-record low valuations. And remem-ber, we’re buying this market at a 20% discount through shares of CAF.

After taking a 20% discount into account, here’s what we’re getting for our money in CAF today:

Again, these are dirt-cheap valuations in today’s world. Importantly, shares of CAF have recently entered a new uptrend. Take a look...

The situation could be perfect... Chinese stocks are

CAF Valuations After DiscountP/E Fwd P/E P/Book P/Sales

Median 12.3 11.5 1.6 1.3

7December 2015 Dr. Steve Sjuggerud’s True Wealth

cheap, hated, and now in an uptrend. And we have a great way to put our money to work in this market today.

The Morgan Stanley China A Share Fund is one of the few investments out there in which we would actu-ally hold a basket of Chinese A-shares. Even better, we can buy it now for 80 cents on the dollar.

Buy shares of CAF today. Plan to hold for up to five years. Sell half when you are up 100%. Use a stop loss at $21.64 (but do NOT put that order in with your broker). If the stock closes below $21.64, then sell the next day. If Chinese A-shares take off, like I expect, we will use a smart trailing stop to protect our downside.

Where to Be Invested NowLast month, I told you we received an amazing

gift... An opportunity to make 50%-plus profits in U.S. stocks over the next 18 months.

In short, we were coming out of the August stock market correction. Investors had given up. Negative sen-timent was at levels we’d only seen a handful of times over the past three decades.

Scared investors and negative sentiment are often incredible buy signals for stocks. So we bought – with leverage – to increase our upside potential. We bought the ProShares Ultra S&P 500 Fund (NYSE: SSO).

I’m happy to report this trade is working out exactly as I hoped. U.S. stocks have continued to rebound. Since the start of the fourth quarter of 2015, stocks in general are up 8.4%, and our leveraged position on stocks – SSO – is up 18%.

What’s going on? I believe we’re entering “The Melt Up” in stocks... where extreme fear could help fuel a blow-off top like we saw in 1998.

I could be wrong, of course. But I believe the last phase of the market is both the most exciting and the riskiest time to own stocks. Shares of SSO have already gone up. But there’s plenty more upside here. Buy today if you haven’t already.

Our other big idea last month was a rebound in precious metals and precious-metals producers. We had two ways to make the trade, with different risk profiles...

1. We bought gold and silver at a 10% discount with the Central Fund of Canada (NYSE: CEF).

2. We bought junior gold miners with triple-digit

upside potential through the Market Vectors Junior Gold Miners Fund (NYSE: GDXJ).

CEF was our low-risk trade, while GDXJ was our higher-risk and higher-upside opportunity. So far, nei-ther of these trades has worked out.

We haven’t stopped out of either yet... but we are close.

Our advice on CEF was to sell “if both gold and silver hit new 12-month lows.”

Gold prices did hit a new 12-month low this month. But silver did not. We’ll continue to watch this position closely. CEF is the best way to buy and sell gold and silver. But we’ll stick to our discipline and sell if gold and silver both hit new 12-month lows.

Similarly, GDXJ traded down this month. This week, it narrowly avoided our stop price of $18.31. Con-tinue to hold the position for now. But sell the next day if GDXJ closes any day below $18.31. I expect we will make hundreds-of-percent gains in junior gold mining stocks someday – but it’s possible we could get stopped out one more time before we nail the big trade.

The best opportunity I see today is in China... in both our Chinese bond and stock opportunities.

Right now, we have a crazy opportunity to buy Chinese A-shares at a 20% discount through shares of CAF. We also have a chance to buy China’s dirt-cheap H-share market through shares of FXI.

Both FXI and CAF are cheap and hated... and starting new uptrends as I write. We made huge profits in China’s stock market earlier this year. And we could be on the verge of round two right now. Don’t miss out. This could be the biggest investment idea of my career.

Thank you, as always, for your subscription. You allow me to have the best job in the world – which is finding great investing opportunities for you. I hope you’ve learned (and profited!) a great deal from our relationship...

Thank you again. Good investing,

Steve Sjuggerud November 20, 2015

© 2015 Stansberry Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Stansberry Research, 1217 Saint Paul Street, Baltimore, MD 21202 or www.stansberryresearch.com.We welcome comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only, and you will not receive a reply. To speak with customer service, e-mail info@stansberrycustomerservice.com or call 888-261-2693 (U.S.) or 443-839-0986 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Please note: The law prohibits us from giving personalized financial advice.Stansberry Research forbids its writers from having a financial interest in any security they recommend. All employees of Stansberry Research (and affiliated companies) must wait 24 hours after a recommendation is published online ¬or 72 hours after a direct mail publication is sent before acting on that recommendation.Stansberry Research doesn’t recommend or endorse any brokers, dealers, or advisors. Any brokers mentioned constitute a partial list of available brokers and is for your information only.This work is based on SEC filings, current events, interviews, corporate press releases, and what we’ve learned as financial journalists. It may contain errors, and you shouldn’t make any financial decision based solely on what you read here. It’s your money and your responsibility.

True Wealth Recommended List Prices as of November 19, 2015

Investment Symbol Ref. Date Ref. Price Current Price Total Return* Status Stop Price**SpeculationsiShares U.S. Home Construction ITB 2/23/2011 $13.20 $27.97 115% Buy $24.17iShares U.S. Insurance IAK 5/17/2012 $29.39 $52.77 88% Buy $47.04Market Vectors ChinaAMC China Bond CBON 11/20/2014 $24.99 $24.34 0% Buy $22.49KraneShares E Fund China Commercial Paper KCNY 4/16/2015 $34.72 $34.26 -1% Buy $29.88Silver Bay Realty Trust SBY 6/18/2015 $15.72 $15.31 -1% Buy $14.40PowerShares S&P 500 BuyWrite Portfolio PBP 9/17/2015 $20.89 $21.14 3% Buy $19.69ProShares Ultra S&P 500 Fund SSO 10/12/2015 $61.43 $65.60 7% Buy $52.93Market Vectors Junior Gold Miners GDXJ 10/12/2015 $21.78 $19.45 -11% Buy $18.31iShares China Large-Cap FXI 11/19/2015 NEW $37.83 NEW Buy $33.58Morgan Stanley China A Share CAF 11/19/2015 NEW $25.59 NEW Buy $21.64Safe Money PlaysWisdomTree Japan SmallCap Dividend DFJ 2/18/2010 $39.28 $56.88 57% Buy $50.52Real AssetsMS65 Saint-Gaudens 9/16/2010 $2,300 $1,735.00 -25% BuyMS65 Morgan dollars 9/19/2013 $160.50 $158.00 -2% Buy

Central Fund of Canada CEF 10/12/2015 $11.28 $10.27 -9% Buy^New lows in gold & silver

* Total return column INCLUDES dividends or income. ** Based on TradeStops Smart Trailing Stop as of yesterday’s close. ^ Sell if Gold and Silver hit new 12-month lows.

This portfolio is not intended to represent the exact prices at which you could get in or out of a stock. Rather, it represents the value of our insights at the time our material is published.

How to use a trailing stop: A stop loss is a predetermined price at which you will sell a stock in case it declines. A “trailing stop” is a stop loss that “trails” a stock as it rises. For example, let’s say you set a 25% trailing stop on a stock you purchase for $10. If the stock rises to $20, you would move your trailing stop to $15 ($5 is 25% of $20, $20 - $5 is $15). Only use closing prices, and never enter your stop into the market. For more information, see our frequently asked questions at www.stansberryresearch.com/secure/faq.asp