So much for the oft-touted regulatory principle of full disclosure. Turns out Hank Paulson and Ben Bernanke aren't crazy about full disclosure when it reveals the huge cracks in the banking system.
Earlier this year, Bank of America CEO Ken Lewis testified under oath before New York Attorney General Andrew Cuomo that Paulson and Bernanke told him to keep quiet about the huge losses at Merrill Lynch (although Lewis denies the losses were at issue). Highlights from the testimony published in the Wall Street Journal reveal how Paulson tried very hard to work around the rules that would have required disclosure.
I've been telling you over and over again to avoid investing in big banks because nobody inside or outside the companies knows what they're worth. When you've got the secretary of the Treasury behind the scenes trying to hide important information from Bank of America shareholders... how can you ever expect to know enough to buy Bank of America shares?
I'm occasionally asked about the difference between UPS and FedEx. There's a great little bit in the Financial Times on that very subject. Though FedEx's stock has done better since 1999, UPS has outperformed FedEx since the economy turned sour in 2007.
UPS is one of the world-dominating franchises I've been beseeching you to buy in recent months. Year after year, it generates thicker margins and higher returns on equity than the competition. Its famous brown trucks serve every address in the United States. Revenues have risen every year of its 102-year existence. UPS is one of a handful of triple-A-rated debt issuers left in the world.
Labor unions could hurt FedEx's ability to compete with UPS. UPS is already the largest employer of Teamsters in the country, so it has decades of experience working with union employees. But most FedEx delivery drivers are independent contractors. FedEx could be hit by higher labor costs if pro-union legislation passes, making it easier for FedEx contractors to unionize.UPS at nine times free cash flow seems like a great deal to me.
A handful of world-dominating franchises like UPS currently trade at once-in-a-lifetime prices. To access my research on these companies, click here.
Only in Detroit... Last December, City Councilman Kwame Kenyatta packed up his things, mailed in his keys, and abandoned the mortgage on his underwater house. In addition to hurting Kwame's credit, it may put a damper on his mayoral campaign this summer... especially as one of the most vocal advocates of cleaning up the crime-ridden city... No joke, he's actually running for mayor.
Kwame's $225,000 home fell in value to $100,000, and his mortgage payment was about to jump $1,000 to $3,600 a month. Instead of taking the financial hit, Kwame just "jingle mailed" it. But he assures his critics things are far from rosy... "It's not like I'm making out like a fat rat here. The credit is now going to be shot." Kwame now rents a three-bedroom condo for him and his family. And he hopes his decision to abandon his home and add yet another foreclosed property to the Detroit streets (the city currently has around 16,000 foreclosed homes for sale) won't hurt his chances in office...
"History will show that some of the greatest leaders who did great work for the public may not have done so good by themselves," he said. "In most cases, they neglect themselves to take care of the people's business. My record in public office, I'm proud of it. I think I've done good."
The councilman's home is quite valuable compared to most of his neighbors. The median sales price for a home in Detroit is now $5,800 (no typo), down more than $66,000 from seven years ago. And the city's unemployment rate is one of the highest in the country around 20%.
Detroit has such wonderful potential, but it will be missed since obviously nobody there has a brain cell working. If they did, Detroit could easily become the most prosperous city on Earth. All it would have to do is shrink the government, cut taxes, and get rid of the overwhelming majority of real estate and business regulation. That plus an entire developed U.S. industrial center selling at liquidation prices would instantly attract businesses and talented, wealth-creating individuals from around the country and the world. Detroit could become the United States' first true free-enterprise zone.
It would guarantee an unprecedented boom there and make Detroit into one of the greatest cities in the world, instead of a festering hellhole, like it is now. Its politicians would be the wealthiest in the world; they'd become the subject of 60 Minutes stories and magazine covers.
I realize no one is going to turn Detroit into a free-enterprise zone without all the burdensome regulations that plague every business in our country from banks to barber shops... but a fella can dream. What a wonderful investment opportunity Detroit could be.
Even without sensible shrinkage of government burdens, Detroit is probably a value investor's dream these days. I wonder what kind of house you get for $5,800? Or what kind of neighborhood it's in? As cheap as Detroit's real estate and industrial assets must be right now, it could still be pretty darn good.
If you're in the Detroit area, write in with insights and information on bargains versus tax and regulatory burdens.
Gold sure is popular these days... Investment in gold exchange-traded funds (ETFs) jumped to an all-time record in the first quarter, according to the World Gold Council.
Investors bought 469 tonnes in gold ETFs, more than tripling the previous record of 145 tonnes set in the third quarter of 2008. Total bullion holdings currently sit at 1,658 tonnes. And SPDR Gold Trust (GLD), the largest gold ETF, holds a majority 1,105.98 tonnes... It is now the sixth-largest gold holder behind the government of Italy. It saw its holdings jump 75% in the past six months.
If you're interested in gold investing, be sure to check out the most current stories and investment articles about the yellow metal on The Daily Crux's "Gold Page." We've collected opinions from some of the world's foremost experts... expressing both sides of the gold argument. Some of the most popular topics include, The No
. 1 reason gold could enter mania phase soon, Gold is for suckers... buy this instead, and Gold on the verge of major breakdown.
I've been saying for months that fractional reserve banks are inherently insolvent. Now, Newsmax.com says rumors are rampant that most of the 19 banks that underwent government stress tests are technically insolvent. The secrecy of the results could wind up being a huge hint about their content. But for now, it's all rumors, no facts.
Activist investor Bill Ackman is trying to profit from the huge cracks in the banking system. He says Citigroup and Bank of America are technically insolvent. To get his point across, Ackman will urge the banks' bondholders to exchange their debt for equity positions, shoring up the banks' balance sheets and massively diluting existing shareholders. I don't know if he's shorting them with options or credit default swaps or if he's short the shares. But Ackman isn't known to waste time getting vocal about a business unless he's got skin in the game.
Conde Nast's Portfolio magazine published a great, although long, article covering Ackman's investment career.
New highs: none.
If you or someone you know is from Detroit, write to us about bargains in real estate or other businesses or perhaps provide us with some firsthand knowledge of the effects of tax and regulatory burdens. Write here: feedback@stansberryresearch.com.
"The toughest question about David Kellermann's suicide is: 'Where were the Obamaites?' If this had happened back in the Clinton era, they would have wrapped Kellerman in a rug to get him out of there and laid him out neatly in Fort Marcy park with some random gun, while Hillary shredded every document in his Fannie Mae office and home before allowing the police in to declare it a crime scene. What a bunch of incompetents we've got in there now, compared to the good old days of Bill and Hillary." – Paid-up subscriber MM
Ferris comment: Aaaah... Bill and Hillary... Hillary and Bill... Now there was a pair of first-rate thugs. They just don't make 'em like that anymore. What's this world coming to? When I was a kid...
"Any politician who tries to oppose the landslide of modern entitlements is immediately labeled a kook and is unelectable. Just for the record, the establishment types have labeled Ron Paul a kook for decades, but he has also been reelected many times to his seat in Congress. So I would disagree with your assertion that such a person is by definition unelectable. Such a person only becomes unelectable when they compromise their principles and disenfranchise those who will ONLY support someone who sticks to their principles." – Paid-up subscriber Leland Hosford
Ferris comment: Yes, there's always Ron Paul, arguably the only honest man in Congress. But I don't think anyone like him could ever be elected president. Americans will never elect a good president, because a good president would make it his life's work to shrink the government. Way too many Americans – rich and poor alike – are in love with their government kickbacks, boondoggles, social insurance, and welfare programs. If Ron Paul could get elected, bankers would probably assassinate him for wanting to abolish the Federal Reserve.
Also, Mr. Paul is not as good-looking as Obama, Al Gore, Bill Clinton, or even George Bush. Looks are very important to voters, though I doubt most people are aware of it. Point is, Americans would have to think to vote for Ron Paul, and most human beings, American or otherwise, seem overcome by an intolerably awful, itchy feeling whenever they have to stop and think. Sometimes it almost seems like the productive restlessness of the American people is in direct proportion to their aversion to thinking. But that couldn't be true... could it?
"I'm not sure who said 'you've got to take what the market gives you' but in my case I've got to comment on the Capitol One CD rates. I went through this very decision making when our CD portion of our money was maturing last year and WAMU was offering 5% CDs. Yes that was a very attractive rate and I understood the inherent risks that WAMU was flashing. So I researched the FDIC 'insurance program.' The way I understood it, if the bank you have your deposits at collapses you will eventually get your principal AND accrued interest. I'm sure the process is a bureaucratic clusterf but I couldn't have gotten a better interest rate than that.
"I sweated bullets as the mounting bad news kept coming out on WAMU and then the 'savior,' JPMorgan, swept in, took over and the transition has been quite painless. The way I looked at it was if this goofy high deficit spending government is going to act like some kind of socialist state, a little guy like me ought to take advantage of this government 'loophole,' I hate to say. Now you'll probably chew my ass out, but it worked for my wife and I, this time." – Paid-up subscriber Steve
Ferris comment: "This time" is the operative phrase. What about next time? Or the time after that? The very idea of an FDIC is untenable, and right this minute, the agency is not far away from technical insolvency (which its chairwoman, Sheila Bair, admitted earlier this year).
Regards,
Dan Ferris
Medford, Oregon
April 23, 2009