New Treasury secretary Timothy Geithner makes a fool of himself... a new hedge fund for pornography investors... how the ultimate long-term investment fared last year... why you should buy American Express...
Readers of our new online investment digest learned all this today. As we mentioned yesterday, our latest project is almost ready for public consumption.
Each day, we're scouring the world's best financial magazines, newspapers, advisories, shareholder reports, and websites to bring you the most useful and actionable investment information.
The service is still in beta-testing mode, so only our S&A Alliance members have access to the site. So far, they love it. We should have the website ready for your viewing in just a few days. Once we launch, you won't have to go anywhere else for your investment insight and news. We'll keep you updated as we come closer to finishing...
Let the waste begin. To "save" the country from its debt crisis, Congress proposes to borrow another $825 billion and spend it like a teenaged girl at the mall. Congress wants you to believe we can dig ourselves out of the financial crisis by spending $400 million to research global warming, $650 million converting analog TVs to digital, $7 billion to "modernize" federal buildings, and $20 billion on food stamps, etc. According to the Wall Street Journal, "only $90 billion out of $825 billion, or about 12 cents of every $1, is for something that can plausibly be considered a growth stimulus."
Remember how many times last summer Fed Chairman Ben Bernanke and former Treasury Secretary Hank Paulson lied to the American people, swearing Fannie and Freddie were "well capitalized"? They said so in front of Congress in July – at least a dozen times. And they kept saying it, right up until the moment they nationalized both firms, completely wiping out shareholders. Today, Fannie asked the Treasury for another $16 billion to cover losses on mortgages. And Freddie needs another $35 billion.
Mark my words: By the time this whole thing is over, taxpayers will have spent more than $500 billion bailing out Fannie and Freddie. And this fraud, which makes Madoff look like a piker, will never be investigated because the trail would lead directly to Congress.
Chrysler and GM have finally pulled the plug on their "jobs bank" programs. Nearly 1,000 Chrysler employees were receiving full pay while not being required to show up for work (GM would not disclose how many people were in its job bank). Ford "employs" more people in a similar program. Even after accepting billions of dollars in taxpayer-funded "loans," Ford continues to pay unionized employees not to work.
And still more layoffs... Target, the second-biggest U.S. discount retailer, will cut 9% of its headquarters staff, laying off 600 employees and leaving an additional 400 positions unfilled. Target is also closing its Little Rock, Arkansas, distribution center – which employs 500 – later this year. German software giant SAP will fire 3,000 employees. The company announced a 13% gain in net income and an 8% rise in revenue, but it's preparing for a tough 2009. Big box electronics retailer Best Buy also said it will cut positions, but didn't say how many.
And more biotech takeovers... Yesterday, CV Therapeutics (CVTX) received an unsolicited $1 billion bid from Japanese drug maker Astellas – the offer was a 41% premium to CVTX's share price. This is still more proof Big Pharma and Big Biotech are hungry for new drugs. And as they've shown this year, they'll pay any price for attractive companies.
Biotech was one of the best-performing sectors in 2008 – when the rest of the market was slaughtered – and I bet it will be one of the best-performing sectors of 2009.
If you haven't yet subscribed to our biotech letter, Phase 1... you're missing one of the easiest moneymaking opportunities of the year. Big Pharma, with its billions of dollars in cash, will continue buying small biotech companies for huge premiums... They need the drugs to replenish their aging pipelines. Rob Fannon and George Huang, our biotech analysts, have already recommended two companies that were recently taken over at huge premiums. Readers made a fortune on both. Rob and George are currently researching more likely takeover candidates with strong drug pipelines. If you'd like to learn more about Phase 1, and gain access to the latest research, click here... We're currently offering the service at a discount.
The sharp rise in unemployment is beginning to hurt the value of prime mortgages. The default rates on large, so-called "jumbo," prime mortgages are skyrocketing. Nearly 7% of all such mortgages are now delinquent – up from only 2.6% last year. One big problem: Most lenders won't make these kinds of mortgages anymore because they don't conform to Fannie and Freddie standards, which limit the amount of mortgages to $625,000. The other big problem: It's estimated 42% of all jumbo mortgages have no equity to support them because of falling home values. Who owns all of these ticking time bombs? JPMorgan owns most of them. JPMorgan originated 25% of all jumbo mortgages in 2008 and holds $34 billion in jumbo mortgages.
In December, lenders seized 9,787 houses a day, or nearly seven a minute. Even though home prices are down 26% since June 2007, there is still enough unsold inventory to last 9.3 months at the current sales rate.
An important update, from Sjug:
Shares of PHK are up over 80% (including dividends) since I first told you about the stock six weeks ago. This is a silly gain. Quite honestly, it shouldn't exist. PHK is now trading at a crazy 61% premium to net asset value as of yesterday's close. We must take the free money while it exists. I was looking for a double in two years. We got 80% in two months. Sell shares of PHK tomorrow. Congratulations. You just made some free money.
Sjug's got another bond fund
he thinks readers should buy with the proceeds. His subscribers can find the details posted on the True Wealth section of the S&A website. If you're not a subscriber and you'd like to access the trade, click here.
New highs: none.
In the mailbag... The furor has died down. What will stoke your ire next, dear subscribers? Let us know: feedback@stansberryresearch.com.
"How does someone make $420 million shorting a stock? Is it possible to borrow the hundreds of millions of dollars worth of shares to sell back into the market? Just wondering if the details are different than the way a small investor like myself would do it – borrowing the shares from my broker or with put options. Are options part of the deal?" – Paid-up subscriber Jim Heath
Porter comment: I'm not certain I understand your entire question... but the answer to the first part is simple enough: Yes, it is possible to make hundreds of millions shorting stocks.
"Clearly my mistake, I thought I was subscribing to a financial newsletter... I already voted, and pretty sure that outcome is going to turn out better than most of your recommendations over the past year. No wonder you've switched to ranting, nothing like an attractive distraction." – Paid-up subscriber Michael
Porter comment: The Digest is worth every penny you've paid for it. And regarding my recommendations over the past year, I'm happy to let my track record speak for itself...
On a related note: Yes, I know I'm way behind on publishing the Report Card for 2008. I'll finish it this week, I promise. You'll get it Friday. Yes, really.
Regards,
Porter Stansberry
Baltimore, Maryland
January 28, 2009