FDIC Chairman Sheila Bair says the Deposit Insurance Fund may go into the red if the special assessment on banks proposed last week isn't collected. Bair said she understands banks need every penny of capital they can get, but "without these assessments, the Deposit Insurance Fund could become insolvent this year."
I've been harping about this for months now. I don't think the government will let the FDIC go out of business, especially since that would be the right thing to do. I expect the FDIC's ongoing failure to simply provide a new reason to inflate.
David Einhorn, the hedge-fund manager who first called Lehman's bankruptcy, must have similar expectations regarding inflation. He started buying the SPDR Gold (GLD) and the Market Vectors Gold Miners (GDX) ETFs last quarter. Now, GLD is his largest holding at 15.9% of the portfolio.
Peter Thiel, PayPal founder turned hedge-fund manager, is as bullish on stocks as anyone we've seen yet. He's got 21.35% of his Clarium Capital fund in the S&P 500 Index (SPY).
Two weeks ago, U.S. Bancorp CEO Richard Davis criticized the federal government's Troubled Asset Relief Program (TARP), saying, "There's no A, R, or P in TARP — it's just troubled." Now Davis says as soon as the government finishes its stress testing and he gets approval to return the money, he'll give back all of the $6.6 billion in TARP funds USB was "told, not asked" to take last fall.
The Mortgage Bankers Association reports that in the fourth quarter of last year, almost 12% of all U.S. residential mortgages were delinquent, meaning they were either late on their payments or in foreclosure... That's about 5.4 million homeowners.
Delinquencies in prime and subprime fixed-rate loans continue to rise, so they're not caused by variable-rate loans resetting, but by loss of income due to job and pay cuts.
New foreclosures have remained essentially flat the last three quarters. That's because lending servicers are working with loan modifications and some borrowers are running 90 days behind on purpose so they can qualify for special programs.
That makes sense, considering who owns about 63% of the mortgage servicing market: Bank of America (21.13% market share), Wells Fargo (18.3%), JPMorganChase (15.44%), and CitiMortgage (8.32%).
First of all, these companies don't want huge numbers of foreclosed properties on their hands. Second – and just as important – they want everyone to know how wonderful they are for working with delinquent borrowers, perhaps to avoid political backlash over the fact that they've been handed a government-financed oligopoly. Banking is the most overregulated industry in the United States. No coincidence, it's also one of the least competitive and completely screwed up.
Two of our favorite bankruptcy picks are heading even closer to insolvency...
MGM Mirage and Dubai World failed to reach an agreement with Deutsche Bank to secure a $1.2 billion loan to complete the Las Vegas CityCenter project.
Deutsche Bank was seeking equity and debt stakes in the massive Las Vegas Strip development in return for the loan... MGM and Dubai World would have merged CityCenter with a nearby property owned by Deutsche. The group will now probably consider asset sales, and it has allegedly hired restructuring advisory firm Evercore.
MGM fell around 14%.
Our other whipping boy, General Motors, fell double digits today after its auditors raised "substantial doubt" about the carmaker's ability to continue operations... and said GM may have to file for bankruptcy if it can't execute a huge restructuring plan.
According to GM's accounting firm, Deloitte & Touche, "The corporation's recurring losses from operations, stockholders' deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern."
MGM and GM are down about 86% and 53%, respectively, this year.
Meanwhile, one of the stocks I've given my most ardent recommendation is still thriving... Extreme Value pick Wal-Mart (WMT), the world's largest retailer, raised its dividend 15%, from $0.95 to $1.05 per year.
Wal-Mart reported February sales growth beat its expectations. Revenue from U.S. stores open at least a year increased 5.1% last month, helped by an increase in customer traffic. With gas prices down, Wal-Mart says consumers are making more trips to its stores to buy groceries.
Despite what Wal-Mart reports – that shoppers are buying more food – major food-producer stocks, like Kraft (KFT), General Mills (GIS), and Campbell Soup (CPB) are getting crushed. But they're still outperforming the market. Below is a one-year chart of KFT and GIS versus the S&P.
If you want to know how hazardous to your health Mr. Obama's health care "reform" will be, you should read this short, sweet, and to-the-point essay. It tells you how awful health care is in countries like Britain, Canada, and Sweden.
After Short Report readers made a quick 50% gain (some even more) betting on a fall in gold prices – the metal fell for eight straight days – Jeff Clark is taking the other side of the bet. He told Growth Stock Wire readers today, "Gold and gold stocks will be HUGE winners this year." He also declared 2009 as "the year of the precious-metals stocks."
Jeff hasn't gone long yet, but he's working on several trades right now for S&A Short Report readers. Jeff plans on making huge gains trading metal stocks all year. To learn more about Short Report and get Jeff's next recommendation, click here...
If you're a Jim Rogers fan (and we definitely are), you've got to read his most recent interview... Rogers offers up one of his best rants of all time. Read the interview on The Daily Crux, here...
New highs: None.
In today's mailbag... more readers taking on The Man... send your e-mails to feedback@stansberryresearch.com.
"I have been through the same situation, fighting the revaluation of my property. You go through the motions, come up with comparable properties, make a great argument as to why the assessment is incorrect, and you win. Then the following year (or 2 depending on where you live), they revalue your property again, and you are right back at square 1 again. You don't win, you just postpone the inevitable." – Paid-up subscriber JJ
"I had a similar experience as reader Tobino for the last three years. Except our taxes here in Arkansas are no where as much as New Jersey. Each year in August we get a fine print post card notification from the Assessor that the real estate is being re assessed. Most people toss it in the wastebasket since it looks like junk mail. There is a limited time period for appeal. In my case the value of the property was said to have doubled. I requested a hearing before the 'equalization board' (note the Orwellian newspeak). I was queried as to why; they wanted to make a deal with a 'compromise' of about 50%. I challenged them to produce a single comparable sale upon which the new valuation was based. They could not. When pressed, the telephone attendant in the assessor's office handed me off two times. The third guy confessed that they were computer generated numbers. He would not concede they were numbers picked out of the air, but never was any objective basis provided for the numbers. I never got my hearing. They agreed to leave the assessment unchanged rather than go forward.
"That was my third annual appeal. The first one came one year after our purchase. I got a full blown hearing, took a local real estate agent with me to testify as to values. The assessor had NO evidence of comparables. No increase. The second year, no hearing; they conceded by telephone, and left it unchanged. Moral: be attentive to the mailed fine print; challenge it immediately. Be prepared to take objective evidence of appraisals; often it does not have to be more than an astute real estate agent. These bureaucrats in Arkansas farm out the chore to hired 'consultants' who just pick numbers out of the air. When challenged they don't have anything more than intimidation on their side. Yes, I am a lawyer, but any articulate property owner can object and prevail." – Paid-up subscriber Raymond Harrill
Ferris comment: Fighting City Hall and winning is certainly heartening inspiration. We gladly reproduce your stories in hopes they'll prove helpful to anyone in a similar predicament.
But I'm more interested in fundamental issues. Whether or not my taxes will go up or down is not a fundamental issue. Whether or not taxation is theft, whether or not I truly own my house... These are fundamental issues.
So the real problem isn't how large your tax bill is. The problem is, you're under the delusion that you own your house. How could you possibly be said to own anything on which you pay an annual tax? You don't. The government owns it.
Try to stop paying the rent (taxes) and see if the real owner doesn't exercise its "right" of ownership and take back its property. Eventually, a man with a gun will come and kick you out of the house you allege to own. The term "private property" is little more than hype.
We've been a pack of whipped dogs for so long, cashing out our home equity to buy another boat or gargantuan TV or second home. We've forgotten normal people save money, borrow little, stand up for what's right, and don't snivel and cower their way through life. We're too scared, too ignorant, and too obsessed with the accoutrements of wealth.
In Common Sense, Thomas Paine wrote of wealthy opponents to American independence: "The rich are in general slaves to fear, and submit to courtly power with the trembling duplicity of a Spaniel." We in the U.S. have become very good at submitting to the courtly power.
"I did not stick it to the man. However, in response to Obamas advise on buying stocks, please be advised that he does not have any investments in stocks and his wife cashed out her 401K four years ago. This was brought out during his campaign for president and is available with little research. Of course, he also was a lecturer, two or three times a month, at the University of Chicago Law School, not a Professor. Would you follow his advise?" – Paid-up subscriber J.B. Herno
Regards,
Dan Ferris
Medford, Oregon
March 5, 2009