First Solar reports... Doc Eifrig's hot tips... 'Cash for clunkers' is out of cash... The problem of wealth... A 400 Club update... Quote of the week: "Don't you know what 100% means?"...
We wrote it. Did you short it?
This huge increase in supply is enabling polysilicon-based panel makers for the first time to sell their products cheaper on a per-watt basis than thin-film panel makers (like First Solar)... I expect to see polysilicon-based solar completely replace thin-film solar over the next few years – starting right now... First Solar reports earnings this Thursday. I'm 100% sure First Solar's earnings report is going to be worse than expected and reveal declining market share. I expect the shares of First Solar to continue to perform poorly... – Porter Stansberry, Put Strategy Report, July 28, 2009
This morning, shares of First Solar (FSLR) were down 10% (see the chart above), as the company's profit outlook was significantly weakened because of lower prices for competing polysilicon-based solar panels, especially in the German market. Says First Solar CEO Mike Ahern: "[T]here are several factors. One was certainly project and channel competition with the aggressive crystalline silicon pricing coming into the market. There is no question that had some impact."
By the way... The press reports about First Solar's earnings were way off. Most news reports said the company's earnings were great. But that's only because the company had lowered guidance previously.
What really mattered in the numbers was the huge trouble polysilicon competition is causing for First Solar. In fact, in Germany, First Solar has put a rebate scheme in place to make sure its panels are the same price as their competition. The problem is, First Solar can't reduce its costs as much as the polysilicon makers can, so the future is bleak. And apparently the market makers bulled the stock up overnight, based on the naive news headlines. According to subscribers, the stock went as high as $189 in after-hours trading – before opening down at $155.
So even though I was 100% dead right about my prediction, lots of subscribers didn't look past the headlines and the after-market trading. They thought the stock was going to rally today and they were going to get killed on their short positions. We got a handful of super-angry feedback e-mails that are quite funny to read now, in light of the stock's big decline. See the mailbag below...
We've just added a great new feature for Retirement Millionaire subscribers called Doc's Idea Index. We've dedicated a page on our website so subscribers can quickly access every money-saving, travel, food, and health care secret Doc Eifrig has ever written. For example, you can quickly learn how to earn $100,000 a year from your home, how to make free long distance calls, and how to play golf for free. You'll also be able to easily access Dave's four tips for saving money on prescription medication and the three months you should never visit a hospital. Next week, Doc is headed to Panama to find great spots to retire. You won't want to miss his updates. To sign up for Retirement Millionaire and start saving money immediately with Doc's Idea Index, click here...
An update on our fledgling efforts to launch a new, global wealth club...
I remember when I first started reading Bill Bonner's notes about the burdens of being rich. I thought: "Bill is crazy. I'd kill to have those problems." Fifteen years later, I finally understand. I know many of our readers are people of serious means, too. For example, at an Alliance meeting in Aspen a few years ago, I asked the man sitting next to me about his business. "Oh, I just sold it. Someone offered me $300 million for it. How could I say no?" I almost cringed. This man's life was his business. He knew all about it, and all of his friends worked in the industry. Now, he had something most of them would never have: a fortune. And they had something he'd never have again: a job. I knew my dinner companion was in for a tough transition.
I know that sounds crazy to most of you. But if you've been through this yourself, you know exactly what I mean. Discussions like the one below aren't considered polite. But at the risk of deeply offending those who resent the financially successful, I'd like to take a moment to talk about the problems of being rich. Yes, that's right... I said it... the problems of being rich...
The first – and biggest – problem you've got once you've made more than a few million dollars is taxes. For most folks who depend on a steady paycheck, taxes are, in a sense, irrelevant because you have to pay them. You have to keep earning an income to survive. So unless you can work in an all-cash way, you're going to pay taxes. Lots of them.
But once you've got $5 million or more in the bank, paying taxes becomes a real problem, because suddenly you have a choice in the matter. You can defer your income, for example. Or take it in the form of dividends, which are taxed at a much lower rate. Or you can simply put your money into assets that are mostly tax-free, like certain kinds of bonds. Or you could follow much more complicated strategies, like buying tax-loss carry forwards, using offshore licensing structures... or simply taking a big risk and trying to hide your income through a web of offshore companies in tax-friendly jurisdictions. Finding people who have done these things is difficult; earning their trust to the point where they're willing to talk openly about it is nearly impossible. But I've managed to do it. And so can you.
Of course, the biggest risk to your estate isn't really even lawsuits, accidents, or common theft... it's (legal) theft: estate taxes. Lots of people spend the "best years of their life" working harder than ever, just to make sure their kids can afford the estate taxes when they die. Imagine what it's like to have to keep working just so you can afford to pay the tax bill when you die. It's pretty frustrating. Of course, there are ways around these problems. Not many people know about the best solutions. And nobody wants to talk about them either. But it's not impossible: One of my partners recently set up a strategy that offers his estate 100% protection against U.S. estate taxes. It can be done.
And lots of other problems loom larger once you have a considerable net worth. For example, you might not worry about what things cost anymore, but you find it harder and harder to spend your money wisely. Most of the places that cater to the wealthy are ripoffs. There's a huge difference between the Four Seasons George V in Paris and most of the other hotels in the world that charge those kinds of rates. (Just to be clear, George V is, in my opinion, the single greatest hotel in the world. I won't stay anywhere else in Paris.)
It's also difficult to get good financial advice. Why would you take financial advice from someone who hasn't made 10% of your net worth? Almost all of the advice you're going to get is wrong and simply designed to generate fees for your advisors. This is a big problem once you're trying to manage $5 million or $10 million. And health care? Forget about it. In the U.S., all of the money in the world won't buy you much – except the opportunity to pay "your fair share" of everyone else's hospital bill. Fortunately though, many places around the world offer real five-star, totally private health care facilities. Once again, though, your doctor won't tell you this... No one will.
I could go on... but surely you get the point. There's a big difference between being rich on paper and living the life of a truly wealthy man. The things in life we want: love, health, adventure, security, and yes, more money, haven't changed. Most people don't understand this... and can't understand it.
And that's the whole genesis of The 400 Club. My idea is pretty simple: Let's get as many likeminded, experienced, and wealthy guys and girls together as possible in a group where we can get to know each other, travel, communicate, and share our experiences. To be useful, the club would need to offer a Facebook-like way for us to meet and communicate over the Internet. It would need to provide services like a global concierge – and a good one, not just another American Express where you only get sent to places that pay Amex for the recommendation. And it would need to offer special arrangements with financial service providers... and unforgettable experiences (trips, adventures, meetings).
I've talked to my circle of global contacts and most of them are interested in The 400 Club... but they're also skeptical that it's not going to really be any different from any of the other similar schemes they've seen over the years – all of which end up being fronts for various other businesses, like hedge funds for example. So to put these fears at ease, I decided to incorporate The 400 Club as a not-for-profit business that will be owned by its members. I'll fund the startup, put together the first board of directors, and hire the first president. But if you don't like my choices, you and the other members can simply vote us out. I'm interested in building a great club – I don't care who owns it.
Next, I wanted to make sure our concierge service would be the best in the world. We've partnered with a decade-old service launched by a member of England's royal family. Normally, you must apply for membership. And the annual fee sometimes reaches $150,000. Why would someone pay so much just for a concierge? Because it's the best in the world. It has 700 employees and 44 offices around the world: Paris, New York, Miami, L.A., Tokyo, Hong Kong, Sydney, etc. It specializes in providing what no other concierge can get you: Super Bowl tickets, seats at ultra-exclusive restaurants, front row tickets to sold-out shows, etc. Our concierge will make sure you never waste time or money when you travel, entertain, or shop. If it's legal, these guys can get it for you, anywhere in the world.
We've also partnered with a leading discount brokerage firm to provide you with "full service" financial services at the regular discount price. The 400 Club will have its own dedicated VIP team of brokers and consultants. So anything you see recommended in our newsletter, for example, they'll be able to do for you, no hassles. Whether it's setting up a margin account for selling puts or buying a hard-to-find foreign stock – these guys will be waiting for your call.
And... we're working on building out our travel features. Our idea is to have three events each year: two distinct travel adventures, plus a private meeting in New York City (or other major financial center). I have a few things in mind already: A fishing tournament at Pinas Bay, Panama, a private poker tournament at the grand casino in Monaco, a weeklong stay at a hacienda near Buenos Aires to learn to play polo, a wine tour of Tuscany, etc. Whatever we do, it will be five-star from start to finish. No buses. And rarely a group larger than 15 or 20 people. Take, for example, the first trip we have prepared for the beginning of October. A friend – and future 400 Club member – has invited us to Porsche's test track in Stuttgart, Germany. We're going to race a handful of Porsche's newest cars, including the all-new Panamera. I'll find a day or two to play golf during the trip, and it's also Oktoberfest.
By the way... these benefits – racing cars, an ultra-high-end concierge service, kid-glove brokerage – are not the reason to join The Club. Sure, these are nice perks. And more nice perks are on the way as The Club grows and we're able to use good contacts from our members to provide more services. But the real reason to join The Club is to meet likeminded people – folks with the same interests (and problems) that you have today. That's what we can offer that you can't find anywhere else.
The official launch of The 400 Club is still a few weeks away. We have to finish the legal work of The Club's by-laws and nonprofit status. But we've already received 100 or so e-mails from folks who are interested in joining. So we know The Club is going to fill up quickly. Also, to encourage charter membership, we will launch The Club with tiered pricing. The first 100 memberships will cost $25,000. The second 100 memberships will cost $35,000. The third 100 memberships will cost $45,000 and the final 100 memberships will cost $55,000. We can't accept any charter members yet, but if you're interested in joining The 400 Club, send us an e-mail at feedback@stansberryresearch.com. We'll make sure you receive the first offer to join The Club.
New highs: Vanguard Short-Term Tax Exempt (VWSTX), Life Technologies (LIFE).
In the mailbag... You make your subscribers a big, nearly overnight, double-digit profit in a short position you said was "100%" sure to happen... and what do you get in reply? Pure venom. Go figure. No matter. Whatever you send us, we'll read... patiently. Comments here: feedback@stansberryresearch.com.
"Porter... How could you say 'I'm 100% sure First Solar's earnings report is going to be worse than expected and reveal declining market share?' I bet a lot of money on that statement and now I'm paying for your arrogance. Don't you know what 100% means?" – Paid up subscriber Frank O'Neill
"Porter... My apologies for jumping the gun on First Solar. Obviously, you know what you're talking about – and I don't." – Paid-up subscriber Frank O'Neill
Porter comment: You don't mind my arrogance when it makes you a lot of money, eh? More seriously, no one can predict the future or the stock market. When I tell my readers I'm 100% sure about something, it only means all of the information I have points to the same conclusion. Most of the time, that's enough...
But not always. So stick with your position-size limits on these kinds of trades, OK?
"Of course it's easy for me to say because I am retired, but if I were [Citibank's Andrew J. Hall] who gets the $100 million, I would take the money and run. Let the company find someone else who produces like he does (I'll bet they can't, that's why he makes that much!). He could go start his own business with that much cash and give his former company a bit of competition!! (And he can tell the government to go... whatever!!!!!)" – Paid-up subscriber Rol Herriges
"I'm seeing both. Inflation in my expenses... and deflation in my pay. Of course, it couldn't be the other way around." – Paid-up subscriber Ignorant Dupe
"I as a business owner find myself paying more for my raw materials to produce my products. However I can not raise my prices due to having to stay competitive in the market place. I think all business are in the same boat. Once businesses realize they can no longer sustain themselves by absorbing their cost increases, they will have to start passing the cost on to the consumer. Once this starts, there will be no doubt about inflation or deflation. I am fast reaching the point of raising prices or go out of business. Survival seems to be who can last the longest before reaching this realization. It's a game of chicken right now. I fear I may have to be the chicken." – Paid-up subscriber R.H.
Regards,
Porter Stansberry
Baltimore, Maryland
July 31, 2009