The house is swarming with men rendering various services. One guy charged me $84 to clean out a bunch of unnecessary software that was slowing down my wife's computer and get a chunk of crystallized Coca-Cola off my son's hard drive. Another fellow is due any day now to clean the carpet of so much evidence of children, dog, cat, bird, and yours truly. That'll be $300 if it's a penny, and the place isn't even that big.
Another guy showed up yesterday and charged me $135 to rid the place of hundreds of little black beetles. It took him 10 minutes to do the actual work, but he talked and talked about everything under the sun. Somewhere between the subjects of global warming, his Vietnam tours, and the military/industrial complex, he mentioned that he owned 10,000 shares of General Motors. He said hopefully they might still be worth something.
I then had the unpleasant task of informing him that, er... no, the company has publicly announced its common stock is worth absolutely nothing. He said his stake at one time was worth more than $600,000. ("I should have sold it...") He says it doesn't hurt as much as if he'd bought it since the shares were given to him for working there years ago.
He'll be fine, though, he said. He's an educated, energetic fellow, running a few small businesses. He's bought and sold homes over the last several years and is building a small opal mine here in Oregon.
GM will soon leap out of the frying pan of bankruptcy and into the fire of government ownership. The U.S. government will own 60.8% of the new GM, the Canadian government will own 11.7%, and the United Auto Workers health care fund will get 17.5%.
Judge Robert Gerber of the U.S. bankruptcy court in Manhattan said, "If GM were to have to liquidate, the injury to the public would be staggering." Less staggering than having it run like the Post Office? We'll soon find out.
I've been telling readers MetLife, the biggest life insurer in the country, will soon stagger into a major reduction in its tangible equity, courtesy of its large commercial real estate mortgage holdings. At first, it looked like shorting MetLife was a bad idea, but Mr. Market is warming to it lately. In fact, since last Thursday, he's grown to dislike MetLife much more than he dislikes the S&P 500...
MetLife holds $36 billion worth of commercial real estate loans, carried at 98% of cost... even though the fair value of its commercial mortgage-backed bonds is reported at 20% below cost and commercial defaults across the country are soaring. With just $18 billion of tangible equity, I think MetLife will incur much higher losses than it's letting on. The company's chief investment officer recently told the world, "the worst is to come," something we've been telling you since March.
I'm also shorting a small bank stock that grew way too fast last year (more than 70%). Plus, I've got a new financial short pick that Extreme Value readers will learn about in the July issue, due out tomorrow after market close. To get access, click here.
Jeff Clark just showed his S&A Short Report readers a chart indicating the S&P is close to breaking a critical resistance line. The bulls will try to fight this drop, so Jeff expects one more rally before the S&P falls to 810 from its current 880. He's going to use that last bounce as the perfect entry point for his new short recommendation...
Jeff says the financial sector is the most vulnerable to the breakdown because it's seen a huge run-up since the March bottom. Bank of America is up 282%. Citi is up 160%. Meanwhile, fundamentals for these companies are still deteriorating, and the recent increases just mean there's more room to plunge.
If Jeff's target security falls 13% (his conservative estimate), readers will triple their money. But Jeff thinks the stock could fall much farther, bringing potential returns to more than 500%.
To see how Jeff is playing the coming plunge in financial stocks, click here...
Jeff isn't the only trader I know who is getting short. Trader/author Ron Coby, who's also my friend and neighbor, sent me an e-mail Tuesday after the market closed.
It's over, man. We are now in June 1930... repeat, just like we repeated 1929 in 2008 and repeated the 40 plus percent rally in Nov 1929 to April 1930... Now the real pain begins... The DJIA collapsed 89% over the following 2 years until July 1932 bottom.
Ron and his partner Denny Lamson have spent years perfecting their trading system, which is based on extensive studies of market history. They're now telling me stocks are going to fall sharply, the same way they did from June 1930 to the mother of all bottoms in July 1932.
Ron and Denny's approach is technical and about as far from my own approach as you can get, though we wind up with some of the same conclusions. In his book, Discover the Upside of Down, Ron predicts a Global Great Depression and explains in his book how we'll get there from here. Ron has been bearish – and overall, right – since I met him a year ago.
Another friend, Doug Casey, who's been around the financial markets for decades, is also expecting a new "Greater Depression."
I sure hope my friends are wrong, but so far, they've been right.
Maybe I told Extreme Value readers to sell TJX Companies (TJX) too soon. Today, TJX reported a 4% increase in June sales, bucking the downward trend that has hit virtually all the other discount retailers... Target, BJ's Wholesale, and Costco all saw June sales drop 6% or more.
Extreme Value readers made 52% on TJX Companies in about seven months. It might not seem like much now, but I bet it'll seem like a fortune a year from now.
At the opposite end of the retail spectrum, Abercrombie & Fitch's June sales dropped a whopping 32%. Times are tough and people suddenly feel funny about spending $40 on paper-thin t-shirts that say FITCH across the front.
Maybe Abercrombie is just going out of style. Rival Aeropostale logged an impressive 12% gain in June same-store sales. Buckle's June sales rose 9.6%.
On average, June sales at the country's chain retailers fell 4.9%. Chain sales represent 10% of all retail sales, so when they tank, it really tells you something about how the consumer is feeling (not good!).
Obama's minions are hinting at a second stimulus package (this one focused on infrastructure) because, according to advisor Laura Tyson, the initial $787 billion was "a bit too small." Vice President Joe Biden admitted he "misread how bad the economy was" when administering the first bailout, but he says it's too early for a second stimulus. We should wait and let the first installment take effect...
We've been waiting since Obama signed the stimulus into law this February. Since then, the country has lost another 2 million jobs, pushing the unemployment rate to 9.5% – the highest in 25 years. Foreclosures, vacancies, credit card defaults, mortgage fraud, etc. are all soaring.
Warren Buffett – a great investor with questionable political views – says a second stimulus "may well be called for." He denies seeing any green shoots in the economy as the hundreds of businesses he owns have shown little to no improvement. Buffett hopes it isn't watered down like the first...
"Our first stimulus bill... was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in... as if everybody was putting in enough for their own constituents," he said. "It doesn't have really quite the wall that might have been anticipated there."
Callous, corrupt, and inhumane? In whose society would you rather live? Send your utopian visions to feedback@stansberryresearch.com.
"Just read about the guy having to get permission to withdraw HIS money from the bank. Just so you know that there are other countries that are really free, I went to the bank last week with a bank check made out to me and drawn on that bank. Took them about 15 minutes but they counted out $26,953.40 in cash without a question and apologized for it taking so long. I don't even have an account with that bank. I live in Panama by the way." – Paid-up subscriber J.E.
Ferris comment: Panama, here we come!
"You forgot to mention what else George Soros is buying – our politicians." – Paid-up subscriber Bob
Ferris comment: Yeah, but they're much smaller positions than his other investments.
"In your 7/07 S&A Digest, you respond to letter writer Kurt J's criticism of Goldman Sachs' notoriously greedy and destructive market manipulations by calling him a 'gullible idiot,' telling him to 'grow up' and 'learn to do the same' (as Goldman).
"Your arrogant, ultra right-wing 'libertarianism' is astonishingly simplistic, callous, and hypocritical. Yeah, right, it's all about 'self-reliance.' Laws and regulations are just communist intrusions into your life. That must be easy for a person as wealthy as you to say. Let's just eliminate all safeguards regarding the prescription drugs we take, the cars, electronic equipment, houses, food, and on and on, that we purchase. To be 'self-reliant,' I'll just have to become an expert on all of these things, and if I become sick because of bad drugs or food, or get swindled by some corporation, it's my fault for not being diligent enough in my research.
"The 'let the buyer beware' mentality became a joke over 100 years ago, or haven't you heard? The days where your most complicated buying decision was regarding which horse to buy, or who to hire to build your log cabin are long gone. Yes, the government had to step in to begin regulating industry of all types because the world had started to become too complicated for any one person to study and research every item he wished to buy or invest into. And if there wasn't anti-monopoly legislation and other laws to rein in corporate greed, we'd all be paupers now, working for the Rockefellers and JP Morgans of our country.
"I can envision the kind of country we'd be living in if it became your kind of extreme libertarian state. There'd be the super rich (like you), a small middle class, and a huge poverty class. Since we would no longer have the 'hand-outs' of a societal safety net, you would have to plow through dozens of starving people as you made your way to your favorite restaurant. Maybe you'd throw out a few dimes to these obvious losers, while laughing at them for being so stupid, lazy, and gullible. Your society would be unbearably callous, corrupt, and inhuman.
"Actually, I think I'd rather live in a 'socialist' society than the kind of state you intimate. And I'm a true free-enterprise guy, having owned my own business for 30 years. You're a hypocrite because you publish all of these investment advisories, from which you make a fortune, and then talk of self-reliance. Maybe all of your subscribers should cancel, and quit being such 'gullible idiots'. After all, I don't remember you writing about ways to beat Goldman Sachs at their own game." – Paid-up subscriber Jim Wikey
Ferris comment: I didn't call Kurt J any names. And not that it matters, but I'm nothing like rich. I live in a modest house on a small lot: It's what I can afford.
Otherwise, it goes without saying that of course I could be wrong. An opinion isn't a fact, bolstered though it may be by so many facts. But I do have a few questions for you...
You say "my society" would be unbearably callous, corrupt, and inhumane. Funny thing is, I think of your beloved government saviors as callous, corrupt, and inhumane. I can't think of many people outside government who engage in torture. Maybe the odd drug dealer does it. But the modern drug dealer is a product of government prohibition. Make drugs legal and he disappears, along with the murder and mayhem he and his government partners create.
Ever heard of Abu Ghraib prison? Could anyone but a government perpetrate such a horror? Did Rockefeller and Morgan ever do anything like that? In fact, Rockefeller was a great benefactor, lowering the price of gasoline from 58 cents a gallon to 8 cents. The world is always desperate for new Rockefellers... except that, if one existed, your compassionate government would put him out of business for making too much money – for creating too much that's of great value to the world.
Have you ever been to a U.S. city? I grew up in Baltimore and lived there until I was 39. I remember having my front door kicked in by drug-addled, rent-subsidized welfare recipients living next door to my Baltimore apartment. I was lucky. They stole 300 CDs when I wasn't there. Welfare makes people really mean... really callous, corrupt, and inhumane, you might say.
Ever seen the sheer desolation, the empty, bombed-out buildings in U.S. cities, and legions of homeless people caused by your wonderful government's compassionate rent-control policies? Homelessness skyrockets wherever rent controls are put in place. Good thing your go
vernment is there to help.
Where law-abiding citizens aren't harassed by government and are allowed to carry guns in exercise of their right to defend themselves, crime plummets.
Ever heard of Bernie Madoff? The government kept him in business long enough to steal $60 billion. Even when the fraud was exposed, your better-informed government was so callous, corrupt, and inhumane, it didn't acknowledge the crime for years. This is the government you allege knows all the complicated things we poor individuals can't know about the products and services we buy. But it was an individual who figured out Madoff's scam. Your callous, corrupt, inhumane government ignored the problem.
You say you envision the kind of world I want and don't like what you see. We certainly don't need to envision the kind of socialist paradise you crave because we're living in it right now. And you're going to get a lot more of it once they socialize health care. Then, you'll find out your benevolent government is as efficient as the Post Office and compassionate as the IRS.
Finally, you suggest I am not self-reliant. No, I don't live in a cave and eat bugs and rodents, but that's not what self-reliant means. Anybody who makes an honest living and trades with his neighbors voluntarily is self-reliant. No one is forced to do business with me. Your government forces everyone to do business with it under threat of imprisonment or worse.
I'm not angry with you, but I am a little sad for you. You actually believe the government is taking care of you. That is one of the most depressing beliefs an otherwise normal adult can possess. Good luck to you.
"Dan, I always miss Porter when he isn't writing the Digest, but you have trumped even Porter with the Digest of July 07. Excellent work!" – Paid-up subscriber Kevin
Ferris comment: Thanks for the kudos.
Regards,
Dan Ferris
Medford, Oregon
July 9, 2009