I'm not making this up. GMAC fired chief executive Alvaro de Molina yesterday and replaced him with someone from Citigroup.
In addition to working for Citigroup, new GMAC chief Michael Carpenter used to work for investment bank Kidder, Peabody. He was fired from there after a bond-trading scandal. That's when Citi hired him.
He came to work for Citi's investment banking division and helped make Citi into a too-big-to-fail masterpiece of financial innovation. Now, he's off to run GMAC.
It's hard not to conclude Wall Street is one giant good ol' boys club. Perhaps if they weren't so well protected by Komrade Obama and his ilk, Wall Street's overeducated geniuses might have to produce something valuable and not go bust every few years.
GMAC has received $13.5 billion in government bailouts so far and will receive at least another $5 billion. It'll survive and thrive... even though it's now run by another loser. Call it what you like, as long as you don't call it capitalism.
Intel started paying dividends in 1993, at a rate of $0.01 per share annually. Since then, dividends per share have grown to 3.5% at an average annual rate of just over 28%. Most of that growth has come only recently, since 2003.
I've told you about this phenomenon before... The best income stocks are mature businesses that have large competitive advantages – like [Intel].
Maybe you can't buy yesterday's growth, but shareholders who buy mature World Dominator stocks today can earn income that grows much faster than it did during the stock's more capital-intensive, higher-growth days. Most World Dominators are great businesses whose growth is slowing. Profit margins are still high, so they're able to continue to produce large amounts of cash flow. Instead of funding growth, cash can go toward raising dividends and increasing share repurchases. – Dan Ferris in the April 2009 issue of Extreme Value
Intel raised its dividend 12.5% yesterday... The company now pays $0.63 a year. Intel's dividend growth has been close to 30% annually since 1993. Extreme Value readers are up 35% on the recommendation since April.
If you haven't started buying my list of World Dominators yet, it's not too late. These companies will continue to produce steady cash flows, despite the economic environment, and pay healthy distributions to shareholders. You can learn how to access the list of all eight companies here...
The world's greatest investor, Warren Buffett, is still buying World Dominators... Berkshire Hathaway, Buffett's holding company, announced a 1.28 million-share position in Extreme Value pick ExxonMobil and a 3.4 million-share position in Nestle – the world's leading oil and food companies, respectively. Berkshire also raised its stake in the world's largest retailer, Extreme Value pick Wal-Mart. (For my recent essay on Wal-Mart, click here.)
With these three purchases – and his recent takeover of Burlington Northern Santa Fe – it's clear Buffett is investing his cash in leading franchises with lasting competitive advantages. These are companies Berkshire can hold for a long time – long after the departure of Buffett – and continue to compound wealth for shareholders.
Our natural resource expert, Matt Badiali, sees a good buy in a World Dominating gold miner...
Jamie Sokalsky, CFO of Barrick Gold, thinks the giant, global gold miner will have record profits in the last three months of 2009. That's what he told Reuters at the RBC gold conference in London.
That's not exactly a stretch, with the price of gold hitting new highs practically daily. But Sokalsky has another reason to be optimistic: Starting in September, Barrick bought out $5.1 billion worth of hedge contracts, about a third of its total.
Barrick's hedges required it to sell gold at a discount to the gold price – around $570 per ounce. That sort of deal works great when the gold price is bouncing up and down within a range. But when gold is in a bona fide bull market, hedges can kill you.
Between March 2009 and September, the company underperformed the AMEX Gold Mining Index by around 30%. I knew once the hedges started to come off, Barrick's shares would go up like a helium balloon.
That's why I told S&A Resource Report readers earlier this month that Barrick was the best value among the large gold producers. It's up 22% since then... with more to come.
Matt likes the big gold producers to profit on gold's "bona fide" bull market. But you'll get a lot more leverage out of the smaller miners, particularly those with a tailwind. Matt has identified some fantastic gold opportunities that have China's government filling their sails. He thinks they'll return hundreds of percent in this market. Click here to learn more.
Mr. Market likes gold and gold stocks these days. Gold seems to have become popular. And many gold stocks have become expensive, trading well in excess of reasonable net asset values. But there's no way I'd sell gold bullion right now.
The metal itself isn't halfway to where it's going, in my humble opinion. If gold mimics its bull run of the 1970s, it'll wind up around $6,000 an ounce in the next few years.
There's a ton of new highs today... most of which are completely unjustified by valuations. I figure Mr. Market will keep things going long enough to discredit the bears... then WHAMMO! Down it all goes!
I'm only half kidding, of course. I have no idea if the market will double from here or fall in half. I only know that, with the U.S. market selling for 29 times earnings and yielding less than 2%, it's very difficult to find a good cheap stock.
The last one I found was IMS Health, back in August, trading around $13 a share. It's now the target of a $22 buyout offer, 70% higher than where we found it. If only there were another IMS Health lying around somewhere...
New highs: Vanguard Inflation Protected Securities (VIPSX), iShares S&P Index ETF (IVV), Fairholme Fund (FAIRX), ConocoPhillips (COP), Burlington Northern Santa Fe (BNI), iShares High Yield Bond Fund (HYG), iShares Silver (SLV), McDonald's (MCD), Kinder Morgan Energy Partners (KMP), Enterprise Partners (EPD), Keyera Facilities (KEY-UN.TO), Coca-Cola (KO), Altria (MO), POSCO (PKX), Automatic Data Processing (ADP), Altius Minerals (ALS.TO), IMS Health (RX), Goldcorp (GG), Akamai (AKAM), Yamana (AUY), Northgate Minerals (NXG), Royal Gold (RGLD), Silvercorp Metals (SVM), Barrick Gold (ABX), Silver Wheaton (SLW), Jinshan (JIN.TO), Sino Gold (SGX.AX), Eldorado Gold (EGO), Encore Acquisition (EAC).
An AMD employee in today's mailbag... and how to build a monopoly. Drop us a line here: feedback@stansberryresearch.com.
"Today's Growth Stock Wire edition about taking responsibility for one's trading performance was excellent. I take all responsibility when I have poor results. But I must give credit to your team for helping me achieve outstanding performance during my first year as a subscriber to Stansberry. I do not have time to go over the numbers right now but I can say that I would not have been up anywhere near this much without your research.
"Your editors have led me into fields that I never liked to touch before, such as biotech, mining companies and emerging market bond funds. Porter's suggestion of doing a paired trade back in January was an absolute home run. Matt's analysis of resource companies has been fantastic. George's understanding of the FDA bureaucracy has given me the confidence to make plays in medical companies. Dan and Tom's balance sheet and cash flow focus has helped me in evaluating all companies.
"But more importantly perhaps than leading me to good picks has been the constant drumbeat of sound trading principles. I have booked numerous losing trades this year. However, I do not have even one big loss in the portfolio but I do have a number of big gainers and I have booked some big gains. The reminders to set stop losses, use the TradeStops service and position sizing suggestions have been very helpful." – Paid-up subscriber Bob Lunder
"Your Thursday's comments about AMD really displayed much ignorance on your end. I have been employed at AMD for over 10 years and have witnessed firsthand about Intel's heavy handed business practices. In some instances, they have acted like the old De Beers diamond company and dictated how their customers should do business or be punished with higher prices, delayed shipments, lower marketing funds, etc. Once you choose to use intel, it's not very easy to back out as a company since large infrastructure costs have been invested and you cannot just switch between AMD and Intel products on a dime.
"There is a good reason why the governments of Korea, Japan, and EU have already found intel guilty of anti-trust violations. The state of New York is the latest to bring up charges. Do you really think Intel is innocent here?
"I agree in the free market that a company should survive based on its ability to bring forward products that meets customers' needs at the cheapest price. AMD had had a technological and price lead for several years earlier this decade but had much difficulty in increasing market share. You can blame some of it on AMD's marketing incompetence, but certainly not on the product performance and pricing. When Intel throws around many 10s of millions of dollars to its customers to not use AMD, a company executive has a hard time saying no.
"So to me, the lawsuit is bitter sweet. Regardless, a company has to win with a good product base, not through lawsuits. I think intel has acted much like a monopolies circa early 1900s. I can't really blame them, since I probably would do everything to crush competition.
"There is a reason why only 2 companies in the world make microprocessors; it is probably the most complex mass produced item ever. Who ever on your staff who wrote the Intel/AMD commentary should do a little more research before spouting off ignorant opinions. With that said, keep up the good work as a whole. Love your insights and thoughts... even is some are not as well researched." – Paid-up subscriber Rob
Ferris comment: Well, there's no dearth of ignorance in the world, and I've clearly been endowed with my fair share. In fact, the older I get (48 tomorrow), the less I seem to know...
But your diatribe doesn't exactly improve the situation. Your assertion that I'm wrong and your status as an AMD insider don't mean anything to me. Without some new evidence, I have no reason to change my mind. You believe in the government's ability to protect and improve markets (despite a perfect track record of failures). And even I have to admit, with governments instituting multimillion-dollar fines, brokering billion-dollar settlements, and heaping more and more anticompetitive rules on the marketplace, AMD might have a chance.
But overall, I'll have to stick with the facts – including the verdict of the marketplace – when judging a business. The market has chosen Intel, not AMD.
Your mention of the "monopolies circa early 1900s," is befuddling, since the only real monopolies were built by the losers who turned to the government for help. But not all of the titans of early American industry were corrupt, government-backed monopolists. For example, James J. Hill didn't need the government's help (and persevered in the face of its interference) to build the Great Northern Railroad. I'd put Rockefeller, Vanderbilt, and Carnegie in the same category.
But the folks who built Union Pacific were failures who couldn't compete in a free market... so they turned to the government for subsidies and protection from competition. Like AMD.
You might want to check out The Myth of the Robber Barons, by Burton Folsom. Hill, Vanderbilt, Carnegie, and Rockefeller got rich by producing a valuable product or service and doing so efficiently enough to make it affordable to many people. Those who built what could rightfully be called monopolies did so the only way possible: by colluding with the government.
You've worked for AMD for 10 years and still think it isn't getting a fair shake. I wonder what you'll think in another 10 years... That life on Earth is unfair. If you follow the path of "unfairness" to its logical conclusion, you don't wind up anywhere I want to be. If that's where you want to go, via con Dios.
I'll leave you with the final bit from a song by Canadian rock band Rush. The song is called "The Trees," and it's about maple trees in a forest claiming the oak trees are stealing all the sunlight. Like in all stories about government interference and "trust-busting," everyone ends up worse off: And the trees are all kept equal / By hatchet, axe, and saw.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
November 17, 2009