I'd love to know what anyone thinks he's accomplishing by voting today. Maybe you think voting the current slate of bums out is a worthy goal. True enough, but when you excise a cancer, what do you replace it with? Another cancer?
I would think you'd remove it and replace it with nothing... and thinking about it just now, I suppose many ciphers will be elected today. So maybe all is right with the universe... or maybe, as with second marriages, hope will triumph over experience one more time. All you have to do is wait. The answer won't take long to arrive.
When the excrement hits the fan, you can count on politicians to start playing with the meanings of words. The president of South Korea says his country will pursue "macroprudential" policies in an attempt to save his country from money rushing in and destabilizing the Korean economy and currency. Translated into regular language, "macroprudential" policies means capital controls.
The Federal Reserve has all but promised to continue dropping fresh money from helicopters, sending it sloshing all over the world. Some countries have experienced currency collapses and are too familiar with the problems trillions in new currency can cause for their economy. Brazil has put a direct tax on foreign capital inflows, and Thailand has a new 15% tax on foreign bond holdings. Rising interest rates have driven the Thai baht to its highest exchange rate versus the U.S. dollar since just before the Asian crisis of 1997-1998.
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I suspect emerging-market stocks will heat up more before too long. Aside from emerging markets and natural resources, there are other ways to make money from the Fed's monetary mischief.
In the current Extreme Value, I count no less than 10 out of 14 open positions that should benefit from the new money the Fed is serving up these days. Some of these inflation beneficiaries are financial stocks.
You'd think financial companies would do poorly during times of high inflation, because their assets are the inflated currency. But step back and think about it... The more currency units in the world, the more assets many financial institutions will have...
Many financial companies are like croupiers in a casino. They take a little something off the top of the house's revenues. The casino is the global economy, and select financial institutions are the croupiers. The more currency units floating around the globe, the more a croupier will be able to take off the top.
One of these financial companies is a small foreign bank safer than nearly all the banks in the U.S. It's supported by not one, but 23 central banks, and it doesn't pursue the risky types of investments, like subprime lending, that caused our financial crisis. It's in no danger of going under. It's going to keep taking a little something off the top of global trade flows.
It pays a more than 4% dividend yield. And it's loaded with extra capital... again, something you hardly find among U.S. banks. It sits right next to one of the most important infrastructure assets in the world, the crossroads of global trade, which is set to double in size by 2014... causing this little bank's main business to grow. When the Fed's money starts sloshing around, this area of the world will be one of the first to benefit. (Extreme Value readers know this company well. It's listed on the back page of every issue. Click here to access Extreme Value.)
More than a year ago, Porter explained why Visa is one of the best stocks in the world for taking advantage of a rising number of currency units.
The financial institutions that license its brand do so on the basis of transaction volume. The more money people spend on their Visa-branded debit and credit cards, the more money Visa earns. (This is important: Visa doesn't hold any of the debt put on those cards. It merely licenses the brand and receives a fee for processing the transactions.)
Ergo, the more money that exists, the more money Visa will make. It's perfectly correlated to inflation. – Porter Stansberry, Stansberry's Investment Advisory, June 2009
Visa is the World Dominator of the payment card industry. Sixty percent of the world's payment cards say Visa on them.
Today, MasterCard, Visa's closest competitor, announced solid earnings. Net income jumped 15% to $518 million. The company credited its focus on emerging markets. "Our volume outside the U.S. outpaced growth in the U.S.," said CEO Ajay Banga. "The Asia Pacific and Latin America regions just continue to deliver strong double-digit growth."
Processed transactions rose 0.6% to 5.8 billion. Worldwide spending jumped 7.9% to $514 billion. And as the Fed continues its quantitative easing quest (the market is expecting a $500 billion Treasury purchase tomorrow), more currency units will flow through MasterCard, Visa, and many other well-positioned financial stocks.
After reading the headlines about BP's earnings today – for example, the Wall Street Journal's "Gulf Spill Charges Hit BP's Profit" – you'd think the stock was in trouble. The oil giant's net income fell 66.5% in the third quarter (based on an additional $7.66 billion charge related to the oil spill). BP also took a $32.2 billion pretax charge related to the spill, bringing total charges to around $39.9 billion.
Other than the spill, BP's operations were solid. Revenue increased 10% to $74.65 billion. Margins improved. In its summary of third-quarter results, the company stated, "Given the strength of our underlying cash flows and the investment opportunities available to us, our 2011 capital expenditure is currently under review and is expected to exceed the $18 billion previously indicated." And BP said it would review its dividend in February 2011. The stock is up around 1.8% on the news to around $41.50.
Buying BP near its lows (it hit a low of $27.02 on June 25) was likely one of the greatest investments we'll see in our lifetime.
Assuming BP recovers to its pre-spill price of around $60, you'll make 100% capital gains. Shares will go much higher as oil prices increase with inflation. And if the company reinstates its quarterly dividend of $0.84 a share, you'll be collecting around a 12% dividend on your original investment. It's always smart to keep dry powder so you can jump on opportunities like this as they arise.
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St. Joe Co. announced a $13.1 million net loss for the third quarter, which ended September 30. The company, which high-profile investor David Einhorn scorched in a presentation last month at the New York Value Investing Congress, attributed the loss to a variety of one-time charges.
Dan Ferris and Steve Sjuggerud, who both have St. Joe in their newsletter portfolios, have been canvassing northwest Florida evaluating the company's timberland and residential properties. They are updating their research on the company and will issue a new report on St. Joe this week. We will e-mail it subscribers as soon as it's complete. And we'll alert you when its ready here in the Digest.
New highs: Esperanza Resources (EPZ.V), Imperial Metals Corp (III.TO), Keyera Facilities Income Trust (KEY-UN.TO), Mag Silver (MVG), Silver Wheaton (SLW), Silvercorp (SVM), Coca-Cola (KO), DirecTV (DTV), Penn Virginia Resource Partners (PVR), AmeriGas Partners (APU).
In the mailbag... a few readers take their shot at publicly financed education and other wonders of civic generosity. Send your e-mails to feedback@stansberryresearch.com.
"I'm enjoying Porters comments, oh how I wish the public schools system could be abolished. We home-schooled our children when it was legally questionable. The kids are just fine. I'm desperately trying to make some money in my contracting business to invest with you all. I 'm encouraged by the reports and I know there is a haven of wisdom for increasing our earnings." – Paid-up subscriber Mike Hadden
"Porter's comment about fixing the education system by firing all of the teachers, etc. entirely misses the point of public 'education' in any nation. The system is supported by a government to indoctrinate children in the belief system shared by the majority of politicians who support the educational system. If these children end up with marketable skills, so much the better. However, abolition of the public school system would result in citizens who (at a young and very impressionable age) were not made to memorize the official history as sanctioned by school board approved text book buyers, who had never been told their civic responsibilities and who did not pledge allegiance to the flag each morning to begin their day. This is the essential function of Public Education; learning to think and reason are very minor afterthoughts – and it shows." – Paid-up subscriber Joe Nuth
Ferris comment: Funny we should be on this topic just now. I just got my property tax bill. It's a fraction of what it would be if my house were located in many other states, so I'm not complaining. (Though I do wonder who really owns my house. If I stopped paying the government its rent on the property, they'd take it back, essentially exercising the rights of ownership...)
I noticed a few years ago, roughly 40% of my property tax bill went to education. Two of our kids have completed high school and one has two years to go. I'm not the least bit impressed with their schooling. Some of Bill Gates' money was used to split the high school into four smaller schools, in the belief this would change the quality of education. Gates knows it doesn't work, and the idiot savant is still doing it. If a pie tastes bad when it's cut in four pieces, cutting it into eight pieces won't make it taste better.
"I hail from the wonderful state of corruption that is Illinois. On the local level, our school district is running a budget deficit, but deems it acceptable to build a new $150 million high school, complete with a new football stadium with artificial turf and a $80,000 piano in an auditorium requiring a $100,000 humidification system to protect that wonderful piano. Illinois ranks 18th in money spent and 38th in student achievement.
"Our public pension funds are the laughingstock of the country with estimates of a $160 billion shortfall after the funds had to lower the expected return assumptions for their portfolios. Our largest city Chicago has sold off income streams from parking meters toll bridges and within the last 3 years for BILLIONS and has spent all but about $600 million already.
"Aside from the argument of whether or not the estate tax is just, with the track record compiled by our local, state, and federal agencies in the despicable state of Illinois – WHO IN THEIR RIGHT MIND WOULD ADVOCATE INCREASING THE AMOUNT OF MONEY AT THEIR DISPOSAL? Sorry folks. The problem with spending other people's money is that sooner or later other people run out of it. Accept the unfortunate lesson that is playing out here in Illinois." – Paid-up subscriber Anthony Jovanovich
Regards,
Dan Ferris and Sean Goldsmith
Wewahitchka, Florida and Denver, Colorado
November 2, 2010