Obama's robo-signing giveaway... Bove's rant (he's right)... Alibaba buyback... Loeb steps in... Yahoo's new direction... Greek 'theatre'...
The U.S. government today announced a $26 billion foreclosure settlement with five of the country's largest home lenders. The deal settles charges surrounding allegations of "robo-signing" – or improper foreclosures made without proper paperwork. The money will go to reduce the principal owed by borrowers who are "underwater" (meaning their loan is worth more than their house) and/or behind on their mortgages.
In short, this deal will give relief to people who took bigger loans than they could afford and those who have stopped paying their mortgage. Meanwhile, folks who continue paying their mortgages on time get nothing. Financial analyst Dick Bove calls it "the mortgage deal from hell." He made his comments on CNBC this morning…
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If you're going to do something which is going to reduce the value of existing homes where people are making payments, then every American should stop making payments on his mortgages and send a letter to the Attorney General in his state and say "I qualify to have my principal reduced because I'm not going to make any more payments on my house." |
This deal is a crowning achievement for Obama... allocating bank money (which came courtesy of U.S. taxpayers) back to his government to enable even more entitlement. Bove drove the point home, saying, "There is no sanctity of contracts in the United States. Only fools meet their financial commitments. The nonpayers are truly enlightened."
Today, news broke that Chinese Internet company Alibaba Group plans to borrow $3 billion to buy back a 40% stake Yahoo owns in the company. Alibaba Group owns Alibaba.com, an online trading platform, and China's largest online-shopping websites, Taobao Marketplace and Taobao Mall.
The six banks putting together Alibaba's loan are getting internal credit approval. Insiders say the loan should be finalized this month. Yahoo should receive $18 billion once the deal closes.
Yahoo is in the midst of major changes... Yahoo's board fired CEO Carol Bartz in September. Last month, co-founder Jerry Yang left the company. And on Tuesday, Yahoo announced that Chairman Roy Bostock, who was in charge since 2008, and three other directors will resign later this year. Bartz, Bostock, and their cronies turned down a 2008 bid from Microsoft to buy the company for $45 billion – Yahoo's market cap is $19.8 billion today.
We believe Dan Loeb, CEO of hedge fund Third Point, was behind the shake-up... Loeb is a successful activist investor. He owns 5% of Yahoo... The Wall Street Journal quoted a "person familiar with the matter," saying he "may have been" involved.
Loeb is infamous for his scathing letters to corporate management. Last December, Loeb wrote in a letter filed with the Securities and Exchange Commission and addressed to Yahoo's Bostock…
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Third Point LLC… remains extremely troubled by news reports regarding the dysfunction and inequity being exhibited in the process of maximizing stockholder value that the Board is allegedly "managing." |
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We are disturbed but not surprised by this mismanagement given the history of strategic bungling by Yahoo Board Chairman Roy Bostock and Founder Jerry Yang, which has been chronicled in our previous letters and in numerous critical media and analyst reports. As significant shareholders with our own fiduciary duties to investors to uphold, we cannot stand by silently if such reports are accurate and Yahoo, a company in no need of cash, plans to engage in a sweetheart [private investment in public equity] deal which will serve only to entrench Mr. Yang and the current board while massively disenfranchising public shareholders and permanently robbing us of the opportunity to obtain a control premium. |
Scott Thompson, the former president of eBay's PayPal unit, is Yahoo's new CEO. According to company insiders, Thompson wants to move the company away from its advertising revenue model and derive future revenue from fees and commissions.
We agree 100% with this new direction. While prevalent, online advertising is a horrible business model. The biggest problem with online advertising is it enables ad-buyers to accurately track the value of their ads... And most of them aren't worth anything.
So… Yahoo is shedding noncore businesses and building a giant cash hoard through the Alibaba deal. (It's also looking to dump Yahoo Japan.) And it's ousted the "old-guard" executive team that spurned Microsoft's offer for the company. It seems the company is putting itself on the auction block.
The Greeks made a deal... kind of. In one of the most opaque press releases in recent memory, the Greek government said…
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The government's discussions with the troika were concluded successfully this morning on the issue, which had remained open for further elaboration. The political leaders have agreed on the result of these discussions. |
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Thus there is general agreement on the content of the new program, in view also of this evening's Eurogroup meeting. This program accompanies the new loan agreement to finance Greece with 130 billion euro. |
Hours after the above release came out, the German Finance Minister said the Greek deal didn't meet the bailout conditions.
More theatrics... The International Monetary Fund (which is primarily funded by U.S. taxpayers) will eventually carry out the 130 billion euro Greek bailout. And Greece will not default, at least, not in the conventional way.
But it will default in the political way. Instead of not paying its obligations, it'll pay them with "funny money," printed expressly for the purpose. That's how sovereigns default now.
The market agrees... Gold is up more than 1% today, to nearly $1,750 an ounce.
Naturally… Greek union leaders call for a 48-hour strike on Friday and Saturday, declaring they're "moving to a social uprising" in protest of the apparent deal. And Greek Deputy Labor and Social Security Minister Yiannis Koutsoukos resigned in protest.
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New 52-week highs (as of 2/8/12): PowerShares Buyback Achievers (PKW), Pretium Resources (PVG.TO), ProShares Ultra Technology (ROM), Cisco (CSCO), and Microsoft (MSFT).
We got some great feedback from readers who have made fortunes simply buying and holding the world's best companies. Keep it coming... Send us your stories at feedback@stansberryresearch.com.
"I purchased KO in 1980 at $70, I have given shares to my children as well as others for special occasions. But for every share purchased and put in the DRIP program, there is now 56 shares currently at $68.33 (2/8/2012). Wish I had bought more shares in 1980." – Paid-up subscriber Don
"Back in late 2008 I was fortunate enough to experience a bit of intestinal fortitude and bought a block of shares in Intel based on many of the principles I learned from reading the newsletters you publish. A couple of key things informed my decision: 1) I had learned from Dan Ferris about how to look at the amount of debt a company holds, the interest it owes, and the cashflow it generates; 2) I had learned from Steve and Porter about how best to look at the macro picture and to ask questions like 'is the microchip going to disappear given that the housing market is blowing up;' 3) I took the time to create my own model to value Intel and to look at the historical rate of CAGR for the dividend (and share price).
"Even though the initial trigger for me to think about Intel was the 4%+ dividend yield (unheard of for a strong tech stock), the ability to apply different thinking approaches and the financial modeling informed my decision. As you might expect, I'm quite pleased with the result of my decision. Net-net, even if Intel was still at $11, I'd feel I made the right decision which (in my humble opinion) is the ultimate test of whether or not I'm investing correctly. Ultimately the decisions to buy or sell (or hold) are mine and mine alone, and I have only regretted those decisions that weren't well made (regardless of the outcome of said decision)." – Paid-up subscriber John Doyle
"I have been a subscriber for less than a year and have used your advice on several occasions. Bought some dividend dominators with this philosophy that you recommended 3/11-6/11. Protect your profits using trailing stops,
"Sit in cash, put in extremely low priced buy orders and wait. When the market swings like a pendulum in 7/11-9/11, those low priced buys hit and here is what you end up with:
"UPS bought 8/3/11 $65.50 today closed at $76.92 up 17.44%.
"KFT bought 9/5/11 $33.69 today closed at $38.54 up 14.40%
"JNJ bought 8/9/11 $60 today closed at $65.24 up 8.73%
"HSY bought 8/2/11 $55.75 today closed at $60.30 up 8.16%
SWEEEEEET!!!
"Also purchased some 100 oz. silver bars as you suggested (just in case). Thank you for the advice." – Paid-up subscriber D. Knoll
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"Set up my retirement account in 72t's with funds and a annuity with three CD's for cash. I bought Hershey when the 1st CD matured. I got 300 shares in Dec 2009 at $36.10 up today 67%. Not bad for my first major stock purchase. Thanks for the recommendation. I have made several other buys with the other CD's also doing well, all reco's from one the Stansberry letters. I started out worrying about having enough money to last but thanks to yours and other Stansberry letters I sleep well now." – Paid-up subscriber Charly
Regards,
Sean Goldsmith
New York, New York
February 9, 2012