Ferris comment: Porter and Sean are busy in Munich with The Atlas 400. So you get yet another Dan Ferris Digest today. Lucky you.
If you haven't stayed at the Plaza Hotel in New York, the mattress and the shower are worth the $800 a night they charge you. I didn't get enough sleep one night and still woke up refreshed. That has never, ever happened to me. If I don't get my sleep, you don't want to be near me... but I was chipper and full of energy last Tuesday morning after only six hours. The mattress is a Stearns & Foster with a nice thick topper.
The shower is one of those wide showerheads that hang maybe seven feet off the ground. It's got the temperature adjustment, too, so you can just set it and know you're going to have the same perfectly adjusted shower every time. I rode about seven airplanes, a rental car, a train, and several cabs last week. That mattress/shower combo at the Plaza was the perfect way to end my whirlwind trip.
It made me want to start a hotel with smallish rooms, no luxuries, and cheap furniture... but with the best mattresses and showers money can buy. That wonderful feeling of rejuvenation for a business traveler is worth its weight in gold. And I've gotten that feeling in few places the way I did at the Plaza this week. I figure maybe if I could offer that feeling at a discount to the Plaza, it might attract business travelers who don't want to pay $800 or more a night.
Every Thursday afternoon, an alarm I set in Microsoft Outlook tells me to check the Fed credit number. After pulling back to less than $1.98 trillion in August, the weekly average of total outstanding Fed credit as of September 23 is $2.13 trillion. That's 138% more than where it stood on September 3, 2008, just before the markets crashed last fall.
One of the coolest things I learned at the Grant's conference on Tuesday was during the excellent, entertaining talk by Jeffrey Gundlach, a fixed-income investment manager and CEO of TCW Group. Gundlach is long the dollar and pointed out the dollar index against a basket of currencies was actually lower in early 2007 than it is today.
The dollar reminds me of the old comedy gag, "The dollar is soooo weak."
"How weak is it?"
"The dollar is so weak, it's got nowhere to go but up, at least in the short term."
When it comes to housing, I block out all the noise and listen carefully to Mark Hanson, who watches housing and mortgage markets with a keener eye than anybody I know. He hasn't for one minute fallen for the bullish housing stories that have been coming out for months now. This morning, Hanson points out the first eight months of 2009 were much weaker than the same period in 2008.
From January through August 2008, 365,000 new homes sold. The same period this year produced only 261,000 new-home sales. The median price during each period fell from $236,000 in 2008 to $211,600 in 2009. Except for August 2008, last month was the worst month for new-home sales since 1982. How any of this constitutes "improvement," as widely reported, is beyond me.
And if you're wondering where we're headed from here, get this: Foreclosures dwarf new home sales. Hanson warns, "The supply of foreclosures in the pipeline has never been greater. At some point when it rains foreclosures again, builders better not have a ton of competing inventory on hand."
I've cautioned my readers repeatedly about banks and homebuilders. Right now, that looks like lousy advice, with banks and homebuilders soaring since March (along with every other heavily shorted, economically sensitive industry). You can tell me I was wrong not to be long six months ago, but you can't tell me these turkeys will ever fly to the moon.
When Wall Street research is good, you have to point it out because it's such a rare phenomenon. Rochdale Securities (located in Connecticut, a suburb of Wall Street) says Wal-Mart is its "highest conviction" idea. Rochdale says investor sentiment has become outright bullish after it sunk to "embracing Armageddon" in March. It says defensive retail stocks, like Wal-Mart, are especially attractive should the recovery prove volatile and economically sensitive stocks like mining and financials fall. I'm still recommending Wal-Mart, and earlier this year my readers made 53% on TJX Companies, another defensive retail stock.
As longtime readers of Extreme Value know, Wal-Mart is an incredible business, one of the greatest ever. These days, it's in a sweet spot of its life cycle. It's a large, mature business whose competitive advantage keeps cash coming in. At the same time, lower capital expenditures and higher dividends and share repurchases are a rational expectation. Wal-Mart defended investors' capital well in 2008, as it was one of only two Dow stocks to rise last year, and the only one to produce a double-digit total return (+18%).
You might be feeling bullish now, but I promise you, with stocks trading at 26 times earnings and yielding 2%, you aren't likely to feel that way for long. World Dominating franchises like Wal-Mart are one of the few ways most investors will make any money if they're buying stocks today. Click here to get access to my four current World Dominator picks.
New highs: PowerShares Insured National Muni Bond (PZA), iShares High Yield Bond Fund (HYG), Korea Electric Power (KEP).
In the mailbag, questions about gold and Armageddon... send your e-mail to feedback@stansberryresearch.com.
"Having gone through a triple bypass and heart valve surgery with all the attendant excellent care, and terrific follow-up, without having to pay one thin dime, how do you think I feel about Canadian health care? Its great!" – Paid-up subscriber Tom Lamont
"Try as I may, I can't get my head around the notion that 'Gold is money.' Notwithstanding our primal propensity to find shiny stuff appealing, it seems to me that any element that can simply be found and dug out of the ground has no more inherent value to a society than it's true and practical usefulness as a base material to manufacture goods. A given nation's Fiat currency, on the other hand, is a physical representation of all that a nation has produced relative to other nations.
"Our Nation's ability to create fiat currency therefore is, can and should be limited only to our and other nations' judgement of our capacity for continued innovation and productivity. Just as we judge a company's value by assessing all that it has earned and will earn based upon a judgment with respect to its ongoing earnings potential, so should we value the worth of the currency that a given nation has in circulation at any given time.
"The argument that gold is money because nothing has been used as currency longer than gold is invalid. The further we get from the gold standard (which is by my argument invalid to begin with) as a function of both time and practice, the less we humans view gold as money and the more difficult it becomes to reassert that perception." – Paid-up subscriber Len Busha
Ferris comment: What is it about the run from $252 in 1999 to more than $1,000 today that doesn't constitute a reassertion of the perception that gold is money?
Gold is money everywhere. It's money in the middle of nowhere. It's money in the middle of New York City. It's money everywhere and always has been.
"I'm getting a little concerned with the repeated discussions of disaster preparation. One would gather from the suggested precautions that complete anarchy is imminent. All this while, you continue to make stock recommendations. I am having trouble rectifying the two as they would seem to be mutually exclusive, or at least moderately incompatible. Won't anarchy and blood in the streets result in poor market performance and returns? Why are you recommending both? And please don't default to the standard – 'better to be prepared.' It seems that the way to be consistent and less schizophrenic (dare I say, hypocritical?) would be to recommend companies making these 4Gs and shorting most everything else? Just asking." – Paid-up subscriber Scott Beall
Ferris comment: On Tuesday at the Grant's conference, the venerable Howard Marks of Oaktree Capital Management reminded us that, if you're not confused, you don't understand what's going on. You can't tell me not to fall back on "better to be prepared." That's the best you, me, or anyone else can do. Nobody knows what tomorrow will bring. The future can only be seen as through a glass and darkly, and even then, the real future will always be different than whatever you think you see there.
There are no easy answers to your question, but it sounds like you're taking the proper perspective, refusing to swallow unquestioned what you hear. Finally, have you ever heard the adage, "the time to buy is when blood is running in the streets"? Though I don't wish for rioting and blood running in the streets, as a committed lifetime buyer of equities, I would still take advantage of it. Other things being equal, I'm generally going to seize upon a crisis as a buying opportunity, and I'm usually going to refrain from buying during times when stocks are fairly valued or overvalued (like right now). I would encourage anyone to behave the same way.
Regards,
Dan Ferris
Medford, Oregon
September 25, 2009