We wrote it. Did you buy it?
We doubt Hershey will buy Cadbury now. The price is too rich. However, the good news is Hershey's stock should rally to at least $60. I advised my readers to buy Hershey on the dip after it announced a Cadbury bid. Since there's no deal, there's no dip. So I recommend you by Hershey at current prices. – Porter Stansberry, S&A Digest, April 20, 2010
Since Porter wrote about it in the Digest, Hershey is up 25%.
Great news. My attempt to take advantage of low interest rates and depressed home prices shifted into high gear. We accepted an offer on our house two days ago. They've already started into escrow.
Southern Oregon is practically ground zero of the housing bubble. Some homes are offered at 60% less than they sold for at the peak, and still they don't sell. Homes routinely sit unsold for six to 12 months. Ours sold in less than a month. I think I know why. As soon as our house was listed, a group of real estate agents toured it. Many said the asking price was too high. I want to sell a house, not play games, so I immediately lowered the ask to within their suggested guidelines. When you have no mortgage, you can be flexible and respond to the market. And since we bought in 2002, not 2005, we're still getting more than we paid.
Another reason our house sold quickly... it's small, about 1,700 square feet. This ain't what they built during the bubble years. In the entire area, including the next two towns over, there are only 10 other listed homes built since 2000 in our general price range. My wife is a stickler for upkeep, so ours wound up being one of the best-looking ones. With all the foreclosures and people leaving their homes in horrible condition, a well-kept home is more noticeable these days. Thank god my wife is a great housekeeper. She can take much credit for getting our house sold.
I think we quickly found an incredible home we'd love to live in for similar reasons. As undersupplied as the market was with cheaper homes like ours, it was grossly oversupplied with so-called McMansions, big homes on tiny lots loaded with luxury amenities.
So that's what we found. Our favorite is over 3,700 square feet, and loaded with great kitchen appliances, several huge rooms, beautiful quarter sawn oak everywhere... the kids can walk to school... It's perfect for two confirmed suburbanites. I have a feeling it'll sell before we get our offer in, but we'll see...
In addition to cheap homes everywhere, the 30-year fixed mortgage rates around here are closing between 4.6% and 4.875%. I'm certain inflation will destroy those numbers, meaning it'll be a better deal for a good borrower than it will be for the lender.
I'm taking advantage of the aftermath of the financial crisis. It's a good time to sell a small house, buy a big one, and get a low-interest mortgage, so I'm leveraging modestly into the situation right now.
But I realize I'm super lucky and not everyone is so fortunate. Some folks simply can't find their way in this dark time. Many have become so depressed, they've taken their own lives. Many who won't go that far will remain despondent and don't see a way out.
That's why I highly recommend you read Jeff Clark's inspirational story about the tragic events that have unfolded around him as the financial crisis has affected one after another of his friends and neighbors. Jeff sheds a different light on his ongoing bearishness, and includes a touching anecdote about his son. Click here to read it in today's Growth Stock Wire.
Last month, we explained why most folks don't yet see inflation in our economy...
What most people don't understand about inflation is it's not really a measure of commodity prices. That's only how the government chooses to measure inflation. Inflation has one true meaning: the increase of the money supply above the savings rate. Inflation isn't caused by a shortage of wheat or corn or oil, it is caused by one thing and one thing only: central bankers shrinking their reserve ratios. – March 17, 2010, S&A Digest
At the time we wrote this piece, the government just announced producer prices (PPI) had fallen 0.6% for the month of February. Because most of the world only watches these government numbers, they ignore the real measures of inflation.
This month, even the government numbers are showing inflation. The PPI rose a more-than-forecast 0.7% in March, driven by higher energy and food prices. Food costs jumped 2.4% last month – the biggest gain since 1984.
We're certain the U.S. is on the road to inflation... Inflation is the government's only hope to ever repay its massive debts. But that's not going to stop them from trying to tax it out of us first. In addition to higher income tax and health care taxes, the government is also considering a Value Added Tax (VAT).
A VAT is a sales tax collected at every stage in the production of a good or service. Businesses pay a VAT on the products they buy. Then, they turn around and charge a VAT to the next producer down the line. Businesses become agents of the state. It's the worst thing you can do to a market economy, since markets are based on trust. With a VAT, businessmen all over the country will be forced to spy on each other, giving them a huge new reason to distrust customers and suppliers. You want to know the moment that can rightly be called "The Day America Died"? It'll be the day Komrade Obama gets a VAT tax passed.
Steve Sjuggerud says the VAT tax will make everything you buy 20% more expensive. In a recent essay in DailyWealth, Steve suggested making big purchases before the VAT goes into effect. Otherwise, you'll pay 20% more than today's prices.
I saw a bumper stick yesterday that said, "Are you still glad you voted for him?"
If you want another look at inflation, get this. Morgan Stanley's head of bond strategy, Jim Caron, told the Wall Street Journal, "We've never seen this much Treasury supply in the history of the bond market." You know how supply and demand work. More supply relative to the same or less demand means prices will go lower. When bond prices fall, yields rise.
Morgan Stanley says the 10-Year Treasury will yield 5.5% by the end of the year. That's about 46% higher than where it sits as I write this. That'll be a huge hit to bond prices. Be very careful about buying bonds.
In fact, the only bond strategy that makes any sense right now is what our own Mike Williams does every month in his True Income letter. Mike recommends deeply discounted bonds his research has determined are safe enough for investors to buy.
Aside from me, I think Mike might be the only other S&A editor with gray hair. He's been around the block a few times and knows what he's doing. He's thorough and conservative (like most successful investors). If you own bonds and you're not reading Mike Williams' True Income every month, there's an excellent chance you're making a huge mistake with your money. To learn how Mike creates some of the biggest and most consistent gains among all S&A publications, click here.
Another blockbuster earnings announcement, courtesy of the Federal Reserve's massive liquidity injections... Starbucks announced a better-than-expected $217.3 million in profit for the quarter – a nearly nine-fold increase from last year. The company improved operating margins to 17.7% from 4.2% thanks to cost-cutting initiatives. Starbucks also saw its first increase in customers in 13 quarters. Net revenues grew 9% to $2.5 billion. Comparable store sales increased 7%.
New Highs: Amerigas Partners (APU), McDonald's (MCD), Kinder Morgan Energy Partners (KMP), Altria (MO), WR Berkley (WRB), Prestige Brands (PBH), Automatic Data Processing (ADP), Portfolio Recovery Associates (PRAA), WD-40 (WDFC), Brady (BRC), Carpenter Technology (CRS), Shaw Group (SHAW).
In the mailbag: What's all this about due diligence? If you've got a question, ask it here: feedback@stansberryresearch.com.
"Thanks for the informative concise note on GS yesterday. Nothing happens in DC or Wall St. these days without a calculated positive propaganda impact for the repulsocrats to further separate those with some money from their money, giving it to themselves and favored cronies. I include the GS/SEC sideshow currently underway. This is not about protecting you. They have an army of professional spin artists busy managing the media propaganda. This includes censoring negative information when possible such as closing media access to White House demonstrators yesterday. Police blocked reporters!
"Did you note that the proposed banking regulatory reform gives PERMANENT bailout authority to the president? No congress required. Seems like protecting GS and big bank political contributors from failure with YOUR tax money – not protecting the taxpayer! Corrupt to the core! Vote the bums out!" – Paid-up subscriber Terry Easler
Ferris comment: I like your gusto and sense of outrage, but I'm hard-pressed to really believe those who vote themselves a bigger share of the public treasury at every turn would ever vote bums out. They vote bums in.
"I have to say that my major complaint is that the Digest is too quick! I read each day, I enjoy, and before I know it, it's all over." – Paid-up subscriber Jared Lynn
"The term 'due diligence' is often used in many of the S&A reports. I cannot find a specific definition of this term. It seems to refer to 'getting to know a company very well'. Even then, however, it does not explain how to do this or when you can say that you have succeeded.
"In the S&A Digest (May 14, 2008), 'due diligence' is tagged as, We hope our subscribers do their own due diligence, too – like reading the company's annual report, looking at its financial statements, and following it quarter by quarter.
"It reads like a disclaimer for any diet or exercise program. 'Consult your doctor before beginning any new program.' This feels a little like the instructions I remember receiving about using the Library of Congress. 'Just wander around and get to know where things are.' Anyone who has been there knows that it can take a lifetime to learn your way around the LOC.
"I understand that you cannot take responsibility for someone else's investment choices, and thus advise everyone to make their own informed choices. But isn't this why people subscribe to advisory services, so they do not have to do all the research that the advisors are skilled at doing? Without surrendering responsibility, we follow advice. This seems like a plausible strategy to me. But your repeated warnings make me wonder what I am ignoring or missing.
"How would you define 'due diligence' for a novice investor, one who is not familiar with annual reports, or how to understand a company's financial statement; someone who in all likelihood will not rise to the level of a basic financial education? This term invites me to not proceed into laying down the cash, since I cannot claim my 'due diligence'. What level of 'due diligence' is passable for those of us who choose to rely heavily, perhaps exclusively, on expert advice?" – Paid-up subscriber Stephen BE
Ferris comment: I have to tread carefully, because we can't give individual investment advice. Generally speaking, though, you want to get a very good idea of the amount of risk you're taking. You want to know as much as you can about any business where you're considering investing your money. You want to be able to understand it. If, for example, the insurance business is too complicated for you, then you don't ever want to buy an insurance stock. If mining is too risky for you, don't buy a mining stock.
That's the No. 1 thing you need to do before you invest: Figure out how much risk you're taking before you buy anything. And if you can't figure it out, that tells you maybe you're looking at a stock you don't want to buy.
Finally, the term "due diligence" as we use it doesn't have a firm definition. It simply means you should make every effort to find out every important fact about any investment you're making. There's no company checklist, although I'm sure each S&A editor could supply one. I'm also sure each list would be different, even though they'd have similarities.
Investing isn't science. It's art that happens to involve numbers. And you have to realize actions you take with your money are your responsibility, which it sounds like you do. We see our job as providing the best investment ideas we can find and researching them as thoroughly as we can. I happen to think we do that pretty well.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
April 22, 2010