Thank God for "smart" people who aren't afraid to tell the rest of us what to do, eh? Reading the newspaper each morning wouldn't be nearly as much fun without them. This morning, our sides nearly cramped from laughing when we read Nobel laureate and OBAMA! Energy Secretary Steven Chu's solution to "global warming":
If you look at all the buildings and if you make the roofs white and if you make the pavement more of a concrete type of color rather than a black type of color and if you do that uniformly, that would be the equivalent of... reducing the carbon emissions due to all the cars in the world by 11 years – just taking them off the road for 11 years.
We thought "Crazy Al" Gore was the biggest clown on the global warming stage. He's sinister, venal, and slightly mentally retarded – all at the same time. That's a hard act to beat, but Chu might have topped it...
We've always known "global warming" was simply another political charade designed to cajole and bamboozle the idiocracy into accepting more taxes (see cap and trade). But the whole brutish mess has at least been pretty damn funny. I hope our children and grandchildren understand the joke is on them.
Kudos to my old friend and S&A Research partner Steve Sjuggerud. About a month ago in his free daily e-letter, DailyWealth, Sjug laid out exactly why Hong Kong stocks would soon take off. His logic was simple enough to grasp: Hong Kong's currency is linked to the U.S. dollar. Every time the Fed creates a new dollar, Hong Kong must do the same. With a much smaller economy to absorb the resulting liquidity, the orgy of money creation at the Fed must soon spark huge asset inflation in Hong Kong. Sjug was exactly right...
In today's Wall Street Journal, Sean Darby, Hong Kong strategist for the investment banking firm Nomura, sounded the alarm: "Quantative easings [money printing] by central banks in the U.S., Europe and Asia have created booming capital flows that are 'swamping' some markets..."
The chart (below) of the Hong Kong ETF shows what happens when a flood of liquidity hits a small emerging market with a dollar-linked currency. And this trend isn't over. As long as the Fed prints, Hong Kong will boom.
Last November, I predicted in my newsletter, PSIA, investors in Annaly (NLY) would make a killing on the banking crisis.
The government of the United States has decided saving the banking system is its paramount financial goal. Everything else will be sacrificed in pursuit of this goal. To save the banking system, the government must ensure interest rates are low for banks and that government-backed securities perform well. Annaly is uniquely positioned to profit from both these policies... Simply think of it like this: The lower the Fed moves interest rates, the larger Annaly's dividends will become. If the banking crisis lasts for several quarters (which seems very likely), Annaly will produce record profits and dividends for the next year or two at least. – PSIA November 2008
Yesterday, the benchmark spread between short-term interest rates (which determines what Annaly pays to borrow money) and the 10-year government bond yield (which determines what Annaly earns lending money) reached 2.63% – the widest the spread has been since it peaked in 2003. The record spread of 2.74% was set on August 13, 2003. My bet is a new record will be set this year. And investors in Annaly will make a killing.
GM failed to get 90% of its bondholders to swap their debt for a 10% stake in the restructured company, so the company will file bankruptcy, probably over the weekend. The company announced the amount of notes tendered, out of $27.2 billion total, was "substantially less than the amount required by GM."
I'm sure "substantially less" is corporate speak for ZERO, as I can't see any sane bondholder agreeing to the terms set out by the government... These bondholders would recover pennies on the dollar for their debt and own a minority stake in a business that is a proven failure..." The offer probably cost them more to print out than the offer is worth," said Gary Thomas, a retired auto mechanic and GM bondholder.
The GM bankruptcy will lead to years of litigation. GM bondholders have a very good case. Most people forget the board of GM has a fiduciary obligation to the bondholders. The board is supposed to act in their best interest to make sure they are repaid. That's what a bankruptcy filing is supposed to be all about: The firm has failed, it needs to be restructured in a manner that best preserves value for the company's creditors.
But that's not what GM's managers did. Instead of declaring bankruptcy last fall when they couldn't pay their bills, they accepted billions of dollars in government loans – loans they agreed would be senior to their existing bonds. These loans usurped the rights of the existing creditors. GM's managers essentially sold the company to OBAMA! and the union for about $20 billion and ignored the rights of GM bondholders, who had lent the company far more money over a far longer period of time. The bondholders will sue: If the company had simply been liquidated last fall, they would have recovered far more of the $27.2 billion owed.
New highs: none.
In the mailbag... A reader compliments us, and then admits to violating our copyrights. Take this as a friendly warning: Unless you have my personal written permission, don't copy our work, post it on the Internet, or forward it to your friends – for any reason at any time.
I've put blood, sweat, and a tremendous amount of capital into building this business, which I cherish almost as much as my own family. My longtime employees have done the same. Without copyright protections, we would have nothing to sell and no way to stay in business. We take our copyrights as seriously as you take the money in your wallet. Don't steal from us – not even once.
While we abhor litigation, asking nicely doesn't always work. So we are currently in the process of bringing two lawsuits for copyright infringement. If you know of any institution that is actively infringing on our rights, we would love to know about it. We promise to keep all submissions confidential. Report violations here: feedback@stansberryresearch.com.
Porter comment: Thanks, Michael... but we take our copyrights very seriously. Forwarding our subscriber-only e-mails is a serious violation and could result in substantial fines. Don't do it without our prior explicit permission.
"We are moving to Panama in about 12 months. Can you advise about taking moderate sums of money out of the country? I am talking about 135K to 150K from house sale and brokerage accounts. Can I transfer the brokerage accounts and if so do you have the name of a reliable firm in Panama? Your assistance would be much appreciated." – Paid-up subscriber Fred
Porter comment: We've heard lots of different ideas about how you might do this, but we're far from experts on the subject. If you have experience moving assets offshore, please get in touch with us and let us know how you did it. We are building a network of experts to support our soon-to-be launched private wealth club, The 400 Club.
"Is there a fund that one can access in the agriculture sector that would be available to the small investor? I'm especially interested in Rogers as well as farmland." – Paid-up subscriber Dennis
Porter comment: Read Extreme Value. Ferris has uncovered a publicly traded company that operates more like a private investment fund and is vigorously pursuing direct investments in farmland – on a huge scale. Buying the stock makes you an investor in some of the biggest, most efficient farms in the world.
Rogers is also a large proponent of gold... and Dan has recommended three gold/natural-resource stocks he expects to soar hundreds of percent. You can learn more about Extreme Value here...
Regards,
Porter Stansberry
Baltimore, Maryland
May 27, 2009