We've become slightly famous for accurately predicting the demise of several iconic America companies, including the original AT&T, GM, Fannie Mae, Freddie Mac, and (though it hasn't happened yet) Continental Airlines. We may have another business to add to the list: General Electric.
You may not realize it, but one of the largest drivers of profits at GE was its triple-A credit rating. The company's excellent credit allowed it to borrow money in the overnight commercial paper market for next to nothing and then use the money to buy all sorts of higher-yielding financial instruments – particularly credit-card receivables. This worked like magic and was the fuel behind the earnings management GE's CEO Jack Welch became famous for in the 1990s. (GE could always beat its earnings forecast because it would just use its financing arm to monkey around with the numbers until it came out the way it needed them too.)
GE, of course, wasn't the only company using the commercial paper market to fund all kinds of consumer-related borrowing. Tyco copied GE's business model and used its finance arm, known as CIT, to do the same thing. Once Tyco got in trouble for its phony earnings in the early 2000s, it decided to spin off CIT into a separate company. CIT is now poised on the brink of insolvency. And guess which company is following it down, almost tick for tick? Yep, GE.
Back in 1998, my friend Doug Casey went a little nuts… or so I thought. He was telling me to buy all of these uranium stocks – most of which traded for pennies. I thought to myself, no one has built a new nuclear reactor since the early 1970s. Why would there be a sudden surge in uranium prices?
But Doug kept telling me nuclear power is the only way to provide anything like the amount of power the world is going to need as places like India and China come online. The chart of just one of the many uranium stocks Doug was telling me to buy is below. Many others went up even more than this one.
Today, I think Doug has gone a little nuts again. What is he saying now? Buy bullets and cigs. No kidding.
They keep raising the taxes on cigarettes – a pack now costs $10 in some places in the U.S., that's 50 cents per individual cigarette. If you're American and are going to be storing things, you probably can't go wrong building a stash of cigarettes. Even if you don't smoke – or perhaps especially if you don't smoke – every time you return to the U.S., you should buy the maximum amount of duty-free cigarettes allowed and store them.
The other thing Americans should do is buy a lot of shotgun shells, 9mm, .45, .223, and .308 ammo. Even if you don't shoot, you can set those aside and store them too, because they're going to be taxed and regulated to the nth degree. And properly stored, they keep for a very long time.
In fact, anything regulated by the Bureau of Alcohol, Tobacco, and Firearms – one of the most corrupt, dangerous, and useless of all federal bureaucracies – is likely to go up considerably in both price and value. It's perverse that the U.S. has a bureaucracy to regulate the three things you need for a hunting trip or a good party.
Doug has been like a second father to me – or a rich uncle. (Everyone needs a rich uncle, by the way…) And while building a lifelong friendship with Casey himself probably isn't in the cards for most of our subscribers, you do have a simple (and free) way to get his personal views on the world. For years, I've been urging Doug to simply put his best thoughts down in print each week, so more of his wisdom can reach people. But... like most folks who are worth millions of dollars and who have been to more than 170 different countries… Doug doesn't feel the need to earn another dollar or impress anyone.
So when I got together with Doug last May at a conference I hosted on the Eastern Shore of Maryland, I told him, "Look, just have your publisher call you once a week and ask you a few questions about what's going on in the world – like I do when we talk. You can have a company record and transcribe the conversation. You won't have to do anything you don't enjoy doing…"
That's exactly what they've done. Now, each Wednesday, I get an e-mail from Doug called Conversations with Casey. It's simply Doug talking about whatever is on his mind. That wouldn't be very interesting coming from most people. From Doug, it's pure gold. You can sign up to get Conversations with Casey here. It's free.
More bad news for Manhattan and commercial real estate… The borough's second-quarter vacancy rate hit 12.4% – the highest since 2001. The reason, according to Faith Hope Consolo, chairman of the retail leasing and sales division at Manhattan-based Prudential Douglas Elliman Real Estate, is that "the consumer just stopped shopping." More than 15% of the 185 stores on prime retail blocks on Madison Avenue are vacant or about to lose tenants. In SoHo, 11% of the 551 stores are available for lease. But according to Bloomberg, the avenue famous for its high-end retail, Fifth Avenue, between 42nd and 49th streets, has the highest vacancy rate in Manhattan at 15%.
Freddie Mac launched a program in March giving homeowners the choice to stay in their homes as renters after foreclosure – essentially turning the U.S. government into a giant landlord. But the program didn't attract many participants. Why not? Because people who can't afford to buy a house typically can't afford to rent it either.
Besides… the government was also offering them cash to leave. Yes, that's right. A government program called "cash for keys" offers money to troubled borrowers if they vacate the premises. Only in America does the government give you money for being a deadbeat borrower.
New highs: Hatteras (HTS) and AmeriGas (APU).
In the mailbag… A subscriber who argues on behalf of more taxes. He thinks he knows what's best for your money. Do you agree? Let us know: feedback@stansberryresearch.com.
"Your argument [against raising taxes above 50%] is totally fall
acious. The proposed tax surcharge would add $9,000 to the tax of someone making $1 million a year, a mere pittance to someone in that income bracket. I seriously doubt that even 1 of them would decide to quit working and live on Social Security! And if they do, there are many more good executives who could take their place at a lower salary. Moreover, most taxpayers in those high brackets give much more than that to charity; and while they might prefer to give to the ASPCA (for the protection of cats and dogs), they shouldn't object to their money being used to provide health care to poor kids... I'm in the tax bracket which would be affected, so it's my money too and I am not upset at its being used to provide medical care to poor children." – Paid-up subscriber Steve Sloca
Porter comment: I 'm always amazed by how generous people tend to be with other people's money. It seems self-evident to me that a government that takes more than half of its citizens' incomes (as the U.S. will do under currently pending legislation) has gone far beyond any reasonable limit. It could only be described as a vast criminal organization. No one ought to have the right to take half of someone's income – not under any circumstances. And… using children's health care as the reason for such taxes is preposterous: The vast majority of our country's health care expenses are generated in the last few months of people's lives. As for what people will do when facing taxes of this magnitude, study what happened in Argentina and Italy when their socialists tried.
Good luck, America… By the time you figure out you can't live at your neighbor's expense, you'll have destroyed the whole country.
"Thanks for the financial education and advice S&A provides… I have recently dumped my U.S. life and taken my family to a country that is standing up to the rule of law and their Constitution against the Socialist of the world: Honduras. Yes, opening a bank account is difficult, but what seems more problematic is to how keep using your service in the future. What online broker can a U.S. citizen use to invest in U.S. stock that will NOT be subject to future U.S. government currency controls? Any suggestions or crystal ball as to how this might be accomplished? FYI: I'm sure you could publish your newsletter from here without government interference! I'd be glad to help in any way needed." – Paid-up subscriber Derek
Porter comment: Although I've never done it, I understand it's not too difficult to open a brokerage account in Panama or Switzerland. These accounts would most likely be beyond the reach of currency controls in the U.S.
Regards,
Porter Stansberry
Baltimore, Maryland
July 17, 2009