Precious-metals research firm GFMS released its annual gold survey today. The survey concluded gold could push to $1,100 an ounce this year. It also reported on higher demand for physical gold with official minting of gold coins up 40% last year and sales of gold bars up 62%.
You've heard about consumer confidence levels and investor confidence levels... but how about CEO confidence levels? Business Roundtable, a lobbying group for large companies, surveyed 100 CEOs and found confidence among CEOs is at record lows.
The Roundtable's economic outlook index fell in the first quarter to -5 from 16.5 last quarter. A reading above 50 reflects optimism. It was in the mid-70s in the middle of last year. About two-thirds of CEOs said they expect sales to fall in the next six months and they're planning to cut capital spending. Seventy-one CEOs said their companies will cut more jobs.
The survey results sound dire, but they remind me of something Jim Rogers once said. He said insider information is always wrong. If you listen to the CEO, you'll lose half your money. If you listen to the chairman, you'll lose it all.
Hartford Financial Group will release first-quarter results on April 30. It's already announced a much worse than expected loss of $0.72 per share and suffered multiple ratings downgrades. Investment losses and variable annuity problems have already weakened its capital position.
Hartford and other life insurers are all in the same boat: Investment losses have yet to fully affect their capital levels. It's a mystery to me why they didn't see it all coming and raise capital already.
I just got a call that a reporter wants to talk to me about the coming crisis in the life-insurance industry. I'm going to tell him the same thing I've been telling Extreme Value readers...
Life-insurance companies' investment portfolios are loaded with corporate bonds and commercial real estate, two asset classes for which bad times are here and getting worse. On top of that, their risk-based capital formulas are based on credit ratings. So when their investment portfolios see mass ratings downgrades, insurers will automatically have less capital (and in some cases, inadequate amounts of capital) in the eyes of state regulators.
If you want to keep up with the life insurance crisis, click here to get access to Extreme Value.
There are so many financial scams being unearthed now, I can't keep up with all of them...
One new scam I just learned about at www.footnoted.org was allegedly perpetrated by Weizhen Tang, a Chinese man in Toronto and the self-touted "Chinese Warren Buffett." Tang appears to have victimized other Chinese people... the way Bernie Madoff zeroed in on other Jewish people.
Tang raised about $17 million from 75 investors, most in the Dallas area. Tang's "WinWin" fund promised investors returns of 1% per week. Back of the envelope, that looks like roughly 68% a year. Tang says he's innocent. Whether that's true or not, a recent letter to clients makes it look like he at least believes his own B.S.
Fortune tells the story of Manhattan attorney Marc Dreier, who sold $700 million of bogus promissory notes to 40 investment funds run by 13 of the biggest hedge-fund managers in the country. Victims include Fortress and Blackstone Group. A job candidate who visited Dreier said he was "outlandishly distracted and self-absorbed," according to Fortune. She never took the job, because she "got a feeling of smoke and mirrors." She told her husband it was like "going in to see the Wizard of Oz."
Dreier must have been some salesman. He had one client who lost $40 million and was suing the investment advisor responsible. Dreier convinced the client to let Dreier invest his money, $5 million of it, in a single tech stock called IATV – which went bankrupt.
Then there's Texas billionaire and alleged Ponzi schemer Allen Stanford. He supposedly managed $8 billion of fraudulent certificates of deposit (CDs) through his Antiguan bank, Stanford Financial... There's a great Wall Street Journal article from last week that investigated the goings on at Stanford Financial.
Last January, at a sales retreat in Miami, Stanford announced a quarterly sales contest called the Top Performers Club, in which employees would sell CDs and compete for huge bonuses. In an earlier iteration of the contest, an employee in Switzerland made $400,000 in bonuses for three months of sales. It later surfaced that Stanford initiated the huge bonuses because he desperately needed sales – customers had recently redeemed $500 million from his bank.
Stanford employees said bosses pushed hard for CD sales and always offered huge commissions, dubbed "bank crack" by the salespeople. They would receive a straight fee of 1% plus the chance to earn another 1% a year over the term of the CD if they sold at least $2 million in a quarter.
Yield chasers beware: The Stanford CDs had huge yields – several percentage points higher than competitors – which the company said were possible due to the offshore bank's tax savings. But Stanford Financial never divulged exactly how it achieved such spectacular and steady yields. One investor put $2 million in CDs yielding 9.87% back in November 2007... The average U.S. CD was yielding six percentage points lower at the time.
Last night, ABC aired its exclusive interview with Allen Stanford, in which he breaks down crying and denies accusations of running a Ponzi scheme... "I will die and go to hell if it's a Ponzi scheme!" When asked of his alleged connections to a Mexican drug cartel, Stanford responded, "I will punch you in the mouth!" A serious threat coming from the 6'4" Stanford. You can view the interview here...
Another alleged fraudster, former pro baseball player Lenny Dykstra, is on the verge of bankruptcy. Last month, we told
you about his failing magazine, The Players Club, and how he was borrowing credit cards from employees to pay for private jet flights. Now, "Nails" may lose his $18 million California mansion and his private jet.
Dykstra defaulted on an $850,000 bridge loan that a private-equity firm gave him to help his magazine... The loan is secured with his mansion. He's also in default on his $12 million mortgage with Washington Mutual. And his Gulfstream II was impounded on February 12 after he failed to pay $228,000 for interior renovations (most of which involved installing an entertainment system).
Dykstra's also facing dozens of lawsuits from ex-employees and other creditors that have been ripped off. Good luck, Lenny...
Tonight at midnight is your last chance to sign up for Jeff Clark's Advanced Income at a huge discount. You can learn more about Advanced Income here...
If GM's classic car auction doesn't solve its debt problems, maybe this will... The ailing auto giant signed up with Segway (the company that makes the nerdy gyroscopic scooters ridden by mall cops around the country) to produce an egg-shaped two-seater that could "change the way we move around in cities," which is something very much like what they said about the Segway scooter.
The P.U.M.A. (Personal Urban Mobility and Accessibility) is a small, electric vehicle that can travel up to 35 miles per hour with a range of up to 35 miles between charges. It can also connect with other P.U.M.A.s to avoid collisions. Is this the viable business model Obama was looking for? You can read the entire press release here.
New highs: none.
In today's mailbag... Maybe we can get Victoria Smith to write our GM chairman letters from now on. Chime in here: feedback@stansberryresearch.com.
"Porter, too bad Victoria Smith opted out and will not see my comment to her rant directed toward you. My car is #23 in a long line of Cadillacs. It's a 2-door, rag-top, '96 Eldo and a beauty. When 'she's' freshly washed and polished, men at the supermarket parking lot have asked me, many times, 'What kind of car is that? Is it a prototype?' They are astounded when I tell them. They always comment, 'They don't build them like that any more.' Amen. I don't have a garage so 'she's' baked by the summer sun, buried in winter snows, and has 120+ K miles. And no rust. Yep, they don't build them like that anymore.
"A few weeks ago, the Caddy was in a private shop for routine maintenance. (I learned, a long time ago, to stay away from dealer service.) The day rental was a 2-door Chevy, probably late last year's model since it had only 21K miles. Two-door cars are not made for graceful, lady-like, entry into the back seat... Caddys included. But who is the Chevy idiot that authorized putting the seat-belt anchor bolt right in the middle of the floor area where the foot would be placed for entry? And the belt? The belt would rub one's nose as the belt rises to the upper belt-slide (or whatever it's called). Even putting a grocery bag in back would be a problem. Who in their right mind would buy such a car? Just another nail in GM's coffin." – Paid-up subscriber Great Grandma B.
"You can keep on funneling water into a bottle with holes, but it'll continue to leak. So what do you do? You fix it or replace it. The same goes for GM, or for any other company in a similar situation. Also, patriotic sentiment has its limits: continuing to finance bad companies is simply unhealthy for the economic, political and social system as a whole." – Paid-up subscriber Frank Lombardini
"Sounds like Ms. Smith thinks the american people are solely to blame for the bloated car companies going bust. Never blame inept leadership or a union that drains the blood out of a company. I'll take my Kentucky built Toyota, Thank you!" – Paid-up subscriber Dan
"Absolutely LOVED that GM tirade by Victoria Smith on Monday. Can I have her number? I'm in to bipolar women who are off their meds." – Paid-up subscriber DN
Regards,
Dan Ferris
Medford, Oregon
April 7, 2009