A $25,000 bar tab... Our customers' yachts... Why Warren Buffett doesn't like gold... And the miracle of 'economic goodwill'... Arch Coal's big buyout... Einhorn covers his shorts... Stansberry better than Rearden?...
"Your tab was nothing... Some guys in here last night spent $25,000."
I hosted a cocktail party for Atlas 400 members last weekend at the Casey Research Summit in Boca Raton, Florida. I told the bartender how pleased I was with the tab (much lower than I expected) and he responded with the above quip.
"Who was the group?" I asked.
"Deutsche Bank... There were 28 of them, so they ordered two bottles of Louis XIII. You know, there are only 13 shots per bottle."
Louis XIII is one of the most expensive cognacs in the world. It retails for around $2,000 a bottle. It costs much more in a bar. "Ahh... that's a great way to use shareholder funds," I said.
Considering the conference's location, a waterfront resort flanked by large boats, it seemed appropriate to ask the old question, "Where are the customers' yachts?"
If you're wondering, you can find our customers' yachts right here…
The more attention Porter gets for his End of America message, the less he's finding himself invited to parties, get-togethers, and investment conferences. After all, no matter how harmful the consequences or where the facts point, folks simply don't like to hear bad news.
Luckily, our friends at Casey Research, one of the last bastions of contrarian thinking, invited Porter to their conference last weekend in Boca Raton, Florida titled "The Next Few Years." Speakers included Porter, legendary natural resource financier Rick Rule, Everbank co-founder Frank Trotter, and Casey Research founder Doug Casey.
Porter warned the attendees about the unsustainable debts accumulated by the U.S. government... why it's imperative to own gold and silver to protect your finances from the coming inflation... why investors should learn how to short stocks immediately. Porter believes the coming dollar crisis will cause incredible declines in the equity values of obsolete businesses, like newspapers and bookstores. "You shouldn't own any stocks at all unless you're willing to hedge your portfolio with short sales," he warned.
If you've never shorted stocks... or profited from a falling stock price, there's no better guide and teacher than our own Jeff Clark, who edits the S&A Short Report. Jeff has spent the past two decades trading stocks from all sides, but he specializes in making bearish trades on overvalued, overhyped stocks... the kind that will be hammered in a currency crisis.
When volatility, fear, and big market swings are present in the market, traders like Jeff make huge returns. That's why we're making an extraordinary offer right now. Until midnight tonight, you can claim three months of Jeff's S&A Short Report essentially free of charge. But you must get in before midnight tonight in order to start receiving your trial subscription. After that – this offer expires. You can click here to learn more about this opportunity.
While I was in Florida, Dan Ferris and Frank Curzio traveled to Omaha for Berkshire Hathaway's annual meeting. I'm sure Dan will have an extensive update for you in tomorrow's Digest. Meantime, I'll make some comments based on what I've read today…
When asked why Berkshire Hathaway doesn't invest in commodities like gold, Buffett turned to his favorite "anti-gold" remark... If you collect all the gold and melt it together, you would have a cube with 67 feet on each side. And what would you do with that cube? According to Buffett, "You could get a ladder and climb on top of it and say I'm sitting on top of the world. You could fondle it. You could polish it. You could stare at it."
Buffett continued saying gold has no inherent value. When you buy gold, you're simply hoping to profit from the "greater fool theory"… that someone will come along and pay more for your gold. "Over time, that has not been the way to get rich," Buffett said.
Of course Warren Buffett doesn't like gold. He's become one of the richest men in the world taking advantage of currency manipulation and inflation. He has huge interests in insurance and banking firms, which thrive during inflation. He also owns consumer franchises with pricing power. Buffett would tell you these companies have one thing in common, "economic goodwill." Porter explained economic goodwill and Buffett's thoughts on the subject in his December 2009 issue:
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Buffett is looking for companies that produce high annual returns when measured against their net asset base and require little additional capital. He is looking for a kind of financial magic – companies that earn excess returns without requiring excess capital. He's looking for companies that seem to grow richer every year without demanding continuing investment. In short, the secret to Buffett's approach is buying companies that produce huge returns on net tangible assets without large annual capital expenditures. He calls this attribute "economic goodwill." I call it "capital efficiency." – Porter Stansberry, December 2009, Stansberry's Investment Advisory |
These companies have pricing power. They can grow sales and earnings without making large increases to capital investments. Coca-Cola is the perfect example. It produces huge sums of cash relative to its net tangible assets. Then, the company sells its sugar water for ever-increasing prices... And the shareholders pocket the difference.
And despite his public comments on gold… Buffett has also owned precious metals. Buffett bought silver 13 years ago. It's possible he still owns it. He's also diversified out of the dollar through foreign currencies. At the end of 2004, Buffett said he had some $20 billion in foreign currencies. When asked by CNBC today if he would bet against the dollar, Buffett said, "I wouldn't bet on it against other currencies." He added, "governments can take actions that decrease the value of money, and sometimes at a very, very rapid clip."
Buffett's longtime partner, Charlie Munger, also chimed in on gold... "There's something peculiar about an asset that will really only go up if the world really goes to hell. I think you'd do better by buying our stock."
Coincidentally, our editor in chief, Brian Hunt, compared gold's performance to that of Berkshire Hathaway last month in DailyWealth:
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Since the stock market began climbing out of its bear market back in 2003, Buffett's company has gained around 75%. Gold, on the other hand, has gained nearly 350%. While we're fans of Warren's wealth-building ability, we're even bigger fans of listening to the message of the market. Every day for the past eight years, it's been saying, "You're missing the boat, Warren." |
Stansberry's Investment Advisory pick Arch Coal announced it would buy International Coal for $3.4 billion in an all-cash transaction. The acquisition will increase Arch's reserve base by 25% to 5.5 billion tons. It also gives Arch Coal assets in every major domestic coal basin. Arch is hoping to capitalize on soaring coal demand from "Chindia" (China and India). The company expects metallurgic coal sales to reach 11 million tons in 2011 and 14 million tons in the next three years.
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New 52-week highs (as of 4/29/11): First Trust Dow Jones Select MicroCap (FDM), Cambria Global (GTAA), Anheuser-Busch InBev (BUD), DirecTV (DTV), Automatic Data Processing (ADP), Calpine (CPN), Hershey (HSY), Royal Gold (RGLD), Molina Healthcare (MOH), Johnson & Johnson (JNJ), ExxonMobil (XOM), EV Energy Partners (EVEP), Vanguard Natural Resources (VNR), SVB Financial Group (SIVB), Philip Morris International (PM), U.S. Ecology (ECOL).
Someone compares Porter's letter in Friday's Digest to Hank Rearden's defensive speech in Atlas Shrugged. What did you think? Send your feedback to feedback@stansberryresearch.com.
"Porter your defense of yourself and your work was as pleasurable to read as Hank Rearden's speech in his own defense. Moral Fortitude. Your kind of thinking is the only one that is important because it leads to the right way to act. I am always entertained and inspired by your 'Friday Rants' in the Digest." – Paid-up subscriber Connie
Porter comment: That's high praise, Connie. Thank you. My great friend, partner, and mentor Bill Bonner taught me a long time ago that we can't guarantee success – not for our company, not for our employees, and not for our customers. But we can deserve it. That's what I get up every day thinking and working toward.
"I personally want to thank you and your organization for the quality of information you supply. I started with one newsletter and now subscribe to several, some of which have been made less expensive by subscribing to your alliance program. I see the problem with so many people complaining and asking for refunds as the underlying problem in America today: PERSONAL RESPONSIBILITY. You and your staff write about all the economic situations that are causing the problems or at least play a part, but we never talk about the individual citizenry.
"I grew up in the '50s in a poor family. My mother and father both worked trying to provide but both lacked a High School diploma and had no particular sell-able skills. My brother and I were always told that a good education was our only way out... My hard work in school paid off as I got a scholarship to an engineering school that my family could never afford. Fraternity, alcohol, and girls proved to be my downfall. I lost my scholarship but more importantly, my military deferment. Again, no one to blame but myself.
"My time in the Army was the growing up period I needed. I was forced to see my reality in a new way. My tour in Vietnam showed me the inequities in the real world, the rich stayed in college by hook or crook, the connected got in the National Guard, and the poor, dumb ones were giving their lives for something we never understood. This was a turning point in my life as I decided that as a teacher I might be able to help this segment of society.
"Five years, the GI Bill, student loans, and part time jobs I graduated. Now I'm told that I was a 'taker' for using the government to improve myself. I am not a big fan of the government, but I strongly disagree with being lumped into one non-productive group for taking advantage of a 'handout'!
"With my degree I got a job as a vocational teacher in a small rural High School... After years of trial an error, making a little money, losing more, I came upon your services. Being a lifelong learner I quickly saw the advantages of your teaching. The education in your newsletters is worth more than the recommendations in my opinion. I have tried to learn and use your recommendations as I see fit. I've got in on some that made money, some that lost, and stayed out of some I kick myself for today. But whatever the result, it was my decision and I'm the only one responsible for the outcome. Apparently the complainers have missed the entire reason for your success: hard work, education, and personal responsibility.
"I am personally satisfied with your services, and yes the selling of new services gets old from time to time, but you know what, I have found a little device called 'delete' that seems to solve the problem for me. Learning about new services and staff has allowed me to take new subscriptions; again my decision. I do have one complaint that I spoke of previously.
"I'm now retired and getting a pension from the State. I worked hard for years, contributed to that pension and feel I deserve every penny I get. I do not see my self as a 'taker' living off the government, even though in reality I am. I also saved and invested to supplement that pension which your advice has improved. I only ask that you and your staff think a little before generalizing about anyone 'living off the government' and sucking the system dry. My State has confiscated billions from my retirement fund to fund their lack of fiscal responsibility just like Congress has done with Social Security. Now they're having to pay the piper, but somehow its my fault for collecting. Please keep up the great work advising and educating, but think about social generalizations. If only everyone would take responsibility for their actions, like you and me, lol, maybe the whole world would be a better place." – Paid-up subscriber Dave
Porter comment: I understand your personal perspective on your pension, which I wholly agree you are owed by the state. We're certainly not referring to folks like you when we talk about folks on the "dole."
On the other hand, you have a claim on an institution that's probably bankrupt. You agreed to work for an agency whose accounting was fraudulent. You probably participated in a union whose tactics were (at best) highly questionable and certainly extremely politicized. And most importantly, you continued to work and participate in labor agreements where your future benefits were probably unfunded. I don't know where you taught or where you live... but if it's a state like California or New York... you were working for crooks. So it's like the folks who are owed money by Madoff. They believed in lies. What's society's obligation to them?
Regards,
Sean Goldsmith and Porter Stansberry
Baltimore, Maryland
May 2, 2011