For the past year, we've been telling readers inflation is coming... and it will be good for banks. Yesterday, we saw companies take advantage of the recently unlocked credit markets to raise a record $11.7 billion in high-yield debt. That's a huge expansion of credit. And of course, banks make money from debt issuances.
Bank of America's fourth-quarter loss narrowed to $194 million from $1.78 billion. Revenue increased 60% to $25.1 billion on the Merrill takeover. And the Merrill side of the business was the biggest winner...
The global markets business (which includes Merrill) earned $7.18 billion after a $4.92 billion loss a year ago. BofA's credit losses rose to $10.1 billion from $8.53 billion a year ago. And the net charge-off rate jumped to 3.71% from 2.36% a year earlier.
We expect banks to continue earning windfall profits in their investment-banking divisions. We also expect prolonged pain in the consumer-banking divisions (mortgages, credit cards, etc.).
These themes should mean great results for Goldman Sachs, which has no consumer-banking business. Goldman announces results tomorrow before market open.
We're getting inundated with questions about our Private Wealth Alliance (PWA) offer. As a PWA member, you will receive seven of our best services (including PSIA, Inside Strategist, S&A Resource Report, and our newest Penny Stock Specialist) for life. The cost for this subscription is only $650. Click here to learn more.
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On CNBC's Squawk Box this morning, Warren Buffett clarified his statements about Korean steel giant Posco... Buffett says he will not buy more shares of Posco at current prices (though he thinks it's a wonderful company). However, he's not currently selling any shares. And he would buy more shares if prices dropped "significantly."
Buffett also said the Kraft takeover of Cadbury is "a bad deal." He says Kraft went forward with the deal despite his disapproval (due to changes in the deal, Kraft no longer needed Buffett's vote for the takeover). But he would have voted against the transaction given the chance.
Buffett said Kraft directors openly stated Kraft stock is undervalued, yet they used a bunch of stock for the Cadbury takeover. If you value the deal using Kraft's intrinsic value (not its current share price), Kraft paid 16 or 17 times earnings for Cadbury. Meanwhile, Kraft sold its frozen pizza business to Nestle for nine times earnings. It's "hard to get rich" buying at 17 and selling for nine, Buffett says.
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.
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New highs: Central Europe & Russia Fund (CEE), Johnson & Johnson (JNJ), Cohen & Steers REIT & Preferred Income Fund (RNP), San Juan Basin (SJT), Amerigas Partners (APU), Kinder Morgan Energy Partners (KMP), Icahn Enterprises (IEP), Korea Electric Power (KEP), Tejon Ranch (TRC), Latin American Export Bank (BLX), Prospect Capital (PSEC), Akamai (AKAM), Rex Energy (REXX).
In the mailbag: How to avoid coin scams. Send us your story here: feedback@stansberryresearch.com.
"Ok, I finally took your advice and bought some gold coins from a dealer I saw recommended in one of your newsletters. I handled the transaction over the internet and over the phone. I sent them my money and after the check cleared, they sent me my coins. My question is: how do I know the coins are what they say they are and not fakes? Do you have any advice about this topic?" – Paid-up subscriber Anonymous
Goldsmith comment: To answer your question, I went straight to the source... Van Simmons. Van is one of the world's foremost experts on collectible coins. And he is the cofounder of the Professional Coin Grading Service (PCGS), the most highly regarded grading service in the numismatic community.
According to Van, if your coins are new, the best way to make sure they're real is to buy from a reputable dealer. We recommend Van's firm, David Hall Rare Coins, which you can contact at info@davidhall.com. We also recommend Camino Coin, which you can contact at 800-348-8001.
As you already have the coins, the only way to verify their authenticity is to have them graded. PCGS will perform this service for $25-$35 per coin.
If you're buying old coins, pre-1933, make sure they have been graded by PCGS (all PCGS-graded coins are clearly labeled as such).
"Am I wrong, Mr. Stansberry, or are you and Dr. Sjuggerud of a different mind regarding the imminence of a significant increase in the yields of government securities? The latest True Wealth bases a recommendation on the continuation of low rates through 2010 as a result of steady foreign demand for Treasuries. Your latest advisory suggests that a significant increase in rates (to offset decreasing demand) is imminent." – Paid-up subscriber Randall
Porter comment: As I've long explained, I don't pay my analysts what I pay them in order to tell them what to write. All the analysts who work here work independently. Hell, Eifrig still thinks we're in deflation.
"About ten years ago I worked in Canada's tar sands area for a winter. It was too cold for me, so I quit and came back south to the states. At that time there was enough proven reserves in the province where I was working to satisfy all the worlds demand at Y2000 rate for 800 years. There are estimated reserves in the next province west more than equal to those already being exploited. Now oil must sell for over $65.00 a barrel to make these reserves profitable, but that shouldn't be a problem as the cheap oil gets used up. No peak oil for 1600 years, and that's not even counting on the huge deep oil found under the south atlantic or the newly exploitable oil under the artic oceans." – Paid-up subscriber Jim
Regards,
Porter Stansberry and Sean Goldsmith
Miami Beach, Florida and New York, New York
January 20, 2010