A plea for help... Grant's conference... Eisman and Klarman on deck... National vacancies increase... 'A new generation of renters'... Why discounted corporate bonds perform well during inflation...
Porter note: It's our policy not to ask our readers for anything – other than a renewal.
But today, we need a real favor.
As you may have heard, the major TV networks don't welcome our advertising. They say viewers would be offended by our message – which is simply a warning that the government's money-printing is putting our economy in grave danger. We were disappointed by their decision, but we found a way around it…
We've been advertising on DirecTV. But... after showing our ads for nearly a month, DirecTV suddenly pulled the ad and refuses to show it anymore. Why? The company won't tell us.
Alex Jones, the famous Texas radio personality, heard about this controversy last week. It upset him so much, he recorded a message in support of our campaign. You can see what he says here. (You can also see our TV ad on that YouTube link.)
Over the years, we've helped thousands of subscribers learn how to think for themselves financially. We've told our readers about some of the biggest financial risks and the most profitable financial opportunities. But lots of big business interests don't appreciate our "you can do it yourself" message. Nor can the government afford for you to understand what's happening to our money. I'm certain these factors played a big role in DirecTV's decision to drop our ad.
Please... if you appreciate our work… if we've done anything to help you and your family... let DirecTV know how you feel about its decision to drop our ad. Tell the company you don't appreciate it censoring a legitimate warning from a financial publisher.
You can contact the DirecTV corporate office at 310-964-5000. When the operator answers, ask for "Standards and Practices." You can also fill out a form supporting us here. Or if you'd prefer to mail a physical letter, please send it to the address below:
DirecTV Customer Service
Attn: Standards and Practices
P.O. Box 6550
Greenwood Village, CO 80155-6550
Thank you very much for your assistance. I wouldn't ask for your help if we had any other way to get over this hurdle.
If you missed last Friday's Digest, make sure to read it today. Porter once again explains the benefits of the corporate bond market and why "most individual investors should never buy stocks at all." And make sure to read today's mailbag... where we rebut the most common question we receive about bond investing in today's market.
I'm writing today's Digest from the Plaza hotel in New York City. Tomorrow, Dan Ferris and I will attend the Grant's Interest Rate Observer conference. (On that note, expect tomorrow's Digest to be brief.) The highlight speakers for me this year are Steve Eisman and Seth Klarman.
Steve Eisman garnered some fame after his mention in Michael Lewis' The Big Short (If you haven't already read it… it's a great book). His hedge fund, FrontPoint, correctly called the subprime crisis... and made a fortune on its credit default swaps (derivatives that pay out in the case of default).
While I don't know what Eisman will discuss tomorrow, I hope it's an update on his short trade of for-profit education. Eisman presented his short thesis on secondary education at last year's Ira Sohn conference. He titled the speech "Subprime Goes to College." (On a side note, Porter also bellowed his infamous "Boo" at Ira Sohn.)
Eisman noted the for-profit educators – companies like Apollo Education and ITT Educational – exist on government grants, but they have higher margins than other government-funded companies (higher margins than even Apple). He said those margins will decline. These companies charge high tuitions and deliver little value. Their dropout rates run greater than 50%. And they recruit from casinos and homeless shelters.
Jim Chanos, manager of the short-only hedge fund Kynikos Associates, is also bearish on for-profit education. You can read his thoughts here.
Seth Klarman, founder of Baupost Group, is also speaking. We recently discussed Klarman here. Klarman's a brilliant investor. He's averaged double-digit returns since his fund's 1982 inception. He rarely gives away specific ideas at conferences, but you can still glean insight from his speeches.
According to last week's census report, the national vacancy rate increased to over 13% (up from 12.1% in 2007). Of course, the high number of vacancies puts further downward pressure on home prices. And according to Steve Sjuggerud, these homes may not sell any time soon…
In today's DailyWealth, Steve tells the story of a friend selling his house as a short sale. And he explains three reasons why he thinks we may see a "new generation of renters."
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1) Millions have walked away from their homes or lost them to foreclosure, so they are now renters. [Like my friend.] |
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2) When houses were soaring, most people thought it was a great time to buy. Now that prices have been plunging, they think housing is a bad investment. |
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3) Many of the few who do recognize the compelling values still will have to rent for a while because they've had a recent foreclosure or credit problems and won't be able to qualify for a mortgage for a while. |
You can read the full essay here.
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We've seen this story play out with companies like Kenneth Cole and Jones Apparel. Margins trended lower. Earnings growth slowed. And eventually, the stocks got crushed. But once operations turned around, these stocks more than tripled within two years. |
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Charming Shoppes has similar potential. It makes clothes for plus-size women. It's the only pure play in this category. Insiders have been buying shares 15% higher than the current price. Also, the stock is trading at a 16% discount to its book value. |
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Based on our analysis, the stock is factoring in most of the risks. If Charming shows any progress in the form of stronger earnings, margins, or inventory – shares could pop 20%. – Frank Curzio, February 9, 2011 Penny Stock Specialist |
Last Thursday, Charming Shoppes (CHRS) reported strong earnings. Sales jumped 7% year over year, led by a 41% increase in e-commerce sales. The company also announced it was closing 240 unprofitable stores – which will result in huge cost savings going forward.
The stock rallied 35% since the announcement. And Penny Stock Specialist subscribers are up more than 10% on the recommendation. Frank believes Charming Shoppes still has huge upside following this surge. The stock is still trading for less than book value. Same-store sales jumped 11% this quarter. Plus, huge cost-cutting will help the company return to profitability for the first time since 2008.
In other words, things are "less bad" for Charming Shoppes. This is one of Frank's secrets to investing in under-$10 stocks. When a company goes from bad to less bad, the stock price usually takes off. We saw this happen to Chico's FAS in 2009 and Crocs in 2010 (which is up more than 180% in 15 months). We could see similar gains over the next 12-18 months in Charming Shoppes.
To find out more about Penny Stock Specialist – including Frank's three natural gas plays that are trading for less than $6 and have more than 200% upside each – click here...
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New 52-week highs (as of 3/25/11): DirecTV (DTV), CARBO Ceramics (CRR), Calpine (CPN), HMS Holdings (HMSY), ConocoPhillips (COP), EV Energy Partners (EVEP), SandRidge Energy (SD), Philip Morris International (PM), Alexander & Baldwin (ALEX).
In today's mailbag, we once again explain why investing in discounted corporate bonds is still smart during inflation. Do you have any other questions? Send them to feedback@stansberryresearch.com
"I spent many years in the arts when the arts were truly artistic. My mentors and teachers were not people paid by some school because they had obtained some degree. They were people who learned their crafts by performing. They were tough and held high expectations. All of them stressed going back to the basics over and over again. Go to the beginning and learn again. They were critical. If I got praise from them, it lasted a lifetime. We learn from repetition. Please, continue with the Friday S&A Digest rants." – Paid-up subscriber Jerry Buttitta
"i worked on the Street for 10 years and left in 1997 in disgust. i was at Bear Stearns... and the stuff I saw happen would shock you.
"anyway, kudos for sharing your End of America report. it's concise, realistic and DEAD ON. there is no economic recovery, and they all know it. it's all smoke and mirrors to hide the truth.
"the truth is that the end of US govt borrowing is nigh. the only thing saving us is that China has so much invested in the US... so they need to keep lending to us to protect all the assets they've purchased. But they are a smart bunch and the fat lady is beginning to sing... in Chinese.
"i admire you for standing up and telling the TRUTH. as we all know, flattery makes friends, but the truth makes enemies. hey, at least you did your part by warning everyone." – Paid-up subscriber John Szuch
"Congratulations on the new addition to your family. Sounds like everything is going well.
"I would like to say that I have followed much your advice and have profited nicely. I had never bought a bond before True Income came out. The first bond I bought was the Tribune, which did not turn out well. Next, I bought Freescale at 37, sold at 105. Rite Aid at 25, now it is at 93 and I still hold it. Western Refining at 78, now at 170, waiting to sell. A&P at 55, waiting to see how that turns out. I also hold Dynergy.
"I don't check these bonds often and don't worry about what will happen to them.
"I never bought or sold an option until your Put Strategy came out. When I joined the Alliance one of the first recommendations was to sell Bud puts. I sold some and made all the money back that I paid for my membership on that one trade. I continue to trade options, sometimes on Jeff's recommendations, but usually I sell naked puts on stocks I want own, most often based on advice from all the Alliance publications. When they are put to me, I then sell calls. Last year, I made 160K, this year as of March 122K.
"I have not shorted any stocks, but rather look to buy puts.
"Finally, I would suggest you stop calling people stupid. You sound like a Democrat." – Paid-up subscriber Nicholas Schlageter
"I am a new subscriber to you service and was ready to pull the trigger on the 'End of America Survival Kit' until I read the current Digest and Advisory letters and am now very confused because they seem to contradict themselves.
"To start, I read the most recent Digest and was very excited to learn about the Corporate Bond market that I new nothing about. I am 60 years old, and last month I sold ALL my stocks and am looking at putting my money into something safe with a somewhat predictable return. CDs and money markets are a joke with less than 1% return and I was worried on where I would put my retirement money.
"You stated in the DIGEST that if it were you, you had wished everyone would invest 'nearly all of their investments' into the corporate bond market and should rarely if ever buy stocks. Then you stated in the ADVISORY that when the big correction takes place due to the dollar not being used as the world's currency anymore you said 'Inflation will soar, The bond market will get wiped out. Our standard of living will plummet.'
"This is where I am confused. On one hand you recommend buying corporate bonds, and on the other hand you say they will get wiped out. Please clarify if I am not understanding this correctly. I want to invest in the corporate bond market (for the safety and predictable/consistent returns) and also want to become a Private Wealth Alliance Member, but am concerned of the inconsistencies I am reading in your publications." – Paid-up subscriber Richard Dittmer
Goldsmith comment: Richard, please re-read last Friday's Digest starting here. Porter answers the question you're asking. Here's an excerpt:
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Simply holding your bonds to maturity eliminates interest-rate risk. The company whose bonds you buy is required to pay you back at par – 100 cents on the dollar. If between the time you buy them and the time they mature, the bonds trade at a discount to par, their market price has declined – but not their full (par) value. They're still worth 100 cents on the dollar at maturity. |
And if you read the feedback from Nicholas, you'll see the kinds of return you can achieve buying these bonds. Triple-digit returns will outpace inflation all day long.
Regards,
Sean Goldsmith
New York, New York
March 28, 2011