We start today's Digest with a short joke:
"We will never embrace a strategy of trying to weaken our currency to try to gain economic advantage," Treasury Secretary Tim Geithner said yesterday at an appearance at the Council of Foreign Relations in New York.
And the punch line... a one-year chart of the U.S. dollar...
.gif)
Geithner's comments are more of the same... Just as Bernanke's comments at the Fed meeting were. But why anyone listens to these talking heads anymore we don't know. We've yet to hear one truthful comment from a high-ranking government official regarding our economy. And as the above chart suggests... if they're not actually "trying to weaken the currency," they're just plain incompetent.
While lying about the government's actions regarding our currency, Geithner is also busy creating a solution in case the government doesn't vote to raise the debt ceiling. (We should hit our $14.3 trillion debt limit in a few weeks.) No. 1 in Geithner's arsenal (according to this Washington Post article) is taking money from federal pension funds. This is a non-issue. Whatever money Geithner pillages, it's all coming from the same pool – our tax dollars.
If Geithner is forced to steal money from pension funds, it will be a blatant admission our country is broke. It would be as good as a default in the eyes of our citizens and, more important, our creditors. We all know what will happen when we hit our current ceiling... The left and right will hem and haw, then eventually raise the ceiling.
Gold and silver were both up today – to $1,513 and $45.66, respectively – in anticipation of Bernanke's comments. It's like Pavlov's dog in the commodities markets. When Bernanke opens his mouth, precious metals rally.
And don't forget about stocks. They, too, are rising on an ocean of liquidity. The S&P 500 just broke out to a new 52-week high. As you can see from the two-year "performance chart" below, gold (yellow line) and stocks (black line) are rising at approximately the same pace... and in the same pattern as each other. These days, it's all about saying, "I'll pass on your product, Mr. Geithner, and I'm getting out of the dollar"...
As we've explained many times... the U.S. government is now in a "one way out" situation in regards to its debt and unfunded obligations. It has made incredible promises to hundreds of millions of people. There is no political will to stop making these promises. After all, making empty promises is how politicians "advance" in life. It has borrowed trillions of dollars from foreigners. The only way out of the mess is to pay back the debts and obligations with devalued money… to pick your pocket a tiny bit each day. Make sure you don't miss Steve Sjuggerud's excellent DailyWealth essay on this idea.
Today, Extreme Value World Dominator Johnson & Johnson (JNJ) announced it would buy Synthes Inc. for $21.3 billion in cash and stock. It's the largest takeover in JNJ's 125-year history. The purchase will give JNJ a dominant position in the trauma market. (Synthes dominates 50% of the market for sales of screws, plates, bone grafts, and other products to treat skeletal injuries.) And Synthes has operating margins of 35% – the highest among medical-product makers with market caps greater than $5 billion.
And parroting Barrick Gold's CEO, JNJ CEO Bill Weldon said, "Very infrequently do you ever see an opportunity for a company like Synthes to come into play with [JNJ]. We just thought this was an extraordinary opportunity and the time was right."
It's difficult for corporate managers to resist "mega mergers." Cash-rich balance sheets don't help companies grow, and most managers are rewarded for producing growth. Mergers do create growth. That's why large, publicly traded companies will indiscriminately buy competitors – what we call "de-worsification." The sales grow, and the executive board gets big bonuses.
With $28 billion in cash, Johnson & Johnson fits the bill of a large, publicly traded company with a bloated balance sheet. But Extreme Value editor Dan Ferris says this is not your typical money-to-burn acquisition. JNJ was smart to take over Synthes. His reasons are simple:
|
JNJ can afford it. |
|
It's exactly the kind of thing JNJ needs to do to maintain and strengthen its dominance in medical devices. Acquisitions in industries with high profit margins are better than in those with thin margins. |
"When one great business takes over another, how bad can it be, as long as it doesn't overpay?" Dan said. "I don't think JNJ is overpaying. At 5.7 times 2010 sales and 23.5 times earnings, it's not that cheap. But it's fair.
Dan isn't the only one who thinks the takeover value per share of 159 Swiss francs (Synthes is a Swiss company) is a good deal. According to the Wall Street Journal, a group of hedge funds who own the stock think it's worth more:
|
It's unclear whether Synthes's public shareholders, many of whom now are aggressive hedge-fund traders who move in once a company is in play, will be satisfied with the price [JNJ] is offering for market growth. Many have argued privately in recent days that Synthes is worth at least 165 francs a share. |
Yesterday, we said Greece needed to restructure its debt. Today, one of the smartest guys in the credit markets, PIMCO co-CEO Mohamed El-Erian agreed. El-Erian said Greece is far from solving its financial woes and should restructure its debt... "So far none of the solutions for the Greek debt crisis have worked," he said. "And a lot of people – including me – don't believe they will work in the future."
|
New 52-week highs (as of 4/27/11): Cambria Global (GTAA), PowerShares Dynamic Biotech (PBE), DirecTV (DTV), Automatic Data Processing (ADP), Molina Healthcare (MOH), ConocoPhillips (COP), ExxonMobil (XOM), EV Energy Partners (EVEP), SVB Financial (SIVB).
Thanks for your support regarding the "scam" accusation. Send us your thoughts here... feedback@stansberryresearch.com
"As (I think) an original subscriber from way back when you split from the Ox Club, I have to laugh at some of the rants that you publish. Having recently passed the 3/4 century mark, I think I have fired at least a half dozen brokers and advisors over the years. Yes, I have occasionally lost money with you, but rarely and usually because I didn't stick to stops. I now recalculate daily and am rigid about them. Given the current situation, I'm even tighter than you. In all my years you have the best track record in investing advice.
"I would suggest that you not make blanket condemnations of certain professions, however. As one who spent nearly 50 years in ERs and ORs on nights and weekends too; ex Doctor Eifrig's generalized condemnations and Porter's (I think it was him) screed were not appreciated. They showed a complete lack of knowledge of the practice of medicine. The vast majority of physicians are honest and dedicated to what is best for their patients. Just like in finance; there are some charlatans and yes we do not know everything there is to know about the subject. Being human, we also sometimes make mistakes. Unfortunately they sometimes have tragic results. If they detest physicians so much, then perhaps the next time they get sick or injured they should call a cab and get dropped off at the nearest church." – Paid-up subscriber Richard
Porter comment: Mine wasn't a blanket condemnation of all doctors... It was a criticism of the current market for medicine, which is incredibly inefficient and patient-unfriendly (as most doctors will tell you).
"I can't believe these 'subscribers' who say they are getting ripped off by your services. From what I've seen in the past they don't understand what they have bought or just have an axe to grind. Your service is the best I have ever used, so keep up the good work and don't worry, your subscriber base will vindicate you by referring your service to our friends and neighbors." – Paid-up subscriber Brian
"I am an Alliance member and I cannot think of a better investment. I think your business model of getting the best people and letting them tell it like they see it is the best way to approach something as complicated as investing. It also gives me as an individual investor the power to make my own informed decisions.
"Now I have struggled the last year, not because of the advice you and your colleagues give, but because of my failure to have the discipline to enforce my trailing stops. But I am getting better at it. Please continue to follow your business model and give us the best information from the best analysts, which empower me as an individual investor. And you should continue to provide other subscribers with the opportunity to benefit from your wide range of perspectives through your wide range of publications." – Paid-up subscriber Mike
"It's time for me to voice my opinion again, Friends. Reading totally unwarranted criticism by other subscribers in the S&A Digest angers me.
"My Stansberry Alliance membership is without question or condition the No. 2 best investment I have made during my 68+ years of walking our planet. My only better investment is my San Jose, CA shopping center, which has returned more than 1,300% return on investment to date and we still own it, receiving +/-$20K/month in operating profits. Investors recovered more than 100% of initial investment in a refinancing nearly 20 years ago.
"Thank you for your continuing Great Work, Lads. I, for one, remain MOST GRATEFUL for the magic you and your writers produce on a weekly basis." – Paid-up subscriber Carl Johnston
Regards,
Sean Goldsmith and Porter Stansberry
Baltimore, Maryland
April 27, 2011
A short joke... Will we raise the debt ceiling?... Pavlov's precious metals... JNJ's big takeover... PIMCO wants a Greek restructuring... Silver is more popular than stocks... Not a scam after all...