Editor's Note: Due to Porter's travel schedule, you get an extra day of Dan this week.
We've been talking about "Amerika" for a long time around here, comrades. The Financial Times has caught on, with a story called "Is America the New Russia?"
The article concludes that financial institutions need to become "credibly solvent," an odd phrase that tacitly acknowledges the opaque reporting from government and banks.
Goldman Sachs, the company we love to hate, is in all the papers this morning. The New York Times quoted Moody's Economy.com economist Mark Zandi, who said of Goldman and other large banks' use of cheap FDIC-backed loans, "It's an infinite subsidy. It's their franchise value."
A Wall Street Journal article noted how Goldman "put up a good [earnings] number," sold the public $5 billion worth of stock... and watched its stock immediately fall 12%. We're certain the earnings number is fiction.
Another Journal piece says Goldman changed its fiscal year so future investors will see one year ending in November and another starting in January, putting the worst December on record out in limbo and attempting to hide a loss of about $1.8 billion for the month. The Journal asks, "Goldman booked an unexpected profit in the first quarter. Would that have been true if it had to count December?"
Merrill Lynch pulled a similar move, trying to hide a loss of at least $8.1 billion for the month of December.
The Financial Times seems more impressed with Goldman, touting the bank's "$164 billion war chest." Goldman's liquid assets rose $50 billion in the quarter. It got $10 billion from TARP and another $13 billion in counterparty payments from AIG... which has received nearly $200 billion in TARP money.
If you think we're in for another Great Depression, you should read this Wall Street Journal article about investors who not only lived through it, but are old enough to have worked through it.
Irving Kahn, 103, Walter Schloss, 92, and Seth Glickenhaus, 95, all worked in the financial industry during the Great Depression. Kahn still shows up for work five days a week, prefers hamburgers to haute cuisine, and uses his senior-citizens discount to take the bus home from work. The guy is 103, and he's still sitting at his desk, looking for companies with low debt that are trading at a discount to their assets.
eBay is finally giving reality its due by getting rid of Skype. eBay spent a total of $3.1 billion on Skype, the largest international voice carrier that uses a voice-over-internet protocol. eBay thought its buyers and sellers would use Skype to communicate... which is what they use its website for, so who knows where eBay came up with the idea? eBay wrote down its Skype investment by $1.43 billion two years ago.
Recently, eBay tried to sell Skype back to its founders, but the deal has fallen through. So now, it's looking to take Skype public. The IPO market is so broken right now, eBay thinks the offering will take place a year from now. Sandeep Aggarwal, a Collins Stewart analyst quoted in the Financial Times, said, "I would be very surprised if [eBay] can get an exit at anything close to what they paid."
The People's Republik of Oregon has decided to raise the beer tax from $2.60 a barrel, to $52.21 a barrel, a 1,900% increase. (Not a typo.)
Oregon politicians are among the stupidest in the world. They raised their budget 28% last year – the worst year for the economy since World War II. Oregon unemployment is already 10%. How dumb can you get?
The Wall Street Journal reports, "Every time a worker steps up to the bar and orders a cold one, his tab will rise by an extra $1.25 to $1.50 a pint. Half of these taxes will be paid by Oregonians with an income below $45,000 a year." The Democrats – the party of working people (wink, wink) – have put a tax on the preferred refreshment of working people... much of which is brewed by Oregon's many microbreweries. I mean... you can't make this up.
If you think we write too much about politics, I understand the complaint, but politics is to investing what pirates are to ships off the Somali coast. If you don't keep up with political developments, they could blindside you.
New highs: none.
There was actually a bit more mail than I could handle this morning. Most of it agreed with us about things like the growing specter of government and the accounting chicanery at Goldman Sachs. I asked for criticism, and one reader said it was more fun to give Porter a hard time than me. A few others told us to keep pursuing "truth."
Whether it's to blow sunshine or smoke, please write us: feedback@stansberryresearch.com.
"Hi, I can't find your referenced company, Superior Universal Consolidated Resources anywhere on the Toronto Stock Exchange. Can you please tell me what their symbol is?" – Paid-up subscriber T.S.
Ferris comment: It was an April Fool's joke. There is no such company.
"In Tuesday's Digest you said, 'How can Goldman report profits when it's taking tens of billions in bailouts?' I think they do it the same way Steve Jobs escaped prosecution for receiving back dated options. They got buddys in government. I believe if an independent prosecutor was hired to investigate Senators and Congressmen more than half would end up in Prison. The most obvious being Dodd and Frank, but let's not kid ourselves there are as many republicans as democrat thieves in that group." – Paid-up subscriber L.A.
"Dan, I am sure others will write in on this but Goldman didn't even make the $3.39 per share they claimed. Their 'quarter' was really four not three months long, and they chose to exclude the month of December, and they lost $1.03 billion or $2.15 per share that month.
"If you assumed Goldman made $3.39 a share and business to remain stable, one could multiply the quarterly number by four and estimate that Goldman was on track to make $13.56 for 2009. So at $135 per share, Goldman has a reasonable P/E around 10.
"However, Goldman really made $1.24 per share over the last four months, which means that you would multiply that number by three and come up with an estimate of annual earnings of $3.72. At a P/E of 10, that would put a fair valuation of Goldman at $37.20, which means the stock has another eighty points to fall... You can see more at this link.
"The only way Goldman gets away with this is that everyone in the government used to work for Goldman or wants to in the future. If the SEC, treasury, or DOJ had any cojones and truly served the people, they would put everyone involved with this ridiculously fraudulent report in jail." – Paid-up subscriber J.Z.
Ferris comment: Putting a real intrinsic value on Goldman is probably impossible, but the fact that yours is 80 points lower is definitely the right idea.
Regards,
Dan Ferris
Medford, Oregon
April 15, 2009