'The greatest insanity in the history of economics'...
Last Friday, Porter wrote one of his famous "Letters from the Chairman of General Motors."
The idea behind these essays is simple: What would a completely honest and candid GM chairman, who undoubtedly understands the financial black hole the carmaker is in, say to shareholders? What if he and the company faced no market consequences for honesty?
Of course, any business leader who revealed the true state of his shattered business – like the leaders of Fannie Mae, Freddie Mac, Bear Stearns, or Lehman Brothers before their falls – would be lambasted.
Porter began the series of essays predicting a GM bankruptcy in 2007 before the financial crisis struck. The government bailed GM out in 2009 because the politicians said the failure of a major automobile manufacturer would devastate the already-weakened economy.
The stock is now trading near its highs. But as Porter explained last Friday, nothing has really changed. The government bailout of GM failed to address the firm's biggest issues – its enormous, unfunded pension liabilities and employee benefits.
Meanwhile, GM's profit margins are shrinking. As Porter wrote...
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So... did massive government intervention allow GM to finally make better-quality vehicles that are competitive on a global landscape? Actually, yes.
GM is making better cars today. But so is every other car manufacturer in the world. And because no automakers were allowed to fail in the crisis, the sector faces massive overcapacity.
And according to the September sales figures released this week, GM is losing ground...
Among major U.S. automakers, GM's sales fell 11% in September from a year ago. Ford's sales rose nearly 6%. Chrysler Group gained less than 1%.
Ford outsold GM in pickup trucks. Sales of Ford's F-series jumped 9.8% from a year ago... GM's sales of its Silverado and Sierra pickups fell around 8%. Ford cut prices to boost sales... GM, whose costs are among the highest in the industry, can't compete on price... so its sales suffered.
As Porter said on Friday, the competition in the auto industry makes it harder and harder for GM to turn a profit. Its margins are razor-thin, so anything that causes a big drop in demand would be devastating. The outlook for GM promises to only get worse…
J.C. Penney is another iconic American corporation suffering an irreversible descent… Fitch Ratings just downgraded the national retailer from a B-minus credit rating to triple-C, meaning "default is a real possibility."
That's bad news for J.C. Penney… but good for Stansberry's Investment Advisory subscribers who followed Porter's recommendation to sell short the company's stock (a trade that profits when a stock's share price falls)...
Regular Digest readers know we have little faith in the U.S. credit-ratings agencies. They're always late to the party. But when one of these organizations makes a major downgrade, you know there's trouble.
Fitch says Penney should have "higher-than-expected cash burn in 2013." It thinks the company will need to raise additional funds next year (on top of the $1 billion in equity it raised last week and the $3 billion it already borrowed this year).
Our thesis remains the same: The company is toast. And Porter's readers are enjoying their profits.
To recap... in the August issue of his Investment Advisory, Porter outlined a "pairs trade" in the retail industry. He recommended opening a short position in J.C. Penney and buying shares of fellow beleaguered retailer Sears Holdings.
As of yesterday's close, Sears was up 55%. Porter's J.C. Penney short sale was showing a 33% profit. So Investment Advisory subscribers are sitting on a 44% gain on the combined position.
Frank Curzio, editor of Phase 1 Investor and Small Stock Specialist, appeared on CNBC this week, discussing the insider trading charges brought against billionaire entrepreneur Mark Cuban.
It's a great one-on-one interview. You can view it here.
One day after Bloomberg news service quoted Extreme Value editor Dan Ferris on Microsoft, USA Today and Forbes cited Dan's opinion on the software giant potentially ousting its founder Bill Gates. You can read those pieces here and here.
It had to happen sooner or later...
Shares of electric-car manufacturer Tesla – a stock we've long thought was overhyped and overvalued – plummeted yesterday and today after a video surfaced showing one of its cars catching fire.
If you've read our critiques of Tesla, you know we question its battery life (which we estimate is only five years)... We didn't realize the batteries could explode.
The battery in one Tesla S – which Tesla dubs "the safest car in America" – exploded after a man drove over a piece of metal debris near Seattle. Firefighters thought they had the fire under control... Then it reignited. Only after sawing a hole into the front of the car and dousing the battery with water did they extinguish the fire.
The event coincided with an analyst at asset-management firm R.W. Baird downgrading the stock from "outperform" to "neutral." Shares fell from $193 to as low as $168 today – a 13% drop.
While this correction was inevitable, Tesla is still expensive at today's levels. But remember, we don't recommend shorting a stock based solely on valuation. Prices can go higher longer than you can imagine. But when bad news surfaces, these stocks tank.
We'll leave you today with a bit of news from Bond King Bill Gross. It seems Gross – who manages the $251 billion Total Return Fund for money manager PIMCO – shares our view of the government shutdown... that it's the least of our worries.
Gross took to social-media site Twitter, where he wrote, "Don't run for the hills [because] of the shutdown or the debt ceiling – run [because] the economy is slowing by itself."
For more of Gross, be sure to read today's DailyWealth, written by True Wealth editor Steve Sjuggerud. Like Steve, Gross believes the Federal Reserve will keep interest rates low for a long time, potentially "decades to come."
By keeping the Federal Funds rate so low, the government is forcing U.S. citizens out of cash and into other assets.
New 52-week highs (as of 10/2/13): Blackstone Group (BX), Chicago Bridge & Iron (CBI), short position in J.C. Penney (JCP), Laredo Petroleum (LPI), RPM International (RPM), Sequoia Fund (SEQUX), Triangle Petroleum (TPLM), and Walgreens (WAG).
A hectic mailbag today... Weigh in at feedback@stansberryresearch.com.
"The huge increase in the money supply is an old story. And, although it is a concern, you have not taken into account the huge drop in velocity of money. Why don't you include that chart for your readers, too, and then adjust for its effect on the 'printing of money.'" – Paid-up subscriber Jeff H.
Goldsmith comment: It may be an old story. But it's also the most important story taking place in the world right now, despite what headlines you may be reading. It's true, the velocity of money (the amount of times money in circulation is used) is low... Yet the S&P 500 is still at an all-time high. Commodity prices are rising. Real estate prices are soaring. And we don't see an end in sight. Imagine what happens when velocity picks up.
"What has happened to the prediction of the dollar taking a big hit by the end of this year? I have not heard anything about the subject for some time?" – Anonymous
Goldsmith comment: The dollar took a big hit... And it continues to be debased daily. The PowerShares U.S. Dollar Fund – a bullish bet on the dollar – is at a 52-week low today. Also, would you have rather been in gold or dollars since the financial crisis began?
"I think Porter is pushing the collapse of GM to happen and MUCH faster than it would have on its own. As stockholders start bailing (due to his letters) and the stock becomes worth less and less and finally worthless, it will be the end." – Anonymous
Porter comment: Don't be ridiculous.
Regards,
Sean Goldsmith
Miami Beach, Florida
October 3, 2013
Have a look at our national balance sheet and ask yourself: Do foreigners own more of America today or less?
The answer, of course, is more... a lot more.
Go back and study the numbers I (Porter) presented in the September 20 Digest. As I wrote...
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None other than Warren Buffett – the world's most successful investor – was warning in 2003 that the U.S. was on its way to becoming "Squanderville."
As Buffett said in a piece he wrote for Forbes magazine...
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At the time, the total net investment of foreigners in the U.S. was $2.5 trillion. Now, 10 years later, that figure is nearly tenfold. In total, foreigners own $25 trillion of U.S. assets of all kinds – Treasury bonds, real estate, mines, oilfields, corporations, etc...
The huge deficit in our current-account balance results directly from our country's loose-money policies and the trillions of dollars of debt we have incurred.
The total net worth of the United States (including all the real estate) is about $75 trillion. So foreigners now own 30% of our country. And we're supposed to be getting richer through these policies?
Not only is this doomed to be a radical failure, but a time will come when Americans will turn on the policymakers with a criminal anger. They have indebted several generations of Americans all in an effort to simply avoid a normal market correction.
This is the greatest insanity in the history of economics.
– Porter Stansberry with Sean Goldsmith
'The greatest insanity in the history of economics'...
Porter believes Americans will one day turn on the government.
In today's Digest Premium, he explains why they will soon blame our country's policymakers "with criminal anger"...
To continue reading, scroll down or click here.
'The greatest insanity in the history of economics'...
Porter believes Americans will one day turn on the government.
In today's Digest Premium, he explains why they will soon blame our country's policymakers "with criminal anger"...
To subscribe to Digest Premium and access today's analysis risk-free, click here.
An update on Porter's 'Letter from the Chairman'... GM versus Ford... 'Default is a real possibility' for J.C. Penney... Curzio on TV... Ferris in USA Today and Forbes... Tesla is on fire (literally)... Bill Gross on what should worry you... Steve is vindicated...
Last Friday, Porter wrote one of his famous "Letters from the Chairman of General Motors."
The idea behind these essays is simple: What would a completely honest and candid GM chairman, who undoubtedly understands the financial black hole the carmaker is in, say to shareholders? What if he and the company faced no market consequences for honesty?
Of course, any business leader who revealed the true state of his shattered business – like the leaders of Fannie Mae, Freddie Mac, Bear Stearns, or Lehman Brothers before their falls – would be lambasted.
Porter began the series of essays predicting a GM bankruptcy in 2007 before the financial crisis struck. The government bailed GM out in 2009 because the politicians said the failure of a major automobile manufacturer would devastate the already-weakened economy.
The stock is now trading near its highs. But as Porter explained last Friday, nothing has really changed. The government bailout of GM failed to address the firm's biggest issues – its enormous, unfunded pension liabilities and employee benefits.
Meanwhile, GM's profit margins are shrinking. As Porter wrote...
|
So... did massive government intervention allow GM to finally make better-quality vehicles that are competitive on a global landscape? Actually, yes.
GM is making better cars today. But so is every other car manufacturer in the world. And because no automakers were allowed to fail in the crisis, the sector faces massive overcapacity.
And according to the September sales figures released this week, GM is losing ground...
Among major U.S. automakers, GM's sales fell 11% in September from a year ago. Ford's sales rose nearly 6%. Chrysler Group gained less than 1%.
Ford outsold GM in pickup trucks. Sales of Ford's F-series jumped 9.8% from a year ago... GM's sales of its Silverado and Sierra pickups fell around 8%. Ford cut prices to boost sales... GM, whose costs are among the highest in the industry, can't compete on price... so its sales suffered.
As Porter said on Friday, the competition in the auto industry makes it harder and harder for GM to turn a profit. Its margins are razor-thin, so anything that causes a big drop in demand would be devastating. The outlook for GM promises to only get worse…
J.C. Penney is another iconic American corporation suffering an irreversible descent… Fitch Ratings just downgraded the national retailer from a B-minus credit rating to triple-C, meaning "default is a real possibility."
That's bad news for J.C. Penney… but good for Stansberry's Investment Advisory subscribers who followed Porter's recommendation to sell short the company's stock (a trade that profits when a stock's share price falls)...
Regular Digest readers know we have little faith in the U.S. credit-ratings agencies. They're always late to the party. But when one of these organizations makes a major downgrade, you know there's trouble.
Fitch says Penney should have "higher-than-expected cash burn in 2013." It thinks the company will need to raise additional funds next year (on top of the $1 billion in equity it raised last week and the $3 billion it already borrowed this year).
Our thesis remains the same: The company is toast. And Porter's readers are enjoying their profits.
To recap... in the August issue of his Investment Advisory, Porter outlined a "pairs trade" in the retail industry. He recommended opening a short position in J.C. Penney and buying shares of fellow beleaguered retailer Sears Holdings.
As of yesterday's close, Sears was up 55%. Porter's J.C. Penney short sale was showing a 33% profit. So Investment Advisory subscribers are sitting on a 44% gain on the combined position.
Frank Curzio, editor of Phase 1 Investor and Small Stock Specialist, appeared on CNBC this week, discussing the insider trading charges brought against billionaire entrepreneur Mark Cuban.
It's a great one-on-one interview. You can view it here.
One day after Bloomberg news service quoted Extreme Value editor Dan Ferris on Microsoft, USA Today and Forbes cited Dan's opinion on the software giant potentially ousting its founder Bill Gates. You can read those pieces here and here.
It had to happen sooner or later...
Shares of electric-car manufacturer Tesla – a stock we've long thought was overhyped and overvalued – plummeted yesterday and today after a video surfaced showing one of its cars catching fire.
If you've read our critiques of Tesla, you know we question its battery life (which we estimate is only five years)... We didn't realize the batteries could explode.
The battery in one Tesla S – which Tesla dubs "the safest car in America" – exploded after a man drove over a piece of metal debris near Seattle. Firefighters thought they had the fire under control... Then it reignited. Only after sawing a hole into the front of the car and dousing the battery with water did they extinguish the fire.
The event coincided with an analyst at asset-management firm R.W. Baird downgrading the stock from "outperform" to "neutral." Shares fell from $193 to as low as $168 today – a 13% drop.
While this correction was inevitable, Tesla is still expensive at today's levels. But remember, we don't recommend shorting a stock based solely on valuation. Prices can go higher longer than you can imagine. But when bad news surfaces, these stocks tank.
We'll leave you today with a bit of news from Bond King Bill Gross. It seems Gross – who manages the $251 billion Total Return Fund for money manager PIMCO – shares our view of the government shutdown... that it's the least of our worries.
Gross took to social-media site Twitter, where he wrote, "Don't run for the hills [because] of the shutdown or the debt ceiling – run [because] the economy is slowing by itself."
For more of Gross, be sure to read today's DailyWealth, written by True Wealth editor Steve Sjuggerud. Like Steve, Gross believes the Federal Reserve will keep interest rates low for a long time, potentially "decades to come."
By keeping the Federal Funds rate so low, the government is forcing U.S. citizens out of cash and into other assets.
New 52-week highs (as of 10/2/13): Blackstone Group (BX), Chicago Bridge & Iron (CBI), short position in J.C. Penney (JCP), Laredo Petroleum (LPI), RPM International (RPM), Sequoia Fund (SEQUX), Triangle Petroleum (TPLM), and Walgreens (WAG).
A hectic mailbag today... Weigh in at feedback@stansberryresearch.com.
"The huge increase in the money supply is an old story. And, although it is a concern, you have not taken into account the huge drop in velocity of money. Why don't you include that chart for your readers, too, and then adjust for its effect on the 'printing of money.'" – Paid-up subscriber Jeff H.
Goldsmith comment: It may be an old story. But it's also the most important story taking place in the world right now, despite what headlines you may be reading. It's true, the velocity of money (the amount of times money in circulation is used) is low... Yet the S&P 500 is still at an all-time high. Commodity prices are rising. Real estate prices are soaring. And we don't see an end in sight. Imagine what happens when velocity picks up.
"What has happened to the prediction of the dollar taking a big hit by the end of this year? I have not heard anything about the subject for some time?" – Anonymous
Goldsmith comment: The dollar took a big hit... And it continues to be debased daily. The PowerShares U.S. Dollar Fund – a bullish bet on the dollar – is at a 52-week low today. Also, would you have rather been in gold or dollars since the financial crisis began?
"I think Porter is pushing the collapse of GM to happen and MUCH faster than it would have on its own. As stockholders start bailing (due to his letters) and the stock becomes worth less and less and finally worthless, it will be the end." – Anonymous
Porter comment: Don't be ridiculous.
Regards,