Goldsmith comment: Another short Digest today. Dan is busy preparing for his presentation at today's session of our Editors' Conference... And I'm writing from the main ballroom as the presentations go on in the background. Don't worry, we'll update you on all the presentations soon.
More layoffs... American Express is cutting an additional 4,000 jobs, or 6% of its workforce, as part of a move to save $800 million a year. The layoffs, which will save $175 million, come on top of the 7,000 cuts AmEx announced in October. The company will save another $500 million cutting marketing and business development. The moves will help AmEx repay its $3.4 billion in TARP money.
American Express is the perfect example of a company swept up in the easy lending that led to the credit crisis. The company strayed from its core charge-card business, which requires high-credit borrowers to pay off their balance every month. It started freely offering credit to borrowers who are now having a difficult time paying it back... Many of these new clients lived in the hardest-hit areas of the real estate downturn.
As a consequence, AmEx's chargeoffs in the last quarter nearly doubled to 8.5% of its loans, up from 4.3% a year earlier.
Hedge-fund billionaire John Paulson made headlines again yesterday after news leaked that he's starting a new, private-equity fund to bet on a real estate recovery. The life of the fund is expected to be seven years, and it should raise several hundred million dollars. It will invest in both residential and commercial real estate. In addition to investing in existing properties, the fund's managers will work with a former D.R. Horton executive to source residential developments.
Paulson's new real estate fund, like his $5 billion gold position, is likely another bet on inflation. The spread between REIT and Treasury yields is at an all-time high, around 7%. Investors are starting to buy real estate equities again, and the higher-quality companies are now refinancing their debt with ease. The inflow of capital will start inflating real estate prices. As Porter wrote in his latest PSIA.
Sentiment and access to capital play a huge role in real estate prices. The more capital that's available, the higher prices will move. The higher prices move, the more capital becomes available – because there's more collateral.
While you probably can't get into Paulson's new real estate fund, Porter recommended a great way to profit from the rebound in real estate prices in his latest PSIA. He expects to earn 60% in the next six months... and several hundred percent in the next two to three years. To learn more, click here...
New highs: none.
Not much in the mailbag today... though apparently our products are a lot more expensive than I ever knew. Send us a note: feedback@stansberryresearch.com.
"Please provide to me detailed directions on how to find the 'dividend capture information' As you advertise $1390 on Thur May 21st, and how to execute the trade." – Paid-up subscriber Rich
Goldsmith comment: Dividend capture is a new strategy Tom Dyson developed for his 12% Letter readers. In his special report, The 65% Dividend Capture, Tom describes how you can capture large, one-time payments in the stock market on a regular basis. I can't give away more information than that. If you're a subscriber, you can find his report posted on the "Special Reports" section of The 12% Letter web page. Otherwise, if you'd like to learn more, click here...
Regards,
Sean Goldsmith
St. Michaels, Maryland
May 19, 2009