Yesterday, I took the car in for a few small repairs. I couldn't help wondering how the dealership was doing. I assumed it would be laying people off like everybody else. As I sat at the service manager's desk, I asked him, certain I already knew the story. "So... I guess you have fewer people working the sales floor than you did a few months ago, right?"
Wrong. He said he actually hires more people in bad times. He explained new hires tend to have new contacts and friends, some of whom need to buy a car. As soon as you hire a couple new people, all of a sudden you land 10 sales within a few weeks... sales you might have otherwise missed. As time goes on, the strong recruits survive and thrive and the weak ones fade. So if you ever wanted to get into selling cars, now's the time. The sales manager admitted times are tough on the sales floor, but the parent company's domestic dealerships are doing much worse.
Jeff Clark is shorting gold stocks. His proprietary indicator, which measures gold-stock performance versus the spot price of the metal, is "screaming SELL." At 10:30 a.m. today, Jeff recommended Short Report readers buy puts on a certain gold stock.
Minutes after the update hit inboxes, gold fell from more than $985 an ounce and briefly touched $960. Readers who entered the trade made around 30% today.
Jeff doesn't think the bull market in gold is over. He actually thinks we'll see higher prices by the end of the year. But right now, traders have a huge opportunity to short gold... The metal has soared in recent months due to media frenzy and panicked buyers who forced prices up. This may be your only chance this year to profit from a decline in gold prices. To learn more about the S&A Short Report and see which stock Jeff is shorting, click here...
In the November issue of Extreme Value, I recommended bad-debt buyer Portfolio Recovery Associates (PRAA) because I thought the enormous new supply of bad debts would create fantastic pricing on charged-off debt portfolios.
In an American Banker article yesterday, bad-debt buyer Bill Bartmann said, "Today the volume of bad debt is increasing exponentially... Collectability of loans has been reduced, but the price one pays for loans has come down even more, so profitability is up."
Bartmann is back in the business a decade after a scandal sent him out of it. He was exonerated, and now has about 100 investors to help finance bad-debt investments. Last fall, Goldman Sachs called him to help liquidate a "significant" amount of debt, he said. "Bells went off in my head," Bartmann said. "I wasn't the only one who thought this would be an unprecedented opportunity."
To get access to my full write-up on Portfolio Recovery and my two recent gold picks, both of which own much more cash and securities than anything else, click here.
The FDIC shut down its 14th bank of the year on Friday – Silver Falls Bank in Silverton, Oregon. We're on pace to see 200 bank failures this year. You can't destroy housing values and see foreclosures skyrocket without blowing up hundreds, if not thousands, of bank balance sheets.
The Case-Shiller Housing Index came out today. It reported a record drop of 18.5% in housing prices in major U.S. cities as of December.
For better or worse, "gold posts" are the runaway, most popular stories this week on our new online investment digest, The Daily Crux. If you're interested in what's happening with one of the world's most prized assets right now, be sure to check posts on The No. 1 reason gold could enter mania phase soon... Gold mania update: Europeans fleeing paper currencies... Turn your precious metals into ATMs. And if you missed it last week, make sure to read an amazing story about how diamond cartel De Beers pulled off one of the great scams in modern history.
Right now, you have an incredible arbitrage opportunity with one of the best stocks in the world. Shares of Warren Buffett's holding company, Berkshire Hathaway, are split into A shares (BRK-A) and B shares (BRK-B). The more liquid B shares are worth 1/30 the stock price of the A shares, but carry 1/200 the voting power. At the time of this writing, the price ratio is too big at 31.64 – B shares have sold off more than their big brother because they're more liquid.
"In my opinion," said Warren Buffett in a 1999 memo, "when the B is at a discount of more than, say, 2%, it offers a better buy than the A." Right now, the spread is at 5.5% – B shares would have to trade at $2,490, a 5.5% gain from today's price of $2,360.
It's not true arbitrage, because you can't convert B shares to A shares and sell them for an immediate profit. But if you're interested in buying Berkshire shares, the B shares offer a little more value than the A shares today.
Many of you have asked about the risks of investing in the virtual bank, Annaly (NLY). Yesterday, the company put out a wonderfully readable press release about the risks to its business stemming from the Obama mortgage plan. This should answer most of your questions.
The Wall Street Journal yesterday published a great article, titled "Information Wants to Be Expensive" and written by its former publisher, Gordon Crovitz. In it, Crovitz wonders why a newspaper would charge for its print edition, but give the same content away for free online. No sane consumer would willingly pay for something he could receive for free. Crovitz sums up the art
icle in a single sentence, "People are happy to pay for news and information however it's delivered, but only if it has real, differentiated value." The problem isn't a subscription fee... it's that most newspapers publish a bunch of crap.
The Wall Street Journal has proven the point. It offers some of the best business-centric media coverage in the world. And it boasts a subscriber file of more than 1 million people. At Stansberry & Associates, we offer actionable investment advice via newsletters and sell annual and lifetime subscriptions to people all over the world. And Bloomberg, perhaps the king of subscription information, charges more than $21,000 a year for its Bloomberg terminal – which is a permanent fixture on Wall Street trading floors. And its users are fiercely loyal. From the June 30, 2008 Digest:
To give you an idea of how highly regarded these terminals are, one value-fund manager told his analysts he would raise their individual bonuses by $15,000 if they would forego their Bloombergs. Eleven out of the 12 said no. One analyst said he would rather see his current bonus cut by $15,000 than give up his Bloomberg.As of the June 30 writing, Bloomberg had 250,000 terminals worldwide. If I could afford it, I'd get one in a heartbeat. People pay for content when they perceive great value. The newspapers just have to provide it.
Ferris comment: Your advice to your son is sensible. It's hard to go wrong financially when you live frugally, which brings to mind an interesting point about Mr. Obama & Co...
If you had financial trouble at home, you'd cut spending right away. You wouldn't borrow another penny, and you'd make it a high priority to pay down all existing debts as fast as possible. And yet, Obama thinks saddling us with another $800 billion of pure pork will somehow mysteriously "stimulate" the economy. It's not true. It doesn't work that way. The economy doesn't depend on spending and credit. Spending and credit depend on the economy, the productivity of you and me, which in turn depends on politicians like Obama getting the hell out of our way. I think Obama knows this, too. He knows his $800 billion package is no damn good. He's dishonest enough to go through the motions, no matter how destructive, to give the appearance of taking action. He really just wants power. He wants to tell you what to do and for you to worship him in return.
No one seems to understand government is the problem. Most people say, "The government ought to do this" or "the government ought to do that." Nobody ever says, "The government ought to leave us alone and stay home, while we the people work this out amongst ourselves."
I think it was Elbert Hubbard who wrote, "Grown men don't need leaders." I don't know about other types of leaders, but we sure don't need political leaders like Obama, not during tough times like this. At times like this, we need to be left alone to work out our problems, without the busybodies inside the Beltway making it even worse than they have already.
An economy is like a marriage. It's a type of togetherness that thrives and grows and blooms only when there's mutual respect, good communication, and a sufficient amount of leaving each other alone.
Ferris comment: Most of the time a little debt here and there isn't a problem. These days, though, I don't know why more companies aren't aggressively paying down debt. It seems like it ought to be a high priority for everyone.
Ferris comment: Yes, there is a point at which I'd abandon the market entirely: when the overwhelming majority of stocks trade for 30 times earnings, and the whole world believes we've reached a permanent new plateau of high valuation. The lower stocks fall, the greedier and more intrigued I become...
... but I'm glad more and more so-called "investors" are exiting the market. The sad fact is, when the final capitulation comes and we hit that 1974-style, multidecade low, most of the folks who will exit at that moment should never have been fooling with stocks in the first place. I like it when people exit the market for good. I fully intend to be one of the few left standing.
Regards,
Dan Ferris
Medford, Oregon
February 24, 2009