Editor's Note: Porter is traveling to Las Vegas to attend Doug Casey's investing conference. Goldsmith is on The Digest today.
Kudos to Dan Ferris... He was quoted today in Barron's lead story, TJX's Stock is Still a Treasure. Dan recommended TJX Companies (TJX), owner/operator of discount clothing stores T.J. Maxx and Marshalls, in the December 2008 issue of Extreme Value. He dubbed it one of his "World Dominators," akin to Wal-Mart and Anheuser-Busch. Dan noted that despite increasing earnings, revenues, and dividends, TJX was trading at its cheapest valuation since 2003. And its business is so steady, it's like owning a bond.
You buy a fantastic business with a sustainable competitive edge, one that'll keep its earnings growing steadily for a long time. From there, it's like a perpetual bond, with interest payments that keep growing larger and larger the longer you hold it. TJX right now is like a bond yielding nearly 18%.
The company, its competitive edge, and its consistent, bond-like earnings will outlast the current economic turmoil. If you hold it long enough, your pretax yield on shares bought today will likely reach 50% or more – Extreme Value, December 2008
Readers are up 26%.
We're starting to get some serious media coverage. Earlier this week, a CNNMoney.com article on the Goldman/AIG fraud quoted Porter... If you missed it, check it out here.
As Porter said in Wednesday's Digest, "Forget the AIG bonuses." The entire country is outraged because AIG is trying to pay its employees $165 million in bonuses. It's much easier for the government to rally support around a "small" number like $165 million that surrounds a simple problem – a firm that received taxpayer money is trying to pay bonuses – than address the real problem... AIG took the first hundred billion dollars of the government bailout and immediately paid back its Wall Street trading partners who suffered massive losses. The largest recipient was Goldman Sachs, which received nearly $13 billion, and whose former CEO, Hank Paulson, happened to be the Treasury Secretary at the time.
I'm sure the government will get to that later. For now, it wants to take 90% of any bonus paid to an employee who makes more than $250,000 a year and works at a firm that received $5 billion or more in government assistance... Which is basically everyone on Wall Street – Bank of America, Goldman Sachs, JPMorgan, and of course, AIG.
Barney Frank then took it a step further (surprise), urging Congress to halt all bonuses for those same employees until the government money is repaid. The measure would prohibit "unreasonable or excessive" compensation.
Here at The Digest, we've long been in favor of letting failing companies fail. But whatever you think of the wisdom of bailing out Wall Street, putting retroactive limits on this money and telling the banks how to run their businesses would set a scary precedent...
If the government actually wants its money back, perhaps it should allow the intelligent Wall Streeters – most of whom had nothing to do with the credit-default-swap boondoggle – to continue working. People don't work 100-hour weeks at investment banks because it's fun. They do it for the money. Take that away, and they'll quit... Then the government is really screwed.
We wanted to clear up a misprint in yesterday's Digest (brought to our attention by reader Alan Tipton). Our item on Ben Bernanke's latest move at the Fed should have said the Fed is buying $300 billion of long-term Treasuries... along with spending another $750 billion on agency mortgage-backed securities and $100 billion on agency debt. Our apologies for the confusion.
One of our favorite financial writers, Michael Lewis, wrote a great article for Bloomberg about the AIG/Goldman Sachs debacle. Read it here...
New highs: none.
What do you think of the government trying to overturn contracts and halt bonuses for bailout firms? Weigh in here... feedback@stansberryresearch.com.
"Long ago back in the '50s... my father made about $1.00/hr as an electrican. We had a small house a car food and clothes. Life was OK. no special vacations or trips but it was ok. I have tried to find out what had changed. The only thing I can see is there were no credit cards that I new of. No spending borrowed money on crap. Credit was limited to car loans, mortgages, and business loans all if you could qualify.
"But I guess this answer is too simple for people running the fed, treasury, citi, boa, fannie, freddy, gs, morgan s. Did I forget anyone? Oh yes AIG!!! I forgot they haven't died yet." – Paid-up subscriber Robert S.
"Regarding your comments that follow [from yesterday's Digest]:
Citi has disclosed plans to spend $10 million to move and redecorate its executive offices. Citi is moving top executives from the third floor to the second floor... and decking them out with Sub Zero appliances and their own conference rooms. Citi claims the project will help the bank save money over time. How does buying new appliances save money?
"Last time I had an executive do this in my company it was so he could get out the door faster in an emergency." – Paid-up subscriber Edward
"In November 2007, you all reported that insiders were dumping stocks at the fastest rate in recent history. I took note and moved nearly everything to cash. I did keep Walmart and a few others in accordance to your suggestions. Some are not reading your publications carefully. Sure paid for the subscription fee." – Paid-up subscriber Quentin "Scott" Ragan
Regards,
Sean Goldsmith
Baltimore, Maryland
March 20, 2009