Deutsche Bank CEO admits defeat... UBS predicts war if euro dissolves... Dexia CEO quits... Switzerland pegs its currency... Why isn't gold soaring?... Jeff's latest gold trade... New regulation for mortgage REITs?... A Phase 1 conference call... The 10-year yield hits record lows... Porter bets a subscriber $100,000...
We hope you read last Friday's Digest. It would have prepared you for the horrible news coming out of Europe today. On Friday, Porter revisited the June 17, 2011 Digest, where he predicted the Spanish and Italian economies would collapse "in the next six months" and the euro would collapse "in the second half of this year." It appears he was correct...
The problems in Europe have been brewing for a long time. (And we've been warning you of them all year.) But today, for the first time, the world is acknowledging the severity of these problems... and the likelihood of massive government intervention.
"It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels," said Deutsche Bank CEO Josef Ackermann at a Frankfurt conference today. (Please note... The speech was in German. Translation provided by Google Translator.) His comments were just one of many negative euro developments today.
Ackermann continues... "In recent weeks, the distrust of the financial markets has spread to the banks because they are now suffering from the debt crisis in Europe and have a lot of exposure to, for example, Greek bonds... Since the financial crisis, some European banks have lost a third or more of their market capitalization... Most institutions have a rating of 'below book value.'"
Despite his bearishness, Ackermann says dissolving the European Union isn't the answer... "The costs of supporting weak member states, particularly from the German perspective, are less than the costs of disintegration... It is a dangerous illusion to believe that a country could do better should it reclaim the sovereignty it has delegated to the EU."
What Ackermann really means is that supporting the weaker member-states is cheaper than disintegrating the EU for his bank (aided by massive capital injections from world governments)... If the European banks are bailed out via direct cash injections or government bond-purchasing programs, they can maintain the toxic euro debt on their books at inflated levels... And hopefully continue operating until the next crisis...
UniCredit, Italy's largest bank and our favorite European bellwether, fell 4.5% on the news to less than $0.80.
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While Ackermann says he wants the EU to remain, UBS now says the euro should have never been created. In a report titled "Euro Break Up – The Consequences," the Swiss bank says, "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change."
The report outlines the huge costs Europe would incur should a weak and/or strong country leave the euro. (You can read an outline of the report at the financial blog Zero Hedge.)
UBS ends the report with this dire warning (straight out of our End of America thesis):
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The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe's "soft power" influence internationally would cease (as the concept of "Europe" as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war. |
The Deutsche Bank and UBS reports are both self-serving pleas for a European financial bailout. We don't doubt they'll receive one.
But note... We, financial publishers in Baltimore, Maryland, are no longer the only ones predicting civil unrest. Now, one of the largest banks in the world said the collapse of a fiat currency could bring about war.
While Deutsche Bank and UBS are addressing the euro problems, the top executive of Dexia, Belgium's largest bank, simply gave up... Today, Stefaan Decraene, the CEO of Dexia Bank Belgium, quit. Dexia is one of the European banks that only wrote its Greek debt down 21%. According to this creative valuation, Dexia lost 338 million euros.
The biggest shock to the euro came from the Swiss National Bank, which imposed a ceiling on the soaring Swiss franc. The central bank is "aiming for a substantial and sustained weakening of the franc," according to an e-mailed statement today. "With immediate effect, it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs" and "is prepared to buy foreign currency in unlimited quantities." In other words, Switzerland pegged its currency to the euro. The franc dropped as much as 8.7% on the news, its biggest drop against the euro ever.
The strongest fiat currency in the world, which is partially gold-backed, is no longer. Which leads us to the following question...
Why isn't gold soaring today? The precious metal hit an all-time high of $1,923.70 an ounce this morning, but fell to $1,875 by midday. We'd guess we're in the midst of an asset-wide rush to liquidity. Don't worry... The drop to less than $1,900 will be short-lived.
On the topic, Jeff Clark recommended another gold trade to his S&A Short Report readers today. He said we're still in the midst of a gold bull market... And he expects gold to hit $2,000 an ounce before the trend reverses. At this late stage in the rally, the gold stocks that perform the best are those playing "catch-up," as Jeff calls it... stocks that haven't participated in the preceding rally.
And he has a great example. The stock he recommends has huge gold reserves and a small market cap. When you buy this stock, it's like buying gold at $9 per ounce. Jeff expects his recommended options on this company to soar between 133% and 300%.
Before you dismiss this bullish prediction, let's revisit some of Jeff's previous gold trades... He made 80% in one day trading Gold Fields, 80% in one week off GDX, and 55% in one week off Kinross Gold. Then, Jeff sold puts on GLD for a 140% gain in two weeks. Nobody has timed the volatile gold market like Jeff Clark. His readers have made a fortune on his gold trades. To learn more about the S&A Short Report and read up on Jeff's latest trade, click here...
In the May 2011 issue of Stansberry's Investment Advisory, Porter sold longtime holding Annaly Capital Management. He wrote…
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Yes, we're selling our virtual bank Annaly. Currently, 12 mortgage REIT IPOs are in Wall Street's pipeline. A huge amount of capital is heading for the same carry trade that Annaly makes – borrowing money at low rates and investing it for longer durations in principal-guaranteed mortgages. We don't know how much capital the Treasury-backed, mortgage-bond carry trade can handle. We don't want to find out the hard way. |
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Letting go of so much yield isn't easy. But remember this... Wall Street eventually turns every great financial idea into a farce. What comes next is always a tragedy. A decade ago, the men who created Annaly had a great idea. Now the 100 or so employees at Annaly earn $400 million per quarter, without taking a shred of risk. It's a financial farce. It's simply too good to be true for long. And as a mountain of capital begins to chase exactly the same trade, we're certain it will turn into a tragedy. It is time to step aside. Let's let other investors learn this lesson the hard way. Sell NLY. We're booking a 77% gain. |
Late last Wednesday, the Securities and Exchange Commission (SEC) said it would solicit public opinion to determine if mortgage REITs (like Annaly) should be regulated as investment companies and therefore be subject to the Investment Act of 1940. Mortgage REITs have been exempt from the Investment Act for around 50 years.
The purpose of the Investment Act of 1940 is "to mitigate and... eliminate the conditions... which adversely affect the national public interest and the interest of investors." It regulates most investment companies and requires certain disclosures. Mortgage REITs could lose their ability to use high leverage if they are subject to the Investment Act. The use of high leverage, when applied to the banking model of borrowing cheap and lending dear, produces huge profits. Funny… the SEC waits until a dozen new mortgage REITs file for IPOs...
Phase 1 subscribers are about to listen to what could be the most important conference call of their lives...
At 5:30 p.m. Eastern time today, editor Frank Curzio will talk to one of the best biotech analysts in the industry about his recent issue titled: "This $10,000 Pill Will Revolutionize the Heath Care Industry Forever."
The $10,000 pill is a technology that allows a company to read your DNA structure and pinpoint any genetic conditions or diseases you might have. This technology could help prevent diseases such as diabetes, cancer, and Alzheimer's.
The cost of taking this pill used to exceed $250,000 just a few years ago. Today, it's less than $10,000… and falling. This is a cheap price to pay for finding out the possibilities of extracting a major disease based on your genetic code.
Most scientists believe the cost will fall to less than $1,000. At this price, this technology will be available to tens of millions of people all over the world. That could potentially create a $100 billion market.
Most billionaires like Bill Gates and Warren Buffett are aware of the potential of this technology. That's why they are investing hundreds of millions of dollars in it. Institutions like M.I.T., Harvard, and Yale are backing it. ExxonMobil, IBM, Pfizer, Johnson & Johnson, Merck, and many other Fortune 500 companies are also beginning to invest in the technology.
In his recent Phase 1 issue, Frank consulted with some of the top life sciences experts and biotech analysts in the industry. They helped him identify five small-cap stocks that have the potential to double or even triple your money over the next few years as this technology hits mainstream.
To find out more details about the $10,000 pill and how to participate in the Phase 1 conference call, click here.
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New 52-week highs (as of 9/5/11): None.
Don't miss today's mailbag, where Porter challenges a subscriber to a $100,000 bet. Send your feedback to feedback@stansberryresearch.com.
"You keep harping on the Oracle of Omaha and his Berkshire Hathaway fund. However, I invested in BRK-B more than a decade ago and the result is a cumulative less than 50% increase in the stock price. I see the 20% per year growth of BRK trumpeted far too frequently by your writers. Why are you living in the distant past when the recent past is so much worse? I don't care who wins the bet but betting on the Oracle is far from the best current investment strategy. Fortunately, I have gotten better advice from you writers." – Paid-up subscriber D. Liebenberg
Goldsmith comment: We appreciate the kind words. That 20% figure actually refers to the compound annual growth in Berkshire Hathaway's book value, which Buffett argues is a better gauge of his company's worth.
Still, you have a point... Berkshire Hathaway stock has not been a stellar performer for the past decade. But that doesn't change the fact that Warren Buffett is one of the greatest allocators of capital to ever live. That's why we often write about Buffett and his ideas.
"My name is Fernando Fernandez and i am a finance major @ a university here in NYC. Soon i will look to get an MBA in the field, or i will at least think about it... I've been a member of your subscription for a few months now.
"A few things i want to share.
"First, the information that i have learned in the few months as a member of your newsletter and a couple of different subscriptions, easily outclasses the garbage i am learning in school. As i sit here, just reading another superb Friday night Digest, i question my reasoning in committing further to paying the ridiculous tuition that i will unfortunately be burdened with once i finish school. i mean, what you share with your subscribers in one Friday digest is easily worth what i pay per credit for a single course in finance. i cant believe that i paid $40 or $50 for a yearly membership to your newsletter; talk about a bargain!
"Secondly, thank you for opening my eyes to the reality surrounding us, the American citizens of this day and age. i cant believe that prior to your end of America commercial, i knew absolutely nothing of the perils facing America..
"Thankfully, my gut instinct prompted me to take action immediately following your End of America commercial one night earlier in the year. the best investment Ive ever made, i tell ya...
"I feel as if I've become a more well rounded and well informed investor as of late, something that will undoubtedly prove beneficial should i realize my goal of running my own hedge fund in the next 5-7 years..also something i could not have said sticking to the cookie cutter basics running rampant when one is learning the ropes of finance and wall street...
"To conclude, i'd like to congratulate you on a product that stands second to none. I state this with certainty as i have subscribed to other financial newsletters in the past that simply fail to compare in terms of reality, and substance. you and your team are doing a magnificent job!! The resource report by Matt Badiali, the penny stock specialist by Frank Curzio with its weekly podcasts, and of course the 12% letter by Mr Ferris are all invaluable to an aspiring market pro as myself.. keep up the fantastic work. thanks to your newsletter i feel hopeful about my future despite the turmoil facing this great big world... should i succeed in the future with my plan of running a successful hedge fund, rest assured praise and credit will be bestowed upon you and your firm." – Paid-up subscriber Fernando Fernandez
"'I know the entire solar industry is a big con – it is impossible to efficiently use solar power and it always will be, thanks to the Second Law of Thermodynamics. Governments have tried to break the laws of physics because solar energy is popular, but all the subsidies in the world will never make solar energy viable as a reliable and efficient source of energy. That means solar stocks are ultimately doomed.' – Porter Stansberry"
"Mr Stansberry, I don't doubt your knowledge of finance, but PLEASE stay out of science – you have no knowledge of it. If you are using 'scientific advisers,' then they have no knowledge of it either. Your statement above is laughable and time will prove it so." – Paid-up subscriber Geoffrey Gunning
Porter comment: I offer a $100,000 wager that at any point in the next 10 years, solar energy will not make up even 5% of the total energy consumption in the United States.
You can accept my wager by placing the funds in an escrow account with my attorney. I will place a matching amount in an escrow account with an attorney of your choosing.
Editor's note: Geoffrey did not respond to Porter's wager.
Regards,
Sean Goldsmith
Baltimore, Maryland
September 6, 2011