Government-controlled mortgage lender Fannie Mae announced an $18.9 billion third-quarter loss – bringing total losses in the past eight quarters to $101.6 billion. Luckily, the Treasury Department stands ready with $200 billion of taxpayer money to bail this miserable company out. Fannie is asking for an additional $15 billion in emergency funds – its fourth "withdrawal" this year – upping its total bailout cost to $60 billion... so far.
But Fannie will never earn its way out of this mess... If the company actually turned a profit, the $6.1 billion in annual dividends it owes the government would eat it all... And Fannie has only earned more than $6.1 billion twice in the past 20 years ('03 and '05). So of course, Fannie is "dependent on the continued support of the Treasury to continue operating," according to its latest statement.
And the cash hemorrhage is only getting worse. Fannie's nonperforming loans rose to $198.3 billion this quarter, up from $171 billion on June 30, 2009, and $119.2 billion on December 31, 2008. In other words, bad loans have almost doubled in less than a year. And foreclosed property on Fannie's books stands at $7.3 billion compared to $6.2 billion on June 30, 2009. Take a look at this chart (borrowed from Whitney Tilson's housing presentation) showing the acceleration in Fannie and Freddie mortgage defaults:
With unemployment hitting a 26-year high of 10.2% (the economy shed 190,000 jobs), the chance of these nonperforming loans becoming active again is slim.
The dire unemployment numbers did push gold to more than $1,100 an ounce, bringing its gain this year to 26%. As we said on Wednesday, watching gold's price movement is the best way to measure inflation. And a 26% gain this year tells me one thing... we're in trouble.
Note some of the stocks on today's new highs list... Barrick Gold (the world's largest gold miner), Visa (the world's largest payment processor – and a beneficiary of inflation, Altria (the 7% dividend-paying cigarette giant), IMS Health (the monopolistic pharmaceutical information provider), an inflation-protected bond fund... The market is starting to play defense.
New highs: Vanguard Inflation Protected Securities (VIPSX), Cresud (CRESY), Visa (V), AmeriGas Partners (APU), Keyera Facilities (KEY-UN.TO), Altria (MO), Automatic Data Processing (ADP), IMS Health (RX), Barrick Gold (ABX), Eldorado Gold (EGO).
Porter's headed to South Carolina for our Alliance conference, but he had time to dictate one response for today's mailbag. Plenty of great feedback awaits for Monday. Anything else on your minds? Let us know... feedback@stansberryresearch.com.
"Yeah, I got killed on BSX like the others. And, unfortunately, I bought options trying to leverage into a greater profit since you seemed so sure and your argument seemed quite solid. And, I agree that you probably should have been more sensitive to the 'political' side of this since the 'Obamacare' legislation is going to have an economy-wide impact which will, in turn, impact all kinds of investments. With your contacts, you should have known about the potential 'medical device tax' and how dramatically it would affect BSX.
"Having said all that, you haven't made the first excuse for your failure. You blew it... and said so. But, hasn't it also been part of your 'advice' that investors who listen to you should use 'size positioning', not to avoid losses but to avoid catastrophic losses. If anyone incurred catastrophic losses, they clearly violated this principle... and it was their greed that got them, not your mistake. Unless someone takes out Pelosi and 'Obamacare' dies, I'm going to lose on this as well, but it's not going to take me out of the game." – Paid-up subscriber Ed
"I just finished reading 'The Market for Liberty.' I downloaded it after I read a brief article in the DailyWealth by Tom Dyson. It mentioned the book in context of a presentation by Doug Casey in Buenos Aires. I found the book very well written, and truly a paradigm shift and eye-opener. The most amazing thing is it's been out for 40 years! It is as contemporary as it gets, and I suspect with time it will get better and better, perhaps like some of those wines Doug has in his cellar.
"There is one thing I really don't understand yet: many in your camp speak of leaving the US, for supposedly 'freer' areas. Doug has bought land in Argentina, and is developing it. You wrote several times about the advantages of a place like Argentina. I live here; have done so for many years. Argentina has been plagued with the some most interventionist and corrupt governments I have known. Taxes are confiscatory, the Government has its hand in almost every activity and the laws it passes tend to enslave the population every time more. These people make Obama look like a libertarian. What gives? You must know something we don't. Why would you contemplate moving from bad to worse?" – Paid-up subscriber Pablo H Chiaraviglio
Porter comment: Who said anything about moving to Argentina? The best setup would be to get citizenship in Uruguay, which doesn't tax you anything on global income. That way, you could spend up to six months in Argentina. And you'd have to go back to Uruguay for one day before returning.
Regards,
Sean Goldsmith
Baltimore, Maryland
November 6, 2009