The Federal Deposit Insurance Corporation is running out of money. That's why it's considering assessing a special fee on the banking industry in the second quarter of 2009. The fee would be around $0.15 per $100 of deposits, in addition to the regular fee, which is $0.12–$0.14 cents per $100 for most banks.
An American Banker article said today, "A diminished fund could undermine consumer confidence in deposit insurance. Such an outcome would be catastrophic for the banking industry if consumers began running on banks." If fractional reserve banks weren't inherently insolvent, you couldn't run them. If deposit insurance really worked, a bank run wouldn't be a catastrophe. Fractional reserve banking and deposit insurance are complementary frauds unraveling in tandem.
The FDIC's perennial inadequacy has two clear implications for investors: inflation and insolvency, the twin opportunity-creating dangers.
First, the FDIC's inherent insolvency provides another incentive to create money. Camden Fine of the Independent Community Bankers of America, realizing the new FDIC fee would punish small banks worse than large ones, says, "The FDIC should just cut out the middle man and go directly to the Treasury to recapitalize the [Depositors Insurance Fund] and not assess thousands of banks that had nothing to do with this mess." He's right. Inflation is the only way out. I've got two new stocks that mitigate inflation risk beautifully.
The other implication of the FDIC running out of money is that our inherently insolvent fractional reserve banking system is in the painful, drawn-out process of being found out. FDR's New Deal is unwinding, decades after the crime was perpetrated, the same way communism fell apart, decades after it was erected. Those two inflation-fighter stocks I just mentioned also happen to be more solvent than any so-called "bank" in the country. Click here to read about them.
Chalk one up for dissent. Japanese scientists were smart enough to find the fraud in the anthropogenic global warming hypothesis and then had the balls to publicly disagree with the UN's Intergovernmental Panel on Climate Change about it.
The Japan Society of Energy and Resources issued a report that says global warming is related to solar activity, and the rise in global temperatures was primarily a recovery from the so-called Little Ice Age, which lasted from 1400 to 1800. Kanya Kusano, program director for the Earth simulator at the Japan Agency for Marine-Earth Science & Technology, says computer climate modeling used to support the manmade global warming theory is like "ancient astrology."
If you think fraudulent climate science doesn't affect you financially, you may wish to know that, according to The Politico, there are now four climate change lobbyists for every member of Congress.
Hedge-fund manager John Paulson thinks distressed assets are the best investment opportunity this year and beyond. Paulson says, "Distressed opportunity in the U.S. is shaping up to be the best opportunity in a lifetime." He's currently buying mortgages and debt from bankrupt companies. In equities, he likes utilities, pharmaceuticals, and consumer staples. And he's still avoiding the financial sector.
In Paulson & Co.'s 15-year existence, the fund's only down year was 1998. All of his funds were up in 2008. The best one rose 38%. And in 2007, his funds gained hundreds of percent, earning him a $3 billion payday.
That's a familiar story, one I've written dozens of times in the past 11 years... and about which I've learned to be skeptical. You could probably paper the walls of Wall Street with stories about guys with great 15- or even 20-year track records who proceeded to hit a wall. Maybe Paulson is right once again... or maybe he's way too early buying distressed mortgages. Maybe extremely poor recovery rates will shock him to his core.
More layoffs... JPMorgan Chase announced another 12,000 layoffs today as it folds in Washington Mutual.
Goldman Sachs released a report saying U.S. commercial real estate will be a disaster this year... "Commercial real estate trends are eroding at a pace indicating that occupancy and rental declines should match the deep recession of the early 1990s." Goldman expects earnings to decline around 25% for 2009 and 2010, and it expects REITs to cut dividends to meet $100 billion of debt payments coming due by 2012.
For once, Porter actually agrees with Goldman Sachs. Last December, he predicted mall owner General Growth Properties (GGP) would go bankrupt. The company had $900 billion in debt that it had to refinance... and the debt was backed by properties in Las Vegas, which is one of the worst-hit areas in the crisis. Miraculously, the company got refinancing, but the stock is still down around 50% since he wrote about it.
Porter has pinpointed several commercial REITs that are destined to fail... and he plans on expanding the theme this year in both PSIA and Put Strategy Report. It's some of the easiest money you'll ever make.
In his latest PSIA, Porter outlines the short thesis for another commercial REIT. This company rents high-end apartments to college students... hardly the most financially sound tenants. The company bought the bulk of its buildings during the real estate bubble between 2003 and 2008. Now, it's paying more in interest expense than it produces in operating income. And as the real estate market continues falling, the writedowns this business will experience are bringing its liquidation value "perilously close to zero."
As you know, Porter's short sales in the past two years have been scarily prescient. And with this most recent recommendation's flawed business, it will probably join Fannie, Freddie, and GM as "zeroes." For details on how to gain access to Porter's full write-up, click here...
New highs: none.
Lots of e-mails about Jeff Clark today. Jeff's a great guy. He's experienced, successful, smart, and great fun at parties and conferences. Needless to say, we've got different styles. Send us fan mail here: feedback@stansberryresearch.com.
"I have read many times about people loosing out on Jeff's recommendations running away on them as soon as they get their email. To be sure, this is common. Jeff obviously has a large subscription to his services and deservedly so. The recommendations seem to have the 'Jeff effect' within a very short time frame. There is one way to avoid this. It is somewhat unconventional but I have done it in the past when I have some free time. Camp out on the Stansberry website on Tuesday afternoons and wait for the report to be posted on the website by hitting 'refresh' periodically. Trust me, it may take up to an hour to get the email and by that time the option has run away on you. If you are not willing to camp out, then be patient. The price will usually fall back in range in a few days. I even got to the point where I traded the 'Jeff effect' for the short term (a few hours) and then locked in for the longer term when the price fell back in line again. Just some thoughts..." – Paid-up subscriber Dave Utz
"Please comment on the fact that two of your big guns whose letters I subscribe too are conflicted right now. Dan Ferris is saying to buy two companies that are gold prospectors and Jeff Clark is saying to sell, even short, gold stocks. Sounds like a conflict, but I realize prospectors are not the same as gold stocks." – Paid-up subscriber Roy Hodges
Ferris comment: Jeff and I have hugely different styles. Jeff does quick trades. I look for stocks you can hold on to for years. Jeff looks at daily price action. I ignore daily price action and focus only on industry conditions, the nature of the business, its financial condition, management, etc. Jeff uses options the overwhelming majority of the time. I never touch them.
What really gets me about questions like this is that I doubt anyone would complain if none of the Stansberry editors ever disagreed, even though that would be highly suspicious, to say the least. You should worry and ask pointed questions when you find the overwhelming majority of Stansberry editors most emphatically in agreement. It's a sure sign that somebody has farmed out his thinking.
I think Leonard Peikoff said agreement is not the genus of knowledge. He should have added that independent thought is the ancestor of dissent.
"Having read another subscriber concerns over his inability to get into the AEM Put trade, I thought I'd shares my experience regarding that trade and Jeff Clark's track record. I was able to get into the trade at the maximum suggested price of $2.60 two days ago, within 30 minutes from the email notice. Most importantly, with Jeff's deft timing, I exited the trade the next day with a gain of 50%. Granted that occasionally one can't get into a recommended trade like a recent gold net credit trade, but that's the nature of the fast moving option market. You need to act on these recommendations promptly. Jeff has been a very astute and eclectic stock piker, who has been very good in his selections since my subscribing to his service a year ago. His daily blog is also a bonus publication well worth perusing." – Paid-up subscriber Stan Starr
Ferris comment: You've got the right attitude. The vast majority of Jeff's picks are winners. I think he's got one of the best – if not the best – win rate at the company. If you're patient and don't buy above his recommended prices, you're almost guaranteed to end the year ahead. If you're interested in learning more about Jeff's options trading service, the S&A Short Report, click here...
Regards,
Dan Ferris
Medford, Oregon
February 26, 2009