Despite Obama's foreclosure moratorium and the billions of dollars in mortgage modifications, foreclosures are soaring... 803,489 properties received a default or auction notice or were seized in the first quarter. This is a 24% jump from last year. There were 341,180 default filings in March alone.
It doesn't matter how much money the government throws at bad mortgages. Home foreclosures won't stop until people stop losing jobs... No mortgage modification is enough if you've got zero income. Continuing jobless claims rose to more than 6 million last week, the highest level since recordkeeping began in 1967.
Unfortunately, the layoffs are still rolling in...
Swiss banking giant UBS announced an additional 8,700 layoffs. Best Buy is cutting as many as 1,000 assistant store managers and will demote up to 8,000 senior sales associates to jobs paying 25% to 50% less. Harley-Davidson will cut around 400 employees. And Yahoo said it may cut hundreds more jobs... on top of the 1,600 cuts from the third quarter of 2008.
Yesterday, I received the latest issue of International Custody & Fund Administration, a banking magazine. Custodian banks hold securities for safekeeping under written agreements. They also do things like collect dividends or interest payments and accept or deliver securities as instructed by their corporate clients. I read ICFA because it seems like a good idea to keep track of who's holding all the chips.
The current issue of ICFA lists the 50 largest custody deals of 2008. The biggest custodian deal last year was for the safekeeping and administration of $250 billion of assets, more than double the size of the second-largest deal. The custodian bank was Bank of New York Mellon. The client? TARP, the U.S. Treasury's infamous bailout scheme. BNY Mellon has already accepted half of the assets covered.
Another big government banking services deal was announced today. This time, the plum went to Uncle Sam's best pals at Chase Home Finance, Wells Fargo, CitiMortgage, GMAC Mortgage, Saxon Mortgage Services, and Select Portfolio Servicing. They're the lucky mortgage servicing companies that'll get $9.9 billion of taxpayer booty to modify home loans and avoid foreclosures.
Ten mortgage servicers control 66% of the market. Three of them (Bank of America, Chase, and Wells) control about one-fifth of it. If we were talking about beer, software, oil, or aluminum instead of mortgages, the Justice Department would be all over them.
Jim Rogers is publishing a new book, A Gift to My Children: A Father's Lessons for Life and Investing, on April 28. So he's hitting the media circuit to promote it. He did an interview with BusinessWeek on Tuesday. And to no one's surprise, he's still wildly bullish on commodities.
Rogers said he believes we "have further to go" before the market recovers, but commodities' fundamentals are already improving.
Farmers can't get loans for fertilizers [which is constraining crop supply]. It takes 10 years to open a new mine. Stocks peaked in October 2007 and commodities kept going up until July 2008. If the world economy is going to revive, commodities are going to lead it back up.
Even if the economy doesn't revive, commodities are still the place to be – says Rogers – because the government is printing so much money and there are supply constraints. He recently bought all commodities, but he's buying more agriculture than anything else.
Another new financial book is about to be released by our friends Whitney Tilson and Glenn Tongue of T2 Partners. The book is called More Mortgage Meltdown: 6 Ways to Profit in These Bad Times. Tilson and Tongue have followed the mortgage meltdown better than anyone and shorted financial stocks just before it all fell apart. The book isn't even out yet, but it has been so heavily preordered that it's already the No. 2 book in its category on Amazon. Tilson and Tongue will feature the book's content at a May 4 workshop – and a few seats are left. Stansberry subscribers receive a special discount. Get the details here.
Goldsmith was in Augusta, Georgia, for the Masters golf tournament last week. He stopped by a local coin shop to buy some gold and silver bullion. The proprietor said he was the 12th person to ask for bullion that day – and there's a waiting list of around 50 people. Goldsmith says Augusta, his hometown, isn't the most adventurous when it comes to investing. When they're waitlisted for bullion in Augusta, maybe it's time for a correction.
Funny, though... with all the reports of bullion shortages, I've had absolutely zero trouble buying Kruggerands in my little town in Oregon.
We initially called for mall owner General Growth Properties to declare bankruptcy last December. It had $1 billion in debt coming due and no possible way to repay it. And the value of its asset base – more than 200 malls across the country – was plunging. Since then, the mall REIT has repeatedly avoided bankruptcy through deals with creditors.
No more. At long last, the second-largest mall owner in the country filed for bankruptcy protection... making it the largest real estate bankruptcy in U.S. history. CEO Adam Metz said it was "impossible" for the company to refinance its $27.3 billion in debt.
Like so many of its financially-strapped brethren, GGP made a huge acquisition during boom times that it couldn't really afford: It bought commercial-property developer Rouse in 2004 for $11.3 billion – and couldn't afford the debt when values started dropping and credit became unavailable.
New highs: none.
If Uncle Sam is your business' largest customer, send us an e-mail and tell us about it. Also, if you think you're in a recession-proof or irreplaceable business, tell us about that, too: feedback@stansberryresearch.com.
"I just have one thing to say about the economy... If the Politicians spent the BAILOUT money on the $70,000 or less crowd by giving each person $10,000 (EACH) and left the CORRUPT companies such as AIG, GS, Morgan Stanley, GM, etc. etc. go BANKRUPT where do you think we'd be right now ??
"I'd also TAX the RICH 60% because they are the ones who created this mess – make them pay for their GREED... It's time the RICH pay the
POOR after all we been BAILING them out for many YEARS – don't you agree????? Do you think that the people who received the $10,000 would pay down debt and then spend money to jump start the economy?
"Look, I don't expect a response but I just had to see what you thought of this idea." – Anonymous
Ferris comment: E-mails like this will henceforth be known as "Ferris Bait"...
Money stolen from taxpayers is destroyed as soon as it's stolen. What happens to it after that is as consequential as the disposition of any stolen goods. You only want to know so you can try to get it back. Where you fence stolen goods is less important than the severity of the original crime.
"Can the Nazi crappola and stick to investment info. I worked with right-wing blowhards most of my career with the Air Force, I don't want to pay to hear more of the same." – Paid-up subscriber Joel Arnold
Ferris comment: Please. Like Thomas Paine did more than 200 years ago, we recommend that you: "Beware the greedy hand of government, thrusting itself into every corner and crevice of industry."
Jean-Marie Eveillard, one of the greatest investors alive, said recently at the Grant's Interest Rate Observer conference that value investors can do all the bottom-up work they want, but they'd better watch out for the top-down developments – among them the constant and increasing political interference in the economy and its enormous investment implications.
I couldn't agree more. The difficult macro environment is one of the reasons I've recommended the stocks of nine world dominating companies trading at once-in-a-lifetime cheap valuations.
There are no truly irreplaceable or recession-proof businesses. But no matter what happens to the global economy, these world dominating businesses will come out of it much better than their competition because each of these companies is No. 1 in its industry... like Procter & Gamble, ExxonMobil, and Wal-Mart.
World dominators can raise prices to keep ahead of inflation, get financing (or not need it) when other companies are finance-starved (like right now), and are large and well-managed enough that you can count on fewer (if any) bad surprises happening to them.
Most world dominators are past their capital-intensive, high-growth cycle... so they can funnel surplus cash to shareholders in the form of dividends and share buybacks. Instead of funding growth, cash goes to you.
World dominators are also usually the lowest-cost provider of their product or service. They tend to crush the competition and have exceptional brand names. That means they often generate enormous amounts of cash. And that cash can support dividends through good times and bad.
Here's where most investors don't "get it." World dominators aren't yielding in the eye-popping double digits. They yield 3%-5%. But that yield grows like an oak in your portfolio. ExxonMobil, for example, has raised its dividend every year for 26 years. Procter & Gamble has increased its dividend every year for 53 years.
The whole list of nine world dominators is on p. 8 of every issue of Extreme Value. To get monthly access to the whole list, click here.
Regards,
Dan Ferris
Medford, Oregon
April 16, 2009