Goldsmith comment: Porter was caught up in meetings today, so I handled The Digest.
Inflation has officially hit Americans where it hurts: beer.
Beer giants MillerCoors and Anheuser-Busch InBev, which account for 80% of U.S. beer sales, are both raising prices this year – after already increasing prices 4% last year. And according to AB InBev, the hike applies to "the majority of [its] volume." This means you'll be paying around $1 more for your next six-pack.
Due to its relatively "inelastic" nature – i.e. price hikes doesn't much hurt demand – U.S. beer prices tend to rise faster than other consumer goods. In July, beer prices rose 4.6% from a year earlier, while overall U.S. consumer prices were down 2.1%. Perhaps beer prices will become our leading indicator of inflation.
News came out today claiming the greatest short seller in the world warned the G7 about toxic subprime mortgages in April 2007 – five months before the run on Northern Rock and more than a year before Lehman's collapse.
More than two years ago, the G7 finance ministers invited Jim Chanos, who called Enron's collapse, to Washington to address Germany's fear that hedge funds and private-equity firms would be a source of future problems. Says Chanos...
Paul [Singer, of hedge fund behemoth Elliott Associates] got up and proceeded to give a tour de force presentation on the coming crack-up in structured finance, how all these structures were very unstable and triple A [the ratings given to the securities] was not going to be triple A...
Both managers pointed to a January announcement by HSBC that its U.S. subprime loans were defaulting at "an alarming rate."
Chanos then added the problems wouldn't be with hedge funds, but with "the regulated banks and brokers who were leveraged 30-1, many of which held glowing, toxic radioactive pieces of securitisation which they could never sell."
The German finance minister immediately shifted the focus back to hedge funds, Chanos said. "We were completely and officially ignored."
We wrote it, did you buy it?
If you make only one trade for 2009, this is it. We will double our money next year – at a minimum. – George Huang, December 2008, S&A FDA Report
George was writing about biotech company QLT, our newest addition to the "Top Ten" list. The stock is up exactly 100% since George implored his readers to get into it... and George continued championing it until about five weeks ago, allowing more of his readers to take part in the huge gains.
When George recommended QLT, there was little risk to his readers. The stock was trading below its net cash value and it was cash-flow breakeven. Today, his FDA Report portfolio lists two other stocks that trade for less than cash. George expects both to return triple digits. You won't find a safer opportunity to double your money this year than with these two stocks. To learn more about the S&A FDA Report and George's two favorite stocks, click here...
Despite having an obvious intrinsic value of zero, shares of Fannie Mae and Freddie Mac are suckering the crowds. On Monday, Fannie jumped 41.7% on 824 million shares traded. Freddie Mac gained 18.5% on volume of almost 385 million shares. Trading in those two stocks accounted for nearly 20% of trading on the New York Stock Exchange.
This is why it's not difficult to beat your average stock market participant...
The government owns 80% of these companies, and they both owe far more to the government than they will ever be able to generate in profits... But people are still buying, likely for the sole reason that they can amass a large number of shares for little money.
According to a strict Benjamin Graham-style value analysis performed by investment bank Societe Generale, only three "cheap" U.S. stocks exist: oil major Chevron, pharmaceutical giant Merck, and oil and gas driller Patterson-UTI.
The analysis "looked for shares where the earnings yield is at least twice that of top-rated corporate bonds, and where the dividend yield is at least two-thirds of the bond yield." Currently, that means stocks with a historical P/E less than 9.4 and a dividend yield greater than 3.55%. Companies whose total debt exceeded two-thirds of tangible book value were excluded.
In the MSCI World Index, which covers the stock markets of major developed economies, only 14 stocks passed the screen, and the results were energy-heavy: BP, Eni, and Royal Dutch Shell all made the cut.
At the end of February, when the market was near its lows, SocGen found 44 stocks that passed the test. As we pointed out on August 18, a soaring market and declining earnings have pushed the S&P's P/E ratio to more than 18x – the highest since 2004. Until earnings pick up or stock prices come back to reality, traditional value investors won't find much to buy.
New highs: Hatteras (HTS), Cresud (CRESY).
More stories of hidden treasure in today's mailbag. How many of you actually have gold hidden somewhere? Don't worry, we'll withhold your names... feedback@stansberryresearch.com.
"Back in the day when ever we would cross the border from Detroit to Windsor on our Bikes we would normaly be pulled to the side and searched. In order to keep possesion of our stash We would put a chrome tube on the Bike that looked like part of the exhaust or fuel line... worked great (until the use of dogs). In the spirit of the above post and incase your nieghbor gets curious as to why your burying pipe to nowhere, PVC pipe could also be made to look like part of your homes drain/sewer lines... no need to glue em just friction fit or Glue them if you do not plan on accessing your gold for awhile... PVC is easy to cut with a hacksaw. Just like Border gaurds are not Bike mechanics, Burgulars are rarely plumbers. When I was a kid Dad hid his under dinasaur dung... Always made me find out wich pile he hid it under when it became time to move on." – Anonymous
"When burying valuables in PVC pipe, bury the pipe below some other metallic object (scrap iron, old automobile spring, etc.) so anyone using a metal detector will give up on that location when they see the buried junk." – Paid-up subscriber W. S.
Regards,
Sean Goldsmith
Baltimore, Maryland
August 26, 2009