Komrades Obama and Boehner balk...

Komrades Obama and Boehner balk... Soros quits... Apple vs. ExxonMobil... Netflix down (again)... NFLX vs. WMT... The SEC is a ruse...

 Komrades Obama and Boehner (the House Speaker) gave dueling presentations last night. But they started out on surprisingly similar notes…

Both began by blaming someone else for our nation's ills instead of taking responsibility for them. Had they read each other's speeches instead of their own, they'd have gained some credibility. Instead, it was just another juvenile round of finger-pointing.

Right now, they're like celebrities on reality TV shows, prattling on endlessly about appearances and who said what to whom… who's a jerk and who's cool… all the while underscoring how miserably they're failing at the task of living.

Pretentious as it may sound, I must ask, "Where have all the adults gone?" They're not in Washington. That much we know. My guess is they're too busy keeping this increasingly crazy world from falling apart to spend time making speeches on TV. 

 We don't normally discuss politics this much around here. But huge amounts of printed money and new regulations in health care and finance are just three of the many reasons we continue to report on government activities... and why we continue to bring you the comments of famous investors like Steve Wynn and Dan Loeb. Both Wynn and Loeb have explained how government is making life difficult for businesses and investors.

The latest example of a big investor citing government as a problem is a bit more subtle. One of the biggest investors of all time, George Soros, is finally exiting the money management business for good. Due to impending SEC regulations, Soros will no longer manage money for outside investors...

In a letter to clients, the co-deputy chairmen of Soros Fund Management, Jonathan and Robert Soros, cited a new rule that says certain investment advisers must register with the SEC by March 2012. The way to avoid the registration requirement is to operate as a "family office" – a private firm that serves ultra-high net worth investors.

Soros Fund Management began transitioning to family office status 11 years ago. With the exit of outside money, the transition will be complete. (Of $25 billion under management, only about $750 million is outside investors' money, according to the Financial Times.)

This may mark the end of an era. Soros' Quantum Fund, which he and Jim Rogers ran by themselves for a while, was one of the first "macro" hedge funds. It traded all kinds of securities in markets all over the world, based on trends in politics and global economics. Soros is most famous for making more than $1 billion in one day by shorting the British pound back in 1992.

 In another sign of the times, Apple shares are now trading above $400 each. Apple reported a blowout second quarter, with sales up 82% and net income up 125% versus the same period last year.

At more than $400 a share, Apple's market cap is $374 billion, about 11% shy of ExxonMobil's $417 billion market cap. ExxonMobil is the largest public company in the U.S. by market cap. Apple is the second largest... but closing fast.

That said, it doesn't make much sense to compare the two companies by market cap. Apple is known for amassing excess capital on its balance sheet. It's got more than $76 billion in cash and securities. ExxonMobil, on the other hand, is constantly taking capital off the table for the benefit of shareholders. It buys back shares, pays down debt, and has raised its dividend every year for the last 28 years.

So the press thinks this is a sign of the times because Apple is a technology company and ExxonMobil is an oil company. But it's really a sign of the times because Apple doesn't pay out dividends or buy back shares… And ExxonMobil is one of the all-time world champions of both. Which would you rather own? It's not much of a question when you look at it that way.

And in 10 years, which company has a greater likelihood of seeing a lot more competition? Right now, there's no contest. Apple sold 9.25 million iPads last quarter, versus less than 1.4 million Android-run tablets. But in five or 10 years, who knows?

Another problem with Apple is the same problem facing all the other big, cash-rich tech companies. When it makes profits overseas, it has to bank them there or pay a huge repatriation tax to bring them home. Without that problem, some of the bigger tech companies – like Microsoft, Cisco, and Intel – would either pay out higher dividends or make larger and more frequent share repurchases.

Apple, on the other hand, seems to think it's the tech sector's Berkshire Hathaway. Berkshire doesn't buy back shares or pay dividends... But it has the greatest investor in history investing the capital. Apple doesn't.

 We get fewer reports of Netflix's market cap, which shrunk by about 9% yesterday and another 7% today. The world is catching on to what I've been saying for months. Streaming costs more money than renting DVDs does, and somebody is going to have to pay for it. Netflix raised prices recently and split streaming from DVD rental. So now, they're two separate services.

In a letter filed with the SEC yesterday, Netflix told investors price hikes to its services will likely result in slower growth next quarter. Also, it has recently picked up a new, enormous, well-financed competitor: Wal-Mart. Wal-Mart's website will now offer streaming video. Like Netflix, the service is available on numerous devices, including set-top boxes. It offers 20,000 titles and will include many movies the same day they're released on DVD.

Now... if you had to bet who'd be better at wringing costs out of video streaming, would you bet on Netflix... or Wal-Mart? Wal-Mart has a lot of experience making things cheaper.

 New 52-week highs (as of 7/25/11): Monsanto (MON), CARBO Ceramics (CRR), Calpine (CPN), SPDR Gold Trust (GLD), Philip Morris International (PM).

 Give us a hand in steering the discussion away from politics and back to investing. Send your questions and concerns about your mining stocks, income investments, exchange-traded funds, and other investments to feedback@stansberryresearch.com.

 "Interesting to see how many of my fellow readers accuse you of being Republican, yet they subscribe in order to make and save more money themselves. First, what's wrong with investing one's savings to their maximum potential? Second, aside from extorting our earnings through never-ending taxes and non-stop paper money printing, what does our government ever do well?" – Paid-up subscriber Richard Lefcourt

 "I am constantly amazed that people like Bill and Angela can't see the truth in front of them. One wanting to always blame one specific party for the ills of this country, while completely ignoring the ills brought on by the other party. BOTH PARTIES are in the pocket of big business and Wall Street. The fault lies with over- spending from all sides, both Democrat and Republican. Until people like Angela see the truth and vote accordingly, the status quo will continue. As far as Bill goes, the median income in the U.S. is around $49,000.00. Most people making less than this amount get ALL of the Federal Taxes they pay, plus extra (in the form of the Earned Income Credit) back as refunds, thus offsetting any payroll taxes that they pay. Most people collecting SS benefits will collect much more than they pay in over the course of their working life. People are living longer, and with COLA raises pay outs far exceed collections. Some people don't pay ANY SS taxes and yet receive benefits. Those receiving Disability benefits receive far more than they pay. Medicare is just a joke. Any one that can do math can figure that the taxes collected for Medicare will NEVER cover the costs.

"What both of these people and others like them need to realize is this: The Federal Government has enslaved these people, and those on welfare, to the government, consigning many of them to poverty because of their dependence on the government." – Paid up subscriber-Lisa Lee

 "I don't know whether you have Republican leanings or not, but I can say that your views often make me sick and want to skip reading your articles or even to cancel my subscriptions (I subscribe to several of your publicaions). I realize that you are in the business of making money, but there are many things that are more important." – Paid-up subscriber Orin Chein

Ferris comment: Reminds me of an old Henny Youngman joke: I went to my doctor and said, "Doctor, it hurts when I do that." He said, "Don't do that."

I'm sorry our views make you sick. Feel free to skip the Digest.

But we couldn't agree with you more that there are more important things than making money. Money is a means to an end, not an end in itself. It's a tool. And like all tools, its uses are limited.

 "I read your statement about being against all government – unreasonable... Unfettered capitalism is a disaster (profit motivated companies would pollute, market poisonous drugs, dupe investors w/o SEC-type scrutiny-and on and on)... and unfettered government is also a disaster... for all the reasons you already believe.

"A blend of the ying-yang of capitalism-government oversight is maybe the ideal – yeah, social democracy (a label that strikes fear in everyone) but neither extreme is reasonable. unless you like anarchy. maybe you do." – Paid-up subscriber Tim Moore

Ferris comment: Yesterday, Sean Goldsmith wrote, "Longtime subscribers know we despise all government. We criticize the right and left equally."

"Despising" and "criticizing" aren't the same as "being against." The rule of law is essential. It's the size and shape of our government we don't like. It's too big and amorphous. It's not the limited government we were promised.

Your three examples of how much we need government are in fact three examples of how government has failed us. In the interest of time and space, I won't deal with pollution or medicine here, even though both your claims are suspicious. I'll go right to the one I know cold…

You say the SEC protects investors. That's false. It's not a little bit false. It's 100% false. The SEC is a ruse, just like the ratings agencies are. It should be shut down, padlocked, and fumigated.

By claiming to protect investors and completely failing to do so, the SEC actually exposes investors to greater risk. It gives them an excuse for complacency. The SEC had Bernie Madoff, the biggest Ponzi-schemer in history, delivered to its doorstep at least half a dozen times. It balked every time. Tens of billions of dollars later, he was only caught because he turned himself in! The SEC protects no one. It works exactly the opposite of how it's supposed to.

You can't insure me against reality. You can't protect me from the market or from the risk of being wrong about an investment decision – or any other financial decision. Without the SEC, I suspect many investors would be a lot more conservative... as they should be.

Overall, I hear the same thing in your dismissal of our criticisms of government that I hear from most people: the desire to avoid responsibility for protecting your person and property.

But freedom means freedom from government support… the freedom to take all the responsibility for everything I do, say, need, and want, including what I do with my investment money. It's the freedom from government interference in one's decision making.

Finally, there's no need for an SEC, because we already have laws against fraud and theft... the same way we have laws against poisoning people (independent of the existence of the FDA) and laws against polluting my property (though the government often bends or obliterates property protections for its own ends).

We need only enough government to support the rule of law. Anything more is excess. And we have a lot of excess in this country.

Regards,

Dan Ferris

Medford, Oregon

July 26, 2011