In the current issue of Extreme Value, which came out yesterday, I predicted a major North American life insurance company would fail within a year. I also reminded you life insurance companies can experience policyholder runs, the same way banks can experience deposit runs...
Today, the Wall Street Journal reports, "Regulators have taken over companies with policies owned by more than half a million people in more than 30 states, including life insurance and annuities. At one insurer, a receiver has imposed a moratorium on policyholders taking cash out of their policies or turning them in for cash."
The article failed to mention the coming crisis in the state guaranty associations, which pay policyholders of insolvent insurance companies. According to a recent report by global investment manager Bridgewater Associates, across all 50 states, those associations hold a total of about $8 billion and have paid out only $21 billion in the last 25 years. That's peanuts compared with what's coming.
I told Extreme Value readers about my favorite short sale in the insurance business. If all this company's unrealized losses turn to permanent ones, it could easily fall in half. Penny stock territory is not out of the question. Click here for details on how to access my latest issue.
The guaranty associations are as much of a fraud as all the other government insurance frauds, like the FDIC, the PBGC, and Social Security. American Banker reported today the FDIC didn't even collect insurance premiums from banks for years.
Our natural resource analyst, Matt Badiali, may have discovered the most profitable stock you'll buy in your entire life. For eight months, he's been researching this penny stock gold-mining company. This little-known company has a deposit that holds at least 94 million ounces of gold... which makes it the single-largest gold deposit in America today. The 94 million ounces has been verified by the mining industry's leading audit firm and is worth around $84 billion (at today's prices). If the company recovered just a sliver of that gold, the stock price could soar hundreds of percent.
As one mining journalist noted, "The deposit is so large that despite two years of exploratory drilling, its outer edges have yet to be found."
This is an incredible opportunity, and the best time to get in is before the company is granted a certain government clearance. It's preparing to apply for that clearance now. To read the full write-up, click here...
Goldman employees need a bailout now, because they've lost so much money on their Goldman stock and investments in internal Goldman funds. The bank is offering personal loans to its employees to cover any losses related to their Goldman investments.
Now, a "broke" Goldman employee is much different than your average broke American. One insider estimates that a quarter of Goldman's partners are now worth less than $5 million. But remember, these guys have mortgages in Manhattan, Nantucket, Palm Beach... and all the other most-expensive areas in the world. They wear expensive suits and drive expensive cars. The employees, much like the firm itself, operate under a lot of debt... betting on future returns. Now the foundations are cracking.
How did Goldman Sachs go from the most powerful firm in the world to a commercial bank that is granting personal loans to its employees? Highly levered, incredibly risky bets. We've long called Goldman Sachs "the world's largest hedge fund." And it turns out, we weren't the only ones.
Stuart Rothenberg, the former head of Goldman's real estate group, warned last year before he retired that Goldman had become "for all intents and purposes, almost an enlarged hedge fund."
None of this is nearly as humiliating as the news that leaked about Goldman Sachs last week.
Porter called it...
AIG's largest trading partner wasn't a nameless European bank. It was Goldman Sachs.
We'd wondered for years how Goldman avoided the kind of huge mortgage-related writedowns that plagued all the other investment banks. And now we know: Goldman hedged its exposure via credit default swaps with AIG. Sources inside Goldman say the company's exposure to AIG exceeded $20 billion, meaning the moment AIG was downgraded, Goldman had to begin marking down the value of its assets. And the moment AIG went bankrupt, Goldman lost $20 billion. – October 2008, PSIA
Yesterday, under pressure from its largest investor – the U.S. government – AIG released a list of trading partners that received refunds for their credit default swap losses. (The government claimed it needed the information because these firms were paid with bailout money.) No. 1 on the list... Goldman Sachs, which received $12.9 billion.
It's as though the weathermen were getting blamed for Hurricane Katrina... The Financial Accounting Standards Board has overhauled the accounting standard that requires banks' assets to be reported at market value, rather than historical cost. The so-called "mark-to-market" standard led to the writedown of billions in investment losses for banks.
American Banker quoted an accountant who said the overhaul is wonderful because it will "give people the flexibility to have a higher value if that's what they believe." I thought accountants were supposed to be skeptics, not "believers." Starting today, the new standard is being submitted for 15 days of public comment.
On a radio program this morning, Iowa Senator Charles Grassley said of AIG executives: "The first thing that would make me feel a little bit better toward them [is] if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide."
The senator wants AIG executives to kill themselves, while the senator himself works for the government that refused to allow the market to punish AIG in the first place. If the company had been allowed to fail, would it be paying out bonuses?
As it turns out, the contracts that AIG's board and management agreed to were utterly stupid. They actually included a provision that 2008 bonuses would be as large as 2007 bonuses, even though it was obvious 2008 performance would be miserable.
It has
also come out that millions in bonuses were paid to employees of the London-based subsidiary that caused the company to fail. To make absolutely sure we all would know the AIG board and management were dumb as rocks, they paid 11 retention bonuses of $1 million or more to employees who had left the company, i.e., had not been retained.
I'm sure there are plenty of good people at AIG, people who just came to work every day to sell insurance or other products. But to give millions of dollars away to people who failed the company, and millions more in retention bonuses for employees who were not retained...
It's like AIG's board of directors and top executives wanted to make absolutely certain that one day the whole world would know they were complete imbeciles. They didn't want to leave any doubt there was such a thing as competent leadership anywhere in the company's upper echelons.
Our favorite professional athlete-turned financial guru, Lenny Dykstra, made headlines again... He had already been unflatteringly profiled in Forbes. This time, GQ called him out for ripping off employees at his latest business venture, a fancy magazine called The Players Club. TPC, as it's known, gives financial advice to professional athletes. Dykstra offered us a chance to participate in The Players Club last year... Fortunately, we refused.
Written by a former employee of Dykstra's, the latest article claims Dykstra rescinded on business promises, asked employees to paint the office walls, farted at the office for effect, and was a blatant racist... Most disturbingly, Dykstra offered employees cash (they never received) in return for their credit-card numbers so he could reserve private jet flights.
New highs: none.
In the mailbag... It's not our fault: We can only print what we receive. If you're tired of hearing from the drunks and our family members, send us something new: feedback@stansberryresearch.com.
"I need to make sure that you knew that Atlas has risen to #30 in Amazon's bestseller list (#30 was earlier this month, but as of last night it was at #40). The best part of that fact is that Atlas surpassed OBAMA'S! The Audacity of Hope. ARI is saying that 2008 had the most sales of all time and that 2009 is selling books at a rate 3x as fast as 2008 (they don't expect it to last, but are still happy). Also, The Economist published an Atlas Shrugged Index that showed the ranking of Atlas in Amazon's bestseller list to political events over the past 2 years. It really made my day to observe more people seeing the light." – Paid-up subscriber Jeff
Ferris comment: I hear you, Jeff, and I applaud your attempt at optimism. But isn't this like getting excited about the second coming of Christ because you just heard the Bible sold a bunch of extra copies around Christmas? Murray Rothbard was right when he wrote in Egalitarianism as a Revolt Against Nature, "Many are irresistibly attracted to liberty as an intellectual system or as an aesthetic goal, but liberty remains for them a purely intellectual parlor game, totally divorced from what they consider the 'real' activities of their daily lives."
And really, is there a bigger bunch of pansies than Ayn Rand worshippers? Being a man of action and gushing over idealized, two-dimensional portraits of men of action are two different things. Otherwise, we're just a bunch of intellectuals who care more about ideas than their consequences for real people. Ideas are great fun. They make you feel smart, and nobody gets hurt. It's high time somebody got hurt.
"'All of seven people ordered my Put Strategy Report.' That was the best news I've heard all week! This is such a simple strategy to employ, as long as options premiums are so high, and valuations are so low. If in addition few people are using it, it leaves the market open to us to exploit. So much for the efficient market theory!" – Paid-up subscriber Tony Fondyga
"I guess I must be one of the 'seven people' who ordered your Put Strategy Report, and I gotta say, I love it. After losing a sizable chunk of money in 2008 (mostly by ignoring my trailing stops and picking the one year that Natural Gas didn't go up in winter to buy too many UNG calls), I've been using your PSR (along with Jeff Clark's Short Report and Advanced Income) to slowly rebuild my ailing portfolio. I definitely balked at the cost, but I'm glad I saw past the high price tag. I've actually never looked forward to getting a newsletter as much as I anticipate yours each week. It's strange to say I want the VIX to stay sky-high, but I'm sure you'll understand..." – Paid-up subscriber Peter Cavaliere
Ferris comment: We hesitate to post positive feedback about Porter for fear of his head getting any bigger. But his Put Strategy Report track record really is spectacular. More than 80% of his put recommendations are winners, and the average return is around 44% in about 90 days. I doubt any other analyst has produced these kinds of returns during this market... or any other market.
In addition to the two e-mails above, we received feedback complaining the cost was too high. This service isn't for everyone. And the cost is high. But the track record speaks for itself, and a limited number of people can get into these trades. I assure you, it's worth the money. To find out if Put Strategy Report is right for you, click here.
Regards,
Dan Ferris
Medford, Oregon
March 17, 2009