Somebody is living it up. Luxury goods maker LVMH's stock price hit a 10-year high today, due to record sales of Louis Vuitton leather and fashion goods and sales of Moet champagne.
Hmmm... the phrase fin de siècle comes readily to mind. That's French for "Party while you can, because the merde could hit the fan any minute."
In addition to leather handbag and champagne sales, lumber prices are up, too. Housing is deep in the doldrums all across the United States, and lumber futures prices on the Chicago Mercantile Exchange have doubled in the past year.
One reason is that lumber mills are closing all over North America, reducing supply. Another reason sounds like a cliché, but it's true: China is buying more lumber. For example, British Columbia shipped more than twice as much lumber to China in 2009 than 2008, realizing 70% higher revenues.
Maybe I'm on the wrong side of the trade, but I see inflation in everything, with the possible exception of southern Oregon home prices, which continue to fall as I continue looking to upgrade my current abode.
The "magazine cover indicator" hit its defining moment in August 1979, when BusinessWeek declared "The Death of Equities" on its cover – months before the largest bull run in market history. The idea is, once the mainstream media picks up on a market trend, most of the smart money is already out – and only a few suckers are left.
If you believe in the magazine cover indicator, the latest Newsweek could be interpreted as a screaming sell signal for U.S. equities. The April issue sports an American flag on the cover with "America's Back" emblazoned in the center. Check it out here.
With the stock market trading for around 24 times earnings and yielding less than 2%, it hardly matters if America is back or not. With very few exceptions, you're just not going to make any money buying stocks at these prices.
Bill Gross echoed a similar opinion recently, when he said the days of "normal" 8% returns were over. From here on out, taking risk in equities is going to get you 4% to 6%. You'll never beat inflation at that rate.
Do yourself and your family a favor today and watch this short video from former CNBC anchor Dylan Ratigan's new television show.
To most people, the federal banking system and how it orchestrated the credit crisis is a hopelessly complex subject. And Ratigan is short on details, so you won't come away with a dramatically better understanding of how banking really works. But you will be amazed at how sharply he criticizes the Fed, the banking system, Congress, Greenspan... and anyone else who helped create the bubble – all on a major TV network. It's virtually unheard of, except by people like John Stossel or maybe The Daily Show's Jon Stewart.
Mainstream television news reporting on finance is filled with mindless hero worship and cheerleading. Ratigan's video is the opposite. It's all about the con game that is our banking system and the con artists in government and Wall Street who perpetrate the crime.
Once you understand how the government is conning us, you'll know why we constantly urge readers to own gold. A major part of the attraction of gold is it gets your wealth outside the banking system. (That, by the way, is why I'd never store it in a safe deposit box. That would give the bank better access to my gold than I have and defeat the purpose of owning it.)
The banks think they have it good, and they're mostly right. But when you get in bed with Uncle Sam, you'd better be prepared to do things you're not proud of...
Banks lent too much money to people who couldn't afford to pay it back, so borrowers could buy homes selling at astronomical prices. Huge losses and a growing avalanche of foreclosures resulted.
Now, the slurring, incomprehensible Barney Frank, chairman of the powerful House Financial Services Committee, says banks need to reduce borrowers' mortgage principals to stem the tide of foreclosures. Banks say no thanks and believe lower interest rates are a better answer.
Data provider First American CoreLogic says 11 million homes are underwater. Bank executives say if you start reducing principal balances, everyone will want the same treatment and all of a sudden, they'll be on the hook for enormous losses.
If banks had to reduce the value of their loans to the value of homes, JPMorgan says it would cost $700 billion to $900 billion. The reductions would be permanent, so the writedowns couldn't be put off. It would be a major blow to the big banks... and a devastating one to thousands of smaller banks.
It would surprise me if the government really made banks cut all those principal balances. Part of the game the government and banks are playing together is kicking the can down the road. And this would kick the can right back up the road and into the banks' laps.
But it would also be a healthy dose of reality. Banks wouldn't be able to lie about what their loan books were really worth. A massive principal reduction event could easily bring about the mother of all buying opportunities... after creating the father of all selling frenzies.
It would have all kinds of consequences, the worst of which I doubt we could imagine. Maybe the Fed would really kick inflation into hyperdrive (as if it hasn't already). Borrowers wouldn't learn a thing from their mistakes. When governments start messing with markets, instead of letting them find real price discovery, you never know what's going to happen. But it's unlikely to be good.
New highs: Fairholme Fund (FAIRX), Financial SPDR ETF (XLF), Hershey (HSY), ConocoPhillips (COP), San Juan Basin (SJT), Amerigas Partners (APU), Enterprise Partners (EPD), Altria (MO), Philip Morris (PM), Banco Latinoamericano (BLX), Longleaf Partners (LLPFX), Sequoia Fund (SEQUX), Prestige Brands (PBH), Portfolio Recovery Associates (PRAA), Altius Minerals (ALS.TO), WD-40 (WDFC), Akamai (AKAM), Biglari Holdings (BH), Dana Holding (DAN), DirecTV (DTV), Westport Innovations (WPRT), Molina Healthcare (MOH).
More compliments in the feedback. Care to differ? Let us know here: feedback@stansberryresearch.com.
"Responding to your request for response to the claim that Steve Sjuggerud is the smartest and most conservative... I enjoy Steve's commentary more than any other. He thinks the same way that I do. However, his timing is often off – sometimes by a year or so. Also, he is now in a position where he is expected to come up with a new idea every day. That's too much to ask and more than I need. I only need one or two good ideas a year. Dan Ferris's approach does not depend on timing and thus has probably made more money for me than Steve. Both tend to stick to finance and avoid politics. I appreciate that." – Paid-up subscriber Jim Moule
Ferris comment: Thank you. Being compared favorably to Steve is the highest of compliments. I'm not sure I deserve it, but I'll take it. More important than that, I'm glad you've found Extreme Value a profitable, usable service.
A couple months ago, I was complaining about finding new stocks. But now my last three picks are all in buy territory. Barron's just gave one of my new picks its second favorable review in several weeks. If you want to know what my two favorite small bank stocks are, as well as which pharma company has the best chance of paying off for investors over the next year or two, click here to get access to Extreme Value.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
April 13, 2010