Unbelievable. I honestly can't believe they're doing it again – repricing options. Earlier this month, Google swapped out 7.6 million "underwater" options – that is, options with strike prices far higher than the current stock price – held by 15,000 employees for new options with a much lower strike price. The company didn't bother to ask its shareholders for permission to conduct the exchange, which is tantamount to stealing. Outrageous.
Intel is proposing a similar deal, which would include doubling the amount of restricted stock that's granted to employees this year – a move that will cost shareholders $440 million. Intel, at least, is asking shareholders to vote on the matter. It's unbelievable that in the midst of the market carnage, management teams are using depressed share prices to vastly increase compensation expense, courtesy of shareholders. This makes me sick. These kinds of actions will drive individuals away from the stock market forever.
If you're a shareholder of Intel, please write the CEO (Paul Otellini) a letter and explain to him that stock options are for rewarding success. Intel's stock is down 50% over the last five years! Aligning employees' interests with shareholders' interests means that when the shareholders suffer, so do the employees.
I'm completely disgusted with the never-ending saga of corporate America's "heads I win, tails I win more" compensation structure. It must end. And it must end now.
Standard & Poor's put Berkshire Hathaway's triple-A credit rating on negative watch because the value of its equity portfolio has fallen and capital has shrunk at its insurance operations (which include Geico and General Re). An S&P downgrade would be Berkshire's second... Fitch Ratings cut its triple-A rating on March 12. And it would mean the only major ratings agency that hasn't downgraded Berkshire Hathaway yet is Moody's...
Berkshire Hathaway is Moody's largest outside shareholder, with more than 20% of the shares. This obviously puts Moody's in a bit of a dilemma. If it downgrades Buffett, it risks upsetting its largest shareholder (who happens to be one of the richest men in the world). If it doesn't, the company will tarnish its reputation as an objective ratings agency... Of course, these firms have little reputation left. They were paid to rate bonds by the company that issued them (an obvious conflict of interest) and they stamped triple-A on pools of mortgage garbage.
There's a great story in The Daily Crux today about the massive fortunes professional athletes squander... with amazing efficiency. According to the article, "78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce" two years after retirement. And "within five years of retirement, an estimated 60% of former NBA players are broke."
These young men enter professional sports around the age of 20 and have zero financial sense. They trust their newfound fortunes to friends and family, who inevitably rip them off. And they make awful investment decisions... one athlete invested $70,000 on "an inflatable raft that would sit under furniture. The pitch was that when high-rainfall areas were flooded, consumers could pump up the device, allowing a sofa to float and remain dry." But what is probably the biggest financial downfall for professional athletes has nothing to do with investments... It's divorce. This is a long article, but well worth the read.
Poor hedge-fund managers... The average pay at hedge funds was $794,000 last year, down from $940,000 in 2007. We predict pay continues to fall. Most hedge funds will be forced to lower their "two and 20" fees (2% of assets under management and 20% of profits) to attract new investors or even to keep the ones they've got. About 70% of the industry's 6,800 so-called single-manager funds lost money in 2008 with the average fund dropping 19%.
I've told you a few times about the paradox of financial publishing: Most of the time, what people want from a financial newsletter is the worst possible thing to buy at the worst possible time. On the other hand, when we try to publish something that's actually a great investment strategy, it's impossible to sell. Like with fast food, folks only seem to want what's bad for them from newsletters.
That was surely the case with my latest effort, the Put Strategy Report. When I launched the product (which recommends selling puts) last fall, I basically begged folks to try it because I knew the conditions in the market were perfect for selling puts – better, in fact, than they had ever been before... ever. So far it has been the worst-selling product in the history of my career. Nobody gets it. Nobody wants it. And almost no one will pay for it.
It's a shame because we're minting money with the recommendations in Put Strategy Report. We loaded up on long positions (selling puts) in late February and early March and predicted on March 10 the market would rally to over 800 on the S&P. We've made an absolute killing on these trades, pushing up our already incredible average returns...
Since inception (October 2008), we've made 18 trades. We profited on 15 of them (83%) and our average return is 30% – with an average holding period of about 90 days. We're making about 120% annualized, and we're winning on eight out of 10 trades. These are all-time, Hall of Fame profits. I sure wish more people were taking advantage of the situation. But what more can I do? Horse, meet water.
New highs: none.
In the mailbag... I asked our readers to comment on the real money they're making with Put Strategy Report. A few of their replies are below. Plus, an idea for a new, international wealth club you may be interested in joining.
"Porter – you wrote about Doug Casey, his Estancia and the fact he is near Uruguay – for Banking Citizenship etc. Can you give more detail re: banking in Uruguay. How to, how safe, and what instruments to invest in." – Paid-up subscriber George Caras
Porter comment: Actually... I can't give you any details (because I don't know much about it), although I know many of the world's finest private banks have outposts in Montevideo, where wealthy Argentines have safeguarded their assets since the Perons took over Argentina during the Great Depression.
As you may know, I'm building a house on the beach in Nicaragua, which should be a safe place to retreat if things in this country turn sour. I'm also interested in learning more about Panama, the central highlands in Mexico, and Singapore – all of which have become destinations for American expats.
In fact, one of my goals for this year is to make sure I'm able to leave the country – fortune intact – within 24 hours. While I hope I never have the need for such flexibility, watching the current administration's plans develop I think anyone who understands history and economics would be very concerned. Countries that take on this much debt and print this much money have always suffered horrendously. So the moment the Treasury secretary gets on national TV and says, "I can assure you that the United States will not impose any currency controls..." is the night I leave. I know what will happen the very next day.
(For those of you unfamiliar with economics and history, governments that destroy their currency through runaway deficits and inflation always try to prop up their regime by imposing currency and price controls. This usually makes it impossible to move assets out of the country.)
Also... I'm interested in launching a new, international wealth club – The 400 Club – I've been calling it. I've been talking about the idea with my closest friends and business associates for the last several months. The idea would be to gather together my wealthiest friends, contacts, business partners, and subscribers to share information and resources about wealth protection, privacy, investments, travel, and unique adventures. Over the years, I've had the good fortune of meeting a truly international cross section of extremely well connected and successful people. I know many of you would benefit tremendously from the various associations I could network together.
Just to be clear... I'm not talking about another newsletter in the guise of a club, something I'm sure you've seen before from other investment publishers. I'm talking about a real club – a nonprofit entity – whose sole purpose would be providing a forum for truly knowledgeable and very wealthy people to exchange information and opportunities and to share community and fellowship with people of like minds. The world seems to be going crazy... And for those of us who still value private property, liberty, and personal responsibility, it may become more and more important to stand together. That's what The 400 Club would be all about. If you have first-hand knowledge about international asset protection, immigration law, and the world's best expat communities, please get in touch.
"Porter, you are my Hero... lol, no really! I have been with Stansberry for about 3 years and you and Jeff Clark are truly exceptional. I took investing into my own hands about 7 years ago when I realized that brokers really don't work for me... you know all about that! All my friends are down 45% to 55% and ready to hang themselves, I in turn come skipping out of my office almost everyday. Your Put Strategy has made me a small fortune since Nov... I am a larger player and play with about 4 mil... On the side I run a $100,000,000 medical operation which I own in Texas. MY INVESTMENT SUCCESS I HAVE TO SOLELY THANK YOU FOR AND YOUR GREAT TEAM. Thank you VERY much." – Paid-up subscriber UF
"Porter, I've been waiting for this opportunity for some time. I was a subscriber to your Pirate Report (I may have the second word wrong, but not the first!) before you first started using 25% trailing stops. In fact I was there when you 'converted.' That seems like a long time ago. Now you're a publishing maven with much improved newsletters. In fact, I like to think that what I paid for that original subscription contributed to your on-the-job education. I'm proud of you kid!
"Regarding Your Put Strategy Report: It took several readings to understand & get comfortable with the concept. Once I understood that the opportunity was time-sensitive, I skipped paper trading, and started putting in some money, but with very small positions. I was a little late with a couple, but made several good buys when prices came back to me. I lost some small money a couple of time when the trade went against me & I chickened out prematurely.
"Over all, I'm in the black but it's small money. More importantly I'm more comfortable with the total concept & ready to do more the next time the timing is right.... [Put Strategy Report] is so ideal for periods of high volatility when other approaches are less appropriate, so please don't give up!!! And it's unique – I don't know of any other letter like it. Thanks for all you do for your subscribers. Notwithstanding your unique, entertaining personality, you and your organization are brutally honest and transparent, I couldn't ask for more from my investment newsletters. Cordially..." – Paid-up subscriber ST
"Thank you for saving my bacon." – Paid-up subscriber MB
"Hi Porter... thanks again for helping me recoup most of my losses in '08. Keep up the good work!" – Paid-up subscriber BS
"In response to your question, yes, I traded your recommendations and did make real money. Out of your present portfolio, I have traded all but RDC... Your product was, indeed, useful to me... The TTWO trade was underwater for quite some time. I never followed the company before, not a gamer myself, and had no knowledge of it. What made me maintain (and even increase) the position, thus seeing it through to profitability, was your clear analysis of the company's fundamentals... So please don't disregard this part of your work – explaining to us why you are making a particular recommendation..." – Paid-up subscriber Mark
Regards,
Porter Stansberry
Baltimore, Maryland
March 25, 2009