Mon, Mar 31, 2014|Sean Goldsmith

More recalls and more deaths...

More recalls and more deaths... Yellen updates us on her views... Markets jump... Sjuggerud: Make money in stocks today... Another huge day for Microsoft... Three truths to creating wealth...

Things keep getting worse for GM...

The beleaguered automaker has made headlines for a faulty ignition switch in some of its cars that caused a reported 12 deaths... GM recalled 1.6 million affected cars. GM has known about the issues since the early 2000s, but only commenced a recall this year.

This news – coupled with accusations GM may have covered up the liabilities surrounding this recall when it filed for bankruptcy in 2009 – has been a headache for new CEO Mary Barra and GM shareholders. Barra is scheduled to testify before Congress on April 1.

And the problems are mounting...

Last week, GM announced it would expand its recall by 971,000 vehicles (bringing the total to 2.6 million) and would include vehicles made between 2008 and 2011, which may have faulty parts. It also increased the reported death count linked to the malfunction to 13.

And last Thursday, GM instructed its dealers, via e-mail, to halt sales of some 2013 and 2014 Chevrolet Cruze cars... The automaker gave no reason for the order.

"This is something we don't see every day," an anonymous dealer told the Wall Street Journal. "To not be given a reason must mean GM has spotted an issue and is still trying to get its arms around it."

Then, this morning, the Wall Street Journal reported the Congressional committee investigating GM found federal regulators twice failed to open formal probes into faulty airbags in GM vehicles, despite evidence suggesting it was a problem.

The article also says in February 2002, GM approved a design for the ignition switch in question in the automaker's recall, even though testing showed the switch didn't meet GM's specifications.

In November 2004, engineers studied why the ignition switch in the 2005 Chevy Cobalt would turn off when a driver bumped it with his knee. In March 2005, the Cobalt project engineering manager closed the investigation, saying the "lead time for all solutions is too long," "the tooling cost and piece price are too high," and none of the potential fixes "represents an acceptable business case" – though the investigating committee noted nothing about what an "acceptable business case" is.

We'll quote the next bit from the Journal, because it's so ludicrous...

Instead of delaying the launch of the Cobalt, which was a critical element of GM's efforts to boost sagging profitability in its North American operations, the company issued a service bulletin to dealers, warning them of the ignition switch problem and urging them to tell Cobalt owners not to use heavy key chains.

At the time, GM engineers thought that if the ignition switches were accidentally turned off, drivers could steer the cars safely to the side of the road, according to testimony in civil litigation filed by the family of Brooke Melton, who died in a crash linked to the defect.

We'll keep you updated on this story following Barra's testimony tomorrow.

Meanwhile, the rest of the market is enjoying a solid rally after Federal Reserve Chair Janet Yellen updated the world on her policy views...

We previously criticized Yellen for her first Federal Open Market Committee statement on March 19... She confused the markets after saying rates would remain low for "a considerable time after the asset-purchase program ends," then following that up with "the language in the statement... probably means something on the order of six months" to raise rates.

That day, Yellen's statement sent stocks tumbling and the dollar soaring. Nobody wanted to wait around to see which time frame she chose for raising rates...

At a speech in Chicago today, Yellen gave more hints regarding her economic policy...

I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy-makers at the Fed.

Striking the tone of a politician, Yellen cited three examples of workers that took pay cuts or lost their jobs during the downturn...

For Dorine Poole, Jermaine Brownlee, and Vicki Lira, and for millions of others dislocated by the Great Recession who continue to struggle, the cause of the slow recovery is enormously important.

Yellen also stated that the "scars from the Great Recession remain, and reaching our goals will take time... The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics."

Our colleague Steve Sjuggerud reiterated his prediction that the Fed will continue to pump assets prices even higher in today's DailyWealth...

Can the game keep going?

In a word... YES.

The Federal Reserve has promised to keep interest rates low even after the economy shows signs of recovering. This promise is what will cause asset prices to continue to soar to much higher highs.

Yes, I recognize that U.S. asset prices are starting to get "up there." They're no longer cheap. But they're not expensive yet, either.

Again, I think we're around the seventh inning of this game... More important, you need to know that the biggest gains will likely come in the final innings. You do not want to miss those gains!

Yes, stocks are up. But no, you haven't missed it. Now is not a time to be jealous of the Joneses. Now is a time to join them... as I believe there are more gains to come...

Software giant Microsoft was one of the biggest winners today, rising as much as 2.5% to its highest point since 2000.

Microsoft shares have rallied recently since the company, under direction of new CEO Satya Nadella, announced it would launch Microsoft Office suite for the iPad. Nadella also announced services that would help companies manage their PCs and mobile devices.

Microsoft skeptics long feared the software icon's dominance would wane as more and more users switched from PCs (where Windows software rules) to mobile devices. Extreme Value editor Dan Ferris, who holds Microsoft in his model portfolio, wasn't worried. He understands how Microsoft really makes its money: Selling to big businesses, not individuals. As he explained in the August issue of Extreme Value...

As you can see, "enterprise customers" – big businesses, including World Dominators like Coca-Cola and McDonald's – account for more of Microsoft's sales than the other three customer bases combined. Everybody loves to criticize Microsoft for failing to serve individual consumers as well as Apple and other companies. The correct response to this observation is, "So what? It doesn't need to serve them as well as Apple does. The real story at Microsoft is the enterprise."

Two Microsoft divisions serve enterprise customers: Microsoft Business Division (MBD) and Server & Tools (S&T). MBD makes the popular Microsoft Office productivity suite, which includes Word, Excel, and PowerPoint. S&T makes the software used to run vast computer networks for big companies.

Together, these two businesses account for 57.8% of fiscal 2013 sales and 72.8% of operating income. (That does not include the effect of some corporate expenses, which would raise it to 91% of operating income.)

So Microsoft's recent announcement is just a bonus... The company was thriving and gushing free cash flow for shareholders. Nadella's recent announcements will help Microsoft further service its enterprise customers.

In the March 22 Digest, in an edition of our weekend Masters Series, we shared a powerful essay from Porter's mentor Mark Ford. And based on the response we received, you thought this essay was as important as we did.

Mark is a wildly successful entrepreneur. He has started and owned dozens of businesses. He has written more than a dozen books, some of which became New York Times bestsellers. He has invested in stocks, bonds, and real estate, and tells us his passive income in the past year was $6 million from these investments.

Although Mark has achieved (and perhaps surpassed) his own wealth goals, he has decided to dedicate his life to teaching others to become wealthy. He is giving his subscribers detailed and actionable ways to start earning more money immediately. And he uses real-world knowledge gained from his nearly 40 years as an entrepreneur to help guide them.

In the essay we shared last Saturday, titled "Truth and Lies about Creating Wealth," Mark shared some fallacies people believe about the wealthy and shared some of the most important truths he learned about becoming wealthy. We believe they are so important, we're sharing a few of those truths with you again today...

Truth No. 1

You'll never get rich unless you understand some fundamentals about saving, spending, and investing.

Truth No. 2

The single most important factor in avoiding the spending spiral that kills wealth is to stay in the house you have now. Nobody else that I know of has made this simple point. But I can tell you that it is true.

Truth No. 3

Stock investing (or even bond investing) is an inadequate strategy for building wealth. It won't get you rich or make you wealthy, however much you wish it would.

Even Warren Buffett, the world's most successful investor, knows this. His wealth has come not from being an individual investor but from being the principal of Berkshire Hathaway. Keep that thought in mind every time you hear his name quoted.

If you're interested in learning how to become wealthier, you should consider signing up for Mark's Palm Beach Wealth Builders Club.

The idea behind this club is simple... To form a community of subscribers who are not yet wealthy and teach them everything Mark knows about building wealth from the bottom up.

This isn't the type of club where you'd have to attend meetings or go through a membership screening. Mark has prepared a collection of educational essays and courses to share his knowledge with you... knowledge that you can immediately use to start earning more money.

When you sign up for the club, you'll receive Mark's course on buying rental real estate... He believes this is the best time in the past 30 years to purchase this asset and start earning income.

He also shows you how to "retire next year." He discusses a dozen tropical locations where you could retire and live a millionaire's lifestyle on earnings equivalent to Social Security... You'll have a driver, maid, and an obscenely low cost of living.

Mark also shares his secrets to "living rich." This is a series of essays that show how you can enjoy a millionaire lifestyle – from the cars to the clothes – on your current income.

There are actually many more components to The Palm Beach Wealth Builders Club, but out of fairness to Mark's subscribers, we won't discuss them in these pages. But if you're interested in learning more about how Mark can help you get started immediately growing your wealth, click here.

New 52-week highs (as of 3/28/14): C&J Energy Services (CJES), Comstock Resources (CRK), Carrizo Oil & Gas (CRZO), Devon Energy (DVN), Corning (GLW), Johnson & Johnson (JNJ), Penn Virginia (PVA), Superior Energy Services (SPN), and ProShares Ultra Utilities Fund (UPW).

Pop quiz: who wrote famous book The Intelligent Investor? If you don't know, you'll find the answer in today's mailbag. Send your questions and comments to feedback@stansberryresearch.com.

"Sometime ago you recommended The Intelligent Investor. I failed to write down the author. If you could provide the author it would be greatly appreciated." – Paid-up subscriber Mitch Bell

Goldsmith comment: Benjamin Graham's The Intelligent Investor is one of the most important books ever written on investing. Graham is a value-investing legend and was Warren Buffett's investing mentor. You can pick up a copy here.

"I just wanted to confirm, that your selling puts, is a fantastic way of winning in the market. I have been doing it ever since I learned from you and Doc. I do one thing that many who sell puts may not do, and that is, I sell the puts on the stocks you recommend for purchase. Last week we closed out 10 that made money and only one that was put to us. Then I will sell it long on a day it gets a strong move up.

"One other little tidbit. A close younger relative of mine, has just accepted a big job with Tesla, so I hope you are wrong about the company, for their sake. I am sure they will get a company car." – Paid-up subscriber Peter Courtenay Stephens

Regards,

Sean Goldsmith

New York, New York

March 31, 2014

These two charts show the end of an American institution...

In today's Digest Premium, we continue our discussion on the decline of the American shopping mall and online retail's rise to dominance...

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.