Obama says take more risk

That's what everyone wants to do these days. Bill Gross noted it in his December letter...

Moving out on the risk asset spectrum has worked wonders since March of this year, but it comes with the risk of principal loss – failing to receive the return of your money. When viewed from 30,000 feet, there is even a systemic risk that new asset bubbles are in the formative stages...

Gross notes investors have moved from the Will Rogers strategy of worrying about return of capital to taking on risk in search of return on capital. Perversely, their risk of capital loss is now greater than it was last fall and early last spring, when everyone wanted nothing but the perceived safety of cash.

And here's Komrade Obama, right on cue, the perfect clueless bureaucrat, telling banks to take more risk, having conveniently forgotten how a lack of risk aversion cratered the U.S. financial system. You can't make this stuff up.

Think again, cupcake.

Here's an example from today's American Banker: Lincoln Park Savings Bank, a Chicago-based savings and loan, is in trouble and needs capital or it'll fail. It's had 12 consecutive quarterly losses, and its noncurrent loans now total just shy of 16% of its total loans. Where the damage stops, nobody knows...

But the FDIC has come to the rescue. It has given Lincoln Park two options. The first one is to find another mutual company with which to merge... reasonable enough, provided the mutual company's owners agree to it. The other option?

Shove it down the public's throat, just like they did with the "too big to fail" banks. That's right. With a straight face and nothing between its ears, the FDIC told Lincoln Park a viable option for saving itself is to sell shares to the public.

This company is imploding, having lent money to overpriced condo conversions in and around Chicago. It probably never should have been kept alive this long. And a viable answer to our government, the keepers and protectors of the public trust, is to shove small failing banks down our throats. Can you imagine having this bank show up in your 401(k) one day? Wouldn't you be thrilled to help bail it out?

Industry sources cited by American Banker agreed a public offering is unlikely. That's not the point. The point is the government sees you and me as the rough equivalent of vomit buckets. When government-led insanity like low interest rates and universal home ownership makes the economy sick, the banks get to puke all over us.

Also, factories in the New York region expanded less than expected in December, signaling manufacturing may not boost the economy in coming months. The Federal Reserve Bank of New York's general economic gauge, the Empire State Index, fell to a five-month low of 2.6 from 23.5 in November. Readings above zero signal expansion.

When a big deal like this happens, opinions cluster around it. Remember Macquarie, the big Australian bank that paid 40 times revenues for a Midwestern toll road? Macquarie's oil and gas people say XTO's assets are somehow comparable to the Montney play in British Columbia, which a knowledgeable oil and gas investor friend calls, "unconscionable."

XTO's main assets are its substantial acreage in several of the major shale plays in the U.S., including Barnett, Haynesville, Fayetteville, Bakken, and Marcellus. On the other hand, Montney is a great resource, but it's in a remote location, miles from natural gas markets and it costs a fortune to drill there. It's nothing like Marcellus, Haynesville, and Fayetteville. But that's the kind of insight you get from big banks' research departments.

I pegged ExxonMobil as a superb capital allocator three years ago. That's when I added it to the Extreme Value list of the greatest businesses on Earth, which I call World Dominators. The World Dominators are No. 1 in their industry, have virtually flawless multidecade records of earning high returns on capital, gush free cash flow, and all but one buy back shares and pay dividends. ExxonMobil has paid a higher dividend every year for 26 years.

I started collecting World Dominator stocks in October 2006, when Wal-Mart was too cheap to pass up. Since then, I've added seven more World Dominators to the list. All of them are showing profits. All of them (except one) pay dividends that have risen every year since I first recommended them. Considering all the dividend cuts last year and this year, that's pretty impressive.

My S&A colleagues tell me – as another did yesterday – that they've made profitable option trades based on my World Dominator picks. I know of at least one Stansberry Alliance member who reads Extreme Value and trades options on the World Dominator stocks. I'm sure others do too. So for the experienced option trader, Extreme Value provides more option trading ideas than some actual option trading services out there – without even mentioning the subject of options.

Sometimes after I've identified a World Dominator, I'll wait for months to recommend it. That's because I've done substantial work on the intrinsic values of these stocks, and I'm highly confident I know what each one is worth. I only recommend them when they're cheap enough. That's when my option-trader friends sometimes make their best trades.

Commenting on Franco-Nevada's bid for Extreme Value pick International Royalty, I wrote the following in the current issue of Extreme Value, "Somebody somewhere believes this stock is going higher. For that to happen, Royal Gold has to attempt to outbid Franco."

Apparently, some other bidder, possibly Royal Gold, had already outbid Franco. In a document filed yesterday, Franco-Nevada CEO David Harquail revealed he had met with International Royalty chief Doug Silver, and Silver told him International Royalty had received another "very attractive offer" and that International Royalty's board had formed a special committee. Silver told Harquail the competing bid had "a substantially higher value" than Franco's offer.

I'm not sure why we haven't heard about this competing bid yet, but I assume we will soon. Extreme Value readers still hold International Royalty. They are up more than 200%.