"Chuck, I owe you $200, don't I?"
My personal trainer, Chuck Wells, takes care of my dog for me and looks after our house when we go out of town. I owed him from his most recent dog stint last week when I was in Miami. While we were working out this morning, he asked me why the car companies' bondholders were being so "greedy."
"Well, let's pretend you're GM's bondholders and the $200 I owe you is the debt in question. The government has come in and said, 'Look, we know Porter owes you $200... but for the good of the country... we want you to accept $20 instead. We'll take $100 for helping straighten out the situation. And we'll give $80 to the union.' Would you accept those terms?"
"No way!"
It never ceases to amaze me how generous people like to be with other people's money. Or how quickly people with no skin in the game toss around words like "fair" and "greedy." I don't care what you think of OBAMA!... What he said about Chrysler's secured bondholders was not only slanderous... it was the kind of political rhetoric that will destroy America's capital markets. You cannot vilify creditors – or else there will be no capital available to lend.
While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting.
I don't stand with them. I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don't stand with those who held out when everybody else is making sacrifices. And that's why I'm supporting Chrysler's plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success.
OBAMA!'s remarks are demonstrably false. A group of 20 creditors, the self-dubbed "non-TARP Chrysler lenders," refused the government's lowball offer for their secured bonds. Through a press release, the "non-TARP Chrysler lenders" said they offered to take a 40% haircut on their bonds, even though they were senior creditors and lenders lower down the priority chain were "being given recoveries of up to 50% or more and being allowed to take out billions of dollars."
And Obama's bit on standing "with Chrysler's employees and their families and communities" is nonsense. Who do you think invests in these hedge funds that refused the deal? Pension funds, teachers' unions, and school endowments to name a few... Should these "communities" be punished for the sake of Chrysler's employees... many of whom are union employees who stubbornly refused to take pay cuts until it was too late?
That's the big problem with socialism: Instead of allowing the market to decide who wins and who loses, you have politicians picking. Just imagine what's going to happen to the lending decisions of the banks that have taken TARP money... It's going to be a debacle. Welcome to Amerika.
Goldman Sachs conspiracy theorists take note... The Wall Street firm just hired away Barney Frank staffer Michael Paese to be its top lobbyist in D.C. The position was formerly held by Mark Patterson, the current chief of staff at the Treasury.
In his latest Retirement Millionaire, Doc Eifrig interviewed "the world's greatest market timer," Chris Weber. He asked Chris where he's personally putting his money and where the best and safest places for retiree cash are. You shouldn't miss it.
In addition to Chris' wisdom, Eifrig tells you how to fly to Hong Kong in business class for cheap, which airline to avoid at all costs (it's a "piece of garbage"), and which airline is the best (and often the cheapest). And he shows you how to buy $25 of food from your favorite restaurant for $2. You can learn more about Retirement Millionaire, here.
The hot topic on Extreme Value pick ExxonMobil's most recent conference call was, "What's happening to all the cash?"
A year ago, Exxon boasted $40 billion in cash reserves. That's shrunk to a current $25 billion – but Exxon hasn't made any acquisitions. The answer, much to shareholders' delight, is dividends and buybacks.
Last year, Exxon paid $8 billion in dividends and spent $32 billion on share repurchases – more than all its competitors combined. In the past five years, the company has reduced its shares outstanding by 25% and produced a return on invested capital of 34% – much better than the 0% it would earn putting its cash in T-bills. At its current burn rate, about $6 billion a quarter, Exxon would use up its cash in around a year and a half, if not sooner. But when the cash is gone, Exxon can take advantage of the ridiculously low interest rates to borrow however much it would like – it's one of the few companies maintaining its triple-A credit rating.
ExxonMobil is one of Dan Ferris' World Dominators. These are the companies that will generate excellent returns for the rest of your life.
Quietly, without any fanfare or any new marketing, we've been revamping our Inside Strategist newsletter. First, we hired an experienced, talented analyst – Braden Copeland. Braden, who graduated with an engineering degree from Duke University in 1994, spent the last 10 years putting together big real estate deals ($10 million to $70 million). I've personally been working with Braden since early March. In terms of the quality of his thinking and the thoroughness of his work, he is as talented as the best analysts here.
In addition to the new analyst, we've also simplified the content of the letter – which had featured tricky options trading and other complicated strategies. What we're doing now is easy to understand. We watch all the significant insider buying, every single day. We analyze the stocks carefully. Then, each week, we recommend the highest-quality stock where insiders are buying, if – and only if – you can still get shares at a very attractive price.
Over the past two months, we've recommended eight stocks – one each week. Our subscribers have been "filled" on six of these picks, with the other two stocks not yet trading inside
our "buy" range. So how have our picks done? Does combining very thorough securities analysis with insider buying produce good results? Absolutely.
All of our recommendations have gone up. That's no surprise since the market has done so well since early March. But our picks have done even better – much better. All of the picks we made during March, for example, have outperformed the market – all of them. The average gain from our March recommendations is now 41%.
New highs: none.
In the mailbag... How did we end up talking about marriage? What's that got to do with investing? We don't know. We only publish your letters. We don't write them. Send your comments and questions (preferably about finance) to: feedback@stansberryresearch.com.
"Okay, Ferris, I gritted my teeth and refrained from reacting when you published a rant by some misogynist named John about what rotten people wives are. Now you publish another moronic rant by some other misogynist named Scott... You can tell John and Scott for me that there really are (gasp!) wives who live, work, and deal in reality, have plenty of intelligence and integrity, and who get screwed in divorces, too. My first husband walked out on me after I'd worked my fanny off to put him through college, then for two more years so he could work for peanuts to get his CPA... After finally getting around to telling me that he was screwing other women like a frisky little bunny, he walked out on me. My lawyer told me to give him half or more of everything, almost all of which I'd paid for! His reasoning was that if I made hubbie angry by demanding what was truly due me, WHAT I HAD PAID FOR AND OWNED, he might go for alimony... You see, we lived in a community property state too, and what was mine was his. It works both ways, see?" – Paid-up subscriber Maggie Hogan
Porter comment: When I met my wife 10 years ago, I literally couldn't afford to have my car repaired. I was riding my bike to work and living on next to nothing while I started this business. Believe me, the odds we would succeed were slim to none. We almost went bust twice over the next two years. So I know my wife didn't marry me for my money: I didn't have any.
Happily, my business has grown. A few of my investments have done extremely well. We now have resources neither of us imagined 10 years ago. If my wife were to leave me today, she would walk away with a substantial amount of money – money that she's legally entitled to no matter the circumstances of our divorce.
It seems odd to me the law would provide her with an incentive for divorce. As everyone knows, marriage is a lot of work, even when you have a great marriage. Putting a big brass ring next to the divorce lawyer's number doesn't seem like a very smart thing to do if you're trying to maintain a society with the family at the center. On the other hand, if your intent is to weaken cultural traditions and strengthen the role of the state in society, then the current laws make a lot of sense, don't they?
My solution? I simply tell my wife what our net worth is each year. Congratulations, I tell her. Half of this belongs to you. You don't have to leave me to get it. Tell me how much you want now, and I'll write you a check. So far, she's decided to let it ride.
"Obviously you do not want to farm, so we will abstain from all the questions of what you want to grow and the ways to make your plot more productive. So basically you need to find the areas in this country with the most natural disasters like flooding, windstorms, or hale for example, then you want to load up on acres so you simply check the obituaries and legal notices, trolling for that desperate widow who needs to sell to 'a nice young man.' A few conversations at the kitchen table and it's yours for pennies. Now down to business, well you know this government pays 'farmers' to not grow certain things and subsidies them if they do grow other things. Yes and your government will pay you if your crop is damaged in a natural disaster. You get tax shelters if your land simply 'is' a farm too! Besides all the book fudging you can do by not actually buying seed or fertilizer, or equipment, you would own a fraction of a tractor, your neighbors hold the other fractions. So that 100 acres of corn you 'planted' gets knocked flat by a tornado – and you get paid! Good thing you also got paid to not plant all that tobacco. Now you'll have enough seed money to put some wind mills up! Yup, the government has got all kinds of subsidies for that fiasco too. If you actually want to grow stuff, you'll have to pick a different country. Try Paraguay, they are too poor to spend money on toxins that have polluted all farmland here. And I think it is the cheapest land on the planet. The way I understand it is that the chaco is being stolen from the indigenous the way they stole from the Indians here. Don't bother buying a farm in the USA, unless the product you are planning on producing has a huge street value, like truffles, or hemp. And if you choose hemp, well the best place to grow hemp would be in an abandoned house in Detroit... " – Paid-up subscriber Anonymous
Porter comment: We received more than 100 e-mails with information on where to buy farmland in the U.S. The reply above was the most entertaining. Many of the other letters were extremely informative. We appreciate all of your notes. So many people replied, we simply can't reply to everyone personally. Dozens of people invited us to come and see their farms. Dozens more offered to help us find land in their counties. Thank you all so much for your warmth, your knowledge, and your generosity. We may well call on you as we prepare our report on how and where to buy farms.
"I just wanted to email back and say that the latest issue of the Partners letter by Steve was probably one of the best investing articles I have ever read. The strategy totally goes against what most people (myself included) are programmed to do. The concept of buying more when a stock is rising is so simple, yet I have always been afraid I'd be buying at the peak, or that a pullback would negate all my gains. And truth be told I'd still be afraid of it because of the whipsaws. But the concept of the 45-week moving average gives me a strategy I can not only validate from past performance, but apply going forward. I am anxious to look at all my stock prospects' history and see if I can find the positive pattern and lay out a new investing strategy for myself. Once again thank you for always providing great investment ideas that I can apply on my own. It's very empowering." – Paid-up subscriber Darren Nelson
"You will never print this... As a Alliance Member: I am quite upset you are now selling even more exclusive reports and not nickeling us to death but ripping us off with big dollars. My feeling is Sjuggerud's new Phase I report should be available to all of us. I have lost all respect for your services... I agree with you Steve is outstanding and now your asking u
s to pay more to get his reports. You make Goldman look cheap. Maybe I misunderstood the concept of Alliance but I truly think you have crossed a line of pure GREED... What's next some new way and new rules to sell your services and eliminate the promises you have made? Why would anyone expect anything different from someone from Wall St... I will expect some kind of sarcasm and stupid explanation but you have failed on your promises in my book." – Paid-up subscriber Larry Middleton
Porter comment: Actually, Larry, I understand how you feel and it concerns me a great deal. But I think you're forgetting a crucial fact: When we launched our Alliance (a lifetime, all-inclusive subscription), we promised all of our current products, plus all the products we decided to publish in the future. The only thing we said wasn't included and wouldn't be included was Phase 1.
Why? Two reasons. First, we host frequent conference calls with these Phase 1 recommendations, and we spend a lot of money hiring experts to help us vet these very small, start-up companies. The research and the conference calls are very expensive to produce, so we must charge a substantial annual fee – otherwise, we wouldn't make a profit. More importantly, Phase 1 recommendations are often very, very small companies. It's simply impossible to effectively recommend these tiny stocks to more than a handful of people. If we didn't have Phase 1 as an outlet for this information, we wouldn't be able to publish it at all.
Now... let me tell you why your complaint concerns me so much. I have seen many publishers in our industry sell lifetime all-inclusive subscriptions like our Alliance and then blatantly ignore their obligation. They launch other subsidiaries to avoid the legal liability – forgetting the principle of what they promised entirely. We have never done that. We will never do that. We have no other subsidiaries. We have no side businesses. Our Alliance subscribers get everything we promised them.
In fact, they get a whole lot more than we promised them. Every year since we launched the Alliance, we've hired more analysts and published more letters. Yes, some of the letters didn't work out. When that happens, we kill them off. But we always continue to add value to the Alliance subscription. This year, we're adding Retirement Millionaire, Penny Trends, a new Steve Sjuggerud trading product, and a new options trading service especially for retirees. We also added Put Strategy Report late last year. And we've revamped Inside Strategist.
Every Alliance member gets everything we publish (except Phase 1), no matter how many new products we add – which is exactly what we promised. You can even quantify how much value we've added to the product over the years by looking at the initial subscription fee, which has risen from $2,700 in 2003 to more than $7,000 in 2009. This year, we will raise the price to $10,000.
If you're an Alliance member and you think you've gotten your money's worth and more, we'd love to hear from you: feedback@stansberryresearch.com.
Regards,
Porter Stansberry
Baltimore, Maryland
May 1, 2009