Goldsmith comment: Porter and Steve Sjuggerud were invited to New York today for the ringing of the opening bell at the New York Stock Exchange, so I'm on The Digest. Porter should return on Wednesday.
We've long noted in the Digest that sovereign wealth funds (enormous, government-controlled pools of money) are among the worst investors in the world. The Chinese and Singapore funds lost billions investing in Morgan Stanley, Bear Stearns, Blackstone, and nearly every other financial disaster over the past two years. You would have made a fortune betting against these guys. We doubt their investment acumen has improved much since then. So as a contrary indicator – it's worth noting what they're buying today...
China's $200 billion China Investment Corp (CIC) will buy up to $2 billion in U.S. mortgages – betting on a U.S. real estate recovery. CIC will make its investment as part of the Public-Private Investment Plan (PPIP), a U.S. government-subsidized program to help major investment firms sell crappy mortgages to the public.
Of course, China doesn't need a sovereign wealth fund to make questionable decisions... And even though China, the world's largest oversees holder of U.S. debt, already owned some $591.1 billion in Treasury notes and bonds, it's still buying more long-term debt... In the latest Treasury auction, China increased its holdings of Treasury notes and bonds by $26.6 billion in June to $617.7 billion.
With the trillions of dollars the U.S. government has already injected into the system and the trillions more it will print in the coming years, we don't see how anyone could see long-term interest rates going anywhere but up. It's one of the safest trades you'll see in your lifetime. In his January 2009 issue of PSIA, Porter recommended a pairs trade that went long corporate bonds and short long-term Treasuries. He called it "the safest way to make 50% in 2009." For Porter's favorite way to play the coming inflation boom, click here...
Credit-card giant Capital One's charge-offs are nearing the 10% Porter predicted in the April 2008 PSIA... Charge-offs (loans the company deems uncollectible) in the U.S. card segment rose to 9.83% in July from 9.73% in June. Charge-offs in its automobile-finance business hit 4.26%, up from 3.89%. International charge-offs hit 9.76% from 9.26%. And according to Barclays, Capital One's management "indicated" it expects U.S. card charge-offs to increase in the second half as the economy weakens.
Warren Buffett's Berkshire Hathaway released its quarterly holdings report on Friday. The most notable change is a new, 1.2 million-share position in medical-device company and Phase 1 pick Becton Dickinson (BDX). Of course, Phase 1 editor Rob Fannon recommended BDX two years before Buffett discovered it.
In another health care bet, Buffett added more than 4 million shares to his Johnson & Johnson position, bringing the total to 36.91 million. He also bought 12 million more shares in his favorite bank, Wells Fargo.
We're not surprised to see such little activity in Buffett's stock portfolio. Instead, Buffett's insurance companies have favored fixed-income investments, loading up on foreign and corporate debt. And he already spent $10 billion in cash last year on his General Electric and Goldman Sachs positions. To see the complete list of Buffett's current positions, click here...
According to an August 12 report from investment bank Saxo Bank, the three bank failures on August 7 decreased the FDIC's Deposit Insurance Fund (DIF) to a measly $648.1 million. Well, five more banks failed last Friday, bringing the total this year to 77. And in the largest bank failure since Washington Mutual, Alabama-based Colonial BancGroup depleted the DIF by $2.8 billion. Community Bank of Nevada also failed, sucking another $781.5 million from the DIF. So according to Saxo Bank's numbers, the FDIC is officially bankrupt...
We doubt the FDIC will ever truly go bankrupt because the government will simply print more money to keep the institution alive. But the chart below shows you how underfunded the FDIC is... It only has enough money to cover 0.014% of the nation's deposits.
You can see how dire the situation is...
New highs: none.
More OBAMA! bashing and what Nicaragua has to offer... We'll soon need a new topic to discuss... feedback@stansberryresearch.com.
"Geez Porter, I will need to make it a point to read your letter in the morning from now on. I did not sleep worth a crap after reading... thinking oh sh*t, oh sh*t, do I have everything in place?? Is there more than I can do to get ready for the 2nd wall cloud of the approaching economic hurricane?? Oh well, between you and Chris Weber's guidance, I think we are about as set as we can be... Appreciate your insight... bottom-line, with parabolic imbalances created, everything (unfortunately) make perfect sense, and we are in for a HARD ride that is going to wipe a lot of people out who do not see what's coming..." – Paid-up subscriber Ralph Nitsch
"Porter says look for ownership in Nicaragua. Where specifically. What's the main attraction? Where does one fly to – the main airport for the capital? What about the Cayman Islands, BWI where I have owned property in the past?" – Paid-up subscriber Dick Taylor
Goldsmith comment: Nicaragua has many excellent developments to buy into or build in – Gran Pacifica, Rancho Santana, and Pelican Eyes are three off the top of my head. And the country boasts many attractions – beautiful beaches, cheap real estate, incredibly cheap labor, and a government that will leave you alone... Porter is going to have a beautiful, custom beachfront home for around $100 a square foot, and that includes premium finishings like hardwood and marble. You can hire a maid, driver, and a cook and pay them a combined $400 a month. And as long as you don't cause any trouble, you can do whatever you want... It's a far more capitalist society than the U.S. at this point.
The trip to Nicaragua is easy. You fly through Houston or Miami and land in the capital city, Managua. It's about a five-hour flight from Baltimore. Then, you have a driver meet you at the airport and take you wherever you'd like to go. Gran Pacifica is about an hour from the airport. Rancho Santana and Pelican Eyes are between two and three hours.
For more information on Nicaragua, and some beautiful pictures, check out the June 8, 2009 Digest.
Also, I'm helping Porter with his house in Nicaragua, and I've developed a great list of contacts in the area. If you're interested in Nicaraguan real estate, you can contact me at feedback@stansberryresearch.com.
"During the 08 campaign I noted that so many of the promises/ideas of Komrad Obama could have been lifted directly from Mein Kampf. More parallels became evident after he took power." – Paid-up subscriber R. Schmal
"I get really tired of hearing people say how stupid Obama is, or how he doesn't get it, because by doing this or that it will certainly hurt the economy. Believe me, he gets it. If people would understand one premise, they wouldn't struggle so with Obama's plans and initiatives and they would understand how successful he has been. The premise is this: OBAMA HATES THE UNITED STATES OF AMERICA. Because he believes America has been an enemy to the black race and to the Muslim world, he has adopted the same philosophy and goals that Bin Laden stated; to bring down Western Civilization as the center of world power and return it to Persia.
"No person that has a positive opinion or desire for the success for the U.S. would sit in the hatred filled, racist, anti-American services of Rev. Wright for 20 years and even expose his children to the that. If you look at it in this light, every country-destroying move he has made makes perfect sense. He even gets it that the producers in this country will eventually get enough and get off our asses and shut him and his band of miscreants down. That's why he has this sense of urgency to do as much damage as possible as quickly as he can." – Paid-up subscriber Michael C.
Regards,
Sean Goldsmith
Baltimore, Maryland
August 17, 2009