You may recall my many recent warnings about commercial property companies and my specific warning about General Growth Properties (GGP). In early December, I said GGP would file for bankruptcy within days. Almost $1 billion in debt was coming due, and GGP couldn't pay. It couldn't refinance either because the underlying asset was a Vegas mall – property nobody wants right now. GGP was cooked. But on the Friday the money was due, nothing happened. It wasn't until the following Wednesday GGP announced its creditors had granted an extension. Why the creditors agreed to the extension wasn't clear at the time. But that didn't stop a few dear subscribers from hurling rotten tomatoes...
Not only did GGP not declare bankruptcy, they got an extension on their debt and their stock is up. You flat-out lied in your story – led new subscribers like me to believe you knew something was sure to happen. Your copy guaranteed it, claiming this bankruptcy event would trigger a rash of declines in other REITS, including the one you urged us to sell puts on. Thanks to your misleading information our puts have declined substantially in value. Your credibility is shot. Either you blatantly lied just to get new subscribers – or you failed to adequately research GGP's possibilities. – Paid-up subscriber Larry Herbst
So what really happened here? Think of it this way: Have you ever seen a bunch of lions stalking a wounded wildebeest on the Discovery Channel? None of the lions wants to make the first move 'cause the poor beast is already dead, he just doesn't know it yet. Instead, the lions are playing a game with each other, trying to make sure they're in the best spot to get the choicest morsel when the prey finally drops.
The Wall Street Journal got the details on last month's maneuvering: Citigroup used its clout to grant an extension in exchange for new covenants to protect its exposure to GGP's $2.6 billion in outstanding unsecured debt – money Citi may never see again. Citigroup just pushed itself a little ahead in the creditor line. So... does this mean GGP won't file for bankruptcy? No. Even if you ignore the Vegas loans, it has two dozen other loans coming due this year, beginning in March, totaling more than $2 billion. The other problem: GGP can't afford its existing interest payments and more and more of its tenants (retail companies) are walking away from their leases.
I'll repeat my earlier, disputed conclusion: GGP will certainly go bankrupt. My next drop-dead date: Friday, January 30. More importantly, as GGP's creditors attempt to liquidate its holdings over the next few months, the value of similar properties will decline. And that will cause big problems for GGP's competitors, which are also overleveraged. And Larry... one more thing... we recommended buying puts, not selling them. See my trading letter, Porter Stansberry's Put Strategy Report, for details.
Last year was the worst year for dividends in at least 50 years. From Morningstar:
Standard & Poor's counted more dividend cuts and omissions in the fourth quarter of 2008 than dividend increases and initiations – the first quarter in which unfavorable actions outnumbered favorable ones since S&P started keeping dividend records fifty years ago.
Dan Ferris has found a group of companies almost guaranteed to not cut their dividends. One company has increased its dividend for 52 years in a row. To get the details, check your inbox tomorrow morning for your free issue of DailyWealth.
We're starting to see some life in the corporate-bond market... There was $41 billion in corporate-bond issuance last week – the most in eight months and nearly equal to all bonds issued in September and October last year. January is historically a strong month in the bond markets, as investors come back after Christmas. But this year was particularly strong – in the same week last January, total issuance was $32 billion.
True Wealth readers know Steve Sjuggerud is wildly bullish on corporate debt, especially "high-yield" debt. You can collect 20% yields in high-yield debt now. And there's a chance for capital gains, too. The enormous yield and profit potential more than make up for the added default risk. The chart below, from Steve's latest issue, shows just how attractive these bonds are...
This is truly a once-in-a-lifetime opportunity to safely collect 20% yields. If you're interested in learning more about True Wealth and reading Steve's latest bond research, click here...
New highs: none.
In the mailbag... some vitriol. Finally. Send your contribution here: feedback@stansberryresearch.com.
"Porter, you're a smart guy, a good businessman, and you seem to be honest and fair. You also need to be taken to task for some of your attitudes. You love recessions? You want to put millions out of work so you can get cheaper stocks, cars, condos, the 'good life,' etc.? Incredible! And do we need to put millions of good, conscientious folks out of work just to fire those few with lousy attitudes? Amazing! You evidently were never put out of a job, unable to make ends meet, and clearly, you do
n't identify with the blue-collar jacks and jills.
"Porter, you are what you are and have what you have, not from anything you have done, but because of gifts. The gifts that placed you where you are include where you were born, your upbringing, people you've been exposed to, availability of education, intelligence, even native or learned ambition, work ethic, curiosity, etc., and perhaps, 'breaks.' Those you disparage and those whose misfortunes you hope to capitalize on were not given the same gifts as you.
"So 25,000 GE capital employees can now do something more productive in the economy. Like living the high life and getting rich by telling others how to get rich? C'mon, porter, look in the mirror. Pushing out opinions on how to invest for fun and profit ain't contributing a whole lot to the greater good. You've got a lot of smarts and a lot of answers, Porter, and probably are moderately well-to-do, but you're a long way from the richness of wisdom. May you live long enough to experience that great richness." – Paid-up subscriber J Buege
Porter comment: If, by the "richness of wisdom," you mean I should agree that "you are what you are and have what you have, not from anything you have done, but because of gifts," I can only tell you this: I would rather lose everything, including my life, than willingly endorse that kind of self-pitying bullsh*t.
"You are one ugly American, P.S. You're gutless and Godless to print crap about all the incompetent people who hinder your lifestyle. These rants, as most people recognize, are from an insecure posturer, not quite fulfilled in life, no matter what show you put on for others. Picking on the poor cable guy, school teachers, and even fry cooks, chopping them down so you look taller. These people obviously don't have your IQ, common sense, good looks, and family lineage to run in your pack, so fire 'em all, let 'em lose their jobs, homes, friendships, self-esteem..." – Paid-up subscriber Bob Kelly
Porter comment: You guys have it all wrong... Recessions are great for the economy and great for individuals, too. Recessions clear out the dead wood, get rid of inefficient companies and people, punish business leaders who have made bad decisions, and bring reality back to folks who have been living in a dream world – from investment bankers in private jets selling worthless mortgages to union labor leaders pushing GM to continue to pay workers who didn't have to work!
And yes, I certainly know the pain and humiliation of being fired. It happened to me in January 1999. My boss said I was the least entrepreneurial person he'd ever met. It was a very motivating experience. Six months later, I put out the first issue of my own newsletter – in which I predicted AT&T would go out of business (the old AT&T, which did go out of business).
Six years later, I took over the entire building I'd been fired from – 1217 St. Paul Street. We renovated it, put in a nice gym. Today, I work from my former boss' office. I eat lunch at the conference table where he fired me. There's a plaque on my desk. My dad gave it to me on the night we celebrated the renovation of our building. It says, "Success is the best revenge." I know the minute I stop serving my readers, there's another guy out there just like me – young, super-hardworking, and hungry – that's ready to eat my lunch. That's how the economy is supposed to work, and that's why recessions are good.
"Porter, I usually enjoy almost completely both your writing & Dan's in The Digest. Today; yikes. What you said about layoffs makes sense on one level but hurts on another. Most importantly, though, I've been there/had it done to me, & it's true [gasp!] – layoffs make people better workers. I was straight-up fired in 2006 for, basically, being incompetent, (my word, not his). But that was it; employed at 8am, unemployed at 5:30. It hurt, but was - TRULY - one of the better things that happened to me. I'll never call it fun, but a 4 & 1-yr old smiling at you when you go home w/o any pay are mighty motivations to be more productive." – Paid-up subscriber Jared Johnson
"My hat's off to all of you. I subscribe to some of your services and have been VERY pleased. They make me money. I even tried a trial subscription to the Short Report, even though I am very conservative. I found it to be something that I am not able to use at this point. However, I plan to take another look when I am more comfortable with the idea. I received my refund promptly with one phone call to a very professional customer service rep. Your customer service AND your products are top notch. Keep up the good work." – Paid-up subscriber Jim Hudgins
Regards,
Porter Stansberry
Baltimore, Maryland
January 14, 2009