Goldsmith comment: Porter's got the flu, so I'm taking over Digest duty for the day.
I went to the Circuit City liquidation sale this weekend at a store outside Baltimore. The parking lot was full. One of the employees said it was the biggest crowd she's seen since Black Friday – maybe 15 people were waiting to check out, while another 50 browsed the store. The lines were long, but the deals weren't good... yet. Most electronics were 10% off. Video games, CDs, and DVDs were discounted 20%. Power cords were 30% off. The discounts will increase until everything is gone. They expect the sale to end by March 31.
I asked another employee if I could just call every week to learn the current discount... "Sure," he said. "If anyone answers. They're starting to unplug the phones." Once the sale ends, 34,000 former Circuit City workers will be unemployed.
Bond King Bill Gross bought U.S. government bonds for the first time in a year, missing most of the biggest Treasury rally in 13 years (Treasuries gained 14% last year, outperforming all other asset classes). Gross' PIMCO Total Return Fund held 9% of its assets in U.S. government bonds as of December 31 – up from negative 4% a month earlier. As he added Treasuries, Gross sold mortgage-backed bonds, decreasing the fund's holdings to 62% from 81% a month earlier.
While Gross is buying, another legendary investor is selling. Jim Rogers told a crowd in Hong Kong today that holding U.S. government bonds is a "big mistake" and will "end badly."
"If I were you, I would be worried about the U.S. dollar," said Rogers. "The Americans are printing U.S. dollars. The Americans are going to do whatever they can to revive their economy, even if it means destroying the U.S. dollar." Rogers favors holding agriculture, power generation, Chinese stocks, and the yen.
South Korea's largest investor, the National Pension Service, is also selling Treasuries. Kim Hee-Seok, who oversees the $160 billion fund, believes the U.S. government will raise interest rates this year to combat the recession. Of course, you know how we feel about sovereign wealth funds...
In his latest PSIA, Porter told readers how he feels about Treasuries – his thesis shouldn't surprise Digest readers. His latest trade allows you to make a risk-free 11.5% a year while waiting for the inevitable. When the trade hits, he expects you'll make at least 50% in one year. Porter believes his latest recommendations are "two of the best" of his career.
Considering his spot-on calls of Fannie Mae, Freddie Mac, GM, Goldman Sachs, etc... that's a large claim. Personally, I think this is one of the smartest and safest ways to generate huge income while profiting on government stupidity. To learn more about PSIA, click here...
New highs: none.
Anyone heading to D.C. to welcome OBAMA! to office? How do you feel about our new commander in chief? Let us know... feedback@stansberryresearch.com.
"No doubt... Porter gets the manager of the year award for 2008 for correctly diagnosing and navigating markets. He also gets a good grade for the self analysis and hindsight observations. The 2008 report card illustrates timing more than anything, as a year can be short for, say, a value stock to work out. All things considered, I think the PSIA is a must read for serious investors who are willing to modulate risk according to investment climate and to adapt techniques to suit. No one can navigate markets as an investor without suffering some pain, but Porter is willing to change course if the facts change. PSIA is a great starter letter... as ideas tend to be solid and timely. There is something for everyone – from fast growth stocks to income stocks... to bonds (would you believe)? I think that PSIA is well rounded enough to constitute an entire portfolio for the moderate investor (which most of us should be). Nice 2008. Let's see how 2009 shapes up." – Paid-up subscriber Jim Pursley
Goldsmith comment: I think Porter's 2009 is shaping up nicely. As I wrote above, his latest trade is a no-brainer and will surely start the year with a nice gain.
Also, realize Jim is referring to the analysis Porter wrote of his own work in the recent issue of PSIA. Porter is still compiling the full, companywide Report Card, which we'll publish soon in The Digest.
"In last Friday's Digest you don't have an answer to Colin Beach's question why gold is still trading at present levels. AN answer is: because the COMEX and LME are not free markets. They seem to be heavily manipulated by central banks and their related 'friends' (i.e. instruments) to artificially keep the gold price down in order to avoid a dollar collapse. Make sense doesn't it?" – Paid-up subscriber Henk van der Wijk
"Porter, since arriving in the US thirty years ago we have observed th
at Americans and their governments perpetually live off the future. So for twenty five of those years we have cultivated a big vegetable garden, kept oil lamps around the house, harvested our own wood for our stoves and made sure of at least one functioning hand-operated well. Meanwhile we paid off car loans in six months or less, mortgages long before their term (most recently a 30 year mortgage in 20 months), bought only antique furniture and furnishings that appreciate instead of depreciating, and period fine art that outperformed most stock markets. We self-financed three businesses. These precautions have given us plenty of disposable income to invest as long as the game continued. But from the git go we invested almost exclusively overseas. We got out of the market whenever it looked too good to be true, and our net worth is only 8% off its all-time high. All of this probably qualifies as a cumulative bomb shelter. The most important item to 'stock' has always been independent and objective assessment. As poet John Masefield put it: 'So shall I pass into the feast, untouched by king, merchant or priest.' God bless us all." – Paid-up subscriber 'A Fellow Brit'
Regards,
Sean Goldsmith
Baltimore, Maryland
January 19, 2009