Richest guy I know
Remember, it's not all about money...
After the annual Stansberry Editors Conference yesterday, I drove down to Ocean City, Maryland, and had dinner with my parents. We had a good time, sitting by the water, sipping wine and catching up. After dinner, we stood outside the restaurant waiting for my mother. I asked my father how things were going. He said his life is wonderful. He likes the place where he lives. He gets up every day and reads the paper. Then, he plays two or three hours of tennis (at age 84). After tennis, he goes to McDonald's with his tennis buddies, drinks his O.J., and shoots the breeze. Then, he comes home, maybe goes shopping with my mother (82), does plenty of reading... and falls asleep happy and exhausted and sleeps like a log every night. It's a great life.
Every day, my father does exactly what he wants to do. It helps that his favorite things to do are also well suited for producing happiness: staying healthy, doing plenty of reading, and tending his relationships like a prized garden.
My father has come a long way since the 1960s, when he was a hotshot prosecutor in Washington, D.C. He was so well known back then, judges had his arguments bound in leather and gave them to their friends as gifts. Attorneys, secretaries, and even some congressmen kept track of my father's calendar so they could watch him argue in court. When he and my late Uncle Johnny walked into their favorite bar in D.C., Mark Russell, the famous political comedian, would stop his act and take a minute to make a joke about my dad. Most people don't have a heyday, but my father sure did. He was "Da Man," and everybody knew it.
Great as he was, though, he never got rich. Today, he still doesn't have much money. But he's got a great life, one he loves and lives with gusto every day. That makes him the wealthiest man I know.
In a more practical vein, I'm working on a piece for the next issue of Extreme Value about a company that sells for less than $5 a share... but has $55 a share in cash and NYSE-traded stocks on its balance sheet. On March 1, this little company paid out a 17% special "tax-deferred dividend." By the end of the year, I expect it to pay out another, similar dividend representing about 27% of the current share price. My readers know the stock well... though it's never appeared once in Extreme Value. Its business is in a state of decline and will certainly disappear one day. But you don't need to worry about that because it sold off its main business some months ago for $25 million.
When you buy this little stock today, about 95% of what you're getting is cash and NYSE-traded stocks. That's about as safe and liquid as it gets. But there's excellent potential for the stock to rise 60% or more by the end of the year, no matter what the overall market does. That's because the special "dividends" it's paying out now could easily push the share price higher. In fact, the company's management chose to pay these special "tax-deferred dividends" with one goal in mind: Create shareholder value. The only way to do that is to make the stock price go up, up, up.
For access to Extreme Value and my upcoming research on this one-of-a-kind "tax-deferred dividend" payer, click here.
During the Editors Conference, I never got a chance to chime in on the issue of inflation. I'd like to go on record predicting the precise month, day, and year when the big inflation will hit: two years ago this September.
That's right. Two years ago. Between September 3, 2008, and December 31, 2008, the monetary base of the United States rose from less than $895 billion to more than $2.218 trillion, a 148% rise. Inflation is already here. The only reason you don't yet see the familiar symptoms of inflation is the banking system's collateral is still getting written down. As long as all the homes and commercial real estate continue to go bust, you might not see obvious signs of severe inflation. Whenever that process stops, you'll see the prices of things you buy every day rise faster than they've risen since the hyperinflations of the early years of the republic.
Economic bellwether and Extreme Value World Dominator Procter & Gamble sure isn't showing signs of inflation in the quarterly results it reported today. The company's third-quarter earnings were flat at $2.6 billion. Revenue increased $19.2 billion. Analysts expected $19.5 billion. Of course, what analysts expect plus $5 will get you a small cup of coffee at Starbucks or a huge one at Dunkin' Donuts.
The euro traded up at $1.3243 from $1.3203 late last night on hopes the European Union and International Monetary Fund will rescue Greece. Some officials now expect the Greece bailout to cost 100 billion euro. As we've said before, even if Greece is bailed out, the euro is doomed. Standard & Poor's downgraded the debt of Portugal, Greece, and Spain this week. Now, we're just waiting on the last of the "PIGS," Italy.
With fundamentals deteriorating across the European Union, we doubt a single Greek bailout will solve the problem. Just take a look at these leaked unemployment numbers for Spain. For the first time since 1997, Spanish unemployment hit 20%. Now, 4.6 million Spaniards are unemployed. The rates among Spain's youth are astounding. From the leaked National Statistical Institute report: "The unemployment rate for those under 25 years in the first quarter of 2010 was 40.93% and 18.02% in those over 25 years. In the group of 16-19 years, the rate is 59.79% and 13.1% among the unemployed aged 55 and older."
New highs: ConocoPhillips (COP), Applied Micro Circuits (AMCC), Silvercorp Metals (SVM), Silver Wheaton (SLW).
If you want to sound off about anything at all, write to us here: feedback@stansberryresearch.com. We look forward to hearing from you.
"For retirees on a fixed income the fact the dollar is weaker in an inflationary environment is of no benefit in paying off the debt. Inflation is the mother of all financial evils for anyone on fixed income – with debt or without debt. This is why I am still a subscriber at age 63 and working relentlessly in retirement to substantially beat inflation with my capital using your research. I want to continue flying first-class and not economy. So far your recommendations are working. Thank you! Special thanks to Jeff Clark and his Direct Line." – Paid-up subscriber Terry Easler
"I have a friend who has 2,500,000 in a bank account. He made 7,000 last year in interest. How do I get this guy to put his money to work? I have 100,000 and I make 7,000 following your suggestions. And that includes all the losers you guys seem to forget after you drop them." – Anonymous
Ferris comment: First of all, if you don't forget about your losers after you drop them, you're going to have trouble in the stock market. All those billionaires like Buffett, Icahn, and Soros have one common trait: They'll walk away from a loser and keep on truckin' like it never happened. They didn't learn that after they got rich. They had to learn that in order to get rich in the first place.
Second, take it from someone who's been in the advice-giving business for almost 14 years. Your friend could do worse than keep his money in cash right now. I'm glad you're using our research. That's clearly the right decision for you, since you're making money. Investing is a personal thing. Stocks and bonds aren't for everybody. If that were my friend, I'd let the money issue lie.
"I'm an alliance member, so in 2008 I started receiving Mike William's new bond newsletter, True Income. I read the first issue but didn't get too excited about it. After reading the second issue and stopping to think about it, I realized that this was really after all a great way to invest some of my money, since I had bought individual bonds many years ago and had done quite well. I then proceeded to violate one of the rules that Mike had set down for successful trading. He wrote not to cherry-pick the recommendations, and to buy a small position in each bond, but I took the money I had set aside for bond trading and put it all into equal positions of the first two recommended bonds, Tribune and Rite-Aid. I averaged in at a less than the recommended price. Later during the crash, Tribune went into bankruptcy and the Rite-Aid bond would trade for less than $200. Looks like I was screwed, but I didn't panic. Mike had also said to reduce risk an investor had only to hold the bond to maturity to get their money back, so I held the Rite-Aid and watched the Tribune as recommended. Mike just now recommended sale of the Tribune bond. My loss will be 44%. Bonds aren't such a great investment after all, right?
"Hold on just a minute! My Rite-Aid bonds are now quoted around $930 each. I am up 63% on that position, for a blended profit in the two bonds of 14% in about 2 years. Not bad for a fool who violated the rules! The subscribers who followd Mike's rules are up over 100% in their bond portfolios. I didn't lose money but it wasn't a cheap lesson either because I lost the opportunity to more than double my money – if you pay for advice from experts, follow it." – Paid-up subscriber Gary S.
Ferris comment: Mike is a phenomenon, no doubt about it. I don't know if I should tell too many people about him, though. If everyone starts following his advice, I could put myself out of a job.
Regards,
Dan Ferris and Sean Goldsmith
Baltimore, Maryland
April 29, 2010