Jim Rogers has gone from ridiculing short-selling master Jim Chanos about his short China thesis to almost agreeing with him. Rogers recently told Bloomberg he sees a speculative bubble forming in Chinese real estate... "Certainly, Shanghai real estate or Hong Kong real estate should decline."
But unlike Chanos, Rogers is still bullish on the broader Chinese economy (he's not selling any holdings). And Rogers still doesn't think Chanos understands the world's fastest-growing economy. "His remarks show a lack of understanding about Dubai and of China. Dubai's economy is built on real estate speculation, whereas China's is not. It is just part of the Chinese economy."
But Rogers says the Chinese real estate bubble isn't anything compared to what Porter calls "the only trend that matters for the next decade"...
"My goodness, if anything's in a bubble in the world, that and U.S. government bonds are certainly very overpriced," Rogers said. Porter has already described to PSIA subscribers his favorite way to profit from this mega-trend. To learn more, click here.
Our friends at The Daily Crux published an article yesterday outlining Rogers' favorite long opportunity... agriculture. Rogers says in the next few years, we're going to have "very serious shortages of food everywhere in the world." Inventory levels are at their lowest in decades. And many farmers can't get loans for fertilizer to increase output.
Last week, companies raised a record $11.7 billion in the high-yield debt market – the biggest in history. Investors, tired of dismal rates on U.S. Treasuries, are once again reaching for yield. And companies are taking advantage of this demand to recapitalize their balance sheets.
In other words, we're currently experiencing a "golden era" for high-yield bond investors. Prices across the board are soaring. And an experienced bond analyst has a great opportunity to find value among the new issues. If you haven't yet started investing in bonds, now is the time.
Our bond analyst, True Income editor Mike Williams, is producing amazing returns. He made readers nearly 250% in a bond... an amazing feat. Last week, Porter described the kinds of opportunities Mike is uncovering every month. We hope after reading Porter and Mike's description of the service, you'll do yourself a favor and sign up.
On Friday, we said "too big to fail" banks like JPMorganChase would be among the primary beneficiaries of the government's ongoing inflationary assault on the U.S. dollar.
In fact, a whole group of financial stocks – ones I've called "croupier" stocks – are poised to benefit from inflation. Any financial institution that gets paid based on the amount of dollar-denominated assets it holds will benefit. More currency units means more profits to these companies.
Take Extreme Value pick Automatic Data Processing, for example. ADP is a payroll processor. It distributes about one-sixth of the country's paychecks. ADP hangs on to client funds overnight and collects interest on them. It does this with nearly $1 trillion in client funds each year. Check its income statement and you'll see one-third of its operating income is from "interest on funds held for clients."
Inflation helps this number two ways. First, as more currency units push pay scales higher, ADP processes more client funds and earns more interest. Second, inflation will degrade the currency, causing interest rates to rise. ADP has a financial fortress of a balance sheet, with more than $1.7 billion in cash and securities and just $42 million in debt.
I've written several times in the past couple of years that big banks and ADP are like dealers in a casino – they get a cut of the substantial amounts of money that flow through their hands. The more money the Fed prints, the more the croupier companies get paid.
Porter recommended Visa (V) shares not too long ago. Visa is an excellent example of a croupier company. As more currency units slosh around the globe, Visa's earnings can't help but grow.
Insurance companies are good croupier stocks, too. As more money is printed, the better insurance companies will take in more in premium and invest it at higher rates of return. My colleague Tom Dyson has recommended two of the best insurance companies in the world in his 12% Letter. To learn them, click here.
In fact, once you understand how financial croupier companies skim off a piece of the action, it's not hard to take another step forward and see some nonfinancial businesses in a similar light. I've recommended numerous companies that grow dramatically as the volume of what they trade swells.
Buying croupier stocks is one of the best inflation-fighting investment ideas ever. It's a fantastic way to profit without making risky speculations on mining stocks that have no earnings or cash flow. To find out more about these croupier businesses and what else I'm recommending in Extreme Value, click here.
I first wrote about South Korean steel giant POSCO back in 2005, when the stock was around $49 a share. Back then, I called it a steel company with such a great balance sheet and so loaded with cash, it almost looked like a bank. Today, it's acting like a bank...
POSCO and another large South Korean company, Lotte Group, have agreed to provide financing for a $2.7 billion deal to build a Universal Studios theme park there, not far from the Incheon Airport. The project was announced in 2007, but it's been difficult to find investors in the wake of the global financial crisis. Lotte, a retail hotel company, will own 27% of the project, and POSCO will own 24% of it. Universal Studios says it will be its largest park in Asia.
I'm not the only one who likes POSCO... Today in a meeting, Warren Buffett told the CEO of POSCO he wishes he'd bought more POSCO shares last year, when the stock cratered at less than $50. It's around $135 now. Despite the stock's big run up, a South Korean news agency reports Buffett wants to buy more shares now.
Buffett says he "positively welcomes and agrees" with POSCO's decision to spend $30 billion this year to buy more raw materials and expand its business into India, Vietnam, and Indonesia.
Buffett doesn't always agree with the decisions made at the companies where he invests. He voted against Kraft's first bid for Cadbury because he said voting yes meant "authorizing a huge transaction without knowing its cost or the means of payment." In addition to fearing Kraft would change the terms of the agreement to the detriment of its shareholders, Buffett also disliked Kraft using its undervalued stock as 60% of the payment.
Well, now we know the cost and the means of payment. And they are indeed different than the original deal... but in a way that's more likely to win Buffett's approval. Kraft has won Cadbury with a $19.44 billion offer consisting of 60% cash and 40% stock.
Buffett's Berkshire Hathaway is Kraft's biggest shareholder. He's also assumed to have quite a bit of influence over other Kraft shareholders due to his reputation as a great investor. Buffett complained about Kraft using too much stock and voila... Kraft offered less stock and more cash. So far, the deal is a go.
Hershey abandoned its bid for Cadbury, no doubt in part due to the fact the Hershey Trust doesn't want to give up control of the company. But now we know Hershey understands the need to grow by acquisition, and we expect it'll continue looking for a smaller deal, one that will allow the Hershey Trust to maintain control.
New highs: None. The market was closed yesterday.
In the mailbag... some notes about our Private Wealth Alliance. We've often said our lifetime memberships are among the best values you'll find in financial publishing. Send your inquires to feedback@stansberryresearch.com.
"Hey guys, it's your old pal, GF. You may remember me from last year's often-published 'don't be a dumb-ass like me; hide your gold now before it gets stolen' letter Just wanted to let you know that I've been reading some of your publications for about 2 years now and I've learned a lot.
"I just joined the Private Wealth Alliance this morning. It was a no-brainer since I was already subscribing to Resource Report, PSIA, and 12%, and was considering buying Inside Strategist. My trading account is growing and I hope to some day be in a position to join the 'big boy alliance' or even the 400 club. On another note, I have come up with some great hiding places for gold, cash, etc; thanks to those who wrote in on the subject. Keep up the good work." – Paid-up subscriber GF
"I do not yet see the 'Private Wealth Alliance' described on the web site. Where should I be looking?" – Paid-up subscriber Paul Watson
Goldsmith comment: The Private Wealth Alliance is the most affordable lifetime subscription we offer at Stansberry Research. For only $650, you receive six of our best publications for life (including Porter Stansberry's Investment Advisory and Inside Strategist). Plus, you'll receive access to our newest advisory service, Penny Stock Specialist, written by veteran analyst Frank Curzio. The cost for this service alone is $199 a year.
This offer will be your last opportunity to sign up for the Private Wealth Alliance at this low price. We're raising the cost to at least $1,000 after this. To learn more about the Private Wealth Alliance, click here...
Regards,
Dan Ferris & Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
January 19, 2010