Poor Warren Buffett. The world's most famous investor has gotten killed over the last year, losing about $35 billion on Berkshire's investment portfolio. It's getting worse, too: Wells Fargo cut its dividend today, a move that will cost Berkshire $336 million in income each year.
And now Congress seems poised to pass a bill that will allow railroad customers to sue the railroads under antitrust law. That surely means an end to the huge growth in freight rates that had powered the stocks since the last 1990s and led many hedge funds to buy large positions in the stocks. Buffett has been buying Burlington Northern all the way down. You have to wonder what will happen to these stocks if Congress does pass the legislation and the hedge funds all try to sell at the same time...
Exxon is probably the best-managed company in history. During the huge move up in oil prices over the last five years, the company sat on its hands. It didn't buy anything – it made no major investments in new oil properties and it didn't try to buy any of its competitors. Instead, it amassed what's probably the largest cash hoard in corporate history. It has $32 billion in cash and a pile of Treasury stock that's worth more than any other major oil company. Now, with oil prices back below $40, what is Exxon doing? "We really are making no adjustments to our business strategy," says CEO Rex Tillerson. He's just being modest. Exxon is stepping up its spending on finding oil and gas – just when everyone else is cutting their exploration budgets. Exxon is increasing its exploration budget by 11% to $29 billion, while cutting its share buyback program from $8 billion to $7 billion.
A fickle prosecution? The U.S. government has indicted the former CEO of KB Home, Bruce Karatz, for fraud in conjunction with the company's options backdating scandal. Last September, Karatz paid $7 million to the SEC in a deal allowing him to escape without admitting any wrongdoing. While I applaud the criminal indictment, I wonder why only a handful of CEOs, out of the hundreds who were involved in the stock options scandal, have been indicted.
U.S. unemployment is now at 8.1%... the highest since December 1983. Payroll fell by 651,000 in February, and revisions for the previous two months showed an additional 161,000 job losses. The U.S. has lost a total of around 4.4 million jobs since the recession started in December 2007... the largest loss in any postwar period.
While all world economies are struggling, Tom Dyson thinks Japan is going to be the world's largest bankruptcy. He wrote in DailyWealth earlier this week...
Since its recession began 20 years ago, Japan has plowed trillions into its banking system via numerous bailout programs. Japan's mantra is growth without cost. As a result, the Japanese government has built up the world's most crippling debt load.
The government of Japan owes $7.8 trillion. That's $157,000 per capita...
If there's going to be a major sovereign bankruptcy, it's going to happen in Japan. Its economy is a shambles. For years, Japan has relied on exports... but even that's drying up now. In January, Japan's exports plunged 47%, producing a trade deficit. People talk about Japan as a "nation of savers." But that's not true anymore. Japan's personal savings rate has collapsed from 16% in the early 1990s to 2.2% last year.
Japan has an aging population and no immigration. I can't see where it's going to find the money to pay off its huge pile of debt.
Read the full essay and learn how Tom plans to profit from Japan's demise here...
Another example of your tax dollars at work, courtesy of our all-knowing government... Even though the U.S. Postal Service has said it's experiencing a financial crisis and is considering cutting mail service to five days a week, it found the funds to purchase a $1.2 million home so a postmaster could relocate. But don't worry, "It's not like we threw away a million dollars," USPS spokesperson Greg Frey told CNN. "We are hoping it's going to go for the appraised value."
That's unlikely, considering the market for 8,400-square-foot McMansions has dried up. One involved real estate agent said the USPS has lost an average of more than $58,000 on the 500-plus homes its relocation program bought and sold in 2008.
Our friends at aggregator website The Daily Crux just spoke at length with multimillionaire currency expert Chris Weber – one of the smartest and most successful investors we know. They're calling the interview the "Multi-Millionaire Currency Expert's No. 1 Idea for 2009."
In this interview, Chris names the only two places you should be putting your money today... and the only realistic way to make 1,300% gains, or more, in the next few years. This is a must-read... and it's completely free. To receive the interview, click here...
New highs: none.
In the mailbag, a valuable lesson about how to use our newsletters. When you buy and how much you pay counts. Send your accusations... or praise... here: feedback@stansberryresearch.com.
"My name is John H. Palmer III and I am a long time subscriber to Steve Sjuggerud's True Wealth. I have a MAJOR issue with the way 'performance' is noted in this letter, which is highlighted by a specific 'sell' in this month's issue - PHK. Your reportage is extremely misleading. On January 5th, a Monday, and the first 'market day' after receiving my January 09 letter I took a position in PHK. That would have been the first possible day a subscriber would have been able to take that new recommendation. My price – $6.74. The shares were already ex-dividend. We received a dividend February 2nd which was reinvested. We received our March issue today, March 4, containing a 'sell' on PHK and blithely reporting the taking of a 64% profit. Steve's listed entry and exit prices were 12/19/09 entry at $4.58 - 17days before a subscriber could have gotten in. The sell price of $7.03 would place his exit sell date as one of the 4 days from the 17th to the 20th of February which followed the more than 20% gap down that had just occurred. Since his own 'sell' PHK has fallen an additional 40% to today's open
at $4.20. In short – a subscriber following the letter's recommendation at the first opportunity would have taken a massive haircut of nearly a 40% LOSS. Steve brags of a 64% gain. As a subscriber, I got my head handed to me. PIMCO stopped the dividend! The shares got decimated. I don't think Steve did his homework for the subscriber very well." – Paid-up subscriber John Palmer
"Great call on PHK. Your sell call hit it right at the top and I took your advice and sold it for a 70% gain in a couple of months. Thanks. That's one stock I didn't get PHK'ed on this year!" – Paid-up subscriber Pete Ewing
Porter comment: We published both of these letters – the first excoriates Steve and the second praises him – to make an important point. Your investment decisions are your responsibility, not ours. When you buy a $99 newsletter, you get our published materials – that's all. We don't assume any fiduciary responsibility for your trading decisions. We are not offering you any individualized advice. You simply get our research and our ideas. What you do with our ideas is 100% your responsibility.
The fund Steve recommended in this case was a PIMCO high yield fund (PHK). His recommendation, which was published on December 19, was to buy the fund because it was trading at a discount to its net asset value. He then recommended selling the fund on February 20 at around $7 because the fund had increased so much in price it was trading at a 60% premium to net asset value. Many subscribers undoubtedly made a big profit using this advice – as the second letter demonstrates.
On the other hand, if you waited a month or more to act on Steve's original buy recommendation, after it had gone up 34%(!), it hardly seems fair to blame us.
[Regarding Dan's suggestion to fight City Hall on taxes] "If you need assistance and firepower, call me. At 71, I have both the anger and the firepower to assist. Americans are crawling on their bellies to the swindlers and embezzlers in Washington and elsewhere. Death to Tyrants." – Paid-up subscriber Peter Stephens
Porter comment: My old friend, the great political philosopher Doug Casey likes to say about America's government, "It's too late to fix the problem and too soon to line them up against the wall and shoot them."
Letter received on December 12, 2008: "I'm totally confused. On Friday GGP and MAC were two of the top performing stocks in the market as GGP declared their 900 Million problem solved and MAC declared to the analyst community that they have filled most of their vacant Mervyns's stores. Are they just liars, like the typical corporate amoral robots? Is this just a redux of the mortgage banking fiasco, where each week a new bunch of lies would be foisted on the analysts, causing the stocks to rally, and sometimes causing violent short covering rallies, only to be followed by further revelations that the companies were indeed headed toward insolvency? If so, where is the SEC? I'm getting sooooo tired of these liar-induced whipsaws." – Paid-up subscriber Brett Fromme
Porter comment: I began writing about the inevitable fate of highly indebted companies in late 2008, when it became obvious the credit markets for high-yield debt could not be repaired. In my newsletter PSIA, I published a list of 12 companies that were certainly headed for bankruptcy. The average loss of those 12 stocks is now about 50% – in only three months.
As for Macerich (MAC) and General Growth Properties (GGP), I explained that because these highly indebted mall owners could not earn enough money to pay their interest expenses in good times (2007), they were certainly going to zero. As I explained, no one would refinance a corporate borrower that's upside down on its debts and can't afford its current interest payments.
A chorus of boos erupted from my subscribers when shortly after I published my comments, both companies released news essentially refuting my analysis – as this letter from Brett recounts. So... who was telling the truth?
You can see how both stocks have performed over the last three months below. What investors need to realize – and maybe some day will realize – is the SEC isn't interested in protecting investors and it never has been. The SEC exists to protect large corporations whose earnings and investment banking fees provide Wall Street's manna. If that's not apparent to you even after the excesses of the late 1990s and the credit bubble of the 2000s, I have to wonder if anyone will ever realize that the folks in Washington aren't really here to help us. They're here to help themselves.
And this is the final irony: The SEC is suing me for producing "fraudulent" research! That's after every single company I've recommended short selling has lied left and right – to journalists, to their investors, and even to Congress. Look at what the CEO of Gannett said about his firm's huge writeoff just before I recommended selling it short:
This is an accounting event – and I stress accounting event – that I believe needs explaining. Let me begin by assuring you that the company remains healthy. This charge will not hold us back in any way: We can pay our dividends and our debts, make strategic acquisitions and investments, and repurchase shares of our stock. There is no impact on our strong cash flow...
That was as bald-faced a lie as any corporate executive has ever told. Gannett's revenues were plummeting. It can't afford to repay its debts. And it obviously would have to cancel its dividend, which it reduced by 90% in February. And how many times did Paulson, Bernanke, and Barney Frank tell us Fannie and Freddie were well-capitalized? But... of these companies that fail, lying all the way to zero, none of their executives are ever prosecuted for lying.
Even though the 12 stocks I outlined in PSIA are already down about 50%, there's still plenty of room for them to fall. In fact, I think they're all going to zero... And you know I don't throw that term around recklessly. PSIA subscribers can refer to my December issue, "The End of America." And I talk more about these companies in the March issue, out today. If you'd like to sign up, click here.
Regards,
Porter Stansberry
Baltimore, Maryland
March 6, 2009