I've been talking about this for a few days... and it's finally here. The May issue of The 12% Letter (out today) adds a new World Dominating Dividend Grower (WDDG) to its model portfolio.
Simply put, WDDGs are the best businesses in the world. The short list of World Dominating Dividend Growers includes companies like Coca-Cola, Procter & Gamble, Intel, and Microsoft, among others.
These companies all maintain thick profit margins decade after decade. As any economist will tell you, that's practically an unnatural act. The market tends to hone in on sources of profit and winnow the profits down via competition. The ability to stave off competition and sustain thick profit margins for decades is a sure sign you're doing something the world finds highly valuable.
Another thing WDDGs do is generate gobs of cash flow. Their businesses earn much more in cash profits than they need to maintain and grow. So they can do things like buy back shares and – perhaps best of all – pay out dividends that increase year after year. Procter & Gamble, for instance, has increased its dividend every year for 58 years.
WDDGs also tend to have great balance sheets. There was no credit crisis for the World Dominating Dividend Growers during the debt-driven meltdown of 2008. Microsoft started a $2 billion short-term borrowing program at the very moment the meltdown hit in earnest, seven days after Lehman Brothers filed for bankruptcy and sent global debt markets into their September 2008 tailspin.
Obviously, there isn't an endless supply of WDDG stocks. When you discover one, it's a big deal. In the May issue, I show 12% Letter subscribers how this company will continue to grow market share, keep competition at bay, provide shareholders with a double-digit income over today's cost, and perhaps even multiply your initial investment by a factor of four.
No, it won't happen overnight, but that ought to go without saying. Great wealth is never built overnight. To discover our latest WDDG stock, you'll need to be a 12% Letter subscriber (which is one of our lower-priced advisories). To learn more about subscribing to The 12% Letter – which will give you access to my newest WDDG, as well as the current "buy" advice on all our other WDDGs – click here.
Billionaire hedge-fund manager John Paulson, who famously shorted the subprime crisis, is also betting Europe's stronger economies will struggle... According to the Financial Times, Paulson is buying credit default swaps on German government bonds.
Germany's economy is still strong... Its 10-year bonds recently traded at 1.66%, near record lows. Buying protection against German default is cheap. Paulson believes the European crisis will get much worse from here. And he thinks the euro will collapse. It's an inexpensive way to protect himself and profit from that outcome.
If the situation in Europe continues to deteriorate, we could face another major crisis...
The European Central Bank (ECB) has already loaned out 1 trillion euros to its member banks. You can expect that figure to grow, exacerbating the problem... And as we pointed out in the April 13 Digest, the banks are using the fresh capital to buy debt issued by their governments.
That's because no one else will buy the debt. The Spanish and Italian banks are trying to act as buyers of last resort. But that can only work if they have printing presses in their basements... and they don't.
Spanish lenders increased their holdings of Spanish government debt by 26% in two months to 220 billion euros at the end of January, according to data from Spain's Ministry of Economy and Finance. Italian banks increased holdings of their country's debt by 31% to 267 billion euros in the three months ended this February, according to the Bank of Italy, the nation's central bank.
This seems really horrible... And of course, it is really horrible. But remember... this is exactly what the Federal Reserve has done. The Fed gorged itself on Treasurys and mortgage debt after our own crisis hit. If you think Paulson's bet on German bonds is a good one, you understand perfectly why I (Dan Ferris) continue to warn readers about buying bonds in general – and U.S. Treasury debt in particular.
Meanwhile, the stronger European economies – Germany and France – are dumping the toxic sovereigns of their fellow European Union (EU) members... The backbones of the EU have cut holdings of other countries' debt – including Ireland and Greece – by as much as 50% since 2010.
The less European banks lend to each other, the more liability is shifted to the ECB. Or as Guntram Wolff – deputy director of Bruegel, a Brussels, Belgium-based research institute – puts it, "The exposure of the core countries to the periphery is shifting from the private to the public sector."
Remember that from the U.S. crisis? The public assumes all the risk... and the gains remain in the private sector. There's nothing new under the sun...
One of the most powerful men in European finance, Josef Ackermann – CEO of Europe's leading bank, Deutsche Bank – publicly acknowledged that many of the continent's major banks are essentially insolvent. Last September, addressing a conference in Germany, Ackermann said, "It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels..."
The weakness in Europe will lead to one thing: further bailouts from the ECB. From the latest issue of Stansberry's Investment Advisory...
|
My thesis on the world's biggest banks is simple. Despite the ongoing financial problems in Europe, both the European Central Bank (ECB) and the U.S. Federal Reserve have the ability (thanks to the printing press) to stop any run on the banks. Their previous actions (quantitative easing) have committed them to an inflationary policy to save the banks and continue the monetary system as it exists today. |
|
The price we will all pay is inflation – and ultimately the loss of the U.S. dollar as the world's reserve currency. But these problems can be kicked down the road a bit, allowing more time for the wealthy to prepare for the inevitable collapse. I believe that's exactly what's going to happen. And that means the world's largest banks will continue to be bailed out via continuous manipulation of the money supply. |
|
That's what happened in the U.S. in the fall of 2008 and 2009. And that's what has happened in Europe, starting in December 2011. |
|
Thus, the world's largest banks are de-facto sovereign credits. They cannot fail. So to make safe investments in them... all we need to do is ensure the individual bank has enough of a capital cushion to protect the common stock shareholders from any remaining bumps in the road. |
|
For example, I wouldn't recommend UniCredit – even though it's now a de-facto sovereign credit. Why not? Because if there's another downturn and it must be bailed out directly, it's unlikely its common shareholders will be spared. (Remember... the creditors of Bear Stearns escaped unharmed, while the shareholders got almost nothing.) |
In the April issue of Stansberry's Investment Advisory, Porter details a trio of stocks that will profit from the inevitable inflation that Europe's money printing will cause. The names of the stocks will likely surprise you. Porter freely admits that most subscribers will refuse to buy them... and may even cancel their subscriptions, outraged by his "heresy." No matter. These stocks represent Porter's best ideas for positioning your portfolio for the coming inflation. To learn more about a subscription to Stansberry's Investment Advisory – which is the only way to access his latest recommendations – click here.
New 52-week highs (as of 4/19/12): Anheuser-Busch InBev (BUD), Coca-Cola (KO), Calpine (CPN), Texas Pacific Land Trust (TPL), BLADEX (BLX), and Altria Group (MO).
In the mailbag today, more screeds about Warren Buffett. We decided not to run any more... Not because we're trying to censor you... But we think you already get the point. Send your notes to feedback@stansberryresearch.com.
Ferris comment: I've been as critical of Buffett as anyone. I hardly know where to begin the list of things about him that ticks me off...
I hate his views on taxes. Only a billionaire who long ago lost all touch with the everyday reality of living paycheck to paycheck could promote them. And I think he couldn't possibly be more wrong about the effectiveness of Social Security, which has been an unmitigated disaster, robbing millions of Americans of the opportunity to build a life of their own.
Buffett's support of Obama is sickening, given how Komrade Obama has worked tirelessly to ruin the U.S. economy. Nor does it surprise me one bit when a cavalcade of Hollywood celebrities shows up in the annual film presentation at the Berkshire Hathaway shareholder meeting. Buffett is a typical spotlight seeker. Yet he's successfully sold people on his cracker-barrel, folksy persona... which is pure B.S. Buffett is human, so there's plenty to criticize. But...
The man is the greatest living investor, and I'm glad to hear that his health scare is a relatively benign problem. I wish him a long(er!) and happy life. He's earned one, warts and all. I wish him nothing but the best. And hope he'll be around for a good, long time, giving me something to criticize and helping us all learn how better to allocate our hard-earned capital.
Get well, soon, Warren.
Regards,
Sean Goldsmith and Dan Ferris
New York, New York and Medford, Oregon
April 19, 2012
The newest WDDG pick is here... Paulson shorts Europe... Spanish and Italian banks buy euro debt... Germany and France sell euro debt... Europe's 'open secret'... Public risk, private gain, Europe style... Porter's 'printing press' call...