The real war is beginning. And it's not against drugs or terrorists or cancer. It's against the wealthy.
If you don't have more than $10 million in liquid assets or a total net worth more than about $20 million, you probably don't think this concerns you. But you're wrong. The truly wealthy among us control a huge amount of America's most productive capital. If they flee America, private enterprise will suffer an enormous blow. And it's not only in America. Around the world, the wealthiest people are being segregated, profiled, indexed, and tracked.
Consider this: For the first time since Nazi Germany was in power, Swiss bankers are afraid to travel. Says The Wall Street Journal:
UBS, the world's largest manager of private wealth by assets, has barred "client-facing" staff in its wealth-management divisions from traveling abroad... other private bankers in Switzerland are being advised to exercise personal discretion in their travel decisions.
The G-20 – the largest industrial nations on Earth (with the biggest governments) – are determined to eliminate the low-tax competition of states like Switzerland, which for more than 500 years has served as a safe haven for the world's wealth. In the United States, the IRS and the Justice Department forced Swiss bank UBS to hand over its client lists and is threatening criminal sanctions against any secret foreign account holders who don't come forward voluntarily within six months.
Again... you probably don't think this matters to you. In fact, you might even be rooting for the government to make the rich "pay their fair share." (Never mind the top 1% of American taxpayers already contributes more than 22% of the federal tax revenues.) But you ought to reconsider, or at least read some history...
When governments begin to forbid or restrict moving assets offshore, it is always a warning sign that something terrible is about to happen – usually rapid inflation, capital controls, and a period of massive wealth destruction.
In the last year, the government has attacked the largest Swiss bank, threatened thousands of its American customers with incarceration, and made it illegal to voluntarily emigrate from the United States, without first contributing half of your global assets to the government. It's no coincidence over the same period, the Federal Reserve has expanded its balance sheet by roughly 200%, money supply has grown roughly 20% (more about this below), and the government has taken control of the banking system.
This is only the beginning. Once a government heads down this path, it must constantly increase the difficulties and the risks of moving capital abroad. There's more to come – I guarantee it.
Why should you care? Because capital inevitably moves to where it is treated best. For decades, that was America – which grew tremendously rich and powerful. Our leaders have grown arrogant. They've forgotten what made America great. They seem to believe God bestowed wealth upon our country. They've borrowed an unfathomable amount of money – confident they'll be able to tax future generations of Americans. But in fact, the wealth of our country is almost completely owned by individuals. And right now, these individuals see nothing but endless decades of additional government deficits, rising taxes, and a paper currency that's being destroyed. They see the free market system being corrupted. And most importantly, they see a nation that used to espouse the ideals of limited government and personal liberty heading down the road of a socialist experiment, led by an inexperienced, charismatic, and wildly popular leader. They know what's coming. And so should you.
These are the problems we're going to address for members of The 400 Club... How to gain foreign citizenship... How to protect your assets internationally... Where the world's best expat communities are...
We're not currently accepting members, but we have started a list of potential invitees. If you'd like to be considered, send us an e-mail. Tell us what value you could bring to the club. Mind you, The 400 Club isn't for everyone. The price for the first 200 charter members will be at least $20,000... and it will increase substantially after that.
Speaking of money supply... something very odd is happening. Normally during an economic contraction, credit contracts and money supply falls. But today, money supply is growing at its fastest pace in decades – even faster than it grew in the run-up to 2000, when the Fed poured money into the system out of misguided fears of a Y2K-inspired run on the banks. Over the last six months, M-1 grew at an annualized rate of 24%.
We wrote it. Did you short it?
Corus has $7 billion in loan commitments to condo developers and $825 million in tangible shareholder equity. It would be wiped out if the losses on these loans averaged 12%. For losses of that size, selling prices on the units being developed have to fall by more than 50%. Prices falling that far seemed hard to imagine... until the December Lennar liquidation, where prices fell 60%... In the end, Corus' future hangs in the balance of an incredibly overbuilt and fraud-ridden downtown Miami condo market. Anyone interested in buying the stock? Not me. – PSIA, January 2008
American Banker reports: "With more than half of its loans now nonperforming, Corus Bankshares Inc. of Chicago said Wednesday that the company's auditors have issued a warning about its ability to survive. At yearend, $2 billion of its loans were non-performing, up 366% from a year earlier... In its filing Wednesday, Corus said the bank unit would not be able to achieve a leverage ratio of 9% and its Tier 1 risk-based ratio of 12%, as required..."
Here's part of the Corus story you won't read anywhere else – the part where the bank paid out a special dividend to the family that owns a majority stake. That was in the summer of 2007, when the handwriting was on the wall. Then, it made sure its loan officers got paid in December 2007 – for all the loans they issued during the bubble of 2004-2006. Now, the FDIC will bail out Corus' depositors – who were fools to put their money in the bank that was financing the condo boom in Miami. The Corus story is a perfect case study for why deposit insurance doesn't work and an indictment of our entire banking system.
In launching Retirement Millionaire, editor Doc Eifrig gave readers great secrets, like how to eat at top restaurants for 75% off and how to take a cross-country vacation at one tenth the normal cost. In the April issue, he’s uncovered a story that could add thousands of dollars to you and your family.
It turns out that today, one large insurance company is due to l
ower the numbers in their life expectancy tables. This would make your life insurance more valuable than it ever was before. In the issue, he shows how you might be able to take advantage of this if you’re at least 70 years old and have life insurance.
These are just samples of what he has planned for his newsletter...
Eifrig's new advisory will focus on all sorts of loopholes that guarantee you a happier and wealthier retirement. As we've said, Eifrig has already retired twice... once from a job as a bond trader at Goldman Sachs and next as an eye doctor. He's spent a lifetime gathering money-saving secrets and tips... And we recently hired him to tell our readers about all of them. To learn about the other insights Eifrig has discovered, click here...
By the end of 1999, value-investing legend David Dreman was one of the worst-performing managers on Wall Street. He trailed the S&P 500 by 34%. Investors fled his fund in droves. The very next year was one of Dreman's best: He beat the index by 50%.
Will history repeat? Last year was the worst of Dreman's entire career: His DWS Dreman High Return Equity Fund fell 47%, putting it in the bottom 3% of his peers. He bet heavily on financials – and got crushed. Will he bounce back this year? Not at DWS. He was fired as its manager yesterday – an incredible indignity to the 72-year-old legend... and almost surely the sign of a market bottom.
Pernod Ricard, the world's second-largest liquor maker behind Diageo, announced a $1.3 billion rights offering and the $575 million sale of its Wild Turkey bourbon brand (which generates $130 million a year) to pay down debt. (Can you believe how much Wild Turkey people buy? Who drinks that stuff?)
The offering and the sale are signs of the times. Pernod nearly doubled its debt to 12 billion euros last year, making the typical "boom time" mistake, overpaying for an acquisition at the market peak. Pernod bought Absolut maker Vin & Sprit AB from the Swedish government for $8.34 billion last March. Now, the company is seeing a "major downturn" in Eastern Europe and Russia, and U.S. liquor sellers are cutting inventories.
If you look at any billion-dollar, debt-funded acquisition made between 2005 and 2007, you'll find a terrible mistake. And you'll probably find a good company to sell short.
Biotech company Dendreon has surged 50% in the past three days after the company announced it will unveil final results from Provenge, its prostate-cancer vaccine, by the end of April. Rumors of positive results sent short sellers rushing to cover their positions. But the Dendreon mania is just getting started...
In 2007, Dendreon stock shot up more than 500% after an independent advisory panel recommended approval of Provenge. At the feverish peak, Dendreon's market cap quintupled to more than $2 billion. But a few weeks later, the FDA rejected Provenge based on a lack of convincing data. The stock tumbled 80% from its peak. Astute traders made millions from the extreme volatility.
This time around, our biotech analyst George Huang expects the same crazy volatility when Dendreon releases its data. If the results are poor, the stock will drop 90% or more. If the results are positive, Dendreon stock could easily soar 200% from current levels. George has structured a trade for his FDA Report readers to make huge profits – no matter the outcome. To learn more about the S&A FDA Report, click here...
One of the giants of agribusiness, James G. Boswell II, dubbed "The King of California," passed away last Friday at 86 years old. Boswell's business, the family-owned J.G. Boswell Co., pioneered water-saving technologies and dominated the California cotton industry for generations. The late Boswell more than tripled the size of the family farm, which peaked around 200,000 acres and now spans 150,000 in Corcoran, California. Boswell's labs created new, more productive seeds, which, according to an LA Times article, "boosted their capacity to 400 bales of cotton a day – enough to produce 840,000 pairs of boxer shorts."
Boswell's stock, which trades on the pink sheets under the ticker BWEL, is a value darling. It's a classic undervalued land play, and you get massive water rights to boot... The only problem is, the stock only trades "by appointment" – meaning it's notoriously difficult to trade. Anyone interested in reading a book about the super-secretive and successful business owner, check out The King Of California: J.G. Boswell and the Making of A Secret American Empire.
New highs: Genomic Health (GHDX).
In the mailbag... almost all praise. And that makes us nervous. Why? We know it doesn't pay to argue with our clients or to alienate them. But we also know people will spend a lot more time reading something that provokes them every now and then. That's how we all learn – by thinking about new things, things that sometimes make us feel uncomfortable... or even angry.
So please, let us know when we've struck a nerve. That's what we're aiming for: feedback@stansberryresearch.com
"Porter wrote: 'If you have ever had any doubt about the real purpose of regulators – which is to protect the largest corporations from competitors like Andy Beal – you should study what happened to Beal Bank during the last four years. The only diligent, careful, and wise banker in America was nearly forced out of business by the people who are supposed to be "protecting" me and you – all while the country's biggest banks made the most reckless lending decisions in history.'
"Amen, amen, amen, brotherman! Beyond offering relief from force and fraud, state and federal intrusion into financial transactions amounts to cronyism. When the petty and envious masses cry for Mama Gubment to regulate those mean old fatcats – who are all thieves to a man, as evidenced by their ability to make money when the rest of us can't – said fatcats at some point of exasperation simply purchase ownership interests in the regulators through lobbying tactics that result in the most incestuous of public-private relationships. Smaller competitors are burried under newly mandated compliance burdens while the petty and envious masses end up with higher priced goods of lower quality. Otherwise known as fascism." – Paid-up subscriber Greg Miller
"I am a Mechanical Engineer; I worked with Chrysler Corporation for 8 years, have had other engineering
jobs in the interim, and am currently working for a company that makes parts for GM as well as many other companies. I like to work with the GM engineers, they are so easy to work with, and they are typically short time in any assignment and have only a superficial knowledge of what they are working on. The Asian car companies are the worst, their engineers are demanding, and know the details of their parts, their cars and how they interact (unless they are subsidiaries of GM, in which case we are back on easy street)." – Anonymous
"Porter, I have to tell you that you're Put Strategy ROCKS... You have me looking forward to the down market days when the volatility and put price shoot up. I have been able to sell puts on a under $20 stock three months in a row for $ 0.75 or better on only a 3-4 week out option. This is the perfect time for this strategy." – Paid-up subscriber JS
Regards,
Porter Stansberry
Baltimore, Maryland
April 8, 2009