This whipping boy may have defrauded investors... The next subprime... An IPO flop...
There's lots of bad news out on one of our favorite long-term whipping boys, General Motors...
CEO Mary Barra took the helm in January. And since her tenure began, GM's stock is down 13%.
Two weeks into her reign, GM began recalling 1.6 million cars with faulty ignition switches that were linked to 12 deaths and 31 accidents over the past decade... The ignition would shut off while driving if bumped or weighed down by a heavy key ring.
And two weeks ago, GM announced that it had received reports as early as 2001 about the problem – three years earlier than previously disclosed.
The New York Times reviewed 8,000 customer complaints and came upon reviews like this...
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On March 11, the Justice Department said it would open a criminal investigation into GM's disclosures regarding the faulty switch. And that's only the beginning...
As part of the investigation, authorities are now looking to see if GM committed bankruptcy fraud by not disclosing the massive future liabilities tied to the recall. The company filed for bankruptcy in 2009... Failing to disclose these fatal defects – which GM had known about since 2001 – would be a major issue.
The same FBI agents leading the investigation were also responsible for Toyota's $1.2 billion settlement regarding its recall of automobiles that would accelerate on their own.
In the latest issue of Stansberry's Investment Advisory, Porter presented another issue for GM and all carmakers today – the rise of subprime lending in the auto sector.
Porter noted private-equity firm Blackstone Group's entrance into auto lending through its 2011 purchase of Exeter Finance... Closely followed by fellow private-equity shop Perella Weinberg, which partnered with CarFinance Capital.
These guys are borrowing money for around 2% and lending to subprime borrowers for 19% – a ridiculous spread... Oh, and they're adding lots of leverage. From the March issue of Stansberry's Investment Advisory...
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As Porter and his research team pointed out, the average auto loan today is for 65 months (about five years). Twenty percent of all auto loans are for durations between 73 and 84 months. Plus, the average dollar amount of these loans – more than $26,000 – is the largest ever recorded...
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On Monday, one of the market's favorite sectors – momentum technology stocks like Tesla, Netflix, and 3D Systems – plunged.
Thanks to the Federal Reserve's loose monetary policy, we've seen a return to toppy conditions... Stocks are at all-time highs and bond yields are at all-time lows.
We're seeing huge takeovers of companies with little to no revenue (like Facebook's $19 billion acquisition of messaging service WhatsApp). Tech initial public offerings (IPOs) are soaring out of the gate – like social-media site Twitter, which soared from $26 to $45 on its first day of trading.
And these firms are trading at absurd valuations... Online-retail giant Amazon trades for 630 times trailing 12-month earnings, for example.
Hedge-fund legend Seth Klarman shares our views. In his most recent letter to his Baupost Group investors, he noted Twitter may reach $50 million in "adjusted" cash earnings this year, placing its price-to-earnings ratio at 500. He wrote...
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This behavior isn't sustainable. If you pay 500 times earnings for anything, the chances of you making a decent return are practically nil... Yes, some "greater fool" may take shares off your hands for a higher price. But there is no fundamental justification for the transaction... just hope that someone down the road will once again pay more.
And we have further evidence today that the market may be realizing this...
In the March 12 Digest, we presented the forthcoming IPO of King Digital Entertainment – the company that makes the wildly popular "Candy Crush Saga" video game – as a sign of the top. We wrote...
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Shares of King Digital (KING) debuted on the New York Stock Exchange today at $22.50 – the exact middle of its expected range. The company raised nearly $500 million, valuing KING at more than $7 billion.
Then something unexpected happened... Shares fell nearly 15% to $19.17 a share before recovering slightly.
We'll say again... It seems the air is coming out of the momentum tech trade.
New 52-week highs (as of 3/25/14): C&J Energy Services (CJES), Carrizo Oil & Gas (CRZO), EMC (EMC), Fission Uranium (FCU.V), Corning (GLW), Home Federal Bancorp (HOME), Johnson & Johnson (JNJ), and Penn Virginia (PVA).
In today's mailbag, a subscriber asks for Porter's thoughts on the virtual currency Bitcoin. Send us your notes to feedback@stansberryresearch.com.
"I recently read a comment by Porter that he is absolutely not a promoter of the Bitcoin currency. Does he have a previous Digest article pertaining to his stance or can he tell me why he feels the way he does? I've recently been studying the Bitcoin history and would truly like to know why he feels as he does. Thank you." – Paid-up subscriber Phil Davidson
Goldsmith comment: We discussed Bitcoin in length in the November 27 Digest. In short, while we support the idea of alternatives to fiat currency, we don't trust the virtual alternative... It's backed by nothing and it's incredibly speculative.
Regards,
Sean Goldsmith
New York, New York
March 26, 2014
An excerpt from one of the most important books any trader can read...
Doc Eifrig and S&A Editor in Chief Brian Hunt just published a book on options trading.
The lessons and strategies they discuss are so important, we're giving away an excerpt in today's Digest Premium...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
An excerpt from one of the most important books any trader can read...
Editor's note: Doc Eifrig and S&A Editor in Chief Brian Hunt recently finished an incredible book, titled High Income Retirement: How to Safely Earn 12% to 20% Income Streams on Your Savings.
It's the best and most thorough explanation of using simple options strategies we've ever seen. In it, they show you how to vastly increase the amount of income you generate every year. It's a must-read for anyone who trades options or has thought about it.
In today's excerpt, Doc and Brian explain a certain type of options trade... and clearly explain the numbers and strategies involved. Tomorrow, we'll feature a bit where they discuss the most important lesson for anyone using these strategies...
A share of stock represents the ownership of a small slice of a business.
Some businesses chop their ownership structure into hundreds of millions of these "shares." These shares fluctuate in value every day the financial markets are open.
In addition to the big market for stocks, there is a big market for stock options. Each day the market is open, millions of stock options are bought and sold. And a huge number of the participants in the stock-options market are hopeless gamblers.
We can use this market and its participants to produce steady income streams from the stocks we own in retirement accounts (and any other brokerage account).
Here's an example of how it works in the stock market...
Let's say you own 300 shares of stock in the hypothetical company Magnum Enterprises.
A few years ago, you bought the stock for $20 per share. Its current market value is $40 per share. Your holdings are worth $12,000.
One day, you look at the market and see that a group of stock market gamblers believe Magnum is about to experience a price rally. They believe shares could hit at least $44 per share within six months (a 10% gain).
They are willing to enter into contracts that give them the right, but not the obligation, to purchase shares of Magnum for $44 within six months. They will pay $1 per share for the right to enter into these contracts.
These contracts, which allow people to buy an asset (in this case a stock) for a certain price at a certain time in the future, are named "call options."
The standard options contract covers 100 shares. However, these contracts are quoted and priced in terms of just one share.
For example, if the quoted price of a call-option contract is $4 per share, the call buyer would pay a total of $400 to acquire the contract.
If the quoted price of an options contract is $6, the call buyer would pay a total of $600 to acquire it.
One more time, for emphasis: Option contracts cover 100-share blocks of stock. But they are quoted and priced in terms of just one share. A call buyer who buys a contract for the quoted price of $4 will actually pay a total of $400 for that contract.
Options trade in bundles of 100 shares. Option prices are in dollars per share. Thus a $4 option price equates to $400 of option premium.
In the case of the stock-market gamblers and Magnum Enterprises, the gamblers are paying $1 per share for the right, but not the obligation, to buy Magnum for $44 within six months.
If Magnum experiences a big rally, it could rise to $50 per share.
In this case, the gamblers win.
They can use their call-option contract to buy Magnum shares for $44. They can then turn around and sell the same shares in the general market for $50 per share. They would make $5 for every $1 invested.
Why just a $5 profit and not a $6 profit?
Editor's note: In tomorrow's Digest Premium, we'll reveal the most important lesson for anyone involved in the options market. To get your hard copy of High Income Retirement today, click here.
An excerpt from one of the most important books any trader can read...
Doc Eifrig and S&A Editor in Chief Brian Hunt just published a book on options trading.
The lessons and strategies they discuss are so important, we're giving away an excerpt in today's Digest Premium...
To continue reading, scroll down or click here.
Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)
As of 03/25/2014
| Stock | Symbol | Buy Date | Return | Publication | Editor |
| Prestige Brands | PBH | 05/13/09 | 341.4% | Extreme Value | Ferris |
| Constellation Brands | STZ | 06/02/11 | 288.1% | Extreme Value | Ferris |
| Enterprise | EPD | 10/15/08 | 271.8% | The 12% Letter | Dyson |
| Ultra Health Care | RXL | 03/17/11 | 233.6% | True Wealth | Sjuggerud |
| Fluidigm | FLDM | 08/04/11 | 196.1% | Phase 1 | Curzio |
| Ultra Health Care | RXL | 01/04/12 | 191.4% | True Wealth Sys | Sjuggerud |
| Ultra Nasdaq Biotech | BIB | 12/05/12 | 179.6% | True Wealth Sys | Sjuggerud |
| Hershey | HSY | 12/06/07 | 176.5% | SIA | Stansberry |
| Altria | MO | 11/19/08 | 176.4% | The 12% Letter | Dyson |
| McDonald's | MCD | 11/28/06 | 172.2% | The 12% Letter | Dyson |
Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals |
| 2 | Extreme Value | Ferris |
| 3 | The 12% Letter | Dyson |
| 1 | True Wealth | Sjuggerud |
| 1 | Phase 1 | Curzio |
| 2 | True Wealth Sys | Sjuggerud |
| 1 | SIA | Stansberry |
Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)
| Investment | Sym | Holding Period | Gain | Publication | Editor |
| Seabridge Gold | SA | 4 years, 73 days | 995% | Sjug Conf. | Sjuggerud |
| Rite Aid 8.5% bond | 4 years, 356 days | 773% | True Income | Williams | |
| ATAC Resources | ATC | 313 days | 597% | Phase 1 | Badiali |
| JDS Uniphase | JDSU | 1 year, 266 days | 592% | SIA | Stansberry |
| Silver Wheaton | SLW | 1 year, 185 days | 345% | Resource Rpt | Badiali |
| Jinshan Gold Mines | JIN | 290 days | 339% | Resource Rpt | Badiali |
| Medis Tech | MDTL | 4 years, 110 days | 333% | Diligence | Ferris |
| ID Biomedical | IDBE | 5 years, 38 days | 331% | Diligence | Lashmet |
| Northern Dynasty | NAK | 1 year, 343 days | 322% | Resource Rpt | Badiali |
| Texas Instr. | TXN | 270 days | 301% | SIA | Stansberry |