If you've got plenty of wealth, remember this: There's no such thing as a friendly government. Yesterday, Swiss banking giant UBS agreed to pay $780 million in penalties and turn over U.S. clients' confidential financial information to the Internal Revenue Service.
Today, the ill-named Justice Department filed a suit in a Miami court asking a federal judge to order UBS to disclose the confidential financial information of as many as 52,000 account holders to the IRS.
John DiCicco, acting assistant attorney general of the Justice Department's tax division, said, "The veil of secrecy has been lifted." But the Swiss finance minister had a different view: "Bank secrecy will stay." So which one is it? It seems rather plain to me a Swiss bank account is no more secret than any other bank account. If the Swiss government decides to give you up, you're screwed. There's no such thing as "government protection" except in the same sense as "Mafia protection."
You can run in this world, but I doubt you can truly hide for very long (though I admit that's just a hunch and this isn't my area of expertise). I would ask for your feedback on this, but if you believe you're truly well-hidden, you'd be crazy to respond...
All the big investment success stories these days are bear stories. The latest one is about selling short various central and eastern European economies. London-based Pivot Capital Management said almost two years ago countries like Hungary and the Baltic states were "on the Asian currency crisis path," referring to Asia's monetary nightmare of the late 1990s. Pivot bought credit-default swaps on sovereign debt instruments. The main Pivot fund gained 52% in 2008, as the cost of buying insurance to protect against Latvia defaulting on its debt rose more than sevenfold since last year, according to credit-information firm Markit Group.
The more bear stories I hear, the more I tell my readers to buy world-dominating franchises selling at dirt-cheap valuations, like Wal-Mart and Altria Group (to name only two)...
Extreme Value pick Wal-Mart is at it again. This time, it's going after those big, bad overdraft fees account holders pay for bouncing checks. Wal-Mart is reducing the fees on its prepaid debit cards. It's lowering the upfront, reload, and monthly fees on the popular MoneyCard it introduced in 2007.
According to a report by Boston consulting firm Aite Group LLC, about 9 million U.S. households pay more in overdraft or other checking account fees than they would in prepaid card fees. Banks could lose as much as $20 billion of annual revenue if checking-account holders shift money to prepaid debit cards.
People aren't spending on cars, homes, appliances, vacations, or just about anything else you can name. They're trading down from Macy's to Wal-Mart. But they are happy to spend more on one item: cigarettes. Marlboro now has a 41.6% market share, up from 41% last year, according to a presentation Extreme Value pick Altria (MO) gave yesterday at the Boca Raton Resort in Florida. When I first picked the stock, its Marlboro brand was bigger in the U.S. than the next 10 brands combined. Now, it's bigger than the next 17 brands combined.
One of Altria's slides indicated 46 U.S. states are facing budget deficits. The only four not facing deficits are Montana, Wyoming, North Dakota, and West Virginia.
New High: Short of Capital One (COF).
We received a flood of e-mails about land and gold, a topic that's obviously near and dear to many investors. If you have anything you'd like to tell us, e-mail us here: feedback@stansberryresearch.com.
"In the gold vs: land debate – nobody has said anything about property taxes – the gold requires no taxes to be paid during ownership – but that land sure does." – Paid-up subscriber D.H.
"At the moment, the answer is gold is the better investment without a doubt. With the Option ARMs blow up just around the corner, many parts of the country (those that had large run-ups in value) will suffer... Gold has a very serious possibility of doubling within two years while land does not. Land also has a carrying cost in the form of property taxes." – Paid-up subscriber K.A.
"While I own both, I prefer timberland investments to all others. It gives me both a store of value and a source of income. Physical gold is nice to hold; walking, fishing, hunting the land gives me greater pleasure. If you can't afford to buy land, buy stock in timber companies for both appreciation and income. They have fared better that most other investments this past year." – Paid-up subscriber J. B.
"Well, first of all, Ferris, you say you can't buy your groceries with land. Where did the groceries come from, maybe it was the land, but you couldn't get your little fingers dirty by farming. I buy both farmland and Gold, they both go through cycles, that's life. Besides farmland is a very good place to bury your Gold. Let the government try to find the Gold on a couple thousand acres, or even an 80 acre farm would take years of digging. I can make alcohol for my car, drink the rest, wake up the next morning in my garden, and watch my windmill spinning like my head, and try to remember where I buried the Gold, the Silver and my nosy neighbor. Boy, that scarecrow looks an awful lot like the neighbor, oops. My family has farmed in the mid west since the 1850s. My 89 year old father says the depression never bothered them, they ate well, having chickens, hogs, and a couple of cows. So save both, your going to need them." – Paid-up subscriber R.S.
Ferris comment: You're right about one thing... My mother tells me I've hated getting my hands dirty since I was an infant. Farming probably isn't for me. Gold seems to have preserved purchasing power. Does it go through cycles? Or does the public's confidence in the fiat dollar go through cycles? Is there any difference? I don't know.
"Dear Dan Ferris... In your S&A Digest of 2/17/09, in regards to the ETF GLD (and, by extension, all the precious metal ETFs, I would guess), you write:
As far as I know, it simply buys gold on the London bullion market, which it stores in its London vaults. It sells shares and buys
gold, and occasionally sells gold to redeem shares (in 100,000-share blocks called baskets). It also sells small amounts of gold to cover expenses. That's all it does to my knowledge.
"This may not be true. For example, if that was the case, then the SPDR ETF would have had to add 118.69 tons of gold the first week in February alone(!) which is higher than the entire ANNUAL output of ALL countries except the U.S., South Africa, and Australia. And that's just one ETF in the U.S. This info comes... from Waren Bevan of Precious Metals Review, and from Jim Sinclair of MineSet.
"If what they say is true, these ETFs have the potential to blow up, doing extensive damage to holders of these shares. And as virtually every writer for Porter and/or Bonner recommend these vehicles to their subscribers, I think it you might want to turn loose one or two of the young guns around your offices to investigate this. Something smells... Thanks." – Paid-up subscriber M.M.
Ferris comment: I have explicitly told my readers to avoid the gold ETF, and I continue to do so. As I've said, I consider gold a form of savings. I buy it. I don't sell it. On the other hand, if you're looking for leverage to the price of gold, I'll be discussing my favorite ways to do that during a conference call we're hosting tomorrow. To access the call, click here.
"There may be a calculation or typo error in the following quote, which is an excerpt from the 5th bullet point in The S&A Digest shown below: 'Last week, I calculated Texas ratios for 93 publicly traded banks with market caps of more than $100 million. The worst one was Great Southern Bancorp, with a Texas ratio of 50.3%.'
"I calculated the Texas Ratio for each of the three reported dates, as shown below, and none of those results come close 50.3% Texas Ratio quoted for GSBC." – Paid-up subscriber D.P.
Ferris comment: I just went through GSBC's data again, and you're right... I corrected my spreadsheet, which now indicates GSBC wasn't the worst one on the list, but was really seventh-worst out of 93 publicly-traded banks with more than $100 million in market cap. GSBC's Texas ratio was "only" 33.6%. The worst: Sterling Financial at 49.36%. Good eye, D.P. And thanks for checking up on me.
Regards,
Dan Ferris
Medford, Oregon
February 19, 2009