Last night was movie night in the Ferris home, and we chose Watchmen, the two-and-a-half-hour epic of retired masked super heroes living in a post-Vietnam, Cold War alternate reality, in which the threat of nuclear war is imminent.
The film suggests that, if you blow up a large enough chunk of the world, its surviving nations would come together in a peace so universal, the newspapers would literally run out of things to print.
Sounds highly iffy, but anything is possible in a world where politicians tell everyone they're going to make us all better off by borrowing and spending...
And in a financial world where a Chinese homebuilder IPO soars to 40 times earnings (China State Construction Engineering raised $7.3 billion last week) and barely elicits a whisper from the press, maybe anything is possible, too...
After all, "Watchman" forensic accountant Harry Markopolos went to the SEC several times with evidence Bernie Madoff was about to blow a $60 billion hole in the financial system, but the SEC did nothing.
The Fed, the Treasury, the White House, the FDIC, and a host of others all played their parts... They blew nice, big holes in the stock, bond, and real estate markets. Perhaps they think that, in the aftermath, markets will finally go up forever and ever, amen.
In this epic financial drama, Mr. Market is definitely working for the government, pushing stocks up to rarified heights...
Former Merrill Lynch analyst David Rosenberg says the S&P 500 is trading at 24 times operating earnings and – this is not a typo – 760 times reported net income. 760 times earnings. No typo.
Our own experience tells us net income is nothing but a starting place for discovering the true earnings power of a business. Perhaps operating earnings are the same way... Rosenberg describes operating earnings as "the earnings that are adjusted to take out everything that is bad."
Rosenberg alone seems to have noticed that with the financial press crowing about "better than expected" earnings reports, corporate earnings are 31% below last year's deeply depressed levels. I'm not sure how "lower than deeply depressed" equates to "recovery" or even "end of recession." It's feeling more like an alternate reality all the time.
Mr. Market is even less up to the task of showing us real cash paid out of corporate profits than it was a scant few months ago... Since March, the dividend yield on the S&P 500 has shrunk nearly 100 basis points (1%) to about 2.75%.
Undeterred by the utter destruction it has helped to wreak upon the country's housing markets, the government presses on, attempting to shame big banks into shoving more credit down the body politic's gaping throat.
Today, the government released the details of its mortgage-modification program. Only 9% of eligible borrowers have received trial modifications. Of the big banks, Bank of America is the worst performer, having started only 27,985 modifications of a possible 796,467, or 4%. Wells Fargo is next with only 6% of eligible loans being modified. JPMorgan, which has the second-largest pool of eligible loans, is at the top of the heap for the big banks, with 20% of eligible loans being changed. You can see the entire table here.
The Treasury plans to eventually help 4 million borrowers with its antiforeclosure program, but to date, only 235,000 individuals have received aid... So the Treasury will put on brass knuckles and have a heart to heart with the banks, first by releasing the above table to shame the big banks, which hold the vast majority of U.S. mortgages.
"Some of the servicers could have ramped up better, faster, more consistently," said one of the underbosses of the government mob, Michael Barr, the assistant Treasury secretary for financial institutions. Barr then told reporters something like: We expect the banks to play ball, and we ain't gonna take no fer an ansuh.
Unfortunately for the Treasury, as we pointed out last week, banks don't make a profit on mortgage modifications. They stand to make billions more dollars in fees when mortgages become delinquent.
Allowing mortgages to default and collecting the associated fees is the most profitable avenue. That's no disservice to borrowers, either. Modified loans have been redefaulting at rates of more than 50% in some areas. No wonder banks are reluctant to make them. Only the government would foist such a dumb move on the financial system.
Somebody should write Uncle Sam a note...
Dear Uncle Sam,
Just a reminder.
Homeowners had no skin in the game, and they're defaulting like crazy. To keep them from defaulting, you propose modifying their mortgages.
After mortgage modifications, homeowners still have no skin in the game, and they're going to keep defaulting like crazy.
Just thought you might like to know.
Your pal,
Dan Ferris
I sometimes wonder how libertarian-minded reporter John Stossel is able to keep a job with a mainstream media outlet like ABC News. Today, Stossel noted the government's cash-for-clunkers program is screwing the little guy, as most government programs ultimately do.
The old cars that are turned in are destroyed, making cheap transportation more scarce... more expensive.
New highs: Seabridge Gold (SA), AmeriGas Partners (APU), Crucell (CRXL).
A light mailbag today... Just some more notes on the problems of the rich. Send along you messages, we promise to read every one: feedback@stansberryresearch.com.
"Regarding 'Burdens of Wealth' idea, I have always gone along with the old bromide, 'Money doesn't bring happiness. A guy with $100 million isn't any happier than a guy with $99 million!' (Those figures used to be $10 million and $9 million but that's chump change these days!)" – Paid-up subscriber Rol Herriges
"What a pleasant way to read [Doc's Idea Index]... so many 'tips' in such a concise format! Kudos to the Doc." – Anonymous
Ferris comment: We're glad you enjoy Doc's new Idea Index feature. Taking advantage of just one of Eifrig's tips, like how to take up to 80% off your restaurant tab, will save you multiples of the low annual subscription fee. If you haven't already, I strongly urge you to give Retirement Millionaire a try. Click here to learn more.
Regards,
Dan Ferris
Medford, Oregon
August 4, 2009