Will the European Central Bank print?...

The fastest and easiest way for Draghi to jumpstart the economy would be to force the euro to fall. He's finally ready to make it happen.

 

Last month, Draghi outlined his "biggest fear" during a press conference. His big fear is that a lack of growth will lead to permanently high unemployment, inflicting long-term pain on Europe. Unfortunately, his biggest fear appears to be coming true...

 

This week, the growth numbers came out – and they are not good. The euro-currency countries grew at just 0.2% in the first quarter. And the unemployment rate sits at 11.8%.

 

Draghi needs to act fast to try to improve these numbers. So he'll take pages out of former U.S. Federal Reserve Chairman Ben Bernanke's playbook.

We've noticed that despite quarterly earnings growing year over year, the bank's top line (revenue) has been flat. We never like to see this for too long in any company, and it's particularly worrisome with WFC.

 

The bank's "loan-loss provision" accounting has created at least $4 billion of extra "earnings" over the last several quarters. The bank essentially decides that the loans it's making are less risky than they were a year ago, and it puts less and less in reserve to cover those potential losses. This "adds" money to the bottom line, but it doesn't reflect real business growth, just an accounting decision.

 

Worse, WFC's meat-and-potatoes business – mortgage lending – has plummeted over the past year as interest rates rose. In the latest quarter alone, it saw a 49% drop of $1.57 billion from mortgage income. This is troublesome since Wells Fargo's reported net income was up a perfectly steady 1.1% from the prior quarter. A look back in the financials shows WFC has been doing this for a few quarters now. We've had enough... When a large piece of the business collapses and makes it up by claiming its loans are less risky... we're heading to the exits.

When we recommended Dollar General, we highlighted the differences between the two companies. Family Dollar has traded at a significantly lower valuation, even though the two effectively serve the same customers in the same markets.

 

Dollar General has opened more stores in better locations because it used a "build to suit" model, which forced developers to take on the risk. Family Dollar didn't like the idea of letting developers potentially profit from store expansion, so in many markets, it used a fee-based development program. That limited the developer to earn a fee only for building each location.

 

Dollar General has better sales per store and boasts bigger operating margins. It's just a better company.

If Dollar General buys Family Dollar, that would make it a $30 billion sales leader in the general "mass market retail" space. As far as small-box general retailers go, it would be the biggest by a wide margin.

 

The combined company would have more than 20,000 locations. Often times, Family Dollar and Dollar General have stores located near each other. Paying a premium for store duplication doesn't make much sense. Family Dollar is valued cheaper for a reason. Paying too much would negate any benefit the company can realize from more effective management.

It's a way of seeing things... A kind of wisdom that's far beyond what others teach... what others even understand. And it has made him, his partners, and many of his employees – and basically anyone who listens to him – rich.

 

For years, I've been telling Bill to share this big idea with everyone... And he has finally done it. It's in his latest, just-published book.

 

Please understand... Bill's unique philosophy isn't merely about money. But it will allow you to understand the markets – and every other type of human endeavor – in a whole new, and vastly more accurate, way.

 

This idea completely changed the course of my life.

 

If you want to be a better investor, you must read this book. If you want to be a better parent... a better spouse... a smarter consumer... a better businessman, a better manager... read this book.

People are migrating away from supercenter shopping, toward a new breed of smaller discount retailers. Wal-Mart has responded by ramping up smaller "Neighborhood Markets" and "Wal-Mart Express" locations. By 2017, Wal-Mart will add more small stores than supercenters. It's a smart move, and we're certain Wal-Mart management can pull it off.

 

But a group of retailers has a huge head start on Wal-Mart. These smaller discount retailers are already in the local communities. These stores sell many of the same products that Wal-Mart carries... without the 13-acre parking lot. One in particular stands out as the most effective operator. That company is Dollar General.