We know most people are worried... At a meeting with one of my partners last week, I felt like I was talking to a condemned man. The poor guy was so depressed and worried he couldn't even enjoy his dinner – and I was paying! All his fears seemed to be materializing. His other business interests are suffering. An old tax bill is coming due. And even though he didn't lose any money last year in the stock market, his friends took such big hits that he's depressed anyway – he's sad for his peers, some of whom were completely wiped out.
He is so worried about things I know he couldn't take me seriously when I told him, "Our business has never been better off. We have better analysts, better copywriters, better advertising, and better customer service people than we've ever had before. We have more high-quality products than ever before and, as a result, we have more sales and more subscribers than ever before. I think we – and our subscribers – will have a great year in 2009."
Truthfully, I can't wait to get to work in the mornings. No, maybe last year wasn't the best year I've ever had in stocks (I'm working on our report card this week and will have it out soon), but it certainly was the most interesting year. And it's not every year the government does so many spectacularly dumb things, making it sound a little less crazy when you tell people the government is nothing more than a bunch of evil thugs.
Meanwhile, we applaud the rising unemployment rate – and think it ought to be a lot higher. We can think of dozens, if not hundreds, of employees who should have lost their jobs years ago – from the chronically late cable installation man to the lazy public school teacher to the guy who never cooks enough French fries come lunch time at McDonald's... Fire them all... And let them return to the workforce when they can do a better job.
And that's not to mention the real advantage of a good recession/panic/depression – most of the things we want have gotten a lot cheaper. Take stocks, for example. Jim Grant noted in his recent Interest Rate Observer that eight blue-chip companies now meet or exceed Ben Graham's strictest criteria for defensive investors: Pfizer, Nucor, Cooper Industries, Cintas, Tiffany, Archer Daniels Midland, Molex, and RadioShack.
These are like superhero investments. Each has:
- 10 consecutive years of net profits,
- 20 consecutive years of uninterrupted dividend payments,
- Earnings growth in the past decade of at least 33%, and
- Price-to-earnings and price-to-book multiples of less than 15.
For perspective, Grant notes that at the bottom of the Nasdaq bust in 2003, only two stocks met all those criteria. At the bottom of the market in 1991, only six qualified. (Since 1991, those six produced average annual returns of almost 19%.) If you bought just these eight stocks and forgot about them for a decade, chances are better than 90% you'll make a substantial return and beat the market. Usually, that's a lot harder to do.
Pretty much everything else we want is much cheaper now, too... big old convertible cars, condos in Miami, prime steaks, first-class airfare, grand cru wines. We love a good recession.
Value legend Jean-Marie Eveillard beat 99% of rival equity fund managers last year because he hoarded cash and physical gold – his fund was still down 21%. Now, he's loading up on Japanese insurers and Hong Kong developers. Eveillard says Japanese property and casualty insurers Aioi Insurance and Nissay Dowa General Insurance are "selling exorbitantly cheaply." He's also buying Wharf (Holdings) Ltd. because the office-building and shopping-mall owner traded at 0.32 times book value in October, the lowest since at least 2001. The Hong Kong-based company is also a top pick from Goldman Sachs and Credit Suisse. Read Tom Dyson's recent notes from Hong Kong here and here.
More layoffs: Boeing said it will cut 4,500 jobs as plane orders fall. Auctioneer Christie's International is planning "a company-wide reorganization, which includes significant staff reductions," as demand for art has fizzled. The company didn't say how many jobs will go, but the reorganization will happen over the next three to four months. And according to website Clusterstock, GE Capital is about to fire 25,000 people. A source within GE confirmed large cuts in the division, but said 25,000 is a bit high. Just remember: These folks will now be free to do something more productive in the economy. Layoffs aren't a bad thing.
For-profit educators Apollo Group (APOL) and Corinthian Colleges (COCO) jumped 11% and 4%, respectively, since last Thursday when Apollo announced a 29% earnings increase for the first quarter. Student enrollment increased 18% as laid-off employees are looking to improve their education and better their job prospects. Both stocks are trading at new highs. But short-selling wiz Jim Chanos thinks they're duds. "Outcomes at these for-profit educators are not much better than the average community college, which is free," he said. Chanos laid out his views on the sector last month on CNBC. He noted students leaving these "universities" have upward of $70,000 in debt and minimal job prospects. It's not a great value proposition.
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New highs: none.
In the mailbag... some very nice compliments. It doesn't happen all that often. Most people ignore you if you do a good job – that's what they paid for and what they expect. Normally, it's only when you make a mistake that you hear anything from your customers. So we appreciate it that much more when someone takes the time to say something nice. Send your comments – nice or not – to: feedback@stansberryresearch.com.
"If you have ever read Ayn Rand's Atlas Shrugged, you will understand exactly how I feel about the government assuming ownership of the banking system, auto manufacturing, etc., as well handouts to anyone for any purpose. Any government intervention will only prolong the pain of a perfectly natural economic phenomenon: a recession." – Paid-up subscriber Carroll Springer
Porter comment: That's right... And the way America's economic system is developing, it won't be very long before most industries are run in Washington. If you haven't seen it yet, check out the Wall Street Journal's recent article on Atlas Shrugged comes to life.
"I worked at Bear Stearns for close to twenty years and was running a trading and sales operation for them when I left four years ago. Your Jim Chanos story about Alan Schwartz was both disgusting and to me hauntingly familiar. I was warned by my boss who was driven out in a power struggle in the mid 1990s that the place was run by bad guys. I was too low on the totem pole then to understand all the things he was warning of. His words now seem prophetic. Interestingly, the two executives who blew the place up have senior positions at other banks now. They could make even more money selling books and lecturing on job interview technique." – Paid-up subscriber Bob Lunder
"I'm a subscriber to Dan Ferris' Extreme Value newsletter, and just wanted to drop you a line to let you know how much I appreciate his research. I'm 32, and have subscribed to quite a number of newsletters over 6 or 7 years – all with various themes and advice. Extreme Value's philosophy is straightforward, and as I read his ideas each month, my investment philosophy has gone from being kind of scatterbrained to being cauterized around the fundamental principle of investing vs. speculation. I shudder to think of the money I've lost speculating over the past few years because I failed to learn that lesson earlier. Thanks a lot – and I appreciate the new weekly updates as well." – Paid-up subscriber W. Robinson
Porter comment: You're very welcome. And you're very wise to recognize the benefits of Dan's approach.
Regards,
Porter Stansberry
Baltimore, Maryland
January 12, 2009