This is it. This is your last wake-up call... At a recent breakfast, John Paulson, the most successful speculator of the last 20 years, explained exactly how the great inflation will come to pass. Says Paulson: The banks will resume regular lending – thereby releasing all of the excess money supply into the system – within six to 24 months. Two or three years after that, we will see 12% annual inflation.
Paulson is recommending investing in gold. He's already placed more than $4 billion of his firm's assets in the metal. Why is Paulson building his position so early if he doesn't expect inflation to kick in for four years? Scarcity. Paulson notes, of the $200 trillion of investable assets in the world, only $800 billion is gold. You won't be able to get much of that $200 trillion into gold at any reasonable price. But that won't stop people from trying.
Here's the part that sent a chill down my spine. At this breakfast, Paulson also gave a rare insight into what he's doing with his personal money. Apparently, his fund offers a special option whereby you can invest using gold. According to someone at the breakfast table, you convert your cash into gold and buy into the fund using bullion. When you cash out, you are paid in gold at the value it is worth that day. Paulson is 100% invested in this style.
When the world's most successful speculator would rather be invested in his own fund via bullion instead of dollars... you gotta wonder why you're still carrying greenbacks in your wallet.
"Most people wouldn't consider it a raise," according to Julie Gibson, a GM spokeswoman. Really? If you made $1.26 million last year and were going to receive $5.45 million next year, what would you call it?
GM is raising CEO Fritz Henderson's pay by that much as ordered by the U.S. government under guidelines for recipients of U.S. bailout money. Does this make any sense? Of course not...
When it comes to salaries... we prefer to mind our own business. We pay some of our employees sums that outsiders would probably consider outrageous. On the other hand, we know our compensation strategy is one of our core competitive advantages. (If you pay peanuts, you're going to end up with a bunch of monkeys...)
But we've never asked Uncle Sam for a penny. And wouldn't accept a penny from that dirty old man under any circumstances. So for now at least, we can pay our employees whatever we want. I wonder how much longer this will be the case...
Still, on Wall Street, the government-led charade on cutting executive pay continues... The Head Nudge, Feinberg, has capped executive salaries at $500,000. But everyone knows salaries on Wall Street mean nothing. Lloyd Blankfein, Goldman Sachs' CEO, only made around $600,000 in salary last year. Meanwhile, his total take home was closer to $50 million. Those salaries aren't buying the Ferraris and vacation homes on Nantucket. And those salaries aren't funding tens of millions that Wall Street pours into political "donations."
The truth of the matter is plain to see: Washington and Wall Street aren't sitting on opposite sides of the table. They're sitting on the same side. Washington needs Wall Street to go along with its money printing and its deficit spending. (You don't see any major banker talking about gold...) And Wall Street needs Washington to socialize the risks of investing with inflation and bailout... otherwise all of them would go bust once a generation. So they're sitting together at the table. And what's for dinner? You and me, my friends, you and me.
Jeff Clark's bullish calls this month are already paying off for subscribers... Last week, Jeff went long one of the most undervalued sectors in the market – one of the few sectors that didn't participate in the recent rally. Readers are now up 15%.
He followed it up on Tuesday with a long trade in the refining sector – believing gas prices were on the rise. He nailed it. Today, he sent an update to readers telling them to close out half of their positions for a 70% gain... in two days.
When Jeff gets on a hot streak, he makes more money for readers than any other analyst in our group... And his latest note to subscribers will be of interest to all the gold bulls out here... Jeff was watching gold's down move on the Direct Line today... and he thinks shorting a few specific securities could pay off huge. To get access to Jeff's Short Report and the Direct Line, his real-time trading blog, click here...
New highs: iShares Hong Kong ETF (EWH), New York Times (NYT), Patterson – UTI (PTEN), iShares High Yield Bond Fund (HYG), Visa (V), Bronco Drilling (BRNC), Kinder Morgan Energy Partners (KMP), Enterprise Partners (EPD), Automatic Data Processing (ADP), WD-40 (WDFC).
In the mailbag, the bashing intensifies... Now, I'm not only a bad stock picker, I've suddenly become a coward. It's your turn to kick me when I'm down. Take a shot here: feedback@stansberryresearch.com.
"Porter (waiter) Stanschisken: BSX - from what I read, you told us to put 25% of our portfolio into bsx, it was a no brainer. Now your going to blame your recommendation on Obama. That is the weasel way. Sir, you must take responsibility for your actions, don't be a COWARD, wuss." – Paid-up subscriber Michael J.
Porter comment: I've always taken full responsibility for all of my recommendations. And I certainly take full responsibility for getting it wrong on BSX. I didn't anticipate the government would specifically target medical-device makers with a special tax on research and development. In fact, I thought the new legislation would be a boon for BSX. In my recommendation, I speculated high-margin medical companies, like BSX, would be forced to give up some profits in exchange for higher volumes.
While I still think this will be the case, it looks like the government is going to take its pound of flesh first. I told subscribers who were angry about what happened to at least point their venom in a more useful direction. Getting mad at me isn't going to change anything. On the other hand, I find it pretty ironic that on the same day subscribers landed body blows regarding BSX, my most recent stock pick – Bronco Drilling – soared. We're now up more than 100% since September.
"I read the scathing comments over the Boston Scientific (BSX) recommendation from the July issue of PSIA. I too bought BSX after reading your analysis and doing my own screening. I did have my reservations even back in July due to the pending health care legislation being demanded by Doctor Obama. What I say to those who got beat up on BSX is this: Guys, count this as a cheap lesson. A lesson on what a power hungry government can do to you. Learn from this loss...
"Another thing I would point out is that someone has been buying on this massive volume during the sell-off in BSX, so the business analysis must have some credence (as the good earnings report would indicate).
"Finally, Porter has gotten the big things right in the one year I have been subscribed – buy precious metals (GLD,SLV), short Treasuries (TLT), go long emerging market (AWF), buy critical infrastructure (BNI, NSC, VZ), buy companies that grow with money supply (V), take a flyer on Bronco Drilling. He even reversed himself from shorting REITS (SPG) to going long (RNP). I would not berate the man on one value pick that stopped out..." – Paid-up subscriber RL
Porter comment: I don't mind being berated. The BSX situation was a real disaster. I made two critical mistakes. First, I ignored the company's debt load in my evaluation of the risk. I did so because the company's cash flows were strong enough to quickly pay off the debt... but I was making assumptions about future cash flows, which was a mistake given the nature of the company.
And that's the second thing I did wrong: I overestimated the stability of the business, based on historical results. BSX sells complex medical devices – at prices mostly set by the government. There is always uncertainty when Uncle Sam is involved. I ignored how important the federal government's health care policies are to BSX. The feds aren't reliable customers. I should have been far more cautious. I equated the risk in BSX to the risk in Budweiser... and that was completely wrong, because the nature of their products is so different.
"face it, porter. you are a person of interest to the black-boots because you have enough wealth to fund significant resistance to the oppressive ones and have voiced your opposition to them. shoulder fired rockets are expensive but someone of your means could easily afford a substantial arsenal of them with which to make their point. one well placed stinger can send a bear runnin', and they know it! a bourgeoisie sympathetic to the proletariat cannot be allowed. it couldn't possibly have taken 2 hours to search your boat. they were installing something! you should consider sweeping your boat (and everything else!) for electronic eavesdropping devices, locaters and contraband that has been planted for discovery at a later date thereby facilitating their seizure of your assets, silencing your outspokenness and tarnishing your reputation all in a single ma-lox moment. or maybe it's one of your powerful advirsary's, preparing to paint you into a corner with bribes and or whatever political clout they can conjur up. or... some upset subscriber stalking you and calling in annonomous 'crimestopper tips,' who knows... (toke). just a thought. any way keep up the good work, i love reading it." – Paid-up subscriber Joe
Porter comment: I'm a writer, not a fighter. When folks point automatic weapons at me, I do what they say. I keep my head down. I keep my voice down. And I pray no one – especially me – gets hurt.
"Poor Porter. Having his day ruined by our government again. For a self-proclaimed smart guy, you come across as a dumbshit in this 'story'. You had to know that buying a boat straight out of Miami Vice would make you a drug surveillance 'contact of interest'. My guess is you were hoping to be stopped so you could continue your railing against our government and show-off your 'look-what I have' 35' Center Console in The Digest. Your naive retelling doesn't pass the smell test. Because you believe your wealth is threatened by the current administration, all you do is bitch, bitch, bitch. Anybody that doesn't share your view is a slacker who'll be taking money from your pocket. You've got all the answers to what ails us, so why not put your big money where your big mouth is... get involved with the political process. Anybody can bitch, but only real people do something positive to make things better. This is a damned if you do, damned if you don't Country... You 'promote' ways to flee the financial injustice of our comrade State while enjoying the liberties, opportunities, and trappings of wealth afforded to all it's citizens. I'm sorry that my miniscule subscription payments support such arrogance. Put up or shut up." – Paid-up subscriber Bob Kelly
Porter comment: Actually... it's a fishing boat, not a speedboat. I don't even have the third engine on it, like some folks do. My boat is designed and equipped to catch large fish, which is a passion of mine. I'd always wanted a boat, but never bought one until now. Thanks to the economic crisis and the lack of credit, they're almost giving these things away. I bought mine on liquidation, for about half of retail. I think my boat is pretty humble, compared to my friends' boats... so I didn't think twice about putting a picture of us being boarded in The Digest.
Regards,
Porter Stansberry and Sean Goldsmith
Baltimore, Maryland
October 23, 2009