Wednesday, February 6, 2013

Billionaires Dumping Stocks, Economist Knows Why

Funny, in this article it talks about how Buffet does not like American companies, and today it is announced that he just bought Kraft one of the companies referred to in the article.  Aivars Lode

Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . . and fast.

Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.

In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.

With 70% of the U.S. economy dependent on consumer spending, Buffett’s apparent lack of faith in these companies’ future prospects is worrisome. 

Unfortunately Buffett isn’t alone.

Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. During the second quarter of the year, Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee.

Finally, billionaire George Soros recently sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. Between the three banks, Soros sold more than a million shares.

So why are these billionaires dumping their shares of U.S. companies? 

After all, the stock market is still in the midst of its historic rally. Real estate prices have finally leveled off, and for the first time in five years are actually rising in many locations. And the unemployment rate seems to have stabilized. 

It’s very likely that these professional investors are aware of specific research that points toward a massive market correction, as much as 90%.

One such person publishing this research is Robert Wiedemer, an esteemed economist and author of the New York Times best-selling book Aftershock

Before you dismiss the possibility of a 90% drop in the stock market as unrealistic, consider Wiedemer’s credentials.

In 2006, Wiedemer and a team of economists accurately predicted the collapse of the U.S. housing market, equity markets, and consumer spending that almost sank the United States. They published their research in the book America’s Bubble Economy.

The book quickly grabbed headlines for its accuracy in predicting what many thought would never happen, and quickly established Wiedemer as a trusted voice.

A columnist at Dow Jones said the book was “one of those rare finds that not only predicted the subprime credit meltdown well in advance, it offered Main Street investors a winning strategy that helped avoid the forty percent losses that followed . . .”

The chief investment strategist at Standard & Poor’s said that Wiedemer’s track record “demands our attention.”

And finally, the former CFO of Goldman Sachs said Wiedemer’s “prescience in (his) first book lends credence to the new warnings. This book deserves our attention.”

In the interview for his latest blockbuster Aftershock, Wiedemer says the 90% drop in the stock market is “a worst-case scenario,” and the host quickly challenged this claim. 

Wiedemer calmly laid out a clear explanation of why a large drop of some sort is a virtual certainty.

It starts with the reckless strategy of the Federal Reserve to print a massive amount of money out of thin air in an attempt to stimulate the economy.

“These funds haven’t made it into the markets and the economy yet. But it is a mathematical certainty that once the dam breaks, and this money passes through the reserves and hits the markets, inflation will surge,” said Wiedemer.

“Once you hit 10% inflation, 10-year Treasury bonds lose about half their value. And by 20%, any value is all but gone. Interest rates will increase dramatically at this point, and that will cause real estate values to collapse. And the stock market will collapse as a consequence of these other problems.” 

And this is where Wiedemer explains why Buffett, Paulson, and Soros could be dumping U.S. stocks:

“Companies will be spending more money on borrowing costs than business expansion costs. That means lower profit margins, lower dividends, and less hiring. Plus, more layoffs.”

No investors, let alone billionaires, will want to own stocks with falling profit margins and shrinking dividends. So if that’s why Buffett, Paulson, and Soros are dumping stocks, they have decided to cash out early and leave Main Street investors holding the bag.

But Main Street investors don’t have to see their investment and retirement accounts decimated for the second time in five years.

Wiedemer’s video interview also contains a comprehensive blueprint for economic survival that’s really commanding global attention.

Now viewed over 40 million times, it was initially screened for a relatively small, private audience. But the overwhelming amount of feedback from viewers who felt the interview should be widely publicized came with consequences, as various online networks repeatedly shut it down and affiliates refused to house the content.

“People were sitting up and taking notice, and they begged us to make the interview public so they could easily share it,” said Newsmax Financial Publisher Aaron DeHoog. 

“Our real concern,” DeHoog added, “is the effect even if only half of Wiedemer’s predictions come true.

“That’s a scary thought for sure. But we want the average American to be prepared, and that is why we will continue to push this video to as many outlets as we can. We want the word to spread.”

The Greatest Dividend Payments You've Never Heard Of

As we have discussed in the past, dividends will grow in importance as people seek certainty of yield. Aivars Lode
The world is catching on to Dan Ferris' "World Dominating Dividend Grower" idea…

Over the past few years, most "World Dominator" companies have soared in price. For instance, both Procter & Gamble (PG) and Wal-Mart (WMT) are up about 20% in the past year. Also, we've noticed that a few publishers have "borrowed" Dan's term for their own commentary and marketing.

There's good reason why his idea is catching on. Buying elite businesses at a good price – and then compounding wealth with them for many years – is a safe, steady way to get rich in stocks.

But if investors focus solely on the world's biggest companies, they miss out on large group of stocks that can help them grow wealthy.

World Dominators – elite, large-cap dividend-payers like Coke – can be fantastic stocks to own. They are legendarily profitable businesses with world-famous brand names. When professional investors gather to discuss great businesses, these names always come up. Everyone knows they are great businesses.

This often presents a problem with the biggest blue-chip names. When everyone wants to buy something, it almost always commands a premium price. An investor can end up waiting a long time to get a chance to buy these premium businesses for bargain prices.

That's why I encourage investors to learn about the class of elite, small-cap dividend-payers that also have great brand names… that also havecompetitive moats… that also have stable cash flows… and that also have long histories of uninterrupted dividend growth.

They just happen to be much smaller than giants like Coke (KO) and McDonald's (MCD). Some aren't even 1/100th of the size of Coke. And while some of these elite firms provide brand-name products and services you might use every month, most people have never heard of them. Their small size makes them fly under the radar of many institutional investors. Many pension funds, mutual funds, and hedge funds are just too big to buy these small-cap dividend-payers.

Thus, investors who know about these stocks face a lot less "buying competition" when they're looking to pick up shares at a good price.

For example, there is a list of over 100 small-cap, dividend-paying stocks that Wall Street has largely ignored. These small caps have a lot in common with companies like Coke and McDonald's.

They are safe companies. All the names on this list have been raising their dividends annually for more than 10 years. Most have been around for more than 25 years.

Like many large-cap, dividend-paying stocks, these companies generate tons of cash flow. They have competitive advantages in their respective industries. They also have solid management teams.

Take Leggett & Platt (LEG), for example. Without this company, everyone would have severe back problems. That's because they invented bedsprings more than 125 years ago.

Today, LEG employs over 18,000 people who work in 18 countries. The company is one of the largest manufacturers of mattress bedsprings, bed frames, and pocketed coils in the world. It also produces tons of steel each year, used to make specialty wire found in chairs, racks (you can find in almost every retail store), and fitting rooms.

Turning to the financials, LEG trades at 14 times earnings, a big discount to most dividend-paying stocks. LEG is also expected to grow its earnings by 12% annually over the next two years. That's more than 50% faster than the average S&P 500 company. LEG pays a 4% dividend. That's almost double the rate of the average S&P 500 company. It's also been raising its annual dividend for 40 years. That's longer than Pepsi, McDonald's, and AT&T.

LEG is just one example of the many excellent small-cap dividend-payers out there you can confidently hold a long-term position in.

Keep in mind: These stocks aren't going to soar 100% overnight… but they can form the "core" of a safe retirement account. They'll allow you to put the power of compounding to work for you, while still giving you plenty of upside. And because of their small size, we have less "buying competition," which means we can often buy them for bargain prices.

Don't miss out on the best dividend payments you've never heard of…


Frank Curzio 

Tuesday, February 5, 2013

JPMorgan is buying U.S. housing… Where Sjug sees real estate values today… The death of the shopping mall… Jeff Clark is going long Big Tech… Goldman likes Apple…

Retail space will be converted into cross docks and specialty niche stores as the prices collapse. Aivars Lode

 Another major player is getting into the landlord space…

Financial services giant JPMorgan is using client money (from its wealth-management department that caters to families and individuals with more than $5 million) to fund a partnership that purchased more than 5,000 single-family homes in Florida, Arizona, Nevada, and California.

According to David Lyon, a managing director at JPMorgan Private Bank, investors can expect 8% annual returns from rental income and gains when the homes are sold. Lyon says JPMorgan aims to sell the houses within three to four years in one of three ways: through an initial public offering (by going public as a real estate investment trust (REIT)), to an existing REIT, or to a major, institutional buyer.

 JPMorgan is the latest entrant to the U.S. housing market. (True Wealth holding Blackstone Group (BX) may be the largest player, having already put $2.7 billion to work buying homes.) The bank began pooling client money in mid-2012 to make the purchases.

 That was a smart move… In a market where bonds yield next to nothing and equities are fairly valued, housing was one of the only obvious values.

Consider the deals you could get in 2011… Porter personally bought a waterfront home in Miami Beach that February. He paid around $400 a square foot. Today, he says similar properties are selling for $800-$1,400 a square foot.

 Porter also invested money with some private, real estate investors who are buying apartments… He's generating 15%-20% pretax yields from those investments.

 "It's hard to find a private-equity firm on the planet that doesn't have a strategy in this space," Gary Beasley, CEO at California-based Waypoint Homes, told the crowd at last week's American Securitization Forum conference in Las Vegas.

 "There's a lot of capital out there that is chasing these investments," so there may be price inflation, Morgan Stanley managing director Craig Pastolove told Bloomberg. He believes buying single-family homes to rent is one of "the smarter ways to invest going forward." But he advises clients do it themselves if possible (as opposed to investing with Blackstone or a REIT).

 Morgan Stanley isn't buying houses itself, but it is making loans to its high-net-worth clients at lower interest rates than typical mortgages.

 I asked Steve Sjuggerud – who has been recommending taking advantage of dirt-cheap housing since February 2011 – for his thoughts on the U.S. housing market today…
It's still hard to make the housing trade… REITs aren't paying you well enough. Plus, with most REITs, you're buying a shopping center, not residential… And how are you going to buy JPMorgan's housing portfolio?

The "V" bottom is behind us in the housing market. But there are still good values… And I think the best route for people now is Silver Bay [the portfolio of homes spun-off by Two Harbors]… It's a national portfolio of homes that were all bought at low prices that are mostly paying rent already.

It's the most direct trade… And it hasn't run up nearly as much as anything else.

If you missed the opportunity to buy a house in your local neighborhood, there are still opportunities around the country. Personally, I'm looking to make low-ball offers on property owned by banks that are obviously "worst in class" and need to dump their properties.

I'm making low-ball offers, around half of the asking price, because these banks are desperate.

Better-capitalized banks aren't looking for low-balls today… They know they're going to survive and they're willing to hold their real estate portfolios.

In one case, I offered one-third of asking for a bank-owned property… They came back at below half of what they are asking. But I still walked away.

 In the January 30 Digest, we updated you on the latest numbers from online retail giant Amazon… And how e-commerce is destroying traditional, brick-and-mortar retailers.

Financial Times article today supported our thesis… Experts expect around 15% of our nation's 1,300 regional shopping malls to shutter over the next five years as e-commerce continues hurting the sector.

"I think 200 are going out of business," said Gerry Mason, executive managing director at property group Savills. "We're 15-20 percent overbuilt. There are just too many stores."

 And the credit markets are reflecting that oversupply. Fewer retail properties are being put into commercial mortgage-backed securities (CMBS)… the pools of mortgages backed by commercial real estate, which are collateralized and sold as bonds to investors. In 2010, retail property accounted for 56% of the CMBS coming to market, according to the Royal Bank of Scotland. That number fell to 42% in the second half of 2011 and 36% in 2012. This year, retail property only accounts for 30% of CMBS deals.

 S&A Short Report editor Jeff Clark sent out a brand-new trade recommendation this morning. While the market is rallying, one sector has been left behind. And he's going long. Here's what he wrote:
Stocks are overbought.

The S&P 500 was up 5% in January, and another 1% on the first day of February. More than 90% of stocks are trading above their 50-day moving averages. Investor sentiment is overwhelmingly bullish.

The New York Stock Exchange and Nasdaq Summation Indexes – intermediate-term measures of overbought and oversold conditions – are extended and are flashing "warning signs." And the bullish percent indexes for the financial and energy sectors are overbought and on the verge of rolling over.

[E]ven though all the signs are in place for a decent market correction, the seasonal influences are just too bullish this time of year to try to make money on the short side. Stocks generally move higher between December and April.

Of course, it's also tough trying to chase stocks higher into overbought conditions. Today, traders are faced with the "too early to short, but too risky to buy" dilemma.

Tech stocks usually lead the market. But that hasn't been the case so far in 2013. The market has run up without them. If the market starts to fall at this point, tech stocks don't have a lot of gains to give back. So we can stop out of any tech trade for a small loss. But if the market is going to run higher for the next couple months, the tech sector is going to have to play "catch up." And the gains could be explosive.

 Jeff recommended a low-risk trade on one of the safest stocks in the market… And if it rallies, readers can make up to 260%. If you'd like to learn more about the S&A Short Report and how to gain access to Jeff's latest trade, click here.

 On the topic of tech stocks, according to a recent report from investment bank Goldman Sachs, Apple is one of its favorite stocks right now… The bank cut its price target for Apple by $100 per share to $660, but it's still rated a "buy."

Goldman's chief U.S. equity strategist, David Kostin, released a report of the 40 most undervalued stocks the bank covers relative to their analysts' price targets. Apple tops the list. At its current price of $455, Goldman believes Apple shares could climb nearly 45% higher from today's levels.

 In today's Digest Premium, Porter offers his current take on Apple… and whether the blue-chip tech giant's stock is a good buy. If you'd like to sign up forDigest Premium for only $10 a month, click here… New subscribers will also receive a free copy of our friend and master speculator Doug Casey's new book, Totally Incorrect.

 New 52-week highs (as of 2/4/13): Alleghany (Y) and Becton-Dickinson (BDX).

 "Hi, in a delayed response to your request, I wanted to drop you a note and thank you for what you've recently taught me about options. Although I find your recommendations too conservative, I wanted share my story, which I owe entirely to you. A year ago I would have never even imagined that I would be trading options – they seemed way too complicated and every time I had tried options in the past (buying calls, of course,) I lost money – every time.

"But since subscribing in March, I finally took the options plunge selling naked puts that last week of May. I gained $2,136 that week. I wasn't able to trade again until the first week of July, but from July to the end of Oct, I averaged a weekly gain of $2,522 (not including commissions) placing 37 trades with only 3 of those trades where I covered for a small loss. While I don't trade every week, my best weekly gain to date is $7,260 and my smallest weekly gain is $340. I took a trading break in Nov as I was too busy with work and the mkts too challenging. But I resumed trading in mid December and since then my average weekly gain is $1,563 per week. My total gain from May thru January before taxes is about $41k.

"Since trading options this way, I've been put a few times but I don't mind, as these are issues I would want to own anyway, and when I am put, I just start selling covered calls where I continue to add to my weekly gain while further reducing my basis. I have, however, tweaked your approach by trading the weekly 3x ETF's and several weekly tech stocks, which more suits my trading style. Perhaps you should consider offering a newsletter like this for your more aggressive traders. You've taught me how to sell naked puts and calls and I can't thank you enough for offering your expertise to the little guy/gal, as you've changed my (trading) life forever." – Paid-up subscriber PK

 "I have been buying some gold & silver bullion here & there since 2008. This weekend, after reading some of last weeks publications & listening to your podcasts, I decided it was time to convert some more greenbacks into bullion. So I went to my local gold & silver dealer (Dallas/Ft Worth area) today & they were out of 1oz gold maples; they had a handful (literally a handful) of eagles & Krugerrands. They were out of 1oz silver eagles & probably won't be getting more real soon. They did have some other odds & ends in silver. This is the first time I've ever had any difficulty buying bullion.

"I asked him, 'if silver supply is scarce, doesn't it seem odd that the price hasn't gone up much lately?' His answer was, 'I think the shortage just hasn't hit home yet with most people.'

"While I'm at it, I also wanted to say thanks for the education. My formal education is in science & medicine. Around 2008 I decided I wanted to beef up my investing/finance/economics knowledge, so I enrolled in a local university & got started with an evening class… step one of many to get a MBA or whatever. I soon realized that it wasn't going to be practical, as far as time, because I work a lot running 2 businesses and also have kids. Around that same time I started reading some of your publications. I started out w/ 1 or 2 newsletters, then moved to PWA, then upgraded to full Alliance a couple years ago. It didn't take very long for me to realize that I could self-teach myself the exact things I wanted to learn by reading your publications in my spare moments – and for less cost and time than an MBA that would have taken. I haven't taken a class at the university since.

"One more thing… once upon a time, I was a herbal life distributor. I thought their products were great, but as a business, Porter is exactly right… only a tiny percent make enough money at it to bother with it… and only a few will become wealthy… and most will end up stuck with a closet full of products." – Anonymous

 "In your Friday Digest, you used a term that I have used many times in my 30+ years of business, only in a manner that may more accurately define its meaning. A lot of business is done with 'Other People's Money' who's acronym happens to be 'OPM.' When said quickly, it sounds like what it really is to many Public Company Execs and ETF managers, 'Opium.' Weird, but incredibly accurate. They spend 'OPM,' act like they are on 'Opium' or some other hallucinogenic, throwing caution to the wind, foolishly high on OPM. Unfortunately, for all OPM addicts, there comes a day of reckoning." – Paid-up subscriber Randy Wedel

Porter comment: You got that right. I like to tell people to think about it this way…

The further a dollar travels from the man who earned it and saved it, the more likely it is to be lost doing something that's almost laughably idiotic.

For really big laughs… just watch the sovereign wealth funds. Here you have a pile of money that no one earned (it just accumulated by currency manipulation), that no one really owns (politicians control the funds, but don't own them), and that no one will ever miss if they're lost. It's other people's money. And it's only good for Wall Street.


Sean Goldsmith