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Weekend Edition

The Best of The S&A Digest
Saturday, August 23, 2008

An exciting new development for Jeff Clark. On September 1, he'll be giving away his old brokerage firm's No. 1 income secret in an online video seminar. It's a way of collecting $2,500 or more, overnight, on any stock in the market.
 
The seminar won't cost you a thing to watch – but it's taken a small fortune to put together. Included in Jeff's video... his top current pick, how this strategy can add thousands to your savings account every single month, and why Jeff has spent 22 years perfecting it for his wealthy California clients. Spots are filling quickly...
 
This could be the worst hedge fund in the world... Jonathan Wood, a former UBS trader, founded hedge fund SRM Global Master Fund two years ago. Now he's bust. Wood took positions in Bear Stearns, the defunct investment bank; Countrywide Financial, the posterboy of the mortgage debacle; and Northern Rock, the U.K. bank that experienced a run on its assets.
 
SRM Global Master Fund raised $3 billion in 2006 and is down 85% through July. Investors agreed to a five-year lockup, so they haven't been able to redeem. See what you get for "2 and 20"?
 
Warren Buffett announced some of his new purchases this week. He bought 3.24 million shares of NRG Energy, the second-biggest power producer in Texas, where electricity prices surged 24% from a year earlier. NRG is an unregulated power company that can charge whatever prices the market can handle.
 
Buffett also reduced his holding in Anheuser-Busch by 61% in anticipation of the InBev takeover. He added to stakes in Ingersoll-Rand, a refrigeration-equipment maker, and Sanofi-Aventis, France's largest drugmaker.
 
In Miami, the economy doesn't appear to be suffering. I flew down there recently to check out the condo market in South Beach. Over the long term, I'm very bullish on South Beach. It is already one of the world's great playgrounds, and I expect it will continue to grow. Real estate will, in time, rebound and see new highs.
 
Unlike Vegas, Miami's tourist demand is still very high. Nearly everyone else staying at my beachfront hotel (the Raleigh) was from Europe – lots of French visitors. The high-end restaurant I went to (Prime One Twelve) was packed. At 9 p.m., a line snaked out the door, and people had to wait more than 30 minutes to get a table. This at a place where the average tab for two is more than $200.
 
As far as real estate, the South Beach area is still pretty expensive. It hasn't "cracked" the way I thought it might. Condos in nice buildings are still selling for more than $500 per square foot. Condos in the best buildings are still selling for more than $1,000 per square foot. So, I think the market will continue to fall, probably for another nine to 12 months.
 
However, for the first time, I'm seeing "short sales" (where the bank will accept an offer below the amount owed on the mortgage) and foreclosure sales below $300 per square foot in good buildings. I'm making an offer on a two-bedroom condo in a nice waterfront building for $250 per square foot.
 
You can now buy a house in Detroit for $1. A local bank recently sold a house, bought for $65,000 in November 2006, for $1. Vandals stripped the foreclosed home of its valuables. Even at $1, it took 19 days to sell the house. In a sign of how desperate the banks are to sell, the owner paid $10,000 in back taxes, sales commission, and closing costs to seal the deal. We might have to send Dyson back...
 
Steve Sjuggerud has been touting "the last cheap asset class," high-end collectibles, for six years. He's got vintage guitars and signed Beatles albums on his walls. He bought the first surfboard of Kelly Slater, the best surfer in the world, on eBay this year. The trick to investing in collectibles is only buying the rarest items. Rare collectibles are a great way to invest money with little correlation to the market. Now mainstream investors are catching on.
 
Marquee Capital and Anchorage Capital Partners, two London-based companies, plan to start the first investment funds devoted to music memorabilia. Marquee aims to amass the "world's largest portfolio of investment-grade Madonna and non-Madonna memorabilia." Anchorage is starting a vintage guitar fund. Both funds will launch next year.
 
Most insurance companies don't have adequate reserves to account for the effects of inflation. Last Thursday, a Fitch ratings analyst told investors, "Inflation is a significant challenge to loss reserves. When unexpected inflation costs go up, (insurers) tend to underestimate loss costs."
 
In Extreme Value, I've been writing about the one insurer I know of to warn investors about the harmful effects of inflation on loss reserves. The founder and CEO has been discussing the topic for years, and his company is one of the best-performing stocks of the last 25 years, returning more than 20% a year on average.
 
Regards,
 
S&A Research




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