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Weekend Edition

The Best of The S&A Digest
Saturday, January 12, 2008

"There is no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company."
 
That's what Countrywide Financial said this week. The comment has an all-too-familiar ring to it. It reminds me of the way governments tell everyone they're not going to devalue their currencies – right before they devalue them.
 
I keep hearing that we face a 70% chance of a recession, or a 50% chance, or whatever. Personally, I think there's a 100% chance we've been in one for months.
 
 Federal Reserve Chairman Ben Bernanke, who made his bones studying – and being terrified by – the Great Depression, says downside risks to the economy "have become more pronounced." (I don't know about that, but they're certainly easier to pronounce these days... Can you say "recession," Ben?)
 
The stock market liked it, as usual. The Dow moved up 0.9%, and the S&P 500 0.8%. Gold was listening a little better than stocks, though. It moved up about 1.9%.
 
 Our friend Chris Weber developed his Max Yield currency-trading technique in 1970, putting $10,000 into the highest-yielding currency at the time. Every year since then, Chris has taken the interest from the previous investment and bought the new, highest-yielding currency.
 
This simple method achieved an astounding 6,118% return through 2007. If you invested $10,000 in 1970, you're sitting on $621,854.23 today. Chris released his updated Max Yield report last week. Click here to read more about Chris.
 
 From a reader: Something I feel is important in dividends is how often they are paid. Let's say two stocks both pay an 8% APR dividend, but one pays monthly while the other pays quarterly. The monthly pay should compound greater. What say you?
 
Mathematically, yes, the more often you get paid, the better you'll do... if you reinvest all dividends... and if the funds are run by good managers... and if the fund's fees aren't too high.
 
 S&A Oil Report pick ConocoPhillips (COP) bought back $7 billion (5.3%) in stock during 2007 and paid $2.6 billion (1.9%) in dividends. We've said it before... The two ways to get rich investing are compounding your savings over a long period of time and buying early into a bull market. You will get rich holding companies like ConocoPhillips for the rest of your life.
 
 Gold futures began trading in Shanghai this week, and the Chinese are already paying $1,000 an ounce. Traders said high prices merely reflect the lack of connectivity between Shanghai and the London-based over-the-counter gold market.
 
Truth is, the Chinese are more scared of their own currency than most. And gold is one of the few things they're legally allowed to invest in. Same with their soaring stock exchange.
 
 Extreme Value pick Wal-Mart (WMT) is opening a new store in DeKalb County, Georgia. For a shot at 350-400 jobs, 7,500 people showed up to fill out applications. Wal-Mart consistently draws more than 1,000 people in a single day, nearly three times what it needs to staff a new store.
 
Wal-Mart is a model of consistency in absolutely every way you could ever want. Consistent profit margins. Consistent profitability, quarter after quarter, for decades. Consistent returns on capital, decade after decade.
 
It's a consistently attractive employer. Consistently a great place to save money on everyday items. Consistently frugal, super-enthusiastic corporate culture. Consistent retail innovator (i.e., $4 drug prescriptions). And it remains consistently focused on the core business. Even its most obnoxious detractors would have to agree with me that it is a relentless juggernaut.
 
And yet, here Wal-Mart sits, selling at a price that'd be more appropriate for a junk credit on hard times. If I were a Wall Street analyst, I'd dream about companies like Wal-Mart. Wall Street worships consistency. That's why so many corporate executives are willing to lie to give the illusion of it.
 
So why aren't we reading huge journalistic pieces about what an incredible business Wal-Mart is and what a stupidly cheap price it's selling for?
 
 Closed-end funds – mutual funds that trade on an exchange – are currently trading for an average 6.6% discount to net asset value, when the 10-year average is 4%.
 
Tom Dyson just recommended a closed-end fund carrying the safest debt on Wall Street in his 12% Letter. It trades at a 6% discount to net asset value and yields more than 9%. To learn more about The 12% Letter, click here.
 
Regards,
 
S&A Research




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