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Weekend Edition

I hope this doesn't get me fired
Saturday, October 1, 2011

Right now, investors can earn 50% more income than they can on the 10-year U.S. Treasury note – by owning a security that's 10 times safer than the 10-year U.S. Treasury note. Most important of all, unlike Treasury notes, this income stream is growing 25% a year...
 
The security I'm talking about is Microsoft. Here's what I told Extreme Value readers about Microsoft in this week's update:
 
Last Thursday, [Microsoft raised its] dividend 25%. The dividend still needs to be higher, but a 25% raise is still an excellent outcome...
 
Now the quarterly dividend is $0.20 per share. That's $0.80 a share per year. As a percentage of Friday's closing share price, that's an annual yield of approximately 3.2%.
 
The 10-year U.S. Treasury note yields less than 2%. The U.S. government is in terrible financial shape, with tens of trillions of obligations, including $14 trillion or so of outstanding debt. Microsoft is in pristine financial condition, with over $50 billion in cash and short-term investments, and less than $12 billion in debt. Microsoft has enough liquidity to pay all its debt four times over. The government can only pay its bills by increasing its debt. The U.S. government spends more than twice what it earns. Microsoft spends about 61% of what it earns, generating an enormously thick 39% operating profit margin.
 
Microsoft's stock is safer – and provides about 50% more income – than the 10-year U.S. Treasury obligation.
 
And of course, Treasury coupons don't grow the way Microsoft's dividend payment does. If Microsoft's dividend keeps growing at its current pace, you'll find yourself earning a double-digit income over your original purchase price in just a few years. Imagine making a double-digit yield over cost on a stock like Microsoft. It has one of the strongest, safest balance sheets and one of the greatest businesses on earth. Earning a double-digit cash dividend yield on a stock like that is perhaps the most you can ever ask from the stock market. And it'll make you plenty of money, especially if you reinvest your dividends.
 
I cover stocks like Microsoft in Extreme Value and also in our monthly income letter, The 12% Letter. In The 12% Letter, I've got a whole list of stocks as safe and cheap as Microsoft, all growing their dividends at similarly rapid rates. I call them World Dominating Dividend Growers.
 
I promise you, 10 years from now... after the stock market has gone absolutely nowhere... you'll wish you'd bought Microsoft today and reinvested the dividends along the way. If it keeps up the current pace of dividend growth, you'll earn about 13% per year. It's tough finding investments that offer high potential returns with such low risk right now.
 
World Dominating Dividend Growers like Microsoft will likely outperform the majority of stocks over the next decade as the market lurches up and down. Investors who live and die on the market's day-to-day moves will get whipsawed. But you'll make lots of safe money if you stick with the World Dominating Dividend Growers.
 
If you want to know more about World Dominating Dividend Grower stocks, click here for access to The 12% Letter.
 
 Ben Bernanke gave a speech Wednesday in which he – I hope this doesn't get me fired – made some really good suggestions. They're so good, in fact, I'm supremely confident U.S. politicians will ignore them. Bernanke cited a 1990 report articulating a viewpoint known as the "Washington Consensus," authored by economist John Williamson. The report contains three main recommendations to foster growth in emerging economies.
 
The first recommendation was to control government spending, have low inflation, and become more politically stable so businesses could thrive. The second recommendation was to allow markets to operate more freely, and the third recommendation was to promote institutions like private property and the rule of law.
 
Bernanke cited success stories like Brazil, which has seen annual inflation rates fall from around 500% in the late '80s and early '90s to just 5% since 2006.
 
Bernanke also highlighted the importance of technology and education, citing the example of India, whose success in information technology has been accelerated by a large supply of educated, English-speaking people.
 
But "Helicopter Ben" really blew me away at the end of his speech by addressing not emerging market economies, but the U.S...
 
Indeed, advanced economies like the United States would do well to relearn some of the lessons from the experiences of the emerging-market economies, such as the importance of disciplined fiscal policies, the benefits of open trade, the need to encourage private capital formation while undertaking necessary public investments, the high returns to education and to promoting technological advances, and the importance of a regulatory framework that encourages entrepreneurship and innovation while maintaining financial stability.
 
Bernanke is... er... how do I say this? Well... He's right. With Komrade Obama, Herr Bush, and most of their predecessors, we've seen the erosion of fiscal discipline, the role of markets, and the rule of law. What we've had instead is a spending binge to end all binges... way too many rules and regulations (You can't even sell lemonade in the U.S. without the government's permission.)... and one assault after another on property rights (Kelo v. City of New London) and the rule of law (like Komrade Obama's usurpation of GM bond holders or the Bush administration's embrace of torture).
 
 This month, the government released its latest estimate of poverty in the country...
 
According to a report from the Census Bureau, 46 million Americans – more than 15% of the population – are now living below the poverty line. That's the highest number since the Census Bureau started tracking poverty in 1959. And the highest poverty rate among developed nations. The Census Bureau defines the poverty line for individuals as an annual income less than $11,139.
 
How much money do you need to live a comfortable retirement? Most conventional retirement "experts" say you need hundreds of thousands of dollars in the bank. But our own Dr. David Eifrig (a former derivatives trader at Goldman Sachs) says that if you meet some simple requirements – and you're willing to take an unconventional approach – you can live a rich retirement with as little as $10,000 in savings. He says you need to take just five simple steps. To learn more about Eifrig's five-step plan, click here...
 
Regards,
 
Dan Ferris




This Week's Winners
S&P 500 Symbol Change
Genworth Financial GNW +22.0%
Jabil Circuit JBL +16.0%
Gannett GCI +15.6%

Countries Symbol Change
Italy EWI +11.3%
Spain EWP +10.6%
Germany EWG +10.1%

Sectors Symbol Change
Homebuilding ITB +5.1%
Financial IYF +4.9%
Water PHO +4.8%

S&P 500 Symbol Change
Genworth Financial GNW +22.0%
Jabil Circuit JBL +16.0%
Gannett GCI +15.6%
Countries Symbol Change
Italy EWI +11.3%
Spain EWP +10.6%
Germany EWG +10.1%

Sectors Symbol Change
Homebuilding ITB +5.1%
Financial IYF +4.9%
Water PHO +4.8%

Commodities Change
Wheat +4.2%
Cotton +3.1%
RBOB Gas +2.8%

Date Range:9/22/2011 to 9/29/2011
This Week's Losers
S&P 500 Symbol Change
Advanced Micro Devices AMD -13.2%
Netflix NFLX -11.9%
MEMC Electronic Material WFR -10.5%

Countries Symbol Change
Chile CH -10.7%
Thailand TTF -1.6%
Hong Kong EWH +0.6%

Sectors Symbol Change
Gold Mining GDX -7.2%
Nanotech PXN -5.3%
Oil Services PXJ -3.2%

S&P 500 Symbol Change
Advanced Micro Devices AMD -13.2%
Netflix NFLX -11.9%
Mosaic Company MOS -9.8%
Countries Symbol Change
Chile CH -10.7%
Thailand TTF -1.6%
Hong Kong EWH +0.6%

Sectors Symbol Change
Gold Mining GDX -7.2%
Nanotech PXN -5.3%
Oil Services PXJ -3.2%

Commodities Change
Silver -16.1%
Platinum -11.3%
Coffee -7.4%

Date Range:9/22/2011 to 9/29/2011
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