Saturday, May 17, 2014
What if I could give you the 12 greatest secrets I've ever discovered in my nearly 20-year career in finance?
What if, with these few secrets, you could get nearly all of the benefits of the tens of thousands of hours we've spent – my entire team – studying the world's financial markets? What if you could get the absolute best ideas and strategies any of my analysts have ever discovered?
What if these ideas and all of the supporting information were boiled down for you into a dozen 30-minute presentations that were delivered in person, where you were able to ask questions to improve your understanding? What if you were able to walk away with all of the information you would ever need to manage your savings successfully for the rest of your life?
I'm not going to hold you in suspense. That's exactly the promise we're going to deliver on at this year's S&A Alliance meeting.
Hang on. This isn't an advertisement. I'm not going to ask you buy anything. I'm writing to give you the information I'd want if our roles were reversed. We're beginning to plan the curriculum for our big annual subscriber meeting. I want to share with you one of the big secrets we plan to unveil – whether you can afford to come or not. I'm doing this for two reasons. For one, I really want you to have this information, which is one of the greatest things I've discovered in all of finance. You won't have to pay me another penny to get it, either – it's down below, as you'll see.
More important, I'd simply like to give you a sample of the incredibly valuable information we're capable of delivering. I want a chance to show you why a one-time fee of around $15,000 for a lifetime membership into this group of subscribers is such a stupendous bargain.
The sample below isn't just a stock tip. As I know many of you will recognize, it's a much, much more valuable roadmap to making thousands, or hundreds of thousands, or even millions of dollars. On the other hand, I also know that for many of you, the thought of paying that much money for anything is anathema. But this isn't cable TV. This is not the kind of information most people will ever have. And I can prove it. Just keep reading...
I recently attended a meeting that featured a presentation by Jonathan Gray. Chances are very good that you've never heard of him. He is, in my opinion, the single greatest financier of my generation. In 1992, when he was just barely 20 years old and right out of college, he joined Blackstone Group.
For those of you who aren't familiar with this financial-services company, it's the world's leading private-equity investment group. These guys are the very best of the very best. They're not just the smartest guys in the room... they're literally the smartest guys in New York.
Gray's ascent at Blackstone was uninterrupted. Only about 10 years after he joined the real estate group there, he was named co-head of the group. In 2011 his title was formalized – Global Head of Real Estate. This made Gray the most powerful real estate investor in the world at barely 40 years old.
I've met dozens of highly successful investors and businessmen during my career – billionaires and people so wealthy that they have no idea what they're really worth because they just have too much stuff all around the world. (Here's a hint: if you're really, truly rich, you don't end up on Forbes' list. Being really, really rich means you can afford to stay totally private.)
Even so, no one I've ever met in person comes close to impressing me as much as Jonathan Gray. He spoke to our group for nearly an hour – without any notes. He knew every relevant fact and factor affecting his billions of real estate investments, which are spread around the world from malls in Brazil to office parks in London. Honestly, the discussion was effortless for him, despite the dozens of questions, the complexities, and unbelievable number of data points involved.
I've always surrounded myself with polymaths – people of extraordinary IQ and ability. Just spend an afternoon with my analysts. Or have lunch one day with Doug Casey. These folks all have 12-cylinder minds. I'm not easily impressed with raw intelligence. I'm never impressed with a title or someone who's clawed their way up the corporate ladder. I know what that entails. But I have never, not once in my entire life, been more impressed by any other capital manager than I was by Jonathan Gray. If you know me at all, that should mean something to you.
Gray explained that he was interested in solving a huge problem for investors – the need for safe income. And he was interested in providing capital to a market (commercial real estate) that is regularly starved of capital. Gray spent years observing and thinking about the mortgage REIT sector. And so have we. In fact, we've been recommending mortgage REITs (like Annaly, for example) for more than a decade.
These "virtual banks" buy residential mortgage securities – most of which are guaranteed by Fannie Mae or Freddie Mac. Thus, they typically take little or no capital risk. And by leveraging their investments eight or 10 or 12 times, they can provide very high yields for investors – typically 10%-plus annually.
Sounds like a great idea, doesn't it? We thought so, too. As I mentioned, we've recommended these at various times over the years. Following the bond market collapse in 2008, I tried to convince a major national bank to partner with us to create a "captured" mortgage REIT just for the benefit of our subscribers, because I knew the returns would be exceptional. I wasn't able to get the deal in place before the markets soared, thanks to the Fed's intervention, which began in March 2009. Jonathan Gray did something even smarter...
Gray realized that the primary "fly in the ointment" for these firms was the pre-payment risk they took. When interest rates decline, the value of their mortgage investments fall, because many homeowners refinance and pay off their existing mortgages. This causes huge problems for mortgage REITs that own tens of billions of existing mortgage securities.
The other – smaller – problem was the mismatching duration of mortgage REIT financing versus the duration of their assets. It can be hard to finance the purchase of a long-lived asset (like a 30-year mortgage) with financing that expires in the short term. There's always a risk that you won't be able to "roll your debts," and thus, most mortgage REITs could be forced to sell assets into a weak market at a bad time.
Gray solved both of those problems. First, he decided to only own mortgages on commercial real estate. These loans can't be prepaid without a significant penalty and typically cover only relatively short-term durations. (Seven years is the nearly universal standard.)
While such loans aren't technically guaranteed, the buildings they're held against are always worth far more than the note, and the owners of large commercial buildings are always extremely creditworthy. If he was reasonably diligent, Gray could build an extremely safe portfolio of commercial mortgages, featuring conservative loan-to-value ratios, great locations, wealthy owners, and plenty of rental coverage (strong tenants). Barring the end of the world, these loans wouldn't go bad and they wouldn't be paid off early.
To finance the purchase of such assets, Gray insisted that all of his loans feature adjustable rates. That made getting matching duration financing simple: both his mortgage portfolio and his leverage financing have exactly the same duration and exactly the same adjustable interest rates. Thus, Gray captured the "spread" between what borrowers pay for commercial mortgages (typically 6%-8% annually) versus what it costs him to borrow. And thanks to the Federal Reserve, Gray is able to get financing at a very, very low cost.
The result is a world-class portfolio of $2.6 billion worth of commercial mortgages, that's producing nearly $400 million in interest income annually. It's held using a conservative amount of equity and around $1.6 billion in debt – all with matching durations and floating rates. The financing will cost around $50 million this year. Gray is, therefore, making close to $350 million this year simply by applying his mind to a problem all investors have been trying to solve.
I can't stress enough... he's doing this in a way that's as safe as anything you could ever do in real estate. The average loan-to-value ratio in his portfolio is just over 60%. Thus, for Gray to lose a penny, all of his loans would have to default at the same time. The collateral value would have to fall by 40% or more, given that Gray also has $1 billion in equity in this deal to serve as a reserve. I almost can't imagine a scenario where this deal goes bad.
None of this would matter to you, of course, if I told you that this was a private meeting... and a private deal. To invest, you would have to come to our meeting and meet Jonathan Gray. You'd have to be invited to invest. You'd have to be very, very rich, etc. But that's not the situation at all...
You see, when I began to plan our S&A Alliance meeting for this fall and we began to brainstorm the 12 greatest secrets at S&A Research, it was Jonathan Gray who first crossed my mind. I know for a fact that our research into mortgage REITs has long been among the most valuable information we published of any kind.
I know that our subscribers have used that information – for more than a decade – to park capital into safe and high-yielding securities. I've met subscribers who have told me time and time again that Annaly (to use one example) has paid them hundreds of thousands of dollars over the years (or even more).
But I have to say... the mortgage REIT that Jonathan Gray created is the best income secret I've ever heard. It solves the two biggest problems of the mortgage REIT sector: interest rates and loan duration. It does so in an elegant and lucrative way. Meanwhile, it pays no taxes and distributes nearly all of its profits every quarter to investors.
Now... what if I told you that anyone could buy Gray's new commercial mortgage REIT? It trades every day on the stock market. It's currently yielding around 7%. I consider it the highest-quality 7% yield available anywhere.
There are all kinds of reasons why you would never find this situation on your own. First, you don't know Gray. You've probably never even heard of him. Second, the corporate entity that became his new mortgage REIT was the shell of a failed real estate investment trust that collapsed in 2008. Looking at the stock's price chart, you'd never buy this thing. It fell from $500 per share to almost nothing. But that was before Blackstone had anything to do with it.
The point is... for anyone with between $250,000 and $20 million to invest, information like this is not only worth a one-time payment of $15,000... it's the bargain of a lifetime. And the story of Blackstone Mortgage Trust (BXMT) is merely one of the 12 secrets we plan to unveil at our meeting. There's no reasonable way to expect you'll ever get this kind of information anywhere else... and certainly not 12 secrets of this caliber in one setting.
If you're already a member of the S&A Alliance and you're not able (or willing) to travel, don't worry. We will broadcast the presentations live on the Internet to all S&A Alliance members. We will also send you notes detailing each presentation. So you don't have to travel to get the information... But you do have to join our group. Even so, I'd encourage attending. There are nuances you won't pick up unless you're there. And there's nothing like meeting our analysts and contacts face-to-face if you want to judge their abilities for yourself.
What are the other 11 big secrets? Well, they'd hardly be secrets if I told you right now. But I will tell you this... We're going to extract the core information and best ideas from each of the newsletters we publish. This will not only be the best meeting we've ever held... my goal is to make this the best investment conference that's ever been held. I want to do something legendary.
Again, the only way to be invited is to join the S&A Alliance. For more information, feel free to call my friend and head of sales Michael Cottet (888-863-9356) or speak to any member of his team. Like I said, the ticket to join costs around $15,000. Pay once and enjoy all the benefits for the rest of your life. If you don't think it's worth it, please don't bother haggling with us. There's really nothing more I can do to roll out the red carpet for you. Or as I like to say: "horse, meet water."
Editor's note: The Weekend Edition is pulled from the daily S&A Digest. The Digest comes free with a subscription to any of our premium products. We recently published a book titled High Income Retirement explaining how to generate instant, safe income in the market, without buying stocks the conventional way.
Almost nobody knows these strategies exist. But we believe these ideas are so important, we're offering this book at an incredible 60% discount off the sticker price. To get the full details – including how to get your copy of High Income Retirement – click here.
Date Range:5/8/2014 to 5/15/2014
Date Range:5/8/2014 to 5/15/2014