The road was long but I ran it
There’s a fire in my heart and you fan it
If there’s one fool for you then I am it
I’ve one thing to say, and that’s
Dammit Janet, I love you
– Rocky Horror Picture Show, “Dammit Janet”
OUZILLY, France – First, some travel advice…
A niece was visiting from North Carolina. She left this morning for Paris.
We warned her, “Paris is the biggest tourist draw in the world. Naturally, it also has a thriving industry that preys on tourists.
“People will come up to you and say: ‘Do you speak English?’ You’ll be eager to help them. Just say ‘non,’ and keep walking. Or they’ll pretend to find a gold ring on the sidewalk, just behind you. They’ll ask if it is yours. Just keep walking.
“Watch out for gypsies. They work in groups. One will bump into you or distract you, while another picks your pocket.
“Oh… and don’t smile. If you smile, they’ll take you for a tourist, especially an American.
“The French don’t smile at strangers. They think they only have a limited supply of smiles; they’re not going to waste them on people they don’t know.”
Largest Theft in History
Now, back to our beat…
As expected, Ms. Yellen smiled yesterday, announcing no change to the Fed’s extraordinary policies.
For the last eight years, she has been aiding and abetting the largest theft in history.
Thanks to ZIRP (zero-interest-rate policy) and QE (quantitative easing), every year, about $300 billion is transferred from largely middle-class savers to largely better-off speculators, financial asset owners, and the biggest borrowers during that period – corporations and the government.
The financial press, nevertheless, finds something vaguely heroic about enabling the grandest larceny ever. Bloomberg:
Federal Reserve Chair Janet Yellen braved mounting opposition inside and outside the U.S. central bank and delayed an interest-rate increase again to give the economy more room to run.
The U.S. economy is barely limping along. As we showed last week, when you adjust nominal GDP growth by a more accurate measure of inflation – David Stockman’s “Flyover CPI” – you see that the economy is actually in recession.
Room to run? It is backing up!
Bloomberg continues its brain-dead coverage:
While agreeing that the case for a rate rise had strengthened, Yellen on Wednesday argued that it made sense to put off a move for now amid signs that discouraged Americans who dropped out of the labor market are returning and looking for work.
“The economy has a little more room to run than might have been previously thought,” Yellen told a press conference in Washington after the Fed’s two-day meeting, as she explained the decision to keep rates on hold. “That’s good news.”
We listened to Ms. Yellen’s remarks. She sounded like a well-trained functionary, a technician.
Lots of economic mumbo-jumbo. Academic phrases. Latinate words and passive sentences.
She might have made a good doctor, we thought. Or maybe a decent metallurgist. In an honest métier, she might have been able to hold her head up high.
Instead, the poor woman is condemned to ply her voodoo trade, pretending that it is based on science, and feigning that it improved the economy.
Pity the economist without a sense of humor…
His head must ache when he hears Ms. Yellen talk. His heart must break when he sees his profession brought to ridicule by its most prominent practitioners. His gloom must deepen into a profound darkness, as he watches the world’s No. 1 economy manipulated by nincompoops and scoundrels.
Worse, if he expects any kind of career, fame, or fortune – he must join them!
Meanwhile, in the real world, Jim Clifton, head of the Gallup poll group, sees a horror show.
Over the glorious years in which the Bernanke-Yellen team has managed the economy, he notes, the percentage of Americans who reply to his polls saying they are in the middle or upper-middle classes has fallen from 61% to 51%.
The adult population of the U.S. is about 250 million people. So, that’s 25 million people who have slipped out of the middle class during the time when the dream team has been engineering a “recovery.”
These are people whose “lives have crashed,” says Clifton:
What the media is missing is that these 25 million people are invisible in the widely reported 4.9% official U.S. unemployment rate.
Let’s say someone has a good middle-class job that pays $65,000 a year. That job goes away in a changing, disrupted world, and his new full-time job pays $14 per hour – or about $28,000 a year.
That devastated American remains counted as “full-time employed” because he still has full-time work – although with drastically reduced pay and benefits. He has fallen out of the middle class and is invisible in current reporting.
These “invisible Americans,” as Clifton calls them, pay a “disastrous” emotional toll. They see themselves falling behind.
Whom do they blame? Themselves? Mexicans? Obama?
One person they don’t blame is the one who has done them the most harm – Janet Yellen.
Holding down interest rates, she stole away the most important bit of information in the system – the cost of capital.
It was as though she took the stars from the night sky and hid away the needle from the compass; the economy was soon lost at sea.
Real capital investment declined. The real median household wages dropped back to 1973 levels. Productivity growth – the thing that lifts real wages – went into its longest slump since 1979.
Hardest hit were those marginal workers struggling to grab the lower rungs of the ladder.
All of a sudden, the rungs were coated in the Fed’s grease.
Between 1947 and 1970, this group – the bottom fifth of the U.S. population – enjoyed a 3% annual growth in real disposable income.
As the EZ money regime of the 21st century worked its mischief, these annual increases disappeared.
The top 1%, however, had only gotten half the annual rates of increase between 1947 and 1970 of the lowest group, just 1.7% a year.
But after 2000, it made up for it – with income growth of 2.3% a year.
Dammit Janet, says the chorus of “one percenters,” we love you.
By Chris Mayer, Chief Investment Strategist, Bonner Private Portfolio
Berkshire Hathaway (BRK) has been one of the best-performing stocks of the past half-century.
A $1,000 investment in 1965 would be worth $15.3 million today. That’s a return of 21% annually.
Berkshire, a holding company, owns a diversified collection of businesses acquired over its 50-year existence.
Two key factors helped make Berkshire great: It had permanent capital and it could invest in anything.
Of course, having a brilliant investor like Warren Buffett at the helm helps, too.
While there is only one Warren Buffett, there are plenty of talented investors at the helm of similar vehicles. Below, I’ll talk about one you may not have heard of.
Before I get to that, let’s look at those two key factors:
Permanent capital. Investors are a skittish lot. They tend to pull money out of funds after the market has fallen. If you’re running a fund, it means you have cash going out the door when the opportunity set is richest.
If you have permanent capital, as Berkshire does, then when investors sell the stock, the amount of cash Buffett has to invest doesn’t change.
The ability to invest in anything. Buffett can and does buy anything. He owns railroads, insurance, jewelers, and a long list of other investments. He doesn’t have to invest unless he thinks it’s a good bet.
So, there are a number of companies somewhat similar to Berkshire that you’ve probably heard of: Markel, Fairfax Financial Holdings, Loews Corp, Icahn Enterprises, and Leucadia National are some of the most frequently mentioned.
Sometimes people will mention Greenlight Re (Reinsurance), Third Point Re, and Pershing Square Holdings. These allow you to ride the coattails of three celebrated investors: David Einhorn, Dan Loeb, and Bill Ackman, respectively. But they are not quite so similar to Berkshire as the ones above.
There is another smaller one you may not have heard of: HC2 Holdings (HCHC). This is an investment vehicle run by Phil Falcone, who owns 11% of the stock.
Falcone is a talented investor who ran a publicly traded vehicle called Harbinger, which more than doubled under his four-year reign. But you may know him best for his past legal troubles with the SEC and communications company Light Squared (now rebranded as Ligado Networks).
With that behind him, Falcone has been on a redemption tour. HC2 owns a variety of businesses: Schuff (a steel fabricator) and Global Marine (undersea cables), as well as investments in insurance and biotech.
Most recently, Falcone made a bid to acquire Andersons, a publicly traded agricultural firm. This is quite a find by Falcone and shows his ability to find attractive deals. Anderson’s is under-managed with key assets – such as grain elevators and fertilizers – worth significantly more than Falcone’s offer. (We’ll see if he gets it done.)
Altogether, it’s not hard to value HC2 at $8 to $10 per share – a big jump over the sub-$5 share price today.
For the past three years, I’ve been developing a blueprint for finding early-stage companies that share the key traits of Berkshire: permanent capital, the ability to invest anywhere, and a talented investor at the helm.
This week, I’m hosting a free investment masterclass to show you how it works – and how it can vastly improve your investment returns. For details, see below…
Editor’s Note: Chris just put together a special report on three small companies who use OPM the same way superinvestor Warren Buffett does. It’s called The Next Berkshire Hathaway. The last time Chris called a company “the next Berkshire Hathaway,” it more than quadrupled from $165 per share in 2009 to over $820 per share today.
Chris is making a copy of this new report accessible ONLY to those who join tonight’s finale of his investment masterclass: The “Mayer Method”: The breakthrough new formula that lets you identify tomorrow’s biggest stock market winners today.
And you’ll receive the names of six stocks from Chris’s current watchlist just for attending…
It all starts at 8 p.m. ET. And you don’t want to miss it. Click here to reserve your seat for the final, most important part of Chris’s FREE masterclass.
How a Bond Can Have a Negative Yield
Negative-yielding bonds are an increasingly common phenomenon. But what does it mean for a bond to have a negative yield? And how exactly does it work? Here’s all you need to know…
Where Is the Epicenter of the Next Global Market Crash?
All signs point to a coming global meltdown. And a legendary international investor says one particular country is at the epicenter of several potential crises that will spark this worldwide disaster…
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Consumer prices jumped only 1% in the past year. But as Bill has been warning, that doesn’t mean inflation won’t be a threat in the future. Here are four ways to protect your retirement savings.
Today… a question about the new formula for finding stocks with explosive growth potential that Chris Mayer – the only analyst Bill follows with his family trust money – has been working on.
But first, do you have a personal story to share about the “invisible Americans” whose lives have crashed as a result of the rigged economy?
If so, Bill and the team would love to hear from you. Write us at [email protected].
Now, back to your question about Chris Mayer’s new formula…
In Bill’s Diary today he recommends selling stocks and buying gold. This is based on the old tried and true formula that if the Dow is priced at more than 10 ounces of gold (currently about $13,000), one should sell stocks and buy gold.
Does Chris Mayer’s new method for buying stocks somehow overcome Bill’s advice?
Chris Mayer comment: That’s the No. 1 question I get from my subscribers. At least once a month, somebody will write me to tell me they’re worried about the overall market.
Bill addressed this question really well recently in one of his letters. He basically said, “You make money by finding good businesses and sticking with them.” We’re 100% in agreement with that.
That doesn’t mean Bill is bullish on the U.S. stock market. But one of his guiding principles is doubt. Bill personally has big positions in gold and cash. But he also owns individual stocks.
In fact, roughly one-third of his personal portfolio is invested in stocks, as you can read about in my Portfolio Insight section of the April 22 Diary.
In Case You Missed It…
Chris Mayer just gave away the names of six stocks on his private watchlist… for FREE.
If you have not already signed up for Chris’s free masterclass, then you did not yet receive a link to the password-protected PDF containing the names of these stocks. But it’s not too late…
Sign up now, and when you watch Chris’s final masterclass tonight, he’ll give you the secret password that unlocks the names of those six stocks.