November 19, 2012
- No more Twinkies? Busting a myth from the demise of Hostess (in its current incarnation)
- Loading up, paring back: peering into Soros’ and Paulson’s gold and gold-stock holdings
- The looming event that could “devastate” millions of income investors
- A breakthrough in Alzheimer’s detection steals headlines… while a breakthrough in Alzheimer’s prevention could make you wealthy
- The mother of all metal thefts… a swanky salvage sale… a blueprint for secession… and more!
“Hostess is a poster child for severely handicapped companies,” says Byron King, “tied into an outdated business model, making & selling stuff that’s way past the sell-by date, in a world of brutal competition.
We turn to Mr. King this morning for insight into headline news… because in addition to the better-known pursuits on his CV — oilfield geologist, Navy pilot, military historian — he’s also been a bankruptcy lawyer.
The company, now in liquidation, “has been a dead man walking for a long time…. and now, we can all watch as management gets its last hurrah by calling the union bluff, and scuttling the ships.”
Not that management was any prize, Byron adds — “mail-order MBAs,” was the kindest he could be — caving to union demands for years and giving itself a 300% raise after filing for bankruptcy in 2011.
“We should be clear,” tweeted The Wall Street Journal’s Rolfe Winkler, tackling another angle: “The death of Hostess does not necessarily mean the death of Twinkies.”
No it doesn’t. Any more than the death of General Motors would have necessarily meant the death of Chevrolet — a point lost in early 2009 as GM and Chrysler circled the drain… and again this fall as the GM and Chrysler bailouts became a campaign issue.
“If GM is allowed to go bankrupt,” wrote Forbes’ John Tamny recently, “it doesn’t disappear. Instead, carmakers with a clue get the pieces of the company that are prized by the market at a discount. The discount is the author of profitability that ensures more investment in the company, more job creation and a more vibrant Detroit.”
Ditto for Hostess’ assets. This morning comes word that two potential buyers are kicking the tires.
Another interesting and underplayed Hostess angle is this — a split between its two biggest unions.
Hostess spent much of this year flailing through bankruptcy court. The Teamsters, its biggest union, offered concessions. The second-biggest union — the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union (BCTGM) — dragged its feet and sealed Hostess’ fate.
“The BCTGM leaders are putting Teamster members in a horrible position,” reads a Teamster statement issued Friday — “asking them to support a strike that will put them out of a job… It is difficult for Teamster members to believe that is what the BCTGM Hostess members ultimately wanted to accomplish when they went out on strike.”
Doesn’t exactly signal a “resurgent” labor movement, does it?
“When you peek under the hood,” says Byron with some takeaway thoughts, “it’s a miracle of modern low interest rates that Hostess survived as long as it did.”
“The decline & fall of Hostess is actually a foretaste (no pun intended) of what’s to come of many over-indebted US companies when interest rates start to rise.”
“They’ll never be able to manage cash flow and pay interest on debt, let alone repay debt.”
But such events are off in the distance: This morning, it’s risk on.
As of this writing the Dow has rallied 140 points, on top of the 46 points it added on Friday — both moves the financial media is crediting to rumors of an agreement in Washington over the uber-hyped “fiscal cliff.”
“We may see some follow-through in the week ahead,” wrote Options Hotline editor Steve Sarnoff last night, “as US consumers gear up to give thanks for what they have…and then immediately go buy stuff they don’t really need. But I don’t expect stock sellers to be distracted by the Petraeus affair and the demise of the Twinkie for long. As we head toward month’s end, the overall outlook remains, until proven otherwise by price, for markets to face heightened pressure.”
Crude is also picking up where it left off Friday — jumping to $88.76. And precious metals aren’t being excluded from the risk-on party: Gold is up to $1,730 and silver’s on the cusp of $33 — even though the dollar index is still hugging the 81 level.
George Soros keeps rebuilding his position in GLD, the biggest gold ETF.
Readers with long memories will recall Soros Fund Management dumped nearly all of its 4.67 million shares of GLD in the first quarter of 2011. When gold was still under $1,400, we might add.
Ever since, Soros has been slowly accumulating — doubling his exposure during the second quarter and growing it by half in the third, according to his latest 13-F filing at the SEC. His GLD holdings now total 1.3 million shares.
Soros more than doubled his holdings in GDX, the major gold miner ETF, to 2.32 million shares.
John Paulson, the other mega-star fund manager with big gold bets, made no moves with GLD. But he did reduce his position in Gold Fields (GFI) and AngloGold Ashanti (AU) — two firms with heavy exposure to South Africa’s labor strife. (Byron King saw the trouble coming two years ago and recommended selling both for handsome gains. Good call: Both stocks have since retreated considerably.)
“Montana Tells Lawmaker Gold Is for Fools,” reads one distorted Politico headline.
[Ed. Note: We wonder if they're in cahoots with Nancy Grace on the gold-buying "rich white guys with no life" bus...]
Last week, we reported that Montana state Rep. Jerry O’Neil wrote the state legislature asking to be paid in precious metals.
Their response? “The United States Constitution does not require states to pay debts in gold and silver,” says Jaret Coles, a Montana legislative attorney.
“It seems to me kind of silly,” counters O’Neil, “that a judge can rewrite the Constitution in the court of law.”
Although Cole offers to introduce a bill to change current law, O’Neil refused.
“I’m considering having my paycheck direct deposited to a coin dealer and then I can collect my gold and silver coin — it’ll help me, but it wouldn’t help my constituents.”
Oh, well… more for the “fools.”
Seldom does Jim indulge in exclamation points, so we sat up and took notice when he tipped us off to a “fiscal cliff” issue you won’t hear about from the financial media.
First, the essential background: Remember the Simpson-Bowles commission, the “blue-ribbon panel” appointed by President Obama to solve the debt-and-deficit issue once and for all?
Well, they didn’t, because they could never come to terms… but now White House and Congressional negotiators are dusting off Simpson-Bowles as they try to tiptoe back from the edge come Dec. 31.
Amid a laundry list of proposals to change the tax code, Jim has helpfully highlighted one for you…
“That single line has one of the largest areas of fixed-income investors petrified,” says Jim.
“Matt Posner, legislative coordinator at Municipal Market Advisors, had this to say: ‘In the Senate, even before this election, there was bipartisan talk already that this 28% idea had legs.’ The 28% Posner is referring to is the maximum amount of muni bond interest an investor can deduct from taxable income under some more recent, more detailed proposals.
“Any proposal that would put the tax-exempt status of municipal and state bonds into question could have absolutely devastating effects. Even if, as the Simpson-Bowles report stated, only new issues fall into this tax status, we’ll still see billions of dollars in withdrawals.
“After current munis mature, there will be nowhere to roll those investments into if new ones are taxable — that whole allure of munis is their tax exemption. And with the run-up of bond prices across the board, those current muni investors will just take their gains and move on.
“That’s just one more nail in the fixed-income coffin,” says Jim… but it also opens the door to some advanced income solutions on his radar.
If you have substantial assets and you’re at wit’s end about how to tap them for steady and reliable payouts, you’ll want to check out Jim’s ideas. They’ll work for you no matter that happens in Washington between now and year-end.
“The scan was floridly positive,” said Dr. Adam S. Fleisher, leaving us to silently suggest more appropriate adjectives to the doc through the ether… worth a shot.
“I was hoping the scan would be negative,” Edwin Jimenez told The New York Times, not so floridly. “When I found out it was positive, my heart sank.”
Dr. Fleisher works at the Banner Alzheimer’s Institute, where Mr. Jimenez’s wife, Awilda, was recently diagnosed with the dreaded disease.
Up until now, a diagnosis was impossible. Normally, only an autopsy could reveal Alzheimer’s damage.
Now, thanks to the latest in brain-scan technology, doctors can detect it at first blush.
“The scans show plaques in the brain,” writes NYT, “that, together with dementia, are the defining feature of Alzheimer’s disease.”
Unfortunately, detection does not equate to treatment. And as of yet, no treatment has been shown to significantly slow Alzheimer’s progression.
At least that’s what “common wisdom” tells us.
Uncommon wisdom, our tech wizard Patrick Cox’s specialty, tells us that Big Pharma is striking out because they’re focused on the wrong things…
And not focused on one “wealth quake” breakthrough about to shake up the $5 billion Alzheimer’s treatment industry in a big way.
You can access this rare discovery here before it vanishes completely this week.
It’s the mother of all copper thefts.
Never mind manhole covers or homes under construction, or even more exotic targets we’ve chronicled in The 5, like high-voltage TV transmitters.
Even with copper prices down 9% over the last three months, thieves are not deterred: They managed to snag 144 tons of copper ingots from an Asarco mine in Arizona. Total value: $1.25 million.
And they almost got away with it: The caper was halted at the Port of Los Angeles. Some of the ingots were loaded aboard ships bound for China. Some were on ships that already left and were ordered to return. The contents were listed as scrap metal.
Some kind of scrap metal…“The ingots are unrefined copper that contain traces of gold and silver and weigh 806 pounds apiece,” says the Los Angeles Times.
State police in Arizona say they know who they’re looking for, but haven’t found them yet.
“It’s a lot to steal,” says our resource maven Byron King, sussing out the wider implications. “The operation has a lot of moving parts.
“Then other people traffic in the stolen goods. And you’ll never convince me that they do not know what they’re doing.
“Multiply this across the world… other minerals and metals, oil from Iran, logs from national forests in Madagascar…”
“Everything will go,” promises the trustee for the brokerage PFGBest… and receiver for its indicted CEO Russell Wasendorf Sr.
The demise of PFGBest has delivered The 5 a modest bounty of quirky items this year — silver SpongeBobs, lawsuits by one-hit-wonder bands — but all good things must come to an end, and end they will on Wednesday, Dec. 5.
“Items expected to draw interest,” says The Wall Street Journal, “range from a collection of sports memorabilia that includes a Miami Dolphins football helmet signed by former quarterback Dan Marino to a small fleet of all-terrain vehicles and professional-grade camera equipment.”
The cars look pretty snazzy — especially the ’57 Thunderbird. But some of the “personal home furnishings” look as if they might have come from Rent-A-Center.
Beware bidding on Wasendorf’s house: “No Inspection Sale by Photo Only,” says the auction brochure. Guess a cracked foundation is the bidder’s responsibility.
Location of the auction: PFGBest headquarters in Cedar Falls, Iowa — which is also on the block.
For the sake of the firm’s clients — including farmers hedging their crops — we hope the collection fetches a bundle.
“A large segment of the United States no longer believes that our country gives them a fair shake,” writes a reader with a mind toward starting a secession thread here at The 5.
What the hey, we’ll bite.
“Let’s break up the country,” he says, “offer more for less with a currency based upon gold and silver and an energy policy that includes exploration and refining.
“The Left Coast and the East Coast probably will want to merge. The middle of the country from North Dakota to Texas will form the basis of a new country with certain other states free to join with a two-thirds acceptance of the original secession group.
“What a chance to set the country on a course of fiscal accountability and sanity. All federal land and facilities would belong to the new country in situ, including military bases and equipment.
“I am not crazy nor ill-educated, just passionate about freedom.
“It may take 20 or 30 years. I would guess it would take much less time. The new country, of course, would pay for their expropriation in current dollars. If we need more, we can just print them.
The 5: We hear you. Devolution of power… decentralization… the principle of subsidiarity. As Doug Casey often puts it, the ideal number of governments in the world is 7 billion.
All the same, we’d take the current secession buzz more seriously if it didn’t seem like post-election sour grapes. It smacks of events eight years ago, with the shoe on the other foot: Remember the threatened wave of migration to Canada after Bush won his second term? Yeah, no one else does either.
We’d also take the “movement” more seriously if — well…
“The word ‘customer’ in Thursday’s 5 brought to mind an unpleasant memory,” a reader writes. “Last year, the IRS audited the last four years of my defined benefit plan.
“After a year of annoyance, the IRS admitted in letter that they were unable to uncover any discrepancies in the plan’s administration. The final communication I received was addressed to ‘Dear IRS Customer.’”
The 5: Makes you feel all warm and fuzzy, doesn’t it?
The 5 Min. Forecast
P.S. For the first time in over a year, we’re opening “Project X” to new members.
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You have a brief window of opportunity to join Rob, Christopher and John before it closes again. That’s at midnight tomorrow. See what’s in it for you at this link.