Investor News and Market Update by shuifanglj


									Power Investor® – Member Newsletter                                                                                                                        Page |1

                  MEMBER NEWS &
                   COMPUTER MEMBER                                           Issue1          Volume 1           MAY 2011
                  NEWS .......................... 5

                  STOCK SCREEN ............ 8

                  MAL BERKO’S TAKING
                   STOCK ......................... 11

“History proves that long-term investing is the key to financial success. Our education
and research programs help you identify superior stocks and mutual funds consistent
with your investing style and tolerance for risk. We employ dozens of time-proven
fundamental valuation techniques to identify investments with strong prospects for
higher profits and better returns with lower risk”.

Investor News and
Market Update
National Debt Reaching Critical Level                   result will be and how investors may protect
Economic experts, bond managers and                     themselves.
money managers are discussing the
possibility of a default by the United States           Creating (Another) Internet Stock Bubble
government on the national debt. Japan is               We encourage investors and members to be
no longer capable of buying US debt and                 on their toes and avoid the casino mindset.
China is unwilling to continue buy the debt.            Recently, LinkedIn went public and the
One of the biggest risks on the horizon is              stock soared on the first day. We suspect it
that if interest rates increase, the debt burden        was probably another case of a small float of
will become more crushing. Congress is                  shares. The markets are not cheap at this
only talking about modest cuts in the budget            point. The gains have a lot to do with QE 1
if any. The Congressional Budget Office or              and QE 2 which may be followed by QE 3.
CBO said the supposed cuts were largely                 These QE’s or quantitative easing(s) are
illusionary. Washington does not appear to              really the Federal Reserve printing money
be serious about cutting spending. We                   and devaluing the currency. We saw the
continue below on what the net                          costs of an at home, Memorial Day cookout
                                                        will costs 20% more than last year.

                                                        John Paulsonthey
                                                        their homes and live it up like
                                                                                        Comments on Gold
                                                        were ―rich.‖ We did the same thing
                                                        in 1999 and said get out of tech and
                                                        John Paulson is the major hedge fund manager who realized the mortgage and property bubble would eventually
                                                         look at REITs of billions on that event.
                                                        burst. He made tens that were yielding We are not going top judge whether he is a good or bad guy. He is
                                                         10% and selling most of the top value.
                                                        obviously intelligent butbelow book hedge fund managers like Paulson have access to data and a staff that
                                                        can sift through the data. More than a few people realized the property bubble would eventual break.

                                                        …Continued on the question asked
                                                        This is recent next page…  of
                                                        Paulson by a French newspaper.
Power Investor® – Member Newsletter                                                                                   Page |2

When people get mortgages for 106% and no doc (document)          During the past eight months, the dollar has dropped at least
loans showing their income. We warned members not to pull         10% in value and this will likely increase. The public and
equity out of their homes and live it up like they were ―rich.‖   professional investors have been rushing to gold, silver,
We did the same thing in 1999 and said get out of tech and        platinum and palladium. The question is why are people
look at REITs that were yielding 10% and selling below book       buying precious metals? Precious metals are a store of value.
value.                                                            If the dollar becomes worthless, precious metals will still
                                                                  have a value with other currencies. In reality, gold and silver
This is recent question asked of Paulson by a French              may not be going up in value. What is really happening is the
newspaper. Paulson’s firm manages $36 billion:                    dollar is losing value.

Do you think the gold price has still not reached a               What could possibly happen? Well in the UK, Argentina and
plateau?                                                          other countries; what happens is the public can wake up one
Indeed. Over time, the price of gold will rise in proportion to   morning and there can be a devaluation of 15% or more. In
the creation of paper dollars. In an inflationary environment     some cases, a new currency can be issued to replace the old
where the demand for protection increases, the price of gold      currency. The old currency is usually worth a fraction of the
can rise even further. Historically, gold has always been a       value of the old currency. So if you have $100,000 in the
safe haven against inflation and a safe haven in times of         bank on US dollars, you could wake up one morning and you
political instability. Today we face both risks.                  now have $10,000 in new US dollars.

This is not exactly profound, but as long as politicians keep     Some people reading this may say, this could never happen in
spending, the price of gold will go up as more dollars are        America. Well it appears the politicians are doing little to
printed or created by the Fed punching in numbers to a            stop the out of control spending. Eventually, something has
computer. Silver is the poor man’s gold with also many            to give and the piper will have to be paid. We are not being
industrial applications. Platinum and Palladium round out the     unpatriotic but the uncontrolled spending is turning the USA
list of the best known precious metals. People are heard          into the Titanic.
saying that gold or silver is in a bubble. What is really         So how can you protect yourself? There are no surefire
happening is their value is going up as the dollar falls in       methods.
value. Precious metals are going up due to demand an
speculation but a major effect is the dollar losing value.            1. You could have an account with an online brokerage
                                                                         and hold stocks in foreign markets denominated in
The Sinking Dollar & How to Protect Yourself                             non-dollar securities. For example, you could open
The dollar continues to sink in value compared to other                  an account with Interactive Brokers or another firm
currencies and unfortunately the trend will probably continue.           that has foreign online trading and buy foreign stocks
Members of the public may wonder why they should be                      denominated in local currency. For example, you
concerned. The sinking dollar means a lower standard of                  could possibly buy BHP Billiton in Australia in
living, higher food prices, higher energy prices which will              Aussie dollars. The Aussie dollar is back by a lot of
lead to more inflation plus higher taxes. Oil is skyrocketing            natural resources that are in high demand. If the U.S.
in price which will only lead to a weaker economy followed               dollar falls apart, we doubt Australia will be affected.
by a crash in oil prices. Food prices will increase with energy
prices.                                                                   Australia has too many minerals that China and the
                                                                          developing countries need. Another option would be
Here is an example how the average person has been affected.              to look for big companies like BHP which trade on
The cost of vegetables in the past 6-months (fall of 2010 to              the Zurich stock exchange in Swiss francs. You
April) has increased over 14%. Here is another example.                   could buy a broad based global ETF denominated is
We sometimes shop at Target’s super food stores. They sell                Swiss Francs. There are roughly 626 ETFs traded on
bananas for 19 cents per banana. We usually go to Wal Mart                Swiss exchanges but a much smaller number are
or Aldi where they are sold by the pound. Recently, we                    traded in Swiss Francs (CHF). You can buy ETFs
noticed Target raised the price to 24 cents a banana. This is a           holding big indexes like the DOW, DAX (Germany),
26.3% price increase! We noticed in things like Pop Tarts                 CAC (France) or other big indexes in Swiss Francs.
where prices have gone from $2 to $2.18 which is a 9%
increase. Forget about cereal boxes because the companies                 A few online brokerages allow you to trade in these
play constant games in the amounts each box holds. TV                     markets. Interactive Brokerage does, eTrade offers
dinners like the Lean Cusine Steamers have shrunk the boxes               some markets. Before writing this article, we called
and portions by about 10%. You will see a lot more of this.               on one of the online brokerage firm’s and asked
Milk is another great indicator of inflation or dollar                    about the process. We will not name the firm here.
devaluation. Prices have been going up for milk. The price                The young lady rep said the account could be in
of fertilizer globally has been skyrocketing.                             Euros, then British pounds and we said no, we don’t
                                                                          want them either. She said what do you want? We
Power Investor® – Member Newsletter                                                                               Page |3

      said Swiss Francs. She said everyone has been                   buying Sprott Physical Gold Trust or PHYS. Sprott
      calling about that. Please note that she was not in             also has a Physical SilverTrust (PSLV). Both funds
      their foreign market area, but their domestic                   have said that they will redeem in the physical metal
      brokerage. So apparently we are not the only ones               if the account is large enough. Other funds that own
      asking about this.                                              the physical metal outside of the United States are
                                                                      Central Fund of Canada which trades with ticker
  2. You could buy a foreign denominated CD held in                   CEF which owns 51.9% gold and 46.1% silver plus
     foreign currency. Everbank offers CDs and money                  2% in cash. The fund has been in operation since
     markets in foreign denominated currencies. They                  1961.
     offer a basket of 4 currencies in one CD. One                    The same company has Central Gold Trust with
     example holds currencies in 4 countries that are non-            ticker GTU which trades on the AMEX and has been
     Middle Eastern countries that produce energy. The                in operation since 2004. Their CPA firm is Ernst &
     portfolio holds 25% each in Australian dollar,                   Young. The main web site is
     Brazilian Real, Canadian Dollar and the Norwegian            We will look for additional ideas and if members have
     Krone. The current yield on that basket is around            more suggestions let us know. Another thought is to look
     2.47%. Their web site address is                             for companies who have sales and profits outside of the or call 800-926-4922. Their                 United States in currencies that are not being devalued.
     accounts have FDIC insurance.                                Countries like Switzerland, Australia, Norway, and
  3. Another option is also from Everbank called a Non-           Brazil to name a few. This is not meant to be unpatriotic
     FDIC Insured EverBank Metals Select Account.                 in any way. However, it appears that government
     This allows you to buy gold and silver from                  spending is totally out of control. We have learned that
     Everbank. They have an allocated account where               the Federal Reserve has been lending large amounts to
     your metals are held separately or an unallocated            foreign banks leaving U.S. taxpayers on the hook. This
     account where the metals are pooled with other               endless spending and money printing/creation is likely to
     investors. The question is what happens if the               lead to hyperinflation and a major devaluation in the U.S.
     government decides to seize gold and silver? Well if         dollar. As we go to press, QE3 is supposedly being
     the dollar collapses, then your metals will be worth         planned by the Federal Reserve.
     the same amount of money before a devaluation of
     the dollar. What happens next is unknown. Your
     metals account could be worth more or it could be        No Job Recovery in Sight
     devalued. The Allocated account does offer delivery      The news media keeps talking about the ―recovery‖ but
     of the physical metal. The government could decide       unfortunately there has been no recovery. Sadly, no real jobs
     to outlaw private gold ownership like FDR did. As        have been created and business owners are holding off on any
     far as we recall, silver was not outlawed.               hiring plans. Businesses sit on capital in periods of
                                                              uncertainty in economic, fiscal, tax and political uncertainty.
  4. A firm in Switzerland at http://goldswitzerland offers   The economy and markets have been pumped up by the
     storage of gold or silver in Switzerland. The            Federal Reserving buying back debt issued by the Treasury
     company has minimums of $215,775 for silver and          and injecting money into the economy. This unprecedented
     $107,886 for gold. A reputable newsletter group has      creation of money did not work out very well in Weimar
     recommended the firm to it’s readers. These              Germany.
     holdings must be reported on your tax returns.
                                                              Will High Oil Prices Kill the Stock Market (and The
  5. You obviously can buy gold or silver from dealers        Economy)?
     like and many others. Do your due              When oil prices rise, it is usually a major negative for the
     diligence first. Dealers charge a variety of             stock market. This time may be different because the Federal
     commissions. You can store them at home, at a local      Reserve is printing money like there is no tomorrow. To be
     bank deposit or at a private company that has safe       clear, the Federal Reserve physically prints the money but
     deposit boxes. In 1933, FDR signed an executive          also creates it by entering numbers into a computer. The Fed
     order banning citizens from owning gold. This was        chairman said on 60 minutes that in 15 minutes he could get
     in effect until 1971. Could it happen again? Yes.        inflation under control. If this sounds absurd then you are       probably paying attention.
     People who owned large amounts of gold had it
     transferred to Switzerland. In effect the dollar was     The riots in the Middle East, chin and other countries is
     devalued.                                                inflation or higher prices mainly in food. This has been
                                                              caused by the fed flooding the world with dollars. Those
  6. Buy gold or silver funds or ETFs that hold the           chickens are starting to come home to roost in more
     physical metal outside of the United States. Fred        expensive oil, food, cotton and other physical goods. Some
     Hickey who publishes a high tech newsletter is           people may be getting their IRA or 401K statements and they
Power Investor® – Member Newsletter                                                                                   Page |4

are feeling good because their accounts are up in value. The      and his partner Dr. Sergio Focardi who is a professor
problem is, some of the greatest ―bull‖ markets occurred in       emeritus at the university. Are thought was, why would a
countries with hyperinflation like Zimbabwe and Weimar            1,000 year old university allow someone to do research there
Germany for two examples. The markets were up 15,000%             is he was a crackpot. We would think they told the physics
plus but the money became worthless so any phantom gains          department to make sure it was not a scam. Professor
were meaningless. The majority of the Fed money is being          Guiseppe Levi, a nuclear physicist and senior professor at
injected into banks. Most banks are able to borrow money          Bologna was at the tests and said the energy was not of a
right now at less than 1.8% from the Fed and lend it out for at   chmical origin.
least 3.5% in most cases.
                                                                  The system has been demonstrated a few times. Rossi
The Good News: We Are Practically Drowning In Natural             supposedly has had the system working in 97 companies
Gas                                                               around the world. Youtube has many videos. Two
The U.S. can thank George Mitchell from Texas. His parents        professors from Sweden attended the demonstrations and
were Greek immigrants and he also developed a large area          checked everything. They could not find any additional
around Texas called The Woodlands. Mr. Mitchell is the            chemical method or power being input into the system. The
person most credited with horizontal drilling and ―fraccing‖      power input to output is 33 to 1. Rossi uses common nickel
or fracturing rocks underground. It took a lot of work and        in a power form with hydrogen. The Swedish professors
many failures until his perfected the process. He developed a     think the only possible explanation might be a nuclear
method to crack the rocks to let the gas and oil loose. This      reaction between nickel and hydrogen protons to create
has all happened in the past 7 years or so. Although, there       copper. There is no measured radiation.
has been some controversy of fraccing solution getting into
ground water because it uses lots of water and a slippery         Rossi has given about 5 demonstrations and has he will
solution to open up the rock. The good news is there are          perform no more demonstrations. The company has a U.S.
cleaner solutions that you can drink, if you wanted to. There     partner in Ohio and Greece. There is supposedly a factory in
is also a way to use very common nitrogen gas. The gas can        the USA already and it is rumored to be in Miami. MIT said
then be recaptured.                                               they were interested in testing one. Rossi told them that they
                                                                  could buy one at the end of 2011. He said the future tests
This natural gas bonanza is making a lot of Americans rich.       could be made by customers. The applications for homes and
The process is also being used worldwide. China may               businesses could be heating and power plants. Rossi said it
actually have more natural gas than the USA. Western              could be used in ships and trains within a few years. Cars
Europe including countries like Germany, Austria and Poland       would take longer. So it appears it can generate heat to create
will not have to rely on fickle Russia for their nat gas. The     hot water or steam. This is how a steam engine and nuclear
horizontal drilling and fraccing revolution is taking the world   power plant work with hot water and steam. The question is
by storm. The great thing about energy, like manufacturing,       how is he taking a small input of energy to create a output of
is it is a great wealth creator. Will it be enough to             30 to 33 times more than the input.
recapitalize America and avoid bankruptcy of the nation?
Let’s hope so.                                                    Apparently, Mr. Rossi wants to get the machines out to the
                                                                  public as a fast as possible to keep anyone from stopping the
Maybe More Good News: Andrea Rossi’s E-cat Energy                 technology from getting out. He appears to be getting the
Catalyzer                                                         runaround from the U.S patent office and the patent office in
Some people may remember the whole Cold Fusion hoopla             Italy on what occurs in the reaction chamber. Trends and
about a decade ago. Two American university professors            newsletter writer Gerald Celente believes that Rossi’s
came up with an alternative energy source that was going to       technology may be the game changer. This is the innovation
change the world. The whole thing fizzled out and nothing         that keeps the world from going into a global depression.
really happened. People will always say that if someone did
create something like this, large energy companies and            At this point, you are probably reading this thinking - this
governments would make sure it never sees the light of day.       sounds crazy. Celente then makes the point that in 1990, the
We are not trying to sound like conspiracy nuts but it would      interest was the game changer globally was the Internet. He
make sense that a trillion industry would not want                said the Internet got us out of a recession. Okay, so it may
competition.                                                      still sound kooky but economic advancements are always led
                                                                  by some great technological change. In Rome, it was clean
Out of the blue in northern Italy a fellow named Andrea Rossi     water and public sanitation. The Romans took amazing
has come up with his version of cold fusion. We first read        technology they created like aqueducts, straight roads and
about it and we were skeptical. We tempered our skepticism        road building, waterproof cement and many other
a bit when we learned he was working with two professors          advancements. When Rome fell, the West went into the
from the University of Bologna in Italy. The school is over       ―Dark Ages‖ because the knowledge and infrastructure were
1,000 years old and had one of the first medical schools in the   lost. The steam engine followed plus petroleum, the
world. The school appears to also be supportive of Mr. Rossi      automobile, computers, the Internet and on and on.
Power Investor® – Member Newsletter                                                                                    Page |5

                                                                   2,000 stocks and 250 ETFs. The next upgrade will be a real
So is there a thread with Mitchell’s horizontal drilling,          time community for members who watch the markets during
Rossi’s supposed cold fusion and also petroleum from algae         the day. The new program will be available to members with
which is also coming on? Since we switched to a petroleum          $229 and $259 memberships. If you have Windows 7 only,
based economy from the first oil wells in Pennsylvania,            we can offer you the $149 membership with a copy of Power
America has had prosperity and wealth creation with each big       Investor and Power Tech Pro. Our goal is to have a 64-bit
oil find. Pennsylvania had the first big oil find then Texas       version of Power Investor in the near future but it will be a
then California, then Alaska then the Gulf of Mexico and now       big job and it will be expensive. We apologize for the delay
all the shale areas. Most wars usually occur when one group        in launching this new Power Tech Pro program. We think it
wants the resources of another. They usually want the others       will be worth the wait and the improvements that are being
natural resources. Japan invaded China which was the               planned are exciting. Thank you for your support.
catalyst for Pearl Harbor.
                                                                   New Blog Site for Gold & Platinum Members
So is Andrea Rossi a crackpot or a genius? We have no idea         We have created a new blog-web site for gold and platinum
but anyone attempting to pull off a scam like this on a global     members at The login information will
basis would have a hard time. Information travels around the       be sent out with the new Power Tech Pro program. The web
world in seconds. People can watch his tests on YouTube in         site will have EWS 1 and 2, the Movie Star Indicator screens,
anyplace in the world. He says he will be shipping his             Genetic Mapping, Triple Test Screens and other features.
machines in October-November of this year. He said he              Members who are Gold and Platinum members will get their
wanted no more testing and was pushing to get the machines         login with their new Power Tech Pro ROM. The Genetic
to market. I guess we will know at that time. As he told           Mapping will be available this summer but we are pushing to
MIT, you can buy one and test it. He said he was doing             have it out sooner. We think it will be very powerful. We
production work and the testing period was over. This will         are also looking at making the levels of membership simpler
be interesting to see where this goes because it is a              with $99, $149 and $229 memberships.
fascinating story. When October/November rolls around, we
will probably know if his machine really works.

Good News: Thorium Nuke Reactors Are Safer                         Member News
We will not go into all the details but the rest of the world is   Secondary Market Fixed Annuities & Pensions: Yielding
going full out to build thorium nuke reactors. They were           6.5% to 9.4%
invented in the United States and the two paths we had were        Frank Lardino has helped a mutual fund design a new asset
light water uranium reactors and thorium reactors. We              class that will be debuting in the Fall of 2011. He assisted in
decided uranium gave the added ―benefit‖ for nuke fuel for         the design the fund because he was tired of seeing seniors and
nuclear weapons. Unfortunately, it was probably the wrong          people nearing retirement facing a dilemma or shortfall.
choice. Thorium reactors are much safer and thorium is more        Individuals had a choice of leaving their money in the market
plentiful than uranium. The rest of the world, including           and risk a possible major correction. Or they could their
China and Russia, are moving forward with these reactors.          money in fixed income which will lag inflation rates. The
Countries with low cost energy sources will see economic           best defense is to do a proper allocation. Frank thought there
growth and prosperity – just like the USA saw in the 1950s         may be a better way to increase returns while lowering risk.
and 1960s. Countries with high energy costs will become            The idea was also to try to reduce the correlation with the
stagnant and may become bankrupt.                                  stock and bond markets.

                                                                   Today, many seniors are being paid 1 to 2% on CDs and
Computer Member News                                               money markets. Frank believed that there may be a better
                                                                   way to help investors beyond CDs, REITs, bonds, LPs or
Power Tech Pro Update                                              indexed annuities. While developing the new asset class
The development of the 64-bit Power Tech Pro has taken             mutual fund, Frank came into contact with companies
longer than we had hoped but the program should be released        offering institutional secondary market investments. These
shortly. We required that all screens take a minute or less.       investments are generally purchased by banks, large
This required replacing the database. The powerful program         investors, insurance companies and other institutions. They
should be ready shortly. We are doing the final testing now.       are usually sold in $10 million bundles or more. Most
The first version will be shipped with end of day updates. It      companies do not want to buy a bundle of $10 in annuities
will have the option of running it real time with an outside       and pension then unbundle them because it is a lot of work.
service. The first upgrade will be real time data and charting     Small investors were largely locked out of this market or they
using an Interactive Brokers feed.                                 had to go through multiple middlemen. By the time the
                                                                   investment reached the consumer, the returns were
The second upgrade will be to add Genetic Mapping which            diminished.
will be for our internal version. We are mapping roughly
Power Investor® – Member Newsletter                                                                                     Page |6

One major reason is these investments are only bought by
institutions is the transactions for individuals require a lot of   Secondary Market Pension Plans
manual work. They have to go through a closing like a real          There is also a market for secondary pension plans. What are
estate transaction or a mortgage. This is done with an              they? An individual may have a pension and they decide they
attorney. There are actually two attorneys that review the          want to sell it. Our first reaction was, why would someone
transactions. There is a closing book like a real estate            want to do this? This is wrong etc. We did more research
transaction because the investor buys the fixed annuity and         and found some of the sellers are engineers, pilots and
becomes the beneficiary of the pension. No one wanted to            executives who think they can do better based upon the time
take the time to make these investments available to                value of money. In other words, they prefer a lump sum now
individuals because it required this detailed process.              to reinvest versus a longer payout. A dollar now is worth a
                                                                    dollar down the road. The institutional source we deal with
Secondary Market Fixed Annuities                                    will not buy Social Security pensions. There are some
Due to Frank work in helping design the fund, he was able to        military pensions, government pensions but most pensions
find a source of institutional secondary market fixed annuities     are large corporate pensions. Examples include; AT&T,
and pension funds. What are they? A fixed annuity is like a         Delta, Baxter, Boeing, IBM, and Fed Ex to name a few.
CD offered by an insurance company. It pays a fixed rate for        The pensions are all backed by the government in
a fixed period of time like a CD. It is an obligation to hold       government pension. They are backed by the corporations
the annuity until the end of the term. Fix annuities usually        and also by the PBGC or Pension Benefit Guaranty
have slightly higher yields than CDs.                               Corporation. These are fixed returns paid monthly.
                                                                    The yields on the pensions are roughly from 8 to 8.5%. In
The CDs are back by FDIC insurance while the fixed annuity          some cases, if it is a larger pension, the returns can exceed
is backed by the insurance company’s claims paying ability          9.2% to as high as 10.0%. This is generally on a first come
and also there is a state fund in all states that backs insurance   first served basis. The supply is limited. The secondary
companies. The states do not want this advertised because it        market pensions and fixed annuities are purchased by banks
creates moral hazard, which is what happened in banking and         and institutions.
mortgages. The state departments of insurance generally do a        The public generally does not have access to these
better job at regulation. Insurance companies keep higher           investments for three reasons. The first reason is banks and
reserves and if a company starts slipping, another company          institutions will buy them up all day, because the returns are
comes in and buys them up for a song. This is actually a            high and the risks are relatively low. The public does not
pretty effective free market with some regulatory oversight.        really have access to the market. The second reason is they
If you screw up, your competitor will be enlisted to take over      become available to the public, but usually they are marked
your company. Sure beats endless bailouts for the big banks.        up so many times that the returns to the consumer are not
                                                                    attractive. We have found wholesale pricing to consumers.
The secondary market consists of people who have fixed              The final reason the public does not have access to these
annuities they want to sell. There are also things like lottery     pensions is buying a fixed annuity or a pension in the
winnings people want to sell. How does this work? If a              secondary market is like buying property. The transaction is
person wants to sell their annuity, they have to find a buyer or    relatively cumbersome and requires a closing with an
sell it in the secondary market. If they are making say a 4%        attorney like buying a house or a mortgage. No one had ever
yield. The new buyer will demand a higher yield due to              spent the time to develop a detailed, compliant and cost
aggravation, transaction hassle and risk. A secondary market        effective method to transfer title. Just so members know, we
was created for these secondary annuities. There are                did not work on the process. This financial firm did. We do
financial advisors and companies selling secondary market or        not want members to think Power Tech Pro was delayed
after market fixed annuities. Why do people sell? Well they         because we were creating trust documents.
usually want the money now. Some of these annuities have            As part of the legal work, the attorney must check for any
terms in excess of ten years and a lot of people are not            possible liens or legal issues, get a spouse to sign off, get
patient.                                                            everything notarized and other legal steps. There are actually
                                                                    two attorneys used in the transaction. One attorney is used on
The problem for a potential buyer is, the buyer may not be          the purchase and another on the transfer of the fixed annuity
able to buy these annuities at wholesale prices in most cases.      or pension to the new owner. In addition, a bank trust
The other problem with secondary market annuities is they           company must administer the transaction.
are not liquid and often there is a longer holding period. The      The next hurdle was; what happens if the person who owned
plus side is they provide a stable and safe return or cash flow.    the pension dies? This problem was solved by writing a term
The current yields for resale annuities are between about 5.8       life insurance policy to cover the person selling the policy or
to 7.9%. The lottery resales are in a range between 6 to 7.7%.      pension. For example: say you purchased Mr. Smith’s
Other sources offer these types of investments on a limited         pension for $100,000. You receive payments for 10 years out
basis usually at a rate of 1% or 100 basis points less. The         of 15 years then Mr. Smith dies. If there is no term policy
company only will buy fixed annuities from A-rated or better        then you would be stuck. To make these transactions work,
insurance companies.
Power Investor® – Member Newsletter                                                                                     Page |7

all of the pensions and annuities need term life insurance         Disadvantages
policies.                                                          One disadvantage is interest rate risk. If interest rates go up
So if you paid $100,000 for the pension and Mr. Smith dies –       with inflation, these investments may not keep up. On the
you would get 5 years of payments plus $100,000. Assume            flip side, sitting in a 1 or 2% CD is far bigger risk inflation.
your yield was 10%. If he died 5 years into the pension then       Bonds also have a huge risk if interest rates go up. The next
your annualized return would be far greater than 10%. In all       disadvantage is a fairly laborious closing process. The
examples, the term policy is more than your purchase price.        company does all the work, but the investor has to sign
In some cases the term policy can be substantially more.           closing of documents. The paperwork is only a bit more than
Here is one example: The yield of the pension was just over        opening a checking account.
10%. The purchase price was just under $140,000, but the           The aftermarket annuities and pensions are not liquid. The
term policy was $250,000. The term was for 15 years.               holding periods are generally between 7 years and 25 years.
Obviously if the person passed away, the return would far          The average is about 10 years. The income payments may
exceed 10%. Most of the annuities and pensions do not have         not start right away. Most of the pension payments start
substantially more in insurance like this example. Most of         immediately while many of the annuities can have a delay of
the annuities and pensions are insured for 110% of the             months and in some cases years. This is disclosed upfront and
purchase price.                                                    the investor can choose immediate interest payments or
These investments are obviously not for everyone. Some             investments starting at a later date. The investor can choose
people may object that the term policy is almost like a death      the investment that best meets his needs. The secondary
pool. The policy is needed to protect all parties especially the   market annuities and pensions can be sold again in the
investor. The process was also designed to insure it was fair      secondary market but there is a discount and transaction fees.
to the seller, the buyer, was fully compliant with all laws and    A final disadvantage is the supply is limited. Taking
just about every contingency possible is covered.                  everything into account, the advantages far outweigh the
Advantages                                                         negatives.
The advantages include a higher return or yield versus             Summary
comparable alternatives. The fixed annuities are backed by A       We provided help on these projects on our free time. Our
rated or better insurance companies and the state insurance        efforts were largely putting institutions who own these pools
fund. The pensions are backed by the corporations or               with a distribution source in the form of a brokerage. We
government agencies if it is a government pension. The             provided the rough design of the bank trust and legal
pensions are also backed by the PBGC. The safety is high.          processes. The firm, bank trust company and attorneys
The annuities and pensions are also not subject to market          completed the process.
risks like bonds, REITs, stocks or other alternatives. The         We lent our help because we were looking for investments
pensions are not state, city or county pensions. The problem       that were not correlated to stock market fluctuations.
with a city pension is if the city goes bankrupt, the PBGC         Investments that were safe and could provide investors with
may not back the pension. This recently occurred in a small        returns of 6.5% to 10.3%. We are pretty frustrated by what
town in a southern state.                                          is available for people who are retired and nearing retirement.
The investments are also backed by life insurance policies, so     People who have worked their entire lives and the bank pays
if the prior owner dies, the annuity or pension gets paid off.     them 1%. Meanwhile inflation and the dollar devaluation are
In some cases, the return is higher if this happens. For           in excess of 8%. So their standard of living is shrinking by
example, if it was a $200,000 pension with a $225,000 term         7% or more each year.
life policy. If the prior owner died after $100,000 was paid to    Recently, we were in a grocery store and a woman in her
the investor, the investor would get the $225,000 insurance        early 60s was looking at prices and was angry. She was
payoff. So a 10% investment could return in excess of 15 to        talking out loud to herself about price inflation. We did not
20%. The payments are made monthly in most cases on the            know whether to laugh or cry at the tragedy. We found
annuities and for all cases with the pensions. There are no        nothing funny in her tragedy. You almost had to laugh to
management fees like a mutual fund, ETF or managed                 restrain your anger. We do not know if we are looking at the
account. The trust company manages both types of accounts.         inflation of 1976 USA or 1929 Weimar Germany. Sadly, the
The annuity is managed by the insurance company as well            majority of the populace is more concerned with Dancing
because the annuity is retitled to the new owner.                  with the Stars.
The secondary market annuities and the pension plans go            These transactions are not securities or insurance products but
through a closing process with an attorney. In addition, the       factoring. The fixed annuities are retitled so the buyers own
annuities and pension transaction and custody are                  the policy through the insurance company. The secondary
administered by a bank trust company. Because of pension           market annuities have a new beneficiary in trust that is
laws, a trust company must administer the transaction. The         administered by the bank trust company. The annuities and
ownership of the annuities is transferred to the new owner but     pensions are backed by term life insurance policies. The
the trust company administers the transaction. The cost of         secondary market annuities and pensions are similar to
these services are already factored into the purchase of the       purchasing tax liens at the courthouse. The problem with tax
annuities and pensions. There are no yearly management fees        liens are they require a bit of work, bidding at an auction with
like a mutual fund.                                                other bidders and to some extent profiting on the misfortune
Power Investor® – Member Newsletter                                                                                     Page |8

of others. In addition, when purchasing tax liens, you have to      charity gets 2% on the money. This could be adjusted for 6%
do much of the work. In purchasing secondary annuities and          for the donor and 1% for the charity.
pensions, the attorney and bank trust company do the work.          When the donor passes, there are a variety of options.
The sale of fixed annuities and pensions is a voluntary act by      1. The family of the donor receives the full amount or
the seller. They do not have to sell the annuities or pensions.     $100,000.
In a tax sale, the person who owes the taxes has their              2. The charity receives the full amount.
obligation sold by the city or county.                              3. The charity can receive an ongoing return of 7%.
So why have we decided to offer members access to these             4. Another option requested by the donor.
secondary market annuities and pensions? We think the               5. A term life policy could be added for low cost to the donor
returns are excellent, the risks are relatively low plus there is   so if they pass away, the donor’s family and the charity get
a high confidence level due to the closing done by an               $100,000 each.
attorney and administration by a bank trust company to insure
that everything is handled properly. The closing book in the        Why are we mentioning this to members? We believe this is
transactions is similar to a home sale or mortgage and is           a unique opportunity to help charities, churches, synagogues,
roughly 59 pages long. We think they can be a much better           non-profits, pet shelters, foundations and other groups during
alternative to a bank CD where the investor is making 1% or         trying economic times. Many charities are having severe
maybe 2% on a long term CD.                                         funding problems. This might help some of these deserving
Note that once the closing is done, the fixed annuity is            groups.
transferred to the new owner along with the term life policy.       The group has also helped non-profits, foundations and
The ownership of the pension technically does not change but        charities who have had problems due to poor investment
the new owner becomes the irrevocable beneficiary. The              decisions in the past. In one case, the group was able to help
pension is also backed by the term life policy that is owned to     a non-profit community group who had dealt with a
the new owner.                                                      stockbroker. Half of the funds had been lost in the stock
In addition, by allowing members access to this service,            market. The donor was a lady in her early 60s who needed
Investors Alliance receives a minor fee that is built in. This      the income for the rest of her life. The donation is a contract
funding will be used towards funding the 32/64-bit                  where the lady was promised a return, which required the
conversion of Power Investor. The 64-bit version of Power           local community group to meet it’s obligation. The
Tech is just about done. Software development is expensive.         community group was looking at a $1 million liability over
This program will help finance a 64-bit version of Power            the balance of her life. The funding group was able to
Investor, which will have new features and the same fantastic       restructure the investment to help the donor and the
charts.                                                             community group and solve the problem. If this problem
We believe this service can help members, help people who           was not resolved, the lady might not have the income she
want to sell their fixed annuities and pensions and help            contracted for, the group and directors would be in a very bad
finance software improvements. If you have an interest,             position and the local community group’s reputation might
please contact Frank Lardino at 866-627-9090. He can send           have been destroyed.
you the current listing and inventory of what is available. He      Investors Alliance can receive a small fee in assisting the
can outline the plan and discuss the mechanics.                     charity, foundation, group, university, church or synagogue.
Over the past 24 years, we have never offered access to             Any fees will be put towards the Power Investor 64-bit
anything like this to members. We felt it was worth telling         conversion project. If you have any questions or have a
members what is available on an institutional level where           group that could use this service to help them, call Frank at
higher returns are possible. In the past 24 years, we also do       888-627-9090. We would not mention this unless we thought
not recall a period where the ―safe‖ alternatives paid investors    it could help all parties including the donor, charity and the
such low returns. Many older people are waiting in bank CDs         donor’s family.
for rates to rise. The problem is most of the $14 or more
trillion in debt is short term. If short-term rates go from 1 to
3%, the country will be incapable of servicing the crushing
debt repayment. Give Frank a call if you have a question.
                                                                    Stock Screen
                                                                    High ROE Stock Screen
Charity & Foundation Funding Program                                This screen searched for stocks with a high return on equity
Frank Lardino helped in develop the new asset class mutual          (ROE) and above average profit margins. The list came up
fund. This led to access to the institutional fixed annuities and   with a number of companies that are worth additional
pensions. In addition, Frank gained access to a plan for            analysis.
charities, churches, foundations, universities and other
groups. The service provides a 7% yield. The portfolios are         Aeropostale Inc.                           Amerigas Partners
a combination of fixed annuities and pensions. The majority         LP
are fixed annuities. If a donor decides to donate say               Coach Inc.                                 FMC
$100,000 to a church, charity, foundation or university. The        Technologies Inc.
donor receives a 5% return on their money for life. The
Power Investor® – Member Newsletter                                                                                      Page |9

IBM Inc.                                    ITT Educational         Westell Technologies, Inc., through its subsidiaries, engages
Services Inc.                                                       in the design, distribution, marketing, and servicing a range
Microsoft Corp.                             Nordstrom Inc.          of broadband, digital transmission, remote monitoring, power
Strayer Education Inc.                      Syntel Inc.             distribution, and demarcation products used by telephone
Terra Nitrogen Co LP                        USANA Health            companies and other telecommunications service providers. It
Sciences Inc.                                                       operates in three segments: Customer Networking Systems
Walter Energy Inc.                          Waters Corp.            (CNS) equipment, Outside Plant Systems (OSP) equipment,
                                                                    and ConferencePlus services. The CNS equipment segment
                                                                    provides networking and high-speed transmissions products,
                       Spotlight Stocks                             such as modems, routers, versatile gateway devices, and
Smaller Growth Stocks                                               wireless broadband home routers that allow service providers
Semtech Corp. OTC-SMTC $28.10                                       to deliver broadband services over existing copper, fiber,
Semtech Corporation, together with its subsidiaries, engages        coax, or wireless infrastructures.
in the design, development, manufacture, and marketing of
analog and mixed-signal semiconductor products. Its product         The OSP segment offers next generation outdoor cabinets;
lines include power management products comprising                  enclosures; power distribution; fiber, Ethernet, and coax edge
switching voltage regulators, combination switching and             connectors; remote monitoring equipment; and DS1 and DS3
linear regulators, smart regulators, and charge pumps;              transmission plugs. This segment also markets and sells
protection devices consisting of filter and termination devices     power distribution and remote monitoring solutions. The
that provide protection for electronic systems from voltage         ConferencePlus services segment provides audio, Web, and
spikes; and wired communication, wireless communication,            video conferencing services to businesses and individuals.
and sensing integrated circuits that perform timing and             This segment sells its services directly to Fortune 1000
synchronization functions in high-speed networks, and               companies, and indirectly through its private reseller
sensing functions in industrial and consumer applications, as       programs. Westell offers its products through field sales
well as perform radio frequency functions in industrial,            organizations and selected distributors in the United States, as
medical, and networking applications.                               well as in Canada and Europe. Westell Technologies, Inc.
                                                                    was founded in 1980 and is headquartered in Aurora, Illinois.
The company also offers transport and datacom products,
including Serializer/Deserializer products that comprise chips      52-week revenues were $178.42 with $15.0 million in net
and transceivers for short reach, metro, and long haul              income. Recent sales grew 12.3% while earnings grew 7.3%
applications; and high performance transceivers for                 during the same period. Return on Equity (ROE) is a solid
datacenter applications.                                            16%. The company is currently selling for about 1.5x book
                                                                    value. The firm has $86 million in cash and no debt. Westell
In addition, it provides transceivers for wireless                  is a pretty solid $3.50 stock, which is doing $15 million in net
communications infrastructure, which comprise 2G/3G/4G              income in the most recent year. This is pretty darn good in a
cellular repeaters, WiMAX CPE and base stations, and                major recession. The stock is selling about 1.3x sales
defense and aerospace products, such as satellite                   revenues.
communication, ground to air beacons, and unmanned air
vehicles, as well as offers discrete semiconductor products         AXT, Inc. OTC:AXTI $7.61
consisting of rectifiers, assemblies, and other products.           AXT, Inc., together with its subsidiaries, designs, develops,
Semtech sells its products directly, and through independent        manufactures, and distributes compound and single element
distributors and sales representative firms to its customers. Its   semiconductor substrates for wireless communications,
customers include original equipment manufacturers and their        lighting display applications, and fiber optic communications
subcontractors in the computing, communications, consumer           applications. It offers semi-insulating substrates made from
and industrial, and military end-markets in North America,          gallium arsenide, which are used in power amplifiers and
the Asia Pacific, and Europe. The company was founded in            radio frequency integrated circuits of wireless handsets; direct
1960 and is headquartered in Camarillo, California.                 broadcast televisions; high-performance transistors; and
                                                                    satellite communications applications. The company also
Semtech is a 51-year old growth tech company. 52-week               provides semi-conducting substrates made from gallium
sales were $423.3 million with net income of $56.1 million.         arsenide that are used for applications in light emitting
Recent quarterly sales were up 68%. Return on Equity                diodes, lasers, and optical couplers; substrates made from
(ROE) is a respectable 12.7%. The company has $185                  indium phosphide used in broadband and fiber optic
million in cash and no debt. The company is riding the crest        communications; and substrates made from germanium used
of cell phone sales, which seem to be holding up well in a          in satellite and terrestrial solar cells and for optical
lousy economy. The company’s chips are also in the cell             applications.
network equipment and the handsets.                                 AXT manufactures its semiconductor substrates using its
                                                                    proprietary vertical gradient freeze technology. In addition,
Westell Technologies Inc. OTC:WSTL $3.52                            the company, through its joint venture agreements,
Power Investor® – Member Newsletter                                                                                   P a g e | 10

manufactures and sells gallium, arsenic, germanium,                The company has seven producing mines and seven
germanium dioxide, paralytic boron nitride crucibles, and          development stage projects. Its principal producing mines
boron oxide. AXT, Inc. sells its products through direct sales     include the Chapada, Jacobina, and Fazenda Brasileiro mines
force in the United States, as well as through independent         located in Brazil; the El Penon and Minera Florida mines in
sales representatives in France, Germany, Japan, South             Chile; and the Gualcamayo mine in Argentina. The company
Korea, Taiwan, and the United Kingdom. The company was             was founded in 2003 and is headquartered in Toronto,
formerly known as American Xtal Technology, Inc. and               Canada.
changed its name to AXT, Inc. in July 2000. AXT, Inc. was          52-week revenues were $1.69 billion with $440.1 million in
founded in 1986 and is based in Fremont, California.               net income. Recent sales were up 33.8% while earnings grew
52-week revenues were $95.5 million with $18.5 million in          an astounding 343.5%. The stock is currently trading at 1.2X
net income. Recent sales have grown 50.6% while earnings           book value, which is pretty cheap. While some gold and
grew 76.4%. The company has a return on equity (ROE) of            silver stocks have skyrocketed, Yamana is a bit range bound.
18.8%. It is trading at a trailing price earnings (PE) ratio of    We think it is due to the cash being $330.5 million versus
11.8. The firm has $33.8 million in cash, no debt and a            $491.4 million in debt. The bankers keep gold companies on
current ration of 6.53 to 1. The stock is worth additional         a short leash when the debt is higher than normal. Yamana
analysis.                                                          does have some nice gold properties in stable areas. It may
Carbo Ceramics NYSE:CRR $150.77                                    be a better holding waiting for a price increase to the $14.75
CARBO Ceramics Inc. manufactures and supplies ceramic              range, which would be about a 20% gain. The stock has a
proppants primarily used in the hydraulic fracturing of natural    dividend yield just below 1%.
gas and oil wells in the United States and internationally. The
company offers five ceramic proppants, including                   Blue Chip Growth Companies
CARBOHSP and CARBOPROP designed for use in deep gas                Novartis AG NYSE:NVS $61.36
wells; CARBOLITE used in medium depth oil and gas wells;           Novartis AG, through its subsidiaries, engages in the
CARBOECONOPROP, a lightweight ceramic proppants; and               research, development, manufacture, and marketing of
CARBOHYDROPROP used to improve performance in                      healthcare products worldwide. Its Pharmaceuticals division
slickwater fracture treatments.                                    offers prescription medicines in various therapeutic areas,
Carbo Ceramics also sells fracture simulation software, as         including cardiovascular and metabolism; oncology;
well as provides fracture design, engineering, and consulting      neuroscience and ophthalmics; respiratory; integrated hospital
services to oil and natural gas companies. In addition, the        care; and other additional products. The company’s Vaccines
company provides a range of technologies for spill                 and Diagnostics division provides preventive vaccines and
prevention, containment, and geotechnical monitoring, as           diagnostic tools. This division sells influenza, meningococcal,
well as offers monitoring systems and services for bridges,        pediatric, and traveler vaccines; and blood testing and
buildings, tunnels, dams, slopes, embankments, volcanoes,          molecular diagnostics to prevent the spread of infectious
landslides, mines, and construction projects primarily serving     diseases.
various spectrum of customers in auto racing teams to              It’s Sandoz division provides prescription medicines, as well
surveyors, experimental physicists, radio astronomers, and         as pharmaceutical and biotechnological active substances.
naval architects markets. It sells its products and services to    This division offers active ingredients and finished dosage
operators of oil and natural gas wells and oilfield service        forms of medicines; active pharmaceutical ingredients and
companies. The company was founded in 1987 and is                  intermediates, primarily antibiotics; protein or biotechnology-
headquartered in Houston, Texas.                                   based products; and cytotoxic products, as well as provides
2010 revenues were $473.1 million with $78.1 million in net        biotech manufacturing services to other companies. Novartis
income. Recent revenues grew 32.7% while net income for            Consumer Health division consists of three business units:
the most recent quarter grew 65.3%. Return on equity (ROE)         over-the-counter medicines (OTC), Animal Health, and
is 16.1%. The company has $47 million in cash and no debt.         CIBA Vision. OTC unit offers readily available consumer
The current PE or price earnings ratio is 30 but Carbo is at the   medicines. Animal Health unit provides veterinary products
right place at the right time. There technology and products       for farm and companion animals. CIBA Vision unit
is being used worldwide and especially in the USA to crack         manufactures contact lenses and lens care products. It has
oil natural gas and oil wells around the country. The stock is     strategic partnership with Lonza, a Swiss pharmaceuticals
not cheap but their future looks very bright especially in         manufacturing company. The company was founded in 1895
global markets.                                                    and is headquartered in Basel, Switzerland.
Yamana Gold Inc. NYSE:AUY $12.07                                   2010 revenues were $51.0 billion with net income of $9.97
Yamana Gold Inc. engages in the acquisition, exploration,          billion. In 2010 sales grew 14.3% while earnings grew
development, and operation of gold properties. The company         15.4%. Return on equity (ROE) is a solid 15.8%. The stock
also focuses on copper and silver projects. It holds gold          has a dividend yield of 4.1% and is trading at a modest PE of
production, gold development stage, and exploration stage          12.7. We think Novartis business in emerging market areas
properties, as well as land positions in Brazil, Chile,            like Asia and Latin America see higher standards of living. If
Argentina, Mexico, and Colombia.                                   you are concerned about dollar devaluation you can buy
                                                                   Novartis in Swiss Francs on the Swiss exchanges at
Power Investor® – Member Newsletter                                                                                      P a g e | 11

Interactive Brokers (IB) at IB           ABB also makes building control systems for home and
appears to be the best online brokerages for accessing foreign       building automation. The company’s Process Automation
markets. The company lets you trade assets denominated in            division offers integrated process control and instrumentation
multiple securities from a single IB Universal Account. We           systems, plant electrification systems, information
are not advertising for IB but no other online firm can access       management systems, and industry-specific application
90 markets in 19 countries like this.                                knowledge for industries, such as pulp and paper, minerals
                                                                     and mining, metals, chemicals and pharmaceuticals, oil and
Transocean Ltd. NYSE:RIG $68.91                                      gas, turbocharging, power, and marine. ABB Ltd was
Transocean Ltd. provides offshore contract drilling services         founded in 1883 and is headquartered in Zurich, Switzerland.
for oil and gas wells worldwide. It offers deepwater and harsh       2010 revenues were $31.6 billion with net income of $2.72
environment drilling, oil and gas drilling management, and           billion. Return on equity (ROE) was 18.3%. The stock has a
drilling engineering and project management services. The            dividend yield of 2.67%. ABB trades on the NYSE but also
company also explores, develops, and produces oil and gas            on the Swiss exchanges in Swiss Francs.
properties located primarily in the United States offshore
Louisiana and Texas, and in the United Kingdom sector of             Dividend Paying Companies & ETFs
the North Sea. As of March 31, 2010, it owned and operated           TICC Capital Corp. OTC:TICC $10.09
140 mobile offshore drilling units comprising 46 high-               TICC Capital Corp., a business development company,
specification floaters, 26 midwater floaters, 10 high-               operates as a closed-end, non-diversified management
specification jackups, 55 standard jackups, and 3 other rigs.        investment company. The firm invests in both public and
The company was founded in 1953 and is based in Vernier,             private companies. It invests in secured and unsecured senior
Switzerland.                                                         debt, subordinated debt, junior subordinated debt, preferred
Transocean was a U.S. based company in Texas but they                stock, and common stock. The firm primarily invests in debt
moved their headquarters to Switzerland around 2008 along            and/or equity securities of technology-related companies that
with a number of other companies. The company’s did this             operate in the computer software, Internet, information
for tax reason, legal reasons and to be domiciled in a country       technology infrastructure and services, media,
with a more solid currency. Revenues in 2010 were $9.6               telecommunications and telecommunications equipment,
billion with $988 million. The company took a write off in           semiconductors, hardware, technology-enabled services,
the fourth quarter of 2010. Over the long run, the need for          semiconductor capital equipment, medical device technology,
energy from oil and natural gas will continue to be in               diversified technology, and networking systems sectors.
demand. Transocean is another company that trades on the             TICC concentrates its investments in companies having
Swiss stock exchanges in Swiss Francs.                               annual revenues of less than $200 million and a market
ABB AB NYSE:ABB $26.32                                               capitalization or enterprise value of less than $300 million.
ABB Ltd provides power and automation technologies for               The firm invests between $5 million and $30 million per
utility and industrial customers worldwide. The company’s            transaction. It seeks to exit its investments within 7 years. It
Power Products division manufactures and sells high- and             serves as the investment adviser to TICC. The company was
medium-voltage switchgear and apparatus, circuit breakers,           formerly known as Technology Investment Capital Corp. and
power and distribution transformers, and sensors. ABB’s              changed its name to TICC Capital Corp. in December 2007.
Power Systems division provides integrated power and                 TICC Capital Corp. was founded in 2003 and is
automation solutions for power generation plants; alternating        headquartered in Greenwich, Connecticut.
current (AC) and direct current (DC) transmission systems;           52-week revenues were $29.9 million with $51.9 million in
and flexible alternating current systems technologies. ABB           net income. We are not sure how your income exceeds
also manufactures land and submarine cables, as well as              revenues but the company basically invests in other
accessories and services for medium- to high-voltage AC and          companies. Analysts are projecting first quarter revenue
DC systems; air- and gas-insulated substations; and network          growth of 47% and earnings growth of 32%. The company
management solutions to help manage power networks.                  pays a roughly 8.8% annual dividend. Please note this is not
In addition, this division offers support agreements and             a fixed dividend and may fluctuate based on the company’s
retrofits to spare parts, service, consulting, and training; and     earnings. It looks like a potentially interesting way to invest
undertakes analyses and design of new transmission and               in a private equity company.
distribution systems. The company’s Discrete Automation
and Motion division manufactures and sells motors,                   Penn Virginia Resource Partners, L.P. NYSE:PVR $25.65
generators, variable speed drives, programmable logic                Penn Virginia Resource Partners, L.P. engages in the
controllers, rectifiers, excitation systems, robotics, and related   management of coal and natural resource properties; and
services for a range of applications in factory automation,          gathering and processing of natural gas in the United States.
process industries, and utilities.                                   It operates in two segments, Coal and Natural Resource
ABB’s Low Voltage Products division provides protection,             Management, and Natural Gas Midstream. The Coal and
control, and measurement for electrical installations,               Natural Resource Management segment primarily involves in
enclosures, switchboards, electronics, and electromechanical         the management and leasing of coal properties. It also
devices for industrial machines, plants, and related services.
Power Investor® – Member Newsletter                                                                                 P a g e | 12

engages in land management activities; and provides coal         fewer employees. Still, GASS has a negative return on equity,
preparation and loading services.                                a stingy return on assets of 1.7 percent and a scary debt-to-
As of December 31, 2010, this segment owned or controlled        equity ration of 122. GASS doesn’t pay a dividend; I don’t
approximately 804 million tons of proven and probable coal       expect it to pay a dividend and even if it could, management
reserves in central and northern Appalachia, the San Juan        needs to use that money to pay down its enormous debt.
Basin, and the Illinois Basin. The Natural Gas Midstream
segment offers gas processing, gathering, and other related      Did you ever hear of a shipping company, especially a Greek
natural gas services. This segment owns and operates natural     shipping company, without enormous debt?
gas midstream assets located in Oklahoma, Pennsylvania, and      There are two brokerages that have a ―strong buy‖ on GASS,
Texas. It owned and operated approximately 4,263 miles of        and for the life of me, I don’t know why. I spoke with one
natural gas gathering pipelines and 6 natural gas processing     analyst (who shall remain nameless) and expressed my
facilities having 400 million cubic feet per day of total        disagreement with his positive opinion on the company. I
capacity. This segment also owns a natural gas marketing         think we must have crossed swords in another life because he
business, which aggregates third-party volumes and sells         used some rather unkind words in his reply to my comments.
those volumes into intrastate pipeline systems and at market     Anyhow, I’m always unfailingly polite so I sent him my
hubs accessed by various interstate pipelines. The company       usual thank-you note and included a large tube of Preparation
was founded in 1882 and is based in Radnor, Pennsylvania.        H.
52-week revenues are $864.1 million with $37.1 million in
net income. Recent revenues grew 23.1% while earnings            But there’s a remote possibility that this fellow and Reuters
decreased 21%. Return on equity (ROE) is a solid 13.95%.         research may be right. The fundamental outlook for oil and
The stock has a dividend yield of 7.5%                           gas storage is positive. While U.S. petroleum consumption
                                                                 declined in 2009, it was up 1.6 percent last year and is
                                                                 expected to increase about 1.2 percent in 2011. Meanwhile,
Mal Berko’s Taking Stock                                         natural gas consumption grew by 4.6 percent in 2010 and is
                                                                 expected to grow by 2.1 percent this year.
StealthGas may not double, but worth some investment
Dear Mr. Berko: My broker has a good tip on a stock called       The longer term looks good, and the price talk among those
StealthGas and thinks this stock could double in the next 12     who are bullish on GASS is $10.75 per share, which is a 35
months. He owns 7,800 shares (he showed me his account)          percent move in the coming 12 to 16 months. And 12 mutual
and wants me to buy 5,000 shares.                                funds (none of which I recognize) own 20 percent of the
                                                                 company’s 21 million shares, but that may be window
He knows one of the analysts of this company and also spoke      dressing for the creditors.
to the CEO in Greek in Greece. My broker is positive about
this stock, and management is buying the stock because they      Still, I wouldn’t buy 5,000 shares (certainly not in an IRA),
believe it should sell for $13. Please tell me what you know     but in the unlikely case that I’m wrong, I have no objection to
about this company and if you would approve of a 5,000-          a purchase of 1,000 shares. Then as soon as you buy it, quick
share purchase. I’m not usually a risk taker but my broker is    as a bunny, sprint to the AMEN corner of your church and
really excited about this company. — M.E., Springfield           have a conversation with God. You may need his/her help.

Dear M.E.:                                                       Find money manager you can trust with spouse’s future
StealthGas (GASS-$7.92) owns 39 liquefied petroleum gas          Dear Mr. Berko:
carriers. These LPG carriers — with 175,000-cubic-meter          We have three accounts with three different brokers, and all
capacity — transport petroleum gas products, propane,            but one has done OK in the past couple of years. We’re both
butane, butadiene, propylene and vinyl chloride monomers,        in our mid-70s, depend on these accounts for income and
all byproducts of crude oil and natural gas. GASS also           have three brokers because that’s the way it worked out a few
charters four carriers to deliver refined petroleum, jet fuel,   years ago. They are all nice guys with good firms. Our
diesel fuel, gasoline, stinky chemicals and edible soils. And    question concerns Johnson & Johnson, which is in two of our
like many companies in this business, GASS is home ported        accounts.
in Greece, home of Apollo, Echo, Deo and Plato, none of
whom had any idea that this once-great nation might have to      One broker wants us to sell it because the stock price hasn’t
consider bankruptcy.                                             done anything; another broker recommends that we hold the
                                                                 stock; and the third broker (where we do not own the stock)
GASS had revenues in 2010 of $110 million. Big deal. Next        told us to buy the stock. Sometimes the different opinions are
year, GASS also expects to book revenues of $110 million.        a source of amusement to me, and sometimes they are
Big deal two. But while earnings last year were 42 cents,        annoying, like now.
earnings for 2011 are expected to come in at 65 cents. And
the Greeks are learning to do business like American             My dear wife of 51 years, who doesn’t understand stocks,
companies — make more money with the same revenues and           wants me to sell everything and put our money in government
Power Investor® – Member Newsletter                                                                                   P a g e | 13

or tax-free bonds. But what can you tell me about Johnson &       Meanwhile, its new psoriasis drug, Stelara, according to
Johnson? Should I sell it, and what stocks should I buy if I      several docs I know, could be a billion-dollar product next
sell it? — A.S., Troy, Mich.                                      year.

Dear A.S.: I think it was Buddha who said: ―Married man           While earnings will be a tad lower this year compared to
who have three stock brokerage accounts have four wives.‖         2010, management is expected to raise the solid 3.7 percent
And at your age and stage, you need three more wives about        dividend from $2.16 to $2.24-$2.28 for the 35th consecutive
as much as you need a frontal lobotomy — or perhaps you           year.
do.                                                               Hold the stock, but I can’t tell you if you should own more
                                                                  shares because I’m unable to measure your goals, needs, risk
Anyhow, you should consider employing a knowledgeable,            tolerances or investment blood pressure from here. That’s one
wise and experienced money manager who will consolidate           of the things a money manager does.
your three accounts into one managed account. The reasons
are legion and include cost, efficiency, consistency and          Get on board with Pfizer
simplicity, to name a few.                                        Dear Mr. Berko: Please give me your thoughts on Pfizer, its
                                                                  new CEO, its Wyeth purchase and its prospects for a two- to
But the most important reason is your ―dear wife of 51 years,     three-year hold. Can you comment on why Jeffrey Kindler’s
who doesn’t understand stocks.‖ If you get hit by a               departure was so abrupt? I heard he was forced to leave under
Budweiser truck tomorrow, if a wayward comet crashes              bad circumstances. What is your opinion of Ian Read, the
through your roof or if your parachute fails while skydiving,     new CEO? — H.P., Destin, Fla.
which one of the three brokers would you trust for the
remainder of you wife’s life?                                     Dear H.P.: I’ve heard some unkind rumors about Kindler and
                                                                  his abrupt resignation, too. However, his resignation was not
Most market professionals have a ―second‖ who manages             abrupt. He told the board in July that ―after a dozen years,‖ he
some of their investments just in case. It’s like trip            wanted out. And in September, the board decided on Read,
cancellation insurance, keeping a spare tire in your trunk or     who has been with Pfizer since l978, as a replacement.
putting on a seat belt. Even I employ a second to run a large     Kindler, over the past few years, had been losing the
portion of my IRA and joint account ... just in case.             confidence of many board members, who claim he
                                                                  micromanaged his executives and tended to focus energies on
Neither my son nor daughter has the requisite skills to make      short-term goals rather than long-term results. But he left on
investment decisions, nor do they care a hoot or wiggle about     good terms, with a $16.5 million package plus an office
acquiring them. Because I suspect you deeply care about your      expense account.
spouse, I strongly urge you to interview some money
managers and make certain your wife participates.                 Read is an outsider and alien to Pfizer’s (PFE-$19.25)
                                                                  aristocratic, excessively bureaucratic and secretive culture.
Meanwhile, Johnson & Johnson (JNJ-$58.10) has continued           Read has already made some significant changes that
to disappoint its shareholders. Worldwide sales were off 5.4      eliminated several layers of bureaucracy, encouraged the
percent, and sales in the U.S. were down 8 percent. The most      departure of five redundant executive positions and appointed
significant impact on JNJ’s revenues was a l5.2 percent fall in   the heads of several business units to the PFE executive
consumer product sales. Pharmaceutical revenues were down         committee.
4.3 percent, while recalls of Tylenol, Motrin and Benadryl
have unnerved some consumers. And the potential threat of         2010 recent-quarter results were in line with the Street’s
legal action from these recalls has made investors skittish.      forecasts; however, the 7 percent growth was driven by PFE’s
                                                                  2009 purchase of Wyeth. The Wyeth purchase will also
Every company has a slip or two, but good companies like          provide Read with considerable cost-cutting opportunities
JNJ have superb management who know how to manage                 that will generate higher net-profit margins and give PFE
those slips and turn them into solid footholds. And JNJ’s         room to continue its dividend growth.
management team may be the best in the business. JNJ has
one of the most fecund pipelines in the industry led by new       The Wyeth acquisition also comes with a portfolio of
drugs for pain, cardiovascular disease and arthritis.             important biologic products that do not face the patent
                                                                  expirations of traditional drug products. Two that come
Its diverse health care sectors also insulate the company from    quickly to mind are Enbrel, which is used for rheumatoid
economic downturns. And as the baby boom generation ages,         arthritis, and Prevnar, a successful meningitis vaccine.
the entire spectrum of JNJ products will benefit from an          Several of PFE’s blockbusters (Effexor for depression,
increase in health care needs.                                    Viagra for erectile dysfunction and ophthalmology drug
                                                                  Xalatan) face patent expiration in the coming three years. But
                                                                  PFE’s longer-term growth potential is underappreciated
Power Investor® – Member Newsletter                                                                                      P a g e | 14

because a number of Phase I and Phase II drugs seem to be          mean that MFW trades at an extremely low P/E ratio of 4, so
off investors’ radar screens.                                      the shares look interesting.
                                                                   There are only 20 million shares, which trade about $6below
PFE now has 122 drugs in its pipeline and 325 discovery            their $31 book value. This, too, makes MFW look attractive.
projects, and its number of Phase III drugs should jump to 39
by the end of 2011. This puts PFE in an enviable market            MFW has a free cash flow of $240 million and $15 in green
position.                                                          standing behind each of those 20 million shares. And this
Meanwhile, Read should be able to improve PFE’s return on          makes MFW look pretty good.
capital and equity by 30 percent and 40 percent in the coming
few years, reducing billions of dollars in redundant costs.        However, I can’t find an analyst north or south of the Mason-
                                                                   Dixon Line who follows MFW. That’s concerning and
Diluted earning of 76 cents should improve markedly to             suggests there’s less to MFW than meets the income
$1.40 in 2011, and management may also increase the 80-            statement and balance sheet. But Andrew Bary, who writes
cent dividend in the coming six to nine months. So Damien          for Barron’s, published a very positive article on the stock in
Conover of Morningstar, Frederick Harris of Value Line and         mid-January.
Charles Butler of Barclays Capital think PFE could be a $28        The reason MFW is trading on the cheap is that few of the
to $31 stock in the coming couple of years. Therefore,             suits on the Street trust Ron Perelman, its colorful, high-
Vanguard, Dodge & Cox, AXA, T. Rowe Price, Wellington,             energy, self-serving, in-your-face founder, who owns at least
StateStreet, BlackRock and Bank of New York each own               43 percent of the stock. Perelman has an ego bigger than
more than 100 million shares.                                      Texas and has been married four times.

They figure PFE is a no-brainer. It’s the largest drug             He is actively engaged in many worthwhile charities and is
company in the world, has superb new management, an                often giving of his time and his money. However, some folks
excellent balance sheet, a great R&D department plus a 4.2         on the Street are not comfortable with the manner in which he
percent dividend that should generate regular increases.           comports his business activities (Revlon, Panavision and
                                                                   Sunbeam, to name a few) and question his probity. MFW
Management’s announced multi-billion-dollar share buyback          seems to be his personal fiefdom run for his benefit and his
tells you that the board believes PFE is a good buy. So get        bosom associates.
yourself 250 shares and join the program. PFE is a solid core
stock for most growth and income portfolios and could be a         And there’s a running rumor that Perelman might purchase 10
$30 number in a few years.                                         million shares he doesn’t own, and the talking price is $35
                                                                   per share. However, Perelman, who didn’t become a multi-
To hold, sell or buy more shares in M & F Worldwide?               billionaire by writing personal checks for his toys, will
Dear Mr. Berko: I bought 200 shares of M & F Worldwide in          certainly use MFW’s $240 billion plus cash flow to affect the
September 2008 at $36 because my broker said it was going          purchase. So there might be a potential $10 gain in the shares
to go to $90 and then split 2 for 1. It’s been downhill ever       if Perelman takes MFW private.
since. It fell to $9, but I still held it, and now its $25. It’s
supposed to earn $6 per share this year, so why does it sell at    Still, I’d not buy the stock. Perelman is a manipulative
four times earnings, which is cheap? Should I hold, sell or        genius, and I suspect he will find a way to capture the 10-
buy 200 more shares? I can’t find any brokerage reports on         point difference between the current price and possible
the company so I’m in the dark. Please help. — N.T., Joliet        offering price and put it in his pocket. He’s one of the few
                                                                   people in this world who can catch a fish, filet it on the spot
Dear N.T.: M & F Worldwide (MFW-$25), formerly known               and never get the stink on his hands.
as MacAndrews & Forbes, sells technology services and
checks to banks from its Harland Clarke division. It’s also a      A buyout, not withstanding, there’s a remote possibility that
leading designer and manufacturer of high-precision camera         MFW could trade in the mid-$30s. I’d hold your 200 shares,
systems for the TV and movie industry.                             but don’t increase your risk and buy 200 more shares.

MFW is also the world’s largest producer of licorice extracts      All that glitters is not gold or silver
used by food processors, the pharmaceutical industry,              Dear Mr. Berko: An adviser recommended we move my
cosmetic companies and almost all tobacco products. Then,          entire IRA of $116,000 into gold and silver. He tells us that
through its Scranton, Pa., division, MFW provides data             inflation is going to be rampant in the U.S. and Europe, the
management solutions and testing, tracking and survey              U.S. dollar will become worthless, the stock market will fall
services to municipal, state and other government agencies.        at least 50 percent, oil will reach $250 per barrel, gas will sell
                                                                   for $11 per gallon and taxes for everybody will rise by at
This year, MFW expects to generate $1.8 billion in revenues        least 50 percent.
from those businesses and net $6 pershare. Those earnings
Power Investor® – Member Newsletter                                                                                             P a g e | 15

His scenario appears logical and irrefutable, and three of his       Meanwhile I don’t want to talk to this sociopathic snake, who
clients who are friends of ours have converted everything into       can probably shed tears on demand. These guys are
gold. Our question to you is our home that has no mortgage.          ―articulate incompetents‖ who have mastered the art of
It’s fairly priced today at $165,000, and this adviser can           misrepresentation. Your only protection from these con artists
arrange a $125,000 mortgage on the property at 7.25 percent.         is common sense and knowledge, but those qualities seem to
                                                                     be rare today.
He wants us to take the money from our 30-year mortgage
and put it into gold and silver, which we would keep in a
safety deposit box at the bank. We are a little reluctant to do
this because we don’t want to have monthly payments of
about $760, which we can afford from our pensions and
Social Security. Considering what is going to happen to the
economy, we think we are doing the right thing, but we are
not sure we should mortgage our home. We told him that we            Getting the Most Out of
might write you, and he said that he would be very pleased to
have a discussion with you anytime.                                  The Power Investor®
This adviser is brilliant and has impressive designations after      Financial Newsletter
his name, some of which are CFP, CIC, CFS, CGS, BA,
ChFC, CLU, CIMA and a DDIV. We want to know if you                  You can protect your financial future by starting or renewing your
would approve of putting a mortgage on the house. Our               membership today. Soaring oil prices and a falling dollar are driving
                                                                    inflation higher. Gas and food prices keep going up. Inflation caused the
adviser tells us we can easily pay it off in a few years by
                                                                    crippling bear market of 1973-1979 and it could happen again.
selling some gold or silver at higher prices. Please advise us.     Our investment software, research and educational journals can help
— R.T., Wilmington, N.C.                                            protect your from uncertainty. If you start or renew today, we will include
                                                                    bonuses to help safeguard your portfolio:
Dear R.T.: How does this fellow get all those designations on
one business card? It’s my experience that people who have               1.   Get Access to Financial Models You Simply Can’t Find
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all those letters after names have three things in common: 1)
                                                                              Market experts like Buffett are predicting 7% returns for the
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Power Investor® – Member Newsletter   P a g e | 16

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