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Power Investor® – Member Newsletter Page |1 MEMBER NEWS & COMPUTER MEMBER Issue1 Volume 1 MAY 2011 NEWS .......................... 5 STOCK SCREEN ............ 8 Power MAL BERKO’S TAKING STOCK ......................... 11 ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE. investor “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 centralfund.com 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 www.everbank.com 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 ampex.com 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 http://en.wikipedia.org/wiki/Executive_Order_6102 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 www.gold-ews.com. 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 www.interactivebrokers.com. 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 Anywhere Else. all those letters after names have three things in common: 1) Market experts like Buffett are predicting 7% returns for the They’re insecure, 2) they are frauds and 3) they have a next decade. Many investors will be disappointed over the next destructive need for recognition and approval. Has he also 10 years, don’t be one of them. Renew today. tried to sell you dinars from Iraq? 2. Your $99 computer membership includes a free update of Power Investor® investment software plus free daily data If the economy does what this con artist tells you it will, all updating over the Internet. Power Investor delivers organized, insightful data on virtually every stock, ETF and fund traded in the gold and silver, including what’s in Mother Hubbard’s America. We will include our amazing Asset Allocation cupboard, won’t be worth a tinker’s dam. If you believe this Model*. will happen, get yourself a pound of iodine crystals to purify 3. You will receive our powerful Triple Test trading software water and buy a dehydrator so you can load up on K-rations. system and monthly 34-page e-journal with educational articles But first, take nine steps backward and 12 deep breaths, and to help you profit in bull and bear markets. We will also include realize that nothing will never be as bad a you think it will be, a special Triple Test Report with your renewal. 4. You can upgrade to the powerful Power Tech investment and conversely, nothing will ever be as good as you think it software with the $229 Gold or $259 Platinum Membership. can. That’s a fact. Power Tech lets you quickly screen every chart for incredible profit opportunities in all markets. As a bonus you will also Do not put your IRA money in this gold and silver scheme, receive all of our 12 investment models with your upgrade and don’t mortgage your home. But you should know the including our Sector 4 model. going mortgage interest rate is perhaps 5.0 percent, definitely 5. We will include with your Power Tech upgrade, the fully automated Triple Test system. Triple Test works on stocks and not 7.25 percent. And an honest adviser would tell you: ETFs in our stock software and trading software programs. Now ―Never mortgage your home to invest in the stock market you can stop making mistakes and make money in bull and bear unless it’s a sure thing. And that there are no such things as markets. This is a limited time offer. sure things.‖ 6. The only technical indicator you may ever need. Combine this Gold and silver are highly speculative commodities, not IRA indicator with Triple Test for amazing results. investments. Frankly, there are many stocks, if the dividends 7. If you start or renew today, we will include our new Mutual were reinvested in each of the last 30 years, that have handily Fund and ETF system. If you own mutual funds or ETFs, you outperformed gold or silver. And you know many of them, must have this service. such as McDonald’s, Clorox, Johnson & Johnson, Abbott Labs, Coca-Cola and Procter & Gamble, to name just a few. Power Investor® – Member Newsletter P a g e | 16
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