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Great News for Your Grandkids About DebtBy
Friday, May 28, 2010
"Good News for the Grandchildren" was the title of David Einhorn's speech on Wednesday at the Ira Sohn Conference in New York. I was there.
"Are you worried that we are passing our debt on to future generations?" Einhorn began...
"Well you need not worry. Our generation – not our grandchildren's – will have to deal with the consequences."
Einhorn is worth listening to...
Einhorn famously revealed that Allied Capital was defrauding the government. He wrote a great book about his six-year battle with Allied, called Fooling Some of the People All of the Time. All value investors should read it. (He first publicly stated Allied was defrauding the government at the 2002 Ira Sohn Conference.) Einhorn also "almost made it to the final table" at the World Series of Poker main event in 2006. He donated his $659,730 in winnings from that event to the Michael J. Fox foundation for Parkinson's Research.
And then in the spring of 2008, Einhorn publicly predicted the death of Lehman Brothers.
So he's smart, a successful investor, and a good guy. He's worth paying attention to.
Einhorn believes the U.S. could face a Greece-type debt situation much sooner than anyone thinks (in our generation, not our grandkids'). He brought up civil servant pay as an example of a U.S. crisis in the making similar to Greece...
Einhorn explained how in 2008, the average U.S. federal civilian salary with benefits was $119,982, compared to $59,909 for a non-government worker. And when you have a government job, you can work for 20 years and then retire, getting retirement pay the rest of your life (the next 40 years). Einhorn questioned the sustainability of those entitlements.
Einhorn wasn't the only speaker at the conference... His hedge-fund-manager peers shared their favorite ideas as well. Most speakers at the conference held a similar view to David's.
The optimistic take was essentially, "People are adaptive... We'll figure out how to adapt to these times, and make money out of them. There's never been a catastrophe that you can't see coming. If you can see it coming, then you can adapt."
To invest in this difficult time, David said to own gold and gold stocks... and worry about your grandchildren later.
As he said, "When push comes to shove, there's a good chance the Fed will print money to the point where significant inflation shows up."
Einhorn's favorite gold stock was African Barrick Gold – which I admit I am not that familiar with. It trades in London, at what Einhorn believes is a significant discount to its gold-mining peers.
If Einhorn says it's worth checking out, then check it out.
Good investing,
Steve
Further Reading:
DailyWealth scam roundup: Allied isn't the only corporation out there that duped the public. Take a look at a few other notable bad actors we've covered in DailyWealth...
Tiny Oil Stock Making Mysterious 200% Jumps... "They disguise the trap as investment advice..."
A Letter from General Motors' Chairman... "I've saved the really bad news for last."
The Greatest Mining Scam In History... "Michael de Guzman's body was discovered, badly decomposed in the Indonesian jungle..."
A True Story: It Happened to Us... It Could Happen to You... "We've been assured we'll recover the $32,000."
Market NotesLOOK HERE FOR THE PERFECT HEDGE Among the notable losers of the past few weeks: clean energy stocks.
Most clean energy companies are based on such terrible business ideas that you could say they are "perfectly hedged." They lose money in both good economic times and bad economic times. Their share prices are able to sink in both bull markets and bear markets.
For a picture of this hedged condition, we present the past two years of trading in the PowerShares Clean Energy Fund (PBW). As an easy, "one click" way to go long solar, wind, and various other clean energy companies, this fund has drawn in hundreds of millions of investor dollars over the past few years.
PBW was destroyed during the 2008 credit crisis. After all, if you don't have a job or money for a mortgage payment, you're not much concerned with "carbon neutral" energy. And despite last year's incredible stock rally, this fund simply drifted sideways... dragged down by the bad economics of its constituents (for instance, solar energy faces a problem called "night"). With the broad market faltering, the fund broke down to a fresh 52-week low.
Place money in your average clean energy stock? No thanks. Give us the stupendous cash flow, dividend, and compounding power of Big Oil, cigarettes, and Band-Aids.
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