“‘Privatized TIPS’ … absolutely dominate inflation … leave oil, gold and everything else in the dust”

By Travis Johnson, Stock Gumshoe, February 2, 2012

This ad is not exactly brand new, but folks have been sending in queries about it for a few weeks, and pretty steadily, so I thought I’d try to get some answers out for you.

The pitch is from Ian Wyatt, who’s trying to sell his Top Stock Insights newsletter by throwing in a “special report” on a kind of investment that he calls “Privatized TIPS.” And your friendly neighborhood Gumshoe just looooves when newsletter guys invent a new official-sounding name for their top secret investment strategies, so let’s see what the heck he’s talking about.

Here’s the sales pitch to get you wetting your lips:

“The Treasury. The Fed. The stock exchange itself: they’re all killing the average investor.

‘People already know these facts in their hearts – even if they can’t bring themselves to believe it or recognize it.

“So what’s the answer? How can investors possibly hope to get ahead?

“How can you win when the one investment that’s supposed to protect you from inflation is a well-known fake?

“In the letter below, I’m going to tell you exactly which assets you should own during this ongoing period of impending recession, inflation and currency collapse – and I’ll tell you the one and only investment that the world’s richest investors own today to protect themselves during these uncertain times… “

Who wouldn’t want that, right? So what is it that you should buy to protect yourself and profit from the coming inflation? “Privatized TIPS,” says Wyatt, borrowing the acronym that we probably all recognize as being from the US Treasure (Treasury Inflation Protected Securities, or TIPS, are US bonds and notes that adjust for inflation as measured by the CPI). The argument is in part that these are boring old bonds that can barely keep up with the CPI, and, perhaps more importantly, that the CPI understates “real” cost of living inflation.

Here’s more of his pitch:

“Without completely revealing the secret of “Privatized TIPS” I can tell you that they’re a form of security – like a stock or a bond or a mutual fund.

“But they’re not your typical security.

“‘Privatized TIPS’ have nothing to do with the TIPS the Government sells either.

“Rather, they’re a rare form of security used by the world’s richest and most powerful investors to safely and reliably grow their wealth during periods of market uncertainty and high inflation.”

And he pulls from the well-known-billionaires list to get us excited about joining their ranks:

  • “In fact, the richest investor in the world, the Mexican telecom magnate Carlos Slim currently has over 60% of his wealth locked up in just one “Privatized TIPS” investment.
  • Bill Gates – now the second richest man in the world – has been famously selling off his shares in Microsoft (NYSE: MSFT) – and quietly buying just one “Privatized TIPS” which currently comprise over 45% of his portfolio right now.
  • Even hated billionaire George Soros has diversified some of his $14 billion fortune into ‘Privatized TIPS.'”

So what are “Privatized TIPS?”

Well, I hate to be the one to spill the beans, but … they’re … stocks.

Yep, this is a “top secret” teaser to obscure the fact that you should buy stock in strong companies that can perform well in inflationary times. Stocks you might have called “blue chips” a generation ago.

Per the tease:

“The only real way to grow wealth during inflation is to own an operation that has the ability to prosper and adapt while other businesses flounder.

“I’m talking about a super-select group of businesses run by the world’s most brilliant people, operating in sectors of the world and economy where their services are vital, highly profitable and actually protected by governments.

“I call these businesses ‘Privatized TIPS’ not because they’re outside of the control of the government – but rather – because THEY have immense sway over governments themselves.

“And with their influence and size, they have the ability to outlive, outlast and out-profit every other institution. Even governments.”

OK, so that’s the big picture — “buy strong companies.” But which specific ones is he teasing? Let’s check out the clues:

“‘Privatized TIPS’ Investment #1:

“Warren Buffett started his own ‘Privatized TIPS’ firm in the 1960s.

“Since then, this investment has returned several thousand times his initial investment back to him.

“Today, my favorite ‘Privatized TIPs’ investment is currently 25,000 times cheaper than Buffett’s. But amazingly, most people think it’s expensive!

“It’s a specialized firm with a global reach. They have no serious competition. They’ve made their business one of the most profitable ventures in world history, and they’re showing no signs of slowing down.

“Most people, as I said, don’t own this investment because they think it’s too expensive.

“But some of the world’s richest firms like T. Rowe Price, Goldman-Sachs and Credit Suisse own this investment.

“They know that even when double digit inflation hits, this company will not just survive but thrive – as its smaller, weaker competitors die off.

“I believe this investment should be the core of anyone’s personal holdings for the foreseeable future. If you buy it today, you’ll protect your initial investment and give yourself an excellent chance to realistically double your money over the next year.”

Well, there’s not a lot to go on here. One of the clues is that it’s 25,000 times cheaper than Berkshire Hathaway, which is obviously not leading us to a real company (that would be a company with a market cap of less than $8 million — Berkshire has a market cap of just under $200 billion). But if we’re talking actual stock price, which some people insist on using to determine what’s cheap and that’s expensive, then this is probably a way to use the huge per-share price of Berkshire A shares as a flattering comparison — BRK-A is around $119,000 per share now, so “25,000 times cheaper” might be considered to be around $4-5 per share.

But then why would that stock price make it seem “expensive” to investors? So what I think we’re dealing with here is yet another incident of bad math from a copywriter — I think he’s teasing one of the few $400+ per share stocks, which do get written off by some retail investors as “too expensive” … it’s just that he added a few zeros. So it would actually be 250X “cheaper” the way I do my math.

And if you’re talking about a stock with a high per-share price, and you’re going to say that it “has no serious competition” and has a “global reach” then that further restricts the stocks you’re talking about — you’re pretty much down to Google and Apple, and since Apple is currently facing substantially more competition than Google, and Google benefits from inflation more directly than Apple, I’ll guess that he’s teasing Google (GOOG). Not that I would complain either way, GOOG has certainly had a worse month than AAPL but I own both and think both will be excellent core holdings for years to come.

Google’s advertising-based income should be less subject to the general tendency of technology products to deflate in price, and as a global advertising firm with a growing reach they face plenty of competition from Facebook and from traditional advertisers, but while a gadget should go down in price every year, all else being equal, the value of an ad click to a particular advertiser is more likely to keep up with inflation as that advertisers revenues inflate.

So you couldn’t call it definitive, but that’s the answer we get. How about number two?

“”Privatized TIPS” Investment #2″

“While most people concern themselves with the price of gasoline at the pump, another, equally vital fuel is quietly surging in price.

“You probably use at least as much of this other fuel as you do gasoline on an energy basis.

“In fact, most Americans use this fuel first thing in the morning to wake up. Then they use it to make breakfast. They use more to turn on their cell phones, to power up their computers.

“You’re using this fuel right now!

“I’m talking about coal. And no matter how you slice it, the world needs coal.

“It’s not just the United States either.

“World consumption of coal is slated to rise for the next 20 years at least:

“It’s a vital fuel and a powerful trend.

“Which is why I’m excited to tell you that I’ve found a “Privatized TIPS” Investment that takes advantage of the strength in the coal market.

“No, this investment has nothing to do with electricity generation or producing coal.

“But it has everything to do with new coal mining techniques and technology.

“Putting your money in this “Privatized TIPS” investment gives you strong protection from inflation – even hyperinflation – because no matter how much we devalue the dollar, we’ll still need to mine more coal for electricity.”

OK, so if you read between the lines there and consider that Wyatt is pitching large, stable, growing companies that influence their markets, then it means we must be talking about mining equipment makers. There are a lot of companies that make some mining equipment and that are relatively large, including more diversified providers like Caterpillar (CAT) or Terex (TEX), but if you’re talking about a big, global, dominant company in mining equipment and want more of a pure play, that’s Joy Global (JOY).

Which is obviously a beneficiary of the huge re-investment in the global mining and exploration space over the last four or five years as gold, silver, and base metals have seen renewed interest as we all chase China’s dollars. I don’t know what their competitive position is like versus Caterpillar or Kobuta, but other than those big equipment players there certainly aren’t many that have Joy’s read — JOY has a market cap of almost $10 billion, trades at about 11X next year’s earnings, and is expected to generate consistent earnings growth in the teens, so you can certainly argue that they’re the blue chip in mining equipment and the valuation is very reasonable. Don’t know much more about them than that, though you might sleep better with a more diversified bet on Caterpillar (CAT) with a cheaper forward valuation, a market cap of almost $70 billion, and expected growth that’s just about as good.

Number three?

“”Privatized TIPS” Investment #3

“The third inflation-busting investment in my special report Investing in Privatized TIPS to Profit From Inflation is all about pricing.

“When you’re in a vital industry that’s completely built-out AND you have the ability to raise your prices, then no amount of inflation can really hurt you.

“As your competitors and other businesses have trouble paying for basic materials, you can simply raise prices.

“That pricing power becomes a huge weapon and defense from inflation – and as other investors realize the power of this investment to keep ahead of inflation, they’ll necessarily flock to it.

“I can’t go into too much detail about “Privatized TIPS Investment #3″ without completely giving it away. Suffice to say that you’re probably using this investment right now. And you use it every day at home, at work, at play, on vacation, and that you’d cut this expense out of your life only after cutting everything except for food and shelter.”

Well, if you’re “using this right now” then you’re probably talking about something in the telecom space (broadband, etc.), and use it every day and would cut it only to feed or house your family, and you’re an American, you’re probably talking about television. And if you’re talking big blue chips in TV delivery you’re probably dealing with one of the huge players like Time Warner Cable or Comcast. Comcast is by far the largest and strongest cable company, since they also own NBC now, so we’ll guess that it’s them — Comcast (CMCSA), but from those very limited clues you can see we’re really taking a leap here — you could easily stretch that to refer to Time Warner Cable, sure, but also to other telecoms like Verizon (VZ) or AT&T (T) or Dish Network (DISH) or Direct TV (DTV), among some others that I’m probably not thinking of. All are pretty big, but Comcast is the biggest and continues to show pretty good revenue growth and stickiness of subscribers, though the challenge of managing costs and pricing for broadband pipes versus traditional cable TV will, I’m sure, be around for a while as folks cancel their cable subscription and watch Netflix or Hulu or whatever through their broadband connection. At these prices CMCSA looks fairly valued to me, and you can certainly make the argument that they should distribute more cash to investors and accept the utility-like nature of their business — they have been growing the dividend, but it’s starting from a pretty low base.

So there you have it — “Privatized TIPS” are stocks in companies that should benefit from inflationary pressure and maintain their market position, and, given the shortage of clues, we’ve got some guesses for you. If you’ve other favorites in this “blue chip” kind of “inflation protection” stock (a concept that I generally agree with, though I haven’t personally chosen all of those companies to implement the strategy), then feel free to shout out your favorites with a comment below. Thanks!

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11 Comments on "“‘Privatized TIPS’ … absolutely dominate inflation … leave oil, gold and everything else in the dust”"


February 2, 2012 5:06 pm

If your readers don’t want to guess at a “Buffet-like” company (perhaps GOOGLE), you might point them toward Boulder Total Return, which has a huge stake in Berkshire Hathaway plus some other big names, and only costs $16-$20. A way to buy into B-H for those who can’t afford to!

Venture Shadow
Venture Shadow
February 4, 2012 1:15 pm

The Boulder funds BTF and BIF charge 2.19% per year management fees. This is obviously gouging. Moreover they keep all or nearly all the dividends they receive. These are probably the reasons why they sell for a huge discount off NAV. In other words, they are shunned.

February 3, 2012 9:10 am

This begs the bigger question: why would I EVER want to subscribe to Wyatt’s newsletter given the deceptive teaser? Calling them “privatized TIPS” may have a grain of technical truth to it, but it’s clearly misleading if I’m an investor looking for a new class of investment–I think I’d be pretty PO’d if I paid for advice to buy blue-chip stocks.

February 3, 2012 3:04 pm
Any thoughts on FTR? Huge yields – below – not my words – but looking for opinions “Investors willing to take a gamble on FTR at the current share price and stratospheric yield should be watching the revenue numbers to see if the decline in free cash flow can turn upwards. Investors can also wait for the market to indicate Frontier Communications is out of the woods by a sustained upturn in the share value. Someone who waits for confirmation may end up with an investment yielding 10 to 12 percent. An investor who buys now may get a deal,… Read more »
February 4, 2012 1:47 am
Ugh! I really hate it when ad copy is blatantly dishonest, but sometimes I think it’s just that creative writers don’t do math. Or as you so nicely put it “it’s just that he added a few zeros. So it would actually be 250X “cheaper” the way I do my math.” One of my pet peeves, particularly with Agora writers is the idea that actual stock price determines what is cheap. Other than Berkshire Hathaway who cares. If you can’t come up with enough money for one share then you shouldn’t be in the stock market. Because of trading costs… Read more »
February 5, 2012 11:32 am

Mike, et al. –
FTR has been trending down for some time. Don’t look for any improvement. The cable companies are eating into their residential and business land line revenue stream. They are daily porting hundreds / thousands of Frontier phone #s to their systems.

Run… run very fast and far away from FTR..!

June 9, 2012 3:19 pm

Couldn’t find so left no comment

June 9, 2012 3:20 pm

Won’t buy TIPS as such..:-)

February 25, 2013 3:33 pm

Anyone interested in JOY now that P/E sits @ 8 and it’s price has taken a 30% hit in the last year. Looks good for the long haul, especially if you believe precious metals is the king for the next couple years. Love to hear your thoughts on going long.

February 25, 2013 8:02 pm

Anyone have info on this new “BLACK Solar Cell” that’s supposed to be the best.