“Treasury Rights… most controversial investment of the last 25 years”

Sniffing out Steve Sjuggerud's teaser for True Wealth Systems

By Travis Johnson, Stock Gumshoe, March 28, 2012

We’ve now reached a groundswell of eager reader questions about Steve Sjuggerud’s “Treasury Rights” teaser, so let’s dig in and have a look.

Steve’s letter tells us that this is “the most realistic way to make outrageous ‘once-in-a-lifetime’ gains today” … a very tantalizing promise indeed. And of course, for the full information about these “Treasury Rights” he’d like you to sign up for a subscription to his True Wealth Systems, which is the “upgrade” letter for his True Wealth subscribers ($1,550 per year for Systems versus $39 per year for the basic True Wealth). The pitch is that he’s hired a bunch of Eastern Bloc programmers to develop quantitative systems and sift market data to find the buy signals he looks for, but in this case he’s specifically talking about one kind of investment, those aforementioned “Treasury Rights.”

Which you’ve probably heard of — these “Treasury Rights” are more commonly referred to as “TARP Warrants” … they’re the warrants that the US government demanded from bailed-out financial firms to make sure that the bailers-out participated somewhat in whatever recovery the stocks of the bailed-out might subsequently enjoy. And unlike past bailouts, the government in many cases facilitated a secondary market in these warrants by selling them, so it’s possible (and has been for a while) to buy the long-term TARP warrants on a handful of banks and other financial firms.

And there’s some definite temptation here, because these are very long-term warrants — and it’s otherwise very hard for small investors to get the leverage that’s provided by long-term derivative exposure to large-cap stocks. Established and profitable large cap companies almost never have publicly traded warrants, and even for speculative little stocks you almost never see warrants that go out this far — most of these are ten-year warrants, which means they still have six or seven years before they hit their expiration date.

There are roughly a dozen of these TARP warrants trading now, about half are from national banks that you would definitely know (JP Morgan Chase, Wells Fargo, Bank of America, etc.) and the rest from smaller or regional banks or insurance companies (Comerica, PNC, Hartford Financial and the like). The expiration dates are all in 2018 or 2019, ten years out from when the initial bailout deals were made. And with the exception of Bank of America, most of the warrants have strike prices that are in reasonable proximity to the current trading price — some warrants are already trading “in the money” (above the warrant strike price), and most others are close enough to give you a fighting chance. They also, in most cases that I’ve seen, adjust for dividends — so in case the company hikes dividends substantially over the next few years you’ve got a chance for your warrant to enjoy some of the impact of those dividends (that’s another feature that makes these warrants stand out from others — in most cases, holders of warrants or options don’t get any dividend protection).

Here’s how Sjuggerud describes these warrants and their reason for