A future crash?

Dear. Mr. Berko:

My broker thinks the market will crash this summer and has kept me out of the market since he moved me into all cash in June of last year. We did invest about $20,000 in eight of the bank preferred stocks you recommended and we also bought 100 shares each of Hartford, MetLife, ManuLife and Protective Life in early 2009. As you know, they've done well. We bought them, too, because he agreed with you that the insurance and bank companies were too important to fail. He mostly seems to pay attention to your recommendations and he doesn't trust those that I give him or his own opinions. So how about giving me a few recommendations for growth? I have $61,000 to invest in my IRA and feel that I have missed out on much of the market growth. I wish you could manage my account. Why don't you manage accounts anymore?

S.R., Jonesboro, Ark.

Dear S.R.:

Well, you have to talk with your Financial Industry Regulatory Authority (FINRA) about my status as a money manager. In December 2006, FINRA told me that I could continue managing accounts only if I stopped writing this column. FINRA's Chief Counsel, Clarence "Clarabelle" E. Sanders Jr., doesn't like my style or column content, nor the manner in which I portray the New York Stock Exchange and the brokerage industry. I told Sanders that he could take the brokerage industry and shove it. I'd rather give up some body parts than give up this column.

Meanwhile, your broker's a fool to rely only on recommendations from this column. While I've had more base hits than strikeouts, there's a superfluity of excellent sources on and off the Street whose picks are much better than mine. Frankly, I depend on 30 or 40 of those wise people for this column's tri-weekly publication. So here are a few names to show your broker, who sounds so timid that he won't bite a cracker.

FIRST CASH FINANCIAL SERVICES (FCFS-$21.24) is a pawnshop. Yep, a good, old-fashioned pawn shop that makes small loans to folks willing to impignorate family heirlooms, silver, firearms, rings, musical instruments, construction tools and other tangible personal property. Most pawnshops will lend a customer about 20 percent to 25 percent of resale value of the collateral and charge as much interest as their home state allows. And if the customer does not repay the loan, FCFS puts that Rolex, Gibson or ring on sale and quadruples its investment in six months.

Have you ever known a Shylock to go broke? The pawnshop business is on fire. Unemployment of 10 percent-plus, lower wages and nearly-impossible-to-get bank loans enable a mont-de-piete to charge higher interest rates plus add-on fees. And the customer is delighted to pay those costs.

These are great times for the hockshop business, and their profit margins would make Lloyd Blankfein moue. In the past four years, earnings have nearly doubled to $1.40 and revenues have grown by 150 percent. This year FCFS's 560 Consumer Small Loan locations (most are stand-alone stores) expect to earn $1.61 and increase revenues from $364 million to over $400 million. Ned Davis, Reuters and Market Edge have a strong "buy" on FCFS.

LIFE PARTNERS HOLDINGS (LPHI-$20) pushes the insurance envelope to a new dimension. Life insurance is a morbid product in which dorky, nerdy actuaries in green eyeshades use complicated algorithms to make bets on how long it will take Abe or Sarah to die. The odds, as in Las Vegas, are always in favor for the insurer. LPHI takes this to a different level and is the leading market maker for viaticals. LPHI assists the policyholder to sell his policy (called settlement transactions) to a stranger for an immediate cash benefit up front. Business is booming in the double digits and LPHI has almost tripled its share value since 2007. LPHI was named the fastest-growing small public company by Fortune Small Business last July. Revenues and earnings are expected to increase by 21 percent in 2010, but best of all, LPHI has zero debt, and its $1 dividend, which may be raised this year, yields 4.9 percent.

These two issues should give your timid broker a cognitive epiphany, and you should continue reading for other recommendations.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.

© 2010 Creators Syndicate Inc.

Published: Fri, Feb 26, 2010