Legalized Theft and Vandalism

  Good grief, Bank of America is still tied up in the wrong house repossession business.

The 5 chronicled a spate of fubars by BofA starting nearly five years ago — homeowners with spotless payment records, or no mortgage at all, suddenly losing their homes. Or, at best, losing all the goods inside.
Some cases resulted from the banks’ practice of bundling mortgages into securities and “robo-signing” documents — which has clouded the title on millions of U.S. homes.
Others were as simple and outrageous as “Oops, wrong address.”
So it goes for the Saavedra family of Tijeras, New Mexico. Joseph and Priscilla own a second home in the town of San Geronimo. No mortgage. It’s been in the family for a century. It’s where they planned to retire.
Last October, they set out to stay at the house and do some repairs. Albuquerque’s KOB-TV explains what happened when they arrived: “They immediately noticed the outhouse and firewood was missing. When they went into the house, they discovered everything was gone. Curtains, furniture, family heirlooms, photographs, century-old antiques — all gone.”

Home, bittersweet home…

  It was the house next door that was supposed to get this treatment. The mortgage was held by… Bank of America.
After BofA foreclosed, it deeded the property to the U.S. Department of Housing and Urban Development. HUD contracted with a company called Sigma Services to remove everything.
Exactly who screwed up when? Who knows? The Saavedras plan to sue Sigma — which didn’t return any of the TV station’s phone calls for comment.
“This house now is dead,” laments Joseph Saavedra. “There is no more life to this house. You can’t see the heritage that was in this house.”
  No one has performed a precise tally of wrong-house repossessions. It might be an impossible task.
The KOB investigative team took a stab at it and found “dozens of lawsuits around the country with the same story.”
Horror stories abound via your favorite search engine. A common theme runs through many of them: The owners are away for a few days, only to return and find the place emptied.
Don’t expect justice in the criminal courts. A woman in West Virginia whose house was cleaned out in 2013 was told to go pound sand. “It’s a lot like taking someone’s luggage at the airport,” Kanawha County Prosecutor Mark Plants told WSAZ-TV. “If I take a black bag, a black piece of luggage, get home and realize this is not my bag — that’s not a crime. That’s an accident.”
Uhhh… OK. Whatever you say.
[We became curious whether the citizens of Kanawha County returned this clown to office last fall. Turns out they didn’t have a chance; he’d been removed by court order after he was charged with domestic violence for whipping his son with a belt.]
The actionable advice today: Know your neighbors. Not always easy in this day and age, but if you go away on a vacation or whatnot, best have someone keeping an eye on the place — someone who’d object if they saw someone emptying your house of its contents.
Because nowadays, you never know…
  As it happens, the number of newly repossessed homes stands at a 15-month high. RealtyTrac says the figure in January was 37,292 — up 5% from December.
Meanwhile, 119,888 properties are in one stage of foreclosure or another. That’s down 4% from a year earlier. RealtyTrac VP Daren Blomquist anticipates filings will rise over the next several months as lenders pursue “spring cleaning” in many states.
Florida retains the nation’s highest foreclosure rate, followed by Nevada, Maryland, Illinois and New Jersey.
  The S&P 500 is flirting with all-time highs this morning. At last check, the index was at 2,094 — four points above its record close on Dec. 29. All the major U.S. indexes are in the green.
The good vibes are global today. Germany’s benchmark DAX index hit an all-time high after European GDP figures came out; 0.3% quarter-on-quarter growth surprised to the upside.
Gold is up about $10, to $1,232. Crude is registering another Friday rally — up more than 3.5%, to $53.09.
  “The IRS, and the government more broadly, wants to encourage business growth,” our microcap specialist Thompson Clark told us.
We nearly spit out a hot beverage when he said this… and if you couldn’t help doing likewise, well, we’ll give you a moment to wipe off your screen.
Thompson was trying to draw our attention to Section 382 of the Internal Revenue Code. It sets out rules for companies that generate net operating losses (NOLs).
We first told you about the investing allure of NOLs last summer. When a company records steep losses, it can carry those losses forward to offset future taxes. As our Chris Mayer explained, “These NOLs can be a valuable asset in the right hands. A company with NOLs can acquire profitable companies and then use its NOLs to shield those profits from taxes.”
That’s exactly what the real estate tycoon Sam Zell did in 2003 when he bought a company called Covanta out of bankruptcy. Covanta proceeded to execute several smart acquisitions. The share price jumped from $2 in 2004 to $30 by 2008.
  “A company with significant net operating losses could avoid paying taxes for many years,” Thompson went on.
“Imagine two nearly identical companies. Company A has profits before tax of $100. Company B, the same. Company A has significant NOL carry-forwards. Company B does not.
“After taxes, who comes out ahead? Company A, obviously. They pay zero tax on their $100 profit. Company B, however, gets hit with a 35% tax rate. Their $100 pretax profit drops to $65.”
Thompson has recommended three versions of “Company A” to his readers since last fall. One is already up 29%, and it’s zoomed past his buy-up-to price. But two other plays are still buys, with the potential to double your money within two years.
[Full disclosure: Shares in the companies Thompson recommends can be thinly traded. For that reason, we keep a strict cap on the total number of subscribers to his service, Agora Financial’s Microcap Millionaires. We don’t want our subscribers artificially juicing the share price.
We allow in only a few dozen readers at a time… and then we close off access for two months or even longer. New subscriptions are currently available… but only through midnight next Tuesday. Follow this link to learn more.]
  “The U.S. Navy is rapidly transforming into the U.S. Cyber-Navy,” says our Byron King — who spent the week in San Diego at the 23rd annual WEST Conference, co-sponsored by the U.S. Naval Institute.
Yesterday, Byron hinted at the high-tech investing possibilities from the renovations of the USS Ronald Reagan aircraft carrier — being outfitted as a “floating cyberweapon.”
But that’s only the beginning: “Cyber,” says Byron, “is now as much a part of the ‘integrated fires’ concept of hitting the enemy as shooting missiles or dropping bombs.
“One of the admirals’ biggest problems is that they have to recruit enough cybersmart young people… and then train ’em up… and then watch them get headhunted away when the enlistment is up.
“Meanwhile, over in the Air Force, every time a tech walks into a room and opens a laptop to work an issue, it’s considered a ‘sortie’ — same as if he were flying an F-15 loaded with bombs.”
Byron is putting the finishing touches on a brand-new special report detailing the bleeding edge of military technology, drawing on his vast network of contacts in government and industry. Watch for more next week…
  “I read with interest the comment by Chuck Butler about how New Zealand seems to be the only country with a prudent central bank,” writes a reader from New Zealand, “but that its central bank governor dislikes currency strengthening.
“I hope I can provide a little more background (and maybe a good tidbit for the readers). New Zealand is an exporting nation, and so many of our companies have financial trouble whenever the New Zealand dollar strengthens.
“When those companies start laying off workers, the media jump all over it and blame it on the high dollar, which is then blamed on high interest rates. This is followed by politicians on the left who argue the government should interfere with the Reserve Bank of New Zealand (the current mandate is that the RBNZ should maintain inflation at 1-3% over the medium term, nothing else). Essentially, the Reserve Bank governor tries to jawbone the dollar down (and, on the very rare occasion, intervene) in order to help maintain the independence of the RBNZ from politicians who would like to turn it into their plaything.
“Fortunately, the independence of the RBNZ has been maintained over the last quarter century, and the recent experience with the high dollar has not been so problematic as it has been in the past (high milk prices have helped here). Indeed, when one politician proposed a quantitative easing program in New Zealand last year, he was laughed at.
“Just a final aside: For those having to bear negative interest rates, it would bring tears to their eyes to hear that our official cash rate is 3.5% (the highest in the developed world), and even in short-term bank deposits, you can get interest rates of 4%, with 5% being offered for longer-term deposits!”
The 5: Indeed, it boggles the mind…
  “A little food for thought,” a reader writes after we mentioned in passing this week how same-store sales at the outdoor chain Cabela’s are down 14.4% year over year.
“A couple of years ago, I purchased a fine weapon at Cabela’s. While awaiting the government-enforced approval, I mentioned to the sales clerk my astonishment at how many employees there were in the gun department — way more concentrated than in the rest of the store.
“Easy answer: The weapons department was more than 50% of store’s total gross sales.
“Shoot, they ought to just open a Cabela’s Guns store and forget all the rest of the stuff.”
The 5: But that too can be cyclical, like the rest of outdoors biz. Maybe more so. As another reader pointed out, firearms sales spiked in 2013 after the Sandy Hook massacre raised expectations that Washington, D.C., would impose new gun-control measures.
Heck, that might account for the 2014 drop in Cabela’s sales right there.
Which reinforces our original point: Forbes jumped the gun (as it were) by putting Cabela’s on a list of candidates for the “Next RadioShack”? Anything to get clicks, apparently…
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. U.S. markets are closed Monday for Washington’s Birthday.
No, not Presidents Day.
From the New York Stock Exchange website: “Washington’s Birthday was first declared a federal holiday by an 1879 act of Congress. The Monday Holiday Law, enacted in 1968, shifted the date of the commemoration of Washington’s Birthday from Feb. 22 to the third Monday in February, but neither that law nor any subsequent law changed the name of the holiday from Washington’s Birthday to Presidents Day.
“Although the third Monday in February has become popularly known as Presidents Day, the NYSE’s designation of Washington’s Birthday as an exchange holiday (Rule 51) follows the form of the federal holiday outlined above (Section 6103(a) of Title 5 of the United States Code).”
Now you know.
In any event, we’ll take a break along with the markets on Monday. We’re back tomorrow with our 5 Things You Need to Know wrap-up… while the weekday edition of The 5 returns on Tuesday.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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