A Thanksgiving break

A Thanksgiving break... Digest: Hong Kong edition... Welcome to Iceland... Another $800 billion... A Mexican Citibank...

You've been given a reprieve, dear subscribers. There will be no Digest tomorrow (Thanksgiving) or Friday. In addition to the fall holiday, most of the editorial staff is making its way to the other side of the globe to attend our annual S&A Alliance Conference in Hong Kong.

I'll be in Hong Kong most of next week. It's one of my top five places in the world. If you're one of those readers that doesn't like hearing about our adventures... I wouldn't read the Digest next week. On the other hand, if you live in Hong Kong or are familiar with the city, please e-mail me your favorite spots... and your favorite tailor: feedback@stansberryresearch.com.

They're rioting in Iceland. The Associated Press reports thousands of Icelanders demonstrated on Saturday demanding the resignation of Prime Minister Geir Haarde and central bank governor David Oddsson. Iceland's banks, which invested around the world, collapsed last month, wiping out depositors. The government, which promised to insure the deposits, doesn't have anything close to enough money. The currency has fallen about two-thirds against the dollar and the euro. And the people finally realized what's happened to them.

What's the difference between America and Iceland? Our government can still borrow. But... you have to wonder how our creditors feel watching the Federal Reserve gin up $800 billion to buy mortgages yesterday. And you have to wonder how they feel seeing Uncle Sam add $7 trillion to its balance sheet in one year. Sooner or later, our creditors will blink. When that happens... welcome to Iceland.

The FDIC now says 171 U.S. banks are troubled, up about 50% from the third quarter. Interestingly, none of the big banks that were taken over – Wachovia, Washington Mutual, or IndyMac – were ever on the list. Mmnnn...

The bank controlled by Carlos Slim Helu, the Mexican billionaire who competes with Warren Buffett as the world's richest man, paid $134 million to buy 26 million Mexico-traded shares of Citigroup over the past five trading days. A spokesman for his Grupo Financiero Inbursa SA had no comment on the trades. Interestingly, Citigroup owns Grupo Financiero Banamex, the second-largest Mexican lender.

New highs: none.

In the mailbag... Some nice words about our S&A Alliance. We're looking forward to seeing our best subscribers in Hong Kong next week. If you haven't joined the S&A Alliance yet, perhaps you'll tell us why not: feedback@stansberryresearch.com.

"I think we're in for a very rough '09. Your recommendation to short highly leveraged REITs got my attention Porter. I'm looking at the one-page financial statement Yahoo publishes for residential REITS. How can you tell from these financials which REITS are 'highly leveraged?'" – Paid-up subscriber Larry Herbst

Porter comment: You can start with the basic measure – debt to equity. Interest expense compared to operating income is another key stat. Deeper in the numbers, I'm looking for REITs that added a significant amount of assets late in the cycle (like in 2006 and 2007). Firms that bought at the top probably won't live to see the next up cycle. Remember, REITs are not allowed to retain earnings, which makes them vulnerable to bad credit markets.

"I have been in the fold for a few years and an Alliance member for about a year now. The service is astonishing. Who thought you could have so much fun with the English language while learning how to be a wise investor? Those who pay attention will be more erudite if they bother to look up words like piffle, vitriol, etc. I especially enjoy the Digest, which periodically seems like your copywriters must be seeking creativity in the manner of Monty Python – sit around a room and denigrate anything and everything until you catch a laugh, then make a skit (write a comment) about it. While you (Porter more than Dan), can periodically chop a subscriber's knees out from under them on a seemingly innocent question, mostly it is great fun. The educational nuggets are there for anyone who bothers to use their brain – yours is not a service of 'Do this because I said to,' rather it is a service of 'Here is how you should think about the world of investing/trading; here is my research; make up your own mind.' That, coupled with the full refund offer, will guarantee you a core membership forever... Cutting out some of the lesser performing letters helps a lot. That makes me value my Alliance membership even more. Kill off the weak and let the strong survive (hmmm... sounds like a free market economy and exactly the opposite of what the US Govt is proposing these days)...

"I've been 'should-ing' all over myself for not acting on the GM, Fannie and Freddie, and LEH recos. That would have been all the difference... Right now, I am into lots of puts from the Put Report and starting to accumulate the World Dominators (sell the puts, use the cash wisely!). I sure hope that this week's lows are the bottom (not the start of a big rally), because even though the puts are for companies we want to own at those prices, It would be a lot more fun to sell a few more puts, let them expire worthless, and then acquire the companies down the road when the recession ends. Too bad we don't have a crystal ball to know exactly when that would be. Keep up everything you are doing, especially adapting the service to keep with current opportunities. Seems like there will be a lot of companies going down in the near future and more buying in the money puts will be effective (credit card companies come to mind) but then again that is why I pay you to do the research." – Alliance member Jeff Persson

"I would like to thank you for the way you breakdown the complicated market issues we are facing now, and put them into laymans terms, so that the 'average joe' such as myself can understand!! Over the years, I have read many financial newsletters, granted mostly free ones, but I rarely understood truly what the advisors were telling me... Now to make a long story short, you 'teased' me into joining the ALLIANCE and it was the best thing I have ever done for my financial future...! The research you do is tremendous, you are the only research I know of that also covers the 'what if's' AKA the worst case scenarios of a trade! I truly wish I was smart enough to become an Alliance subscriber years ago from the ground floor. I know that between the combination of my background knowledge in trading and my ALLIANCE subscription for DAILY research, I JUST CAN'T WAIT FOR THE MARKETS TO OPEN EVERY DAY! I look forwards to Mondays and hate to see the end of the week coming." – Paid-up subscriber DL Bressette

Regards,

Porter Stansberry

Baltimore, Maryland

November 26, 2008

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