Our Lake Wobegon school system...

 I (Dan Ferris) watched my stepdaughter graduate high school last night, along with about 300 other seniors from the local public high school. At one point, the principal bragged that 25% of the class was straight-A students.

My father-in-law and I looked at each other with looks that said, "HUH?!"

I don't live in Lake Wobegon (author Garrison Keillor's fictional town where all the children are "above average")... 25% of the class shouldn't be getting straight "As." Whether she realized it or not, the principal was letting us know the teachers aren't worth much. (Please don't write in and tell me I'm insulting all teachers. I'm clearly not.) My only solace is that I pay for schools via property taxes and property taxes are low here. So I got very little out of the public education system, having paid very little into it... a just outcome.

 And guess what... College will be even easier than high school for these kids. According to a blog post by Mark Perry on his finance and economic blog, Carpe Diem, the most commonly assigned grade in U.S. colleges is not a C, which is what it should be if that grade truly reflected "average" performance. It's an A.

U.S. college professors are handing out "As" to anyone with a pulse. Back in 1940, "As" were about 15% of all grades, and the average grade in U.S. colleges was a little over 2.0 on a 4.0 scale. In other words, "C+" was average. By 2008, 43% of all grades assigned were "As."

The "A" became the most commonly assigned grade starting in about 1998... the year most U.S. stocks peaked in the biggest equity bubble in history. Talk about the good old days... Everybody was rich AND smart in 1998!

 Chalk up grade inflation at U.S. high schools and colleges to yet another massive U.S. government failure – the doctrine that says every kid ought to go to college. After all, if every kid has to go to college, the system has to start cranking out stellar intellects like pancakes at a church social. The best way to do that is by lowering standards.

It's just a part of the huge financial bubble in U.S. higher education, created in large part by misguided social policy and huge amounts of government-backed loans and grants. And of course, where there's a government boondoggle, you can often find a short-sale opportunity.

We've been bearish on the higher-education bubble for almost four years. And to date, we've been right, as you can see in this price chart for shares of bellwether for-profit educator Apollo Group...

Yesterday, that bubble got a little bit closer to popping...

 The arguments against the sector are many. These schools burden students with enormous debt (in some cases $80,000 or more). They deliver little educational value, while 90% of their revenues come from government grants. Dropout rates are greater than 50%, and they recruit students from homeless shelters. (You can read a more detailed summary of our bearish thesis here.)

 Consistent negative coverage of the sector spurred the government to investigate the for-profit educators. This March, the New York Times reported "attorneys general from more than 20 states have joined forces to investigate for-profit colleges that too often saddle students with crippling debt while furnishing them valueless degrees."

When news of the government investigations broke, we knew the worst was yet to come for the educators...

Currently, the for-profit educators are legally barred from receiving more than 90% of their revenues from the federal government. And yesterday, attorneys general of 21 states asked Congress to change the law so veterans' benefits count toward the 90% cap. (Veterans, a popular target for these schools' recruiters, currently don't count toward the cap.) Shares plummeted...

 Apollo Group stock dropped 4.1% yesterday. It's down another 2% today. Career Education dropped 8.5% yesterday. It's down more than 4% today. DeVry, another industry giant, fell 3.8% yesterday. It's down another 3% today. The entire sector is trading at 52-week lows.

 And now... onto a serious money idea...

As most of you know, Stansberry & Associates publishes research on many different financial ideas... from safe corporate bonds to junior mining stocks... from stock options to blue chips.

With our more speculative recommendations, our chief concern is that some readers will buy too much. They'll take on position sizes that are too large for their portfolios. They'll buy 1,000 shares when they should buy 200 shares. They'll buy 20 options contracts when they should buy two. Taking excessive position sizes vastly increases risk. It's one of the biggest causes of investor "blowups." These are losses that can ruin a family's financial situation.

That's why we go to great lengths to educate readers on proper position sizing. (You can read this free interview with our sister site The Daily Crux for more on this topic). We emphasize this idea so often, many of our readers groan in response and think, "Ugh... not this position-sizing stuff again..."

But from time to time, we run across opportunities that offer such great upside... and tremendous safety... that our fear is, you won't consider buying enough. These ideas don't come around often. Some years, you don't see any. Some years, you see maybe one or two. To compile a successful long-term investment record, it's imperative to seize these "slam dunk" opportunities... and take advantage of them with "serious money."

For example, back in 2006, Porter Stansberry wrote one of the best newsletter issues ever published. In that issue, he encouraged readers to buy as much Budweiser stock as they could reasonably afford. Porter pointed out that Budweiser was one of the world's elite brands... and one of its elite businesses. The company sported huge returns on capital. It dominated its market... and it regularly rewarded investors with cash dividends and share buybacks.

The dominant blue chip was trading at such a cheap price, it would have been extremely hard to lose money as an investor. These are the situations you can put serious money into... not a volatile mining or biotech stock.

Thus, Porter told readers his fear was that they wouldn't recognize the scope of the opportunity... that they wouldn't take a big enough position. It was the quintessential "pound the table" buy recommendation... and it turned out to be an incredible call. Porter's readers made 78% in less than two years when global brewing giant InBev purchased Budweiser. And mind you, that huge gain came on an extremely safe position.

We tell you this story because we believe investors have another opportunity right now that merits a larger-than-normal position size. It's with software giant Microsoft. As we've stated many times in the Digest, Microsoft has a near-monopoly position in the computer software market. This dominant position allows it to sport giant profit margins... And it allows it to generate immense amounts of free cash flow... which it passes on to shareholders.

Our resident value and blue-chip expert Dan Ferris, editor of Extreme Value and The 12% Letter, recently updated us on Microsoft...

Dan is "pounding the table" on Microsoft shares for his readers... and we sincerely hope you are taking notice. We're confident Microsoft will allow readers to safely compound their money for years and years. But some readers of our new DailyWealth Trader service are using this extremely safe stock to generate a huge income stream in their conservative portfolios...

 Editor in Chief Brian Hunt and co-editor Amber Lee Mason just showed their readers how to make an annualized 84% return on a safe position in Microsoft. We can't emphasize enough how this is a truly unusual opportunity. Huge upside... very little downside. Thus, it's a trade you could put serious money into.

Even if you don't take this position, you owe it to yourself as an investor to at least learn how this type of trade works. If you make just one of these "huge upside, very little downside" trades, we guarantee you'll never want to invest conventionally again. You can learn how to access the details of this "serious money" Microsoft trade immediately (without watching a long video) here. And you can learn all about this amazing type of trading style from this video. Click here to watch it.

 New 52-week highs (as of 5/30/12): Vanguard Inflation-Protected Securities Fund (VIPSX).

 In today's mailbag... one subscriber who's made the most of our work. It's always gratifying to get these messages, but... where are the foaming-at-the-mouth rants? Hit us right between the eyes at feedback@stansberryresearch.com.

 "Thanks to S&A, I was able to put together an Asset Allocation for one of my online brokerage IRA accounts which I do not contribute money to. Because I am a professional engineer, I make too much to add to my Traditional IRA. I have to rely on it producing on its own while I contribute to other savings vehicles such as a Roth IRA and my work 401K. Over the months of gleaning on various S&A newsletters, I was able to learn from the best; Porter and Doc (on asset allocation, positive carry), Frank Curzio (long-term trends), Dan Ferris (valuation, patience, gold savings), Jeff Clark (options), Matt Badiali (commodity pricing). This has taken me months to do, and I feel like it is worth sharing with your readers.

"Cat 1 – 60%-70% is a combination of Dividend Producing Stocks and True Income Bonds with a combined annual yield of 14.1%. These investments are in different sectors (Real Estate Operations, Natural Gas Storage, Consumer Goods and most recently Tankers), so that not all my eggs are in one basket. All these investments pay out at different times of the year, so I get 1%-1.5% in dividend income every single month. It has taken me months to acquire these category 1 items. Thanks to the persistence of Dan Ferris, I have learned to be patient and buy at the right price as all these category 1 investments are currently in positive territory (3%-30% above the price I originally paid)

"Cat 2 – 10%-20% of the account is set aside in cash and is used for trades recommended by Jeff Clark's Short Report. This has been a great income producer, but I learned the hard way, not to put too much of your nest egg into options. Also, having that extra cash gives you options to buy when certain sectors bottom out (like recently with gold miners, and getting ready to play out with energy stocks).

"My goal as Category 2 goes over 20% and Category 1 goes under 60% is to use this extra cash to buy another Cat 1 stock (or put it into Cat 3 as described below)

"Cat 3 – Every month or two with the income I obtain from Cat 1 & Cat 2, I buy one share of the ZKB Gold ETF. My online brokerage account easily lets me buy this item from the Swiss Stock Exchange. So this is like putting my savings into gold. Each share is like buying an ounce of gold, except instead of paying a coin premium, I pay $7 to trade. So far this year I've been able to save almost $10K into this without affecting the value of my Cat 1 and 2 assets. Since this is long-term savings, I also wait to buy when the price of Gold is lower than the 120 day moving average DMA. Matt Badiali's weekly Junior Resource Trader helps me keep tabs on this. This ETF recommendation comes from one of the 2011 S&A Special Reports.

"Thank You! This would have never happened had I not subscribed to the Flex Alliance. It has been fun, a learning experience and I'm in for the long-term." – Paid-up subscriber JT

Ferris comment: Take notice, everybody. JT has made excellent, studied, conscientious use of our services. He's taken control of his investments, and even more important, is a dedicated learning machine when it comes to finance. Congratulations, JT. Keep up the good work.

Regards,

Dan Ferris and Sean Goldsmith

Medford, Oregon and New York, New York

May 31, 2012

Our Lake Wobegon school system... The education bubble is popping... A serious money idea... One reader who gets it...