The last bull on GM sells

The last bull on GM sells... Up against my heroes... Stansberry bids for Lehman... Why you should be buying now... Goldman vs. Chanos on Netflix... I dare you to publish this... More geese...

It was always a hard question to answer...

Porter, love your letters from the "chairman" of GM. But if you're so sure GM is heading for an unavoidable bankruptcy, why does Mason Hawkins (one of the most respected value investors in the world, the chief investment officer of Southeastern Asset Management, purveyors of the famed Longleaf Value Fund) own nearly 10% of the stock?

Yesterday, Mason Hawkins filed paperwork with the SEC showing that he's sold every single share of General Motors common stock owned by the various funds (including Longleaf) he manages. As recently as June 30, Hawkins owned 44.7 million shares of GM, purchased at an average price of more than $60. Assuming he sold the position last month, he probably got about $10.50 for his stock – suggesting a billion-dollar loss over 10 years. These losses would have been mitigated by the spinoff of Hughes Electronics and the dividends paid out by GM along the way.

Hawkins replaced his GM stock with a large position in GM senior convertible bonds, which yield more than 12% and can be converted into 13.2 million shares of GM stock, if the shares rise above $64.90. While Hawkins may still believe in GM's ability to avoid a financial collapse, he has certainly hedged his bets considerably: His bonds are much, much safer to own in bankruptcy than the common stock, which will surely be wiped out.

GM's senior management could teach classes on denial. Said the company spokeswoman about the news GM's third-largest and highest-profile owner had sold his entire common-stock position, "The convertible bond purchase showed continued confidence in the company." Yes, confidence you're going bankrupt.

It's not easy to go up against your intellectual heroes – like going against David Dremen, who was long Fannie and Freddie, or Mason Hawkins with GM. You know if you're wrong, people will think you're really dumb. A complete fool. After all, seriously smart guys – hall-of-fame investors – looked at the same numbers and took exactly the opposite position.

But when something doesn't make sense to me – like Goldman Sachs' accounting – I can't help myself. I don't care who is on the other side of the trade. I hope that has made you some money this year. Send my wife a thank-you note. The same stubborn quality makes me very hard to live with.

The latest in the Lehman Brothers rumor mill is that Bank of America will acquire it. This idea started circulating one day after Lehman said it could handle its problems by splitting off its real estate-backed assets. Despite having a suitor, Lehman shares are still free-falling, down almost 11% today and 73% for the week. Prospective buyers, which could also include British bank Barclays, will likely ask the U.S. government to shield them from any future losses – much like it did when JPMorgan acquired Bear Stearns. In that case, the government agreed to cover $29 billion in potential losses.

Assuming the government will shield us from the inevitable losses, I'd like to announce that Stansberry & Associates Investment Research has entered the bidding for Lehman. We bid $1. No, not per share. For the whole thing. A buck. And yes, we know we're overpaying.

The permabear, Jeremy Grantham, is turning bullish. Grantham believes if you buy high-quality U.S. equities and hold them for seven years, you can expect to earn 5.6% a year on top of inflation, a real return of about 50%. He thinks emerging-market investments will earn 4.8% a year after inflation and international small-cap stocks will earn 3.7%.

I agree wholeheartedly. As I've been telling my readers for months, you have to learn to love bear markets. These are the only chances you get to buy the world's highest-quality companies at reasonable prices. If you've been buying great businesses this year, you'll make a lot of money over the next decade.

Yesterday, Goldman Sachs Asset Management disclosed it owns 6.17 million shares, or 10.1%, of Netflix – nearly doubling its stake since February. Netflix offers a to-your-door DVD delivery service for a monthly fee. Its stock has soared recently as the company stole market share from traditional video-rental companies like Blockbuster. Netflix is up 16.9% year-to-date and 83% in the past 52 weeks.

Despite the soaring share prices, Jim Chanos, manager of the short-only Kynikos hedge fund, makes a strong case for shorting the company... "Look at Netflix. Consider the concept of having little old ladies in warehouses stuffing envelopes with DVDs. That might be a business for two or three years, but then it won't work."

I agree with Chanos – "old ladies in a warehouse" is hardly cutting-edge technology. But Netflix recognized the problem and currently offers part of its movie collection "on-demand," meaning it streams directly to your computer.

Chanos also told CNBC this week, "We have probably seen the worst in the financials." He said he holds fewer short positions now than normal, and he's focusing on commodities. "We would short companies that might depend on cement prices or steel prices going up," he said.

New highs: Covidien (COV), Wal-Mart (WMT), Market Vectors Double Short Euro ETN (DRR).

Oh boy... They're really letting me have it in the mailbag today. Perhaps I should simply concede... Nah. There's a tremendous difference between loving your country and loving your government. If you really loved our country, you'd be as disgusted as I am about what the government is doing to us. Send your rants here: feedback@stansberryresearch.com.

"Only in this great country of ours can a totally incompetent person such as you make a comfortable living thru pitiful financial advise (always defended by blaming something or somebody else) and other useless and biased write-ups. Your liberal views come thru loud and clear in your 'notes.' You apparently belong to that group of 'patriotic liberals' who believe that our enemies would become our friends if we would just reach out to them. Tell that to the countless number of families that lost relatives to terrorists bombers. Typically, your type does not recognize the fact that if someone was not taking pro-active actions to keep our country safe you would not be able to freely express your views and make a living. Please cancel my subscription immediately." – Paid-up subscriber John A Lazzarino

Porter comment: We might disagree about the proper role of our government in foreign relations, but I've certainly never attempted to blame anyone but myself for my investing mistakes. In fact, we spend a lot of time here at the end of each year writing a report card on each of our editors. I don't know of another financial publisher that does anything like this for its subscribers.

"Tell Bonner to suck my conservative *&%$. I don't recall him being invited to sit in on any White House security briefings on terrorism or the economy, and having to make decisions that kept me & my family safe for the past 8 years. Billy Boy's gotten plenty rich during Bush's watch, and the day he allows open access to all of his staff meetings to expose his warts and poor decisions to the country, then maybe he can critiicize others, 'straight & hard.' OBAMA! will, if elected, court our enemies, appoint the Oprah Commandress in Chief, create tax exemptions for his Hollywood pals, and lead us into a Muslim state. I didn't subscribe to hear you expouse your political views, but since you started it I dare you to post mine." – Paid-up subscriber Larry Herbst

Porter comment: You should have dared us to correct your spelling.

"Well, Porter, I said I'd be humbled should I see my e-mail answered, so I thought I should at least acknowledge the fact that you did answer and did not try to skirt the issue in any way. I'm still not sure I buy the argument that you or anybody would invest in anything but their very best intuitions, so maybe it's not a question of 'side cars,' but rather obscure, silent passengers (read mother's-in-law and other private legal entities) riding (unnoticed by the SEC) in the same cars. Nonetheless, I'm impressed by your willingness to take the bull (or is it a bear?) by the horns and confront your critics, and I hereby applaud you for it and concede that there might actually be more to you than your strangely hostile nature suggests.

"Two more things. Firstly, don't you go and have sleepless nights now about my understanding of human nature or economics. I've been in the market for the last 20 years, and if I didn't have at least a rudimentary understanding of both, especially the first, I'd be long wiped out. Secondly, despite your friendly invitation, I won't ask for a refund just yet." – Paid-up subscriber Eben van der Westhuizen

Porter comment: Publishing honest investment advice is a good business. We thoroughly enjoy it. It's what we've always wanted to do. We're quite proud of the business we've built, and its culture of integrity and independence – something that was relatively novel when we started the business. Sure, if we wanted to, we could be like many other investment publishers we know and moonlight as paid stock promoters. It's entirely legal, as long as we disclose our position in the promotions. We wouldn't have to engage in the scams or money laundering you imagine. We'd only have to write something we didn't actually believe about a company.

Despite the large amount of money we could earn doing such things, we've never been tempted. Not even once. In fact, we won't even let those kinds of publishers contact our subscribers. We don't do business with them. Not ever. I bet most of our subscribers will understand our decision in this regard. Writing about something as important as your investments deserves to be taken very seriously. It's a matter of trust. And that's a trust that we're not going to break. You have my word on that. (There is one tiny exception... We reserve the right to publish something truly implausible each year on April 1 – April Fools' Day. But not to worry. We only promote fictional companies. You can't actually buy them – that's the gag.)

"Two dozen Canada geese on our Massachusetts lake this week (we are on a heavily traveled fall and spring flyway) are not local golf course residents! I'm with Porter on the early migration supposition!" – Paid-up subscriber P.D.

Regards,

Porter Stansberry

Baltimore, Maryland

September 12, 2008

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