The S&A Digest

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 07/02/2013

Defending Jobs, endorsing Gore… A run on the American banking system?… Big buyback at ConocoPhillips… Upgrade for BUD… Dividend boost at D.R. Horton… An inflamed reader… Sunday’s "duck off"…

Our long-awaited new dining room table arrived this week. I can’t explain why… but having a dining room table with a break in the middle of it (for an additional leaf) has always seemed wrong to me. A dining room table should be solid. Sound. Unmovable. And so our new table is – quite unmovable. It took six months to arrive. To celebrate, my wife and I are having a "duck off." We’re both going to cook a duck on Sunday – hers in the oven, mine on the grill – to see whose duck is best.

Surprise, surprise… At a financial conference for "analysts," GM CFO Frederick "Fritz" Henderson said the automaker’s cash losses would continue through 2007. GM’s cashflow is "not anywhere near an adequate position." You already know a lot more about the reasons for these cash losses than anyone from GM would admit…

I have now seen it all… After years of ridiculing Al Gore and demanding accurate accounting from government-chartered corporations Fanny Mae and Freddie Mac, The Wall Street Journal is now defending illegal accounting, fraudulent options grants, and Al Gore’s standing as a national statesman – but only, of course, in the case of Steve Jobs.

Gore, as you probably know, was one of two Apple directors who have cleared Jobs of any wrongdoing. No wrongdoing? Jobs recommended backdating the company’s options grants, selected particular dates, and received 5 million fraudulent, backdated options. How fraudulent? Job’s illegal grant required a fictional meeting to be held, minutes of which were fabricated and filed with the S.E.C.

The Journal ignores the fact Gore has been paid millions as an Apple director, a position he owes to Jobs and accepts Gore’s claim that Jobs "received no benefit" from his illegally granted options. Instead, the Journal reports Jobs’ illegal actions are only "a nonmaterial accounting irregularity involving a defective judgment about whether ‘in the money’ options needed to undergo expensing…" This, from the financial paper of record, the same paper that first broke the backdating scandal last year!

The Washington Post bothered to do some reporting on the matter and discovered, contrary to Gore’s claims, that Jobs most definitely did benefit from the illegal grant. In fact, after switching the options into restricted stock, Jobs sold half of the grant as soon as he could – in March 2006 – netting $650 million. That’s a material amount of money, even to a billionaire.

The Steve Jobs story, like the 200 or so other cases of fraudulent options grants, is very simple to understand. Powerful executives discovered an easy way to enrich themselves at the expense of other shareholders. They tried to take as much as they possibly could without anyone finding out. Doing so required them to lie, cheat, and steal. Being paid too much isn’t a crime. Lying, cheating, and stealing to get an extra couple of hundred million dollars is a crime. That’s why Steve Jobs will end up in jail – where he, and dozens of other executives, belong.

Total deposits as a percentage of assets throughout the 8,700 insured banks have reached the lowest point since the 1933 inception of the Federal Deposit Insurance Corp. Also, the net interest margin – the difference between the average rate banks earned on their deposits versus the interest paid to fund those investments – is at a 17-year low.

Banc of America Securities upgraded PSIA recommendation Anheuser-Busch (BUD) to ‘buy’ from ‘neutral,’ citing improved sector sentiment and earnings potential.

S&A Oil Report recommendation – and recent Warren Buffett acquisition – ConocoPhillips (COP) announced it will buy back $1 billion worth of stock. It expects to repurchase $750 million in the first quarter of 2007. Yesterday, the stock closed down 4.2% at $61.82.

Congratulations, Dan Ferris. Your June 2004 recommendation of American Real Estate Partners (ACP), Carl Icahn’s holding company, is now up 430% – taking the No. 1 spot in our Top 10 list. Owning the top spot is nice… but Dan already has six stocks in the list, making him the leading editor in our group. Many of the wealthiest people I know say Dan’s Extreme Value is the only newsletter they read. Maybe that’s why Barron’s put Ferris in last week’s "Up and Down Wall Street" column.

One interesting side note about American Real Estate Partners (ACP): In July 2005, about a year after Dan recommended it, I saw Icahn using ACP to purchase the assets of WestPoint Stevens (a $1 billion textile company) out of bankruptcy for $85 million. I figured, conservatively, this deal would make ACP at least $1 billion over the next few years. Since the stock had a market cap of around $1 billion at the time, it was an outstanding – and totally unreported – opportunity. The stock wasn’t followed by any of the investment houses on Wall Street. I wrote a special report at the time detailing the situation and urging readers to buy ACP. Since then, the stock is up 257%. Did any of you get into this stock based on either Dan’s or my recommendation? How have you done?

D.R. Horton (DHI) yesterday increased its quarterly dividend by 50%, to $.15 from $.10.

New highs: American Real Estate (ACP), Consolidated Tomoka (CTO), Oakley (OO), AutoZone (AZO), Microsoft (MSFT), PowerShares Pharma (PJP).

The mail is back to normal. Many of you, it appears, hate my guts with the passion of a thousand white-hot suns. Send all of your vitriol here: feedback@stansberryresearch.com.

"Can’t believe you published a readers comment that included calling you a ‘pussy’… I’m sure you have female subscribers who found this offensive and, in today’s day, I can’t believe you would print this subscribers comment… I believe you owe all your subscribers an apology…" – Paid-up subscriber Rob Montesione

Porter Comment: An apology? For accurately publishing what someone else wrote?

"Not only do your daily missives suck they are ponderous beyond words… Do you ever envision life without the sound of your own voice? University of Florida my ass that school wouldn’t in a million years have your sorry ass as an alum… Do yourself and the lemmings who pay good money to subscribe to your swill a much deserved favor, let people who know what they are doing write for a change instead of your self indulgent self serving missives which do no one any good except your bloated ego… Go back to your self-isolation and pretend the SEC is still making your life miserable you self-hating asshole. I detest you more than words can possibly describe you total and utter prick. In the name of all that is holy please just f­­­--k off." – Paid-up subscriber David Woodworth

Porter Comment: Wait until the poor old ladies read that one. How many apologies should I issue this time, Mr. Montesione?

"BUD is pisswater, not beer. It’s an alcoholic beverage made with rice and sold by the gallon to fat rednecks that wouldn’t know a real beer from a slurpie. If you want to taste genuine beer, drink a Grolsch." – Paid-up subscriber "teed63"

Porter Comment: My father drinks Budweiser, almost exclusively. I don’t care for it… but I do like the new Budweiser Select.

"Porter, I owe you a ‘thanks’ for a couple of hundred bucks. Per your suggestion, I bought 100 shares of Imperial Sugar, collected the one-time special dividend and sold the stock today for a loss of less than $100. Even with the tax, the deal still made a few bucks… enough to maintain my subscription to one of your newsletters." – Paid-up subscriber Richard Egli

"You may be right on Apple Inc. but you are dead wrong on the iPhone! Apple is brilliant with the design of iPhone and in teaming with Cingular because GSM is where it’s at – world wide communications capability with greater security. Your beloved Verizon will tank with their awful business strategy of requiring a two year contract every time you even try to have a conversation with them. Have you ever been to an Apple Store? I suggest you find one and go there – you won’t be able to get through the door because it will be jammed with customers." – Paid-up subscriber James Butler

"Porter, Once again you’re ahead of the mass media on important news. You pointed out the Jobs scandal about a month ago. They are only today beginning to report it as a major story." – Paid-up subscriber Robert Macpherson

Porter Comment: Actually… I first reported on this issue back in 2002, when I covered the options abuse going on at Maxim Integrated and Juniper Networks. Barron’s picked up my articles and ran a similar story… but nothing much happened until The Wall Street Journal began investigating last year.

Good investing,

Porter Stansberry

Cockeysville, Maryland

January 12, 2007

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