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

Blowing down the house ... A bad deal for Bud... What Buffett is buying now... What Gates is buying now... The perils of democracy... A drunk in the mailbag...

Yesterday, at about four o'clock, we were sitting up in the editorial "loft" – really the attic – of our offices at 1217 St. Paul Street in Baltimore. Suddenly, the building began to shake... and move.

When it was built in 1880, our building was one of the largest private homes in America. It is an all-brick, 16,000 square-foot castle – with a wall around it, turrets on the corners, and a secret escape tunnel in the basement. ("You've always got the tunnel," is what I think when I read our mail...) The walls are at least a foot thick, and the foundation is probably 40-feet deep. Nevertheless, the whole building was moving, swaying, and shuddering.

Was it an earthquake? In Baltimore? Was it a sinkhole opening up? (This happens in Baltimore because of a decrepit sewer that leaks. Once a sinkhole nearly swallowed the 20-story Peabody Hotel, which sits on the prettiest square in the city.)

As the building groaned and cracked, we waited silently. What would happen next? Then we heard it. It was the wind. And it was howling down the street, ramming into the north side of our building. I've never heard wind this loud – not even in hurricanes.

It blew and blew, all night long. And it brought more snow and more ice.

This morning, my backyard was covered in about six inches of snow that had frozen over, solid. My new dog, Ruby, had never seen anything like it. She walked on the slick surface as though she were walking on hot coals. She smelled the ice curiously. Licked it. She must have wondered where it came from... and if the grass would ever return. Finding a spot to do her "business" was a challenge. The wind-driven snow covered all of the spots under trees, which had been sheltered during earlier snows. Inside our fence, there wasn't a single stretch of ground that wasn't covered in ice. She looked and looked, circling the whole area, her desperation growing. Then she stopped, turned and ran in a straight line for our barn. Oh, no. Oh, yes. She found soft, dry ground inside the barn... and went right to work.

According to Brazilian newspaper Valor Economico, Belgian-Brazilian brewer InBev is eager to begin talks to acquire PSIA pick Anheuser-Busch (BUD). The Brazilian brewer's market cap, currently $41.9 billion, has surpassed that of Anheuser, at $38.6 billion. Although we don't know the terms of the rumored deal, we hope the rumor is false. Budweiser's stock is a steal at these prices, so we wouldn't trade it for cash. And we think Budweiser's economic goodwill is worth much more than InBev's, so we wouldn't want to trade shares either. It was nearly one year ago that I wrote you could safely buy Budweiser stock, up to 25% of your portfolio – "my fear is that you won't buy enough." I'd never written anything like that before, but then, I'd never seen such a world-class business trading for such a low price. It's up 28% since. If we could hold this stock for 10 years, it would be the single-best investment of my life to date. Let's pray that there's no deal.

Extreme Value pick Berkshire Hathaway (BRK) yesterday announced that it acquired $774.3 million in U.S. Bancorp stock last year. U.S. Bancorp claims to be the sixth-largest bank in the nation, with $219 billion in assets and 2,472 offices. Berkshire also owns sizable stakes in Wells Fargo and M&T Bank.

Recent SEC filing shows the Bill & Melinda Gates Foundation unloaded homebuilder and energy stocks. After loading up in November of last year (are they reading True Wealth?), the foundation shed shares of KB Homes, WCI Communities, Pulte Homes, Centex Corp, Lennar Corp., and Beazer Homes. The energy stocks that the foundation dropped were Chevron and Duke Energy, among others. However, the foundation nearly doubled its shares of Extreme Value pick Wal-Mart (WMT).

If you've been making money with our dividend grabs (we're up 23%, on average, since November), the following won't surprise you. Derivative strategists at Credit Suisse recently released a study on special dividends. They found companies that pay special dividends consistently beat the market over a nine-week period. They also saw that two-thirds of companies who issue special dividends outperform the market after the ex-dividend date. Finally, they found that companies that make large cash payments - much like the ones we recommend - outperform on average. We've got another, new (and free) dividend grab to recommend to you tomorrow.

Assuring future shortages, India has banned the export of wheat in an effort to fight inflation. Never mind the central bank's money printing... it's those greedy farmers trying to get the best price for their crops that are the real problem. We are always amazed at how many crimes against their economies politicians are willing to commit... and how willingly the crowd goes along with them.

We wonder if this is a good idea... Aflac will become the first leading U.S. company to allow shareholders to vote on executive compensation. Shareholders will be given a vote on annual compensation starting in 2009. Our bet is that compensation abuse by corporate executives gets worse under these arrangements.

India and Aflac raise a philosophical question… Why people think democracy is a good idea is one of life's real mysteries. Have you been to the driver's license office lately? Next time you go, look around. That's a real cross-section, a true sample of the American people. Are those the folks you want voting on the laws that you'll have to obey? Are those the folks you want voting on the future of your investments? The people I see at the DMV have to get lucky to tie their shoes correctly. Manipulating them to vote for whatever's popular at the moment or what some political group in Washington needs isn't half as difficult as getting them to buy cigarettes, which are addictive, dangerous, and smelly.

I am aware that criticizing democracy is seen as slightly more evil than beating baby seals. That's ironic because the things we all cherish about America - our liberty, our security, our wealth, our technological dominance - have nothing to do with democracy. Most people don't even know that our founding fathers feared democracy. They deliberated and settled on a republican government with very limited suffrage and indirect elections. Vestiges of the Republic remain - like the Electoral College - and they sometimes still influence modern elections. But the architecture of the Republic was rendered a shadow of its former self in 1913, when two of the most important constitutional tenets of the Republic (the indirect election of Senators and the prohibition of income taxes) were torn down by democratic amendments. Since then, the power of the state has been in ascendance, along with the inflation, militarism, and statism that typically grow along side democracy. Ironcially, despite these problems, democracy - glorified mob rule - is seen as the solution to every governance problem in the world, from Iraq to American's board rooms.

Now that I've revealed I'm not a fan of democracy, I'm sure the mailbag will light up for a few days. Bring on your insults, I'm ready. Send your comments on our opinions, our stock picks, and our newsletters here: feedback@stansberryresearch.com. Don't bother me with customer service demands. Those needs are far too important to be left to someone like me. You can call directly for better service (888-261-2693).

"I realize that you do not print complimentary e-mails, but may I say you are marvelous, wonderful, stupendous, brilliant, one of a kind... Keep up the great writing, I need the uplift. Thanks!" – Paid-up subscriber Bernie Krantz

Porter Comment: Bernie, how much did you have to drink before you wrote that note? I mean no insult... But when we get a kind note like yours, we always assume it's either from a relative, a job seeker, or a drunk. I don't think we're related, and you didn't ask for a job... so...

"Why do you suppose it is that when I watch Jim Cramer's show, it's a lot like he read your newsletter that morning and ordained to take the counterpoint of every one of your analysts' positions? Cramer's a blowhard trend chaser made popular by quoting today what could have made money months if not years ago. Today, he was attempting to prop up emerging market stock indices. I'm with Sjuggerud that emerging markets are about to take a slaying. And I'm rooting for it to happen for one big reason: We need Mr. Cramer to be wrong really big once or twice to get his face off every product page that sells or deals with stocks." – Paid-up subscriber Bryan Sory

Porter Comment: In truth, I don't watch Cramer's show very often. But when I have seen it, I've been very impressed with his knowledge of stocks. I disagree with him on a few basic tenets of investing... but I think he's gotten more people interested in investing and, sooner or later, they'll figure out what investment philosophy works best for them.

"Where's the best place for idle money with the least amount of strings attached??" – Paid-up subscriber James Moore

Porter Comment: This reminds me of the story about the old cowboy who, when asked where all his money went, responded: "Well, I spent most of it on liquor and women. The rest, I wasted."

"I recently decided to start spending the time and energy to manage my own money... I subscribed to True Wealth 6 months ago and in December decided to take the full plunge as an Alliance subscriber... I purchased 14 stocks that had strong buy side technicals out of the 150 or so stocks you cover that are available as an Alliance member. One of these 14 was CLG, which I am up around $3,000 in 2 days due to a pending buyout. I am obviously very pleased to have one relatively small transaction pay for almost half of a lifetime subscription in 2 days!" – Paid-up subscriber Maurice Cotton

"Your continued rants against global warming are amateurish at best, and you ignore the evidence at your own peril... Climatologists have confirmed the evidence of global warming in hundreds of peer-reviewed scientific studies. You, on the other hand, just rant about it all being a hoax while providing NO evidence to back up your nonsense. In fact, I challenge you to find ANY peer reviewed scientific studies that disprove it. No matter - while you have your head stuck hopelessly in the tar pits, I'll be investing in companies that come up with long term solutions to some of the effects of a warmer earth." Paid-up subscriber Bob Schlesinger

Porter Comment: How could anyone know what the future holds for the climate of Earth? How could anyone know, reliably, what the climate was in the past? Have you seen a double-blind, placebo-controlled study of the climate 500 years ago? How could anyone know, for certain, what causes climate change? And, even if you could know these things, how could you know, for certain, that the forecasted changes could be avoided or manipulated?

Measuring the amount of uncertainty in these questions against what I know for certain about the manipulation of the public to sell books, capture attention, raise political funds, and garner votes makes it easy for me to have a position on global warming without reading a single "peer-reviewed" article and without trying to engage in a debate on the matter. Global warming is a hoax in the grand tradition of big, scary problems that all require huge expensive solutions and tend to empower the establishment. To understand global warming, you don't need to study science, you need to study history.

One more thing: It's fascinating you dismiss any of the "science" that comes from corporate sponsors and embrace only "science" that's paid for with tax dollars, as though the public sector is more trustworthy or less interested in advancing its goals in society. In my experience, neither side is lily-white, but corporations are naturally hemmed-in by the need to persuade customers to buy something willingly. Governments have the advantage of the rifle.

"Hopefully I do not sound like a shill for Michael Crichton, but his book State of Fear is a brilliant work on the sham that is global warning. The fact the people are so arrogant as to imagine that they can predict the climate of the next 100 years when we can't even accurately predict the climate of the next 100 hours is priceless." – Paid-up subscriber Scott Cernetic

Regards,

Porter Stansberry

Baltimore, Maryland

February 15, 2007

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