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

Stock Symbol Buy Date Total Return Pub Editor
EXPERT Rite Aid 8.5% 399.00 True Income Williams
EXPERT Prestige Brands 369.50 Extreme Value Ferris
EXPERT Constellation Brands 141.30 Extreme Value Ferris
EXPERT Automatic Data Processing 121.50 Extreme Value Ferris
EXPERT BLADEX 110.70 Extreme Value Ferris
EXPERT Philip Morris Intl 103.20 Extreme Value Ferris
EXPERT Lucent 7.75% 102.30 True Income Williams
EXPERT Berkshire Hathaway 98.80 Extreme Value Ferris
EXPERT AB InBev 91.90 Extreme Value Ferris
EXPERT Altria Group 88.00 Extreme Value Ferris

Top 10 Totals
2 True Income Williams
8 Extreme Value Ferris

Traveling in style… Subprime mortgages blowup… Buffett agrees with us… How you yearn for your old Ford Escort…

Signs of a market top: Last year, assets under management by Chinese mutual funds jumped 83%. Most funds buy the same large-cap stocks – like China Life Insurance and Bank of China. The same thing happened to mutual- fund investors in the United States at the top of the tech boom. Ask anyone who owned a Janus fund in the spring of 2000.

In 2003, HSBC Holdings, one of the biggest banks in the world, paid $8.8 billion for Household International – a British company that was a large originator of and an investor in American subprime mortgages. The deal was curious: A few months before the HSBC acquisition, Household paid $480 million to settle charges of "predatory" lending brought by dozens of states' attorney generals – one of the biggest corporate legal settlements ever. Today, HSBC announced it would set aside about $9 billion for bad loans.

When the Fed began raising short-term interest rates to slow the consumer-driven economy in 2004, the yield curve got flatter. The spread between short-term interest rates (what banks pay to borrow money) and long-term interest rates (what banks get paid to lend) collapsed. Rather than tighten up lending standards and retrench, several big finance companies (like HSBC) moved into subprime lending, where they could charge higher interest rates. The American consumer wasn't cut off from borrowed money or refinanced mortgages… he was just paying more for his debt.

Today's big collapse in the subprime market (New Century, another large subprime lender, fell 36% today) might have far-reaching effects. It could mean the end of the "liquidity spigot" for the American consumer.

Maybe we were right about newspapers hitting a bottom. Today, shares of New York Times Co. (NYT) surged 7% in early morning trading as news leaked that Warren Buffett might bid for the paper. Also, Tribune Co. (TRB) announced an 81% increase in profits. The increase did include the sale of a corporate airplane and other investments, but advertising revenues rose 4%.

Signs of a market top: Hedge funds paid out $50 billion in fees and interest to investment banks, contributing a quarter of the banks' pretax profit. Think about that the next time you consider opening an account at one of those banks… which customer do you think the bank cares about, you or the hedge funds?

The FDA has approved the first over-the-counter weight-loss drug, Alli. Produced by GlaxoSmithKline (GSK), the drug will offer an alternative to the $1 billion-a-year herbal-supplement business. GSK predicts that 5 million to 6 million people a year will use the drug, based on an estimate that 60 million people are clinically obese. Buy Glaxo and McDonald's (MCD); make money both ways.

New highs: Southern Copper (PCU), Sangamo (SGMO), Xcel Energy (XEL).

Not much by way of the mailbag today… a little government bashing and Escort exalting. Send your vituperation to: feedback@stansberryresearch.com.

"I'm not surprised that our stupid government officials have so little concern about spending money. It's not their money! I suspect that the guys handing out bills in New Orleans shipped their 100 dollar bills in on pallets too!" – Paid-up subscriber Bob Reek

"Thanks to your reader who reminded me of the Ford Escort. I loved that car and it was one of my all-time favorites while I was in college, single, and through the first few years of marriage. I always love cars that are real cheap but last a lot better than higher priced 'image' cars. And for a while I think Ford did a good job in that category. I wouldn't know anymore because I don't buy cheap cars anymore, but I kind of long for those days once again." – Paid-up subscriber Peter Krippner

"As a trader, I slog through all the various e-mails you send out to me with enticements to expand my subscriber allocation… and I enjoy them. However, I have to tell you I am very annoyed with True Wealth (my subscription) right now. After hyping this trip to Japan and Japanese real estate for at least the last month, today's DailyWealth says the answer is at hand. But only in Sjuggerud Confidential. Where is the information for True Wealth subscribers? It's what you have been talking about as your newest idea. While I would love to be a member of the Alliance, neither my budget nor my portfolio permits that this year. And this latest bait-and-switch tactic is not endearing." – Paid-up subscriber Stacey Griffith

Porter Comment: I agree, and I'll encourage Steve Sjuggerud to address this issue in True Wealth. Knowing Steve, I'm sure he would have liked to find a big-cap, liquid stock to recommend to his True Wealth readers. But, from what I've read of his trip, all of the stuff that's liquid and easy to buy (Japanese REITs, for example) is trading at a steep premium. The investments that were attractive were all too small and/or too illiquid to recommend in a popular newsletter like True Wealth. This happens sometimes.

"Hey Porter, if you knew drug companies were corrupt, you wouldn't voice that opinion?! I don't buy it. Come on, you've never balked at offering your opinion before about corruption in politics, business, or anything else for that matter. If you wouldn't say anything about it, I think it would diminish your character in the eyes of those who listen to you." – Paid-up subscriber Gary Shanklin

Porter Comment: Yes… you're right. Okay…

Drug companies have bought the government. They've created an enormous, tax-free entitlement for most people in the U.S. They've helped create a culture devoid of personal responsibility: There's a pill to solve any health problem. These firms are rapacious, unprincipled in their pursuit of profit, fraud-ridden, bloated by years of excessive gross margins, and – most likely – impossible to replace or destroy... which makes them very interesting investments.

Some of the most interesting economic research I've ever read shows that, beyond the most basic treatments (i.e. antibiotics, sterile obstetrics, etc.), spending on health care doesn't affect population mortality rates. When economists study life expectancy in developed countries that have basic health care, huge differences in the level of spending and prescription drugs don't create any increased life expectancy.

My bet is that if Congress taxed health-care benefits at the same rate it taxes earned income, the entire pharmaceutical/health-care industrial juggernaut would collapse. Most people don't really need the pills they're taking. There are almost always other alternatives, but they're typically not very convenient and/or not particularly profitable. And, since health care is "free" to so many Americans, there's no economic impediment to demand. As you will all remember from 10th-grade economics, in markets where the price is zero, demand will be infinite.

Personally, I hate taxes too much to be in favor of any new tax, no matter how beneficial to our economy… but it's an interesting way to think about the problem of runaway health-care spending.

Regards,

Porter Stansberry

Baltimore, Maryland

February 8, 2007

Stansberry & Associates Top 10 Open Recommendations

Stock Sym

Buy Date

Total Return

Pub

Editor

Am. Real. Partners

ACP

6/10/2004

453.44%

Extreme Val Ferris
Seabridge

SA

7/6/2005

396.01%

Sjug Conf. Sjuggerud
Crucell

CRXL

3/10/2004

327.46%

Phase 1 Fannon
Exelon

EXC

10/1/2002

262.04%

PSIA Stansberry
Akamai

AKAM

11/1/2005

243.28%

PSIA Stansberry
Humboldt Wedag

KHDH

8/8/2003

218.44%

Extreme Val Ferris
Cons. Tomoka

CTO

9/12/2003

188.41%

Extreme Val Ferris
Alex. & Baldwin

ALEX

10/11/2002

151.52%

Extreme Val Ferris
EnCana

ECA

5/14/2004

146.12%

Extreme Val Ferris
Korea Electric Power

KEP

9/10/2004

124.55%

Extreme Val Ferris
Top 10 Totals

6

Extreme Value Ferris

2

PSIA Stansberry

1

Phase 1 Fannon

1

Sjug. Conf. Sjuggerud

Stansberry & Associates Hall of Fame

Stock

Sym

Holding Period

Gain

Pub

Editor

JDS Uniphase

JDSU

1 year, 266 days

592%

PSIA Stansberry
Medis Tech

MDTL

4 years, 110 days

333%

Diligence Ferris
ID Biomedical

IDBE

5 years, 38 days

331%

Diligence Lashmet
Texas Instr.

TXN

270 days

301%

PSIA Stansberry
Cree Inc.

CREE

206 days

271%

PSIA Stansberry
Celgene

CELG

2 years, 113 days

233%

PSIA Stansberry
Nuance Comm.

NUAN

326 days

229%

Diligence Lashmet
Airspan Networks

AIRN

3 years, 241 days

227%

Diligence Stansberry
ID Biomedical

IDBE

357 days

215%

PSIA Stansberry
Elan

ELN

331 days

207%

PSIA Stansberry
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