The S&A Digest: Goldman and Ross move into subprime

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(Top 10 highest-returning open positions across all S&A portfolios)

As of 06/26/2013

Goldman and Ross move into subprime... Don't be poor... A bottom for homebuilders?... Heavy insider buying at Borders...

Last month, we reported that Goldman Sachs saw "opportunities in the mortgage business." Now, it's ready to pull the trigger. The world's largest securities firm may buy Litton Loan Servicing, according to inside sources. Litton, the 12th-largest subprime servicer with $46 billion in loans, is expected to fetch around $500 million. Goldman's actions follow those of Wilbur Ross, who made a $435 million bid for the bankrupt American Home Mortgage.

The rich get richer, while the poor get poorer... The number of millionaire households worldwide grew by 14% from 2005 to 2006, according to Boston Consulting Group. Meanwhile, assets of nonwealthy households – those with less than $100,000 in financial assets – have been declining from 2001 to 2006.

Currently, the richest 0.1% – those with $5 million of assets under management – control 17.5% of the world's wealth. Is this good? Or bad? I don't know... but the recommended political solutions to the "problem" seem worse than the symptoms to me.

What would I do? I'd get rid of inflation. Most people don't think about the role inflation plays in widening wealth disparities... but I believe it's the root cause. The rich, who own assets, see their balance sheet inflated, while their debts become cheaper to repay. The poor, who don't own assets, see their wages – in real terms – plummet. And the poor can't borrow enough money to effectively "short" the dollar. Look through American history and look around the world: During periods of inflation, the so-called "wealth gap" soars.

Homebuilder stocks jumped yesterday after a Citigroup analyst upgraded the sector. Stephen Kim said he does not expect industry conditions to improve anytime soon, but he does not see the stocks falling any further. Our own Steve Sjuggerud beat Kim to the punch. We all thought Steve was crazy when he was toying with recommending a homebuilder stock, but then we remembered... Steve's usually right. His latest True Wealth recommendation, a homebuilder play, has gone up 10% in the last two days.

It's cheap, it's a telecom, and it's Asian... That's why PSIA pick SK Telecom (SKM) jumped 5% to a new high yesterday. The South Korean telecom play has gone the way of every other Asian stock... way up. Readers have seen a 40% gain in five months from the stock alone... and if you followed our advice and added on the "do-it-yourself" private-equity deal, you're sitting on 130% gains.

George Jones, CEO of Extreme Value pick Borders Group (BGP), bought 50,000 shares of common stock yesterday. The sign of confidence from the head honcho sent shares flying 7.2%.

New highs: Advisory Board Company (ABCO), Google (GOOG), Oakley (OO), Park Electrochemical (PKE), Gen-Probe (GPRO), PetroChina (PTR), SK Telecom (SKM).

In the mailbag... Judging by the gullibility of novice forex traders, the dollar must be close to a long-term bottom. Or... maybe our subscribers are just pulling our leg... Comments to: feedback@stansberryresearch.com.

"How do I make 15%/month in forex?" – Paid-up subscriber Russell Goo

"Been wondering if this is really possible as i have been approached by a lot of people guaranteeing me 10% per month." – Paid up subscribe Wesley Hoo

Porter comment: As we explained yesterday in the mailbag, it's impossible to consistently make such large returns on a monthly basis. But hope springs eternal...

"I am a comparatively new paid up subscriber, and so far I am happy with your service. Some great ideas (which I like) and alot of promotion (which I don't like). I'm writing about a report dated Sept. 11 by Matt Badiali in his Oil Report. He suggested buying [a Canadian oil & gas stock]... I have owned the stock for over a year and have seen it move slowly from about $3.27 all the way up to $4.27. Not bad. But what I am concerned about is the Canadian Government, in its inimitable behavior, has once again come up with legislation on Canadian oil sands companies that will affect their profits down the road. Is Matt aware of this legislation, and what is his view of the potential of [this company] and all the other oil sands companies, (some of which I also own)? One of my other newsletter writers brought this up and recommended selling all of them." – Paid-up subscriber Jim Bandler

Porter comment: We've written extensively about the actions of the Canadian government. Use the search tool on our website. Search for "Canadian government." You'll find that many of our editors – most notably Tom Dyson – used the short-term selloff last Halloween to make some very impressive gains over the last year.

"Matt Badiali's recommendation of [a Canadian oil and gas company] sounds worth acting on, but my internet broker, TDAmeritrade, has never heard of it. I wonder if others of your readers have run into this problem. Should I get a new broker?" – Paid-up subscriber Joe Kennedy

Porter comment: We haven't heard of this problem from any other subscribers. Should you get a new broker? I guess that depends... Do you want to buy Canadian stocks?

"Sir, I subscribed to your newsletter. I liked it fine. However, I could not stand getting the constant 'wave the carrot bull crap'. By subscribing to your service it opened the door for your publisher to keep sending these other 'snipets of great investing'!!! Never any real meat, just the bones. However, if you send us more money money money money we will send you some edible stuff. That's pathetic. I think your Digest is fine, but have to sacrifice it because of the other continuous sales crap. I wish you were powerful enough to get the over zealous sales pukes out of the loop and let us enjoy YOUR wisdom and information solely. Thanks for The Digest but no kudos for your sales gimmicks!!!" – Paid-up subscriber Carl Sandstrom

Porter comment: My father was fond of reminding me two things about life and business: Nothing in life is free (typically in response to my complaints about TV commercials) and you only get what you pay for... or a little bit less. We publish three daily e-letters – DailyWealth, The Growth Stock Wire, and The Digest – which we do not charge readers to receive. The Digest is only available as a free extra to paying subscribers (thus the sign-offs on your letters "paid-up subscriber"). According to literally thousands of customers and nearly all of our peers in the financial publishing business, our free products are top notch. As you note, we use these online dailies to sell subscriptions to our paid newsletters. It's the primary way we stay in business.

Most readers seem to accept this with some grace and understanding. They know nothing in life is free and that our budget for hiring analysts and conducting our research has to come from somewhere. On the other hand, some people can't stand advertising – no matter what benefit they receive in return. (Personally... what I like about the advertising business model, as a user, is that it's almost always relatively easy to avoid the advertising... so it doesn't really "cost" you that much.)

It doesn't matter to us which camp you fall into, though. You're welcome to stop reading our free dailies at any time – and we include instructions for canceling them in every e-mail we send you. Canceling the free daily e-mails won't interrupt your receipt of the publications you've paid for either – reading them is completely optional.

Oh... there's one more solution if you really can't stand our advertising: You could join our all-inclusive, "lifetime" subscription group – the S&A Alliance. Then, you'd get all of our products (except Phase 1) for as long as you care to read them and none of our advertisements. If you want to join the S&A Alliance, we open it to new members two or three times each year. Just call our customer service group for details.

Regards,

Porter Stansberry

Baltimore, Maryland

October 3, 2007

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