The S&A Digest: Happy Leap Day

Happy Leap Day... A lazy dolphin... Buffett's big day... How to buy gold at the largest possible discount... Goldman's impending $11 billion loss... Yawning at Ferris... The Alliance picks...

Happy Leap Day. We get an entire extra day this year because each solar year is almost six hours longer than 365 days. Thus, over a four-year period, the calendar will become nearly one day "off." Inserting an extra day puts things back in order. But nature resists any kind of order... In fact, the solar year is slightly less than 365.25 days. Few people know that the Gregorian calendar skips a leap day once every 100 years – unless the year in question is also divisible by 400. Got it?

I celebrated my extra day (which pushed the publication of my March newsletter until next Friday) by going fishing in Charlotte Harbor, Florida – near Captiva Island – where I'm enjoying a mid-winter getaway with my family. A dolphin decided to piggyback on our efforts. He just followed our boat, waiting patiently. When we caught a fish that was too small to keep, the dolphin would put his head out of the water and do his best flipper imitation. We couldn't resist feeding him.

There is stunning physical evidence of the huge hurricanes (Charlie, Wilma) that struck here in 2004. On North Captiva, a half-mile stretch of land in the center of the island that remains completely bare. Charlie came aground here and literally left nothing but sand: no trees, no scrub palmettos, not even grass.

Berkshire Hathaway will announce earnings after today's close. And with the earnings announcement comes Buffett's annual letter to shareholders. There's no better way to learn the basics of business and investing than by reading Buffett's letters. You don't need an MBA, you can read these letters for free – all of them – on the Berkshire Hathaway website here...

In yesterday's DailyWealth, Matt Badiali explained why a little-known genre of gold stocks – prospect generators – is struggling. These small companies find gold deposits, get other companies to develop them, and then collect half the profits. Prospect generators reap all the rewards without the huge mining costs. If they strike gold, their shares can rise thousands of percent.

Despite a fantastic business model and soaring gold prices, prospect generators are flat. The reason: newsletter writers. Unfavorable coverage in newsletters has pushed these thinly traded stocks down, creating an amazing opportunity for investors. We often get the question, "What is the best way to invest in gold at today's high prices?" This is it... To read more on prospect generators, click here...

UBS reported today that financial firms will lose at least $600 billion once this crisis plays out. So far, banks have only announced $160 billion in losses. What will cause the extra $440 billion? Variable Interest Entities (VIEs).

Bond research firm CreditSights estimates VIEs will cause $88 billion in losses for financial firms. And Goldman Sachs warned it may see $11.1 billion in losses at the hands of VIEs. We've been saying for a long time that Goldman wouldn't escape the credit debacle without taking a large loss. And $11 billion is even bigger than we expected.

New highs: Covanta (CVA), EnCana (ECA), Stone Energy (SGY), XTO Energy (XTO), CurrencyShares Japanese Yen (FXY), streetTRACKS Gold (GLD).

In our mailbag, a critic of Dan Ferris' speaking style. Whatever your critique, we'll read it. Just send it to us: feedback@stansberryresearch.com.

"I don't want to disparage your speaking ability or anything like that, Dan, but the reason we yawned at that point in the day at the Alliance meeting didn't have anything to do with WalMart. Hey, I even yawned when Tom Dyson talked about those cute baby trees in British Columbia. It doesn't mean I didn't go out and buy some of that stock the next and a bunch more when the price dropped 25%. Proud WMT owner (yawn)." – Paid-up subscriber Jim Nelson

Porter comment: At our S&A Alliance Conference last November, we asked all of our analysts for their single best investment idea for 2008. Then we allowed the audience to vote on which stock recommendation would become our official "Stock of the Year" selection. The crowd voted, overwhelmingly, for Tom Dyson's pick, a company that grows "little, tiny, baby pine trees." Timber companies buy the trees for reforestation efforts, which Tom expects to increase thanks to the pine beetle problem in British Columbia. While Tom's idea might be a good one, so far, we see the most popular investment ideas usually don't work out the way you expect.

Ironically, my recommendation, to buy Moody's – and in particular to buy it for $32 – was completely ignored by the crowd. I didn't receive a single vote in support of the idea. Moody's traded below $32 briefly last month at the nadir of the market in January. If you were contrarian enough to buy it then, you've done well. Below, the entire list.

"Tell Fred to knock it off telling everyone about Panama. Pretty soon the place will be so overcrowded with Americans that the language will no longer be Spanish and it won't be exotic anymore. It's the secret that is no longer a secret!" – Paid-up subscriber Bonnie Hankey

"I'm about as much of a novice as you can get at investing, and that includes stock purchases. However, I recently decided to take the plunge and purchase some stocks that were discussed in one of your publications. I went to a local broker and asked to have a trailing stop loss placed on my order. He informed me that this was not possible. I told him that I was sure I had heard of the term years ago, and that the tactic is not new. He called Someone (I'm not sure if it was Multi-Financial Securities Corp., ...or Pershing LLC) and asked about my request. They informed him that they do not have that technology, and do not have the capability to follow that kind of strategy. (I thought about opening an on-line account, but, definitely do not have enough knowledge to do that.) I went ahead and placed the order, with a regular stop loss order, but after thinking about it I prefer not to constantly monitor my account and advise my broker when to move the stop loss up ...(optimism on my part?). Is there some way that the trailing stop loss technology can be applied to my order(s) without constant monitoring on my part?" – Paid-up subscriber Mary

Porter comment: There are lots of different software packages that you might use to keep track of your own stop losses. According to our subscribers, www.tradestops.com is one of the best.

"What are the political/financial/other reasons that S&P would give out these AAA ratings, when it is so clearly obvious that the ratings should be DDD?" – Paid-up subscriber Robert Pelant

Porter comment: The rating agencies are part of the giant charade. They have as much at stake in keeping the music going as the banks.

Regards,

Porter Stansberry

Charlotte Harbor, Florida

February 29, 2008

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