The S&A Digest: Jim Rogers sell New York

Jim Rogers sells New York... No savings... "Invest" in global warming... Boos (as expected) for Porter... Rob Fannon's pick is "money in the bank"...

Since 1980, Americans have cut back on consumer spending in only five quarters (out of 108). Over the same period, personal savings declined from about 10% of income to almost nothing. Since 2004 the U.S. savings rate has been either negative or less than 1%.

The biggest problem in our economy is this lack of savings. It explains why people can't afford their mortgages, why we have to borrow so much money from Asia, and why our investment banks must seek capital from the Middle East. (Citigroup is seeking an additional $14 billion from Chinese, Kuwaiti, and public-market investors. Merrill Lynch is also looking for its second handout and expects to raise $4 billion from the Kuwaiti Investment Authority.)

Meanwhile, you already know how popular the idea of living within your means remains to Americans. You will never see a mainstream U.S. politician urging Americans to save money. Instead, all of the solutions to the coming recession will focus on ways to "kick start" the economy by encouraging Americans to spend. Prediction: Those solutions won't work. My recommendation? Do what your neighbors won't. Save 10% of your income each year. Don't invest it. Just save it. And keep your savings in something tangible, like bullion.

"Global warming has reached the global markets. And now you can be a part of it," claims the prospectus for Deutsche Bank's DWS Climate Change fund (WRMAX). The fund, started September 6, 2007, has $2.6 billion in "climate change assets." My bet? Global warming "investors" are going to get what they deserve, not what they expect.

DWS Climate Change is heavily weighted in solar power, with its top holdings including SolarWorld, LDK Solar, and First Solar. In our experience, solar stocks go straight up every time oil enters a huge bull market. Of course, they also go straight back down as soon as oil prices fall. That doesn't stop promoters from inventing a whole new crop of solar stocks in each energy bull market. First Solar is the most ballyhooed solar stock: It's currently worth $18 billion and trades for 183 times earnings and 50 times sales. The insiders recently decided to "accelerate" their options vesting, moving up the schedule by an entire year. The biggest glut of options (more than 1 million) will now vest on January 15 of this year, instead of 2009. Why take a chance that the bull market in energy doesn't survive a global recession in 2008 if you don't have to?

In 1977, Jim Rogers rode a bicycle around Manhattan looking for a townhouse. The market for such high-end properties was "no bid" thanks to New York's soaring crime rate and near-bankrupt city government. He bought a huge, gorgeous brownstone for a little more than $100,000. Last month, he sold it... for $15.75 million. It's probably not the time to be buying New York real estate, if Jimmy Rogers is selling.

New highs: Becton Dickinson (BDX), streetTRACKS Gold (GLD), Pharmaceutical Product Development (PPDI).

Putting out our report card this year was like kicking a hornets' nest. Now we understand why no other publisher does anything like it. Feel like kicking us when we're down? Go ahead. Join the crowd: feedback@stansberryresearch.com.

"Three questions: 1) How do 9%, 12%, and 14% rate A? 2) How do absolute losses, i.e. failing, rate C? 3) How do these people keep their jobs?... There is enough information available on line that it takes only about five minutes to determine whether a recommendation is worth considering... This seems like a pretty easy gig." – Paid-up subscriber Donn Fletcher

Porter comment: Why don't you e-mail me the recommendations you think are worthy of buying as soon as we've published? I'd be more than willing to include your selections in our annual grading process. It's apparently so easy for you to sort out the best ones, I'm sure you won't mind sharing your ideas. I know our subscribers would love to follow your picks, too...

Regarding your questions, earning 9% on average over the course of a year is a great accomplishment because our track records don't enjoy a full year's worth of time. We add picks every month. The result is a far shorter average holding period than the indexes you're comparing us to. For example, earning 9% over an average holding period of less than six months is the equivalent of earning about 20% in a year. If you can beat that consistently, you'll become the richest man in the world. That's why 9% on average is an "A" in our evaluation. (I explained this handicap carefully in my report card.)

I awarded The 12% Letter a "gentleman's C," even though it lost a small amount of money, on average, because it is focused on earning income. And the markets for income were torched last year, due to the mortgage debacle. Thus, in a very tough market, our income letter did substantially better than its peers, which we thought earned it the right to an "adjusted" grade.

"I'm not a great investor. I have tried various strategies and none have done well. I am now in the process of changing strategies again. I am going to mostly follow your 'no risk' picks followed by the less risky choices in the S&A 16. Of course, I will hold all of your 'no risk' picks that are in the S&A 16. My question is this, given what you said about preparing for recession in your latest PSIA, how much of those no risk stocks should we be holding? I know you can't give specific advice, but in general, should we be reducing our position in these stocks in hopes that we can pick them up cheaper in a few months, or if we have large positions in these 'no risk' stocks, should we just hold on to them?" – Paid-up subscriber Dave Hunt

Porter comment: As you note, I can't give you (or anyone else) specific advice. Even if I wasn't legally prohibited from doing so, I wouldn't, because asset-allocation decisions involve far too many variables. How old are you? How much of your net worth is in stocks? What are your income needs? What kind of account do you have (taxable, non-taxable)? And so on... For all of these reasons, we don't try to take the role of anyone's financial advisor. We'd highly recommend you sit down with such a person to discuss your personal finances, your risk tolerance, and your strategy.

What we do here, on the other hand, is research investments – mostly stocks. In that regard, if you read my most recent issue, you can see I state clearly which of our ideas we'd buy first right now, given the current macro situation. If I didn't believe these stocks would do well now, I wouldn't have recommended you buy them.

"You are right, booos for giving yourself an 'A' for PSIA. If you didn't think non no-risk ideas were good, then why did you suggest subscribers buy them? Would you have excluded them in a bull market? No. What kind of message are you sending your staff and subscribers when you carve out only your best performers." – Paid-up subscriber JW

Porter comment: There's a difference between the amount of confidence I have in a pick I know is speculative and a pick I know is totally safe. But it's not a matter of being "good" or "bad." I'm most comfortable with my "no risk" recommendations because, since 2002, I have seen these stocks do better – on average – than my speculative ideas. And they're certainly much, much safer.

On the other hand, out of all of the biggest winners I've had in my career, only one (Exelon) was a "no risk" pick. Sometimes it pays to aim for the fences with at least a small amount of capital. Meanwhile, unless you're a gunslinger, you've got to stick with what's safe with most of your capital.

That's the message I send to my subscribers every single month: These (no risk) picks will make you rich over time and are totally safe. These picks (the speculations) are risky... but there's a reasonable chance one or two of these things will soar. I recommend you put most of your money in my "no risk" picks. I say it over and over again, every month. And so that's how I evaluated my portfolio, by putting more "weight" into the 17% average gain we earned in our five "no risk" picks. I can't imagine anyone who reads my letter would object, given my ratings system and the emphasis I continually place on my "no risk" ideas.

"[Regarding Rob Fannon's first recommendation in Phase 1]: To my mind, this one pick is the one that stands out as an all time best pick. Not only do they have a sure fire technique for manipulating single pairs of genes, but they have ALREADY done Phase I clinical trials of their SB-509 compound to treat diabetic neuropathy by stimulating the VEGF gene to produce ALL iso-forms of the proteins it produces naturally. This compound has ALREADY proven to actually REGROW nerves that were permanently blocked- with the direct implication that it can ALSO treat OTHER nerve damage both disease caused and accidental in nature. Due to the way this technique works, I believe – and trials to date show – that there are NO side effects of ANY kind. This has already led to them going directly to Phase II trials for ALS, and they will soon do the same for spinal injuries too. The implications for all the other potential cures and treatments they are now working on is obvious – as is the implication for widespread use after such trials are completed.

"I think this company will change the way we do medicine and create a whole new INDUSTRY. It will not just be another biotech company with a hot drug, it will be like buying into GE when the light bulb was invented!! Why it has come all the way back down to $11.61 recently is a complete mystery to me. But buying into it below $20 is like putting money in the bank. You just KNOW that it will be there come 5 years from now. That and a whole lot MORE. I cannot say the same for any other stock I own. Even if all their medical applications prove to be busts, they ALREADY have agreements with DOW AgroSciences for agricultural applications AND Sigma-Aldrich for use in medical reagents and cell culture, which ALONE will MORE than pay off any money they could THINK of spending on human medical applications. This one pick will make me rich. No matter WHAT the market does, THIS company will be making history while most others are just making money." – Paid-up subscriber Frank A. Love

Porter comment: If you're a fan of Rob Fannon's work, be sure to check out today's GrowthStockWire.

Regards,

Porter Stansberry

Baltimore, Maryland

January 14, 2008

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