The S&A Digest: Last Day for Alliance

Last day for Alliance... Arresting the 'counterfeiter'... 'A worthless piece of paper'... Citigroup downgraded... Fudge funds... 61 high-yielding stocks... Dr. Copper on the global economy... 'Porter, you're a dick'...

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How will the government save the value of the dollar? We're afraid we know how...

The Washington Post reported that on Friday, the federales raided the offices of NORFED, a group of libertarians who had begun to mint and sell "liberty dollars," which are nothing more threatening than gold and silver coins.

Why take down a coin dealer? Well, NORFED stands for "National Organization for the Repeal of the Federal Reserve Act and Internal Revenue Code." These guys were trying to launch a private, gold-backed currency, which the federales contend is counterfeiting. Imagine the irony of selling gold coins and being arrested for selling "counterfeit" money!?

Oh... one more thing... the latest versions of NORFED silver coins feature a likeness of Ron Paul – the presidential candidate who has promised to do away with the Fed and the IRS. The coins are now fetching $300 on eBay. Apparently, a "counterfeit" silver liberty dollar is worth a lot more than a "real" dollar.

While the federales are busy protecting you and me from evil coin dealers... how will they handle the real threat to their paper currency? "They get our oil and give us a worthless piece of paper," says Iranian President Mahmoud Ahmadinejad at the recent OPEC meeting. OPEC announced it would begin to study how to move away from pricing oil in dollars. If OPEC drops the dollar... look out below. The game will be up, and the dollar, as the world's reserve currency, will be destroyed.

Goldman Sachs says Citigroup may write down as much as $15 billion, compared to Citi's projected $8 billion to $11 billion. GS put Citi on its "America's Sell List." At some point, Citibank is going to be a great stock to buy... but maybe not yet.

Where are the customers' yachts? Shareholders in the securities industry are having their worst year since 2002, losing $74 billion in shareholders equity. Meanwhile, the top five Wall Street banks are paying out a record $38 billion in bonuses.

According to a study by two U.S. professors, 10% of hedge-fund managers misreport returns. It seems far more hedge funds have marginally good months than marginally bad ones – note the enormous jump to the right of the 0% mark.

Source: Financial Times

Though they may be misreporting returns, hedge funds are having no problem raising funds. Through the end of the third quarter, hedge funds saw inflows of $164 billion, already eclipsing the record $126 billion for all of last year. Approximately 71% of the new funds went to the big boys – those managing more than $5 billion.

Detroit is now the country's most dangerous city, according to private research firm CQ Press. The streets are crime-ridden, the auto industry is in the hole, and you can't give the real estate away. Who would ever think of investing in this place? Tom Dyson. Earlier in the year, Dyson traveled to the depressed city to scope out the real estate and local businesses. To read about Dyson's discoveries, click here... and

here... and here.

Currently, 61 stocks in the Russell 3000 yield more than 4%. To see the list, click here.

We don't spend a lot of time writing about commodities in The Digest. Since they're priced in dollars, they've been going up. What more did you need to know?

But, with the implosion of the U.S. banking system getting worse and worse each day, it seems that the rapid escalation of credit and money might be coming to an end. What would that do to rates of inflation? What would that do to global demand? What would that do for U.S. GDP growth? Dr. Copper, who knows more about the global economy than most commodities, seems to have an answer. Copper prices broke down technically on Monday, trading decisively below the previous support level.

Source: Bloomberg

New highs: Coca-Cola (KO), McKesson (MCK).

In the mailbag... the saga continues. We don't like to cut off a debate, but we can see, without some editing, the endless argument regarding our latest letter from the "chairman of GM" will begin to bore you. So, today is the last day we'll run any letter about that topic... unless someone sends us something we simply can't resist: feedback@stansberryresearch.com.

Also, I want to stress that my letter was only satirical in one respect, that the real chairman of GM didn't actually write it. All of the numbers, all of the facts in the letter, are 100% genuine, taken, painstakingly, from GM's latest earnings report. GM's quarterly reporting is the real joke here. The press release, which is supposed to summarize the numbers and make them easier to understand, was nearly 30 pages long this quarter. In fact, the density and GM's ongoing obfuscation of the company's basic operating statistics make it nearly impossible for the layperson to know what's happening in the business.

That's why I began writing these letters in the first place, because, as a securities analyst, I found it nearly impossible to understand GM's results. GM's chairman should write a letter to his shareholders like the one I wrote for him – but you can bet he never will. Not even after GM goes bankrupt.

"Don't do that again. I own GMAC bonds and started to panic. We who are not as tuned into the corporate world and have other lives to live, didn't get the 'inside joke'. Thankfully, the next letter explained the spoof." – Paid-up subscriber Anonymous

Porter comment: You should be concerned. A bankruptcy filing, which I believe is inevitable, will reduce the price of your bonds and will probably interrupt the payment of your annual coupon. What you're really holding now is future equity in the post-bankruptcy GM. What's that worth? I don't know yet... but I'd guess it's a lot less than par.

"…That was a very poor joke coming from a respected adviser as you. i sold whatever gm stocks i had and had told my friends about it. i will not be renewing my subscription." – Paid-up subscriber Anonymous

Porter comment: It wasn't a joke. It was a parody. There's an important difference. The facts of my letter were real. Only the author was fabricated – if you want to call putting "chairman" in quotes a fabrication. You'll be missed.

"I too believed your letter, and was very disappointed in it, shame on you. I thought somebody (CEO) finally had the backbone to tell the truth."

– Paid-up subscriber Richard Maciol

Porter comment: If you thought the CEO of a multibillion-dollar company would insult himself publicly and predict his company's bankruptcy... well... I don't know what to tell you. Shame on me.

"Though I have not participated in the flaming, of which you duly deserve, I most certainly understand. What seems to escape you, ones of large means, is the fact that this investment business is extremely serious to us in the trenches... I know you must get bored with us and our pettiness and feel it comforting to get some comic relief but seriously the forum you used is not the place."

– Paid-up subscriber Orren J. Winjum

Porter comment: I can't imagine anything more serious than the work I've been doing on GM. Trust me, wading through its SEC filings to uncover the actual size of its debt obligations and its interest expense isn't easy. And the company makes it nearly impossible to figure out on purpose.

That I've put my deadly serious analysis in the form of a satirical letter should be evidence to you that I go the extra mile to do my job. I know my work must entertain as well as inform. People have called me many things in my career – but never bored or boring.

"Let's face it Porter, you're basically just a Dick." – Paid-up subscriber Tim Ghirardelli

Porter comment: I've been called worse... but not much worse.

"You can defend yourself and put people down all you want, but a real leader steps up and admits mistakes in judgment and swears not to do it every again. We enjoy humor, in such a context, we need to be clued in that the author is joking now. Otherwise, you take advantage of our trust and never consider that you might not be telling the truth... As an aside, I had already identified GM as a short about two months before your little joke letter from the Chairman... so the joke just confirmed my own trade. Even funnier, you snookered me, and I'm a professional money manager! That's how 'sincere' the letter sounded. The irony of this whole issue is that the substance of the joke was right on target, even though you weren't serious. I wonder who the joke is really on?" – Paid-up subscriber Ed C.

Porter comment: I'll promise never to do it again, if you promise to send a letter to your clients about how easy it was to fool you.

"Wow! Humor is no longer allowed when you give advice about investing. It's too bad some subscribers didn't see the clear parody of your GM letter. Folks like Porter and Steve clearly are looking out for many of us who don't necessarily understand all the detail that goes into choosing winning companies. Indications show that even some of the big boys are taking notice of their ingenuity. Keep up the good work guys. You are certain to help me retire early." – Paid-up subscriber J. Horbovetz

"After thinking about your parody on GM, I made a killing on november puts. Thanx." – Paid-up subscriber Will Taylor

"In spite of those who accuse your GM letter to be inappropriate in an investment letter, my experience was quite the opposite. The letter reminded me that I wanted more short exposure in my portfolio; the GM puts I bought that day are up over 100%. Thanks!" – Paid-up subscriber Karl Bauknight

Regards,

Porter Stansberry

Baltimore, Maryland

November 19, 2007

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