The S&A Digest: Poor Henry Nicholas

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As of 06/20/2013

Poor Henry Nicholas... Rogers still long oil... Vacant homes soar... The real cost of global warming... "I'd like to kill Soros"...

Poor Henry Nicholas III, former CEO of Broadcom. He made the classic playboy mistake: He hired a personal assistant named "Kato." Kenji Kato sued Mr. Nicholas last year for back wages and proceeded to spill his guts in his legal filings, which found their way to prosecutors pursuing him for backdating options.

According to Mr. Kato, Henry Nicholas was a one-man Tasmanian devil of bad behavior: He spiked the drinks of technology executives with Ecstasy without their knowledge, used thousands of dollars worth of illegal drugs while at work, and hired "prostitutes and escorts for himself and customers." Once, on a flight to Vegas on his private plane, Nicholas allegedly smoked so much pot, the pilot had to wear a gas mask! He must have been a fun boss, eh? Well, until the cocaine made him paranoid and violent. To keep the prostitutes quiet, Nicholas allegedly offered them money and threatened to kill them.

We don't understand employees anymore. You buy them prostitutes, you give them drugs, you fly them to Vegas, and they get all bent out of shape because you threaten to kill them...

Our favorite commodities pundit, Jim Rogers, gave an interview to Bloomberg this morning, and his story's largely unchanged... Jim is still short all investment banks through an ETF. He's specifically short Citibank and Fannie Mae.

Rogers doesn't believe there's a commodity bubble. He cited nickel, zinc, lead, silver, cotton, and sugar all being double-digit percentages off of their recent highs. His most recent purchase is more agriculture. Rogers is still long oil, "The world has a serious oil problem." Rogers says the bull market in oil has years to go, but the price may drop 50% or more in the near term. He believes "the world is running out of known oil reserves."

Rogers also announced he purchased airlines today. His reason... "Everybody's very bearish." He said flights are full, fares are increasing, and if you ordered a new plane today, you couldn't get it for several years due to problems at manufacturers. Also, 24 airlines have declared bankruptcy and "bankruptcies are signs of bottoms, not signs of tops."

Deutsche Bank analyst Mike Mayo is going long Lehman. He slapped a buy rating on the bank and said prices already reflect "worst-case scenarios... We are buyers of the stock on the assumption that Chief Executive Officer Dick Fuld will steady the Lehman ship and, with greater stability, the stock will appreciate."

With about 10% of the homes built since 2000 sitting vacant, with delinquencies and defaults still rising, and with the real problem – people voluntarily giving up their homes – beginning to kick in, we think Mike Mayo is dead wrong. We don't think the real crisis has even begun.

Not only are we experiencing global warming, but it's going to cost us $45 trillion, according to the International Energy Agency. Paris-based IEA said the world needs to spend $45 trillion to build 1,400 nuclear power plants and expand wind power in order to halve greenhouse gas emissions by 2050. Someone tell OBAMA! – here's the perfect reason to raise all of our taxes. It's better than a war, no one has to die, and it's four times more expensive.

New highs: Plum Creek Timber (PCL), Petrobras (PBR), U.S. Natural Gas Fund (UNG), Wal-Mart (WMT), Comstock Resources (CRK), Potlatch (PCH), ArcelorMittal (MT).

In the mailbag... a variety of topics from naked short selling to George Soros death threats. Anything to add? E-mail us at: feedback@stansberryresearch.com.

"The bear case on LEH may well have merits. But your outright worshipping for Whitney Tilson and other Cramer-friends like Ackman and Einhorn is perplexing and putting them up as the 'true SEC' is outright scary. You should and could know better. I suggest you visit deepcapture.com to get a different perspective on the way these people operate aided by a whole media network of financial 'journalists' who incidentally in most cases were former employees of Cramer's street.com. Ever heard of naked short selling and its disastrous effects on sound and viable companies? Even the SEC slowly starts waking up to it. It's no coincidence that a lot of Einhorn's, Ackman's and Rocker's short positions are on the RegSho list and have been there often for weeks and month, even years. Tilson and others are just talking their books and if you carefully watch it, Tilson basically piggybacks everything that Ackman does. Never heard one original or independent thought of this guy. Why not quote smart people instead of copycats. But ah, it fitted so well into Dan Ferris' short position (I admire Dan and his work a lot – to be clear about that!)." – Paid-up subscriber F.T.

Porter comment: I think you're laughably naïve to worry about "naked short selling" or some supposed conspiracy between short selling hedge funds. If Stansberry & Associates was a public company (and maybe it will be one day) and Whitney Tilson wanted to short our stock and tell others to short it too, it wouldn't bother me at all.

In fact, if they were successful in driving down the price, I'd send them a really nice Christmas present and a thank-you note. The lower the price of my company's stock, the better for me – as I can buy more and more of it. My insider buying would be in the public record. If my board of directors asked me to do something about the short sellers (I'd rather do nothing, they're making it easier for me to build a bigger position in my own company), I'd simply begin paying extremely generous cash dividends. (When you're short a stock, you have to pay the dividends to your broker.)

All CEOs know exactly how to drive off short sellers: start buying their own stock and start paying bigger dividends. And yet, instead of doing these two things, a handful of CEOs attack the short sellers personally in the media, sue them (which doesn't work), and spend millions of dollars on websites like the one you list trying to convince a gullible public that they're being mistreated. Why? Because the short sellers are usually right.

"Just a note of thanks to Dan Ferris' picks of ICO, GW, and POL. Nobody seems to remember those picks and his advice to hold on to solid value stocks. I'm over 100% on ICO and ahead in both GW and POL. Thanks, Dan, I haven't forgotten." – Paid-up subscriber Vic

"My fantasy is to take G. Soros and his vile family and torture them for about a year with the vilest forms of debasement and pain ever devised by man. This should be filmed for all to see. Personally, I would love to beat him to death with my army entrenching tool. He is a traitor against the United States and everything it stands for. I hate him even more than Teddy Kennedy, if that's possible. His entire family should be wiped off the face of the earth!" – Paid-up subscriber BRW

Porter comment: That's what I love about America. The tolerance we have as a nation for different political views...

"Today, your subscriber, Joe Cardella, says George Soros is threatening the American Way of Life. I would say that by far the greater threat is the growing intolerance towards other people's views - especially the tendency to question the motives and/or patriotism of anyone who says anything uncomfortable. Not only is it pernicious and corrosive, it is also a sign that the country is losing its self-confidence. I believe it was Churchill who once said to an opponent something along the lines of "I disagree with everything you say, but will fight to the death to preserve your right to say it."" – Paid-up subscriber Stewart Fergus

"Why don't the downgrades of Ambac and MBIA by S&P and potential downgrades by Moody's matter to the market? I remember the last time this came up, people were terrified (literally) that such a move would start the derivative dominoes falling leading to a market crash. This wasn't just a matter of perception either. Apparently, there are many institutions that have to sell all sorts of bonds now since they are not insured by a AAA-rated institution so there were real technical reasons why lots of securities are worth a lot less now. Why did the market just yawn and then throw a party?" – Paid-up subscriber David Walker

Porter comment: The party didn't last long...

Regards,

Porter Stansberry

Baltimore, Maryland

June 6, 2008

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