The S&A Digest: Porter up 85% on MBIA

Porter up 85% on MBIA... Lehman plagiarizes... Gold + fur = "wearable investment"... Global mining stock liquidation... Sjug calls muni bonds... "Dan Ferris is a jerk"... Abe Lincoln, American dictator...

Big hedge-fund managers have been saying bond insurer MBIA is a zero for a long time. Porter disagreed and made money for his readers doing it. His PSIA long recommendation of MBIA is up about 85% in less than three weeks.

MBIA shares rose more than 30% today on news it will reinsure $184 billion of municipal bonds issued by its rival, Financial Guaranty Insurance. MBIA will net about $741 million on the deal.

These days, Extreme Value short pick Lehman Brothers is like a poster child of everything that's wrong with Wall Street. Today, the news is almost comic: Lehman copied its homework. The Wall Street Journal reports:

In a note sent last week to clients, Lehman apologized for issuing a report on the semiconductor industry that in places "closely resembled" two 2007 reports written by Bernstein analyst Toni Sacconaghi. "The material was not sourced to Bernstein and was used without the firm's permission," Lehman wrote in the client letter.

Vogue calls it "a wearable investment." Italian fashion house Fendi has come up with a way to mesh gold with fur. They put the fur in a vacuum with a 24-karat bar of gold. The gold is pressurized into a mist. The fur, also under pressure, becomes more porous than usual, and accepts the gold into its membranes. The pressure returns to normal, and the gold is sealed inside the fur – forever – unless you wear it in outer space.

Even more surprising than Vogue recommending gold as an investment, investment bank UBS advised clients to buy gold as the dollar "appears to have topped out for now." UBS analyst John Reade expects the price to reach $850 an ounce in a month and $900 within three months. Gold is currently at $845.

First Vogue. Then UBS. What next? The cover of Newsweek? I think everyone should own some gold bullion, but I don't feel like much of a contrarian saying so these days.

If you want to be a contrarian today, you'll have to buy mining stocks.

S&A mining expert Matt Badiali says mining stocks are in liquidation around the world. Matt sent us an article this morning on "workout brokers." These are special stock brokers who get paid to liquidate portfolios for investment funds facing high redemptions. They're doing land-office business liquidating mining stock portfolios. Matt also told Growth Stock Wire readers the best way to trade the miners nowadays. Click here to read his advice.

Even more contrarian would be to buy Pakistani stocks. That country's politics have pushed the market down 8.5% in two trading sessions. Brokers clamored to have the KSE 100 index frozen. The KSE 100 features 100 companies traded on the Karachi stock exchange. Just so we're clear, I wouldn't touch Pakistani stocks with a thirty-nine-and-a-half-foot pole, let alone real money. But I bet someone out there thinks this is the beginning of a great opportunity.

We wrote it, did you buy it?

If Obama is elected, the biggest investment winner could be tax-free municipal bonds.

You see, without a doubt, Obama will be raising income taxes on high-income families. For example, if your income is $1 million, and he raises income taxes by five percentage points, that's an additional $50,000 in income tax you'll pay.

High-income families will have a huge incentive to find ways to get tax-free income. And they'll discover something many of them have never even looked at before: Municipal bonds... That'll drive prices up significantly higher. – Steve Sjuggerud, July 3, 2008, DailyWealth

Bloomberg agrees. A recent article said the $482 billion budget deficit awaiting the new president will force him to increase taxes for top earners, thereby boosting the value of the tax exemption on income and state and local government debt (municipal bonds). Robert W. Baird & Co states the case, "Tax rates are going to be higher no matter who's elected. If you're in the top tax bracket, munis are your strong buy right now."

To sign up for True Wealth and learn Steve's favorite way to play municipal bonds, click here...

New highs: Covidien (COV).

In today's mailbag: a civilized debate and my take on King Lincoln. Want to call me a son of a bitch? Feel free: feedback@stansberryresearch.com.

"Dan Ferris is a jerk. I realize that may not be a very intelligent-sounding statement, but at least it's accurate." – Paid-up subscriber Charles Ball

Ferris comment: Someone once said the first civilized man was the one who called his enemy a son of a bitch instead of trying to kill him. Any verbal attack is, therefore, a civilized one. In the tradition of civilized people everywhere, I respond thus: Up yours.

"You mean that the poor actually have the right to decide what food to buy with the resources they have at hand? What a silly idea! Please don't tell Uncle Sam, he must be too busy bailing out the rich to notice." – Paid-up subscriber Chris

"I noticed your statement regarding Abraham Lincoln being a worse president than FDR in yesterday's Digest. Can you elaborate and/or point us to some other publications that can provide factual details as to why you would say that? It's not that I want to argue with you about that statement, but I am interested in what led you to that conclusion since you seem to do your homework on politics and financials." – Paid-up subscriber Jake

Ferris comment: Lincoln was an American dictator before FDR was even born. Lincoln declared martial law, suspended habeas corpus, shut down newspapers and imprisoned their editors and owners. He censored telegraph communications, used soldiers to tamper with elections, confiscated firearms, ordered military conscription, and initiated income taxes.

Lincoln even deported an Ohio congressman for speaking out against him. In May 1863, Clement Vallandigham denounced "King Lincoln" in a speech. But General Ambrose Burnside, exercising his power under martial law, had issued General Order No. 38, making it illegal to declare "sympathies for the enemy" in the Military District of Ohio. Vallandigham was arrested, tried before a military court (no habeas corpus), and sentenced to two years in prison. Lincoln was afraid the man would become a martyr, so the prisoner was escorted to the Tennessee border and exiled to the South.

Check out The Real Lincoln, by Thomas DiLorenzo. He has a newer book I haven't seen yet, called Lincoln Unmasked. You might also want to check out Emancipating Slaves, Enslaving Free Men, by Jeffrey Rogers Hummel. But I note, Paul Johnson, a historian I admire, shows Lincoln some respect in his excellent book, The American People.

Regards,

Dan Ferris

Medford, Oregon

August 28, 2008

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