The S&A Digest: Refiner Recap

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 06/26/2013

A correction for refiners... The monkeys are still in charge... Subprime crisis not so bad... Miners are bearish on gold... Seeking the "Income Rich"... A poll test for candidates?... You can make 15% per month...

We wrote it, did you buy it?

EBay's stock fell apart because of idiotic acquisitions, including the company's $2 billion purchase of Skype, a free Internet calling service used almost exclusively by adept Internet consumers. What do free Internet phones have to do with the world's leading auction website...? Exactly nothing, which is the whole problem... I think eBay's franchise, the growth of Internet auctions, and the network effect will continue to drive eBay's cashflow at a shockingly rapid pace. And, sooner or later, eBay's "idiot" management team will be replaced or will redirect the cash spigot into share buybacks and dividend payments rather than useless acquisition sprees... Think of it this way: even though it's run by monkeys, eBay's core business is one of the best in the world. Imagine what the stock will be worth when it's not run by monkeys anymore.

– PSIA, September 2006

Yesterday, eBay announced it would take a $1.43 billion charge against profits related to Skype. Shares of eBay gained 1.6% on the news and closed at a new high. The market believes the monkeys have at least been chastised. Subscribers have seen a 39% gain in eBay's shares since it was recommended.

If you totaled up all the money that's been wasted by public companies making hugely overpriced acquisitions, I bet you'd have enough money to make a serious dent in the national debt. CEOs who write down billions on failed acquisitions should be subjected to public humiliation – tarred and feathered, put in stockades in front of the stock exchange, or made to run through town naked so everyone could pelt them with rotten fruit. Most of these people are utterly shameless... and continue to be paid millions per year.

This from one of our top researchers, Mike Palmer. "Are you 'Income Rich?' We're looking for investors who've figured out how to make enough income from their investments (using things such as stock dividends, bonds, income trusts, master limited partnerships, utilities, etc.) to pay their living expenses... and more. If this sounds like you, we'd love to hear the story of how you did it and possibly use it in a new special report we're preparing. This report will include details on the best ways for investors to maximize investment income. If we use your story, you'll get a free copy of our upcoming report, which will be published in the next few months."

Contact Mike Palmer (mpalmer@stansberryresearch.com) if you are interested in telling your story. Keep in mind: We value your privacy and will NOT publish your real name.

The subprime crisis didn't hinder debt sales as much as everyone thought it would... Despite the talk of banks sitting on billions of unsold debt, investment-grade bonds are on pace to hit a record $1 trillion in sales for 2007. High-grade bond sales reached $94.2 billion in September – a record high. The subprime mess did greatly decrease investors' appetite for risk, however. Third-quarter high-yield bond issuance fell 70% from last year, making it the worst quarter since 2002.

12% Letter pick Citigroup (C) is continuing its foray into Japan. The biggest U.S. bank announced it will purchase the remaining 32% of Japanese broker Nikko Cordial for $4.6 billion in an all-share deal.

Another interesting observation on gold: Large commercial gold traders (big mining and jewelry companies) are holding their highest short positions in the futures markets in more than five years, while hedge funds have the highest net long position. While you can't necessarily trade on this news, it is worth noting that gold miners are cashing in on the high price of gold, and hedge funds continue piling into the long trade. With gold running from $680 to $740 in a month, we wouldn't be surprised to see a big shakeout in the next few weeks.

We know Americans would never submit to any kind of poll test. Mob democracy rules in this country. If you can breathe, you can vote. The result isn't surprising: The Democratic presidential candidates are each promising larger cash bonuses to the "middle class" if they're elected. So, seeing as how it's too late to reform the electorate, perhaps we should insist that the candidates themselves pass some form of poll test to be qualified for office. Do the politicians who represent us understand the basics of economics and history?

Not in Michigan, they don't. Dealing with one of the weakest economies in America, the leaders of Michigan last year passed a new 4.95% corporate income tax. Then, around 2 a.m. Monday morning, they increased the state's income tax and initiated a new 6% tax on "business services." If they were trying to increase Michigan's unemployment rate (one of the highest in the country) and discourage investment in the state, they'd be right on track.

It's a long list of new highs: Advisory Board Company (ABCO), Provident Energy (PVX), Aracruz Cellulose (ARA), BHP Billiton (BHP), CGG-Veritas (CGV), Covance (CVD), eBay (EBAY), FLIR Systems (FLIR), streetTRACKS Gold (GLD), Google (GOOG), Gen-Probe (GPRO), Coca-Cola (KO), McDonald's (MCD), Arcelor Mittal (MT), Nokia (NOK), Oakley (OO), Occidental Petro (OXY), Petrobras (PBR), Park Electrochemical (PKE), POSCO (PKX), PetroChina (PTR), Raytheon (RTN), Verizon (VZ), ExxonMobil (XOM).

In the mailbag: Can you make 15% per month in Forex trading? Of course you can. And if you fall asleep before Santa arrives, you can get presents for free, too... Questions? Comments? Send them here: feedback@stansberryresearch.com.

"...I really need a broker I can deal with one on one..."

– Paid-up subscriber Martin

Porter comment: We don't "recommend" brokerage firms for a couple of reasons. First, as we don't accept referral revenue, we have no reason to take on the liability of making such a recommendation. Secondly, we're not set up to perform due diligence on firms. And third... we simply don't want to be in the referral business – it's just not what we do.

However, as a service to our readers, we do pass along the contact information for two brokers we know well. The advantage of using these firms is they know enough about our products to help you decide how to best use them, and they will be able to trade the things we recommend – even the hard to find stuff, like Icelandic bonds.

First, there's Steve Sjuggerud's father's outfit – Key Investment Group. You could talk to Dave, Howard, or Sam at 877-539-1004. Obviously, we've known these guys for a long, long time and we believe they treat our customers well. Having said that, your decision to do business with them is your own.

You could also try Jeff Winn at International Assets (800-432-4402). We've known Jeff since our days at the University of Florida. He was Sjuggerud's college roommate, and Steve worked with Jeff as a broker immediately after college. Again, while we obviously trust and admire Jeff, we do not warrant or endorse his service. Your decision to do business with Jeff, or any other broker, is completely and totally up to you.

"The French must be jumping up and down in the streets with joy. For years they have been wanting to see the fall of the mighty USA and the US dollar. Well, they got their wish. Now, they have to live with their granted wish. As a result, their problems are many. The cost of French wine is going higher, and they will have even more wine to turn into ethanol because exports have fallen. The Air Bus factory might just as well close up now instead of draining the French treasury. After the Euro went past $1.38 Boeing gained a commanding price advantage. Boo-hoo, the poor French sometimes deserve what they wish for." – Paid-up subscriber Larry

Porter comment: I'm sure the French don't mind watching Americans become steadily poorer... Also, having lived in France and admired the outstanding quality of even the typical low-cost bottle of French wine, I very much doubt anyone will use Bordeaux to power his car.

"I was called this week by a sales rep for a group that said they were consistently making their clients 15% a month in Forex trading. He said the cost to join their program was just $4995, and I could start with an account as small as $2500. They would pool the money and do all the trading for me. He assured me that after just a few trades, when I saw how much money I was making, I would surely want to invest more. In fact he told me that he would personally call me back after the first few trades to say 'I told you so' and allow me to increase my account. (The word 'ponzi' came to mind). I desperately wanted to believe him, but it seemed to me if they were really making this kind of money, people would be beating their doors down to get in. Why would he be so desperate to get me and my measly $2500 account? When I told him I just didn't have the $4995 to join, he offered to lower it to $4500. He assured me I could just put it on my Credit Card as many of their clients had. When I told him I didn't have that much credit left on my card he urged me to call my CC company and ask them to raise my credit limit. He offered to call back in 20 minutes after I talked to them. He was so eager to get me signed up TODAY (so I could start making money right away). Maybe I'm passing up a great opportunity, but it smells too fishy to me. Sadly I'm certain that lots of people are going to buy into this program (and loose a lot of money). Do you think the government should go after hucksters who rob people of their life savings? Or do you think we all need to take personal responsibility and learn to 'just say no' to ANYONE who makes wild claims like 'Triple-digit gains over the next few months' or 'almost impossible to lose money on this deal.'" – Paid-up subscriber Robert Johnson

Porter comment: I don't think the government should be in the business of protecting people from themselves. I know in this day and age that opinion seems hopelessly naïve and old fashioned. Without the War on Drugs, for example, all of our children would be hooked on crack. Without the War on Poverty, nobody would have the gumption to get a job. (I love what Doug Casey says about the War on Poverty: "The poor lost.") The statists claim without the alphabet soups of government agencies to regulate us all (OSHA, FDA, SEC, FDIC, FCC, etc.), no business would provide a safe and reliable product for its customers. I don't believe that's true – and I don't know any businessmen who believe it's true, either. Sure, some businesses aren't reputable and try to rip people off... but that's a fact of life. No amount of regulation is going to change that fact. If people didn't put so much trust in regulation, perhaps they'd simply be a lot more cautious – which seems a far more effective and efficient way to run bad businesses out of business.

In regard to financial schemes in particular, if you're foolish enough to believe anyone can consistently earn 15% per month with any trading program, you're probably not qualified to live on your own. A fool and his money are quickly parted, government regulations notwithstanding.

"I am a two-time Gator and represent condo and homeowner associations in Tampa Bay, FL. I have been in practice for 26 years and have never seen the volume of foreclosures that are flooding into my office. Even more stunning is our own collection and foreclosure practice. It seems incredible that people do not realize that they can lose their homestead by not paying a few hundred dollars a month or even per year. I guess people can live in their cars, but can't drive their homes to work, if they have it. Our collection and foreclosure practice has tripled or more since 2005, the end of the boom. What is more interesting is that the associations are wiping out all of the second mortgagees who slapped the 20% mortgages on to close the deal. The firsts may see 60-70% of their money eventually, but the seconds are gone."

– Paid-up subscriber Bob Tankel

Regards,

Porter Stansberry

Baltimore, Maryland

October 2, 2007

Refiner Recap

By Ian Davis

Four months ago, Wall Street loved U.S. refiners... and yet, I warned my readers in the June 4 Digest to "watch out."

I made the bearish call because things couldn't get any better for refiners. They were making money hand over fist and had become the darlings of Wall Street.

You see, the crack spread (the amount of profit that a refiner earns by "cracking" a barrel of oil into diesel, gasoline, or some other refined product) was near all-time highs.

That's because the price of refined materials – like diesel – had soared in relation to crude oil... fattening refiners' margins.

But unfortunately, when things can't get any better... they can only get worse.

The following chart shows Valero Energy, the largest U.S. oil refiner. Valero is down 12.7% since we saw a peak in the crack spread (measured here by the price of diesel compared to the price of crude).

Valero Down 12.7% Since I Said "Watch Out"

Since my Digest essay, the crack spread has fallen, and Wall Street's rosy expectations have faded. Though Valero is still not a screaming "buy," the worst of the fall is most likely over.

Good investing,

Ian Davis

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