The S&A Digest: The Anatomy of a Bolivian Deal Gone Bad

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Gore is "insane"... 3M launches a huge buyback... A Bolivian deal gone bad... A bull market in private jets... Verizon gets paid... Graham Summer's hot hand... Isenberg's conference... Lower than a snake's butt... Do we make up those letters?

Signs of a market top... Orders for private jets have reached a record level. Deliveries rose 18% to 885 last year, up from 750 in 2005 and passing the previous record of 782 set in 2001.

More signs of a market top... Goldman Sachs is raising $19 billion for a private-equity fund, the third-largest ever.

Yesterday, 3M authorized a $7 billion share repurchase program – the largest in the company's history – which is planned to take place over the next two years. Doing the math for you... $3.5 billion per year on a $55 billion stock that pays a $1.3 billion cash dividend gives us a $4.8 billion blended buyback/cash yield... which creates an 8.7% blended dividend yield.

PSIA pick Verizon will get paid for its stake in CANTV, the Venezuelan telecom that President Hugo Chavez promised to take over last month. The Venezuelan government will pay $17.85 per share, earning Verizon $572.3 million. The stock was trading around $20 prior to the takeover announcement.

We need to give Graham Summers, editor of our revamped Inside Strategist letter, a hearty and public pat on the back. Of the 23 stocks in his recommended portfolio, only one is down. His housing-rebound recommendation – Goodman Global (GGL), the second-largest HVAC manufacturer in the U.S. – is up 18% in three months.

Inside Strategist was formerly a monthly newsletter. But since inside trading information appears frequently, we decided to publish weekly. And, because insiders often produce great buy signals, we've also added trading recommendations – typically options. Jeff Clark has a well-earned reputation as being our group's best trader... but since last July, Graham has recommended 11 trades. Only one has lost money. And one of his picks – a trade on Titanium Metals (TIE) – doubled in only a week.

I have an invitation for you from my friend David Isenberg. Isenberg is one of the most influential writers and thinkers about telecommunications. His 1996 paper "The Stupid Network" foretold of the rise of IP networks and the demise of the original AT&T. In addition to being brilliant in his own right, unlike most engineers and science-types, David is a world-class human networker. It's fair to say that if you're involved in building next-generation telecom networks, you know him, read him, and have probably been to one of his conferences.

Most of his conferences are strictly invite-only, but he's passed along an invitation for any of our subscribers to join him and a whole slew of telecom bigwigs at his upcoming Freedom to Connect conference, scheduled for March 5-6 in Silver Spring, Maryland, just outside of Washington D.C.

FCC Commissioner Jonathan Adelstein will speak about upcoming Internet policy decisions, and Vermont Governor Jim Douglas will discuss his plans to provide universal broadband access in Vermont. Plus, the room will be full of telecom investors and entrepreneurs (like former FCC member Reed Hundt). If you're in the telecom business or you're an active telecom investor, you'll get a lot out of this meeting. Sign up on the Freedom to Connect website. The price goes up after February 15.

New highs: Diversa (DVSA) and Van Kampen Senior Income (VVR).

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The Anatomy of a Bolivian Deal Gone Bad

This from our friend and gold stock expert John Doody: "... on Friday, February 10, Morales took over the Vinto tin smelter [one of the largest in the world], with the aid of 200 troops... "

At first glance, this appears to be more of what we've come to expect from the latest wave of populist/socialist Latin presidentes. But the details of this story are a bit more interesting than the headline would suggest...

"Glencore owned the 30,000 tonnes/year smelter, having paid $100 million in 2005 to former Bolivian Presidente Sanchez de Lozada for his tin and zinc company, Minera del Sur. The smelter had been privatized in 1996... how it ended up being owned by the former presidente wasn't discussed by the FT article."

The story is even more interesting if you know something about Glencore International's provenance.

Glencore, a private company, is one of the world's largest providers of raw materials (metals, crude oil, coal, agriculture). Former U.S. fugitive Marc Rich founded the company. You'll recall Rich as the commodity trader and accused tax evader who was pardoned by Bill Clinton on Clinton's last day in office.

Although Rich sold his stake in Glencore in 1994, the company has long specialized in dealing outside the law. According to the CIA, it was a major player in the U.N. oil-for-food scam and has long been a supplier to rogue states, including the former U.S.S.R., Iran, and Iraq under Saddam Hussein.

Today, Glencore's two senior executives, Willy Strothotte and Ivan Glasenberg, are on the board of mining giant Xstrata – Willy Strothotte is chairman. Glencore is thought to own 40% of Xstrata's common stock... which makes Xstrata a very interesting company to watch in the mining world. It's publicly owned (traded on the London Stock Exchange: XTA), so you can keep an eye on it.

It's fair to say its management team is "plugged in" to every two-bit dictator in the world. And those are the kind of people who run the countries where most mining is done... which gives Xstrata a substantial competitive advantage.

This time, though, it seems dealing with third-world political crooks cost Glencore $100 million.

Regards,

Porter Stansberry

Cockeysville, Maryland

February 13, 2007

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