The S&A Digest: The "chairman" was right

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

As of 06/17/2013

The "chairman" was right... Harvard MBAs... Goldman's accounting... Winters' picks... Casey on OBAMA!... Sjug's folding surfboard... A bunch of thugs...

You might recall our controversial letters from the "chairman" of General Motors. He kept telling us things were going sour for America's leading carmaker at a far faster pace than anyone outside the company realized.

He was telling the truth: This morning, GM announced a $15.5 billion loss, including a $6.3 billion operating loss and a $3.6 billion cash loss. Sales fell 20% year over year in North America. Officially, chairman and CEO Rick Wagoner says he's still "comfortable" with the company's liquidity. Meanwhile, the company's CFO tapped GM's $6 billion revolving credit line for the first time, drawing $1 billion.

We're counting on getting another letter from the "chairman" on Monday. Don't miss it.

Interestingly, Rick Wagoner, like the guys from Enron, got his MBA from Harvard. It would be an interesting research project to figure out how many Harvard MBAs have directed billion-dollar-plus companies into bankruptcy...

After GM goes bust (we'd bet by the end of this year), which company's "chairman" will start sending us private letters?

We know Goldman Sachs has a few secrets to share. The giant Wall Street investment bank has had a negative cash flow since 2001. And the cash losses have been enormous – roughly $200 billion. Goldman reported a $68 billion cash loss in 2007. Meanwhile, the firm keeps reporting record earnings, mostly from its trading positions...

But no one outside the company really knows how it does it. How do you earn profits but consistently lose cash? And if you're really making so much money with all of your smart trading, then why do you need to borrow so much money each year? (In 2007, Goldman added $80 billion in debt.) The constant cash losses and additions to debt have taken the firm's leverage from the mid-teens to the high 20s. And the move has sent Goldman's interest costs through the roof. It's now paying over $40 billion a year in interest.

David Winters, CEO of the value-focused Wintergreen Fund, is finding value and growth abroad. He owns shares of Schindler Group, a Swiss escalator and elevator manufacturer. Half of Schindler's revenue comes from maintenance – an incredibly steady business. Winters also holds Norwegian bonds. He said the country has 4.5 million people, a lot of oil and gas, an entrepreneurial culture, and is very solvent. It's a "safe place to put some money for a little while," said Winters.

In a new low for the airline industry, U.S. Airways will start charging for coffee and sodas. But if you don't want to pay it, you probably won't have to... The flight attendants are trained to give them away if it will end a confrontation.

At least someone is making money in financial stocks... Merrill's CEO, John Thain, bought 500,000 shares of stock in Tuesday's offering at $22.50. With the stock closing at $26.65 yesterday, he's up over $2 million on paper. And that's on top of the $64 million he got for taking the top position.

Doug Casey handicaps the presidential race (like me, he's taken to using all caps when it comes to OBAMA!):

I suspect OBAMA! will be our next president. My main reservation in saying so is that I haven't been a great handicapper of U.S. political races. I just don't have my finger on the pulse of Boobus americanus; as cynical as I am about politics, I'm not cynical enough. In moments of realism, I've come to recognize that if I like someone, the average American will probably hate him; and if I dislike him, the mob will probably love him.

This year I wonder how anyone could like any of the candidates for president. The left wing of the Demopublican party offered a choice between OBAMA! and Lady Macbeth. The right wing of the Republicrats offers a tired, hostile, mildly demented old man. You'd think that out of 300 million people, there would be a wider choice.

New highs: H&R Block (HRB), Plum Creek (PCL).

In the mailbag... Sjug the gear-head and more on taxes. Anything to contribute? Send it here: feedback@stansberryresearch.com.

"Thank you, Dan, for a very honest confession [in yesterday's Digest] of how you approach investing. Actually, it isn't anything new that you haven't been saying for years. Nevertheless, the single most important reason why I chose to become an Alliance member is the clearly evident honesty of the writers who choose to be associated with Stansberry & Associates." – Paid-up subscriber Edward J. Parker

Porter comment: Dan is honest to a fault. He tells me stuff I don't want to hear all the time. But if it's possible, Steve Sjuggerud is even more honest. Let me tell you a little story about Sjug, who I've been a close friend with for more than 20 years...

About five years ago, we went to Nicaragua to speak at an International Living conference and surf. Sjug is a gear-head. He loves gadgets and toys. He has an entire garage filled with water toys like surfboards, surfing kites, paddleboards, windsurfing rigs, etc. I don't even buy surfboards anymore – I always let Sjug buy them for me. As with his financial research, I know Sjug has already run all the numbers, and I'll be getting the very best board for the money.

So, on this trip, when Sjug told me not to bring anything, I wasn't surprised. "Porter, I've got it all worked out. You know how the airline charges us $300 for each surfboard? Well, I found a surfboard you can fold in half. You put it in a case that you can carry under your shoulder. It looks like a drafting table, not a surfboard."

I didn't protest – Sjug usually delivers great equipment. But I had strong doubts. Surfboards must withstand enormous pressure. They take the full force of big waves pounding them into the sand. And we're not little guys. We were going to be standing on top of these things, hitting them hard when we do certain maneuvers. How could a board be structurally sound if it was broken in the center, so it could be folded? And how would you keep the hinge sealed? If water got inside the board, it would eventually sink.

So we show up at the Continental gate early to catch our predawn connecting flight to Houston. I've got a carry-on bag. Sjug's got a carry-on bag and his "drafting table." The clerk asks us if we have any luggage to check. Yes, says Sjug, one bag. He brings it up from underneath his shoulder.

"Is that a surfboard?" the woman immediately asks us.

Sjug puts his head down in resignation and says, "Yes."

"OK... That'll be $300 please."

On the way home, the same thing happened. We spent $600 to take Sjug's amazing folding surfboard to Nicaragua. And guess what? The thing leaked like a sieve the whole time. You had to take it to the beach and drain it about every 30 minutes.

"Porter, re your response to John Diekmann 'you've got to equalize the rate of tax on all the voters.' Don't you think it is more appropriate to state 'you've got to equalize the AMOUNT of tax on all voters" (not the RATE), i.e. someone earning $1,000,000 per year pays $5,000 in taxes per year and someone earning $50,000 also pays $5,000 in taxes per year? A govt service is like any other service. All pay the same amount for the same service." – Paid-up subscriber Steve Riley

Porter comment: I'd prefer the federal government not have the ability to directly tax citizens at all – as was the rule before 1913. But I don't think you go from here to there. I think you have to start with at least agreeing the government should treat every citizen, rich or poor, equally. And that, at the very least, means equalizing the rate of tax for each citizen. And this is already part of our constitution; it should be possible to change with a lawsuit.

"Mr Stansberry: You couldn't be more wrong than to make a comment in your S&A Digest piece. Without Roosevelt's actions lumped together as the NEW DEAL, there would not have been a USA to fight the second world wor or do anything else, because it would have a different name, but not the USA. The hopelessness of the 30s, the fear and lack of hope were palpable, and I was but a kid. There was no safety net, and we were at the mercy of the heartless capitalists who didn't give a damn about their workers or their plight. I suspect you didn't personally experience that period of very near collapse of the country. Without FDR's social programs, feeding programs, WPA, and the CCC, there would have been anarchy. I think you should go to the Roosevelt museum in Hyde Park, NY, to see first hand the photos, and other reminder of the desperate times of that period. You would be well served by toning down your rhetoric, and thinking through the your attitude about the past president you love to hate. The current occupant has done far more damage to this country than Roosevelt." – Paid-up subscriber S. Dwight Woods

Porter comment: If what you say is true, that the government is here to help us – and without it, we'd all starve and be destroyed – then why, I wonder, does the government require force to coerce its citizens to support it? Why not allow us to choose whether or not to pay taxes?

And if capitalists are as "heartless" as you claim, then why does every businessman in the world rely only on persuasion to earn his profit? No one will ransack your home at dawn, put a gun in your face, and throw you in prison if you refuse to shop at Wal-Mart. Our government – like every government – is nothing more than a bunch of violent thugs. You'd have to willfully ignore the entire history of our country, since FDR came to power, to believe otherwise. (I'd suggest you start with Legacy of Ashes, an excellent book on the history of the CIA.)

Regards,

Porter Stansberry

Baltimore, Maryland

August 1, 2008

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame