THE S&A DIGEST: The Ladies of San Juan del Sur

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

As of 07/05/2013

More on the new telecom boom: Web usage up 90%... a glimpse the U.S. future "casino" economy... "goldbricking" the Saks dividend deal... the angriest reader yet... plus... the ladies of San Juan del Sur...

Before we begin the Turkey Day edition of our Digest, I need to pass along an unfortunate and important announcement from our customer service manager, Lance James:

"Our customer service e-mail system has been down for several days. Centralized IT (information technology services) has been working to fix the problem. But the e-mails are piling up, and with the Thanksgiving holiday here, I fear that customers may get a little perturbed that we have not responded."

Yes, surely they will. And they will send their perturbance to me… as some of them already have.

Alas, like the old Soviet empire, our parent company, Agora Publishing, believes in "centralizing" key functions, such as databases and computer software. It seems that at least once a week, someone responds to a customer need by saying, "We can’t do that – it’s centralized." Now it seems we’re to conduct business sans e-mail. If you need to reach our customer service team, please call us after the holiday.

Please be patient with us while we overcome this latest hurdle.

Kirk Kerkorian is dumping some of his GM stock, selling 14 million shares. Problem: He still owns 42 million shares (7.4% of the company). If the company doesn’t find a merger partner he’ll probably dump more. That’s sure to force GM’s stock down. We’ll probably start to hear GM bankruptcy talk again soon.

What’s Kerkorian buying? The MGM casino. He already owns 56.3% of the company. Kerkorian wants to buy an additional 5.3%. I wonder what that means for the future of our economy? One of our best investors would rather own a casino than the world’s largest manufacturing company. That doesn’t sound right, does it?

The Wall Street Journal says Sprint Nextel (a recent PSIA recommendation) may be the next big target of private equity. I hope not. Our "telecom is back" thesis is only getting started. After seven years of tough times in telecom, we should see the proverbial seven years of boom. Forbes explains what’s driving the bull market: "Thanks to video sites like YouTube, social networking, and online videogame services like Microsoft’s Xbox Live, U.S. Internet carriers saw usage increase up to 90% in the past year." Researcher Infonetics estimates that major telecom carriers will spend $203.1 billion worldwide in capex this year to deal with increasing Internet usage due to multimedia. That’s only up 5% over last year. There’s a lot more to go…

Goldsmith "goldbricked" his latest dividend-grabber idea. Mistaking the ex-dividend date (the day the dividend is paid) for the record date (the day holders of record are credited for the dividend), Goldsmith led me to believe you could still qualify for the upcoming extraordinary Saks dividend. But in fact, you cannot. The record date was November 15. We apologize for the mistake. And Goldsmith will be allowed out of the basement sometime after Christmas.

And now, the mailbag… but before we enjoy today’s gems, please consider dropping us a line, especially if you haven’t done so already. I read every single e-mail that’s sent… and if I get a lot of mail this weekend, it might just get me out of doing the dishes. Send your note here: feedback@stansberryresearch.com

Paid-up subscriber John Parks sends his own version of an oft-heard invective: "Your commentary is voluminous, bordering on drivel… Your driving passion must be to lead people on... but to where? I just don’t know."

At the end of the year, we may have an "angriest reader" contest. And this letter, from David Woodworth, is our current front-runner: "I am compelled by my convictions to at long last unburden myself with my opinions of your writing and your tripe missives... I think that you are a self-hating jackass… your daily missives serve to attempt to quench the apparent unquenchable desire you have to listen to yourself even if it’s in your own head. You appear to be [an] obnoxious social elitist wannabe jackass; your writing reminds me of what a systemic venereal disease must look like during an outbreak… Although I have ample resources to fulfill the financial requirements to go to your "Alliance" meetings to tell you all of this in person, I wouldn’t want to embarrass you in front of your paid lemmings. I detest your writing like poison… Tell me, is your image of self-importance so immense that you could possibly think people are interested in hearing about your dog or what your wife got you for your anniversary? Go back to wasting your time and money fighting the SEC and bugger off… back to your clam bakes and playing with puppy…"

Porter Comment: At the end of his letter, he asked me for a job.

True Wealth-subscriber "Steve" from South Bend, Indiana, puts Steve Sjuggerud in his place… by comparing True Wealth to what looks like a ponzi scheme: "YOU ARE GOOD… but I am involved in online investments that pay me far more… I am in one called Euro trade, out of Europe. [Written without a trace of irony… as far as we could tell.] The owners invest in the Forex and other venues and are easily paying high profits to its very satisfied members. In Euro trade, for an investment of $20 up to $2,000.00, you get paid 1.9% interest on your principle daily. Yes, it’s very real, as I have been withdrawing this money daily. My principle is about $35, and I’m getting about $0.66 daily. YOU ASK IS THIS LEGAL ? Well, the "questionable" part is that it is not regulated... THERE ARE EURO TRADE MEMBERS WHO HAVE BALANCES OF $10,000.00. At that level, they get paid 2.4% interest daily. Many of them are compounding, but some are withdrawing up to $240 per day or less. You should look at this… I do not normally share this with people, but I thought I would show you that you (in all your brilliance) are not as "on top of things" as you may think you are…

Porter Comment: Do the math on what happens if you pay someone 2.4% daily. Then try to figure out whether or not it is possible. Says Sjuggerud: "Anytime you hear the world ‘Forex,’ run. Get away. Nobody calls it ‘Forex’ anymore, except scamsters. Currency trading, yes. Forex, no. Simple rule.

Paid-up subscriber Angela Langlotz agrees with us about Susan Estrich: "I laughed when I read your comments re: Susan Estrich. Having seen her as a ‘talking head’ on more than one weeknight news show, I agree with your estimation of her as a second-rate intellect. I also met her in person once, so I feel qualified to add that in addition to being a tiny mind, she is also not a very nice person."

Alliance subscriber Mark Levin confirms the heavy responsibility we bear: "You have mentioned several times that you know we just read your newsletter for ideas and selectively buy your recommendations. Want you to know there is at least one reader – me – and probably others who buy everything you recommend. The reason is that if I selectively buy the recommendations of a newsletter, I always select the few that go down and not the one that went up 100%. So keep writing and selecting as if your readers were buying every selection."

A very insightful comment from Alliance subscriber Sibella Giorello: "Someone wise once said that writers have to see things in ways that are not just accurate but peculiar. And this is why I enjoy The Digest, and the rest of your newsletters."

Confirming my "belief" that anyone who enjoys our letters are most likely weak-minded drunks, GB writes: "You are my kind of guys. There is nothing better I would like than to sit down and have a Martini with you all. Your comments and humor are great as well as the comments of your humorless irate subscribers. I find your stuff sincere and informative…"

Porter Comment: Have another drink, GB… and renew your subscription…

Alliance subscriber David Williams… who insulted us gratuitously yesterday… wrote back to tell us that we’d mistaken his tongue-in-cheek prose for sincerity. And he added his personal tale of investing. It’s worth a read…

"For the record, I’m not just a Daily Wealth reader but a fully-paid member of the Alliance. More importantly, the price of that lifetime subscription has proven to be the best single investment I’ve ever made. Until I stumbled onto you folks, I was living proof that the best way to make a million in the stock market is to start with two million.

Until February, 2000, my idea of saving for retirement was hard earned money deposited to a CD. Years of diligent saving amassed about $400k to supplement a government pension. I was pretty pleased with myself until all my buddies, then flush with paper gains in tech stocks, started crowing about being millionaires. With 20/20 hindsight, February of 2000 was not the most opportune time to be buying CSCO, MSFT, JDSU and all the other overhyped, overpriced household names in tech. But I jumped in with both feet and quickly became part of the foam blowing off the frothy bubble. It took about six months to cut my small fortune in half. Too old to recoup by saving, I took one speculative misguided flyer after another over the next two years and cut it in half again. For the next two years, the trifling remains just laid there. I experienced some gain each year, but not enough to make retirement an option before my 70-something birthday.

Then I began reading True Wealth.

Dr. Steve showed me how to make the money grow and discouraged me from shooting myself in the head on a daily basis. I was pleased enough to add a subscription to your letter and was equally pleased, so earlier this year I plunked down the price of full admission… The Alliance Membership has already paid for itself more than 8 times over and I haven’t been a Member for a full year yet. I locked in 39% returns on the money I manage through my IRA in the first 6 months after signing up. That’s especially gratifying because that 6-month period included the May-September market correction. These are not paper gains. The 39% is the net gain on positions closed during that period. There’s no leverage in it… Better yet, the profits are running. Open positions all light up green on my Etrade screen…

Thank you. And count me among those who enjoy the Digest. I don’t read it for investment guidance or political commentary. I read it because it gives me a sense about the personalities of the people on whom I now rely for investment guidance. I think that is important and I think I like most of your guys…"

The Ladies of San Juan del Sur

They came in on canes and walkers…

Every old lady in town – literally – was piling into the best restaurant/hotel in San Juan del Sur, Nicaragua. The place, called Pelican Eyes is the high-end hotel in town. It’s also got a world-class restaurant… a rare commodity in Nicaragua.

Within 20 minutes, the entire bar area was filled with charming, dressed-up, female octogenarians. They contrasted sharply with the chic, South Beach-inspired decor. It was as if a granny convention was taking over the hottest bar in town.

We wondered, what was happening? Was the restaurant giving away new hips with each meal? And still they came… Taxi after taxi raced up the hill… only to spend what seemed like hours waiting for the elderly passengers to crawl slowly out of the car and amble into the restaurant.

What they might have lacked in spryness, they made up for in charm. All of the old ladies smiled brightly… with what teeth remained. They were dressed in their finest. And every white dress looked brand new – someone had washed these clothes with care. As anyone could tell, to these old ladies, this was a big event.

The gringos who run Pelican Eyes realized that, to overcome the nearly 100-year legacy of American interference in local politics, they needed to invest heavily in community relations. They funded a foundation that invests in local schools. It makes sure the kids have new uniforms, new books, and a clean place to go to school. Additionally, once a month, Pelican Eyes treats every female senior citizen in the city to lunch. Everyone’s grandmother and everyone’s children are getting something tangible out of the deal. Think the owners of Pelican Eyes are popular with locals? You bet.

Likewise, at the Agora-backed Rancho Santana development, the developers built a local health clinic and continue to fund its operations. They’re involved in financing private homes for their employees too.

The hottest real-estate market in Nicaragua has been around San Juan del Sur. In addition to Pelican Eyes, San Juan del Sur has a booming port that cruise ships visit. It has a gorgeous crescent shaped beach that’s probably four miles long, with elegant new villas built up the cliffs. I imagine Portofino, Italy, must have looked like this 50 years ago.

What’s the future hold for San Jan del Sur now that the Sandinistas have won the country’s presidency? No one can know for sure. But I wonder how many foreign investors realize the town has had a Sandinista mayor for years.

Here’s what the mayor said, in a letter published after the elections:

"As mayor of San Juan del Sur, and a long time member of the Sandinista party, I have a long history of involvement in the Sandinista movement… We have all grown and matured since those early times, realize the mistakes we have made and have our eyes on the future, not the past… My concept for San Juan del Sur is to make it Nicaragua’s premier tourist destination. The recent boom has created unprecedented employment opportunities for San Juanenos… It is my responsibility to protect this investment and encourage its growth going forward… I can assure you that any responsible foreign investment here is as safe as ever… The people of Nicaragua and San Juan del Sur welcome all foreigners and foreign investment with open arms…"

When people ask me about what’s happening in Nicaragua, I tell them that San Juan del Sur’s old ladies are at least as important as incoming Sandinista President Danny Ortega.

Regards,

Porter Stansberry

Baltimore, Maryland

November 22, 2006

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