The S&A Digest: The perfect hedge

The perfect hedge... Stansberry didn't make the cut... George Soros returns... A video for Ron Paul... Davos is gloomy...

Goldsmith comment: Porter is tied up in meetings all day, so he threw The Digest to me...

 Buffett on the move... Berkshire Hathaway today bought a 3% stake in Swiss Reinsurance, the world's biggest reinsurer. Buffett has been hot on insurance in the past month. He recently received a license to start a bond insurance company in New York and bought a reinsurance unit from ING for $440 million.

 Insurance companies are the backbone of holding companies like Berkshire Hathaway. They take in tons of cash in the form of premiums, which sit on the balance sheet as "float," until they are paid out as claims. In the interim, managers like Buffett can reinvest the cash to produce excellent returns for shareholders.

 Buffett is buying insurance companies now because they are the perfect hedge against inflation. They collect premiums in today's dollars and pay claims over time in inflated dollars.

 Porter recently recommended several other companies poised to flourish in today's inflationary environment. These elite groups are known as Secret Investment Societies. To learn more, click here...

 Forbes just published its list of the 100 best companies to work for in 2008, and once again Stansberry & Associates somehow missed the cut. Instead, Google snatched the No. 1 spot. The company gives stock options to 99% of employees, offers subsidies for buying a fuel-efficient car, provides a free shuttle service to and from work, and has 17 on-campus cafeterias, where employees eat free. What's on the menu? Mac and cheese with wild mushrooms, duck confit, and truffles is one dish.

 Goldman Sach's $661,000 average annual salary is well-publicized. But it turns out the legal profession beats Wall Street. Law firms took the top three spots for highest starting salaries. The top firm, Bingham McCutchen, pays first-year lawyers more than $211,000.

 "The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency... Now the rest of the world is increasingly unwilling to accumulate dollars," George Soros said yesterday at the World Economic Forum in Davos, Switzerland.

Any time we mention George Soros, our inbox floods with enraged rants... We'd like to remind you, we have no interest in Soros' political agenda. We cite his thoughts because he is a brilliant hedge-fund manager.

In this case, the dollar's share of foreign reserves has reached a record low of 63.8% as of the third quarter of 2007, down from 65% three months earlier.

 Soros wasn't the only bear at Davos... For the first time in 11 years, CEOs now fear a recession more than terrorism and regulation. Only 35% of U.S. executives said they are "very confident" about growth, down from 53% a year ago.

 Don't worry, Steve tells you how to profit from fear in the markets in today's DailyWealth.

 New highs: Annaly Capital (NLY), MFA Mortgage (MFA), Chunghwa Telecom (CHT).

 Tell us how much you hate us for mentioning George Soros here... feedback@stansberryresearch.com.

 "I think we might be headed into a period of stagflaton. I believe that the last time we had a protracted period of stagflation was in the 1970s. I would love to see a comparison of winning and losing sectors of the market during this period of time, similar to the one you did for the dot-com recession in the 1/22/08 edition of the S&A Digest. I've tried to do it myself but cannot find market data that goes back that far. I'm sure S&A has access to such old data. I realize that there are market sectors today that didn't exist back then, but I'm quite sure that you could assemble an informative comparison." – Paid-up subscriber Bill Neeley

Goldsmith comment: Stay tuned, Bill. We have our resident quant, Ian Davis, working on something for his regular Tuesday Digest essay that should answer your questions...

 "Porter, you have cost me a lot of money! I first heard of Dr. Ron Paul through your newsletter. Because you are a straight shooter (love the 'letters' from the chairman of GM), I did my due diligence. Dr. Paul's message is clear. We MUST get government off our backs and out of our lives. The intrusion of the Federal Reserve into our supposedly free markets has a lot of unintended 'blowback,' which we are reaping today. We need to just bring the troops home. I have watched the 'avaroth' and other excellent supporter-created videos on YouTube, and challenge your readers to do the same. You will come away changed. Dr. Paul is my hero and my inspiration. If he can mount the stamina to fight for my liberty at age 72, I have no excuse. So how has it cost me? Money, of course. Now that I have heard the message, I am compelled to contribute. Thanks, Porter, for telling me about this amazing man. I am now one of his sign waving, fans." – Paid-up subscriber Naomi Johnson

 Regards,

Sean Goldsmith

Baltimore, Maryland

January 23, 2008                                                                                             

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