Triple-A "bonds" yielding 22.91%

Triple-A "bonds" yielding 22.91%... Hallmark celebrates the bottom... Short selling way too popular... The 'flation question... "There's no more Wall Street"... The "pink slip party"...

One of the worst habits investors indulge in is "looking in the rearview mirror." In other words, people tend to base their expectations on events of the recent past. Stocks fall, and people fear they'll fall more and stay down for years. Stocks rise, and people expect them to rise forever.

Right now, the recent past contains the worst bear market since 1932. So inexperienced investors and other mere mortals are utterly terrified of buying stocks – a huge mistake.

I'm not talking about speculating on highly cyclical stocks. I'm talking about buying the world's best businesses at cheap valuations, sitting back, and watching them compound your capital at arm's length from the tax man, year after year, for decades. Buying world-dominating businesses and holding them should be the core of your stock market strategy.

In the next issue of Extreme Value, I'll show you a list of six world-dominating stocks that are unlike the vast majority of stocks. The equities of these businesses are more like bonds, yielding between 10.49% and 22.91%. Five of these equities are rated triple-A... and their "coupons" actually grow.

A triple-A bond with a coupon that grows is the ultimate investment fantasy. But these six stocks are no fantasy. They're real. You can subscribe to the next issue of Extreme Value, and get access to the names of these triple-A "bond-like" stocks, by clicking here. If you're scared to buy stocks, you'll be confident buying these six great businesses.

Possible sign of a bottom? Hallmark added its first holiday card intended for clients to send to their financial advisers. "There's an important relationship there, even if it's not the same level of warmth I have toward my sister," says Hallmark Vice President Cindy Mahoney.

Jim Chanos, manager of the short-selling hedge fund Kynikos Associates, touted his book this morning on CNBC. Chanos said he's out of the auto space (good move, considering yesterday's announced $15 billion bailout of the Big Three). Now, he's looking at companies that could suffer from political changes. He says the for-profit education business – Apollo Education and ITT Education are two main players – is "rife with potential" problems. These stocks are trading near their highs, but the value proposition isn't good.

"Outcomes at these for-profit educators are not much better than the average community college, which is free," he said. People are leaving these schools with up to $70,000 in debt and no better prospects of getting a job. He's also adding to his short position in health care companies, whose margins will be squeezed under an Obama presidency.

Chanos is taking advantage of the recent rally to add to short positions in cement companies, homebuilders, and construction and engineering firms. For the latter, he noted that in good times, three to four companies would bid on a state contract. Now, you're seeing 12. And working for the government is "not the most lucrative thing in the world." The margins are a lot lower than "putting up a new tower in Dubai."

Chanos said he's bullish on corporate credit, particularly "senior papers yielding well into double digits." He closed the interview by saying private equity will be the "appointed villain" of 2009. You'll see a disproportionate number of layoffs in the sector. Private-equity firms haven't yet marked to market some of their assets, and many of them had no hedges. They were leveraged long, and things will come crashing down quickly.

When a strategy as notoriously difficult and unprofitable as short selling is popular enough to get a short-only hedge-fund manager invited back on TV week after week, you have to ask yourself if it isn't time to buy with abandon.

In his Mind Matters research note, James Montier of French banking giant SocGen observed today the current price of inflation-indexed Treasury securities implies "nearly 10 years worth of outright deflation and truly massive deflation in the next couple of years!"

Montier's observation suggests what we've been saying: This situation can't last. In our system, inflation is the long-term risk. Short periods of deflation create opportunity. Get this wrong, and you may as well light your money on fire.

In a Bloomberg interview, 61-year Wall Street veteran and former Bear Stearns CEO Alan "Ace" Greenberg declared the investment-banking model broken. "There's no more Wall Street," Greenberg said. "That model just doesn't work because it's at the mercy of rumors." Greenberg thinks the only survivors will be those institutions that focus on merger-and-acquisition advisory as the need for independent opinions grows. He argued rumors about banks become self-fulfilling prophecies, as evidenced by Lehman Brothers and Bear Stearns... But these banks could have handled the crisis had they been more conservative in lending and had they not leveraged themselves by more than 30 to one.

Many of those once employed in the fine art of leveraging 30 to one gathered in a "cavernous Manhattan bar in November" for Wall Street's first "pink slip party." The event drew together unemployed Wall Street bankers and recruiters, lubricating the situation with $2 Budweisers. "Since the beginning of the credit crunch 16 months ago some 195,000 financial workers have lost their jobs... the population of a medium-sized European city," the Financial Times reported.

More than half of all homeowners who had their loans modified to make payments more affordable in the first half of the year are already in default again. Federal Deposit Insurance Corp Chairwoman Sheila Bair said, "The quality of the [modifications] are not what they should be." We have to wonder, how high could the quality of the modifications ever be on loans that should never have been made.

New highs: none.

In today's mailbag... an assault on Andrew Days. Weigh in at: feedback@stansberryresearch.com.

"Andrew Day – buzz off and enjoy not having your business reading time wasted with the odd deeply personal message from an analyst. But didn't it take more time to think up and write your graceless insult as it would have to quickly skim through the message and decide it was of no interest to you because it was personal?" – Paid-up subscriber Chris

"Aside from the valuable financial education I've received from reading your work(s) over the years (a discussion of profits would be indelicate at a time like this), I find one of the things I enjoy most is the personal touch you all seem to employ. I also take a certain satisfaction in reading Porter's work when he DRILLS some heartless so and so like Days. Any of your crew ever in the St. Louis, MO or Springfield, IL area, call me. We'll find you a good steak and a cold beverage of your choice. My treat.Should Mr. Days ever care to visit, I'll happily introduce him to an old-fashioned mid-west ass whoppin'! My time is also valuable, but in either case, I'll happily make time.Buying all they way down and all the way back up, and once more, condolences to Dr. Sjuggerud. The world always seems somehow poorer when we lose a man like Dave." – Paid-up subscriber Steve Heitzig

"The passing of your dad could only have been sweeter if he were able to complete the triathlon. At the time of the accident, if he was given the time to have his life, as they say, flash before his eyes, I can only imagine the pride he felt cheating death as he had. How awful if he would have passed during surgery. That would have been life denied. There is so much to be said about going out at the top of your game. Smile, he passed away a winner. That's grand.

"Andrew Days: You're a putz. Please tell me someone forced you to read the mailbag portion of S&A Digest. I don't need a disclosure statement to know the 'mailbag' is not part of The S&A Digest to be considered 'an investment advice advisory.' I suspect you were pulled into the story as I was. The difference is you were unwilling to be uplifted by a story that I, by the way, refuse to consider sad. In your heart, I know you realize that making a living, 'to have these (sic) kind of times with my dad and with my children' is exactly what Steve's dad did not do. He lived his life in a way that became the 'time.' I want to be that lucky." – Paid-up subscriber Bambi Blackman

"I'd like to donate $100 toward refunding Andrew Days subscription fee so that his name can be stricken from your database to ensure he never gets another recommendation from S&A. I can't believe that anyone would think like that, much less put it in writing and sign his name to it. If you would like to print this comment I will invite other members who are as offended as I am to offer the same. This man is obviously a very cruel and self-centered person. My heartfelt condolences to Steve and his family. I am an orphan now, so I can feel your loss" – Paid-up subscriber Larry Heatley

Regards,

Dan Ferris

Medford, Oregon

December 9, 2008

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