Making Zell proud

Making Zell proud... Jeff's "free money trade"... The labor numbers are out... A steel shortage... Rogers still buying commodities...

Sam Zell would be proud... Europe's biggest bank, HSBC, is repurchasing its headquarters in London's Canary Wharf from Spain's Metrovacesa SA, 20 months after selling the building. HSBC will buy the building for 838 million pounds after selling it in April 2007 for 1.09 billion pounds – London's most expensive single-property transaction. Metrovacesa's 800 million-pound loan came due on November 27, and lenders wouldn't extend the note due to a 32% drop in London commercial property. So Metrovacesa had to sell. HSBC will book a $368 million profit from the turnaround. You can find great opportunities when sellers are desperate.

The Labor Department released November employment numbers... Payrolls dropped by 533,000, the fastest pace in 34 years. The losses exceeded all 73 forecasts in a Bloomberg news survey. The jobless rate rose to 6.7%, the highest since 1993.

Lakshmi Mittal, CEO of the world's largest steelmaker, ArcelorMittal, said he may increase output next year if "very low" inventory levels lead to a rebound in demand. All of the steel giants – including Russia's OAO SeverStal, Corus, and Extreme Value pick POSCO – have cut production as demand from carmakers and builders has plummeted. Worldwide crude-steel production dropped 12.4% in October. "We cut output by 35%, and it was very aggressive for us," Mittal said. "I don't think there will be an additional production cut."

Mittal and Jim Rogers are on the same page. Rogers was in Miami yesterday, touting the advantages of commodities again. He says the fundamentals of commodities are "unimpaired," and prices will rebound when a lack of supply leads to shortages. "Commodities will be the place to be if and when we come out of [the downturn]," Rogers said. "The only thing where fundamentals are unimpaired are commodities. Farmers cannot get loans for fertilizer now. Nobody can get a loan to open a zinc mine. So we are going to have some serious, serious supply problems before too much longer."

Rogers also said crude oil and agricultural commodities are the most likely to have shortages. "I haven't sold any commodities since the bull market began." And as we've been advising you to do, Rogers is still buying gold. "I own some gold, and if gold goes down, I'll buy some more. And if gold goes up, I'll buy some more," Rogers said. "Gold during the course of the bull market, which has several more years to go, will go much higher."

You may be tired of Rogers' preaching about commodities, but his conviction is part of his genius. Rogers isn't afraid to wait for a great opportunity. He's been buying commodities for years... And he's been shorting investment banks for years. When he finds a good trade, he takes a big position. As his now-famous quote in Market Wizards attests: "I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up."

Well, right now, oil markets are a "free money" situation. The difference between the spot price of oil (what you pay for physical oil today) and the futures price (what someone will pay for that oil in the future) widened to $13.50 a barrel yesterday – the largest spread since U.S. oil futures started trading 25 years ago. If you've got a few million sitting around, you can buy physical oil and store it (which costs around $1.60 per barrel per year), then sell the futures and capture the spread. When the contracts come due, you hand over the oil. It's a no-brainer trade.

Spreads shouldn't be this wide, but the financial crisis has kept traders from taking advantage. Usually, hedge-fund buying would diminish the spread – hedge funds would buy the oil, pushing up the spot price, and sell the futures, driving down the futures price. But no banks will loan money to buy oil... They're afraid the price will fall.

Jeff Clark has discovered another way to make "free money" by selling covered calls. This strategy involves buying a low-risk value stock at a bargain price and then selling someone else the right to buy the stock at a higher price. And right now, with stocks so beaten down and option prices so expensive, you can lock in huge returns.

The market literally has dozens of opportunities to make free money right now. Jeff just told his Advanced Income subscribers about a 120-year-old company trading at less than five times earnings and paying a 7% dividend. Selling covered calls on this stock will generate a 13% return over the next six weeks. This is your last chance to get in on Advanced Income before the price goes up. If you'd like to learn more, click here...

New highs: none.

We're taking a break from the mailbag today to bring you this personal essay from Steve Sjuggerud. Porter returns to The Digest Monday. Send him an e-mail here: feedback@stansberryresearch.com.

Regards,

Sean Goldsmith

Baltimore, Maryland

December 5, 2008

The Best Man I Ever Knew

By Dr. Steve Sjuggerud

James Bond would have been proud of the resume compiled by The Best Man I Ever Knew: He was an astronaut semifinalist and Navy test pilot. He flew in Vietnam. He was an all-state basketball player in high school, and he played offense and defense in the college football national championship game, catching passes from future Hall of Fame quarterback Roger Staubach.

The thing is, it was a long time before I learned this stuff about him. Mostly, I just knew him as "Dad."

Here's what I knew: When my brother and I got into soccer, Dad was our coach. When we got into rowing crew in high school, Dad headed up the rowing club. And when I got into finance, Dad left his career in aerospace and got into the investment business, so we could talk every day.

Dad just died.

He died from injuries suffered in a bicycle accident. He was training for a triathlon he was going to do with me and his grandson. We were each going to do one part of the event.

The fact that Dad rode a bike in itself is remarkable... You see, a year ago, his heart was so weak a heart surgeon told me there was no point in operating – my dad's case was hopeless and he would be dead soon. Clearly, this heart surgeon didn't know my dad...

Dad worked hard to get back in shape. He didn't miss a single day of exercising, rain or shine. He lost more than 100 pounds in the last year. He never quit.

Dad may have been a lot like you. He came from a small town – Menomonie, Wisconsin. He had no money growing up. He wanted to go to college. But how was he going to pay for it? He had a single mom who worked in the kitchen at the hospital and four older sisters. So he ended up going to the Naval Academy.

Tomorrow, we're holding a memorial service. The day would have marked my parents' 41st wedding anniversary. And it's also the Army-Navy football game – a game the Navy won all the years my Dad played at the Naval Academy. (This game was so important my Dad's senior season (1963), it made the cover of Sports Illustrated).

To honor my dad, I've set up a scholarship fund. My dad was a great student, a great athlete, and great person. But as a kid, he didn't have the money for college. So the Dave Sjuggerud Memorial Fund will help the best student athletes in the Menomonie area pay for college.

Linda McIntyre is the director of the Greater Menomonie Area Community Foundation (GMACF), which is administering the scholarship fund. She knew my dad back in high school. You can give Linda a call for the details on how to contribute. Her phone number is 715-232-8019.

Or you can make a check payable to GMACF, P.O. Box 53, Menomonie, WI 54751. Note "Sjuggerud Memorial Fund" in the memo portion of the check.

If you haven't made all your charitable contributions for 2008, you have less than four weeks left. I hope you'll consider helping small-town student athletes fulfill their dreams.

If you knew Dave Sjuggerud, you know that he was humble and didn't talk about his accomplishments. He was my best friend and my biggest cheerleader. This is the one moment I want his name known.

Best,

Steve

P.S. Today, nearly 50 years later, Dad is still a sports hero back home in Menomonie. The local and regional papers are running stories on him and his accomplishments right now. If you live in the area, keep an eye out.

Also, here's a link to the story of my dad's life. I think you'll enjoy it.

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