No auto bailout, yet

No auto bailout, yet... Tough times for Jamie Dimon... BofA layoffs... The Fed is keeping a secret... Is $2,500 worth it?...

Goldsmith comment: Porter's busy today, so I'm in charge.

The Senate voted against the $14 billion government bailout for the Big Three automakers last night. "It's over with," said Senate majority leader Harry Reid of Nevada. "I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight."

The reaction in auto stocks wasn't as bad as Reid expected because this morning the White House said it would step in to save the automakers, possibly using funds from the Wall Street bailout package. A White House spokesperson argued that the weakened U.S. economy couldn't withstand a disorderly bankruptcy of the Big Three. GM opened at $2.81, down nearly 40% from yesterday's close, but as of this writing has recovered to around $3.90 – a 5.5% drop. Ford followed the same pattern.

Yesterday, Jamie Dimon, CEO of JPMorgan Chase, said his bank is having a tough fourth quarter after a "terrible" November and December. He believes unemployment will be the main driver of this crisis... "It's all going to be unemployment-driven," he said. "Unemployment will drive commercial losses, real estate losses, all consumer products' losses." Asked when the macro environment will improve, Dimon replied, "If we are lucky, we will have two more quarters of this and we will start to see a recovery... It's possible it's going to get worse and we're in for a tougher time." Remember, JPMorgan Chase is supposed to be the soundest bank around...

Hours after Dimon's comments, Bank of America – the other "strong" bank – announced it would lay off at least 35,000 employees in the next three years (approximately 11% of the combined BofA/Merrill Lynch workforce).

It seems all the fear in the market is finally forcing Americans to reduce their debt... U.S. households shrank their debt in the three months ended September 30 for the first time in more than 50 years (since the government started keeping records). Household debt declined 0.8%, mostly as a result of a 2.4% decline in mortgage debt. Other consumer debt, including credit cards, rose 1.2%.

While this may seem like good news, remember major banks helped hundreds of thousands of Americans lower their mortgage payments, and most American households can no longer use their homes as an ATM. I doubt this reduction in debt was voluntary. The U.S. consumer is just cut off.

The Federal Reserve denied a request by Bloomberg News to disclose the recipients of the $2 trillion in emergency loans from taxpayers and the assets the Fed is taking as collateral. Bloomberg filed suit November 7 under the U.S. Freedom of Information Act, and the Fed responded on December 8 saying it's allowed to withhold internal memos and information about trade secrets. Of course if the Fed actually disclosed what it held, we'd know how much it stands to lose... and how much more money it will have to print.

New highs: none.

Agora's throwing its holiday party tonight... If there are any worthwhile stories involving Porter – which there probably will be – you'll hear them in next week's Digest. In the meantime, drop us a note: feedback@stansberryresearch.com.

"Only $2500 to get more details on the dire impending bankruptcy of GGP? How could any subscriber not leap at the chance to get such a late-breaking Porter Stansberry deduction? Perhaps by paying nothing and clicking on this link or other results of a simple Google search? Nah, I guess that you don't think your subscribers are smart enough to unearth news so fresh that it first appeared just a month ago in multiple places after GGP filed its latest 10Q... that is, without your timely help. Thanks anyway for one of your better hype pieces. For my part, I think I'll stick to your more conventional work..." – Paid-up subscriber JimH

Goldsmith comment: We're not trading General Growth Properties (GGP), Jim. We're trading other commercial real estate players. And we're up 58% on the real estate recommendation Porter made three days ago. If that's not enough, perhaps you'll change your mind on the price tag after reading the notes below.

For everyone else, if you'd like to learn more about Put Strategy Report, click here. (And if you missed Porter's Wednesday write-up, it's a must-read.)

One final note: New subscribers can access Porter's full report and recent update here.

"I'm a 45 year young stay-at-home mother with very young children ages nine and four. Prior to October of this year, I had very little trading experience aside from managing my IRA portfolio and selecting a few mutual funds once in awhile. I subscribed to Porter's Put Strategy Report in late October. This is the BEST research I have ever encountered. I'm up nearly $9,000 in a little over 5 ½ weeks. Porter's advice is very clear, if you take the time to read it... and make decisions that fit your risk tolerance. I don't know who is doing the grumbling out there, but Porter, please don't be discouraged. There are very happy subscribers out here depending on you. Incidentally, with the BUD puts alone I nearly made the entire subscription fee. That was FUN! Now let's have some more." – Paid-up subscriber Brenda Ehrhart

"We in commercial real estate are seeing the fundamentals breaking down rapidly. One of my partners who represents several major retailers recently lost over $2,000,000 in fees as a result of retailers killing deals. In commercial real estate, we expect to see 'blood in the streets' by late next year if not sooner. That is good news for us as we are raising funds to purchase quality commercial properties at depressed prices. Over the past year, we and many other commercial real estate investors have been trying to figure out how to purchase and profit from the glut of land, developed lots, fractured condo conversions, etc., but the banks have been unwilling to take a hit on these properties. Now that the commercial market is breaking down, we no longer have an interest in the former and as such, we feel that when the banks are ready to deal, the losses for them will be even greater. I hope you, Andrea and Traveler are well and I hope to see you in Huntsville over the Holidays." – Paid-up subscriber Charles

Regards,

Sean Goldsmith

Baltimore, Maryland

December 12, 2008

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