Record jobless claims

Record jobless claims... Remember 1983?... Safest dividend on Earth... Chanos loves bonds... Citi bidding on Chevy Chase... Intel's "shockingly bad guidance"... Quick KHD update...

The global deflationary wind hit new jobless claims, pushing them to a 25-year high this month. The number of people claiming unemployment for more than a week is at its highest level since 1983.

Do you remember 1983?

I remember it. I was studying music by day and making ice cream by night, with barely a dime to my name. If you had money back then and you weren't buying stocks hand over fist, you obviously made a huge mistake. Fate has been too kind, because it's 1983 all over again.

A big danger for many investors now is that the crystal clear and grisly scene in the rearview mirror becomes more seductive than the foggy, darkly lit view out the front windshield.

Thing is, if you want to get anywhere, you have to look ahead, not behind, no matter how cloudy the outlook. Looking ahead, I see a decade of great stock returns. It doesn't matter how much your account is down. It matters how much you buy when stocks are this cheap.

Does it strike anyone as a trifle odd that the world's most famous short seller is on CNBC more than Warren Buffett?

Jim Chanos, founder and chairman of hedge fund Kynikos Associates, appeared on CNBC again this morning. In a departure from his normal fare, he talked about buying bonds. "Equity markets are down a lot," Chanos said. "Credit markets are down even more." Chanos said he's looking at corporate debt in his long-short fund. He found one "well-known consumer leisure company" whose bonds were yielding 30% and the equity had a valuation in the billions.

Chanos said you can get equity-like returns in senior securities with a lot more protection than equities. "True value players would be looking at debt," he said. Equity-like returns in senior securities is a highly appealing prospect – exactly what you find when Mr. Market dresses up as Chicken Little for Halloween.

Citigroup has been looking to pick up a regional bank with lots of overlapping branches. Now it's in talks to buy Maryland-based Chevy Chase Bank. Chevy Chase has more than 285 branches and focuses on regional lending. The bank has multiple bidders, and there's no guarantee Citi will close the deal.

A follow-up from yesterday... Casino operator Las Vegas Sands will cut as many as 11,000 construction jobs in China, where it has two casinos in Macau. The company said yesterday it was scaling back on several projects.

The air was let out of the world's largest chipmaker, Intel, which lowered its fourth-quarter sales forecast by $1 billion amid "significantly weaker" demand. Revenue will be $9 billion, and profit margins will be squeezed. Intel, whose chips run more than three-fourths of the world's computers, said customers are "aggressively" halting orders. "I didn't think things were anywhere near this bad," said analyst David Wu, making him the one-thousandth person to say so this year. "There was a lot of noise about things getting worse, but it's still shockingly bad guidance."

Extreme Value pick KHD Humboldt is now the cheapest profitable company with good future prospects that I've ever seen. Its share price was hit yesterday when management announced new orders for the third quarter fell 65% from last year's third quarter. It also said some of its customers are trying to renegotiate contracts and that it expects project cancellations and delays.

If you bought this stock at about $6 when I originally recommended it back in August 2003, you've received spinoffs worth more than $8 per share. If you bought higher than that and are way down, you now own stock in a profitable company trading for a 38% discount to its net cash position. So you pay 62 cents for every $1 of cash and get a profitable, growing company for free. It's a viable business that's priced to liquidate.

KHD is one of more than a dozen quality businesses, selling at depressed valuations that I'll cover in the next issue of Extreme Value, due out tomorrow.

For income investors, my list contains the one U.S. stock that pays the safest dividend on Earth. The company earns 50 times its interest expense and nearly six times its dividend payout, which has risen every year for 25 years... and will rise again this year. If you're looking for safe, growing income and don't own this stock, you need to learn about it right away.

And my new pick is one of the clear beneficiaries of the credit crisis. It is not now nor has it ever been a distressed business... and it only buys the most distressed assets, paying two cents on the dollar.

If you can't train yourself to buy good stocks when they're way down, you'll never make money in stocks. If you want to see my newest Extreme Value list of world-dominating companies, which are all No. 1 in the world in their industries and selling at once-in-a-lifetime prices, click here.

New highs: Our short position in Gannett (GCI).

Are you buying hand over fist, selling in a panic, or burying gold in the backyard? Let us know here: feedback@stansberryresearch.com.

"I had to respond when I saw the comment from the subscriber from Greenwich, CT. I too live in Greenwich and last weekend I went to the main street for shopping in Greenwich for the first time in months and I noticed that at the very beginning of the street a high-end toy store had been replaced by a second-hand consignment shop for clothes. If that is not an indication of the deleveraging of excess I don't know what is! I enjoy your publications tremendously." – Paid-up subscriber Christopher Caperton

"On hiring the GM Welders for infrastructure projects: Great idea on hiring the robots. They don't bitch, moan and/or complain. They don't require per diem on these infrastructure projects in remote locations. They don't require health insurance, 401(k) matching, pension contributions, or overtime. They don't go on strike or stage work slowdowns. How do they get along with their co-workers at GM?" – Paid-up subscriber SP

Regards,

Dan Ferris

Medford, Oregon

November 13, 2008

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame