Take an "information vacation"

Take an "information vacation"... Ackman: GM should go bankrupt... Goldman abandons copper and coal... Dems make markets go up... Amex fast-tracked...

In his weekly New Yorker column, James Surowiecki told his readers, "Markets work best when investors are thinking for themselves, and tend to go awry when the obsession with what everyone else is doing becomes a dominant concern."

Surowiecki says we have more information than ever before, but our decision-making hasn't improved one bit. He made a great suggestion: Take a "market information vacation." Maybe it's time to get hold of an old VW bus and drive cross-country.

Surowiecki's point is well-taken. Vanguard released a study in September saying most active investors fail to beat the market. The study concluded the source of underperformance was twofold: market timing mistakes and high fees.

The solution: It's always the right time to buy great companies at cheap prices. Don't suck your thumb trying to time the bottom. It's impossible, and you'll lose money. Great investors buy great businesses at cheap prices at the top, the bottom, and everywhere in between.

Porter and I have both been cranking out tons of stock picks, new and old, now that so many high-quality businesses are selling so cheap. Porter featured two new picks in the latest issue of PSIA.

And I'll have a new pick in the next issue of Extreme Value, out Friday. It's a company I've known and followed for six years. The top execs are all required to own two years salary worth of stock, and they have to buy it in the market, not through free option grants. Last time I checked, the top three honchos all sat together in a small office at the same old metal desks they started out with.

They run a first-class business in a first-class way, and the supply of raw material they use is getting super cheap and super abundant... But this business has nothing to do with commodities.

Yesterday, we explained why General Motors should declare bankruptcy in lieu of a government bailout. Bill Ackman, manager of hedge fund Pershing Square Capital Management, agreed with us... "It has been hamstrung for years because it has too much debt and it has contracts that are uneconomic," Ackman told Charlie Rose yesterday. "The way to solve that problem is not to lend more money. They should do prepackaged bankruptcy."

GM needs to reduce debt to a manageable level, Ackman argued. "The 'bankruptcy' word scares people but it's simply a system," he said. A Chapter 11 bankruptcy allows a company to seek protection from creditors while continuing to operate. Ackman proposes the government should ensure GM uses bailout money to retrain workers rather than service existing debt. "The welders at GM could help on the infrastructure of the country," Ackman said. "That's a much better use of taxpayer money."

Goldman Sachs laid off 13 analysts as part of its 10%, 3,200-employee reduction. Some of the companies those analysts covered will be picked up by other analysts, but many will be dropped indefinitely. Among the companies losing coverage are Freeport-McMoRan (the world's largest publicly traded copper producer) and Peabody Energy (the world's largest publicly traded coal producer).

Goldman also fired the analysts responsible for covering the financial-services industry, shipping, newspapers, and other media. "We regularly match our research coverage to our resources and our clients' needs," said a Goldman spokesperson, and nobody is interested in these declining industries right now.

When investor sentiment gets so bad the world's premiere bank stops coverage on the world's largest publicly traded copper and coal companies, newspapers, and financial-services firms, it might be time to look into those industries.

Fear not. Obama and his army will save you.

Sam Stovall, Standard & Poor's chief investment strategist, says Democratic control of Congress and the White House is great for investors. During the 26 years since 1945 when the same party controlled both Congress and the White House, the S&P 500 rose an average of 10.4% (excluding dividends). In four of those years, the index declined 11% to 13%. But in 14 of those years, there were double-digit gains, ranging from 10.3% to 45%.

The average annual market gain during Democratic presidencies was 10.7%. The average gain during Republican administrations was 6.4%. Three market declines of more than 40% occurred under the watch of Republicans (Richard Nixon and George W. Bush).

Can't afford your mortgage? No problem... Citigroup will reduce it for you. Citi will contact around 500,000 mortgage holders – representing $20 billion in mortgage balances – to make sure they can continue payments. "These homeowners are not currently behind on their mortgage payments, but some may require help to remain current on their mortgages... Citi is focusing particularly on borrowers in areas that are likely to face extreme economic distress."

The bank is also extending its moratorium on foreclosures. It said it won't begin a foreclosure or complete a foreclosure sale on a home on which it owns the mortgage as long as the borrowers want to stay in the home and it is their primary residence. JPMorgan also instated a similar program.

American Express, the world's largest credit-card issuer by purchase volume, won Fed approval to become a commercial bank and can now access the $700 billion bailout pool. The Fed waived the normal 30-day waiting period for Amex due to "the unusual and exigent circumstances affecting the financial markets."

Amex announced last month that credit-card writeoffs nearly doubled to 5.9%, and it believes writeoffs will increase through the first quarter of 2009. The company said its conversion wouldn't require "significant divestitures."

New highs: none.

In the mailbag, it looks like some consumers are still running full-throttle. What are you seeing? Also, if you have suggestions on how to take a "market information vacation," please send them in to feedback@stansberryresearch.com.

"I live in Greenwich, CT. and the high end restaurants are still busy, some so booked (Mario Batali's new place) that you must book one month out or eat at 10:00pm. Other mid-level places seem a bit slow, meaning you can walk in and get a table and not wait. None of my 6 year olds' friends daddys have lost their hedge fund or bank jobs on wall street YET (I'm a dentist). However, a buddy of mine owns a high end jewelry store and he says it seems a bit slow already. I tried to book a table for 6 at a very 'happening' Italian restaurant in NYC for next Sat. night and my choices were 5:30pm or 10:00pm. So, recession yet around here? Not with the well to do!" – Paid-up subscriber Dennis Pipher

"I live in the Suburbs of Seattle, WA. My wife and I just received a nice monetary gift that was designated for fun. This Sunday afternoon, I grudgingly went shopping with her. I really wanted to invest it, but then again, that hasn't worked out so well as of late, and I also hate shopping. My only hopeful joy was that I expected the malls and shops to be less crowded. I was wrong. The lots were packed. We decided to go big and update our Home Entertainment System. We hit 3 different stores and each were crowded, and I saw big screens roll out of each one, not including the system we picked up. It looked like the usual pre-Holiday shopping season to me." – Paid-up subscriber D. Metzer

Regards,

Dan Ferris

Medford, Oregon

November 11, 2008

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame