The first Socialist National Bank

I have a major announcement to share with you. We are launching a very big new business – a bank. I'd always thought publishing was a great business... but I've found something much, much better – banking!

Banking will allow me to leverage my capital 15 to 20 times. It offers me guaranteed profit margins, thanks to the Fed's manipulation of interest rates. And best of all, it's completely backed by the government. No matter how many dumb loans I make to my cronies and political backers, I'll never lose a cent. It's truly the greatest business in the world. I've been working hard to think of an appropriate name for a business like this... I think The Socialist National Bank has quite a ring to it. What do you think?

I'm only kidding, of course. But a lot of entrepreneurs had the same idea over the last couple decades. And you can hardly blame them. Banking lies at the heart of our capitalist system. Bankers literally decide who gets capital and who doesn't. And yet banking relies completely on a socialist promise: The state insures all bank deposits. At the end of the day, it's really the taxpayers who own all of the banks.

Assuming you know a little bit about the history of state-run banks, you won't be surprised to learn taking all of the risks out of banking results in lots of bad loans. We've already seen how the government's guarantee of residential mortgages via Fannie and Freddie resulted in trillions of losses.

Now all of the same kinds of problems are showing up in commercial mortgage loans. These loans are the mainstay assets of regional and local banks. Most of these loans have seven-year durations. And most of these loans are interest-only. So over the next three to four years, all of the bad loans made during the real estate mania from 2004-2007 are going to come due. It's going to be a complete disaster.

Already 7.1% of all commercial real estate loans are more than 90 days overdue. That's double the default rate of a year ago. Construction and development loans are performing even worse, with a default rate of 16%. The FDIC says more than 700 regional and local banks are in immediate danger of failing. And there are a lot more to come.

At some point between now and 2012, I expect between 500 and 1,000 regional and local banks to fail. Residential loan losses have been enormous – but were borne mostly by hedge funds, large investment banks, and the two enormous agencies of the U.S. government, Fannie and Freddie, which guarantee nearly half of all residential mortgages. Commercial real estate loans, on the other hand, carry no such guarantees. They are the principal assets of regional and local banks.

It's pretty amazing the United States, which considers itself the leading capitalist economy in the world and the land of the free, has at its core a completely statist monetary and banking system. In fact, most of the real risks of our entrepreneurial system are borne by the taxpayers, not the capitalists. Think about it. Assuming you borrow money to launch a business, who is really taking the risk? The bank. And who insures the bank's depositors against the risk of loss? The FDIC. And who insures the FDIC? You and me, my friend. The taxpayers.

I've enjoyed watching so-called conservative television pundits arguing about whether or not they dare to call OBAMA! a socialist, as if using the word will tarnish their credibility. Meanwhile, as any serious economist could tell you, the United States has been a socialist country since the administration of Franklin Delano Roosevelt. Of course, we have a different kind of socialism than Europe.

In Europe's version of socialism, the government owns the means of production outright. In America, we don't like the appearance of the government owning everything, so we don't actually transfer title. We just shift all of the risks of ownership to the government. In this way, private interests can claim all the profits of enterprise, while all of the risk of loss can be shifted to the taxpayers. We ought to call our version Socialossism – because we're only socializing the losses, not the profits.

Alas, taxpayers rarely approve enormous increases to the size of the government. So to sell Socialossism to the public, the promoters claimed these policies were merely insurance schemes, which would never cost the public a dime. You've heard them do it many times. They say the government is here to help. They say the problem with socialism is government power is being used in the wrong way. They promise to deliver all of the benefits of big government with none of the costs.

There's only one problem: None of their insurance schemes are ever solvent, or even close to solvent. Like Social Security. Or Medicare. Or the FDIC. The only difference between Socialossism and Bernie Madoff is you had to be a rich New Yorker or Palm Beach socialite to do business with Madoff.

What will happen, we wonder, when the people discover what's really happened to our country over the last 30 years? We don't know, of course. We hope the promises of Socialossism are revealed for what they really are – a pile of lies that's led to an economy based on debt that will never be repaid. Haven't you wondered why there's a bank (FDIC) on every corner and a pharmacy (Medicare) on every other? We've built an entire economy around a set of promises (phony insurance schemes) that rely on the creditworthiness of the taxpayer. And he's broke. How ironic is it that the people we call "communists" (China) have been financing our love affair with socialism for the last 30 years?

What does this mean for you and me... for our investments? I have two big, obvious recommendations. One, don't be a creditor to a bankrupt nation that's promised to support an enormous array of insolvent insurance schemes. (Don't own U.S. government debt.) And two, don't hold your savings in the paper money of a bankrupt government that's promised to take care of its entire population through a series of fraudulent insurance schemes.

Other than that... you should probably take your money out of any local or regional bank that has been funding commercial real estate development. While the FDIC has promised to protect your deposits, you don't want to risk it if you don't have to. And finally... be careful about the price you pay and the cap rate you accept for any commercial real estate deal. I'd say you're looking at a national decline of between 50% and 75% for most commercial properties.

While we aren't really going into banking, we are launching an important new publication this week – DailyWealth Premium. Longtime subscribers are undoubtedly familiar with our DailyWealth e-letter, written by Steve Sjuggerud, Tom Dyson, and Brian Hunt. We launched the free service in 2005. It quickly became one of the most widely read financial dailies in the world, with more than 700,000 registered subscribers in more than 200 countries.

Don't worry – We're not changing anything about DailyWealth. If you're happy with the current DailyWealth, you're welcome to continue receiving it – for free. But if you're interested in upgrading, we're going to add an entire column of information that will show you exactly how we'd make investments based on the content of each day's DailyWealth. Steve Sjuggerud will write the extra investment column.

Each day, he'll tell DailyWealth Premium subscribers exactly which stocks, bonds, funds, currencies, and real estate to buy (or sell) based on what's written in that day's DailyWealth. We won't hold anything back – no more teases. We'll give you everything you need to know – stock symbols, buy limits, trailing stops, etc. Everything.

So how much would you pay for "full-disclosure" financial advice on a daily basis from Steve Sjuggerud – the most highly regarded analyst at Stansberry Research and one of the most highly regarded analysts in the world? Let's agree the service would at least be worth a cup of coffee. Say $2.99 per day. That's less than half the cost of a discount brokerage's commission on a single trade. Five issues per week brings the cost to $59.80 per month.

We think this extra content will be worth far more than the roughly $60 per month we could easily charge. In fact, we're a little worried DailyWealth Premium will render the rest of our newsletters obsolete. After all, if Steve Sjuggerud is telling you what to buy and sell every day, what more do you need? But even though it's worth a lot more than $60 per month, that's not what we're going to charge.

Nope. We're only going to charge $60 per year. Why would we charge such an incredibly low price? We hope the low price and the high quality of the content will allow us to reach vastly more subscribers. We want to reach more paying customers than any other financial information product in the world. So if you like it, please help us spread the world about DailyWealth Premium.

New highs: Berkshire Hathaway (BRK-A/B), Powershares Dynamic Biotech Fund (PBE ), Hershey (HSY), Altria (MO), WR Berkley (WRB), TimberWest Forest Corp. (TWF-UN.TO), Tejon Ranch (TRC), Sequoia Fund (SEQUX), Prestige Brands (PBH), Philip Morris (PM), Portfolio Recovery Associates (PRAA), Akamai (AKAM), Carpenter Technology (CRS), A. Schulman (SHLM), DirecTV (DTV), Northern Dynasty (NAK), MAG Silver (MVG), Jinshan (JIN.TO), Encore Acquisition (EAC), Westmoreland Coal (WLB).

In the mailbag... several hundred more letters of support for our ongoing battle with the SEC. If you haven't heard our side of the story yet, please read last week's Digest about the matter. And please, send us a short note. We'd like to show a few members of Congress and the commissioners at the SEC why attacking a newsletter publisher over a successful recommendation isn't the proper role of the government. Please tell the government what Stansberry Research has done for you and why you support us in this matter. Send your note here: feedback@stansberryresearch.com. Please put "SEC" in the subject line and include your name and address.

Of course, not all of the notes we've gotten have been in support. We've gotten two letters supporting the government's lawsuit. In the interest of fairness and full disclosure, we have continued our long-standing policy of publishing the notes most critical of us. We believe very few "fraudulent" business operations routinely offer money-back guarantees and continually give their detractors access to their customers. Whether you support us or not, please let us hear from you. We can survive anything but being ignored: feedback@stansberryresearch.com.

"I agree with Mr. Zhang and more. The SEC is absolutely right that your motive was profit, not by front running or options, but by selling a report for $1,000. Your comment about it running up to $11.00 shortly after your recommending it is laughable. Yes it ran up quick, all by suckers who paid you a thousand dollars, (I was one of them, and I lost money because what you promised did not happen).

"Getting the $1000 back after losing more is no consolation. I don't know why they are not going after you about another similar incident, your BSX recommendation, another money loser you claim to have insider information about. It is beyond me as to why anyone would trust anything you say, you have no credibility. I hope the FED gets a conviction and makes you pay your suckers losses." – Paid-up subscriber Delwin Sullada

Porter comment: Delwin... you're right about one thing. I am motivated by profit. And when I offer my customers their money back on almost every subscription we sell, I know we'll only make money if we're right about stocks far more often than we're wrong.

I also know reasonable investors don't expect us to be right every single time (we're not Bernie Madoff). But they always expect us to be honest. That's why I go to great lengths to make sure our business is transparent. That's why we don't allow our analysts to own the stocks they recommend. That's why we publish an annual report card. That's why we never hesitate to publish unflattering or angry letters from our subscribers. And that's why I've spent so much time, energy, and money battling with the SEC.

If you propose to sue anytime a writer says something about a security you don't like, charges more than you think is fair for a report, or makes a stock pick that doesn't work out, how many people will be willing to write about securities? None. That would leave all of us at the mercy of the big brokerage firms and their "research" reports. And whom would that benefit?

It's not hard to see why the SEC wants me out of business.

"Let me tell you what Stansberry Research has done for my family. My father and I both retired from Amoco Oil Company/British Petroleum. Dad didn't live very long after retiring, and mom, nor anyone else in the family, knew anything about investing. Mom decided to use Merrill Lynch to mind her estate of about $120,000, which they did in a Managed Account – all calls were theirs. As my retirement approached, I mentioned to mom that I was going to roll over my company savings plan into Fidelity, which managed BP's retirement plans. Mom said her portfolio was 'in the tank.' I asked to see her statements, and sure enough, it was down to $60,000. She had taken a 50% haircut in the dot-com bust. Further investigation showed her money was all in high-risk Janus tech funds. And she was 70 years old at the time.

"We then moved her money to Fidelity, and I retired and set up my account with Fidelity, also... So mom and I began our investing careers in earnest. Neither of us could use a computer, and mom did not even have one. My father-in-law gave mom his old computer, and a good friend began showing us how to use the thing. We started out with Mutual Funds from Fidelity, which did well.

"However, while dad and I were working, we had always had every cent we had in Amoco, and later, BP stock. We missed having our own company to root for. So we began searching, ever searching. At first, we would read books, articles, things on Internet, anything written by Warren Buffet or Peter Lynch, until finally I stumbled onto something written by Matt Badiali. We then found Stansberry Research.

"Started with the S&A Oil Report by Matt, as oil was what we both knew best. Over next few years, I added more and more research report letters from Stansberry until finally taking out an Alliance membership in late 2009. And how did this all go? Well, prior to the market crashing in 2008, mom had recovered all, and my account had likewise gown beyond my wildest expectations. But there were storm clouds on the horizon. Mom and I would have most likely been oblivious to this had it not been for the many ominous warnings written by the team at Stansberry and read by us on a daily basis. We had long before went to an all-cash position by the time the market crashed in the fall of 2008.

"Watching in wonder and well aware that many folks had lost half of their net worth, we had no intention of re-entering the fray, but were content to just watch and wait. However, the team at Stansberry began almost immediately telling their subscribers that this was indeed a great buying opportunity, and might well be the buying opportunity of our lifetimes. So in November 2008, mom and I began buying. We are quite pleased that we did.

"While I have come to respect, admire, and appreciate all of the analysts at Stansberry, we have a few favorites just because of our own situations (i.e. – retired). Mom and I would both willingly crawl over broken glass across several states to speak on their behalf. We have gladly and thankfully entrusted all of our net worth to the investment advice we have gotten from them over the years, and look forward to having their guidance until the end.

"Drop by my mom's house anytime during market hours, and you will find the laptop sitting on the dining room table with Stansberry Research or her Fidelity page on the screen, and the TV in living room turned to FBN or CNBC. When we are driving in the car or sitting around talking, we mention Porter Stansberry, Dr. Steve Sjuggerud, Dan Ferris, Matt Badiali, Jeff Clark, Braden Copeland, Frank Curzio, Sean Goldsmith, Tom Dyson, Mike Williams, Brian Hunt, Dr. David Eifrig, George Huang, and Rob Fannon as if they were old family friends.

"We have learned ever so much that guides us, like position sizing, stop losses, and trailing stops. We are better able to see and understand the big picture. And we spend very little time worrying about our portfolios. At present time we have 38 stocks in our portfolios that were recommendations of one or more of the analysts with Stansberry. We are up on 30, and down on 8. However, on 2 of the 8, it is 'my bad' as I did not buy below their 'buy up to price' but got greedy and worried they would go up without mom and I. So actually, when I followed directions we are UP on 30, and DOWN on 6...

"In closing, let me say that I respect and trust completely the folks at Stansberry Research. Porter, Dan, Steve, Matt and Braden have given us most of our picks. They update us regularly, and either assure us all is well, or warn us we need to be alert. They also monitor our stop losses. Mom and I have stopped out of three positions over the years. A very small number compared to our great number of winning trades. We could not be happier." – Paid-up subscriber M. Hines

"Move over Porter. If you're fraudulent then we must be co-conspirators. Myself and I'll bet others would stand with you. They better get a bunch of cells ready. Seriously, your advice has saved me from two major stock market crashes in the last 10 years... Your publications have informed about conservative safe investing through position sizing, limiting losses, asset allocation and market warnings. It is not just some hot stock publication intent on just selling letters, which is why there is a full money back guarantee. Thank you, Thank you, Thank you." – Paid-up subscriber D Williams

"I've known Porter Stansberry personally for over a decade. I've found him to be, without exception, a man of unimpeachable integrity. Further, his advice is consistently sound and well thought out. Upon looking at the facts in this matter, I find it shameful that the SEC is pursuing this case. I urge the SEC, in the interest of simple justice, to drop this action." – Paid-up subscriber Doug Casey

Regards,

Porter Stansberry
Baltimore, Maryland
March 8, 2010The first Socialist National Bank... Introducing a new term: Socialossism... A warning about local and regional banks... How far commercial real estate will fall... Introducing DailyWealth Premium... Still more on the SEC in the mailbag...