THE S&A DIGEST

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 07/08/2013

Subprime holders nervous… Uniformly bullish (oh no!)… Thailand gets more interesting… One step ahead of private equity… Earning 3% in Manhattan property… Submit your report card…

More signs of a market top: Stock-market strategists at the 12 largest Wall Street firms are predicting a rise in the market next year. The last year Wall Street’s strategists were uniformly bullish? 2001.

Teach your children: It’s better to originate mortgages than to own them… especially subprime mortgages. There were 115,000 foreclosures in October – 42% more than last year. To date in 2006, more than a million properties have been foreclosed, 27% more than last year. Standard & Poor’s has downgraded 132 mortgage-backed securities, a new quarterly record.

Angelo Mozilo knows more about subprime mortgages than most Americans. He’s the CEO of Countrywide Financial, the country’s largest holder of subprime mortgages. Specifically, Countrywide owns $9.3 billion worth of "nonprime" mortgage notes. Yesterday, Mozilo exercised his option to buy 70,000 shares of his employer’s stock for $9.60. And he sold every single share, immediately, for more than $41. Over the last year, shares of Countrywide have gone up 15%… and the stock is very near its all-time high.

My proposed trip to Thailand (scheduled for early next year) is looking more and more interesting. Yesterday, the market closed for 30 minutes and suffered its worst drop in 16 years. The interim government made a ham-fisted attempt to regulate capital flows, insisting on a 10% penalty for taking money out of the country on investments lasting less than a year. The government quickly reversed itself… but investors still seem rattled.

I’m hunting for good contacts in the financial industry there. If you know folks in the research and/or brokerage business in Thailand and you wouldn’t mind making an introduction, please get in touch.

The Homebuilder Confidence Index fell one point to 32 yesterday… but remains above the lows it set in September. Additionally, housing starts in the U.S. rebounded, up to 1.588 million from 1.488 million.

Ferris has been a step ahead of private equity all year…

Relational Investors, which owns 12.9 million shares of Home Depot, is after the company to divest its contractor-supply companies to focus on its retail stores. Home Depot spent $7 billion buying these companies since CEO Robert Nardelli took the reigns in 2000. Home Depot is too big of a company for Relational to order around. Its founder, Ken Langone, owns more shares (16 million) than Relational. Nevertheless, Relational’s strategic advice makes sense. If you combine $7 billion-plus capital return to shareholders with Home Depot’s already large share buyback ($7 billion over the last three years)… Dan Ferris is probably on to something.

About a year ago, I was invited to invest in a local commercial real estate deal. The prospect property was a strip mall in the nicest residential suburb of Baltimore, Ruxton. The rents were high, the tenants were all high-end retailers, and the location was superb. It would have been a very nice property to own, but we backed out of the deal when the price went so high the "cap" rate fell to 6% – rents would only generate a 6% annual yield on the property, making it nearly impossible to generate positive cash flow after financing costs.

I remember thinking, who in their right mind would buy a piece of commercial property that didn’t generate a positive yield?

Apparently lots of folks…

Jim Grant, editor of Grant’s Interest Rate Observer, reports that the cap rate on the huge Stuyvesant Town and Peter Cooper Village deal ($5 billion for 10 blocks of Manhattan real estate) had an estimated cap rate of only 3%. Thus, the buyers of this property, after collecting rents, are still $150 million in the hole each year, assuming they got financing at 6%.

The property, which includes 11,000 apartments, was built after World War II to house returning veterans. MetLife put the government over a barrel to finance the construction. It demanded a 25-year tax exemption on the property and insisted the government exclude black tenants. The new buyers won’t even be allowed to set market-clearing rents: 8,000 of the apartments are rent controlled.

New highs in Stansberry portfolios: Gabelli Dividend and Income Trust (GDV), Posco (PKX), Sirna (RNAI), Telstra (TLS).

We’ll soon publish our annual "report card," sharing with you the official track records of all of our products. I’ll judge how each editor performed, and I’ll review what they got right… and what they did wrong.

As part of this review, I’d love to see your ACTUAL results and get your feedback on our products. If you use our stuff to guide your investments, please drop me a note this week to tell me how you did this year with our advice. Did we make you money? Did we cost you a fortune? Were we heroes… or goats? If you don’t want your name to be published, let me know. Send your "report cards" here: feedback@stansberryresearch.com.

PLEASE NOTE: Our office will be closed from Christmas through New Year’s Day. We think it’s important for our staff (more than 50 people now) to spend time with their families during the holidays. I hope you’ll understand. Give us a call on January 2, and you’ll find us hard at work again. ALSO, if there’s a golfer in your life, spend a few dollars buying Mike Palmer’s book, Secrets of the Irish Links. There’s no more honest, useful, and beautiful book available about golf... see for yourself.

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Porter Comment: Send us 5% of your management fees, and I’ll drop your subscription charges…

Letter to Goldman Sachs CEO Lloyd Blankfein, from paid-up subscriber John Dizzia: "I’m simply thrilled with your success this year, and with the appreciation of my shares in GS… At the same time I’m more than a little troubled by the gigantic portion of the company’s profits paid out in employee/officer bonuses – a reported $16.5 billion (US)… No portion of these profits, however, are being paid to the rest of GS’s ‘partners’ in the form of shareholder dividends or even share buy-backs, etc… As the owner of the GS franchise and infrastructure, don’t I also have a right to share in the profits earned by my winning team?"

Regards,

Porter Stansberry

December 19, 2006

Stansberry & Associates Top 10 Open Recommendations

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