The S&A Digest

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

As of 06/28/2013

Casey vs. Coulter... Preparing for bankruptcy... Motorola sheds another 4,000 jobs... A new income-oriented ETF... When are 63 shares better than 1,000?

Signs of a market top... In preparation for the crash, financial companies are hiring distressed-debt bankers in Europe at the fastest pace in five years.

More signs of a market top... U.S. GDP grew at 0.6%, half the estimated 1.3%, in the first quarter of 2007. This is the slowest growth since fourth quarter 2002.

Extreme Value pick Motorola (MOT) will cut another 4,000 jobs in addition to the 3,500 cuts announced in January. The company expects to save $1 billion annually after a $300 million charge. Analysts do not believe the downsizing will help solve Motorola's main problem... lagging phone sales.

S&A Oil Report pick Pioneer Natural Resources (PXD) announced a fourth discovery at its Tunisia project, where a test well flowed at a rate of 8,000 barrels per day. The four wells that have been tested are expected to provide 30,000 barrels of oil equivalent per day.

Investors are flocking to income and energy. Alerian Capital Management today announced another master limited partnership (MLP) index fund. These energy plays, which typically own oil and gas pipelines, have returned 18% annualized over the past decade. Like Real Estate Investment Trusts (REITs), MLPs are required by law to pay 90% of their profits out as dividends. S&A Oil Report editor Matt Badiali has seven MLPs in his portfolio right now.

Wachovia today announced its acquisition of A.G. Edwards for $6.8 billion, in a deal that creates the second-largest U.S. brokerage house behind Merrill Lynch. Wachovia is paying $89.50 a share for A.G. Edwards, a 16% premium, in the cash and stock deal. The combined company will have $1.1 trillion in assets and 15,000 financial advisors.

It's a bull market... Despite the 6.5% drop in the Shanghai markets, Mexican, Brazilian, and U.S. exchanges all reached record highs yesterday.

If you enjoyed Doug Casey's essay yesterday, you'll love this... Brien Lundin tells me this year's New Orleans Investment Conference (in late October) will feature a debate between Doug Casey and Ann Coulter. Last year, Doug took on Newt Gingrich. At least one of them was actually thinking, instead of merely marketing for presidential votes. Here are a slew of Doug's best remarks:

– On our political parties: "The Democrats have traditionally been the welfare party. The Republicans have traditionally been the warfare party. I hate both."

– On right and wrong: "There are only two universal moral laws: First, do all you say you will do. And second, do not aggress against others or their property."

– On our Constitution: "The Constitution is OK... but it's a dead letter."

– On the mainstream media: "The bull market in gold will be over when there's a picture of a golden bear mauling the New York Stock Exchange on the cover of either Slime [Time] or Newspeak [Newsweek]."

– On why to buy gold: "The gold I buy isn't going to end up in a landfill somewhere with all of the other things I buy."

– On the economic intelligence of the average voter: "Twenty-five years ago, I was on Phil Donahue – that was back when Phil was like Oprah is today. A man in the audience got up and said he agreed with me, he was tired of paying so much in taxes. He said, 'The government should pay for this stuff.' The audience cheered."

– On the future of America's government: "It's too late to change the system. It's fundamentally corrupt and too easily manipulated. On the other hand, it's still too early to line the bastards up against the wall and shoot them."

– On public education: "You won't find the right to a free education anywhere in the Constitution because our founding fathers rightly considered the job of educating children a private matter. Public schools got started in Bismarck's Germany, not in America. Bismarck realized to build a powerful central state he needed to indoctrinate the children. It worked. And American politicians, led, incidentally, by the KKK, insisted we follow the model. Public education is like a giant toilet, one that's got to be flushed. You can't solve this problem, you've just got to get rid of it."

New highs: Freeport McMoRan (FCX), Verizon (VZ), Steinway Musical (LVB), NGP Capital (NGPC), Nokia (NOK), Oneok (OKE), Pike Electric (PEC), Marathon Oil (MRO).

In the mailbag... we gasp in awe at the myths and biases of individual investors. For example, a reader below feels cheated because his round lot of 1,000 shares is soon to be converted into only 63 shares... that will trade at a much higher price. Isn't it better to own 1,000 shares than 63, he asks? What ails you, dear reader? Send your questions to us. Sarcasm in our replies doesn't cost extra: feedback@stansberryresearch.com.

"I just attended the latest Gold and Commodities show in Long beach. This was once again a professional-grade event, very focused on adding value for all those who attended. I appreciate the great research your whole team does. It's straightforward advice for 'grown ups' who have sufficient common sense to use it. Perhaps if we all could come at this investing game with a spirit of discovery, capitalizing on your team's research and then continuing to learn as we watch and observe the lessons presented from each of our market experiences. Critics rarely have eyes (and minds) open enough to see all that is going on." – Paid-up subscriber Jim

Porter comment: Kristen Kossuth does a ridiculously good job of making sure the food and beverage is world class at all of our events. Steve Sjuggerud and Matt Badiali do an equally good job of making sure that the content at our annual gold conference is the best available. Thanks Kristen, Steve, and Matt.

"I purchased 1,000 shares of Abitibi on your recommendation. It appears that I will have about 63 shares of AbitibiBowater when the merger goes through. With so few shares of the newly formed company, it doesn't appear that future gains will be very beneficial to me... Thanks for the Penny Letter and feedback." – Paid-up subscriber Clint Hawkins

Porter comment: I published Clint Hawkins' note because it's a good demonstration of one of the most prevalent and powerful biases among individual investors – the share count bias. Most individual investors think of their positions in terms of share count, rather than total capital allocated. As a result, they prefer owning more shares of low-priced stocks. This is entirely illogical. While it's true that low market capitalization stocks have a higher average return than large capitalization stocks, nominal share price is utterly meaningless. The number of shares you own is NOT a factor in your future return or future loss.

You should invest capital in Abitibi if you believe the market capitalization of the company (the total value of all the shares outstanding) is low enough to produce a substantial capital gain, given the company's prospects. The amount of capital you invest should be determined by your risk management approach and the overall size of your portfolio. But the number of shares that amount of capital will buy is completely irrelevant.

"No complaints from me this morning – I thought you might like something positive instead. I enjoyed your comments today about newsletters. Surprising honesty, which is always such fun. You probably have an attorney or editor in your company who advises against that kind of letter. But I suspect (and regret my own cynicism) that the message probably misses many of those who would be offended by it and so they have little to worry about. It must be frustrating as hell to find that bad advice sells better – not that yours is the only area of life where that is true. I expect that when you do find subscribers who appreciate your newsletters you retain them for a long time. I'm certainly one of them, and a lifetime Alliance member. Speaking from the other side as a subscriber my experience has been similar to yours. I've tried dozens of investment newsletters and tried to make them work for me. The usual result has been either a few successful but spotty and speculative calls – when I'm lucky – or a gain equal to the average mutual fund. Often after woeful flops I've ended up writing them off as 'just another god-damned valuable learning experience' – a favorite family motto. Even when I have taken the recommendations and then applied a skeptical and analytical approach to them, they haven't worked out – i.e. the best research can only be done from the ground up. And the danger of newsletters is always lurking: Of being enthusiastically sucked into an investment approach that is exciting but destined to flop." – Paid-up subscriber John Duggar

"I was reading about your e-mail on Extreme Value dated today and there is one thing that I'd like to say. Shame on you if you give up publishing good info. You know deep in your heart that Dan Ferris and your work will pay off in the long run. Hang in there going through the hurdles." – Paid-up subscriber Mario B

Porter comment: Don't worry... I wouldn't have put five years into it if I were going to quit. It's the best newsletter in America. It really is. And I'm very proud to publish it...

"My wife, a retired registered Nurse, was making $23 an hour when she retired and loved the work. She looked forward to going to work every day but was forced to retire due to medical reasons. Sure she would have liked to make more money, but felt she was getting better then the average RN in the area so never complained. A very good friend, on the other hand, is a non-high school graduate union worker for Anheuser Bush Co., has been for 28 years, is still doing the same old job unjamming cans. He hates his job and never says a nice thing about it. He says the rest of his co workers feel the same way. It's all they can do to drag themselves to work. Thanks to the union, this uneducated, unskilled, ungrateful worker makes $28 per hour and enjoys an incredible benefits package. When you talk about $78 per hour blue-collar jobs ($156,000 per year), it's no wonder all the auto industry in this country is bankrupt. Most highly skilled high school grads can expect only $40 per hour after many years of work. I would be interested to know what the average collage grad gets after 20 years on the job, and I bet it is nowhere near $78 per hour." – Paid-up subscriber Glen Maxwell

"Recent local news articles revealed that in the last six years, only one metropolitan area has seen a greater population decline than southwestern Pennsylvania... New Orleans! Mr. Paddock should tour the garden spots of Akron/Canton, Dayton, Cleveland (Ohio), Mon Valley of Pittsburgh, Erie, Johnstown (Pa.), Buffalo (NY), etc., etc., to witness the 'strong, long-term economies' of those and many other strong union areas. Pennsylvania leads the nation in teacher strikes, has some of the highest-paid teachers, yet is very mediocre when it comes to student test scores. Don't tell me about the wonders of unionism. It protects the lazy/fearful at the expense of the most productive. It is time for unions and their corruptions of our society to go!!!"

– Paid-up subscriber Karl Kimmich

"I will invest in anything reasonably intelligent to profit from or help make a Detroit revival happen, but if you financial gurus think you can do it by 'gutting the unions' or issuing a million green cards to the Chinese, you will first have to gut the Michigan Militia and relieve them of their Glocks and AK-47s. As my taxi driver, a former AFL/CIO union die-hard said while traveling from the Detroit airport: 'We were lied to by our union leaders, by the Republicans and by the Democrats. We lost our jobs, our homes, and our dreams for the future. Bring them on baby, this time we are ready.' What kind of financial equation do you have for a solution to that problem?" – Paid-up subscriber Paul Gogulski

Porter comment: If they want to work again, they had better change their attitudes. Detroit, more than any other city in America, needs capital investment and labor deregulation to lay the groundwork for an economic revival.

"I subscribed to True Wealth in January and received the e-mails for Daily Wealth, The Growth Stock Wire, and the S&A Digest on schedule until about 3 months ago. Then e-mail reception became sporadic. My Internet provider said they might be listed on a National Scam Register or some such list but I don't think that is the case... I enjoy reading your information. Keep it coming. I'll obtain it somehow." – Paid-up subscriber Don Currier

Porter comment: We have never, not once in the history of our company, bought a single e-mail address. Nearly ever other financial publisher we know has bought names and sent e-mails to people who didn't specifically request them (a practice people refer to when they talk about "spam"). But not us. All of the e-mails we send go to people who have specifically requested our e-mails. We have an "opt-in" program to make sure we don't send e-mails to people who don't want them. And we allow people to cancel our e-mails at any time by following a simple set of instructions we include at the bottom of every e-mail we send.

Despite all of these facts, the largest ISPs in America – AOL, Earthlink, BellSouth, etc. – routinely intercept our e-mails, label them "spam," and refuse to deliver them to their customers. We don't know why they do so... but we strongly suspect they resent the volume of our publishing activities. When we are aware that they're blocking us – which happens routinely now – we contact them and ask them to stop. But that's all we can do. My recommendation for all subscribers is to obtain a Yahoo! e-mail address (which is free) or a similar free Internet inbox (MSN, Gmail, etc.). It seems like these providers do a much better job of actually delivering e-mail than the companies that own the networks.

"I got the following from the folks at Early To Rise (a health, wealth, and success newsletter headed by Michael Masterson) and I'm wondering if you can comment on it. I'm not asking for advice of any sort (because I know you can't give that out) but your opinion on this would be great. Thanks." – Paid-up subscriber Stephen Borsy

Porter comment: Beats me... I've got no idea what they're talking about...

"I hope that all of your readers took the time to read Doug Casey's eloquent explanation of how central banks operate. If not, they should go back and make sure they read it. I also want to make your readers aware that presidential candidate Rep. Ron Paul is the only politician that even talks about this matter and one of his top priorities is to eliminate the Federal Reserve if he gets elected." – Paid up subscriber Marc

Porter comment: Ron Paul is the only honest man in Washington.

"I cooked a pork shoulder in Easton, MD, last weekend and wish I had more people to enjoy it. Enjoy your writings too." – Paid-up subscriber W.D. Lester

Porter comment: What's your recipe? And send us the leftovers next time...

Regards,

Porter Stansberry

Baltimore, Maryland

May 31, 2007

Stansberry & Associates Top 10 Open Recommendations

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