The S&A Digest

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

As of 06/27/2013

Even more bullish on China... More insider buying at AutoZone... Pulling out of Venezuela... Lunch with Buffett?... "I'll drive the support van..."

Signs of a market top... Analysts of Chinese securities are the most bullish they have been in a decade. Total buy calls from local and foreign analysts rose to 67.4% of all ratings this month, the highest since Bloomberg began collecting the data 10 years ago. Sell calls make up 10.3% of all ratings, the lowest percentage in a decade.

Investment firm D.E. Shaw & Co. is continuing to add to its AutoZone (AZO) position despite the soaring stock price. D.E. Shaw, a global investment manager with $30 billion under management, now owns 3.37 million shares, or 5%, of Inside Strategist pick AutoZone. Since March 31, the company has purchased 430,000 shares of the auto-parts retailer. D.E. Shaw is still the second-largest shareholder behind the famed Eddie Lampert, who owns 33% of the company through his ESL hedge fund. Graham Summers' subscribers have made more than 40% on the recommendation, so far.

To grab or not to grab... CBOT Holdings (BOT), a futures exchange, announced a $9.14 dividend payable to holders of its class A stock. CBOT will pay the dividend to shareholders of record as of July 5 only if the shareholders agree to merge with the Chicago Mercantile Exchange.

Extreme Value pick ExxonMobil (XOM) and S&A Oil Report pick ConocoPhillips (COP) both rejected deals to stay in multibillion-dollar projects in Venezuela. Late Monday, ConocoPhillips announced that it would walk away from its holdings in the Orinoco Valley. The abandoned projects account for 101,000 barrels of oil equivalent per day, or 4% of Conoco's output.

This news brings two things to mind... First, if you believe (as I do) that the U.S. government in general, and our foreign policy in particular, is the pawn of large multinational corporations, right about now is when the CIA will act to overthrow Chavez.

Second, we notice that our friend Mohnish Pabrai has continued to add to his position in Harvest Natural Resources (HNR). HNR is an oil company whose sole operations are in Venezuela. While the big boys are moving out, HNR cut a deal to operate dozens of additional wells on behalf of a new joint venture it established with the Venezuelans. Last year, at our S&A Alliance meeting in Aspen, Pabrai told us the stock fit his strategy perfectly... and we've been watching it closely since.

Ready for a tax write-off? The annual Warren Buffett charity lunch went up for auction this Sunday on eBay. The current high bid is $107,400. The winner will have to shell out considerably more than that for a Smith & Wollensky lunch with six friends and the Oracle of Omaha. Last year's winner paid $620,100.

Claymore Securities launched the first Sudan-free ETF. The ETF includes 724 companies with market caps of more than $1 billion, none of which do business in Sudan.

New highs: Given Imaging (GIVN), Taiwan Fund (TWN), Westshore Terminals (WTE-UN), Southern Copper (PCU).

In the mailbag... a debate about oil shale and quantitative analysis. Let us know who you think won: feedback@stansberryresearch.com.

"I see today you put out another letter about the Colorado Shale Oil. I don't think [you're] being [completely] honest about this so-called discovery... They have known it was there for years but, having tried to produce the oil out of that stuff, the big companies gave up. It will cost a gazillion dollars to produce the product... I read where [their] [planning] on putting thousands of feet of pipe into the rock and then heat the rock so as to move the oil out of the shale. This is a tremendous expense and I'm sure the [environment] experts will scream bloody murder if you try to do anything of this scale to the mountains of Colorado." – Paid-up subscriber Nolen

Porter comment: Of course it's not a new discovery. Our letter explains exactly what we're talking about – shale oil. You apparently don't believe shale oil can be economically developed, but you're dead wrong. Productive shale oil facilities operate today in three countries – Estonia, China, and Brazil. And the Rand Corporation says shale oil can and should be developed here in the Green River Basin that our report describes.

In fact, the Rand report reads a lot like our sales letter: "[B]etween 500 billion and 1.1 trillion barrels of oil are technically recoverable from high-grade oil shale deposits located in the Green River geological formation, covering parts of Colorado, Utah and Wyoming. The mid-point of the RAND estimate – 800 billion barrels – is three times the size of Saudi Arabia's oil reserves. This is enough oil to meet 25 percent of America's current oil demand for the next 400 years."

Shell Oil estimates its total costs to produce shale oil in Colorado will be competitive, as long as the price of oil remains above $30 per barrel. By the way... once you understand a bit more about shale oil, the whole idea of "Peak Oil" seems like a bad joke.

"Interestingly, the critique of Ian's Max Value strategy did not aim both barrels at the quant idea itself. Quant analysis, to my knowledge, assumes that history repeats. I've been an Elaine Garzarelli subscriber for some time and have found her quant calls to be generally on the mark – it's the timing that can be off... This being said, I think that using quantitative analysis for trading makes more sense than for investing. Holding periods are shorter, and the system is less susceptible to 'time risk' – the risk that something will blow up when you hold the position." – Paid-up subscriber Jim Pursley

Porter comment: Ian's quant analysis isn't based on cyclicality – the idea that history repeats. Some "technical" systems do operate under this assumption, but that's not what Ian does. Instead, Ian is quantifying and proving statistically various known market relationships (correlations) to discover profitable indicators. Max Value is one such leading indicator. When a basket of equities gets cheap enough, the value inherent in the basket will begin to attract investors. We know fundamentally this is true – we know value is a cause of future profits. What we don't know is precisely at what level the value in the basket will be large enough to cause investors to begin buying. Ian determines these key levels using statistics, which filter out the "randomness" of history to a large degree. While nothing is certain, our confidence can be extraordinarily high (95%) that a given indicator will prove to be profitable.

"[Calgary to Vancouver] is the most beautiful 600+ mile drive in the world. We took that drive last summer. It goes through a few national parks and past gorgeous mountains, rivers, valleys, and lakes. If I lived in Canada, it would be somewhere along that route. How many days are they planning for the bike ride? It better be at least a week, and if they want to enjoy it, make it two weeks. Do they need someone to drive support van? I am available." – Paid-up subscriber Terry

Porter comment: That's probably not a safe offer... they might just take you up on it.

"First off, I've been an Alliance member since 2005 – while I hit a few bumps on the way over the past 20 months, I could not be happier. I've easily made 70 times the Alliance membership fee, and I've diversified a portfolio that was previously all Qualcomm and long-term biotechs, using just about all your newsletters... When I was a new subscriber, I immediately liked your research and after careful reading bought quite a few positions. But I was dismayed when I would then see in another newsletter that the same stock had already been recommended at a much lower price. I'll use EnCana as an example – I bought at $51 in Dec 2005 based on the S&A Oil Report. It took me until March 2007 to just break even. Now I'm up 23%. But many months after I bought the shares, I learned that EnCana was already recommended in Extreme Value in May 2004. Those subscribers are up over 200%. I probably would have still made the purchase, but a cross-reference would have given me the opportunity to read Dan's write-up as well as Matt's." – Paid-up subscriber Tom Cramer

Porter comment: We recognize that S&A Alliance members (who have lifetime access to all of our publications except Phase 1) need a much better search function on our website. Ideally, if you want to know what we've written about any given company, you'd just punch the symbol into our website and all of the articles we've ever written about the stock would appear. (This would certainly make writing the Digest easier, too.) We've spent six months and lots of money building such a website, and we are testing it now. We'd hoped to launch it in June, but as with most things relating to information technology, it's taking longer than expected. It should be up after the July 4 holiday. And yes, I'm sure there will be bugs at first... but soon you should be able to cross-reference our work.

"I am a retired Naval Intelligence Officer and I have been [subscribing to] Porter and Steve for 10 years. I joined the Oxford Club in the early 90s, became an Alliance member when Steve joined Porter with Stansberry & Associates. The reason for this e-mail, I would like to thank Porter for starting Stansberry & Associates. It is the best group of newsletters in the business. Not since my days in the intelligence community have I seen this kind of analysis of the world economy. I don't have the resources to invest in everything, so I pick and choose from what I like best. Thanks to your advice, I had to pay the U.S. Treasury an extra $50,000 in capital gains taxes last April 15. The unrealized capital gains make the prospect of future taxes a little scary. Keep up the good work. Since I already get nearly all the newsletters, a little less advertising for things I already subscribe to would be nice." – Paid-up subscriber Omas Peterson

"Just thought I'd ring Jeff Clark's bell! I bought Home Depot calls at $1 (10 contracts), it went up to $1.30 Then it dived to $0.70, so I bought 10 more, cost basis $0.85. Sold 20 contracts at $2.10 – 147% gain. Jeff, come to dinner in Texas, I owe you a Big Steak!" – Anonymous

"I keep reading in here about people that slam you guys. I also see comments like ‘you have to be rich' to profit from your investment letters and advice. I'd like to answer to these folks with my experience. I am a novice investor who signed up for Porter Stansberry's research and for a whole year did not invest. In fact, I did not renew until a very friendly customer service person called and asked if I wanted to renew. I declined as I really did not have extra cash to invest, and voila! Very soon after that I got an unexpected Xmas gift from my dad, $10,000. I made up my mind and called customer service back and renewed my subscription. I opened my first brokerage account, read Porter's recommendations very carefully, and when I saw how passionate he was about Akamai, I plunged in. Long story short, I made an $8,000 profit in a matter of months. I've subscribed to Badiali's Gold Report, which was expensive, but that puppy has paid off in thousands through my beloved Southern Copper. I've subscribed to Steve Sjuggerud's True Wealth and [Dan Ferris'] Penny Letter. I also signed up for The Big Trend Report, which didn't work for me and was very politely refunded. In a short period of time, my portfolio has grown tremendously, thanks to you guys! I think you're the greatest, and for those that think you are frauds, I'll send them the name of my friend's stockbroker, who really is a fraud!. Please keep it up – as well as the barbeque recipes (hey, I live in the south!)." – Paid-Up subscriber Ingrid C.

"Oh blasphemy!! A loyal subscriber recommending the competition. I suspect this will not see print (Agora will skin you alive), however, on the off chance that it does – For you nuts out there who are determined to trade IPOs, there is a new trading service dedicated only to IPOs – Leeb's IPO Insight. Go to LeebIPOInsight.com and read about it. I don't have anything to do with his business or sales. I just subscribe to his stock letter to read his research and opinions, which I respect. His stock picks aren't bad, but my money goes with the Stansberry crew." – "LOYAL Alliance subscriber" GS

Porter comment: We've written at length in these pages that it's easier to sell bad investment advice than it is to sell good investment advice. Ergo, most financial newsletter publishers produce at least a few letters whose advice they'd probably never follow. I know Leeb broke away from his publisher a few years ago... and I'm sure he needs the business... but I have to wonder if Leeb truly thinks buying IPOs is a wise strategy.

"I note with interest your comment about Eni and Gazprom and whether Putin would allow Eni to keep the 'South Stream' pipeline once it was finished. When I was at college in England in 1977, my teacher of economics said that the banks of Luxemburg had been told in 1917 by the communist government that they would not pay for the TransSiberian Railroad as it was not their government that had made the commitment to pay the outstanding [balance]. Fifty years later, the communist government was still unable to get loans from them due to refusal to pay on the obligation. Europeans were unwilling to give the best interest rates as the obligations of the past had not been met even though they had received the benefits.

"I have no doubt that it will cost Putin and the Russians again for this attitude of reneging on their obligations. People and entities will pay eventually even if it is only in higher interest rates." – Paid-up subscriber Ian Priestley

Regards,

Porter Stansberry

Cockeysville, Maryland

June 26, 2007

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