The S&A Digest

The "mullet crew" is here... Revealed: a $40 million stock tip... The $500 billion gorilla... Addicted to cars... "Nothing but crap"... A bottom in housing?

It's a bull market... The Dow gained 283.86 points (2.09%) yesterday to close at an all-time high of 13,861.73.

Signs of a market bottom? It seems that mainstream investors are going contrarian. As the bull market rages, investor confidence has dropped to its lowest point, 76.1 according to the RBC Cash Index, since last August.

Signs of a bottom in housing... The beaten-down homebuilding sector got a boost today as rumors circulated that Warren Buffett was buying a stake in Hovnanian (HOV). The No. 6 U.S. homebuilder gained 10.5% on the news. Berkshire Hathaway declined to comment.

We reported in these pages that activist investor William Ackman was raising $2 billion to invest in a single stock. It's great work if you can get it, selling a single stock tip for $40 million! We (and others) speculated the stock in question could be Anheuser-Busch (BUD), one of our recommendations. (You could have bought our advice directly for around $100 and saved millions.) But... no such luck. Bloomberg reported that Ackman acquired a greater than 5% interest in retailer Target (TGT). Shares of Target gained 6.8% on the news. Remember... it's a much better business to sell stock tips than to take them.

12% Letter pick Annaly (NLY) priced its public offering of 47 million shares at $14 each. (That's a 1% discount to the company's current price.) The company plans on using the estimated $658 million to buy mortgage-backed securities. Annaly is one of the few mortgage firms to survive unscathed from the subprime debacle.

Extreme Value pick ExxonMobil (XOM), the largest publicly traded company in the world, passed the $500 billion mark yesterday… and is up to $508 billion today. When Dan Ferris recommended the stock (it was trading for less than 10 times earnings) a year ago, we received a wave of complaints. Our audience demanded to know: How can we make money on a stock this big? So far, Dan's up 42%... in a year. Big, consolidated oil companies have been among the best-performing stocks in the world over the last year.

New highs: Anglo American (AAUK), Alexander & Baldwin (ALEX), BHP Billiton (BHP), BG Group (BRG), CGG Veritas (CGV), ConocoPhillips (COP), Chevron (CVX), Eni (E), Freeport-McMoRan (FCX), Winthrop Realty Trust (FUR), Intel (INTC), Korea Electric Power (KEP), Arcelor Mittal (MT), Nokia (NOK), Occidental Petroleum (OXY), Petrobras (PBR), Southern Copper (PCU), Petro-Canada (PCZ), Pike Electric (PEC), Posco (PKX), Sigma-Aldrich (SIAL), Taiwan Fund (TWN), ExxonMobil (XOM), SK Telecom (SKM).

In the mailbag, the first note we've gotten from the "mullet crew." We're glad to have you. And we look forward to sharing a cold one with you in Cancun at the Alliance Conference... And if not this year... soon. We read all your letters. Tell us what you think of our work and how we could improve: feedback@stansberryresearch.com.

"As a recovering pink-sheet player, I hope you afford space for this reply to SC's opinion of Dan's waste of space re: Joe. Get used to it SC, we're here. Dan's posting was required reading for a mullet like me. Since my pink-sheet intervention, I've learned how to reduce risk thanks to S&A. I've even added 3 new subscribers to their tally, gleaned from the ranks of my fellow unwashed clock-punching brethren that had just enough money and Internet to get stupid and waste what sweat brought to exist. I don't know if it signals a top or bottom, but I can assure you that my friends are telling their friends about S&A. And not a single one of us lowbrows bought AHM after being warned to hold our noses." – Paid-up subscriber Kris

"Hey Porter, your site is the best, compared to many other Agora publications. You actually relate to your subscribers. I have seen other newsletters make speculative plays, and blunder badly. Some accept that they made mistakes, but a few I have noticed stay stubborn to the end. I have been an Alliance member, and recently a Phase 1 investor. I commend you on the quality of services and picks. I understand Phase 1 needs to be separate. Many other newsletters have begun offering services similar to the Alliance, but unlike you, they sell you it, then launch 5-10 services that don't count on the package. They then tell everyone that these services have to be limited, so they can't include them in the package. If I could, I would cancel them all but Stansberry Research." – Paid-up subscriber Tim

"$225,000 per parking slot in NYC caught my attention. One of my classmates at Cornell's college of engineering left after his junior year to join his father's growing parking business in DC. I should have followed him because he is probably a billionaire by now. President Bush said Americans are 'addicted to oil.' He misspoke. Americans are addicted to the automobile, and that love affair is not likely to cool down even if the price of gasoline doubles." – Paid-up subscriber John Snedeker

Porter comment: My wife loves carpets. I love cars... so I understand the addiction. I'm looking for a 1963 Lincoln convertible... or a similar, big, 1960s convertible. I want a car whose very appearance makes environmentalists want to puke. If you've got one in mint condition, let me know. I'll get a custom license plate that reads: GWARMING.

"Keep up the good work. After reading 'action' I understand all the disclaimers you now have. Seeing the return address of Utah (the SEC address), having followed your readings, I can guess who you 'pissed off.' You and your crew sell valuable information to your clients, infant investors to the savvy Wall Street types. Something for everybody. Condensed knowledge for all. How we use it is our choice. I'm learning. Yes, I make mistakes. I make money too. I'm much better off than I was six months ago. Your methodology is unique, entertaining, and effective, above all HONEST! Again, a hearty THANK YOU. Disclaimer: I'm not drunk, I have a good job, and I'm not related." – Paid-up subscriber Barry Lewis

"I just wanted to say thanks for the great recommendations. I just started investing a few weeks ago and I'm thrilled with the money I've made from the recommendations. I have had all sorts of jobs in the past, ranging from being a ditch digger to selling computers for Dell Inc. I have never had so much fun making money in my life as I have in the last few weeks. As for the whiners who write in complaining, I learned when working at Dell that no matter how good a deal you give people, at least 20% of them will call back in, whining and griping because you didn't give them the moon and wrap it up in a pretty pink ribbon. I have nothing but good to say about y'all and will recommend your service to many people." – Paid-up subscriber Daniel Duke

"This service is nothing but crap... Nothing has been of any use to me, and I will tell everyone I know how I got screwed on this site. You are nothing but crooks!" – Paid-up subscriber Howard

Porter comment: My first full-time job (age 15) was hosing out dog feces at the neighborhood veterinarian's kennel. After spending a year in the kennel hosing dog poop off metal cages, I'd learned what I didn't want to do the rest of my life. We appreciate our customers. We're humbled by your trust and commitment to our work. And we're genuinely miffed by e-mails like Howard's.

"I joined the Alliance when it was first offered. I think I paid $2,500. Would that be 2003? I'm not sure. But I know my 401k was then valued at around $350,000. It's now at $825,000. If we subtract the $70,000 I put in since then, and take a guess at income tax due when withdrawn, that leaves me with $300,000 to spend. I think that's a pretty good value. But the BIGGEST VALUE to me comes from understanding what this investing business is about! Actually having a plan instead of wondering what the heck happened! I don't have time to do all the research – I am SO thankful that you guys like doing it! – but I think I'm getting the big picture. I've also been able to help my husband and stepsons make better investing choices. Anytime a friend says they'd like to do better, I give them your info and tell them it's the best investment they can make." – Paid-up subscriber Sally E.

"I normally maintain a low profile about my financial transactions/philosophy. But these people who gripe and carp at you are, in my opinion, very intellectually immature. They are crying 'foul' with a loaf under each arm! They don't know how to take responsibility for their own decisions/actions. I've been an Alliance member for less than a year and am very happy with how you handle the data you dispense. I am an estate administrator and handle millions of dollars of OPM. I also have my own portfolio that is based on an entirely different philosophy. I do very well with just your recommendations and my Dow Theory Letter (you know who writes that, I assume). But I also subscribe to the Cramer rule: Do your own research... at least an hour a week on each investment, and stick to your aims/goals. As my father used to say, 'Trust everyone, but cut the cards.' I'm 84 years old, so I am not worried that you will go out of business before I do." – Paid-up subscriber Anonymous

"I've been an Alliance member for several years. When I joined, I thought it was very expensive, but today I can't even remember what I paid. The individual editors are all worth reading. They are smart, experienced, forthright, independent, and independent from each other. Their investment talents range from excellent to incredible. But there is a big difference between the experience of a subscriber to one or two individual newsletters and the Alliance. An Alliance member can read every one of the newsletters current and past and compare all of their recommendations over any period. A member can follow any one of them, test them, compare them and sort out what is best for himself. For example, Jeff Clark is brilliant, but his recommendations require fast action – I don't have the time for that, so it's not for me, whether or not the results are good. Badiali is really hitting his stride, and it's fun to be part of that, and from him and Sjuggerud the Prospect Generators 'fund' is an entertaining and low-cost way to do a little speculating. Your own recommendations have been excellent, particularly the performance of the behemoth companies you've picked over the last year – unexpected, and now a huge lesson learned. Dan Ferris is extraordinary, and along with great returns I've learned so much from him about patience, valuation, and the confidence to go against the crowd that Extreme Value investing offers. Unlike one of your readers, I love the shuttle driver story – it's not mean spirited, it's instructive about how an elaborate investment system maintained with great time and energy can completely miss the point and fail. Try looking at the story as an analogy for the investment programs and 'research' offered by huge financial services companies – and laugh!" – Paid-up subscriber John Duggar

Regards,

Porter Stansberry

Baltimore, Maryland

July 13, 2007

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