The S&A Digest

AHM debacle... The dollar falls... Automatic toilet paper... Citi moves to Tokyo... Liars?... What our S&A Alliance customers think about our service...

Lots of mail today... and much of it is angry and accusatory... don't miss it.

Signs of a market bottom?... Yesterday, the U.S. dollar fell to an all-time low against the euro. Fears about the subprime crisis have speculators betting that the Fed will cut short-term rates, weakening the dollar further. How far will the dollar fall? Typically, these trends go to extremes before they reverse... so it could certainly move a lot lower. But we expect the dollar to put in a bottom shortly. How do we know? The best-selling advisory in our industry last quarter was a "forex" trading system. After five years of a falling dollar, small-lot speculators are ready to bet against it. Seems like a good opportunity to go long the dollar is coming...

Nevermind the future of the currency... here's some important news: Kimberly-Clark is releasing an automatic toilet paper dispenser. The $35-$55 machine spits out five sheets of tissue with the wave of a hand. The company surveyed focus groups to determine that five sheets is the optimum amount of paper... I wonder how much money they spent on the study.

12% Letter pick Citigroup (C) is going long Japan. After buying Japan's third-largest retail brokerage, Nikko Cordial, for $10 billion, the U.S. bank is now trying to list its shares on the Tokyo Stock Exchange. Citi will also increase the number of local branches in Japan by 40%.

New highs: CGG Veritas (CGV), ConocoPhillips (COP), Intel (INTC), Petro-Canada (PCZ).

Oh boy. They're letting us have it. We've got "privileged clients," we're liars and frauds, we're going out of business... and we can't be trusted. What have we done to wrong you, dear reader? Let us know... before the line gets too long: feedback@stansberryresearch.com.

"I have been an investment manager for over 20 years. In that time, I have reviewed and tried scores of investment research letters. I am now down to Stansberry Research and one other and use them pretty much exclusively as a starting point for my own research. I don't buy all the recs, but pick and choose based on my own methods and homework. As a result, I have some from each publication. I have been an Alliance Member for over three years, and it was the best money I ever spent on my business. I have happy clients, and I am extremely pleased with the research and analysis provided, as well as the new publications that come with the service." – S&A Alliance member Wendell Heximer

Porter comment: That's about the best compliment we've ever gotten. Thank you for taking the time to send it to us. It couldn't have come at a better time...

"I have been an S&A Alliance member since it was first offered. I believe it to be one of the best decisions I have ever made. The investment advice gleaned from Steve's, Dan's, and Porter's advisories made me a better, more knowledgeable investor. Since joining, my portfolio has grown by several hundred thousand dollars. Subscribing was a no-brainer – imagine having access to all the advisories for life at a cost that was covered by less than four trades! I look forward to a long and prosperous relationship." – Paid-up subscriber Donald Koffman

"I am very well satisfied with my Alliance membership. I keep three portfolios. The first is comprised of positions I retained from my private bank-managed portfolio. It is up 26.21% over its lifespan of five years. I keep an IRA, which contains both your recs and theirs, so I can't compare very well. The third specifically tracks the performance of positions I have taken on your advice. It is up 52.61% since I joined in December 2005. These performance numbers do not include dividends, rights, or splits... My subscription has been paid for several times over." – Paid-up subscriber Anne Thanhouser

"I've done quite well since becoming an Alliance member over two years ago. My gains have been multiples higher than the initial price. I've been able to set up a diversified portfolio consisting of about 70 stocks – a sort of personal mutual fund. I usually limit the position size to less than 2 percent of total capital and use 25 percent trailing stops on all positions except those involving Extreme Value recommendations. You know what? Those Extreme Value recommendations have been the most profitable over time." – Paid-up subscriber Greg

"What guarantee is there that the S&A Alliance will continue for an indefinite period of time? What happens if the S&A Alliance is discontinued after, say, three years? Assuming it would be discontinued for financial reasons, I would assume a refund would not be available. Appreciate your feedback." – Paid-up subscriber Linus

Porter comment: We've gotten this question consistently since we launched the S&A Alliance in late 2003. I've always insisted on answering the question honestly... which I'm sure spooks a lot of folks.

I cannot make any guarantees about how long we'll be in business. You never know what tomorrow will bring. And, if we go out of business, we won't be able to fulfill your subscription for as long as you might choose. However, in our industry, it is very common for other publishers to assume the responsibilities of fulfilling subscriptions, when publications fail. In other words, if we were to fail, we probably would be able to provide you with a similar service from another publisher at no additional cost to you. Those are the facts, in the event of bankruptcy.

Meanwhile, I am pleased to tell you that, since we started this business in 1999, we have consistently operated at a profit. Agora Inc., our parent company, has been operating profitably since the late 1970s and has millions of readers around the world. Its president, Bill Bonner, is one of the most respected men in our entire industry.

At the present time, I have absolutely no reason to suspect that our business is anything other than extraordinarily healthy. We have never had more subscribers, more readers, more employees, or higher revenues. Given the long-term relationships we have with thousands of subscribers, I have a very high degree of confidence that we will be in business for a long, long time. I plan on being involved in the day-to-day affairs of this company for at least the next 10 years... and I'm sure that whoever we find to replace me will do an even better job. We have long-term employment agreements with all of our analysts.

Folks who trusted us four years ago didn't have any of these reassurances. They simply judged us to be credible and honest. They've gotten a hell of a good bargain. I believe you will, too. And I'll do my best to make sure you do.

"Well, well, well... So, you actually admit you are cockroaches? Do you know how it makes me feel to be getting investment information from cockroaches??? (Evolution advice, perhaps, but investment?) Tsk..." – Paid-up subscriber Martha

"Extreme Dan Ferris has a good track record... but, for goodness sake, please give us something better than a story about a shuttle driver's stock picking... maybe it would be a kind gesture to give him a few back copies of Extreme Value rather than gloating over the poor fellow's lack of investing prowess." – Paid up subscriber SC

"I am a current subscriber to the S&A Short Report. Over the past two weeks, I have noticed some rather suspicious activity on the day the recommendation is sent out. Yesterday, the play was SWC. I received the alert at 11:25 a.m. PST time stamped on my e-mail. I clicked over to my trading screen and saw over 2,000 contracts already purchased with the stock being up more than 5%. I then went and looked at the charts at the end of day and saw that the stock price took off at 11:20 a.m. PST, five minutes before I received the trade recommendation. It leaves me to believe that your office has a privileged group of subscribers who receive these recommendations before others. The same thing happened last week on the trade with NEWP. I find it very hard to believe that these are just random events. I would appreciate your response to these concerns." – Paid-up subscriber Rob Routledge

Porter comment: Regarding your concern that we have "a privileged group of subscribers," I can assure you that we do not... we simply have no reliable way to ensure that everyone receives our e-mails at precisely the same time. We send all the S&A Short Report e-mails at the same time, using our fastest server and an automated list-management system. Believe me, the computers don't know who you are, and they don't play favorites. But different ISPs handle e-mail from us at different speeds. Yours apparently takes a bit longer than other people's. We've seen up to 10-minute delays from some ISPs. We'd tell you who is slow and who is fast, but delivery speeds constantly vary depending on their network traffic.

To ensure everyone gets the information at the same time, we used to send all e-mails after the market closed. But that caused other problems – namely that it gave the market makers too much time to prepare for our recommended trades. Our editor, Jeff Clark, thought more subscribers would have a chance at getting better fills if we switched to intraday publishing. Unfortunately, because of the vagaries of e-mail distribution, this isn't working either. So, we'll have to go back to after-the-market publishing, and subscribers will have to learn to game the market makers.

"Porter, I've consistently made money – thanks mainly to Ferris, but also to Matt the Oil Guy... Since May 2004, I've made about 21% per year with limited risk... [But] I do question your accounting methods: Your profit count is always higher than mine, and, as I've written several times, I'd hardly call your tote board "conservative." I recognize that your publication business is like having a shark in your swimming pool – no problem as long as you keep swimming fast. Thus, the need for continual puffery. This I accept. But the "results column" should be impeccably conservative, and this I have not seen in past three years. In fact, Jeff Clark's summation of his short-term recs... is also skewed to the high side of the results I've had from him. Maybe execution timing plays a larger role in his stuff, no? Finally, your remark... seeking readers' appreciation of your modesty caused me to snort my sasparilla out both nostrils. Jesus, Porter, in case no one's told you, modesty is not your long suit." – Paid-up subscriber TIA

Porter comment: Yes, I know... some people think I'm immodest... but that's only because they don't know how good I am... Really though, it seems strange to complain about Jeff's approach or about our track record – you're making 21% a year! We track the price of the recommendation when we make it. We record the closing price of the recommendation when we say "sell" or when it hits a trailing stop loss. Your results will vary, depending on when you act and the price you get. I don't know how else to compile a track record honestly. What do you recommend?

"Your answer in the S&A Digest this morning essentially leads one to believe many of your subscribers are upset with your tactics and, to be as tactful as one can be without outright calling you names, your response is disingenuous at best. 'Free' has a clear meaning... 'you can have it without charge.' It doesn't mean 'buy something else and then you can get it.' Your offering for the Where To Put Your Money Now report wasn't contingent upon making another purchase until you waded through, as the customer... notes, a short book. Your answer is shocking. Essentially, you say, 'Hey, you ought to know by now we're crooks, so why would you believe anything we have to say?' Not only that, but you mocked your customer with your own sarcasm when you emphasized he was a 'paid' subscriber. One can only wonder what you would've said to one who wasn't. You guys need to clean up your act instead of rationalizing every objection you get.

"If you're all such hot shots giving away the stock recommendations you falsely promised as free makes sense, as they would hit [and] make me money [that] I would in turn use to buy your service to attempt to make more. I would find you a credible source in a sea of charlatans. Instead, you unfortunately damaged your own credibility by using the tactic you justified as a carnival come-on. You stole the time from us it takes to wade through the b.s. you put out on this only to find out that 'free' doesn't mean free to you. Instead, it apparently means if you're dumb enough to trust you, do business with you, and [buy] your service, then tough crap, sucker. [A]nd if we find out you're scamming us before we bite, then we're fools for wasting our time finding out about you in the first place.

"Most of the time you can tell when it's a come-on, but not this time without a lot of research. You were not up front with this, you offered a no-charge list because we already were your subscribers, and you then refused to deliver it without purchasing yet another offering after you wasted our time. You are wrong. Be a man, own up to it, apologize to Mr. Ryan and the rest of us, and change your ways. Then deliver the report. You can either do that, or instead let's just send all of this to the FTC and let them decide who is right here, because I've seen enough of it and this takes the cake." – Patrick R Barnes, "paid-up subscriber to True Wealth and S&A Oil Report, but maybe not for long with these kind of shenanigans"

Porter comment: Well... I'm glad you didn't call us any names... You know, we tried your recommended advertising strategy once. We sent out a letter that gave away all of our current best advice. We told people, "Look, our research is so good that we'll show it to you upfront. We bet you'll pay for it, just to get more research like this from us."

Guess what happened? It was like trying to sell someone dinner at a restaurant, right after they'd eaten a free meal. I respect all of our customers enough to trust them with seeing our advertising for what it is – an attempt to interest you in buying more of our products. I personally see nothing dishonest about offering a "free" premium in addition to another item that is for sale. Other businesses do this all the time: "One free room, when you spend three nights."

We sell information for a fraction of its useful value. We don't require that you give us a percentage of your assets or a percentage of your profits. We sell our research to anyone – you don't have to have a rich uncle or a million-dollar account with our bank. We know that our research is among the very best you can get from any source anywhere. And, unlike anyone else in the investment business, if you don't like our service, we will happily give you your money back. How is any of this dishonest? To stay in business, to grow, to afford to hire the best analysts, and, yes, to make a profit, we must advertise. I don't know too many businesses that can thrive without it. But, if you truly believe that our sales practices are fraudulent, if you truly believe that we are trying to "sucker" our customers, then you shouldn't do business with us. We'd much rather refund your money and part as friends, than for you to leave in a huff and think terrible things about us.

"I've read the 'feedback' messages that you elect to post in the S&A Digest, so I have to concede that there are subscribers who have made money on your recommendations. I'm certainly not one of them! I'm seriously questioning how some of your analysts arrive at their recommendations... One specific example was your strong recommendation on American Home Mortgage (AHM). Your recommendation, in essence, was 'buy it, forget it, and keep it through retirement.' Well, I bought it! After its 23% decline in two days, you posted another review of AHM [that] basically said, 'Ooops, but continue to hold it.' I did. It's now down another 12% from your 'ooops, but continue to hold' – making a total decline of 32% from when I acted on your recommendation. Why didn't your analyst know this company was secretly laying-off hundreds of employees since May, was incurring more loan defaults than projected, overstated estimated earnings, etc.? I could have, at least, cut my losses if you didn't recommend a 'hold' after their first major decline. Now, I have a tremendous paper loss; don't know if this company will be another subprime bankruptcy, and, just as bad, I now have to question your recommendations and the value of the Private Wealth Alliance I'm subscribed to." – Paid-up subscriber Larry

Porter comment: Larry... I did the research on AHM myself. We "bought" the stock because we were told the company had written off all of its subprime losses, because it was able to get additional cash from Citigroup on favorable terms, because its CFO was buying stock for the first time in years (a sign that the mortgage portfolio was sound), and because we thought the worst of the mortgage mess was behind us. In the months that followed, however, the company wrote off still more loan losses, needed hedge-fund financing (and had to accept unfavorable terms), and the mortgage mess now seems to be spreading into "Alt-A" loans, which are AHM's bread and butter.

In short, we were wrong about the risks, and we were wrong about the stock. That happens from time to time when you invest in speculative situations. But... your description of my recommendation isn't at all accurate. In fact, what I wrote was:

Close your eyes, hold your nose, and buy shares of American Home Mortgage Investment Corp (NYSE: AHM, $22.50). Use a 25% trailing stop loss...

I explained that this was a risky situation. I most certainly did not tell anyone to "buy it and forget it." In fact, in the same letter, I recommended a much safer stock first. Here's what I wrote:

Put this stock away in your kid's college fund or your long-term retirement portfolio. I expect this company to be a 20%-30% average return investment for the next 20 years...

Bank of America recently upgraded this stock, and it is already close to a double-digit gain. There's not a securities analyst in the world who gets every single pick right. We're doing our best.

"We are coming off of a longish assignment as caregivers to a family member with Alzheimer's. Currently, having no abode of our own, we have been considering Tennessee as the potential. Can you point me to where I can research 'self-contained properties?'" – Paid-up subscriber Warren Howard

Porter comment: I haven't bought any timberland or gas acreage... yet... so I can't recommend any particular broker from experience. If you find someone good, please let us know. One website I've found that's a good place to start looking for rural land (and features land for sale in Scott County, Tennessee) is: www.landandfarm.com.

Regards,

Porter Stansberry

Baltimore, Maryland

July 11, 2007

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame

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

As of 06/27/2013