The S&A Digest: GM gives in

GM gives in... The dollar crisis... China bubble?... Big new gold discovery in Australia... Huge Chevron buyback... How to get started... Bullion versus gold...

GM has done it again. The carmaker caved to the union, offering jobs and benefits it can't possibly afford. Specifically, GM has agreed to pay another $30 billion in health care benefits in exchange for what the company says will get it off the hook for all future health care expenses. Ha, ha, ha... When you read the fine print, you see the deal also has a "backstop," which means if health care costs rise too fast, the union can extort even more money from GM. But that's not the "best" part of the deal. Incredibly, the union negotiated to keep the so-called jobs bank, where redundant employees from closed plants continue to be paid.

How will GM come up with the $30 billion? The talking heads on CNBC point out that the company has $20 billion in cash and another $20 billion in receivables, so in theory, it could pay the bill from its current assets. But that analysis ignores the $66 billion the company owes in current liabilities – due this year. GM will have to borrow the money to pay off the union. And how will GM continue to pay for employees who aren't building cars? We don't believe it can. Too bad GM's shareholders don't have their own union.

Foreign exchange trading rose 65% in the past three years to a record $3.2 trillion a day, led by hedge funds and foreign investors. Every speaker at Grant's Interest Rate Observer Conference said shorting the dollar – or as Jim Grant refers to it, "that worthless piece of pa... the dollar" – is the easiest bet you can make. We're not so sure. Against many major currencies around the world, the dollar is very near all-time lows. Sooner or later, other governments are very likely to take actions to support the dollar, if only to protect their export-led economies. These "beggar-thy-neighbor" policies are one of the major weaknesses of the current global currency regime: None of the world's "flavors" of paper currency have any legitimate base value.

What happens when governments around the world are fighting to devalue their currencies? Gold soars. When asked for his thoughts on gold, legendary real estate investor Sam Zell said coolly, "All I know is that gold has a depletion effect on my balance sheet due to my wife's activities."

More about Sam Zell... We admire the man tremendously. He built the largest collection of privately owned commercial real estate in America, Equity Office Properties, and then sold the whole thing to Blackstone at the very peak in commercial real estate prices.

What do you do with your capital after you've cashed in almost all of your U.S. real estate? Zell told the Grant's audience yesterday that he's got money all over the world – mostly in emerging markets. He told the story of a 100,000-square-foot warehouse in Laredo, Texas. The tenant, Nokia, offered a 7% cap rate. He then found another 100,000-square-foot warehouse in Monterrey, Mexico – 100 miles away – also occupied by Nokia. That warehouse had a 14% cap rate. So, now he's the biggest warehouse/distribution owner in Mexico.

(Sam Zell also runs one of America's great "Secret Investment Societies" - one that has returned more than 700% over the past four years. Subscribers can read my full report on our website. If you're not a subscriber and want more information, click here.)

Is China a bubble? Not according to Chen Xiaosheng, general manager of Shanghai Shenyin Wanguo Research and Consulting and a speaker at Grant's. When faced with the question, Chen said that Chinese stocks are "only" trading at 43 times earnings and 35 times next year's earnings. The country's growth can more than back up those multiples, he said. The S&P 500, which is at an all-time high, trades for a bit less than 18 times earnings. So how could Chen believe these multiples are justified? His firm provides market research and investment strategies to major domestic and foreign firms... and his clients don't want to hear that they're buying into a bubble.

Our old friend Dan Denning (author of The Bull Hunter) packed his bags a few years ago and decamped to Australia. Dan figured the global commodities boom would last a few years, and he wanted to be close to the action – Australia is one of the world's major commodity-based economies. This morning, Dan's team in Australia sent over a report on the big new BHP gold discovery there:

"BHP Billiton's U.S. listing (BHP) climbed by 18% in the last two weeks on a rumor that the company would upgrade its gold resources at its Olympic Dam mine in South Australia enough to make it the largest gold mine in the world. What exactly did the company reveal in its annual report today? Specifically, how large was the upgrade in the resource base, will those resources become reserves, and what is the short-term and long-term impact on earnings and, more importantly, the stock price. BHP upgraded resources at Olympic Dam to 7.7 billion metric tonnes from 4.4 billion, a 75% increase. The resources in question are uranium, gold and, copper."

To listen to the entire report, click here.

S&A Gold Report pick PolyMet Mining (PLM) reported a 51% increase in proven and probable reserves at its wholly owned NorthMet Project.

Nasdaq has selected Phase 1 pick Arena Pharmaceuticals (ARNA) as one of the inaugural companies in its NeuroInsights Neurotech Index. Arena is one of 32 companies in the new index, which focuses on companies developing technologies and therapies for the brain and nervous system. Shares jumped 1% on the news.

S&A Oil Report pick Chevron (CVX) announced a three-year, $15 billion share buyback, which equates to about 7% of its outstanding stock. The company has repurchased $5 billion of stock since 2005.

Wachovia upgraded Extreme Value pick American Eagle (AEO) to "outperform," citing stronger merchandise lines and improving margins. Shares gained close to 2% on the news. Even better, Inside Strategist editor Graham Summers recommended American Eagle call options to subscribers last week. Those who entered the options play made 80% in a week.

S&A Dividend Grabber pick Transaction Network Services (TNS) signed a deal with the Singapore Stock Exchange to distribute its market data to the global marketplace. Outside institutions will now have high-speed access to the securities and derivatives markets in Singapore through TNS's top-notch networks. Readers are up about 30% in five months on the recommendation. If you've never "grabbed" a dividend before, learn how the strategy works here.

New highs: none.

More today on Africa and gold. Also, we're happy to answer questions you have on our services, just remember... we can't (and don't) offer individual investment advice. Send us your rants and ripostes here: feedback@stansberryresearch.com.

"I have done, or tried to do business in Africa, in the Ivory Coast (Cote d'Ivoire) and was undone, in the end, by corruption. My local partner was stealing the profits from our company and more, with the connivance of a friend of his who was a manager at Citibank in Abidjan. My attorney, a well respected former chancellor of the local bar association, told me that going to court was pointless, since my partner was protected by a high government official who would only have to pass the word to a judge and the case would be decided against me. I think it is true that aid by itself has not achieved a lot in Africa. What the leaders of the country need to learn is that for the country to succeed economically, investors must know that they will have true legal protections, mechanisms for enforcing their contracts, and respect for the law, including the criminal code. As is now being demonstrated in Pakistan, an independent judiciary can do a lot, even without an army." – Paid-up subscriber Ron Kaiserman

"Could you please tell me Steve Sjuggerud's list of recommended gold coin dealers. I don't know which back issue of True Wealth to look for to find them." – Paid-up subscriber Jeffrey Bohnsack

Porter comment: You can now find things quickly and easily on our website. Just type "coin dealer" into our new search engine, which is located in the top right corner of our homepage.

In this case, the search returns this page. And the following list was right there in the report.

Burt Blumert

Camino Coin

P.O. Box 4292

Burlingame, CA 94011

Phone: 800-348-8001 or 650-348-3000

Fax: 650-401-5530

Van Simmons

David Hall Rare Coins

P.O. Box 6220

Newport Beach, CA 92658

Phone: 800-759-7575 or 949-567-1325

Dana Samuelson and his team

American Gold Exchange

P.O. Box 9426

Austin, TX 78766-9426

Phone: 800-613-9323

Rich Checkan or Glen Kirsch

Asset Strategies International, Inc.

1700 Rockville Pike, Suite 400

Rockville, MD 20852

Phone: 800-831-0007 or 301-881-8600

Fax: 301-881-1936

We also list these dealers on our frequently asked questions page.

But please note: We receive no compensation for our referrals. We've known these men for many years, and they're familiar with our newsletters. When we've done business with them, they've treated us very well. Subscribers have reported the same. That said, whether you decide to do business with them is completely up to you. Your own due diligence is required.

"Do you have an opinion you can share on owning bullion/coins vs. ETFs?"

– Paid-up subscriber David Combs

Porter comment: It's awfully difficult to make an ETF security disappear. Gold coins, on the other hand, are very easy to buy with cash and to hide.

"I would like to know also what the objective of the charts at the bottom of the page are? The Stansberry & Associates Top 10 Open Recommendations & Stansberry & Associates Hall of Fame. Are these resume fillers or are they your way of contrasting between the big name investor firms? Unless I am completely missing the point (which happens) please advise me of the correct concept needed to fully understand all that is being presented. Perhaps there are some books I could additionally read to get me up to speed."

– Paid-up subscriber M. Wooldridge

Porter comment: The purpose of our Top 10 list is to show our subscribers our current 10 best recommendations (from a total return standpoint). We also think it's significant to note which of our analysts have contributed the most stocks to this list, so the number of their Top 10 contributions is totaled below the chart. Dan Ferris is currently in the lead... and has been for a long, long time. The purpose of our Hall of Fame list is to show subscribers the best (from a total return standpoint) recommendations we've closed. We know profits aren't real until you take them. Why do we use total return instead of, say, annualized return, as our measure of success? We know, for most investors, annualized returns aren't as important as total returns – after all, you can't "eat" annualized returns.

Regards,

Porter Stansberry

Baltimore, Maryland

September 26, 2007

Stansberry & Associates Top 10 Open Recommendations

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(Top 10 highest-returning open positions across all S&A portfolios)

As of 06/26/2013