The S&A Digest: Hurricane Alma blows through

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

As of 06/20/2013

Hurricane Alma blows through... Gold in the hills?... A scripophilist amongst us... The world's worst business plan... Kerkorian makes his move... Porter tries not to drown...

By noon the wind was blowing so hard, water flooded under the doors of Bill Bonner's immense Spanish colonial mansion, which sits perched 200 feet above the picture-perfect Gigante Bay on the Pacific coast of Nicaragua. The storm picked up our surfboards from the thick, emerald grass behind the house and threw them against the side of the house. The house won...

With no power, no Internet, and hurricane-generated flash floods making the roads temporarily impassible... we wondered on Thursday afternoon if we'd be able to get back to Managua in time to catch our flights home by Saturday. But by midnight Thursday, the weather was perfectly calm, as if there had never been a storm. The sky, sucked free of humidity by the fast-moving hurricane, was so clear you could see the entire Milky Way, from horizon to horizon. The temperature was delightful, down in the low 70s. It was the most beautiful night I'd ever seen in Nicaragua.

I love bringing people here for their first visit. Back in 2005, we brought a dozen or so subscribers with us for a long weekend of surfing. Most of them liked it so much they bought property while they were here. I've brought my in-laws, friends and, this time, a half dozen of my colleagues from work. 12% Letter editor Tom Dyson says the place looks like a set from Jurassic Park... The jungle-covered cliffs and volcanic hills make a dramatic landscape.

Rancho Santana is set on the side of a mountain. Every lot has a view of the ocean. It really feels like a ranch. Sometimes you come around a bend and find cows or horses wandering in the road. We had to hit the brakes a couple of times and honk for them to get out of the way. The roads are all dirt tracks, and you need a four-wheel drive to get around. But it's fun to drive here. You feel like a safari ranger... fording streams and skidding around cliff-top curves. After the tour, we went to Playa Escondido – The Hidden Beach – to body surf in huge breakers...

Our resident geologist and resource analyst, Matt Badiali, has an entirely different view of the country. He keeps wandering off to look at rocks... He says the hills above one of Rancho Santana's beaches probably hold gold. Certainly other parts of the country hold a lot of gold and silver. "Radius Gold, a small Vancouver-based gold explorer, explores for gold in the northeast and central parts of Nicaragua," Matt says. "There, water heated by the volcanoes brought gold and silver to the surface."

The geology also lends itself to the production of geothermal energy – which is probably the cheapest and most environmentally friendly source of renewable power. "Polaris Geothermal, a Toronto-listed geothermal power company, supplies 10 megawatts of electricity from its San Jacinto-Tizate project near Leon. The $183 million project will produce 66 megawatts upon completion in 2009. Polaris has a deal with the Spanish utility, Union Fenosa, to supply geothermal power for 20 years."

The New York Times reported today on Cheniere Energy (LNG): "Only a month after Cheniere Energy inaugurated its $1.4 billion liquefied natural gas terminal [in coastal Louisiana], an empty supertanker sat in its berth with no place to go while workers painted empty storage tanks..."

A few years ago, we wrote that if you held a contest for the worst business plan imaginable, Cheniere would win, hands down. The company planned to profit by importing natural gas via tankers. This might make sense for countries like Japan, which has no native hydrocarbons. But the U.S. is the world's second-largest producer of natural gas. With LNG's share price at more than $30, we predicted it would go to zero. It's almost there...

This, from Dan Ferris... Kirk Kerkorian can't get enough of a bad thing. He's offering to buy 20 million shares of Ford for $8.50. The stock trades for less than $7 today. Kerkorian's original offer said he could back out if the stock fell 10% or more below $8.20. Now he's taking that out and continues to offer $8.50.

Meanwhile, Ford's only great success of the last few decades – pickup trucks and SUVs – are having a little trouble selling with gas heading for $5 a gallon (in my neighborhood, anyway). And it has abandoned its fantasy of regaining profitability in 2009.

Ford is under all the same burdens as GM... expensive health care, high wages, enormous pension deficit. Last time I checked, Ford's pension obligation was more than $170 billion, and its pension assets totaled less than $130 billion. $40 billion here, $40 billion there, pretty soon you're talking real money.

The other big disappointment is Ford Credit. Ford Credit didn't get into mortgages like GMAC, so it didn't face the big writedowns. And it's paid $16.7 billion in dividends to the parent company from 1998 to 2006. But Ford Credit's delinquencies are climbing, especially on those big trucks. Repossessions rose 5% in the first quarter. Many borrowers are "upside down," owing more than the value of their vehicle. And Ford lost $2,200 more per vehicle on repossessions in the first quarter. Trucks and credit... Ford's last vestiges of success are melting away... and Kerkorian wants to buy it. He's either crazy or he's gutsy and brilliant.

I wouldn't touch Ford or GM with a thirty-nine-and-a-half foot pole. Why buy crap when so many great companies are on sale? It makes no sense. But Kerkorian is an activist, and he's a billionaire who's had success buying busted domestic car companies. After all, he actually made money on GM before he gave up on it. Who knows? Maybe he'll make money on Ford, too. He can have it. I'll pass, and you should, too.

Speaking of GM, it cut 19,000 jobs yesterday. It's going to try to replace some of the lost workers with folks who make half what the former employees made.

Computer giant Dell's shares jumped 8% after reporting better-than-expected numbers. The company saw huge growth in Brazil, Russia, India, and China (aka the "BRICs") accounting for 9% of overall sales. China led the way with a 58% revenue growth over last year.

PSIA pick Nokia (NOK), the world's largest cell-phone maker, is betting on another emerging market to fuel sales... Africa, already the world's fastest-growing cell-phone market, still has the lowest penetration (below 30%) of any populated continent. Africans bought 33 million handsets in the first quarter, up 37% from last year, which is close to the 37.9 million handsets purchased in America. We're up about 100% in almost four years on Nokia already, and I expect bigger gains in the future. Click here to learn more about PSIA.

New highs: Aracruz Celulose (ARA), Potlatch (PCH), Valhi (VHI).

In today's mailbag... We're often asked why we publish so many negative feedback e-mails, and why we bother engaging our subscribers at all. The truth is, we enjoy the banter and the differences of opinion. Besides, no one will ever do more to help your business than your worst critic. He tells you what you need to know to improve. But, there's another even more powerful reason it pays to engage our subscribers: Collectively, you all know far more than we do about almost everything. And, as a whole, you all are enormously generous with your expertise and your wisdom. Once again, you guys have come through for us – we've now got our own scripophilist. Send your comments here: feedback@stansberryresearch.com.

"As a scripophilist (collector of antique stocks and bonds), I would be glad to research his 2,850 shares of Bullion Mountain Silver Mining Co. for him. If he could scan it and send me a copy with information on how to contact him, I could do some research on it. I can be reached at m.wiener@seclock.com or faxed at 781-251-7103." – Paid-up subscriber Marty Wiener

"How convenient – stuck in paradise with the power and internet out! At least cell phones still work." – Paid-up subscriber Markus

Porter comment: The storm wasn't that bad... but it did ruin the surf. I only get the opportunity to go surfing once or twice a year. It was terrible luck to run into a hurricane down here this time of year.

"Who cares if the Internet is out. I want to see some surfing. A person's got to keep his priorities straight." – Paid-up subscriber Ken

"I saw you surfing on nicaraguasurfreport.com – the 5/28 entry. Nice turn! And Steve, pulling into the barrel! Very cool. You guys really can surf." – Paid-up subscriber Lincoln Gardner

Porter comment: Steve Sjuggerud is truly a world-class surfer, who can ride almost any kind of board (surfboard, windsurfer, kitesurfer, tow-in board, stand-up paddle board, etc.) in almost any condition – including the world's biggest waves. Your humble editor, on the other hand, merely tries his best not to drown. A shot of my meager talent is below.

"I just bought land in Nica, at Costa Dulce, a surf side community development just south of San Juan del Sur. I have been interested in land on the Pacific side of Central America for a few years as I enjoy surfing. I first became aware of the opportunities in Nica via you and the Oxford Club. Why Nica for me? It's considerably cheaper than Costa Rica (20% the price of a comparable lot there) and has the best surf breaks in Central America with many sandy breaks and a consistent offshore wind courtesy of Lake Nicaragua. Yes Ortega is in power, but show me a country where there isn't any political risk. So far he has said and done the right things, especially wrt property ownership. Also the IMF forgave Nicaragua their foreign debt with the caveat they must spend an equal $ amount on infrastructure (it is slowly improving). The people are friendly, the country is beautiful, the living expenses are low. Enjoy your stay there. I can't wait to go back." – Paid-up subscriber Steve C.

"Who ruined the picture of those feet with that horrible background?" – Paid-up subscriber EM

Porter comment: It's hard to think of something more relaxing than sitting on this veranda, watching the swells roll in... while the maid makes lunch and the gardener cleans up the downed palm fronds. There aren't many places in the world where you can live like a king for less than $100 per day. Try it. You'll like it.

Regards,

Porter Stansberry

Rancho Santana, Nicaragua

May 30, 2008

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