The S&A Digest: I did it for the doodads

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As of 06/24/2013

I did it for the doodads... The magazine-cover indicator... The Bond King's $150 billion shot... Blame subprime... Am I old enough for cronies?...

I'm very disappointed by Microsoft's offer for Yahoo. Why spend $40 billion on a website that's steadily been losing ground to Google when you're already the world's dominate consumer software firm? Why spend $40 billion on Yahoo when your analysis shows it will, at best, produce $1 billion a year in "synergy." Why spend $40 billion on Yahoo when the history of such giant corporate mergers is unblemished by a single notable success?

Because you're Steve Ballmer, you've been in your nerdy friend's shadow your entire life, you've got to try to do something to put your mark on the company, and you know nothing about technology... so wasting shareholders' money on a hugely overvalued stock is all you can come up with. Besides, your investment bankers sent you really nice Christmas doodads.

According to Michelle Leder's footnoted.org, Wall Street banks are scapegoating the subprime-mortgage mess in their 2007 annual reports. She notes that four big Wall Street banks blamed problems on the subprime crisis many more times in 2007 than in 2006...

We've been playing the recession card a lot in The Digest. Yesterday, Richard Russell noted that the cover of the latest issue of BusinessWeek has recession all over it. The magazine-cover indicator says if an idea is popular enough to make the cover of a national magazine, it's either over already or it's not going to happen. This sounds a little flimsy, but it's not to be taken lightly, especially when it comes to the big, overarching trends...

The magazine-cover indicator flashed a buy signal on oil in March 1999, when the cover of The Economist said the world was "Drowning in Oil." It flashed a big buy in stocks in the late 1970s when BusinessWeek pronounced "The Death of Equities."

"It seems to me that the U.S. economy requires a new orthodoxy, a redirection from consumption toward the stabilization of the housing market and an emphasis on infrastructure. America's economy is faltering because of an exhaustion of free-market capitalism that has mutated in recent years to something resembling a pyramid scheme. Our levered, derivative-based financial system, seemingly so ascendant after the dot-com madness that preceded it, has met its match with the subprime lending and poorly structured, opaque mortgage-backed securities of today's marketplace." – Bond King Bill Gross

Gross says the government's No. 1 job right now is to make sure housing prices do not fall any farther. Its efforts are currently focused on consumption – lowering interest rates – not on the housing deflation. His solution? Offering below-market 30-year mortgage refinancings with small down payments. Ultimately, Gross believes America needs a "$150 billion shot in the arm."

Dan Ferris forwarded us a copy of his e-mail to Bill...

From: Dan Ferris [mailto:dferris@freeminds&freemarkets.com]

Sent: Fri 2/1/2008 7:22 AM

To: BillGross@CaliforniaCommies.com; info@Bismark.gov; rolloverinurgrave@foundingfathers.com

Subject: Another zillionaire touts government intervention

Bill,

Good thing the economy didn't require a "redirection from consumption" until after you got super rich, eh, Bill? You really dodged a bullet there.

Signed,

Someone who once respected you,

Dan Ferris

P.S. How much of that $150 billion are you planning to kick in? I'm a little strapped. George Bush just took a big slug of cash from me and gave it to my feckless, shiftless neighbors. What the feckin' shift are you and George thinking?!

While we don't know the future of housing prices, it looks like things are picking up for investment banks. This morning's headlines were flooded with huge takeover announcements and rumors...

As I mentioned, Microsoft made a $44.6 billion cash-and-stock bid (a 62% premium) for Yahoo. Aluminum Corp. of China and Alcoa bought a $14 billion stake in mining giant Rio Tinto to block a takeover attempt by BHP Billiton. Credit Agricole, France's second-largest bank, is considering a bid for the rogue-trader-damaged Societe Generale. And rumors surfaced (again) that InBev, the world's largest brewer, is in merger talks with Anheuser-Busch.

This could be a scary trend... Springfield, Massachusetts, brought a complaint against Merrill Lynch, which sold the city collateralized debt obligations that dropped in value. Merrill Lynch is paying $13.9 billion to settle the dispute.

New high: MFA Mortgage (MFA).

In the mailbag... A first for me: complaints about our cronies. I didn't realize I was old enough to officially have "cronies." Send us your input – on our letters, on our recommended investments, and even on our cronies: feedback@stansberryresearch.com.

"Guys, the way you handle the feedback from some of the illiterate and drunk members is hilarious and keeps things in perspective in terms of what is real and what is not. Those who comment must have a difficult time getting up in the morning because of their ego-centered lives. They must have a difficult time at traffic lights too trying to figure out when to stop or go on the red light versus the green one." – Paid-up subscriber Jerry Leith

"Since you seem to need material for the S&A Digest, how about a 'tip-o-the-hat' for Jeff Clark and his DR Horton call. I took a position in the Feb. 12.50 calls on January 14th at 74¢. I unloaded half on the 23rd at $2.00 and another quarter on the 24th at $2.80. Against Jeff's counsel, I held on to the balance until today, letting that go at $5.00. I figure that's about a 200% return in a bit over two weeks. Not too shabby." – Paid-up subscriber Bill

Porter comment: It's a well-deserved tip of the hat... Jeff has been doing very well in these choppy markets. If you'd like to read more about Jeff's Short Report, click here.

"I was watching Fox business channel a few days ago at night, Neal Cavuto has been sharply critical of the Bush, Congress plan. He had Fox's house legal eagle, Judge Napplito on, who was in a rage that it was unconstitutional. According to the Constitution, Congress can only appropriate money for a specific purpose, it can't just vote money to some individual, like England did, giving a Lordship and stipend to some dude deemed worthy. He said, 'The only thing that Thomas Jefferson and Alexander Hamilton could agree upon is that should never vote money to the mob, once you do that, Democracy is dead!' I know where you feel on 'tax rebates,' but other than the judge, I have heard no once else even bring up the Constitution argument. P.S. I thought it was nice to give Ron Paul all of three minutes of air time in last nights' half and a half Republican debate. Other than the opening and closing questions for all candidates, he was treated as if he was a mouse turd in a punch bowl." – Paid-up subscriber Jack Mclean

"I believe I wrote to you regarding this once before and I understand you can't print every letter. It is a bit troubling that you continue to espouse Bert Blumert and Van Simmons as the premiere coin dealers. I have nothing to gain by recommending another dealer but I can tell you that these guys are not the best. I have purchased from Bert and was not happy with his service or his sales tactics. ie: I requested PCGS graded 64 Saint Guadens and he told me NGC were just as good (they aren't) but he would send me PCGS. He sent me NGC. I have never purchased from Van Simmons because his prices are consistently higher for top quality coins than the dealer I use. However after all your touting I decided to give him a call just to get his perspective and see if he had a comment on his prices. I caught him at a coin show so out of courtesy I suggested he call me back after the show since I knew I was most likely not going to buy from him. That was 2 1/2 weeks ago and no call. I have since made another investment with California Numismatics Investments (GOLDDEALER.COM). I deal with Kenny Edwards but I am sure that any of his noncommissioned staff would be helpful. One point of interest is CNI will ship any metals purchase fully insured for free with a $2,000 minimum. I only bring this to your attention for the sake of your other readers. This market has been punished severely before by dealers that did not have their clients' best interest in mind. Hopefully we don't have a case of cronyism here." – Paid-up subscriber Brad Renfrow

Porter comment: We've consistently recommended dealing with Burt for bullion coins. And we've never had a single complaint from anyone buying bullion coins from Burt. Burt has been the heart and soul of America's coin market for 50 years. On the other hand, if you weren't happy with your purchase, I'm sure he'd be more than willing to buy your coins back from you at the price you paid. And I'm sure he told you the same thing.

As for Van's prices... You get what you pay for in this world. Van specializes in top-quality, rare, PCGS-graded coins. He is the single-most knowledgeable dealer in the country when it comes to super high-quality rare coins. (For folks who are new to rare coins, prices can vary dramatically based on even the most minor differences in quality – even between coins that have the same official "grade." But Van will only deal in coins of the very highest quality. If you're shopping for a Mercedes, you don't go to the Chevy dealer, and vice versa.)

Finally, all of our readers should know that we accept no compensation whatsoever from Van or Burt for our endorsements. (In fact, I think I even paid for dinner the last time I shared a meal with Van.) We endorse these men because they're truly exceptional at what they do. We admire them.

Regards,

Porter Stansberry

Baltimore, Maryland

February 1, 2008

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