The S&A Digest: It's hard to do nothing

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

As of 06/21/2013

It's hard to do nothing... Market indicators... Next up, credit cards... A small place on the beach: $81 million... The war on drugs...

One of the many "hardest" things to do right when you're investing is doing nothing... More often than not, you'll make more money just sitting on your hands. That's especially true when you're on the right side of a powerful trend – like rising inflation and energy prices. Since going broke in the late 1990s, T. Boone Pickens made yet another fortune simply by going long oil and natural gas. Then, earlier this year, he outsmarted himself...

Thinking prices would fall temporarily because of a slowing economy, he shorted oil and gas. Big mistake. He lost 20% in the first quarter. Yesterday, in a speech at Georgetown University, he got back on the bus. He's calling for $125 oil and $12-$14 natural gas. "The position is long, not short," Pickens said. "I covered the short position – It was a mistake on my part."

We're always on the lookout for reliable market indicators. Jeff Clark swears his mother is the best contrarian indicator out there. Sjuggerud listens to what people are talking about at cocktail parties, then does the opposite. Brian Hunt likes to follow the little-known "erection index."

Sports Illustrated unearthed a deadly accurate market indicator in the 28-year-old Taiwanese pitcher, Chien-Ming Wang. According to SI, a study conducted by two Taiwanese economists attributed a 25% index increase last summer to Wang's strong June and July with the Yankees. Wang, the winningest pitcher in Major League Baseball over the past two seasons, is reportedly more revered in his country than the president. The economists argue, "Psychologically, how [Wang] does has a huge effect on the Taiwanese people. If he does well, people are in a good mood, and they go out and spend money. If he doesn't, you walk around and you can see people depressed. It's a very personal matter to the Taiwanese people."

The latest big write-offs on Wall Street ($2 billion at Merrill, another $15 billion at Citi) triggered buying of these stocks, as investors seem to believe this will be the last of the red ink. We're very skeptical of the rally for the simple reason that default rates on mortgages, autos, and now credit cards continue to rise.

What we see is the consumer having trouble paying his bills in order from largest to smallest: mortgage, auto, and finally credit card. It doesn't make sense to pile debt on your credit card when you can't pay your mortgage, but according to the statistics, that's exactly what's happening. In states with the highest number of troubled mortgages, credit-card balances have been growing at a 20% annual pace. Those cards will be the last to default because of their low minimum monthly payment – but they'll default eventually. (We're shorting the most vulnerable credit-card company in my newsletter, PSIA.)

If shorting stocks isn't your thing, maybe you should check out our Monthly Dividend Program. Goldsmith compiled a portfolio of 10 stocks paying monthly dividends, and the portfolio is up 5% in a month. Readers have already made 9% on an oil stock that's yielding more than 13%. They've also pocketed 9% on a hotel REIT yielding close to 7%. And that's just capital gains. Another 120 dividend checks are still on the way. To receive Goldsmith's report, which shows you exactly how to pick the best monthly dividend payers, and gives you the current top 10, click here...

As a sign of how out of touch those inside the Washington beltway can get, consider the recent purchase of John Thornton, chairman of the not-for-profit, Washington-based think tank Brookings Institution. On Tuesday, he spent $81.5 million for the Palm Beach mansion of movie producer Sidney Kimmel. Where, you might wonder, did Thornton make that kind of dough? Not at Brookings. Thornton is a former president of Goldman Sachs.

We certainly have no problem with people making a fortune and spending it any way they choose... but we wonder about the close ties between government-dependent bankers, Washington power brokers, and the role Goldman Sachs seems to play in both. Or maybe we're simply jealous that there's not an entire federal bureaucracy in place to bail out newsletter publishers when we lose our shirts...

New highs: Health Care Property Investors (HCP), Health Care REIT (HCN), International Coal Group (ICO), Transocean (RIG), Petrobras (PBR), Stone Energy (SGY), Exelon (EXC), Valhi (VHI).

In the mailbag... more commentary about the "war on drugs." What about people who use drugs? We'd like to hear from you too. Send your story here: feedback@stansberryreseach.com.

"Your comments on the 'war on drugs' were right on. We have been fighting the war on drugs for over 50 years. We've been losing for over 50 years. In military tactics the basic lesson is this: when you are losing, change tactics." – Paid-up subscriber Don Knepp

Porter comment: When it comes to the non-military "wars" the government has been fighting over the last 40 years, the track record is at least consistent. It is unblemished by success. Look at the war on poverty, the war on cancer, the war on drugs, etc. One of my favorite Doug Casey lines is about the war on poverty: "The poor lost that one, but they're pushovers..."

"Steve Sjuggerud tells that everything has changed and that we should load up on home builders and regional banks. Dan Ferris tells us the worst is yet to come and we should avoid home builders and regional banks like the plague. What is a poor subscriber to do? Whichever of these two turns out to be right, I hope Porter doesn't quote him a year from now and say 'We said it. Did you buy (avoid buying) it?'" – Paid-up subscriber Phil

Porter comment: I don't pay my analysts as much as I do and then turn around and tell them what to write. Besides, whatever their macro positions, their individual recommendations can still both work out fine. Case in point, I believe real estate prices are going to fall for at least the next two years. But I've recommended buying homebuilder NVR, and we've made more than 50% since November.

"Don't bomb em; buy em! I've got to believe the Afghani poppy farmers know a thing or two about markets. So, I'm willing to bet they would sell their products for the highest price. Is it beyond the financial capacity of 'rich' super-power governments to simply buy the poppy crop at prices higher than anyone else can pay? Farmers, if they are able to keep the proceeds, would benefit, capitalize, and eventually realize the economic benefits of diversification; maybe even into corn for ethanol. What to do with the federally-owned poppies? More ethanol! If the government needs to throw its money around, then why not just out-purchase the bad guys? Could this be the birth of a hedge fund?" – Paid-up subscriber Bert Cebrian

Porter comment: So... your idea to slow the growth of drugs is to give even more money to Afghani poppy farmers?

Regards,

Porter Stansberry

April 18, 2008

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