The S&A Digest: It's not desperate enough yet

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

As of 06/24/2013

It's not desperate enough yet... Stock market dominoes – who's next to fall?... The lure of easy money... Tiffany: Buy with Peltz or sell with Gartman... Seabridge "only" an eight-bagger; what gives?!...

 Which presidential candidate would be good for the stock market? It's been asked on TV recently. I don't purport to know the answer to the question, but I do think it smacks of great desperation.

CNBC's Jim Cramer rants and rails against Ben Bernanke. Cramer says the Federal Reserve chief is waging war on the stock market. Again, desperation, brought on by an obsession with price quotes.

But not enough desperation, I'm afraid. Commentators are still asking about bottoms, bottoms in financials, bottoms in consumer stocks, bottoms in the Dow. When the commentators give up on bottoms completely and express doubt about every rally, then you can start looking for a bottom (if you must). Until then, you should remember that bear markets happen. They're normal. They are the market's way of making sure you're serious about being in it, or taking you out if you're not.

 Bond insurer Ambac Financial (ABK) has made short-sellers a lot of money today, falling roughly 55%. Ambac, which trades for less than $6 a share now, announced yesterday it would take a $32.83 per share loss for the fourth quarter of 2007. The company's long-time CEO resigned yesterday, too. The company is looking to raise $1 billion in new capital.

The most amazing thing about Ambac and its big brother, MBIA... They're both still rated AAA. Moody's and S&P affirmed their ratings for the bond insurers just one month ago. Today, Moody's says it may cut Ambac's AAA rating. S&P said yesterday that it will review all the bond insurers, after it increased its predictions for subprime-mortgage losses.

It's like financial dominoes out there. First, the subprime companies went belly-up by the dozen. Then, the big banks started reporting big losses. Now, the bond insurers are headed straight into the toilet.

Who'll be found out next? We can't say for sure, but maybe it'll be the ratings agencies that assigned the bond insurers their AAA ratings. The ratings agencies are like meat inspectors paid by meat producers to determine the quality of the product. Huge conflict of interest. I can't believe the financial community doesn't see the –nevermind...

 Just a few days after accepting new capital commitments totaling $12.8 billion, Merrill Lynch wrote down more than $11 billion worth of CDOs, subprime mortgages, Alt-A mortgages, residential mortgages outside the U.S., commercial real estate, leveraged loans, and various mortgage exposures at Merrill's U.S. banks.

I'm not one for conspiracy theories, but it's hard to miss the fact that every major U.S. financial institution has been profoundly hurt by the mortgage/structured-finance debacle. It's as though the entire thing were based on lies. That couldn't be true... could it? More likely, the lure of easy money is too much to resist. So they lunge at it like a hungry catfish. Before they know what happened, they've been filleted, gutted, and fried up in a pan, and the bones are all that's left.

 Here's a financial stock that's performing well. Asset manager BlackRock increased earnings 90% this quarter as hedge fund fees nearly quadrupled. BlackRock has increased earnings in each of the last five quarters after doubling its assets to $1.4 trillion through acquisitions. Most of the growth came from non-U.S. accounts and fixed-income hedge funds.

 Is this the top for commodities? Deutsche Bank, Germany's largest bank, will increase its commodities staff by as much as 25% to take advantage of rising prices in gold, oil, and industrial metals. A few years ago, Merrill Lynch made a clean sweep of its commodities operation... right around the time you would have been prudent to go long.

 Billionaire Nelson Peltz bought Tiffany (TIF) shares in the past week. He now owns 7.9% of the company. What does this mean to you? Very little, I'd guess. Peltz is an activist investor with a much longer time horizon than most people will tolerate (which is why he makes money and most don't). And he can influence the company by taking control of the proxy machinery, a prohibitively expensive exercise for the vast majority of market participants. If he fails at Tiffany, I bet he'll still be a billionaire.

 Unlike Peltz, market strategist Dennis Gartman just wants to make a profitable trade, given today's conditions and the near-term outlook. Gartman is short Tiffany's. He says the luxury companies are where people go when they have extra money to spend. Gartman could easily be right about the luxury goods companies, though no one would argue that Tiffany is selling anywhere near its intrinsic business value today.

That Gartman could have a good trade on his hands and that Tiffany is too cheap just confirms most folks are about as suited for investment success as my 13-year-old stepdaughter. She often says things like, "All my friends think that's stupid," as a perfectly acceptable reason for her behavior. Sounding a lot like my mother, I couldn't help asking, "If your friends all jumped off a bridge, does that mean it's a good idea?" I got a shrug. I'm an adult. I just don't get it.

 All medical stocks in the new highs: Baxter International (BAX), Becton Dickinson (BDX), Pharmaceutical Product Development (PPDI).

 Everything in the mailbag is for Porter, so we'll wait until tomorrow for his answers. Until then, tell us your thoughts... feedback@stansberryresearch.com.

 "Hey, let's get Sjuggerud to really do an analysis of Seabridge gold. It's down more than 20% since he recently recommended it. Put that in your column of gains!! I dare you!!" – Paid-up subscriber Russ Kelly

Ferris comment: Steve Sjuggerud has done a brilliant job covering Seabridge. He's covered it as well as a stock can be covered. Here's the thing: Seabridge is a gold mining stock. A 20% move is noise. And your suggestion that its recent performance isn't fully reflected in the S&A Top 10 is incorrect. The stock was up more than 1,000% at one point. Now it's "only" up about 800%. So, for now, I guess Steve only gets credit for an eight-bagger, instead of a 10-bagger.

 "To Dr. David Eifrig: 'I am an 85 yr old woman who still manages her own brokerage account, with the help of Oxford Club and a few of their offshoots. I always read your comments, and in general approve. I was sort of amused today at "What you know will kill you" I am in good health, take two major trips a year, occasionally go to a doctor. I believe that my own knowledge of my bodily functions plus some reading is adequate for me. I can recognize if I need further medical advice, and call AskANurse. My husband and I go to our local Health Fair every year, and I read the printout carefully. In 2007, I spent a week in Canada, 3 weeks in India, and 10 days in the United Arab Emirates and vicinity. I believe intellectual activity is quite important, read a lot, play a lot of duplicate bridge, and write travel letters after every trip. Just wanted to drop a line to let you know that someone appreciates your letters." – Paid-up subscriber Lois W. Scott

Regards,

Dan Ferris

Medford, Oregon

January 16, 2008

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