The S&A Digest: Mt. Everest We Ain't

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

As of 07/02/2013

Pabrai’s Venezuelan investment takes a hit… The euro dominates bonds… A GM dealer responds… Why an 87-year-old subscriber day-trades… The secret reason we read all of the mail…

A brief, holiday Digest is below (though there’s a lot of mail). Still to come this week: My plan to profit from the demise of GM. And, thanks to popular demand, a similar analysis of Ford.

The duck-off was postponed due to a lack of fresh duck. We’ve rescheduled it for Friday…

Venezuelan President Hugo Chavez announced Saturday that he will nationalize the entire energy sector, but will allow foreigners to own minority stakes in energy companies. Companies at risk include Harvest Natural Resources (HNR), one of Mohnish Pabrai’s largest holdings. Pabrai was the keynote speaker at our Alliance conference in Aspen. A deep value investor, he looks for companies with great assets… and a very cloudy near-term outlook.

The euro has replaced the U.S. dollar as the leading currency in international bond markets, accounting for 45% of the global market versus the dollar’s 27%.

Prepaid bankcards were the fastest growing part of the European credit market last year, up 280%. The cards offer an alternative to cash for those who cannot obtain credit. Spending with these cards totaled $1.5 trillion, or 10.9% of European consumer spending. Visa is the leading issuer.

After the Toronto Stock Exchange halted trading on the stock earlier today, shares of Sino-Forest (TRE.TO) fell 17%. The stock soared 22% on Friday after Sino announced it had several interested buyers. Today, the company announced that Macquarie (MBL.AX), a probable buyer, has backed off.

New highs: American Real Estate Partners (ACP), Consolidated Tomoka (CTO), Oakley (OO), AutoZone (AZO), Microsoft (MSFT), PowerShares Pharma (PJP).

Don’t miss the letter from a GM dealer below. Additionally, the usual chorus of blame, contempt, despair, and outrage continues apace. Send your contributions here: feedback@stansberryresearch.com.

"I find myself shocked by your headline about GM. Reading the article I can see you have put in your usual excellent financial analysis. (Your newsletter has provided wonderful results for our investment returns.) Certainly GM does face a dire situation.

"As a GM dealer, I must disagree about the reasons that GM has lost market share and declining sales being due to quality, styling, performance, handling, or poor interiors. It has been the public’s perception, encouraged by the automotive press along with long ago quality issues, which has kept eroding sales. The irony of all this is within the automotive industry, the consensus is GM’s product and quality is equal or better in most areas to its competition.

"It needs greater volume and sales to complete the turnaround it is attempting. The only solution is for more Americans to choose GM cars and trucks instead of the imports. (The same is true for Ford.) This is the canary in the mineshaft. If we do not realize the importance of American manufacturing and industry before we lose another sector, we will at some point weaken our economy to a level where it will struggle." – Paid-up subscriber Paul Deck

Porter Comment: One of my best friends lives next door to a GM dealer. They are great buddies. They go hunting together. They take fishing trips together. Two years ago, my friend bought a new truck. He bought a Nissan Titan. Nothing GM made was competitive with the Nissan. Nothing even came close. In this case, it certainly wasn’t the press that mattered. When a dealer can’t sell to his best friends, there’s a huge problem with the product.

And, by the way, I don’t think GM’s troubles are indicative, at all, of American manufacturing. Look at companies like Mississippi-based Viking. Its appliances are world-class. They’re stunning to look at, and they’re the best made, by far. Look at Harley Davidson. Look at Briggs and Stratton. John Deere. Caterpillar. Boeing. I could go on and on.

I’m not celebrating the demise of GM. It is a tragedy. But I want my readers to understand why it’s failing (way too much debt, not enough return on assets, decades of poor performance) so that they won’t fall for the press accounts that are sure to follow – it was the president’s fault, it was the union’s fault, it was the last CEO’s fault, etc.

The biggest lie likely to be published is the idea that it’s impossible for American manufacturing companies to succeed because of health-care costs, unions, etc. It would be possible to make great cars with GM’s assets, if those assets were not so encumbered by debts and obligations. After bankruptcy, those who own GM’s assets will likely prosper. This week, I’ll show you how to position yourself now to wind up as an owner of GM’s assets.

"Why should anyone care about your new dining room table? A change of one letter in your ‘duck off’ should explain at least this writer’s opinion of such drivel… This is NOT vitriol, but common sense! Even you should be able to understand this! Try reading between the lines. There are a lot of disgruntled people out here." – Paid-up subscriber Art Dawe

"You invite your readers’ feedback I hope for better purposes than making fun of them when they are trying to offer honest and legitimate criticism… A wry sense of humor is admirable, unwarranted disrespect is not. Your subscribers and fans may have been laughing, but I think you owe Mr. Montesione an apology." – Paid-up subscriber Garry Smith

Porter Comment: We’re not even allowed to chuckle?

"You sure have a tough hide, Porter. We live in an age when courteous, gentlemanly comment is Victorian and long gone… I appreciate the services I get from your firm and enjoy the free daily e-mails. But you sure have guts to take all that abuse and even print it." – Paid-up subscriber Floyd Wilson

Porter Comment: In all honesty, we live for the mailbag. Our mail is utterly unpredictable. It’s frequently profane… banal… sometimes even vile. But the letters demonstrate how people really think and feel… and how they actually behave when given relative anonymity. It is true human character we receive in our mail, not some polished, ready-to-be-seen-in-public version of character. It is raw fear. Dreadful greed. Unpretentious vanity. We love it.

"I am amused by the irate letters you share with us. If those readers hate you so much, perhaps someone should let them know that absolutely NOTHING dire will happen to them if they simply choose not to read your letters. Indeed, I doubt you have ever espoused the idea that anyone should be forced to read your missives just because they ‘are there.’ Mt. Everest you ain’t. I, on the other hand, count on your letters for at least one good chuckle a day. Thank you, sir! With the rather grim state of the world, laughter is in short supply and is at least as valuable a commodity as pessimistic humility!" – Paid-up subscriber Penny Freeman

"I enjoy your comments but I have no sympathy for the idiots that complain. Once you buy a stock it’s your own responsibility. If you don’t like Porter’s choices, pick your own. At age 87, I day-trade only because I may not be here tomorrow. Don’t ever become politically correct because I detest that as much as the members of Congress." – Paid-up subscriber Klement Simon

"I purchased 500 shares of ACP on Dan’s recommendation July 22, 2004 @ $19.61. Stock closed Friday @ $102.34 – a gain of 422%. My only regret is that I didn’t buy 50,000 shares!" – Paid-up subscriber Joe Bonamarte

Porter Comment: If you had bought 50,000 shares, the company would have sunk into bankruptcy almost immediately, right? Thank you for not ruining it for the rest of us…

Regards,

Porter Stansberry

Baltimore, Maryland

January 15, 2007

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