THE S&A DIGEST: Old Man Becker

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

As of 07/05/2013

A job offer for ex-CEOs… Good economists differ about the housing bust, while great investors buy Home Depot… A top petroleum engineer's take on peak oil… Subscribers lambaste us for geography, grammar, politics… plus… An American I admire, old Mr. Becker…

I wonder what all of the backdating criminals – mostly former CEOs – will do with their new spare time? Used to telling people what to do, they can’t simply spend all day at home. Their wives would kill them. I wonder if any of them would like to write a newsletter? I’ve always thought having a "Fallen Angels" investment newsletter would be a lot of fun. Who better to advise you on your public-company investments than people who know exactly how to defraud investors? You’d be "inside" the insiders.

Among our new editorial candidates for the Fallen Angel Letter: Frank Lin, CEO of chip-maker Trident; Robert "Skip" Cummins, CEO of Cyberonics; and Jerry Greenbert, CEO of Sapient. All of these ex-CEOs have been accused of backdating their options, deliberately stealing from their shareholders. They should all go to jail… but there are so many of these crooks that they might have to build a new jail… or even several new jails. According to a recent Harvard and Cornell study, the approximately 850 CEOs involved in backdating increased their pay by 10% through their actions. Almost all of the CEOs involved were already earning more than their peers. How can you explain this kind of stupefying greed? You can’t.

"We’re nearing the end of the slowdown for most markets," Ethan S. Harris from Lehman Brothers told The Wall Street Journal. Of the 49 economists who responded to a Wall Street Journal poll, two out of three agreed the worst was over for the housing market. That makes me nervous... I don’t like to see our analysts on the same side of any financial debate as "most economists." But all is not lost: Only eight economists forecast housing prices will rise more than 2.1%. There’s still some time to be safely bullish in housing.

Credit Suisse upgraded Verizon (VZ) to "outperform" from "neutral." And yesterday, it raised its rating on Microsoft (MSFT), using exactly the same nomenclature. I "upgraded" Verizon in February… when it was trading for four times EBITDA and yielding more than 5%. I "upgraded" Microsoft in July, noting that it had more than $20 billion in cash on its balance sheet and was sure to announce a major dividend or buyback soon (it did). Both stocks are up about 25% since… and we welcome the Credit Suisse investors.

This about peak oil from a long-time drilling engineer, who works in the world’s major oil fields: "Peak oil may or may not happen, but I don’t think we should be fixated on this issue either as investors or policy makers… I’m convinced that, for the next few years, every extra barrel of oil will require higher and higher extraction costs, as we fight decline curves of reservoirs and increased demand. The expertise level in the oil patch is not what it was, and the fields are more and more difficult to extract oil. This is a recipe for continued cost overruns."

"I just found out Home Depot (HD) is Seth Klarman’s largest position. At the Value Congress, Whitney Tilson casually mentioned that he’d buy it if he had more cash on hand." Dan Ferris, delivering the verdict on housing-related stocks from some of the world’s best investors. By the way, Dan Ferris’ new letter – The Penny Letter – will be our take on the universe of stocks trading for below $10. Every now and then we discover excellent – and safe – opportunities in this little-followed sector of the stock market… and nobody is a better hound for value than Dan.

New highs across our portfolios: AutoZone (AZO), Kayne Anderson (KYN), Microsoft, Xcel Energy (XEL), American Real Estate (ACP).

Berkshire Hathaway (BRK-A) has reduced its holdings of Anheuser Busch (BUD) to 36.42 million shares from 43.53 million shares. What’s Buffett’s take on housing? Buffett is adding to his holdings of USG (the maker of Sheetrock).

One of my favorite new, fast-growing restaurants has a big time new shareholder: George Soros bought an $11 million position in McDonald’s’ Mexican spin-off, Chipotle (CMG).

Classic. Democratic Senator Barack Obama and Democratic presidential candidate John Edwards have joined the Wake Up Wal-Mart campaign.

A 2006 defense bill authorized $20 million for a daylong "celebration" of "success" in Iraq and Afghanistan. The appropriation has been extended through 2007.

Lots of good mail today. Send yours now to beat the holiday rush: feedback@stansberryresearch.com

New Private Wealth Alliance subscriber Paul Deepan writes: "I am not drunk at the present time (although times change). I will not admit to being related to you or any of your associates. And the jury has been out for awhile on whether I am gullible. But I would still like to compliment you, Dr. "Sjug," Matt Badiali, Jeff Clark, and Dan Ferris for the quality of their recommendations and insights… BTW I usually find your personal anecdotes and/or political convictions very entertaining, even if I don’t always agree with them. If they ever intrude into your writing too much for me on any given day, I simply stop reading and hit the delete button… Maybe some of your more irate readers should try this simple stress-relieving tactic…"

Alliance-subscriber Mark Lenz tells me to stop… for his own good: "I look forward to reading the Digest every day whereas I almost never read the Blast. [But] as an Alliance member I have a large investment in the continued success of your publishing company and if you are pissing off as many people as you seem to imply you are, you should stop."

Paid-up subscriber Doug Summers suggests a New Year’s resolution for your editor: "I believe providing a forum in your letter for a one-liner on the need to "flush" public education shows a serious lack of contemplation for a complicated and important issue affecting the foundations of our democracy… I suspect you know full well that this subject is complicated beyond a sound-bite. Can you give some insight into why antagonism of this sort is part of your service…? Please consider reducing antagonism as a New Year’s resolution. I want to read the digest, but I’m beginning to find myself resenting the political commentary and constantly skipping to the last half (where market commentary occurs)."

More on education from paid-up subscriber Bruce Mayer: "…we can all agree that education needs to be better so that we can all identify Ottawa as the capital of Canada."

And still more on education from "Lee": "Wow!!! You are so right about the so-called education system. It is a communist, fascist system that was designed to destroy the Republic. It has succeeded."

Paid-up subscriber Bill Gray attacks us for something we didn’t write, edit, or publish. But damn the facts… he’s mad. "An inexcusable faux pas: One of your writers, Addison Wiggin, I believe, wrote that Milton Friedman received the Nobel Prize in Economics for his work with his wife Anna… Milton Friedman was, to the best of my knowledge, not a bigamist and was married to wife Rose. Dr. Friedman’s Monetary co-author was Anna Schwartz, with whom he had no relationship other than cordial and professional."

Porter Comment: We make enough of our own mistakes. We don’t need to take credit for others’. Addison is not an employee of mine. We didn’t write, edit, or publish his remarks.

Paid-up subscriber Frank Nestor links me to Newt Gingrich (horrors!): "So, Newt Gingrich thinks there’s a ‘loose coalition of North Korea, Venezuela and Islamic fundamentalists.’ That’s an even bigger, more dangerous lie than the Bush administration lie about collaboration between Al Qaeda and Saddam Hussein! Newt has always been learned but, deep down, out of control… As for you, dear editor, how can you wag your finger at Susan Estrich for rudely interrupting others and yet let toxic drivel like this from Newt go unchallenged? As much as I enjoy my Alliance membership and share most of your opinions, I have to call you to order on this. You mustn’t let ideology degrade your clarity of vision."

Porter Comment: I thought Newt’s statement was so preposterous it didn’t require any other commentary. I guess I should have been clearer…

Good advice for our quant from paid-up subscriber John Matsch: "Ian, research the usage of the words ‘then’ and ‘than.’"

Alliance subscriber and pen pal, Jim Pursley: "Speaking of writing... Chris Weber’s newsletter is worth it just for the beautiful prose he writes." Sign up for Chris Weber’s letter (which I don’t publish) here:

Paid-up subscriber Jerry Pait weighs in on our capital of Canada blunder: "Porter, Porter, Porter: Canada is a little left of Nova Scotia. They are the ones who let all the ice melt so they could mine diamonds, coal sands and grow non-specific holiday trees to sell for a non-specific holiday in December…"

And one more comment about it from W.T. Brown: "I don’t care if you know a damn thing about geography, etc. You are terrific at what is important to me, making me money!"

Paid up subscriber Jeff Persson offers a most likely drunken vote of confidence: "Keep the winners coming and write about whatever you damn well feel like. Oh yeah, it was another boring day – your recommendations were up again and I made more money."

Alliance member Ron Sarson has us all figured out: "Even though I am an Alliance member and subscribe to several other of your services, I am still not convinced that I wouldn’t be better off to subscribe only to Extreme Value. My portfolio is certainly heavily weighted with Extreme Value picks, and they still far outpace the rest…"

Finally, one long letter… because it is probably the best one I have ever received.

Dear Mr. Stansberry:

I am an Alliance member. I initially was one, then cancelled my subscription, and renewed it again about 13 months ago. I am very glad that I did. The major reason was Dan Ferris’ Extreme Value, but I have gotten immense additional value from the other writers, particularly yourself and Steve Sjuggerud, whom I have had the pleasure of meeting in North Carolina. I am amazed that people would complain about the subscription price for Extreme Value given its track record and, indeed, the methodology. To me, Extreme Value ALONE is worth the price of an Alliance membership!!! Please give him my regards and lots of encouragement.

I am saddened that there is so little in the way of a sense of humour among many of your subscribers who write in. I always have a good laugh at the end of the day reading the Digest. Thank you for that. One of the reasons that there is so much tension in society is an inability to laugh a lot, especially at ourselves. Remember, in relationships, peace is infinitely more important than being right. As you are married, I am sure that you know what I mean.

Where government is concerned, I am Canadian but my father was a colonel in the Hungarian army in 1956, and left on New Year’s Eve of that year. If I get the chance to tell you the story in person, I will. Politicians are members of the world’s second-oldest profession and are MUCH LESS OPEN AND HONEST than members of the oldest one. The best definition of war that I have come across is the wanton murder of large numbers of young and not so young men and women to satisfy the megalomaniacal delusions of people skilled in the mendacious arts who are admired and worshipped by the general population, but would be far better off in rat-infested prisons or mental hospitals. It would be far safer for the general population as well. I think you may have a reasonable idea of my "political sympathies" from the preceding.

Take care and my regards and best wishes to all the staff at Stansberry & Associates. Keep up the good work.

Regards,

Leslie Kasza

Old Man Becker

"He was a real honest man… he said, ‘I just can’t work there anymore. They tell the salesmen to push all of the stocks that have gone up too much. Meanwhile they won’t allow us to sell any shares of the few real good stocks we know about.’"

Old Man Becker told me about someone who’d quit working for Baltimore’s financial giant, Legg Mason, back in the early 1960s… back before it was even called Legg Mason. Back then it was "Legg Somebody Else," said Mr. Becker.

Old Man Becker must be in his 90s. He owns a big spread of land behind my house, close to 100 acres. It used to be pear and apple orchards, but he had to take them out after his wife fell in 1990. He couldn’t afford to care for her and all of those trees.

I like Mr. Becker. He’s the kind of American I always wanted to be.

He got his first job right out of high school. He was a laborer and worked for several of Baltimore’s big industrial employers, such as General Motors. "I got paid $0.28 per hour when I started. But it wasn’t long before I was making $0.48 per hour. That’s when I could afford to get married."

By the time World War II arrived, Mr. Becker had saved $1,500. That’s an incredible sum at those wages… that’s 390 working days. Still, it wasn’t enough when World War II came along…

Last Sunday, I went down the hill behind my house to spend a few hours with him. Mr. Becker doesn’t get many visitors these days. Even though he still rides his great big tractor to cut the grass, his property has the look of an abandoned building. There are weeds running up the sides of everything and pieces of trash dot the yard. Inside, all of the furniture is old and worn. The carpet and the furniture have taken on the dull yellow and lifeless gray colors of things that have gone unwashed for too long. Yet I like it here. There’s a beautiful old wood stove that keeps the whole place warm, especially the living room where we sit. It all reminds me of my great aunts’ homes when they were in their 90s. They were really too old to take care of themselves… but far too proud to ask for help.

That’s how it must have been when War II came along, too. I could tell it broke Mr. Becker’s heart to send his wife to work. "I told her, ‘Honey, I’m sorry. But I’m A1. They’re gonna take me and I got to go. You’re going to have to get a job.’"

Becker wasn’t a world improver. He didn’t want to fight Nazi or Nip. He wanted to take care of his wife and live in peace. Today, things have changed. Becker’s son works for the CIA now… "Oh, they’ve made a mess of things," he tells me quietly.

As soon as Becker got back from the war, he opened his own small variety store in downtown Baltimore… which is where he got to know all of the shady brokers.

"After being in the Navy, I wanted to make sure that no one could ever tell me what to do again. So, I started my own little store. At first, 99% of my customers were white. And we had a real good business. But in the early 1960s, the neighborhood changed. Pretty soon, 99% of my customers were black. We started having lots of crime. I was lucky to get out when I did. But, I’d saved enough money to buy this little farm. Nobody wanted land out here then, though. And you couldn’t have been any greener than me. I made every mistake in the book. I didn’t know you couldn’t make money with apples. You can with peaches, but apples don’t pay. Too many better-quality, Washington-state apples for less than it costs to grow apples here. But I learned."

Becker has been trying to sell part of his land to a national homebuilder for years. There’s a pretty lake on his property and a beautiful stream – with trout in it. He could probably sell 40-60 acres for close to $10 million.

But the Falls Road Community Association, which is made up of homeowners who moved into this area over the last 15 years, keeps suing Mr. Becker, preventing the sale of his land. They claim a housing development back there will put too much traffic on Falls Road. They claim the drainage will create an environmental hazard. They file protest after protest…

And they keep a very old man, who served his country and saved every penny he made for his entire life, on the verge of poverty.

They even had the gall to ask me to join their group.

They can go to Hell.

Regards,

Porter Stansberry

November 21, 2007

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