The S&A Digest: Sins of Omission

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

As of 07/01/2013

My sins of omission... A dividend we're not recommending... Einhorn gets crushed... More gold in Africa for Banro... Watch this video... A new, inflation-proof dollar...

The U.S. Postal Service will soon release a "forever" stamp. Priced at $0.41, this stamp would hold its value against future rate increases. Assuming the stamps are available in big enough quantities, they should make for an interesting investment – they'll be an inflation-proof paper currency. Postage prices increase far faster than the government's official inflation rate. For example, Bernanke and Co. at the Fed want you to believe inflation rose around 3% last year. But the postage increase this year will be 7.6%, the largest increase in 12 years. I'd rather hold these stamps than a worthless greenback.

I don't want to ruin the surprise. Besides, there's no way I could explain it... Watch this video from the Technology, Entertainment and Design (TED) conference last year. It's a demonstration of new computer-interface technology that will be coming your way soon. And it's super-cool.

Greenlight Capital founder David Einhorn yesterday resigned from the board of New Century Financial (NEW), a mortgage lender facing a criminal probe in addition to the usual subprime woes. We find it hard to believe that Einhorn – a respected value-oriented hedge fund manager – has done anything with criminal intent at New Century. But regardless, he's hurting. Of the 23 stocks in his portfolio, four of them have exposure to the mortgage market, one is a homebuilder, and one is a developer. He's been a long-term holder of these stocks, owning them since their peaks in mid-2005. These real estate-related stocks represented $683 million of his portfolio.

"I don't want to be too sophisticated here, but '07 is going to suck, all 12 months of the calendar year." So said Donald Tomnitz, CEO of D.R. Horton (DHI), a True Wealth pick. He expects new home pricing will be weak through 2008.

It's a hard lesson for most investors to learn, but the time to buy cyclical stocks – like homebuilders – is when things look like they can't get any worse. You've got another chance to buy most of these stocks, thanks to more negative sentiment toward the housing sector due to the subprime debacle.

Last year, 5,700 steel and copper robberies in Japan totaled $17.27 million in losses, and the number of cases is steadily rising. Thieves are stealing incense holders from graves, roofs off public toilets, and even children's slides. Probably can't blame these thefts on Gypsies.

Good news for S&A Gold Report pick Banro (BAA). The Democratic Republic of the Congo granted the company 14 exploration titles. The grants cover 3,130 square kilometers between Banro's 5.6 million-ounce Twangiza deposit and the 1.2 million-ounce Namoya deposit. Banro now holds the most dominant position in the Twangiza-Namoya gold belt.

There's another big dividend coming up, but not one for you "grabbers" out there... General Maritime (GMR) will pay a $15 dividend on March 23 to shareholders of record on March 9. The ex-dividend date is March 26, the Monday after the payment date.

We're not recommending you grab this dividend. Sure, there's a good chance everything will work out fine, but there's also a reasonable chance it won't. The company is borrowing $900 million to fund the dividend and will end up with $540 million in debt. Unlike HMA (the last dividend we grabbed), General Maritime is in a deeply cyclical business – oil shipping – where prices have been weakening. Softer pricing and lower profits might make it hard for GMR's share price to bounce back in a reasonable amount of time. We've consistently found that it doesn't pay to put a substantial percentage of your investment at risk with the hope of making a relatively small gain. That's not the kind of bet that will make you money over time.

HMA, on the other hand, briefly touched $11 today, up 10% already since its ex-dividend date last week.

Some of you might not have gotten yesterday's Digest due to a technical goof. If you're ever missing your copy of The Digest or want to read back issues, go to www.stansberryresearch.com and log into the archives.

There was an upset in the top 10 today. Ferris overtook Ferris. Korea Electric Power (KEP), which held the No. 10 spot, was dethroned by POSCO steel (PKX), another Korean Extreme Value stock.

No new highs in our recommended portfolios yesterday.

We simply bring up the point that one of the biggest global-warming activists is buying his peace of mind and profiting while others buy into the myth, and the e-mails flood in. One guy even called us Republicans. He must be a new reader. Oh yeah, and another guy thanked us for the quick $20K he pocketed. Let us have it at feedback@stansberryresearch.com.

"So while you guys are dogging Al Gore, what are YOU doing about the carbon pollution that you produce? When anyone else is making a smart investment, you praise or jump on the bandwagon; so what's different now? Is this partisan investing or just a Republican thing? Just because he is a Democrat and concerned about what we are doing to our planet doesn't make him a stupid investor." – Paid-up subscriber CD Bigus

Porter Comment: Look... the guy is buying his own company's "carbon offsets" and claiming to be green. It's laughable. As far as investing goes, anyone who invests in something as obviously made-up as greenhouse emissions is going to get what he deserves. Finally, we're as far from partisan as you can get: We disrespect, mock, loath, and fear in equal measure every politician we meet (and we've had the unfortunate experience of getting to know several).

Politicians are – to a man – liars, thieves, and whores. This is as it should be in a democracy, where the politicians must assume the mantle and the mores of the mob they lead. Most people in America would do exactly the same, had they the power to do so. Gore is simply particularly venal, greedy, arrogant, and manipulative. Besides, he looks like an alcoholic Frankenstein, doesn't he?

"Hey Porter & staff: Why don't you and your colleagues stop the politicizing of global warming – your Republican colors are blinding me. Just because Gore is taking advantage of a scientific phenomenon doesn't mean it is a hoax. Why don't you try reading this informative data collected from intelligent researchers and quit bashing global warming because you vote Republican. Do you remember the ozone layer and the discovery of its man-made hole caused by chlorofluorocarbons? Looks like they were right about that. Our governor here in Florida, a Republican, has embraced the challenges of learning more about this potentially world-changing trend – it's great to have a leader with an open mind who doesn't think he knows everything about the planet and its meteorological cycles." – Paid-up subscriber Anonymous

Porter Comment: If you believe in global warming, it's no surprise that you think there's any difference between a Democrat and a Republican. By the way, we're neither. And we don't want to encourage them.

"I see that Dan is starting a new newsletter. This will not take away from his time and effort that is required to perform the proper and thorough DD needed to pick Extreme Value stocks for his current newsletter, will it?"

– Paid-up subscriber Dave

Porter Comment: You've never met Dan Ferris, have you?

"I have taken and extended the trading ideas from Jeff Clark on shorting MER and QQQQ since late January, buying leaps on MER, and February, March, April and June puts on QQQQ. I lost one thousand dollars on QQQQ February puts but hit the jackpot last week, pocketing $20K. That paid off my Alliance membership. Thank you very much for the advice and all the gifts."

– Paid-up subscriber Ralph Y.

Porter Comment: You're welcome.

Sins of Omission

Subscribers typically judge us on what we do. They rarely judge us for things we should have done, but didn't.

That's probably because they know very little about what we don't do – our sins of omission.

Here's one confession to whet your critical appetites...

Two years ago, in the March 2005 PSIA, I undertook a long and arduous analysis of Harold Simmons' publicly traded holding company, Valhi (VHI). It's an incredibly complex company, the main purpose of which is to serve as a tax shelter for Harold Simmons. It's not hard to imagine why Simmons would make Valhi so difficult to analyze: If no one could understand what it was worth, no one would buy it. With no competition for the shares, Simmons would have an easier time controlling the price.

I spent weeks sifting and sorting through all of Valhi's filings. Not surprisingly, I learned Valhi was worth a whole lot more than its share price – probably three or four times more. (Most people don't want their tax shelters to be fully valued.)

There were two assets, in particular, that made up most of the stock's real value: publicly traded subsidiaries Kronos Worldwide (KRO) and Titanium Metals (TIE).

A few weeks ago, my subscribers were rewarded for my hard work and their investment decision. Valhi went up 20% on news it was spinning off shares of Titanium Metals. If you took my advice in 2005 to buy Valhi, you've doubled your money. That's a very good return, on a totally safe stock, in a two-year period. Applause all around, right?

Well... if you had bought Valhi subsidiary Titanium Metals directly, you would have made about 500% in the same two-year period. Luckily, I won't have to record the 400% difference in any of my track records.

It's not the 25% losses that bother me and keep me up at night. It's the gains I've missed on your behalf... It's the sins of omissions that really, really hurt.

Regards,

Porter Stansberry

Baltimore, Maryland

March 8, 2007

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