The S&A Digest: Sjuggerud in the flesh

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

As of 06/25/2013

Sjuggerud in the flesh... The American Perfidy Plan... A bust in bond insurance... A top in India... Buy strip clubs... "Dividends" you shouldn't grab... Where's the abuse?...

Tonight... we try something new...

Steve Sjuggerud is very bullish on a few financial firms he believes will reap big profits from the mortgage mess. And rather than simply send out yet another e-mail or written report, we've gone to the trouble (and considerable expense) of producing a video, so that Steve can tell you "in person" about the situation.

You'll have a chance to "meet" Sjug and our group publisher, George Rayburn. (You'll also see the 1880s railroad baron's mansion that serves as our office.) Sjuggerud Confidential subscribers should have already received an e-mail inviting them to join us at 7 tonight.

President Bush will announce today the latest installment of America's Perfidy Plan. No longer content to promise its citizens only a bankrupt pension system and a woefully under-funded retiree health care plan, America's politicians are now foisting their "ethics" onto the private sector. Citizens, they say, can't be responsible for anything on their own – not even the most important financial promise they make in their lives, to pay their mortgage.

Today, the president will decree that mortgage lenders DO NOT have the right to increase rates on adjustable-rate mortgages – no matter how high the rate of inflation increases. After all, private homeowners can't be held responsible for the global run on the dollar, the never-ending growth of our national debt, or foreigners' growing reluctance to finance America's bad financial habits. Besides, no one should be blamed for buying more house than they can possibly afford. And banks that make unsound loans shouldn't be forced out of business. It's not "fair" to their shareholders, who had "no idea" the housing bubble was related to the bank's lending.

Like Cheney says, "deficits don't matter." Especially not when you can always issue a decree that shifts the burden onto someone else... Welcome to The People's Republic of Amerika.

If, upon watching this ridiculous mortgage shell game, you don't establish an investment in precious metals (or increase your existing investment in precious metals), you will deserve what's coming to you. The people running the United States are the biggest bunch of quacks and fools in our history. Yes, it will take a long time to destroy the credit and faith of the United States... but they're awfully good at it.

Who will end up holding the mortgage bag? Shares of bond insurer MBIA fell almost 16% to a new low yesterday after Moody's said the company's mortgage losses could put its triple-A rating at risk. That's very bad news because MBIA has a big side business: It sells access to its triple-A rating to other bond insurance companies, to save them money. It earns a small spread by underwriting these other deals... and amplifies these small profits with 140 times leverage.

As Moody's explains, "In no other industry is an entity's strong credit posture so central to its business model." At the Value Investing Congress last week, investor

Bill Ackman noticed the absurdity of the business model, asking, "How can a company be rated AAA if it cannot withstand even a single-notch downgrade?" Full disclosure: Ackman has very large short positions in MBIA and Ambac (another bond insurer) and stands to make hundreds of millions if things go his way. He expects MBIA to go bankrupt by February.

Signs of a top in India... India's biggest investor, and most relentless bull, is turning bearish. Sanjiv Duggal, who manages $11 billion in Indian equities, may urge his investors to cash out. He says stocks in the country are no longer valued on earnings and news, but "dreams." He expects India to decline for the next 18 to 24 months.

What businesses will do well in the midst of the world's financial collapse? Our own Jeff Clark considers investing in a strip club... Read about it in today's Growth Stock Wire.

New highs: Berkshire Hathaway (BRK-A), Covance (CVD), Exelon (EXC).

In the mailbag... Only a handful of notes! Where have you gone, dear subscribers? We hope our absence last week hasn't silenced your pen forever. Yes, we know it's the holiday season, and you have better things to do with your time than bombard us with hate-filled e-mails alleging an incredible variety of misdeeds... But, like a philandering British politician, we long for masochistic abuse. Surely you can find a spare five minutes to be hypercritical, can't you? If you can, e-mail us here: feedback@stansberryresearch.com.

"How did you folks miss the Korea Funds $15+ dividend? What is the scope of 'equities' that you will cover in [The Dividend Grabber]? ETFs, Mutual Funds, etc. also may pay dividends." – Paid-up subscriber Eric S.

Porter comment: The only thing "grabbing" those dividends will get you is a tax bill. We recommend the shares of companies who are paying out large, special dividends from excess cash on their balance sheets. We do so because we know the market doesn't value these corporations by their net asset value, but by the earnings they produce. Thus grabbing these dividends isn't a zero-sum game – you can usually "earn" the dividend within six months, either by collecting the payment in a tax-free account or by waiting to buy the stock after the special dividend has been paid and getting the resulting capital gain as the stock moves back to its pre-dividend price.

On the other hand, buying a mutual fund immediately before its cash distribution is wonderfully stupid. Most mutual funds are explicitly valued by their net asset value and require all fund holders to buy and sell at the net asset value price. So, you're paying full price for the dividend your getting. You won't make a dime. And, before you write that letter telling me that the Korea Fund is a closed-end fund and doesn't always trade at net asset value, yes, I know. But the Korea Fund, like all investment pools, doesn't have its own earnings stream. Its price is based on NAV, which leaves you in the same position.

"The link to the subprime market video was magnificent! Well, actually, the VIDEO was magnificent, but the link was very helpful. However, I could not help but wonder how we were to view an 8 minute, 49 second video in 4-5 minutes. This sounds like your usual promotional material. Could you tell us how to do it?" – Paid-up subscriber James Wood

Porter comment: Jeez...

"In response to the critical note from Doug Whitman regarding your recommendation of Antigenics, you caught my eye when you pointed out that 'nobody writes to tell me how "unforgiven" I am for recommending Elan – which I picked three times as it moved from $2 to $20. Or Celgene. Or Intuitive Surgical. Or Esperion. Or ID Biomedical. Or Celera. Or Mentor. Or Imclone.' I am afraid you are mistaken my friend. After having 'lifted' your pick of ID Biomedical through the dissection of one of your advertising letters (that seem to annoy so many of your readers), and receiving 4 to 10 times my original investment over four years, I am sure I sent you a note of thanks as well as a pledge to subscribe for life. It was truly a pleasure to have met you in Mexico. What a lovely place to celebrate my 22nd wedding anniversary and make new friends with my lovely wife. Many thanks to both you and Dr. Sjuggerud for the successful ideas with which you have provided me over these many years... " – Paid-up subscriber Ken McGaha

Porter comment: If I had a nickel for everyone who has taken recommendations from our promotions (without paying for a subscription), I would be long since retired. Thanks for your business, Ken. I truly appreciate it.

Regards,

Porter Stansberry

Baltimore, Maryland

December 6, 2007

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