The S&A Digest: The biggest fish ever

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(Top 10 highest-returning open positions across all S&A portfolios)

As of 06/20/2013

The biggest fish ever... Goldman's secret grave dancers... Buffett's European vacation... Trading Crocs... What about OBAMA!?

Goldsmith comment: Porter's in Belize fishing this week, so Dan and I will take over the Digest. You're sure to hear about the "biggest fish anyone has ever caught... ever" upon his return.

 On Friday, I re-read an excellent Wall Street Journal article from last year. It's about a super-secretive department within Goldman Sachs called the "special-situations group." Mark McGoldrick, who earned $70 million in 2006 – more than CEO Lloyd Blankfein – ran the department. McGoldrick went against the groupthink of Wall Street and invested the firm's money in anything that was cheap. He bought Japanese golf courses, securitized them, and sold them off at a huge profit. He also bought Thai auto loans and hired thousands of locals to collect payment.

 In 2006, his group was responsible for one-fifth of Goldman's net income. It's curious to think an obscure department like this could make up so much of a bank's profits. In a more recent example, a small Goldman trading department made huge money shorting subprime mortgages, while the bank's salesmen were peddling them to clients. This goes to show that Wall Street banks are looking out for No. 1. Where are the customers' yachts?

 After reading this article, I passed it to Brian Hunt, our editor in chief. It fired both of us up to do some "grave dancing" – buying super-distressed assets, like Thai auto loans, for pennies on the dollar. We chatted over the weekend and thought of a few places to find great deals: for instance, buying foreclosed boats and RVs from banks. Any good ideas?

 Warren Buffett started his European tour today in Frankfurt. He wants "to be on the radar screen of private companies." Buffett will hit Lausanne, Switzerland, tomorrow; Madrid on May 21; and Milan on May 22. He wouldn't identify any specific targets, but he needs to find ways to invest his $35 billion pile of cash.

 Buffett isn't the only big-time investor heading to Europe... Private-equity firm Apollo Real Estate is looking to raise $1 billion to originate its own loans and buy debt backed by European commercial property. Specifically, Apollo is looking for junior debt, which offers higher yields at lower prices, with more risk. Apollo estimates European banks have $50 billion of unused debt on their balance sheets that would normally be packaged and sold. It sees the best opportunities in the UK and Germany.

 Jeff Clark is trading bright rubber shoes. In his latest Advanced Income, Jeff noticed that Crocs (CROX), which recently traded for 100 times earnings, is now trading for a mere eight times earnings. The stock has been beaten down. Just look at this chart...

This is an amazing buying opportunity for value investors. But they don't seem willing to step up to the plate just yet. Jeff has built a trade that will soar once the value investors pour in. And it will return double-digits even if the stock doesn't move. The situation is exactly like his NutriSystem trade two months ago, which is up 18%. Click the link to learn more about Advanced Income.

 New highs: Aracruz (ARA), ArcelorMittal (MT), Chevron (CVX), ConocoPhillips (COP), EnCana (ECA), ENI SpA (E), Occidental Petroleum (OXY), Petrobras (PBR), Plains Exploration (PXP), Sadia (SDA), StatoilHydro (STO), Transocean (RIG).

 As he mentioned last week, Porter's on vacation this week. But he did have time for an e-mail exchange with a subscriber below. If you're lucky, he may drop you a line from Belize, but not if you don't e-mail... feedback@stansberryresearch.com.

 "Can you even begin to imagine the utter contempt and loathing with which ordinary Americans regard the tax cheats (who were enabled to make their fortunes in the USA) who use offshore havens to shift their tax burdens to the honest folks who are not rich enough even to need such gimmicks? I don't like to pay taxes any more than you do, but until our society figures out how to survive without them, they are unlikely to disappear. Porter, please put away your Ayn Rand and grow up." – Paid-up subscriber Martha

Porter comment: What about U.S. citizens who haven't lived in America in a decade?

Martha comment: I don't give a doodle where anyone chooses to live. My point is that if you are going to enjoy the perceived benefits of citizenship or residency in a country, it seems to me you ought also to share in the responsibilities thereof; to do otherwise betrays a glaring lack of integrity – especially when the lives of other people are negatively impacted by your choices. Alas, integrity seems to have become an antiquated notion, practiced mostly by a few quaint little old ladies.

 "With all the discussion you had about Ron Paul, I'm surprised and disappointed that you haven't commented on Barack Obama and what an Obama presidency would mean to investors and the average American. Although the news media is obviously in love with Obama, why hasn't anyone gotten past his smile, platitudes, and charisma to uncover what he's really all about?

"Obama is an ultra-socialist and a classic tax-and-spend liberal. He wants to end the capital gains tax breaks; dispense with qualified dividend tax breaks; eliminate the cap on Social Security payroll taxes, thereby increasing taxes by $1.3 Trillion over five years; he co-sponsored a bill to spend at least $845 billion to fight global (not USA) poverty, mostly in Africa; he's proposed $285 billion in additional government program spending; he would mandate that employers provide medical insurance for employees, thereby causing small business closures and higher unemployment; he supports adding tax burdens to everything from products, to homes, to automobiles; and, he doesn't believe that parents have a right to chose the school for their pre-college children.

"Obama would be a disaster for this country! What is this jerks appeal?" – Paid-up subscriber Larry

Goldsmith comment: Porter's commented extensively on OBAMA! If you type "obama" into our search function on the homepage, you'll see nine Digest entries on him – and that's just on the first page.

Regards,

Sean Goldsmith

Baltimore, Maryland

May 19, 2008

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