THE S&A DIGEST: The Dark Side

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Patrick Byrne's short-selling ignorance… the world's first liberal Nazi… more abuse on your humble editor… keeping up the B.S. stories

According to the Wall Street Journal, one of my newsletter's long-time recommendations, Convergys (CVG), is now a private-equity takeover target. It's ironic… back when Convergys was trading around $14, I was pounding the table on the stock, explaining why it was safe and sure to hit $20 in the near term. But if "elite" Wall Street investors want to take the company private now, that's fine with me. We'll take their money.

Remember Patrick Byrne? A year ago, the CEO of Overstock.com was convinced that financial writers, hedge funds, and a criminal "Sith Lord" were conspiring to drive the price of his company's stock down by "naked" shorting. The stock reached a new low this week when revenues fell 6%, and the company's losses doubled to $254.5 million. Maybe he should have paid more attention to merchandising… and less attention to the Sith Lord. Every time I've ever seen a company's CEO complain about short selling or the price level of their stock for any reason, it always has been a sure sign to sell. CEOs should focus on the business, not the stock.

Speaking of "naked" short selling… I've never understood why it's a problem. It seems like a boon to long-term shareholders. For example, if my publishing company was publicly traded and "naked" short sellers drove the price down, I'd thank them. They'd be helping me get shares at a better price.

Economist Paul Kasriel pointed out the Achilles heel of our current economic boom at the recent Grant's Interest Rate Observer Conference in New York. "There have been 12 years from 1929 to 2005 where households ran a deficit. Two of those years occurred in the Great Depression [when incomes collapsed]. Four of those years occurred in the early postwar era [when returning vets spent heavily on homes and durable goods]. The remaining six years occurred starting in 1999. Last year, households ran a deficit of $477 billion. Records are made to be broken. It's around $525 billion in the first half of this year at an annual rate. We worry a lot about the federal government's deficit, we are actually outpacing it."

If you're smart, you'll get out of debt now while the boom continues. You're going to want to have a seat when the music stops.

Yesterday, a reader called us "Nazis" and berated us for not being on speaking terms with former communist Danny Ortega. Today, L.R. Speaker takes us to task for being too liberal: "I bet that is the only time you have ever agreed with Richard Nixon. Even that backhanded comment is liable to label you as untrustworthy in [Bill] Bonner's list of eager liberal ass kissers."

Our Rummy jab upset paid-up subscriber David Ballou, too: "Evidently you are still operating from Cockeysville, USA. Compare Rumsfeld to McNamara? Sorry Porter you are just being an asshole. Get over it. Soon!"

Paid-up subscriber Lawrence Cole makes a great point: "I can't believe you guys invite this abuse on yourself. I guess you enjoy it."

Finally… let's end the week with our friends, the drunks and the simple-minded. These folks actually like what we do… God bless 'em…

Dave Quattrin writes, "The Digest is getting better day by day… Much better wit and sarcasm than the Daily Reckoning at it's finest. Hopefully someday you'll be as irreverent as Doug Casey."

Porter Comment: Funny you mention Doug… see today's essay.

Bill MacLaren writes, "I started out with about $4k 18 months ago. I paper traded ya for awhile and decided to plunge on in with my meager amount of cash. Been buying and selling and stickin' to your advice. (That's what I pay for, right?). My account closed yesterday with $10,792. I can put up with your little stories of life in the fast lane if you keep helping me that much. I wonder how many of the naysayers actually stop using your service. Keep up the good work and the BS stories. Some times I laugh my nuts off at you rich guys, you certainly have a different set of issues then us working stiffs."

The Dark Side

From an e-mail I sent to Doug Casey on November 1, 2006:

Doug –

Hope you're well. I heard that you will be debating Newt Gingrich at the upcoming New Orleans affair. Is this true?

If so, do you need a corner man? I'd put on a "Team Casey" sweatshirt and hold a spit bucket for you. In between replies, I'd squirt water into your mouth… and if you get cut, I'll roll some astringent on it for you.

Ah, what am I talking about? Newt is so predictable, he won't even land a jab on you…

As you probably know, the granddaddy of all investment conferences is held in New Orleans each year. Called the Blanchard Conference before the death of Jim Blanchard, it's now called The New Orleans Investment Conference.

The origins of the event go back to the early 1970s, when Jim was drunk, gold was illegal to own, and newsletter writers couldn't write about stocks without getting approval from the Securities and Exchange Commission (SEC). As an organizing event, it has been remarkably successful, helping to push President Ford into legalizing the private ownership of gold and moving the equity culture in America forward to the point where the Supreme Court ruled (Lowe, 1985) that folks like me could write about securities to folks like you without first consulting with a government agent. (Well, in theory. As most of you know, the government sued me in 2003 for writing about a security. The SEC didn't agree with what I had to say… so far, the case is a draw. We're both waiting on a federal judge to rule.)

Somewhere along the way, as the conference got bigger and Jim Blanchard grew wealthy from his coin business, the founding libertarian spirit – the ethos of the event – shifted. It moved to the right. The keynote speakers were no longer the philosophical heroes of libertarians, like Ayn Rand, Milton Friedman, and Dr. Kurt Richebacher. Instead, Blanchard began inviting politicians. Republicans. People like Dick Cheney, George Tenet, and, this year, Newt Gingrich.

There's nothing worse than a former libertarian who becomes a Republican. Most Republicans simply don't know better. They're only ignorant. But… guys like Blanchard and Mark Skousen and the whole crew at Phillips Publishing, they know better. They couldn't help themselves. They got seduced by the big money and the big power of Washington. Instead of merely seeking liberty for themselves, they joined the "world-improver" club. They went over to the dark side.

But not my friend Doug Casey.

Doug has spoken at more Blanchard/New Orleans investment conferences than anyone else. Through his expertise in junior mining stocks, Doug has become a very wealthy man. He made a second fortune in Aspen real estate. But, unlike so many others, his worldview never changed.

One night about seven years ago in Shanghai, a slimy stock promoter took me and Doug out to dinner at a fancy restaurant overlooking the Bund. I got a wonderful education that night in libertarian and objectivist philosophy as Doug systematically tore our host apart when he dared to suggest that there was no way to judge, objectively, between right and wrong. Such thinking was convenient for the promoter's line of work. But it was completely unacceptable to Doug.

"He's not ideologically sound, Porter. And you shouldn't do business with people like that…"

Doug's also been known to insult the audience at Blanchard for applauding the political speakers. "You're all whipped dogs. Roll over on your bellies and lick the feet of your oppressors. You're disgusting…"

Upon being introduced to Dick Cheney in the mid-1990s at a cocktail party for speakers, Doug refused to shake his hand, saying, "I'm not going to shake your hand, you lying, stealing murderer."

Doug's a national treasure.

And wait until Newt figures out what he's in for…

Regards,

Porter Stansberry

Cockeysville, Maryland

November 10, 2006

P.S. If you're heading to New Orleans and you see me there, please stop me and say "hello."

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