The S&A Digest: Un-American Stansberry

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

As of 06/26/2013

Un-American Stansberry… A new brisket recipe… Correction Opportunity Report… There's still money out there… Eifrig on finance…

 Just received from our Health Blast editor Dr. David Eifrig, a former Goldman Sachs VP:

I have been traveling all over the United States by car the past two months (all for pleasure) and talking with real estate agents and anyone else connected with the lending business whenever I can.

It turns out that I have good friends in the business. One is a mortgage consultant who finds loans for people mainly in the high-end market. Other friends (actually a married couple) are renovating their home to the tune of $1 million… the problem is they still have a construction bridge loan that now can't be rolled into a mortgage at less than 9%. When they started the project, they were counting on 5% or so. This $40,000 annual difference is titanic to them as they were cutting it close in the beginning. Worse, one of them is in the mortgage business as well (a senior financial person) and has spent the past months firing 30% of the work force. And he's nervous about his own job.

But the terrible part about it all is that they think the government should help bail them out of their predicament… I was shocked, and we argued for a while until I realized they truly were in dire financial straits and that no rational argument about risks and rewards could get through. I didn't have much sympathy as I backed out of their driveway in my Hyundai Santa Fe and noticed parked in the garage was a BMW and a Lexus SUV.

 12% Letter pick Citigroup (C) applied for an initial public offering on the Tokyo stock exchange. The world's second-biggest bank by market cap applied for the listing weeks ago but is still working out the details, including the size of the offering and the date. As Digest readers know, this is not Citi's first foray into Japan…

 We wrote it, did you buy it? From the November 21, 2005, DailyWealth...

…with gold near $480, Bill says, "Right now, we rather regret it. Because gold has, so far, been unwilling to correct to our current buying target: $450. This leaves us to wonder whether we should buy at the market price – whatever it is – or continue waiting." Bill… stop wondering… Buy. Gold is cheap.

Adjusted for inflation, gold today is at the same price it was 30 years ago. Gold peaked at above $1,400 an ounce in 1980, adjusted for inflation. So we're two-thirds below the price twenty-five years ago. Bill, you're quibbling over 6% here. When gold's at $500…or $600… you'll wish you hadn't.

– Steve Sjuggerud

No surprise here, but Sjug was right… Gold closed at a 52-week high of $704.60 an ounce yesterday.

 It seems that liquidity hasn't completely dried up… SAC Capital, the hedge fund founded by billionaire Steve Cohen, raised $1 billion for its flagship fund despite market turmoil. So, not only are people willing to pony up some cash to bottom fish, they're also willing to pay 3% up front and 50% of earnings by betting on old Stevie.

 Signs of a bottom… According to an industry insider, money is pouring into distressed-debt hedge funds at the fastest pace in six to seven years.

 It's Friday, and it's time for another installment of the Correction Opportunity Report. As you can see below, our picks have been doing quite well in recent weeks. Just a quick recap of our strategy… We set out to find financial stocks that had been unjustly beaten down during the subprime and credit crises, ones that actually had no direct exposure to mortgages and no reason to worry about higher borrowing costs.

As we said last Friday, today's recommendation will cover preferred shares of banks. The recent market turmoil has been exceedingly harsh toward financial stocks. Anything analysts believed came even close to subprime exposure got hammered. And with the following credit crunch, investors in highly levered banks got dealt an extra blow.

But preferred shares are actually more like debt. These shares receive a fixed dividend, and that dividend is the first to be paid out of earnings – hence the name "preferred." Unlike regular shares, preferreds have no voting rights.

Today's recommendation gives you the opportunity to make good capital gains and a 6%+ annual dividend for three years… that is, unless the world's biggest securities firm goes belly-up.

Goldman Sachs (GS) preferred A shares (GS-PA on Yahoo Finance) currently trade at $23, about 8% below par ($25). And they pay a floating dividend of LIBOR plus 75 basis points (0.75%). The shares currently yield 6.62%.

The shares are callable on April 25, 2010, meaning Goldman has the option to pay you your $25 at that point or anytime thereafter. This would bring your revenue stream to an end, but materialize your 8% capital gains.

If you buy the Goldman Sachs preferred A, expect to make close to double-digit annual gains. Unless the bank becomes insolvent (which we think is highly unlikely), you will receive your dividends quarterly and $25 when Goldman calls the shares in.

 New highs: Nokia (NOK), Posco (PKX), streetTRACKS Gold ETF (GLD).

 Goldsmith comment: You always serve up the juiciest criticisms when Porter is indisposed… Today, he's un-American. All I can offer is that his love for huge piles of beef and California cabernets makes him one of the most all-American guys I've met. Hell, he had tickets to a Willie Nelson concert last night. Send more insults here: feedback@stansberryresearch.com.

 "Your mentor/financier/idol, Bill Bonner and you are pseudo-intellectual clones of spineless Libertarianism! But at least you do it from Baltimore. Last time I read about him (from him, of course because he and you are the only ones whoever write about him) he was bragging about writing from his veranda in PARIS!, having left the USA because he couldn't be free from the responsibilty brought on by being a citizen!!! Why I let myself get sucked into subscribing to your forum for Political wussism disguised as an Investment Letter escapes me at the moment! The last month or so has been an unbelievable distraction from MAKING MONEY! Good bye at renewal or sooner!!!!!!!!!" – Paid-up subscriber Bill Yuan

Porter comment: What, exactly, do you think my responsibilities should be as a citizen?

I pay nearly half of my income in taxes to "the people." I pay additional money to support retirees in a sham fund that won't exist by the time I retire. I submit to one regulator after another, each of whom expects me to pay for the privilege. Around every corner, there's yet another bureaucrat I must pay to receive permission to do this or that. Lawyers must read everything I publish, just in case we're not in complete "compliance."

The only thing I expect from my fellow citizens is simply to be left alone. And it will be a cold day in hell before that happens...

 "I think todays message tells me that you really don't give a damn about the USA – I wonder how you can recommend securitities issued by American Companies since you have no confidence or belief in these same companies or this country. In my opinion you should have kept your personal beliefs out of your messages." – Paid-up subscriber Jim

 "I followed Tom's recommendation, and bought 100 shares of Thornburg on May 24 at $27.23. Noticing that all the TV news doofuses had their hair on fire about the 'crisis in home ownership in America' I, no genius, figured that this wasn't going to be good for even the good guys, so I sold on August 8th at $22.06. I watched it as it went down. On the 4th of this month, I bought 250 shares back at $12.20, with a current yield of around 23%. Now I will watch and wait. When things turn around, and they will, I believe Thornburg will bounce back higher than it was before, and I will profit handsomely. And if I don't, it's no one's fault but my own." – Paid-up subscriber Raoul Simon

 "With all this continuing discussion of beef brisket I had to submit the following recipe we have used for the last twenty years. It always is a big hit. Recognizing your recipe must be terrific, you know many will be put off by the need for a smoker and 12 hours cook time. This one produces tender, delicious brisket in 4 hours in your oven using a mix of sauces.

BBQ Beef Brisket from Ann Whitney:

1/2 Jar Woody's Cook-in Sauce

 1 TBS Garlic Powder

 2 TBS Worcester sauce

 1 TBS Ground Pepper

 2 TBS Liquid Smoke

 2 TBS Celery Salt

"Mix all this together and coat both sides of meat. Wrap in aluminum foil and refrigerate overnight. Cook covered @325 degrees for 2.5 hours. Add more Woody's if desired and continue cooking 1 hour without the foil to help in reducing moisture. After cooking let rest in refrigerator for chilling. Then reclaim the fat and discard before slicing the meat. You can freeze leftovers since it reheats nicely and tastes just as good or better." – Paid-up subscriber Curt

Regards,

Sean Goldsmith

Baltimore, Maryland

September 07, 2007

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