The S&A Digest: Welcome to the recession

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

As of 06/24/2013

Welcome to the recession... No more credit... Living on gift cards... Is this the "big one"?... Soros buys India... Dansker returns... My wife is nervous...

Welcome to the recession. Credit-card defaults are soaring, trailing after mortgage defaults by six to nine months. In December, 7.6% of all credit-card debt outstanding was in default and that number is rising each month. More incredibly, looking at the data today, I realized Americans owe close to $1 trillion to their credit-card companies – at rates of interest as high as 30% annually! Considering that, on average, Americans don't save any of their incomes... how, I wonder, do these credit-card companies expect to be repaid?

Jeff Matthews noted several other disturbing trends on his blog. Like plummeting sales at low-end family restaurants. Chili's restaurants' parent company says: "We are operating in one of the toughest environments in our company history." Starbucks – which, judging by my employees' habits, must sell a legal version of crack – has seen sales decline 3%.

Wal-Mart reports that shoppers are spending gift cards on socks and diapers, instead of CDs and iPods. This news comes as retailers posted the worst January in almost 40 years. "It shows you the level of worry. Even with free money in your hand, (consumers) aren't willing to spend on anything more than necessities," said Michael P. Niemira, chief economist at the International Council of Shopping Centers.

Since the 1930s, various political leaders and delusional economists have told Americans the key to prosperity is spending. It sounded so much better than the alternative – hard work, thrift, investing – few people bothered to wonder whether it was true or not. And to make sure Americans kept spending, the government manufactured one hair-brained scheme after another – with plenty of help from big business and the big banks. The New Deal, the War on Poverty (the poor lost that one...), paper money, "deficits don't matter" government budgets, "free" prescription drugs, so-called "tax rebates" for people who didn't pay taxes in the first place... and now, the latest campaign, Hillary's "shared prosperity" programs. (Guess who Hillary thinks should "share"?) I could go on... but I'll spare you. The question now is will this recession be the "big one?" The complete collapse of the system that's been built over the last 80 years, with one bigger lie told atop the next, one bad credit piled under three or four more worthless IOUs?

I don't know, dear subscribers. But I do know you can't "restructure" the true underlying forces of nature forever. You can only lie for so long before it all falls apart.

If this is the beginning of the end of the dollar standard and the end of America's economic hegemony, it would be devastating to my business, many of my friends, and perhaps even my own family. Nevertheless, I would welcome it – as long as the hard times wipe away all of the bad ideas of the last century. Despite the pain that may come, I am eager for the basic lie of the 20th century – the idea that you can live at the expense of your neighbors – to be destroyed.

George Soros bought a $100 million (3%) stake in the privately owned Reliance Entertainment. Reliance, owned by billionaire Anil Ambani, has many businesses, including social networking and gaming Web sites, and film production and distribution in India.

Morgan Stanley is also making moves in India... The investment bank will start its first Indian equity fund in 14 years. Less than 1% of Morgan Stanley's $606 billion of assets under management are in India. Local firms led by Reliance Capital and UTI Asset Management handle four times more money than overseas competitors. Morgan Stanley expects investment in India to quadruple by 2012.

New highs: none.

Tom Dyson is heading to Brazil, and he needs contacts. If you know any investment managers, sugar farmers, or entrepreneurs, please let us know at feedback@stansberryresearch.com.

With your help, I was able to regain control over my Gmail account – whew. (Dozens of subscribers contacted us with their contacts at Google – thanks.) Someone, it seems, was able to hack into my account last week, and change the settings. It's a scary feeling knowing someone had access to all of my personal e-mail. Not coincidentally, after I lost control of my Gmail account, someone tried to hack into my bank account, too. I've changed all of my passwords now and I've made sure everything is locked down. (Luckily, I didn't use my e-mail password for my bank account.) Do yourself a favor: Change your passwords every six months or so. I hadn't changed my main password in more than 10 years.

In the mailbag... Dansker is back! He warned us not to "tick him off." And now, it seems, we've done it... If you'd like to revel in our digital problems or even make vaguely threatening remarks, go ahead. We promise to read whatever you send us. And no, we don't make this stuff up: feedback@stansberryresearch.com.

"[In regard to your hacked Gmail account] Remember when I told you it doesn't pay to tick off an 800lbs. gorilla? Just a thought. Maybe I can help. Maybe not." – Paid-up subscriber Steve Dansker (the FBI consultant)

"I am a beginner at stock investing. I got scared about my SEP-IRAs losing money to inflation last summer since they are all in CDs at 4 % m/l and inflation talk was heavy. So I opened an online account and took some of my retirement $ and started up with two of your publications. I had to buy cheap stocks because my wife freaked about 'gambling' in the stock market. Thanks to the timely advice about Thornburg Mortgage (TMA) and your astute analysis I bought at $7.52, and it recently closed at about $14... not bad for less than a month (and it paid an 8+% dividend on my purchase price to boot!). I am now looking for more of the same idea... cheap (under $15) stocks that pay a 6% or more dividend and are currently at less than 60% of their 2007 high. Give me more!" – Paid-up subscriber Joe

Porter comment: I wonder why your wife is nervous...

"I would like to ask about a small detail that has been bothering me for quite some time. The name of all feedback writers is preceded by 'Paid-up subscriber.' Is this a form of self-flagellation by everyone that has paid for your advice or simply an editorial add-on?" – Paid-up subscriber Ray Gembala

Porter comment: It's a habit we picked up from James Grant, of the eponymous Interest Rate Observer. There's no particular reason behind it... it's just a reminder that this is a paid service... and that without your support (subscriptions), we wouldn't have a business and there wouldn't be a Digest.

"I though your description of the 'can't-lose' strategy was clear enough. It wouldn't be for me because I don't have/want to spend the time looking for a likely candidate that fits the parameters that make it work. Tell Mr. Montesione he should turn himself in to the STUPID POLICE." – Paid-up subscriber JL

"What do these tables mean and how do I use them... This is a serious question." – Paid-up subscriber Sheldon Strand

Porter comment: As you might surmise, the Top 10 list reflects the 10 best-performing open recommendations we've made from across all of our published reports. We publish this list for two reasons: To demonstrate the value of our best advice, and to reward and encourage our analysts to pick great investments. Likewise, the Hall of Fame is a list of all-time top-producing recommendations. The difference, of course, is the Hall of Fame positions have all been sold and thus, those profits are now officially "booked." This is a serious answer, by the way.

Regards,

Porter Stansberry

Baltimore, Maryland

February 8, 2008

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame