The S&A Digest: What to do now

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

As of 06/19/2013

What to do now... A giant black penis... The most expensive hotel room in Rome... Our last night in Tuscany... James Tisch, no hero... The new target: $5,000 gold... Ackman: 2; Whitman: 0... More on habeas corpus (oh no!)...

"The St. Regis? It's up there, just past the giant black penis..."

Rome is a wonderful, Latin capital. On the main road into the center of the city, flamboyant female prostitutes stand on each block – precisely two on each block. They are very good at advertising their wares. I wondered: How did they agree to limit the number of whores on each block along the main avenue? How many accidents do they incite each day? Still, traveling with my family and my wife's parents, I tried my best to keep my gaze centered on the road.

Then, as if to give fair play to my wife and my mother-in-law, we discovered a gigantic, 60-foot billboard of David Beckham, the international soccer star. He wasn't wearing cleats. Or a jersey. In fact, the only thing between him and the rest of the universe was a pair of very tight-fitting black briefs, which, like the other hookers on the way into town, accented his, um, natural abilities. The billboard obscured the view of our hotel. I drove by it twice. I didn't even want to look in that direction.

What a reward, though, when we finally arrived. Booking through American Express has gotten me free upgrades several times over the years. Once my wife and I ended up in a two-story suite overlooking the Eiffel Tower at the Four Seasons in Paris. Another time we ended up in the Presidential Suite at Shutters on the beach in Santa Monica. Today, we were told the room we reserved wasn't ready, but because we'd booked through American Express, the hotel was happy to upgrade us into the Royal Suite – the largest room in the hotel. There are 15 rooms about 1,800 square feet – including a dining room that seats 16 and its own wine cellar, stocked with dozens of bottles. Original art covers every wall. This must be the most expensive hotel room in Rome... Makes the $350 a year I pay for my platinum American Express card seem like an awfully good deal.

By the way, the stomach virus that infected me – and then the rest of my family – passed, fortunately. Thanks to the many of you who wished me well. By Thursday afternoon, we were all enjoying our last day in Tuscany. It was sunny and hot. We sat in the pool overlooking the vineyards while Mauro, a chef we hired from Sienna, cooked us one last traditional Tuscan meal: pici, a thick, handmade pasta, with a porcini mushroom sauce and grilled Chianina beef, served nearly rare. It was a wonderful vacation, one I'd recommend to anyone who loves fine food and wine.

"I'm happy not to be a hero now," James Tisch, one of my favorite investors, told the Wall Street Journal. With more than $12.5 billion in cash, Tisch has continued to stand on the sidelines, waiting and watching. His investment holding company, Loews, is one of our longtime favorites. Why? Because Tisch has that rarest of commodities on Wall Street: humility. "If there's nothing to do, do nothing." That's the most valuable lesson you'll ever learn about investing: You only have to swing at the fat pitches. It's utterly true, it's intuitively simple... and yet it's nearly impossible for most people to sit on their hands until a great investment comes along.

Unlike Tisch, people don't pay me to do nothing (or to take a vacation to Italy). You expect my best ideas on what actions to take, whether the market is going up or down. My best advice continues to be: Buy the highest-quality companies you can find when they are trading for prices you know are totally safe. My newsletter lists at least half a dozen as "buys" right now.

Also, sell covered calls against these positions (and your other long positions) when the premiums are attractive. This will generate income for you and offset any temporary weakness in your results. Hedge your portfolio buy owning gold, or better yet, silver. And sell short highly indebted companies whose shareholders have no possible way to salvage, like the ones I've mentioned to you repeatedly in these pages. If you've taken these actions, the last week shouldn't have bothered you at all. You could have a drink with James Tisch and be just as at ease.

This is the highest call we've seen for gold to date... Schroder Investment Management, with $277 billion under management, says gold may hit $5,000 an ounce "as inflation psychology becomes more and more embedded and people become desperate to have a source of value."

It may not be time for Dan to cover his Lehman short yet... Shareholders filed a class-action suit against the bank, whose shares have fallen more than 60% this year. The suit also accuses Lehman executives of making deliberately misleading statements and withholding material information in order to sell more stock at inflated prices. Shares are down 2% today, and Dan is up 40% on the trade.

Ackman: 2, Whitman:0... Moody's stripped Ambac and MBIA of their triple-A ratings, citing the companies' impaired ability to raise cash and write new business. All three major credit ratings agencies (Moody's, S&P, and Fitch) have now downgraded the bond insurers. We don't know if Ackman covered his short yet, but we do know Whitman is incredibly bullish on both stocks. He holds a combined 18 million shares in both companies. Whitman has owned MBIA since it traded around $70. It's currently trading around $5.80.

In 1982, Jim Rogers invested heavily in Germany. The German market crashed in 1962 and moved sideways for 20 years. Meanwhile, the German economy had boomed, and companies' revenues and earnings were soaring. Rogers saw the perfect setup for huge profits. After Rogers' investment, a business-friendly government took power, and he tripled his money in three years. Jim Rogers just bought into a new stock market three months ago... for the first time ever.

And 12% Letter editor Tom Dyson took note. Dyson found the perfect stock to play this trend. It's cheap, and it's about to pay a $500 million dividend to shareholders. He expects at least a triple in the coming years. To learn more about The 12% Letter and access Dyson's latest recommendation, click here...

Condo Vultures, the Miami firm that buys up cheap south Florida real estate, now has almost 4,400 properties for sale. Four hundred of the homes are priced at less than $150,000, and the cheapest is only $31,000.

New highs: Exelon (EXC), Grey Wolf (GW), Comstock Resources (CRK).

In the mailbag... We argue on behalf of an ancient right, hard won against centuries of tyranny... while the audience attempts to stone me. Mike Williams discusses something far more monetarily useful – buying "distressed" debt. Send your comments: feedback@stansberryresearch.com.

"When Lincoln and Roosevelt suspended habeas, it was suspended for American Citizens. Iregular combatants who want to blow people up are not entitled to the full panoply of U.S. Citizenship. This is Beda Ginsberg ACLU law, not constitutional law. Hope your investment advice exceeds your hatred for Bush. What a disappointment. Stay out of politics you oaf." – Paid-up subscriber Anonymous

Porter comment: This is only one of dozens and dozens of similar e-mails we received. It is far from the angriest. Apparently to some subscribers, suggesting that our government ought to be bound by the U.S. Constitution is tantamount to supporting the terrorists of 9/11. Nothing could be further from the truth. In fact, perhaps the most important difference between our civilization and the barbarians attacking us is our respect for the law. What unites Americans isn't a common heritage or ethnic background. What unites Americans is our respect for civil society, our individual freedoms, and our rights under the law.

Our constitution CLEARLY requires the government to allow captives access to the courts. This is our law. It is plainly and clearly part of our constitution. It has a rich and well-known legacy both in the common law of our founding fathers and even in the Christain church, where canon law holds that everyone must have a hearing, even the devil: Etiam diablus auditur.

The right to habeas corpus has nothing to do with citizenship. It is a limit on the constitutional authority of the executive branch of our government. It is part of our Constitution's critical checks and balances. If you want the terrorists to win, you will allow them to destroy our way of life, our traditions, and our culture. If you despise the terrorists, you will insist on maintaining our rule of law, despite the challenges they pose to us.

"This service [True Income] sounds too good to be true. Why would corporations that are likely to be solvent pay such a premium (up to 100% in a year) to get capital when they could borrow it from a commercial bank for 10%?" – Paid-up subscriber Brian Bora.

Mike comment: Our subscriber is absolutely right! A profitable company with good prospects and a sound financial condition can borrow from a commercial bank at around 10%.

The borrowers in the True Income portfolio did that. In fact, they borrowed at much lower rates of interest. The Tribune Company borrowed at 4.875%, the Rite Aid Corporation borrowed at 6.875%, and Freescale Semiconductor borrowed at 10.125%. These are the coupons on each of the bonds. Each of these companies borrowed $1,000 and will repay $1,000 at the maturity date. This is the "face value" of the bond.

Much of the return from the True Income portfolio comes from buying the bond with a face value of $1,000 for much less than $1,000. Today, we can buy the Tribune bond for about $700.

Buying bonds at a discount (less than its face value) increases our return in two ways. First, it increases our current yield. We paid $700 to get interest payments of $48.75. This is the interest the borrower pays each year and does not change for the life of the bond. Our yield increases from 4.875% to 7%. And second, we get a $300 capital gain when the company repays the bond at maturity. This is a 43% return on our investment.

The combination of interest payments and capital gains is how True Income investors achieve outstanding returns. To learn more about True Income, click here.

Regards,

Porter Stansberry

Rome, Italy

June 20, 2008

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame