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Weekend Edition

The Best of The S&A Digest
Saturday, March 21, 2009

When investors are afraid, they'll pay ridiculous prices for insurance against further losses in stocks. So the premiums you can collect selling puts have never been bigger.
 
In my entire career, I have never seen a better time to sell puts – and I doubt I ever will again. I told all of our readers about this opportunity last fall. Only a handful followed my advice. Put Strategy Report was the poorest-selling newsletter we published last year. It was exactly what our readers should have been doing... but we could hardly convince anyone to even try it.
 
I know selling puts is foreign to most people. I know it seems risky. And I know 99% of the people reading this e-mail won't bother to learn how to do it. But for the 1% willing to stop, think, and learn, I want to ask you to simply try it, even if only once.
 
Knowing what you know now – that the markets crashed starting in October – wouldn't you have rather been following a simple, low-risk strategy with average gains of 44% and more than 80% winning positions on 13 trades? (That's how much my subscribers have made on my short put recommendations.)
 
Wouldn't you rather have been making a killing over the last six months instead of getting crushed? The answer has to be yes.
 
As I told all of you last fall, there's no better strategy for making money in panicked markets than selling naked puts. 
 
While your neighbors won't believe you, it's true. Adjusted for inflation, American stocks are only worth as much today as they were 43 years ago.
 
Of course, stock investors have all felt rich at various times in the period – thanks to easy credit and paper money. But most of that easy credit ended up in what economists call "malinvestments"... things like three of the world's largest cities being built in deserts (Vegas, Dubai, Abu Dhabi)... things like vacant homes in America's ghetto being sold for more than $100,000 each... things like enormous (5,000 square foot) homes being built all across America's suburbs.
 
All of these things didn't increase our productivity at all. They weren't actually worth what they cost to build. And in a lot of cases, they're not really worth anything at all. But they consumed a huge amount of capital – money, commodities, labor, and energy.
 
That's what most people don't understand about the dangers of paper money and easy credit. Sure, it's a great system to avoid anyone having to take responsibility for his mistakes. But all of the easy money leads to absurdity and waste. Real wealth, on the other hand, is only achieved through real savings and investments in productive assets.
 
The other danger of paper money? It concentrates all of the money and power in the hands of the central bank, which, of course, is controlled by the government.
 
Today the federal budget accounts for nearly 30% of GDP – the most since WWII. Add in the highly regulated and highly subsidized health care industry and you've got the government in control of nearly half the economy. Now add in the banking system – which couldn't exist without the FDIC, which would already be insolvent without the backing of Congress. Now add in the insurance industry, which will surely collapse next. Now add in all the state governments' spending and employees.
 
Most Americans don't understand: The government is now running most of the economy, by a wide margin. And who keeps the government afloat? The Chinese.
 
Think about that for a little while... The so-called "Communist" Chinese, whose government makes up about 10% of China's GDP and who control the No. 1 freest city in the world (Hong Kong), are now paying for the most government-controlled economy in the world – the so-called "land of the free."
 
Speaking of more malinvestment... Mall vacancies are at a 10-year high. Huge retailers like Circuit City and Linens 'N Things have gone bankrupt. One advisory firm expects 200,000 more stores to close this year. And massive layoffs and record savings rates are only adding to the retail sector's problems.
 
In my latest issue of PSIA, I've compiled a list of 11 businesses that will fail. Six of them are commercial real estate firms. Shorting these 11 stocks will guarantee a great return for the year. 
 
Regards,
 
Porter Stansberry




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