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Weekend Edition

The Best of The S&A Digest
Saturday, November 17, 2007

The Canadian dollar (aka the "loonie") is now worth US$1.10 – a price not seen since the 1870s.
 
That's disastrous for price-competitive Canadian exporters – like the lumber and forest product industry, for example. We sent 12% Letter editor Tom Dyson up to Canada last week to poke around. Nothing creates outstanding investment values better than a 100-year currency storm...
 
Merritt must be one of the ugliest towns I've ever been to. It's surrounded by beautiful forests and snowy mountains, but the town itself looks like a sprawling trailer park in a dust bowl. Tumbleweeds blew down the streets. It would have been a good setting for a spaghetti Western.
 
In the center of town, there is a sawmill the size of three city blocks. A huge pile of logs occupied more than half the space. 'Excess supply,' I thought to myself...
 
Click here to read more about what he found.
 
While Canadian paper mills are hitting bottom, one of Wall Street's "paper mills" has remained strangely untouched by the mortgage crisis – Goldman Sachs. By now, you must be familiar with our argument: Like a rubber ducky floating in a toilet, Goldman's stock must soon spiral down into the cesspool of the mortgage debacle.
 
What might explain Goldman's curious immunity from a big mortgage-related charge against its book value? We've learned the firm is setting aside more than $16 billion for this year's bonus pool. But... how big would the bonus pool be if Goldman were to take a big ($5 billion to $10 billion) write-off before the end of the year? We don't know exactly, but we would venture to guess: several billion dollars less.
 
Our editor in chief Brian Hunt notes that income-oriented BlackRock Dividend Achievers (a closed-end fund) is now yielding 7% and trading at an enormous 11.3% discount to net asset value. That implies an 18% annual return, assuming the stocks in the fund don't appreciate at all in the coming year and the fund's discount closes.
 
This fund is currently in Tom Dyson's 12% Letter portfolio, in addition to selected high-yielding natural gas trusts. Learn more about them here.
 
How high can gold go? Our friend and currency expert Chris Weber says $2,000 is his target. Sounds high, doesn't it? Well, maybe not. According to The Wall Street Journal, the inflation-adjusted all-time high price is $2,250. That's based on the metal's 1980 spike.
 
The Financial Times reported that the carry trade is indeed unwinding. The global fall in equity indexes thumped high-yielding currencies, including the Aussie and New Zealand dollars last week.
 
Meanwhile, low-yielding currencies – like the yen, up 3.4% last week – are soaring. Steve's currency trade is working perfectly. As we've said before, don't bet against Steve when it comes to macro calls.
 
Ever heard the term "mothballing?" That's what homebuilders are doing now that home prices are so low. More and more homebuilders not facing margin calls are refusing to sell homes in this weak market. Lennar, a California homebuilder, will soon finish 259 homes out of an 1,100 home development in Orange County and plans to sit on its inventory – mothball it – through all of 2008.
 
Signs of a top in China. On the heels of Warren Buffett's move to sell his sole Chinese stock (PetroChina), the richest man in China, Li Ka-shing, is now selling too. He recently sold off $512 million of Cosco Holdings, China Shipping Container Lines, and China Southern Airlines. Li Ka-shing is now the second billionaire to dump China.
 
Buffett on the move... Berkshire Hathaway bought almost 14 million shares of CarMax (6.4% of the company), the nation's largest used-car retailer, according to a Wednesday filing.
 
Berkshire also added to its U.S. Bancorp, Wells Fargo, and Bank of America positions and bought 3.6 million more shares of Dow Jones. Berkshire sold shares of railroad operators Norfolk Southern and Union Pacific, but maintained its position in Burlington Northern Santa Fe.
 
S&A Oil Report pick Petrobras (PBR) soared 26% after the Brazilian oil company announced a 5 billion to 8 billion barrel discovery in the offshore Santos Basin. Petrobras owns 65% of the well. Readers are up close to 150% since February. To see what else Matt is recommending, click here...
 
Regards,
 
Porter Stansberry




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Date Range:11/8/2007 to 11/15/2007