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Weekend Edition

The Best of The S&A Digest
Saturday, October 20, 2007

67% of U.S. executives think they're overpaid relative to performance, according to a study by the National Association of Corporate Directors. Of the 70 polled U.S. CEOs, only 2.2% thought compensation was too low, while one-third thought it was "just right."
 
After it soared from $250 an ounce to $750 an ounce, we can understand your reluctance to buy gold. But... we think it's cheap compared to most metals. Consider this table prepared by our resident geologist, Matt Badiali...
 
 
Over 5-year avg.
Over 3-year avg.
Aluminum 
23%
6%
Steel Pig Iron
31%
14%
Platinum
52%
33%
Gold Bullion
56%
36%
Silver
67%
36%
Nickel
71%
33%
Copper
97%
49%
Cadmium
136%
69%
Lead
250%
172%
 
Here's someone who knows what he's talking about when it comes to inflation...
 
Steve Leuthold has been managing money since 1969. His firm, Leuthold Weeden, isn't widely popular among individual investors, but is highly regarded among professional investors. Why? It's extremely contrarian. "Undervalued and Unloved" – symbol UGLYX – is its newest mutual fund. As you might imagine, advisors have a hard time explaining to people why they'd want to own such a fund.
 
Leuthold puts out some of the very best investment research we see. These guys share our passion for understanding history, economic cycles, and for crunching numbers. And unlike our government, Leuthold has a huge economic incentive to accurately measure the real rate of inflation. As my colleague Tom Dyson reminded me, Leuthold tracks the prices of 70 different commodities each week. He records how prices change, year over year. And he publishes the average figure.
 
Right now, Leuthold's Diffusion Index has passed 90% for the third time this year. While the government wants you to believe that inflation is largely contained, it's actually printing money as fast as it can to ward off a mortgage-debt led financial crisis.
 
Buffett on the move... Berkshire Hathaway is now dumping its railroads. Buffett cut his stake in Union Pacific to 7.4 million shares from 10.5 million and trimmed his Norfolk Southern stake to 3.76 million from 6.4 million. The filing does not mention Berkshire's biggest railroad holding, its 60.8 million shares of Burlington Northern Santa Fe.
 
Bloomberg reports today that China Citic Bank made a bid for U.S. investment bank Bear Stearns. Those of you in favor of inflation and a weaker dollar may soon find yourselves paying investment-banking fees to the Chinese...
 
Signs of a top in commodities... Banks and securities firms hired a record 450 commodities traders this year – up 33% from 2006. Oy vey: Headhunters are turning to fired mortgage-bond salesmen to fill the void.
 
A happy dilemma for investors is figuring out when to take profits on a stock that's appreciated. Marty Whitman, an investor we greatly admire, has the most interesting answer we've found yet: "If I'm right... these very undervalued companies will be taken over, liquidated or refinanced, and that's where you make your money." Marty rarely sells stock on the open market – he waits until a private investor comes along who is willing to pay a premium for control.
 
Where will Icahn strike next? We haven't seen any press, yet, about his two newest acquisitions, a 3.9% stake in Enzon (a small pharmaceutical company) and a 1.3% stake in Global Payments.
 
China stocks fell 3.5%, the most in five weeks, on speculation that Shanghai "A" shares will correct after the government allows arbitrage trading between Hong Kong and the inflated mainland China shares. Steve explains the arbitrage opportunity in DailyWealth.
 
The seven sisters now have a big brother... The second-largest company in the world is now True Wealth pick PetroChina (PTR). Shares of Asia's top oil and gas company jumped close to 12% today on news of increased production and hopes of new discoveries. The boost raised the company's market cap to $430 billion, unseating GE as the No. 2 company behind ExxonMobil. Steve's readers are up more than 110% in six months.
 
Regards,
 
Porter Stansberry




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