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Weekend Edition

The Best of The S&A Digest
Saturday, July 28, 2007

Until last week, investors thought nothing could go wrong in the stock market... but fear has returned with a vengeance. Does this bother you? I hope not. If you invested in solid businesses and bought your shares at good prices, you've got nothing to worry about.
 
On the other hand, if you've been speculating this month... well... you might have to take a few losses. As long as they're small losses, you'll be fine. Whatever you do, don't allow small losses to become big losses.
 
This should be a wake-up call to most investors... The world's largest bank is now Chinese. Industrial & Commercial Bank of China unseated 12% Letter pick Citigroup (C) as the world's largest bank by market cap.
 
From a subscriber: I won't bet against you that the SEC won't charge the Bancrofts with inside trading, but maybe I'll take you up on your claim that Steve Jobs is going to jail. With Al Gore on the board of directors of Apple Computers, I think Steve Jobs is a safe as anyone could be from prosecution for options backdating.
 
You know... Jobs' actions were so brazen, particularly at Pixar, I thought it would be too much of a liability for Gore to protect him. Boy, did I underestimate Al Gore. Anyone with enough gumption to publicly sell carbon credits to himself isn't afraid of a little backdating.
 
I was reading my friend Chris Weber's latest letter (I listen to Chris because he got rich investing, starting with only $650, and because he has never had a down year), and he reminded me of something that's easy to forget...
 
There are only two ways (most) investors actually get rich. Investors can either buy into a bull market early, or they can get rich compounding their initial investment over the long term. Both strategies require knowledge, foresight, planning, perseverance, and patience. Think about how few investors have those qualities...
 
 Sjuggerud Confidential and S&A Gold Report pick Seabridge Gold (SA) announced this week that reserves at the company's Noche Buena project are greater than estimated. The stock gained more than 5% on the news and was briefly trading at a 1,000% gain for readers... making it our highest-returning stock recommendation in the history of the company.
 
According to The Wall Street Journal, the president's new fleet of helicopters is expected to cost $270 million each. That's more than the government spent on the 747s that fly the president around the world. The White House says it needs 23 of these helicopters, whose primary job is to ferry the president to Andrews Air Force base... 11 minutes from the White House.
 
Thus, the government – with all of its wisdom – has decided to spend $6.2 billion on a job just about any cab driver in D.C. could accomplish. "We're from the government... We're here to help..." Can't wait to see its health care solution, can you?
 
From a subscriber: Why do companies like HMA take borrowings to pay shareholders in the form of dividends? What is the logic of doing this?
 
The concept is similar to a home-equity loan. If your credit is good and rates are low, you might want to use some of the equity in your home for other things that benefit your family. There are also tax advantages to doing so. But the real purpose of such maneuvers is to produce a higher return on equity and fend off attempts by private-equity firms to take over the company.
 
Generally speaking, as long as such actions don't put too much of a debt burden on companies, such moves can increase the total return to shareholders substantially. We cover these situations regularly in The S&A Dividend Grabber.
 
Buffett on the move... Berkshire Hathaway bought a less-than 5% stake in food producer Kraft (KFT) last month, joining the ranks of activist legends Nelson Peltz and Carl Icahn on Kraft's roster of owners. It's unclear whether Buffett will side with management or the activists, but either way, look for the stock price to move with these guys involved.
 
These three legends obviously see value in Kraft, which Altria spun off in March. Spin-offs can turn out to be incredible investments, as the market properly values the new, independent company. Dan Ferris just recommended the market's best spin-off play in his latest S&A Penny Letter.
 
Regards,
 
Porter Stansberry




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