No government in history has ever repaid debts as large as those already assumed by our government (in terms of GDP). Paying off these debts will put more pressure on the U.S. dollar. The single best way to protect yourself is to buy sliver.

When I explained this for the first time in May 2006, gold was trading for $675 an ounce and silver was trading around $14. Today gold is trading for $935 – an increase of 38% in about two years. Silver is now around $18, an increase of 28.5%.

These numbers tell me that, while you would have done well in precious metals over the last two years (far, far better than in stocks), the real move into gold and silver hasn’t started yet. What should you do?

The answer seems obvious and urgent. Make sure you own a substantial amount of gold and silver. I would recommend at least a 5% position in gold and a 5% position in silver. I wouldn’t allocate more than 15% of your portfolio. That should be plenty to hedge yourself. Don’t forget, well-run companies will also appreciate along with other assets during an inflationary period. So you don’t need to dump high-quality stocks and buy a huge position in gold and silver.

The best way to buy gold or silver, in my opinion, is to simply own bullion – plain coins. Buy them and bury them somewhere safe. The gold won’t rust. Silver is more difficult to manage, but the best way to own it is to take physical possession. If you can’t manage physical possession of the metals, consider ETFs or become skilled at analyzing mining stocks.

That’s what I strongly recommend you do. Right now. Seriously. I wouldn’t be surprised to see prices soar next week if Fannie and Freddie are taken over by the Feds, which is what I expect will happen.

Source: How Americans Should React to the Fannie Mae Bailout

On the other hand, when it comes to buying bonds, investors have one tremendous advantage: The corporations that issued the paper are legally required to pay the bondholders their interest and then return their capital – on time. It’s not optional.

Remember the movie, Goodfellas? There’s a scene where someone has borrowed money from the mob to expand his restaurant. He learns a painful lesson. The godfather gets paid, no matter what. As the movie explains in graphic language: “Economy goes bad? F*** you, pay me. Restaurant burns down? F*** you, pay me. Wife gets cancer? F*** you, pay me.”

When you’re a bondholder, the same rules apply. No matter what happens to the business or the stock price, you get paid.

The other good thing about the bond market is that most individual investors know nothing about it. As a result, there are tremendous inefficiencies, simply because most investors don’t buy individual bonds. Why not? They don’t know how.

Our newest product, True Income, makes individual bond recommendations, the way our other publications recommend stocks. But unlike stocks, the moment you buy a bond, you’ll know exactly how much money you’re going to make and when you’ll get paid.

Mike Williams, our analyst, is a 62-year-old CFA who’s been buying and selling bonds since before I was born. And he’s structured the product so subscribers will make big, triple-digit gains in fixed income – something most people believe is impossible. If you’d like to learn more about how Mike does it, click here.

Poor Henry Nicholas III, former CEO of Broadcom. He made the classic playboy mistake: He hired a personal assistant named “Kato.” Kenji Kato sued Mr. Nicholas last year for back wages and proceeded to spill his guts in his legal filings, which found their way to prosecutors pursuing him for backdating options.

According to Mr. Kato, Henry Nicholas was a one-man Tasmanian devil of bad behavior: He spiked the drinks of technology executives with Ecstasy without their knowledge, used thousands of dollars worth of illegal drugs while at work, and hired “prostitutes and escorts for himself and customers.”

Once, on a flight to Vegas on his private plane, Nicholas allegedly smoked so much pot, the pilot had to wear a gas mask! He must have been a fun boss, eh? Well, until the cocaine made him paranoid and violent. To keep the prostitutes quiet, Nicholas allegedly offered them money and threatened to kill them.

Our favorite commodities pundit, Jim Rogers, gave an interview to Bloomberg this week, and his story’s largely unchanged… Jim is still short all investment banks through an ETF. He’s specifically short Citibank and Fannie Mae.

Rogers also announced he purchased airlines. His reason… “Everybody’s very bearish.” He said flights are full, fares are increasing, and if you ordered a new plane today, you couldn’t get it for several years due to problems at manufacturers. Also, 24 airlines have declared bankruptcy and “bankruptcies are signs of bottoms, not signs of tops.”

In the last issue of my newsletter, PSIA, I compared the current real estate bust with the giant San Francisco earthquake of 1906. In that disaster, people set fire to their homes because they didn’t have earthquake insurance but they did have fire insurance. The resulting inferno destroyed 500 blocks – essentially the entire city. The earthquake didn’t cause most of the damage… the fires did.

The same thing is happening now in our mortgage markets. Home prices would probably stabilize. But the fraud and the crime that’s following the disaster is the real problem. No one will take responsibility for his actions. And that’s going to bankrupt just about everyone in the mortgage business.

SEC Chairman Christopher Cox thinks it’ll make everything all better if bond-rating agencies just put an “s” on the end of their ratings of structured finance products. One SEC commissioner objected to the plan, not because it’s just plain stupid, but because he said it was like putting a “scarlet letter” on those products. That’s roughly equivalent to worrying Britney Spears is getting too much negative press.

Regards,

S&A Research

The S&A Digest is written by Porter Stansberry, Dan Ferris, and Sean Goldsmith.

Source:  The Best of The S&A Digest  Saturday, June 14, 2008

Luckily for our feckless leaders, it is easier than ever to rob the citizens of their savings, too. In the modern world, the “emperor” doesn’t have to bother employing an army of coin clippers. The government simply credits its account at the Treasury with as many digital dollars as it needs. Counterfeiting has never been easier.

But… a funny thing happened along the way to a complete breakdown of the world’s monetary regime. The old-fashioned parts of the system – circulating coins – have begun to reveal the fraud. A penny, which isn’t even copper anymore (it’s 97.5% zinc and 2.5% copper), costs 1.26 cents to make. And a nickel, which isn’t really nickel either (it’s 75% copper and 25% nickel), costs 7.7 cents.

Copper and nickel prices have tripled since 2003, and zinc has doubled. One congressman estimated minting the coins at these high prices cost taxpayers $100 million last year.

Like pennies and nickels, gold coins rise in cost as our government debases its currency. They’re a noncorrelated asset (meaning they don’t follow the value of the stock market). And from time to time, rare gold coins will make you a tremendous amount of money – they’ve done pretty well since 2003 when we began recommending them. Click here to access our report on our favorite gold coins to buy now.

The downturn in the economy means huge profits for pawnshops. And it’s not just gas-station attendants and waitresses fueling the growth.

A Philadelphia pawnshop reported making more loans to upper-middle class citizens and businesses. One local, high-end jewelry shop pawned $150,000 of inventory just to make payroll. Investors are pawning gold and diamonds to cover margin calls on stocks. And a Grammy-nominated Philadelphia musician pawned 30 guitars, worth $170,000, to cover mortgage payments on properties he bought during the real estate boom.

Sean Goldsmith attended Berkshire Hathaway’s annual shareholders meeting. Here’s what he heard…

Buffett thinks small investors shouldn’t buy Berkshire Hathaway stock. He thinks he’ll be lucky to grow the business 8% to 10% in the future (versus 22% a year in the past).

Due to Berkshire’s size, it’s difficult to find companies large enough to make a difference in the bottom line. Buffett estimated a company would have to be $50 billion or larger to generate a reasonable return, and outperformance is difficult when investing in a universe that small. Buffett said if a small investor is willing to look at thousands of companies, he’d find more attractive businesses than Berkshire.

While naifs blame the oil companies for rising prices and demand the counterfeiters in Washington do something about it, we’re willing to bet Washington is no better at ginning up oil supplies than it is at running a balanced budget.

As such, regardless of what Congress says, oil prices are very likely to keep rising. Readers of the S&A Oil Report are doing a pretty good job riding the bull. They’re up 176% on Brazilian oil giant Petrobras (PBR); 61% on Transocean (RIG), the world’s largest offshore driller; 60% on Chevron (CVX); and 96% on Occidental Petroleum (OXY). And the huge gains won’t stop there. We’re in the midst of the biggest energy bull market of our lifetimes.

William Doyle was rich when he was earning $780,000 a year to head Potash Corp of Saskatchewan and held $7 million in stock options at the end of 2003. Then the agriculture boom hit, and fertilizer prices soared. Potash prices have gone from $100 a ton four years ago to more than $600 today, and some forecasts call for $1,000 by year’s end.

The company’s share price followed suit, quadrupling in the last 16 months. Now Doyle’s stock options are worth almost $600 million – a number never before seen by an executive of a Canadian public company.

The ag boom is making people very rich, and Tom Dyson found the best way to play it. His latest International Strategist recommendation is another potash mine. If we assign a forward P/E multiple of two to Tom’s pick, it’s worth $2 billion. Right now, the stock trades for just over $500 million.

Meanwhile, Potash Corp trades for 43 times earnings (a tad rich, perhaps?). When you buy Tom’s stock, you get an energy, timber, and metals business for free. To learn more about International Strategist and receive Tom’s latest pick, click here…

Good investing,

Porter Stansberry and Dan Ferris

Turn on the printing presses, impose lots of new taxes and regulations, eat the rich. But… America is now the world’s largest debtor nation. What will our foreign creditors and trading partners do if the dollar continues to fall? If the rice market is any indication, we will face dozens of additional export restrictions, as more and more countries refuse to accept the U.S. dollar in trade. I wonder what will happen then? Perhaps a war to gain access to raw materials? Canada, be careful.

You think that sounds crazy, I’m sure. But listen to what U.S. Sen. Chuck Grassley told reporters recently: “If part of our problem is that the Chinese are going to eat meat and you’ve got to have corn and soybeans to feed the Chinese their meat, then why isn’t it just as legitimate for the Chinese to go back and eat rice as it is for us to change our policy on corn to ethanol?”

Here you have a United States senator suggesting our most important foreign creditor should eat rice so we can power our SUVs with corn-based ethanol, the production of which actually consumes more energy than it produces. It’s not often I’m surprised by the stupidity of our government officials. But this one got me. Grassley would be wise to consider that the Chinese can afford to pay higher prices for grains, because their currency continues to rapidly appreciate versus the dollar. Meanwhile, we’re going to have a hard time buying rice if the Chinese don’t lend us their savings.

I wonder what our readers make of these events – of U.S. citizens demanding to keep their homes even though they can’t pay their mortgages; of U.S. senators demanding our trading partners stop buying our corn; of major retailers placing limits on the purchase of rice; of banks blowing up day after day; and of the dollar falling from one new low to the next.

We’ve been advising people to buy gold and silver for at least the last five years as a hedge and protection against the risk of hyperinflation. Now, it has arrived. But how many subscribers, I wonder, have bought gold or silver? My bet? Less than 10%. It’s still not too late, though. And our own Matt Badiali has found a way to buy gold and collect big dividends, too. Click here for the details.

The IRS started mailing the economic stimulus checks this week, and Goldman Sachs already compiled a list of the 10 companies that will benefit most from the extra cash: Cheesecake Factory, Best Buy, Darden Restaurants, Home Depot, JCPenney, Kroger, Kohl’s, Royal Caribbean, Safeway, and, of course, Wal-Mart. Wal-Mart was an easy guess considering that 8% of U.S. retail sales already go there.

From a reader: “Why are your recommended trailing stops always 25%?”

In my newsletter, I frequently adjust the stops of my positions based on the risk of the investment and our desired holding period. But a 25% stop loss is a good place to start. With an initial allocation of 4%, a 25% stop loss puts 1% of your original capital at risk.

If you use a trailing stop loss and the position moves up at all, your principal at risk can quickly fall to zero. Using stop losses and trailing stop losses must be done in conjunction with position sizing. The goal is to minimize the impact of any loss. Once you learn to avoid big losses, you’ll find it’s much easier to make money investing.

Billionaire real estate mogul Sam Zell is buying Brazil, “It has the chance 30 years from now of being a bigger economic power than China,” Zell told the Milken Institute Global Conference. Zell said the country’s 180 million people, skilled work force, and wealth of natural resources has made it largely self-sufficient.

He also mentioned Brazil’s biggest mall operator was seeing retail sales growth of 10% annually. And what’s stopping China? The country’s one-child policy, which Zell believes will decrease the number of workers in China and “come back to bite them big time” in 2020.

International Strategist editor Tom Dyson is also hot on Brazil. He took an agricultural tour of the country earlier this year. In his travels, he found the future of the world’s agricultural production, Protein City. This mega complex will produce the world’s cheapest commodities and make an absolute fortune shipping them all over the world. Tom found the best way to profit from Protein City, and his pick is up 25% in less than two months.

Tom holds three Brazilian stocks in his portfolio, all three are up double digits. And he’s got three more Brazilian stocks on the radar. To learn more about International Strategist, click here…

Regards,
Porter Stansberry and Dan Ferris

Consider Basilea, a Swiss drugmaker focused on antibacterial and antifungal remedies. The company’s lead drug, ceftobiprole, is a promising treatment for complicated skin infections. But last month, the FDA issued the company and its Big Pharma partner, Johnson & Johnson, an approvable letter – the regulator’s notorious maybe-yes/maybe-no ruling.

Without pausing to see if the company can satisfy the agency’s concerns, investors dumped the stock. It fell from 187.40 Swiss francs to 148.50 on the day of the ruling. It closed yesterday around 150.

But these dramatic, emotional reactions give us excellent opportunities to profit. Our own Dr. George Huang has developed a proprietary method for trading these approvable letters. It’s a strategy that offers huge upside and very limited downside.

The FDA will issue 55 more rulings in 2008, and we have exact dates for all of them. The next one happens on Tuesday. Dr. George Huang has written a primer explaining his system, and we’re offering the primer and his new trading service at a big discount that ends this Monday. To learn more about Dr. Huang’s S&A FDA Report, click here…

Oil trades for more than $117 per barrel, and for the first time China, India, Russia, and the Middle East will consume more crude than the U.S.

The International Energy Agency estimates the emerging markets will consume 20.67 million barrels a day this year, a 4.4% increase. Meanwhile, U.S. consumption will fall 2% to 20.38 million barrels a day. We doubt oil prices are going anywhere but up.

Look at the chart below (courtesy of U.S. Global Investors) showing international oil consumption per capita. Every country’s oil consumption exploded following the industrialization of that country… except China. China has not even begun to whet its oil appetite. Wildcatter T. Boone Pickens thinks we’ll see $125 oil, but according to this chart, it could go much higher

Oil consumption per capita, 1900 to present

Ali al-Naimi, Saudi’s oil minister said, “Limited capacity along the entire supply chain is the real source of current global supply tightness and represents the greatest threat to ensuring adequate energy to fuel future economic growth.” Al-Naimi says the world needs more infrastructure investment to find new oil wells. Saudi Arabia is the third major oil-producing nation to warn of shortages. This month, a Russian oil executive announced his country’s oil production has peaked, and Nigeria claimed its output may fall by one-third due to under-investment.

One thing is for sure: Americans are going to see their standard of living fall dramatically as prices for energy continue to rise. And no amount of solar-panel rebates is going to change this harsh fact.

Alberta, Canada, is one area with sufficient energy supplies. Alberta has a patch of land the size of Florida containing more oil than all of the Middle Eastern countries combined. The oil is mixed with dirt, and harder to process. But with oil at $120, it is worth trying to sort the dirt from the oil.

Canadians will invest $22.2 billion over three years on Alberta infrastructure. Most of this investment will relate to natural gas, which is becoming the most important fuel source in the region. Matt Badiali noticed the Alberta trend early and has several recommendations in his S&A Oil Report portfolio with operations in the region. But he recently discovered a little-known Canadian oil patch that may prove to be even more profitable for investors who get in now. To learn more, click here…

Regards,

Porter Stansberry and Dan Ferris

In my career as an investment analyst, I’ve seen at least a half dozen bona fide bear markets. The first three occurred during the emerging-markets meltdown of 1997-1998, which began in Asia with the Thai baht devaluation.

I took a research trip to Argentina and Brazil in the summer of 1998. I spent a week in Buenos Aires and a week in Sao Paulo. Young investment bankers showed me around both cities. Three things shocked me: the motorcycle drivers, the prevalence of prostitution (I was young and naïve), and how you could buy every single stock in Brazil for less than four times earnings.

If I’d only had the capital and the conviction I have now, I would have bought every single blue-chip stock in Brazil. If only I’d put $10,000 in a dozen companies back then!

To give you an idea of how lucrative that might have been, since 2002, the iShares Brazil index fund (EWZ) has gone from $5 to $88. This fund didn’t exist in 1998, but if it had, it would have traded for less than $2. I believe you would have made about 50 times your money over the years if you’d bought Brazil in 1998. That’s how you turn $100,000 into $5 million.

I was there. And I could have done it – except I didn’t have the capital or the confidence to believe what my brain was telling me. I won’t make that mistake again, believe me…

That bear market and others taught me stock prices can fall farther than anyone can imagine and, if you’re patient, it’s possible to make stupendous profits in stocks, especially if you’re willing to buy when no one else will. These lessons helped me begin buying stocks heavily near the exact bottom in 2002…

Stock prices had simply reached the point where we could safely buy the highest-quality stocks in America – like Exelon, which we’ve owned in my advisory since October 2002 issue. We bought the most efficient producer of electricity in America and the largest nuclear energy operator for 10 times earnings. You had to be dumb not to buy Exelon at that price.

But after a dozen years studying markets around the world, the one thing I know for certain is: Most people will only buy stocks when they shouldn’t and will absolutely not buy stocks when they should.

If I can convince just one reader of this essay to ignore his emotions, forget his fears, and buy high-quality stocks when they’re cheap – and ignore everything else – I will have accomplished something. This lesson is very important given the state of today’s stock market.

With the S&P 500 down 24% from its peak to its recent trough, we are in the midst of a real bear market. My belief today is stock prices – on average – are going to go lower.

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While most of your financial advisors will undoubtedly tell you to trim your exposure to stocks and “batten down the hatches” financially – you will get the opposite advice from me. Do you think Warren Buffett, Sam Zell, Marty Whitman, Bill Gross, Jim Rogers, Jeremy Grantham, Steve Leuthold, Mark Mobius, or any other extraordinarily successful long-term investor trims his portfolio during bear markets? Absolutely not. That’s when they put their cash reserves to work.

Great investments are made during bear markets. Great investors earn their reputations during bear markets. The fortune you hope to gain from the markets will be made by what you do during bear markets. It’s easy to buy and hold during good times. It is much, much more difficult to put money to work in critical situations when you have to go against the crowd and your own fears.

To my knowledge, there’s only one way to do the right thing during these critical times: You must know how to evaluate equity values. And you must understand the margin of safety you have in your investments. Without this knowledge, it is nearly impossible to sit on your hands and hold on. If you don’t have firm knowledge of the value of your stocks and confidence in their intrinsic value, you will eventually cave in to your fears. You’ll join the panic – at exactly the wrong moment.

But… if you know the value of what you own and if you’re confident in the “margin of safety” in your investments, you should have absolutely nothing to fear.

If you’ll do this simple thing – buy value, and know that you own extremely high-quality business – you can prosper during the bear market, while you wait for the perfect moment of panic to arrive. For instance, right now, we own (and recommend buying more at current prices) Intel (INTC), one of the all-time elite global businesses.

Intel is one of only a handful of companies that has been able to grow its earnings 20% annually, for more than 20 years. Around 60% of Intel’s sales come from Asia. If you believe in the growth of China and the rest of Asia, Intel might be the best way to play it. Intel plays such a critical role in the supply of silicon tools, any argument you make about Asian growth is a bullish argument for Intel. Intel’s huge investments each year into research & development ensures it improves its products at a pace none of its rivals are able to match.

Do you think you’ll get hurt buying Intel right now at just over 10 times cash flow? Absolutely not. This kind of certainty gives you the ability to sleep soundly during bear markets.

Right now, you’re being given a fantastic opportunity to build a super-high-quality portfolio at prices that almost guarantee you’ll see high average returns over the next several years. All you have to do is be selective and patient – the things most investors can’t do.

Now, if you can understand why fear and bear markets are truly good for us, you’ll take dire financial situations in stride… You’ll know they present outstanding opportunities to build wealth for the long term.

Good investing,

Porter Stansberry

P.S. In the most recent issue of my advisory, I list seven stocks that carry my highest possible rating for safety and large capital gains. Since the market started falling in August, these stocks on average have actually increased in value. I think these companies should be the core of your portfolio for years to come. You can learn more about a subscription here.

The largest independent auto-finance company lost $300 million last year on its $25 billion auto loan portfolio as defaults rose higher than 7%. What will be next? Credit cards.

Even though interest rates on credit-card debt are sky high, the minimum payments are small, which is allowing people to keep borrowing. At least for now.

Equifax (a leading credit bureau) reports total credit-card balances increased 8.1% in the first quarter of this year – more than double the previous average rate of growth. Naturally, the steepest increases in credit-card borrowing occurred in the same states where the mortgage crisis is the worst. Credit-card balances rose nearly 15% in the first quarter in California and Florida and more than 20% in Nevada.

Like drug addicts, consumers cannot survive without more and more credit, and they’re now turning to the most expensive and unreliable source. They will soon hit bottom.

In the latest issue of my newsletter, PSIA, I tell my subscribers how to profit from the coming collapse of U.S. credit-card debt, which now stands at $1 trillion. If you never read another issue of my letter, make sure you read this one. Click here to learn about a risk-free subscription.

Interested in trend following? Ed Seykota, the system-trading pioneer, composed a bluegrass song outlining the basics of his strategy. Check out The Whipsaw Song here.

Oil prices hit an intraday record above $115 a barrel this week, and Jeff Clark is perfectly positioned to profit from the move. In Advanced Income, Jeff found the one undervalued oil sector: refiners. While every other oil stock is trading at all-time highs, refiners are at 10-year lows.

Jeff created a trade to profit from the turnaround in refiners, and it pays you 8% up front. He noticed a similar trend last month, and that trade is already up 18%. To learn more about Advanced Income and receive Jeff’s latest recommendation, click here.

Energy costs rose 2.9% last month, while food prices rose 1.2%. The Fed cuts interest rates 100 basis points and injects more than $100 billion to prop up the liars and cheats on Wall Street, and I’m paying $5 for a box of cereal and nearly $4 for a gallon of gas. But maybe I’ll soon be paying a little less for gasoline…

It says right here in the Wall Street Journal Republican presidential candidate John McCain wants Congress to put a temporary halt on the 18.4-cent federal gas tax and 24.4-cent diesel tax from Memorial Day to Labor Day.

Tax cuts are the only true economic stimulus the government can offer. Everything else it does is merely a redistribution of seized wealth or a manipulation of the money supply.

China’s sovereign wealth fund recently invested $2 billion in oil major BP. A Chinese investment could soon become the ultimate contrary indicator…

In the past year, Chinese government-controlled entities invested $5 billion in Morgan Stanley, bought 9.9% of Bear Stearns (at around $150 per share), and invested $3 billion in Blackstone Group at the top in private equity.

Our favorite commodities bull, Jim Rogers, had a front-page Barron’s interview recently. Rogers told the same story (long agriculture/China, short banks), but gave some specific stocks this time.

He’s still short investment banks through the Amex Securities Broker/Dealer Index (XBD). He’s short Citigroup (C) and Fannie Mae (FNM). He’s also short some U.S. homebuilders, including Lennar (LEN). Meanwhile, he’s a big fan of international airlines like Lufthansa, Austrian Airlines, and Japan Airlines. He’s bullish on the renminbi, and his only exposure to emerging markets is through China and Taiwan.

If foreign stocks aren’t your thing, maybe you should check out our Monthly Dividend Program. Goldsmith compiled a portfolio of 10 stocks paying monthly dividends, and the portfolio is up 5% in a month.

Readers have already made 9% on an oil stock that yields more than 13%. They’ve also pocketed 9% on a hotel REIT yielding close to 7%. And that’s just capital gains. There are still 120 dividend checks on the way. To receive Goldsmith’s report, which shows you exactly how to pick the best monthly dividend payers and gives you our 10 favorite, click here…

Regards,

Porter Stansberry and Dan Ferris

After 13 months of testing, we’ve finally launched our newest research service – The S&A FDA Report.

Our medical specialist and veteran trader, Dr. George Huang, created a breakthrough trading technique for exploiting approvable letters – a government-triggered phenomenon in the stock market. Based on his proprietary technique, you can actually learn when the potentially biggest trades of the year will happen, months in advance.

We’re going public with Dr. Huang’s new strategy in less than two weeks. In the meantime, we’re offering our readers first dibs. And you only pay half price. To learn more, click here…

At last week’s Jekyll Island meeting, our friend and fellow publisher Doug Casey made a convincing case for buying real estate in… Burma. Sure, a military junta is in power, but it won’t be there forever. Meanwhile, Burma’s beachfront land is every bit as pretty as Thailand’s but it costs about a tenth as much. All you’d have to do is ingratiate yourself with the generals in power, something that shouldn’t cost more than a few million dollars.

Doug also likes cattle land in Argentina and, along with partners, has recently purchased more than 250,000 acres in Salta.

The real estate meltdown hypothesis holds the economy will radically slow and sink into a recession (or even the worst depression since the Great Depression) as subprime losses lead to prime real estate defaults and then a decline in commercial real estate, too. I see two glaring problems with this hypothesis…

First, “Dr. Copper” hasn’t gone along with the global recession predictions. Copper, and base metals in general, have remained strong, even hitting new highs. Second, the commercial real estate collapse doesn’t seem to be materializing. In fact, after suffering late last year, several commercial real estate investment trusts seem to be rebounding strongly.

Our best commodity recommendation? Get long heroin. According to sources in Afghanistan, farmers there have replaced their traditional poppy crop with wheat. Inflation is looming – even for junkies. While we suspect we’re a long way from a top in commodities in general, it does give us pause when wheat is a better cash crop than poppies…

I believe the trade of the next decade will be shorting long-dated U.S. government bonds…

With the amount of inflation the Fed is producing and with the global economy showing signs of strength (oil and copper prices), it’s a sure bet the yield on the long-dated government bond will, sooner or later, spike much higher. Right now, yields on the 30-year Treasury bond are bouncing off their lows, at just over 4%. Considering inflation, as officially measured, is higher, there’s simply no way these low rates are sustainable.

ConocoPhillips and BP are spending $25 billion to $30 billion to build a pipeline to carry Alaska’s gas to Canada and the U.S. The pipeline will move about 4 billion cubic feet of gas per day. The first destination is the Alberta oilsands in Canada – the biggest proven reserves outside Saudi Arabia.

Alberta needs enormous amounts of natural gas to get oil out of the ground. Companies are currently pumping 825,000 barrels per day. That number is expected to quadruple by 2025.

George Soros, the billionaire you love to hate, told reporters the U.S. administration “failed to perform their job… This is a man-made crisis and it’s made by this false belief that markets correct their own excesses. It will take much longer for the full effect of the decline in the housing market to be felt.”

Soros sounds like he wants to ride the “government-has-to-do-something” bandwagon. When times get tough, the “public” will clamor for the government to “do something.” Whatever it does, it won’t be good.

What’s Buffett buying now? Well, his most recently disclosed new position has been built up over the past six months. Buffett has bought a million shares of reinsurer Munich Re Group, according to a German newspaper report. Buffett bought 3% of Swiss Re in January.

Editor Sean Goldsmith recently headed up a project to uncover every company in the world that pays a monthly dividend. Then, he spent the last six months with the help of Sjuggerud, Dyson, and myself, to figure out a system that shows you which Monthly Dividend Payers will deliver you the biggest monthly checks. For example, one stock has sent out a check for 453 consecutive months. Another has returned 388% over the past five years, including a paycheck for shareholders, every single month.

For more details on Goldsmith’s complete list of the Best Monthly Dividend Stocks… and his recent research, click here.

Regards,

Porter Stansberry and Dan Ferris

His most recent recommendation is the best pure-play on global infrastructure. When you buy this company, you get $800 million in timberland free – and it’s only a $600 million stock. His readers are up almost 20% in one week on this recommendation. We are currently offering a special price on Dividend Grabber, but only if you buy before midnight on Monday. To learn more about it, click here…

Our friend Chris Weber wrote up a note on why he thinks gold and silver are due for a pullback:

When you hear of metals detectors by Florida beach communities being sold out to people wanting to find Spanish gold in the sand; when you hear of people bringing their gold jewelry into pawn shops to cash in on the high gold price… that’s the sign that things are about to cool down. It’s been almost exhausting to watch the gold and silver prices rise without interruption over these past six months or so.

It would not surprise me to see now beginning a correction that may be long and even violent. That in fact would be in the normal course of things. People who’d waited to buy until just recently will panic and sell. That’s normal too. The precious metals market needs a rest, and I think it’ll get it. Let’s see how far down it goes. There may be some good opportunities to come.

Starting at 16, Chris Weber turned $650 earned from his paper route into $1.8 million in cash within a decade through a series of remarkable investments. Since then, he’s parlayed that wealth into a multimillion-dollar fortune, thanks to his ability to recognize developing trends.

South Korea’s National Pension Service, the world’s fifth-largest pension fund, will no longer buy U.S. Treasuries. The fund also plans on selling Treasuries to buy higher-yielding European government debt. In fact, 16 Asian central banks said last weekend they may invest $1 trillion in each others’ bonds instead of Treasuries.

From a reader: You should not be fully invested all the time if you want to make big money. Do I have it right?

You’ve got to remember one thing about mutual funds and mutual-fund managers: Mutual-fund shareholders always redeem (sell) at the worst possible time. Thus, fund managers who want to hold securities through down markets (like the value guys) must have enough ready cash to meet demands for redemptions without resorting to liquidating their positions. That’s not the most efficient way to manage your own account, and it’s not the way they’d choose to manage their funds… It’s a penalty they pay for being public mutual-fund managers. (And it’s yet another reason you should almost never invest in a mutual fund.)

As to how much cash you should hold… I can’t give personalized investment advice, and there’s no single right answer to this question. It simply depends on your situation and your goals. Consider my situation, for example. I have one tremendous advantage over most of my peers: I’m still relatively young (35). Because I have a 30-year time horizon, I’m unlikely to outperform long-term compounding investments with trading or market timing. Additionally, because I am still working and earning income, I am able to contribute substantially more capital each year to my investment account. It makes sense for me to be fully invested, all the time.

On the other hand, most of our readers are retired, most of them have relatively short time horizons, and most of them must generate income from their accounts. For these subscribers, it makes more sense to remain mostly in cash and safe fixed-income securities, except when the stock market provides truly exceptional and very safe opportunities.

At our last Spring Editors’ Conference in Naples, Florida, Tom Dyson recommended buying ice breakers – ships that can navigate icy, polar terrain. He argued global warming and rising oil prices would make this a feasible investment. We all laughed out loud. But Tom’s supercontrarian bet may pay off in the long run. Oil companies are now looking for crude off the coast of Greenland, where there’s an estimated 50 billion barrels. At $100 a barrel, that’s $5 trillion of oil.

Inside Strategist editor Brian Heyliger is another guy who’s not afraid to take contrarian positions. He recommended homebuilder Hovnanian last Wednesday, and his readers are up 15% in about a week (he expects total gains to come in around 50% by mid-year). As Brian proved, if you make smart bets in negative markets, you can make serious money. To learn more about Brian’s strategy, click here…

Regards,

Porter Stansberry and Dan Ferris