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More euro trouble...

Written by Subject: Bailouts
In Friday's Digest, we said shorting the euro was "one of 2011's sure bets." Porter wrote:
As a result [of their failing banking system], Germany, France, and the other euro nations have put together a bailout plan. All the European treasuries will act to save any member state... Total debts owed to foreign investors in the so-called "PIIGS" countries are $2.6 trillion. The bailout package that's been assembled totals $1 trillion. That sounds pretty good... at first.

But Italy and Spain have pledged $130 billion to the bailout. Where will they get that money? Greece has pledged $12 billion. Ireland, $7 billion. Portugal, $11 billion. Only about half this money will ever be raised and almost all that can be raised will have to come from France and Germany. Sooner or later, the taxpayers in those countries will say "enough" and the whole thing will unravel.
The euro was hammered in early Asian trading today as the market worried Portugal could lose access to the credit markets. The euro hit a four-month low of $1.2860, before recovering to $1.2954 – still below the $1.30 milestone.

Portugal plans to sell as much as 20 billion euros in bonds this year to finance its budget deficit and redemptions of maturing bonds. And it's starting with a 1 billion-euro auction (of 2014 and 2020 paper) on Wednesday. Portugal already issued 1 billion euros of 2.5-year paper on Friday through a private placement. It won't say who bought the bonds or at what rate... But our guess is China. Europe is China's largest trading partner. Just last week, China said it would buy up to $7.9 billion of Spanish sovereign debt. Needless to say, Europe's collapse would be detrimental to our Far East neighbors.

Or... maybe it's the same group "aggressively" buying European government debt today – the European Central Bank (ECB). The ECB is buying all the sovereign debt it can find ahead of Portugal's auction. The quantitative easing pushed yields on 10-year Portuguese bonds down to 6.933% from more than 7.1% late Friday.

The question is... how long can China and (more importantly) the ECB support the European debt markets? The short-term goal is to help the troubled European nations access credit markets to avoid a Greece and Ireland-type bailout. But the solution is temporary. Eventually, these nations will default. Portugal's bailout will cost an estimated 70 billion to 80 billion euros. Then there's Spain... Italy... and Belgium. As we said Friday, eventually German and French citizens will tire of their tax dollars being wasted on propping up failed sovereigns. We're staying short the euro...

What are we buying? It's difficult to buy anything with conviction when valuations are so dear. Stocks are soaring. Commodities are soaring. Bonds are soaring (meaning yields are falling). Looking across all markets, we still find one undervalued asset... Natural gas.

And we're not the only ones. According to the Commodity Futures Trading Commission's weekly Commitments of Traders report, hedge funds and other large speculators nearly doubled their bullish bets in natural gas futures – the biggest increase since January 2010. The hedge funds are making a short-term bet on cold weather boosting natural gas demand for heating. S&A Resource Report editor Matt Badiali is taking a more macro perspective...

Natural gas is so cheap right now because the world has tons of it. But we're going to use a lot more. China recently reported it imported 30% more natural gas in the first 11 months of 2010 than the same period in 2009. And as Badiali points out in his current issue, the U.S. government is "going green." He notes the cash incentive to get 1 million electric cars on the road by 2015.

As the world consumes more electricity, we'll need more natural gas (the U.S. generates about 24% of its electricity from nat gas). It's the perfect time to buy huge reserves of gas and wait... Eventually prices will climb. And as Badiali says, "right now, the stock market is giving away natural gas."

In his latest S&A Resource Report, Matt recommends one of the largest owners of gas reserves in the world (only majors like ExxonMobil and ConocoPhillips own more). The stock is cheap, shareholder-friendly, and pays a safe and inflation-proof dividend. Its vast portfolio of undeveloped reserves also act as a large "call option" on rising gas prices. Even if gas rises 25% from these levels, the stock will enjoy a huge uptrend. To learn more about this idea, click here...

Starting today, we're adding a new feature to the Digest... The End of America Watch. Every day, we'll dedicate a special section of the Digest to current events supporting our End of America thesis. These briefs will focus on inflation, collapsing currencies, the global food crisis, etc. Yes, the entire first page of today's Digest falls under our End of America thesis, but it's too long for our new "Watch" section. The official End of America Watch is below...

End of America Watch

China National Chemical (ChemChina) will buy 60% of Israel's MA Industries, the world's biggest maker of generic crop protection chemicals. The deal values MA Industries at $2.4 billion. China's agriculture and food demand is soaring. China is the world's second-largest corn producer – behind the U.S. Last year, China was a net importer of corn for the first time in 16 years. And China recently overtook the U.S. as the world's largest soy consumer. As you can see, it's willing to spend billions to ensure maximum crop yields. In a world of rising grain prices, every little bit helps (especially when you have to feed 1.3 billion people). To see how we're playing the global food crisis, click here...

According to Pensions and Investment magazine, Newt Gingrich is pushing for legislation that will allow cash-strapped states to file bankruptcy. Filing bankruptcy would allow the states to renege on pensions and other benefit obligation promises to state workers... Bad news for municipal bond owners.

Tomorrow is the last day you can enroll for our retirement conference in Miami scheduled for February 11 and 12. At the conference, we'll tell you about a proprietary estate planning product that can not only help you avoid 100% of the estate, but actually double the money you leave to your heirs. You'll find the full details here...

New highs: Automatic Data Processing (ADP), Dun & Bradstreet (DNB), Calpine (CPN), ExxonMobil (XOM), EV Energy Partners (EVEP).

In today's mailbag, someone praises us for our honesty and another calls us frauds. We hope you lean toward the former... feedback@stansberryresearch. com.

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"I ordered the material which was half price from the video your company had on the Drudge Report yesterday. I than found out that Mr. Stansberry was found guilt in a court case. I called your costomer service yesterday and they told me they would send me a email in two hours explaining the court case. They never emailed me back. When I went to call again they were closed. I have an International Radio show which comes out of the UK, and will use this tool if I have to. I want a refund of and stop the material from being shipping to me. At this point I do not trust your customer service nor Stansberry." – Paid-up subscriber Frank DiMora

Goldsmith comment: This is one of the most common e-mails we receive from new subscribers. Frank, I apologize our customer service team failed to respond to your question in a timely manner. But I assure you... we don't try to hide the fact that Porter was sued by the SEC. In fact, we showcase it to demonstrate how corrupt the government is. We've covered the topic ad nauseam in the Digest. We even created a website dedicated to the facts of the court case. Please click on the "Stansberry SEC Case" header to read Porter's essay, "Why the SEC Sued Me and Why You Should Care." We hope after reading this information you'll decide to stay with us as a subscriber.


Sean Goldsmith
Baltimore, Maryland
January 10, 2011

Stansberry & Associates Top 10 Open Recommendations

Stock Symbol Buy Date Total Return Pub Editor
Paramount Gold & Silver Corp PZG 4/14/2009 404.05% Phase I Sjuggerud
Northern Dynasty Minerals NAK 3/2/2009 243.30% Resource Rpt. Badiali
EnCana ECA 5/14/2004 188.86% Extreme Value Ferris
Rite Aid 8.5% 767754BU7 2/6/2009 177.78% True Income Williams
Exelon EXC 10/8/2002 142.62% PSIA Stansberry
Alexander & Baldwin ALEX 10/11/2002 130.06% Extreme Value Ferris
Auex Ventures Inc XAU-T 10/28/2009 128.62% Phase I Badiali
Amerigas Partners APU 2/22/2005 119.20% The 12% Letter Dyson
Enterprise Products Partners EPD 10/15/2008 114.33% The 12% Letter Dyson
Icahn Enterprises IEP 6/10/2004 109.95% Extreme Value Ferris

Top 10 Totals
3 Extreme ValueFerris
2 The 12% LetterDyson
1 Phase ISjuggerud
1 Resource Rpt.Badiali
1 True IncomeWilliams
1 PSIAStansberry
1 Phase IBadiali

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Investment Sym Held Gain Pub Editor
Seabridge Gold SA 4 years, 73 days 995% Sjug Conf. Sjuggerud
JDS Uniphase JDSU 1 year, 266 days 592% PSIA Stansberry
ATAC Resources ATC 313 days 542% Phase 1 Badiali
Jinshan Gold Mines JIN.TO 290 days 339% Resource Rpt. Badiali
Medis Tech MDTL 4 years, 110 days 333% Diligence Ferris
ID Biomedical IDBE 5 years, 38 days 331% Diligence Lashmet
Texas Instr. TXN 270 days 301% PSIA Stansberry
MS63 Saint-Gaudens
5 years, 242 days 273% True Wealth Sjuggerud
Cree Inc. CREE 206 days 271% PSIA Stansberry
KHD Humboldt Wedag KHD 6 years, 7 months, 22 days 268% Extreme Value Ferris

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