Badiali finds gold in Haiti... $250,000 for a parking space... June's $38 billion in foreclosures... Convergys lands Starbucks... Phase 1's first pick up 80%... The SEC lawsuit (again)... Another carpet I can't afford...

"Porter... Come up to the nursery. Jennifer brought over another rug..."

I was almost out of the house this morning. I mean I literally had one foot in the garage. I should have simply pretended not to hear my wife. It might have saved me a great deal of money...

Jennifer is a "designer." That, apparently, is the title given to salespeople in the home-furnishing industry. As far as I can tell, it's Jennifer's job to show my wife increasingly expensive things... that we can't live without. We are now on our third rug for the nursery. Each new rug was significantly more expensive than the last. This third rug – which looks identical to the second rug – will be "custom." As Jennifer thoughtfully explained, you don't want the edge of the carpet to result in the crib sitting at an angle, so we have to make sure the rug falls no more than six inches from the wall... so... it has be "custom." Oh, joy.

You don't want to know what a custom-made rug costs. We have one in our great room. I remember getting the bill and thinking my wife had surprised me and bought me a new car. I can't even walk on it without wincing. Will these custom rugs have any value in bankruptcy? Can I pawn the thing?

Signs of a market top: Margin debt hit an all-time high of $353 billion on the NYSE.

Signs of a top in real estate: The average cost for a square foot of parking space in Manhattan is $1,100. Parking spaces are selling for up to $225,000.

When you pair the massive gains we've seen in commodities of all types, the tremendous growth of U.S. dollar-denominated debt, and the weakness of the dollar versus other currencies, it looks more and more like what we're seeing is a massive short sale of the dollar. Maybe that's because our government is $44 trillion in debt... and still spending massively on a war that seems to have no end in sight.

The number of U.S. home foreclosures rose 87% in June year over year. There were 164,644 loan default notices, scheduled auctions, and bank repressions, led by California, Florida, Ohio, and Michigan. If you assume that each of these homes is worth the median U.S. home price, that's $36 billion in defaults. And if you assume the banks, hedge funds, and bond managers that own these debts will recover 75% of this value, that's an estimated $9 billion in losses... in one month.

PSIA pick Convergys (CVG) announced a multiyear deal to provide global human resources for Starbucks. Obviously, this is a huge contract. Convergys expects it to start generating revenues and earnings beginning in 2009. This deal is particularly gratifying to see because when we recommended Convergys in April 2004 ($15), investors were spooked that mergers in the cell phone and cable industries would result in lower margins and lower sales. (Convergys handled billing and customer service for these firms.)

We thought these fears were absurd. We figured outsourcing back-office functions to cheap labor locations (the Philippines, India) would attract more and more corporations, regardless of what happened in telecom and cable. And... because sentiment was so bearish on the stock... we were able to buy Convergys, a leader in outsourcing, for peanuts: less than a year's worth of sales and only about six year's worth of cash earnings. We "paid" $2.1 billion. Since our "buy" recommendation, the company has generated $658 million in cash earnings. And it has bought back more than $100 million in shares. We're up 70%.

Congratulations, Rob Fannon and George Huang. A little more than a year ago, Rob Fannon agreed to "come in from the cold" and take over the reins of our most exclusive research service, Phase 1 Investor. Rob had contributed for years on a part-time basis to our publications – including our outstanding recommendations on Esperion and Crucell.

In taking over the service, Rob wanted a clean break from the past. He insisted on renaming the service (it used to be called Diligence) and getting rid of all but two of the stocks in the portfolio - Alnylam and Sirna. Incredibly, both of those stocks landed billion-dollar partnerships with Big Pharma in the past year.

Rob also insisted on hiring another full-time analyst, Dr. George Huang. And now... after about a year... Rob's first pick as editor of Phase 1 is up 80%. Start-up medical technology stocks are probably the hardest type of equities to analyze accurately... but these guys are doing one hell of a good job.

New highs: BG Group (BRG), Chevron (CVX), Freeport-McMoRan (FCX), Korea Electric Power (KEP), Southern Copper (PCU), Sangamo (SGMO).

In the mailbag... the complaints themselves are now causing complaints and cancellations! What should we do? Whatever we do, it's sure to annoy, anger, or enrage someone. We don't make this stuff up (how could we?). Send us your contribution: feedback@stansberryresearch.com.

"I haven't seen such a bunch of whiners since I kept my son's day-care class for a day. The amount of complaints you guys receive for your service is absurd. I have had several losers from your picks, but my winners far outnumber them. For Christ's sake, no risk=no reward! I can no longer stand to read the Digest." – Paid-up subscriber Jeffrey Bohnsack

"Since you seem to be open to sincere criticism, I'll tell you my thoughts about your Alliance... I was an Oxford Club member and became a lifetime member soon after it was introduced. My understanding was that I would be entitled to receive new publications and reports without charge for life – much like your Alliance... Since that time Agora (which I admit is not the Oxford Club, per se) has spawned a multitude of new publications, none of which I've received without charge. I feel somewhat cheated by the fact that upon my enrollment as a lifetime member, it was the ultimate premium package presented in such a way that one was left with the impression that nothing better would ever be offered. But now, it has turned out that, the lifetime membership is almost the most plebian level that exists, now that there is a Chairman's Circle and a Directors Rountable (or some other designation) and who knows what else... I suspect that the Alliance may turn out to be the same sort of creature.... I'd hope your aggressive marketers realize that there's a fine difference between buy-buy and bye-bye." –Paid up subscriber Jack

Porter comment: We've been offering our Alliance for nearly four years. In that time span, we've created at least a dozen new research publications, and we've hired more than half a dozen additional analysts. The only product we don't include in the Alliance (and we've never included it) is Phase 1, which focuses on very hard-to-research small-cap companies. We have to spend a fortune hiring outside experts to aid our efforts on Phase 1. We've always been clear about our offer, and we've always been honest in our fulfillment. Contrary to what you experienced, as we have created additional lifetime offers (True Wealth Alliance, Private Wealth Alliance), we have intentionally made sure that our S&A Alliance offer remains our "top shelf."

"I read with disapproval about the plan to return the S&A Short Report to sending out recommendations after hours. I urge you to continue with your current strategy. I, too, initially thought that people were getting e-mail before me. But then I did my own analysis and came to the conclusions you did: Sometimes mail servers are fast and sometimes they're slow. As you reported, this varies, so in the end it all equals out. Sometimes I am able to get in early and other times, I'm not (but other subscribers are). Why give the advantage to the market makers by releasing after hours? This makes no sense... keep the advantage with your subscribers (we're the ones paying you, not the MM) as in the end the timing of receiving e-mails evens out. Also, the prices tend to come back down, so people can still get in if they so desire. In short, leave the system the way it is... it is MUCH better than before when the recs would open well past the buy price." – Paid-up subscriber CH

Porter comment: The sad thing about this dilemma is that none of it would matter if subscribers would simply be patient and follow Jeff's instructions. Nine times out of 10, options that run up immediately after the recommendation eventually cool off and trade back down to below the "buy up to" price. I'll leave it up to Jeff Clark and our managing editor Brian Hunt to decide what to do. But I certainly don't enjoy getting dozens of e-mails every Tuesday accusing us of being duplicitous. It's tiresome... and absurd. If we ever did anything like what people routinely assume we do (front-running, pumping and dumping, etc.), we'd all be in jail.

"I doubt if you would share this with your readers, but felt since this was sent to me by some of your subscribers, that it behooves you to set the record straight on this action." – Paid-up subscriber TB

Porter comment: Ah, yes, the SEC... it's been months since someone "discovered" the SEC lawsuit and demanded we "set the record straight." It's hardly a secret that I've been sued by the SEC. Just Google my name. We've certainly done nothing to hide from these allegations: We've granted interviews to journalists, including the New York Times. And Bloomberg filed a brief on our behalf. In fact, this lawsuit came in response to us suing the SEC originally.

Meanwhile, we've refused offers to settle the case. Instead, we paid millions in lawyer bills because we're angry at the SEC for the lies it has told about us and for its attempts to regulate our business. The oral arguments in this case were completed more than two years ago. The federal judge in the case has so far refused to issue a ruling. What will happen? I don't know.

"Just finished reading latest S&A Digest. I've been a subscriber to three of your newsletters and just phased them out and joined the Alliance, which I think is a great deal. I swear sometimes I think some of the negative comments from readers must come from writers of competitive financial newsletters... I have been a successful commercial real estate broker for 30 years. Most of my partnerships in the past averaged a 50% annual return. It wasn't a stroke of genius on my part. It was a combination of knowledge and 'being in the right place at the right time.' BUT GUESS WHAT, even in my heyday, a couple of our partnerships went upside down. YOU CAN ONLY BE AS SMART AS THE INFORMATION PROVIDED, as you cannot control outside influences or hidden agendas by corporate insiders. You can't be right 90-95% of the time about ANY investment vehicle... I have averaged around 20-26% annually since subscribing to your letters (starting the end of 2004)... I would venture a guess: MOST of your recommendations will average out to at least a 15-20% annual returns... what more can someone ask?" – Paid-up subscriber Larry Smith

"To those of us who complain (sometimes bitterly) about the 'FREE' information that requires you to buy yet another S&A letter in order to obtain: Do what I did and become an S&A Alliance subscriber. That way you can just ignore all that hype that helps keep S&A in business and pumping out mostly profitable investment ideas. By now, it must be obvious that these things are exactly what they are intended to be. If you are going to spend all that time reading long e-mails in the hope that they contain truly free information, then perhaps you should reevaluate how you spend your obviously valuable time. I paid for my Alliance subscription with a small part of my unrealized gains. Better hurry, though, because the current price is cheap (according to more of Porter's hype) compared to what it will be soon. I am a satisfied Alliance subscriber and my delete key works just fine, thank you." – Paid-up subscriber Richard Shaw

"I am sure that if I tried hard I could join the small chorus of whiners, which occasionally appear in this list. But I always come back to your basic business proposition and ask myself, 'Am I earning a better return on my investment taking your advice vs. someone else's or, God help me, that based on my own research?' The answer is always a resounding, 'Yes!' You have done very well by me. Which brings me to the complaint by Mr. Patrick R Barnes who said that 'you offered a no-charge list because we already were your subscribers, and you then refused to deliver it without purchasing yet another offering after you wasted our time.' Mr. Barnes must be a newcomer to the investment newsletter business. I mean, good grief man, did you really think that Porter and friends would give you the results of valuable research without a quid pro quo? I'm sure you didn't just fall off the turnip truck. I know that any letter that is longer than one page will eventually lead to a pitch. Usually, I read these all the way to the bitter end because I will invariably come away with at least one new idea or will have learned something of value. If you think the deal stinks, don't buy it. If you buy it and then you think it stinks, you can get your money back. Tell me, where you can get a better deal than that?" – Paid-up subscriber Warren Sandberg

Editor's Note: If any of you run a business (or used to run a business), you'll recognize this standard employee tactic. When employees are reluctant to do something particularly difficult, they'll ask the boss if it's important. If the boss is a nice guy, more often than not, he'll let the employee off the hook. Most good leaders won't ask an employee to do something they wouldn't do themselves.

Unfortunately for my group... I was the first employee of Stansberry Research. At one time or another, I've done all of the jobs – and all of the hard parts of the jobs – that I now pay others to do for you, our subscribers.

Today, when employees ask me about doing something difficult in an effort to serve you, I always tell them: Our job is to do the hard work that our subscribers can't or don't want to do themselves. Imagine that you were a wealthy, retired man and you were going to put every penny of your family's nest egg into this investment. If that were case, then would doing this extra work seem important?

The employees typically groan.

On the other hand, I've been blessed with a number of employees who routinely do things so difficult I would have never attempted the work. Like Dan Ferris, who reads every single annual report filed with the SEC by companies with less than $500 million in market capitalization... one by one... starting with the letter "A." Can you imagine trying to read 6,000 annual reports?

We even have a handful of guys who go too far. I wouldn't want any of my people to get hurt trying to serve you. When Tom Dyson jumps freight trains in Canada to understand coal supply routes... that's going too far. And now, Matt Badiali has done it. Seeking the best information on a new, potentially huge, gold discovery... Badiali found himself on a harrowing trek along the rural back roads of Haiti...

When's the Next Time I'll Be in Haiti?
By Matt Badiali

I flew into Puerto Plata, in the Dominican Republic, on Wednesday. The plan was to leave the hotel by 5 a.m. the next morning to go to Haiti. It struck me as odd at the time. I had a map, and the island isn't that big. I figured we had a long day at the site. I was wrong.

It took four and a half hours to drive 105 miles.

The first 100 miles of the trip cut across northern Dominican Republic from Puerto Plata to Restauracion. That drive was a breakneck struggle, which often had four vehicles side by side on two lanes of rutted asphalt.

There was no animosity, just no regard for rules or even common sense.

Passing on blind curves or over hills is a national sport, kind of like bull baiting. The locals were mostly driving mopeds or small dirt bikes. They showed no fear as they overtook buses, vans, and work trucks at speeds that made my hair stand on end.

We met our Haitian guides in Restauracion, and they led us to the border checkpoint. The checkpoint was not much more than two or three young Dominican men with large, automatic rifles standing by six feet of picket fence in the road.

We parked our rental cars on a dirt patch by a church and loaded our gear into the two four-wheel drive Toyota trucks for the trek into Haiti. Our first stop was a ramshackle collection of stalls and homes called Ti Lauri. We picked up a couple of hitchhikers looking for a ride and set off.

The right side of my head has a line of bruises from temple to ear from bouncing into the grab handle on that ride. It took more than half an hour to drive the last six miles because the "road" was not much more than a horse path over steeply dipping rocks.

I was not prepared for the abject poverty of the Haitian frontier, as they call this border area near the Dominican Republic. The people live in the Stone Age. They are subsistence farmers who exist without running water, electricity, or sanitation. Their clothes are often rags – but very clean rags. Few wore shoes.

The primary mode of transportation, other than walking, was sturdy, little horses and mules.

Most of the houses were built of wattle and daub – horizontal sticks woven through vertical slats and plastered with mud. The roofs were thatch or sometimes corrugated metal.

The children were beautiful.

As we drove by their pitiful homes, the children would flock to the edge of their dooryards, piling behind the boldest. They would all hoot and yell something in Creole, over and over again. I finally asked one of our guides what they were saying.

"Gimme a ride," he said.

Just outside of a small village, mineral geologists with the company I was visiting found some remarkable rock sticking out of a hillside. The rocks in the outcrop are rich in gold and copper – hundreds of dollars to the ton in some places.

That's where I wanted to go.

A crew from National Public Radio's Market Place was in Haiti a little while ago. They stayed in the small village with the geologists. The second evening, the anchorman called out to one of the geologists, a guy named Keith, with some fear in his voice.

Keith said, "Is it a tarantula?"

NPR guy said, "Yep."

Keith said, "Leave him alone, it's his house."

NPR guy said, "Oh well, I slept with him last night."

I would have slept in the truck... with the light on.

Keith is the real deal. He brought the company to Haiti and remains an independent contractor with it. He was in Haiti for Newmont in the 1990s right before the local politics blew up. He has some scary stories – uncomfortably scary stories.

However, he also has some great ones.

His resume reads like something I would make up if you asked me to create the ideal exploration geologist. He is one of those guys who has been everywhere and done it all, but remains very approachable. In fact, he had his 19-year-old son Drew with him. Drew is attending college at William and Mary, where he's majoring in international relations. He's working with his dad this summer, helping to translate Creole and French.

After a brief stop in the small village to drop off Drew's and his companions' bags, we headed out to the discovery. The men of the area dug the road from the town to the outcrop by hand. It was the best stretch of road in Haiti (at least in my experience).

Hiring local workers is fraught with danger. You don't want to hire from one group and cause tension with another. Yet you need to acknowledge local politics. Keith and his crew deftly solved the problem by setting up several crews and rotating them daily. Everyone got work, and everyone stayed happy.

We arrived at the deposit around 10 a.m. The sun was high in the sky and felt like a weight on my head and shoulders. The temperature was somewhere north of 90 degrees with 100% humidity.

I looked up at the steep hillside with some concern.

The Haitian guide set a tough pace, and, in all honesty, I nearly died. It was like putting a stair-master in a sauna. I kept hearing this hoarse bellowing sound. It took me a bit to realize I was making it.

However, it was all worth it.

The outcropping rocks in the area are every bit as impressive as I'd hoped.

The project is still in its infancy. There are many, many things that could go wrong. For that matter, everything could go perfectly for them, and the country could go to hell. It is Haiti, for crying out loud.

Even knowing that, I can't help but get excited about it.

Four hills in the area have high metal enrichment. Many of the outcropping rocks are unusually high in copper and gold. The indications suggest this discovery could be a large deposit.

However, nothing is certain until they get some drilling results.

Keith has his work cut out for him because this is only one of four promising projects. We visited this site because it was the easiest (!) to reach. The others involve hikes of 20+ kilometers from the nearest road.

However, I've seen pictures and preliminary results that are very exciting.

Good investing,

Matt Badiali,
Editor S&A Oil Report and S&A Gold Report
July 12, 2007

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