Whoops: We lost $39 billion... Goldman's yachts, better than Bear's yachts?... Redwood's big dividend... Your two Focus choices?... Ferris answers his critics... Readers beat up Fred Frailey... Too late for whom?... Where to find cheap oil...

GM surprised the market today, writing off $39 billion in tax-loss assets. That's a $68-per-share charge... against a $35 stock! The GM bulls say it's a noncash charge, it doesn't really matter. Maybe so. But the size of the loss begs the question of what else is hidden in the company's voluminous, unreadable disclosures.

Not a single Wall Street analyst foresaw GM's huge charge. It's not hard to see why: GM's press release was 25 pages long – just the press release! And the numbers were utterly undecipherable. Thankfully, as long-time readers will recall, GM's chairman updates us periodically on what the company's numbers really mean. (See his previous letters here, here, and here.) We're expecting a new letter from him tomorrow.

One thing in GM's numbers did jump out at me. Even without the big noncash charge, GM still lost $2.80 per share – about 10 times more than Wall Street's consensus estimates. Inside these numbers was a $247 million loss in North America, where the company built about 1 million cars. So... even after years and years of "restructuring" and enormous union-related expenses, GM is still losing about $250 per car it builds in North America. A GM dealer told me recently he hasn't made money selling new cars in nearly 10 years. "We're just glorified used car dealers."

Once Goldman Sachs employees cash their Christmas checks, they'll be able to buy Bear Stearns. Goldman has set aside $16.9 billion for salaries, benefits, and bonuses through August, enough to buy $14.7 billion Bear Stearns, the fifth-largest U.S. bank.

Goldman's pay pool already eclipses the $16.5 billion for all of last year, and analysts expect Goldman's earnings to increase 16% over last year's record numbers. Call us naïve... but we doubt the mortgage problems that have spread around the world and into nearly every financial company will spare Goldman – no matter the current size of that bonus pool.

Shares of Bear Stearns and Goldman used to trade largely in tandem – they're both in the same business and, often enough, even in the same big trades. We figure they still are... but the market hasn't realized it yet. Below is a chart of the relative changes in the share price of Bear Stearns (in blue) and Goldman Sachs (in red).

Goldman Sachs vs. Bear Stearns

This from Dan Ferris, in reply to criticism regarding his recent recommendations, a handful of which have performed terribly this year: "Here's a quote by Joel Greenblatt, the guy who made 40% a year for 20 years: 'Independent thinking, in-depth research and the ability to persevere through near-term underperformance, are three keys to being a successful value investor.' The only way you do well over the long term is by knowing what to hold on to when it's down 20%, 30%, or even 60% or 70%... Everybody who's got a good long-term track record has had to endure a certain amount of pain. It doesn't just build character, either. It builds wealth. That's the market's way of weeding out the weak hands..."

To grab or not to grab... Mortgage REIT Redwood Trust (RWT) declared a $2 special dividend and a $0.75 regular dividend – a 10.8% payment. The company also instated a 5 million-share repurchase program, 18% of shares outstanding. The company went the way of every other mortgage company in recent weeks... down. But management claims the firm can weather the storm and even profit from the mess. S&A Dividend Grabber subscribers will receive a recommendation by Friday.

Traders and energy companies are scurrying to hedge against rising oil. Some have taken out contracts to protect against oil hitting $250 in two years. Outstanding Nymex 2010 $100 call options rose to 24,903 contracts, double the level at the beginning of the year. Options for $120, $160, and $250 are also increasing, though at a slower pace.

A question for you, dear reader. I am putting together research for my new product, Stansberry Focus. The idea, you'll recall, is to sift through the large number of stocks we cover across our publications and then pass along only a very limited number (maybe only one or two new ideas each year) of extremely "high confidence" ideas. Unlike the S&A 16 model portfolio, which we make available to members of our S&A Alliance, Stansberry Focus won't be diversified. It will have a maximum of eight open positions and it will only seek total return – not income. My question? If you had to narrow your own portfolio down to only two stocks today, which would you keep? Why?

The race to $100 oil... Oil jumped above $98 yesterday.

The race to $1,000 gold... Gold is at $843 an ounce.

We found this quote at the Ludwig von Mises Institute's website today. We thought it an insightful description of our current political environment. It's what General MacArthur wrote about the United States during the Korean War.

"Talk of imminent threat to our national security through the application of external force is pure nonsense... Indeed, it is a part of the general patterns of misguided policy that our country is now geared to an arms economy which was bred in an artificially induced psychosis of war hysteria and nurtured upon an incessant propaganda of fear. While such an economy may produce a sense of seeming prosperity for the moment, it rests on an illusionary foundation of complete unreliability and renders among our political leaders almost a greater fear of peace than is their fear of war."

New highs: Advisory Board Company (ABCO), Comstock Resources (CRK), Covanta (CVA), EnCana (ECA), streetTRACKS Gold (GLD), Google (GOOG), Icahn Enterprises (IEP), Intel (INTC), Janus (JNS), McDonald's (MCD), Newmont Mining (NEM), Nokia (NOK), Occidental (OXY), Petro-Canada (PCZ), Pogo Producing (PPP), Transocean (RIG), Stone Energy (SGY), Sigma-Aldrich (SIAL), Silver Standard (SSRI), Berkshire Hathaway (BRK-A).

In the mailbag... Looks like Fred Frailey is in for a long month. Insulting me? Sure, people do that all the time. But insulting you – our subscribers? That was a terrible mistake. Vent your rage here: feedback@stansberryresearch.com.

"I just read with mounting rage your piece regarding Fred Frailey. My next (and most likely much longer) e-mail will be to Kiplinger's, and I guarantee they will never receive another dime from me. What Fred did was just plain misleading, spiteful and mean. Pretty arrogant for a guy whose dead-tree rag is out-of-date before it even hits my mailbox." – Paid-up subscriber Rich Gustafson

"Like anyone with a functioning brain cell, I quit Kiplinger's about twenty years ago. That rag is too weak to wrap fish. I'm surprised it's still in business..." – Paid-up subscriber Shawn McGuire

"I started off digging ditches for a living and paid for my first two years of college by changing tires on garbage trucks. I studied investing on my own time by reading books. I saved and invested for years and built a seven figure net worth through my own hard work. Over time, the demands of my job prevented me from having the time to continue doing all of my own research and I came across Stansberry & Associates in 2000 or 2001. As I have gained more experience using your research, I have periodically, increased the level of services to which I subscribe. Earlier this year, I finally upgraded to an Alliance membership. I must confess that I am widely acclaimed for being 'cheap.' I prefer to view myself as being insistent on receiving high value for my money. Either way, the length of our business relationship and the continual upgrading of the services I have purchased over the years is truly a reflection of the actual experience I have enjoyed through my association with your publications. Kiplinger's should be ashamed of what they did to you, their demeaning comments regarding your subscribers (about whom they obviously know nothing) and their admitted ignoring of the obvious meaning of the quote used in your advertising. It has certainly diminished my view of the standards to which they hold themselves. Hopefully, the knowledge that many of us benefit greatly from you would will help assuage the pain you are experiencing from the financial loss you will surely suffer as a result of this unwarranted disclosure." – Paid-up subscriber K

"At least you could provide Fred's email address to your loyal readers to let Fred know what WE think of your research..." – Paid-up subscriber Robert M.

Porter comment: No, no. That's just mean. But, if you want to send a note to Kiplinger's, you can use this webpage.

"Thanks for the late advice as per usual. Today's Growth Stock advocated short-selling Yahoo because it's ownership in Alibaba was monetized at an IPO today. You sent the e-mail to me at 6.24 am today. The stock peaked yesterday, before the close and gapped down this morning. What about informing us 2 months ago of the ownership arrangement which then saw Yahoo climb 40%? That would have been real information, instead of too little, too late." – Paid-up subscriber Barry Hatfield

Porter comment: Mmmnn... Growth Stock Wire is a free e-mail service, which is perhaps why it didn't say much about Yahoo's ascent. But it did send out Jeff Clark's trading idea, long before the market opened on Tuesday, November 6. Yahoo opened around $31. Today, it's trading below $28. It's hard to fathom why you think this free advice was "too little, too late."

Yahoo (YHOO)

Regards,

Porter Stansberry
Baltimore, MD
November 7, 2007

Where to Find the World's Cheapest Oil Stock
By Ian Davis

As I'm sure you've heard, PetroChina is the world's first trillion-dollar stock... That means it is larger than ExxonMobil and General Electric – the two biggest U.S. companies – combined.

But PetroChina's valuation is even crazier. PetroChina is roughly four times as expensive as ExxonMobil... but it only generates one quarter of Exxon's revenue. In fact, as I'll show below, PetroChina is the world's most expensive oil stock on both a price-to-earnings and price-to-book basis...

Take a look at what I found...

Recently, the company waded into Canada's oil sands, buying Western Oil Sands Incorporated. Marathon plans to process Alberta's tar-like oil in its U.S. refining plants.

So, if you're looking to buy into an oil company, forget the China hype... Look no further than the U.S., where you can buy the cheapest oil company in the world.

Good investing,

Stansberry & Associates Top 10 Open Recommendations

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