Look for the Twelve Days... Nardelli says Chrysler is bankrupt, too... Sjug's "virtual banks" are hitting new highs... A free tip from Bill Gross... Clark: Don't worry about the head and shoulders... The Ghost of Christmas Past... Baffled in the mailbag…

Reminder: Beginning on Monday, we will publish our Twelve Days of Christmas in lieu of The Digest. We will return on January 7. Don't cheer too loudly. You'll hurt our "feelers" as my wife likes to say. Seriously though, we think you'll enjoy our Twelve Days of Christmas. Look for it on Monday.

One other housekeeping item... Our annual review, where I critique the recommendations of all of our editors, will be published upon our return in January. (Some subscribers wondered if we'd skip the self-flagellation this year... nope.)

Chrysler is bankrupt, too. We've been saying for the past year – to a chorus of boos – that GM is bankrupt, just not yet insolvent. The same problems plague all of the automakers, which have run their businesses at a capital deficit for nearly 20 years. Chrysler's new CEO, Bob Nardelli, decided to come clean, telling The Wall Street Journal, "Someone asked me, 'Are we bankrupt?'... Technically, no. Operationally, yes... "

We've been following GM closely because, unlike Chrysler, it is a public company whose books we get to see each quarter. And while GM does its very best to make its reports utterly inscrutable, the headline numbers alone make a big impression: It can't generate enough cash flow to pay the interest on its debts, for example. The industry, and GM in particular, are a microcosm of America. Both the car companies and the car company's customers have become heavily indebted. Only below-market interest rates or "cash-back" incentives move vehicles off the lot – because the average customer simply can't afford to borrow any more money at true market rates. Something is badly wrong with America when our government can't run a balanced budget, our largest corporations can't afford their debts, and our citizens can't afford to buy a car, let alone make their mortgage payments. What does it all mean? We don't know. But we sure feel good about owning gold.

Little noticed by the market in this period of mortgage panic: Both of Steve Sjuggerud's "virtual bank" recommendations are hitting new highs. These firms make a profit simply by borrowing money at short-term rates and investing in super high-quality mortgage bonds, whose principal amounts are guaranteed by Freddie Mac or Fannie Mae. These companies have avoided the mortgage train wreck and stand to profit as the Fed must continue to cut short-term interest rates, which determine these firms' cost of capital. Sjug will recommend yet another way to profit via the Fed in today's True Wealth.

Here's a free tip from one of the best bond traders in history... Bill Gross says buy muni bonds. "[Muni bonds] yield just as much, in most cases, as Treasuries... when you can get a non-taxable security at the same rate as a basically taxable security, then you've got a bargain."

This from Jeff Clark, our most experienced trader: "In response to DBA's comments about the impending head-and-shoulders formation in yesterday's Digest... Head-and-shoulders top formations are notoriously unreliable. Over my 25 years or so of studying technical analysis, I've seen as many false breakdowns as actual breakdowns. So, I wouldn't bet too heavily on a market crash based on this one indicator. Also, if you take a close look at the volatility index (VIX), you'll see the exact same H&S formation as you do with the DJIA and SPX. Collapsing volatility is usually associated with rising stock prices. So these two H&S formations are at odds with each other. I'm not suggesting that all is well with the market and we should dismiss the H&S formation out of hand. But it's probably not as ominous a sign as you might think."

This morning the Ghost of Christmas Past paid me a brief visit, via the stock ticker on CNBC. The symbol was OPWV – Openwave Systems. The price? Just barely more than $2. Oh the memories... Back in January 2005, in my newsletter, I predicted the stock would go to zero:

The business is called Openwave Systems. Openwallet Systems would have been a more descriptive name. It's a zero... Following its IPO (1999) Openwave had over $2 billion in equity, including more than $500 million in cash. Since then the company has taken over $2 billion in operating losses. It would already be broke, except for a convertible bond deal in 2004 that raised another $146 million... If Openwave ever makes a penny, all the profits are going to the convertible debt holders. This stock is a zero for shareholders. And if, through some miracle, Openwave does somehow succeed with its business plan and if the profits become larger than its future obligations, the next people in line for benefits are its own employees. In a staggering example of shareholder abuse, Openwave has repriced its employee options three times since 2000, in 2001, 2002, and 2003. The company has granted roughly $100 million in options per year to its employees. By repricing these options three years in a row, it has essentially granted any future upside to the workers. Marx would love Openwave. Today there are 12.5 million options outstanding with an average weighted exercise price of $10.19. The entire float of the stock today is only 66 million shares! Thus, the employees own the right to nearly 20% of the entire company at a share price that's less than the current stock price...

Again, none of our positions hit new highs.

In the mailbag... we find the Christmas spirit (aka, too much eggnog). But don't worry, not everyone is happy... as you'll see. Please, over the holidays, send us a note. Tell us what we did right for you this year. And, more importantly, tell us what we've done wrong and how we could provide a better service for you: feedback@stansberryresearch.com.

"Do not ask why MBIA needs a AAA rating. Makes you look stupid. And it justifies why Goldman turned down your job application." – Paid-up subscriber Alain Soulard

Porter comment: There are always a few letters in the 'bag that leave us baffled. We never asked why MBIA needs a AAA rating. We wondered why it deserved a AAA rating – a critical difference I think you'll agree. In regard to job applications…that couldn't have been mine. I haven't filled out a job application in my entire life.

"When reading the S&A Digest I see a lot of praise for you guys from the alliance members. Haven't seen much praise from the lower cost subscribers. Your advice sure hasn't helped me. I'm glad that I didn't buy into Sug's SHLD pick that he put out more than once as anyone who did is now down about $75 a share... So far I'm not impressed with any of you." – Paid-up subscriber "Mr. Million"

Porter comment: Well, maybe that's because no editor at S&A has ever recommended SHLD (Sears Holdings). In fact, the only recommendation we've ever published about Sears was Jeff Clark's synthetic short position, one of his first trades of 2007, back when Sears was more than $180 per share. So... we weren't long the stock. We were short. And Steve Sjuggerud has never written about it once, let alone several times. We've written articles about holding companies like Sears before, but again, we've never recommended it.

We get at least a dozen e-mails like this one each month – folks furious at us for stock recommendations we've never made. I wonder how these readers expect to do well in an investment they apparently know so little about they can't even remember where they got the idea from.

"How did i do in the market this year...? Well i have to admit i learned a lot from you guys. i really like porters sharp mind. I know what they say "you can deserve succes, not guarranty it"... so from S&A this year i got the deserving part only! their research is really good and i learned a lot, but the bottom line i've lost tons.... my portfolio is down 7% since subscribing... well the mkt itself is not really much better... these days. i think its a much better idea to wait for a good bear market and then get in. and for the long term. right now we are in a 'rectangular trading' timeframe, but it'll eventually breakout. once we hit rock bottom i'll go out for some bottom fishing. i think then i'll use PSIA picks. porter is sooooooo good despite all the critics!" – Paid-up subscriber "Mr. Barnatan"

"As a long time former writer and proof-reader, let me say, without reservation, that your use of 'bated breath' was correct. It's amazing how many publications – noted newspapers actually – that get it wrong." – Paid-up subscriber John

Regards,

Porter Stansberry
Baltimore, Maryland
December 21, 2007

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