The Goldman showdown... Uniform paychecks on Wall Street... Gross buys munis... We explain the new highs, again...

Porter makes a much bigger deal about our Goldman Sachs feud than it actually is. When I first moved to Baltimore, I went to his house for dinner, and over drinks we started talking about Wall Street banks. I told him I thought Goldman Sachs was the best around. To my credit, I think it's proven that. He bet me it would take a huge write-off in the next couple of years. True, it did write down the value of some assets, but compared to the rest of Wall Street, Goldman is still tops. And luckily, neither of us remembers what we actually bet... so it looks like I'm off the hook.

While Goldman trades higher today than it did when Porter and I first talked, things seem to be unwinding. Last month, we reported Goldman was firing the bottom 5% of its workforce. But rumors arose yesterday that Goldman could lay off as much as 25% of its employees. There were also some high-profile departures... including the "retirement" of Peter Kraus, who took over as head of investment management in 2001.

You may also notice the flurry of Goldman Sachs Asset Management (GSAM) ads popping up all over Yahoo and Google. GSAM controls the bank's hedge funds, including the beleaguered Global Alpha quant fund. The Financial Times reported today that the largest U.S. hedge funds increased their assets by one-third since last year. But Goldman is hemorrhaging hedge-fund assets. The bank fell from the second-largest hedge fund to seventh place this year. GSAM lost 27% of its assets in the second quarter alone.

Here's something that will never happen... The Institute of International Finance, a global association of banks, is trying to instate industry-wide rules for compensation. The IIF hopes to discourage traders from taking risky bets for short-term profits. Some of the proposed changes include deferring bonuses until the full impact of bankers' actions are realized and making bankers who lose money earn it back before receiving new bonuses.

Investment banks get the best talent by offering huge salaries. Uniform compensation would kill a major competitive advantage. If these compensation rules pass, we're sure to see a huge rush for the hedge-fund and private-equity world.

To quote one of the most overused investment credos of our day: "Be fearful when others are greedy, and greedy when others are fearful." Bond King Bill Gross took Buffett's words to heart last Friday when he bought $1.5 billion in municipal bonds in the midst of chaos. Seventy percent of auctions for muni bonds are failing. And now California, the country's largest issuer, will no longer use bond insurance. No one is sure, including Gross, if the bond insurers will lose their AAA ratings. Nonetheless, Gross says he bought at "very attractive prices," and the bonds have improved "substantially" since then.

Steve recently recommended an excellent muni-bond fund, Nuveen Insured Municipal Opportunity Fund (NIO), in True Wealth. The fund trades at a discount and yields more than 5%, tax-free. It's part of his Bear Market Survival Plan. His latest recommendation is a business development company yielding more than 11%. To learn more about True Wealth and read the Bear Market Survival Plan reports, click here...

Nothing much in the mailbag, which seems to be the trend nowadays. We all miss Porter, but that's no excuse not to write... feedback@stansberryresearch.com.

New highs: Chunghwa Telecom (CHT), Covanta (CVA), EnCana (ECA).

"i've always assumed that your picks and recs to be seconds or thirds. i read my subscriptions to find where the market is going, but i always have the feeling that you buy into different companies. i did very well buying some coal stocks, but your actual pick was pretty much a dud. it is nice to follow someones reccomendation and have it all come up roses. but i am finding that your suggestions tend to underperform the industry." – Anonymous

Goldsmith comment: Our business thrives when we give you the absolute best research possible. It's true our company policy bans us from owning stocks we recommend, but I promise you are getting our best ideas.

"When I bet on a football team their results are there for everybody to see...
You seem a bit one sided listing your top 10 recommendation, what about the bottom 10? It would seem to me that there should be a total return for each of the news letters, it may not be realistic, nobody would buy every recommendation but it would be a more real world number than what you publish at the moment.. But I suppose you are pandering to the greed of people that read the news letter everybody thinking your next pick is going be as good as the ones in the top 10!! Maybe putting in the bottom 10 would have people checking their stops and being a bit more careful!" – Paid-up subscriber Martin McClintock

Goldsmith comment: We published a bottom 10 in The Digest last year. You can see it here. And that list isn't nearly as exciting. We all know the most you can lose on mosts investments is 100%.

"[Yesterday's] S&A Digest noted a new high for streetTRACKS Gold (GLD)... last I looked Spot Gold was off just under 2% and GLD closed down $2.2..." – Paid-up subscriber Seth

Goldsmith comment: You're right. Gold did drop. But the new highs list we publish includes stocks that hit a new high the day before.

Regards,

Sean Goldsmith
Baltimore, Maryland
March 5, 2008

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