Goldman shorts Goldman... The new subprime victim... $5 trillion in oil... South Korea shuns the dollar... Dyson on pawnshops...

Even Goldman Sachs doesn't trust its own hedge funds. The bank has pulled $1.8 billion out of its Global Equity Opportunities fund. That represents 90% of money it used to bail out the same hedge fund last summer. Billionaire Eli Broad, who helped with the bailout, also withdrew his money. According to the Financial Times, Goldman made the move so it won't have to consolidate the fund onto its balance sheet.

It looks like the subprime crisis may claim its first accounting firm... An independent report requested by the U.S. Department of Justice shows KPMG either aided or at least looked away as subprime lender New Century Financial committed fraud in 2005 and 2006. New Century was the first major casualty of the subprime crisis. It filed for Chapter 11 bankruptcy last April, and its shares now trade for less than a penny. The report says New Century botched its loan originations, operations, and financial reporting. The report also claims simple internal controls on KPMG's part could have caught "at least seven wide-ranging, improper accounting practices."

South Korea's National Pension Service, the world's fifth-largest pension fund, will no longer buy U.S. Treasuries. The $220 billion fund will start investing in asset-backed securities and corporate debt for the wider spreads. The fund also plans on selling Treasuries to buy higher-yielding European government debt. And South Korea may not be the only Asian country shunning the U.S. Sixteen Asian central banks said last weekend they may invest $1 trillion in each others' bonds instead of Treasuries.

At our last Spring Editors' Conference in Naples, Florida, Tom Dyson recommended buying ice breakers – ships that can navigate icy, polar terrain. He argued global warming and rising oil prices would make this a feasible investment. We all laughed out loud. But Tom's supercontrarian bet may pay off in the long run. Oil companies are now looking for crude off the coast of Greenland, where there's an estimated 50 billion barrels. At $100 a barrel, that's $5 trillion of oil. Given the huge icebergs, it may cost $46 to extract each barrel. "If everything goes well production will be set up in about 12 years," said Joern Skoy Nielsen, deputy director of Greenland's Bureau of Minerals and Petroleum.

While he's waiting for the polar ice caps to melt, Dyson found another interesting investment: pawnshops. He thinks the economic downturn will force desperate Americans to hock their belongings. He headed to Texas to check in on the pawnshop scene. Below, we're publishing a short dispatch he sent us from there. Don't miss it...

New highs: Pioneer Drilling (PDC), Keyera Facilities (KEY-UN.TO), Comstock Resources (CRK).

Dansker is back... again. If anyone else would like to comment, send it to feedback@stansberryresearch.com.

I was once told not to argue with swine, because you lower yourself to their level & they just might like it... Since you have chosen to print only a part of my previous comments (thanks for the full quote this time), I have been over-run with offers that I can't possibly handle. As far as insulting & threatening you, I contend you must be one of those that feel threatened by his own shadow. No one is threatening you, Porter. Get a life. The fact that you can't print my parody of your writing a parody of the GM CEO is proof that you can dish it out, but can't take it. At 35, you need to grow up & learn that freedom of speech is a double-edged sword. Sleep well, you never know when the boogy man'll get ya. Hmmmmm." – Paid-up subscriber Steve Dansker

"I am glad to seeeee Dansker go away. Hopefully a loooong way away." – Paid-up subscriber Shawn McGuire

Regards,

Sean Goldsmith
Baltimore, Maryland
March 27, 2008

240% Interest... And Glad to Pay It...
By Tom Dyson

Today, I visited seven pawnshops in Dallas. At the first two shops I visited, I told them I was a reporter. It didn't go down well. The manager of the first shop grabbed a pen and scribbled a phone number on a piece of paper. "This is the number for media relations," he said. "They'll tell you everything you need to know."

"How's business?" I asked. "Can't you even answer that?"

"Call the number. We're not allowed to talk to the press."

The second store was a family business, not a chain. I walked in expecting to start up a long conversation with the owner about the pawnshop business. A husband and wife stood behind the counter. I addressed the wife, while the husband studied a large gold ring for a customer.

"I'm a reporter," I said. "Can you tell me if you've seen any increase in business over the past six months?"

"I have no comment," she answered.

"Well, can you at least tell me if you're busy?"

Silence. She didn't even look at me.

"Can I look around your store?"

She ignored me again. So did her husband. I walked around the store anyway, browsing the shelves and display cases. Every time I looked around, the owners were watching me out of the corners of their eyes like they hated me.

In the next five stores, I visited, I pretended to be a customer. I looked at some watches and even bought some DVDs.

I got my best insight from the parking lots. When I'd finished looking around inside the stores, I'd time my exit to follow a customer out. Then I'd ask them what they pawned. At first, I was scared. I need not have been. The five people I approached were all happy to tell me their stories.

I met Bart. He pawned a bag of tools for $65.

I met Chester. He pawned a cell phone and a Tom Tom device for $40. A lady and her daughter redeemed a ring. The interest rate is 20% per month... or 240% per year. In other words, if Bart doesn't bring $91 back to the pawnshop within two months, he loses his tools.

I asked Bart why he needed the money so badly. "Gas money to get to work," he said, as he unlocked a Ford F-150 pickup...

Good investing,

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