Ackman's latest short... World's biggest beer company... Lehman: time to cover?... Hank Greenberg and AIG... Icahn's blog live, sort of... Boone's gas and wind...

Hedge fund manager Bill Ackman, who made millions shorting bond insurers MBIA and Ambac, publicly announced another short position yesterday... Financial Security Assurance. FSA is one of the two bond insurers still wielding the critical AAA credit rating, but Ackman thinks it may be insolvent. Ackman says the bond insurer sold investment contracts backed by mortgage securities just like everyone else, the volume of which has risen since problems began with MBIA and Ambac.

There are no public FSA shares to short. Ackman owns credit default swaps on FSA's debt. CDSs are insurance policies against debt defaults. When debt defaults, or merely falls in value, the CDSs rise in value. CDSs can soar when things get ugly. Hedge-fund manager John Paulson used CDSs to make himself $3.7 billion last year.

In case there was any wonder why banks are losing billions on bad loans... Last April, a woman received a credit-card application addressed to her then 5-year-old son. As a test, she had her son fill out the application and send it in. Young Bennett accurately wrote in his date of birth as 2002, his annual income is $0, and confirmed that he neither owns nor rents a home. He signed his name in a childish scribble. Shortly thereafter, Bank of America granted Bennett a new card with a $600 spending limit.

Maybe BofA's credit-card underwriting really is a crackerjack operation. If it is... how would we know?

Warren Buffett says he supports InBev's takeover of Anheuser-Busch (BUD). Buffett owns 5.7% of BUD and stands to make $600 million if the deal closes. Buffett is set to meet with BUD chief August Busch IV this week. Maybe the sage will get involved through a financing deal, like he did with Wrigley.

However he does it, it's a good bet Buffett wants to be involved. The InBev deal would create the biggest brewer in the world. Buffett likes big competitive advantages, and world-dominating scale is a great one.

The world will continue to drink plenty of beer. (I'm doing my part!) So owning the No. 1 brewer would be a pretty good bet over the long term.

I'm still short Lehman Brothers in my monthly Extreme Value letter, but maybe I should reconsider. None other than Hank Greenberg, the man who built the largest company (AIG) in the largest business in the world (insurance), says he's buying "a pretty good sized stake," in Lehman Brothers' equity. Greenberg made the announcement last week, after Lehman announced it would raise new equity capital.

At about the same time Greenberg was revealing his investment plans, AIG, the company he built, was getting a new CEO: its chairman, Robert Willumstad. Willumstad contacted Greenberg immediately. The two are scheduled to meet today.

Hank Greenberg is to AIG what Buffett is to Berkshire Hathaway, perhaps more so. Buffett is famously hands-off with the managers of his 70+ subsidiaries, many of whom are independently wealthy and run their businesses because they love it.

The issue of Buffett's succession has been discussed widely in the press, but nobody ever talks about Greenberg's succession. AIG's stock has fallen since his 2005 departure, and with good reason. Greenberg, unlike Buffett, is hands-on. It's harder to imagine AIG without him than Berkshire without Buffett.

AIG is worth a look. But it's such an enormously complex beast, I doubt it's possible for a single outsider working alone to really get a handle on it.

Carl Icahn is launching his blog today, after nearly six months of delays. The billionaire financier said his lawyers vetoed every attempt he made at publishing, but they've found common ground. Check it out at www.icahnreport.com.

New highs: Plains Exploration (PXP), Comstock Resources (CRK), Trilogy Energy (TET-UN.TO), Pioneer Drilling (PDC), U.S. Natural Gas Fund (UNG), International Coal Group (ICO), Stone Energy (SGY), XTO Energy (XTO), Anheuser-Busch (BUD).

Below... miracle cures and natural gas-powered cars in Asia. We even received an e-mail from a real-life anarcho-libertarian. What shall we discuss tomorrow? feedback@stansberryresearch.com.

"Anyone traveling out of the country should always carry 'Grapefruit Seed Extract.' Four drops in a four ounce glass of water and drink it down. Do this twice in a two hour period and any bug you have is gone. It will cut your down time in half. A little tip for you guys for the tips you have given me." – Paid-up subscriber Craig

"Let me start by saying how much I enjoy reading and learning from the S&A Digest and the other publications Stansberry & Associates puts out. Keep up the good work. Matt made a comment about T Boone saying his wind farm could reduce the natural gas used for power plants and allow the natural gas to be used to fuel vehicles, Matt says he is skeptical of this happening, I live in Thailand and we do use natural gas to power cars, pick ups and larger trucks. Costs about $ 1,000 for a conversion kit including the tank and hook up. A lot of people are making this conversion. Natural gas is less expensive than gasoline or diesel. You see the tractor trailers with several tanks hooked together looks like a six pack of beer. When the conversion to natural gas started, filling stations were only in the capital, Bangkok. Now they have them all over the country. With the conversion you can always switch back to gasoline or diesel if you need to. I do believe T Boone is onto something for introducing natural gas to use for transportation in the states." – Paid-up subscriber Pat Gossett

Ferris comment: Thanks, Pat. I used to research alternative power sources for a living. Back then (2000-2002), they were all way too expensive and highly dependent on subsidies. Not sure how they look today, but I doubt they can beat coal and nuclear.

"In the June 18 S&A Digest you expressed skepticism over the viability of natural gas powered vehicles. I wholeheartedly agree. Some of the problems with using natural gas to power consumer vehicles are the pressure under which the gas must be stored can create a rather threatening condition in a crash, the combustibility range of natural gas is so wide that any leak represents a serious fire hazard and the time to fill a tank is typically fairly long compared to what the average consumer would be willing to tolerate. These issues, however, should not be construed to indicate that there are no liquefied gases available as a suitable substitute for gasoline." – Paid-up subscriber Ken McGaha

"Thumbs up on Badiali's Digest! He should write it more often, it's nice to hear a different perspective. Porter and Dan are great, but the constant bitching about the government gets old sometimes (and that's coming from a lifelong anarcho-libertarian)." – Paid-up subscriber Robin

Ferris comment: History will have to record that the greatest tragedy of this period of social transition was not the strident clamor of the bad people, but the appalling silence of the good people. ~ Martin Luther King Jr.

Though I'd classify myself as one of the good people in the above quote, you should expect more strident clamor than appalling silence from me, at least until I go other than gentle into that good night. After that, we'll see.

Regards,

Dan Ferris
Medford, Oregon
June 19, 2008

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