Fannie and Freddie on the way to zero... Einhorn "busted out"... The tough lives of corporate CEOs... Soothing words from Third Avenue... Stagflation versus inflation...

We were sitting in Porter's suite at the Four Seasons yesterday watching CNBC, and the pundits were talking about Fannie Mae and Freddie Mac. Both stocks were down huge, and everyone wondered if the government was going to step in. That's about all I heard because Porter was going on and on about how he was right. As you know, Porter has a healthy ego, and he never misses a chance to crow. I have to hand it to him; it was a great call.

Porter's not the only financial wiz at the Four Seasons this week. When I checked in yesterday, I bumped into David Einhorn... the head of hedge fund Greenlight Capital. Einhorn's gotten a lot of press lately for being short Lehman Brothers. He comes to Vegas every year to play in the World Series of Poker – he's a professional poker player when he's not busy running his $6 billion fund. I ran into him again last night as I was stepping on the elevator. "How's the poker coming," I asked. "I just busted out."

"Well, at least Lehman's working out for you," I told him as the elevator door closed. He and his wife giggled.

Dan Ferris, who is in Vegas with us, shorted Lehman (LEH) in Extreme Value. Shares are down more than 9% today, and Dan's sitting on a 53% gain in less than three months.

Home foreclosure activity is at its highest since the Great Depression. U.S. foreclosure filings rose 53% in June from a year earlier. Currently, one in every 501 U.S. households either lost their home to foreclosure, received a default notice, or was warned of pending action. Bank seizures are up 171% from a year ago.

"Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer," said former St. Louis Federal Reserve President William Poole. Of course, Poole is talking about Fannie and Freddie, which are at their lowest prices in 17 years. Fannie is down more than 11% today and Freddie is down more than 21%. I have no doubt this short position will be the topic of conversation for our Vegas trip...

Value mutual-fund manager Third Avenue sent a reassuring letter on Monday, reminding investors that times of panic are times to buy...

We are seeing something of a perfect storm – weak economy, troubled financials, high oil prices, inflation. In this market turmoil, fear is prevailing, panic has spread and selling is indiscriminate. In times like these, we realize it is difficult to deal with the day-to-day mark to market price fluctuations, but history has proven time and again that patience brings rewards. And despite the temptation to flee to the safety of cash, now is really the optimal time to buy.

Read what our editor in chief, Brian Hunt, wrote about Third Avenue chief Marty Whitman in today's DailyWealth.

Corporate CEOs lead a rough life. For instance, Robert Steel, Wachovia's new CEO "will be required to use corporate aircraft or other private aircraft for personal travel and be entitled to perquisites consistent with Wachovia's current policies," according to the bank's recent SEC filing.

New highs: none.

Praise us or curse us – just keep writing... feedback@stansberryresearch.com.

"This is a huge THANK YOU to Porter. Last week I read the June newsletter on Fannie and Freddie. I might have been a little late in the game but I decided to buy some puts on both of them. What great info that was. Just in case the government comes out with some weird plan to save these two sinking ships, I sold half. You know the saying, Bulls make money... Needless to say, I made a great profit so THANK YOU again Porter. Keep the ideas coming." – Paid-up subscriber S.P.

"I got in on the fannie and freddie puts and they are way up but I am still holding.  With talk of the Fed nationalizing both of them, if it happens, what happens to our puts?" – Paid-up subscriber Dan B.

Goldsmith comment: Porter addressed this question in his original analysis... Subscribers can refer to it in the issue posted on the Stansberry & Associates website.

Regards,

Sean Goldsmith
Las Vegas, Nevada
July 10, 2008

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