"Are you Rick Rule?"... Heroes and goats... Bill Miller takes another huge hit... Rumor cops?... Another bid for BUD... Steve Jobs not going to jail...

We arrived at FreedomFest yesterday in Las Vegas. I'd forgotten how much I dislike investment conferences... "Excuse me sir, are you Rick Rule?" It happened three times within the first hour I was at the conference. Nothing makes you feel more important than being constantly mistaken for someone else... someone at least 20 years older than you.

Then a very, very old conference attendee wanted to sit in the seat next to me as Steve Forbes was giving his speech. I was sitting at the end of the row. Rather than asking me if he could get by and allowing me to stand up and let him pass, the old bastard just ran straight into my thighs and fell directly into my lap.

At least Steve Forbes gave a great speech. He is a national treasure. He made a fantastic point about the importance of sound money, asking what the world would be like if the number of minutes in an hour changed each day, depending on the mood of the Treasury secretary. He also made it clear the folks in the current administration don't deserve to be called Republicans.

And... I'll tell you a little secret about why we're here. For three months at the beginning of this year, Mark Skousen – a long-time newsletter writer who organizes this event – begged me to come and give a speech. As a favor to Mark, I said "OK." I normally refuse to attend any investment conference except our own Alliance conference each year. Then I didn't hear from him. No schedule. No invitation. Nada.

In the meantime, my good friend and colleague Julia Guth made plans to throw a birthday party for Alex Green (the investment director of the Oxford Club and another good friend) in Las Vegas this weekend. I told her I'd help out with the party since I was going to be out here anyways... at least if Mark Skousen ever got back to me about when I was speaking.

Finally, I called Skousen up. "So, Mark, what's the deal on Freedom Fest? When am I speaking?" He says, "Oh goodness I didn't know you wanted to speak. Speaking slots have gotten as hard to find as hen's teeth. The only way I could find a slot for you is if you become a platinum sponsor, which costs $5,000." Somehow I'd gone from not wanting to come to paying $5,000 for the privilege of giving a speech and being mistaken for Rick Rule. Skousen is one hell of a salesman.

In this business, you are either a hero or a goat. And for the moment, we look like heroes. Dan Ferris has been short Lehman. I've been writing that Fannie and Freddie will go to zero, along with GM. Lehman Brothers is down another 13% today. Rumors are swirling that hedge fund SAC Capital and bond fund PIMCO refused to trade with the Wall Street bank. And of course, Fannie Mae and Freddie Mac are failing. Fannie is down 22%, and Freddie is down 3%. Both are down more than 45% on the week. It seems like they'll be bankrupt within days.

You'll recall I've bashed Bill Miller frequently over the years. He's the famed money manager who beat the S&P 500 for something like 15 years in a row, making him a media darling. Having met him and listened to him talk about his investment process, I knew he was just a very lucky moron. In fact, his "streak" was mostly a function of owning just two stocks – AOL and Google – and buying his own book at the end of the year.

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Word on the street is Miller's the single-largest owner of Freddie Mac shares. At the end of the first quarter, he owned more than 50 million shares. Rumor is, he bought another 35 million during the second quarter. If that's true, he's getting absolutely crushed, with losses well over $1 billion. How any knowledgeable investor could buy Freddie Mac at any point this year is hard to understand...

Even some of our long ideas are working out... InBev, the Belgian brewer trying to take over PSIA pick Anheuser-Busch (BUD), raised its offer by more than $5 to $70 a share. BUD is up almost 8% today to $66. We're now up 66% on the stock.

One more thing... Jamie Dimon, the CEO of JPMorgan, is a very good CEO and a very smart guy. But he said something really dumb the other night in his interview with Charlie Rose... something I'm now hearing echoed by other influential folks...

Dimon said rumors brought down Bear Stearns, and the SEC should find out who was spreading the rumors and prosecute them. So, according to Dimon, we should ignore the fact that Bear Stearns decided to put billions at risk in no-document mortgages, we should ignore the fact that its executives decided to leverage the business more than 30 times, we should ignore the absurd compensation the company decided to pay (billions to Jimmy Cayne alone)... and we should focus on tracking down the traders who were passing around rumors... rumors that turned out to be true? Huh? And how exactly would you prosecute someone for passing along a rumor and maintain any First Amendment protections?

New highs: none.

Although we rarely publish much of the positive feedback we get (it's simply not as entertaining as the vitriol), we'll break with tradition to share some of the success our subscribers have achieved with our Fannie and Freddie call. If you've been doing well too, please let us know: feedback@stansberryresearch.com.

"Thanks to you guys & Porter I am only down 1% while the market is down huge, from its highs earlier this year to today's lows. I did that by betting against GM, where Porter's common sense advice was so plain, and my puts are now up 56% in five months; by betting against Fannie Mae, where my puts were closed out in ten days with a 40% gain, and where my DJIA puts are also up 40 to 50% in less than a few months. I also sold 75% of my equities before we lost 800 points in the Dow to sit on cash until this mess resolves... There is no doubt, given how much more I lost in the dot com melt down, that reading Porter and following through in things he's suggested that make sense to me, have made me money and protected it... I subscribe to just about everything you chaps publish, and while I am not a lemming and don't do everything you fellows write about, I do feel a little smug today that I haven't been wiped out and am sitting on almost all my gains from the last five years intact... Thanks guys. Porter has definitely helped me keep it." – Paid-up subscriber Thatcher A. Stone

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"I thank you for the fre & fnm. Amazing. Bought the July 20 puts in each at 1.10. After the first weekend and a slight rise these dropped to .70 & .80. Doubled down. Now looking at a 1500-2000% return in four weeks. Did unload 30% of position at 5 bucks to play safe! That's a killing! Porter, I owe ya." – Paid-up subscriber Anonymous

"Porter is becoming a sort of prophet on my trading desk. As I watched the continuing coverage about GM possibly going bankrupt day after day on CNBC while their shares kept plunging – part of me was disappointed in myself thinking back to a year ago when Porter wrote all the satirical letters from GM's CEO [read the first letter here] professing unavoidable bankruptcy. Then, just when I thought I had missed a once a year opportunity came the Fannie/Freddie call from Porter. Needless to say, I refused to miss this trade and my puts are up almost 300% paying for my S&A Alliance membership and then some! I knew my membership would eventually pay for itself but I didn't think it would happen in two months! What a call... I look forward to prospering for years to come with you Porter!" – Paid-up subscriber John

"Looks like Steve Jobs is not going to Jail: 'DOJ Ends Apple Backdating Probe Without Charges The U.S. Department of Justice has reportedly wrapped up its probe into allegations of stock options backdating at Apple Inc. and has decided not to bring charges against the company or its top executives.'" – Paid-up subscriber Thomas

Porter comment: You put Al Gore on your board of directors and pay him millions in options. Presto, you're out of trouble. It's despicable. There is no doubt that Steve Jobs approved backdated option grants at Pixar, where he was chairman and CEO. And it's hard to believe the absurd line that he didn't benefit from backdated options at Apple, simply because his options were exchanged for restricted stock. But, of course, this is how the world really works. If you have the right friends in Washington, the rules are different for you.

Regards,

Porter Stansberry
Las Vegas, Nevada
July 11, 2008

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