Better than Google?... Cooperman on Wall Street... Update on Kraft... Detroit real estate now down 80%... Eat the rich... Fannie and Freddie irony... Three small changes to fix America...

A new search engine... that's better than Google? So claim the engineers who launched Cuil today. The founders – former wizards at Google, IBM, and other tech companies – took $33 million from venture capitalists and have created an engine they say searches four times as many websites as Google.

Will Cuil really challenge Google for search supremacy? Who knows? But knowing a handful of engineers with just $33 million in capital could build a competitor sure makes me wonder if Google is really worth $150 billion...

Barron's interviewed Leon Cooperman and Steven Einhorn of Omega Advisors, a $5 billion hedge fund, about today's economy. The group is still bearish on financials, as evidenced by Cooperman's great quote: "Now, Wall Street is in the penalty box. We are not an investor in that space. I determined many years ago that if you want to make money on Wall Street, you work there; you don't invest there. They just pay themselves too well. I would rather look elsewhere for investment opportunities."

Omega's buying Corning, a company that makes glass for flat-panel TVs; Transocean, the world's largest offshore rig operator; and health care companies.

We wrote it, did you buy it?

[Kraft] needs to shed underperforming businesses to reduce overhead. And it needs to change from a cost-cutting business to one of innovation. Kraft needs to improve its core brands by adding new products and increasing advertising. It also needs to increase prices to pass along the higher food costs.

– S&A Dividend Grabber, March 2008

Kraft (KFT) announced a 4% increase in quarterly profit today as higher product prices made up for soaring input costs. The company also raised its full-year profit forecast to at least $1.92 from a previous $1.90. Shares are up 5%.

PSIA pick Verizon (VZ) also posted better-than-expected quarterly numbers. Net income increased 12%, and the company added 1.5 million wireless subscribers.

Two more banks shuttered this weekend... First National Bank of Nevada and First Heritage Bank of Newport Beach. Insurer Mutual of Omaha acquired the combined $3.2 billion in deposits. Both banks are from two of the hardest-hit real estate markets.

Professor Mark J. Perry's blog, Carpe Diem, updates us on the real estate scene in Detroit. "The good news is that home sales in the city of Detroit through June are up by a whopping +46.56% (YTD) compared to last year (5,389 homes sold in 2008 YTD vs. 3,677 last year), but the bad news is that the average price for a home sold in Detroit has fallen by 56% to only $19,448 so far this year, compared to an average price last year of $44,346 for the January-June period! Compared to the peak of $97,850 for the average Detroit home price in 2003, prices have fallen by 80%. Bottom Line: The average priced house in Detroit ($19,448) is cheaper than the average priced new car ($22,650)."

We expect Detroit real estate will become one of the great investments of the next 20 years. Why? Sooner or later, GM will go bankrupt. That will be the start of a giant restructuring of American heavy manufacturing. Bankruptcy will eliminate GM's huge dual "taxes" of union wages and crushing interest payments. That will free up billions of dollars per year, money that can be spent building new plants and improving older ones, creating a renaissance in Detroit.

We'd buy trophy properties, like lakefront and golf course mansions. They're selling for about one-quarter what it would cost to build them today.

One of the things OBAMA! is sure to promise voters at some point in this campaign is that he'll raise taxes on "the rich." This is the ultimate perversion of democracy, allowing one group of citizens to vote themselves the wealth and property of others. But it has been the policy of the government (both political parties) since the income tax was created (by constitutional amendment) in 1913.

The result? According to the IRS, in 2006 the top 1% of wage earners paid 40% of all income taxes. The top 10% paid 71% of all income taxes. When confronted by the facts, OBAMA! will likely reply, "The rich pay more taxes because they earn more money." But actually, the top 1% of American wage earners pay tax rates nearly twice as high as average. They earn 22% of the income, but pay 40% of the taxes. Sure, we can eat the rich... but for how long?

According to Bloomberg and available public filings, Fannie Mae and Freddie Mac have paid their shareholders over $30 billion in dividends since 1990. We know the number isn't exactly right. Bloomberg is missing a few years of dividends, and Fannie and Freddie's filing archive isn't stellar. The real number is probably something closer to $32 billion.

Whether the real number is $30 billion or $32 billion, it's essentially the same amount of money Congress expects to give Fannie and Freddie to prevent a default on their obligations. You could argue the two companies were merely a front, a scheme, to pass money from taxpayers to wealthy investors. It's socialism, the American way.

New highs: Anheuser-Busch (BUD).

In the mailbag... Our plan to fix the country. No, it doesn't involve murdering any politicians... though we do secretly hope they die excruciatingly painful natural deaths. Send your comments here: feedback@stansberryresearch.com.

"You and Porter are fast becoming my heroes with your responses to what will happen when (you see I didn't put 'if') the government starts to confiscate privately held securities such as gold and silver. And I agree with Porter that we'd all be a lot better off if we could start today with eliminating the politicians. The hardest decision is whether to start in Washington and work down to the local level or to start at the local level and work up. Until I read the recent Supreme Court decision I didn't realize that our Constitution was so strongly worded at the time for the main purpose of the people to be able to overthrow the government when it gets out of control. I think we're almost here... put me on your list for the militia. As the 2nd amendment protects my right to 'Keep and Bear Arms' I will show up with arms and ammunition and with the knowledge of how to use them." – Paid-up subscriber Jeff Eason

Porter comment: While I've metaphorically proposed we line our nation's political leaders up against a wall and shoot them, I don't mean literally. I'm talking about fundamentally changing the way America is governed. Besides, even if you did shoot every politician in Washington, a new crew would arrive shortly.

Rather than advocating armed insurrection, I'd recommend three simple changes to the governance of our country – changes that could return America to a land of opportunity, instead of the last Communist country in the world...

These three changes would force Americans to make the required tough decisions about the government. The free ride of deficits, paper money, and "eating the rich" would end. If Americans actually had to pay for the government, voting patterns would shift immediately.

"It seems many of your investment letter writers only talk about GOLD (which will be roaring) but what about silver? Annual silver mining produces barely enough to keep just the fast growing use of silver for industrial use. Silver prices should perform better than GOLD... Do you agree, or am I missing something?" – Paid-up subscriber L.W.A. Bogers

Porter comment: Several of our analysts, including myself, have recommended silver and silver stocks recently. Goldsmith recommended a silver company with zero production costs that buys its silver for under $4 an ounce. Then it sells that silver at market price, currently $17.40. And its prices are locked in for decades. To sign up to receive Goldsmith's most recent recommendation, click here.

Regards,

Porter Stansberry
Baltimore, Maryland
July 28, 2008

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