“Secured Investment Contracts: Legally Obligated 181% Gains” Stansberry

By Travis Johnson, Stock Gumshoe, June 16, 2008

Phew, just when you think things are slowing down for the summer … out comes a new concept in Gumshoe teaserdom. Porter Stansberry’s folks are launching a new service, called True Income, which invests in something a little bit different … something that they’re teasing as “finally, a safe alternative to stocks!”

The service is just coming out of beta and has been around for a few months, but this is the first time I’ve seen it sold — they say the price is $2,400, but that for you special folks they’re offering it half off, only $1,200.

So what is it?

Here’s the first part of the letter, just to give you a little taste of what they’re selling today:

“What if I told you there’s an investment that could pay you 181% gains over the next 12 months…

“And that this money is SECURED by a legal contract…

“Would you be interested?

‘Well, how about if I told that your 181% gain is required BY LAW to be delivered on this EXACT date: June 15, 2009.

“And that in addition to a 181% gain, you’d also be legally entitled to collect 3 interest payments over that same period, bringing your total return to 227%…

“…Turning every $10,000 invested into $32,700, with almost 100% certainty.

“Still interested?

“Well, before I go any further, I should warn you: After reading this, you may never want to buy stocks, EVER again.

“That’s because this unique opportunity has nothing to do with the stock market… government bonds… mutual funds… or options.

“Instead, it’s something we call a “Secured Investment Contract.”

Good God, I’ve been reading these things for years with a skeptical eye, and I still am almost ready to throw some money at them. That sounds brilliant! 100% certainty? Woohoo!

But there’s a catch … isn’t there?

Let’s look and see.

“Like stocks, “Secured Investment Contracts” are offered by U.S. corporations. It’s a way for them to raise money from the public, and give people a share of their profits.”

And the one they mention in the teaser — the one that’s legally obligated to give you a 181% gain by next year — they disclose as being a “secured investment contract” offered by a company called Vertis, an advertising firm (actually, mostly a company that does advertising inserts and direct mail).

So what is going on here?

As you might imagine, “Secured Investment Contracts” are just corporate bonds. You’ll also see them called debt, or notes, or sometimes convertible bonds, and they have all kinds of complex differentiations among them.

It’s true that a bond is a legal agreement between a company and its lenders (the bondholders) — you give them the money, and in return you hold the bond, and you get the right to receive the coupon interest payments. Those interest payments are set when the bond is first sold (when the money is first borrowed), so you’ll usually see a bond described by the coupon rate and the expiration date, though since they’re traded after being issued the actual current yield on the bond is probably different than the original coupon rate. On the