Weekend Edition
The Best of The S&A Digest
May 17, 2008
Our colleague Dan Denning is working on a big project in Australia. We've known Dan for years... and you won't find a smarter guy writing an investment newsletter anywhere in the world.
Dan's thesis is this: One of history's great mining booms is taking place in Australia right now... but few investment analysts are doing the necessary research to find the right investments. Australia is incredibly rich in iron ore, uranium, gold, copper, and coal... commodities China is willing to pay any price to secure.
You don't get many chances to participate in a mining boom... and even fewer chances to participate in one most people know almost nothing about. Read what Dan has to say about the best way to get in on this huge opportunity.
Mark Mobius, the famed emerging-market expert at Templeton, is buying South Korea. South Korea's currency, the won, is the world's worst-performing major currency this year. It's undervalued by about 8%, according to Mobius.
South Korea's Kospi Index fell 3.9% this year and trades at 13 times earnings, compared to 15 times for the MSCI Asia Pacific Index. Mobius likes materials and chemicals in South Korea. In particular, he likes GS Holdings Corp, the nation's second-largest oil refiner.
As any good trader knows, the first rule of trading is cut your losses. But Fortress Investment Group, the publicly traded hedge fund, has developed a new aversion to taking losses. Rather than marking down its investment assets, Fortress' CEO says, in effect, he's hanging on. "I think that the use of the word loss in this case is pejorative and actually not at all accurate. It's actually not a loss as long as we still own the investment, right? And since we have investments in companies that we think have a tremendous amount of value, it's a mark-to-market issue."
Citigroup analyst Rashad Fonti then supplied a badly needed dose of common sense: "You were almost $8 billion, [and now] you're down to less than a billion dollars. You didn't take the gains. The money was lost."
This week, I was in Las Vegas at the Money Show. At the pre-show cocktail party, I spoke with a 20-year Chevron veteran who told me he's been scared of running out of oil his whole life. I was polite, even though I thought this was an insane viewpoint.
Later, I asked S&A Oil Report editor Matt Badiali about it. He said, "There are 200 billion barrels of oil locked in a tight shale in North Dakota and Wyoming. With the current technology, we might get 2.5 billion out... that's 1.25% of the total oil. You can't tell me someone won't figure out how to improve recovery. As the price of oil rises, our ability to get creative rises. That doesn't mean oil will get cheap, but I'm not worried about the pumps going dry."
The abundance of free pornography on the Internet is crushing the for-profit players... so much, in fact, that they're changing business models.
Penthouse, longtime publisher of Penthouse magazine, is getting religion. Last December, Penthouse purchased Various Inc, a social networking web-community, for $500 million. Now it's focusing on dating sites like AdultFriendFinder.com, an online swingers community, and BigChurch.com, a Christian dating website.
Penthouse is also changing its name to FriendFinder Networks. When a porn company gets into Christian dating, you know things are bad. It might be time to short New Frontier Media (NOOF), the biggest pure play in porn.
Imagine what it would be like to be an international dealer of branded cocaine... The margins are enormous, the customers are loyal, and the demand is constant. Of course, my disdain for prison has kept me planted at my desk, writing newsletters. However, I did discover a publicly traded, legal drug dealer selling at its lowest price in history. In the latest issue of my newsletter, PSIA, I wrote...
What if you identified a drug very similar to cocaine used every day by 90% of the adult population of North America? What if this drug was also the most frequently used drug in the world? And what if, like cocaine, people became extremely addicted to it and tied to their favorite brand?
Do you think a strategy of delivering a premium product at high-end locations and at high prices would eventually consolidate the market and become one of the world's great businesses? You better believe it.
To learn more about PSIA and the legal drug dealer, click here.
Good investing,
Porter Stansberry and Dan Ferris
