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Weekend Edition

The Best of The S&A Digest
Saturday, July 18, 2009

John Paulson is arguably the best money manager of all time. His hedge fund, Paulson & Co., made roughly $20 billion in profit over the last three years alone. He was paid around $5 billion over the period.
 
I, on the other hand, am merely a dirty scribbler. I work far from the soaring towers of midtown Manhattan. I earn nothing like the wages of the financial titans of the hedge-fund world. But every now and then... I end up putting my readers into the same positions held by the world's best investors.
 
Last year, Paulson's two biggest trades were long the Anheuser-Busch/InBev merger and shorting Fannie Mae and Freddie Mac. As any reader of my newsletter knows, those were my two biggest bets last year, too. The trend doesn't stop last year, either...
 
John Paulson is now the largest investor in my latest PSIA recommendation. While I can't give this stock away yet, I can tell you it's a classic special situation. Forced liquidation of the common stock pushed this company's shares to a ridiculously cheap level. I expect you can conservatively make between three and five times your investment in the next three years – with almost no downside risk.
 
As I told my readers last week, this is the best recommendation I've had in three years. And I'm advising my readers to put up to 25% of their investment assets into this one stock – something I haven't done since I first recommended Anheuser-Busch in 2006. Click here for more on how to access my latest recommendation.
 
Intel, the world's largest computer-chip manufacturer, announced better-than-expected sales today. The company posted $8.02 billion in revenue for the quarter, besting the $7.28 billion Wall Street projection.
 
Intel also projected sales of $8.5 billion (plus or minus $500 million) for the third quarter, much better than the $7.8 billion Wall Street estimate. This is a sign the global economy is stronger than most people think.
 
When I first wrote about credit-card giant Capital One in the April 2008 PSIA, the company's U.S. credit card chargeoff rate was a little more than 4%. I predicted losses would soar to 10% in the next 18 months...
 
This week, Capital One announced its annualized chargeoff rate for U.S. credit cards – debts the company never expects to collect – hit 9.73% in June, up from 9.41% in May. Chargeoffs for U.S. auto loans rose to 3.89% from 3.2%, and the delinquency rate increased to 8.89%.
 
The U.S. Natural Gas Fund failed to get regulatory approval to issue new shares. So it can't buy more long natural gas contracts... right at a time when investors are interested in buying hard assets. The fund has grown sixfold since March.
 
Citigroup says the fund accounts for one-third to one-half of all the gas contracts traded on NYMEX and ICE, possibly propping up gas prices.
 
Because investors want the fund, but it can't buy more gas contracts, the fund's price has disconnected from natural gas. On Wednesday, for example, the fund dropped 2.3%, much less than natural gas futures dropped.
 
In their infinite wisdom, the regulators have restricted the market and possibly set up an arbitrage opportunity. Theoretically speaking at least, it appears you might be able to sell short the natural gas fund and go long the futures and collect the spread.
 
According to the Investment Company Institute, commodity ETFs have grown 63% since the end of 2008, to $58.2 billion in assets.
 
I was in New York City this week for meetings with several major publishers. Their magazines are tanking. Ad sales are down 50% from last year. BusinessWeek is for sale. The bid is $1 (no kidding). The entire ad-based business model for mainstream financial publishers is failing. They're dying. And they can't understand why my business continues to grow.
 
They don't seem to understand the world has changed: People can get their information from millions of sources now. They don't trust big publishers (and they shouldn't), who have been serving big business instead of their readers for decades.
 
I keep telling these guys, you have to be honest with your readers. You have to publish something that's valuable, unique, and useful. They don't get it. And they won't until it's far too late.
 
Regards,
 
S&A Research




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