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Weekend Edition

The Best of The S&A Digest
Saturday, February 2, 2008

Last week, Sjuggerud called the end of the liquidity crisis: "The LIBOR rate actually fell below the fed-funds rate (which hasn't happened since 2004). This is a dramatic signal that bankers trust each other again... that they'll lend money to each other again at favorable rates... and most importantly, that the liquidity crisis is over."
 
What does this mean? Governments have opened up the floodgates. Behind closed doors, promises have been made. The result? A new wave of "liquidity" – otherwise known as paper money.
 
My best advice: Buy gold. Even better, buy silver. The more money the Fed has to print, the higher metals prices will move up. Or, if you prefer the relative stability of operating companies, look for insurance companies, which get paid in today's dollars but only pay out claims later, with greatly devalued dollars.
 
Some of the best insurance companies operate as private holding companies – also known as "Secret Investment Societies." You can read my full report on these largely unknown, high-quality companies, here.
 
 Here's a solid idea of how to "dip your toe" into the beaten financial stocks without taking on too much risk: Consider the asset managers. Running mutual funds is a fantastic business and is a good inflation hedge. (As inflation pushes up stock prices, these firms' fees increase.)
 
One analyst we respect greatly, Chris Mayer, is recommending Cohen & Steers (CNS). Talk about cheap: With $1 billion under management, CNS has seen its share price fall in half and is now trading for only eight times cash earnings before taxes. It boasts annual returns on equity in excess of 30%.
 
(I'd encourage you to learn more about Chris Mayer. He's one of the very few stock analysts who don't already work for me that I read regularly. He's also got a good new book out, Invest Like a Deal Maker.)
 
 Want to make $50,000 next year? Buy futures for a team you think will go to the Super Bowl. In December, Terence Gelke bought Giant futures, when the Giants were a longshot. He paid $1,000 for six tickets. The Giants made it to the Bowl, and now Terence is sitting on six tickets worth 50 grand. Steve Sjuggerud got tickets to last year's NCAA championship game the same way. Read about it here.
 
 Verizon (VZ) can't seem to buy any respect. Last year, revenues were up 6% and cash from operations grew 14% – to $26 billion. The company pays more than a 4% dividend and bought back about 4% of its shares outstanding last year.
 
Meanwhile, the stock hasn't gone anywhere in a year and is now trading for less than five times cash earnings before taxes... making it one of the cheapest blue-chip stocks in the world. Either we're all about to give up our cell phones and our Internet access... or investors in Verizon are going to make a fortune at some point in the next few years.
 
 It's still a bull market in farmland... Record commodity prices boosted farmland prices 14% last year to $2,160 an acre.
 
 "We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene." It's no surprise, but Jim Rogers is bearish on the U.S. economy. He's putting more money in China. He likes high-growth sectors like tourism, agriculture, power generation, and airlines. And he's still long commodities and short investment banks. The latter, he says, are headed "way, way, way down."
 
 In his State of the Union address, Bush bragged about bailing out a few dumb borrowers. He even invited one to the speech, so he could put her on TV. If I were to become famous, I'd like it to be for something other than, "borrowed money he couldn't afford to pay back."
 
 When crises and bailouts and politicians are all around, what do you buy? What could possibly protect you from a world turned upside down? I know one answer that's still only beginning to gain popularity and costs more than $900 per ounce today.
 
I remember when gold was around $250 an ounce roughly 10 years ago. That's a long time. With no yield, no earnings, no cash flow, no complicated debt securities... nothing Wall Street needs to sell to make a living, gold has appreciated from $252 (if I'm not mistaken) to more than $900, nearly 14% a year for a decade.
 
Our own Matt Badiali has found a way to invest in gold stocks, without the risk. Read his research here.
 
Regards,
 
S&A Research




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