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Weekend Edition

The Best of The S&A Digest
Saturday, September 29, 2007

If you're not a billionaire yet, you don't really count. The price of admission onto the Forbes list of the 400 richest Americans is now $1.3 billion, up from $300 million last year.
 
Close to half of the 45 new entrants are from hedge funds and private equity, including John Paulson, who pocketed more than $1 billion shorting subprime stocks. The usual suspects top the list. Bill Gates and Warren Buffett are Nos. 1 and 2. The Google guys, Michael Dell, and the Waltons round out the top 20.
 
Abu Dhabi National Energy Co. – the state-owned oil producer from the United Arab Emirates – has agreed to buy PrimeWest Energy, a Calgary-based income trust, for $5 billion, a 34% premium to last week's closing price.
 
This is the biggest ever takeover of a North American business by a company from the UAE. The deal also reflects a new trend: Flush with petrodollars, the Middle East is becoming a serious force in international finance.
 
S&A Dividend Grabber pick Transaction Network Services (TNS) signed a deal with the Singapore Stock Exchange to distribute its market data to the global marketplace. Outside institutions will now have high-speed access to the securities and derivatives markets in Singapore through TNS's top-notch networks.
 
Readers are up about 30% in five months on the recommendation.
 
From a reader: Why not just buy the companies rather than pay an ETF to manage a larger portfolio? Is the ETF a safer play than the individual companies?
 
Well, depending on the size of your position, you might find it worthwhile to buy all of the companies in the ETF individually. For example, if you're going to put $1 million into the idea, the ETF management expense begins to become pretty onerous.
 
But for most people, it's a lot more convenient, and probably cheaper, to buy the ETF. If you're investing $50,000 and the ETF charges 0.30%, you'll pay about $150 per year annually for fund management... which seems pretty reasonable to us.
 
This week, we saw Sam Zell speak at Grant's Fall Investment Conference. We admire the man tremendously. He built the largest collection of privately owned commercial real estate in America, Equity Office Properties, and then sold the whole thing to Blackstone at the very peak in commercial real estate prices.
 
What do you do with your capital after you've cashed in almost all of your U.S. real estate? Zell told the Grant's audience that he's got money all over the world – mostly in emerging markets. He told the story of a 100,000-square-foot warehouse in Laredo, Texas. The tenant, Nokia, offered a 7% cap rate. He then found another 100,000-square-foot warehouse in Monterrey, Mexico – 100 miles away – also occupied by Nokia. That warehouse had a 14% cap rate. So, now he's the biggest warehouse/distribution owner in Mexico.
 
(Sam Zell also runs one of America's great "Secret Investment Societies" – one that has returned more than 700% over the past four years.)
 
Editor-in-Chief Brian Hunt reporting from Botswana:
 
At first, I thought an ambulance was headed our way. After I saw the motorcycles' flashing blue lights, I thought it was the police... But it's just another day in Botswana...
 
"They're transporting diamonds," Ray said, as we watched the motorcade enter the roundabout with sirens blaring. Drivers stopped in their tracks to yield. A large armored vehicle followed the motorcycles in the lead. An open-top jeep with a machine gun nest followed. "That's excellent theft insurance," I said.
 
"They're probably coming from the Orapa mine. You see one every couple of days or so." Ray was referring to Orapa, the world's largest diamond mine by volume. Later, we passed several white cars with the "De Beers: A Diamond is Forever" mantra stenciled on the side. The headquarters of Debswana, the joint venture between De Beers and the government, has a prominent spot in Gaborone's business center.
 
Ray explained how the government finances homes and university education with diamond revenues. He mentioned how Blood Diamond, the 2006 movie about the diamond-financed bloodbath in Sierra Leone, caused a panic in Botswana. It can't afford to have the world sour on diamonds, which represent 75% of exports. It doesn't take long to realize that as diamonds go, so goes Botswana...
 
Regards,
 
Porter Stansberry




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