The DailyWealth Blog

The “Real” Reason You Should Own Gold

2006-08-15T08:15:00.000-07:00

by Dr. Steve Sjuggerud

Gold pays no interest. It’s just a lump of yellow metal.

If the bank is paying you 7% interest on your cash, chances are you’d rather have your money in the bank. It makes sense in this case, thanks to compound interest—in 10 years you’d have doubled your money. Hold gold for 10 years and you still have the same lump of yellow metal.

Now consider this... Imagine the bank was paying zero percent interest... then which is more attractive, paper dollars or gold? In this case, a rational investor would choose gold.

Gold is beautiful, rare, and easy to exchange, no matter where you are in the world. Paper money, on the other hand, is just paper. Governments can print as much of it as they like.

Governments can print money to pay off their debts. But they can’t create gold. The supply of paper money can be infinite. But the supply of gold is extremely limited (they say that the entire gold production in the history of the world could fit on the basketball court at Madison Square Garden). And it’s difficult to extract. Bill Gates could buy all the gold mined in the world in a year from his checkbook.

As a rule, money flows where it’s treated best. If interest rates are high, then gold performs poorly relative to money. If interest rates are low, money flows toward gold.

When interest rates are zero, gold becomes a no-brainer.

“But wait,” you say. “Interest rates soared in the 70s… how did gold manage to run from $100 to $800 during that time?”

Yes, interest rates soared in the 70s… but let’s look at the “real deal” you get for your money. Let’s consider the effects of inflation…

The “nominal” interest rates you might see advertised at your bank or in the newspaper don’t give the full picture.

Here’s why: if the prices of the items you buy on a regular basis, like food, gas and accommodations, are rising at 5% and - at the same time - the bank is paying you 5% interest on your savings, the bank is not compensating you for holding your wealth in cash instead of gold.

In this case, economists would say your “real” interest rate—the interest rate AFTER inflation—is actually zero.

Back in 1979, short-term interest rates were 8%, but inflation was 13%, so “real” interest rates were negative 5% a year.

Is it any wonder the people rushed into gold and away from paper money?

By 1981, Fed Chairman Paul Volker had driven short-term interest rates to 15% and inflation to 6%, so the real interest rate was almost 10%.

By 1982, gold was back below $400.

Today, we see nominal interest rates advertised at around 5%. At the same time, inflation is around 5%… and Federal Reserve chairman Ben Bernanke says he’s almost done raising interest rates...

Real interest rates are close to negative… and the smart money is shifting from cash and into gold.

You should own some gold, even if it is purely to lower some of the risk in your investment portfolio, as gold and stocks often move in opposite directions. If you’re not there right now, it’s time make the move.

Good investing,

Steve Sjuggerud

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, click here.

The Miami Meltdown is Moving to Vegas

2006-08-15T08:09:00.000-07:00

by Tom Dyson

In April 2000, Steve Wynn paid $270 million for a small decrepit hotel halfway down the Las Vegas Strip called The Desert Inn.

He imploded it, cleared the site, and put up a new hotel.

The new hotel is called Wynn Las Vegas, and right now, it’s the hottest hotel on The Strip. Each room cost $1 million to build. The whole thing cost $2.7 billion. Wynn owns the only golf course on The Strip. You’ll pay $500 per round, as long as you’re a hotel guest.

A Vegas guide told me the Wynn is the only hotel that doesn’t subcontract its transportation service to outside limo companies. This way, when you use Wynn’s car service, you’re guaranteed to travel in either a Rolls Royce or a Bentley.

Then he told me the story of the Gucci dog. A high roller came to stay at the Wynn and brought a small dog with him. He requested a pair of brand new Gucci loafers from room service for his dog to chew on. So Wynn’s staff sent up a leather Gucci sports bag filled with loafers.

A second Wynn hotel – called the Encore at Wynn Las Vegas – is under construction next door. This one will cost $1.4 billion.

Vegas is booming. All in all, 20,000 hotel rooms are currently under construction in Las Vegas and will be online in the next three years. To give you perspective, in the decade 1996-2005, hotels built 32,000 rooms. One project – the City Centre by MGM Grand – will cost as much as $7 billion.

I arrived in Las Vegas last week to support a friend playing in the World Series of Poker. While I was there, I got to check out some real estate.

DailyWealth hit the nail on the head with a similar investigation into Miami five months ago. Only by going there and posing as a buyer was I able to see what was really going on with all those new condo developments.

I found tons of unsold condos and warned that a crash was coming. The homebuilder and bank I wrote about have fallen 45% and 25% respectively, and I wouldn’t be surprised if they’re bankrupt within a couple of years.

The first thing I did in Vegas was sign up for a tour of a new timeshare development they’re building at the south end of the strip. Just for agreeing to listen to the sales pitch, they gave us $150 in free show tickets, roller coaster rides and meal vouchers. Then they drove us out to the development site for two hours, hit us with a long sales pitch and showed us a model condo.

They used Las Vegas’s growth statistics to push their agenda. They said Las Vegas is the fastest growing city in America and 71,000 new people arrive each month to live here. It’s also the world’s most popular tourist destination, they told us, with 35,000,000 visitors each year.

The poker pro tells me there are still weekends when you can’t find a spare hotel within ten miles of the Strip. Downstairs, the restaurants and bars are jammed, you can’t walk around the casino without bumping into people, and there’s still a long line at the front desk.

Demand has been outstripping supply for the past few years and prices have been rising fast. Our sales lady told us her house had gone up from $120,000 to $700,000 in the last five years!

This is the problem. People have come to think that casinos will always be busy, house prices will always go up, and Las Vegas will always be the fastest growing city in America. Worse, they make business decisions based on these assumptions.

Next, we drove twenty-five miles out of the city and scoped out Las Vegas from a hillside. The city lies in a large brown crater so I could see the whole thing. Away in the distance, I picked out The Strip. Between us, hundreds of thousands of new houses carpeted the valley like a reddish-brown moss. They all looked the same.

When a freight train slams on the emergency brakes, it takes miles to stop. When a construction boom gets going, the same thing happens. Investors end up building too much capacity. Prices always come back down.

It’s happening in Miami. It’s happening in Las Vegas too. Hotel rates will fall, real estate prices will decline, they’ll virtually give away timeshares, and in 15 years, many of the newer subdivisions will be ghettos.

Good investing,

Tom

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, click here.

The Making of An Investment Superhero

2006-08-02T07:19:00.000-07:00

by Dr. Steve Sjuggerud

During his senior year at Duke University, Bill Gross’ Nash Rambler skidded out of control on an icy road and crashed into oncoming traffic. It was a near-fatal accident.

As unlikely as it seems, this accident provided the platform for Bill Gross to become one of America’s richest men and the most famous bond investor ever.

In today’s edition, we’ll tell the story of how Bill Gross became a billionaire and look at the two investment ideas Bill recommends right now.

The story begins in a hospital bed...

To pass time during recovery, Gross started reading a gambling book called Beat the Dealer. The book intrigued him so much, Gross headed straight to Vegas as soon as he had recovered and spent upwards of 16 hours a day at the blackjack tables at the Fremont and Four Queens casinos.

Gross played meticulously. When others would get wrapped up in the emotions of the game, Gross would stick with his system, counting cards and only making big bets when the odds fell in his favor.

In essence, Gross learned the fundamentals of money management right there at the blackjack table. Within six months, Gross had parlayed his $200 grubstake into $10,000.

Gross had beaten Vegas. Now he was ready to take on Wall Street.

Unfortunately, nobody on Wall Street was ready to take on Bill. He couldn’t get a job. Finally he took a job as the “coupon-clipper” of bonds at an insurance company called Pacific Mutual – not exactly the sexy stock market work he was looking for.

Just like in Vegas, Gross had an idea that no one else had really considered, and he was willing to do the hard work to make it happen. He recommended to the insurance committee at Pacific Mutual to set up a subsidiary for him (called PIMCO) to actively trade bonds. “Let me try to trade these things and see if I can do better than just holding them,” he said.

The rest is history. In a very ugly market, Gross made 17.6% in 1975, followed by nearly 18% in 1976. Gross started with $15 million. Today, Gross’ PIMCO is one of the biggest asset managers on the planet, responsible for over $600 billion in bond funds.

Recently, we found Bill Gross featured in the Barron's mid-year roundtable discussion. Right now, Bill is watching two broad investment themes:

1) U.S. investors need to diversify their assets away from the U.S dollar.
“I am still bearish on the dollar,” he old Barron’s. “If investors want equity exposure, they should get it outside the U.S. and dollar-denominated assets.”

Bill picked the iShares MSCI EAFE Index Fund (EFA), a basket of foreign stocks, as his specific investment recommendation for readers of Barron’s.

2) Municipal bonds are much more attractive than Treasury bonds. This is a theme we covered recently in the June 20th issue of DailyWealth...

Local governments issue municipal bonds to finance public projects like highways, schools and sewer systems. To make them attractive to investors, they make the interest payments tax-free. When you take the tax break and a little leverage into account, these government-backed bond funds can generate returns as high as 8.5%, with little risk. Treasury bonds pay around 5%.

Bill picked the Pimco Muni Income Fund (PMF) as his recommendation to play the muni bond theme.

Bill Gross may not be right 100% of the time, but his fantastic three-decade track record shows his calls are nearly always pretty darn good. I always pay attention. You should too.

Good investing,

Steve

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, please visit: http://www.dailywealth.com/signups/SDW-affiliate.asp?scode=XFFDW001

Touring One of the Richest Regions in the World... the Hard Way

2006-08-02T07:11:00.000-07:00

by Tom Dyson

When a friend from work invited me on a short bike tour the other day, it sounded like a good idea…

The plan was to attend an investment conference in Vancouver. But instead of flying direct to Vancouver, we’d fly to Seattle and bike the rest of the way. “It’s about 200 miles and takes four days,” he told me.

I love the Pacific Northwest. It’s a corner of the world I expect will prosper for many years to come. So I accepted the invitation and met Mike at the Seattle airport last week. We purchased cheap road bikes from Wal-Mart and started peddling north.

There are two bike routes from Seattle to Vancouver. One is flat and direct. The other is longer and hillier. We wanted more scenery and less traffic, so we chose the up-and-down route. Besides, I thought I’d see more of the landscape this way.

Last year, I concluded that Asian growth is propelling a boom in the Pacific Northwest. I found more evidence on my bicycle...

We were changing a flat tire in front of a luxury car dealership in the outskirts of Vancouver when the owner came by. His glassed were encrusted with rhinestones and he wore a large diamond ring on his left hand. I asked him if business was good. “Oh, we do very well,” he told me.

We were surrounded by dozens of sleek-looking Porches, BMWs and Range Rovers. “You’d be amazed. I’ll sell most of these to exchange students from Asia. Their daddies send them here to study. They want expensive cars to drive to class in…”

The richest people in Vancouver, he said, are the definitely the Asians.

Immense natural wealth is another reason to like this region. We ogled forests that stretched into the distance for thousands of square kilometers. We peddled by mines and quarries. Huge trucks carrying lumber and mulch roared past on the highways. We even passed the fields that supply much of the world’s daily grain requirements.

Transport infrastructure is something I always watch when I travel. Natural resources are worthless if you can’t bring them to market. We watched huge container ships sail down the Strait of Juan De Fuca and into the ocean. We saw them loading a huge ship with coal in Vancouver’s high-tech Deltaport. And occasionally, we’d hear the call of a freight train snaking through the valleys at night.

All considered, I’d say the freight transport network in the Pacific Northwest may be the best in the world.

Add it all together – Asian growth, vast supplies of natural resources and the means to shift them across the Pacific, and I see the makings of a long-term boom in the Pacific Northwest. My favorite plays are still the large railroads in the region – Canadian National, BNSF and Canadian Pacific. I see decades of great business conditions for these companies ahead.

I learned something else too. Riding a bike for eight hours, day after day, hill after hill, is no sunset cruise along the boardwalk. I felt pain everywhere.

I had cramps in my legs and blisters on my feet. The sun burned my face and arms and the sweat stung my eyes. My lower back ached. I felt mental anguish too. But the worst pain...
I felt the worst pain between my legs where my skin rubbed against the saddle. I’ll save you the details.

Let’s just say I couldn’t sit down for a few days after the trip...

Good investing,

Tom

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, please visit: http://www.dailywealth.com/signups/SDW-affiliate.asp?scode=XFFDW001

Oil: Where it Goes After the Israeli Bombings

2006-07-21T13:06:00.000-07:00

by Dr. Steve Sjuggerud

"Nothing is more troubling to financial markets than uncertainty… And nothing creates more uncertainty than war, the most unpredictable of all human activities."
-John Steele Gordon, The Great Game

On September 12, 2001, I issued a special report to my subscribers called, What Happens to Stock Markets When National Security is Threatened.

I studied every threat to national security in the 20th Century, and what happened to the stock market afterward. I did the research through the night on September 11th. I felt my subscribers needed to know what could happen… whether the news was good or bad. The conclusion of my report was optimistic:

“Ultimately, buying after the period of mass uncertainty, and around the time that some resolution of the uncertainty appears imminent, has traditionally been an excellent way to make money in stocks.”

September 11th changed everything in America. The day before, we were blissfully ignorant. Now we’re aware that there are thousands of men out there, willing to kill us without remorse, simply because we don’t believe in their god.

At the end of my September 12th report, I also included a special section on what happens to commodity prices in times of war. What I found is particularly applicable right now, with what’s going on in Israel today…

In my look at commodity prices, I started with oil. I said, “History suggests that oil prices only rise if the opponent poses a threat to the world supply of oil.”

I gave a few examples of international crises where oil was not at stake in the conflict:

“During the Korean War, oil prices fell in inflation adjusted terms. During the year of the Cuban Missile Crisis, oil prices fell adjusted for inflation. And as we steadily became more involved in Vietnam, oil prices fell from 1965-1972 adjusted for inflation. In these situations, the oil supply was not at risk. So if the world supply of oil is not at risk, the price of oil is not at risk.

“However, if the world oil supply is perceived to be at risk, oil prices will rise. During the Iran/Iraq conflicts of 1978-1980, oil prices more than doubled from $14 a barrel in 1978 to $35 in 1980. Also, oil prices spiked significantly higher when Iraq invaded Kuwait in 1990. But prices then quickly subsided to two-decade lows in 1994.”

The conclusion was simple: “Based on limited evidence, it seems clear that oil prices rise when the supply of oil is threatened in particular, not our national security.”

I believe that conclusion today. But how do we size it up now? If Israel and Hezbollah keep the fighting amongst themselves, there shouldn’t be a long term impact on the price of oil. To be brutally honest, this doesn’t affect the world supply of oil.

The question is: How far will things escalate? I’m no expert in that. Honestly, the possibilities scare me. If oil keeps going up, chances are, it’s telling us we’ve got a lot more to worry about than expensive gas at the pump. Just as the stock market is typically a good leading indicator of the economy… oil is likely a good leading indicator of tension in oil-producing nations.

Starting today, you can think of the price of oil like the president’s approval rating… as the price falls, the world is “voting” that the tensions in the Middle East are easing. And if the price of oil rises, unfortunately, chances are, there’s more trouble to come.

If you want the honest answer on how things are going day-to-day on the Israeli border, don’t watch the news. Watch which way the price of oil moved that day. That will tell you all you need to know.

Good investing,

Steve

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, please visit: http://www.dailywealth.com/signups/SDW-affiliate.asp?scode=XFFDW001

Can You Really Beat an Index Fund?

2006-06-21T08:44:00.000-07:00

by Tom Dyson

When it comes to investing, there's a heated debate between two groups:

The first group believes the stock market is random. There are no patterns. Price movements are as predictable as a roulette wheel. There's no point in trying to beat the market, because it can't be done except with luck.

If you can't beat the market, join it, they say. Just buy a diversified basket of stocks and forget about them for a generation. These guys tell you to buy index funds… instruments that blindly follow indices like the S&P 500.

Within this group, there is a faction that admits there are patterns in the market, but say most people are not cut out for exploiting them. Our emotional wiring makes us do all the wrong moves - like invest in stock market bubbles and panic at all the wrong times.

The other school says it's possible to beat the market. Don't stand for measly 7% annual returns because - with a little discipline and a little research - you can make many times as much.

This argument sits much better with newsletter publishers, stockbrokers, the mutual fund industry, and your financial advisor. It gives clients a reason to use these services, which of course, will make you fabulously wealthy.

DailyWealth stands with the second group. And we know the second group is right, because we have a technique that consistently beats the market. The formula is simple: You buy assets of great value that nobody else wants.

True Wealth readers can attest to how well the formula works. The portfolio has beaten the market every year since inception…

Besides, we own every decent book on investing and trading written in the last 100 years. The evidence is huge. Think about it. The market is the sum of millions of human decisions… and humans make mistakes constantly. This will never change.

I'll repeat again. The market is not random. It's close enough to stir debate, but it's definitely not random. I'm not saying it's easy to beat. There are many traps and pitfalls to avoid. But with a little discipline and a little knowledge, you can make much more than 10% a year.

Stick with DailyWealth, and we’ll show you how. Plenty more on this subject to follow…

Good investing,

Tom Dyson

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, please visit: http://www.dailywealth.com/signups/SDW-affiliate.asp?scode=XFFDW001

Ski School: Gold Wipes Out

2006-06-21T08:42:00.000-07:00

by Tom Dyson

I’ll never forget the first time I stood at the top of a mountain with skis on.
What terror.

Even though it was just a green run – the easiest on the mountain - the piste looked impossibly steep. I couldn’t believe they expected me to throw my body over the edge with boards of polished fiberglass attached to my feet.

As we traveled up the mountain on the chairlift, the other skiers in my party tried to teach me the basics. “Lean forward” they said. “Always lean forward. There’s nothing more important. If you lean back you’ll wipe out.”

Their advice was useless. I pushed myself over the lip, sat on the back of my skis and slid down the mountain out of control.

You see, leaning forward down a steep hill on skis goes against all our natural instincts. It feels reckless and stupid. And even though four experienced skiers had told me to, my body just wouldn’t let me.

Until you’ve overcome the fear of leaning forward, you can’t ski. It took me a whole day on the slopes – and a very bruised body – before I figured it out.

The same rules apply with speculation. You have to overcome your natural instincts before you can succeed.

Take last week’s action in the gold market. Gold fell $45. It was the biggest one-day move I’ve ever seen. Bloomberg confirms it. They say – in percentage terms – gold hasn’t fallen this much in one day since January 1990.

Gold is now down $170 since its high one month ago.

Big sell offs create panic. If you own gold, you probably felt a shot in the stomach the moment you saw that red number. I know I did. My instinct told me to dump my position right there on the spot.

Wrong call.

You see, just like my experience on the mountain, natural instinct tells us to sell our position at a low price.

The opposite is true in bull markets. Our instinct tells us to follow the herd and buy into a rising market. It’s the easy trade... but the wrong trade. When everyone wants the same stock and they bid up the price, we want to be the ones selling it to them. When everyone is panicking, it’s the perfect time for us to buy.

Look at this email we received on June 13th:

“What am I supposed to do with my gold holdings??? It's causing a great deal of friction in my marriage because my husband wants to sell and Steve says to hold on. How long does this agony endure”?

I understand how this reader feels, but I urge her not to panic. Bull markets correct - they have to. It’s how markets work. The weak hands get shaken out and their stock is passed to the strong hands.

Gold may sink even further tomorrow. Who knows? No one can predict where the correction will end. The key is, don’t let the market tell you what to do. Have a strategy and stick to it.
Here at DailyWealth, we believe gold is in a bull market that may last another decade. Our strategy is to hold our position until everyone is crazy about gold. It hasn’t happened yet. Not even close. No one talks about gold at dinner parties these days and the institutional money is still skeptical of the commodities boom.

We also know that, as the bull market matures, volatility will increase. We’ve seen this already. Two years ago, a five-dollar move in the gold price was exceptional. Nowadays, it’s normal.
We expect even more volatility in the future. This way, when gold falls $45 in one day, we know to lean forward on our skis and enjoy the ride...

Good investing,

Tom

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, please visit: http://www.dailywealth.com/signups/SDW-affiliate.asp?scode=XFFDW001

This Makes Me Sick… And Ready To Buy More

2006-06-19T10:18:00.000-07:00

by Tom Dyson

In all my years of speculation, I have never seen such a violent and bloodthirsty market…

I rate the last three weeks as one of the greatest global market sell-offs of all time.

Gold fell $170, about 25%. The FTSE (London stocks) lost nearly 10% - the biggest top to bottom fall since the bombs dropped on Baghdad.

The crash was everywhere. Japanese stocks are down 20%. Indian stocks are down 45%. The Russia fund is down 50%. The Saudi and Bahrain stock markets have halved. Brazil is off 30%. Commodities took it on the chin as well. Copper, zinc, aluminum, silver... all down a long way...

And it all happened in the last few weeks. Amazing. Most stock market sectors got whacked. Shares dealing in housing and real estate have halved. The world's largest mining companies like Rio Tinto, BHP Billiton and Anglo American have all dropped 25-30%. Even Goldman Sachs, one of the most profitable firms in the world, is off 17%. On Tuesday, gold fell nearly $50 an ounce. It was the biggest one-day fall since 1990. I can tell you, I wasn't feeling very cheery that day. I felt sick. The gold market wasn't feeling well either. I sensed a real feeling of capitulation and panic.

I have two things I want to say about this.

First, I am relieved. Here at DailyWealth, we’ve been waiting for this correction for quite a few months now. We knew it was going to happen, we just didn’t know when.

Steve warned about emerging markets. He warned about India. Our managing editor Brian Hunt warned about Russia. I warned about gold and commodities. We all warned you about U.S. stocks.

The fundamentals haven’t changed in any of these markets. Only traders’ sentiment.

Many of the markets we watch went up too fast. Gold is a good example. The inert yellow metal gained over 50% since late December. It was too much too fast. There aren’t many sure things in this business. But gold’s correction was one of them. Markets breathe in… they breathe out. This is life.

Secondly, I am excited. I’ve wanted to buy more gold and commodities for many months. The relentless move higher prevented me from plunging. Now the water is safer. If we’re not at bottom, we're probably close. Sure, there may still be some residual downside, but the big risk is gone.

Of course, buying investments after a big fall goes against our emotional wiring. I felt like dumping my gold too a couple of days ago. So what did I do?

I did what I always do when I feel sick towards a market. I bought more gold and took a position in silver…

What are you going to do?

Good investing,

Tom

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, please visit: http://www.dailywealth.com/signups/SDW-affiliate.asp?scode=XFFDW001

Why Iowa Farmers Are About To Get Rich

2006-06-12T14:53:00.000-07:00

by Tom Dyson

He arrived in Manhattan in 1968 with $600…

He retired a millionaire twelve years later. No one knows for sure how much money he’s made, but he’s rumored to be worth several hundred million now.

Here’s the thing... Jim Rogers made all that money in stock markets no one else has thought of. Like Botswana. Uruguay. Zambia. The more unknown the better. That’s how you get in cheap before the big boom.

Here’s an example of one his best plays:

In 1984, a manager at Creditanstalt – Austria ’s largest bank - told Rogers Austria didn’t have a stock market.

When a market is so neglected that even a high-ranking banker doesn’t know his own country has a stock market, you buy as much as you can.

For Rogers, the insight was good for 500% gains in three years...

Rogers makes this type of investing seem easy, obvious even. It’s not. He has to understand what’s going on in the world before anyone else does. And given how competitive this type of investing is - especially since the Internet came along and spread awareness – you can be sure Rogers has a very special edge.

Yesterday, I heard Jim speak at a hotel in London . To a small group of bankers and one newsletter writer, he explained the flaws in the U.S dollar, the coming collapse in government bond prices, and how commodities can keep rising until 2018.

How satisfying to hear Jim Rogers convince a room full of London bankers that coal will outperform stocks for the next decade and Iowa farmers are about to make a fortune!

He told us he owns every traded commodity including gold. He is long Japanese stocks and Canadian oil sands. He is short Fannie Mae and homebuilders. His baby girl has a bank account denominated in Swiss francs and she owns commodities but not bonds or stocks.

Jim mentioned his six favorite places with the most profit potential in the coming years. He said, “If there were six clones of Jim Rogers, I’d send one to live in each of...

...Angola… Angola is about to become Africa ’s largest oil producer... Tanzania... East Timor... Myanmar is about to open up... I’d think about South America. It’s so rich in commodities. To invest in North America, I’d go for Canada... trade surplus and balanced budget for 10 years...”

Notice his first two picks came from Africa. DailyWealth recently reported on Africa ’s emergence onto the investment map in a series of articles about the DR Congo. And in March, we even held a competition with readers to select the country with the most interesting investment story. Tanzania came out on top.

We’ll be traveling to Tanzania and the DR Congo later this year to find the best ways to play this theme…

More on real asset investing from the City of London next week.

Good investing,
Tom

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, please visit: http://www.dailywealth.com/signups/SDW-affiliate.asp?scode=XFFDW001

How To Invest In Oil & Gas

2006-06-06T12:56:00.000-07:00

by Dr. Steve Sjuggerud, with Matt Badiali

T. Boone Pickens made $1.4 billion dollars in income in 2005 from managing money, according to the Wall Street Journal last week.

It is “the largest one year sum ever earned… larger even than Michael Milken’s legendary $550 million haul of 1986…” according to Trader Monthly.

In case you don’t know, T. Boone Pickens is an oil investor… and a good one at that…

For the year 2005, folks who invested in Pickens stock fund made over 100 percent. And those who invested in his much riskier commodities pool made over 700 percent (that’s not a misprint).

Pickens appeared on CNBC last week. He predicted higher oil prices. And he says that natural gas is a cheap and credible alternative. He also predicted that gas stations serving natural gas is something we might see in the not-so distant future.

Pickens made his money last year in oil stocks and commodities trading. If he can make over a billion doing this stuff, then we need to know what our options are to invest in this area…

Here are the major ways to play it:

1) Buying oil in your brokerage account.

The simplest and most direct way for most people to make a bet on the price of oil is to buy shares of USO. USO is not a company, it's simply an asset created to track the price of oil. It trades like a stock.

Your return with USO is simply whatever the price of oil does, minus a tiny fee. If you want to make a bet on oil this the easiest way to do it.

2) Buying oil stocks.

You can make or lose a lot of money in oil stocks, depending on how much risk you’re willing to take…

You can buy the “Big Oil” stocks… like ExxonMobil (XOM) and ConocoPhillips (COP), which are safe and diversified. Or you can really take a risk with a small stock specializing in exploration or operating in a risky locale. You could lose it all, or make many times your money.

You’ve got a lot of choices when it comes to buying oil stocks… and we’ll cover these choices in the coming weeks.

3) Buying the whole oil sector with just one stock.

There are a handful of exchange-traded funds relating to oil. These hold a handful of the major oil and energy companies. The major ETFs here are: OIH, IXC, IYE, XLE, and VDE. The easiest place to find more information about all of them is at www.etfconnect.com.

There are hundreds of mutual funds as well. But we prefer exchange-traded funds, like the ones above. The cost of ownership is lower and you can buy and sell them any time through the day.

4) Gambling the T. Boone Pickens way: through derivatives

Trading oil futures, in general, is extremely risky. You can’t make 700 percent returns without taking on a heck of a lot of risk.

I really don’t recommend this world for most individual investors. One firm that has done a nice job in the past for newer investors is Lind-Waldock www.lind-waldock.com.

Spend a while educating yourself before you do anything here. Sue Rutsen is incredibly nice and patient, and specializes in commodities options. You can find more about her and her firm at: www.rmbgroup.com.

5) Oil and gas limited partnerships

We know many legitimate folks out there (like our friend Cactus Schroeder) that have been creating these types of investments and making money for investors for many years. However, we’re particularly skeptical of these, and really don’t recommend them for most people.

In general, unless you REALLY KNOW what you’re doing, then you probably don’t belong in these.

Well, we’ve just scratched the surface today on the options available for investing in oil. This is by no means a comprehensive list. At DailyWealth, we promise we won’t take too much of your day, so we’re going to stop here.

Good investing,

Steve & Matt

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, please visit: http://www.dailywealth.com/signups/SDW-affiliate.asp?scode=XFFDW001

The Future of Medicine... And How To Profit From It

2006-06-06T08:57:00.000-07:00

by Dr. Steve Sjuggerud

In the five year history of my newsletter True Wealth, I’ve never recommended a medical stock. But now, I’m finally getting close…

At a private conference I attended not too long ago, fellow analyst Rob Fannon explained in simple terms the future of medicine, and the best way to profit from it…

Rob calls generic biotech medicines “a huge opportunity.” Biotech medicines differ greatly from traditional drugs.

Rob explains it like this: “Biotech medicines are displacing traditional drugs because they work much better. They work better because they’re built with a rational design… based on how the body works.”

I trust Rob. And with his unique background in both business and in biotech, I listen when he talks.

“Not many people realize it, but biotech isn’t that new anymore,” Rob said. “The benefit is, we’re just now entering an era where biotech medicines are coming off patent and generic biotech medicines are coming out.”

Just last month, the Wall Street Journal reported the world’s first regulatory approval of a generic biotech medicine. Interestingly, the approval was granted in Europe first, NOT in the United States.

I asked Rob why on the phone yesterday. He said:

“Generic drug regulation here is complicated. It’s a mess for simple, old-style chemistry-based drugs. It’s going to be even more of a mess for biotech medicines, which are much more difficult to copy compared to conventional drugs. It’s really uncharted waters for the FDA, as it doesn’t have the experience or infrastructure to properly evaluate and approve biotech medicines…”

The biotech medicine approved in Europe is a great example of how the FDA is fumbling right now… a company called Sandoz, who makes the first approved generic biotech medicine in Europe, got tired of waiting on the FDA in the States, and filed a lawsuit against the FDA.

According to the latest issue of Barron’s:

“Citing a statutory requirement that the [FDA] act on drug applications within 180 days, it sued the FDA in U.S. District Court… Last month, Judge Urbina agreed with Sandoz that there was no excuse for a delay that was nearing 1,000 days. He ordered the agency to make a decision. The FDA still hasn’t done so.”

Rob likes Sandoz’s prospects. Sandoz - the world’s number two generic drugs manufacturer - is a division of Swiss drug giant Novartis (NVS). Rob says Novartis is experienced in getting drugs approved, and innovative. Rob reckons Sandoz as a generics business is a nice fit with Novartis.

The world’s largest generic drugs manufacturer, Teva Pharmaceuticals (TEVA), will be another major player here. Rob also mentions Barr Parma (BRL).
The future of medicine is biotech. Half of U.S. drug sales are generics… so it’s no wonder Rob calls generic biotech medicines “a huge opportunity.”

The Barron’s issue lists 18 biotech products coming off patent in the coming years.

The three companies listed above (NVS, TEVA, and BRL), don’t have sales in this space now. But they will likely emerge as the major players in generic biotech medicine. The companies who have gotten into it now and established global infrastructure will likely dominate this area from now on.

Even better, they’re all reasonably priced, with forward P/E ratios in the teens.
Drug stocks in general have been in downtrends for a while… so I’m not biting yet. But I’m definitely getting more and more interested in these stories, as the gains can be huge when the big trend in drug stocks is up.

I’ll be a buyer someday. And I plan on having Rob help me find the right places to put my money when the time comes.

Good investing,
Steve

DailyWealth is a free e-letter focused on the world's best contrarian investment opportunities. To begin receiving a free subscription, visit:
http://www.dailywealth.com/signups/SDW-affiliate.asp?scode=XFFDW001

One Great Stock Idea

2006-06-05T06:05:00.000-07:00

by Dr. Steve Sjuggerud

You missed a good show…

I hosted our Fourth Annual True Wealth Gold & Collectibles Conference this week in Long Beach, California. We had a packed roster of investment legends, plus the CEOs of a few mining stocks that I think are cheap, on hand.

Investors made a fortune if they took our advice the last time we did this conference…

I invited just three companies to present their investment stories at this conference last summer. The shares of all three of them absolutely soared in price (of course, the bull market in gold sure helped). The best performer of those was Seabridge Gold.

When I first recommended shares of Seabridge Gold to subscribers of my Sjuggerud Confidential newsletter less than a year ago, the price of Seabridge was $2.64. Today, shares are closer to $10. But you know what? Shares of Seabridge are just as good a deal today as they were when I first wrote about them.

It’s all because of the price of gold…

When I first wrote about Seabridge, it was a bit of a long shot. The price of gold was about $440. At that price, Seabridge had a mountain of gold underground, but it wouldn’t have been particularly profitable to get it out. So it was a speculative gamble on the price of gold… One that paid off…

Gold is up by $200 to $640 now. And all of a sudden, Seabridge’s assets look fantastic.

The Seabridge story is simple...

At the bottom of the gold market, Seabridge went around buying up properties with known gold reserves that the major gold companies wanted to get rid of.
Seabridge ended up buying over 14 million ounces of gold in the ground, for less than a dollar per ounce of gold acquired. The mining giants Seabridge had bought from had spent a combined $300+ million dollars in studying these properties.

But at the bottom of the gold market, these properties seemed worthless. So the major mining companies dumped the projects for next to nothing.

Now the guys at Seabridge look brilliant…

Seabridge bought nine gold deposits back then. Let’s take a quick look at one now… called Courageous Lake. Seabridge bought it from Newmont at the bottom of the market for less than a dollar per ounce of gold in the ground.

Seabridge has tested it further, and now has 9 million resource ounces of gold in the ground there… worth nearly $6 billion dollars. Yet the market value of Seabridge is only about $300 million.

An outside consulting firm estimates the cash cost of production to be around $279 per ounce at Courageous Lake. So as long as gold stays up above $600, this project is a no-brainer.

Smartly, Seabridge doesn’t plant to develop the mine itself. It plans to partner with a major mining firm, who will take the financial risk. Seabridge couldn’t identify who that partner is, but it said it has confidentiality agreements with four majors for this project (if I heard them right).

The major mining firms wouldn’t be interested unless this is potentially a major gold mine. And it is… it’s one of the ten largest undeveloped gold deposits in the world. And nicely, it’s in Canada, not some Banana Republic.

I could go on and on here… as Seabridge’s CEO really laid out a nice case for the stock. Even if gold stays flat here for a long time, the stock should still go much higher. Since we try to keep DailyWealth nice and short, I’ll stop here…

If you’re interested in more about Seabridge, the company’s CEO has made his presentation from our conference available to everyone at:

http://www.seabridgegold.net/SlideShow.htm

If you’d been a subscriber to Sjuggerud Confidential over the last year, you would have gotten my recommendation to buy Seabridge when I first wrote about it at $2.64 a share. Now it’s $10 a share. This price is still cheap…

It gives us the ability to buy 18 million ounces of gold in the ground, for just $22 an ounce.

Shares of Seabridge will be extremely volatile. But if you believe as I do that the long-term trend for gold and commodities is up, then this is one stock you want to own.

The symbol for Seabridge in the U.S. is (SA). Check it out…

Good investing,
Steve

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