Another Middle East road trip...

Another Middle East road trip... Sprott on Chinese gold/silver demand... Clark's third copper trade... Uranium down, natural gas up... Badiali/Rule: Buy gas...

 All across the Middle East and North Africa, people are "asking" their political leaders to hit the road…

Tunisia and Egypt have both seen political leaders depart. U.S. and allied bombers are pounding Libya's Muammar Gaddafi and his supporters. So maybe he'll hit the road soon, too. Now, Yemen is joining the party. According to the Wall Street Journal, Yemen's leader of 32 years, Ali Abdullah Saleh, is "negotiating an exit" with opposition forces, some of whom have been photographed waving AK-47s in the air (a popular negotiation technique).

Is there a retirement home for all these ousted dictators? Maybe Mr. Saleh and his ilk will find themselves at the Home for Ousted Dictators, which I would imagine is located in Switzerland, Argentina, or Holland.

 No wonder oil is solidly over $100 a barrel now. Other happenings half a world away promise to push gold and silver prices higher… at least, so says a Canadian precious metals guru whose advice we take seriously...

 Canadian billionaire and precious metals expert Eric Sprott says Chinese gold demand is soaring. China imported five times as much gold in the first 10 months of 2010 as in all of 2009. The trend is clearly not about jewelry, either. According to the World Gold Council, Chinese demand for gold bullion increased at nearly nine times the rate of Chinese demand of gold jewelry, from September 2009 to October 2010. Sprott says gold demand from China and India could soon account for more than half the world's annual gold production.

China is also a major importer of silver. Sprott says China exported 100 million ounces of silver in 2005. In 2010, it imported more than 120 million ounces. That's a 200 million ounce shift in a market that produced 889 million ounces in 2009. "A truly tectonic shift in demand," according to Sprott.

 S&A Short Report editor Jeff Clark says the market is heading lower. And copper is going to lead the charge...

This is the third time Jeff will "ring the register" on his short-copper trade. We first wrote about his trade in the February 23 Digest. He closed the trade for a 96% gain in only seven days. After the initial plunge, shares of Freeport McMoRan, the world's largest copper company, rallied. And Jeff shorted them again. This time, his readers made 99% in 10 days.

And today, the trade is on again. Freeport is approaching the upper end of its trading range, and Jeff says it's weakening. He expects readers to bank another huge gain in a short period with his latest recommendation. To see exactly how Jeff is recommending you short copper, click here...

 In the March 16 Digest, we wrote the real winner from Japan's nuclear meltdown would be natural gas.

The market agrees... Since the Japan disaster, uranium prices have dropped 30%. Natural gas prices are up around 10%. And officials from countries including China and Germany have pledged to review their nuclear strategies. Also, utility companies are considering using natural gas as a source of energy (potentially replacing coal and nuclear). They've traditionally been wary due to gas' volatility. According to John Rowe, chairman of Exelon – the biggest nuclear utility in the U.S. – things may change…

 Rowe said building new nuclear plants is prohibitively expensive. And the existing plants (the U.S.'s 104 nuclear reactors contribute 23% of the nation's electricity) are tangled in bureaucratic tape... Twenty reactors have applications pending with regulators to extend the plants' operating lives by up to two decades, according to Bloomberg. And the government isn't helping... "We are likely to do to nuclear licensing what we did to offshore permitting," Lawrence Goldstein, an economist at the Energy Policy Research Foundation. "We will delay and stall."

As for coal... tight carbon emissions regulations from the Environmental Protection Agency (EPA) would require large investments to scrub emissions from coal-fired plants. In other words... natural gas is looking better and better. Or as Rowe puts it, "natural gas is queen."

 In addition to environmental pressures, the demand picture looks good. From 1999 to 2009, natural gas was rarely cheaper than coal. But coal has been soaring. And in late 2010, gas became cheaper than coal (and remains cheaper today). Plus, China and India will consume more and more of the world's coal to meet their energy needs. (The emerging markets aren't worried about dirty emissions.)

And the supply side is bullish for natural gas. At current prices, it costs more to produce gas than you can make selling it. In his DailyWealth essay titled "A Once-a-Decade, 1,200% Trade Is Setting Up Again," Matt Badiali discussed why Rick Rule, one of the best resource investors we know, is buying natural gas. From that essay:

 In his latest S&A Resource Report issue, Badiali told readers the best way to profit from natural gas today. He recommended four small-cap companies with super-cheap reserves. As natural gas demand increases, pushing gas prices between $6 and $8, these companies will soar. To sign up, click here...

In today's mailbag… Some subscribers write in with questions about cash and real estate… and another describes how he uses our research. Send your comments to feedback@stansberryresearch.com.

 New 52-week highs (as of 3/21/11): WD-40 (WDFC), CARBO Ceramics (CRR), Hershey (HSY), HMS Holdings (HMSY), Cytori (CYTX), iShares Silver (SLV), EV Energy Partners (EVEP), Tejon Ranch (TRC).

 "I've been selling puts ever since the market bottomed in the 'Great Recession.' It's a great way to add to one's income in an up market. I sell puts on stocks I want to own at prices I would be ecstatic to buy them for. This means that I make a little less, but the risk is very low.

"When I stick to 'blue chips' my win rate is in the high 90s (%). I've begun to think I should sell all my stocks and just hold cash and sell puts.

"When a big down-draft comes, I see opportunity instead of worrying about losing money. I sell puts at even lower prices, knowing that my chances of making money increase. I held some RIG puts when the BP well blew out in the Gulf. I just kept selling at lower and lower strike prices, as I felt (correctly) that they would be fine in the long run. They all expired worthless and I made quite a bundle.

"I recently sold some puts when Japan's troubles dropped the market. Most of the stocks had little if any to worry about from Japan. I did already have some Cameco puts, however, and added more. The new ones are already showing nice profits.

"The toughest part of selling puts is keeping track of all the transactions for tax purposes. I may have to break down and hire an accountant. One should keep in mind, however, that this strategy is not good for major down markets until the late stages, and one should always stick with quality companies that are likely to survive almost anything, and buy at very low strike prices to reduce risk. Keep a fair amount of cash in case some of the puts are actually exercised." – Paid-up subscriber Chuck M

 "I read with interest your February 25, 2011 S&A Digest. It will eliminate much of my frustration in trying to figure out how your various publications can be used for comprehensive portfolio management. To date, I have only applied superficial effort to your service, but that is about to change.

"Missing from your allocation suggestions, is how and where to park the rather large allocation to cash. At the suggestion of my precious metals broker yesterday, I am going to read about Rydex offerings of currency funds. He converts all excess U.S. dollars into these funds as soon as he pays his bills. He uses Swiss Franc, Australian Dollar, Canadian dollar, and one other (?).

"I have also heard of Merck Hard Assets funds. I feel very unqualified to make these decisions for my families, but feel compelled to escape the dollar by the end of the day. I have been reading that 'like the sword of Damacles' the currency crisis could fall on us at any moment. Can you help me make a good decision today for our HUGE cash position? Have you written about this in the past?" – Paid-up subscriber Ruth

Ferris comment: I can't give you personalized advice about which currencies you should invest in.

Speaking for myself, I don't think of cash that way. I only leave as much in any of them as I need to cover expenses in whatever country I'm in. The rest goes into silver and gold. I don't view any currency as an investment. To me, they're all just necessary evils.

For investment purposes, I view cash as a residual from selling expensive assets and waiting to replace them with suitably cheap ones. I leave cash in cash. In fact, I have to call my broker every several months and tell him to stop sweeping it into money market funds, which can and do decrease in value, as we found out in 2008.

 "Today's digest refers to one of your holdings as a premiere, waterfront home on Miami Beach. I have been looking at Real Estate on Miami Beach, specifically South Beach, for the last year and a half. I have not yet pulled the trigger. I have considered everything from a condo at Continuum South (because it is perceived to be "the best") and Portofino Tower (where I came closest to pulling the trigger on a value basis) and South Point Tower (almost 'quaint' by modern South Beach standards) to small multifamily.

"I know you cannot give advice, and I know you don't want to venture too far across the line between publisher and 'reader/customer.' Is there some way you can provide your readers (or at least this alliance member) with some benefit from your personal 'South Florida Real Estate Experience.' Surely you spent time climbing the learning curve, and surely you learned things your readers could benefit from." – Paid-up subscriber MM

Porter comment: I've followed the South Beach market closely since 2000 when I first began living there.

I've had leases on condos – at the Continuum and the Floridian – and I've rented private, waterfront homes. I'm no fan of the condos – mostly because I usually need space for four to six adults (I entertain almost constantly when I'm in there), and because I have young children, who need a private yard and pool.

In 2006, I predicted to my friends there that condos on the beach would eventually go for as little as $250 per square foot. They said I was nuts. That's about where prices got down to – with the highest-quality condos going for around twice as much.

I think the market bottomed at some point over the last year. Just in the last two or three months, the best locations have enjoyed a flurry of all-cash buying. Prices, in my view, have definitely begun to rise.

As for myself, I ended up buying one of the largest waterfront lot properties in South Beach, featuring a dock, boatlift, and convenient beach access for a little more than $500 per square foot. This is a 5,000-square-foot place, with guesthouse, total privacy, security, several carports, garage, etc.

If I decide to rent, I could easily clear $25,000 per month, or $10,000 per week. And it last sold in 2006 for almost twice what I paid. I believe in five or 10 years it will be appraised at more than $5 million.

Regards,

Sean Goldsmith, Porter Stansberry, and Dan Ferris

Baltimore, Maryland and Medford, Oregon

March 22, 2011