Ferris comment: I'm going to be on the road in northwest Florida, driving up and down the highway looking at St. Joe's property and the surrounding area. I'll take my laptop, but I can't be sure I'll find wi-fi, or that it won't be slow as hell (as it is here where I'm staying). I'm driving on Route 30-A, a well-known scenic drive along the Gulf Coast.
It's pretty deserted down here. I'm staying on the 16th floor in a $130-a-night oceanfront, two-bedroom condo as big as my old house. Fewer than 20 cars are parked in the garage. So far, everybody I meet seems to have an opinion on St. Joe. The lady at the Avis counter likes St. Joe's prospects because she says her business has tripled since Avis moved from the old airport location to the new one.
The woman seated next to me on the plane said she thinks St. Joe is going bankrupt... even though it has little debt and plenty of cash on the balance sheet. I asked if she knew why it needs 140 employees when the business has come to a grinding halt. She says maybe the company is not firing people because everybody knows everybody down here and you'd be firing family and friends.
Steve Sjuggerud is trying to speak with St. Joe management (I tried and failed). He's using his extensive timber industry contacts to help us learn more. I came down here to see for myself if it's really true that St. Joe has, as Greenlight Capital's David Einhorn put it, "sold all the good stuff." Einhorn is referring to entitled coastal property. "Entitling" land means getting all the permits and paperwork through the government to put it to a new use – like turning agricultural land to residential. His model assumes St. Joe will never entitle more than 41,000 acres. He could be right. On the other hand, one guy I talked to yesterday has a house down here near St. Joe's land. He says he's owned several properties of various types in the area, and "St. Joe is great at entitling land."
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While thunderstorms kept us grounded at the Atlanta airport for six hours yesterday, I met a guy from EnCana who said the big Canadian natural gas company has more reserves off its balance sheet than on it. That means it has natural gas in the ground it can't call reserves because it hasn't drilled the property enough to classify it as such. He said EnCana is going to start partnering with others to develop those assets.
He also said EnCana spun off Cenovus, the oil company, because the financial world didn't know how to value the two pieces (oil on one side, natural gas on the other) while they were under one roof. Everybody thought EnCana would be the more exciting opportunity because of its huge natural gas reserves. But Cenovus produces oil and uses natural gas. So with oil prices firm and natural gas prices weak, it's in a sweet spot.
EnCana is way up in the Extreme Value portfolio. If you combine the value of Cenovus at the time of spinoff with EnCana today, Extreme Value readers have made about 200% (more if you use Cenovus' current price). Once natural gas prices start to rise again, EnCana's share price is going to move. Meantime, if you've taken our advice, your combined quarterly dividend has risen about eightfold. And instead of owning just one company's shares, you now own shares in two well-run Canadian energy stocks.
Now, I'll turn the rest of today's Digest over to Goldsmith...
Our customer service team has been receiving a lot of calls regarding the retirement conference we're hosting next year. We still don't have a firm date, but we're shooting for early February. Also, we were going to host the conference in New York, but no nice hotels could accommodate us. We will now have the conference in Miami. If you've expressed interest in this conference, rest assured, we will contact you when everything is ready. This product has already generated enormous interest. If you haven't contacted us yet, please send an e-mail to feedback@stansberryresearch.com with the subject line "RETIREMENT CONFERENCE."
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Be sure to check out Brian Hunt's Market Notes in this morning's DailyWealth. Brian discusses the mania in "rare-earth elements." These metals are key components in car batteries, high-end electronics, and wind turbines. And China produces 95% of the world's supply. These stocks have soared recently. Take a look at this chart of the exploration company Rare Element Resources (REE)...
"Like all manias, this one will end badly... with ridiculous valuations, awesome marketing hype, and massive share declines. If you're in this move, don't forget your stop losses," Brian warns readers.
As if on cue, last night a representative from fund management firm Van Eck Global told CNBC his company is launching a brand new ETF... a rare-earth element fund. We've written about the "ETF indicator" many times before. Simply put, if a company creates an ETF dedicated to a hot, new trend, you can bet disaster is near. Read our essays on the topic here and here.
In fact, after Rare Element Resources broke out to a new high this morning (up around 6%), it suddenly reversed course and fell more than 10%. This could be the end of the rare-earth rally...
And while no one launched a "stupid shoe" ETF, we still saw a top forming in Skechers back in June.
A $100 pair of shoes is supposed to tone your butt and help you lose weight?! It sounds ridiculous. But no one ever went broke underestimating the intelligence of the American people, nor their desire for a no-exercise/no-diet weight-loss plan. So Skechers and Adidas-owned Reebok have turned so-called "toning shoes" into a nearly $1-billion-a-year business. Skechers' toning shoes, known as Shape Ups, helped the company triple its market share in U.S. women's athletic shoes this year to 17%, or $225.7 million. – Sean Goldsmith, June 24, S&A Digest
Skechers' stock had soared after a huge success with toning shoes. Toning shoes sales in the U.S. grew from $17 million a year in 2008 to nearly $1 billion today. Adidas CEO Herbert Hainer said the huge growth of toning shoes "eclipses everything I have witnessed in the industry over the last 25 years." But with the success came an inflated stock price and unrealistic future expectations. Yesterday, Skechers announced toning shoe sales were slowing. The stock got slaughtered... Skechers shares fell more than 18% today. We missed calling the top by three days...
New highs: AuEx Ventures (XAU.TO), CARBO Ceramics (CRR), DirecTV (DTV), Penn Virginia Resources (PVR).
More Buffett gossip. And don't miss Porter's response on the estate tax in today's mailbag... What are you thoughts on the subject? feedback@stansberryresearch.com.
"The fact that Warren Buffett would sit and do an interview with Jay Z in Forbes and pose with this goon for the cover proves that he is out of touch and a hypocrite. Can you imagine Buffett sitiing down with this thug. Only in OBAMARICA. Oh by the way they both made their fortunes by stepping on the little guy." – Anonymous
"You were correct about Buffett, the guy is a scumbag. He trys to come across as some old likeable grandfather type. But in his puny heart he is a merciless shark. he touts all these big government programs, especially the bailouts (he bought Bank America and several others). He sells insurance and takes in todays higher value dollars and pay out later deflated dollars. He spouts this total hypocritical bull about his secretary paying a higher tax rate than him, why I dont see him voluntarily paying more in taxes.
"His buddy Charlie Munger is an even bigger scumbag, he gave money to help get abortion legalized in this country in 1973. The blood of millions of murdered children is on his hands. Thanks for telling it like it is. I really look forward to your e-mails every day." – Paid-up subscriber Bob Wheller
"Duh. Why should you pass your wealth onto your family, which has done nothing? It's a statement you make which is an opinion. I don't agree. Some % over 2 Million is returning to the economy you got it from. This is called benefitting the whole instead of your heirs. Obviously 'The richer get richer is your motto.'" – Paid-up subscriber Curt Whitney
Porter comment: So... lemme get this straight... You think when I die (hopefully years from now) the country as a whole would be better off with me leaving my estate (which will hopefully be worth hundreds of millions of dollars) to the U.S. government, rather than allowing me to distribute it as I see fit – mostly to my children, who most likely will be well-educated, experienced businessmen? Are you serious?
Regards,
Sean Goldsmith, Dan Ferris, and Porter Stansberry
Baltimore, Maryland and Panama City Beach, Florida
October 28, 2010