Market closed
The markets are closed... and for the first time in two weeks, the weather is perfect in Miami. You'll find us on Biscayne Bay this afternoon, trying out the new stand-up paddleboard Sjuggerud sent to us. But before we head out on the water... here's your Digest...
One sector to buy immediately, according to our penny-stock guru Frank Curzio: video games. The Los Angeles Times reports sales of video games, consoles, and accessories fell 8% in 2009 to $19.66 billion. In the past two months, major video-game businesses Game Stop, Take-Two Interactive, and Electronic Arts sharply lowered earnings estimates.
I know it's counterintuitive to think "buy" when you hear this kind of news, but the video-game business has boomed over the last decade, thanks to faster computers, faster Internet connections, and better "peripherals" (devices like handheld controllers and headsets that attach to the main console). These trends are all going to continue. Video games will continue to get more and more of the consumer's entertainment dollar. And that makes the industy's current tough stretch a good chance to buy.
Says our Penny Stock Specialist editor Frank Curzio about the opportunity:
Some analysts believe the recession is to blame for weak game sales. After all, unemployment is greater than 10% and consumers are saving more than they spend these days. But the recession has nothing to do with weak video game sales. It is a lack of big hits. For example, video game megahit Call of Duty: Modern Warfare 2 was released in November. In just three months, sales topped a record $1 billion worldwide. Just like folks will go see huge movies like Avatar, consumers will buy video games – if the content is great.
In the coming months and into 2011, we will see a huge surge in video game content. Almost every publisher has blockbuster games in the pipeline. Also, the three video game companies mentioned above have strong balance sheets and expectations are low following their earnings warning. Buying video game stocks is a great low-risk, high-reward trade right here.
Penny Stock Specialist readers bought Take-Two on a 30% pullback back in December. In less than two months, we're up more than 25%. I see more upside as the latest installment of its Grand Theft Auto franchise will be released within 12 to 18 months. The last time Grand Theft Auto hit the markets, Electronic Arts offered to buy Take-Two for $26 a share. Today, Take-Two is trading at $10. Lots of upside here...
If you're not an S&A Alliance subscriber, you haven't been able to read Frank's work yet. But he is doing a great job. We'll open up the file in about a week. If you like making money trading stocks under $10, you'll love Frank's letter.
New highs: Cohen & Steers REIT & Preferred Income Fund (RNP), Altria (MO), Tejon Ranch (TRC).
Now... one more thing to do before we head out on the water... Many of you wrote to us complaining about our earlier explanation of why Peak Oil is a red herring and irrelevant to the economics of the energy business. So I took another crack it today. Let me know what you think: feedback@stansberryresearch.com.
"[R]egarding the reader Mark who commented on Peak Oil: it seemed to me that he had a rather persuasive argument but you summarily dismissed his logic as drivel yet you provided no rebuttal other than stating that the theory was nonsense, implausible and filled with internal contradictions. And did it in a most dismissive manner, which does not help me understand the truth which may be your point of view or Mark's. So exactly why do you feel 'Peak Oil' is rubbish?" – Paid-up subscriber JJT
Porter comment: Some concepts we simply get tired of explaining in detail because to us the ideas have become like part of the furniture. In the same way you wouldn't explain in detail how to use a chair, when discussing economics, we sometimes forget to explain the interworkings of supply, demand, price, and replacement (human ingenuity).
The germane fact about Peak Oil is: It doesn't matter. We are not going to run out of energy – that's all you need to know. We have already discovered vastly more efficient sources of energy (uranium). Thus, were we to "run out" of oil, we would simply become far more reliant on electricity, generated largely by nuclear power (if not by coal or natural gas). This might happen even if supplies of oil increase, simply because uranium is a better (more dense) source of energy and, in theory at least, ought to provide lower-cost energy.
The prophets of doom are always wrong because they truly don't understand how economics works. Consider the fate of the worrywarts who said we would run out of copper by building telephone wires. It never occurred to them we'd discover a better way to transmit information. Well, of course we did – light waves through pure glass tubes. As recently as the early 1970s, Paul Ehrlich – a tenured professor at Stanford University – was predicting widespread famine by the end of the 1980s in his book Population Bomb. Why people believe this nonsense, I'll never understand. (There hasn't been a famine in modern times that wasn't caused deliberately as a war tactic. And there won't be: We've gotten vastly more efficient at growing crops, thanks to better farming techniques and better seeds.)
Whether or not we will literally run out of oil produced with geophysical tools simply doesn't matter. Assuming people are free to invest in the creation of alternatives, we won't ever run out of energy. That's all that matters. Free markets and the laws of economics provide all that we really need. The supply of everything actually flows from human liberty and free markets. These are the forces that create innovation and technological replacement.
You see, the folks working on better energy sources aren't limited by the physics of geology. More importantly, they aren't hamstrung by the lack of Hubbert's imagination. (Hubbert was the original Peak Oil theorist.) Scientists like Craig Venter have already proven algae can be genetically altered to produce oil from sunlight and salt water. Whether this is commercially viable in the next decade or not remains to be seen. The point is, supplies of oil and other useful forms of energy are not truly a matter of physics. Supplies of useful energy are a matter of economics, where human ingenuity comes into play. That is what is so important about human liberty and free markets.
As long as people are allowed to save, invest, and invent as they choose, the problems of the world will be rendered into what they really are: opportunities.
"Hey Porter, you know I love your work which has made me a lot of money in the past. I have a little issue with your recent short recommendation on TLT. I have tried 6 brokerages after the three I use repeatedly told me that there are no shares available to be borrowed. Nobody has this position available to go short. What am I missing? Is there another way to get into this trade? I absolutely cannot short those shares, anywhere. And I do agree with it being a great trade." – Paid-up subscriber Ulf Rohde
Porter comment: There's an exchange-traded fund (ETF) that does this trade for you on a non-leveraged basis. If your broker can't short TLT, just buy the ProShares Short Barclays Capital 20+ Year U.S. Treasury Index Fund (TBF).
"When I was offered the Private Wealth Alliance for $650/yr I had to read it more than once to believe it. Then I had to consider if Porter had lost his mind. But insane or feeble-minded, it's still the greatest deal I've ever seen for investment advisories. While I do feel a little guilty for taking advantage of his disabilities and hope he recovers sooner rather than later, I can't be the stupid idiot here and not do what he wants me to do." – Paid-up subscriber R Davis
Porter comment: The value we're offering is actually a little ridiculous. We probably shouldn't sell this package for less than $1,000. If you'd like to take advantage of the deal R. Davis is talking about, click here.
Regards,
Porter Stansberry
Miami Beach, Florida
January 18, 2010