The power's out...

Editor's note: The power at our office went out around noon today, so the Digest will be brief.

 Treasury Secretary Timothy Geithner yesterday told a congressional panel Japan could handle the cost of reconstruction and wouldn't have to sell Treasurys. That's rubbish. Ranked by total government debt to GDP, Japan is second only to Zimbabwe at 192%. When people talk about the wealthy Japanese, they are speaking of Japanese citizens. The Japanese government is broke. And it's the second-largest owner of Treasurys in the world.

 Geithner is a conniving bureaucrat. Barton Biggs, on the other hand, is a 40-year market veteran. He was the head of institutional research at Morgan Stanley before leaving to start his own hedge fund, Traxxis Partners. Barton told the Wall Street Journal, "I'm buying Japan right now." He said the panic selling was "a gross overreaction."

And how will Japan rebuild? "They'll sell Treasurys and rebuild, they can finance it because it's a country of savers," Biggs said.

 Steve Sjuggerud is bullish on Japan, too. In today's DailyWealth, he wrote:

 Who wins and who loses from the crisis? Editor in chief Brian Hunt says, let's start with the losers so far.

The U.S. market has sold off, but it's nothing compared to the action in Japanese stocks. Japan's benchmark Nikkei has collapsed in response to the earthquake. Although the market enjoyed a rebound on Tuesday, it fell more than 17% in the trading sessions after the quake to strike a 12-month low.

Contrarians should put this market on the "watch closely" list. After grinding out a bottom, Japan will likely enjoy a big "bad to less bad" rally.

 Another big loser in the Japanese crisis is uranium stocks. Mainstream media outlets are competing with one another to see who can run the most fear-inducing headlines. They can't write "meltdown" or "next Chernobyl" fast enough. After all, those shockers are what get the Web traffic. Concerns over Japan's nuclear plants have clobbered all uranium stocks.

The "ExxonMobil of uranium," Cameco, took a swan dive from the $40 level down to near $32. Many of the smaller companies in this space have lost 33%-50%. It's a washout in the nuclear-fuel business.

Just like Japanese stocks, this massive shakeout should lead to a terrific buying opportunity in uranium stocks. Nuclear power provides about 20% of U.S. electricity... And it factors heavily into China's and India's spectacular future energy demand. What's happening in Japan is terrible, but the world isn't going to suddenly shut down this vital energy source. The world is just too strapped for energy resources to turn its back on nuclear. Solar and wind farms are costly boondoggles that can't even hope to supply power in the massive amounts the world requires. Coal is abundant… and it can produce awesome amounts of electricity, but it's dirty.

 The clear winner in all of this is natural gas. Natural gas-fired electricity is relatively clean. It's dependable. It can provide huge amounts of "always ready" electricity. Natural gas currently has environmental concerns with the waste water produced by new drilling methods, but it's the "least bad" choice from the perspective of most reasonable people. The hippies don't like natural gas. They'd rather see us produce electricity from the flapping of butterfly wings… or simply return to the Stone Age. 

 We're more realistic. That's why Matt Badiali has been recommending some of the world's biggest and cheapest natural gas reserves in his Resource Report. These are world-class stocks with healthy balance sheets. And because their assets are still in the ground, the stocks are super cheap. When the natural gas prices pick up, these stocks will soar. To learn more about the Resource Report, click here…

 New highs (as of 3/15/2011): Tejon Ranch (TRC), Barnes & Noble (short sale) (BKS).

 In today's mailbag, we discuss why we continue to publish newsletters in lieu of investing professionally. Would you pay us fees to manage money or do you simply prefer reading our research? feedback@stansberryresearch.com.

 "I find it hard to believe the ignorance and resentment some of these disgruntled subscribers level at you guys day in and day out. Are they so angry and lost about our current financial trainwreck that they blame you for sending out the message? You know, shoot the messenger if you don't like the message. I guess they have nowhere else to lash out, so you good folks are taking the heat. I truly admire that you continue to try to get the facts and urgent action recommendations out to us in the face of this unrelentless bashing.

"The letter from 'Anonymous' in the March 15 S&A Digest really surprises me in that, I wouldn't think someone of such limited vocabulary and obviously such limited intelligence, would even have the foresight to subscribe to the S&A Digest in the first place. I spend thousands of dollars annually on various investor/financial newsletters and services, and I can say without reservation that your advisories are some of the very best out there. I use the 12% Letter almost exclusively for my Dividend stocks. I use the Resource Report for most of my resource stocks. These two publications are far and away the best of the best in their respective areas. You guys have nothing to hang your heads about and I know that you know that. Guess I'm just trying to say, job well done and keep up the great work for those of us out here who appreciate and value your insights and expertise." – Paid-up subscriber John Citarella

 "First, whatever you do, please don't stop publishing the emails people send you. After a long day, there's nothing better than reading the hate mail you get. I often laugh out loud at some of the moronic things people say. 'Boo hoo – I did what you said and bought X or shorted Y and I lost 2% of my investment… You suck.'Hilarious. It helps me remember that as an average guy, there are plenty of people out there as dumb if not dumber than me.

"I do have a question about your trailing stop suggestion. Specifically, why set a trailing stop at 25%? That strikes me as rather generous; I would have thought you'd recommend something half that, between 10 and 15%. I'd appreciate any thoughts you could share on that." – Paid-up subscriber Paul Martin

Goldsmith comment: Paul, I'd recommend you go back and read the January 28, Digest. We discuss a statistical analysis we performed on the Extreme Value portfolio using trailing stop losses.

 "You asked the letter writer today (monster 1234) how your publication would be funded if you didn't charge the fees you do for your services. Well this brings me to my fundamental question I have about all of these type of investment advice services. If your advice is so great at making money, why don't you just make it and quit bothering to send out all these newsletters? If you really know how to increase your wealth, why do you need money from me?

"And if you want to perform a public service or enjoy the process of teaching and mentoring others, why couldn't you fund it with all the profits you make from the 'guaranteed' advice you dish out to everyone else? When it comes right down to it I pay for services like this because I am hoping that you really can help me do better in the market because I have a full time job that keeps me from doing the kind of research or making the contacts that you can, but there is always a nagging doubt in the back of my mind, 'If these guys know so much about making money, why do they need so much money from me? '

"You asked. Not me exactly, but I felt I had to throw in my two cents. Would appreciate a honest answer to these questions." – Paid-up subscriber Arthur

Porter comment: I'm not in business to bother you or anyone else. If you don't want my letter, I'll happily send your money back. As I always say, if we've disappointed you for any reason, we'd much prefer to part as friends. We've known for many years we can't please everyone, which is why we never bother to hide from our critics.

In regards to your question about why we publish financial research as opposed to merely managing our own accounts... you won't be surprised I get that one a lot.

My answer shouldn't surprise you: Originally, I needed the money. Being a great investor doesn't do you much good unless you're born with a silver spoon in your mouth. I wasn't. I founded this business when I was 26 years old. I had a net worth at the time of about $30,000 – a good deal of which I'd made investing in Amazon. If I wanted to keep this money growing, I had to do something for income. Yes, I suppose I could have joined a hedge fund (many have called over the years), private-equity group, or investment bank… But I'd always worked in research. It was what I knew how to do, so it's what I did.

But that really only answers the question about why I started a research company. The question you asked is a bit different. Why do I continue to work today, given that I could retire and simply manage my own account? That's a good question... Why do people who don't really need to work continue to do so?

It's curious, isn't it? Most successful people continue to work long after there's any real reason to do so. Why do you think Warren Buffett still goes to work? Why does any successful investor continue to manage money for other people? Why does any successful entrepreneur continue working long after he's made enough money to last a lifetime or several lifetimes? Folks who are used to challenging themselves – who are habitually ambitious – usually continue in this way for their entire lives.

Today, I find myself working harder than ever before. (I'm typing this comment at 1 a.m. for Pete's sake!) Why? Well, I feel a huge obligation to continue to reward my business partners, who took a chance on me when I was young and relatively unproven. Then, they stuck with me through a long and expensive legal battle with the SEC. I don't know many people with enough character and fortitude to do the right thing, no matter how painful it becomes, or how unfairly they're treated.

Lately, I've been working longer and harder than ever because I am deeply concerned about the future of the financial markets. I am worried about what might happen to our clients in the event of a real currency crisis… one that would make 2008 look like a walk in the park. Many of our clients have been our customers for 10 years or longer. Like my partners, they've stood with us through good times and bad. I feel an obligation to serve them that's overwhelming at times. Likewise, I have dozens of employees who have been with me now for the majority of their careers. They deserve my best efforts to make our company the best in the world.

I imagine I'll get two reactions from this reply...

Folks who have spent most of their lives building a business (or businesses) will recognize my sentiments.

And folks who haven't will think I'm full of it.

Like I said at the outset, I've long since learned I can't please everyone.

Regards,

Porter Stansberry and Sean Goldsmith

Baltimore, Maryland

March 16, 2011

The power's out… Geithner lies – again… Biggs and Sjuggerud buying Japan… What's sold off the most?... Why you should use trailing stop losses… And why we still publish newsletters…