Two new ideas...

Two new ideas... Digging in for 18% annual returns... Presidential paranoia... Weak governments, strong markets... Frank Curzio is on the road in Texas...

 I returned home last night from the Value Investing Congress in New York earlier this week. It was one of the best I've ever attended, for reasons we covered Tuesday and yesterday. I can hardly wait to sink my teeth into the two stock picks presented at the Congress that seemed most attractive to me.

 Value investing guru and Third Avenue Management founder Marty Whitman says you need to understand three things if you want to be a professional investor: taxes, valuation, and securities law. That boils down to accounting, finance, and law. Aside from the boredom these topics induce in most people, they also represent a lot of heavyweight, difficult material.

But I think the October issue of Extreme Value – due out tomorrow after market close – will show that if you cover your bases and do your homework in these areas, you can find yourself with a terrific low-risk, high-reward opportunity in the market today. I won't say much more than that since the details are for Extreme Value readers only. But I will say the issue sorts out a complex topic... one that could hang up poorly informed investors and maybe prevent them from buying into a high-quality business run by brilliant managers.

 Both the Wall Street Journal and the Financial Times ran headlines about the presidential debate on the front pages of their print versions and websites today. They both agreed Romney was stronger in the debate last night.

The sad truth is... it simply doesn't matter who gets elected. Neither candidate will attempt to shrink the government. No matter what your politics are... a $1 trillion-plus deficit means we literally have more government than we can afford. It's a simple, observable, irrefutable fact. We have too much government.

There is one real answer to the problem, and it's impossible to get elected by proposing it. You must eventually shrink the government, or you'll have a massive crisis on your hands. But try saying that to tens of millions of people who pay zero taxes and get payments of one kind or another from the government. Nobody wants to admit he's part of the problem. Young people in my area freely flaunt their reliance on unemployment and food stamps. It's disgusting. These people will never vote for anyone who has the right answers.

 It sounds dire. Fortunately, it's not serious. Unlike most people (especially libertarians), I don't view government with reverence and awe. Everyone obsesses about the evils of government and cites the dystopia of Ayn Rand's Atlas Shrugged as a likely scenario.

But Atlas Shrugged, besides being way too long, gives government more credit than it deserves. In the novel, politicians successfully crushed the shale energy revolution. Though Rand was a visionary in foreseeing the advent of shale energy production, she didn't realize politicians are powerless to stop the market from working. Even if they outlaw a product, it'll still be available. It'll simply be more expensive due to the added risk of jail time for producers and distributors. It'll still trade on the black market.

If you doubt this, try to name one product outlawed by any government that's not available for sale. Black markets crop up when governments outlaw desired goods and services. Would you really have trouble buying a handgun without a permit, any illegal drug, the services of a prostitute, or any other of a dozen illegal goods and services in the U.S.? Of course not. Government cannot shut down those markets, though it's clear it can change them quite a bit. I doubt the government could stop the shale revolution even if it wanted to...

 We've covered the unstoppable economic juggernaut of the shale revolution from many angles. One of those angles is Frank Curzio's "Eagle Diesel" thesis. Frank – who writes Phase 1 Investor and Small Stock Specialist – has correctly predicted the fast-moving trend toward natural-gas-powered transportation in the U.S., made possible by the huge amounts of low-cost natural gas in shales across the country. Companies like Chesapeake Energy and GE are teaming up to build hundreds of natural gas filling stations for natural-gas-powered vehicles. One of Frank's Eagle Diesel stocks soared 48% in just four months for readers of his Small Stock Specialist service. He's really on to something...

 Today, Frank is digging deeper than ever into the Eagle Diesel idea. He's driving across Texas, getting his hands dirty, working on drilling rig sites, seeing with his own eyes how drilling technologies like hydraulic fracturing ("fracking") have led to skyrocketing domestic oil and gas production... and a dirt-cheap, hyperabundant supply of natural gas in America...

Frank wrote us a quick note this morning...

 A CNBC interview this morning featured a hedge-fund manager saying what Frank and other S&A editors have said many times in many different ways over the past couple years. Wil Vanloh, founder of $6.5 billion Quantum Energy Partners, said the fracking revolution has turned the U.S. into the Saudi Arabia of natural gas (a phrase we've used many times ourselves).

Vanloh says America's natural gas reserves are roughly equivalent in size to Saudi Arabia's oil reserves. He also said we have so much natural gas, we're going to have to export it... a point Porter has made many times. He then discussed the renaissance in manufacturing that's at the core of my "American Industrial Renaissance" thesis.

 New 52-week highs (as of 10/03/2012): Fidelity Select Medical Equipment & Systems Fund (FSMEX), iShares Nasdaq Biotechnology Fund (IBB), ProShares Ultra Health Care Fund (RXL), Sandstorm Gold (SSL.V), Guggenheim China Real Estate (TAO), Vanguard Inflation Protected Securities Fund (VIPSX), Constellation Brands (STZ), Eli Lilly (LLY), IBM (IBM), and CVS Caremark (CVS).

 In today's mailbag... one reader suggests we've rolled over for Fed Chairman Ben Bernanke. Us? We can assure you, the Fed sends no Christmas cards our way. Send your comments to feedback@stansberryresearch.com.

 "I know Bernanke is cracked; however, you seemed impervious to his assertion that Inflation is near 1 or 2%. Bull----. I can tell you that my wife keeps extremely good records on each and every penny that we spend to live and compares prices by oz. at all local stores. Her numbers show that in Central Indiana USA; the inflation is rampant.

"See you guys do not go to the grocery and buy Bread, Butter, Milk, Coffee, Cereal, Beef, Pork, Chicken, and Beans... the truth is those numbers are up 78% in the last 36 months, add in utilities and gasoline and you are around 88%. The other thing at the Store is the price goes up and the container sizes go down.

"Inflation is rampant in the home 'basic' living expenses.

"Keep up the otherwise Great work that all of you at Stansberry do. We do believe in you and follow you excellent advice, just update your inflation numbers." – Paid-up subscriber John Howard

Ferris comment: This may be the first e-mail that ever accused us of providing cover for Ben Bernanke's inflationary practices...

We've consistently advised all subscribers that the U.S. paper-money regime is a hyperinflation crisis in waiting. And we consistently say the government numbers understate inflation. We figure it's closer to 4% or 5%... and we view your experience as nothing but validation of our warnings.

 "I read my S&A Resource Report today as well as the world news. [Editor] Matt Badiali is in Turkey doing his boots-on-the-ground research of gold discoveries and Syria has shelled a Turkish village. Just hoping all is well with Matt and the hope he's not caught up in the middle of Syria's petty show of might." – Paid-up subscriber Erik St. Jean

Ferris comment: Thanks for asking, Erik. We heard from Matt just this morning... He reports he's safe and enjoying an excellent trip. He said he's discovered several enticing opportunities that he's eager to detail for readers when he returns.

 "I love your work! I have been selling puts and love it. It has certainly changed my investing style and my life. So far I am up 40% this year. I am wondering how the put premium is taxed. I am selling in a regular margin account (not IRA). Can you give us some help regarding taxes and if there are any tricks to avoiding them? Thank you so much!" – Paid-up subscriber Justin

Ferris comment: Thanks for your note, Justin. We're glad you're having so much success... We're not tax specialists (and can't give individual advice in any case). Subscribers should always consult tax advisors about these kinds of questions.

I hope everyone has seen the coverage we've given to the investment strategy of put selling... and how Retirement Trader editor Dr. David "Doc" Eifrig uses it to compile big portfolio returns without taking on much risk at all. (If you missed it, you can read our put-selling essays compiled here.)

Regards,

Dan Ferris

Medford, Oregon

October 4, 2012