Intel sales are up 28%...

Intel sales are up 28%... Abbott splits in two… The last laugh… 'Porter's GCI short… Cohen's comeuppance… Wynn: Gov't basher… The American Dream wrecked… Hunt's reply: Why write newsletters?...

 On Tuesday, Intel said its third-quarter sales jumped 28%, to an all-time high of $14.2 billion. The stock is up more than 60% for Extreme Value readers who took our advice and bought it near the bottom of the financial crisis in 2009.

Gloom-and-doomers like to look at falling PC demand as proof the world is going to hell in a hand basket. But Intel's revenue from PC makers grew 22% over the same quarter one year ago.

Intel is now projecting 8%-10% growth in PC units shipped this year. Since its chips run about 80% of the world's computers, Intel could see double-digit sales growth for the whole year versus last year. Intel expects sales of $14.2 billion-$15.2 billion in the fourth quarter.

Longtime readers of The 12% Letter will recognize Intel as one of our World Dominating Dividend Grower (WDDG) stocks. Extreme Value readers who bought the stock in 2009 paid around $15 a share. Today, it's around $23 a share and has paid out $1.62 in dividends over the past two years.

But here's the thing… Extreme Value subscribers who bought in 2009 took on very little risk. Would you have taken on more risk buying "risk-free" Treasury securities or Intel shares during the financial crisis?

The U.S. government has a terrible balance sheet, one of the worst in the world (except for most of the others…). Intel has maintained a financial fortress balance sheet, with more cash than debt.

If safety is what you seek, you should sell Treasurys and buy WDDGs – like Intel – which I've been recommending for the last few years. The WDDGs are in far superior financial condition to the Treasury.

 Remember to think about what business you're getting into with your investments… The government renders few truly critical services. It's mostly a giant boondoggle in which everyone tries to live off everyone else. We don't need departments of Agriculture, Commerce, Energy, Education, or Homeland Security… or hundreds of other government departments and agencies. They destroy wealth and lower our standard of living, not raise it.

But the world needs its computers. It needs Intel.

Also, Treasury coupons don't grow the way WDDG dividends grow. And you're probably going to pay a much higher tax rate on your 2% 10-year Treasury coupon than you will on your 3% Intel dividend.

Treasurys are a terrible deal today. WDDGs are the best deal in the world. This is an easy decision.

Next week, I'm adding another WDDG to the 12% Letter portfolio. To get access my new pick – and the complete list of our WDDG holdings – click here. 

 Yet another World Dominating Dividend Grower is in the news. (And as usual with these stocks, the news is good…)

Abbott Labs is splitting into two separate companies. Its pharmaceutical division has grown so much, it makes sense to separate it from the nutritional products business. The pharma division's No. 1 drug is Humira, which treats rheumatoid arthritis, among other conditions. Humira's patent is good until 2016, so it doesn't face the patent-cliff issue other drug companies are facing today. 

When Abbott announced the split yesterday, the stock rose by a few percent on five times the previous day's trading volume. The frenzy of buying is understandable. Spinoffs of great businesses often make excellent investments, because they give the world more information about a great business. Before the spinoff, the business was tucked into a larger company.

 A few years ago, I used the term "World Dominator" in a meeting with the folks who market our newsletters. A chuckle went around the table, indicating how quaint and useless the idea was for marketing purposes.

The best investment ideas are rarely the sexy stories that turn heads. But eventually, the world beats a path to the superior idea's door. That's what is happening with World Dominating Dividend Growers – companies that are No. 1 in their industry worldwide. They've been the cheapest, safest, and best equity investments for the last several years with few exceptions (like the March 2009 bottom, when riskier stocks got dirt-cheap).

Earlier this week at the Value Investing Congress, several of the speakers recommended big, safe, blue-chip stocks… several of which appear on my list of World Dominating Dividend Growers. I believe this is the No. 1 investment idea in global equity markets right now. I strongly urge you to buy the World Dominators – the kind I focus on exclusively in Extreme Value and The 12% Letter.

 In his March 2010 newsletter, Porter referred to newspaper publishing as "the most obsolete industry in America." And he recommended selling short shares of USA Today publisher Gannett (GCI). (He first recommended shorting shares in October 2008).

In that issue, he wrote…

As you can see, it's been a profitable short…

But it's not played out yet. The company is still in steady decline. Earlier this week, the company announced third-quarter results. Earnings fell to $99.8 million from $101 million. And revenue fell almost 4% to $1.27 billion from $1.31 billion. Revenue from publishing and broadcasting fell 5% and 6%, respectively. The only positive was the company's online division, which includes all newspaper websites and CareerBuilder, which posted a 10% gain in revenue to $272.6 million – a mere 21% of total revenue.

 For years, we've privately questioned the practices of Steve Cohen, the billionaire founder of hedge fund SAC Capital. He's famously secretive – granting only a handful of interviews in his decades-long career. And rumors abound that his fund regularly pressures sell-side analysts to provide it with new information before everyone else – giving SAC a trading advantage. The $14 billion fund is responsible for 3% of the New York Stock Exchange trading volume on any given day, so sell-side firms want the business.

 As it turns out, we weren't the only ones suspicious of SAC's trading activities. This June, the Securities & Exchange Commission (SEC) launched an insider trading investigation into SAC, regarding the $15 billion takeover of biotech firm MedImmune in 2007.

And today, the Wall Street Journal reports the SEC is also investigating SAC regarding Johnson & Johnson's 2009 takeover of Cougar Biotechnology. At the end of 2008, SAC owned 7,800 Cougar shares. By March 31, 2009, the fund owned 632,291 shares. Johnson & Johnson announced the Cougar takeover on May 21, 2009. The SEC is investing shares purchased by SAC's CR Intrinsic unit. The trades produced around $2.5 million in gains for the firm.

 Some people don't realize this, but Steve Wynn – the billionaire founder of Wynn Resorts – is one of the most outspoken, antigovernment executives in America. It seems he bashes the government every chance he gets – be it a TV interview, official statement, or company conference call.

On his recent conference call for Wynn Resorts, Steve discussed the Occupy Wall Street movement, saying the disjointed group's fears are "endemic in the United States." Then he turns to a full-blown government attack…

We couldn't have said it better ourselves…

  "If you're so smart, why are you writing a newsletter?

We get this question all the time… And if you've ever been tempted to write to us (or any other financial newsletter writer) and ask it… make sure to read an unusual interview S&A editor in chief Brian Hunt just conducted with our daily insight and news aggregator, The Daily Crux. You'll probably be surprised Brian's answers… The full interview is posted below.

 In today's mailbag… a subscriber asks Porter if he'll "admit he's wrong" about the European banking crisis… Send your questions to feedback@stansberryresearch.com.

 New 52-week highs (as of 10/20/11): short of First Solar (FSLR), Intel (INTC).

 "Having just returned from Europe I expected the U.S. to be in flames according to the reports seen on CNN europe. Blaming bankers for economic trouble is nothing new. It goes back to at least the 12th century in Europe when Jews were barred from all professions but money lending. The failed empires blamed the jews and a new power was formed.

"Hitler perfected this but now we can no longer blame the Jews. Now it is 'wall street' and the dreaded 'predatory lenders.' History, once again, proves nothing changes." – Paid-up subscriber Jim Reid

 "Your characterization of those receiving Social Security Benefits as being on the government dole is very offensive in that some of us worked for many years (in my case 48 years) and paid into this damn ponzi scheme. I do not consider myself on a dole of any description but simply getting my money back from this forced deal. Shame on you!!" – Paid-up subscriber William H. Sutherland

Porter comment: Well... you are a willing participant in what you know to be a Ponzi scheme that's robbing your grandchildren (perhaps only metaphorically if you don't have any).

How should we label you?

 "Let my compliment you first and foremost for the outstanding work you do every day, week, and month of every year. I'm a happy lifetime member to both the private wealth alliance, and the flex alliance, and very happy and proud of it.

"I just wanted to know if you haven't maybe got ahead of yourselves with this euro-debt crisis thing, cause I happen to have just learned from the Financial Times that less than 100 billion euros are needed to recapitalize europe's banks, so it's not a big deal, we may get some more drama but in the end, they'll cough up the filthy money and all will be fine: the euro, the union, the PIIGS... When this happens, will you admit being wrong all the time? Will Porter admit being wrong?

"I really look forward to your answer, in the meanwhile, have my best regards." –Paid-up subscriber Luca

Porter comment: Ha, ha, ha... Do you have any idea who the major advertisers are for the Financial Times?

Correct answer: The financial sector in Europe.

Of course, the FT will say everything is fine. Just like the Wall Street Journal never mentioned anything about GM going bankrupt until it filed. Why? GM was the single largest newspaper advertiser in the U.S.

You gotta think a bit, my friend.

Good investing,

Dan Ferris and Sean Goldsmith

Medford, Oregon and New York, New York

October 20, 2011

The Daily Crux Sunday Interview

If you're so smart, why are you writing a newsletter?

This week's interview addresses one of the biggest concerns of new investment newsletter readers... and a question even longtime readers have likely wondered from time to time.

To answer this question, we sat down with Brian Hunt, editor in chief of Stansberry & Associates Investment Research. As someone who writes and edits investment advisories – and who is a confessed "newsletter junkie" – he's exceptionally qualified to answer this question.

Whether you've been reading investment advisories for decades or are just learning about the business, this is an interview you won't want to miss.

The Daily Crux: Brian... we're here today to answer one of the most frequent questions asked of the investment advisory business. You claim to have some insight on it.

The question is... "If you're so smart about the financial markets, why are you writing a newsletter?"

Brian Hunt: Stansberry & Associates is one of the world's biggest publishers of investment advisories. So yes, we do get that question a lot. One of my in-laws actually asked me that last month. I think he believes the whole industry is a big scam... But he was too polite to say it.

Many people just can't believe a really smart or wealthy person would want to write an investment advisory.

They think, "Well if this guy is so smart about stocks, why isn't he just trading those ideas and making millions in the market on his own? Why go through the trouble of writing all that stuff?"

I can relate to folks who ask that question. I started reading investment newsletters when I was 20 years old. And that was one of the first reactions I had to the industry. I'd wonder why somebody who had lots of money and knowledge would write a newsletter. Why not just invest and trade, get richer, and keep your ideas to yourself?

Now... after working in the advisory industry for eight years and meeting or working with most of the "gurus" our readers hear about so often, I have some insight on why people do it. And I have some warnings about the industry as well.

Crux: Let's start with the reasons first.

Hunt: A big one for me – and lots of my friends in the business – is that you have a tremendous amount of freedom and independence in the advisory business. It's a wonderfully portable business. With the Internet, you can work pretty much anywhere you please. You can write commentary on your back porch, on the beach, in an office, or in a hotel room.

Many other investment and financial jobs require you to work in one place all the time. For example, back in the day, floor traders had to live in a financial capital like Chicago or New York. A tax specialist may have to work all the time in one small town.

What many advisory writers do is simply pick a spot where they really want to live and go live there. I chose a beautiful little beach town in Florida... emphasis on "chose." I live near one of my best friends, Tom Dyson, who is also a publisher and advisory writer. He chose to live there, too.

One of my other best friends, who also writes an advisory, doesn't really "live" anywhere. He's on the road, traveling a lot. That's what he loves to do. That is pretty cool in my opinion. That's freedom.

And believe me, I know what the other side of the spectrum is like. I grew up on a pig farm. You can't pick up and move a pig farm. And you don't want to travel around with your pigs.

Another piece of freedom is that a successful advisory writer can say whatever he wants. He's not censored. Independent people love that.

Most – but not all – newsletter franchises make money by selling subscriptions... and that's it. An overwhelmingly large portion of their revenue comes from people buying subscriptions. The publishers don't advertise mutual funds or brokers in their pages. They don't collect trading commissions or banking fees.

They let their analysts voice their opinions on the markets, whatever those opinions may be. If lots of readers find value in those opinions or simply enjoy reading the commentary, the publisher has a viable business on his hands. If nobody likes or buys the letter, the publisher has an expensive hobby on his hands.

It's often that cut and dried in the newsletter business. You write what you want and if people want to read it, you've got a career. If they don't want to read it, you're out of luck.

On the other hand, lots of other publications and financial businesses have advertisers to consider. They have banking clients to retain and impress. They need to attract brokerage business. These factors often force the editors and analysts to toe the company line.

For example, maybe a person with a smart financial mind thinks the average mutual fund is a terrible place to park money. Maybe he knows most mutual funds don't even beat market averages. Maybe he knows they often charge investors absurdly high fees while producing poor results. If he works for a publication that receives ad revenue from mutual funds, his publisher is going to tell him to keep his mouth shut. Or if he works for a fund company that sells mutual fund services, he's going to get fired, or quit, because of his beliefs.

Freedom to live wherever you please, and freedom to say and do whatever you please, is a big allure for some people.

On the other hand, some people are perfectly happy working for big, traditional financial firms. In these places, when your boss wants your opinion, he'll give it to you... And if you think a particular product or service your company is selling isn't worth a crap, that's tough. You do what you're told, or you're canned.

Often, working for a big financial firm in New York is more lucrative for analysts and traders than scribbling an advisory on the beach, but some people value the freedom and independence more than the huge money, which is often made by doing things that aren't in the best interests of clients... like when Wall Street analysts were urging people to buy Internet stocks in 1999, while privately referring to those stocks as "pieces of shit." Or when the big Wall Street firms pushed risky mortgage investments onto their clients... when they knew they were ticking time bombs.

Don't get me wrong... Some people in the investment advisory business have a history of selling advice that is popular, but awful, just to make a buck. There are some questionable operators in this industry... people who should be ignored forever.

One of my biggest warnings to advisory readers is to make sure the person you are reading isn't being paid by the companies he is writing about. They are obligated by law to mention if they are in their publication. If you're reading someone who was paid off, throw his letter in the garbage.

But there are lots of honest firms in our business who simply want to produce and sell great, independent commentary and recommendations. That's where the great, honest people go to work. And they often find that writing an advisory is a way to make a fantastic living, by helping more people than you ever could in conventional financial jobs.

Crux: How can you help more people by writing about investments?

Hunt: Steve Sjuggerud's story is a good example of this.

Steve is the smartest person I've ever met. He's done most every job in the investment business... from being a broker, to working for a hedge fund, to running a mutual fund. He could have chosen any career path he wanted and been world class at it.

He chose to write an advisory for several reasons... but one of the biggest is that he truly wants to help as many people as he can. He could be a super-successful broker or money manager, and help 100 or 1,000 people... But with his True Wealth and DailyWealth advisories, he's able to reach out to hundreds of thousands of people.

He's able to write whatever he thinks is the right thing to do. He doesn't toe a company line. He doesn't have to sit in meetings with clients and bosses. He's able to get great financial advice out to a huge number of people.

Steve also loves to teach. He's taught an incredible number of people over the years how to be more successful investors. He has changed many, many lives for the better. He sure has taught me a lot. Most financial jobs don't allow you to do much teaching. It's worth noting that Steve also handpicked where he lives. He loves the freedom as well.

Of course, not every publisher or advisor is as big into helping others as Steve is. Some people in the business just want to make a buck. And they don't give a hoot about helping others. But there are people in this business who genuinely care about helping others become wealthy and financially independent.

Crux: It's also worth pointing out that some people actually like to write about investments and economics.

Hunt: Absolutely. Writing is a painful activity for a lot of people. They see writing anything longer than a text message as a huge hassle.

But many newsletter writers love to write. They love to put their thoughts down on paper or a computer page. They work extremely hard at becoming clear writers. Jeff Clark, who is one of the best traders I've ever met, loves the challenge of writing out his trading ideas.

Doing this forces you to really think out your idea. It forces you to understand what you're writing about. Some people might see the act of writing pages and pages of investment analysis as a headache. But to a lot of advisory writers, it is a pleasure.

There is some ego to this as well. Many people like to go "on record" with their thoughts and forecasts. This is why a lot of books get written.

Crux: Finally, let's address the most pointed version of the question... It goes, "If you're so smart about the markets, why aren't you rich?"

Hunt: My boss Porter Stansberry provided the shortest, best answer to this question once. I think a reader asked it about some of the analysts that work for S&A. Porter replied with, "Who says they're not rich?"

It would be rude to get into names and details. But I can tell you that the best advisory writers are rich. They are great investors. They are great traders. And they do eat their own cooking.

Their publisher may prohibit them from owning shares of a company they write about, but in today's world of ETFs, bonds, preferred stocks, options, futures, large caps, small caps, and mid caps, there are a thousand different ways to trade an idea. For example, if someone is bullish on oil, there are a thousand ways to take a position.

You can make money by both investing in an idea and selling an idea. Selling great ideas can be a high-margin business, because the cost of producing an advisory is low, compared to... producing a car or a refrigerator.

Now, you can't call up a publisher or an analyst and ask to see his bank account, but you can get an idea of his financial situation by the way he writes.

If he only focuses on the rewards of an investment and doesn't address the risks... or if he buys what is popular... or if he doesn't address or analyze the best way to sell a position, chances are good he is not rich. Chances are good he is not a great investor or trader.

Crux: Great points. Any final thoughts?

Hunt: I should just emphasize that the advisory industry is like any other. You've got some brilliant, standup people working in it, and you've got some schmucks and bad characters. I hope this interview will help readers separate the good from the bad... and understand why the good ones absolutely love what they do.

Crux: Sounds good. Thank you, Brian.

Hunt: My pleasure.