Japan: Worse than Three Mile Island?

 France's nuclear safety authority says the Japanese nuclear accident should be classified as a "six" on the International Nuclear Event Scale, which tops out at "seven." The Chernobyl nuclear accident was a "seven," Three Mile Island was a "five."

The Japanese haven't responded to the French comments. On Sunday, the Japanese nuclear regulators called the event a "four."

Lots of rumors and uncertainty surround the situation... The last I heard, the spent fuel rods were in danger of melting down. That'd be really bad. If it happened, it could ignite, shooting large amounts of radioactive material into the atmosphere... On the other hand, I just saw a message scrolling across the bottom of the screen on Bloomberg TV that said the International Atomic Energy Agency (IAEA) claims the situation has stabilized... But the IAEA's website only confirms Japanese helicopters dumped water into the reactors yesterday... Meanwhile, another scrolling message said Tokyo Electric Power expects to get electricity to the plant today. That'll allow them to power up the generators they need to cool down all the radioactive material.

 Cameco, the world's biggest uranium miner, is down 5% today. Cameco (CCJ)  said the crisis won't hurt its earnings much.

The Japan Equity Fund (JEQ) got whacked earlier this week, hitting a low of $5.35 Tuesday, about 14% below Friday's close of $6.24. Today, it's up about 4.5%. That makes sense to me. The Japanese will get through this and come out the other side looking better than they do today. The government is way too deep in debt, but the people are financially conservative, some of the world's most prodigious savers.

That's not to say Japan doesn't have a huge job ahead of it. 3M estimates the Japan repair bill is around $150 billion.

 Most large companies have grown in part by how well they manipulate the legal and regulatory system to their advantage.

Case in point: Amazon's brick-and-mortar competitors – Wal-Mart, Target, Sears, and Best Buy – have joined in a campaign to force Amazon to collect sales taxes – even though the law doesn't presently require it to collect sales taxes in states where it doesn't have a physical presence. Amazon has people and buildings in Washington, New York, Kansas, Kentucky, and North Dakota. It collects sales tax on sales to customers in those states.

In other words, the big retailers are using their power to try to change the law for the obvious purpose of making life more difficult for one of their top competitors.

Usually, we associate attempts to capitalize on a crisis with increased government power. But this is a clear attempt by the big box stores to use nationwide state budget crises to get backing for an all-out attack on Amazon.

Too much of the time, our system isn't free enterprise so much as BIG Enterprise, with big business using big government to make life more expensive. I can't change it, but I can certainly learn to extract some profit from it.

I have to wonder, too, how Sears Holdings Chairman Eddie Lampert squares this assault on Amazon with his professed free market principles. A few years ago, Lampert was telling everyone to read F.A. Hayek, who advocated laissez-faire ideas. I doubt he'd have much use for Lampert and his cohorts' attempt to seize control of the legal system for their own gain.

 I've made the case before that companies like Wal-Mart, Microsoft, Intel, and other "World Dominators" don't have nearly as much regulatory risk as they do an enormous regulatory advantage. Intel was sued by the European Union and lost. It had to pay $1.25 billion in fines. It was forced to share technology with AMD, its biggest and whiniest competitor.

And still it doesn't matter. Intel is still in charge of the global semiconductor industry. It still gushes billions in free cash flow ($11.5 billion last year). Its dividend has been growing at more than 20% a year for almost a decade. Its profit margins remain consistently thick, with gross margins in excess of 50% and net margins just over 26% last year. That $1.25 billion fine didn't even take a month and a half to earn back last year.

If you want to find out how I'm keeping my readers' money safely compounding while uranium and other natural resources stocks take it on the chin, click here... You'll get access to Extreme Value and our World Dominator list.

 At S&A, we've covered World Dominating businesses better than anyone. Another story we've covered better than anyone is Matt Badiali's work on InterOil...

In January 2010, Matt Badiali recommended oil and gas producer InterOil to his S&A Resource Report readers. I don't think we've ever recommended a more controversial stock. InterOil operates in Papua New Guinea. And it controls what could be one of the world's largest oil and gas reserves. InterOil had serious money behind it, including investments from billionaires George Soros and Carlo Civelli. Even Japanese investment bank Mitsui took a stake in the company (Japanese banks are notoriously conservative).

But people have doubts about the company... When we recommended the stock, 5% of the outstanding shares were sold short. And Barry Minkow, founder of the Fraud Discovery Institute, was leading an outspoken crusade against the company. He even started a website to promote his view (the website has since been taken down... more on that in a bit). The short sellers believed InterOil was a fraud... and it didn't have any oil. Matt acknowledged the possibility in his report:

 We didn't recommend InterOil without performing an exhaustive amount of research. We sent Matt and Cactus Schroeder, a 30-year veteran oilman, to Papua New Guinea to view the company and its reserves firsthand. Matt met with every InterOil executive, walked the company's reserves, and spoke with other analysts in PNG researching the company. Cactus summed up their findings, calling InterOil's Antelope well test "the most impressive display of early treasure that I have seen in my 30 years of oilfield experience."

 We sent two natural resource veterans halfway around the world to research this stock. (We even met Carlo Civelli – the company's largest shareholder – for dinner in Zurich.) We had conviction. The short sellers, on the other hand, were rallying behind Barry Minkow.

Minkow, as you may know, went to prison in the 1980s. His publicly traded carpet cleaning company, ZZZZ Best, was a Ponzi scheme.

How does running a fraudulent carpet company qualify Minkow as a natural resource expert? We don't know. Minkow often pointed to the many bullish press releases InterOil sent out, bragging about its reserves. Since Minkow didn't know anything about natural resources stocks, he didn't know all budding natural resource companies bury investors with press releases... They're trying to generate interest in the company. It's standard operating procedure, not a sign of fraud. Minkow claimed the company didn't have resources in the ground – the ultimate resource fraud. Minkow said:

Badiali refuted Minkow's claim in his report:

We knew the company had resources in the ground. We were in PNG. And we saw them:

 Why are we revisiting our InterOil investment today? Yesterday, news came out that Barry Minkow, the company's No. 1 short seller, is going to jail... again. Minkow is pleading guilty to criminal insider trading for actions that damaged the stock price of Lennar, one of the country's largest homebuilders, two years ago. The public didn't know anything about this trial until yesterday, when Minkow's San Diego church (Minkow found God after leaving prison and became a pastor) issued a statement saying, "Today Barry resigned as our senior pastor as he is no longer qualified to be a pastor."

The irony is rich. We've yet to realize our full potential on InterOil. But the fact that its most outspoken critic is going to prison for stock fraud for a second time certainly adds credibility to our position.

 One of the weaknesses of the mainstream press is that most journalists struggle to understand the intricacies of something like oil and gas reserves... or the differences between an income statement and a balance sheet. If Minkow told them something, they'd accept it as fact.

We never do that... We have lots of sources, but most importantly, we have the expertise to know how much of the information we get is valid. We make sure our subscribers are receiving the best, unbiased information we can provide.

 New 52-week highs (as of 3/16/11): Tejon Ranch (TRC) and Barnes & Noble (short) (BKS).

 Lots of warm fuzzies in the mailbox today. We love that... But it's so much more entertaining when you tell us how awful we are. Really make us regret getting out of bed in the morning here: feedback@stansberryresearch.com.

 "'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?'

"Easy question. I have no money for you to manage. I have been learning what I can about the financial markets for years. I find it challenging and fascinating. I will never give up. I have learned a lot.

"One thing I have gotten good at is separating the scammers from the real deal. The only research I pay for now is Stansberry. I guess I am a big fan of Stansberry. I admire him for fighting against the SEC BS and many other reasons. Some of us do appreciate your efforts to educate us. Keep 'em comin'." – Paid-up subscriber Steve MacLeod

 "I am not a long time user of financial newsletter services, so I don't have too many data points to go by on this matter. But I will add right away that in my opinion, your publications are probably the best value compared to any similar service. The 12% Letter and the S&A Resource Report are literally dirt-cheap and provide tremendous amount of research and very concrete advice. Their track record on investment advice speaks for itself.

"I have never had a portfolio like the one I have now with the 12% letter, in which I can almost forget about it, not look at it for weeks at a time, and I'll know nothing is going terribly wrong, even when the market is getting pounded like it is now. Some of the questions that are posted by readers of this letter are bordering on the moronic, however both Dan (and Tom before) patiently respond to most or all of them (I should know, I've made many of those questions myself).

"So I for one, am extremely glad that you go through the trouble of making this advice available, at such a reasonable price. And if the teasers you do get people coming in, well then so be it. That's your business. The only problem I'm having right now is I don't have enough hours in the day to read all the material. I think I have bitten off more than I can chew.

"I'm subscribed to the 12% Letter (my personal favorite), the S&A Resource Report (a great value and interesting publication), True Income (excellent, just don't have time to act on many of the recommendation), The Retirement Trader (very good), Off The Record (fascinating subjects, panelists and overview advice, I just find it hard to make specific trades with this service) and finally the Grail Trader (just starting with that, the jury is still out). I guess I'm due for a refresher on speed reading.

"So keep it coming Porter & Co. I don't care what it is that keeps you at the grind stone (hey, I just realized I'm as bad as you, it's 2:30 am for Pete's sake!). These are interesting times, times of profound change for America, we are all keeping our antennas tuned." – Paid-up subscriber Pablo Chiaraviglio

 "Over the past 20 years I have lost 40% of my retirement money twice! That is very hard to admit, hard to accept but it is the truth. I was told to put my money in the mutual funds and hold, and they will make a lot of money for me. Well, that has not worked out for me, and although I took some bad advise, I will accept the responsibility. Obviously at my age of 49 I can't afford anymore to lose that anymore.

"Just wanted to let you know. again. I humbling to admit. I am a father of 4 all of whom still live with me and the wife. So we are a little cash poor. I have been a subscriber for about a month and have re-vamped my 401k.

"I want to thank you for your staff diligent efforts especially during these rocky financial times." – Paid-up subscriber Joe

Ferris comment: I'm glad you're happy with our efforts, and I hope you'll remain a subscriber for years to come. It's our privilege to have you on board.

But I really need to point out something to you. Based on your track record, you should definitely shift your thinking about investing...

First, by far, your best hope – everybody's best hope – of getting rich is to be in a business where you can make a lot of money. What are you really good at? What do you love to do? Do more of both and find ways to get paid for doing so, and you won't care what your portfolio is doing on any given day.

Once you've done that... it'll give you the confidence to put some money into a few good stocks at cheap prices and hold onto them long enough to make some of that money back. Remember… you're never too old to leave bad habits behind and turn losing ways into winning ways.

 "I was truly touched by Porter's response to subscriber Arthur on why Porter continues to run his research business. The sense of obligation Porter feels to employees, customers and his fellow countrymen is genuine. But Porter left something out of his response. Pride in his workmanship.

"Porter is built in such a way that he must put out a top product. Just like a master craftsman takes pride in what he builds, Porter strives to put out the best investment advice possible. He will do this until he gets old and his energy fades.

"What should impress anyone who pays attention is the respect Porter gets from older, accomplished veterans of the business. Jeff Clark and Dan Ferris are both very smart and extremely talented, they could work anywhere but choose to be with Stansberry. Doug Casey, Chris Weber and Eduardo Elsztain (all hugely successful investors) hold Porter in high regard. I am sure these men all experience the quality of character that I have sensed in my dealings with Porter.

"So Arthur, count yourself lucky that Stansberry is still driving himself hard and sharing his investment acumen. We are truly blessed to have such a man serving us." – Paid-up subscriber Robert J Lunder

Good investing,

Dan Ferris and Sean Goldsmith

Medford, Oregon and Baltimore, Maryland

March 17, 2011

Japan: Worse than Three Mile Island?... "Big Enterprise"... Update: The InterOil Saga... Your best bet for getting rich...