Unemployment is up...

Unemployment is up... Two-time flukes... PPI up (some more)... United States of Goldman... Cisco flips out... Bigger dividends ahead... JNJ vs. RUT... Doody: 'Gold is not a bubble'...

 Applications for unemployment benefits rose 27,000 to hit 412,000 the week ending April 9. Jobless claims normally increase at the end of a quarter, but these numbers were larger than usual and – according to the Wall Street Journal and Financial Times – larger than expected. Economists expected an increase of 3,000.

One economist even called the rise in unemployment "a one-time fluke." It's a funny thing about one-time flukes... They seem to travel in pairs (and sometimes packs). Quantitative easing was a one-time fluke until the Fed announced QE2 last November. The income tax was supposed to be a one-time fluke when it was instituted in 1861, during the Civil War. It returned in 1913 and grew into a whale.

Maybe the real one-time fluke is the freedom to go about your business unmolested by busybodies and crybabies. I haven't seen the fluke of freedom in my lifetime.

 Rising prices are no fluke... The Producer Price Index (PPI) for finished goods rose 0.7% in March. That follows a 1.6% increase in February and a 0.8% increase in January. A 2.6% increase in "finished energy goods" accounted for 90% of the PPI's March increase.

 Sen. Carl Levin, the Michigan Democrat who led the investigation into Wall Street's 2008 meltdown, yesterday accused Goldman Sachs of misleading its clients and Congress about the firm's bets on securities tied to the housing market. In releasing the findings of a two-year inquiry, Levin said he wants the Securities and Exchange Commission (SEC) and the Justice Department to investigate whether Goldman broke the law by selling collateralized debt obligations to clients, without disclosing the firm would gain if they decreased in value.

 Editor in chief Brian Hunt notes many high-ranking government posts were (and still are) staffed by former Goldman Sachs employees. By saying "Goldman screwed you," the government is more appropriately saying, "We screwed you." That's why we referred to Goldman on Tuesday as "the for-profit arm of the U.S. government." Goldman will pay little for its transgressions, and it'll live to fleece us all for years to come.

Many of the architects of our current malaise worked at Goldman first. Republican President George Bush appointed former Goldman CEO Hank Paulson as Treasury secretary. His predecessor at the Treasury Department, Robert Rubin, was a former vice chairman of Goldman Sachs and received his nomination from Democratic President Bill Clinton. And Barack Obama's National Economic Council Director? Former Goldman man Larry Summers.

It reminds us of a joke from the late, great Bill Hicks:

 Earlier this week, Cisco announced it would shutter its Flip video division. If you're not familiar, Flip produces easy-to-use, handheld devices with one function – shooting video. Cisco bought Flip for $590 million in 2009 to expand its expertise in home-video networking. But Flip only posted $325 million in revenue last year (less than 1% of total sales). This is a classic case of "deworsification." Cisco was so successful in its core business that it built up around $35 billion of cash by 2009. At the same time, lower-price competitors were eating its margins.

So instead of deploying that cash to improve its core business, Cisco sought out acquisitions... dumb ones at that. Instead, the company should have focused its efforts on networking to handle the Internet's video boom. Here's what I wrote in my February 2011 Extreme Value…

Cisco is recognizing past mistakes and eliminating bad businesses. It's still the market leader in routers and switches, the devices that keep the Internet connected... And now it's paying a quarterly dividend.

I'll continue updating Extreme Value subscribers on Cisco this Monday, as usual. This Monday's update will include an extended bit of reader feedback from someone familiar with Cisco and one of its new competitors. To learn more about Extreme Value and gain access to my research on Cisco, click here.

 It's good news when a great business initiates a dividend. Paying a dividend keeps a corporation disciplined and focused within its circle of competence. Raising the dividend annually signals to shareholders that management sees the business continuing to perform well.

It's widely believed companies grow faster by retaining earnings. In other words, earnings grow slower the more you pay out in dividends. At least one study shows this isn't necessarily true. As the study shows, companies that pay out more of their earnings in dividends grow faster than those that don't pay dividends.

 Speaking of great dividend payers, Johnson & Johnson reports earnings next week. The company has raised its dividend every year for 48 years and has grown its distribution nearly 12% per year for the last 10 years. It's one of few triple-A-rated firms on Earth (and the rating actually means something this time). It could pay down all its debt and still have $5 billion in cash left over. It's the No. 1 medical-device company in the world. It gets 70% of its sales from products No. 1 or No. 2 in their markets.

And yet, the stock price languishes, due in part to a recent spate of product recalls. Is this the end for Johnson & Johnson? That's what Mr. Market seems to think, with the stock at 12.5 times earnings. The Russell 2000 trades around 20 times earnings and yields 1%. But Johnson & Johnson sells for less than the overall market and yields 3.6%, a yield that grows every year.

My job is so much easier when high-quality businesses are out of style. I have more time for all kinds of things – dinners with my wife... playing the guitar... reading good books... It all becomes much more enjoyable when the Ciscos and Johnson & Johnsons of the world go on sale.

 My job is twice as easy when nothing but World Dominator stocks trade at attractive prices. Most stocks are overvalued. Most bonds are unattractively priced. Junk bonds are yielding single-digits.

All we can say with great conviction right now, aside from how attractive a few World Dominating businesses are, is that you ought to hold plenty of cash. Cash doesn't earn much yield, but the tiniest yield still beats the losses you'll see if you overpay for stocks, bonds, and other financial assets.

Right now, most financial assets are priced as speculations on the Fed's ability to keep their valuations propped up. Holding cash is a bet against those valuations. And by holding gold and silver, you're betting the U.S. dollar has been debased more than is widely recognized.

By all appearances, gold and silver are starting to go mainstream, garnering commentary from CNBC talking heads (or maybe they're talking out the other end?). But gold is nowhere near a bubble today. As our friend and gold investing expert John Doody explains in today's DailyWealth…

 New 52-week highs (as of 4/13/11): Sprott Resource Lending (SILU) and Hershey (HSY).

 I won't be able to see the premier of Atlas Shrugged at movie theatres around the country tomorrow. It's not playing anywhere within reasonable driving distance. So I'd love to hear from anyone who gets a chance to see it. Let us know if you liked it, hated it, or were bored by it at feedback@stansberryresearch.com.

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"I know people have to have something to complain about. The quality of research available from Stansberry and Associates SHOULD NOT BE ON THE COMPLAINT LIST! Complain about the gub'mint! They're taxing you to the point of starvation, not Porter.

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 "The question was asked whether I have received my money's worth from Stansberry's publications. I have attached my investment performance as downloaded from my broker's Website for you review. While some of the accounts are more recent than others, you can see the performance of each one while it has been actively managed by me using techniques and research developed and obtained during my association with your company. I think my Alliance membership goes back to 2006, or so; but, my subscription to your research goes back to the days of Pirate Investor, I believe late 2000 was when I started my subscription (maybe early 2001).

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Regards,

Dan Ferris and Sean Goldsmith

Medford, Oregon and Baltimore, Maryland

April 14, 2011