The people of the United States of America prayed for a political messiah. Now that he has stepped forth, we are left to wonder, what next?

Politics is not really our beat here at the Rude Awakening, so we won’t be offering up any four-legged sacrifices for the promise of financial salvation. In the harsh light of economic reality, miracles are hard to come by, even for those claiming to posses the kind of optimistic foresight that defies rational explanation.

A cursory glance toward the economic horizon reveals some perilous obstacles ahead. As we walk through the valley of 5-year market lows, the shadow of the death of consumer spending looms particularly large. American consumers, upon the backs of whom almost two-thirds of the world’s largest economy rests, cut spending by an annualized 3.1% for the third quarter. For perspective, that marks the first quarterly decline since 1991, as well as the largest quarterly decline in 28 years, according to the U.S. Commerce Department.

Meanwhile, prices of goods and services purchased by US residents jumped 4.8%. That’s on top of a 4.2% increase in the second quarter. Even excluding food and energy, prices were still up by 3.1% in Q3.

As the consumer-driven economy grips the emergency brake and higher prices put the squeeze on employers, jobless rates continue to skyrocket. The Department of Labor is expected to announce the loss of 200,000 jobs for the month of October when it meets on Friday. That would drive unemployment to 6.3%, up 0.2% from September.

Shrugging off all these annoying statistics, however, the market continue to mount a herculean rally. After posting its worst month since 1987, the Dow surged an impressive 300 points Tuesday in anticipation of Obama’s victory, topping off double-digit gains for indexes across the board last week.

Could we be witnessing a miracle in the making here? Is it possible that a new tablet of financial commandments might render the age-old saws of saving and producing nothing more than outdated or even, dare we say, profane?

We wouldn’t dare offend any divine and future superintendent of the financial universe by asserting otherwise…but we reserve the right to remain unconvinced.

In the absence of proof that what goes up need not come down, we will continue to seek our financial guidance from within the “boring” confines of reality. And so, we turn to the inimitable Rude Readership for the results of our latest Group Research Project.

A couple of weeks ago, we asked readers to submit their favorite “chicken longs.” Put simply, we wanted to know what stocks readers would like to have in their portfolio should the heavens open up and curse the earth with a great financial flood. Such stocks might derive their buoyancy by paying a large dividend, enjoying a competitive position in a relatively “high ground” sector or through some other means of protection.

We have no clue as to whether the President Elect will perpetuate the current state of fiscal delusion or merely usher in a winter of slightly milder discontent…but it is probably best to be prepared for either scenario.

Reader “Bradbarb69″ kicks off our newest Rude Awakening Group Research Project with the following cheerful suggestion:

“I like prison stocks. There will never be a shortage of lawbreakers at any level, and governments must maintain prisons for the public good. As crime rises (as it inevitably will) these stocks will be good holdings. I also like [the cemetery operator] Stonemore Partners L.P. (NASDAQ:STON) for its high dividend and for the fact people will always die no matter what the economy does. Personal protection stocks are also on my list of “buy at the right price.” I’m thinking in particular of Smith & Wesson (NASDAQ:SWHC) and Taser International (NASDAQ:TASR).

[Editor's Note: Although Bradbarb69 did not provide any specific names in the prison sector, a couple that come to mind are Geo Group (NYSE:GEO) and Corrections Corp. of America (NYSE:CXW).]”

Reader Tom Winstanley recommends Weir Group, a Scottish company that trades in the U.S. over-the-counter market under the symbol, (PINK:WEIGF).

“This company makes boring old pumps,” Tom explains. “Energy and Water are two areas that simply will not wait upon the recovery of the world economy. Come hell or high water, governments know that if they cannot keep the lights on, provide as much fresh water as their people are used to having available and treat waste water to high standards, then they will be more trouble than they can handle. Pumps might be boring but try getting by without them – whatever the state of the economy!” [Editor's Note: Weir trades for less than eight times estimated earnings and yields 4%].

Reader Susan Vander Voet likes the Brazilian oil giant, Petroleo Brasileiro (NYSE:PBR), also known as Petrobras. The stock was trading around $21 when Susan submitted her email to us. Today, the stock is around $30.

“I’ve been watching this company for about a year,” Susan writes, “and the reasons for my recommendation are:

1. Active and with interests in several Latin American countries (Brazil, Ecuador, Chile, Peru) in exploration, production, distribution and retail;
2. Huge offshore resources discovered in Santos Basin;
3. Active in several African countries (Angola, Tanzania);
4. Stock is trading well below the moving average, which has trended upward for 5 years;
5. As oil prices are projected to recover (in 2009), I see this stock at least doubling its current value ($21).”

Reader David Myrhre identifies Harvest energy Trust (NYSE:HTE), a Canadian investment trust, as his “current fave.” The stock, which was trading below $8.00 when David submitted his email to us, is now north of $11. But even at the current quote, the stock is well below the $18 price tag it fetched in September. What’s more the indicated yield on the stocks is a whopping 27%.

“I’ve heard worries that the dividends will go down because oil prices have gone down,” David explains “But these oil producers sell on annual and multiyear contracts.  Dividends didn’t go up when spot oil prices spiked and they won’t go down just because spot prices did.”

Elsewhere in the Canadian investment trust sector, reader Greg McLean highlights Peyto Energy Trust (PINK:PEYUF), a stock that yields about 14%. Greg also likes Hanfeng Evergreen, “HF” on the Toronto Stock Exchange. “Hanfeng is a small Canadian company that makes slow release rice fertilizer in China,” explains Mr. McLean. “Hanfeng has decent earnings and cash, little debt and is trading close to book. I feel confident betting China will continue to grow rice.”

Another high-yield energy stock is Atlas Pipeline (NYSE:APL), which is a stock that reader Don Gish favors. “My favorite bear market stock is Atlas Pipeline (APL),” Gish writes. “The sudden drop of the energy market and other market sell-off factors have driven APL unrealistically down.  [At the current quote, the stock yields about 20%].  I believe APL’s focus on natural gas pipelines with no exploration/development costs and long term contracts has created an excellent long term dividend with significant potential for future stock price upside.  I love this position, so I have to resist my desire to buy more.”

Lastly, reader Scott Lovinghood writes: “I have a suggestion for a chicken long: Blackrock Municipal Income Closed End Fund (NYSE:BKF).  It is primarily invested in tax free municipal bonds.  At current prices the yield is just a hair under 8% TAX FREE!!  The fund covers many different states and markets.  California is the largest concentration at only 11% of the fund.  The majority are longer dated bonds, so unless municipals are totally wiped out, the monthly pay outs should continue.  The shares were hammered recently due to the credit freeze. The stock’s NAV is $10.15.  But the stock is only $9.20…Not a bad deal.”

And so concludes Part I of our newest Rude Awakening Group Research project.

Source: Chicken Longs

This from Rude Awakening:

History tells us that epic panics create epic buying opportunities. Inconveniently, history does not tell us in advance how long the panics will last or how low stock prices will ultimately fall. Great buying opportunities always present themselves in hindsight. In other words, to quote Henry Ford, “History is bunk.” Financial history, in particular, is bunk.

Therefore, knowing only that we do not know how low prices will fall, we must exercise a measure of caution and prudence. That said, a cheap stock is a cheap stock, even if it is destined to become cheaper. So let’s get a little crazy. Let’s imagine that we are prepared to risk some of our precious capital. Let’s imagine that we are prepared to stare financial peril straight in the face until it buckles under the strain and runs away whimpering. Let’s imagine that we are courageous enough to buy a stock…What stock would we buy?

In the midst of one of the many recent multi-hundred-point selloffs, your editor dialed up an expert on Canadian investment trusts.  “Hey Danny, how’re you holding up?” Your editor started off.

“I’m still answering my phone,” came the reply. “But I can’t say that I’m enjoying myself.”

“Well, you’ve got plenty of company,” your editor empathized. “This is brutal. So what’s the smart money doing?”

“No idea,” Danny joked. “I haven’t seen any smart money around here for several weeks.”

“Okay, so what are YOU doing?” your editor persisted.

“Well, all of my clients are selling, so I’m thinking that I should probably be buying.”

“Are you?”

“A little,” Danny said, “but the problem is that the stocks I follow looked dirt cheap two weeks ago. And now they’re down another 30% or so. It’s unbelievable.”

“What’s causing this carnage?”

“Panic…Pure panic.”

“Understood,” your editor empathized, “but if you were making your first buys today, what would you buy? In other words, if an alien, loaded down with cash, stepped out of his spacecraft and strolled into your office, what would you tell him to buy?”

“Almost anything,” came the reply. “I’d start with Penn West (NYSE: PWE). That’s a blue chip investment trust that’s down 50% from its mid-summer high. And now it’s yielding more than 20%.” [Editor's Note: Your editor does not own Canadian investment trusts, but at least one member of his extended family owns PWE and ERF.]

“Amazing!” your editor replied. “Is this company susceptible to any credit problems?”

“Not that I know of,” Danny said. “It carries very little leverage. But look, with the benefit of hindsight, you can see how we got here. Oil is collapsing, the Canadian dollar is collapsing and to top it all off, investors are freaking out. You add it all up and you get Canadian investment trusts that yield 25%!…I mean this Canadian dollar is just hard to believe. It is down 4% just TODAY! So that brings its loss against the US dollar to more than 15% since mid-Summer. I think you could easily argue that Canada’s finances are in MUCH better shape than the U.S.’s. But the markets see it differently.”

“Yeah, these are incredible times. What else do you like?”

“I’ll give you a short list,” said Danny. “I like Baytex Energy Trust (NYSE: BTE), Provident Energy Trust (NYSE: PVX) and Enerplus Resources Fund (NYSE: ERF). All three stocks yield about 20%, which seems totally crazy. Even if you believe energy prices are going to remain depressed, these stocks are too cheap.”

“Thanks Danny. Hang in there!”

To be clear, dear investor, Danny’s “short list” of distressed investment trusts are not automatically a buy because they yield more than 20%. But as we never tire of observing here at the Rude Awakening, they are probably less of a sell. (Please remember, that oil and gas investment trusts like Penn West derive their incomes from oil and gas production. So when energy prices are tumbling, as they are currently, these trusts earn less income, which means that their dividend payouts could fall sharply).

A few days after speaking with Danny, your editor checked in with Chris Mayer, editor of Capital & Crisis. [By the way, if you missed the October 14 edition of the Rude Awakening, you almost missed Chris' examination of Atlas Pipeline Partners (NYSE: APL), a deeply depressed stock that pays a very high dividend. Click here to read the story].

Chris is nervous, but excited. “I never expected to see stocks as cheap as they are today,” he said. “I had always assumed that deep value stocks became extinct sometime in the 1940s and that I would never see them during my career. But I was wrong. Deep value stocks are reappearing in parts of the stock market. The ENTIRE stock market is not cheap, of course. But many individual stocks are.”

Chris expanded upon this observation in a recent email alert to his subscribers:

“Recently, The Wall Street Journal reported a fact that shows just how extreme some valuations have become out there. According to the WSJ, nearly one out of every 10 stocks trades below the value of its per share cash holdings, “an even greater proportion than [Benjamin] Graham found in 1932.” [Graham, author of "The Intelligent Investor," is legendary among us value investors as the "Father of Value Investing."]

The year 1932 was horrific for stocks. By July 9 of that year the Dow Jones Industrial Average had collapsed 91% from its 1929 peak. So it’s hard to believe that there are more stocks trading below their cash balances now than in 1932. Amazing!

Or to put it more specifically, of the 9,194 stocks Standard & Poor’s tracks, about 876 trade below their per share cash holdings. In theory, you could drain the cash in these companies’ treasuries to buy the whole company and get everything else for free.

Loews Corp. (NYSE: L) isn’t quite that cheap, but it is VERY cheap. For starters, the stock is 40% cheaper than when I first recommended it to my subscribers. But that’s not all. At the current quote of $26 per share, Loews trades for just under 6 times earnings and has $3.5 billion of net cash — or about 30% of its market cap. If you net out that cash, Loews’ price-to-earnings ratio slips to well under 5. That’s incredibly cheap for such a well-financed company.

Even better, the company’s net asset value comes in around $40 per share. Much of that NAV is in publicly traded companies. So it’s easy to figure the values. And they are good investments on a stand-alone basis. Loews owns stakes in Boardwalk Pipelines and Diamond Offshore, both of which look like bargains. If these shares rise in value, as I expect they will, Loews’ NAV will also rise. In other words, Loews is cheap on its own merits as is, and you get its cheap portfolio, too. Loews is also a buy.

There are a lot of these kinds of opportunities out there now. At least in pockets, we have the kind of true Depression-era valuations that Ben Graham would have recognized. Old Ben Graham is more relevant now than ever because the market we are in increasingly resembles the ugliness of 1930s, when Graham plied his trade. Graham wrote in 1932, and I think it will prove true today: “In all probability, [the stock market] is wrong, as it always has been wrong in its major judgments of the future.”

Source: Soldiers of Fortune

According to Leon, “This is the most difficult environment I’ve lived through. And I’ve been doing this for 41 years.”

Capital & Crisis editor Chris Mayer caught up with Leon at a value investing conference recently. Cooperman presented Atlas Pipeline (NYSE:APL) as one of his favorite ideas of the moment — a pick Chris previously recommended to Catital & Crisis readers.

More from Chris:

Atlas is a natural gas pipeline company. It owns 1,600 miles of pipeline connected to nearly 6,000 wells and is adding over 800 new wells per year. It also operates a growing interstate pipeline system in the Fayetteville Shale.

These are low-risk assets, and Atlas continues to increase its dividend every year. Cooperman expects Atlas to increase its dividend for years to come, given the prime location of its pipelines in Appalachia.

Atlas will pay about $4.25 next year. It closed yesterday at $21.70. That’s good for a yield of 17.7%! As Cooperman said, “At my age, a dividend yield like that is better than sex, but that’s just me.”

Cooperman thinks APL is worth at least $46 per share, which is close to where my numbers come in. (Hence, my “buy up-to-price” of $48 per share, which, admittedly, is sort of comical now with the stock at $17).

Comparable master limited partnerships (or MLPs) yield about 12%. As Cooperman said, he can find no reason why such a discrepancy exists. The market has completely trashed the MLP universe in general. Cooperman offered two reasons for this. The first is that these investments were popular with hedge funds that would borrow cheaper money and park it in higher-yield MLPs. The market sell-off forced many of these hedge funds to sell out of these investments.

The second is that since the credit markets are locked up and MLPs need access to capital to do “transformational acquisitions,” as Cooperman put it. The market thinks growth rates here are dead. As Cooperman pointed out, at a 17% yield, you don’t really care about growth. Even so, Cooperman thinks APL will continue to grow at low single-digit rates without access to capital, as more product passes through its existing pipelines.

Another old-timer, Seth Glickenhaus, now 94 years old, also likes the pipeline companies.

There was a nice article about Setch in The Wall Street Journal last week: “A Street Longtimer Speaks,” by E.S. Browning. He’s the chief investment officer at Glickenhaus & Co., which manages $1.8 billion. The longevity of the value crowd is always inspiring. You don’t see in-and-out traders still working it in their 90s.

Glickenhaus told the Journal, “We like pipeline stocks with good yields and stable businesses.”

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