This from Taipan Daily:

I’d like to talk to you about prison for a moment.

Now, don’t start panicking or checking your Rolodex for your attorney’s number. I am not looking to prosecute anyone (nor be prosecuted myself for that matter) any time in the near future.

It’s just that jails have been cropping up a bit as I look about the investing scene these days. Sort of a theme, as it were.

The Smartest Guys in the Room Get Burned

For one, there’s that fellow Bernard Madoff.

You know the guy: former Nasdaq head and current indictee suspected of scamming $50 billion off our best and brightest. He’s put in at least an hour or two of cell time over the last few weeks.

Fortunately, Madoff was able to gin up $10 million in bail money, so now he is safely ensconced at home. They are calling it house arrest. I doubt Bernie is on anyone’s “A-list” invite-wise, so he probably wouldn’t be going out much anyway.

There’s talk about the Street that the Feds are trying to claw back cash from the folks who profited from Big Bernie’s decade-long Ponzi scheme. The idea is that these gains are as ill-gotten as any street level drug dealer’s.

Seems to me there’s a bit of a double standard there. Any “gains” Madoff delivered up are tainted, and properly belong to his victims… but the Feds are perfectly willing to accept $10 million in bond from the same purse.

The Latest Fall Guys

Actually, the whole Madoff scandal is a bit of a godsend for Washington/Wall Street. Each major collapse cycle has to have its “fall guys” – some big names that the G-men can pin to the wall so as to prove they’re on the case.

In fact, these prosecutions usually break down into two specific categories: one big company and one big name.

Last time around the big company was Enron, and the big name was Martha Stewart.

This time around, the big cheese slated for cell time is most certainly Madoff. I am betting that the celebrity name will be Dallas Mavericks owner Mark Cuban, who – much like Stewart – is in dutch with the Man for selling several grand in tech company shares ahead of bad news.

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Forget the Raisin Still: I’ve Got Cold Mojitos

The slammer is intruding into the public conscience in all sorts of odd ways.

The red-hot Liberty Hotel in downtown Boston, for example, brags that its granite walls and barred windows were originally designed in 1849 by a famous Beacon Hill architect, Gridley Fox James Bryant… and a prominent Yale-trained penologist, one Rev. Louis Dwight.

Why the odd team? In its previous incarnation, this four-star joint was Boston’s infamous Charles Street jail.

Some things never change: a stay there still comes with a nice view of the Charles River. The bar at the Liberty claims to be booked for weeks in advance, mostly by twenty-somethings excited about drinking martinis and dancing the night away in jail. (But nursing their hangovers in the comfort of their own home.)

While I might possibly consider staying there the next time I’m booked into downtown Bean Town for a conference, I am not particularly inclined to recommend this (or any) hotel as a buy in the current environment.

When “Risk-Free” is a Bad Thing

But that doesn’t mean that we can’t pursue this thread a little further.

President-elect Obama is warning that unemployment could very well hit 10% if Congress does not authorize another massive infusion of imaginary dollars. Ten percent unemployment is a figure that has been coming up quite a bit lately, with many prominent students of such things warning of the same, and a few speculating that we may very well already be there.

It’s really quite hard to say for sure, as Washington has done its level-best to obscure the actual number of people without jobs. The trick here is to remove entire cadres of job seekers from the lists who have been out of work too long – the logic being that they can no longer expect to find jobs and are therefore no longer legitimately “unemployed.”

I tell you what: I consider myself an honest man, but if I were told such a thing, I would be sorely tempted to acquire a pistol or two and avail myself of whatever source of portable wealth I could find. Hey: we all gotta eat, eh?

Certainly there is no doubt that entrenched joblessness leads to hopelessness, and hopelessness leads to spikes in crime. When you have no hope, risk/reward becomes an inane concept. No wonder the idea of jail is cropping up so much these days – there are so many folks queuing up for a cell for a night, a year, or even a decade.

Go Directly to Jail

Readers might care to capitalize on this nascent trend by looking into shares of commercial jails. Florida-based Geo Group (NYSE:GEO) comes to mind as a prominent up-and-comer in this field of endeavor, with some 53,144 “beds under management” (a polite euphemism borrowed from the folks in health care).

Now, GEO is a bit smaller then most of the companies that I look at, with a market cap just a hair under $1 billion. But it is steadily improving itself by bringing more and more “beds” under management (14% in the last quarter alone). And, unlike so many other businesses, they are indeed thriving in this criminally competitive market.

Net income is up 25% between 2007 Q3’s $12.7 million (25 cents/share) and 2008 Q3’s $15.9 million (31 cents/share). Profits over the same stretch rose 34 cents per share, beating expectations by 4 cents.

It’s a fair bet that GEO will continue its growth without terribly much trouble, what with states coming up so short these days and need so obviously growing. The current share price as I sit to write is $18.90. Gains of 20% per quarter should be easy to maintain, and a double by summer is certainly not out of the question.

Source: Turning Prison Into Profit (Without Going to Jail)

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