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)