The Rude Awakening
Wall Street, New York
Thursday, October 19, 2006 ------------------------- - Printing paper money – one little known company to
get working for you,
- The obsession over liquid profits continues,
- A resource glut threatens to strangle your lifeblood,
the Dow draws painfully close to 12,000 and more...
------------------------- A note from the beachfront desk of Eric Fry... As faithful readers will be well aware, your Rude Awakening
editors have become obsessed with the topic of "water," or
rather, ways to invest in water. We are obsessed, it's
true, with this essential natural resource...but for very
good reason. For starters, it is essential. Secondly, individuals and industries worldwide are finding
it increasingly difficult to locate clean, reliable water
supplies. Even here in the United States, many
municipalities are scrambling to secure current and future
water supplies. Future supplies of water for personal and
agricultural consumption are far from assured, especially
now that the EPA has issued onerous new regulations to
safeguard the nation's groundwater supplies. Almost certainly, therefore, the price of clean water will
increase dramatically over the coming years, which will be
very good news for water investors. But that's just one
aspect of the always-fascinating, sometimes-frightening
global water story. Our research efforts here at the Rude Awakening are
uncovering a wealth of insights, while also leading us
toward numerous related investment opportunities. In other
words, the more we dig, the more we find. When we launched our initial research efforts late last
year, we began by examining American water utilities. But
this humble initial effort has blossomed to include a vast
and growing variety of water-related companies. We've
researched companies involved in: water purification in
Singapore, water transport in Chile, water rights in Nevada
and saltwater desalinization in China. Some of these ideas
we have already shared in prior editions of the Rude
Awakening. And certainly, we will discuss other water
investments in future editions. But in the meantime, we'd like to alert our readers to our
just-released report on water investing. We've prepared
this report in collaboration with Dan Denning, editor of
the Australian Daily Reckoning, and Chris Mayer, editor of
Mayer's Special Situations. (Chris has latched onto the
water investing theme like a Koala to a eucalyptus
tree...and has been highlighting some fascinating
opportunities for his subscribers). To access the report, creatively entitled, "Investing in
Water," click here If you find the report worthwhile, feel free to pass it
along to a friend. And as always, if you possess any
particular insight into the world of water investments,
we'd love to hear it. You may email your thoughts and ideas
to - aussiejoel@the-rude-awakening.com The water report, as noted, is free. Chris' research
publication, "Mayer's Special Situations" is not free. But
it is an excellent investment product that focuses on
little-known situations with very high profit potential. In
this context, Chris has recommended a couple of obscure
water companies that he believes are just entering a long-
term boom cycle. But Chris also highlights other types of
"special situations," including a paper company that he
recently identified for his subscribers. Details below... --- Resource Special ---
BLUE GOLD: The $661 Billion Market Your Broker Didn't See It's not oil...it's not gas... Even in the face of skyrocketing energy prices, its
outperformed them both - Raking in 49 times better gains than the S&P 500. This global industry is set to grow 500% over the next
decade. And it's just one brand-new "Special Situation" that can
net you 300% gains this year - guaranteed! Read on Here ---------------------------- Paper Wealth
By Chris Mayer I spent some time in New York a couple of weeks ago to
attend the Grant's Investment Conference. These gatherings
always showcase some of the best investment minds in the
business, which is why I always try to attend. One of the
most engaging speakers at this particular conference
presented a very compelling case for buying beaten-down
Canadian paper stocks. The speaker was Amit Wadhwaney, fund manager of the
excellent Third Avenue International Value Fund. Wadhwaney
began his presentation by describing a favorite investment
strategy at Third Avenue: Seeking out industries in
distress. Under the right conditions, he explained, an
industry in distress is an industry full of opportunity. In
other words, not all clouds spell rain. The Cloudspotter's Guide, a new book by Gavin Pretor-
Pinney, is a sort of field guide for cloudspotters. In The
Cloudspotter's Guide, for example, one can read about the
common cumulus clouds with "puffy white cauliflower
mounds." Though it is unmistakably a cloud, the cumulus is
a fair-weather cloud, containing only tiny amounts of
water. Likewise in investing, not every cloud portends a deluge.
Wadhwaney described five conditions that can lead to sunny
results. All five must be met to validate a new investment: · Most of the companies in the industry are losing
money.
· Companies, discouraged and bloodied with losses, are
leaving the industry — hopefully, for good.
· Bankruptcy threatens those that decide to hang on.
· There is a clear low-cost provider and, thus, a clear
survivor.
· Valuations are extremely low, reflecting investors
losing interest — and heart — in the sector. The longer
poverty lingers in the industry, the better chance you have
of reaching rock-bottom prices. Wadhwaney then described times in years past when Third
Avenue scored big in sectors in which such conditions
prevailed. Zinc mines, in 2004, were one of those times.
Coal, circa 2002 was another. In both instances, the
industry satisfied the five points and investors made some
large multiples — the numbers resemble hat sizes — on their
initial investments. So Wadhwaney offered up another sector in which such
conditions prevailed — the Canadian paper industry in
general, and Abitibi Consolidated (NYSE: ABY) in
particular. 
Abitibi owns a lot of stuff — 19 paper mills, 20 sawmills,
wood plants and hydroelectric assets spread over 70
countries. The company also manages oodles of Canadian
woodlands. It is also the biggest recycler of newspaper and
magazines in North America. Despite these terrific assets
and operations, Abitibi, like most of its paper company
peers, struggles to produce a profit. The chief villains: falling demand for newsprint, along
with rising fiber and electricity costs, which, according
to Wadhwaney, represent about one-third of total costs.
Most of the paper industry, in fact, has lost money since
2003. Check off condition No. 1. Capacity is also
shrinking. When you are losing money, you tend to want to
lose less, and hence make less of what you are losing money
at. That, at least, is the rational response. And hence the
phrase "rationalizing capacity," which Wall Street types
throw around at cocktail parties and luncheons. Bankruptcy risk threatens many — including Abitibi. But
like a fat man told to slim down or suffer life-threatening
health consequences, Abitibi has hit the gym. It has worked
off a lot of debt — about $2.5 billion worth — in the last
five years. It seems now that the worst is over. 
As to who is the low-cost provider; it is Abitibi. Its
Georgia facility, for example, is perhaps the most
efficient in the world — certainly the most efficient in
North America. Meanwhile, Abitibi continues to work at
cutting costs, and prices in newsprint are finally going
up. Another point in its favor: The U.S.-Canadian rift over
tariffs seems near an end. If the current settlement goes
through, Abitibi could see a $220 million windfall. That
works out to about 50 cents per share, which is not an
insignificant number. And finally, as to cheapness, Wadhwaney was unequivocal on
Canadian producers generally: "I've never seen them this
cheap before." Far from an industry cheerleader, Wadhwaney
has avoided these stocks for years. Only recently has he
begun buying them. Abitibi is his favorite. He said that
Abitibi trades at only 15–20% of replacement cost. Make no mistake, Abitibi is a risky stock. But even though
considerable risks remain — this is the stock market, after
all — the potential reward for investors who stick with
Abitibi over the long haul looks very large indeed. [Joel's Note: While Chris has been grinding away on the
conference circuit, his readers have been enjoying the
fruits of his labor. Special investing situations have
become Chris'...well...specialty. Successful gold digging
up and down Wall Street requires, as you well know, a
contrarian view. That's why Chris has developed his Special
Situations approach, using it to identify companies in
peculiar positions that are ready to boom and investing in
the areas nobody else is talking about. If you are interested in learning more about this unique
approach, take a look at where is all began with the
official water report right here: Mayer's Special Situations – Blue Gold --- Special --- The Maniac Trader's on an Incredible Sugar High And His Privileged Market-Watchers Banked a Sweet 379%
Profit - In Just 43 Days! Sugar could be YOUR best bet for an overdose of rapid
gains. And the Maniac Trader can show you how. The
commodities experts' expert is running the streak of his
life - with every pick so far in 2006 a winner! Here's how you can profit from his amazing streak: ---------------------------- 
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