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A Government Encouraged Addiction

By Tom Dyson, publisher, The Palm Beach Letter
Thursday, March 2, 2006

This is the opportunity of a lifetime.

If you never read another edition of DailyWealth, please pay attention to this one.

Something massive is brewing. It’s taking over the whole world. Right now, it’s still a niche industry. But by 2020, I predict this product will be as popular as smoking... or getting drunk.

Hundreds of new skyscrapers and hotel complexes will be dedicated to it. It will become one of the largest customers to the advertising business. It may even transform the global financial services industry...

First, this product is addictive. Think alcohol or tobacco. The Chinese – more than any other race - are the most voracious consumers of the product. But no nation is immune from its clutches.

Secondly, the media drives this product. As more people watch television, use gadgets, listen to news, surf the web, and play with cell phones, more people will consume this product.

Thirdly, this product is very government friendly. It turns ugly urban squalor into prime real estate... then it attracts tourists by the millions. And what does the government have to pay in return for this urban regeneration? Absolutely nothing – in fact, the whole process generates billions in tax revenue!

Before I tell you what this business is – if you haven’t guessed it already – I’d like to pose one more idea: the ability to see into the future.

Do you ever think to yourself, “If only I had invested in gold three years ago, when it was trading at $300 an ounce. I knew it was going to go up, I just never got around to buying any.”

I have these thoughts all the time. Why didn’t I buy oil refiners in 2001? Or arms makers just before the war in Iraq? If only I’d bet money on these ideas, I would have multiplied my stake several times over.

Well, this is one of those ideas. In 2010, you’ll wish you’d put money on this one.

The business is gambling. Except, we are not going to gamble. That’s a mug’s game. We are going to own the casino.

People love to gamble. But the gamblers themselves are not driving this revolution. It’s being driven by the Internet and by government.

All around the world, governments are encouraging their people to gamble. Britain wants to become the gambling capital of the world. The government recently invested in Britain’s first ever Casino academy, to help sponsor a new generation of dealers and fruit-machine technicians.

They removed all tax from gambling winnings in 2001. Britain is now the residence of choice for professional poker players. On-line gambling companies are welcomed with more tax-breaks and relocation subsidies. Half-a-dozen online gambling companies have listed on London’s stock exchange in the last two years.

Last year, says the BBC, the UK became the only industrialized nation to introduce a regulatory framework for the online gambling industry, with passage of the Gambling Act. And this year, the UK is set to host the first international summit on online gaming.

Other countries want to compete. This week, the Japanese administration announced the legalization of casinos to attract tourists. The Korean government said casinos may be allowed in every deluxe hotel across the country.

According to the Financial Times, there’s a possibility that the “German courts will move to liberalize the German sports betting market ahead of the 2006 World Cup.”

On-line gambling companies are even breaking into the financial world, offering bets on stock prices, currencies, commodities and political results. Except... they don’t charge commissions and you don’t pay capital gains tax. I know for a fact that large financial institutions are starting to use these betting websites to hedge hundreds of millions of dollars in risk exposure.

Ladbrokes is the company I have in mind to play this trend. It’s a British company with a listing in New York under the symbol HLTGY. It owns casinos, Europe’s strongest online gaming brand, and an international chain of retail betting stores.

They offer sports bets, financial bets, poker, and casino games.

Until recently, Hilton Hotels owned Ladbrokes, and it wasn’t possible to own Ladbrokes directly. Last month, Hilton sold their entire hotel business, leaving us with a pure play on gambling.

I plan to write much more on this trend in the future... and highlight other companies we can use to play it...

Good investing,

Tom Dyson

P.S. Ladbrokes hasn’t officially changed the name on its stock quote. It’s still trading as Hilton Group PLC. It’s still the same game, however.

Market Notes


With the S&P 500 carrying a rather expensive price tag of 18 times earnings, it’s hard for DailyWealth to get excited about buying the general U.S. stock market. We prefer to see a little doom and gloom with an investment… and a much lower P/E.

Although the S&P 500 is no bargain right now, we must reference the chart below and admit that yes… this broad measure of American stocks is showing a clear tendency to make higher highs and higher lows. This market “wants” to go higher…

And well… it’s a bull market you know. How long it will last is the million-dollar question.

The past three years in the S&P 500:

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