Get the three Gs... More 'stag,' hotter 'flation'... Lunch with Buffett... Chanos' $25 million house... Signs of a top in steel?...

For the first time in history, the U.S. Supreme Court has ruled the Second Amendment to the Constitution contains the specific right of an individual to own a handgun. The ruling strikes down a 32-year-old Washington D.C. ban on handguns, which also required rifles and shotguns be dismantled or fitted with trigger locks.

I listened to the oral arguments, and it's funny to hear one of the justices describe what happens when an armed burglar comes through the window in Washington D.C. It went something like, "First you switch on the light, then you put on your glasses, then you grab your gun... then you enter the code to unlock it..."

This is good news for the two publicly traded gun companies Smith & Wesson (SWHC) and my own pick, Sturm, Ruger (RGR). The U.S. gun industry is highly fragmented, made up of 300 companies, most of which are tiny. It's ripe for consolidation.

Both public gun stocks are more than 65% below their 52-week-highs. And both companies have excellent brand names and loyal followings. Ruger is especially well managed these days.

As for gun demand... Starting right now, folks will be focusing more and more on the three Gs: guns, gold, and groceries. If you won't take it from me that times are hard and definitely about to get harder, maybe you'll take it from one of the richest men in the world...

Warren Buffett is concerned about "stagflation, or a slowdown in the U.S. economy while inflation accelerates... We're right in the middle of it right now. I think the 'flation' part will heat up and I think the 'stag' part will get worse."

And if you'd like to eat a steak and talk about either the stag or the flation with Buffett himself, now's your chance. The annual eBay auction for lunch with Warren Buffett at the Smith & Wollensky steakhouse in New York ends tomorrow night. The proceeds benefit the Glide Foundation. The current bid is $77,100, which must be a sign of the slowing economy... our friend Mohnish Pabrai paid $650,100 to win last year's auction.

Goldman Sachs downgraded GM from "neutral" to "sell," adding the stock to its "Americas Sell List." Goldman cited the risk of equity dilution, a dividend cut, and more cash burn. GM shares have fallen by about half since January 1.

Most people don't even know what it means to sell a stock short. It means you borrow shares and sell them in hopes of profiting from their decline. Short selling is all hedge-fund manager Jim Chanos does. His most famous short was a company called Enron. Shorting has apparently paid off quite handsomely...

Now he has a five-bedroom, 14-room triplex penthouse overlooking Central Park to reward his hard work. According to a source in the building, Mr. Chanos is in contract to buy the penthouse at the iron-fenced mansion 3 East 75th Street, listed for $24,850,000 by Paula Del Nunzio, who would not comment.

According to the listing, there's 7,800 square feet of interior space and 3,600 square feet outdoors. So... Jim Chanos' patio is more than twice the size of my house.

On the other hand, I shorted Lehman Brothers a couple months ago in Extreme Value, and it's falling apart nicely.

Instead of shorting stocks, maybe you should just become the CFO of Google. Oops, the job is taken. It was recently given to Patrick Pichette of Bell Canada. Here's the offer letter, which says Pichette wasn't hired because of his knowledge of "confidential, proprietary or trade secret information of a prior or current employer." That's an interesting bit of legal protection on Google's part. As Michelle Leder's footnoted.org points out, CFOs don't typically work on new products... but Google is working on a new mobile phone platform called Android.

S&A's own Jack Lizmi is in New York for the week. This morning, he visited an old friend, a muni-bond trader for a European bank. The trader said the job market for first- and second-year bankers is the worst in over a decade. All the business-school grads thought they'd land a hedge-fund job and make millions. Unfortunately, no hedge funds are hiring... And no one's giving out capital to start new ones.

One hedge fund finally turning around is Goldman Sachs' Global Alpha. The fund is up 19% through the middle of June. Another Goldman Fund, Global Equities Opportunities (GEO), is up about 7% over the same period. The two quant funds got crushed in 2007. GEO lost nearly 30% in August alone. Global Alpha lost more than 20% that month.

Lakshmi Mittal, chairman of ArcelorMittal (the world's largest steel company) said, "I can say with considerable certainty that the volatile years of boom and bust are now relegated to the past. We have succeeded in transforming ourselves into a profitable and sustainable industry."

Sounds eerily similar to private-equity titan Henry Kravis proclaiming we were in the "golden age" of private equity last July... months before the private-equity bubble burst.

New highs: none.

If you have anything to share, send it to feedback@stansberryresearch.com. In the meantime, the beer debate rages on...

"Miller lite???? All miller beer is bad, but LITE??!? There is no 'lite' beer in Germany. Enough said. Zicke zacke zicke zacke!! Love the 12% Letter. I read it nude. Keep it real yo." – Paid-up subscriber Brad Zandstra

"Paid-up subscriber Trevor Bolland's Wednesday comment made the PBR shoot out
my nose. Man, that stings." – Paid-up subscriber Trenton

"I know; you view these as the worst kind. Unfortunately for you, you deserve it. When I determined to begin investing last summer, I looked over several newsletters and selected one of yours (True Wealth). After adding the Oil Report and Extreme Value, I made my first stock purchase in February. Last week, I tried a few of your competitors'. I found the analyses a little weaker, but much more telling to me was the simple quality of writing – more grammatical and spelling errors in one report than I had found in all the S&A reports over the last nine months (I joined the Alliance in April and have devoured all the back issues since Sep '07). One point of view may disregard correct English as an unnecessary distraction from the 'real' work you do. I see it as evidence of commitment to clarity and attention to detail. I know there is much more that goes into each issue, but those qualities too often get 'sold short' in pursuit of the bottom line." – Paid-up subscriber John Mathew

Ferris comment: We once did this poorly, too. Then we got Amber Mason, Carli Flippen, Brian Hunt, and Julie Sumper, who whipped us into shape. They get all the credit for what you've noticed. They sit there, day after day, poring over every Stansberry word that gets published anywhere, on the web or in print.

Long after I thought she would have gone home, had dinner, and gone to a movie, I've had Amber call me up to ask a question about some esoteric investing point I failed to make adequately. She and the rest of the editorial team maintain their composure and get the work done on time, even though editors (including yours truly) routinely blow through deadlines like they weren't there. I hope we're paying them enough, because I definitely can't afford for us to lose them.

Regards,

Dan Ferris
Medford, Oregon
June 26, 2008

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