by Addison Wiggin & Ian Mathias
- Buffett changes his colors… our take on his inflation-wary Op-Ed
- Curious new gold demand stats: Jewelry purchases plummet, investment stashes soar
- A can’t-miss megatrend: Global population shifts mark the rise of emerging nations
- Bill Gross’ guide to investing amid the age of “deleveraging and reregulation”
- Plus, Patrick Cox on why the flailing nationalized health care plan is great for investors
We’ve got a bone to pick today.
“It has not paid to sell America short since 1776, and the time to start is not 2008,” Warren Buffett claimed at the premiere of I.O.U.S.A. in October of last year. Mr. Buffett was nice enough to lend his opinion on our frightening fiscal situation for our film, but then played a remarkable Pollyanna during a panel discussion at the premiere… for example, the spectacularly wrong quote above. When pressed on the challenges of our burgeoning debts, he suggested that “the pie gets larger over time,” and that our expanding resources will help us cover rising liabilities.
Fast-forward to this morning’s New York Times:
“Once recovery is gained,” reads Buffett’s Op-Ed, “Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.”
Gone is “Buy American. I am.” Buffett’s now worried about “The Greenback Effect.”
“The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.”
"Even the richest guy in the world will “talk his book” on occasion," says our Addison Wiggin, who spent some time with Buffett during the filming of I.O.U.S.A. and was among the aghast at Buffett’s comments during the premiere. "Berkshire Hathaway got kicked in the shins like everyone else… down 35% after the panic of ’08. Now Buffett, who had already moved billions out of the U.S. dollar into Brazilian real, appears to be fearing for the rest of his stash. And rightfully so. What nation in history has ever sustained this level of deficit spending?"
The dollar index is just above 79 today, about halfway between its March high and its credit crisis low from early 2008.
No coincidence, gold demand in the U.S. spiked 10% in the second quarter, the World Gold Council reports today. Americans snatched up over 50 tons of the stuff last quarter, from 46 tons a year earlier. Interestingly, the rise was completely driven by investment demand — up 91% to 23 tons. Jewelry demand actually fell 19%.
That’s par for the course in the rest of the world, too. Here’s the quick and dirty:
- Overall, gold demand fell 9% in the second quarter (year over year), to 719 tons
- A slump in jewelry demand led the way, down 22%
- Global gold investments have shot up 46% over the last year, to over 222 tons
- Net retail investment (bars and coins) rose 12% year over year
- Germany has the world’s biggest investment market for gold, at 28 tons in the second quarter
- Central banks were net buyers last quarter for the first time since 2000.
Gold’s just above yesterday’s closing price. As we write, the spot price is up to $936 an ounce.
The stock market is back down after yesterday’s snapback rally. The S&P opened down nearly 1%. Lousy earnings from Hewlett-Packard aren’t helping matters, and neither is Warren Buffett’s wary Op-Ed. Then there’s this:
The Chinese stock market is a breath away from a technical bear market. More bubble jitters pushed the Shanghai Composite down 3.2% this morning, which has now fallen 19.6% from its early August high. A 20% fall would mark a textbook bear market.
Given the composite’s remarkable rebound — it doubled from November 2009-August 2009 — it’s probably not fair to call this a legit bear market for China… not yet anyway.
Check out this “megatrend”: 97% of global population growth over the next 40 years will occur in Asia, Africa, Latin America and the Caribbean, says the shiny new 2009 World Population Data Sheet. The headline data point was the total growth projection for the world population: 7 billion by 2011. That’s a 200 million extra people on this Earth in just two years.
But it’s the fine print that’s really getting our attention. Here are the highlights… some serious investment trends, to say the least:
· 90% of the world’s youth, about 1.2 billion people, live in developing nations
· Africa’s population just passed 1 billion and is set to double by 2050.
· Half of the population growth in the U.S. and Canada over the next two years will come from immigration
· By 2050, India’s population will reach 1.7 billion, passing China as the world’s most populous nation.
That last one was a particular surprise to us. In fact, the whole rundown of world population growth by nation is worth a quick look:
To further illustrate this point, you have to check out this array of animated charts on “Future Human Capital”. They are too complex for our humble 5 Min., but shouldn’t be missed.
All these data point to the same conclusion: The world is becoming increasingly less Amero-centric.
“Populations are rising,” says Chris Mayer. “The amount of arable land is in decline, thanks to desertification, urbanization and other factors. Water tables are dropping fast — Beijing is sinking eight inches per year!
“As I said in Vancouver, I don’t see how, when we look at the world in three-five years, the market for irrigation equipment is not substantially bigger than it is today. The Asian countries have the money to build new irrigation systems. They just have to decide to make that a top priority. China already gives its farmers subsidies to purchase equipment. I expect we’ll see more of this from other countries too.
“That’s one example of a great long-term idea that this short-term market crunch could give you a great chance to own.”
(Chris is putting the final touches on his latest special report: “How to Profit 402% in a Market You Never Knew Existed.” Keep an eye open… we’ll be publishing it soon.)
Today’s headline flub: “Reluctant Shoppers Hold Back Recovery” reads The Wall Street Journal. Heh, it’s that easy, you pathetic consumer… just take out those credit cards, start shopping again and get this economy “back on track”!
“Common sense tells us,” writes bond legend Bill Gross, “that consumer spending growth comes from highly employed, well-compensated labor, and we are far from even approaching that elemental condition. The fact is that near-double-digit unemployment has resulted from numerous business models that are now broken: autos, home construction, commercial real estate development, finance and retail sales. Construction of a new Humpty Dumpty capitalistic ‘oeuf’ will be a Herculean task.”
Gross is preparing for “lower profit growth, permanently higher unemployment, capped consumer spending growth rates and an increasing involvement of the government sector, which substantially changes the character of the American capitalistic model. High-risk bonds, commercial real estate and even lower-quality municipal bonds may suffer more than cyclical defaults if not government supported. Stock P/Es will rest at lower historical norms, and higher stock prices will ultimately depend on tangible earnings growth in the form of increased dividends, not green shoots hope.”
Biotech investors may have just dodged a bullet, says our tech analyst Patrick Cox. “The political pendulum, as I predicted, is accelerating back to the center. Something called ‘health care reform’ will probably pass, but it won’t be the complete bureaucratization of medicine that was the goal. This is enormously good news for investors.
“The tiny startups and small caps that we invest in have just dodged a bullet.
”Because American consumers are free to buy the health care they want, they currently fund most of the world’s medical innovations. Those innovations are not, by the way, coming from Big Pharma. Like any established industry, Big Pharma resists change and protects the status quo. It fears new technologies and changes only when forced to. That’s why it has signed onto government health care, which would institutionalize its lead positions and slow innovation.
“Choice in health care leads to the funding of new technologies. Many innovators, ironically, have no idea that this is the case. Scientists absorbed by the details of their fields rarely have any interest in the macroeconomic forces that determine investment trends. In that, they are not alone. Regardless, I’m extremely pleased to see that the people who run the Post Office and ‘cash for clunkers’ are not going to be making our medical choices.”
Patrick’s Breakthrough Technology Alert readers just bagged their first bio-tech winner: A “disappointing” 235% profit on Mederex’s sudden buyout. “We’ve lost the real pure-play potential of this platform to big pharma,” he lamented. If these are the types of trades Patrick regrets, you need to check out some of his real prospects, here.
“Trying to figure out ‘when’ the recession ended is moot,” a reader writes in response to our guessing game this week. “It is akin to the passengers trapped below decks on the Titanic trying to figure out whether or not the ship had hit the bottom of the ocean. The relevant fact was that the ship wasn’t going to be rising again anytime soon… much like our economy that is weighted down by massive amounts of OTC derivatives, overwhelming government and consumer debt, hollowed-out banks, massive unemployment, outsourced manufacturing capacity and a dying world reserve currency, among other things. It’s like the guy with terminal cancer celebrating the fact that he lost five pounds — he’s missing the big picture.”
The 5: If you have no interests tied to the success or failure of the U.S., we suppose you have a point. Geesh… is nihilism back en vogue?
“There have been several references over the past week of a major bank about to experience financial difficulties,” another reader writes, this one responding to Dan Amoss’ latest analysis.
“I am not in the position to use the service you are trying to sell related to this, but would appreciate knowing which it is so I can make sure my savings are not at risk.”
The 5: C’mon. We’re currently selling a month of Dan’s Strategic Short Report — including the next big-name bank he thinks will falter — for just $1. Blow the dust off your wallet and give it a try.
Regards,
Ian Mathias
The 5 Min. Forecast