First Sign of the Double Dip, U.S. Employment, Investing in RNAi, Another Railroad Boom and More!

by Addison Wiggin & Ian Mathias

  • The 5 hosts our own “jobs summit”… how today’s employment scene compares with recessions past
  • First sign of the double dip… U.S. service sector swings back to contraction
  • Thus, stocks halt recent rally… Patrick Cox with one small sector worth buying on the dips
  • Rebuilding the Great Silk Road — literally… Middle East embarks on huge railroad buildup

  For the rest of the week, the story is pretty straightforward: Jobs. American jobs, to be specific.

The White House is hosting a “Jobs Summit” all day today — a public brainstorming between politicians and select private business leaders, all seeking “some new, fresh ideas to help jump-start the economy.” Heh, or at the very least they’ll pile up some PR ahead of tomorrow’s jobs report, which will likely show the 23rd consecutive month of net job losses in America and a 10.3% unemployment rate.

But in this spirit, we’ll host our own mini-summit to start today’s 5. Here’s a quick look at the latest from the employment front:

  Initial claims for unemployment insurance fell to their lowest level in over a year last week. Likely a precursor to their jobs report tomorrow, the Labor Department proudly announced that “just” 457,000 Americans filed for their first week of unemployment benefits. That’s the fifth straight week of decline, the lowest number since September 2008 and the second consecutive report under half a million… a sort of “Dow 10,000” headline grabber. It would appear that the jobs scene has suffered its worst:

But what how does this same employment environment look through the lens of history? A bit more interesting…

We celebrate the jobs scene stepping back from the brink, but there must be some merit in noting that our current state of jobless claims “recovery” is at the same level of the worst — the absolute peak — of the last two recessions. We’re also not even halfway back to the pre-crisis norm, nor are jobless claims below a level that would disqualify a double dip, as illustrated in the early ’80s. 

  “New claims for unemployment insurance have been declining on average in the last several months,” adds John Williams of Shadow Stats fame, “but such does not mean a turnaround in the employment picture. With the extreme economic contraction — unprecedented as to duration and depth in the post-World War II era — what is being seen here most likely is the beginning of some bottom-bouncing, where heavy layoffs may have run their courses to a certain extent, at least temporarily, but where the pace of hiring is declining, too.

“Weakness in help-wanted advertising confirms the downside pressures in hiring… the Conference Board’s newspaper index for October held at September’s historic low. The online help-wanted advertising measure showed that new online ads in November were down 24.0% year to year, compared with a 24.6% annual decline October.”

  Speaking of a double dip, this is interesting:

The ISM reported today that its index of the U.S. service sector (read: almost 90% of the whole American economy) returned to a state of contraction. The index fell from 50.6 to 48.7 in October, crossing that famous dividing line between expansion and contraction. As you can see, the U.S. service sector returned to growth earlier this summer, a popular indicator that the recession was over. So now… has the second leg begun?

  Can’t blame traders for tapping the brakes today. After rallying nearly 2% this week, S&P futures were up again early this morning on some blue chip news… such as GE’s formal jettison of NBC and Bank of America’s vow to repay TARP loans (heh, will we be getting a check in the mail?). But for good reason, the ISM’s report turned that ship around, and the S&P opened down a couple points. 

  “The science of RNA interference is moving rapidly toward marketable cures,” says Patrick Cox, armed with a sector of small stocks worth buying on today’s dip. If you aren’t familiar with RNAi — a core theme of Patrick’s Breakthrough Technology Alert portfolio — here’s a great primer from the man himself:

“Our DNA is, in effect, locked and protected in a cellular clean room without a door. DNA does, however, send out messages with the order to turn genes on or off. Those messages are RNA, or ribonucleic acid.

“Therefore, the right RNA sequence can be introduced to the body to modify the behavior of virtually any gene. This is RNA interference (RNAi) and it provides the ability to control specific genes and the proteins these produce. Those proteins, in turn, are the key to most human diseases. The companies that own those therapies will, in turn, become the new pharm giants — or they will be acquired by existing pharma, delivering enormous profits to stockholders.

“The challenge now is the delivery of RNAi drugs to cells. RNA is a large fragile molecule that doesn’t penetrate cellular membranes under normal circumstances. Also, the body tends to clear itself of RNAi drugs almost immediately, whether through the kidneys or inside the cell itself. Nuclease, which exists inside the cell, breaks down RNA. For this reason, intense research has been concentrating on carrier molecules that can transport the RNA as a payload.

“There are several companies racing to bring the first RNAi therapies to the market. With such a transformational potential in the treatment of human disease, we’ve made it a priority to build a portfolio of the most important RNAi pure plays. Each has a different approach to solving the delivery problem.

“As I’ve said before, we can’t know yet which will yield the big solutions. It may be that only one of these companies will break though… We know from a study of past transformational technologies, such as computer chips and software, that the best method of earning transformational profits is to buy a diversified portfolio of the best players and hold them for the long run. That’s what we’re doing in regard to RNAi.”

  That tinge of stock market trepidation has helped the dollar index rise from its yearly lows. The measure — a weighted basket of global currencies versus the dollar — is up a few tenths of a point today, to 74.7.

  Another brick in the wall: “The focus of global attention shouldn’t be on the yuan’s exchange rate, but the dollar’s stability,” said China Commerce Minister Chen Deming overnight… yet another high-ranking Chinese official firing shots across our bow.

  Gold found a fresh record high this morning of $1,226 an ounce. We note the interesting coincidence (?) that the spot price has been routinely finding its daily high during the early morning Asian trading session. Regardless, he price of gold has now risen over 62% in the last 12 months.

  Convenient timing: The U.S. Mint has temporarily suspended sales of its 1-ounce Gold Eagle coins, claiming lack of supply. The mint issued a statement last week saying that “continued strong demand for this product” has depleted the inventory… or at least their desire to sell more at this time. (Yet another reason to register for our coming webinar on investing in precious coins.)

  Oil is standing still today, at $76 a barrel.

  “Oil-rich nations in the Middle East are converting their petrodollars to railroads in one of the world’s biggest regional infrastructure build-outs,” says fund manager Frank Holmes, a staple at our annual Investment Symposium.

“The Gulf Cooperation Council has plans for a 1,300-mile railway linking all six of its member states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates). Combined spending is estimated at more than $100 billion.

“That is just a fraction of the amount available for investing to support future growth. Combined assets for the region’s four largest sovereign wealth funds (Abu Dhabi, Kuwait, Qatar and Saudi Arabia) total $1.15 trillion, and that’s just a portion of the wealth amassed in that dynamic part of the world.

“In September, a $7.6 billion rail system was opened in Dubai to try to ease its bumper-to-bumper road congestion. An estimated 1.8 million passengers will use the line each day. Saudi Arabia is building a $5.3 billion rail line to connect the Islamic holy cities of Mecca and Medina as part of the country’s $400 billion infrastructure plan. And last week, Qatar’s sovereign wealth fund signed a $26 billion construction deal with German railroad operator Deutsche Bahn for a local system for Doha, Qatar’s capital and largest city, and freight lines to bordering trading partners.”

  “Quick question,” a reader writes. “When the Dubai crisis hit the news, why did gold DROP nearly $60, instead of spike upward?”

The 5: It sure did. Seems that the 2008 playbook is still intact… when crisis strikes, flee to the dollar. But gold shot back to new highs soon after, so we can only assume the majority of the market wants to buy the dips.

  “Regarding Rick Rule’s analysis of the limitations of solar energy generation,” another reader writes, “and specifically the claim that ‘night’ is a big problem for solar…

 

“Obviously, most types of solar plants cannot generate power at night; but generally, their output peaks at approximately the same time that the spot wholesale electricity price peaks — particularly with the widespread adoption of air conditioning. Additionally (particularly for nontracking PV), the output curve approximates the nonbase load demand. I expect these factors would impact the economics significantly…

 

“A significant cause of the infrastructure capacity problem during peak demand is that (commercial and residential) end-users generally pay a fixed rate during the day. This allows behavior such as leaving air conditioning on in the middle of the day when no one is home. This wastefulness could be reduced through the use of smart meters and differential pricing. If I were going to make one prediction about the future of electricity, I would say that a market-based strategy for managing load is only a matter of time in all advanced economies. I expect this would be comprised of variable pricing based on current supply and demand, with price feedback, especially into air conditioners and heaters allowing users to mange their own demand and, hence, expenses.

 

“Love The 5!”

The 5: Thanks. We… umm… love you back! The point Rick was trying to make, if you ask us, wasn’t to knock solar, but to suggest that quality geothermal and hydroelectric companies will be the real winners of an alt energy boom. As you made clear, there will probably be room for all kinds of energy solutions soon enough.

By the way, if you’re looking to invest along, you should check out Byron King’s Energy & Scarcity Investor… boatloads of geo gems in there.

Cheers,

Ian Mathias

The 5 Min. Forecast

P.S. Wait a minute. Before you check out Byron’s geo picks, consider this: You could get all his advice – and the services of Chris Mayer, Patrick Cox, Jim Nelson, Greg Guenthner, Steve Sarnoff, Alan Knuckman, Bill Jenkins and Dan Amoss – for one heavily discounted price… if you click here.

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