Spartans Grow Restless, U.S. Consumers Back to Old Ways, A Water Scarcity Play and More!

by Addison Wiggin & Ian Mathias

  • Greece situation looks hostile… but markets say the worst might be over
  • Chile suffers, copper soars… commodity repercussions of yet another major earthquake
  • Holmes, Guenthner on investing in water — the world’s most precious resource
  • Patrick Cox presents a compelling investment opportunity: Curing American obesity
  • Plus, the China boom/bust reader debate rages on… and what about investing in India?

 

  The Spartans grow restless:

Hector vs. Achilles? More like State vs. Ouzo

On Feb. 12, while reviewing our forecasts for 2010 in a Richebacher Society Round Table, Rob Parenteau suggested social unrest was on tap for the year in Europe. No sooner has March arrived and we’re treated to a “physical expression” of the crisis developing there.

Major trade unions are all on strike. Most public transit — including flights in and out — is shut down. The Athenian stock market index is down 21% in the last three months. Petty crime, riots and all other kinds of innocuous items for a tourist-based economy abound.

All of which make the country’s debt problems worse.

  Alas, while it still makes for good TV, markets are tiring of the PIIGS. In fact, there is some light emerging at the end of the debt default tunnel. The price of insurance against Greek default (credit default swaps) fell to the lowest level since late January this morning.

The German government leaked a possible $35 billion EU bailout for Athens. That rumor alone helped lift U.S. markets early this morning.

  Using credit default swaps “in a way that intentionally destabilizes a company or country is counterproductive,” Ben Bernanke asserted late last week, too little, too late — as usual. Coupled with today’s NYT headline “It’s Time for Swaps to Lose Their Swagger,” it’s safe to say it’s open season on derivatives — and their purveyors.

  Stocks are also rising today, thanks to latest consumer spending data — up 0.5% in January. That’s a notable increase from December’s 0.1% crawl, and it beat Wall Street expectations. Buy, buy, buy!

But, oh those darn footnotes! Personal income increased only 0.1% in January, meaning Americans simply spent more money they didn’t have. The savings rate fell to 3.3%, its lowest since October 2008, reconfirming the consumption trend at play before the Panic of ’08. And suggesting another crisis will be required for those habits to die hard.

We recall suggesting the lessons of credit crunch had not yet been learned as far back as November on CBS radio’s Big Money Show. The forecast holds. A “recovery” that gets us back on the wrong track is no recovery at all.

  Copper will be the commodity to watch this week. Chilean infrastructure has prevented human carnage far less severe than in Haiti last month. But from a global economic standpoint, yesterday’s 8.8 doozy of an earthquake could wreak more.

Chile produces more than a third of the world’s copper. Roughly 20% of its capacity has been shut down by the quake. Traders plugged that into their calculators early this morning and got this:

Rising up to $3.48, copper was briefly over a one-month high. We’ll keep an eye on it this week…

  Oil is riding copper’s coattails. It’s back up to $80 a barrel today. Gold is holding its ground at $1,115.

  “The world may be running low on its most precious commodity — water.” Frank Holmes picks up on a theme that, thanks to our Chris Mayer, is quite familiar to Agora Financial readers.

“This map shows water scarcity projections for the world in 2025. Large chunks of Australia, Asia, Africa and North America are expected to have severe water issues. Credit Suisse estimates that by 2020, 37% of the global population will face severe water stress.

“The problem is unrelenting demand for a finite resource. Since the 1940s, the global population has tripled to more than 6 billion people worldwide. Over the same period, global water use has quadrupled.”

  “Water is quickly becoming one of the most important — if not overlooked — commodities on the planet,” our small-cap man Greg Guenthner chimes in. It’s becoming abundantly clear that the developing world is struggling to find sources of clean drinking water for its growing urban populations (China and India come to mind right away). But clean water is required for more than just drinking.

“While water scarcity in the U.S. and abroad has been thoroughly documented in the media recently, the importance of water in industrial applications has gone largely unnoticed. That’s the sector we’re looking into for the Bulletin Board Elite portfolio.

“The company that’s caught my eye develops water recycling services for industrial uses, specifically the natural gas industry. And if you know just how much water is used to drill for natural gas, you’ll realize how big of a deal this type of technology can be.

“When extracting natural gas from shale formations, drillers use a pressurized water-and-sand mixture to fracture the shale and free the gas deposits. It takes literally millions of gallons of water to complete this process, and much of this water returns to the surface. That means it has to be properly disposed of or placed in a holding pond for disposal. This is such an extensive process that it takes up approximately 5% of the energy company’s total revenue.”

[Note: For the ticker – and the rest of Greg’s small cap superstars – check out Bulletin Board Elite.]

  The dollar is rising today along with stocks and commodities. Stress in Europe seems to be overwhelming dollar gravity. Thus, the dollar index is up to 81-even, nearly a full point from Friday’s low.

   Speaking of those little green pieces of paper, Fannie Mae lost 72 billion of them in 2009, the pathetic government-sponsored enterprise (GSE) announced late Friday. That’s about $136,000 a minute.

Here’s Ian’s proposal for a new business plan for Fannie Mae: “Fire everyone except one janitor. Pay him to shovel stacks of $100 bills into the furnace all day, every day, all year. They’d save billions.”

Ian’s plan, of course, will fall on deaf ears. Fannie, in turn, will ask the Treasury for another $15.3 billion this week. Its total bailout tab will thus exceed $76 billion. For the same price, the Treasury could own outright a tiny little energy company like Conoco Phillips.

Fannie’s debt-addict loser of a brother Freddie Mac posted a smaller $21.6 billion loss last week too, if that makes you feel any better. He must be in recovery, too.

”Weight loss is an area we’ve been looking at for a long time now,” Patrick Cox updates readers Breakthrough Technologies, covering another diseased segment of the American psyche.

We watched the documentary Food, Inc. over the weekend. Among thousands of startling factoids in the film, this one stood out: One in three children born after the year 2000 will develop early-onset diabetes.

“Obesity is a major risk factor in various diseases,” says Patrick, “from arthritis and cancer to diabetes, hypertension and heart disease. Any drug that can help people lose weight safely is, therefore, going to offer true value. Moreover, obesity increases with age. As the baby boom, the wealthiest generation in history, rolls into its senior years, the demand and the need for an obesity treatment is growing dramatically.

“Until now, we haven’t chosen a company in this sector, for several reasons. One is simply that the field is crowded. There were a lot of companies and technologies to vet. Many people are working on fat drugs. Normally, this might have kept me out of the sector, but there’s room in this market for more than one winner. Buyers of these products often use them in combination.

“Another reason we were particularly careful is that we’re going to see brand-new strategies for weight control in coming years. These new approaches, which I expect from several new sciences, including RNA interference, will probably leapfrog anything that comes out in the next year or so.

“Nevertheless, the demand is so great and the FDA is so resistant to new technologies, I expect some serious profits from innovators over the next five years. More importantly, this company has the potential and platform to evolve into a major biotech success story with many other targeted therapies.”

Like it or not, there will be a lot of money to be made treating obesity in the U.S…. for a long, long time. Get Patrick’s answer to this crisis, here.

  “My son lives in China,” a parent writes, continuing our spurious debate: Is China more capitalist than the U.S.? “He has for the past two or three years. For the past year, he worked as an account manger for a firm that makes games for cell phones. He quit that job and just landed a job as art director for a Beijing theater company. He also acts in films, TV shows and commercials.

“The way he explains it, it’s like America was in the early 20th century, when opportunity abounded and everything was not sewn up. He’s speaking of acting and opportunities in motion pictures in particular, but I think it might be pretty much across the board. I know he’d never be able to do what he does in Hollywood.

“For him, Beijing is very exciting. He’s fluent in Chinese, and that makes him somewhat unique. He also mentioned that they hardly took any income tax out of his salary. Anyway, nothing like here in America.

“I visited him twice since he’s been in Beijing, and I can tell you the people there really have the entrepreneurial spirit. Everyone has a business, even if it’s a piece of cloth spread out on the pavement selling trinkets. Lack of a place of business does not stop them. And no one else does, either.

“On my last visit, I got sick and had to go to a Chinese hospital for blood test, X-rays and antibiotics. I was there for two days getting tests, but did not stay overnight. Total bill: $150.”

 

  “I lived and worked in Shanghai for a few months back in 2001-2002,” writes another. “My conclusions from that time, and my advice to folks considering starting or running a business there:

 

  • As long as what you are doing there is seen as a benefit to the Chinese, things are good
  • The rules change constantly, and “to the benefit of the Chinese” one day may not be the next
  • Do not rely on rule of law. Contracts are almost worthless
  • Allowing foreigners to live and work there is NOT so that the foreigners can make money and get ahead. It’s so that China can get ahead. You are a tool of production and will be used as such
  • Any intellectual property that you take to China will remain in China to benefit the Chinese. You may make your one sale, but any thoughts of continuing royalties are just silly.

“If you can make personal peace with that situation, you will enjoy your adventure in China.”

 

  “Hey, 5! Did anybody vote for India?” a third reader asks. “My money is riding on them. The U.S. is like England after World War I. It peaked and was heading down and has never really recovered. As to China, it has a severe shortage of young people, due to its one-child policy. Who is going to take care of the elderly — and at what cost? India has a plethora of young people. Vote for the underdog. China is too obvious a choice.”

 

The 5: We’re entirely agnostic on the debate. We like both India and China and want to have businesses in both. We also suspect that the development prospects in each country will yield greater investment opportunities over the next decade or more than in most developed sectors in the West, energy and technology most notably aside.

(Having said that, we don’t believe the one-child policy has had quite the reach or impact that you’re suggesting. Nor is a plethora of young in any developing country necessarily a good thing. We tackle these very demographic themes in the first “beta” issue of our new investment advisory. If you’d like to receive and comment on the first set of beta issues, we’re offering those issues free. Details here. Serious investors only, please.)

Cheers,

Addison Wiggin

The 5 Min. Forecast

P.S. “The trends we see in archeology are not surprising,” Greg Stemm, CEO of Odyssey Marine, told us before he began his presentation to an audience at the British Museum on Saturday. “They are symptoms of the overall move toward socialism and government intervention in markets that is sweeping the globe right now.”

   

We were in London over the weekend to capture some of Greg’s adventure on film for our new documentary. Greg has been spending an inordinate amount of time debating academic archeologists and defending the commercial model he has proposed to the governments of Spain, the U.K. and the United States, for excavating shipwrecks and salvaging tradable goods like coins that are currently resting in the deep waters of the Atlantic.

Specifically, we’re interested in the legal debate surrounding the “Black Swan” discovery off the coast of Gibraltar. The coins have been assessed at some half a billion dollars. But up to this point, Spain has successfully thwarted Odyssey’s claim to the wreck by invoking an arcane law meant to protect U.S. naval secrets during the Cold War. What happens next is anyone’s guess… Spain lacks the funding or the technology to recover the coins themselves. Stay tuned.

P.P.S. It won’t be long before our latest deal on Options Hotline will be swept off the table. We’re flat out guaranteeing your satisfaction AND the opportunity for big returns… details here.

rspertzel

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