American Healthcare, Hyperinflation (And Lack Thereof), Stem Cell Investing, College Tuition and More!

by Addison Wiggin & Ian Mathias

  • The first product of health reform: lawsuits… Bill Bonner on why social medicine works better abroad than in the U.S.
  • Patrick Cox offers a worthy primer on stem cell investing
  • Dollar rises, gold falls (again)… why hyperinflationists might have it wrong with I.O.U.S.A.
  • Yet one asset class suffers massive inflation: another look at soaring college tuitions


  If yesterday’s health care reform enactment proved anything, it’s this: Americans still love to sue each other.

The ink was still wet on President Obama’s signature when 14 states filed lawsuits against the federal government. Most of ’em can’t afford to sustain business as usual, let alone the new fiscal strains of national health care and a large mandated expansion of Medicaid. California — of course, the most extreme example, but ironically not among the states suing — says the bill will cost the state $2-3 billion annually… kind of a big deal, since they’re already facing a $20 billion budget gap.

Best to settle this the honorable way… sue the bastards! No doubt these lawsuits will be resolved quickly, efficiently and in the best interests of American citizens, like always.

  “The French media report the passage of the health care reform bill as though it were the Emancipation Proclamation,” reports Bill Bonner in his latest Daily Reckoning. “Now Americans have finally entered the modern world, they seem to say. Now Americans have access to health care as a matter of right…

“But France is not the USA, and the French system is not at all what the Obama team has come up with.

“The French system works as well as it does because the French are very critical, intolerant and demanding… of themselves as well as each other. At least they used to be…

“It is still rare to see a very fat person in France. People are expected to take care of themselves. They are expected to eat properly. Unlike the English, they do not drink to excess. And unlike Americans, they do not shoot each other on street corners. The concept of behaving “correctly” applies to ones’ health as well as to everything else. People are expected to act correctly — that is, in ways that do not put too much strain on the public health system.

“What’s more, there is little ambulance-chasing by lawyers in France. Doctors and hospitals do not live in fear of lawsuits…and in our experience, pharmacists give out advice, and medications, fairly freely.”

  The stock market rallied again yesterday. The S&P rose 0.7%, to 1,174, an 18-month high. We note, again, that despite protests from all corners, the market has so far given a seal of approval to the health care reform… if only in the very short term:

We remind fellow defenders of the free market that this reform has many, many layers… most of which involve lots and lots of lobbyists. It’s their job to make sure bills just like this one benefit their employers.

  “It’s vital that you’re up to speed on the four different types of stem cells (SCs),” says our breakthrough investor Patrick Cox. In the midst of all the health care debate, two of his SC companies announced serious breakthroughs. Shares of one of those companies are up about 40% this month alone. No better time for a stem cell primer, Patrick thought… and we agree:


“Adult Autologous SCs — SCs taken from donor bone marrow and fat tissue, cultured and readministered to the donor for therapeutic purposes. These solve the immune and ethical problem, but do not compare in power to the other three types, nor are they ‘young,’ meaning maximum telomere length.


“Embryonic SCs =- These cells are taken from embryos and are therefore ethically objectionable to many people. They have efficacy and are young, but they provoke an immune response.


“Induced Pluripotent SCs — These are SCs that are created by genetically engineering normal adult cells to revert to SC status. They have efficacy and solve the immune problem because they are the donor’s own cells. Last week, a company in our portfolio proved that they can also be made ‘young.’


“Parthenogenic SC — These SCs come from unfertilized oocytes, the cells that if allowed to develop, would become ovum. They are, by definition, young. They have no ethical problems, because they are not embryonic. They solve the immune problem through the creation of an HLA-typed cell bank. Last week, a different company in our portfolio announced evidence that they have efficacy.

“Once you’ve got those covered, it’s equally important to take a look at what each treatment is capable of…

“The above chart, and corresponding announcements, are simply fantastic news — notably for iPS and hPS.”

Recent developments in stem cell technology have given Patrick’s readers some incredible returns — including one stock that has skyrocketed over 830% since Patrick recommended it in the summer of 2008. No kidding — over 830%. That’s a life-altering return. Get the scoop here.

  The dollar is rallying today ahead of the EU summit later this week. Still unconvinced the euro powers will bail out Greece, traders have bid up the dollar index over a full point so far this week. It’s at 81.7 as we write, a 10-month high.

  Also giving the dollar a boost — Fitch downgraded Portugal’s sovereign credit rating this morning. Rest assured, that doesn’t improve Greece’s odds for an EU bailout.

  Thus, gold is having yet another tough day. The spot price is down another 10 bucks, to $1,090 an ounce.

“There are undoubtedly many people in long gold positions wondering whether the old yellow dog is going to get up and bark again anytime soon,” writes our macro sage, Rob Parenteau. “Although hyperinflation hyperventilation has been catching on in recent months, especially amongst the deficit errorists, gold has been dead money since late November 2009.

“What gives? We lay it all in the June issue of The Richebacher Letter in a section titled ‘Weimar 2.0.’ As we point out, hyperinflation requires extreme conditions not just on the demand side, but on the supply side as well.

“On the demand side, in order for households’ spending power to keep up with rising prices, household nominal incomes or credit access must be ratcheted up in sync with price hikes or the price hikes will not stick. Households will have to pull back in other, less-essential spending areas to afford the same quantity of goods in essential items…

“That is why hyperinflation episodes need not just fiscal deficit spending, but also some sort of escalator clauses or cost-of-living adjustment mechanisms built into wage contracts… Take that element away — and it is a recurring theme in historical episodes of hyperinflation — and households cannot keep up with hyperinflation. The higher prices cannot get validated by higher consumer spending. The hyperinflation flares out.

“Beyond this demand-side component, which is scarcely to be found in the U.S. wage contracts these days, there is the supply-side issue. Productive capacity must be closed or abandoned in order for the hyperinflation to really rip…

“Suffice to say that hyperinflation takes a very special set of conditions. It is not, contra Paul Krugman, all about fiscal deficits, nor is it only about fiscal deficits. That is why we do not see hyperinflation breaking out all over the place on any given day, despite the fact the governments have to first create the money that you use to pay taxes or buy Treasury bonds.”

  Extreme price inflation is already rearing its ugly head… at American universities. Harvard and Stanford both announced this month that tuition (and “fees”) at these storied universities will cross the $50,000 mark for the first time in 2010-2011 school year. Public higher-ed costs are soaring, too… up 15% next year in Florida, 9% in Illinois, 14% in Washington state, and California — in all its budget glory — will jack up public tuition as much as 30% next school year. In-state tuition at UC will reach $10,302 next year, up 32% from 2009 and three times what residents paid at the turn of the century.

“A good rule of thumb is that tuition rates will increase at about twice the general inflation rate,” says financial aid Web site “During any 17-year period from 1958-2001, the average annual tuition inflation rate was between 6-9%, ranging from 1.2 times general inflation to 2.1 times general inflation.”

Do the math… that means if you have a kid this year, college costs will be around 3 times as expensive by the time he’s ready. Gulp.

  Meanwhile, 11% of California’s state budget goes toward its massive penal system. That’s roughly $8 billion spent each year keeping people in jail — more money than the state spends on higher education. The New York Times noted California’s “astonishing 70% recidivism rate” this morning. Heh, with spending priorities like that, how can it be even the slightest bit astonishing?

Not coincidently, the state government is mulling plans to release roughly 4% of its inmate population over the next year. California simply cannot afford to keep its 167,000 jailbirds.

  “Getting out of our wars to solve the deficit was a comment yesterday,” a reader writes. “Since about 45-50% of war costs are personnel costs, there will not be a large savings unless service members are discharged. Guess what that will do to the unemployment figures! There is no FREE ride to reducing the deficit.”

  “I’m getting a little exasperated on the mixed reads of Mr. Market,” a reader writes. “Today, we learn from the redoubtable Marc Faber that large-cap stocks are not ‘particularly expensive’ and he would go long on energy, and in his view the S&P should outperform emerging markets. Similarly, your technicians over at Penny Sleuth are oft telling us we’re ‘breaking resistance,’ ‘trending out of channel’ to the upside, and we should get ready for the next ‘leg up’ (not to mention the ever-optimistic Patrick Cox, who suggests that the technological advances will save our faltering economy from collapse).

“In the other camp, Mr. Bonner, the Mogambo Guru and Doug Casey continue to hunker down at threat-level red (TLR), having been for some time now waving their crash flags from their secure and well-stocked bunkers. Joined by them is Dan Amoss, whose short recommendations on commercial REITs I would dearly love to see vindicated, as they continue to seemingly defy gravity. 

“Don’t get me wrong, this is a smart and accomplished bunch that has produced some great analysis, I just wish there was more consensus among the editors that I like to follow most!”

The 5: Funny, that independent thinking is what we like best about our cast of characters.

  "Of the 104 senior execs,” a reader writes, this one referring to the statistic we cited yesterday that proves Wall Street firms don’t need huge compensation budgets to keep their execs, “could be that of the 16 that jumped ship, they are the ‘mercenaries’ who lack any sense of loyalty, or moral compass, which to a prudent management would not be as valuable as first thought? Or does it say that the 88 who stayed are not as valuable as first thought, because in this crummy economy, they can’t find anyone else that wants them.”


Ian Mathias

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P.S. Yesterday, we introduced the best deal we’ve offered in years. It’s still on, but it won’t be for long… a new kind of elite subscribership, tailored for serious, long-term value investors. Personally, I think it’s a great idea. Details here.


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