Technology Trumps Entitlements

by Addison Wiggin

  • How science could rescue us from the looming Medicare meltdown
  • Dollar down, gold up (again)… Richard Russell on how long it can last
  • Stocks fail to rally on dollar weakness… The number that’s a drag on the market
  • White House unveils ingenious successor to “cash for clunkers”
  • “I love the free stuff”… Longtime readers have a message for newbies

We begin this morning with a radical thought: The advancement of science and technology might — just might — help contain the entitlement mess we’ve warned about for lo these many years.

Consider just two figures…

  • The Medicare program faces an unfunded liability of $38 trillion over the next 75 years. (When we filmed I.O.U.S.A. just over two years ago, it was $34 trillion)

  • The cost of caring for U.S. heart disease patients amounts to $316 billion a year, according to the Centers for Disease Control

Those numbers include tests, drugs, hospital stays, the works.

What if medical breakthroughs — a cure for heart disease or Alzheimer’s, for example — could bring those costs down… and reverse the growing burden of Medicare?

The cost of caring for cancer patients alone: $72 billion a year, according to the National Cancer Institute.

The cost of caring for Alzheimer’s patients worldwide is $604 billion every year, according to Alzheimer’s Disease International. 70% of that is spent in North America and Western Europe. So figure the U.S. share is about $250 billion.

“The U.S. is unprepared to handle the massive human and economic burden,” says Harry Johns, president of the Alzheimer’s Association, “that is building as a result of the growing number of people with Alzheimer’s disease.”

And he’s not even thinking about the state of Medicare when he says that.

“Cancer, Alzheimer’s, Parkinson’s, heart disease — these are the great plagues of our time,” says our science and technology analyst Patrick Cox. And science is making startlingly fast progress fighting them all.

For instance, one company “could shatter the cholesterol drug market as we know it,” says Ray Blanco, the newest addition to our tech team — “and in the process take over a $12 billion a year cash stream.”

$12 billion is about what Pfizer makes selling Lipitor every year. This company — and it’s not some fly-by-night outfit; it’s been around for 20 years — is sitting on an entire platform of research that could easily horn in on Pfizer’s territory.

The science gets a bit complex, but Patrick describes the gist of it: “The human body already holds the solution to everything that could go wrong with it. The problem is processes inside the body actively “block” us from using these cures to eliminate disease. The trick is to let the body realize its full disease-fighting potential.

This company holds 1,500 patents and lifetime intellectual property sales of $355 million… and it’s on the cusp of making big things happen.

When they do, the profits come very fast. We’re seeing examples of that just this week…

On Monday, Geron Corp. revealed stem cells it developed are now being used to treat a human patient for the first time. The stock popped, and Patrick Cox said it was time to take 82% profits. He sees even bigger and better opportunities elsewhere.

The next day, a small drug maker called King Pharmaceuticals jumped 39% after a buyout offer from Pfizer. From its low in late June, investors could have collected 86% gains.

That’s the sort of quick, explosive potential these stocks have.

But this isn’t about making a quick 80-something percent (nice as that is). This is about identifying companies that will literally change the world, companies that will build wealth for yourself and the next four generations after you.

“The fortunes to be made in the drugs that could destroy these diseases,” says Patrick, “could fuel generations of wealth — and health — for you and your family.”

That’s the kind of opportunity Patrick and Ray have pinned down after two years of research they revealed yesterday. If you haven’t had the opportunity to check it out for yourself, here’s your chance. We’ll be keeping close tabs on these companies and ideas here in The 5, but for the nuts and bolts, plus the tickers and prices, you’ve gotta tap your wallet and kick in for a subscription. Thank you.

Meanwhile, back in the markets: Another day, another back-whacking for the greenback. The dollar index has broken decisively below 77. As we write, it sits a little above 76.5. From here, it’s not that far to the 2008 lows near 70. And with it, rising oil, energy, precious metals, commodities, food, tuition, health care, gas, clothes, drinks…

No surprise, gold is setting another record, as it has just about every other day over the last month. After poking its head above $1,380 an ounce in overnight trading, the spot price has pulled back a touch, to $1,375.

“Gold is overextended and overbought,” observes Richard Russell, the dean of all newsletter writers everywhere. “So what else is new? Everybody knows that, and what everybody knows in this business is usually worthless.

“This is one powerful bull market, and so far, the gold bull isn’t giving bears a snort. So I sit with my gold position and wait for the ‘dollar-bugs’ to be right. Would you rather sit with dollars or gold?”

Looking at his charts, Russell concludes, “Gold could decline to the $1,300 level and still be in a bullish trend.”

Silver has pushed past $24 an ounce. As of this writing, it’s at $24.32.

For once, a falling dollar isn’t propping up stocks today. The major indexes are flat as traders ponder these conflicting data points…

  • First-time unemployment claims: Up last week, back above 450,000. That would confirm traders’ belief the Fed will unleash a flood of money at its next meeting (“quantitative easing”), now less than three weeks away

  • Producer price index: Up 0.4% in September. Compared to a year earlier, wholesale prices are up 4%. In fact, we see an unbroken string of year-over-year increases throughout 2010 ranging from 2.8-5.9%.

Yet the Fed’s official line as indicated by the minutes of their latest meeting released yesterday show the governors are still worried “there’s not enough inflation.” Until they change their mind, you can expect the dollar index to continue on its current path.

Bowing to the corn lobby, the Obama administration has approved boosting the amount of ethanol in fuel blends from 10% to 15%.

Aside from accelerating the utter waste of resources, the idiocy of using food for fuel in an era of growing food scarcity, and government subsidies for an industry that could never make it in a free market… what could go wrong?

Well, this: 15% ethanol is suitable only for cars built in 2007 or later. Splash some into a car built before 2001 and the ethanol could actually destroy your engine.

The EPA says if gas stations want to sell “E15,” they’ll have to label their pumps with a clear warning label, perhaps like this one:

Then again, maybe this is political genius at work. This is the same bunch who agreed to give you a tax credit if you turned in your perfectly serviceable used car so you’d spend money for a new car.

Since the “cash for clunkers” program is over… more direct and aggressive action is apparently warranted. The program spurred the purchase of 700,000 new cars last year. Who knows how many purchases this might stimulate?

Brilliance, sheer brilliance.

“I love the free stuff!” says a reader in response to the complaints in yesterday’s edition. “These reports are full of information if ya just read between the lines. I have a few of the less-expensive subscriptions — Outstanding Investments, for one — and spending time with Byron King is awesome.

“I am a little player, but reading all the free stuff over time provides an intense amount of thought and information. Geez, everybody wants something without any effort.

“Hmm…. a reflection of the current American way?”

“As a regular reader of The 5 since its inception and a longtime Agora follower, I take exception to the exception that your newsletter is just a collection of teasers. Sure there are the (rightfully) shameless self-promoting links that pay the bills.

“Anyone who is a capitalist should understand and anyone who isn’t shouldn’t be reading. I find that The 5 offers a succinct summary of key current events across both market and political realms. That you take the time to provide consolidation, comment and analysis is a great and selfless service.

“Do I subscribe to all of your investment subjects? No. Am I an Agora subscriber? Yes. How did I decide what to buy and what not to buy? I ran it through the filter of my own investment perspective. In other words, your publication provides fodder for thought. It’s still up to me to use my own brain and vote with my wallet accordingly.

“I remain accountable for my own choices and consequences.”

“And as for the French comments,” our reader adds helpfully, “those of us who ‘get’ The 5 expect a little ironic satire directed toward the pedestrian thinking of too many Americans.

“How un-French that your colorfully disgruntled reader missed it!”

“I always like to point out,” writes an American living in France, bursting our bubble, “that it’s not JUST the gratitude for French help during the Revolution that should be duly noted.

“Aside from good wine, Laetitia Casta, and Brigitte Bardot, the French also don’t hasten (do they every do ANYTHING quickly?) to mention the many years we let them and the rest of Europe duke it out solo against invading Germans, in both wars.

“Here we went about renaming side dishes in the U.S. to protest France’s few months of reluctance for getting sucked into Iraq (which it turns out would have turned been a good decision, if they had held to their convictions). Yet as the bodies piled up in fierce REAL fighting on French soil — by the tens of thousands — we hemmed or hawed or both about helping our European allies, letting them go it alone from 1914 until late spring 1917.

“Male populations of whole towns were wiped out on the battlefield. So many that there weren’t enough to father the generations that would be turning just 20 years old (at the oldest) when the Germans rolled over Europe again, starting in 1939. Yet still hobbled, France — generationally, militarily and financially — declared war within 38 hours. This from a nation of mostly very old, very young and war widows.

“Or as people in Middle America who don’t have passports like to say, ‘surrender monkeys.’”

The 5: Now you’ve done it. You’ve gone and unmasked our irony and taken it seriously. To which we can only respond, if the writers of The Simpsons hadn’t come up with the term “surrender monkeys” 15 years ago, where would we be as a culture today?

Addison Wiggin
The 5 Min. Forecast

P.S.: “Man, you guys make it really hard to buy!” complains a reader after we announced the launch of Technology Profits Confidential. ”I’m afraid I don’t have the time to listen to the endless blather, much (but not all) of which I sat through this morning during the Patrick Cox pitch.

“I never did buy because it took you so long to ask for the order. What’s up with that?! And what’s with all this verbal diarrhea anyway? Prefer you ‘go on the paper’ and let me get to the bottom line (pun intended) at my pace, not yours.”

“‘Sides, it can be tough to justify sitting through a half-hour TV show with the boss sitting on the other side of the wall!”

The 5: At least we’re helping you get your work done. If you’d like to order now, here’s the order form itself. No TV show required.

P.P.S.: Yesterday, we committed a mistake worthy of an urban legend.

We fouled up the phone number to call if you’re interested in receiving a “bundled” deal combining your existing subscriptions with recommendations you don’t currently receive. By attaching a (800) before our own telephone number instead of the true (866) we inadvertently sent readers to a… umn, how shall we say it… stimulus line, but not of the government spending kind.

If you’re really interested in saving money on subscriptions to Agora Financial advisories… you can reach John Wilkinson at (866) 361-7662. That’s (866) at the front of the number. Mr. Wilkinson or a representative of his staff will review your account and tell you what discounts you’re entitled to, down to the penny. (Thanks for your patience if, in fact, you’ve already called in and a different kind of sweet talker answered. Try again, please.)


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