Paper promises

by Addison Wiggin – January 13, 2011

  • Hideous housing numbers highlight paper promises versus tangible wealth

  • Two charts that ought to shut up the “gold is a bubble crowd” (even though they won’t)

  • Another “wealth quake” setting off early tremors… HIV vaccine successfully tested

  • USDA cuts world grain forecast, corn prices now nearly double what they were 6 months ago

  • Behold the world’s biggest gold nugget… found just last year and now up for auction!

  • More overseas reaction to the Tucson shooting… and big gains for Mayer’s Special Situations readers, plus a cautionary note about “stop losses”…

Home prices have now fallen farther from their peak than happened during the Great Depression.

Sorting through the news this morning, we detect a common thread: IOUs gone bad and the inevitable response — a search for tangible wealth.

Since 2006, the average home price has fallen 26%, according to That’s a greater percentage than the 25.9% drop registered from the plunge that helped kick off the Great Depression from 1928-1933.

And for the record, home prices have now fallen for 53 straight months. They fell 0.78% in November, the fastest pace since February 2009.

Still, that trend remains in the works. Look for a 20% increase in the number of foreclosure filings this year, says RealtyTrac.

The real estate forecasting firm says 2.87 million homes got a notice of default, auction or repossession last year — up only 2% from 2009. The foreclosure pace slowed briefly during Q4 2010 following the “robo-signing” scandal.

But the pace is already picking up again: Foreclosures grew 4% between November and December. “There are 5 million seriously delinquent loans not yet in foreclosure,” says RealtyTrac’s Rick Sharga. “They’ve got to eventually get in the pipeline unless the homeowners cure the defaults.”

That ultimate in paper promises, the U.S. dollar, is taking a severe hit today. The dollar index has tumbled to 79.1, its lowest level so far in 2011.

Ordinarily, this would put some wind in the sails of gold, but not today. The spot price sits at $1,384. No doubt this will give cheer to the “gold-is-a-bubble” crowd… but overnight Byron King sent us a compelling pie graph that tells us how gold still pales in comparison to other assets:

That’s impressive enough… but when you look at it historically, it’s simply staggering. Here’s a chart sent our way by Gold Switzerland’s Egon von Greyerz, showing gold and gold stocks as a percentage of global assets:

Dare we point out that that all four of those larger bars happened to mark major stock market bottoms?

“Enormous economic, scientific and sociological trend lines are coming into focus,” says Patrick Cox. “And I’ve got to admit that I’m feeling better than I have in years about our future.”

And why shouldn’t he?: The last couple of weeks have brought staggering new developments, some of which we’ve detailed here…

  • One company just took a huge step toward bringing a revolutionary treatment to market, one that could knock out both heart disease and autoimmune disorders

  • Another company is about to begin human trials of an Alzheimer’s treatment that actually treats the disease, not just the symptoms

  • And a third company just completed a 100% successful trial of a vaccine that knocks out a terrible strain of monkeypox.

Now that last company has made another breakthrough: Tests reveal one of its vaccines “actually protects rhesus monkeys from the predominant HIV-1 strain in sub-Saharan Africa, India and China.”

This is another instance of a “DNA vaccine.” As Patrick explained here on Monday, the beauty of a DNA vaccine is that “rather than introducing into the body an actual virus, only the antigen that would be recognized as foreign is introduced.”

The potential is staggering: “The company is proving to the world now that their platform of DNA plasmids will do exactly what they say it will do. When they accomplish Bill Gates’ goal of curing malaria, which I believe they’ll do in the next few years, the entire financial and medical world will know this company’s name.”

You, on the other hand, can know this company’s name today. It’s one of the five “wealth quake” opportunities Patrick sees lining up in 2011. You can learn about all of them… and get a membership in Breakthrough Technology Alert for more than half off the regular fee. You can find all the details here… Just know that this offer expires at midnight tomorrow night.

Here we go again: The U.S. Department of Agriculture just cut a key harvest forecast… and grain prices are going to town.

On Oct. 8 of last year, USDA cut its outlook for the U.S. corn crop by 3.8%… and grain futures traded “lock limit up” — the exchange’s maximum allowed one-day rise.

Now? USDA issued a global outlook… and it’s grim:

Floods in Australia will cut the wheat crop by 2%. Drought in South America will cut Argentina’s corn crop 6%:

  • Add that to the lingering impact of last year’s calamities — drought in Russia, floods in Pakistan

  • And then there’s the outlook stateside: U.S. corn reserves will fall to their lowest in 15 years by next fall, and soybean reserves will fall to their lowest in 30 years.

The result… Corn and bean prices jumped 4% yesterday, wheat 1%. Corn is now up 94% from its June lows, beans 51% and wheat 80%.

This comes on the heels of last week’s report from the U.N. Food and Agriculture Organization — its index of global food prices just set a record, higher than during the crisis of 2008, when food riots broke out across the developing world.

So here we go again…

  • Riots broke out in Algeria last weekend, thanks in part to rising prices of sugar, milk and flour. At least five people were killed and 800 hurt in what’s described as “the worst rioting in decades”

  • Next door in Tunisia, the government has imposed a nighttime curfew in the capital and surrounding cities. The official death toll since late last year is 23; it all started when a student set himself on fire because police stopped him from the “unauthorized” sale of fruit and vegetables.

True, much of this is backlash against corrupt and/or authoritarian regimes. But it took empty bellies to finally bring the rage to the surface.

As we’ve pointed out before, these rising costs are bad news for food companies if they can’t pass along their rising costs to customers. Actually, evidence of margin squeeze is becoming evident across all industries.

Thus, this morning’s Producer Price Index from the Commerce Department: It rose 1.1% in December, driven mostly by — you guessed it — food and energy. The year-over-year increase is 4%.

And that’s just for finished goods. For crude goods, the year-over-year increase is a staggering 15.5%.

The stock market is taking these data in stride, the major indexes down a mere 0.2%. Nor are traders fazed by the weekly numbers for first-time unemployment claims — 445,000, the highest in two months and way above the Street’s guess.

The world’s biggest gold nugget is about to go up for auction:

The “Washington nugget” weighs in at 100 ounces, or 6.8 pounds — it’s about the size of a small loaf of bread. And while it turned up in California Gold Rush country, it escaped the notice of the Forty-niners.

A man searching his own property near Nevada City, Calif., found it just last year. He took it to geologist Fred Holabrid, who called it “one in a trillion.” We can believe that: Before this, the biggest California nugget still in existence (housed in the Smithsonian) weighed 80 ounces.

In light of the current spot price, the nugget is worth $139,100. But given the sheer novelty of the thing, Holabrid, who’s handling the auction, hopes it’ll fetch twice as much when it goes on the block on March 15.

“Yes — I purchased 1,000 shares of Consolidated Thompson on July 14, 2009, at $3.47 per share, with Chris Mayer’s recommendation,” writes a reader who’s tickled pink with yesterday’s acquisition announcement by Cliffs Natural Resources.

“I sold 700 shares in 2010, recouping my original cost plus an 80% profit. I still have 300 shares, which I will sell and move into a new recommendation from Mr. Mayer. Great work, Chris!”

“Yes, I did buy CLM in summer 2009 at $3.20,” says another. “Unfortunately, I sold during the pullback in summer 2010 at 7.95. I did OK in 12 months, 148%, but could have done much better. The story of my life.”

The 5: Sorry you exited the position early. It’s worth noting, Chris steers clear of the conventional wisdom about setting stop losses for this very reason. “When something I know is cheap gets cheaper, why sell it?” he wrote in this space just last week. “If anything, I think about buying more.”

This is why Mayer’s Special Situations readers are up 166% on a natural gas producer, even as natgas prices languish. It’s why they’re up 105% on a gold miner in just eight months. And it’s why those with patience will collect 466% on Consolidated Thompson. To learn about the newest opportunities on Chris’s radar, check this out.

In reply to the reader who wrote yesterday, “We have no intention of allowing our system to deteriorate to the point that China has,” another reader says:

“Wow. I lived in China for a while. One thing I concluded. Their system is different than ours. But it sure isn’t different because of some process of deterioration! It’s different by design. It’s different on purpose. There are no dummies leading China.”

“Sorry, goofy, you’re too late!” another reader piles on. “Furthermore, do not suggest that the Chinese are in worse shape. They own you.”

“I commend Addison for writing the letter to Sen. Reid and others in Congress. However, I suspect that it will be totally ignored, knowing that the ‘debt ceiling’ has been a total farce for many years, or get the reaction ‘tell us something we don’t already know.’

“My concern is that Addison followed the example of many that have raised the debt issue before and referred to leaving the debt and its solution to our children and grandchildren. We’ve been hearing that for 50 years — the truth is that the children and grandchildren are us!

“The crisis isn’t 20 or 30 years down the road; it’s maybe two or three years ahead, if that long. As you have speculated of the possible upcoming scenarios, the one by far the most likely is continued debasement of the currency, resulting in inflation of 10% or more per year, or, if it can’t be controlled to that degree or our creditors quit lending, hyperinflation.”

“Regarding Jared Loughner,” writes a South African reader, “it is clear to me that there is developing in the U.S. and other Western countries a revolutionary trend. A trend or fashion such as this does not start with ringleaders stirring up the masses. It starts as any fashion does as an organic development with a seeming life of its own.

“If you consider that we are animals, then it is likely that we exhibit herding behaviour similar to wildebeest herding across the veld.

“You get all types of people involved in this trend, and each person will be held responsible for their actions according to what is generally accepted behaviour at the time. Jared Loughner is simply one person reacting to this developing trend in his way.

“Over time, what is generally accepted behaviour changes radically. In the French or Russian Revolutions, assassinating the previous regime’s political leaders was generally acceptable behaviour at the time.”

“We will see more violence in the future,” adds another. “They’ve misspent my Social Security. They continue to give my tax dollars to thieves, beggars and themselves, and are not really ‘helping’ anybody but themselves. Power and greed from Washington to Wall Street. More regulations than any country should have to endure.

“And I guarantee horrendous times coming, unless they change. Do I have to tell you who ‘THEY’ are? Unless they change, yes, I am inclined to believe there will be lots more violence. I don’t think I’m violent yet, but I’m damn sure pissed off.”


Addison Wiggin

The 5 Min. Forecast

P.S.: “Well,” writes a skeptical reader, “Mr. Cox is all for investing in products and methods that are designed to lengthen life span — but the U.S. government is all for reducing life span to save money.

“Let’s see what the FDA has to say about Mr. Cox’s new products and methods — let’s see what the Obamacare machine has to say about this.”

You’ve fallen victim to the “it’s-all-about-us” fallacy. It’s a global market out there and what the “Obamacare machine” has to say is largely irrelevant to the global potential of the companies Patrick follows.

For instance, one of Patrick’s leading stem cell research companies launched an operation in China last year, thanks to a more friendly regulatory environment. “Whereas our FDA often acts to protect established pharma interests,” says Patrick, “Asian authorities are consciously attempting to establish new medical industries to compete with American companies and technologies.

“Luckily, investors are not restricted by national borders and can follow the science and profits wherever they find a friendly home.”

To date, that company has been a ten-bagger for Patrick’s early readers. And it’s not too late to get in on the five “wealth quakes” he sees coming for 2011. But after midnight tomorrow night, membership in Breakthrough Technology Alert returns to full price. Best move on this now.


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