Old Fortunes… And New Ones

Addison Wiggin – June 21, 2011

  • Greece, housing, the Fed… The 5 goes Alfred E. Neuman and stops worrying for a day
  • How the 1930s brought more technological advance than any other decade in the 20th century
  • FDA slams smoking-cessation drug (again), to the benefit of a nondrug treatment with limitless potential
  • Gold perks up as India loads up… What’s driving a housing comeback in Miami, of all places… and another on-site report from Vancouver

   The financial world is on tenterhooks this morning…

  • Greece’s parliament is holding a no-confidence vote, on which future bailouts and the future of the euro hinge
  • Existing home sales in May, despite all the statistical fudging at the National Association of Realtors (NAR), dropped to a six-month low
  • The Fed is meeting to figure out how much more air it can let out of the stock market before launching QE3… We’ll have an answer tomorrow with a Fed statement and, God help us, Ben Bernanke’s second news conference.

“It is easy for us to get discouraged in this economic climate,” says our tech maven Ray Blanco, “but we shouldn’t. We are living in the most technologically productive period of all history.

“The negative parallels between now and the Great Depression are not lost on many, yet the positive ones are. Most people do not realize how technologically productive the 1930s were.”

Ray dug up some academic research to remind us…

   “The years 1929-1941 were, in the aggregate, the most technologically progressive of any comparable period in U.S. economic history,” according to a paper published in The American Economic Review. Professor Alexander Field of Santa Clara University supports this assertion with two main points…

  • Businesses implemented or adopted new technologies and practices on a more widespread basis. The result was “the highest rate of measured peacetime peak-to-peak multifactor productivity growth in the century”
  • Researchers produced advances that expanded businesses’ reservoir of production techniques. This, says the professor, provided “the basis for much of the labor and multifactor productivity improvement of the 1950s and 1960s.”

New fortunes were built in the ’30s on innovations like radios and refrigerators.

“Discoveries and innovations are being made right now,” says Ray, “that will create vast fortunes in the years to come.”

Ray reminds us of the classic story about the late John Templeton: As World War II loomed and the Depression dragged on in 1939, he invested $10,000 in a basket of stocks. “By the end of the war, that investment had yielded hundreds of percent worth of gains. He used those profits to build a vast fortune over the following decades.”

As awful as the data reveals the economy is right now, this may actually be your moment to start building a fortune. Ray and Patrick Cox intend to. Check out how they plan to play their cards, right here.

   Shares of the pharmaceutical giant Pfizer are starting to recover from rotten news last week about its big-deal smoking cessation drug Chantix. The FDA concluded Chantix might have something to do with an increase in heart attacks in patients who have heart disease.

In the five years Chantix has been on the market, it’s been the subject of constant FDA safety reviews. For instance, in 2009, the agency ordered a warning be put on the label about “serious neuropsychiatric events.”

Despite all this, Chantix notched sales of $755 million last year. Smoking cessation is big business.

   “The standard smoking-cessation aid is nicotine chewing gum,” Patrick writes, following another lead. “Unfortunately, the success rate for nicotine gums is barely higher than normal chewing gum.” Long-term users report unpleasant side effects like hair loss.

Patrick recently made the acquaintance of a scientist and entrepreneur who was determined to give smokers something they could use to quit without any knock-on effects. This man hired scientists to find out if there’s something other than nicotine the human body craves with tobacco.

And they found it. It’s a compound that also shows up in tomatoes and red peppers. Best of all, because it’s not a drug, this compound didn’t require the extensive battery of FDA tests before it could go on the market.

After it arrived in stores, “users began reporting more-than-successful efforts to quit smoking,” Patrick says. And the company’s stock price began to rise.

But more intriguingly, “People began talking about unexpected improvements in a range of inflammation-related conditions. Though anecdotal, evidence began to mount.”

As we’ve noted before, scientists have increasingly come to believe that inflammation is behind nearly all the afflictions of aging — from cancer to heart disease to Alzheimer’s disease. Is it possible something in this smoking-cessation supplement could actually stall the aging process?

After months of research, Patrick has come to believe the answer is yes. Imagine the wealth-building potential of a company that could do everything this humble compound found in tomatoes appears to do. But don’t take our word for it. Let Patrick lay out his research for you right here… and see why he thinks it could be “the last stock you ever need.”

   For the moment, major U.S. stock indexes are adding to yesterday’s gains. The Dow has pushed past 12,100.

Yesterday’s action brought more good news to Steve Sarnoff’s Options Hotline readers. His Sunday night recommendation — call options on a major telecom — jumped 33%. Meanwhile, a previous recommendation — put options on a tech giant — was up 184% after two weeks.

Steve’s next recommendation comes this weekend. You can be ready for it by subscribing to Options Hotline here.

   Gold is edging up again today. At last check, the spot price was $1,545. Silver’s up to $36.39.

   India’s gold imports have more than tripled in the past year — rising 222%. “People in India have accepted high inflation as a reality of life,” says Rajesh Shukla of the Centre for Macro Consumer Research… and Indians increasingly see gold as an inflation hedge.

Last month alone, imports totaled $8.96 billion. Imports in a typical year total $22 billion… so something’s definitely afoot. One more reason we say it’s not too late to get rich with gold.

   We’ve finally figured out what it takes to revive one of the nation’s most moribund housing markets: buyers from a foreign country with an appreciating currency and expensive real estate at home.

Brazilians account for up to half of the high-end condo sales to international buyers in downtown Miami, according to International Sales Group. The trend is “growing geometrically,” says ISG president Craig Studnicky. “Next year, it’s clearly going to be the dominating force.”

The Brazilian real has climbed 45% against the dollar since 2008. Meanwhile, property prices in Rio de Janeiro and Sao Paulo now exceed those of any U.S. city.

Capri, South Beach, and a Brazilian Favorite

Brazilians have gone bargain hunting in Miami. They’ve helped propel total sales in the Miami condo market up 92% year over year for the first four months of 2011.

Of course, Miami is a unique case with a long and storied history of Latin American influences. Somehow, we doubt Brazilians will push a similar high-end housing revival in Las Vegas or Phoenix.

   “Vancouver Police have received over 1 million pictures,” writes a reader with another update from the host city of our annual Symposium, “and over 1,000 hours of video of rioters and people who cheered them on. Our provincial insurance company, ICBC, is lending their state-of-the-art facial recognition software and data banks of driver’s license pictures to the Vancouver Police to help identify rioters in the pictures and videos.”

“Our provincial premier stated for the record that she is going to ensure that all participants in the riot are prosecuted to the fullest extent of the law, which includes 14 years to life sentences for crimes committed during the riot.”

“The local population is calling all those involved in the riot ‘morons’ on social media and to their faces. We have ganged up on the morons.”

“Morons are being fired from their jobs and being rejected by their friends. Parents and relatives are reporting their sons/daughters/nieces/nephews seen in riot pictures to the police. Many more of the morons will lose jobs, get kicked out of school and/or go to jail as their identities surface. “Put quite simply, we are mad as hell and we are not going to take it anymore.”

“It’s a safe bet that Vancouver will be one of the safest places in the world to hold a convention (or a hockey game) from now on.”

   “It’s getting tiresome,” a reader writes after yesterday’s issue, “to see how the word ‘anarchy’ is so often misused as a synonym for hooliganism and mob actions. Vancouver is a highly organized governmental unit within a semisocialist national state — hardly a situation of anarchy. “If anarchy did exist in the geographic area currently occupied by Vancouver, honest citizens would not have been disarmed by their government and left to sit and watch helplessly as their property was destroyed.”

“What happened in Vancouver was government fraud: Citizens surrendered their weapons and their tax dollars in exchange for a promise that ‘The police will protect you.’ Now, too late, they know they were lied to.”

   “I can’t say I’ve ever read anything you’ve written that advocates cutting Social Security and/or Medicare/Medicaid,” a reader begins…

OK, so far so good.

“But it has certainly been my impression that you would support such a position. That said, it is a position I would agree with.”

The 5: We’re agnostic on Social Security benefits… cutting them or whatever.

At the current pace, it’s impossible for I.O.U.S.A. to pay its bills… let alone future obligations. Something’s has to give. Social Security and Medicare are the two of the most obvious choices since three decades of presidents and congresses have blown the “trust funds”…

But please, go on… “I am about six years from full retirement age. While I hope there’s some money there when I retire, I haven’t planned on that being the case for many years now. The math is really simple. “I started working at age 18 making $9,568 per year. Assume a 5% raise every year. After 47 years, I’m making $99,518 per year. I and my employer have paid $269,852 in Social Security and Medicare taxes over that time. If I were to just get my money back, assuming an additional 20 years of life, I’d collect $1,124 per month.

“As we all know, Social Security and Medicare under the current regime will pay out at least three or four times that amount, and I’m likely to live more than an additional 20 years. “Since the government didn’t invest the money, but rather spent it, where are they going to get it? They can’t borrow it, and the ratio of working to retired population is declining, so they can’t get it from taxes. For years, I believed they would try to inflate their way out of the problem, but the Fed’s recent failure to generate significant inflation (the kind they want, anyway) makes me question that thesis. “The bottom line is that if you haven’t prepared for your future without depending on the feds, you’re in a world of hurt. Even those who have made such preparations are going to have to fight to keep the federal wolves at bay.

The 5: Social Security went into the red nearly nine months ago. The Social Security trustees keep moving up the date the “trust fund” will be exhausted. In 2006, the forecast was 2040. This year, the forecast is 2036. If this pace of deterioration keeps up, the fund will be dry by 2025.

That’s only 14 years from now. Something’s going to change between now and then, and the sooner you act, the better off you’ll be. You can find your own action plan in this presentation.

   “Please remind your readers,” writes another, “that ‘food stamps and welfare’ are such a small part of government budgets that cutting them is a ‘2-10% solution.’”

“For the federal government, 80% (in normal times) of the budget goes to five WILDLY popular programs that will NEVER be cut: Social Security, Medicare, Medicaid, interest and defense.

“On the state side, 90% (in normal times) of most state budgets goes for: education, human services (the disabled), Medicaid and pensions (usually for teachers).

“We aren’t going to solve any government budget problems by going after traditional welfare. It is old-age programs, war and interest on which the big money is spent.”

The 5: Done.


Addison Wiggin
The 5 Min. Forecast

P.S. We ventured yesterday to the Port of Los Angeles as we continue to wrap up work on the documentary.

These puny little iPhone photos don’t do justice to the vastness of the nation’s largest container port… which sits cheek to jowl with the second largest, the Port of Long Beach…

Nation’s largest container shipping port

But you can see the massive presence of one company — China Shipping, a Chinese-owned firm traded in Hong Kong and Shanghai. And that presence is growing. The Chinese-owned firm is spending $100 million to expand its terminal here.

Right now, shares are trading at a one-year low. China Shipping has seriously underperformed Hong Kong’s Hang Seng Index since the first of the year.

Perhaps that’s because various measures of container shipping vitality are weakening. The Harpex, maintained by the ship brokerage Harper Petersen, topped out in mid-March and has been falling since.

A different measure, maintained by the industry lender Capital Link, shows a similar top.

The peaks coincide roughly with the Japanese earthquake/tsunami/nuclear disaster. But China Shipping shares topped out two months earlier.

“At a time when global macro fears are rising,” reported Reuters last Thursday, “Chinese shipping stocks are vulnerable to being capsized.”

Out of every 100 containers that crossed the Pacific from Asia to North America in 2005, 60 returned empty, according to Drewry Shipping Consultants. For every 100 ships going from Asia to Europe, the number was 41.

The combined North America-Europe number is closer to 20 now, according to a recent report from Deutsche Bank.

As for the rates container ships can charge, they got crushed during the Panic of 2008.

They’ve since recovered, but remain below pre-crisis levels. “Although the next few years will see additional capacity introduced into the market,” says the Deutsche Bank report, “demand is likely to grow faster than supply on average until 2015.”

That should bode well for companies like China Shipping… assuming those “global macro fears” aren’t borne out. We’ll hold our “buy” for the time being. Keep an eye on our Apogee project for future signals!


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More