Beyond Silicon

Addison Wiggin – July 11, 2011

  • From faster downloads to invisible aircraft: Two weeks of breakthroughs use the humble carbon atom… and the best way to play the trend…
  • Et tu, Italy? Why the European sovereign debt crisis isn’t fixed and how to prepare for the consequences…
  • The “Great American Lifestyle Reset”… yet another potential catalyst looms in August and beyond…
  • Ben Franklin featured on Brazilian butt-wipe… an export with a special message for Mr. Bernanke?
  • New limits on gold trading, the “New World Order” reconsidered and your last chance for Energy & Scarcity Investor at half off.

   Cheap solar panels. The most powerful transistors ever. Even the ability to make a fighter jet invisible.

One barrier to solar breakthrough — its cost — is going down

Each of these breakthroughs has been announced in the last two weeks. Each relies on one of the most basic elements mined from the earth. And each could line your pockets with cash if you move quickly enough.

They all involve a wonder substance called graphene. It’s made from made from graphite — the same stuff you find in the center of a pencil. Except graphene consists of a single layer of carbon atoms.

Let’s hopscotch through these new developments…

   Researchers in India have discovered how to build solar panels using graphene — a development that could finally make widespread solar energy economical.

Graphene solar panels have several advantages over silicon solar panels — starting with a better ability to absorb light. The problem is that up to now, they’ve been a lot more expensive — because the graphene requires other materials to move the electrons around just right.

The Indian scientists put two and two together. They realized that you can also build solar panels using “quantum dots” — microscopic quantities of particles like cadmium or lead. The problem with that is that cadmium and lead are highly toxic.

So… they wondered… what if they built “graphene quantum dots”?

Graphene quantum dots, seen really close-up. “20 nm” is 20 nanometers — about 1/5,000th the width of a human hair

Here’s what makes the scientists’ findings, published in the Journal of the American Chemical Society, so promising: The graphene quantum dots can transport electrical current more quickly than silicon.

That makes it much more efficient. So instead of waiting 10 years for silicon-based solar panels to “pay for themselves,” you might have to wait only five years or less.

   Meanwhile, researchers at MIT have figured out a way to make more graphene more quickly.

Up to now the process has involved — literally — taking sticky tape to a chunk of graphite and flaking it off. The MIT scientists have gone this one better, adding chemicals like iodine chloride or iodine bromide to make the atoms flake off in more-even layers.

These flakes are already good enough to build transistors, although more work still needs to be done.

This is the biggest promise of graphene — as a replacement for the silicon that’s been used to make transistors for over 50 years. With graphene transistors, almost any electronic device will work faster and use less power.

You could download a 3-D high-definition movie in mere seconds; using today’s technology, it’s 45 minutes.

   Here’s the most far-out graphene development of the last two weeks — a cloak of invisibility, just like those Klingon warships had on Star Trek.

Researchers at the University of Texas are manipulating graphene to develop an “active, dynamically tunable invisibility cloak.” Basically, it involves bombarding the graphene with microwaves.

While it’s possible to use this graphene to make aircraft invisible, a more likely near-term use is noninvasive sensors — think medical imaging devices that won’t do the harm X-rays do.

   No wonder the discovery of graphene won the 2010 Nobel Prize in physics.

But here’s the thing: For something that goes into a plain old No. 2 pencil, graphite is a lot less common a substance than you’d think…

“Good graphite is not that easy to find,” remarks our resident geologist Byron King. “Graphite prices have more than doubled in recent years. Based on recent quotes, a ton of 97% pure graphite goes for over $2,000. A ton of ultra-pure, 99.99% graphite will set you back over $20,000.”

Another wrinkle: “China controls 80% of the global graphite market — just like China runs 97% of the world supply of rare earths. But the Chinese are running low on graphite reserves — same story as with rare earths.”

Byron’s hot on the case of a tiny company that’s sitting on a massive graphite reserve in the Canadian wilderness — 8 million tons. It can pull graphite from the ground for a cost of $400 per ton and sell it for $2,000. That’s $12.8 billion of potential for a company with a market cap of $58 million.

After Byron delivered his readers rare earth gains of 93%… 147%… even 178% — this is an opportunity you don’t want to pass up. You can get the name, ticker symbol and a massively discounted membership in Byron’s premium advisory Energy & Scarcity Investor 00 but only for a few more hours.

The offer expires tonight at midnight.

   “The extraordinary thing is,” our friend Juan Enriquez says in our new documentary we’ve been making about entrepreneurship and innovation during the crisis, “How much wealth you can generate in one zip code.”

“You take 02139, which is the area around MIT. The companies created by people graduating from MIT and working at MIT are equivalent to about the 13th largest economy on the planet.”

   “What you’re getting in the United States today,” Enriquez goes on, “is a two-class track between economies based on real estate speculation, like Vegas or entertainment, and economies where you didn’t have the same type of a real estate or jobs collapse, such as Cambridge, Mass., around MIT, or San Francisco, Chicago or Austin and Maryland. The really big difference between them is they are areas that are creating jobs very quickly.”

“If your town has Facebook growing in it, you know what, there’s hundreds and thousands of jobs being created not just by the company itself, but all the economic spinout of having people who are buying houses, who are buying cars, who are going to restaurants, who are backing museums, who are backing the culture.”

“Then there are towns that have no startups. And those look like Detroit.”

“There are real problems there because when a General Motors goes belly-up, then most of the housing market goes belly up. Then, most of your school funding, your cultural funding… the rest of the city goes belly up.”

“The towns that generate startups, towns that generate knowledge, are taking off in terms of ability to create jobs and wealth. Towns that aren’t are in real trouble — and this road is splitting quickly.”

We’ll be doing a focus group screening of the film this Thursday at 9:30 a.m. at Freedom Fest 2011 in Las Vegas. Then again during the Agora Financial Investment Symposium, July 26-29, 2011, in Vancouver. Juan Enriquez and a few other notables from the film will be speaking in Vancouver, too. If you aren’t able to attend, you can still grab the audio CDs of the event for a steep pre-symposium discount, right here.

   It’s one of those “risk off” days, in the parlance of the Street.

European leaders are meeting to discuss whether Italy will soon need a bailout — shocking traders who thought the whole euro mess was fixed when Greece secured its second bailout a few days ago.

The Dow, which crested 12,700 on Thursday, will be lucky to finish today above 12,500. The S&P is down more than 1.5%.

   Hot money is fleeing the euro — which clings to $1.40 as we write — for the greenback. The dollar index is back above 76 for the first time since May.

   Measured in the Esperanto currency, gold set a record today of 1,108 euros. It also set a record in the U.K. — 978 pounds.

Measured in dollars, gold has been all over the place today, the spot price spiking to $1,556 before settling back to where it was at the end of last week, around $1,547.

   So why Italy… and why now? There appears to be a rift between the prime minister and the finance minister over how to pursue budget cuts and tax increases. Suddenly, the yield on a 10-year Italian government bond has blown out to 5.5% — twice that of the benchmark German rate.

Over the weekend, the German newspaper Die Welt quoted a source from the European Central Bank as saying the ECB’s bailout fund isn’t big enough to rescue Italy. “It was never designed for that,” he said.


   If Italy defaults, it would trigger an even bigger crisis than the landslide traders have been expecting following a Greek default. As with Greece, the real danger lies with the credit default swaps held by European banks — a type of insurance policy they took out “just in case.”

In many cases, U.S. banks wrote those policies. And that’s what has everyone so nervous. Lehman Bros. took out a whole bunch of credit default swaps with AIG in 2008, which AIG couldn’t make good. We know how that one ended.

Now…check out this graphic representation of the Italian crisis’s potential magnitude:

The left scale shows how much exists in outstanding credit default swaps.

The bottom scale shows each country’s debt-to-GDP ratio. Obviously, Greece is farther along on the road to bankruptcy. But Italy’s in second place… and it has a whale of a lot more debt the banks are insuring.

   And it’s worth revisiting this point: About half of U.S. money market fund assets are invested in the very European banks that are up to their eyeballs in Greek and Italian government bonds.

This too has shades of 2008… when the Reserve Primary Fund “broke the buck” because it was sitting on a boatload of Lehman paper. Ponder for a moment what might happen if Italy defaults… the European banks hit up the U.S. banks for their CDS… and the U.S. banks can’t pay.

Do the U.S. banks turn to Uncle Sam for another bailout?

The first round of bailouts teed off everyone with a pulse — except for a few goofy economists and a host of bank employees — and happened when the national debt was $9.6 trillion.

Less than three years later, it’s now $14.3 trillion — a 49% increase. Thanks guys.

Imagine for a moment the sovereign debt crisis unfolds anew on or near Aug. 2, 2011, when the White House and Congress still haven’t hammered out a deal on the debt ceiling.

What do you get then?

You get the scenario we laid out in this forecast. If you haven’t connected the dots yet, we recommend you take the time to do so now.

   The troubling fact is Italy and Greece don’t have to default to cause Uncle Sam a serious rash. Consider this small fact pointed out to us by publisher Joe Schriefer this morning:

According to this report by the Bipartisan Policy Center, just over $500 billion in U.S. Treasuries mature in August 2011. (If you’d like, you can read the entire report right here. But for quick reference, just check out the chart on Page 33.)

To “roll over” that debt, the Treasury must auction new debt in its place. They’ll use the proceeds of the new debt auction to pay off the old debt.

To add insult to injury, that $500 billion rollover is on top of an August deficit of roughly $150 billion (Page 12 of the report.)
Assuming, of course, that the debt ceiling gets raised, the U.S. government will then have to issue $650 billion worth of new debt in August alone. By comparison, that’s more debt than the entire QE2 debt-buying campaign… in one month… without the Feds as the backdrop to buy the debt.

Beyond August, it doesn’t get better.

According to a separate report from the United States Government Accountability Office, just over $3 trillion of debt matures during the next four years.

Somehow, someway, the Treasury will have to find a way to roll over at least this amount plus any additional spending. What happens when that much debt is issued… without the Federal Reserve standing by with its checkbook?

The Bipartisan report explains that “Treasury will have to pay higher interest rates to attract new buyers… [or] it is possible, if unlikely, that not enough bidders would appear.”

The latter scenario means a government default.

For you, it’s just important to know that this is all part of what we’re dubbing the “Great American Lifestyle Reset” — the day that you won’t be able to count of the government to pay your bills… to keep you safe… or to provide you with medication in your golden years.

   “This photo,” a reader writes, “is from our local newspaper in Vitoria, Espirito Santo, Brazil:

“Apparently, these can be found downtown in shops.”

“Keep up the good work.”

The 5: Our friend John Williams from has long forecast the day when a $100 bill becomes more functional as toilet paper than as currency. Makes you wonder what the Brazilians know. Hmn.

   “Addison, what do you think of the following?” a reader inquires. What follows is this excerpt from a message board:

“On July 15, 2011, certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act go into effect — one of which is a new regulation prohibiting U.S. residents from trading over-the-counter (OTC) precious metals, including gold and silver.”

“Ownership of physical gold and silver is still permitted. Exchange-traded futures and options on futures contracts are also unaffected and are still permitted. The regulation is aimed at OTC nonexchange precious metals leverage instruments typically offered by retail forex dealers.”

“Just my humble opinion,” the reader says, “but this is the stealth beginning of the U.S. hemming in diversification for its citizens and forcing them to use/absorb dollars.

“Thanks for all your work. Look forward to seeing you in Vancouver.”

The 5: By itself, the new provisions aren’t a big deal — unless you’re into highly leveraged and speculative endeavors. In this case, you’ll no longer be able to trade metals over the counter in your forex account, bypassing a futures exchange.

But yes, it’s another brick in the “virtual Berlin wall” that’s gradually penning Americans into U.S. dollars — and U.S. banks. The wall’s been under construction since at least March of last year — as we document in one of the five special reports we issued on July 1. That report also offers legal solutions that will help you protect what’s yours. Access here.

   “As one of those people with a fevered imagination about an elitist agenda to bring on a ‘New World Order,’” a reader writes, “I felt it only fair to write back in self-defense.”

“Since I read The 5 Min. Forecast and The Daily Reckoning every day that I have time (owning a business and making your own way in the world can create days that make it necessary to skip some of life’s pleasures), I would say that you are all pretty much infected with the same fever — but maybe you just don’t know it.”

“Each comment about the senselessness of current banking policies, the laughable choices coming out of Washington and various European governments, the basic laws in Austrian economics, the water spewing from the holes in the old ship called America, etc., identifies you as people that know what is occurring in the world. You guys really are smart and certainly able in the investment arena, and I appreciate that part very much.”

“The only area that I rarely see mentioned is why this is happening. You can’t possibly be that intelligent and still believe that we are just the victims of an incredible string of bad luck. Those bad decisions by the big bankers that caused the housing meltdown, for instance, their cronies in Washington that let most of them get away with it, certainly should point up the truth that the only way they are still in business is that the taxpayers are being forced to bail them out. You guys have mentioned that numerous times.

“Where is the stretch in pointing out that the only reason this can happen at all is that the whole banking system on an international level is completely and purposely based on the principle of bailouts in the first place. The only reason for the absolute insistence of more Greek bailout money, for instance, by the same international finance people that you are laughing about is to make sure the largest banks in the world get their interest payments — from the taxpayers — the all-reward, no-risk business plan.”

“The government that they are connected with gets to spend all the debt money first, so they go along with the whole thing. It is a brilliant system that is hundreds of years old, and it works great — if you are one of the royalty. For the rest of us peons (anyone with less than a billion, let us say), the system maybe isn’t so great.

“Anyway, this whole system really was foisted upon us in I.O.U.S.A. with the passing of the Federal Reserve Act in 1913, which was just an extension of the system already in place in parts of Europe, and it definitely was designed to create the kind of ‘financial nobility’ we are witnessing today.”

“I understand that you run a financial, and not a political, newsletter, and I even understand that it is perhaps not in your best interest to go too far down the rabbit hole considering bits of imaginary elitist agenda like the Patriot Act. Drawing your own line as to where you stop digging is fine, but I truly wish you wouldn’t drift over into the realm of the talking heads on TV and make snide comments about those of us with fevered imaginations who realize that if your house is on fire, someone struck the match — and if you don’t believe in arsonists, all those burning houses get damn confusing.”

The 5: Actually you sound quite reasonable. We’ve written loads on these pernicious trends, including a whole section of Empire of Debt on the Federal Reserve we titled “The Revolution of 1913”. We don’t doubt the “elite” — whoever they may be — try to gain advantage at the expense of us peons. “Privatized profit, socialized risk” didn’t happen by accident.

We stop digging when we hear that Sept. 11 was an “inside job” or that the “bailout culture” is part of a grand design to reduce the global population to 500 million and implant the survivors with tracking chips. That kind of thing…

As for the snide comments, we can’t help ourselves. There’s so much to be snide about.


Addison Wiggin
Agora Financial’s 5 Min. Forecast

P.S. Just a reminder: These are the final hours in which you can secure a membership in Byron King’s Energy & Scarcity Investor at half off the regular fee. The offer comes off the table at midnight. Here’s where to get yours.


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