How to Sidestep a New Market Risk

Addison Wiggin – July 20, 2011

  • Signs of a slowdown in China: Chris Mayer with a number to watch, and guidance on how to sidestep the damage
  • “Not enough from any source to meet demand”… Byron King with the outlook on the “other” precious metal
  • Patrick Cox names his two favorite transformational technologies of 2011
  • Less than meets the eye: Why the “Gang of Six” budget solution solves nothing
  • Front-line reports from readers about ID requirements buying and selling precious metals… and an ominous warning from a “laid back” city teetering on the edge…

   “Every economy contracts at some point,” Chris Mayer comments on what we expect may be a rather hard landing in China.

This morning, we’re going to sidestep the impending calamity of state and local governments in the U.S. and admit, reluctantly, there’s more going on in the investment landscape than our petulant myopic view.

What… no gloom and doom?

I know. Sad as it might be, and again with the considerable assistance of “Dollar Bear” Dave Gonigam, we’ve rounded up a host of observations and opportunities from our editors for you today. Enjoy…

   “China’s economy hasn’t contracted since 1976,” Chris goes on by way of leading us to the first opportunity. “That’s 35 years, a long time between economic bowel movements.”

This morning, however, we learned China’s purchasing managers’ index — a measure of industrial activity — fell last month. It was the third straight month of decline, clocking in at 50.9. Any number over 50 means expansion, and below that means contraction.

“Unofficially,” Mr. Mayer warns, “things are probably worse, because officials have a way of dressing up dodgy numbers.”

   “Keep in mind,” Chris cautions, “that China is still growing, just at a slower rate. Let’s imagine what happens to the global economy if China actually contracts.”

Have to look at this list:

If you’re not worried about a slowdown in China, thinking perhaps the U.S. has enough trouble on its hands, perhaps you should rethink your assessment of its impact on global markets.

“If you are worried about a slowdown in China — as I am — then you should shy away from commodities near the top of its buy list,” Chris says, reversing his guidance of the last several years. “This means you should particularly avoid cement, iron ore, coal, pigs and steel.”

Oil, on the other hand, is far less susceptible to a Chinese slowdown. Ditto for precious metals: As we’ve seen firsthand on our visits to China, demand for gold and silver there is off the charts.

Bottom line from Chris: “Commodity stocks should only be bought assuming the underlying commodity will not rise. And on the power of the underlying business to do well over the long haul even if prices go lower. Anything else is a speculation, and a potentially dangerous one.”

   While gold punched through a record $1,600 on Monday, platinum, the “other precious metal,” hasn’t yet regained highs it reached before the “panic button” was hit in 2008. Early that year, an ounce of platinum fetched $2,252. After the dust settled, it hit a low of $774.

This morning, platinum goes for $1,771. Even though it’s far from its 2008 highs, it’s in big demand, judging by the thefts of catalytic converters from cars just within the last week:

  • Someone broke into the lot of a mechanic in Gwinnett Co., Ga., and cut the converters out of 12 vehicles
  • Thieves hit nine cars in separate incidents last Friday in Lodi, Calif.
  • Over the weekend, they hit five cars in the resort city of Monmouth, Maine.

Exactly how much platinum is in a catalytic converter varies from model to model. But it’s worth hundreds of dollars. And the bigger the vehicle, the more platinum you find. If you own an SUV, please take note.

   “The global supply of platinum is tightening,” observes Byron King, tuning us in to the investment angle. “It’s an expensive substance to mine, separate and refine. During a recent trip to South Africa, I heard story after story from senior mining executives about the difficulty of expanding production.

“One mining engineer with a long track record of success told me, ‘When you look at the demand trends and how hard and expensive it is to expand production, there’s no way we can avoid shortfalls over the next two years and more. There’s not going to be enough platinum from any source to meet demand. I expect prices to shoot up in 2012 and beyond.”

“Future forecasts for demand are promising,” Byron concludes. “That is, if you own a platinum mine.”

   “The scientific breakthroughs of the last 12 months are so historic, so consequential,” observes Patrick Cox, whom we enjoy catching up with if only for a bit of ascorbic wit, “we have an avenue of escape from the madness” of debt, taxes and regulations.

“Not only are these technologies going to provide financial rescue in the worst of times,” Patrick asserts, “they will allow those who know about them to live longer and healthier.”

Mr. Cox is especially excited about two.

The first is a unique stem cell procedure. “It addresses the biggest cause of death in the developed world, and, therefore, the biggest medical market in the world,” says Patrick. “It can reverse cellular aging in cardiovascular and immune systems.

“This technology will dramatically extend your cardiovascular and immune systems’ warranties.” Folks in attendance next week at the Agora Financial Investment Symposium will hear much more about this from the scientist who pioneered the research.

The second breakthrough is a naturally occurring food substance found in tomatoes and red peppers. “It directly addresses autoimmune disorders associated with chronic low-level inflammation. It will reverse inflammatory diseases and allow many of us to live long enough to see true regenerative medicine” — like the stem cell breakthrough just described.

“The best way to get rich,” Patrick concludes, “is to invest in a diversified portfolio containing transformational technologies and then live a really long time. Exponential portfolio growth will do the rest of the work.”

[Ed note. Readers pay a considerable sum to read Patrick’s premium research advisory, Breakthrough Technology Alert. But a handful of readers have paid a one-time fee to read Patrick’s research… and Byron’s… and Chris’… and that of all our other editors, who scour the world for the best investment ideas you can use.

For this select bunch, we deliver exactly what they want… and nothing else.

“I almost joined the Reserve recently,” a reader wrote us right after the first of the year, “but have an aversion to some of your advice. I know nothing about puts and calls and shorts and longs and currency manipulation. I understand buying and selling stocks and the reasoning behind it.

“As a Capital & Crisis subscriber, I am starting to profit from slowly moving money from fixed accounts into stocks following your advice. And I would love to invest more based on Mayer’s Special Situations, Breakthrough Technology Alert and other ‘buy/sell this stock’ publications.”

“Do you have a package deal that includes just the stock advice, versus the whole (Reserve) enchilada?”

Yes we do. It’s called the Agora Financial Equity Reserve. Over a 10-year period, it delivers a staggering $81,800 in value. But for the next few days, we’re offering access for a one-time fee that’s a tiny sliver of that amount.

It’s not for everyone. But if you want access to all our stock recommendations, and nothing else, it’s the perfect thing. Move on it now and we’ll make the deal even sweeter for you… as we reveal right here.

   Stocks appear to be going nowhere this morning. Traders are taking a smoke break after nervously tacking on 200 Dow points yesterday.

   Gold is drifting listlessly, adding to yesterday’s losses. At last check, the spot price has retreated $16 from its record high, to $1,586. Silver’s latest rise above $40 didn’t last long; it’s back to $38.47.

Gold fell off a cliff yesterday at 1:30 p.m. EDT — right after the Comex closed and electronic trading began. Coincidentally or not, the drop came precisely at the moment President Obama announced a “breakthrough” in the debt ceiling drama.

“I do believe that the gold price is being manipulated somehow,” says newsletter editor Matt Badiali in a recent interview with The Gold Report. “I went into this as a skeptic. I’m a geologist, a scientist. I looked at the gold price at Eric Sprott’s suggestion. He gave me an idea that I could test with data from Datastream. When we did the math, I was shocked.”

No doubt this subject will come up next week at the Agora Financial Investment Symposium in Vancouver. Matt is among the speakers, and so is one of Eric Sprott’s most trusted lieutenants, David Franklin.

If you can’t attend in person, you can get audio files and/or CDs of every session in the main room… and a concise write-up of every investment recommendation detailed in the invaluable “breakout sessions.” Look for them in your email inbox around Friday, Aug. 5 — but only if you sign up here.

   The debt ceiling “breakthrough” is, in fact, the sort of “kick the can” solution to which we alluded yesterday. The proposal, from a bipartisan group of senators with the unfortunate nickname “Gang of Six,” purportedly cuts $3.7 billion in spending.

In the first place, very few of those cuts are specified in the five-page plan released yesterday. And as you might have guessed, the cuts come over 10-year period… as if future presidents and congresses are somehow bound to honor the commitments of the current bunch. They’re not.

But the best part is the promise of a $500 billion “down payment.” Much of this is to be achieved by caps on “discretionary” spending between now and 2015.

In the real world, a “down payment” implies you have cash on hand ready to plunk down for the purchase of a home. In Washington, it means you’ll get around to coming up with the money piecemeal over the next four years. Maybe.

The only concrete proposal in the plan should be no surprise if you read yesterday’s issue — the use of “chained CPI” as a basis for a stealth default on future Social Security benefits.

   Moody’s is on the verge of downgrading the debt of five U.S. states because they’re too dependent on federal revenue. Maryland, South Carolina, New Mexico, Tennessee and Virginia have been put under review.

“Maryland, Virginia and New Mexico have relatively high proportions of federal employees and contracts,” according to a Bloomberg summary of Moody’s report. Meanwhile, New Mexico, South Carolina and Tennessee rely more on Medicaid money than the national average.

This dependence on the steady IV drip of federal funds is one of three yardsticks we use to evaluate every state in our report American Oases. Just because your state lawmakers have avoided running up huge debts — as in Tennessee — doesn’t mean you’re out of the woods.

If you want access to this report — and four others that help you prepare for whatever economic storms are coming our way — here’s where to go.

   “The law is the law,” says the police chief in Midway, Ga. And the law just shut down a lemonade stand.

At least he didn’t arrest them for “disturbing the peace”

The girls running the lemonade stand just wanted to raise a little money so they could go to a water park. But God forbid, they had no business license. Or a food permit. Or a vendor’s permit.

To be in compliance would cost the girls $185 per year… plus $50 a day. Another budding entrepreneur, squashed like a bug.

There’s no shortage of local petty tyrants. Another lemonade stand was shut down over the weekend in Appleton, Wis., thanks to a new ordinance forbidding such sales within two blocks of a street festival. A car show happened to be taking place nearby.

“It’s certainly not that Appleton is against little girls setting up their cookie and lemonade stands,” Ald. Peter Steuck told WLUK-TV. “But the overall intent of the ordinance was to protect the vendors at these events.”

These girls are getting an early lesson in business owners getting in bed with government to throttle competitors.

We’ve included a third incident of a lemonade stand getting shut down in the film Risk! to which one of the shocked soccer moms witnessing the event beseeches a local authority: “We’re teaching our kids there’s no American Dream!!!”

Good entertainment all around. We’ll be screening the film to the sold-out crowd in Vancouver next week. Fingers crossed, the film’s not quite done yet. But umn, we’re going to show it anyway…

   “I bought silver yesterday, July 18, without ID in Washington,” writes a reader, kicking off a series of replies to the reader in Omaha who must now produce his driver’s license when buying gold or silver from local dealers. “Must be a state law, and not federal.”

   “According to my friends who invest in gold and silver,” writes another, “the requirement to show ID and have your info recorded while buying/selling gold or silver is definitely true in Austin, Texas, and has been the case for months now.”

  “Just this week, in a mid-Florida town, I purchased some silver eagles. No request for ID. However, the posted sign said all transactions over $2,000 required a photo ID (to thwart terrorism).

“So in my case, I simply made two transactions. Bought some for under $2,000, went out to the parking lot and came back in and bought some more.”

  “I’ve been buying gold and silver for some time from two different online dealers, but with my last order (a few days ago), I received a voice mail and an email indicating that they would cancel my order if I did not contact them by phone within a day to verify the order.”

“The phone call consisted of being transferred to their ‘Verification Department’ so that I could regurgitate my name and address for their records (which already contain my name and address). Apparently, all credit card orders now require verification. I will be making future purchases overseas, as suggested.”

  “When I sold some silver recently,” says a reader on the other side of the transaction, “I needed to show ID and a police report had to be filled out, ‘in order to make sure the silver wasn’t stolen.’ Apparently, all sales required that.”

  “I live in Seattle and I’m not sure of the particulars of the shooting of the young man in San Francisco,” writes a reader who caught the video we shared yesterday, “but the fact he was suspected of involvement in the murder of a young woman in Seattle is all too real here.

“This is the first time I can remember the local police and news are covering a situation where ‘laid back’ Seattle may have riots due to the gang affiliations that all these participants are involved with. The police have activated the gang unit to ‘quell’ the very verbal gang warnings of all-out retaliation during and after this young woman was put to rest.”

“It was quite sobering and sad that the young woman’s mom and family had to ‘beg’ during the news coverage of this tragedy that no more violence happen so that another mother would not have to suffer through the remorse and sadness that this mother and family was experiencing.”

“I’m saddened by and unfortunately seeing and believing the warnings that as this economy sours and our useless government slowly deteriorates, we are all going to have to be prepared for almost anything and protect ourselves and our families.”

The 5: Another reader sent us a follow-up story from San Francisco, where 35 people protesting the shooting were arrested yesterday:

“Dozens of protesters marched from the park through the Mission and Castro districts during the evening,” says the San Francisco Chronicle, “shutting down streets and at one point storming the Castro Muni [train] station.”

This, in “laid back” San Francisco.

Indeed, our forecast is unfolding before our eyes.


Addison Wiggin
Agora Financial’s 5 Min. Forecast

P.S. “When a country is indebted to the degree that we’re indebted, the country always defaults,” said Rep. Ron Paul on the House floor yesterday. “We will default because the debt is unsustainable.”

“If we don’t understand this, this default will not be because we don’t send out the checks. We will send out the checks. It will be defaulted on because people will get their money back, or they will get their Social Security checks, and it won’t buy anything.”

While talking heads on cable wring their hands over the phony Aug. 2 debt ceiling deadline, this is the real threat to your wealth. See how it might unfold… and what you can do to protect yourself… right here.


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