No Doom and Gloom Here

Addison Wiggin – July 27, 2011

  • Will you be running a marathon at age 100?… this and other unlikely highlights from session one of our four-day Symposium.
  • Emerging markets, before they emerge: Doug Clayton on four “frontier markets” to watch… Frank Holmes with some staggering growth statistics from the world’s largest…
  • “Expect volatility,” says Rick Rule, with a unsettling admission… what to do when resource markets get frothy…
  • “Buy AAPL, bitch” — Barry Ritholtz on a sign of froth in the market… trumped up or no….
  • Readers weigh in on Social Security sham… wonder “whatever happened to failing banks?”… chime in on the film… and more!

“A lot of you will live longer than you think you will,” Juan Enriquez told the audience not long after we invited him to step to the podium, “because you’ll be able to regrow body parts. You can run a marathon at age 100.”

Today, short on time, we offer a quick roundup of a few quirky moments from yesterday’s opening session.

“We’re moving from digital code to life code,” Enriquez said. That is, DNA can be reprogrammed in the same way as computer software. “This is something on the scale of the Industrial Revolution and the digital revolution that you all lived through.”

Enriquez’s presentation was enough of an eye-opener that The Vancouver Sun made it the focus of its article on Day 1 of the conference.

As a venture capitalist, and one of the original funders of the Human Genome Project, he knows well what it takes to make earthshaking developments like this happen: Venture capital, he says, accounts for only 0.2% of GDP… but 11% of jobs created, and 21% of economic output.

[Ed note. With a substantial role in our documentary film Risk! Juan was also gracious enough to stick around for the Q&A after our focus group screening last night. The session went late into the evening and eventually moved downstairs to the lounge. Thank you, if you participated. With some elbow grease, the film will improve before we get around to releasing it.]

For a bunch of “doom and gloomers,” the first session of our symposium was relentlessly optimistic. Opportunity in biotech was only one of three major themes that emerged yesterday.

Opportunity in emerging and frontier markets was another. Frank Holmes, the chief of U.S. Global Investors, remains an unabashed China bull.

China’s per capita GDP is equal to that of the United States in the 1960s. “China’s going to connect 700 million people and 250 cities” with its high-speed rail system. A recent fatal accident there notwithstanding, Frank sees big growth ahead.

Another telling sign Frank sees — the proliferation of luxury goods in China. The real thing, not knockoffs. Cartier, Gucci, Hermes… They’re all opening retail locations in China at a breakneck pace.

“If I were looking for a good pair trade,” remarked Leopard Capital founder Doug Clayton, “I’d go long these four countries, and short the United States.”

Clayton, whom we first encountered in Colombia in March and visited at his home base in Cambodia in May, is among the pioneers in “frontier markets” — emerging markets that haven’t yet begun to emerge.

He highlighted four countries he has his eye on right now:

  • Cambodia: Lots of untouched natural resources
  • Bangladesh: A giant pool of inexpensive labor. If you missed out on the Indian growth story 15 years ago, Bangladesh is the way to go
  • Haiti: A $4 billion economy is getting a massive infusion of up to $10 billion in earthquake relief.
  • Ethiopia: Home to 8-9% annual growth.

Combined, they have a population nearly equal to that of the United States, and a GDP less than 1% of America’s.

“The things people spend money on in frontier markets is ‘stuff,’” says our old friend Rick Rule, pivoting to our third major point of opportunity — natural resources.

“If Chinese per capita oil consumption rose merely to the level of South Korea,” he points out, “it would use up all the world’s oil.

“Even though resources still present an immense opportunity, he says you must expect volatility. Keep a cash reserve so you can go bargain hunting after a big pullback… and don’t be afraid to use it.

“I wouldn’t be surprised to see the kind of declines we got in 1975,” when gold tumbled from $200 to $100. “It’s very difficult to reconcile terror with opportunity — when your statement is down 30% and I’m telling you it’s time to go ‘all in.’”

Rick and Frank will identify some of their favorite resource investments during the small-group “breakout” sessions later this week. In addition to the audio recordings of all the sessions in the main hall, we include a concise summary of all the investment recommendations in the breakout sessions.

It’s the next best thing to being here… and for the price, you can’t beat it. We’ll issue both the audio and the report toward the end of next week. Here’s where to make sure you get the earliest possible delivery.

Turning to today’s markets, the orderly rush for the exits from U.S. stocks remains in effect this week. At last check, the Dow is down just under 100 points, to 12,400.

Not helping matters: Orders for durable goods “unexpectedly” fell last month. The 2.1% drop wiped out the previous month’s 1.9% gain, according to the Commerce Department.

If the United States is heading into another recession, by official measures anyway, the Chicago Fed National Activity Index isn’t indicating it. Not yet.

The index crunches 85 indicators. If the index falls to -0.7 or below, that’s proven a surefire recession indicator.

But in the event, it rose last month from –0.55 to –0.42. For the moment, we continue to muddle along.

Here’s an item from China that gives us pause: “Chinese police have quelled a mass riot,” reports the BBC, “sparked by rumors that a disabled fruit seller had been beaten to death by local officials.”

Exactly what the fruit vendor did to offend the authorities, we’re not sure.

“The riot was sparked,” Reuters says, “after urban management officers — a quasi-police force that enforces laws against begging and other petty offenses — were suspected of beating the vendor to death.”

It gives us pause only because, as our Middle East maven Peter Cooper reminded the audience today, the Arab Spring began with a college student, reduced to hawking vegetables on the street, getting harassed by police… and deciding to set himself on fire.

Gold popped overnight to $1,625… but now it’s pulled back to $1,618. Silver is moving up, knocking at the door of $41. The dollar index has climbed back above 74, barely.

Apple stock owners beware:

“Seriously,” says Jesse Pinkman at Market Squeeze, “Apple is a stock to own, even at $400 a share, yo. There’s no doubt it’s going higher. Why? CAUSE I SAID SO THAT’S WHY, BITCH. No, seriously, Apple’s been blowing things up and have mad business. You’ve got to have it. It’s like the blue stuff.”

Uhh…

“When celebrities I don’t recognize talk up stocks on websites I’ve never heard of,” Barry Ritholtz offered up by way of analyzing mob psychology, “that’s gotta be a top.”

A symposium attendee with more pop culture awareness than either Barry or we have informs us Pinkman is a fictional character in Breaking Bad, an AMC series about a meth ring in New Mexico. Even if the site is a spoof… this can’t be a good sign for AAPL shareholders.

Barry’s still lurking about the conference hall… but he posted his entire presentation on The Big Picture’s website, here.

“People just don’t think clearly about these things,” writes a reader determined to carry on our Social Security discussion.

“The government can no more save by holding Treasury bonds than I can save for retirement by writing myself IOUs and calling it savings. The Social Security trust fund is a fraud by design. But somehow, this simple sleight of hand dupes the credulous public.”

“I haven’t seen anything in The 5 about failing U.S. banks or FDIC solvency issues lately. Have these problems been lessened, or are they just not as newsworthy now?”

The 5: At the year-to-date pace, the FDIC will shut down 100 banks by year-end, down from last year’s 157 and the previous year’s 140. So in one sense, they are less newsworthy, yes.

But don’t be fooled. The biggest banks are no more solvent now than they were before: Their great quarterly numbers this month are driven largely by drawing down their loss reserves. And as we noted in mid-June, they remain highly vulnerable to the credit default swaps they wrote for European banks against the debt of Greece, Italy, Ireland, Portugal, etc.

Moody’s reminded us with its downgrade this week, Greece isn’t “fixed” yet, photo ops with French and German leaders notwithstanding. We remain on watch for this crisis catalyst… along with all the others.

Regards,

Addison Wiggin

The 5 Min. Forecast

P.S. “What’s your message?”

It wasn’t exactly the first question we were expecting after our screening of Risk! last night. The story is pretty straightforward to us:

Entrepreneur finds a unique toy set, in this case an underwater remotely operated vehicle (ROV). Founds shipwreck salvage business. Finds successively larger piles of gold at the bottom of the ocean.

Success.

Gets harassed by the SEC, academic archeologists, the kingdom of Spain and ultimately the U.S. Justice and State departments. Moves on with his toy set, to found deep-water mining company, in Hong Kong.

The message: If policymakers insist on hassling entrepreneurs… it’s going to be very difficult to have anything other than a jobless recovery.

Oy. Back to the drawing board.

P.P.S. “In my entire life,” writes our colleague Jim Amrhein, “I’ve never seen such a magnificent juxtaposition of mankind’s achievements AND the splendor and resilience of nature in one eyeful than at this particular point.”

He’s talking about a unique spot at Vancouver’s Stanley Park. He takes you there and brings you his own observations from the first day of our conference… at this link.

 

rspertzel

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