Ignore the Noise…Opportunity Here

Dave Gonigam – November 21, 2011

  • Short-term noise: Supercommittee encountering kryptonite, and other not-surprising factors knocking down stocks on a Monday
  • A long-term moneymaker: Far from the noise of Geron’s stem cell failure, Patrick Cox finds “the most successful medical blockbuster in history”
  • Gold takes a beating along with nearly everything else: John Embry on a buying opportunity
  • “Truly an awful currency”… Chris Mayer returns from the road with some useless paper souvenirs and one fabulous investment idea
  • Readers weigh in: Our favorite caudillo, bank failures and the relative merits of U.S. and Canadian border guards

   “Stocks Move Sharply Lower,” read the headlines this morning on countless financial websites. The reasons cited include…

  • The “supercommittee” that’s supposed to solve Uncle Sam’s chronic indebtedness for all time is due to announce after today’s close that gosh darn it, they really tried, but they can’t reach agreement. As if no one saw this coming. Or that even if they succeeded, they would trim the annual deficit by a not-so-whopping 9%
  • Europe. No, there’s nothing really new, but when the market drops these days, it’s always a handy excuse
  • China’s vice premier made some intemperate remarks — intemperate for someone in a lofty position like his anyway. “Right now,” declared Wang Qishan, “the global economic situation is extremely serious and in a time of uncertainty the only thing we can be certain of is that the world economic recession caused by the international crisis will last a long time.”

Or maybe, as we indicated on Friday, the case of MF Global is making people wonder if their funds are safe anywhere other than the First National Bank of Serta.


Time to take stock of opportunities yet explored on The 5’s desk.

   “Scientists Think Embryonic Stem Cell Research,” says a headline at ABC News. It’s an especially weak attempt to “advance the story” a few days ago about Geron Corp. dropping the world’s first clinical trial using human embryonic stem cells.

“The company’s technology for acquiring therapeutic stem cells is flawed and obsolete,” says Patrick Cox, who wasn’t surprised at all. “It’s somewhat amazing to me that it’s taken this long for the company to admit it bet wrong, but it finally has.

“Financial and nonfinancial media, however, have inevitably treated the company as if it is the only really important stem cell company.”

Thus does ABC declare: “Many experts say the announcement signals a symbolic end to the era of embryonic stem cell research that many researchers worked so hard to launch.” Which is true… but the article leaves the reader with the impression that embryonic stem cells are the only kind worth researching.

   “Geron’s failures on the stem cell front were, actually,” says Patrick, “evidence that BioTime Inc. is the real leader in regenerative medicine.”

BioTime has pioneered its own pure stem cell production technology. “Known as ACTCellerate,” Patrick goes on, “it involves the mapping of stem cell development shepherding cells through the phases of development to produce large, pure quantities of identical purified stem cells.” BioTime CEO Dr. Michael West presented the genetic evidence that he can do this during our Vancouver conference last July.

   More recently, BioTime linked up with Cornell University to produce commercial-scale quantities of “endothelial precursor stem cells.” Essentially, they convert a few drops of your blood to stem cells, and then into endothelial precursors — a proto-cell of the kind that lines the inside of your arteries and veins.

In time, they build you a like-new heart.

“The patients’ own cells are first converted to become induced pluripotent stem cells,” Patrick explains, “identical in function to embryonic cells. They are then potentiated to become endothelial precursors, suitable for rejuvenating the heart and vascular and immune systems.”

“This technology will, I believe, be the most-successful medical blockbuster in history. As heart disease kills most of us, it will significantly extend healthy life spans. Moreover, it will happen much sooner than almost anybody believes.”

“If you believe, as I do, that Dr. Michael West and BioTime are the true innovators, then we will probably have a valuable opportunity to buy BioTime at artificially depressed levels.”

[Ed. Note: And that’s after BioTime shares have appreciated 501% from Patrick’s initial recommendation.

Don’t feel bad if you missed out. Patrick is equally, if not more, enthusiastic about another company he’s been following in his premium advisory, Breakthrough Technology Alert. Access here.]

   So what of Geron’s future? “The company still has important assets,” says Patrick — including a sizeable portfolio of stem-cell intellectual property. It will continue to generate revenue for the company even as it turns its attention to its cancer treatment.”

“This sort of action isn’t unusual for small biotech companies,” adds Patrick’s associate Ray Blanco. “With scarce resources, putting programs with longer time horizons on hold in favor of lower-hanging fruit that can pay off in the nearer term makes economic sense. It helps prevent the dilution of the shares, and preserves capital for advancing programs that can produce revenues sooner. It is a shareholder-friendly move.”

   What’s more, Geron’s cancer treatment holds out great promise: “Many cancer drugs,” says Ray, “will not treat cancers located in the brain or central nervous system. The blood-brain barrier, which protects the brain from foreign substances, filters out many chemotherapy drugs and renders them ineffective.”

Not so with Geron’s drug: It “takes the popular commercial chemotherapy compound paclitaxel and links it to a proprietary peptide molecule,” Ray explains.

“Since many peptides — which are small protein molecules — are allowed to pass through the blood-brain barrier by the body, paclitaxel gets to hitch a ride into the brain, where it can then do its work on cancer tumors.”

Early clinical trials are promising. Ray advises readers of his entry-level newsletter Technology Profits Confidential that Geron’s still a keeper.

   Better yet, both of the stocks mentioned above are on sale today because traders are unloading both the bad and the good. The Dow is down 300 as we write.

The S&P has given up not only 1,200, but 1,190. All the gains of the last six weeks — poof.

   Gold has sunk below $1,700 for the first time in nearly four weeks. As of this writing, the spot price is $1,694. Silver has surrendered $31.

   “We have a big option expiry coming up on Tuesday, and this is just business as usual,” says Sprott Asset Management’s John Embry of gold’s price action.

Mr. Embry subscribes to the theory that powerful forces manipulate the price of gold — which in this case is working to your advantage. “I think it’s spectacularly bullish that sentiment is so incredibly weak in the metals. I can’t believe that people are basically being influenced to this degree by price action and they are just ignoring the fundamentals.

“That is exactly what the people who are creating the price action want… Gold and silver prices are going to multiples of the current prices in the not-too-distant future. And if you don’t own this stuff, you’re going to get killed.”

   With gold on the way down, Treasuries are the last refuge of the safety trade. The yield on a 10-year note is back below 2%, the yield on a 30-year bond back below 3%.

   Even the dollar doesn’t look that perky today. At 78.2, it’s up only fractionally from Friday.

   “The Vietnamese dong is truly an awful currency,” says Chris Mayer, now back from his investment-scouting trip to Southeast Asia. “The Vietnamese inflation rate is officially 20%.”

“This is why the Vietnamese buy more gold per capita than anyone else in the world. They even pay 9-11% premiums over the world gold price to get it. They want to get out of the dong, the value of which rots like Mekong catfish left in the sun.”

Looks impressive, but not even worth $1

“It takes about 21,000 dong to get one dollar. In 2008, it was about 16,000. So it’s falling off a cliff against a currency that is not exactly a pillar of strength. This makes it tough for foreign investors in Vietnam. You need to overcome this depreciation before you make any real money!”

“In Cambodia, the coin of the realm is the riel. ‘It’s not a serious currency,’ my contact told me. It takes about 4,000 riels to buy a dollar. But it seems people use riel only for transactions less than a dollar. Otherwise, they use U.S. dollars.”

“The Thai baht is the most stable of all these Asian currencies. On my way home, I went through Bangkok again. I forgot to change all my dong before I left Vietnam. So I went to the money-changers in Bangkok to convert my dong to dollars. The Thai money-changers would have nothing to do with the dong. It made me think well of the Thais.”

Thus did Chris bring back some dong as souvenirs. He also met up with an investor he called “the Warren Buffett of Thailand.” It’s this individual who turned him on to the idea so lucrative he wouldn’t even tell us back in Baltimore what it is. But now he’s written it up and the information can be yours right away with a membership in Mayer’s Special Situations.

   “In your comment concerning a ‘dictator’ in Thursday’s issue, I presume you are referring to President Chavez.”

“I am utterly appalled by this. Too bad we don’t have a Mr. Chavez to run for president. Then things would really turn around. FYI, President Chavez is/was always elected by the people, and furthermore respects to the last ‘we the people.’ (Have we all forgotten the meaning of this very important phrase?)”

The 5: Aha! Thanks for the good belly laugh.

   “You folks used to mention on a regular basis how many banks were closed in a given week and the accumulated number for the year. We have not seen anything for a while. Have the bank failures stopped?”

The 5: No, but they’ve slowed down appreciably. The number peaked last year at 157. So far, this year the number is 90, including two last Friday. At that pace, the final tally for the year should be around 100. Curiously, 23 of those come from one state — Georgia.

   “I’m inclined to call B.S.,” writes a reader of the American who says Canadian Customs threatened him with jail if he ever tried to visit again. “I’m an American who has been crossing into Canada a few times a year for the last 20 years.”

“If it did actually happen, I’m guessing that either this guy was himself such a jackass that he provoked that response, or at worst he encountered a jerk who may have been on the verge of snapping, which as we know can happen just about anywhere.”

“Seems to me that lots of people that are involved in any kind of security field either have big chips on their shoulders or are bored $#!+less and come across with poor attitudes, but my experience at the Canadian border has been no different than anywhere else. Canada is a great country, our ally and neighbor, and I won’t hesitate to keep visiting.”

   “The customs officer that treated and spoke to the American as described should be fired and then kicked in the ass, hard, on his way out the door,” writes a Canadian reader who finds the story believable.

“We all have bad days, but there is a limit. I have had a bad experience with a U.S border guard. I’m sure he wanted to be a cop, but couldn’t get in. However, the majority of guards are great, and have even made me laugh. I will always travel to the States, and I hope our friends in the USAcome visit us always.”

   “As a Canadian, I’ve been dealing with customs agents and immigration officers on both sides for many years.”

“In the hundreds, and possibly over a thousand times, I have dealt with immigration and customs officials, they have been very professional and ask all the questions they need to satisfy their respective laws. However, very early in the morning, or even late at night, one of them will act as if there is a chip on the shoulder and you are invited to knock it off, only to start a verbal war that you will always lose.”

“Bear with them, keep your remarks professional and you will get through the process with little fuss and perhaps a second thought about the dull, somewhat simplistic routine that such an agent has to follow just to satisfy the regulations. They do not have time for ‘small talk,’ and by the nature of their job cannot appear to be friendly or inclined to make you, the tourist, feel special.”

   “Mr. Benko does not know what he speaks about,” writes a reader who rejects Ralph’s 90-second manifesto. “In fact, the Elite Ruling Criminal Class will take a complete and incendiary effort to remove them from their position of Swindle, Embezzle, Murder and Mayhem, in my opinion.”

“We have been in a Cold Civil War in this country, aided and abetted by the above-mentioned Elite, for a very long while, at least since the ’60s, and it is going to enter a hot period before it has its conclusion.”

“The Federal Criminal Cabal in Washington is rapidly installing a police state in this nation, and some are not going to accept it without a vibrant fight.”

“If We the People want to impact the Elite Ruling Criminal Class and reassert OUR Constitution, then one very simple way is to buy gold and silver and make the Elite Ruling Criminal Class eat their worthless paper.”

The 5: He didn’t say they’ll go down without a fight.

   “So what’s up?” writes a reader who saw Friday’s “can’t-trust-the-system” issue. “I have an account with optionsXpress, and I trade options. Are you saying along with Ann Barnhardt that we need to get out now?”

The 5: No. Only that it pays to do your due diligence.

Gerald Celente, who lost a bundle with MF Global, didn’t even realize he was doing business with MF Global. His account was with Lind-Waldock, which was acquired somewhere along the line by MF Global and continued to answer the phone, “Lind-Waldock.”

   “Go long New World Order and go short personal freedom,” writes a reader who saw Barry Ritholtz’s remark about going short banks and long mattresses.

“Whatever you believe, the facts show the NWO is alive and metastasizing. Do a baker and his pals eat better than his clients? Do those who print fiat currency and their pals enjoy a similar advantage? Of course.”

“Hey, they control the money, what’s next…food, military, governments, corporations, education, oh crap. Either way, the reality of the progress of macroeconomic global domination tyrants will continue, and it’s not likely to collapse until the Second Coming.”

“Or, just keep pointing out the mouse holes for us.”

The 5: Yes, we’re much more comfortable seeking out pockets of refuge.


Dave Gonigam
The 5 Min. Forecast

P.S. “It’s important that there’s a private initiative to do something,” said Addison during the lunch hour on Baltimore’s NPR affiliate. He was talking about Starbucks’ “Jobs for USA” program.

If you’ve been in a Starbucks this month, you know what it’s all about: Collecting donations of $5 or more to put in a kitty for lending to small businesses. Contribute, and you get a wristband:

“I’m skeptical that more credit is the route to creating more jobs,” says Addison echoing a theme from the introduction to The Essential Investor, which we unveiled over the weekend, “but this gets the thing going in the right direction. If we can have a private conversation separate from the political football kicked around in Washington and up to Wall Street, that’s a good thing.”

Addison says he riffed on the topic at the Mt. Vernon Club — a local hangout for the wives of Baltimore’s muckety-mucks — Thursday night too. He hasn’t said anything about being on a community outreach program lately… but neither has he been editing The 5 much lately, either. Between these engagements and the above-mentioned Essential Investor launch, he’s been busy.

If you’d like to listen to the local radio discussion, Addison was playing nice with Moody’s Mark Zandi. The discussion will be archived later today at this link. The discussion begins about 40 minutes into the 12:00 hour.


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