From the Trust Fund to the Gas Tank

Dave Gonigam – December 20, 2011

  • While Congress debates the payroll tax cut next year, The 5 pinpoints what everyone did with their “extra money” this year
  • Mega-rally on… a Spanish bond auction that didn’t fail? Razor-thin volume delivers crazy results
  • One blood test to detect a host of cancers… and a weight loss treatment that wipes out fat cells instead of trying to “manage” them: Patrick Cox with two “big” predictions for 2012
  • One chart that’s gone up every year for four years… what an obscure story from Iraq might mean for oil prices… readers pipe up about light bulbs (again)… and more!

   You want to know who has the most miserable job in the country right now? Payroll managers.

They have no idea whether Washington will extend the Social Security tax cut beyond Dec. 31, or for how long.

Last year Congress and the White House came to terms on Dec. 6. Today’s the 20th… and no agreement is in sight.

You might recall the payroll tax was trimmed two percentage points for 2011… for what were touted as its stimulus effects. The president described it as “a tax cut that economists across the political spectrum agree is one of the most powerful things we can do to create jobs and boost economic growth.”

   Actually, it all went into the gas tank. The typical U.S. household spent $4,155 on gasoline this year.

According to the Oil Price Information Service, that’s 8.4% of median family income — the highest share since 1981, when it was 8.8%.

It’s also a substantial increase from what Americans have been accustomed to of late. “Over the past decade, gas has taken up 5.7% of the family budget,” says an account at CNBC. “If families had spent only 5.7% this year, they would have saved $1,300.”

Hmmm… Median household income according to the Census Bureau is $49,445. A payroll tax trimmed from 6.2% to 4.2% works out to $989.

So for the “typical” American family, every penny of the payroll tax cut has been eaten up by higher gas prices. And then some.

The Social Security “trust fund” is further rendered a sham, and the intended stimulus is all soaked up by the byproducts of QE2: A mess that could be made only in Washington. But there’s an antidote to this deadly combination of depleted retirement funds and rising fuel prices… as you’ll discover here.

   On thin pre-holiday volume, and for no obvious reason, the “risk-on” trade is in play today…

  • Major U.S. stock indexes are up nearly 2.5%. The Dow is back above 12,000
  • Oil is up more than 3%, only a dime away from $97 a barrel. The broad CRB commodity index is back above 300
  • Gold is up modestly to $1,614, and silver more sharply to $29.46
  • The dollar index is back below 80 for the first time in a week, while the euro has rallied to $1.307
  • Treasury yields are up sharply, although a 10-year note remains at 1.9% and the 30-year bond at 2.91%.

The news from Europe is upbeat, if transitory: A Spanish bond auction went well. An index of business confidence in Germany rose for a second month, confounding the “expert consensus.”

   Domestically, the big driver is this: Housing starts jumped 9.3% in November, according to the Commerce Department, to the highest level since April 2010.

The year-over-year increase works out to 24.3%, driven mostly by construction of apartment complexes for all those people who can no longer afford to be “owners” of underwater properties.

Permits, an indicator of future trends, rose 5.7% month over month, and 20.7% year over year.

   Imagine a blood test to detect cancer similar to the PSA test used in prostate cancer screening. Only this test can detect a host of different cancers — of the breast, lung, bladder, uterus, stomach and colon.

The day isn’t far off, asserts our tech maven Patrick Cox… and it will represent a quantum leap. “If all the existing diagnostics were used to test one individual for early-stage cancers, it would cost many tens of thousands of dollars — perhaps more. If all people were checked for all cancers on a regular basis using existing diagnostics, it would bankrupt our entire health care system.”

So most people are tested only when there’s reason to believe they might have cancer. Unfortunately, by that time, it’s already too late and the cancer has turned aggressive.

“In a better world, there would be a simple blood test that would cheaply and quickly reveal the most-common cancers. Then, nearly all cancers could be caught in their early stages, when they are still easily treatable.”

This better world is now here, with the development of a simple blood test by one of the companies Patrick follows in Breakthrough Technology Alert. “It could be on the market in Europe in little more than a year.”

“Many countries outside of Europe take their lead from the EU, so it should move rapidly into Canada and other markets. With post-market data from European users, I would expect that approval in the U.S. would take another year.”

Patrick reckons the materials costs of this test will run no higher than $15. “It will cost more than that because there is some labor involved, but the profit margin, I believe, will, nevertheless, be fantastic. It will save many thousands of dollars because it will replace many different tests — though it will cost no more than a single diagnostic test for a single cancer.

“More importantly, it will save the staggering costs, in pain and death as well as money, associated with treating most late-stage cancers. This means that insurance companies will want to pay for the test. All these factors convince me that we are very likely looking at a true ‘blockbuster.’”

   Another breakthrough Patrick is eyeing in the coming year: weight loss. This $40 billion-a-year market is aching for a game-changer… and Patrick has spotted it, with the help of a couple of friends named Ricky and Ned.

Both of these critters ate an identical high-fat diet. But Ned went through a month’s revolutionary treatment — and without running on a wheel six hours a day.

“In the past,” Patrick explains, “scientists have focused on drugs that work on the brain. They thought your brain ‘tells you’ when to feel hungry. Scientists tried a variety of biological approaches to controlling cravings.”

But here’s the problem: “Cravings are not necessarily psychological. They come not from the brain, but from the body. They are physiological. When fat cells are created, they have a survival instinct. They shoot out chemical signals to alert the whole organism when their nutritional backup systems are depleted.”

That’s what makes the treatment Patrick is following so promising: “It doesn’t work on the brain to lessen the power of the cravings that are generated by shrinking fat cells. It’s trying to eliminate the fat cells themselves. In other words, it would attack the REAL problem.”

Patrick expects clinical trials during 2012… and not a moment too soon. “Estimates are that obesity-related illness could account for $350 billion of our total health care costs within the next 10 years. If we spent $100 billion on this new idea, it could still save the country a quarter trillion dollars. That’s the formula for a blockbuster treatment.”

2012 could prove to be a landmark year — a year of unprecedented developments in the treatment of obesity… cancer… and inflammation-related diseases.

We’ve assembled Patrick’s 2012 predictions in a unique format: Along with Ray Blanco of our tech team, he sat down for a recent interview with an Agora Financial researcher… laying out everything in a simple Q-and-A format. Start here.

   One million ounces of gold exited the doors of the U.S. Mint this year, according to the latest sales figures.

Year to date, the Mint has sold 910,000 1-ounce Gold Eagles, and 517,000 fractional Eagles to reach the 1-million ounce total — which is shaping up to be the smallest since 2008.

Silver Eagle sales, in contrast, have already set another record: Year to date, the total is 39,768,500.

[Note for collectors: As an Agora Financial reader, your window of exclusivity on 2012 Silver Eagles — certified Early Release and independently graded MS-70 — is about to slam shut. Previous issues of these coins sell for four figures today… and you can lock in the lowest available price on the 2012s right now.

Until midnight tonight, our friends at First Federal continue to make them available only to you and your fellow readers. Here’s where to act. Full disclosure: We may be compensated if you buy.]

   “I served in the U.S. Army in South Korea from 1999-2001,” writes a reader who caught The 5’s take on the death of Kim Jong Il. “It was obvious then that the ROK could quite adequately defend itself from the North without U.S. help.”

“It only made sense if you thought China was coming south — and if they did, it wouldn’t matter anyhow, at least from a military viewpoint. Oh, and don’t forget all the U.S. military stationed in Japan to help ‘defend’ Korea.”

   “As one who served in Korea long ago and whose two sons have served there more recently, the reason the U.S. has troops in Korea is not to protect South Korea, but to reduce Japanese thoughts about increasing their armaments.”

The 5: Perhaps at one time. But it doesn’t square with a Pentagon announcement yesterday crowing that Japan will buy a batch of F-35 fighter jets…

   “How does this fit,” a reader inquires with a link to a news story, “with Byron King’s prediction of Muslim oil turmoil?”

The story is about Iraqi Prime Minister Nouri al-Maliki ordering the arrest of Vice President Tareq al-Hashemi on “terrorism” charges.

Maliki is Shia Muslim. Hashemi is Sunni Muslim. Shia make up the majority of Iraq’s population. They’re getting revenge after decades of rule by the Sunnis, including Saddam Hussein.

There’s nothing surprising about it at all. The two factions have been at each other’s throats for 1,354 years. Look for plenty of score settling in Iraq with U.S. troops gone now… the Shia egged on by Iraq and the Sunnis by Saudi Arabia.

For insight into where this is all going, look here.

   “I’ll add a little bit more to your recent light bulb debate,” another reader writes. “Recently, I started to switch to LED bulbs, which screw into conventional sockets.”

“These LED bulbs are much more efficient than any alternative light source. Yes, they do cost more, typically $25 for the illumination of a 100-watt bulb, which is, indeed, quite a bit higher price. However, I keep my eyes out for big sales and overruns, and managed to purchase a couple dozen at only $5-15.”

“Since LEDs last for hundreds of thousands of hours and save lots of electricity, they are already cheaper in the lifetime of the LED bulb — which will probably outlive most of us. I’ve switched almost all bulbs in my house, and my electric bill is about $25 lower each month. At $300 savings per year, I’ll pay for 100% of their cost in about six years. So there’s another alternative.”

   “I can’t let the comments go by without pointing out that while the CFL is more efficient from a light-generating standpoint, it is less efficient as a heat-generating device.”

“Here in Montana, where we heat our homes in the winter for at least six months out of the year, it can make more sense to help heat your home with incandescents in addition to a propane furnace.”

“I pay 5.5 cents per kilowatt hour for electricity, and once the cost of propane is above about $1.50 per gallon — currently $2.40 — it makes more sense to keep the lights on and use the incandescents as 100-watt electric heaters.”

“They may be wasting 90% of the electricity as a light bulb, but they waste only 10% of the electricity as an electric heater, whereas the CFL is less efficient as a heater.”

“Thanks for all your writing. I read The Daily Reckoning, The 5 Min. Forecast and Whiskey & Gunpowder every day. Don’t change a thing.”

   “Come on, you guys,” a reader says. “You are smarter than that.”

Ah, flattery and sarcasm together…

“If not, please let me know ASAP so I can cancel all of my subscriptions with you.”

Oooh, a challenge…

“Your statement that a person may not know they are an American is plain STUPID. A person KNOWS he is an American citizen. Quit publishing such rubbish.”

The 5: What, you think we just made it up? Read. And thank you for your patronage.


Dave Gonigam
The 5 Min. Forecast

P.S. Sad, but not unexpected news: Ron Smith died last night after a brief fight with pancreatic cancer. The veteran host of Baltimore’s WBAL-AM and steadfast friend of The Daily Reckoning was 70.

Addison spent an hour with Ron Smith only four months ago, days after S&P downgraded Uncle Sam from AAA. For some still-timely insights — and to experience a great broadcaster taken from us far too soon — give it a listen.


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