Dave Gonigam – February 17, 2012
- Government’s estimation: Inflation is “contained.” The 5’s estimation: Stock up on candy bars and nickels while you can
- Oil crosses $103 as a 1,354-year-old conflict metastasizes
- The bacteria antibiotics can’t kill… and the $10 billion market for a breakthrough treatment that can
- Golden discovery at a French winery… the unexpectedly passionate interest in CNG… your final opportunity for discount access to one of our most expensive services… and more!
“The cost of living in the U.S. rose less than forecast in January,” reports Bloomberg this morning, “supporting the Federal Reserve’s view that inflation will be contained.”
Well, if you can twist and distort the numbers the way the Bureau of Labor Statistics does so, yes, inflation can easily be “contained” — much the same way the feet of Chinese girls were once “contained” via the practice of foot binding.
It can be done… but whether it’s desirable is another matter entirely.
Consumer prices as distorted by the BLS rose 0.2% last month. The year-over-year increase has settled down to 2.9%, the lowest since last March.
Within the index, energy and food prices were both up 0.2% in January. Clothing was up 0.9%. Used vehicles fell 1.0%. Maybe the used-car market is finally stabilizing after “cash for clunkers” took 700,000 perfectly serviceable vehicles off the market in mid-2009.
John Williams at Shadow Government Statistics, performing his yeoman’s service of calculating CPI the way it was 30 years ago, comes up with an overall annual increase rather larger than 2.9%.
The way he figures, it’s 10.5%. We see a couple of items in the news that bear out his conclusions a lot more closely than those of the BLS.
Mars, the candy maker, plans to shrink its candy bars come next year. A regular Snickers bar will be slimmed down about 11%. We assure you the price will remain the same.
Incredibly, Mars is pitching this as a health thing: It wants to keep all its candy bars at no more than 250 calories. (So much for the king-size versions.)
No mention of Mars’ rising costs: While cocoa prices have come down about 25% from nosebleed levels in the last six months… sugar prices are up 50% in the last two years.
“We’ve long said that this situation couldn’t last,” says Whiskey & Gunpowder’s Gary Gibson of an inflationary signal tucked into the president’s 2013 budget proposal.
The Treasury is looking to alter the composition of pennies and nickels. Both of them cost more to make than their face value. And in the case of nickels, the value of the metal by itself is higher than face value. Gary has long believed in time, nickels will actually trade for more than face value.
Impossible you say? “When the price of the metal gets high enough,” says Gary, “a market will naturally become established for the coins and that market will be use the higher-content value, not the lower face value. The same thing happened to pre-1965 silver dimes, quarters and half dollars. These coins have traded for their metal value since shortly after their production ceased.”
“When you go to the bank and exchange your paper bills for nickels,” Gary writes, “you are buying copper and nickel from Uncle Sam at anywhere from a 10-50% discount, with your local bank acting as the broker.”
The budget does not propose a new composition of the coins, or a start date for the transition… but the idea’s on the table. “This window of opportunity,” says Gary, “is about to be slammed shut.”
“Saving in nickels,” he concludes, “isn’t a get-rich quick scheme. It’s a risk-free way to protect your purchasing power. If you save in paper — or in the electronic paper substitutes that comprise your bank account holdings — then you are giving the feds free rein to steal from you via inflation.”
Meanwhile, the debt that fuels all that inflation is racking up faster than anticipated. A study by former White House Budget director and current U.S. Sen. Rob Portman projects Uncle Sam will smack into the $16.4 trillion debt ceiling before Election Day.
“Washington will be hitting the debt ceiling again in mid-October,” reckons Sen. Portman — “burning through a $2.1 trillion debt limit increase in just over 14 months.”
Won’t that make for amusing campaign theater? The mother of all financial bubbles just keeps growing bigger.
U.S. stocks are mixed as traders stumble toward a holiday weekend.
The Dow is building on yesterday’s post-2007 high… but the Nasdaq is retreating from yesterday’s post-2000 high.
The U.S. economy is in for more weak growth in the months ahead, if the Conference Board’s leading economic index can be believed. It rose in January for the fourth-straight month.
Readers with really good memories — or those who are masochistic enough to follow these numbers as closely as we do — will recall last month the Conference Board revamped the index so it wouldn’t be distorted by rapidly growing money supply.
The old measurement, plotted on a chart through last November, complete with gray bars for official “recessions,” looks like this…
The new one is updated through January. Like the old one, the index is keyed to 100 in 2004. But wow, does it ever look different…
The LEI, notes Bloomberg’s economic calendar page, “has been revised many times in the past 30 years — particularly when it has not done a good job of predicting turning points.” Heh…
“With a $10 billion market that is rapidly growing, the potential rewards are stratospheric,” says Patrick Cox — eyeing an opportunity in a new breed of antibiotics.
“Some estimates are,” he explains by way of background, “that bacteria cause, in the U.S. alone, over 14 million skin and soft tissue infections and 7 million methicillin-resistant Staphylococcus aureus (MRSA) cases annually.”
“Of those infections, 70% are resistant to at least one antibiotic. Moreover, resistance is growing due to natural evolutionary mechanisms as well as the misuse and overprescription of antibiotics.”
Indeed, according to a new article in Scientific American, “A new pattern of antibiotic resistance that is spreading around the globe may soon leave us defenseless against a frighteningly wide range of dangerous bacterial infections.”
A handful of companies are rushing to bring products to the market to combat the trend. But Patrick thinks one in particular has a leg up: “The company’s anti-bacterial technology mimics the body’s own natural antibiotics called defensins.
“Using advanced bioinformatic systems to predict which synthetic defensins will be effective against target antigens, the company is moving the science forward in ways that no other company has duplicated. Preclinical work shows that their drugs are fast and powerful.”
Indeed, it’s one of the companies Patrick thinks can change the world — not unlike the maker of the anti-inflammatory “nutraceutical” that caught his eye last year. If you missed his updated presentation on that company — complete with four new developments this past month, and a stunner only two days ago — it’s worth a look.
Be advised we’re removing this presentation from the web tonight at midnight, so check it out while there’s still time.
For no obvious reason, oil has crested $103 a barrel this morning. That’s something it’s done only four times since the price tumbled from its post-2008 high of $114 last May.
The tension surrounding Iran is still out there, of course. Top U.S. intelligence officials told Congress yesterday that in the event of an Israeli or U.S. attack, Iran might very well close the Strait of Hormuz — one of the world’s “chokepoints” for oil shipments.
In the “unlikely, but statistically possible event that the Strait gets closed,” Byron King tells MarketWatch, “it’ll be an economic and energy event about which you’ll tell your grandchildren, should you live long enough.”
Result? It would “spike oil prices by $50 per day for a few days — to $350 per barrel within a few days — then settle back to $250 per barrel.”
Meanwhile, the war in Syria “is rapidly expanding into a regional proxy battle that threatens to cleave neighboring countries, including Lebanon and Iraq,” according to The Wall Street Journal, “as their populations harden along sectarian lines.”
This is the 1,354-year-old divide between Sunni and Shia that’s key to Byron’s scenario for an all-out Middle East war — unfolding in real-time.
Gold is likely to end the week about where it began. At last check, the bid is $1,723. Silver’s down to $33.37.
Some people have all the luck. Not only does Francois Lange supervise a winery in France, he’s now the fortunate owner of some 250 U.S. Double Eagles.
Workers at the winery recently began renovating one of the buildings. “One of the workers (was) attacking the building’s ceiling with a crowbar,” says M. Lange, “when gold coins started to rain down on him, followed by sacks of gold.”
By the time the showers let up, there were 497 gold coins — all minted in the United States between 1851-1928 with a face value of $20.
How they got there, no one knows. Or cares. Current value of the whole stash — just shy of $1 million. M. Lange will keep half for himself, while the workers will split the rest.
“I believe the person writing about CNG/LNG is a little confused,” a reader writes after yesterday’s issue. “There wasn’t much of either around in the ‘70s.”
“I think he was referring to LPG — which is liquid propane gas. Propane is different from natural gas. I was using LPG in my tractors and vehicles in the ’70s. Until recently, there has not been an LNG plant to produce the product. That plant won’t be on line until 2013.”
“One point I would like to clarify,” adds another from his post developing a gas field in Qatar, “is the use of LPG (liquefied petroleum gas — usually butane or propane) that has been in use in vehicles and off-road engines (we used it for operating engines for irrigation systems 30 years ago when I was growing up) versus LNG (liquefied natural gas, which has to be chilled and maintained at about -260 C or it regasifies).”
“It would be great to use CNG or LPG to power the U.S. transport sector, but extremely difficult to use LNG.”
“I ardently read all of The 5 Min. Forecast daily musings and am quite amused by some of your respondents’ rantings. I love The 5. Keep the theme and demeanor up!”
The 5: Thanks. “More than a decade ago, I used to drive a box truck,” says colleague Matt Insley at Daily Resource Hunter. “It ran fully on compressed natural gas.”
“It wasn’t a hybrid or anything. It ran only on CNG. Indeed, the truck was like any other truck I’ve ever driven. And just like your average vehicle, we filled up at the local gas station — Shell, to be exact.”
“Clearly, the technology has been around, in perfect working order, for a long time.”
“At some point, the market and our government will have to realize the potential of America’s abundant natural gas.” Which is why it fits in neatly with Byron King’s “Re-Made in America” outlook for a revival of U.S. industry.
Thanks to everyone for writing in on the topic this week. If you wish to carry on the conversation with your fellow readers this weekend, we direct you to The 5 blogsite.
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. “I’m really excited about this company,” says Patrick Cox of his most recent recommendation. “First, it has fantastic technologies. One uses remote sensing to cut the cost of energy production and increase reserves. It is also in very good condition financially.”
“Prior to recommending the company, by the way, I had the best resource analyst extant, Byron King, look at it to see if he could find some unexpected problem. He found none.”
You can access that recommendation… plus a special report on what Patrick says might be “the last stock you’ll ever need”… plus a discounted membership in his premium advisory, Breakthrough Technology Alert. But only if you act by midnight tonight.
P.P.S. U.S. markets are closed Monday for Presidents Day. The 5 returns on Tuesday.