Addison Wiggin – February 29, 2012
- Leap Day lunacy: Asteroids, repeal of the First Amendment, trading gold for oil and — what’s this? — a real criminal investigation of MF Global
- “Everyday Price Index” nearly triple that of the government’s official inflation number… while housing priced in gold is a steal
- Bernanke bloviates, sending “risk assets” down…
- Patrick Cox on how to profit from an end to animal cruelty… Europe’s new money flood… a small-business owner’s run-in with new yuppie neighbors… and more!
So maybe the Mayans were not correct. It’s not in 2012 we have to worry about the end of the world. It’s in 2040. Blimey.
Scientists have discovered an asteroid hurtling our way — an asteroid half again as wide as a football field, enough to destroy a decent-sized city.
“It may come close enough to Earth in 2040,” according to an account at the Discovery Channel website, “that some researchers are calling for a discussion about how to deflect it.”
We set out this morning, in honor of Leap Day, to unearth the most unusual, outrageous, or out-there items… and the gods have obliged in spades.
On a more prosaic level, the “Federal Restricted Buildings and Grounds Improvement Act” is about to take effect.
Meant to tighten the rules on trespassers at the White House, the bill also makes it a federal offense to protest or assemble without permission anywhere the Secret Service is protecting a government official.
Ditto for any building or grounds “restricted in conjunction with an event designated as a special event of national significance.”
“The bill expands current law,” wrote one of the dissenters, Rep. Justin Amash (R-Mich.), “to make it a crime to enter or remain in an area where an official is visiting even if the person does not know it’s illegal to be in that area and has no reason to suspect it’s illegal.”
The bill passed the House yesterday with only three dissenting votes.
For entertainment purposes only, let’s contrast the spirit of the new law with an event yesterday in China: A protester named Du Jianguo interrupted a press conference by World Bank chief Robert Zoellick.
“The World Bank report won’t give any benefit to the Chinese economy and people,” said Du, who proceeded to hand out leaflets to the assembled reporters before security hustled him out of the room.
That’s no big surprise. What happened next is:
That’s Mr. Du being interviewed after the fact. The Chinese authorities didn’t see fit to arrest him.
On this auspicious day, too, we report with some dismay that Wyoming’s “doomsday bill” has gone down to defeat. The final vote: 30 nays to 27 yeas.
Too bad.
It would have set up a committee to prepare for the possibility of “a situation in which the federal government has no effective power or authority over the people of the United States.”
Rumors regarding Iran accepting gold as payment for oil, as we continue our parade today, appear to be factual. The effort from Tehran appears to have been initiated in an effort to get around Western economic sanctions.
“In addition to the U.S dollar and currencies of the trading countries, Iran could take gold in its commercial transactions with other countries,” says Iranian central bank governor Mahmoud Bahmani.
Whether any deals have been cut yet… he didn’t say. But Iran is already selling oil to India and China in exchange for rupees and yuan.
“Iran imports goods from China and India instead of the hard currency,” the governor stated simply, “and faces no problem in this regard.”
In the meantime, the Iranian rial has shed 30% of its value (since October).
Here’s perhaps the strangest event of the day: An actual criminal investigation has been launched into the collapse of MF Global. Say it ain’t so.
On Nov. 1, the day after MF’s bankruptcy filing, the feds subpoenaed CME Group — parent firm of the major commodities exchanges. CME Group disclosed this tidbit yesterday.
The subpoena was issued by the U.S. Attorney’s office in Chicago, where top prosecutor Patrick Fitzgerald has put away two consecutive governors of Illinois, among other scalps on his wall. We’ll see…
Turning to the markets, precious metals are tumbling this morning. Gold’s down nearly $50, to $1,735. Silver has also dropped close to 3% and clings to $36 for dear life.
We see no obvious reason.
Although the drop began the moment Fed chief Ben Bernanke began testifying to Congress.
“It will be especially important to evaluate incoming information to assess the underlying pace of economic recovery,” said Bernanke in an opening statement that shed even less light than usual.
He seemed to put some stock in a falling unemployment rate, but stopped short of saying that pointed to an improving recovery. The people who make a living trying to divine the Delphic statements of Fed governors are taking this as another hint that QE3 is a way off yet.
Rising gas prices? A temporary thing, the Fed chief says. Inflation will run 1.4-1.8% this year — below their now-official target of 2%.
Meanwhile, the price of everyday items rose 8% last year. That nugget comes by way of a new measure released by the American Institute for Economic Research this morning.
AIER’s “Everyday Price Index” measures only those items you purchase at least once a month. Thus, housing, cars, furniture, appliances and computers don’t count.
Comparing EPI with the government’s consumer price index yields an interesting contrast: EPI started running away from CPI around 10 years ago.
Turning to the government’s version of numbers, GDP grew an annualized 3% during the fourth quarter of 2011, according to a revised guess out from the Commerce Department this morning.
Commercial construction and consumer spending were stronger than when Commerce issued its first guess of 2.8% a month ago.
Looks as if the longer Bernanke talks, the more of a bummer it is for stocks. The Dow is back below 13,000 and the S&P is back below 1,365.
Overnight, the European Central Bank rained more money on the continent’s insolvent banks. The second round of “long-term refinancing operations” totaled 530 billion euros.
That’s on top of the first round back on Dec. 21, totaling 489 billion euros. This is money the banks get to borrow from the ECB at 1% for the next three years. And it’s why all those pesky fears about the eurozone banking system imploding are so two months ago.
Where exactly these banks will get the money to pay off the loans three years hence no one is saying.
Except our Dan Amoss. “The EU banking system is now addicted to loans from the ECB, and there is no turning back,” he wrote more than two weeks ago in remarks that are equally relevant this morning.
“The ECB will have to roll over these LTRO loans when they mature in three years, when the sclerotic EU economy is even smaller, unemployment is higher and high consumer prices erode living standards. Ultimately, the ECB will be forced to bail out its own imprudent actions. How? By printing euros to cover its own losses.”
“Investors, slowly, are going to see this scenario as inevitable, so we should prepare for the inflationary consequences ahead of the crowd.”
“Deflation is your friend!” says an email this morning from Whiskey & Gunpowder editor Gary Gibson. He has an addendum to yesterday’s Case-Shiller home price index.
While the average price of a home is back to late-2002 levels, we should point out that’s housing priced in dollars. Priced in gold, housing hasn’t been such a bargain since gold hit its secular high in January 1980…
“Notice,” says Gary, “home prices went up even in terms of real money/gold as the federal efforts to turn houses from consumer goods into investments really started gaining traction.”
“Then home prices in gold plummeted during the first 10 years of the untethered dollar era. They went up again under Greenspan’s loose policy era and plummeted again when the resulting bubble burst.”
“Hmmm…this chart may actually make the case for home prices stabilizing as they head back toward the pre-Fed median of around index = 50.”
“Draize testing is currently a multibillion-dollar industry,” says Patrick Cox, spying an opportunity you may want to investigate. “Everyone would like to see the procedure minimized,” he adds by way of a twist.
Draize testing is what’s used to test cosmetics, chemicals, cleaning supplies and loads of other stuff for human safety. “The actual procedure involves applying the chemicals to living animals’ eyes,” Patrick explains. “Then, the eyes are often removed for testing.”
You bet people would like to see that minimized. And one of the companies Patrick’s following just might. It’s developed stem cells to create artificial eyes.
“Tests indicate,” Mr. Cox explains, “that the cells perform as well as, if not better than, animal eyes as a predictor for toxicity.” Not surprising, since we’re talking about living human cells.
“This is an important milestone,” Patrick says — an essential step along the way to developing transplant eye tissues. “There are tens of millions of people in Asia whose sight could be restored if they had access to transplant eye tissues.”
The company that’s on the case is unique in the stem cell field, developing “parthenogenic” stem cells from unfertilized eggs gathered for fertility treatments. “These cells are seen by the law as unique biological structures — distinct from embryonic, adult or induced pluripotent stem cells (iPSCs).”
“This company’s stock is,” Patrick adds, “grossly underrated these days, as are many small-cap biotechs. Market psychology often disguises the long-term value of a company. This is particularly true when we are talking about emerging biotechnologies.”
Which makes the opportunity that much more attractive right now. Patrick tells you much more about what this company’s working on, right here.
“Ah, well, what are you going to do?” asks Frank D’Amico, an aggrieved small business owner in the Carroll Gardens neighborhood of Brooklyn.
Mr. D’Amico is the proprietor of a coffee joint that roasts its beans on-site. Lately, he’s been hounded by New York’s Department of Environmental Protection because… well, the neighbors don’t like the smell of roasting coffee beans.
The DEP discovered D’Amico never installed an afterburner, which cuts down on the smoke and smell. That figures, seeing as the place has been in business since 1948.
“We thought we were grandfathered in,” D’Amico says. No such luck. He’s waiting for a letter from the DEP telling him what to fix.
D’Amico figures the neighbors turned him in — new neighbors in a gentrifying neighborhood. “It used to be people would come in and talk to the owners of stores if they had a problem,” D’Amico tells Gothamist.
God forbid in this day and age.
“Now people are too busy, they just call up 311 [to] complain.” The complexion of the Carroll Gardens has undoubtedly changed, according to Gothamist. “Saturday afternoon on Court Street,” complains one resident, “now looks like a J.Crew runway. With strollers.”
“I grew up in far western Nebraska,” a reader writes after seeing that Wyoming lawmakers toyed with the idea of acquiring an aircraft carrier as they debated their doomsday bill.
“So I’m aware of the conflicts about water on the North Platte River. We wanted more in Nebraska… except for the floods. They (in Wyoming) wanted to keep it in the North Platte dams.”
“I suspect they’ll bring the carrier up the mighty Missouri and hang a left at Plattsmouth. Ya gotta watch those cowboys!”
The 5: Well, not as of the vote this morning.
Regards,
Addison Wiggin
The 5 Min. Forecast
P.S. We were informed at lunch today that it’s Ron Paul’s wife’s birthday. She’s 19. (Ahhh… gotcha. Do the math!)
P.P.S. “Market sentiment took a hit this afternoon after Fed Chief Ben Bernanke’s lackluster comments before Congress today,” writes Abe Cofnas with an update on the mock trade in the binary options market he suggested on Monday. “But we’re still on course for a 24% payout on Friday!”
“As you’ll recall, we’re looking for Dow Jones futures to ‘break out’ of a trading range, either going above 12,925 or falling below 12,825. Now, even with the market’s retreat, we’re still in-the-money… and will be as long as the Dow futures stay put or go higher!
“We bought the 12,925 binaries for $50.25. With Dow futures at 12,980 today, the binaries are trading for $58. That indicates that traders believe there’s a 58% chance this binary will expire in the money.”
“Of course, since the upper binary is doing well, the lower binary is flagging. It has gone from $32 to $15. But that’s by design — if the play works, one binary succeeds and the other one fails.”
“Either way, we stand to collect a 24% gain when they expire on Friday. We will wait and see what the next two days bring!”