Addison Wiggin – March 9, 2012
- J’accuse! Reader calls out The 5 for “doublespeak”… We reconcile “financial armageddon” with breakthroughs that “will rescue the economy”
- Chris Mayer on “one of the best things you can do with your money right now”
- Not just a town in upstate New York: Byron King on “one of the keys to the re-industrialization of the U.S. Rust Belt”
- More opportunities from our editors: A 6.8% yield from an unloved sector… and a breakthrough treatment for the most-widespread disease you’ve never heard of
- Breaking down the unemployment numbers… the impact of solar flares on stocks… a likely happy ending to our “mock trade”… and more!
“Let me recap your report,” a reader proposes, helpfully kicking off today’s episode of The 5 Min. Forecast.
“At the top, I am told that the U.S. is destined for financial armageddon (as you shout in every edition). I should convert everything I own to gold and store that gold overseas for protection.”
“At the bottom, I am told that forthcoming medical technologies will rescue the economy. These technologies will not just eliminate the deficits (a huge step), but pay off the debt! This is truly amazing.”
“I know it’s election season, but I do not expect doublespeak from a financial adviser! Unless, of course, you’re just trying to sell me something…”
“Don’t worry, my feelings won’t be hurt when you do not publish my feedback in The 5 Min Forecast.”
The 5: It’s a crazy dynamic, we concede. But the propositions are not mutually exclusive: There are crushing, unsustainable debts on both the household and government levels; the dollar’s status as the world’s reserve currency is doomed; and yes, you need gold and other hard assets to protect yourself.
All true statements.
At the same time, the innovation cycle is kicking in with greater speed than we’ve anticipated. In the same way that radios and refrigerators were taking off in the depths of the Great Depression, the time to invest is now. But we’re not looking at new radios… we’re looking at stem cell therapies and writing “life code”….
The only thing you’re wrong about… we don’t expect the next revolution to pay off the debt! Or fix the economy. Not at all. In fact, we expect the economy as it exists today to get destroyed. And the debt to rise until the existing political order collapses under its own incompetence.
Specifically, we’ve just commissioned a study to show how “youthful life extension” will detonate the economics of every financial scheme we write about.
Imagine.
If Social Security, Medicare and Medicaid are unfunded to the tune of $67 trillion now… what would happen if the average baby boomer’s life were extended by just one year. What about life insurance annuities and private pension plans? What if the average baby boomer’s life were extended by five years… 10 years or even 20?
At the same time, we expect unimaginable opportunities and new investment opportunities to explode on the scene… creating whole new Google-sized companies overnight… and new industries we can only dream about today.
The rate of change is picking up so quickly, not only will the investment landscape prove to be adrenaline packed and entertaining over the next decade, but your life as you know it will be radically different and longer than you can possibly fathom right now.
Unfortunately, there’s a dark side to increaingly rapid change. It’s expressing itself in the rise of fundamentalism and populist movements from the Tea Party and Occupy to radical religious movements all across the globe. As ever, politics (and religion, for that matter) cannot “solve” problems in the economy. Government cannot “create jobs.”
Politicians, pundits, the media, wonks — whatever you want to call them — only pander to your fears… and promise you solutions they cannot afford.
More to come…
One more thing: We are trying to sell you something. In a phrase, it’s called “investment advice,” the kind you can’t get anywhere else. We’re not ashamed of the effort. On the contrary, it’s one of our strengths.
We do not carry advertising from the financial planners, insurance companies, pension plans, drug companies, health care providers, automakers… or any other mainstream source. We derive our revenue from subscription fees — that means you. If you don’t like what we have to say, you can get all your money back.
Before you do, think about this. Because we’re independent: we can call a spade a spade. And give you the most-objective and -actionable advice in the market.
By all means, get some bullion… and some biotech stocks. You can do it on your own. Or you can get well-researched advice on which companies are doing the most-innovative work, which are returning the best dividends, which companies are running sound balance sheets, which ones are growing fastest despite the economy… which ones are best to avoid, for whatever reason.
You already get the balance of our “insights” for free. If you’re missing the action part, all you have to do is subscribe to your favorite voice in The 5.
This morning, we announced an innovative way for you discover how many “credits” may be sitting in your account right now. The program has taken our IT team nearly a year to figure out… but it could mean substantial money in your pocket. For details on claiming your credits, take a look at this brief video from our publisher Joe Schriefer.
“Buying real estate,” says our managing editor Chris Mayer leading us into today’s bevvy of insights “is one of the best things to do with your money right now.”
“You lock up long-term financing at cheap rates,” Chris goes on, “and own an asset providing a decent yield in a distressed environment.”
“You’re also effectively short the dollar (with the debt), meaning you borrow now and pay with depreciated dollars later. Another way to buy real estate is to buy the debt at discounts, which is what Bass et al. seek to do.”
Indeed, Kyle Bass, who made $500 million betting against subprime mortgage debt back in the day, is raising a fund to buy… mortgage-backed securities.
And he’s not alone.
“You can end up, even using severe assumptions on things such as home prices and defaults, with a very high yield based on the prices that bonds are trading at,” according to Larry Penn, CEO at Ellington Financial. “Especially with interest rates this low, if you can buy something where you can end up with a double-digit yield under severe assumptions, that’s great.”
Chris agrees. That’s why he’s putting his readers into value-oriented real estate plays — residential and commercial alike — in both his entry-level and premium letters. One is already up 36% in seven weeks. Another, 46% in five months. A third, 17% in two months.
“The first signs of life are beginning to appear in the housing sector,” says our small-cap specialist Greg Guenthner, piling on.
“I’m not saying that the housing market is ready to boom again,” he hastens to add. “And we’re certainly not looking an early 2000s-type run in home prices again anytime soon. But I am seeing several signs pointing toward improved conditions for the homebuilding sector.”
“According to The Associated Press, builders broke ground on a seasonally adjusted annual rate of 699,000 homes last month. This milestone puts the seasonally adjusted rate at its highest level since October 2008. These glimmers of hope for the housing market have ignited a stealth rally within the sector.”
Rather than buy homebuilders — a subsector that’s raced up 25% in the last three months — Greg suggests a backdoor play that’s just getting started. “I recommend staking out the smaller, regional companies in the homebuilder supply sector. With business steadily improving for home builders, the suppliers in the best-performing regions stand to make early investors substantial profits.”
“Utica is one of the keys to the coming revival of energy output and the re-industrialization of the U.S. Rust Belt,” says Byron King, scouting opportunity in his own bailiwick.
The Utica shale is another massive “unconventional” energy deposit in the continental U.S. It lies — try to wrap your head around this — underneath the much more famous Marcellus shale.
“The thin line on the map (mostly in West Virginia, Pennsylvania and New York) outlines the geographic extent of the Marcellus shale,” Byron explains. “The map clearly demonstrates that the Utica offers a much-larger footprint than the Marcellus.”
“As the map illustrates, the Utica underlies several states and parts of Lake Erie, Lake Ontario and Ontario. If government regulators allow the Utica to be developed to its full potential, the energy gas play could become among the largest of any such developments in the world.”
Byron recently recommended a company with a big stake in Utica, and it doesn’t have to wait on bureaucrats to execute its business plan. If Marcellus is helping revive places like Youngstown, Ohio — and we can’t deny it is — the potential with Utica is even bigger. Another feather in Byron’s “Re-made in America” cap.
Of course, there’s a long way to go: If you believe the Bureau of Labor Statistics, 227,000 new jobs emerged in the U.S. economy last month.
Digging into the numbers, however, 91,000 of those jobs were created by the “birth-death model” — the statistical invention that tries to account for jobs created by new businesses whose owners are too busy to respond to BLS surveys.
The U3 unemployment rate stayed steady at 8.3%. The “underemployment rate” or U6, rang in at 14.9%, down from 15.1%. Unemployment measured the way it was during the Carter administration and reconstructed by John Williams at ShadowStats.com ticked down to 22.4%.
There was a pimple of improvement in one of the numbers the statisticians can’t fudge. The percentage of the population that’s employed rose to 58.6%. But compared with 2007 levels above 63%, it’s nothing to write home about.
Those 227,000 new jobs were slightly more than the “expert consensus” was counting on… but it’s done little to goose the market this morning.
Most of the major indexes are up less than half a percent, although small caps are doing slightly better.
“While stocks started the week off with a pullback — the biggest of 2012 — Mr. Market isn’t exactly hemorrhaging points this week,” says our resident technician Jonas Elmerraji. Jonas’ main skill is helping you with the timing of your trades.
“Tuesday’s 1.54% drop officially makes the day the worst bear session of 2012; put into perspective, last August’s sell-off sent the S&P 500 down an ominous 6.66%. So we’re not exactly talking about a collapse here.”
“Pullbacks are part of rallies,” Jonas advises, “they’re an opportunity for stocks to bleed off some overbought momentum and for investors to psychologically absorb the price action that the market has posted in the last few months. The rally in 2012 has been no different. With volatility on the downswing, the risks of the floor opening up for the S&P 500 are greatly reduced.”
“With the S&P back above 1,365 resistance, we’re making steps in the right direction. The best way to describe how I feel about stocks right now (over my time horizon) is ‘cautiously optimistic.’”
“We must be prepared for the return of ‘risk-off’ markets,” advises our short strategist Dan Amoss this morning. (We knew someone in our fold would bring a cloud to our silver linings!)
After that sell-off comes, Dan sees “more growth of central bank balance sheets — growth that could dwarf what we’ve seen thus far. But central bankers are also sending the message that they won’t pump a new flurry of cash into the financial markets unless we see a ‘risk-off’ move along the lines of last August-September.”
In other words, more money printing that would pump up markets yet again. Hey, it’s worked so far; we have no doubt it will continue to work… until it doesn’t. Heh.
“Liquefied natural gas, or LNG,” says our income specialist Jim Nelson — who’s every bit as intrigued by unloved sectors as our other editors, “is not a popular investment to many conservative investors.”
It’s a cyclical business. And the process of supercooling the gas and loading it aboard specialized transport ships is expensive. But the Fukushima disaster in Japan is starting to change that.
“Without nuclear power,” Jim says, “the country is importing nearly three times the fossil fuels it did before the meltdown.”
As a result, “it’s making more and more sense for producers to take their product to Japan…even if it takes a few more steps to do so. Compare what Japan is paying for LNG with the price of regular natural gas here in the States.”
Natural gas producers worldwide are lining up to ship their product to Japan. And Jim thinks the best way to play the trend is with an LNG shipper. He’s found one that pays a fat 6.8% yield. It’s a terrific addition to the other energy-producing income plays he spotlights in Lifetime Income Report.
“NASH is a huge and growing problem that affects 9-15 million people in the United States alone,” says Patrick Cox, on the lookout for still more medical breakthroughs.
NASH stands for nonalcoholic steatohepatitis. It damages the liver in people who drink little or no alcohol. Over time, it leads to fibrosis, a scarring of the liver. And eventually to cirrhosis, just as with hard-core boozers. Then, a transplant is the only option.
One of the companies Patrick follows has developed a treatment that combats a major cause of NASH: galectin-3s. Those are proteins that latch onto sugar molecules. They’re linked to all sorts of disorders, but the firm is focusing first on NASH in seeking the approval of regulators.
Beyond that, the potential is vast: Indeed testing is under way in Europe using the treatment as a vaccine to prevent skin cancer. “Cancer vaccine therapies are one of the hottest areas of biotech research today,” Patrick says.
What’s more, this particular one shows promise to treat cancer after it’s already set in. We’ll keep an eye on it.
“Business, research and public-sector entities are all increasingly using high-performance computers to access and analyze the growing pile of digital data warehoused in data centers all around the world,” says Ray Blanco, eyeing a tech opportunity.
“High-performance computing is heavily used for simulation and modeling in the scientific research sector. Manufacturing is using rapid design and prototyping. Public-sector entities are also using high-performance technology for analyzing large amounts of unstructured data.”
NASA uses it for the Kepler space observatory to search for undiscovered Earth-like planets. High-performance computing is also key to a sector of life sciences known as bioinformatics. “Researchers,” says Ray, “are now able to model how the molecules in human cells behave and affect the overall functions in our bodies. Computational biology is now seeing widespread use in genomics, protein structure prediction and drug design.
“Since transistorized silicon chips first saw the light of day at Bell Laboratories in 1954, they have been used to transform every aspect of our economy. What we’ve seen so far is only the tip of the iceberg.”
So yes… even as central bankers and politicians do their best to throttle prosperity, opportunity abounds.
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Opportunity abounds, but don’t be surprised if the market drops off the next few days. If it does, you can blame it on the solar storms this week.
Bloomberg has unearthed a 2003 paper issued by the Atlanta Fed finding that major stock indexes underperform their historical averages — indeed, generate losses — in the five days after a big solar storm.
Correlation does not equal causation. And there’s no shortage of jokes you could make about the spare time Fed researchers must have on their hands.
Then again, one of the pioneers of space weather research found a whole lot of correlation over time — and not only with market activity. Alexander Chizhevsky, according to his Wikipedia entry, “proposed that not only did geomagnetic storms resulting from sunspot-related solar flares affect electrical usage, plane crashes, epidemics and grasshopper infestations, but human mental life and activity.”
The reason, he suggested? “Increased negative ionization in the atmosphere increased human mass excitability. Chizhevsky proposed that human history is influenced by the 11-year peaks in sunspot activity, triggering humans en masse to act upon existing grievances and complaints through revolts, revolutions, civil wars and wars between nations.”
We’ll further note that Sept. 11 coincided with the last sunspot peak. Which is now nearly 11 years ago. Hmmm….
“Received a really nice color brochure in the mail yesterday,” a reader writes. “It was for a FREE CELLPHONE with 250 minutes a month for people on ANY kind of assistance.”
“The assistance could be food stamps or even winter heat money. Now, I could maybe understand something for a person on SSI that had a problem that might result in death if they couldn’t make a call for help, but otherwise, this has just gone too far.”
“I have to pay to buy the cellphone and pay for my minutes and now a couple of other people as well? When did it become the government’s responsibility to make a cellphone available for everyone? Who authorized the payment for the brochures, and IF they must send a brochure, why isn’t it in black and white and on a postcard?”
“Makes you wonder how many of our esteemed congressmembers own cellphone stock of the company that makes these phones. How many of these are helping people do drug deals? Well, you do have to talk to your girlfriends and boyfriends, I guess. Just really bothered me, kind of like the straw that broke the camel’s back, so to speak.”
“Really love The 5 and read as soon as I see it.”
The 5: Indeed. And you pay for it through the “Universal Service Fund” charge on your phone bill. It’s been in effect since 1996, so that particular straw’s been weighing down on the ungulate for a while…
Have a good weekend,
Addison Wiggin
The 5 Min. Forecast
P.S. “Our ‘mock trade’ on U.S. crude oil is in very good shape,” reads an email just in from Abe Cofnas. “With only a few hours left to expiration (2:30 p.m. EST), the April USD crude spot price is $107.91. This is a very good sign. If oil was going to make a big move, it would have by now.”
The binary-option play that Abe suggested on Monday counted on oil ending the week in a range between $103.75-108.75. “It looks good,” he says… “and we’ll let you know on Monday how it works out.”
If it works out, Abe’s 2-for-2 on these mock trades. Intrigued? Keep an eye on your inbox to learn how you can do this for real.