The $20 Trillion Drain

Dave Gonigam – May 25, 2012

  • A $20 trillion drain on the economy… and the $5 billion yearly bonanza awaiting the company that can solve it
  • Too far, too fast? Abe Cofnas dissects the dollar’s move up
  • Ruble-cost averaging: Russian central bank declares its gold-buying plans for 2012
  • A new bunch of too-big-to-fails? Evidence the feds now have the back of major derivatives and commodities exchanges
  • (What looks like) a sincere apology… a new crime in zero-tolerance America… a different view of education, U.S. vs. China… and more!

   It will be one of the biggest drains on the U.S. economy over the next several decades. And it has nothing to do with the national debt or Wall Street’s financial engineering.

“From 2010-2050, the total costs of care for Americans age 65 and older with Alzheimer’s disease will increase fivefold,” according to the Alzheimer’s Association.

Total cost over that 40-year period: $20 trillion. Or looked at a different way, it’s a year and four months of U.S. GDP.

   With this in mind, the White House announced last week it’s throwing its weight behind what The New York Times describes as “a bold research program.”


The objective: to develop an effective treatment by 2025. Thirteen years from now.

Genentech is putting up most of the $100 million cost… but Uncle Sam is kicking in $16 million. The idea is to give an experimental drug to a few dozen villagers in Colombia cursed with a genetic mutation that all but guarantees they’ll develop Alzheimer’s by their early 50s.

   Aside from the 13-year time horizon, the problem with this drug is the same one with other Alzheimer’s drugs that are already proven failures.

That is, it attacks “amyloid plaque” in the brain — on the assumption that’s a major role in causing Alzheimer’s, in the same way plaque can clog up your arteries.

Pfizer developed a drug that attacked the plaque. It didn’t work. Eli Lilly tried its own version targeting plaque. That drug was so flawed it accelerated patients’ Alzheimer’s symptoms… and Lilly halted the trials.

Conventional wisdom has failed the 5 million Americans who currently have Alzheimer’s… to say nothing of the millions more who might develop it between now and 2025.

“It has become depressingly clear,” says our biotech specialist Patrick Cox, “that the billions of dollars spent trying to treat amyloid plaque buildup has been a bust.”

   Into this breach has stepped one small company attacking the problem from a completely different angle.

Human trials are already under way on an Alzheimer’s drug that goes after “sigma receptors.”

“You might think of them,” says Patrick, “as chemical radios that receive mobile messages from the greater metabolism. Once, they were thought only to be opioid receptors, useful for pain control.”

The early results from human trials are more than promising. When they got under way in earnest a year ago, safety reviewers were so impressed they unanimously approved increasing the dosage.

By last November, that Phase 1 trial was complete, and a success. Just starting a Phase 1 trial is a breakthrough… and now researchers are gearing up for Phase 2.

On the current trajectory, this company could easily come to market with this drug 10 years before the government’s target.

The potential market is immense. Last year, Barclays analyst Tony Butler told Bloomberg any company that can bring an effective Alzheimer’s treatment to market could rake in annual sales totaling $5 billion.

Right now, this company’s market cap is only a fraction of that figure. “It has huge upside,” says Patrick — who lays out all the details in a new report for readers of Breakthrough Technology Alert.

In addition to the name and ticker symbol of this company, the report also reveals…

  • A company with an under-the-radar product already on the market that’s a proven anti-inflammatory. Research is under way examining its benefits for multiple sclerosis. And it even shows early promise in arresting Alzheimer’s symptoms
  • A tiny firm working on what Patrick calls “a one-dose cure for even the most-lethal influenza viruses.”

Through the holiday weekend, we’re offering access to Patrick’s premium advisory at a substantial discount off the regular subscription fee. Learn more at this link.

   Major U.S. stock indexes are flat, in thin trading, as a holiday weekend approaches. Barring a major dislocation before day’s end, the S&P will go into the summer above 1,300.

   The action, such as it is today, is found in the currency markets. Overnight, the euro fell to $1.25 for the first time since June 2010.

The dollar index is at another 83.36 — another 20-month high.

   “With the Greek debt crisis threatening to swallow the euro, the dollar has become the pre-eminent safe haven,” says our monitor of market sentiment, Abe Cofnas.

“In fact,” he says, “compared to another conventional ‘safe haven’ currency, the Swiss franc, the dollar’s rise has been spectacular.” Abe directs your attention to this chart of the recent action…

“The dollar’s path is almost parabolic,” he says. “Technically, however, it’s an early warning of a significant potential reversal. Parabolic price patterns are the equivalent of a vertical launch approaching 90 degrees. It just can’t sustain itself.”

“I am currently formulating a strategy leading up to the Greek elections on June 17. If Greece defaults, buying the U.S. dollar will be a good way to hedge against an S&P 500 sell-off. If Greece avoids default, we will look to sell the dollar instead.”

For access to Abe’s plays — in a unique market followed by no other North American trading advisory — give this a look.

   Despite dollar strength, gold is creeping upward as the week winds down. At last check, the bid is $1,566. Silver is flat at $28.31.

   Russia plans to keep adding to its gold reserves this year.

“Last year, we bought about 100 tonnes,” says Sergey Shvetsov, deputy chairman of the central bank. “This year, it will be less, but still a considerable figure,” he tells Reuters.

Over time, it looks as if Russia’s done an admirable job of averaging in…

Russia currently ranks No. 9 on the list of the world’s gold holders… although at the rate Iran is dumping gold to bypass Western economic sanctions, the Russians could be up to No. 8 soon…

   The major commodities and derivatives exchanges now come under the government’s “too big to fail” banner, according to The Wall Street Journal.

We tried long and hard to avoid troubling you going into a holiday weekend, but this we can’t overlook: Under the Dodd-Frank “banking reform” abomination of 2010, it’s up to a new “Financial Stability Oversight Council” to designate “systemically important” institutions that aren’t necessarily banks or bank holding companies.

“We’re told,” says the Journal editorial board, without citing its sources, “that the clearinghouses of Chicago’s CME Group and Atlanta-based IntercontinentalExchange were voted systemic this week, and rumor has it that the council may even designate London-based LCH.Clearnet as critical to the U.S. financial system.”

CME Group encompasses the Chicago Mercantile Exchange, the Chicago Board of Trade, the Nymex and the Comex. Thus are the derivatives that pass through those four exchanges now “quietly position[ed]…directly above the taxpayer safety net,” in the Journal’s words.

Many of those derivatives, as 5 readers have come to learn, already have a significant taxpayer backstop — residing on the books of banks that are backed by FDIC insurance (and can borrow from the Fed’s discount window).

As of year-end 2011, the most recent figures available, four institutions account for the bulk of those derivatives — J.P. Morgan Chase, Bank of America, Citigroup and Goldman Sachs.

Total “notional” value: $216 trillion, or about 14 times U.S. GDP.


   Perhaps as we go into the weekend, we find a glimmer of hope here: The officious high-school principal in Michigan we mentioned Wednesday? She’s apologized for suspending a fifth of the senior class because they rode their bicycles to school on the final day of class.

“I made a mistake and sincerely regret my actions,” said Katie Pennington. “Did I overreact? In retrospect, of course I did… I apologize to the students, their parents and the community for a reaction that blew this incident out of proportion and called into question the character of our students…”

“I now applaud the students for their foresight in contacting the police department to ensure the safety of their senior surprise,” she added. “I only wish the police department or others who may have known about this would have let us in on the surprise, but of course, it wouldn’t have been a surprise had we known in advance.”

Well, yeah.

   “It was a good apology,” a reader writes in. “She took the blame and said she was wrong.”

“Most apologies shift the blame to the offended parties as in ‘I’m sorry if what I said offended anyone.’ In other words, what I said was not wrong, and it’s your problem if you were offended.”

   “I just saw on the local news,” writes a reader with a tale of nickel-and-dime fines and fees, “that the city of Denver has an ordinance that says you can’t park a car on the street now with a ‘for sale’ sign in it.”

“A man was ticketed for just such an offense a few days ago. He was parked at a meter with time left on it but it had the dreadful sign in the back window. Turns out he had parked there to meet the person who was buying the car. A $25 fine goes with the ticket. That will teach this lawbreaker.”

The 5: Good catch. According to KMGH-TV, the guy fought the ticket and got the fine reduced to $5. And he plans to keep fighting it.

   “I do not agree,” writes a reader of Vancouver headliner Niall Ferguson’s assertion about China outclassing the United States in education.

“Several scholars of Chinese education have pointed out the obstacles in ranking China in this regard” — namely that the results vary wildly among local governments.

“The OECD world education rankings are out and they did not include China for precisely for the role local governments play in trying to influence or manipulate the results. They have included it later, displayed at the top, simply as one city showing as ‘Shanghai, China.’ These, of course, are distorted results.”

“If we exclude small city-states of Hong Kong, and Singapore, we are left with South Korea, Finland and Canada at the top followed by New Zealand, Japan, Australia, the Netherlands, Belgium and Norway. Hardly a situation where Western nations have lost their edge.”

“Having said this, it is a disappointment that public education is not better in the U.S. But what is really a big disappointment is that ranking of United Kingdom has fallen so far — down to 28th position (both of these countries have had an incremental rise in political meddling with their public education system over the last two decades).”

“It is not that education in Western nations have fallen, but that education standards in U.S. and U.K. have fallen so rapidly and also that some other nations are catching up or have surpassed. Maybe the U.S. should look for solutions for improving its grade school education to the level of its northern neighbour, Canada, where quality education is still overwhelmingly provided by public schools.”

The 5: Upon closer inspection, it appears professor Ferguson was indeed citing Shanghai, and not China as a whole.

Once again, we’re reminded we can never be too careful when contending with government statistics!

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. If you’re steadily accumulating gold, averaging in like the Russian central bank, you’re undoubtedly doing yourself a favor.

But if you’ve ever kicked yourself for having missed out when gold bottomed at $260 in 2001… you’re about to get a similar opportunity. Byron King will fill you in this weekend; keep an eye on your inbox.

P.P.S. U.S. markets are closed on Monday for Memorial Day. The 5 returns on Tuesday.


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