Separating Signal from Noise

Dave Gonigam – May 30, 2012

  • “Events already in play for a long time”: Barry Ritholtz on the factors that are — and aren’t — behind today’s rush to safety
  • Faber’s “global recession” call, complete with date and confidence level
  • Treating the disease, not the symptoms: Patrick Cox spotlights an innovator set to thrive no matter what happens in the broad economy
  • Blogger gets legal backing in his fight against busybodies… Who exactly makes up “the 49%”… Your last shot at discounted access to our most-expensive research… and more!

   First things first: It’s another “risk-off” day.

  • The major U.S. stock indexes have given back all of yesterday’s gains. Small caps are taking it the hardest
  • Gold is gyrating around the level at which it began 2012. At last check, the spot price was $1,549. Silver’s down to $27.69
  • Oil is below $88, a level last seen in late October. Copper is back where it was at the start of the year at $3.40 a pound. The CRB commodity index is at 275; that’s a 21-month low
  • The euro’s below $1.24, while the dollar index stands at 82.9 — the highest since Ben Bernanke announced QE2 in August 2010
  • A 10-year Treasury note yields a record low 1.64%.

The laundry list bears no small resemblance to the one we trotted out a week ago today.

Ditto for the factors in play.

You want a “reason” for the turmoil? There’s no shortage of “reasons.” Spanish and Italian bond spreads are blowing out. China’s holding off on signaling a new round of stimulus. Research In Motion, the BlackBerry maker, is on its deathbed. Pending home sales fell for the first time in four months. Serena Williams lost in the first round of the French Open.

   “Are [these factors] actually what’s driving equity prices and bond yields?” asks Fusion IQ chief Barry Ritholtz. Rhetorically, we’d add.

“Nothing in that list is particularly new,” he says. “All are subject to change.”

“And the overall trend within each headline was true weeks and months ago. BlackBerry sales have fallen? Will China stimulate or not? Are we just learning whether Spain’s recession is bad or worse? Facebook is overvalued? And how far will Italy’s bond prices fall? These are all events already in play for a long time.”

“Cable news channels have 24 hours a day to fill, newspapers have lots of pages, and the capacity for the Intertubes is (literally) infinite. Investors need to understand the difference between what are truly new and unexpected developments that move markets… and noise.”

   “I think we could have a global recession either in Q4 or early 2013,” says Gloom Boom & Doom Report editor Marc Faber.

Asked about the probability, he replied, “100%.”

Far more important than the eurodrama in his mind is “a meaningful slowdown in India and China.”

Result? “There are more and more stocks that are breaking down — economic sensitive stocks and companies that cater to the high end,” he tells CNBC. “That suggests to me the economy is likely to weaken and the huge asset run is likely to come to an end with significant asset deflation.”

We’ve enlisted the able assistance of Dr. Faber and Mr. Ritholtz to help you navigate such an episode… and to separate what’s important from mere noise as you make your investment decisions… during the Agora Financial Investment Symposium, July 24-27 in Vancouver.

The theme “Innovate or Die” couldn’t be more timely, and it goes hand in hand with the ideas behind Addison’s documentary Risk! That is, economic storms are a sure thing… and it’s the innovators and entrepreneurs who will lead us out.

Our own Patrick Cox will make a return engagement in Vancouver. It’s his job to find the innovators in both high-tech and biotech making breakthroughs right now, despite the turmoil in the world at large.

Indeed, that’s when the biggest profits are to be had: Patrick never tires of reminding us how world-changing developments like radio and electric refrigeration took off during the 1930s, the Great Depression be damned.

   “We’re not talking about treating symptoms anymore,” he says of one breakthrough on his radar. “We’re talking about treating the disease itself. That’s incredible.”

As we mentioned on Friday, Alzheimer’s disease could prove a $20 trillion drain on the economy across the next 40 years. Already, Alzheimer’s treatment is a $5 billion-a-year market.

Unfortunately, the marquee drug in the field — Pfizer’s Aricept — is a middling performer at best. “It only keeps symptoms from becoming worse for a limited time,” Patrick explains.

The problem is that existing Alzheimer’s treatments — and most of the others on the drawing board — zero in on a substance in the brain called amyloid plaque. The New York Times charitably describes this tack as “the prevailing, but not universally accepted, hypothesis.”

   A small company taking a totally different approach is seeing promising early results.

In an exclusive briefing with the CEO, Patrick learned the details: “In validated standard approach animal models, which everybody does, we’ve seen an efficacy that far exceeds Aricept… and at very low doses,” says the CEO. “We also have seen actual disease modification. Aricept is the market leader and is a symptomatic treatment only — there is no disease modification…”

“The other interesting thing is affinity of these compounds… is very strong at very low doses. So our thinking is we may be able to get significant efficacy without having to make the trade-off between tolerability and adverse event profile.”

In other words, limited side effects… in a drug that actually treats the disease, not the symptoms.

Phase 2 trials get under way later this year — an event that could generate a pop in the share price. That’s why Patrick is eager to tell you about this company today. You can see more of the CEO interview at this link.

Indeed, Patrick is so enthused by this development, he convinced us to give you a significant break on the subscription fee to his high-end advisory, Breakthrough Technology Alert.

Ordinarily, this is the most-expensive research we publish. But for a few more hours, you can still secure access at 60% off the regular fee. We don’t extend this offer on a regular basis… and we don’t know when we’ll do so again. Take advantage right here.

   Diabetes blogger Steve Cooksey — whose plight we chronicled nearly four months ago — is fighting back in court.

When last we left the story, the North Carolina Board of Dietetics/Nutrition had served notice on Cooksey that his Diabetes Warrior blog, complete with meal plans and recipes, amounted to providing dietary and nutritional advice without a license.

“Mr. Cooksey,” Addison wrote, “is a type 2 diabetic who got his blood sugar under control, getting off insulin and medication entirely, through a low-carbohydrate diet. He is in the vanguard of the ‘primal’ or ‘paleo’ or ‘ancestral’ diet movement that emphasizes meats and vegetables, and excludes grain.”

This runs afoul of the usual high carb/low fat conventional wisdom, so Cooksey became a target. Now the nonprofit Institute for Justice is taking on his cause… and filing suit against the state board today.

“This lawsuit,” according to an IJ press release, “seeks to answer one of the most important unresolved questions in First Amendment law: When does the government’s power to license occupations trump free speech?”

IJ even put together a YouTube video to spread the word…

“Advice is protected speech,” says IJ attorney Paul Sherman. “Just because the government can license certain types of expert professional advice doesn’t mean the government can license every type of advice.”

IJ recently came out with a study revealing nearly one out of three occupations now requires a license… compared with one in 20 in the 1950s. Preschool teachers have it worst; they need a license in 49 states, and up to 1,825 hours of training.

“The data cast serious doubt,” says the study’s co-author, Lisa Knepper, “on the need for such high barriers, or any barriers, to many occupations.”

   “In reference to the 49% who receive a government check,” reads the first of many emails reacting to yesterday’s episode, “I would like to see that chart factoring in all federal, state, city and county employees as well.”

   “You listed five categories of government check recipients and the total of those was well over 49.15%,” chimes in another. “So clearly, there are many receiving multiple checks.”

“However, you did not mention government employees (both the bureaucrats and the politicians), active duty and retired military members, veterans who did not retire but receive veterans benefits and the many thousands of workers employed by contractors who supply goods and services almost exclusively for the government and the military.”

“Wonder what the percentage would be if all these were included. I’m sure I have left out a few others that are not coming to mind immediately.”

“That’s partially why the feds have to borrow another $1.3 trillion annually to get by. There simply are not enough productive workers to meet all those spending categories/amounts.”

The 5: No there aren’t. “Out of a population of 311,000,000, how many are carrying the load?” mused Bill Bonner in yesterday’s Daily Reckoning. “Maybe 50 million. One in six. The rest are zombies. Or retired. In school. Disabled. Or just goofing off.”

   “The trend of the graph you showed is profoundly interesting,” another reader adds. “It shows the steady growth of dependency on ‘social money’ regardless of the political hacks in Congress/Senate/presidency.”

“Given the impressive and consistent growth over three decades, it would be safe to say that to reverse this trend back to 1983 levels would take another three decades if that reversal were to even happen. More likely the U.S. should be at the same level as Greece sooner, rather than never. The trajectory and endpoint are scary…for those in the U.S.”

   “I resent being told I am on government benefits,” reads the first of another bunch of emails reacting to the numbers.

“I paid into Social Security for over 50 years and am still paying into it. My wife and I started paying into Medicare when it was passed in 1965. If I had been allowed to invest the money they took, I would be a millionaire. Don’t tell me I’m ‘receiving’ government benefits.”

“The 16% and 15% on Social Security and Medicare, respectively, should not be counted/considered in making your point,” says another. “This benefit was paid for through payroll taxes and employer contributions over the recipients’ working years. End of story.”

“Social Security and Medicare are NOT government benefits!” says a third. “I paid into both for many years. Just collecting what is due.”

“Although many curious shell games are played with Social Security,” reads a fourth, “it is not a handout. It is the payers getting their money back.”

The 5: We knew, we just knew, folks would write in to say that.

There’s something about having FICA and Medicare broken out as separate line items on a paycheck that gives people the delusion they’re paying into a dedicated fund from which they will withdraw later in life. Politicians have encouraged that delusion for decades.

The reality is that both Social Security and Medicare are pay-as-you-go systems: Current revenue collected from younger workers is used to pay current benefits for retirees.

Actually, it’s worse than that: Congress looks upon the “trust funds” as just another source of revenue to be spent on everything from bombers to bailouts. The trust funds are chockablock with IOUs.

Broken promises? You bet. What else would you expect from politicians?

   “My wife and I paid in all our working lives for Social Security,” protests one more reader. “It was only in the administration of that insurance that it became the corrupted ‘entitlement’ that everyone wants to blame for our country’s ills.”

“Don’t blame today’s recipients for what your generation has done to the program!”

The 5: “Your generation?”

At the risk of painting with too broad a brush, most of us Gen Xers (a cohort whose oldest members are now in their late 40s) don’t figure on getting a dime from Social Security, and never have.

Expect a lot more of this finger-pointing in the next few years. Indeed, professor Niall Ferguson forecasts a “clash of generations.”

The most important rift in U.S. society today, he argues, is not “the 99%” versus “the 1%”… but rather the baby boomers versus their kids and grandkids. We expect he’ll address this rift and its implications during our get-together in Vancouver.

We hope you can join us; seats are filling quickly.


Dave Gonigam
The 5 Min. Forecast

P.S. “I strongly recommend this book,” writes Chuck Butler in today’s Daily Pfennig, “and at 223 small pages, it’s a quick read. It’s all spelled out for you. Things I’ve talked about for years, and now it’s right here in a great book! Kudos to Addison Wiggin!”

Chuck speaks of The Little Book of the Shrinking Dollar. “I contributed to the book,” Chuck adds, “but that’s not what is important.”

Indeed, Addison called upon the expertise of everyone from Marc Faber to Jim Rogers to Ron Paul in pulling together this readable volume, packed with 47 ideas to preserve your purchasing power. And by far the best way to get your own copy is with this value-laden package deal.

P.P.S. Final reminder: Discounted access to Patrick Cox’s premium advisory, Breakthrough Technology Alert, expires at midnight tonight. Here’s where to act.


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