Dave Gonigam – July 25, 2012
- The “rule of lawyers,” the folly of central bankers and regulations that kill: Vancouver speakers lay out the problems
- Repeating the John Templeton 1939 experience: Patrick Cox on quadrupling your money in a world war, aka “shorting the apocalypse”
- The quacks are ducking: Rick Rule on an extraordinary opportunity in the junior mining space
- Debate breaks out over Canada’s housing market… The 5 takes on the president and the S-word… a Bill Bonner video you can’t afford to miss… and more!
“Water is the new gold, a big commodity bet,” says the headline at MarketWatch.
“Six years too late,” I quipped to Chris Mayer. Fortune appears to be late to the party too.
It was in the summer of 2006 Chris turned us on to “blue gold.” With great care, he assembled a basket of water-related stocks. By now, he’s recommended unloading most of them… after an average 99% gain. But if the mainstream wants to pile in now, they’re more than welcome.
And as long as we’re bragging on Chris, we’ll note his declaration that “Apple is a sell” — for which he caught no shortage of grief in our virtual pages — is suddenly being echoed all over the place after AAPL delivered its first earnings miss yesterday since 2003.
We try to stay on top of the world at large even as we’re convened for the Agora Financial Investment Symposium. But mostly, we’re gulping from the “fire hose of information” — the phrase of a previous year’s attendee — delivered by our all-star lineup of speakers.
“We’ve morphed from the rule of law to the rule of lawyers,” said Harvard/Stanford/Oxford historian Niall Ferguson.
And that’s only one thing holding back developed economies these days, relative to emerging economies. “We’re just four years away from China taking over the United States as the world’s leading economy.”
Here’s a chart that demonstrates the trend has been in place for more than 30 years. It shows the ratio of U.S GDP to China’s GDP… and U.K. GDP to India’s GDP.
What changed is that emerging economies “downloaded the six killer apps” that made the West prosperous: competition, the scientific method, the rule of law, modern medicine, the consumer society and the work ethic.
Ferguson has described those “killer apps” in his book and PBS documentary Civilization. But For the Vancouver crowd, he posed six questions that offer a road map to the future. The most pressing, perhaps is what he calls the clash of generations — “How is the generation currently in school or not even born going to pay for the liabilities of the baby boomer generation?”
Major U.S. stock indexes are “mixed” today. The Dow is up about a half percent. The Nasdaq is down about a half percent, dragged down by its biggest component, the aforementioned Apple.
Traders are murmuring about new hints the Fed is dropping about new easy money. “A growing number of Federal Reserve officials have concluded that the central bank needs to expand its stimulus campaign unless the nation’s economy soon shows signs of improvement, including job growth,” says a New York Times account.
“At least,” quips Addison, “they’re getting serious about destroying the currency now.”
“We should not get sucked into the belief that these people are responsible custodians of our financial system,” said Dan Denning, delivering the first applause line of our gathering. “They don’t create value, they’re not entrepreneurs, they’re not risk-takers.”
Mr. Denning, keeper of the Australian Daily Reckoning, is here for his first appearance since 2008. And he has the monetary mandarins squarely in his sights. “2012 is a lot like 2007,” he says, “but with more denial… I see nothing they’ve done that’s made the system less fragile, more robust or safer.”
Result? Five years out, he suggests U.S. Treasuries will no longer be seen as the world’s safest asset. Nor will they be any other government’s debt. Rather, that title will shift to certain multinational corporations.
(Interested in asset preservation? Dan’s saving his favorites to spell out in his “breakout” session later today. In addition to the recordings we offer of every talk in the main hall, we write up a concise summary of the breakout sessions, complete with names and ticker symbols. Have you signed up for this year’s package? We’re making video available now.)
“Pharma’s focus has shifted from research and discovery to mergers and marketing,” said Juan Enriquez, venture capitalist, and one of the original funders of the Human Genome Project.
He described a frustrating conundrum to the Vancouver crowd: “The science is extraordinary. We’re going to double the amount of life sciences data over the next 2½ years.” But even as the industry dumps more money into research and development, fewer drugs are coming to market. “It’s as if Moore’s law is operating in reverse.”
The problem: overcautious regulation, especially by the FDA. “We may be killing more people than the regulations save.” Consider thalidomide — the morning sickness drug that led to terrible birth defects in the ’60s. It’s the poster child for government regulation of the drug industry. Turns out further research found it was helpful in treating leprosy, and it came to market for that purpose in 1998. At current regulatory costs, that “further research” would have never happened.
And yet… small biotech players remain, looking to defy the odds…
Patrick Cox is “shorting the apocalypse” — the title of his talk — in the same fashion as John Templeton.
As Europe stood on the brink of war in 1939, Templeton put $10,000 — that’s $150,000 in today’s dollars — into every publicly traded U.S. stock trading for less than $1. He quadrupled his money in four years.
Patrick says now’s the time to act in the same spirit — to plow money into world-changing companies, no matter how ugly things appear in the outside world. From there, he went into a wide-ranging discussion of mind-bending technologies — in everything from cancer treatments to oil-fracking breakthroughs to $5,000 programmable industrial robots.
The stock names and ticker symbols went by far faster than this editor could keep up with. (One of them, working on a cutting-edge obesity treatment, Patrick says “is going to be bigger than Genentech.”) But with the audio recordings — and, this year, high-definition video that includes the PowerPoint slides with tickers — you won’t miss a thing.
Eighty percent of health care costs have something to do with degenerative disease — hence, the opportunity for BioTime Inc., whose CEO, Dr. Michael West, spoke here yesterday.
Dr. West’s team is the one that took a tissue sample from Patrick Cox’s arm four months ago and is now transforming the skin cells into youthful heart cells. Miraculous stuff, and it’s at the heart of BioTime’s work — “induced pluripotent stem cells.”
But it also has a long time horizon… and the knock on many small biotech players is that they have no revenue stream to speak of. (Go to any finance message board and you’ll see what we mean…)
Dr. West described several efforts to address the “near-term commercialization” issue head-on. The firm is coming to market soon with a means for plastic surgeons to remove fat cells from parts of the body where they’re undesired and insert them in places where they are desired — such as under the eyes. It’s “better than Botox,” he says.
Buyers are reappearing in the gold market this morning. The spot price is back above $1,600 for the first time in more than two weeks. Silver’s up to $27.30.
“We are still in a resource bull market, a resource supercycle,” says Rick Rule, surveying the sector that’s been his domain across a spectacular 35-year career.
Of course, nothing goes straight up: “Markets work, but they work slowly and in chaotic fashion.” He reminded the audience that while gold ran up from $35 in 1971 to $850 in early 1980… it also dropped from $200 to $100 during a few ugly months in 1975. Weak hands were shaken out of an epic bull market: “They didn’t have the courage or the cash.”
The shakeout in the junior mining sector is dragging down good companies with the bad. For Mr. Rule, that spells opportunity: “Good companies will have to come to market now” to raise cash. He also sees a wave of takeovers in the next 18-24 months. During that time, he expects a replay of some of the most epic stories in the history of junior miners — like Arequipa, which ran up from 30 cents to 30 dollars.
He recalled an old story among the Vancouver-based brokers specializing in juniors: “When the ducks quack, feed ’em. That is, when investors want shares, sell them. The more appropriate expression now is this: When the quacks duck, eat ’em!”
Mr. Rule will identify his favorite players during the “breakout” sessions later this week. You can assure timely delivery of that information by signing up here.
“Your bubble comments about Canadian real estate is off the mark,” a reader writes. “In Canada, home owners who have a mortgage don’t walk away from their financial responsibilities without financial consequences.”
“Thus, they deal with their problems with more accountability than their American counterparts. Without the easy exit strategy Americans employ on their mortgages under the influence of TARP, the real estate market in Canada is more stable.
“However, when interest rates move upward, this will force the real estate markets to decline significantly in value. Interest rates in Canada are a reflection of the U.S. economy, so if Canada has a problem, so will the U.S. It all points back to the irresponsible overmanagement and control of the U.S. economy.”
“Artificially low interest rates hurt savers and put their life savings at risk. U.S. and European financial policies have hurt more than just real estate. These policies have greatly diminished the real value of capital, offered little or no return on capital for retirees and pretty much guaranteed a flood of inflation in the real cost-of-living numbers.”
“Yesterday’s contributor is wrong — Canada does have zero-down loans.”
“I have one, but I have excellent credit, as does anyone else who has one. The maximum mortgage amortization period was lowered only for CMHC-insured mortgage loans. [Canada Mortgage and Housing Corp. (CMHC) is Canada’s national housing agency.] These are loans made to people who put less than 20% down. I have no figures, but this is a large chunk of the overall market.”
“Vancouver home prices are ridiculous. I have been thinking this for my entire adult life (now 48) and they just keep going higher. I wouldn’t hold my breath waiting for a substantial crash. I hope it does crash, as I want some B.C. real estate and the overvaluation in Vancouver pushes up the whole province.”
“I don’t believe we have a nationwide housing bubble that is about to crash. Definitely not U.S.-style. The system is much different in too many ways to describe here.”
“I enjoy The 5. Keep up the good work.”
The 5: We’re not experts on Canadian housing… we’re merely struck by how much housing costs relative to Canadians’ earning power. And we wonder if that extends to automobiles too: What’s with all the car ads here pushing “84-month financing”? The most we’ve ever seen in the States is 72.
Seven years to pay off a car? Must be an awful lot of Canadians rolling an existing car loan into a new one when they trade in…
“Your response did not address his point,” a reader writes of the individual who on Monday accused us of mischaracterizing the president’s you-didn’t-build-that speech, calling us “disgraceful, deceitful, racist and un-American.”
“Your response only addressed the fact that he mentioned people like Beck and Limbaugh, who make a living interpreting the president’s comments the way you did. AND… what does your being right on Mesopotamia have to do with the fact that you twisted Obama’s words. A classic case of ‘change the subject’ to avoid admitting you were wrong.”
The 5: Were you even paying attention to the discussion last week? We take issue with the remarks at face value — the idea that, in the words of the angry reader, “our national infrastructure and public servants that all taxpayers supply to the economy… make our nation the strongest and most-productive nation on Earth.” People can debate all day whether the president intended to denigrate the entrepreneur; but it’s indisputable that he intended to venerate the State.
It’s much easier to name-call than to engage, isn’t it? Which brings us to this…
“Why cannot any of you call president Obama a socialist?” a reader inquires. “That to me is a generous description of him, considering he is far left of that.”
“Being politically correct is not a position that most of your subscribers and contributors seem to follow? Having said that, I suspect I just invited the Secret Service into my home.”
The 5: A fair question that deserves a straight answer. And at the risk of starting an entirely new controversy, in which we take flak from “the other side”…
We don’t call him a socialist because name-calling does little to advance the discussion. During the you-didn’t-build-that brouhaha, we skipped over many reader letters labeling him a “socialist” or “Marxist” or whatever.
Until he issues an executive order nationalizing an industry, the label is sheer hyperbole… and an odd thing indeed to say about a guy whose biggest private-sector contributor in 2008 was Goldman Sachs. There are a lot of names you can call Goldman; socialist isn’t one of them.
“Been following ‘Agora Wisdom’ since its early years, along with other counterculture investment folks,” writes a complimentary reader. “Along came the Internet and blogs and beaucoup useful information from around the world.”
“There’s something about your helping me add a ton of money into my net worth that gives me a severe case of the giggles when I read about some doofus castigating you over some trivial matter. Y’all just keep on keeping on. It helps my billfold.”
The 5: Thank you — it’s what we’re here for!
Regards from Vancouver,
Dave Gonigam
The 5 Min. Forecast
P.S. “The 450-horsepower pushrod radial howls and clatters, the plane starts pitching and surging as it plows through the choppy water, pressing you back in the seat…”
Roving reporter Jim Amrhein is back in action this week with his own account of the Symposium… and some fascinating extracurricular activities, like a ride in a vintage bush plane. You might feel your rib cage rattle a bit reading Jim’s vivid prose. His report is at this link.
P.P.S. It’s still two more days before Bill Bonner takes the stage to deliver the final talk here at the Symposium. Bill makes few speaking commitments; Vancouver is the only event where he appears every year.
He makes even fewer appearances before a video camera… so when he agreed to sit down recently and deliver a short talk with camera rolling, all of us around the office in Baltimore knew it must be something important.
It is. He describes an imminent danger — and an opportunity within it. Something he calls “the fattest, juiciest financial bubble that’s ever existed.” Let him describe what will happen — and what you can do — when it pops.