January 4, 2013
- A one-two punch for gold: making sense of a $60 drop in 18 hours
- The “biggest fire sale in history” one year in: Lucky for you, it’s not too late
- “Regenerative medicine” breakthrough and the reach for yield: more 2012 forecasts revisited and updated
- No good deed goes unpunished, electric car version… an outlier forecast for gold (and the Dow)… readers respond to the carping over our new PRO edition… and more!
Traders call it a “waterfall decline.”
Moments after the Federal Reserve released the minutes from their December meeting, traders began dumping gold. It turns out that “QEternity” actually has an end date in the minds of several Fed governors. For more than one… that date is later this year.
Those governors in the minority aren’t identified in the minutes. We won’t find that out for five years, when the full transcripts are released. Some transparency.
On the news, precious metals tanked; the dollar jumped.
Then “some entity,” suggested our friend Chris Martenson, “[started] selling literally thousands and thousands of gold contracts into the thinly traded overnight markets so rapidly that we have to use millisecond charting to see it for what it is.”
This morning, Chuck Butler gazed upon his trading screens at the EverBank World Markets trading desk and smirked. “With the currencies and metals in the woodshed for a beating this morning,” he then wrote, “I could be Pollyannalike and say, ‘Hey! We get to buy at much cheaper levels today!’ But I’m not feeling very Pollyannalike this morning. In fact, I actually feel like I need to go back to bed!”
Alas, gold’s drop falls under the category of “urgent, but not important.” A slight rebound to $1,650 is under way as we write. As such, we’re sticking with our 2013 gold forecast, which we shared a week ago yesterday: Chinese accumulation will push gold substantially higher this year — maybe even to $2,500.
With the deluge behind us, let’s move on to a second day revisiting our 2012 forecasts… to see how they turned out.
“It’s going to be the biggest fire sale in history,” declared Chris Mayer in our virtual pages on Jan. 17, 2012.
“Europe’s banking sector needs cash — mountains of cash,” he explained, foreseeing $1.8 trillion in asset sales — such as quality real estate — over the following decade. “There is no better, more reliable way to make money than to buy something from someone who has to sell. Bankers are the best people in the world to buy from.”
As Chris is a reformed banker himself, he was speaking from experience: “I would get at least three or four requests every year from some investor group asking if we had any assets we were looking to unload. Why? Because they know banks are stupid sellers.
“As soon as the bank reports a big bad debt on a quarterly financial statement, some annoying things happen.” They have to set aside more capital for the bad loan. Or the regulators might come knocking. Or shareholders will sell. Whatever the case, they’ll often sell assets at a loss to raise cash.
By July, the fire sale added a boatload of new inventory: The International Monetary Fund doubled its estimate of the assets eurozone banks would have to unload… to $3.8 trillion. By year-end, Chris’ main method to profit from the trend was up over 22%. And he’ll have another idea in the next issue of Capital & Crisis, because this trend is just getting started.
Case in point: Ireland. The Emerald Isle is suffering a housing bubble that made the U.S. version look like a kid’s water balloon.
Now, with the bubble long burst, Ireland’s an attractive place to scoop up bargains. Its population is young and growing. It has good infrastructure, low taxes and, as legendary investor Wilbur Ross puts it, “a high-tech economy with noncyclical exports.”
“Ireland’s hangover is wearing off,” writes our macro strategist Dan Amoss, “and hardly anyone’s noticing yet. Painful austerity measures implemented after the financial crisis are bearing fruit. Real wages have fallen, enhancing the country’s competitiveness. The government tightened its belt and got results: Irish bond yields fell from the teens to under 5%.”
As many eurozone peers pretended their banks were solvent, Ireland restructured. A fire sale of Irish bank loans is under way. “The preferred way in is to buy bank debt from Ireland’s distressed banks,” Chris Mayer adds. “For a time, Irish banks were reluctant to shed Irish property at discounts. Instead, they sold off non-Irish property loans first. But now they are selling Irish property aggressively. In October, Lone Star, a private equity group, picked up $600 million in loans at a 60% discount off the face value of the notes.”
If you can’t buy discounted bank loans, don’t worry. We’ll show you another way to profit in today’s 5 Min. Forecast PRO. If you’ve signed up for your free two-week trial, you can scroll down to read it at the bottom of this email. If you haven’t, you can sign up for access here.
“This may be the most significant breakthrough in regenerative medicine to date,” wrote our biotech specialist Patrick Cox the week of Jan. 23, 2012.
A quick refresher: One of the companies on Patrick’s radar is a pioneer in induced pluripotent stem (iPS) cells. These cells have all the advantages of embryonic stem cells, with none of the ethical or practical downsides: cells from your own body that are transformed into cells as youthful as the day you were born… and can be turned into cells for nearly any part of your body, even your heart.
The week that Patrick was writing, the company leading the way in iPS cells licensed technology related to a one-of-a-kind gene.
“There are two types of cells that do not age,” he explained. “These cells are, for practical purposes, immortal. In appropriate conditions, they do not age and they do not die. These two cell types are germline or embryonic stem cells and cancers.”
Up to a year ago, the scientists working on this technology were focused on cancer. The company Patrick’s following is applying it to iPS cells. When this one-of-a-kind gene is rendered inactive, it reverts to a near-embryonic state.
In other words, it will become far easier to take cells from your body and turn them into a new, healthy organ — a heart, for instance — to replace your old, diseased one.
Since then, progress has accelerated at breakneck pace. We’ll show you a video clip with mind-blowing proof later today. Once this clip becomes mainstream knowledge, the company’s shares might well shoot up another 1,000% — as they did the first time Patrick recommended them.
[Warning: Some people might be offended by the nature of the video. No sex, violence or foul language… but it’s bound to stir up controversy. We encourage you to judge for yourself; keep an eye on your inbox.]
“The biggest news in the market in 2012 will still come from the search for yield,” said income specialist Jim Nelson one year ago today. “Investors will be climbing all over themselves to find better returns, higher yields.
“Corporate bonds, at least the ‘safer ones,’ have all been gobbled up. Any bet on so-called safe sovereign debt yields squat. 2012 investors will, instead, take on more risk to outpace inflation. They’ll continue looking outside of bonds for income.
“Income-paying stocks — anything paying more than 2% or so — should take off,” he continued. “But because growth will be slow across the board, some of those bets will turn sour. Dividends are still at risk of being cut in many corners of the market. I’d say the best bet for 2012, at least the first half of the year, will be blue chip dividend payers with cash flows large enough to cover their shareholder payments.”
Indeed, they were. Wal-Mart, for example, is up over 15% in the last year — before you include dividends. Readers of Lifetime Income Report were urged to pick up shares in September 2011, when the yield was a respectable 3.05%. With the soaring share price, buyers today have to settle for 2.30%.
[Program note: We’re beefing up our income desk with the dawn of the new year.
Industry legend Neil George is coming on board. He’s a 25-year veteran of the financial industry, with a resume that covers all six habitable continents. Mr. George has traded everything from bonds to options to stocks to CDs. “But during my career,” Neil told us over lunch yesterday, “I kept noticing how the best companies — from the most reliable to the fastest growing — tended to believe in paying income to shareholders. So that’s what I buy.”
Much more from Neil in the days and weeks ahead. Watch this space. We’re 100% confident you’ll find his stellar record in managing an income portfolio a welcome addition to our team.]
Unlike precious metal and currency traders, stock traders mostly yawned after the Fed minutes yesterday. And they yawned again at another slow-growth jobs report this morning.
As we write, the Dow is at 13,400 on the nose — very near where it was 24 hours earlier.
For the record: The Bureau of Labor Statistics (BLS) conjured 155,000 new jobs in December. U-3 unemployment was flat at 7.8%.
The working-age population grew by 176,000… but 224,000 people departed the labor force, and it’s a safe bet most of them didn’t retire with a gold watch. Instead, they gave up looking for work.
Thus has the real-world unemployment rate — dutifully maintained by John Williams at Shadow Government Statistics — hit 23.0%, an all-time high.
Last today, a curious entry for the “sign o’ the times” file.
“Oregon state officials,” reports The Associated Press, “are proposing an alternative tax for drivers who have bought efficient or electric vehicles that seldom or never stop at the gasoline pump, where government has traditionally collected money to build and fix roads.”
Yes, here it comes: a per mile tax on vehicles that get 55 miles per gallon or the equivalent.
The only saving grace: Such a tax increase would have to garner a three-fifths majority in the Oregon House and Senate.
The all-electric Nissan Leaf: One way or another, they’re gonna get you…Consider this a test case: There’s plenty of grumbling in Washington about how the federal gas tax hasn’t been raised in 20 years. The Simpson-Bowles commission proposed raising it. The subject came up briefly during the fiscal cliff negotiations last month.
But a higher gas tax is only the beginning: “The fuel tax is running out of steam, experts warn, because more efficient vehicles are using less fuel and rising fuel prices discourage driving,” said a CNN story more than a year ago. “The solution, say many transportation experts, is to replace — or supplement — fuel taxes with a per mile tax on every vehicle in America.”
“I have a theory that is going to confuse and maybe annoy the hard-core gold bugs,” writes a reader preempting today’s market moves. “If inflation returns, as that camp suggests, the DJIA will rise just as much until the parabolic blowoff stage…where holding on is just a pure risk bet.
“My theory rests on the idea that markets move up when there are more buyers than sellers… the average American will rush to buy MSFT et al. shares before gold bullion or coins, as what good will coins be in the Apocalypse?
“Nothing will be for sale… I wouldn’t exchange any of my spare food or water for shiny coins in a Mad Max world. And I imagine a lot of Americans have secret plans to become stickup men, should the time arise… like the grasshopper and the ant, but this time, the grasshopper has a gun.
“With the majority of investors out of the market since 2007… when inflation returns, the average American will rush to buy shares at a faster rate than gold. At the tail end of the move, the Dow and gold will diverge, with the Dow tanking and gold spiking, giving a very short-term 1:1 ratio or 1:2.
“I think it could be annoying for some gold bugs seeing the Dow rally as much and require no hiding spots and safes… just a theory.”
The 5: Right… just a theory.
“There may be some benefit to the government studying why chimps throw feces at passersby,” a reader writes in response to the grumpy old men in yesterday’s mailbag, “maybe they’ll find a link to why some of your readers throw the emails at you they do.”
“Thank you for publishing my comments about The 5 PRO,” writes another, “and for your civil response and pricing clarification. Kudos to you. That was a very professional response.”
“So I got the email on the PRO version of The 5,” writes a third on the same theme. “It stated that the blurb/pitch would be short…and it was! I made it to the bottom and magically clicked the ‘yes/buy/want/need’ button.
“I think this is the first time I made it to the bottom, and so was motivated to ‘BUY!’ Hopefully, this will be good incentive for your future pitches.
“Now I get to read my first version here in the Cathay Pacific lounge at the Hong Kong airport on the way home. Fantastic at less than a buck a week… and a declining-value buck at that!”
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Did you buy them? Greg Guenthner advised readers of Penny Stock Fortunes to take 105% profits on SiriusXM Radio today. Those gains are on top of the 158% they bagged last month on Smith & Wesson. Kudos to Greg… for more trades where those came from, look here.