June 20, 2013
- All asset classes are getting clobbered… the luminaries weigh in on the long and short views of the dollar and gold…
- Global economic snafu: The macrocosm is swarming with bad news… Byron King’s rap session on opportunities in the junior resource market…
- Tech front: One company is holding the key to a quantum leap in diabetic testing… Patrick Cox on the latest…
- Lucrative cat bonds from Chris Mayer… a new twist on Orwell’s Animal Farm… one skeptical reader sees no evidence… and more!
“Eventually, if we’re not careful,” Ron Paul told CNBC yesterday, gold “will go to infinity, because the dollar could collapse totally.”
We hasten to add the good doctor is taking the long view: “I was never very good on short term, whether it’s the stock market or whatever.”
In the short term, it’s now clear why luminaries like Jim Rogers and Marc Faber held off on adding to their gold positions, even with the metal in the $1,300s…
Don’t say we didn’t warn you: Nine days ago, our Greg Guenthner said in this space that $1,350 was gold’s latest Maginot Line.
“Now that we’ve breached this level,” he writes in this morning’s Rude Awakening, “we should see the return of downside momentum in the precious metals market.
“Expect to see more big down days and sharp oversold bounces in gold in the coming weeks. Don’t trust any upside action. The trend is lower — there’s nowhere to hide. Since the start of the year, my long-term gold price target has been $1,100-1,000.
“We’ll get there eventually.”
Gold is hardly alone: Nearly every asset class has been getting clobbered since midafternoon yesterday.
That was when Federal Reserve chief Ben Bernanke stepped before a microphone, supposedly to deliver “clarity” about the future of quantitative easing.
Instead, as a Bloomberg headline sums up, “Bernanke’s Forward Guidance Is Transparent as Mud.”
“We have no deterministic or fixed plan,” Bernanke said. Bloomberg’s account said the chairman “seemed a little nervous.”
And with that…
- The Dow, which sat above 15,300 before Bernanke opened his yap, sits at last check a hair below 14,900
- The S&P 500 teeters on the edge of 1,600 — a good 15 points below the 50-day moving average that’s provided solid support going back to mid-November
- In the commodity complex, oil is down nearly 3%, to $95.43 a barrel. Copper is retesting its April lows at $3.05 a pound
- Treasuries are cratering as yields are rocketing; the yield on a 10-year note has jumped from 2.12% Monday morning to [checking the screen] almost 2.4%. Any higher than that and the 10-year will be back to levels last seen in August 2011.
The only beneficiary is the greenback, relative to other fiat currencies: The dollar index has zoomed up from 80.6 to 82 on the nose in the last day and a half.
To the extent the Fed furnished anything resembling a “fixed plan” yesterday, it goes like this…
The Fed plans to cut back on quantitative easing later this year if the unemployment rate falls from the current 7.6% to 7%. And if unemployment keeps falling, QE could be ended altogether by mid-2014.
As for near-zero interest rates, there’s no end in sight.
“In his press conference, Bernanke talked as if the Fed operates in a vacuum,” observes our macro strategist and guardian of The 5 Min. Forecast PRO, Dan Amoss.
“He said the Fed is encouraged by the economy’s health, and may ease off the monetary gas pedal if good economic data continue. But the areas of the economy that have seen a tepid recovery include those driven by low interest rates: autos and housing.
“The Fed is stuck in a logical trap of its own making: Loose Fed policy cannot stop without also stopping interest rate-sensitive economic activity!
“Fed policies don’t create real, lasting prosperity; they addict the economy to easy money. There is no ‘escape velocity’ for an economy sustained by low interest rates when you take away the low interest rates!
[We pause here to note that Dan is seldom given to exclamation points — much less two in consecutive paragraphs. Take heed.]
“There will be no serious ‘tapering’ of Fed printing anytime soon,” Dan concludes; “the U.S. economy would stumble without its low-interest-rate training wheels.”
“Right now,” Byron King launches into his own macro musings, “I see the U.S. economy as muddling along. Big companies are hoarding cash, while the middle and small tiers wake up nervous every day. Business formation and job creation are weak, although the economy has a couple of strong sectors like aerospace and geography-specific housing, to some extent.”
As Byron sees it, the macrocosm is swarming with bad news. As an astute 5-er, you know the drill: Government’s too big, spends too much and is too nosy. Obamacare premiums loom. Markets are fretting about the Fed. Bond prices are getting flushed, and not only Treasuries; Apple’s recent 30-year bond issue has plunged 10%.
Across the pond and beyond, we see eurozone stagnation, China’s commodity funk, a moribund Japan and a slowdown in emerging markets.
“These kinds of big issues tend to blur the optics of even the best of resource ideas,” says Byron. “Still, for all the market pain of late in the junior space — pain over the past year, actually — I believe there are numerous beaten-down bargains across a spectrum of categories. That is, look for:
- Exploration stories
- Development stories
- Technology stories
- Joint venture and takeover stories.
“In a stock-picking market, you want to look for an investment inflection point, typically where the pace of discovery or development is about to accelerate. That, and look for positive, unique characteristics in a company, especially when they’re associated with significant de-risking events. For example:
- Resource update
- Potential new development angle
- Technical breakthrough
- Pathway to cash flow or exit point.
“Basically, you’re looking for solid assets with great management. Cash is fabulous, although right now the fact is that a lot of companies are running on fumes. So there’s financing risk out there with many plays with otherwise strong merits.
“Look at it as your chance,” Byron concludes, “to buy in on the next fund raise and pick up more shares of promising plays at a relative bargain.”
“There is urgency in this company’s story,” Patrick Cox writes, by way of update on one company making huge strides in the diabetes market: “The last few weeks have marked major progress, with several potential market movers.”
The company is developing a noninvasive, wireless glucose monitoring system that surpasses anything the skyrocketing diabetic treatment market has seen thus far.
“The research,” says Patrick, “clearly proves the superiority of continuous glucose monitoring (CGM) over the occasional finger-prick technology. This is true both for diabetic outpatients and those suffering from trauma or disease in a clinical setting. The reason is mathematical. Periodic sampling will always have a higher error rate. Getting a sugar level once a minute, as opposed to once every four hours, is, on its face, statistically superior.”
Although this company is riddled with competition in the glucose monitoring sphere, Patrick’s company is the only noninvasive CGM tech in the market. And according to a recent press release, the first rounds of clinical trials are soon to begin in Europe.
“The thing to remember,” Patrick writes following the PR news, “is that this is a device, not a drug. All the device has to do in this trial is measure blood sugar in a hospital setting as well as competing technologies that rely on needles. Then, a CE Mark Technical File is submitted.”
The CE Mark is essentially the stamp of approval for product launch in Europe’s annual half- billion dollar CGM industry.
“Following the European process,” he goes on, “this company will focus on the U.S. hospital CGM market. To that end, a pre-submission has been filed.
“This market is worth $1-2 billion annually. Then, a bit down the road is the biggest market of all — the global outpatient diabetes market, which is estimated by the company to be worth about $12 billion.”
“Odds are you’ve probably never thought of ‘cat bonds,'” writes our deep-value globe-trotter Chris Mayer. “Cat stands for catastrophe,” he explains.
“A cat bond is much like any other bond, except payment depends on whether or not some catastrophe occurs, such as a destructive storm.” The concept is straightforward. “In its simplest form,” Chris explains, “an insurer sells a bond to investors. If there is no storm, investors get interest on the bond and their money back at the end of the term, usually several years.
“If there is a storm, then the insurer uses the proceeds of the bond to pay the claims and investors’ funds are forfeited.” But despite what you might think, Chris tells us “cat bonds” aren’t very risky. Here’s cat bond performance against the S&P as tracked by the Swiss Re Global Cat Bond Index.
Chris points out that both Hurricane Sandy and the Japanese tsunami caused only minor pullbacks. But that’s not the best part — look at 2008. “Cat bonds have no ties to what goes on in the financial markets.” Chris shows off, “They are immune to the kind of 2008 meltdown that caused so much mischief.”
[Ed. note: It’s a diverse menu of investing ideas we’ve brought you in today’s 5 — cat bonds, a breakthrough medical device play, well-chosen resource juniors. An elite subsection of our readership has access to all the relevant ticker symbols.
For the next five days, you have the chance to join their ranks. We’ll even give you some “seed money” to help you get started with our very best stock picks. It’s a one-of-a-kind offer… and you have until next Monday to mull it over. Addison has prepared a special invitation. You can review it at this link.]
“Tired of voting for rats?” the campaign slogan in Mexico asks. “Vote for a cat.”
“It started as a joke between friends,” The Guardian reports, “but Morris the cat’s bid to become mayor of the Mexican city of Xalapa, the capital of the state of Veracruz, has now turned into a social media phenomenon with a serious message about political disenchantment.”
“Morris,” says Sergio Chamorro, the owner of the feline office-seeker, “has become an expression of how fed up people are with all the parties and a political system that does not represent us.” Morris’ Facebook page, El Candigato Morris, currently bears more than 130,000 “likes” — “far more,” The Guardian observes, “than those accrued by any of the candidates registered to stand in the Xalapa election, and more too than those of Veracruz’s current governor.”
On top of this, Sergio has even “received messages from citizens designated to run the polling stations on Election Day describing their plans to ensure the cat’s votes are registered and made public, even if they do not officially count.”
“He doesn’t do anything either”
Public officials aren’t amused: “It is important to vote for the registered candidates,” Carolina Viveros, head of Veracruz’s electoral institute urged, in an effort to keep citizens from “wasting their votes” on Morris. “Please.”
“The truth,” Sergio concludes, “is that Morris no longer belongs to us. He belongs to his fans.”
“If elected,” Global Post quips, “Morris will have a whole network of furry rulers with whom to forge diplomatic relations.”
Among these fuzzy allies is the tail-less tabby Mayor Stubbs of Talkeetna, Alaska, who’s held office for 15 years now. “He’s good,” resident Laurie Stec says. “Probably the best we’ve ever had.”
Also, Clay Henry III, mayor of Lajitas, Texas. Third in his family to become mayor of the town after an election in 2000, beating out both a wooden Indian and a dog named Clyde. He’s described as a goat with two passions: politics and alcohol.
Lastly, in 2008, Mayor Lucy Lou, a border collie, emerged victorious in Rabbit Hash, Ky. Her competition? Over “10 dogs, one cat, an opossum, a jackass and a real-life person,” says the Global Post.
Finally, some election campaigns we can get behind.
“Since reading Byron’s musings about a gigantic buildup of gold reserves in China,” writes a skeptical reader, “I have seen absolutely no evidence that it is taking place.
“I wonder if he could be convinced to comment on any evidence he might have that they are proceeding since their gold purchases for the last month do not seem to have grown…”
The 5: No disrespect, but what on Earth are you talking about?
Yes, China’s imports via Hong Kong fell in April… to the second-highest level on record. And the number fell only because many buyers were put on backorder.
If the “evidence” you’re seeking is a gold price zooming to $2,500, well, no, that hasn’t happened. But we have our eyes peeled for the suitable catalysts.
With that background in mind, take another look at Byron’s presentation…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. An update from our options guru Steve Sarnoff hit our inbox just before we launched today’s episode. “Another OHL Winner,” the headline reads.
Steve’s winner is a profitable trade on a bearish Bristol-Myers Squibb play. Today, his readers have a chance to pull in 73% in less than three weeks.
“This marks our 24th profit alert,” Sarnoff writes, “sent in a little over 11 months since the initiation of our Sell Alert program.”
His secret? He lays it all out, and explains how you can do it too, right here at this link.