August 26, 2013
- Syria, Libya and Egypt, oh my: Triple trouble for Middle East oil players, and Byron King on a new alliance filling a void left by the United States
- A stock picker’s market: Elmerraji with three rules to live by for the rest of 2013, Mayer on the sectors best poised to perform with still-low interest rates
- After cholesterol, the next target in the battle for heart disease: Ray Blanco identifies who will take the high ground first
- Neil George on a sector that touches 78% of Americans every day… and taps two massive revenue streams
- How not to solve the homeless problem in New York… a debt-ceiling diversionary tactic… the ultimate solution to the feral hog crisis… and more!
The United States, Britain and France will launch air strikes on Syria “within two weeks,” according to the London Independent.
Right. Because the last time the triumvirate carried out regime change in Libya, it worked out just swell.
Two years ago this week, Libyan rebels took the capital Tripoli with the help of U.S., British and French air cover. Muammar Gaddafi would live only a few more weeks.
A low-grade civil war has raged since. It makes few headlines. But it’s bad enough that Dan Amoss, keeper of The 5 Min. Forecast PRO, informs us this morning that Libyan oil production has once again dropped from 1.5 million barrels a day to a half-million.
Meanwhile, “Egypt is a nation at war with itself,” says our Byron King. “Turmoil in Egypt is NOT good for the Middle East in general or the stability of one-third of the world’s oil production in particular.
“Indeed, turmoil in Egypt is a big part of why oil prices have moved up by $10 per barrel over the past two months.”
It remains up there this morning, a barrel of West Texas Intermediate fetching $106.17.
Beyond oil politics, “what’s going on in Egypt,” Byron adds, “stands for the ongoing rearrangement of the chessboard of the post-Cold War world.
“It’s fair to say that pretty much everybody in Egypt mistrusts the U.S. government, and certainly hates current U.S. Egypt policy.”
From the Los Angeles Times, July 6: “As rival camps of Egyptians protest for and against the toppling of President Mohamed Morsi, there is a rare point of agreement: America is to blame.”
“Meanwhile,” Byron goes on, “we see a new alliance of Saudi Arabia, Russia and China. They’re teaming up to aid Egypt.
“Saudi Arabia has opened its checkbook to the tune of $11 billion in just the past month, along with sending tankers full of fuel. Saudi aid dwarfs the piddling amounts of depreciating dollars that the U.S. sends to Egypt — much of that ‘aid’ being military equipment, which is, at root, just money to large defense contractors like Lockheed.
“Meanwhile, Russia and China are sending ships full of food aid.”
The interests of all three nations line up neatly, as Byron sees it: “The Saudis fear Brotherhood-style religious fervor. Russia wants to control the spread of hard-line Islam in its southern regions — Chechnya comes to mind — while China has issues with hard-line Islam in its western regions.
“The new alliance reflects how U.S. influence is waning in the Middle East. After many decades of driving events in the Middle East — and spending incalculable national treasure — the U.S. is about to lose big.”
Byron urged his readers to grab a 50% gain and get out of Apache Corp. — an oil player with major Egypt exposure — as soon as the Arab Spring got cranked up in early 2011. Only last week did mainstream analysts throw in the towel on Apache — after the price sank to 2007 levels.
His long-standing guidance remains in play: Avoid energy players with Middle East exposure. Stick with the companies riding the “Re-made in America” boom.
The major U.S. stock indexes are all up fractionally this morning — the Dow 25 points above 15,000.
The big number of the day is down big — durable goods orders falling 7.3% in July. Yes, it’s a volatile number because transportation is a big part of it. “But stripping out transportation,” says Bloomberg, “this sector is still soft in July” — down 0.6%.
Gold poked its nose above $1,400 when electronic trading reopened last night, but has since retreated to $1,394.
“This is a stock picker’s market,” says our Jonas Elmerraji — and the penny stocks that are his bailiwick are no exception.
“In my view, there are three core factors that’ll hold the keys to the biggest gains for the rest of 2013: keeping a deep value focus, sticking with small stocks and buying exciting businesses.
“Value matters. I’ll spend $6 to buy $10 worth of assets all day long if I’m given the chance. And right now, there are still plenty of chances to do that.”
Why smaller stocks? “Few analysts cover stocks with less than $2.5 billion in market size, and few mutual funds are even allowed to invest in them. That lack of professional awareness of small caps means that you’re far more likely to run across a major mispricing or hidden opportunity in a small cap than you are in a larger name.”
As for exciting businesses, “Warren Buffett is famous for advising investors to buy stocks within their ‘circle of competence.’ Translation: Buy what you know.”
These three rules of thumb have worked out well for Jonas’ Penny Stock Fortunes readers — including four names that were bought out at hefty premiums. The average gain on positions he’s closed this year? 40%. And the average open position is up 83%.
“Every market comes to be defined by its excesses,” says Chris Mayer. “There is no doubt in my mind that the defining excess of today’s market that future historians will write books about is the Fed’s zero interest rate policy, or ZIRP.
“A cash-flowing asset — be it a mine, an apartment or a factory — commands a higher price when you can earn only 2.8% in a 10-year government bond than it would if such bonds paid 6%.
“Thus, to hold the cost of money artificially cheap is to inflate the value of all assets. That much everyone seems to agree on, except perhaps Fed governors and pols. The problem is that ZIRP may continue for quite a long time.”
How to play it? “You have to do something different than what the last cycle demanded. You have to play the losers of the last cycle whose asset prices have still not recovered.
“That line of thinking inevitably leads you to the kinds of things that have attracted most of our new dollars in the last two years: banks, distressed real estate and insurance stocks.” His Capital & Crisis portfolio — judiciously trimmed to only nine high-conviction names — is up 40% year to date.
“An effective triglyceride-lowering compound would be a boon for patients,” Ray Blanco reports from the Pharma-sphere this morning.
If you’re at risk of heart disease — or even if you aren’t — you probably know triglycerides are fats created by your body from excess calories. “Like high levels of ‘bad’ (LDL) cholesterol,” Ray writes, “elevated triglyceride levels correlate with higher risk of cardiovascular disease and stroke.”
And with one in every four deaths resulting from heart disease, according to the Centers for Disease Control and Prevention, there’s no shortage of demand for a solution.
“Of course,” Ray goes on, “we already have effective compounds for lowering cholesterol in the blood, and they are some of the best-selling drugs in the pharmaceutical history. What we don’t have is a good therapy for highly elevated triglycerides, and there is no way to bring it under control for many patients with the current technology.”
Until now: “I think the potential for this drug is so obvious,” Ray writes, “it almost doesn’t need mention.
“One company reports that their flagship drug reduced triglyceride levels in patients by a shocking 72%. Moreover, measurements of ‘good’ (HDL) cholesterol levels rose by 40% without raising ‘bad’ LDL cholesterol. Patients also showed improvement in glucose control and insulin sensitivity, which is great for Type 2 diabetes.”
Billions of dollars flood into sales of cholesterol-lowering drugs each year. And “at this point,” Ray concludes of one of his favorite picks, “this company could end up owning that market — a market that is currently not being properly served.”
“Almost all media live and die by advertising revenue,” says our income specialist Neil George. And for his money, nothing comes close to the “old media” of television.
“Television has the daily reach of nearly 89% of the total U.S. population. Radio offers only a scant 58.8% reach. Newspapers fall to a mere 36.1% of the nation. (No wonder The New York Times and Washington Post both dumped newspaper assets.)” Even the Internet still trails TV, reaching 73.1% of the U.S. population daily.
Neil is especially keen on local broadcast TV stations. In addition to advertising, they get a second revenue stream as cable and satellite providers pay them for rights to carry their signals. One of his Lifetime Income Report picks has shot up a staggering 128% in eight months; readers who got in at the beginning are collecting a 5.4% dividend. And Neil’s looking at three more players in the broadcast space poised for similar growth.
[Ed. Note: For only a few more hours, we’re offering an accessible package deal on all of our entry-level newsletters: Neil’s Lifetime Income Report, Ray’s Technology Profits Confidential, Chris’ Capital & Crisis, Jonas’ Penny Stock Fortunes, Byron’s Outstanding Investments and Addison Wiggin’s Apogee Advisory.
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“That’s one of the reasons why some tenants feel so threatened,” Dr. Bola Omotosho, chair of New York City’s Community Board 5, covering Morris Heights and University Heights in the Bronx, told the public radio WNYC.
“They can easily be kicked out of their house so that a landlord can use it as a steady income from the city, which is guaranteed.”
Here’s a novel way of dealing with the Big Apple’s homeless problem: Overpay landlords in low-income communities to house the homeless so they inevitably kick out their paying tenants… in many cases, it would seem to us… forcing them into homelessness. Homelessness is up 66% since 2011, according to Patrick Markee, senior policy analyst at the Coalition for the Homeless.
Imagine that.
Consider 40-year-old Melvina McMillan, facing eviction from her $700 a month apartment. The city is willing to cough up $3,000 a month per deal in her six-story building.
Out of 83 apartments, McMillan told WNYC, only about a dozen house original, paying tenants.
And now that the city’s running the show? “The building has 215 housing code violations,” WNYC reports. “The more serious ones are for things like mold, water leaks, broken plaster and roach infestations. Tenants also complain the building is chaotic and that bloody fights break out frequently.”
The city told WNYC a corrective action plan had been put in place for the building. Unfortunately, no one could be reached for comments on what the plan entails.
They should try throwing money at it. That always seems to work.
“When,” a reader inquires, “do you expect to mail the CDs from the latest Vancouver conference?”
The 5: Your editor saw a big box of them at the entrance to our headquarters only this morning. So they’ll be on their way shortly, if they haven’t shipped already.
“Hey, Dave,” a reader writes, “another great Friday 5, but as long as all this conspiracy talk from cyberattacks and the possible attack on Nasdaq, first some practical information.
“I’m all for a paperless world, but when it comes to my family’s banking, brokerage accounts, etc., I’ve either read or heard that in the case of banks and brokerage accounts having your paper hard copy will ‘simplify’ your attempts at access to your funds if a cyberattack or worse ever occurs. Food for thought.
“Now let me add to all this conspiracy hype. Doesn’t it seem possible that the Syrian situation and Assad’s use of chemical weapons seem suspicious? After all, Obama and company are coming up to another government shutdown if they can’t get the debt ceiling raised, once again. I have read with interest that the Republicans are really going to stonewall this whole thing without further cuts in spending.
“I’m sure it’s all political grandstanding, but what about this thought. Isn’t the stopping of the supposed use of chemical weapons a perfect excuse to rush through a debt ceiling bill? Both sides win. Jeez, I’m beginning to think like a politician. That’s a scary thought!
“I’m also glad you ended the week with tapirs and feral hogs. Again thinking like a politician, shouldn’t we introduce some kind of non-native predator, like tigers, to rid us, or at least rid Texas, of the feral hog problem? After all, some species of tigers are dangerously endangered, and seems we have plenty of hogs for them to eat. Come on, connect the dots.”
“About a dozen years ago,” writes a reader invoking the rodent-caused Nasdaq outages of 1987 and ’94, “a squirrel committed high-voltage hara-kiri at a substation near our city, shutting down a large portion of the grid and giving us an afternoon off work.
“To top it off, no one’s cellphones were of any use, because the nearest tower was part of that section, too.
“It does make you wonder if any enemies — foreign, domestic or governmental — might utilize robotics miniaturization to let loose a series of self-frying squirrel-bots, taking down the grid (or water supplies?) without any traditional hacking. Let us hope they leave feral hog-bots out of the equation…”
“The 5’s virtual feral hog is as difficult to kill as the real thing!” a reader writes after the mammal’s reappearance on Friday. “I have apparently failed in my attempts to guide us back onto the path of investment discussions, although the gold debate provided a testy diversion for a while.
“I learned long ago not to fight the Fed, so I won’t fight The 5’s editorial staff either.
“So here’s an idea to get rid of the FHs, both real and virtual. Offer citizenship for any illegal aliens who kill 100 FHs. The hogs must be turned in to the local SNAP office in edible condition, where they will be redeemed at $1 per pound for purchase only with EBT cards.
“Hogs? Gone. Illegal aliens? We now have the most industrious and entrepreneurial among them as citizens. EBT purchases? Fresh free-range protein, rather than purchase of beer and cigarettes. FH discussion? Gone!”
The 5: Hmmm….
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. One more time: You can snap up a lifetime of access to all six of our entry-level newsletters for a ridiculously low one-time fee through midnight tonight. This suite of services will never again be offered at this price.