November 20, 2013
- “Messing around with molecules”: When tech merges with biotech
- Adding water to your computer… and more immediate investing opportunities
- Why the JPMorgan settlement is a good deal… for JPMorgan
- Repatriating a nation’s gold… only to pawn it later
- Small caps stumble… Whither the judicial branch?… Introducing the newest member of our team… and more!
“Messing around with molecules” — that’s a plain-English description our newest editor Stephen Petranek offers up to describe the essence of “advancements that will make our lives better.”
We’re pleased to introduce Mr. Petranek today as the newest addition to our tech and biotech franchise. His resume is, in a word, staggering. Muckraking business reporter in the ’70s. Magazine editor in the ’80s and ’90s. Reinvented Discover, the premier science magazine, for the new millennium. We’ve saved a full introduction for an Overtime briefing below, penned by our executive publisher, Addison Wiggin.
We’ve long spoken in our virtual pages of “tech” and “biotech” in the same breath… and then proceeded to treat them as distinct entities. Computer-y stuff one day, medical stuff the next. Mr. Petranek is quickly disabusing us of that notion.
“Part of this world,” he writes of his beat, “is based in nanotechnology, managing atoms and molecules at the quantum scale to build materials that cannot be found naturally, from making new computer chips to producing energy.
“The other part of this world is ‘wet,’ based in biology. Someday, these two worlds will merge and you may need to add water instead of electricity to the inside of your computer to keep your biochips thriving.”
We’ll give you a moment to ponder that…
“But for now, as exciting as the hardware of nanotechnology is, the biological side is where more life-changing progress is being made.
“Biotech stocks are pushing hard at the edges of new learning in the world — combining exploding research on genetics with new high-tech analysis equipment and an overall exponential growth in knowledge of biology at the molecular and even atomic levels. Sometimes, biological research seems like fission, in which each new collision (think of a study or a trial or an experiment as a proton) causes hundreds of other collisions. One study creates 10 new ideas for studies, each of which creates 10 more… and on and on.”
“There have been more than 30 initial public offerings this year in biotech,” Stephen says, getting down to the investing brass tacks.
“Every one of them that goes public looks like a skyrocket as it is ignited, soaring with great expectations based on solid evidence from reasoned researchers. But the dirty little secret in this part of the market is that a startling number soon fizzle and fall to earth. Without any expectation whatsoever, a drug that looks stunning in Phase 2 trials proves deadly in Phase 3.
“The conundrum with this brave new world of biotech is that as promising as almost all of these companies seem to be, they are also fraught with the stock market’s least favorite value — uncertainty. The only two things that are certain about biotech startups is that some of them will change our lives forever in very positive ways and some of them will go out of business.”
We’ve tasked Mr. Petranek with identifying as many of the former on your behalf as possible.
One is uniquely worthy of your consideration. It has the proverbial “10-bagger” potential to turn every $1 invested into $10 — not least because it’s already done so once. Be advised, however, the company is exploring a line of research so bleeding edge that we expect some pushback from readers. As always, the final call is yours…
Another day, another anemic showing from the major U.S. stock indexes. As we write, round numbers are coming into play across the board…
- The Dow is less than a point below 16,000
- The S&P is 7 points away from 1,800
- The Nasdaq is 55 points away from reclaiming 4,000 for the first time since early 2000
- The Russell 2000 hovers around 1,100 — as it has for the last month.
The last of those four is something Greg Guenthner has been eyeing: “Evidence is mounting in favor of continued weakness in small caps.
“Over the past 30 days, the S&P and Dow industrials have both outperformed the Russell 2000 by a wide margin. Even more telling is the continued bullish action in the Dow transports while the Russell stumbled. These two indexes had consistently been among the first groups to sprint higher after every market pullback this year. But lately, the transports are going it alone.”
Gold is losing ground again, the bid now $1,262. That’s a low going back to July that was tested briefly last week. Hmmm…
The Bernanke-fueled surge in Bitcoin is losing some more of its oomph. After popping to nearly $850 on Monday when he said the cryptocurrency held “long-term promise,” it slid to $718 yesterday… and $619 as we write.
The feds are catching up this morning on some of the economic numbers that were delayed during the partial government shutdown. Let’s pop the hood…
- Consumer prices: Down 0.1% in October — a function largely of falling energy prices, says the Bureau of Labor Statistics. The year-over-year increase works out to 0.9%. As always, any resemblance to your own cost of living is purely coincidental
- Retail sales: Up 0.4% in October, says the Census Bureau. If you exclude auto sales, which as we’ve pointed out are being goosed by EZ credit, the increase is only 0.2%.
Take these numbers for whatever they’re worth in light of the jimmying of the unemployment numbers we mentioned yesterday. Today we learn the Labor Department is investigating whether the Census Bureau monkeyed with the jobs survey leading up to the election.
A review of The 5’s archives reveals we labeled the September 2012 jobs report “a head-scratcher”: The unemployment rate dropped from 8.1% to 7.8%, and not because people were dropping out of the workforce, as had been the case consistently since 2009.
We wish we could chalk it up to our awesome prescience. Alas, it’s plain-old curiosity and skepticism…
“This is a really good deal for JPMorgan,” says Ritholtz Wealth Management chief Barry Ritholtz of the much-ballyhooed $13 billion settlement announced yesterday by the Justice Department, sweeping a farrago of scandals under the rug.
“It’s really about $2-3 billion when you back out the various components,” Ritholtz tells Yahoo Finance — “write-downs they were going to take anyway, payments to states, payments to other parties.”
“J.P. Morgan,” said a tut-tutting Attorney General Eric Holder, “was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.”
It also wasn’t cause for a criminal case — and Ritholtz says that sets a poor example. “The big problem with not prosecuting criminally here is you’ve turned these giant fines into just a cost of doing business. ‘Hey, Uncle Sam is now your partner and you’re going to have to cut off a little vig to the feds, but you still get to rape and pillage and make lots and lots of money.”
From the “C’mon, the suspense is killing us” department comes word that China’s central bank will let the renminbi float freely against other currencies — someday.
“We will increase the role of the market exchange rates,” says Zhou Xiaochuan, governor of the People’s Bank of China, “and the central bank will basically exit from normal foreign exchange rate intervention.”
“That’s central bank parlance for, ‘We’re going to float the renminbi,'” says Chuck Butler, president of EverBank World Markets. “The problem is he didn’t say ‘when.'”
The Third Plenum — the big meeting of the Communist Party Central Committee, earlier this month — set a target of full convertibility by 2020, putting the renminbi on an equal footing with the dollar, euro, yen and so on. Zhou’s comments might signal an earlier target…
“Who says the revolution is over?” says Venezuela’s president Nicolas Maduro , as we survey the latest tragicomic events from that land.
The parliament has handed Maduro emergency decree powers for the next year, passing what’s called an enabling law. Seriously, that’s what it’s called. They didn’t even need an event analogous to the burning of the Reichstag. On the other hand, Wikipedia informs us enabling laws have been passed in Venezuela on seven previous occasions since 1959. Revolution, it seems, is a never-ending work in progress.
We can hardly wait to see what Maduro does with his newfound powers. Less than a week ago, he jailed 100 business owners for “price gouging” — i.e., using black-market dollars to buy imported goods and passing along the cost to consumers. Venezuela’s real-world inflation rate is now 304%, according to the Cato Institute’s Troubled Currencies Project.
Indeed, Venezuela’s situation is so desperate it appears the government is about to pawn some of its gold stash.
If you have a long memory, you’ll recall Venezuela’s now-departed caudillo Hugo Chavez repatriated the government’s gold — 160 tons — in 2011-12, cleaning out vaults at the Bank of England and JPMorgan Chase, among others.
Now comes word from the opposition newspaper El Nacional that the government is about to swap 45 metric tons of that gold in exchange for hard-to-get dollars with — drumroll, please — Goldman Sachs!
The paper quotes an economist named Jose Guerra. After running it through Google Translate, his remarks come out like this: “The gold operation aims to give liquidity to the Central Bank of Venezuela when they are in the lower limit since 2004. Just $1.2 billion are liquid at this time and are used to fund 10 days of imports… The Republic ended up taking us into the hands of a Goldman Sachs mortgage by this gold operation.”
Ouch…
“When the highest court in the land is not the highest court in the land with regard to protecting the fundamental rights of its citizenry,” a reader writes after the Supreme Court punted on NSA surveillance this week, “then the judicial branch is no longer a constitutional body.
“They have turned into a bunch of dark-cloaked pawn zombies delivering junk mail decisions for the masses. Most of America knows the government is a bloated morass of undulating carcasses giving speeches that defy logic while the mainstream media regurgitate a controlled message.
“Meanwhile, Mr. Friday Night Lights sits in the dark spewing executive order after executive order while the pretenders in Congress look the other way. What is the end game? Is there something more sinister afoot? To the great people of America….this land is your land….take it back!”
“At the beginning,” a reader writes by way of complaint, “The 5 used to be a very good source of economics and financial news and analysis.
“Unfortunately, now it’s nothing but stupid and useless political garbage. Would you please go back to your original format and make The 5 again a source of valuable financial as well as economic analysis and news.”
The 5: Hmmm… On the one hand, we’re not sure what we’re doing differently. We’ve always said you ignore politics at great peril to your portfolio.
Is it the Obamacare discussion that irks you? We can’t ignore the impact on business owners as they decide whom to hire, whom to fire and who gets their hours cut back — although we concede the impact is hard to measure at this stage.
On the other hand, we suspect it was yesterday’s episode that moved you to write — replete with Affordable Care Act, the NSA, Common Core education standards and so on.
Our mission has always been one of helping readers live a better life. Usually, that’s by way of living a more prosperous life. But that mission also includes living a more free life. So that’s why we recently built a comprehensive solution set to keep the NSA, the IRS and the ACA out of your hair — at least to the extent that it’s practically and legally feasible.
We call it A Man’s Right to Happiness. You can check it out at this link. Of course, if you prefer to complain about “stupid and useless political garbage,” that’s your prerogative.
Cheers,
Dave Gonigam
The 5 Min. Forecast
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And now for a proper introduction of our newest editor, Stephen Petranek. His CV is impressive enough, but how he came into our stable is an equally remarkable story. With that, we turn it over to 5 Min. Forecast founder and Agora Financial executive publisher Addison Wiggin…
It’s been five years since we traveled cross-country with David Walker, the nation’s longest-serving top accountant, or comptroller general, then president and CEO of the Peter G. Peterson Foundation and protagonist of our I.O.U.S.A documentary we filmed at the time. We interviewed financial luminaries such as Alan Greenspan, Warren Buffett, Paul Volcker and Paul O’Neill to help Walker sound the alarm about the truth behind the nexus between Washington and Wall Street.
At the time, the true national debt combined with unfunded obligations and promises tallied $53 trillion, a number reckless enough to “sink our ship of state,” in Walker’s words… unless we the people rose to action. A scant eight weeks after our film of the Fiscal Wake-Up Tour premiered, Lehman Bros. filed the largest bankruptcy in U.S. history, and the Great Recession followed. That $53 trillion hole caved into $87 trillion… and counting. Ultimately, it will be your spending power that erodes.
We remember, all too well, the breezy air with which the luminaries in our film assured us the U.S. economy was “dynamic” enough to “grow” the federal government out of its debt crisis.
How? we wondered. And who?
Who and where are these folks — these innovators and entrepreneurs — that could get us out of this debt crisis? Who could flip this coin? We decided to find out and conducted a search that became international.
We invested years of our time and millions of dollars to find extraordinary individuals sincere and intelligent enough to move markets and society at large in a better direction and help you protect and grow your wealth in these uncertain times. Today, I’m happy to say that our quest has finally led to the debut of our new Breakthrough Technology Alert editor and a man of impeccable capability.
But first, I want to tell you the extraordinary story of how we met this explorer-writer gentleman I’m going to introduce you to today.
We met your new editor through our good friend and associate Juan Enriquez, who is directing founder of Harvard Business School’s Life Sciences Project and a fellow at Harvard’s Center for International Affairs. “We’re trying to build new industries and things that will fundamentally change the world,” he told us in his Boston home:
We backed the world’s first synthetic life- form. We backed a couple molecules we think are going to generate an industry the size of the entire biotech industry. We backed the person who is the world’s foremost expert on social networks, which has basically been the science behind things like Facebook and Twitter and more.
But here’s the thing: Juan never meant to have a big career in science and tech. Juan started his career with a question: What makes any nation or people successful?:
I kept looking at every variable an economist or a political scientist would: geography, disease, leadership, corruption — name any explanation. I wasn’t smart enough to understand it for decades…
Juan figured out that “variable” after turning a population of 600,000 people into a modern city.
As CEO of Mexico City’s Urban Development Corp., Juan led a 347-person team to generate hundreds of thousands of jobs, creating the first large university expansion; hospital expansions; HQs for U.S. and global companies; the first fiber-optic space; the national zoo; public housing; the most visited national children’s museum; and Latin America’s best cultural center for music, dance, theater and art — much like the U.S.’ Kennedy Center.
But after “becoming tired of being shot at” as a negotiator of the cease-fire of Chiapas’ Zapatista rebellion, he returned to Harvard and changed his focus from international affairs to biology.
That’s when it hit him: the variable that determines the success of any nation or people.
I wasn’t smart enough to understand for decades that the real difference is the ability in a society to adopt change. It is very much what Darwin was arguing: Things evolve, and you either evolve along with them or you die. You become extinct. It’s those countries that are able to adapt and change to new ideas and accept people from different cultures that do really well.
“Once I understood that variable, I started looking for leading-edge technologies,” he said. The variable Juan describes can be captured with another word: breakthroughs.
It’s an incredible adventure and time to be alive and able to work with some of these entrepreneurs and academics building entirely new worlds… I mean people I think are as impressive as any explorer that’s ever lived… And fortunately, I found some partners who were a lot smarter than I am and put together a little nerd venture for them.
When Juan came back from a TED conference in Scotland a few months ago, he had only one recommendation for the best guide to these new industries. And I’m honored to introduce you to him as your new Breakthrough Technology Alert editor.
Introducing Stephen Petranek.
Stephen’s history is full of honors and awards for excellent financial writing on stories you won’t hear about anywhere else. Even when Stephen’s flying his treasured gliders or powered aircraft or racing high-speed sailboats, the next big thing is always on his mind.
Earlier in Stephen’s career, for example, he was flying some 15-20 miles from his home in Rochester, N.Y., when he saw giant silver boxes covered in shiny aluminum foil. These giant boxes were actually small buildings. FEMA would load these modules onto a train and send them out after a natural disaster. Unlike today’s trailers, four or five modules combined to make a townhouse. These Stirling homes were the lead product of Stirling Homex Corp., the first company to do truly manufactured assembly-line housing.
It was also one of the hottest stocks on the New York Stock Exchange. One day, the stock of Stirling Homex Corp. would be $15; the next, $60. They issued four IPOs over the course of about five years, and the whole time, shareholders were getting ripped off. Nobody knew it at the time, of course, until Stephen landed his plane, went home, drove in his car to the spot where he saw these things and checked it out. The unsold housing units were being labeled as “unbilled receivables” and counted as income. In reality, 80% of production was unsold units stockpiled by the factory.
He persuaded a company officer to come clean about two different sets of books. In a major investigative effort funded by his employer, the Rochester Democrat and Chronicle, Stephen wrote more 20 articles, which were published as a special report starting on the front page every day for four days. Then 25 indictments and five convictions later, the Stirling brothers as co-founders and owners made their escape by flying south in the company jet, never to be heard from again. For his efforts, Stephen was given the prestigious John Hancock Award, which many consider to be the Pulitzer Prize of financial writing.
Needless to say, Stephen has a history of separating the legitimate investment opportunities from those designed by charlatans.
After the Stirling brothers saga, Stephen moved to Miami, where he was appointed editor-in-chief of The Miami Herald’s prestigious Sunday magazine, Tropic. There he assigned article after article that uncovered corruption and wrongdoing in south Florida. He shook things up so much that at one point, he was assigned bodyguards and his car had to be checked for explosives. Afterward, he opted to redo The Washington Post’s Sunday magazine, where he worked with numerous famous investigative writers, including Bob Woodward, who helped uncover the Watergate scandal.
Afterward, Stephen covered science and nature, politics and economics at Time Inc.’s Life magazine. He frequently assigned articles to Gary Smith, whom some consider to be the best magazine writer in the U.S. Stephen and Gary convinced President Jimmy Carter to cooperate with a major profile — the first time Carter had given a journalist more than 15 minutes of his time since leaving office more than a decade earlier. Eventually, Smith was able to spend weeks with Carter, including an extensive trip to Africa. The resulting article was a bombshell.
Life liked Stephen so much they were convinced to change the color of their famous logo from red to green for only one issue in their whole history, for the 25th anniversary of Earth Day, a special issue Stephen spearheaded. One of his favorite achievements at Life was convincing one of the top 10 architects in the world to design the “Life Dream House” each year. It was a special series Stephen invented that sold thousands of house plans and went on for several years even after Stephen left Life. Atlanta, Ga., decided to feature the first Life Dream House, designed by Robert A.M. Stern, now the dean of architecture at Yale, as part of that year’s Olympics.
Then, Time Inc. chose Stephen to head up the only successful effort to turn a TV show into a magazine: This Old House. The was nominated for numerous National Magazine Awards in photography, design, features and more.
The next formative chapter in this prodigious man’s career was becoming editor-in-chief of Discover, the world’s largest science magazine at the time. Even with about a million and a half subscribers, the magazine was in big trouble. Disney’s then CEO Michael Eisner asked Stephen to reinvent the magazine from top to bottom. Discover was also nominated for numerous National Magazine Awards, and under Stephen it not only became the leading science magazine in the world, but permanently surpassed Scientific American for newsstand sales.
Based on his work on Discover, Stephen gave one of the most original and most watched TED talks of all time. You can Google his talk, 10 Ways the World Could End, or find it at TED.com. Contrary to first impressions, it is a remarkably optimistic view of the future — but if you disagree, you can always Google his presentation 10 Things to Be Optimistic About.
All in all, you could not ask for a better Breakthrough Technology Alert editor.
Best wishes,
Addison Wiggin
Executive publisher, Agora Financial
P.S. As a firm, we believe so strongly in the innovation cycle producing new ideas, new industries and your best shot at governing outlandish gains from your investments that we’re investing millions in this sector. Introducing Stephen Petranek to you today is just the tip of the proverbial iceberg. We hope you’re as excited about the incoming possibilities and opportunities just beyond the horizon.
[Ed. Note: To start your own route to those “outlandish gains,” look here.]