January 27, 2014
- Intrepid researchers find bureaucratic malfeasance: We find ways to profit
- “The only thing you need to know” after stocks’ big drop last week
- Asian Danger 1: The real threat from China’s “shadow banks”
- Asian Danger 2: “The most militarized region of the world”
- A curious attempt to drum up Valentine’s Day business… renewed back-and-forth on Canadian health care… the perils of trying to “do something”… and more!
“Not all FDA approvals are created equally,” says Nicholas Downing — who just finished studying nearly 200 new drug approvals between 2005-12.
As you probably know, the FDA takes it upon itself to certify a drug is “safe and effective” before you can buy it or get a prescription for it. Mr. Downing leads a team at Yale that examined the FDA’s criteria up close.
“Researchers found broad differences in the data it took to get a thumbs up from FDA,” sums up The Washington Post. “For instance, the agency required that many new drugs prove themselves in large, high-quality clinical trials. But about a third won approval on the basis of a single clinical trial, and many other trials involved small groups of patients and shorter durations.”
It took a Yale study to figure out that bureaucrats make it up as they go along?
Shocking!
It’s been common knowledge for years that drugs you’ve never heard of with huge lifesaving potential get stuck in a bureaucratic backlog… while unsafe drugs mysteriously sail through the process. (Remember “fen-phen,” the obesity drug combo that damaged people’s heart valves?)
It’s maddening. But it is what it is. More important for our purposes, it opens up spectacularly lucrative trading opportunities… provided you’re plugged in to the right stocks at the right time. Example: Oculus Innovative Sciences. It jumped 209% on Dec. 3 when the FDA approved a burn treatment.
As we’ve said for a while now, that’s what our newest service is all about — taking advantage of near-term catalysts in the drug industry for big gains in a short amount of time. At long last, we’ve lined up exactly the right expert to head up the service; we expect to launch in March.
We plan to charge $2,500 a year. But because you already subscribe to one of our paid services, we’d like to give it to you free. Time’s running short, though: Slots are filling up quickly, and as a result, we’re closing off access tonight at midnight.
The relentless sell-off from Thursday and Friday is in pause for now. The Dow and the S&P 500 are up fractionally; the Nasdaq and Russell 2000 are down fractionally.
Still, at 1,790, the S&P is all of 3.2% off its all-time high.
“A picture may be worth a thousand words,” says our Jonas Elmerraji, “but this zoomed-in chart of the S&P 500 is worth a thousand bucks.
“It tells you the only thing you need to know about stocks right now.”
If you’re still not sure what that “only thing” is, we prevailed upon Jonas to expound a bit: “The S&P 500 had spent the last month riding the top of its trend channel,” he says, “but shares broke intermediate support at 1,820 on Friday. We’ve been looking for a correction in stock prices all month long, and now it’s looking like it won’t just be a sideways churn.
“But there’s an important message here — while lower ground looks likely after the 1,820 break in the S&P, the primary trend is still undeniably up.”
So ignore anyone who says last week was “the big one” and it’s all downhill from here. “The fact remains,” Jonas explains, “that the S&P 500 could drop another 4% without violating trend line support. Unless support gets broken, this is just another correction, not a crash.”
Eventually, the uptrend will break. “All trend lines eventually break,” he says, “even this one. It could happen next week — but it could also happen next month, next quarter or next year. When it does, we’ll position ourselves accordingly.”
In the meantime, Jonas’ STORM Signals readers have already bagged four gains during 2013. The smallest was 12% and the biggest was 75%. In no case was the hold time longer than four months.
China “payday loan” business just dodged a bullet. But another volley might come at any moment.
The country’s “shadow banking” system came under severe stress in recent days. “Chinese shadow banking refers to loans outside the official state-controlled banking sector,” explains our Dan Amoss. “When bank loan growth slowed a few years ago, shaky borrowers were desperate to find new sources of funding. Many found high-interest, short-term funding from ‘trust’ companies. Trust companies match savers looking to earn high interest rates with desperate borrowers.”
Like payday loans in the U.S., Chinese trust loans have short maturities. “Trust lending has become so big it has the potential to impair the banking system.”
Last week, one of the biggest shadow banks — China Credit Trust — warned big-bucks investors they were unlikely to be repaid the $500 million they sank into a trust product (yielding nearly 11%!) when it matures this coming Friday. The product was “backed” by loans to a coal miner that went belly up.
This morning came word investors would get back all their principal, if not all their interest due.
China Credit Trust will scrape the money together by selling shares of the coal miner to “an unnamed third party,” as the Financial Times puts it. Transparency.
No, the crisis is not over: $661 billion in these “payday loans” are due to mature this year.
“Now that bubbles are starting to deflate in China,” Dan goes on, “investors will discover that easy money is both necessary and permanent to prevent reversals of hot money flows and credit crunches.”
Consider the stress in emerging-market currencies last week: “Declines in currencies like the Turkish lira, South African rand and Argentine peso spark the unwinding of Japanese yen-funded carry trades, which in turn strengthens the yen and depresses overnight futures in the S&P 500.
“The global monetary system is fragile and volatile. It’s undergoing a harsh test. The carry trades wrought by central bank policy may continue unwinding. Central banks will soon feel market pressure to remain permanently easy. And the need to hold some gold as insurance against this system will re-enter many investors’ minds.” [For PRO-level readers today, Dan spotlights an emerging-market ETF that has no place in your portfolio right now.]
Let’s stay in Asia — “the most militarized region of the world,” as the head of U.S. Pacific Command called it last week.
“Adm. Samuel Locklear gave a talk at the Pentagon,” says our military-tech expert Byron King, “describing how U.S. allies — and potential adversaries — in the Asia-Pacific region are acquiring vast stockpiles of advanced military hardware. This is all in the midst of the U.S. so-called ‘pivot’ from a Middle East focus toward Asia.
“In his comments, Adm. Locklear discussed how it’s not just the quantity of weapons in the regional buildup. It’s the type and advanced quality of weapons. That is, per Locklear, ‘They are buying weapons, 21st-century weapons.’
“Long-range systems, traveling at high speeds, have already dramatically increased the risk profile for U.S. ship and aircraft deployments in the region. Indeed, I’ve heard senior-level Navy officials debate the future of large-profile, expensive systems like aircraft carriers. That’s because, in the future, advanced weapons can challenge or even negate U.S. military dominance in the region, a situation that would go against nearly 70 years of history.”
Byron continues to track the state of the art in weaponry… following the money in his Military-Tech Alert — one of 17 paid services we publish, along with the aforementioned PRO edition of The 5 and STORM Signals. Not to mention the yet-to-be-named service that will afford you the chance to profit from short-term catalysts in the biotech sector.
Our most comprehensive “package deal” — the Agora Financial Reserve — gives you access to nearly everything we publish. As we’ve said before, we open it up only once or twice a year… and the current membership drive winds down tonight at midnight. We urge you to examine all the privileges that come with membership at this link.
Because it’s never too early to think about Valentine’s Day gifts, we have this suggestion courtesy of a gardening equipment outfit in Ireland…
Well, at least the good folks at Donegan’s in Bailieborough, County Cavan, have the good sense to recognize they’re reaching. That’s obvious from the line beneath this ad: “Sell your children! It’s the Valentine’s price save of the century!”
The century’s still young, heh…
“We know that chainsaws are not everybody’s idea of romance, but we know more than a few people who would far rather one of these deals than a box of chocolates!”
Guys, don’t get any ideas. Or if you do, get both the chainsaws and the chocolates. You can thank us later…
“One of your Canadian friends wrote to you expounding the virtues their health care system,” a reader writes, pulling a thread from last week into this week.
“His/her argument was, to paraphrase, yes, taxes are higher but healthcare is free. The irony of that statement may have eluded the writer but it jumped off the page at me.
“For some reason I cannot fall for the idea that Canada is full of philanthropic types working in the health care industry for a paycheck of zero.”
“I am more in the line of thinking with the senior who likes Canadian health care,” writes another. “It is far from perfect, but my family members and I can always get the care we need.
“I have a choice of doctors, sort of. There is always a shortage in rural areas. More money and American-style health care won’t fix that, and yes, there are long wait times for surgery.
“The people who didn’t like it made the right choice. Leave. I am sure many Americans would like to have a choice of free health care, as opposed to crippling debt to obtain treatment. We have a choice. If you can afford it, you can purchase health care from most any country you choose.
“For the record, health care isn’t free everywhere in Canada. The three richest provinces, Ontario, British Columbia and Alberta have charged premiums. I paid about $1,200 per year for my family. Alberta has dropped premiums, for now. There is always talk of bringing them back. Good luck with Obamacare.”
“Let’s go back to common sense and simple observation before you spout off about superior ‘outcomes’ in your system,” a U.S. doctor addresses those satisfied Canadians.
“If the USA were populated with Canadians, we would have similar outcomes. We have a markedly higher incidence of tobacco use/abuse (cancers, vascular disease), obesity (diabetes, vascular disease), violence, teen pregnancy (million-dollar premature babies), drug abuse, etc.
“The common thread here is that we are a nation of citizens who demonstrate gross lack of personal responsibility when it comes to one’s own health. These (mostly) preventable diseases have broken the bank, and throwing trillions more at the problem (Obamacare) will not change this.
“Be thankful you live in a country with mostly responsible citizens, but please wake up from your delusion that it has anything to do with your system (that out of necessity must ration healthcare to stay solvent). I have been a practicing physician for a quarter of a century, and for the first time in my life have become pessimistic about our future ability to provide health care in this country.”
The 5: Really? American health care is expensive because of smokers, fat people and gangbangers? It’s got nothing to do with the cost-shifting schemes that turn a $7,500 operation into a $100,000 boondoggle? It’s no wonder some people think a Canadian system is better.
But yes, your concern about “our future ability to provide health care in this country” is well-founded. That’s why we’re encouraging people to take advantage of the three-word loophole that’s an escape hatch from Obamacare’s worst excesses.
“So what is your conclusion about ‘income inequality’?” a reader asks.
We tried to lay this to rest last week last Thursday, but in this case, the reader has a valid point in resurrecting it.
“Do we just shrug our shoulders and say that 90% (or whatever percent) of us are doomed in our current socioeconomic system while, especially, the top 1/100th of 1% continue along their merry, happy-go-lucky way?
“Should we not at least try to do some things to make the prescriptions to remedy ‘income inequality’ fall on the top income/wealth levels?”
The 5: If we’re hearing you right, you’re saying 1) redistribution schemes are inevitable and 2) “we” should do something to make sure that Soros and Buffett actually feel the pain, instead of small-business owners and the upper middle class.
1) Yeah. 2) Dream on.
Agora Financial’s executive publisher (and the founder of this daily missive) Addison Wiggin often cites the French expression Sauve qui peut — which translates roughly to “Let he who can save himself.”
Knock yourself out writing your congressman and circulating email petitions among your friends if you like… but we daresay your energies would be better spent growing the stream of cash you get from your investments so the pain of redistribution won’t bite as badly as it might otherwise.
Really, it’s our whole reason for being — taking matters into your own hands instead of relying on your fellow flawed humans to achieve a desired outcome. There’s no guarantee of success… but at least the odds are on your side.
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. The ultimate in taking matters into your own hands is a Reserve membership that gives you access to nearly everything we publish. For many people, the cost of a membership pays for itself in the first year with the resulting investment gains.
This is our final chance to remind you that doors to the Reserve will close tonight at midnight. They likely won’t reopen until this summer… or even year-end. Here’s where to act.