February 18, 2014
- Why natural gas is likely to stay elevated even after winter breaks
- After decades of searching, Neil George finds a reliable marker for pharmaceutical stocks
- Stephen Petranek uncovers an attractive niche within biotech’s most lucrative sector
- Was it rank stupidity or a brilliant publicity stunt?
- A trio of mediocre economic numbers… the real national debt, revisited… a reader’s brilliant call on mining stocks, also revisited… and more!
“Thundersnow” is reported in New York. Parts of New England could get six inches of snow by nightfall. Chicago is recovering from whiteout conditions.
And natural gas is again in high demand. Stockpiles are the lowest this time of year since 2004, according to the Energy Information Administration. Prices are down from their wild peaks a couple of weeks ago — but nonetheless at a nine-day high.
A recovery to more “normal” prices by recent standards might be a long way off. The polar vortex that drove temperatures below zero in the northeast caused “freeze-offs” to many wells in the Marcellus and Utica shale plays in Pennsylvania, Ohio and West Virginia.
“That’s when temperatures rise and fall dramatically in a short time,” explains our energy specialist Byron King. “Then internal pressures change, and moisture in the gas lines freezes and ices up. The gas doesn’t flow. Whoops.”
In early February, about 8% of Pennsylvania’s gas production was frozen… plus 10% of West Virginia’s and 26% of Ohio’s.
“It will likely take several months to restore full production,” Byron suggests, “due to a phenomenon of physics called ‘spring.’
“Near term, at the very least, an operator has to send out a crew to survey the frozen wellheads, if not to thaw things out. But that’s not so easy. Start with rural roads covered with snow and ice, and basic access is a problem.
“Then you have valves and lines filled with natural gas. It’s not as if you can just aim a blowtorch at the problem, right? (Well, you could do it once, I suppose.) The short version is that clearing a freeze-off is a complex, dangerous industrial operation. Everything takes time, planning and attention to detail. If it’s not broke, don’t break it.”
[Ed. note: We’re compelled to brag on Byron for a moment. Four months ago, he was the headliner for our first-ever live online event. He outlined an opportunity with companies about to win licenses from the feds to export natgas.
Other experts spotted the same opportunity… but only Byron accurately identified which companies would win… and in which order. Result? Three plays that delivered an average gain of 22% in only three months.
What’s Byron’s next big call? And how can you profit? Look here.]
U.S. stocks are mixed as traders recover from a holiday-weekend bender. The Dow is down fractionally as we write, while the other big indexes are slightly in the green.
Traders have two economic numbers to chew on this morning, both indicators of how the month of February is shaping up…
- New York State factory activity: Barely improving, according to the Federal Reserve’s Empire State Manufacturing Survey. At 4.48, the number is down from last month. Within the survey, new orders are now below zero — contraction territory
- Homebuilder sentiment: Yuck. The National Association of Homebuilders’ housing market index just recorded its biggest monthly drop ever, from 56 to 46. Yeah, we know — bad weather. But “other factors are still negative for the sector,” says Bloomberg, “including unappealing mortgage rates, high prices, low supply, and a soft jobs market”
- Consumer debt: Up $241 billion from the third quarter of 2013 and the fourth, according to the New York Fed. That’s the biggest increase since… gulp… 2007.
Gold drifted up in electronic trading yesterday, only to give back much of the gain today. At last check, the bid was $1,323.
“I’m not very fond of the pharmaceuticals industry,” says our income specialist Neil George.
“Investing in drug companies for me is like investing in an alchemy enterprise. Both whip basic materials together in an attempt to create something extraordinary. Of the endless combinations of chemicals and compounds drug companies mix together, only a handful end up benefiting people.”
When Neil joined us at the start of last year, he had a decision to make on behalf of Lifetime Income Report readers: Hang on to or sell a pharma firm that landed in the portfolio by way of a spinoff.
“When it comes to judging banks, I can dig into their balance sheets,” he says. “For resource companies, I can examine their properties and lines of business. Even for technology companies, I can get a thorough understanding of their products and make reasonable assumptions for how things will work out. Biopharma? That’s a different challenge.”
“But I’ve discovered there is a way for a nonscientist like me to look at a company dealing with these unknowns — and that’s evaluating a company’s transparency.”
That is, whether management is upfront about what’s going on and what’s not working. “This has allowed me to understand the product development of the pipeline of drugs so that I can consider what-if scenarios for the whole business and company.”
This particular company met the test, and Neil decided to hang on. Good call: Shares are up 45% — while paying a modest dividend.
“Of the more than 30 biotech companies that had initial public offerings last year, the majority are focused on cancer drugs,” says our high tech and biotech maven Stephen Petranek.
Stephen is undaunted by the challenges of finding the most lucrative biotech players — which is one reason we’ve added him to the team.
“Biotechs focused on cancer are easier to finance,” he says, “and more likely to demand a high price when they go public, because no matter how much it costs to develop a cancer drug, and even if it works only a little bit better than another similar drug, patients will demand it and physicians will prescribe it. It doesn’t take long for a young drug company to make back its development costs if it can charge patients $300 for one day’s dose.”
The result is a wealth of drugs that treat early-stage cancers. On the other hand, “late-stage cancers deserve more attention than they are getting,” Stephen explains, “and drugs that significantly prolong life for late-stage cancer patients are much more likely to result in windows that open research into actual cures.”
With that in mind, Stephen recommended a company in December working on a treatment for late-stage prostate cancer. “Most men think that prostate cancer is… not really a big C — more like a small c.” Nonetheless, it will kill about 30,000 men this year; among cancers, it’s the No. 2 killer of men, after lung cancer.
The company’s one-of-a-kind approach has already delivered 27% gains in two months… with much more upside to come.
[Ed. note: A select few readers already know about this firm. They also know about the company that helped Neil overcome his jitters about biotech. And they had a chance to take advantage of Byron’s short-term natural gas plays.
They’re also clued into the fruits of Chris Mayer’s globe-trotting, Jonas Elmerraji’s penny-stock picks and Ray Blanco’s large-cap tech plays. That’s because they have access to every one of our stock recommendations — the safest and most stable, and the high-risk, high-reward plays.
For a few more hours, you can join the ranks of those readers. We’ve bent over backward to make it worth your while. Learn about the privileges and benefits that come with membership in our Equity Reserve; the offer remains on the table through midnight tonight.]
There’s ignorance… and then there’s militant ignorance.
Last Friday, Groupon announced a Presidents Day promotion — spend $40 on a deal for any local business, get $10 off.
From the Groupon press release: “The $10 bill, as everyone knows, features President Alexander Hamilton — undeniably one of our greatest presidents and most widely recognized for establishing the country’s financial system.”
Uh… yeah.
Someone at New York’s Fox station, well aware Hamilton was never president, sought a comment from the firm. Emailed a flack named Erin Yeager, “We’ll just have to agree to disagree.”
Yesterday, another flack piped up, claiming it was all a stunt: “Most Presidents Day promotions make people fall asleep, so we wanted to do something different that was in line with our brand and sense of humor that got people talking and writing about Groupon,” the gentleman emailed the Chicago Tribune.
If true (and we’re still not 100% sure), it’s a good thing we didn’t spot this as it was happening on Friday and give the louses the publicity they sought. The promotion is now over.
“When you’re off by a factor of 11,” a reader writes, “you are losing credibility.”
After Congress folded like a lawn chair over the debt ceiling last week, we mentioned in passing that the number now totaled $17.26 trillion.
“Last I read, it was $200 trillion,” the reader says, “give or take a trillion! What planet you on?”
The 5: Whoa there, pardner. We were citing the official number. Sometimes, we’re compelled to do so in the interest of brevity and making the most of our daily 5 Mins.
You’re absolutely right; the true number is much higher once you include future liabilities for Social Security and Medicare. David Walker, the former comptroller general and protagonist in our firm’s 2008 documentary I.O.U.S.A., reckons the real number is about $73 trillion.
The number you cite comes from Boston University professor Laurence Kotlikoff. And yes, you’re low — his most recent estimate is $205 trillion. But hey, that’s down from $222 trillion a year ago!
“I’m sure you guys saw this,” a reader writes, linking to a Reuters story that said the following…
“The savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis, an EU document says.”
“And you know all about the little MyRA scam (Didn’t we already try this gambit with Social Security? Maybe it’s true, as Mark Twain said, that it is easier to fool people than to convince them they have been fooled).
“My question is this: Can you guys at The 5 do some more articles on the subject, to assist us poor hoi polloi here in flyover country? I’m pretty sure Al Gore and Michelle-Marie Antoinette Obama — along with all their assorted cronies — already have enough dough to cover the complete federal debt.”
The 5: We did see it, and we saw fit not to overreact unlike certain ad-supported websites that blared, “Wholesale Savings Confiscation!”
Look, we’re as hip to the possibility of confiscation and Cyprus-type “bail-ins” as anyone. But the EU scheme, examined soberly, sounds a lot more like the MyRA-not-Breckinridge scheme the president floated last month. It’s a “voluntary” trial balloon to warm up folks to something mandatory later on.
Our guidance along these lines is singularly unsatisfying. We’d never tell you to heed the soothing words of politicians that everything is OK… but we’re also not going to tell you to immediately convert all your stocks and cash into gold and ammo.
Keep no more than three-six months’ living expenses in the bank, and when it comes to your 401(k) or IRA, watch for the two warning signs we identified in Apogee Advisory nearly two years ago. (Neither one is flashing red or even yellow right now.)
“I too was deeply saddened by the passing of Hank, as reported in Friday’s 5,” our final correspondent writes.
“This quickly rising independent political star, who never accepted any donations, was clearly a threat to the entrenched establishment in D.C.
“Given today’s political environment, I’m surprised you so readily accepted the mainstream media’s report the he died from ‘cancer, anemia and a heart murmur.’ Yeah, right. I suppose you still think Benghazi was a result of that stupid video.
“I hope you will pursue this story until justice is served. (My dream ticket would have been Hank and Jack Kemp, or maybe Ron Paul — as veep, of course.)”
Meanwhile, “it looks like my infallible system for calling the bottom of precious metals and mining stocks remains unblemished,” the same reader adds.
“As you may recall, I said I had sold the last of my mining stocks (never my physical metals) on Dec. 6, and every time this has happened in the past, a raging bull market ensued.
“I’m not kidding, folks. I am the perfect contrarian indicator. My record is perfect.
“While I don’t accept donations either, if there are those of you who made a ‘killing’ off my call, I do accept tips for my financial advice. (Please forward through The 5. I trust them, even if their reporting of Hank’s ‘death’ leaves a little to be desired.)”
The 5: We are truly impressed by your prescience: GDX, the big gold mining ETF, has risen from $20.66 the day you threw in the towel to $26.37 as of this morning…
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Final reminder: The “loyalty rewards” you have with us are due to expire only a few hours from now. Take advantage while you still can and save $6,139 this year.