February 20, 2014
- How to beat the cable monopoly and profit in the process
- Ditch your Internet provider, get speeds as fast as South Korea, retire early
- Three numbers that show up the Fed as not only liars, but bad liars
- Suddenly, bad news in gold stocks is a buy signal
- The return of the SRO… silly bipartisan ideas… Uncle Sam’s awesome financing deal… and more!
Your editor’s Internet bill just went up. Again. Perhaps you can relate.
The good news is that competition is finally coming to the rescue… and early investors stand to make a killing.
For too many of us, and for far too long, broadband Internet service has meant turning to the same bloated monopoly that furnishes cable TV wherever you live.
You want speedy downloads and streaming video with no hiccups? In huge swaths of the country, you’re stuck with cable. Your only “broadband” alternative is poky and temperamental DSL. That was a rotten choice 10 years ago, and nearly impossible to justify now.
Even more maddening: Many people around the world are accustomed to speeds far higher than even a typical cable customer in the U.S.
On a good day, the Ookla app on my iPad reveals download speeds at home of 20 megabits per second (Mbps). Ookla has compiled its user data from around the world to rank average broadband speeds by country and put it on a website called Net Index. Here are the top five…
The U.S.? We’re No. 33, at 21.29 Mbps. Eight countries that once belonged to the Soviet bloc have higher speeds. Sheesh…
The solution that was supposed to break cable’s monopoly looks more and more like a nonstarter.
In theory, fiber-optic technology was going to be our savior, providing download speeds equal to those of No. 1 Hong Kong.
In reality, the process of laying new fiber lines is prohibitively expensive. Rolling out fiber service costs a minimum of $3,000 per customer. As such, Verizon quit expanding its FiOS service at the end of 2011. AT&T’s U-verse service is likewise moribund.
The cost of fiber might be too much for even mighty Google to swallow. As you might know, Google’s been running a pilot program delivering fiber service in three cities.
Yesterday brought news that the firm plans to expand to 34 more — with speeds up to a blistering 1,024 Mbps.
Google’s decision “has unnerved some investors who worry about how much money all the projects will cost,” reports The Associated Press.
The AP asked Google Fiber’s general manager for a ballpark estimate of those costs. He respectfully declined.
Hmmm…
But out of nowhere, a cost-effective solution is on the horizon. You’ll be able to tell the cable company to go jump in the lake… and if you invest right, you’ll make a small fortune. Maybe even a big one.
A technology called “VDSL2” can deliver speeds even higher than in Hong Kong… through the same copper wires already in your home providing landline phone service. (Remember that?)
Suddenly, those $3,000-per-home installation costs with fiber collapse to a mere $300.
A report from the firm Infonetics Research forecasts that broadband devices supporting VDSL will more than double over the next four years — from $1 billion in 2012 to $2.25 billion by 2017.
Several far-sighted service providers are already committed to this technology. But they’re not the way to invest.
Better are the makers of the technology that makes it all possible.
We’ve identified a niche player within this niche sector that recently got a huge infusion of cash from a California venture-capital outfit, run by a well-known tech industry veteran. The firm has 400 patents both issued and pending. The CEO just loaded up on 20,000 shares.
The company looks more and more like buyout bait. If it were sold at the value of its historical research and development expenses, it would be nearly three times its current market cap.
Which brings us to the only fly in the ointment. The company’s market cap right now is barely $71 million — microcap territory. If only 500 readers of The 5 acted today to buy a mere 1,000 shares each, that alone would move the share price more than a half percent. Our readers alone! And that would be before the “momentum traders” noticed the action and moved in.
We don’t want that to happen. We want the share price to grow on its own and the company’s potential to develop organically. So we’re putting a strict cap on the number of readers who can get access to this recommendation.
We might have already reached that cap by the time you read this, and if that’s the case, we apologize. But if you want to jump-start your retirement goals, there’s no better place to begin than here.
Major U.S. stock indexes are shrugging off yesterday’s Fed-induced fright.
They tumbled in the afternoon when the Federal Reserve released the minutes of its meeting three weeks ago.
We’ve said it before, but we must say it again: Fed minutes are not like the minutes of your local school board. They’re not an objective record of who said what. They are a thoroughly massaged document intended to bring about a desired reaction in the media and the markets.
The operative phrase in yesterday’s edition was: “A few participants raised the possibility that it might be appropriate to increase the federal funds rate relatively soon.”
Traders promptly freaked out and tanked the Dow about 120 points. After sleeping on it and coming to their senses, they’ve sent the Dow back up 60 as of this writing — just shy of 16,100. The orderly rally going back to November 2012 continues apace.
Really, how soon is the Fed going to jack up rates with numbers like what we got this morning?
- First-time unemployment claims: Little changed from a week earlier, at 336,000. It’s still above the 300,000 level seen during a “normal recovery”
- Consumer prices: Up 0.1% in January. The year-over-year increase works out to 1.6%. As always, any resemblance to your own cost of living is purely coincidental. More relevant today is that the number’s still well below the Fed’s 2% target
- Philly Fed survey: This index of mid-Atlantic manufacturing is back in negative territory; indeed, the number is the weakest in nearly a year.
Gold also tumbled yesterday, but its recovery this morning isn’t as strong. At last check, the bid was $1,314.
“Don’t be surprised if we see a pullback soon,” says Casey Research’s Jeff Clark about gold stocks.
“But a larger shift in the gold market is underway; we’re moving from a two-plus-year bear market to the beginnings of a new bull market — and that’s when we stand to make the most money.”
One obvious tell was the market action a week ago today. “My jaw dropped lower and lower last Thursday as I perused quarterly reports from some of the world’s largest gold producers,” he writes. “Many of the results were shockingly bad. Impairment charges, reserve write-downs, earnings losses and dividend cuts — no company escaped the fallout from lower gold prices. Some reported bad news on every aspect of their businesses.
“But here’s the most striking thing: The market didn’t care.” GDX, the big gold-mining ETF, jumped 4.4% on the day. This morning, it’s trading higher still. Check out the year-to-date returns in some of the big names…
Why the outperformance? Several reasons: Traders were already expecting bad news. Many companies have slashed their costs. Analysts are catching on to quality valuation. And a rising gold price doesn’t hurt: “With each tick up in the gold price,” writes Mr. Clark, “producers become more attractive. Most investors know you can get leverage to the gold price through a gold stock, as has just been amply demonstrated in the last few weeks.”
The latest solution to sky-high housing prices in New York? The revival of the SRO (single-room occupancy).
Last year, we chronicled how several New Yorkers have turned to used RVs for an affordable place to lay one’s head at night.
But if that’s a bridge too far, a 21st-century version of single-room occupancy has arrived in Harlem.
“Throughout the 20th century,” writes David Friedlander at Lifeedited, “the once-common, small and spartan apartments provided affordable urban dwellings for people looking for basic living accommodations. Unfortunately, in the latter part of the century, they became synonymous with drugs and graft. As neighborhoods gentrified, the unseemly SROs were excised from most cityscapes.”
Now comes a project called PAD. Weissman Equities has converted five units in an old SRO building in Harlem, renting for an average $1,500 a month. The biggest is only 225 square feet. “Rather than throwing a cot and a heating plate in the rooms,” writes Friedlander, “the company has outfitted them with furniture from Resource Furniture, which give the tiny places big functionality.” We assume that’s a Murphy bed behind the couch…
Affordable housing, New York style: $1400-1600 a month… and no private bathroom
“True to SRO form,” he adds, “the one thing the apartments don’t include are private bathrooms (excepting the one $1,600 unit). They will share 2.5 common bathrooms, which are professionally cleaned three times per week.”
“I heard in passing on a cable news channel,” a reader writes, “that a senator from Oregon is pushing for every child born to receive $500 to combat poverty/alleviate cost of college, etc. Now, if I calculate correctly, that would net a whopping $4,000-plus.”
[Assuming a 5% yield — and where do you find that these days? — we figure about $1,150 by the time the whippersnapper reaches college age. But go on…]
“Now let’s try to figure where the money would be invested … We know stocks are out, junk bonds are out, so I guess that leaves Treasuries. Why would this senator want to push this? I surmise to help close the deficit/debt. Short-term solution and neglecting the long-term problems. But hey, as long as the cards don’t collapse on my watch, who cares?
“That is why we need to throw all of the bums out after two terms in the Senate and six terms in the House. Change will never happen until we take back our government.”
The 5: The subject line of your email said “Another Democrat scam,” but the scam is bipartisan, and it’s been around for years. “By the time these kids reach adulthood, they will have the funds they need to go to college, start a business or increase their savings for retirement,” crooned Sen. Jim DeMint about a similar proposal in 2005.
You really think term limits would put a stop to this nonsense?
“During Yellen’s testimony last week,” a reader writes, “she got a question, or a request to comment, from Rep. Randy Neugebauer, R-TX, about the effect of low rates on national debt. He declared that the QE program was ‘enabling’ the fed gov to borrow more because the rates are so low.
“Yellen’s response was to repeat the primary goals set by Congress, which are to keep inflation low and achieve maximum sustainable employment. Randy’s time ran out after he pressed the question but before Yellen had a chance to respond.
“I thought this a very interesting. Low rates enable more debt and higher rates will soak up more of the money in the budget pie. So the more they try to reduce, or even stop, the QE program, the more the budget moneys get consumed by interest payments. It appears that the QE just makes everything worse. I wonder where this is going to lead to?
“Buy gold, keep it on hand, out of the reach of government, I guess.”
The 5: “Tapering” doesn’t have to raise interest rates, and indeed, Treasury yields have dropped since the Fed began dialing back QE in mid-December.
But yes, low rates are a sweet deal for Uncle Sam, and any hiccup in the bond market will raise his financing costs dramatically. Gold never hurts…
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. With gold pulling back closer to $1,300, now’s a good time to add to your stash — or start it if you don’t have one already. That’s where the Hard Assets Alliance comes in. HAA is an ideal way to buy, store or take delivery on precious metals… and its website interface is the simplest we’ve ever seen. Learn more about it at this link.
Full disclosure: We may be compensated once you fund your account, but Agora Financial wouldn’t have become a charter member of the Hard Assets Alliance unless we were sure you’d get a good deal.