May 23, 2014
- Prosperity and peril: A tale of two Americas, 2014 edition
- Deadly diseases, now managed with a once-a-day pill
- Pentagon chief declares an end to the economic system as we’ve known it for 40 years
- Early sign of a summertime correction, now confirmed… how to grow your economy with hookers and blow… an era before subsidized homeownership spiraled out of control… and more!
“I keep telling you, we are in a golden age for biotechnology and investing in biotechnology,” said the insistent email from our investment director Paul Mampilly.
The timing of the email’s arrival was pure synchronicity — at the very moment we started yet again to ponder the “tale of two Americas.”
If you’re new to us, our executive publisher and fearless leader Addison Wiggin described the phenomenon like this in early 2012 — “the contrast between the overwhelming rot penetrating governments and the financial system on the one hand… and the staggering entrepreneurial potential that can overcome the rot on the other.”
It’s the latter phenomenon that gets Paul animated. He came on board late last winter as our investment director. He has an encyclopedic knowledge of perhaps 4,000 publicly traded companies. But across his 25-year career, he’s acquired a singular enthusiasm for biotech. For the last six weeks, he’s been pounding the table about biotech in our virtual pages. And with good reason…
“We have barely scratched the surface of what we can do with the things we now know about the human body and cells and genes,” Paul enthused.
“Biotechnology in its current form really didn’t even exist until 1980,” he explained. “That’s when scientists were able to reproduce interferon using recombinant DNA.”
He was starting to lose us with the lingo… but he quickly came to our rescue.
“Interferon is a protein that cells make when viruses (like hepatitis C), bacteria (like E. coli), parasites (like malaria) or cancer cells attack our bodies. And recombinant DNA is just a fancy way of saying that we were able to make interferon outside our bodies in a way in which we could produce it and give it to people as medicine.”
His point? Biotech remains a young field of endeavor. Which places us in a golden age, indeed.
“And if you make the right moves at the right time,” he explained, “you are going to have a chance to make a lot of money.”
Paul keeps coming back to the example of Gleevec, a treatment for a type of cancer called chronic myeloid leukemia. Once a death sentence, it’s now merely a chronic disease. “People who have this form of cancer pop a pill once a day. And then they go about their lives just like everyone else. Gleevec has almost no side effects.”
It’s drugs like Gleevec that have driven the Nasdaq Biotechnology index up 235% in the last five years — even after the shakeout that hit biotech starting earlier this spring.
We launched Paul’s new service, Agora Financial’s FDA Trader, in the midst of that shakeout. The early returns are already defying the trend in the sector… and the sideways movement in the market overall. One of his picks is already up a solid 24%. Another is up 20%, with perhaps 10% more upside as soon as the FDA delivers its verdict on a new antibiotic; the news could come as early as this afternoon.
The key to these early gains, and the much bigger gains still to come, is something we’ve taken to calling the “Magic Calendar.” It’s 36 specific dates each year — Paul knows them by heart — when selected biotech stocks can make big moves. He’s shown us the track record: These moves work out to an average 118% payout in a mere three months.
Click here to turn the “Magic Calendar” into predictable gains…
[Ed. note: While we’ve been introducing you to Paul these last few weeks, we’ve been offering a charter subscriber discount for his service. That discount offer expires at midnight Monday night. We’ll shoot you a reminder email over the weekend, but while it’s fresh in your mind, we encourage you to give the offer your attention right now.]
The “petrodollar” that’s underpinned worldwide money flows the last 40 years is starting to fly apart.
Yeah, we hadn’t forgotten the other part of our “tale of two Americas” — as highlighted in a week-old article from the London Telegraph. We don’t miss much, but we confess this one slipped by. So here goes…
The petrodollar system was the brainchild of Secretary of State Henry Kissinger in 1974: Saudi Arabia would price oil in U.S. dollars and use its clout to get other OPEC nations to do the same. In return, the U.S. government agreed to protect Saudi Arabia and its allies against foreign invaders and domestic rebellions.
For 40 years, anyone who’s wanted to buy oil needed dollars to do so. The petrodollar greases the wheels of world commerce and allows Americans to live in the debt-soaked style to which they’ve become accustomed.
Secretary of Defense Chuck Hagel now says the deal’s off.
He didn’t put it in those words, of course. But that’s the unmistakable message he brought last week to a summit of the Gulf Cooperation Council in Riyadh. The GCC is made up of Saudi Arabia and five surrounding Arab sheikdoms, including Kuwait.
He told them their security is now up to them. “Bilateral ties with the United States and American military presence are not enough to guarantee regional security,” Hagel said. “America’s engagement with Gulf nations is intended to support and facilitate, not replace, stronger multilateral ties within the GCC.”
The move is a continuation of the “pivot to Asia” announced by Hillary Clinton in late 2011 — shifting Washington’s focus and resources away from the Middle East and toward containing China.
America’s shale energy bounty helps make the “pivot” possible.
The United States is less dependent on Middle East oil than it used to be. Meanwhile, as The New York Times reminded us yesterday, “China imports much of its oil from the Persian Gulf region and through the Strait of Hormuz, where security is dependent on the United States Navy. China relies on roughly a half-million barrels a day from Iran.”
In other words, China’s getting a free ride on the U.S. Fifth Fleet. No wonder Hagel’s telling the Gulf sheiks to start pulling their own weight.
But here’s the rub, as explained to us by hedge fund manager Erik Townsend: “It’s really hard to see why the Arabs would continue to price their oil in dollars; their biggest customers would be China and other countries that have no reason to deal in dollars.”
That’s the dollar’s endgame: All those dollars overseas suddenly flood back home. Inflation takes off like a rocket, and so do interest rates.
“I doubt that a U.S. bond and currency crisis is going to happen on Obama’s watch,” Mr. Townsend surmised. “But to go eight more years — assuming the next president gets two terms — to go from 2016 all the way to 2024 without the U.S. bond market blowing up for one reason or another, I can’t see it.”
But that’s years away. Today, it’s party on: The S&P is flirting with new all-time highs, at 1,898.
The other major indexes are also in the green.
There’s only one economic number floating in today, and it’s a sunny one: New home sales jumped 6.4% in April.
“One important indicator is whispering a correction is on the horizon,” advises Greg Guenthner of our trading desk.
Margin debt continues its climb down from all-time highs. We mentioned this phenomenon three weeks ago, and the latest numbers confirm the trend. Note well that previous peaks in 2000 and 2007 prefigured the stock market downturns that began those two years…
“Remember how everyone has been whining about margin debt ramping up over the past 18 months?” says Greg. “That wasn’t an issue. Margin debt rises in a bull market. But as you can see from the chart, margin debt has rolled over ahead of market corrections in the past.”
No, it’s not a signal to sell everything and run for the hills. “But right now, with the major averages near their highs,” says Greg, “you can stick to the big, dividend-paying stocks that are dominating the market.”
Gold’s run toward $1,300 didn’t last; it’s back to $1,292 as we write. Credit a stronger dollar; the dollar index is up to 80.3.
Crude has hefted itself past $104, to $104.38. That’s the highest since early March.
No real news; it might be a case of traders playing it safe going into the proverbial “long holiday weekend,” complete with elections in Ukraine.
We’re shocked American economic statisticians haven’t come up with this one yet.
“Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year,” Bloomberg informs us.
Our contempt for GDP as an economic statistic is brought to new lows this morning. The Italian government is making this move not to make itself look better to its own people — that would be bad enough — but to European Union bureaucrats in Brussels.
In theory, every member of the EU is supposed to maintain a budget deficit no greater than 3% of GDP. Obviously, if you’re a European politician who goes on a spending spree, it’s in your interest to make GDP bigger by hook or by crook, thus making the percentage smaller. Voilà! (The word is the same in both French and Italian, wouldn’t you know…)
This is hardly the first time Italian statisticians have played games with GDP. “One night in 1987,” our Chris Mayer reminds us, “Italy’s economy grew 20%. It passed the U.K. and became the fifth-largest economy in the world.”
“I feel the program got too big,” a reader weighs in on the topic of government subsidizing “homeownership.”
“The original purpose was to help young people buy homes that were not too expensive to let them become homeowners. I remember my husband and I getting what was called a ‘GI loan’ in 1950. The rate was 4%, and we borrowed $8,900 and had a down payment of $3,000. The house was about 830 square feet, and we could not afford a garage, but my parents helped us out with enough money to build a double garage.
“Over the years, the programs to finance homeownership became much too generous and required very small equity. Our monthly payment on the mortgage was about $89 a month, and we handled insurance and real estate taxes separately. We sold the house in 1954 due to a job change and bought another small house, which required remodeling, but we managed the financing without a mortgage and by that time had four children to raise.
“I realize that politics played a big part in the government participation in the housing programs, but it always was the taxpayer guarantee that stood behind the loans, and the program grew too big.”
“With Memorial Day this Monday,” one of our regulars writes, “I hope — no, I pray — that some of our politicians get the message and understand what my father and many other individuals deserve this weekend — reverence and memorial in their honor for serving and sacrificing for this country.
“The Airbnb item started me growling, and then the additional comments about Operation Chokepoint and the squeeze on gun dealers, and I just had to write. This is so wrong on so many levels even thinking about the interference in the free market system and the freedoms that were so hard to get, keep and protect, and the sacrifices by so many for these freedoms. I’m sure many a grave is being rolled over in. I know my father would be absolutely dismayed at these idiotic laws and controls being pumped out by our elected officials.
“I can only hope that some of these dumbass politicians get the message this weekend!
Please, all, give a small pause of memorial or go take part in a celebration and honoring of so many that are so deserving!
“Thanks, Dave, for letting me vent!”
The 5: It’s our pleasure.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Chris Campbell will be here tomorrow with your weekly 5 Things You Need to Know wrap-up. U.S. markets are closed Monday for Memorial Day. The weekday edition of The 5 returns Tuesday.