July 21, 2014
- The upside of rising food prices… including the potential for a 24.6% annualized gain
- When stocks and economic fundamentals are on a “collision course,” which wins?
- Grave dancing: Mayer scopes out assets that aren’t bargains now — but will be
- Even if the dollar stays strong, Byron King sees reasons gold can rise
- The “tell” that reveals how well-off your broker is… reader musings about the BRICS, Week 2… doctor reveals one reason your medicine is so expensive… and more!
For as quickly as food prices are rising, we Americans still have it good compared with the rest of the world.
The typical U.S. household spends 6.6% of its monthly budget on food — the lowest among more than 20 countries recently reviewed by the Department of Agriculture. If you include meals out, it’s more like 11%.
What accounts for the difference? According to a press release from the Texas Farm Bureau, “Europe’s tax system on food, U.S. government farm subsidies and farmers and ranchers’ conservative farming on less land — but able to grow more food — all help to lower the price of food.”
Aha! So even the agribusiness industry admits that 6.6% figure excludes the portion of your tax bill that goes to farmers paid not to grow crops, among other boondoggles.
“The competition is intense in the food industry,” says our income specialist Neil George. “Companies are scrambling to gain an edge.
“One way they’re trying to do that is to buy out competitors. There were a record $93 billion in merger and acquisition deals in 2013, and so far this year there have been $71 billion in announced deals.
“We’ve seen bidding battles between Tyson Foods, Hillshire Brands and Pinnacle Foods that ended with Tyson bringing Hillshire under its wing. Then we had Post Holdings grab Michael Foods in a mega-deal. Hormel announced a plan to grab CytoSport, the makers of Muscle Milk, to advance its ‘protein’ processed food business. And Archer Daniels Midland bought Wild Flavors of Switzerland.”
“But there are still plenty of small to midsized firms out there that are just ready to be bought out,” says Neil. “So I expect to hear about more big mergers and takeovers in the weeks ahead.”
Neil recently urged his premium subscribers to grab onto a food-industry play set to yield a substantial amount of income — 2.56% in only 38 days. “That works out to an annual yield of 24.55%,” he says — “nearly 13 times the current dividend yield of the S&P 500.”
This is the kind of play many of Neil’s readers use to pull down income streams of up to $10,000 a month. “This system has become my primary source of income,” writes a satisfied reader from Minnesota. “I expect to make $60-80,000 this year. I made $25,000 last year while learning the ropes.”
You can start learning the ropes today — and collect a handsome fast-mover subscriber discount, too. We have a special offer on the table… but that offer expires tonight at midnight. Click here for your exclusive discount savings.
Whether because of “geopolitical tension” or other reasons, stocks are selling off to begin the week. Every major U.S. index is down at least a half percent, but no more than 1%.
Bonds are benefiting, the yield on a 10-year Treasury tumbling to 2.45%.
“The stock market and economic fundamentals are on a collision course,” writes The Death of Money author Jim Rickards. “One or the other will have to swerve.
“Either the economy will have to improve rapidly and unexpectedly and reverse its fundamental weakness, or inflated stock values are heading for a precipitous fall,” Mr. Rickards writes in his hometown paper, the Darien, Connecticut, Times. “The evidence suggests that the latter is more likely.”
Among the lousy signs he sees…
- New jobs are indeed being created, but even the happy numbers from the Bureau of Labor Statistics can’t mask the fact those jobs are part-time
- The labor force continues to shrink as people give up looking for any work at all, full- or part-time
- Worker productivity is declining because businesses have trimmed capital spending.
“This triple-whammy of declining full-time jobs, declining productivity and slowing capital investment means that real wages are stagnant,” Rickards explains. “If workers can’t make more, they can’t spend more without borrowing. Borrowing is more difficult because home equity has not recovered from the 2007 housing crash and lending standards are the most stringent in years. Companies won’t invest in equipment if consumers can’t spend…
“The conundrum is complete. Stock indexes march to all-time highs while economic fundamentals fall apart. The two will be reconciled either with a spectacular turnaround in growth or a spectacular collapse in stock prices.”
If you haven’t guessed already, he’s counting on the latter. Heh…
“I want companies that can grave dance,” says our Chris Mayer — keenly aware of those all-time highs.
“My favorite investing ideas now are in companies that have the ability to take advantage of trouble. I want companies that can grave dance.”
“Grave dancing” means the ability to buy dirt-cheap assets others have given up for dead after a boom-and-bust cycle. It’s a term taken from Sam Zell, the bearded motorcycle-riding, profanity-spouting septuagenarian who made his fortune in commercial real estate. He never got as famous as Trump because The Donald did deals in the media epicenter of New York, while Zell plied his trade in Chicago.
“I like flexible investing platforms that can go where the opportunity is,” says Chris, expanding on the concept. “An analogy might be someone who goes to a grocery store and can buy whatever is on sale versus someone who goes to a grocery store and always has to buy the same set of items.”
More than half the plays in Chris’ Capital & Crisis portfolio are poised to snap up bargains in both businesses and real estate. By the way, his average position is up 55% in 16 months.
[Ed. note: One opportunity Chris is especially keen on is a chance for you to do some grave-dancing of your own, six years after the Panic of 2008. The bank bailouts made possible a unique opportunity to make up to five times your money during the next four years.
All you need to get started is a brokerage account and a nine-digit code — as you’ll learn when you follow this link.]
Gold is holding steady as the week begins, the bid at last check $1,312. The greenback is likewise treading water, the dollar index up fractionally, to 80.6. That’s a six-week high.
“For all its faults, the dollar has strengthened, which holds down gold and silver prices,” writes our Byron King, winging his way to Vancouver for the start of the Sprott Natural Resource Symposium.
“I believe the dramatic recent increase in U.S. energy production is what’s behind the stronger dollar. With more oil and natural gas from fracking, the U.S. is the world’s largest energy producer. In addition, we’re importing far less oil and exporting a lot more refined product. It helps the dollar.
“Still, when I look at the big picture for gold, I see a resource whose production is challenged on the best of days. Output is declining from traditional, major sources: South Africa is in decline; Australia is challenged; some of the big plays in Nevada are getting long in the tooth.
“We’re looking at a cycle that builds on itself. As gold prices decline, mining companies — especially the majors — spend less on exploration and development, which depletes reserves. Over time, production declines and costs increase. We’re entering a part of the cycle when lower prices set the stage for less supply and the need for a higher gold price later.”
[Speaking of the Sprott symposium: The event gets underway tomorrow. If you can’t be there, we can offer you the next best thing — high-quality audio recordings of every session. Byron is among 23 renowned experts scouting out the most lucrative mining and energy plays in the world. Other luminaries in attendance include Rick Rule, Frank Holmes and Doug Casey.
Through tomorrow night only, you can lock in the best available price on these recordings. Act here.]
How well-off is your broker? It all depends on the title.
Reuters recently pored over the compensation manuals at the biggest retail brokerages. Its conclusion: The more money they bring in, the more likely they are to have puffed-up titles like “senior vice president” and “associate director.”
“Titles are conveyed virtually automatically to brokers who bring in enough money,” says Reuters, “even if they are relative newcomers, as long as they have not run afoul of regulations or internal rules.”
Ernst & Young, meanwhile, finds top brokers at the full-service firms keep 46% of the commissions and fees they collect. Plus bonuses if they hit certain targets.
Hmmm… It brings to mind one of the entries in the Essentialist’s Glossary at The Daily Reckoning…
“I am very much in agreement with one of the folks who wrote in on Friday,” begins our Monday mailbag: “The U.S. dollar is in decline (I wish it would hurry up so the rebuilding can begin) and will soon no longer enjoy the lofty role of ‘world’s reserve currency.’
“I also agree that it is America itself that has caused this to happen. The greed and avarice of the ruling class and its pet government have set the course. The ignorance and apathy of the American people ensures that the course will remain true.
“And yes, those who suffer will assuredly blame others. I see it daily on social media, such as Facebook. Blame the Chinese, the Taiwanese, the Koreans, the Thais, the Cambodians.
“Those crafty foreigners came and forced the unions to price their labor out of the market. They forced American corporations to move their manufacturing facilities overseas, at least partly to avoid the highest corporate tax rates in the world (almost). They forced the throngs to crowd into the local Wal-Mart and Target and buy the cheap products that cost less after shipping half way around the world than from half way across town, mostly using credit to pay for them.
“And it’s amazing how those crafty foreigners made the U.S. government start war after war after war, necessitating the need for constant borrowing and, along with runaway welfare, creating $17 trillion in debt (and that’s only the feds). Yes, it is assuredly someone else’s fault.”
“Your item about FedEx’s troubles with the government in Friday’s 5 inspired me to write,” says a longtime reader/first-time writer. “I won’t dare you to publish it, because I think you will recognize it as the truth.
“As a physician, I am seeing more and more patients going without medications because the FDA is waging war on every front against generic drugs. I have seen prices of many meds doubling every four-six months. Drugs which were $4 for a month’s supply are now $80 or more. These are old medicines, off patent for decades or longer. Look at colchicine, a naturally occurring substance used to treat gout. This was a few cents a pill last year. Now, the FDA has illegally awarded a patent to a single company, shutting down all the other American manufacturers. A single dose now costs about $4.
“Why don’t patients get their meds from Canada or India, where the prices are set by the free market? Because the FDA has enlisted the Post Office and other carriers to illegally intercept packages containing legally prescribed medications. Also, the FDA is waging a propaganda battle in the media slandering overseas manufacturers. They have blacklisted individual Indian factories and forbidden them to export meds to America.
“Remember when a patent was for 17 years? Now the FDA routinely extends patents indefinitely for trivial or no reasons. Viagra is due for patent expiration, but the FDA has extended its patent until 2017 for no good reason. Want to guess what will happen in 2017?
“The FDA has been captured by the pharmaceutical industry and no longer considers the law or the needs of Americans when it creates policy.
“Now that more than 17% of our GDP goes to ‘health care,’ what do we get for our money? Mediocre outcomes. Where does the money go? Not to the average doc, that’s for sure. It goes to doctors’ overhead, while we try to comply with a constant barrage of absurd regulations. We hire more and more staff to work our computers instead of jotting down the relevant information in a chart. We have staff members who do nothing but respond to audits from Medicare and private insurers.
“Likewise, the insurers have stables of clerks who do nothing but generate claim denials and endless requests for records. About 35% of your insurance payments go to nonpatient care activities like these clerks, as well as executive compensation and advertising.
“The health care system has become a gargantuan make-work program. What would happen if the government pulled out and let the free market resume? Real unemployment would shoot up from 20% to 25%, that’s what.
“Costs are rising exponentially, partly because it is clear that the current fiasco is unsustainable. Everyone from insurers to hospitals and drug companies and unethical doctors is grabbing with both hands while they can. In this way, all are accelerating the impending collapse. From the rubble will rise a single-payer system, and by that point doctors will be grateful to work for the government. At least we will hopefully be able to concentrate on patient care instead of data entry.”
The 5: Wow, thanks for the front-line report. Your suggestion that single-payer is the end goal reinforces the thinking of the Laissez Faire Club’s Jud Anglin. Alarmed medical consumers who might be new to The 5 are urged to bone up on Jud’s expose right here.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Last chance: Discounted access to Neil George’s premium income advisory — we’ll even send you a check just to give it a look-see — expires at midnight tonight.