Bulldozers, Biotech and Banksters

  • Three reasons Caterpillar is kicking 5,000 people to the curb
  • Biotech on the cusp of a bear market… but not if you choose wisely
  • Revisiting the story that could propel oil by $30 a barrel in an instant
  • Maybe you won’t need a passport for a domestic flight after all
  • Bankster logic: The economy doesn’t suck, because iPhones
  • The velocity discussion re-stoked… why we don’t get jazzed by term limits… the Dilbert approach to vulgarisms… and more!

Well, it’s shaping up to be another fun day. An hour after the open, the Dow industrials are down 250 points — in danger of breaching the 16,000 level for a second time in five weeks.
Dow component Caterpillar is down 7%. Shortly before the open, CAT announced it’s bowing to the inevitable and cutting 5,000 jobs. When the world needs fewer bulldozers and backhoes, it’s a “global economic slowdown,” indeed.
Only last week, Jim Rickards told his Currency Wars Alert readers how Caterpillar falls into an unfortunate group of U.S. companies getting hurt in three ways…

  1. “Their overseas sales are hurt by emerging-market slowdowns
  2. “Their U.S. earnings are hurt when foreign currency sales are translated back into fewer dollars
  3. “Their stock prices are hurt as analysts lower forecasts and market volatility takes its toll.

“In theory,” said Jim, “the company hurt the most would be one with U.S-based manufacturing, large overseas sales and a heavy presence in mining and construction — two sectors that are suffering as emerging-market countries retrench.”
In practice, that would be CAT.
“Everyone has forgotten what a real correction feels like,” writes Greg Guenthner of our trading desk — directing our attention to a chart he shared with his Rude Awakening readers a few weeks ago…

Another Leg Lower

As we check our screens again this morning, the S&P 500 is down to 1,915.
“About that ‘V bottom’ everyone was wishing for,” says Greg — “It hasn’t exactly materialized now, has it? Instead of shooting back up toward new highs, the market has forced us to endure four weeks of agonizing chop.
“What you need to watch right now is how the market reacts to the lows established during the October 2014 pullback. If the major averages can’t hold those lows, we could very well see another leg lower.”
And then there’s the continued bloodletting in biotech. IBB, one of the big biotech ETFs, is down 9.2% on the week.
IBB is down 18.8% from its peak in mid-July. Which sounds mildly alarming. But it’s on par with the 19.8% drop it registered in the spring of last year. Almost 20% bear-market territory, but not quite.

The Dip Before the Rip?

We’re not in a position to say biotech is poised to resume its march upward the way it did 18 months ago. But we can say with great confidence that biotech names with specific catalysts can always perform well regardless of what’s happening in the rest of biotech or the broad market.
In this regard, we’re thinking about one of Stephen Petranek’s recommendations in Breakthrough Technology Alert. One month ago today — that scary day when the Dow plunged nearly 1,100 points on the open — Stephen reiterated his “buy” recommendation on a company that’s grabbing a growing share of the $12 billion-a-year market for prostate cancer drugs.
Then the firm acquired rights to a promising breast cancer drug. The stock jumped 20% within three weeks… and after a pullback, it’s back below his buy-up-to price.
The Breakthrough Technology Alert portfolio is stacked with picks just like that. For an in-depth look at a unique off-exchange opportunity that could make you 10 times your money in the coming months, give this a look. [Please be advised, for reasons that will become apparent when you click here, that we can allow full access to only 50 people per day.]
For once, gold is benefiting from the safety trade today. The Midas metal has popped more than 2%, to a one-month high of $1,155.
And only some of that move can be chalked up to the dollar weakening against other developed-market currencies. At last check, the dollar index is down about two-thirds of a percent, at 95.6.
Crude, which got crushed after we went to virtual press yesterday, is stabilizing today at $44.52.
And now there are two people whose execution might touch off a sudden spike in oil prices.
The headline news from Saudi Arabia today is about a stampede of Muslim pilgrims making their way to Mecca, killing more than 700. It quickly overshadowed the other big story from the kingdom this week — a true geopolitical wild card.
In January, we first told you about Sheikh Nimr Baqir al-Nimr — a revered Shia Muslim cleric in a nation ruled by Sunni Muslims. He’d been sentenced to death for “waging war on God.” His defenders say all he did was lead a nonviolent movement supporting Shia rights and more rights for women.
Now Sheikh Nimr’s nephew has likewise been sentenced to death for taking part in a pro-democracy protest three years ago — when he was 17.
Both men could be executed at a moment’s notice — beheading, followed by crucifixion.
As we’ve emphasized before, Saudi Arabia’s Shia minority happens to reside near the country’s biggest oil fields.
An execution of either man might inspire Shia mobs to torch the oil fields in revenge — which might well be the reason that reports of the elder Nimr’s imminent execution last May didn’t pan out.
To be continued…
[Totally unironic postscript: Saudi Arabia’s government is executing people this year at the rate of one every other day — usually by beheading.
Last week, the kingdom was chosen to lead a major human-rights panel at the United Nations.
Asked for comment on Tuesday, a U.S. State Department spokesman stammered the following: “I don’t have any comment, don’t have any reaction to it. I mean, frankly, it’s — we would welcome it. We’re close allies.”]
Air travelers from New York and three other states can rest easier — maybe.
On Monday, we related new developments in an ongoing tussle between the feds and states over the 2005 Real ID Act. Homeland Security is threatening to keep people from New York, Louisiana, Minnesota and New Hampshire off domestic flights starting next year because driver’s licenses from those states don’t comply with Real ID standards. A passport, however, would suffice.
The story is more complex than that, says the Cato Institute’s Jim Harper — who’s studied the matter in detail. “The Real ID compliance deadline passed more than seven years ago with not one state in compliance,” he writes. “DHS has improvised deadline after deadline since then, and it has caved every single time its deadlines have been reached.”

And it will continue to do so, Harper declares: “If TSA — perhaps the most despised U.S. federal agency in history — refuses people the right to travel because they do not carry a national ID, the uproar will be intense and lasting… DHS officials can do basic political calculations.”
Probably true. Unfortunately for all of us, the feds know exactly how far they can push things before the governed withdraw their consent…
One of these days, the banksters will learn to shut up about how technology is improving the lives of the downtrodden.
JPMorgan Chase CEO Jamie Dimon — who has a bailout-juiced net worth of $1.1 billion — gave a speech last week in Detroit. He said life is getting better even with stagnating wages for many workers.
“It’s not right to say we’re worse off,” declared Mr. Dimon. “If you go back 20 years ago, cars were worse, health was worse, you didn’t live as long, the air was worse. People didn’t have iPhones.”

Dimon: Don’t iPhones make life just awesome?
[photo by Flickr user Steve Jurvetson]

Heh… “I like my iPhone,” quips money manager and Bloomberg blogger Barry Ritholtz, “but I had no idea it had the power to make up for three decades of stagnant wages, especially for those workers on the lower half of the income scale. No wonder Steve Jobs was so beloved.”
If only Dimon had remembered about the edible iPad before he stepped in it.
In 2011, the Federal Reserve undertook an ill-advised public-relations campaign — sending various Fed pooh-bahs into the hinterlands to engage the hoi polloi. New York Fed chief William Dudley was dispatched to Queens one day in March.
At a time when even the official inflation numbers were racing past 3%, Dudley insisted inflation was no problem, whereupon he tried to explain “core CPI” — the inflation measure that excludes food and energy.
To illustrate his point, he described the iPad 2 Apple had just introduced. “Today, you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he gamely explained. “You have to look at the prices of all things.”
Someone yelled from the crowd, “I can’t eat an iPad.”
The story was good for a week’s worth of gags here The 5. Those were the days…
“The velocity question is really an easy one,” a reader writes on a topic that has surprising durability in our mailbag. “It is an inferred variable of GDP/M2 [a common measure of money supply].
“But much of M2 has no or little velocity. If the Fed adds a trillion dollars to reserves, but the reserves are not lent and spent, the denominator goes up but the numerator does not, and velocity falls. The Fed can set the interest rate of reserves, but not so easily set the demand for debt once the short-term rate is at zero.
“If the expansion of reserves does not increase credit, you guarantee falling velocity. The ‘mystery’ is just a misunderstanding of the nature of the money multiplier. The Fed can set the price of money but not the amount of money in circulation (the amount that actually circulates).”
“Here’s another idea on velocity,” reads another entry: “How about America stops electing @$$hole politicians who steal our money through excessive taxes, thereby allowing us to spend it on goods and services that mean something to us, such as personal investments, our homes, our children, vacations, etc.! That would create velocity.
“The real problem here is big, expensive government. That is what kills velocity.”
“Dave,” a reader pivots to the topic of politicians, “a number of years ago, there was a movement toward ‘throw the bums out’ term limits for Congress and the Senate. It eventually died out.
“A vast majority of them have been, for years, feeding at the public trough with no discernible return — i.e., the Clintons have between them never had a proper job, but are worth hundreds of millions of dollars. They claim they are dedicated to public service…
“Public approval for Congress and Senate is at all-time lows, and the early results of the Republican race confirm the public’s distaste for career politicians.
“Of course, the press will never discuss the Congress and Senate ratings because the press rating are even worse. Birds of a feather…
“I think a few words on this topic would serve the public interest, especially if it could get some traction. Dare you take up the challenge.”
The 5: There was a time your editor was on the term-limits bandwagon. Now, not so much.
Everybody hates Congress in general but keeps re-electing their congressmember and senators in particular. Even in years when control of Congress switched parties in dramatic fashion — 1994, 2006, 2010 — more than 80% of House incumbents have won re-election.
And think about the 22nd Amendment — limiting a president to two full terms. It was ratified in 1951 after people had second thoughts about how FDR clung to power until the bitter end.
Has the executive branch become any less powerful in the ensuing 64 years?
“Great analysis yesterday,” writes our final correspondent — “I was not offended by the d-bag comment.
“I heard a better rendition from a Dilbert cartoon: JUICE BAG. Alternate renditions help me a lot, especially when I need a substitute quote, i.e., Hungarian cluster FEST.
“Thanks for the free stuff…”
The 5: You’re welcome. Another reader weighed in on the same topic and proceeded to… well, there just isn’t time within our allotted five minutes today.
But we promise you it’s a wonder to behold. We were awe-struck. Tune in tomorrow…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. In late 2000, Charles Pearse retired a millionaire. But in just a few months, he went from this:

Man relaxing on beach, ocean view, Maldives island

To this:

Businessman with empty pockets on white

Instead of retiring comfortably, he’s now forced to live on his $1,800-a-month Social Security checks…
All thanks to one company and what turned out to be one of the biggest accounting swindles in Wall Street history. (I bet you can guess which one…Click here to see if you’re right.)
Why are we telling you about this? And why should you care? Two reasons:

  1. Another MAJOR accounting hoax is about to become public.
  2. We don’t want to see you end up like poor Charles Pearse.

There’s still time to protect your own finances from the fallout. But the clock is ticking. Click here to learn how to safeguard your portfolio before this new accounting hoax hits the newswires.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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