In Search Of “Amazing Value”

  • Biotech is dead… Long live biotech!
  • Housing isn’t dead… but it’s looking a little sickly
  • Where are all the startup jobs?
  • Peering into the “digital vortex” in search of 100x gains
  • Commodities crushed… an expat’s gripe with Medicare… the horns of the Fed’s dilemma… and more!

“RIP, Biotech Bull,” says Greg Guenthner of our trading desk — writing from 35,000 feet, on his way to Japan and a gathering of the International Federation of Technical Analysts.
“The S&P Biotech SPDR and the Biotech iShares began cratering less than a week ago with a shared 4% rout to get the ball rolling. And after finally realizing that stocks can’t go straight up forever, biotech investors have now decided to toss some gasoline on the fire and torch the entire sector.
“By the time the smoke cleared yesterday afternoon, the Biotech iShares had dropped more than 6%. That’s its worst performance in more than four years, in case you’re keeping track.
“Its gains for the year? Poof. Gone in one fell swoop.
“Sellers are in control.”
OK, now it’s time to get selective about biotechs.
We recognize we were early making this call. The year 2013 drew to a close with many biotech ETFs having leaped 60%. Your editor gently suggested you could no longer throw a dart at a list of biotech stocks and make money no matter where it landed.
Wrong: The sector as a whole proceeded to jump another 36% during 2014. And 30% more by the middle of this year.
On July 16, we wrote, “We have no idea when biotech will take an overdue rest. But we do know the longer the sector remains on a tear, the more it pays to be selective.”
Heh — four days later, the top was in.
So forget the ETFs and forget the dartboard. But there are still fortunes to be made from individual companies seeking cures for modern-day scourges like cancer and heart disease. You simply need expert help identifying those companies.
“When there’s a sell-off like this, reason escapes with adrenaline,” says one of our in-house experts, Stephen Petranek, editor of Breakthrough Technology Alert.
“Each and every stock in our portfolio has extraordinary promise and possibilities, but no stock can overcome irrational short-term fear and sentiment.” And with biotech now clearly in correction territory — down more than 20% from its July 20 peak — he says more pain is likely in store.
But as you can imagine, there’s a flip side: “Soon it will be time to start looking for bargains or at least to understand what prices may constitute amazing value.”
In fact, the best place to look might be far away from major stock exchanges. We told you about such an opportunity two weeks ago.
For access to this opportunity, you don’t have to join a private equity fund. You don’t have to go through the complex private placement process. And you don’t even need to be an accredited investor; you can get in with an income of less than $200,000 and a net worth of less than $1 million.
Equally important now, this opportunity has proven resilient in the face of biotech’s swoon in the past week — in fact, for the moment, it’s zoomed above Stephen’s buy-up-to price. You’ll have to wait for a pullback.
But the wait should be worth it: Similar opportunities have generated gains of up to 1,015% inside of a year.
Not everyone will have the boldness — or the patience — to act at the right moment. But if you think you might, we invite you to click here for further details.
Yesterday’s big U.S. sell-off — and a big sell-off overnight in Asia — isn’t carrying through to today’s trade.
At last check, the major U.S. indexes are all in the green, the Dow about 50 points above 16,000.
Curiously, bonds are also rallying modestly, pushing yields down. The yield on a 10-year note is back to 2.09% — the lowest since a brief dip below 2% in late August.
After a brief and violent countertrend rally, the commodity complex is tanking again. At $2.28 a pound, copper is about to retest its six-year lows. Crude, however, continues to hang in there — oscillating around $45.
Gold? Not much change in 24 hours, the bid now $1,132.
If three months add up to a meaningful trend, then the acceleration in U.S. home prices has begun to reverse.
This morning’s reading of the Case-Shiller home price index registered a 0.2% decline in July — on the heels of a 0.2% decline in June and a 0.2% decline in May. Year over year still shows an increase of 5%.
Twelve of the 20 metro areas in the index registered price declines during July, with Chicago’s decline being the sharpest. At the other end of the scale, San Francisco home prices are up 10.4% from a year ago.
It might be a good time for startups… but the job creation is proving slow to follow.
We spent several years during and after the “Great Recession” lamenting the sorry state of startup businesses in America. Research has shown time and again that the real job creators aren’t small businesses as much as new businesses, less than five years old.
Late last spring, we perked up when we saw a new study from the Kauffman Foundation, the go-to source of information about startups. Its Index of Entrepreneurial Activity rose for the first time since 2009… although it’s still well below the long-term average.
Yesterday, the Census Bureau added some color with the annual release of its “Business Dynamics Statistics.” With the caveat that the numbers go only up to 2013, they’re not encouraging.
Startups’ contribution to job creation remains at multidecade lows… and the meager number of new jobs that are being created are dominated by companies that have been in existence at least a quarter-century.

Measuring America

Hmmm… What we’re most eager to see is whether businesses are still going defunct faster than they’re coming into existence — a condition that’s afflicted the land ever since the Panic of ’08.
Still, new businesses do come into being… and the most dynamic reside in what one paper calls the “digital vortex.”
“Essentially, the digital vortex pushes businesses to digitize,” says our investment director Chris Mayer — who’s been mulling over a research paper on the topic published by the Global Center for Digital Business Transformation.
“An example would be Amazon replacing bookstores,” Chris explains. “Uber challenging taxis is another good one. Or even DraftKings taking business from land-based casinos. Why go digital? Because these digital disruptors gain ‘market share and scale far faster than challengers still clinging to predominantly physical business models.’”
Result? The researchers conclude than in most industries, four of the top 10 incumbents in terms of market share will be displaced over the next five years. And it’s companies closest to the center of the digital vortex that will see the most disruption…

DigitalVortex

Makes intuitive sense, no? “Media and entertainment are right near the heart of the vortex,” says Chris. “Disruption is everywhere. There are online streaming services, which threaten cable, for example. Oil and gas, by contrast, lies on the outskirts of the vortex. The pull is weaker out there. You can’t make a Web page that replaces an oil driller.”
An illustration of the profit potential at the center of the digital vortex: WeWork. It’s an online platform that lets you use shared office space.
“It has a $10 billion valuation,” Chris explains. “It controls 3.5 million square feet of office space.
“Contrast this with Boston Properties, which controls 46 million square feet of office space and carries a $27 billion valuation. It has 13 times the square footage of WeWork, but a valuation only 2.7 times as great.
“I don’t know which valuation is the ‘right’ valuation. But the difference shows you something about how the marketplace looks at digital properties. There is no doubt which one the market thinks has a brighter future.
“I remember making fun of a lot of Internet stocks in the 1990s. They had ridiculous valuations. They lost lots of money. And some of the ideas were ahead of their time or just dumb. Who can remember Boo.com? Or theGlobe.com, which went up 600% on its first day of trading?
“But the Internet has matured. We’ve learned now how to harvest it for profits, not just eyeballs.”
And if you suspect they might have the massive growth that can lead to 100x profit potential… Chris says you’re on to something. For monthly access to Chris’ 100x picks, look here — and snag your FREE copy of his book 100 Baggers: Stocks That Return 100-to-1 and How to Find Them.
“Please advise your readers that once they sign up for Medicare Part B, they are stuck paying it for life whether they can ever use it or not,” writes an expat reader with another Medicare follow-up.
“I have been paying for it for 13 years with never a claim made. I’m over 85 years old, live in a foreign country and am too weak to ever travel back to the U.S. I have written something like 40 letters and emails to the Social Security Administration attempting to cancel my payment
for Part B, but the SSA refuses to even accept my letters, some of which were sent ‘Return Receipt Requested.’
“At my age, and with local out-of-pocket medical expenses, I find myself running out of money in my personal life savings — which would have been more than adequate if the interest income I planned on could have materialized.
“I wonder how many other folks are finding themselves in the same predicament?”
“Raising interest rates, an interesting dilemma for the Federal Reserve,” a reader muses after we did likewise yesterday and last week.
“If they raise rates, it would be good for 1) savers in the USA and 2) the European Union — as the euro would probably decrease further in value against the dollar, benefiting the exporters in those countries, in particular Germany. It would be fatal, though, for many emerging-market economies that have a lot of debt denominated in U.S. dollars.
“On the other hand, if they keep rates at zero, or add to that with more QE, this would reverse the outcomes for the two previous scenarios. Savers in the USA would continue to be decimated, and the European Union would need to respond accordingly in an attempt to protect their local manufacturing, but they would be taking an increased risk of inflation setting in much sooner than they project. Emerging-market borrowers would surely welcome this as their debts denominated in U.S. dollars became cheaper.
“The Federal Reserve cannot make a decision that does not damage someone, either here at home or abroad. The policies of the Federal Reserve, more so in the last 15 years, have put all of us in a lose-lose situation, no matter which direction they now choose.
“They have proven this with their unwillingness to make a change. Most people when faced with making a decision that will not have a positive outcome tend to procrastinate. Exactly what the Federal Reserve is now doing.”
The 5: Yep. But as the saying goes, refusing to make a decision is a decision in its own right.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “They’d go bankrupt!” shouted my colleague Nate.
Wait, let’s back up and explain…
We recently attended Expo East, a massive health conference here in Baltimore. Roaming among the booths with us was Laissez Faire’s resident Underground Health Researcher, Nate Rifkin.
Hundreds of exhibitors showed off thousands of products designed to enhance your health and energy and make you look and feel decades younger. Some bragged about their healthy water. And as Nate explained, they would all be terrified if they knew about this:
This new Web page reveals how some of the fanciest kinds of water are really “dead.”
“If enough people watch the demonstration on this page, bottled water companies will go bankrupt!” Nate told us.
Click here to check out this page before “Big Water” tries to shut it down.

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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