December 12, 2012
- Two undeniable… and very profitable… facts about monopoly: Patrick Cox steps forward with a suitable opportunity
- How might the Fed squander what remains of its credibility? Dan Amoss on what to expect from this afternoon’s announcement
- Short-term setback in China’s gold plans… but look at the long-term chart!
- $1.75 million for Hostess executives… a potential $22.1 million Twinkie tab for taxpayers
- Hitler conquers India… the domain name that got away… reader sniping over what constitutes a “small business”… and more!
“Monopolies simply can’t survive for any length of time in free market conditions,” writes our Patrick Cox — venturing into macroeconomic territory this morning.
If you’re wondering what’s in it for you — and we can’t blame you for that — Patrick won’t keep you waiting long: “When monopolies do exist,” he says, “you know two things. One, the monopoly exists because of government mandate. Two, early investors in these monopolies are likely to do very, very well.”
Patrick has discovered a very happy confluence between such a monopoly and the bleeding-edge technology that’s his bailiwick.
“It’s estimated that counterfeiting causes global losses on the order of $400 billion,” Patrick explains.
“Many products, therefore, contain measures to protect against fakes. Unfortunately, most mainstream anti-counterfeiting measures suffer glaring shortcomings.”
Enter the opportunity at hand — technology that incorporates plant DNA into products. “This DNA can be used to authenticate sourcing and to prevent diversion through unauthorized market channels.”
Think of it as an “unhackable” form of a bar code or radio-frequency identification (RFID).
The applications are nearly endless, but they’re most valuable in computer chips — a vast and lucrative sector.
“With yearly purchases amounting to over 1% of the $300 billion computer chip market,” Patrick says, “the U.S. military is one of the largest high-tech customers in the world.
“Counterfeiting estimates for the semiconductor industry, however, range from 5-10% of the total market.”
You can imagine this is a major source of concern at the Pentagon. “In one incident,” Patrick explains, “a missile interceptor’s launch was canceled because a counterfeit chip was detected in a control device. On further inspection, the military discovered hundreds of additional counterfeit chips in the interceptor missile itself.”
So the brass perked up when they learned about the plant DNA technology that can relieve them of such worries. Result: The Defense Department established new standards to prevent the counterfeiting of microchips. The plant DNA tech is the only solution that passes muster. Only one company makes it.
Getting the picture?
This afternoon in New York, about 200 government insiders, private money managers and security industry honchos will gather for an exclusive conference at one of Manhattan’s most posh hotels. The keynote speaker is Richard Clarke — a top counterterrorism aide to three U.S. presidents.
Patrick anticipates a major announcement from this tiny company during a presentation on Day 2 of the conference tomorrow. “The news should break sometime between 1:15-4:45 p.m. EST,” says Patrick. “If the announcement comes, we should see this tiny firm among the ‘highest intraday’ gainers list.”
At the moment, shares go for a mere 19 cents each. So it doesn’t take much money to build a nice little speculative position. Indeed, we’ve never prepared a research presentation on a company with a share price this low.
Time is short to act… but Patrick lays out his case in extensive detail at this link so you can make an informed decision.
So-called risk assets are drifting upward this morning, traders marking time until the Federal Reserve wraps up a two-day meeting and issues a proclamation not long after we hit the “send” button on this episode of The 5.
As of this writing, the Dow is 16 points away from 13,300. Gold is up a half percent, to $1,718. The consensus expectation is that Operation Twist — due to expire at year-end — will be transformed into full-on money printing — Treasury purchases to the tune of $45 billion a month, perhaps indefinitely.
“Today we shall see the Fed’s latest attempt to heal the perceived ills of a complex global economy,” writes our macro strategist Dan Amoss.
“The patient in most need of healing, according to the Fed, is the U.S. job market. At today’s press conference, Ben Bernanke will say something to effect of ‘Trust us; our sophisticated economists have models showing that we can create jobs by printing money and cramming down interest rates. So don’t worry that it looks like we’re financing the government budget deficit, banana republic-style. We’re professionals, after all.’
“This may be news to the Fed, but too-high interest rates and tight money are not what’s holding back a real recovery in jobs. Many other factors are depressing the job market — most notably the bubbles and crashes resulting from past Fed experiments. Yet the Fed has the nerve to not only ignore its past mistakes, but also to raise hopes that looser money and lower interest rates will create a real job recovery.
“The Fed is wasting its remaining credibility on a set of academic delusions. Sadly, we will see more of the same from today’s meeting.”
China takes a step back…
For nearly two years, we’ve taken note of China’s accelerating gold grab — most recently last month. Yet the new numbers are in… it appears China is taking a breather. Bloomberg reports:
“Gold imports by China from Hong Kong dropped 32% in October from a month earlier as slowing economic growth cut purchases.”
Why the slow-up? Bloomberg cites weakening demand. Whatever the case, it makes the long-term trend no less stunning.
That’s roughly 900 tons for 2012, compared with 750 tons imported last year. At this pace, we’re confident one shy month won’t set them back much.
Brazil’s central bank snapped up 18.9 metric tons of gold in September and October, according to the International Monetary Fund.
There’s ample room for further growth: Even after the purchase, gold accounts for only 0.8% of Brazil’s foreign exchange reserves.
Last year, Mexico bought nearly 100 metric tons of gold in only a couple of months. “New buyers from Latin America,” the Financial Times suggests, “could help maintain the current pace of roughly 500 tonnes a year — equivalent to the jewelry consumption of Europe and North America combined.”
Golly, we missed out. The Web domain investing.com is gone.
Forexpros.com announced yesterday it bought the investing.com domain for $2.75 million. The press release touts it as the most expensive domain name sale of 2012.
We’re not sure if that’s something to crow about. Other domains have sold for even more… but (for example) three years on, was insure.com really worth $16 million?
According to VentureBeat, the new investing.com aims to “compete with financial news giants like Bloomberg and Reuters.” Good luck with that…
While the media have moved on from the “demise of the Twinkie,” we can’t help but notice that management of the now-liquidating Hostess Brands might end up sticking you, dear taxpayer, with a bill for $22.1 million.
Seems that Hostess execs borrowed a page from Congress and Social Security. They took money that was supposed to go into employee pensions and spent it on day-to-day-operations.
“The maneuver probably doesn’t violate federal law,” reports The Wall Street Journal, “because the money Hostess failed to put into the pension didn’t come directly from employees, experts said.”
There’s even a legal term for when this happens — “betrayal without remedy.”
The company missed pension payments totaling $22.1 million. While the plan is not insolvent — not yet — there’s a healthy likelihood its responsibilities will end up in the hands of the Pension Benefit Guaranty Corp.; think of it as the FDIC of private pensions.
“Unfortunately,” Addison wrote earlier this year, “the PBGC is in the red. It has $79.5 billion in assets — and it owes $102.5 billion to workers from failed pension plans. So even if no more pension plans failed, ever, the PBGC is still broke.”
The executives who shortchanged the pension plan are doing fine, however; a bankruptcy judge agreed to $1.75 million in bonuses for 19 honchos.
Let them eat cake, indeed…Last month, the PBGC’s director said the insurance premiums it collects from companies may no longer be enough to cover its obligations: “PBGC may face for the first time the need for taxpayer funds.”
Joy and rapture…
“We are popular because of the name,” Rajesh Shah, the co-owner of the Indian clothing store Hitler told Bloomberg this week.
Late September, we caught the tail end of the grand opening, when Shah had agreed to change the name after a municipal uproar.
It seems he’s had a change of heart.
“Our customers were not upset about the name,” he explains. “They said, ‘Don’t change it.’ Ahmedabadis like the name because they know Hitler [has not done] anything harmful to India.”
Strangely enough, it’s not the only attention the late dictator has received in India… Hitler’s Cross, a cafe in Mumbai, opened in 2006; Hitler’s Den, a pool hall in Nagpur, opened in 2011; and the films Hero Hitler in Love (“a Punjabi comedy about a man with an explosive temper,” says Bloomberg) and Gandhi to Hitler all branded themselves after the despot. Not to mention the hit Indian soap opera Hitler Didi, or “Big Sister Hitler.”
Now you know…
“I can’t let all this hooey go by without a comment,” a reader writes. “When I think of a small business, my mind conjures up the deli, dry cleaner, butcher, my plumber and auto mechanic.
“Most of these folks do not even come close to the proposed $250,000 taxation threshold. The larger corporations that have sales in the tens of millions and employ hundreds primarily opt for S Corporation status to avoid the unreasonable compensation and double taxation rules that abound in C Corporations. They will take out of their companies what they deem is due them and what they feel they can afford (just like me).
“If they are forced to pay a little more, that ‘little more’ is still cheaper than the C Corporation taxation rates and a nondeductible dividend that is again taxable at the personal level. This is SELF-service, pure and simple.
“That there are four times as many S Corporations and partnerships (pass-through entities) than C Corporations (2008) and that they earned 26% more in U.S. taxable net income than C Corporations speaks to the lobbying power of the largest multinationals and the broken tax structure that favors them.”
“I think a mild dose of ‘Small Business 101′ might be in order,” writes another reader weighing in on the $250,000 threshold.
“Taxing business net at (high) personal income tax rates is exactly the problem. Lord knows corporate rates are too high, as well, but at least a corporation can retain some earnings with relative shelter from high personal rates. Retaining earnings and plowing them back into the business as investment in new equipment, software, facilities, etc., is how one GROWS a business. Which is exactly the point of resisting higher income tax rates in the very revenue range where many truly small businesses are trying to grow up enough to benefit from some of the economies of scale, which include being able to afford more sophisticated accounting and legal advice AND hiring more people (JOBS!).
“I agree that someone who NETS $250,000 from a business probably has a gross revenue MUCH larger, but SO WHAT! Depending on the business, that gross revenue may be supporting a lot of employed people. But to hire more, you’ve got to first make some investments in expansion, which expense is usually NOT deductible in the year incurred, but subject to a depreciation schedule.
“That’s why shortening depreciation schedules can be such a stimulative tax maneuver, particularly for businesses such as commercial construction, which got a huge shot in the arm back in 1982 when I, along with many others, took advantage of temporarily available accelerated depreciation on real property improvements (19 years, rather than 29) to build my own medical office, instead of renting.
“Sad thing that in today’s world so few people understand how savings and investment CREATE NEW WEALTH, rather than just transferring wealth around to folks that the politicians feel DESERVE more of it! If we don’t correct that lack of comprehension, capitalism is doomed! But you guys are doing your part! Thanks for the great newsletters!”
“I have friends,” writes a reader with an on-the-ground economic report, “who work during the Christmas season at Amazon in Kentucky. I just learned that they’re not as busy as last year, and that OT has been canceled for this week.
“If Amazon is slowing down, what does that say for the rest of the economy?”
The 5: Nothing good, assuming a similar situation at other Amazon locations.
Last week, Darden Restaurants issued an earnings warning. When people aren’t going to Olive Garden and Red Lobster, it’s not a good omen.
“Raving fan of The 5!” a reader writes effusively after one of last week’s episodes. “I try to addict my friends and associates frequently. Just loved the Mayer and Bonner pearls of wisdom on GDP! We need more of these to help fight the fight.
“Keep it up, my friends.”
The 5: Hmm… “Fight the fight”… “Doing our part”… We weren’t aware we were doing anything other than help people stay financially afloat in a sea of toxic debt. But we’ll keep on keepin’ on…
The 5 Min. Forecast
P.S. “It used to be,” comments the inimitable Doug Casey, “that you could count on liberals to at least give lip service to free speech, but you knew they hated economic freedom. And in the past, you could count on the conservatives to at least give lip service to economic freedom, but you knew they hated free speech.
“But the fact of the matter is that, as shown by their actions, neither group really likes any kind of freedom at all.”
That’s only one of countless gems found in Mr. Casey’s new book Totally Incorrect, published by Laissez Faire Books. If you find yourself nodding in agreement with that one, others are sure to infuriate you. Still others will make you laugh out loud. All of them will give you something to think about.
If you already pre-ordered your copy, it ships today. If you haven’t ordered yet, it’s still available at 46% off list price.