January 29, 2013
- One year and six days later, Barron’s catches on to “Re-made in America”… why it’s still not too late for you to get in…
- 2013: the year of the “double-dip” recession… and how new fortunes will be made in the midst of it…
- BofA calls for a “bond crash”… Now we’re sure the mother of all financial bubbles is set for a final blowoff rally…
- A eye treatment for millions: the upstart poised to take over a $5 billion market…
- Victory (for now) for the Motel Caswell… the new appeal of “crowdfunded” investing… The 5 as “savaging dinosaurs”… and more!
If we recall correctly, The 5 received no shortage of flak when we floated Re-made in America on Jan. 23, 2012… a year and six days ago.
On that date, we deigned to suggest it was no flash in the pan that new wealth was being built in dusty Texas towns and hollowed-out Rust Belt cities.
“It comes from real, tangible, sustainable wealth,” our seminal piece on the subject read, “the kind that will make ‘Made in America’ mean something again.”
Should we now wonder aloud if the cover of Barron’s this week is a contrarian indicator?
After all, a year later, and we can’t get away from it. Not only is it on the cover of Barron’s this week, but a satellite photo of the United States, highlighting the Bakken Shale in North Dakota, has gone viral:
“The volume of unwanted gas being flared off in North Dakota, the state leading the shale revolution transforming the outlook for U.S. energy, rose about 50% last year,” says the Financial Times.
“The flaring is a result, in large part, of the low price of natural gas in North America, which can make it uneconomic to build pipelines and tanks to handle the gas released by oil production. Flaring is often the safest way to dispose of it.”
Alas, the manufacturing revival isn’t about domestically produced oil and gas.
“It’s a natural phenomenon so powerful,” says our Byron King, “it has repeatedly altered history. Take a close look at any age of abundance the U.S. — or any nation, for that matter — has experienced, and you’ll see exactly what I mean…
- America’s first steam locomotive — technology — made its appearance in 1829, followed by the first successful U.S. railway in 1830
- Vast riches of gold, timber and farmland were discovered beyond the Mississippi in the 1840s
- And by 1850, hundreds of thousands of pioneers and fortune seekers were clamoring for a safe, fast, reliable way to make their way west — demand.
“For the next 23 years — despite the turmoil leading up to, and the daunting recovery from, a tragic civil war — America continued to grow and prosper like never before.”
[Ed. Note: Many of the early gains are locked in from our initial recommendations. Byron's readers who had the moxie to bet the other side of the trade have done very well with his Re-made in America plays. One is up 30% in the last 18 months -- before dividends. On another, he closed out a half-position in 2012 for a fat 170% gain... letting the other half ride.
Still... too many headlines like Barron's before you jump on board... and the opportunity will have passed. Take advantage now, right here.]
Another morning, another round of listless action in the major U.S. stock indexes. The Dow has hefted itself above 13,900, but the Nasdaq and the Russell 2000 are both losing ground.
Gold has found a floor for the moment and is up to $1,660. Silver has recovered to $31.16. Crude sits at $97 on the nose, a first since mid-September.
Among the numbers in view…
- The Case-Shiller home price index ticked up 0.6% in November. The year-over-year increase works out to 5.5%, a level unseen since the homebuyer tax-credit frenzy of 2010.
- Consumer confidence took a huge tumble this month. The Conference Board’s sentiment measure now sits at its lowest since mid-2011. The disappearance of the payroll tax cut might be taking a toll.
Meanwhile, the Federal Reserve begins two days of meetings today; we’ll know the outcome tomorrow afternoon. “Inside the central bank,” says The New York Times, “debate is once again shifting from whether the Fed should do more to stimulate the economy to when it should start doing less.”
Bank of America (BofA) is even going a step further than the Times. “The return of confidence and healthy growth in the U.S.,” reports the London Telegraph, citing a release from BofA, “risks setting off a ‘bond crash’ comparable to 1994 and triggering a string of upsets across the world.”
“The U.S. lender said investors face a treacherous moment as central banks start fretting about inflation and shift gears, threatening a surge in bond yields.”
The bond bubble was all the talk last week among the “Davos men” at the annual World Economic Forum in Switzerland. “There is too much liquidity and so bonds are a poor investment, they will have a poor return,” said hedge fund legend Ray Dalio.
Of course, we still think Treasuries amount to the mother of all financial bubbles… but at the same time,, we’re becoming even more confident that the bubble will blow up still bigger before it bursts. Three weeks ago, we spotlighted that very prediction from our 2013 predictions issue of Apogee Advisory: 94% of economists polled by Bloomberg expected higher rates by midyear. We said we’d gladly take the other side of the trade.
Davos men notwithstanding, we’re resolved. Even with the 10-year Treasury touching 2% yesterday… the interest rate can go lower still.
“Long-term interest rates are on the path to lower levels,” says bond fund chief Van Hoisington in his latest letter, giving us a hand with the argument.
We introduced you to Mr. Hoisington last November. While scads of mainstream economists have forecast rising interest rates, he has stood against the wind. “It has now been more than five years,” he writes, “since the near 1,800% increase in the Fed’s balance sheet, yet the economy languishes and prices remain under downward pressure. Why?”
“The Fed’s balance sheet,” interjects our Chris Mayer, “swells as it ‘prints money’ to buy assets. An increasing balance sheet means lots of money floating around, which the conventional theory says ought to stimulate growth. Yet the economy staggers along like a puffy-faced drunk getting over a hangover.”
“Hoisington gives lots of little data points that paint an ugly picture of this slob on a bar stool. Among them:
- Median household income is at its lowest level since 1995
- The percentage of people aged 25-34 living with their parents is at an all-time high
- One out of every 6.5 Americans receives food stamps
- The employment-to-population ratio stands near its lowest levels in three decades.
“A sloppy, sluggish economy, Hoisington reasons, means lots of fallow money lying around. No big demand for borrowing or investing means interest rates stay low.”
“Then there are those tax hikes,” says Chris — which brings us to the case of 1937.
“The current tax hike,” Mr. Hoisington writes, “is on par with the one in 1937. The economy, which had made some recovery in 1934-36, fell back sharply in 1937-38.” Mr. Hoisington won’t rule out a contraction of similar scale. Some economists call it “the Depression within the Depression.”
“Will we see a repeat of the ’37-’38 contraction?” says Chris. “I kind of hope so, because it would shake out the optimism in the stock market and give us more bargains to kick around. On the other hand, I don’t want people to suffer, and some surely will if the economy slumps.
“In any case, I think we can expect to have a slow-growing (or nongrowing), heavily taxed and overregulated U.S. economy for at least the rest of the Obama administration — and possibly beyond. You don’t have to like it.
“But — unless you are taking your act entirely overseas — you have to figure out how to invest in it.”
“Fortunately, I do see opportunities,” Chris assured readers last Friday, updating his World Right Side Up investment thesis. “We own mostly discounted real estate and undervalued bank assets. We don’t need heroics or a booming economy to do well.”
We haven’t needed a booming economy for new fortunes in the Bakken Shale patch, either.
Nor do we need one in high tech and biotech.
“The Great Depression of the early 1930s,” says Patrick Cox, “was one of historic technological progress as well as investor opportunity. If you were an investor then, there were a number of enormous and obvious technological trends changing the way people lived.”
Early investors in Motorola made a fortune. So did people who realized electric refrigerators were a quantum leap over iceboxes.
A new opportunity is opening for you, for example, as scientists take aim at one of the cruelest diseases to hit older Americans. Some 2 million Americans suffer from “wet” age-related macular degeneration, or AMD. To many of them, the world looks like this…
“Uncomfortable” is an understatement.
Current treatments involve going in to the doctor for monthly injections directly into the eye. Yet even these treatments are already a lucrative market.
“The current market leader, Lucentis, exceeds $3 billion in annual sales,” says Patrick. “Add in the recently approved Eylea, and the two therapies could top $5 billion in global sales this year. However, even with these impressive sales numbers, the two compounds account for less than half of the market.”
Enter a game-changer: “The financial crisis of 2008 threw a real monkey wrench into the best-laid plans of many an ambitious young biotechnology company,” says Patrick. Many ended up selling their patents and development programs at fire-sale prices. One of them was working on a revolutionary wet AMD treatment — in the form of eye drops that patients could manage themselves, at home.
Fast-forward to 2013, and that firm is ready for the final phase of FDA testing. “The market hasn’t really discovered this opportunity,” says Patrick. “This is a wonderful opportunity to invest before the rest of the world finds out.”
[Ed. Note: If you're starting to get the idea that there's a whole world of investing opportunity out there that's immune -- or at least resistant -- to the follies of politicians and central bankers, you're right: Patrick's biotech plays, Byron's resource picks and Chris' Special Situations, along with penny stock plays and income generators.
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“It’s bullying by the government,” says Russ Caswell, “and it’s a huge waste of taxpayer money.” And it’s still not over.
You might remember Mr. Caswell’s story here in The 5 last October. The feds filed a forfeiture case against his mortgage-free motel, held in his family for two generations. Mr. Caswell stood accused of no wrongdoing, but the Motel Caswell in Tewksbury, Mass., stood accused of being a place where drugs were used.
So the feds sought to seize it. Assuming it could have been sold off for $1.5 million, that would have meant a $1.2 million bonanza for the local police department to spend on new cars, armored vehicles and junkets to Hawaii.
The Motel Caswell: “This has been a huge financial and physical toll,”
says Russ Caswell. “It’s thrown our whole family into turmoil.”
The case landed in the court of U.S. Magistrate Judge Judith Gail Dein — who has now dismissed it. In her ruling, she said Caswell “was trying to eke out an income from a business located in a drug-infested area that posed great risks to the safety of him and his family.” She added that Caswell did everything in his power to prevent crime. “The government’s resolution of the crime problem should not be to simply take his property.”
Caswell can’t break out the champagne yet; U.S. Attorney Carmen Ortiz is considering an appeal. The same Carmen Ortiz who hounded Internet genius Aaron Swartz to suicide this month with a bogus “hacking” case. Swartz faced the prospect of more prison time than many murderers.
“From the pyramids to the Empire State Building,” Bloomberg reports, “the world’s largest structures have typically been financed by the superrich.”
But Prodigy Network, a New York-based real estate trailblazer, wants that to change. “It’s bringing crowdfunding to real estate,” says Bloomberg, “soliciting thousands of investors to buy slices of a skyscraper in exchange for a share of rents and property appreciation.”
Longtime readers might remember when we first mentioned the advent of “crowdfunding” in our virtual pages in late 2011. The scheme would “make it nearly as easy to invest in your local coffee shop as in shares of Starbucks,” we observed.
Since then, Congress and the president have approved. The SEC? Well, what do you think?
Prodigy has already had partial success with the crowdfunding model in Colombia, where it’s raised nearly three-quarters of the $239 million needed to build the 66-story skyscraper, the BD Bacata in downtown Bogota. Which, when completed, will be nation’s tallest.
In the U.S., Prodigy has signed the contract for 84 William St. in downtown Manhattan for $58 million, hoping to raise $26 million in equity from investors in 11 countries.
“Instead of buying crappy condos in South Florida,” founder and chief executive Rodrigo Nino told Bloomberg, “this allows international investors to invest in real markets like New York and in assets that actually make sense.”
With a new commissioner due to take over at the SEC, we’ll let you know whether U.S. investors can actually start taking advantage. Heh.
“The government is not prosecuting the bankers for fraud,” says a reader with the last word on an ongoing thread, “because a trial would make it evident that the government is ultimately to blame for the disaster.”
“You know, you could just stick to financial analysis and advice,” a reader writes, “but you have another agenda. All of the screaming, ‘The sky is falling! The sky is falling! And we must profit now!’
“There is a new impetus requiring moral standards for corporations and their CEOs. The younger generation wants social and moral conscience with environmental respect from the companies they support with their historically small incomes. Look at how Apple was hit by its mistakes. Those mistakes are no longer hidden in the young with their immediate-info tech world. People like you are becoming savaging dinosaurs. And the sooner you fall, the better.”
The 5: Really. At least we have conscientious readers like you to guide us in our moral instruction. Thank you for your time and effort. Not just for reading… but for helping us “snap to” and fall in line.
The 5 Min. Forecast
P.S. If you too are a “savaging dinosaur,” you may be interested in this “sky is falling” offer. After all, this morning’s headlines are further confirmation of our editors’ theses: Housing appears to be bottoming. Wal-Mart is starting workers in the heart of Bakken country at $17 an hour.
For access to all of our editors’ best stock picks, you still have 36 hours to take advantage of the “loyalty rewards” you’ve accrued in your account. Seize the opportunity here.]