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- Wed, 17 Sep 2014 05:54:00 +0000: The New Gold - Casey Research - Research & Analysis
The topic of today’s guest essay is corn. Stephen Belmont, chief market strategist at RMB Group, joins us to explain why the stuff is unusually cheap, and offers a strategy to profit from corn prices returning to normal.
Steve’s corn trade requires a futures account, so before turning this column over to him, let me quickly offer an alternative idea to those of you with only stock-trading accounts.
Pacific Ethanol Inc., (PEIX), an ethanol producer, has gained a whopping 341% year to date through August. Its stock chart is jaw-dropping.
Ethanol fuel, of course, is primarily made from corn. Cheap corn equals fatter margins, so with corn at multiyear lows, ethanol producers are raking in profits. Other ethanol producers up big in 2014 include Green Plains Inc. (GPRE, up 131%), and REX American Resources Corp. (REX, up 142%).
If you want to bet on rising corn prices without using futures, consider shorting one of these high fliers. You’ll have to do your own due diligence, but I strongly suspect that these companies’ breathtaking run-ups are not sustainable—especially since it’s a matter of when, not if, corn will return to more historically normal prices.
With that, here’s Steve. This article originally appeared in World Money Analyst—a publication that I consider required reading for its unmatched boots-on-the-ground intelligence on international investment opportunities.
Managing Editor of The Casey Report
The New Gold
By Stephen Belmont
The need for food is unrelenting and universal. It has been the force behind mass migrations and wars. English cleric and scholar Thomas Malthus (1766-1834) was fascinated by the relationship between population and food. He believed food production increased arithmetically while human populations grew geometrically, and predicted humans would have to 1) limit their population growth voluntarily, or 2) have it limited for them naturally by scarcity, famine, and disease.
What Malthus didn’t see coming was the discovery of crude oil (and other hydrocarbons, such as natural gas) which enabled humans in developed nations to dramatically increase food production to levels inconceivable in his time. The chart below shows the impact of this discovery. Crude began flowing from the first commercial well in Titusville, Pennsylvania, in August 1859. In 1850, world population was 1.2 billion. Today it is 7 billion. Poor Malthus got blindsided by the future.
Today “Malthusian” is often a derogatory term hurled at those predicting catastrophe of any kind. Its implicit message? We will find a way to keep feeding our growing population no matter what. All we have to do is wait for the next big discovery.
We are not predicting catastrophe. But having enough food—at least in the developed world—is not the same as having cheap food. We believe there are a number of factors converging right now that have the potential to greatly impact the cost of what we need to survive, not the least of which is the connection between the price of grain and the price of hydrocarbons—especially crude oil and natural gas.
This makes sense, because farm productivity relies on two key factors: mechanization and fertilizer. Crude oil produces the diesel fuel to drive the former. Natural gas provides the nitrogen to enrich the latter. Higher energy costs directly impact the price of food.
“Crude and Food” Connection
The chart below shows the correlation between food prices and crude oil through 2012. This correlation has broken down in recent months, providing us with what we believe is an excellent opportunity to own grain cheaply. (We’ll detail two strategies later in this report.)
Perhaps the most ironic part of the crude-food connection is the relationship between high oil prices and the price of food in oil-producing economies. The graph below shows the percentage of income spent on food in nearly every major nation—the larger the circle, the greater the percentage.
Hungry people are angry people, so we are not surprised that the countries which spend more money on food tend to be those either involved in, on the brink of, or just recovering from violent internal clashes. Unfortunately, we expect to see more of this as prices climb. Since many of these violent clashes are occurring in the oil-rich Mideast, we don’t expect crude oil prices to drop substantially any time soon. Our real fear is a cycle of violence, leading to higher crude oil and food prices, which sow the seeds for even more violence.
Where’s the Beef (and Pork and Chicken)?
The price of crude oil is not the only fuel for higher grain prices. The world—particularly China, which has managed to feed 25% of the world’s population on just 7% of the planet’s arable land—has done a pretty good job of producing food. However, the newfound prosperity of the Middle Kingdom and the rest of Asia is changing dietary habits. Populations in developing countries are consuming more meat. A meat-rich diet requires far more fertilizer and water than one based on grains and legumes.
Meat is grain (and water) in another package. It takes 4.5 pounds of grain to produce 1 pound of chicken meat; 7.3 pounds to produce 1 pound of pork; and 20 pounds to produce 1 pound of beef. Only 4% of the protein in corn is converted to edible protein in beef. It’s just 10% in pork and 20% in chicken.
The global demand for animal protein is increasing rapidly, according to the Food and Agriculture Organization of the United Nations (FAO). Global meat consumption increased from about 100 to 235 tons from 1970 to 2000 and continues to climb. In the meat-eating US, livestock consumes 7 times the amount of grain consumed directly by America’s entire human population. Asia hasn’t approached this level yet, but its higher standard of living means the demand for meat will continue to grow.
While the Chinese prefer pork, their demand for beef—the least protein-efficient meat—is pegged to increase substantially and jack up imports from 75,000 to a record 500,000 tons, according to the USDA. There’s a whole lot of grain chewed up in those numbers.
The desire to eat more meat increases the demand for grain. More grain requires more arable land and more water. Both are currently in short supply in China. China recently admitted that 19% of its farmland was polluted and that 8%—roughly 8 million acres—was too polluted to grow anything.
And we haven’t even mentioned water…
The Chinese economic juggernaut has left watersheds depleted and many sources of aboveground water polluted. Not only is China losing farmland, it is losing the ability to adequately irrigate what’s left.
China has not yet lost the ability to feed itself, as it remains one of the world’s biggest corn producers. However, higher demand, combined with shrinking acreage and lack of water, pose a threat. China’s arable land per capita is less than half of the global average, and 20% of it is polluted and 40% is degraded; five of China’s largest freshwater lakes have substantial dead zones, due to fertilizer runoff (Mother Jones, August, 2013). Because of these and other factors, we expect to see a steady increase in Chinese imports of critical agricultural products, including grains and oilseeds, as well as the potential for higher prices down the road.
Corn and Climate Change
One can debate the causes all they want—how politics got mixed up with weather, we have no idea—but we live in an era of significant climate change. Loss of sea ice, numerous heat (and cold) waves, stronger hurricanes, and longer, more severe droughts are all part of the same package. It’s not that these haven’t occurred in the past, but the frequency of these “freak” weather events is climbing.
Weather is, by far, the biggest factor in the price of grain. On the chart below, notice the increased volatility of corn prices since the 2008 drought compared to the period prior. The culprit is mainly weather. Good growing conditions returned in 2009 and 2010, only to be replaced by major climatic events in 2011 and 2012. What will the next 12 months bring? Only Mother Nature knows for sure. Nonetheless, there is no question that the weather (and corn prices!) are much more volatile.
Data Source: Reuters/Datastream
Peaks in the price of corn tend to occur during the mid-summer maturation phase, after which the crop is either “made” or not. Expectations of perfect growing conditions this year have driven the price of the yellow grain into oversold territory, right above support at $3.50 per bushel. This has happened despite crude oil prices north of $100 per barrel and a big rally in natural gas. The costs to grow corn are rising while the price of corn is falling. This is a phenomenon that cannot last long.
As the chart above suggests, summer expectations, whether bullish or bearish, have a pronounced tendency to reverse themselves over the course of the next few months and years. It would not surprise us to see a similar reversal from the current support zone as well.
Most of the corn grown in the US is used to either feed livestock or be distilled into ethanol. Roughly 1/3 of the crop is dedicated to the latter, and that percentage appears to be climbing. The higher the cost of gasoline, the more profitable it is to blend cheaper ethanol into it. It is yet another reason why high crude oil prices tend to reinforce higher corn prices in a normal environment.
Will El Niño Have an Impact?
Many forecasters predict the return of El Niño this year. This weather phenomenon results in higher temperatures in the Eastern Pacific (off the west coasts of North and South America) and lower water temperatures in the Western Pacific. El Niño is associated with drought-like conditions in corn-growing areas of China. China has already increased corn imports over 200%, due to many of the problems we highlighted earlier. A drought on top of all this would be devastating. However, China’s huge foreign reserves would enable it to make up the difference by purchasing corn from Argentina, Brazil, and the US. This would help support prices on this side of the Pacific.
El Niños are also known to delay or disrupt the Asian Monsoon. This could potentially impact food production in India, home to 1.25 billion people and the world’s second most populous country after China. Previous El Niños have been associated with drought in Australia, affecting key wheat growing areas and creating an environment for catastrophic bush fires. On the other side of the Pacific, too much rain during South American spring could delay planting in Brazil, negatively impacting corn yields there.
Protein Is the New Gold
Corn is consumed. That means it will react much more rapidly to changes in supply and demand than physical gold.
The US is the world’s largest producer and exporter of corn, but most of it is earmarked to feed domestic livestock and make ethanol to blend into gasoline. The world’s second-largest producer of corn, China, is faced with polluted cropland and possible El Niño-inspired drought conditions for the next two years. That leaves America as the “go to” source in case of an emergency.
Corn requires lots of arable land. The US has plenty, but not all big corn-consuming countries do. The graph above shows the effects of a growing population on the shrinking supply of land. Harvested acres per person have dropped nearly 40% in the last half-century. Some of this drop can be attributed to advances in technology, including genetically modified hybrids, but not all. The developing world is losing farmland at the same time diets are changing. Odds are it will need to rely on big North and South American crops in order to meet demand.
USDA expectations for a big American crop have left corn much cheaper on a relative basis than gold. Near-perfect growing conditions in the corn-producing regions of the US have driven the price of the golden grain down to levels not seen since summer 2010, just before the big 2011 run-up.
Even if the forecast for a big US crop pans out, global stockpiles will be at a relatively low level. This will leave the market vulnerable to any bullish surprises and continue the volatility that has defined it since 2005. The USDA estimates corn ending stocks as a percentage of global demand to be at roughly the same level they were in 2009, during the last cyclical low in price, and that’s assuming a record US crop this year.
“Harvest” Your Own Corn Crop for Pennies on the Dollar
Recent weakness in the golden grain is giving us the opportunity to take a long-term, low-cost bullish position, with the potential to pay off substantially should corn continue its volatile roller-coaster ride and rebound from current levels. We’ve chosen corn because it is cheaper on a relative basis than wheat and soybeans, although many of the same long-term bullish forces are at work in these markets as well. Corn is also the beneficiary of American ethanol demand. This keeps huge amounts off the international market and helps support price.
So how do we play it? Instead of sinking a lot of capital into expensive farmland or buying agricultural companies whose stocks may or may not rise with the price of corn, we “rent” the golden grain for approximately two years. How do we do that? We’re recommending our trading customers use corn options traded on the Chicago Board of Trade (CBOT). Our first price target is $6.50 per bushel, and our second is $7.50 per bushel.
Data Source: Reuters/Datastream
Stephen Belmont is chief market strategist and senior partner with the Rutsen Meier Belmont (RMB) Group, a futures and futures options brokerage firm in Chicago that specializes in commodities, currencies, and interest rates since 1984.
- Tue, 16 Sep 2014 08:54:00 +0000: The Russian Empire Strikes Back - Casey Research - Research & Analysis
The Colder War is real and it’s on. Below, I will break down a number of recent statements by Treasury Secretary Jacob J. Lew. In quotations are the comments out of the US Treasury Department’s Office of Public Affairs.
Russia is not bending over and giving in on the first two rounds of “sanctions” set by the United States and its bankrupt allies in Europe. So how did the US respond? With more sanctions, hoping to cripple Putin and Russia where it counts: the sale of oil and gas. Interestingly enough, it didn’t impose sanctions on Russian nuclear fuel, which just happens to power 10% of all American homes… but I digress. Let’s jump into all the comments, break them down, and see what this all means. Comments by the Treasury Secretary are indented and bold:
Given Russia’s direct military intervention and blatant efforts to destabilize Ukraine, we have deepened our sanctions against Russia today, in concert with our European allies. These steps underscore the continued resolve of the international community against Russia’s aggression.
All this means is that Russia isn’t doing what the US and its Western European allies want it to do, and they are upset about it. So until Putin and Russia are broken, more sanctions will come. However, the bigger question is, who will break first?
Russia’s economic and diplomatic isolation will continue to grow as long as its actions do not live up to its words. Russia’s economy is already paying a heavy price for its unlawful behavior. Growth has fallen to near zero, inflation is well above target, and Russian financial markets continue to deteriorate.
Perhaps Treasury Secretary Jacob J. Lew just crawled out from under a rock and hasn’t yet realized that Russia in no way is economically and diplomatically isolated. Yes, it’s true that Russia is estranged from the US and bankrupt Western European countries at the moment, but does Russia even care? Europe still heavily relies on Russian natural gas and oil, and that isn’t going to change anytime soon.
But more importantly, the Chinese, India, and the rest of Asia are more than happy to forge long-term economic and diplomatic relations with Russia, as China recently did with its $400 billion natural gas deal. This statement is nothing but an empty threat. The emerging markets are eager to work with Russia; it’s the US and Western countries imposing sanctions, not the rest of the world.
It is essential that Russia work with Ukraine and other international partners to find a lasting settlement to the conflict. If Russia does so, these new sanctions could be suspended. If instead Russia chooses to continue its violations of international law, the costs will continue to rise.
Why is it essential that Russia work with Ukraine? Putin will do whatever is best for Russia, and Russia only, and to expect anything else is nonsensical. Unfortunately, the American government wants to challenge anyone who stands up to its supremacy, and Putin is showing the world that in his case, enough is enough.
(Now, my personal opinions don’t matter here. My analysis comes from the perspective of how I believe the Russians would interpret these comments. Hopefully, that will help my American audience see how foolish said comments really are.)
If it’s a cold winter in Europe, where will Bulgaria, Finland, and Serbia get the natural gas that’s required to generate electricity and heat their populations’ homes? And did the US and the EU impose these sanctions after asking all European nations what their opinions are? Well, I doubt the Serbians, Bulgarians, and Finns had their voices heard. There is a huge market for Russian natural gas and oil, and these sanctions will backfire on Europe, especially if it’s a cold winter and the lights go out. Revolution in the streets?
As in all of the sanctions steps we have taken, we have designed the actions announced today to deliver significant pressure on the targets of our sanctions while safeguarding, to the extent possible, global financial markets and the global economy.
Okay, has the US government not learned that it cannot safeguard the financial markets and global economy? This last statement is utterly ridiculous.
So what are the big European energy companies doing? Panicking.
Wintershall, a major German provider of natural gas, just paid $1.3 billion for assets in Norway, in the attempt to secure some long-term supplies of natural gas. This is just the start.
Countries such as Romania, Serbia, Finland, and Bulgaria are maxing out all of their reserve tanks, expecting things to get a lot worse rather than better, but none of the reserve supplies will allow, say, a country like Serbia to make it through the winter without its Russian supply of natural gas.
What does this all mean to you as an investor?
The European Energy Renaissance is in full swing, and you need to be exposed to the right management teams—the ones that are bringing proven, modern technology to known producing conventional fields. This approach has been a success in North America, and it will work in Europe. It’s going to revitalize production there, which in turn will reward shareholders of the successful companies.
Natural gas in Europe currently sells at more than a 100% premium to North American natural gas prices. The Russians will get through these sanctions, and even further sanctions from the United States. However, do not take any of them seriously until the sanctions imposed by the US and UK actually hurt the US and the UK. For example, when I see the United States impose a sanction on Russian uranium, then I’ll know the US is serious. But until then, the current sanctions are nothing more than political posturing.
I’ve spent years studying and investing in energy, and the current situation is just the opening act of the Colder War, which I have laid out to subscribers in my newsletters and examine in depth in my upcoming book, The Colder War.
The Russians are led by a very powerful, insightful leader whose actions are well thought out, with clear goals in mind. Contrast that to the US, which is guided by a president whose actions are muddled at best—as seen in his failed geopolitical policy in the Middle East, his green energy mandates, and many others.
The Colder War is on, and there are fortunes to be made from it. And the choice to participate is yours.
Do I have a plug for my services? You bet I do.
In the next Casey Energy Report, which goes live on September 25, you will get my top list of current buys and a complete analysis of US oil companies compared to Canadian oil companies, based on financial metrics.
Also, we have a surprise recommendation from down under.
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- Mon, 15 Sep 2014 17:10:00 +0000: Survey Results: Readers’ Thoughts on Whether to Hold, Fold, or Be Bold - Casey Research - Research & Analysis
We got hundreds of responses to our Hold, Fold, Bold survey—our thanks to all who participated.
I’m very pleased to report that, despite the grueling time we’ve had over the last couple years, only 4.1% of respondents said they were ready to fold.
As you might have guessed, the bulk of respondents are holding: 55.3%. This number was probably higher, but there were some responses we could not clearly classify.
But the really good news (to me, a Casey-trained contrarian) is that 27.4% said it was time to be bold.
That’s extraordinary. In my experience, this concentration of contrarian courage is extremely rare—but Casey readers tend to be a breed apart. This is one reason I enjoy our Casey Summits so much; I always get to meet extraordinary people, which is not only enjoyable, but often ends up teaching me something new.
I’m excited to be meeting the rest of the Casey Brain Trust and some other incredible investors at our Summit in San Antonio, TX this week. Hopefully, our stand at the Alamo will go better than it did for those who made it famous.
And while I’m at it, I should point out that the best way to keep up with all of the investment opportunities Casey Research has to offer is with the Casey OnePass, which bags you all our monthly letters at a substantial discount. This deal closes tonight at midnight EDT, so if you want to fully check out the Casey universe of thought and investment, now is your last chance to do so and save money.
Okay, enough salesmanship. My colleague Jeff Clark has gone through every single response we got and pulled out a representative sample for your perusal. It was hard to narrow the field. There were so many great observations and ideas, we decided to go longer with this edition of Metals & Mining Monday than we normally do.
The short version would be that while few of our readers are sure of the timing, the vast majority are sure our basic strategy will work out: We buy or hold precious metals for prudence and related stocks for leverage.
Not all think payday will necessarily come soon—not even the ones in the Bold group—but almost all of us are sure it’s coming. And the Bold group sees bargains worth buying, whether or not payday is coming next month, next year, or even further down the road.
You don’t have to read all the responses included below; feel free to browse, but there really are some thoughts in there worth considering.
Senior Metals Investment Strategist
Rock & Stock StatsLastOne Month AgoOne Year Ago Gold 1,229.68 1,309.80 1,330.30 Silver 18.64 19.91 22.10 Copper 3.10 3.15 3.21 Oil 92.27 96.48 106.14 Gold Producers (GDX) 23.88 27.43 25.29 Gold Junior Stocks (GDXJ) 37.49 42.61 42.24 Silver Stocks (SIL) 12.12 14.52 14.11 TSX (Toronto Stock Exchange) 15,531.58 15,274.23 12,701.05 TSX Venture 987.93 998.71 940.39
Survey Results: Readers’ Thoughts on Whether to Hold, Fold, or Be BoldJeff Clark, Senior Precious Metals Analyst
We wish we could publish every comment, as there were a lot of insightful and interesting opinions. Thanks for your participation. We’ll do this again.
Below is a representative sample of the responses to the question: “Should we Hold, Fold, or Be Bold with Gold?” We’ll start with Fold, as it’s the smallest group, then Bold because it’s the most fun, and close with Hold, because that’s the largest group, and we wouldn’t want anyone to feel guilty if they don’t get to the bottom.
Doug Casey insists that PM prices are not manipulated. He’s either blindly stupid (see GATA, et al.) or lying so as not to discourage potential investors.
I’ve believed Casey’s opinions for so many years that I don’t have any more money to invest in gold.
The dollar is up and the euro is down, all planned by central banks/governments. The dollar’s demise is coming, and I will buy gold and silver as a hedge against the end of the dollar and coming inflation.—Manning B.
Paper is a promise which can be delayed or canceled, with real consequences. Gold is reality, which always must be dealt with eventually.
If Soros and Rule are buying, so am I!
For me, PMs are a safe haven. The old system will not go quietly into the night, so we must be patient. My PM stocks are my speculation, and it has been more difficult to keep the faith. But where else would you put your money? Real estate = all-time high… S&P 500 = all-time high… farm land = all-time high… collectables = all-time high. For me, PMs are the only store of value that is still not overpriced.—Rob
I’m choosing to be bold. I lost everything in the last economic bust. I learned after that several people, including Doug Casey, predicted its arrival. They know how to clear the fog and see what’s happening. I must learn this too. Also, Casey Research has a history of success and I can’t think of a smarter play than to learn and invest with the people who are continuously successful.—Robert M.
Buy on dips for long-term hold as facts overcome manipulation and misinformation.
I’m bold not only because Wall Street will crash but because the dollar will be doomed within five years (even earlier, in my mind 2016 or 2017) and there will be a world monetary crisis.
I believe this is a cyclical bear market within a secular bull market. The fundamentals to why we have had a bull market in the first place have not changed, but have only gotten stronger. Exponential currency and debt creation accompanied by war. I am staying bold. I would like to thank Mr. Casey himself and everyone at Casey Research, as I have learned a lot about how the world works from all of you.—Dimitri L.
Nothing has changed. The whole world is built on an economic house of cards. When the house collapses, be it this week, next month, or next year, I plan to be in the basement with my stored gold.—RM
The chart on gold looks like it’s coiling up for a big move. I predict one more big down move, then a huge rally.
The NYSE is in great shape, just like the Havana Stock Market in 1959. It’s time for PMs and a getaway plan.—Scott
Bold on gold! With the Fed putting out over $100 billion per month (hiding a good portion in the central bank of Belgium) and the Chinese buying 1,000 tons a month for the past 2.5 years, it is only a matter of time before the dollar crashes. Gold is an insurance policy you don’t have to die to collect.—Dr. Smith
The Fed cannot support this sham forever.
Bold, for three reasons:
1. Many empires have collapsed. The US is no exception.
2. Too much of anything (like currency increase) loses its value.
3. Gold has 5,000 years of history.—Theo P.
Precious metals, especially silver, are “on sale” at current prices, and every price drop is a new opportunity for future gains. The world economy is more than ever a house of cards—when the first one falls, everything goes and precious metals will rocket.—Henri T.
Emerging markets will accumulate gold on the dips, money velocity will increase, and the odds of black swans are increasing.
The bottom looks solid. I buy every day in my Silver Saver account. I believe dollar cost averaging will pay off nicely.
Be bold, then patient. Inflation is here, but so is deflation. Deflation will fade eventually. Currencies are weakening, and war and/or terrorism will erupt within six months.
Faltering economy + public and private debt accumulation + international flight from US dollar + asset bubbles + massive hatred for gold + gold’s historical significance = BUY! Also, I would like to thank everyone at Casey Research for the amazing articles and deep foresight! I intend to actively put into action what I read.—Caleb L.
All in at next correction.
Too much money is being printed. Gold severely undervalued at the moment. Hang in there, gold is due for a massive correction.—Ivor W.
Metals are transitioning from bear market to bull market. I want to ride the bull!—Ben K.
Dead economy, high unemployment, wages lagging inflation, excessive debt (government and personal, especially student loans), oppressive government, geopolitical unrest, signs of social unrest… what’s not to like?
Investing is all about buying assets that have potential but are beaten down and ignored for one reason or the other and then sitting tight. Gold fits this bill right now. It is insurance, not something you go all in on. For sure, empires decline slowly—I think gold’s rise will be a reflection of that.—Sashi G.
Bold, but holding back for maybe another 6 months, or until the lightning and thunder starts.
I am an investor in my 30s, and thanks in part to Casey Research, I am concerned about the future of my country and the dollar possibly losing status as the world reserve currency. I was fooled in 2001 and 2007 by all the hype, and I am finished toeing the Wall Street line. Contrarian to the core.—Tyler S.
Eventually the massive money creation by the US, Japan, Europe, and China will find its way to something besides financial assets. When velocity finally returns to normal and the cash hits consumer prices and wages, gold and silver will rise even faster than inflation. Gold and silver stocks more so.
If you can’t afford a house, buy gold and silver. Best vehicles for inter-generational wealth preservation.
I would never want to bet against Doug Casey, Jeff Clark, or Louis James. I am all in on bullion & mining shares, and I have absolutely no trouble sleeping at night! The only thing that would keep me awake at night would be owning Wall Street’s “sucker bait” stocks, while waiting for the inevitable bursting of the fiat-money bubble. Thanks for all that you guys do!—Clarke P.
Money velocity has to increase with all those reserves. With the CME now admitting manipulation, it’s just a matter of time. If Scotland separates, this might be the catalyst.—Lenny G.
The world is in an insane money printing mania phase. There has never in all of history been a time when even a fraction of the money printing that is happening now has not led to massive disaster. It’s impossible for it to be any different this time. I appreciate all the great work you do.—Tim R.
The elites fear deflation most. There is no economic recovery. They will create more paper. Gold and silver is real. Bits of paper are not.
I will be bold and stay in the game. I will, however, sell some of my equities that have gained more than 100%, as well as the ones that have not performed as I would have liked. I have my “wish list” ready.
The attention of the masses will continue to be diverted by proxy wars and meaningless sports headlines. Back the truck up while they sleep.
I am timidly bold, with 7% of money in miners and GLD, because people don’t realize how artificial this boom is. I will either double my money or lose 2/3.—John P.
I have been buying gold coins since 1971. I bought when it was too expensive at $80, then at $200, then at $800, then at $1,300. And in between, and will continue to do so. Gold is not an investment. It is an insurance policy. If in the last 100 years we have discovered the alchemist’s dream of something for almost nothing, then do not buy gold. If in spite of wise liberal economists we haven’t, then buy an insurance policy, at least for your grandchildren.—Robert W., MD
I have been accumulating slowly when deals present themselves. I still think we are in for a sovereign debt crisis.—JN
I believe the metals will drop lower in the short term and then continue upward—buy!
With silver prices equal to the cost of mining, it is crazy cheap. It’s the only place I have been putting new investment money for the last 3 years.—Bill
Historically, every nation that’s debased their currency has collapsed. We are not exempt. I’ll continue accumulating precious metals until unsupported fiat currencies detonate into oblivion.
Take an allocation approach and take emotions out of the picture. I buy when my allocations dictate it. Right now, precious metals are a buy for me because their allocation in my portfolio has drifted lower than my desired level.—Ryan M.
Markets are too high and ignoring fundamental geopolitical and economic news. This present situation will not last.
As far as I can see, my reasons for entering into the gold market have not changed. I can’t say that I am not disappointed that most of the world has not caught on to what seems like simple common sense. On occasion I may feel that my patience is being tried, but I am definitely a hold.—Bob
One could end up with a black eye fighting the Fed, as this feels like the middle rounds of a 15-round fight.—Brian A.
I originally bought gold coins in the ‘70s for $200. Gold then dropped to $100. I held on then and will hold on now. Although my gold stocks are down, I think gold and the shares will recover and soar.—Mary F.
You recently quoted Doug Casey as saying that he sometimes confuses inevitable with imminent. I understand that. I am holding for the inevitable, but do not think it is imminent.—Brian B.
The world is heading towards a major shift; they just keep finding new ways to postpone it.
The next “event” looks like it will be a doozy… and gold could be “the baby that gets thrown out with the bath water”—initially.—Brandon W.
I’m all in and don’t want to take the losses. So I will wait and pray.
I think the market (stocks) is so manipulated that I’ve sold most of my holdings. I’m holding on to my bullion, hoping this is not a mistake.
When I am confused, experience tells me (very senior citizen that I am) that “holding” is the best action. I simply do not know whom to trust anymore, other than my gut instincts.—Bud
I believe the dollar will actually gain in strength against other foreign currencies, especially the Euro, though a temporary bounce in the Euro is to be expected after this huge recent drop. Longer term, I see the Euro falling to around $1.20 sometime next year. While the dollar gains in strength, PMs will remain weak. The day gold rallies against all currencies is the day we see a turnaround. The earliest I see that happening is sometimes towards the latter part of next year when finally the world starts to realize that the US is an emperor without clothes. In the meantime, we’ll just have to sit tight and bide our time.
I am holding gold right now, waiting to see how low the manipulators can drive down the price. When I think gold has bottomed, I will start to accumulate more.—Curt J.
Stick and stay, it’s bound to pay. Wall Street has screwed me too many times, so I going with you guys.—Jory G.
I am somewhere in the bold or hold category. Eventually chickens come home to roost, and I want a significant inflation hedge.—George H.
When lightning strikes, get off the golf course. I’m still bullish, but gold sold hard last week and again today, so will sit in the clubhouse for now.
Government can’t afford higher interest rates and works with banks to keep the gold price down so that everything looks okay. Can’t go too low or mines will not produce, which could cause panic.
Hold until the snowflake that starts the avalanche falls, then be happy you own something other than fiat currencies that are not worth the paper they’re printed on!—Carl
I think gold and silver have put in a bottom, so I plan to hold in the hope that they will rise substantially in the not-too-distant future.—Jeff VB
If we wait long enough, we’ll all be right. So nothing to do but hold.—Mike C.
Long term gold moves higher, short term gold continues to move down, if for no other reason than the contrary indicator that central bankers around the world are accumulating the metal.
Regardless of what gold might or might not do in the short term, when this bubble pops, its long-term inevitable destiny is stratospheric.—Peter C.
Owning and holding gold and silver, not paper, is prudent. Only trade for something of real and equal value to it.—David E.
I fall between hold and be bold. I see precious metals as insurance against financial disaster. I also believe the market manipulators can’t keep all the balls they’re juggling in the air indefinitely.—Gary
Phony government numbers have fooled the public into thinking all is well, so gold may not rise for some time.—Stuart
Don’t know the timing of the collapse, but fiat currencies have always failed, so it will happen. I’m hoarding guns, gold/silver, ammo, and good whiskey.
The government and Fed propping up the dollar and the economy is a juggling act, and sooner or later they are going to drop something.
Hold and accumulate below $1,200. The game is rigged, and we are manipulating the market to benefit China. After the price gets low enough, China will begin buying again. After all the rich who are really running our world accumulate enough, then the price will rise again and not before. Signed, bludgeoned but not beaten, Doug F.
I am “boldly holding” at this point. The market is due for a major rude awakening, but also the government can’t play their silly games forever… Sorry, I used 26 words, but even 250 couldn’t come close to describing what’s going to happen.—Stan L.
Short term is gambling. Long term is investing. Short term is fiat money. Long term is gold. That is all ye know on earth and all ye need to know.—Jeremy H.
View gold as a long-term investment providing diversification to your portfolio. I’m already allocated with what I believe is the proper percentage, so I’m not buying more at these prices. Timing the market is pretty much a fool’s game. There are bigger forces at work than we are aware of, and by the time the market moves, the big money will have already been made with preplaced bets. Those of us who don’t make the news but merely respond to it won’t have any warning. What can you do? Enjoy life and realize that happiness and true worth are not tied up in your net worth.—Tom W.
The Empire manipulates markets now but has an unstable $2 quadrillion in derivatives. The “New Development Bank” of the BRICS + Argentina (and others seeking admission) will bring the game down.—Peter S.
Gold will rise in price, but timing is everything. One buys gold as insurance against collapse, not to make a killing.—John L.
Capital flight is creating a confusing story for investors and bolstering a weak dollar. I am committed to holding my position with gold, as the dollar will decline in the future. America cannot continue printing money and expect to benefit from false productivity.
The race to print is on worldwide, the con is worldwide, and fundamentals are good. Only short term is a question.—Mike M.
I’m positively, no doubt, strongly in the buy/hold camp, depending on the meds in my Slurpee. My rational thought is that the undoing of the peachback as the world’s reserve currency will be the driving force as no amount of manipulation can stop that. It’s just not happening as fast as I’d like.—Pete
Hold until government stops interfering with financial markets, then sell.
Certainly a lot of anguish here, but that saying about buying when is there is blood in the streets still holds true. The blood-letting is taking much longer than anyone thought, but I am sticking with it.—Raoul S.
With near infinite free money and central banks doing their thing, better have a place to sit whenever the music stops.—William H.
I think gold and silver will ultimately rise due to loss of faith in the federal government and extrinsic value of the fiat dollar. Gold and silver are the only intrinsic aspect to the fiat dollar, and the sheeple will someday awaken.—Wayne Y.
I’m holding on to my metals; the USD house of cards can’t last forever.—Sandy P.
We’re going through the final shakeout before a bull move. Too many black swans circling about. One or more will land.
I’m waiting for gold to drop some more due to deflationary forces that finally seem to be starting in Europe and elsewhere.—David R.
Obama and Yellen don’t have complete control, but they will throw everything they can to hold the economy up until the mid-term elections.—Murray LM
Market continues up and investors continue to strive for dividends. Fed won’t raise rates for a year. Fly in the soup: a major al-Qaeda strike in the US.
I personally don’t believe anything the government says anymore, and have 10% of my portfolio in precious metals.
The world is deflating despite liquidity. PM bulls completed accumulation, hence US/China weak. Things break within two years, then PMs great investment.—Lasse
I am in the “hold ‘em” camp because in the long run, those I hold have been excellently vetted by L’s team and I think will really will come out okay. At this point, I am not losing any sleep over my Casey portfolio.—W Fray
Precious metals are always a good insurance policy. Precious metal stocks are probably going lower.
I own physical gold. The market gyrations do not have the effect on me compared to owning paper. I believe it is manipulated. It will be back.
I have adequate exposure to physical metals, so I hold. If someone has inadequate exposure to metals, I recommend to buy. Personal level of exposure is key. This is not the time to sell.—Brian F.
For months, all gold/silver professional advisers have been bullish on gold/silver investments. That made me wary. Until they quiet down, I remain wary.—Ron C.
Bold will be rewarded, but you may have to hold a while to wait for it. Every central banker on the planet is doing everything they can to keep everyone comfortably buzzed around a punchbowl of Keynesian Kool-Aid.—Roy C.
My portfolio is 30% gold and 70% junior mining shares because I think that gold will come into its own someday. But if I had known the wait would be so long, I would have turned towards technology instead of precious metals. But if you knew everything in advance, you’d be a billionaire in no time.—Rudi
I’ve been a financial advisor for 38 years and made millions in gold stocks in 1999-2012… sold half but watched the rest give up 80% and more, and lost many good clients in the last two years. I now follow the market and ignore what all you experts say. I will keep my positions but will only buy when the market tells me to buy. I’m bullish on regular stocks for now because the market says to be bullish. I’m tired of hearing the same garbage over and over about why the market can’t go up—it’s going up, and gold is going down. I will change when the markets tell me to change.
I intend to hold for the foreseeable future. Jim Puplava of Financial Sense Newshour frequently says America has the best-looking house in a bad neighborhood, referring to worldwide devaluations in local currencies. I hold my metal in an allocated precious metal IRA, and I maintain physical custody of more. I will look to reduce those holdings as the Dow/gold ratio approaches 3:1.
Gold will go to $1,000 and silver to $14 as the world’s manipulated currencies endure a hurtful fall, but eventually [they will] rise to unbelievable levels.
I started buying metals for protection rather than investment. I still do not see any real improvement in living standards among the people I deal with, so I think I’ll hold.
I’m fully invested in precious metals and uranium. I will hold. There are so many possible black swans in the world, eventually one will trigger the market. I’m in.—David T.
I am overweight in precious metals, but will not sell. They act as a counterbalance, and the price is currently scraping along the bottom.—Hubert
I am holding and gently accumulating gold and silver bullion to 15% of my net worth. Remember, 20 years ago, eggs cost 79 cents a dozen, compared to $3 today. The same will happen to gold over the next 20 years.
I’ve bought gold simply to maintain purchasing power. A half ounce of gold would buy a nice sport coat in 1920. I’m confident that will also apply in 2020.—Ed M.
I am fully invested in bullion (mostly silver) and mostly top-tier gold and silver stocks. Why? Because everyone else (almost) hates them.—Bryan M.
I’m a Vietnam veteran and an investor. I believe the administration knows it is in serious trouble. I think they will make some very bad judgment calls in the near future and get the West into a war it neither wants nor can afford. I’m all in metals, mining, and energy. I hope the shorts and the paper gold people get taken to the cleaners.—Bob F.
I read two or three hours per day, and in the last three years I have yet to see a single bit of a plan of how to clean up this nightmare. I am unaware of any fix in the works, just more fear and lies. When the price will be paid for the Fed’s folly, who knows, but there is always a price to pay. I hope to have my PM secure and some leverage with mining (so far a huge disappointment). I view this as a defensive move, not a big profit plan. I hate being in the position of betting on the failure of my country, but it is, I think, the prudent move.—Steve G.
Bullish on PMs. With China and Singapore’s new precious metals exchanges that are actually dealing in physical kilo bars, their increasing volumes, and the fact that Hong Kong’s century-old Chinese Precious Metals Exchange had reportedly almost run out of physical gold at one point in 2013, it indicates to me that even though prices have been falling, the supply at the same time is tightening. ETF and COMEX positioning no longer appear to pose the same threat to prices as in 2013. Many gold producers have delayed the next phase of growth projects working to protect their balance sheets. Long-term demand support from Asian nominal income growth, an evolving post-QE macroeconomic environment, and lower disinvestment potential should expect price increases over the next three years.—Veritatem C.
None of the above. The Elliott Wave Theorist has been uncannily accurate for decades and predicts gold at about $650 an ounce during a classic depression. If and when that happens, I will be a buyer. However, he recommends keeping some assets in gold currently. You guys are the best gold stock analysts, though. Great commentary too, my favorite newsletter. —Bill
I’m holding as a hedge against the madness that has been going on the world over. The other reason is because of the idiotic actions of our representatives in Congress.—Frank S.
If the petrodollar collapses and the US finds its debt gargantuan, and if China’s repayment demand is not met, gold could soar to compensate. Watch, and buy in time.—Albert H.
As a many-decades investor, I’m questioning the future. Government corruption and manipulation go unchecked. It’s always tomorrow that things will change, but [they] never do.—Dave L.
Stocks overpriced, PMs are a bargain. I expect hyperinflation within four years.
Gold and Silver HEADLINES
Close to 20% of Chile’s largest copper mines will be closed or reconverted by 2025 as the country faces a challenging scenario, marked by falling ore grades at its aging mines, sliding copper prices, and rising costs.
While the country produced 5.8 million tons of copper last year, 20% of that figure (1.2 million tons) came from operations that are facing closure or conversion in the next 10 years.
Some official figures reinforce the pessimism. According to the country’s Mining Council, 43% of the global copper producers will be generating higher ore grades than Chile by 2020.
Although investing in reconversion projects to create new commercial possibilities would be one way of dealing with the situation, most believe now is not the best time to start such projects, further exacerbating the problem.
The sad irony is that there’s no shortage of copper, just of political and economic sanity.
Last week Grupo Mexico and its subsidiaries seemingly dodged losing a concession to run one of the biggest copper mines in the world, provided they comply with government obligations that include creating a $151 million cleanup fund in the wake of a toxic spill at its Buenavista copper mine.
The fund is far bigger than a $23 million reserve that Grupo Mexico had previously set aside for the cleanup at the mine. The government said Grupo Mexico could face fines totaling $3.37 million while maintaining that production would continue as long as the company met the obligations set by the authorities.
The leak is reported to have released 40,000 cubic meters of mining acid into the Bacanuchi River in the state of Sonora last month, giving rise to calls for massive fines against the company and even an end to its Buenavista concession.
India Says Not Considering Immediate Gold Import Duty Cut (Business Standard)
India is not considering an immediate cut in gold import duties, Trade Minister Nirmala Sitharaman said, extending a policy that has helped narrow the country’s trade deficit but is believed to have led to a surge in smuggling.
India’s trade and current account deficits seem to have narrowed sharply since New Delhi raised the duty on gold imports to 10% from 2% through a series of steps last year.
Meanwhile, the endless flows of the yellow metal have been finding their way across the border unhindered, causing some suspicions about distorted data and raising expectations the government will ease some of its restrictions. The fact this hasn’t happened yet is regretful, as we’d hoped for better from India’s reputedly pro-business Prime Minister Narendra Modi.
Recent News in International Speculator and BIG GOLD—Key Updates for Subscribers
- Recent drill results from this company added substantial value, so we expect the existing resource to get bigger. The good news is that the current market weakness lets those new to the story buy at lower prices.
- This developer secured a major, long-term contract for its mine under construction, at a price significantly lower than used in the feasibility study. This is excellent news, far better than the market seems to realize.
- Production from this company is set to grow by at least one-third next year, and with a planned merger now in the works, it’ll more than double by 2017. And the shares remain deeply undervalued, providing a great opportunity to get onboard for those not already long.
- Fri, 12 Sep 2014 06:19:00 +0000: We’re Better Than We Think We Are - Casey Research - Research & Analysis
I can still remember my first real lesson in “your will and desires are bad.” It was in kindergarten. I eventually unlearned the lesson, but not because the overall culture helped me. In fact, life in the modern world taught me mostly the same lesson I was working to unlearn.
We are taught to mistrust ourselves in a hundred ways, and to consider ourselves insufficient. If nothing else, the 1,000 ads we see every day makes sure of that. (And yes, that’s a real number.)
But it really isn’t true. We may not be perfect beings, but we’re not nearly as bad as we think we are. So this week, I’m going to examine this subject.
Doug French, as usual, has some intriguing things to say on a similar subject: the assumption that people are unthinking machine parts… an assumption that underlies large areas of economics, including the actions of central banks.
So let’s get to it.
We’re Better Than We Think We Are
The Fed vs. PraxeologyDoug French, Contributing Editor
Janet Yellen must feel like she’s herding cats. The Federal Reserve is keeping interest rates at zero, thinking the common man and woman will spend money or buy stocks. Dr. Yellen wants us all to get our risk on, continuing Dr. Bernanke’s instructions.
The central bank has quadrupled its balance sheet and can’t generate enough price inflation to make the monetary mandarins happy. (Some of us would say they haven’t looked hard enough.) The PhDs can’t figure it out. They’re getting no bang, for $4.5 trillion. All of those smart people armed with complicated models and the power of the printing press, and nothing’s happening except another Wall Street bubble. Yawn.
A couple of Fed employees toiling out in the hinterlands (St. Louis) think they have the answer. Economist Yi Wen and associate Maria A. Arias pop this question in their St. Louis Fed paper, “So why did the monetary base increase not cause a proportionate increase in either the general price level or (gross domestic product)?”
Could it be that people sensibly cut back after the crash of 2008 and are doing the wise thing—saving money—no matter what perverse incentives the central bank puts in front of them? Yes, as a matter of fact, according to Wen and Arias: “The answer lies in the private sector’s dramatic increase in their willingness to hoard money instead of spend it. Such an unprecedented increase in money demand has slowed down the velocity of money.”
It turns out the Fed heads should brush up on their praxeology… that being the study of human action, with the basic axiom, as Murray Rothbard explained, “that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals. This concept of action contrasts to purely reflexive, or knee-jerk, behavior, which is not directed toward goals.”
The problem is, as Rothbard points out, “Praxeology is the distinctive methodology of the Austrian school.” We can count the number of Austrian economists working at the Fed on, well, maybe no hands.
The Keynesians at the central bank think people are just so many particles that can be plugged into equations and models to determine what to set the fed funds rate at, or how much Q to stir into its QE.
Wen and Arias refer to an equation you were trying to forget from one of those economics classes you slept through:, MV=PQ. M stands for money, V for velocity, P for price level, and Q for quantity of goods and services produced.
The researchers plugged in the numbers and concluded, “(I)nflation in the U.S. should have been about 31 percent per year between 2008 and 2013, when the money supply grew at an average pace of 33 percent per year and output grew at an average pace just below 2 percent.”
Oops. Prices are rising at less than two percent the way the government (mis)counts them.
Money velocity (how many times a dollar turns over in the economy), as the graphs reflects, has plunged from over 17 times before the recession to 4.4 during the first half of 2014.
For very good reason, consumers are gloomy since the financial crisis, according to Arias and Wen, who offer as one explanation: “the dramatic decrease in interest rates that has forced investors to readjust their portfolios toward liquid money and away from interest-bearing assets such as government bonds.”
This all makes sense praxeologically. Human action is purposeful to attain goals, making a person better off. This doesn’t mean people are always right. “All that praxeology asserts is that the individual actor adopts goals and believes, whether erroneously or correctly, that he can arrive at them by the employment of certain means,” explains Rothbard.
But after a devastating financial crash, leaving millions upside down on their primary asset—their home—and with much smaller retirement accounts, it makes perfect sense that post 2008, MV=PQ might not add up. Rothbard writes:
Econometrics not only attempts to ape the natural sciences by using complex heterogeneous historical facts as if they were repeatable homogeneous laboratory facts; it also squeezes the qualitative complexity of each event into a quantitative number and then compounds the fallacy by acting as if these quantitative relations remain constant in human history. In striking contrast to the physical sciences, which rest on the empirical discovery of quantitative constants, econometrics, as Mises repeatedly emphasized, has failed to discover a single constant in human history. And given the ever-changing conditions of human will, knowledge, and values and the differences among men, it is inconceivable that econometrics can ever do so.
Of course none of this will dissuade the central bankers cum central planners from continuing their money-printing ways, and the pair in St. Louis probably haven’t done their career paths any service by having this to say about their employer’s policy:
In this regard, the unconventional monetary policy has reinforced the recession by stimulating the private sector’s money demand through pursuing an excessively low interest rate policy (i.e., the zero-interest rate policy).
Individuals act with a purpose, and they figured out that government bonds yielding zero are no better than money and are, in fact, riskier. Wen and Arias write, “the best form of risk-free liquid asset is no longer the short-term government bonds, but money.” So households are sitting on $2.15 trillion in savings—close to a 50% increase over the past five years—and banks have $2.8 trillion in reserves.
According to a Gallup poll taken in April, 62% of Americans polled said they preferred saving; 34% preferred spending. Up until the crisis, the numbers were about 50-50.
The economy isn’t an equation to solve or a machine to repair. It’s over 314 million individuals acting with a purpose. “Praxeology, as well as the sound aspects of the other social sciences,” Rothbard wrote, “rests on methodological individualism, on the fact that only individuals feel, value, think, and act,”… and if they have to, hoard money.
This isn’t actually funny, but since I quoted Already Gone in my article, you might want to hear the original version by the Eagles.
And here’s a song that comes to mind along with Already Gone: Grand Illusion, by Styx.
Now, getting back to “funny,” and while I’m still thinking of songs and the “stuff helps me feel okay” theme, here’s Jump Down, Spin Around by Allan Sherman. For younger readers who don’t know who Allan Sherman is… he was the Weird Al of the 1960s.
And, finally, here’s Weird Al himself, with his Amish Paradise.
That’s It for This Week
Have a great weekend, and please start imagining that you might really be better than you think you are.
Editor, A Free-Man’s Take
- Thu, 11 Sep 2014 14:24:00 +0000: Can You Really Live Forever? - Casey Research - Research & Analysis
Before we get to the meat of today’s issue, which includes an article highlighting some of the exciting research in anti-aging medicine, I’d like to tell you about a limited-time special offer…
If you’ve ever considered trying out our technology newsletters, or any other Casey investment advisory for that matter, right now you can get them ALL for 55% off. Yes, instant access to all our newsletters, archives, and portfolios for one very low price.
But act quickly: This offer closes on Monday, September 15, at midnight EDT.
Thank you for letting me bring this offer to your attention.
Back to the show, which concludes with part 3 of Alex’s look at the tech bubble: “IPO Insanity!”
Casey Research, LLC
Can You Really Live Forever?Chris Wood, Senior Analyst
“We are on the cusp of curing aging.”
Those are the words of molecular biologist Dr. William Andrews, founder and CEO of Sierra Sciences, a company with the stated goal to “cure aging or die trying.” In the quote above, which comes from a September 2010 Sierra Sciences press release, Andrews is referring to a nutraceutical (i.e., a natural food-derived product meant to provide health or medical benefits, like vitamin C or folic acid) that his company discovered, known as TA-65. It supposedly slows down the aging process in humans by activating an enzyme called telomerase.
Telomerase acts on telomeres—simple repeating sequences of nucleotides (the building blocks of DNA) found at the tips of chromosomes that are important to cell division and replication. Cells must replicate their genes accurately and completely whenever they divide, or the so-called daughter cell will malfunction and die. However, most DNA polymerases (the enzymes that replicate DNA) cannot copy chromosomes all the way to the end. Thus, during each cell division, a small region at the tip of the chromosome (part of the telomere) remains uncopied.
So, the telomeres have a crucial function: they act as a buffer zone during cell division, protecting the genes in the chromosome and ensuring that they fully replicate. But there’s a cost: successive divisions cause the telomeres to erode over time.
When telomeres erode away, parts of critical genes remain uncopied, eventually spelling death for the cell. Some scientists think that this telomere erosion is what imposes a limit on our lifespans and causes our health to decline as we age; they also think that an answer to this dilemma might be telomerase activation.
Telomerase combats telomere erosion by adding telomeric subunits (repeating sequences of nucleotides) to the ends of the chromosome, thereby allowing it to continue to divide intact. The origin of telomerase still remains a mystery. It appears to be critical during human embryonic development, but then fades away. Little is found in the body after birth, for reasons we don’t yet understand.
Some scientists, like Dr. Andrews, think telomerase activation could be the cure for aging that his company is looking for, and he views TA-65 as a potential big first step in that direction. According to Andrews:
TA-65 is going to go down in history as the first supplement you can take that doesn’t merely extend your life a few years by improving your health, but actually affects the underlying mechanisms of aging. Better telomerase inducers will be developed in the coming years, but TA-65 is the first of a whole new family of telomerase-activating therapies that could eventually keep us young and healthy forever.
Well, if proven true, that’s a game-changer, to say the least. Just keep on living until you meet with a fatal accident. Woo hoo! But… hold on. Turns out we shouldn’t get irrationally exuberant just yet. It might not be such a good idea to activate telomerase, after all—because of the role it seems to play in cancer.
Cancers can arise when genetic mutations inside a cell cause it to escape from normal controls on replication and migration. The cell and its offspring multiply uncontrollably while invading and damaging nearby tissue. With the presence of telomerase, cancerous cells—which apparently synthesize the enzyme—avoid telomere erosion. They essentially become immortal, dividing for as long as the host survives. A 2012 study by the MD Anderson Cancer Center found that activating telomerase following telomere degradation actually made tumors stronger and more deadly.
So alas, TA-65 and telomerase activation might not be the miracle aging “cure” Dr. Andrews was hoping for. But what about other areas of anti-aging/longevity research?
There’s a lot of talk these days about humans becoming essentially immortal in the near future, but is the hype supported by any actual research? Let’s see.
The Quest for Immortality Continues
People have been obsessed with the idea of immortality and living forever for centuries. According to Adam Gollner in The Book of Immortality: The Science, Belief, and Magic Behind Living Forever:
The twenty-five-year old Emperor Ai of Jin died in 365 CE, after overdosing on longevity drugs. He wasn’t the last leader to die trying to live forever. The fascination with chemical immortality reached an ironic apogee centuries later, during the T’ang dynasty (618-907 CE), when elixirs poisoned those hoping for precisely the opposite effect.
In the late 1300s, legend has it that alchemist Nicolas Flamel created a “sorcerer’s stone” that was then used to produce a potion, the elixir of life, which is said to make the drinker immortal. The idea was so alluring that despite a complete lack of evidence to support the existence of the stone and the elixir, other scientists, including the great Sir Isaac Newton, later tried to replicate Flamel’s results. To no avail. And of course there’s the fabled Fountain of Youth that became associated with Spanish explorer Ponce de León in the early 1500s. We know what happened to him.
People today are no different. Not wanting to die is as natural as life itself. Below we’ll present a few interesting discoveries that may (or may not) mark some progress in our quest to live forever. But first we must answer a question.
What Is Anti-Aging Medicine?
The telomere erosion we talked about earlier certainly plays a part in aging, but most scientists don’t believe that it’s the only factor. They typically view aging as a sort of ongoing cellular wear and tear, where stresses from the environment and inside our cells (such as errors in DNA replication) accumulate throughout life and eventually wear out our cells and tissues.
Scientists who search for a modern anti-aging elixir seek to slow down or reverse this process in order to extend both the maximum and average lifespan of people. And even if that doesn’t pan out, advocates of anti-aging medicine contend that at the least, targeting and altering the underlying mechanisms of aging will bring us more efficient ways to deal with age-related conditions like heart disease and many cancers.
Now critics dispute the portrayal of aging itself as a disease, of course, but that’s not for us to debate here. Let’s just agree with the commonly stated goal of anti-aging medicine, to “add more years to your life, and life to your years.”
Caloric Restriction Mimetics
In 1934, scientists at Cornell University found that mice on an abnormally low-calorie diet lived about twice as long as mice who ate as much as they wanted. Scientists have since found that this caloric restriction also lengthens the lives of fruit flies, rats, and even primates, suggesting that this is an avenue worth pursuing in anti-aging medicine.
The going (very basic) hypothesis of why these animals live longer is that their bodies treat food scarcity as an extreme type of stress. So they mount a physiological response to cope with the lack of nutrition. And that toughens them up, promoting health and longevity during the time of deprivation, even if that time is significantly extended.
Starving yourself in order to get stronger? That sure seems counterintuitive. But the results from numerous experiments make a compelling case.
The problem with caloric restriction is that it’s not a very pleasant way to live if you’re fortunate enough to be able to consume a “normal” amount of food on a regular basis (which is between 2,400 and 3,000 calories a day for active males). So scientists are trying to develop drugs (called caloric restriction mimetic drugs) that re-create the anti-aging benefits of caloric restriction without having to change one’s diet.
Resveratrol, which is found in the skin of red grapes, was an early favorite in this category. It was first thought to activate a class of enzymes called sirtuins that have been associated with the anti-aging benefits of caloric restriction; but more recent studies have raised serious doubts about whether this compound (and more potent versions of it) actually activates these enzymes and has life-extending benefits.
A drug called rapamycin has shown more promise as a caloric restriction mimetic by inhibiting a molecular signaling pathway called TOR. The TOR pathway acts as sort of as a food sensor and helps regulate the body’s response to nutrient availability. Blocking it has been shown on multiple occasions to extend the lifespan of lab knockout mice while keeping them lean and healthy in their later years. Unfortunately, however, the drug’s anti-aging potential in humans is offset by its potent immunosuppressant effects.
Overall, research in this field has a long way to go.
As we noted above, aging is a sort of cellular wear and tear. According to Dr. David Sinclair of Harvard Medical School, there’s a specific biological signal that accompanies aging and tells cells it’s time to check out. It’s triggered when the cell perceives a lack of oxygen. That makes the mitochondria less efficient at converting fuel (such as glucose) into the ATP needed for cells to function properly.
But Sinclair and his colleagues recently found a way to counteract that signal. Using a natural chemical compound called NAD, they were able to revive older cells in mice and make them appear energetic and young again. After receiving NAD for just one week, two-year-old mice tissue came to resemble that of six-month-old mice. “When we give the molecule, the cells think oxygen levels are normal and everything revs back up again,” Sinclair explained. “If a body is slowly falling apart and losing the ability to regulate itself effectively, we can get it back on track to what it was in its 20s and 30s.”
Molecular biologist Cynthia Kenyon thinks she may have found another of the keys to a long life through her study of tiny worms called C. elegans. By tweaking just one gene in these worms (to simply make it more active), she was able to take two-week-old C. elegans (which is a creaky old age for these things) and make them appear about half that age. And her modified worms lived twice as long as the normal worms. “So they’re like 90-year-old people who look 45,” said Kenyon. The gene Kenyon changed: FOXO. FOXO is a sort of master gene that helps C. elegans protect and repair its tissues (and live longer) by controlling a number of other genes.
According to Kenyon:
You can think of it as a superintendent of a building. So if you have a building, a nice big building, obviously it has to be maintained. What FOXO does, or the building superintendent does, is to keep the building in good working order. It makes sure that the walls are painted, by hiring painters; it makes sure that the floors are swept. The building superintendent would hire workers to do these different things. What FOXO does, in the cell, is it switches on other genes … I’d say, altogether, there are probably about a hundred worker genes that have very important roles. And, together, what you get is a cell or tissue or an animal that stays in really good working condition for a lot longer.
What’s particularly exciting about Kenyon’s work is that the FOXO gene is also found in humans, and that a more protective version of FOXO (as in Kenyon’s modified worms) is associated with longer, healthier lives. Molecular biologist Timothy Donlon found in his studies that if you have this more protective version of FOXO, you have a twofold greater chance of living to 100. And if you have two copies of it, you have a threefold greater chance of living to 100, while remaining healthy. So the gene is indeed associated with adding life to your years and years to your life.
If scientists could create a drug to tweak FOXO in humans like Kenyon did in her worms, it seems like we’d have an effective anti-aging medicine on our hands.
We could go on with other examples of promising research in anti-aging medicine, but that’s a reasonable sample. It’s the ultimate area of scientific research, really. Moreover, it seems likely to bring benefits to humankind (and also be lucrative for savvy investors) whether aging is a disease that can be “cured” or not.
And before leaving you today, I do want to remind you once more about the opportunity to get in on Casey OnePass. It’s just open until Monday, and it’s your only chance to get all eight of our newsletters for a huge discount. Click here to learn more and get started.
IPO Insanity! Tech Bubble 2.0, Part 3Alex Daley, Chief Technology Investment Strategist
At first glance, the technology IPO market may appear overheated. Yes, Facebook raised a mind-boggling $16 billion in 2012. Yes, dozens of companies like fraternal twins Box and Dropbox are planning IPOs too.
But these are simply data points.
The simple fact is that we haven’t even gotten close to the numbers posted in 2000 for dollars raised or quantity of IPOs. I couldn’t sum it up any better than venture capitalist blogger Tomasz Tunguz did in his post Are Tech IPOs Dying?, with this opening chart:
While that resumption of an upward-trending line could certainly prove to be the beginning of something frothy in the long run, it’s certainly too early to call it a bubble… just as we established with public equities.
But there’s another angle to this. The real story in Tunguz’s article concerned the competition in late stages of private funding versus IPOs (thanks in large part to a subject we’ve often talked about: the high regulatory cost of going public). What we’re witnessing is the rise of the “mega round”—venture investment rounds of over $50 million. Unheard of in the venture-capital world 10 years ago, they’ve proliferated, helping keep many companies private longer. Many shares that would have gone into IPOs are staying in private hands instead, and that may be artificially depressing the IPO volume curve:
For all involved, this is both a negative and a positive.
For founders, it shows that the private capital markets have stepped up to fill a huge void in the market created by more complex regulations for public companies. But it extends the time before founders can potentially get their big payoff. We’re seeing substantial payments to founders in these mega-rounds in the form of secondary sales of their shares as compensation for that IPO delay. But that cuts their ownership stake and rarely affords the size of paycheck that an IPO would.
It also cuts both ways for those venture investors, requiring them to raise and risk much more capital to see their companies to the eventual exit point, and extending both the time to return and likelihood of failure before that exit. Their limited partners will certainly be concerned with both of those trends. However, the delay also allows the venture investor to demand stronger terms—liquidity preferences, preferred shares, and other ways to ensure they’re paid first when that exit finally does happen. It’s even given wings to a new form of funding that has taken off like a rocket: the venture debt companies which lend money on a preferred and often convertible basis to these pre-IPO companies.
How does the average public market investor fare? That really depends. Are we getting stronger, healthier companies out of the deal? As Tunguz says of mega rounds:
They empower startups to remain private longer and continue to grow, which enables them to command higher valuations and raise more capital at IPO.
Unquestionably, VCs are taking on more risk and waiting until later to bring companies to the market. That should mean that more companies going public are profitable or close to it. While we may be losing some risk/reward opportunity to the big guys, we should be generally better off. According to an excellent study from a few years back by the Wall Street Journal and big data company Tableau, companies that are profitable by IPO perform much better in the years that follow:
So the new mega rounds must be bringing us higher-quality IPOs, right?
Well, no. Not according to research published in March of this year by the WSJ (emphasis added by me):
Some 74% of companies that went public over the past six months weren’t profitable, the highest level since March 2000 when about four out of five new companies were money-losers, according to Jason Goepfert, founder of Sundial Capital Research and author of the SentimenTrader Daily Report. That same month, the Nasdaq Composite peaked before tumbling into a deep bear market as the dot-com bubble burst.
Since 1990, 42% of companies that have gone public, on average, haven’t been profitable, Mr. Goepfert says. In the early-to-mid 1990s less than 1/3 of these companies didn’t generate profits. This percentage rose through the tech bubble, fell afterward and rose again through the 2007 market peak before tumbling to as low as 15% in October 2009, seven months after the bear-market bottom.
In the past several years the percentage of unprofitable companies going public has hovered predominantly between 55% and 65%. It moved back above 70% early last month.
So here we are—waiting longer for IPOs so VCs can demand a higher valuation when the moment comes, but actually getting less-healthy companies than in earlier years. Assuming that this vintage of companies plays out as IPOs have for the last few decades, it means bigger payoff for insiders, less for founders, and less for the public-market investors. No wonder Tunguz is so elated by the prospect.
Nor is the quality of IPOs the only troubling sign of potential froth in the market today—so is the dollar amount raised. 2014 has so far been a bonanza, raising more money in the last seven months than has been done in any one of the last 14 years (i.e., since the dot-com crash), in what is sure to end as the third-largest year by dollars for technology IPOs of all time. There may be fewer of them, but they’re raising a lot more dough.
Of course, with a decade and a half of inflation at our tail, a number of very soft years behind us, and the continued climb in the size of VC rounds before IPO, is it any wonder we have a backlog of big-money IPOs? Even with that, we certainly aren’t yet approaching the levels seen in 1998 and 1999, especially after said inflation.
So I would say that while we aren’t in a bubble, we are in heady times. There is a difference—a big one. The business cycle prompts this kind of cyclical overinvestment following a period of underinvestment, as we saw in the aftermath of the credit bubble’s deflation. Easy-money policies certainly have helped add some tinder to the fire, too. But the combination has only barely edged us into the top end of what looks like the normal cyclical ups and downs for the market so far—not a bubble… not in IPOs, at least.
In addition, the fact that so many of us are talking about this investment cycle is probably a good indication it won’t get too far away from us too fast. It might even be enough to take the wind out of these sails early. The indefinite delay of Box’s IPO might even be a precursor to that.
Bubbles don’t tend to happen when everyone is screaming about bubbles. And our fear from the events of 1999 mean if there is a bubble, chances are it will happen where we aren’t looking… like how mortgages snuck up on most who were still so concerned about stocks. No, this time around we’ll probably find that the bubble is in venture capital itself, or student loans, small-cap Indian stocks, emerging-market debt, or some other credit market no one’s writing bubble articles on right now.
- Article one in this series: Tech Bubble 2.0? Not According to the Stock Market
- Article two in this series: Merger Mania! Tech Bubble 2.0, Part 2