The Daily Reckoning
Tuesday, August 18, 2009 |
One difference between a recession and depression? No recovery... The feds are running into the brick wall of the future... For every dollar of revenue, the federal government spent $2.15... Patrick Cox with a look the future of medicine...and more!
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No Durable Recovery
by Bill Bonner
Ouzilly, France
Oh woe! Oh woe!
O! Bama! Where is thy recovery?
Yesterday, the world's stock markets took a hit. The Dow lost 186 points...following a very bad showing in China.
Is this the end of the rally?
Could be. We're not betting one way or the other. But we're pretty sure this rally is going to end...and end badly...sooner or later. So far, the rally surpassed the rally in '29 by a few weeks...but has not quite reached its magnitude. It will need another few hundred points to reach the '30 level.
But when the rally is over...then what?
Despite the fact that a majority (!) of economists polled by The Wall Street Journal say the recession is already over, there is no durable recovery.
Nouriel Roubini, writing in Forbes, explains why:
"Data from the US - rising unemployment, falling household consumption, still declining industrial production and a weak housing market - suggests that the US recession is not over yet. A similar analysis of many other advanced economies suggests that, as in the US, the bottom is quite close, but it has not yet been reached. Most emerging economies may be returning to growth, but they are performing well below their potential.
"Moreover, for a number of reasons, growth in the advanced economies is likely to remain anemic and well below trend for at least a couple of years.
"The first reason is likely to create a long-term drag on growth: Households need to deleverage and save more, which will constrain consumption for years.
"Second, the financial system - both banks and non-bank institutions - is severely damaged. Lack of robust credit growth will hamper private consumption and investment spending.
"Third, the corporate sector faces a glut of capacity, and a weak recovery of profitability is likely if growth is anemic and deflationary pressures still persist. As a result, businesses are not likely to increase capital spending.
"Fourth, the releveraging of the public sector through large fiscal deficits and debt accumulation risks crowding out a recovery in private sector spending. The effects of the policy stimulus, moreover, will fizzle out by early next year, requiring greater private demand to support continued growth."
Roubini thinks the United States will climb out of recession towards the end of the year...but then, it could fall back into a 'double-dip' recession. Maybe he will be right. Maybe this downturn will resemble Japan's multiple recessions over the last two decades. Or maybe it will be a single, deeper and longer lasting slump - like the one in the early '30s. We don't know. Either way, it should be thought of as a depression, not a recession. Because it is fundamentally different. And the difference is: Recovery is impossible.
If the markets were to recover, it means they need to go back to the way they were. That, dear reader, ain't gonna happen. Because it can't happen. The economy can't go back to what it was. In the 2005-2006 period, it was in the throes of a credit cycle blowout...where it took more than $5 of new credit to produce one stinkin' extra dollar of output. Consumers had to borrow $100, in other words, in order for the GDP to go up $20. It was a period of madness that couldn't possibly be sustained...and now, can't possibly be revived. Who's going to invest in another condo development in Florida now? Who's going to buy derivative debt at 2006 prices? Who's going to build another factory in China to produce more things for American consumers who can't pay for them?
Well, ha ha...that's the funny thing; the Chinese ARE building more factories.
But we'll get back to that later. Comes word this morning that Florida has lost population, for the first time since 1946! People are leaving the Sunshine State because the big boom in suburban sand is over. A large part of the Florida economy was based on building houses for people coming down from the north. Now those people are going home and trying to pay off their debt. The point is, after a bubble...like after adultery...things never go back to where they were before. You can pretend that they are the same. You can act like they are the same. You can try to make them the same. But they never are.
A recession is merely a sprained ankle or a head cold. You can recover. But a depression is fatal. There is no going back. There is no recovery.
Trying to 'recover' from a depression is a futile fight with the future. Governments try to restore the old economy - as it was. They prop up the old industries. They bail out the failed executives and speculators. They pass out money to people, encouraging them to make more of the same mistakes that got them into trouble in the first place.
But there is no going back. It's a depression. The model has to change. The future...whatever it is...has to express itself.
[Breakthrough Technology Alert's Patrick Cox has come across a world- changing idea...one that could make those in on this story at the ground floor life-changing wealth. But this story is moving fast - and you only have until midnight tonight to take part in what could go down as the 'story of the century.' Don't let this opportunity pass you by...]
More news from The 5 Min. Forecast:
"We'll start today by heeding some good advice," writes Ian in today's issue of The 5 Min. Forecast.
"'I urge you to remove the word 'consumer' from your lexicon,' James Howard Kunstler told us at the Investment Symposium last month. 'It's degrading. It suggests we have no duty to our fellow man.'
"While the media has trained us to toss the word around with little concern, we're going to make it a point to take on JHK's advice, especially today. 'Consumer' has this ring to it...as if we were pigs bouncing around in a pen, waiting for nothing more than the next slop bucket to come by. Americans - despite frequent evidence to the contrary - are smarter than that...just check out the latest Gallup Poll:
"The average Joe is usually a lousy stock picker, but the overwhelming majority of people can see the economic forest for the trees...even if though the government and the media are bombarding us every day with recovery hopes and 'green shoots'."
Wanna make sure you get The 5 in its entirety delivered straight to your inbox every day? You can... The 5 is a free service, exclusive to subscribers of Agora Financial's paid services, such as Dan Amoss' Strategic Short Report. And on Monday, August 24th, at noon, Dan will expose the biggest banking lie of the past 64 years...and you could stand to triple your money. See his latest report for all the details. And back to Bill, with more thoughts:
The US budget deficit hit a record $180 billion last month. July's deficit was nearly $30 billion more than total tax receipts for the month. In July, the feds only took in $151 billion in taxes...giving it the worst margin in history. For every dollar of revenue, the federal government spent $2.15.
Not a very good business model. But the feds seem determined to stick with it - they're going to make it up on volume. Deficits are expected to exceed $1 trillion every year for the next eight years. And that assumes the economy 'recovers.' If it doesn't recover, the deficits will be much worse...with falling tax revenues and the need for even more stimulus.
The feds are running into the brick wall of the future. They've made promises - mainly to older voters - that now have to be fulfilled. And the number of older voters is increasing...as the Baby Boomer generation enters its retirement years. Social Security and health care promises alone will add trillions to federal deficits. By one estimate, US debt could rise to 300% of GDP by the middle of the century.
Of course, this poses a bit of a problem. US GDP is about $14 trillion. Three times that amount would be $42 trillion. Who's got that kind of money to lend to the US government? No one. The first reason being that the world doesn't have that much in savings. Second, because even if they did, they are unlikely to want to lend it to such a huge debtor. Of course, we're always surprised by what people are willing to do with their money - and anything is possible.
But more than likely the US will be forced to trim its promises...or inflate them away.
As dear readers know, we have become suspicious of inflation. Not that we don't expect it; in fact, we think we'll see it in its souped-up hyper version sometime in our lives. What we're suspicious of is the easy assumption that the feds can create inflation at will...and control it. They can't. They aren't that good. Even at inflation they are hapless and incompetent. And their hands aren't completely free.
First, they have to answer to the Chinese bond vigilantes. The Chinese are watching. If it looks like the feds are increasing the inflation rate - thereby reducing the value of Chinese savings - they could send the US government and the US economy into chaos simply by selling their stash of Treasury bonds.
Of course, the Chinese don't want to do that - because it would mean hundreds of billions in losses. But push them far enough...make them afraid enough...or cause them to get mad enough...and they could strap on their shootin' irons.
Second, there are also the ineluctable results of a major credit contraction...and a gross oversupply of capacity. Both are pushing down prices and could do so for many, many years. They can be overcome by aggressive use of the printing press. Argentina and Zimbabwe proved that. But neither Argentina nor Zimbabwe depended on credit from the Chinese. Inflation may be a monetary phenomenon, but hyperinflation is a political phenomenon...the feds only resort to it when they have no choice. We'll get to that point; but right now, it is still far away.
[Gold and other precious metals are the ultimate hedge against inflation...and will continue to hold that status...no matter how long it takes for hyperinflation to get here. Beat the rush...set up your hedge now.]
Shutters should be added to our list of the world's greatest inventions. What's on our list? Crispy duck. Berets. The semi-colon. And now shutters.
It has been hot here in France. The sun beats down; the temperature has risen to the high '80s. We have no air conditioning. But we have shutters. We close the shutters, partially, in the morning to block out the sun. Then, in the evening, when it cools off, we open them up and enjoy the cool air. In the winter, you close shutters at night to conserve heat. In the summer, you use them to regulate heat and light. And always, they protect windows, curtains and fabrics.
We still remember the louvre shutters on our grandparents' house in Maryland. With the shutters closed, rooms were mysteriously dark...even in the middle of the day. When they were opened, it was like the opening of the cathedral doors on Easter Sunday...the light came in and the room was transformed. And in the summer, when it rained, we left the shutters closed and the windows opened. The fresh, moist air was a delight.
And now, with the coming of the credit contraction, real shutters are ready for a comeback.
Until tomorrow,
Bill Bonner
The Daily Reckoning
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| The Daily Reckoning PRESENTS: Many of the big transformational technologies set to change the science of medicine are based on single simple concepts. These include stem cells and RNA interference. However, as Patrick Cox illustrates below, there is another transformational change coming that involves a huge array of technologies: "personalized medicine." Read on...
The Impact of the Genome
by Patrick Cox
Marco Island, Florida
Currently, medicine is, to a large degree, a "one size fits all" proposition. Doctors watch for adverse effects and check personal and family histories. Medical technologies, however, are designed for the general population, not individuals.
That's going to change.
Moreover, there will be huge profit opportunities, in many enabling technologies, for those who invest accordingly. And today I'm going to tell you about a company that will hand you your best chance to make a transformational fortune.
We know that many current treatments work on some people, yet not others. Some drugs are safe for many people, but have dangerous side effects for others. This is because all of us have individual differences in our genetic code based on heredity and environment. Even slight differences can lead to very different reactions to medications.
This has created serious regulatory problems. Drugs are denied regulatory approval not because they do not work, but because some fraction of the population suffers adverse effects. As a result, we are often denied incredibly effective therapies simply because they are not universally effective.
This shockingly primitive state of affairs exists because, until very lately, we simply have not had the tools to get to the genetic roots of disease. Scientists and pharmaceutical companies haven't precisely known how a particular drug's chemical profile interacts with a genetic one. Medical science, in turn, has been unable to tailor drugs to work with a specific genetic makeup.
This is rapidly changing. Just a few short years ago, the human genome was first mapped. The genome, as you know, is the entire collection of genetic code that defines us at a biological level. Now scientists are studying single genes and their individual expressions.
It is meaningful, from the investor's perspective, that Dr. Francis Collins, the head of the Human Genome Project, has just been selected by the Obama administration to head up the National Institutes of Health. Collins has long been a prominent champion for using the knowledge gained from human genome to accelerate personalized medicine.
This is important because institutional forces, with lobbying clout, always resist change. Much of Big Pharm, and its regulators, are vested in the "one size fits all" model. Many of the old players fear personalized medicine because it threatens the existing hierarchy. Collins' presence at the top of the NIH will help counter this institutional resistance.
| "If American pharm's prices and profits are controlled by the same people who run the Post Office and Medicare, it will not be good for R&D. It will not, however, stop progress. It will only shift it offshore." | |
Incidentally, Collins has stated that genomics is currently where the computer industry was back in the 1970s - at the beginning of a technological revolution. While he was speaking in scientific terms, we should remember that the '70s was also the right time to begin investing in a diversified portfolio of breakthrough computer technologies. Those who did so, despite claims that it was too risky or early, were made rich.
Dr. Collins is not alone in his views about personalized medicine. Former FDA director under G.W. Bush Dr. Andrew Von Eschenbach urges that the FDA approval process be overhauled and streamlined to help accelerate the adoption of personalized medicine. He is on record predicting that the medical industry will, in fact, undergo this profound metamorphosis.
I won't pretend, by the way, that the prospect of socialized US medicine does not threaten the pace of this transformation. If American pharm's prices and profits are controlled by the same people who run the Post Office and Medicare, it will not be good for R&D. It will not, however, stop progress. It will only shift it offshore.
Canada and much of Europe have squelched innovation in their countries by nationalizing health care. Rather than allowing drug companies the profits needed to fund future medical technologies, they mandate cheap care. This is why we regularly see politicians from these countries coming to the US to avoid long delays or get therapies unavailable in their own countries. I live in Florida, incidentally, and a million or so Canadians winter here annually. The weather is a factor, of course, but so is our superior medical care.
Many Asian and Eastern European countries, though, have learned from America's past successes. They are more than willing to become the next medical science powerhouses.
I speak regularly with the CEOs of some of the most important breakthrough medical companies. Universally, they tell me the same thing. They are all constantly courted by Asian investors who come with the blessings of their political leaders. These American CEOs are saddened, as am I, by the prospect that they may be forced offshore. They are, though, unwilling to halt the progress of medical science in the misguided quest for lower medical costs. I maintain hope, by the way, that Americans will stop this self-destructive move toward socialist health care.
In Greek mythology, Proteus was the son of Poseidon, who could change his shape at will. From this comes the adjective "protean," meaning versatile, flexible and adaptable. It is not coincidence that this also describes the proteins expressed by our genes.
By now, the public is somewhat aware of genome progress. Now that the code is cracked, however, we know that it was simply the first step in the process of developing truly personalized medicine.
Though our genome contains the basic information that determines our biology, our proteome is the entire domain of protein chemistry that regulates the structure and functioning of our individual cells. By extension, the proteome determines how each of our bodies function. Everyone's proteome is unique, because each of us has a unique genome and has been exposed to unique environmental factors.
The human genome contains a staggering amount of information. If it were a book, it would contain a billion words. Yet consider this: Each individual gene can determine the cellular manufacture and function of many, many proteins. Genes are merely the instructions for making proteins. Unlike our genome, which stays mostly the same over time, our proteome is always in a state of flux.
Proteomics concerns itself with these proteins and their interactions. These interactions determine the course of nearly all human diseases. They also open up entire new avenues of treatments and investment.
One important proteomic avenue is cancer chemotherapy. A recent study of personalized medicine by Scottsdale Healthcare showed that when cancer patients were individually profiled at the molecular level, treatments were more successful. Tumors that had resisted shrinkage using several courses of conventional chemotherapy were successfully treated when the patient's individual genetic makeup was used to customize treatment.
Many of these personalized treatments use therapeutic monoclonal antibodies directed against specific proteins. They work only, however, in specific tumors that strongly express that particular protein. For example, tumors need to develop new blood vessels in order to grow. If the protein instructions are known, antibodies can be developed that prevent new blood vessel formation by these tumors. Antibodies can also be developed against other growth factors that feed the tumor's growth.
We have already seen big investor successes in this arena. Early investors in Genentech struck gold. Genentech, now owned by Roche, was the first company to develop a targeted proteomic cancer therapy when it brought the breast cancer drug Herceptin to the market in 1998. Yet Herceptin is effective only in less than a third of breast cancer patients. In some, it can trigger dangerous cardiac side effects.
The FDA, therefore, has approved procedures to test the breast cancer for the genetic protein expression that is specifically targeted by Herceptin. Women can now be individually screened for overexpressing the particular HER2 protein that Herceptin targets.
Regards,
Patrick Cox
for The Daily Reckoning
P.S. I am, of course, always looking for the next Genentech: a company that will have a big impact on how we do personalized medicine. I believe, in fact, that we have found a company that literally strikes gold.
Don't let this opportunity pass you by...you have until midnight tonight to take advantage of what could be life-changing wealth. See here for all the details.
Editor's Note: Patrick Cox has lived deep inside the world of transformative technologies for over 25 years. In the 1980s, he worked in computer software development and manufacturing. By the mid-1990s, he worked as a consultant for Netscape - the company that handled 90% of all Internet browsing traffic at the time. InfoWorld and USA Today have featured Patrick's research many times. He's also appeared on Crossfire and Nightline. This expertise brought him to Agora Financial, where he now heads Breakthrough Technology Alert, the only place you'll find the truly transformational technologies that offer exponential gains.
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| | | | The Daily Reckoning - Special Reports: | Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future Introducing the Single Best Way to Make Sure You'll Never Run Out of Money... | |
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