China's Chess Move in Canada

Posted On Jul 24, 2012 By Dave Gonigam

Dave Gonigam – July 24, 2012

  • Byron King’s “strategic energy disaster”… unfolding here and now
  • Marc Faber makes sense of the latest euroscare (in an essay he wrote before it broke out)
  • Chris Mayer on the world’s best-performing stock market year to date… and why it has further to go
  • Patrick Cox on expensive tests only a lab can perform… coming soon to a hand-held device in your doctor’s office
  • Catch 22 as the IRS becomes an art appraiser… a new controversy rages among The 5’s readership… your last chance to get the best price on recordings of our Symposium in Vancouver… and more!

   “This is really a decoupling of the north-south axis with the U.S.,” says a major player in the Canadian oil scene. “It further illustrates Chinese interest in big assets, big reserves and Canadian expertise.”

No sooner did this editor land in the Great White North yesterday, en route to the Agora Financial Investment Symposium, than a news alert flashed on the ubiquitous airport TV screens: The Chinese oil giant Cnooc is buying a firm here called Nexen for $15.1 billion.

The deal marks the first time a Chinese company will own and operate crude production in Canada’s lucrative oil sands.

“China’s oil producers,” according to a Bloomberg story, “have turned more frequently to Canada after political opposition in the U.S. derailed Cnooc’s $18.5 billion bid for Unocal Corp. in 2005, and after TransCanada Corp.’s Keystone XL pipeline route south to Texas was blocked by President Barack Obama’s administration last year.”

Ah, Keystone… the “strategic energy disaster” Byron King warned of in our virtual pages seven months ago. Once again, the gods of comedic timing deliver a knee-slapper as we assemble here in Vancouver.

   Speaking of oil, we see it got cut down big-time yesterday in reaction to the latest euroscare. After eclipsing $92 last week, a barrel of West Texas Intermediate clings by its fingernails to $88 this morning.

   Stocks, on the other hand, are stabilizing this morning — a process that began yesterday afternoon. The Dow barely budged at the open and stands at 12,724.

Among the headlines from euroland that have traders atwitter…

  • Germany’s respected weekly Der Spiegel reported the International Monetary Fund is about to give up on any more Greek bailouts. (The IMF promptly denied the story, natch.)
  • Moody’s cut its outlook on eurozone stalwarts Germany, Holland and Luxembourg to negative, based on the prospect of Greece leaving the eurozone
  • Yields on 10-year Spanish government debt keep soaring above the 7% point of no return, beyond which Spain has no reasonable chance of meeting interest payments, much less principal
  • Spain has banned short selling on all stocks for three months. Based on similar episodes in Europe and the United States the last five years, it’s a lead-pipe cinch that Spain’s benchmark IBEX index will only add to the 30% loss it’s racked up since February.

“The best way to describe the current investment environment,” wrote Marc Faber a couple of weeks ago in his Gloom Boom & Doom Report, “is to say investors are obsessed with Europe.”

   “But a clear analysis of the situation,” he goes on, “warrants neither great optimism nor great pessimism.

“Regardless of whether the eurozone survives in its present form or not, its growth outlook is mediocre, at best. Moreover, it is likely that some sort of sovereign default of the weaker euro participants is inevitable.”

“For the equity investor, only one question is relevant: whether [European] equities are inexpensive or not.” At this point, he finds a handful of them are. Perhaps he will name a few tomorrow when he speaks here at the Symposium.

   Meanwhile, if the United States is headed for the proverbial double dip, it’s not happening yet — according to one of the more-reliable recession gauges out there.

The Chicago Fed National Activity Index crunches 85 economic indicators. It’s called every recession but one since 1970. In June, the index’s three-month moving average recovered a bit to -0.2.

True, that’s four straight months of below zero readings, or “below historical trend” as the wonks so indelicately phrase it… but it’s well above the -0.7 level that’s a surefire recession indicator.

   “The Philippine stock market is among the best performing in the world this year,” writes Chris Mayer.

We should back up a bit. In the course of investing across six continents, Chris comes up with some of his best ideas in unexpected places. “I’ll be in Cambodia and an investor there will tell me excitedly about the opportunities in Myanmar (Burma). Or I’ll be in Mongolia and someone will talk of similar opportunities in Namibia. Or I’ll be in Colombia hearing an investor tell me about his recent trip to Haiti and what he found there.”

And so he was in Honolulu last week and over dinner was tipped off to the Philippines. “There are cranes everywhere,” his companion said. “New buildings, shops, restaurants. It’s incredible. I would never have thought to see that happening.”

“The usual ingredients are at work,” says Chris, “like yeast in bread dough, making the place rise: a young population, large untapped mineral wealth and a change in government.”

The median age is 23. The mineral wealth could be worth $2 trillion. The new president is pumping money into roads, rails and airports.

Result? The Philippine ETF is up 25% year to date. “The whole story,” says Chris, “just goes to show you once again how this planet of ours is one giant ball of constantly evolving opportunities. New ones emerge and old ones close out.” Chris will undoubtedly reveal a host of them, complete with ticker symbols, when speaking to the assembled here in Vancouver this week.

[Ed. Note: A common complaint in past years from people who bought our audio recordings was that they could tell the speaker was rattling off only one or two names and tickers, while four or five were up on the screen — which they couldn’t see.

We’ve rectified that this year, with our new HD video offering. Of course, if you prefer audio only, that’s still available. We aim to please. But time’s a-wastin’ if you want to secure the best price: As soon as the first speaker hits the stage today, the price goes up. That’s today at 1:00 p.m. here in Vancouver, 4:00 on the East Coast. Act here.]

   Precious metals have moved little in the last 24 hours. Gold’s at $1,574. Silver still a touch below $27.

   “The most-advanced medical tests on the market,” says Patrick Cox, “are about to move from the laboratory to the physician’s office.”

Patrick is hot on the trail of something called microfluidics — “a branch of science dealing with the behavior of tiny volumes of fluid only millionths of a liter in size.” It’s not a new science, but making it practical has been a challenge — until recently.

That’s starting to change with research Patrick recently saw in action: Now a cartridge, “roughly the size of a credit card, stores all the chemical reagents needed for a diagnostic assay — and keeps them separated with bubbles of air.

“Quite simply, a physician can obtain a quantitative, laboratory-quality result by simply pricking a finger to obtain a drop of blood, much as diabetics do for glucose monitoring. Furthermore, instead of waiting hours or days, results are available in only 10 minutes. Lastly, the disposable cartridges are designed so that several different tests can be loaded onto a single credit card-sized piece of plastic at the same time.”

The developers of this technology started out planning to use it to diagnose urology patients. Now it turns out the applications are nearly endless — everything from heart conditions to infectious disease.

Patrick will no doubt rattle off an impressive list of names and ticker symbols when he speaks this afternoon at the Symposium. He’s part of a biotech triple play today featuring venture capitalist Juan Enriquez and stem-cell pioneer Michael West.

Also on the docket today: resource-investing guru Rick Rule. More names and tickers! If you want access to all of them, remember the price goes up only hours from now.

   To the endless funny/sad chronicle of federal folly, we have a work of art that one government agency says is worthless… even as the IRS says it’s worth $65 million.

The story’s dragged on for five years, since the death of New York art dealer Ileana Sonnabend. Her heirs have unloaded most of the collection just to pay estate taxes. But one item is not for sale — because it contains a stuffed bald eagle. Its mere existence runs afoul of decades-old legislation making it a felony to “possess, sell, purchase, barter, transport, import or export any bald eagle — alive or dead.”

That makes it, well, worthless — right?

With the help of three experts, including one from Christie’s, the estate valued the piece at zero. The IRS begs to differ. According to The New York Times, it values the piece at $65 million.

Priceless… or worthless?

The IRS demands $29.2 million in taxes… plus $11 million in penalties for the heirs “inaccurately” stating the value. Oy…

   “I have watched and listened to the clip of President Obama making this speech,” writes a reader adding to our you-didn’t-build-that cacophony.

“The part I find unbelievable is the initial claim, ‘If you have been successful, you didn’t get there on your own’. I am a small-business owner, and I would like to know who he thinks helped me get where I am today.”

“Certainly not the government, whose constant regulations, licenses, insurance requirements, taxes, reports, etc., literally take over 50% of the revenue my small business generates annually. So who is it he is referring to in his speech, because every day I have to try and outthink, outwork my competitors, or they will take my business.”

“This is fine, if I lose it to them because I am unprepared, I have no one to blame but myself, but when I succeed, I feel defensive when I hear someone claim they or someone else is the reason I succeeded.”

   “I am going to throw up with all your continued insertions of comments by idiots,” a reader writes after yesterday’s outpouring of vitriol.

“The next thing one of these logically challenged humans is going to do is try to explain how I didn’t pay for those roads, etc., through taxes. They certainly weren’t built by ‘government.’ The government had to take it from those that were productive that the president mocks.”

“The Department of Education is the most successful entity on the planet. Oh, my! I paid for that too!”

   “Frankly, I think Tucker was right to excoriate Obama for his thoughtless remarks. But the way you guys have been getting pounded, it’s obvious that the Obama political machine is in full-tilt damage control.”

“I doubt all the blow back is from your mainstay readership. Generally, your regular constituency seems more independent-minded than that, sees the whole ‘game,’ Obama’s role in it included. But take heart. Obviously, Obama campaign staffers read Agora as well and think you an entity of some public influence.”

“You should be honored to be taking such flak, and I hope you’ll continue to call ’em as you see ’em, the anonymously offended be damned!”

   “First of all, I love your publication. It is a daily must-read (sucking up).”

[Hmmm… where’s this going?]

“I know you won’t dare print this (your July 23 edition suggests this tactic works).”

[It only works as long as a limited number of people use it, heh…]

“Our friends to the north,” she writes in reply to yesterday’s episode, “will not have the wild swings in real estate values for two reasons. First, there are no zero-down loans. A purchaser typically puts down 20% cash, so they have skin in the game.”

“Secondly, as wacky as Canadian social policy may be in some areas, they have not adopted the American practice of encouraging people who can’t afford to own a house to borrow money anyway.”

“Keep up the great work (more sucking up).”

The 5: That’s true, and a good point: A few weeks ago, the government lowered the standard mortgage from 30 to 25 years. But five years of income to buy a typical home? Eek…

   “No offense, but holding your gathering in Vancouver makes you seem like hypocrites. Some policies in B.C. would make Democrats look Republican.”

[Hmmm… A new controversy appears to have broken out on The 5’s blogsite. Let’s explore…]

“I like your site, I like your free market views, but why pick Canada’s most-socialist city? I grew up in Vancouver and was basically chased out of town for not voting in socialists, the NDP. Why not be true to your views and hold the conference in Calgary or Banff, in Canada’s free market province? Or are you phonies?”

“Very disappointed in you for directing your money toward a socialist state making the libertarian argument in Canada harder.”

The 5: You mean, as Rick Rule calls it, the People’s Republic of Albertastan?

A second commenter added “Amen!” we see…

   “It doesn’t matter,” wrote a third, “where the conference is held; someone is going to complain.”

“I’m certainly glad I’m not a newsletter writer. I read enough flak they get to know better than to venture into that line of business without first turning off all incoming mail.”

“Read a couple books,” the reader suggests, “like Empire of Debt or The Demise of the Dollar. You might get an idea of where these guys stand.

“No offense, but just because these authors don’t espouse your political ideals doesn’t mean they should be labeled as phonies. Maybe it’s the lack of pushing a political agenda that really has people wailing and gnashing teeth.”

The 5: To that reading list we’d add the newest and most accessible volume, The Little Book of the Shrinking Dollar.

   “The first two commenters,” reads the final entry at the blogsite, “would be confounded as to why St. Paul went to Greece.”

The 5: That might well set a 5 record for the pithiest insight in the fewest words!


Dave Gonigam
The 5 Min. Forecast

P.S. Last chance: The best available price on recordings of the 2012 Agora Financial Investment Symposium disappears the moment Eric Fry takes the podium to introduce our first speaker this afternoon. That’s a 4:00 p.m. EDT. Here’s where to lock in your discount.

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