De-Dollarization: The Next Step

Posted On Dec 7, 2015 By Dave Gonigam

  • Another notch in the “de-dollarization” belt
  • Tightening vise for U.S. producers as crude sinks to new lows
  • Guess which sector is still making money this year despite the headlines?
  • How 480% inflation will topple any ruling party
  • The costs bin Laden extracted, beyond the wars… the West’s culpability in fomenting ISIS’ rise… “the most controversial scientific development of the 21st century”… and more!

“Death by a thousand cuts,” said the email from our fearless leader Addison Wiggin. Another step on the road to “de-dollarization,” was the first thought to cross your editor’s mind.

The term made its first appearance here in The 5 on May 14 last year. Russian leaders held what they called a “de-dollarization” meeting in which they decided to grow the ruble’s role in exports — and shrink the dollar’s role. A series of baby steps have followed over the last 19 months.

Now comes word Russia plans to raise $1 billion in government debt next year — denominated in Chinese yuan. The Financial Times calls it “a move that would potentially open a new source of foreign funding for Russian banks and businesses shut out of capital markets in the U.S. and Europe by sanctions.”

From here, it doesn’t take a great leap of imagination: China might issue ruble-denominated bonds. Why not? The two countries already conduct much of their trade in rubles and yuan.

As one currency trader told the salmon-colored rag, “The best thing to happen recently for the Chinese money market is Washington deciding not to do business with Russia for a while.”

Just another day in the currency wars. Have you taken advantage of the profit opportunities yet?

Crude is dragging down stocks as a new week begins. At last check, a barrel of West Texas Intermediate is down nearly 5% on the day — trading two pennies above $38.

That’s even lower than it was on Aug. 24 — the day China jitters sent the Dow plunging 1,000 points in five minutes. You’d have to go back to February 2009 — when it still felt as if the world was coming to an end — to find the oil price this low.

Almost A Seven Year Low

With that, the Dow is back into the red for the year — off nearly 180 points as we write at 17,669. The S&P 500 has tumbled 1%, to 2,072.

“The S&P has been making lower highs and higher lows since October,” says one of our resident chart chimps Jonas Elmerraji — “forming a price setup called a symmetrical triangle.

Market Squeeze

“This isn’t the first one, either — we saw a similar symmetrical triangle form back at the end of the summer (see the first set of dashed lines on the chart), and it ultimately resolved downward.”

But that doesn’t mean a repeat performance is inevitable, Jonas explains: “The big differentiator here is the fact that this latest symmetrical triangle pattern was preceded by a big upward move. That’s a more ‘textbook’ start for this setup, and generally speaking, that makes this pattern more likely to end with a second leg higher.”

But maybe not right away. Jonas expects more volatility in the run-up to the Federal Reserve’s next big meeting, nine days from now. At that time, the endless will-they-or-won’t-they drama surrounding an increase in the Fed’s benchmark fed funds rate should — God willing — be resolved.

Until the next big meeting in March. Heh…

Gold, meanwhile, has given up about $10 of its big gain on Friday, trading at $1,076.

“The rock is getting closer and closer to the hard place,” says our Matt Insley — sharing his outlook for U.S. oil producers in 2016.

“I don’t see any U.S. oil formation completely closing up shop,” he hastens to add. “The Bakken, Eagle Ford, Permian and Niobrara will continue to produce oil. And while production will fall, it won’t be as much as some hope. Simply put, that will leave companies to their own merit to produce profitable oil.

“But that’s just it. U.S. oil companies hold only so many cards — assets, acreage, management and let’s call them ‘core competencies.’ So when you boil it down, there’s only so much these companies have in their control.

“Remember, it’s no surprise that some companies took out an exceptional amount of debt. Let’s just say they took full advantage of open credit markets — and cashed up in the go-go days of the shale boom.”

Bottom line: “It’s just important to realize that some beaten-down oil producers are NOT bargains. They’re dead money. And while well-run companies with less debt will be able to get up off the mat and dust themselves off, there will be a lot of casualties in this ‘lower for longer’ oil price war.”

For all the ups and downs of the biotech sector this year… it’s still in the green. And doing better than the broad stock market. Who’da thunk it?

Biotech Outperforms

No, it’s not the monster 60% gain of 2013, or even the 36% gain of 2014. But it could be much worse.

“The Nasdaq Biotechnology Index peaked in July,” says Ray Blanco, “and hit what looked like a bottom in August. The index recovered through September.

“Then a small ‘biotech’ called Turing Pharmaceuticals cornered the market and jacked up the price of a recently acquired but ancient drug. This anti-malarial went from $13.50 to $750 — a jaw-dropping increase of 5,455%. Be advised I am using the term ‘biotech’ very loosely with reference to this company.

“The outrage prompted a tweet by a candidate for president implying price controls are in our future. Fear of legislators cracking down on dubious practices in companies like Turing and Valeant spooked investors, dragging down many unrelated biotechs that don’t behave this way.” Biotech as a whole has been clambering back ever since.

What does Ray see for 2016? “I expect to continue to see an expansion in the use of cancer drugs that work by targeting the immune system,” he tells us.

“Gene therapies are also moving toward commercialization. In a sense, cancer immunotherapy and gene therapy have become linked. Some of the most exciting immunotherapy companies wouldn’t be able to produce cancer vaccines without first editing the genomes of immune system cells.”

Still, that’s incremental change we’re talking about. If it’s earth-shaking, life-changing developments you’re looking for, you’ll have to extend your time horizon a bit. But not too much. You won’t want to miss a special Overtime we’ve included today. Scroll down for a briefing from our executive publisher Addison Wiggin.

It took inflation of 480% to finally run Venezuela’s Socialist Party out of town.

The opposition Democratic Unity Roundtable has won a majority of seats in the National Assembly. “It is the worst-ever defeat for the leftist movement founded by former leader Hugo Chavez in 1999,” according to the BBC. “Among the campaign issues were chronic food shortages of staples — such as milk, rice, coffee, sugar, corn flour and cooking oil.”

James Vaughan Tweet

We’ve chronicled the economic train wreck that is Venezuela for as long as we’ve been publishing The 5. Chavez nationalized the last remaining privately run oil fields in May 2007. He was our favorite Latin American caudillo up until his death two years ago.

His successor, the Burt-Reynolds-lookalike-if-Burt-were-70-pounds-heavier Nicolas Maduro, remains in office until presidential elections in April 2019.

Although CNN for some reason thinks this guy is Venezuela’s president (You wish!)

And yes, inflation in Venezuela really is 480%, according to the Troubled Currencies Project. We first told you about this venture by Johns Hopkins economist Steve Hanke shortly after he launched it in mid-2013. He looks at the black-market exchange rate with the dollar in basket-case countries like Ukraine, Syria and Venezuela to come up with a real-world inflation rate that’s inevitably higher than the official rate.

Of course, the official rate of 68.5% is bad enough…

“You say, ‘Bin Laden got a return of 3.2 million-to-1. And counting,’” a reader writes.

Indeed. Last week, we revisited what we once called “the most brilliant leveraged bet in history” — $500,000 to carry out the Sept. 11 attacks versus $1.6 trillion Uncle Sam has spent on the Iraq and Afghanistan wars through 2014.

“Now,” our reader quips, “that’s an investment newsletter that I could subscribe to!”

“In your cost calculations,” writes another, “you fail to add in the very real cost of the TSA and the intangible cost of the dehumanizing effect that airport screening has had on anyone who has flown since 9/11.

“Flying is no longer fun because of the security apparatus and the seating changes made by the airlines trying to stuff more bodies into a limited space. In the ’70s, I loved to fly. Now I would rather undergo a root canal or a colonoscopy. Tried both, and I often compare them to flying.”

“The CIA created ISIS as a proxy army,” asserts another reader, “and has been indirectly arming it through Turkey, Qatar and Saudi Arabia.

“How ISIS obtained 8,500 oil tankers and hundreds of weaponized Toyota Hiluxes that it has brazenly driven all over Syria and Iraq for several years is a question for Obama.

“Why only Russia has been actually bombing ISIS, including their very visible oil facilities and oil trucks, is another question for Obama, whose illegal military actions in Syria had been going on for 15 months before Russia began to exterminate the group.

“Either the U.S. military is completely incompetent or it was only pretending to fight its proxies and was actually arming and protecting them while it destroyed Syrian infrastructure.

“But you can’t actually say so to your readers, can you?”

The 5: We’re not sure what you’re getting at.

“Everything the West has done was to create ISIS,” said the Australian journalist John Pilger during a recent interview. OK, the interview was on Russia’s state-run RT channel, but he raises an interesting point.

Back in 2012, the Defense Intelligence Agency issued a report — declassified last spring after a lawsuit by Judicial Watch — warning of a nascent “Islamic State” forming in western Iraq and eastern Syria.

Said the report: “There is the possibility of establishing a declared or undeclared Salafist principality in eastern Syria, and this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime.”

It wasn’t what the higher-ups wanted to read, though. “I think they did not meet a particular narrative that the White House needed,” former DIA chief Michael Flynn tells CNN, “and I’ll be very candid with you, I have said and I believe that the people around the president, his sort of inner circle that were advising him, I think advised him incorrectly…

“I think the narrative was that al-Qaida was on the run and [Osama] bin Laden was dead,” he said. “They’re dead and… we’ve beaten them…”

There’s much more to say on the subject, but we’ll leave it at that today…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. “Your latest information on Synthia 1.0 and the Immaculate Creation is mind-blowing,” says one more reader email. “I am looking forward to receiving my copy of Evolving Ourselves: How Unnatural Selection and Nonrandom Mutation Are Changing Life on Earth.”

We’re happy to oblige.

And if you’re still not sure what we’re talking about, read on…

Inexpensive gene editing — the dream of many scientists, the nightmare of many critics.

We tipped you off to the CRISPR phenomenon last Wednesday — not only altering specific genes but making it possible to pass those changes down from generation to generation. “This kind of gene editing could potentially be used in gene therapies targeting a variety of devastating, heritable diseases,” said The Washington Post.

Or as our executive publisher and 5 founder Addison Wiggin calls it, “the most controversial scientific development of the 21st century. Today Addison makes a return engagement in The 5 to clue you in…

The Most Controversial Scientific Development of the 21st Century

by Addison Wiggin

With all the chaos going on in the world — mass murder in San Bernardino, ISIS, riots in Chicago — it’s easy to overlook the incredible advances being made in science.

As ever, when a new discovery promises to change our very existence, it’s often completely misunderstood — even demonized — by whole groups of people.

As we speak, it’s happening (again) in Washington, D.C., less than 50 miles from our Baltimore HQ. Hundreds of scientists, as well as policymakers and the president’s science adviser, are meeting to debate the ethical implications of something called CRISPR Cas9 technology — also known as “gene editing.”

I’ll be honest…

This technology is extremely controversial — quite possibly the most controversial scientific development of the 21st century. The mainstream media would lead you to believe that so-called “designer babies” are just months away.

But dig beneath the shock value and the practical applications of this gene-editing technology are staggering…

  • Plentiful, nutrient-rich foods becoming available to everyone, whether they live in the inner city or in the middle of a desert…
  • Synthetic biofuels produced by engineering algae to turn sunlight into oil that could then operate anything from a car to a lawn mower…
  • And a not-too-distant future where various forms of cancer and even Alzheimer’s are things of the past…

Here’s what’s happening.

TEK Ted Talks

A month ago, my oldest son and I had the pleasure of attending TED Talks Live in New York City.

Less than a block from Times Square, nine of the world’s most innovative thinkers gathered — among them Pixar’s behind-the-scenes lighting expert, Radiolab’s chief researcher (who brought a live camel on stage to close the show) and NASA’s Planetary Science Division head…

But it was Juan Enriquez who blew the audience away.

If you’re a longtime reader, you may be familiar with Juan. He was a perennial favorite at our own annual investment symposium in Vancouver, British Columbia, where he gave some of the event’s most riveting performances.

In fact, during the course of making my award-winning documentary I.O.U.S.A., I had the pleasure of interviewing many amazing individuals — including Warren Buffett. And I can say with confidence… Juan is one of the most interesting people I’ve ever met.

When he was only 25, he was appointed the head of a private corporation set up by the Mexican government to build an entirely new technological city on the site of Mexico City’s vacant garbage dump — a feat he accomplished ahead of schedule and under budget. (Years later, he was asked to negotiate the peace between rebels in the Oaxaca uprising.)

As a professor at Harvard, Juan moved on from an interest in international affairs… to teaching himself the entire field of genetics. During one visit to his home in Newton, Massachusetts, he showed me the table he used to study all the published works on the human genome then known to academia.

Having accomplished that feat, he helped found the life sciences program at Harvard Business School. And went on to line up financing for the mapping of the human genome, conducted by Dr. Craig Venter. Juan is also founding partner of Excel Venture Management, a VC firm at the forefront of the life sciences revolution.

In Juan’s allotted 20 minutes at TED, he disassembled any argument against using “gene editing” technology… and paraded the benefits mankind is about to accrue.

Advances like:

  • Necessary, lifesaving vaccines being produced en masse for the entire world to benefit from, on location and at almost no cost…
  • DNA-based editing technology that allows us to completely ERASE some diseases from our germ lines…
  • Revolutionary technologies the help lift healthy life spans to 90 years and above, giving you more of the most valuable commodity on Earth — more time.

If you’re paying attention, all of these radical new advances could also help you make a lot of money as an investor.

In fact, I expect Juan’s Evolving Ourselves, a book he co-authored with his business partner Steve Gullans, to be so influential I’ve taken the liberty of purchasing the book on your behalf.

Click here to claim the copy of Evolving Ourselves I’ve purchased for you.

“If you think human evolution occurred only in the past,” writes Harvard’s Daniel Lieberman, “think again! Evolving Ourselves is a scintillating, witty and sometimes scary account of how rapidly changing technologies are altering human evolution…”

“Evolving Ourselves is a fascinating investigation of the global questions and microscopic details that will decide the fate of the human race,” writes former world chess champion Garry Kasparov.

“This book will be a long-lived classic,” Jay Walker, the curator of TEDMED, says, “it is what Darwin would write if he were alive today. Few yet comprehend the awe-inspiring nature of synthetic biology and its implications for life on the planet going forward…”

As I said, I expect Evolving Ourselves to be every bit as influential as the life-changing science it investigates. Get the copy I bought for you, right here.

Sincerely,

Addison Wiggin
For The 5 Min. Forecast

P.S. As Juan Enriquez is warning us, a revolution in life sciences is already underway. It may be scary and cause apoplectic fits for mainstream journalists, but Evolving Ourselves does a great job of proving not only that the revolution will be more profound and life changing than the digital revolution was to industry and communications… but that properly understood, it will be incredibly useful.

The only real questions is… how will YOU benefit from it? Click here now to find out.


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