"Old News" and New Opportunities

Posted On Jul 19, 2016 By Dave Gonigam

  • In which a reader implies we’re not “completely truthful”…
  • Another compelling reason we think the feds will give their blessing to medical marijuana
  • Gold’s great day, even though it barely budged… plus, a Rickards gold update
  • Another pension warning… and the next big bailout drama
  • Fresh Fed propaganda… the case for a weaker dollar revisited… Pokémon GO and the Darwin Awards… and more!

“To be completely truthful,” a reader writes in response to one of our current sales messages, “you should say the U.S. government patent No. 6630507 is dated Oct. 7, 2003.”

“It is not really news anymore,” avers another in-the-know reader.

Here’s what Ray Blanco of our science-and-wealth team said here in The 5 a month ago: “The patent describes how the use of certain chemicals found within the marijuana plant is highly beneficial in treating certain neurodegenerative diseases such as Alzheimer’s, Parkinson’s, HIV and dementia.”

Yes, the medical marijuana patent is more than a decade old.

So it’s a fair question: Why now? Why is Ray so convinced the federal government will change its tune this year — and take pot off its Schedule I blacklist? Why would the feds up and decide cannabis indeed has value as medicine and isn’t really more dangerous than cocaine or crystal meth?

Begin with the fact that the clock is running for the Drug Enforcement Administration — which along with the FDA enforces the Controlled Substances Act of 1970.

Last year, a group of U.S. senators wrote the DEA, asking that marijuana’s Schedule I status be reviewed.

The DEA took its sweet time formulating a response. It didn’t come until April of this year. But at that time, the DEA committed to making a decision by the middle of this year.

It’s the middle of the year right now. Because the government moves slowly — Federal Standard Time, you might call it — that commitment might slide to the fall, or even the end of the year. But the DEA won’t simply blow off the senators’ request.

Then there’s that University of Georgia study we mentioned last week — the one that shows medical marijuana is already lowering the federal government’s health care costs.

The researchers studied the years 2010–2013, comparing the 17 states where medical marijuana was legal with the 33 where it wasn’t. They examined spending on nine medical conditions in which pot can be used as medicine — including anxiety, depression, sleep disorders and pain.

In the states where medical cannabis is legal, prescription drug use was lower… and spending by the Medicare Part D prescription program was lower. In 2013, the savings amounted to $165 million. If medical marijuana were legal in all 50 states, those savings would grow to $468 million a year — a small but meaningful 0.5% of all Medicare prescription drug spending.

Those savings matter in this context: While Medicare Part A hospital coverage has a bogus “trust fund” behind it (that will be depleted by 2028)… there’s no such backing for Part D drug coverage.

All Medicare Part D spending comes out of general revenues — along with food stamps, fighter jets and hookers for Secret Service agents.

“Total Medicare spending was $618.7 billion in 2014,” writes Thomas Donlan at Barron’s. “As the program grows, it bankrupts the entire government, not just a trust fund.”

We made that point ourselves on July 29 of last year: Health care is set to eat up $1 out of every $5 spent in the United States by 2024.

That’s according to the Center for Medicare and Medicaid Services. To be precise, it projects health care will consume 19.6% of GDP by 2024 — up from 12.1% in 1990.

Health care is the monster that’s eating everything. Here’s an updated version of a chart we shared a year ago. It shows per capita spending on health care in the United States grew 82% from 2000–2012.

Going forward, the number crunchers attribute their growth projections to legions of people acquiring insurance under Obamacare… legions of aging baby boomers going onto Medicare… and spending on prescription drugs, which grew 12.6% in 2014 alone.

That’s what makes the Georgia study so significant: “Legalizing medical marijuana might be the rare policy that can not only halt the yearly rise in some spending categories, but actually reverse it,” Vann Newkirk writes in The Atlantic.

The savings might well be much larger than the researchers estimate. “Of the conditions and drug categories for which marijuana could serve as a substitute,” Newkirk goes on, “pain was easily the most common, with around 30,000 Part D prescriptions per physician. That number is astounding, especially considering the next highest category is anxiety, with around 11,000 prescriptions per physician.”

That means a lot fewer prescriptions for opioid painkillers — of which there’s a virtual epidemic of abuse and addiction these days. A working paper from the Rand Corp. finds that substance abuse treatment admissions for opioids are falling dramatically in the states where medical cannabis is legal.

Bottom line: The feds can do the math. Medical marijuana will save Uncle Sam money.

By some estimates, health care now takes up 27% of all federal spending — up from 6.2% in 1970. The percentage doubles every 20 years or so. Theoretically, health care will take up half the budget by 2035 — except it won’t, because the government has too many other spending priorities.

Something has to give. Medical marijuana, legalized on the federal level, won’t rescue the federal government’s desperate health care finances… but it’s a start.

And that’s why we suspect now is the time the feds will dust off that patent from 2003… give medical cannabis the green light… and launch a $100 billion industry.

Of course, the time to maximize the profit potential is before that decision comes down. Click here for a chance to learn about the most lucrative possibilities on our radar.

The major U.S. stock indexes are once again stalling out after notching record-high closes. As we write, the Dow industrials and the S&P 500 are both off fractionally.

Conceivably, traders are bummed by an “authorized leak” from the Federal Reserve via The Wall Street Journal’s Jon Hilsenrath. “Federal Reserve officials are looking more confidently toward an interest rate increase before year-end, possibly as early as September,” says a Hilsenrath story released before the open.

Really? With inflation still nowhere near the Fed’s target and three straight quarters of declining job growth? Pull the other one…

Still, the story appears to have put a bid under the greenback; the dollar index has powered past 97 for the first time since March.

Seen in that light, gold looks terrific — up $3 as we write, to $1,332.

“Gold has shown impressive resilience in the face of strong head winds the past two weeks,” affirms Jim Rickards.

“Gold had a strong run-up in the immediate aftermath of the Brexit vote on June 23,” he wrote readers of RickardsGold Speculator today. “Some of those gains were given back once the situation stabilized and the Conservatives were able to form a new government faster and more smoothly that originally expected. However, gold stayed well above the pre-Brexit level of $1,260/ounce and consolidated around $1,330/ounce.

“Gold had another uptick in the immediate aftermath of the Turkish coup attempt last Friday. These gains also faded when it became apparent that the coup would fail, but gold found its footing again at $1,330/ounce.”

“We appear to be in a favorable technical pattern where bad news will send gold higher but good news does not take it lower. Looking around the world at Russia, Syria, Libya, North Korea, the South China Sea, Venezuela and social discord from Europe to the U.S., it’s difficult to make the case for a lot of good news. Gold continues to perform its role as a safe haven in times of crisis, and there is no shortage of crises on the horizon.”

For the record: The biggest public pension fund in the U.S. just notched its worst year since the Panic of 2008.

CalPERS, which oversees the pensions of 1.7 million Californians, earned 0.6% on its investments for the fiscal year ending June 30 — just a touch below its 7.5% target, heh. Blame it in part on those historic-low interest rates.

How long before CalPERS cries poor to California taxpayers? Wouldn’t surprise us to hear something in 3… 2… 1.

And remember, trends catch fire in California before spreading to the rest of the nation.

Overseas, the next big bailout package might be taking shape.

“European banks are in huge trouble,” says our trend follower Michael Covel. “Share prices for the biggest banks in Europe, like Credit Suisse, Deutsche Bank and Barclays, are down more than 50%. In Italy alone, there’s $400 billion in bad loans.

“Deutsche Bank chief economist David Folkerts-Landau has called for a $166 billion bailout for European banks. And his bank needs the most help. Deutsche is leveraged more than Lehman Bros. was in 2008 and has exposure to more than $70 trillion in derivatives contracts.

“If history is a guide, I would count on central bankers coming to the rescue yet again. They don’t want blood on their hands if they let one bank fail and it leads to a catastrophic contagion like Lehman Bros. in 2008.

“But what’s to come after that short-term fix? That’s when things really get interesting.” Michael plans to expand on that theme in the next issue of Trend Following With Michael Covel.

“I just read your latest, and I question your thesis of a weaker dollar,” a reader writes after yesterday’s episode.

“How can the Fed create inflation if Japan has failed to do so for 30 years? What can the Fed do that Japan cannot do?”

The 5: When we link to previous episodes of The 5 — which we don’t do often, but we did yesterday in the course of our musings — it’s for a reason. Try again.

Also, a weaker dollar fits in with Jim Rickards’ “Shanghai Accord” thesis. Newer readers can acquaint themselves with that here.

“All of the stories I have seen or heard in the couple of weeks since I became aware of Pokémon GO,” a reader writes, “have led me to the conclusion that this is quite possibly a great direction for investing in the improvement of the human race.

“After all, if these people have too much time and too few brain cells, maybe as the weak links fall off the cliff, we are improving the mix.”

We got other emails in the same vein: “ Although I’m glad that everyone you mentioned survived, it did deprive the world of a golden opportunity of some worthy additions to this year’s Darwin Awards.”

“Pokémon GO? I’ll wait for Seeking Darwin to hit the app stream,” writes a third.

“In this game, you have two ‘worlds,’ World A (the actual world) and World V (the virtual world on your smartphone screen). As with Pokémon GO, the game relies on GPS locations and displays cliffs, T rex maws, snake-infested swamps and other such pleasantries to be avoided.

“The player, glued to the smartphone screen, has to avoid the dangers of World V and is rewarded for each successful avoidance. Should the player step in front of a car in World A and get wiped out, the player wins a Darwin Award (posthumously, as is required), and the driver of the car wins the app for free.

“The Darwin Black is for run-of-the-mill stuff like getting hit by a speeding car, the Darwin Silver and Darwin Gold for more spectacular ‘posthumousizers.’

“Given the current popularity of Pokémon GO, I let you decide if this is a joke or to look for the app…”

Quips one more: “Here’s a new, improved way to take oneself out of the gene pool.

“It should make the elites’ population control plan simpler — and maybe the rest of us can make a buck!

“As always, thanks for the great work.”

The 5: The jokes do write themselves, don’t they?

But Ray Blanco urges us to look at the bigger picture: “Pokémon GO is the Pong of future augmented-reality games.” And it’s not just about games: “It’s a look at the future of how we are going to interface with computers and the world.”

We’ll have more in the coming days from Ray about why he believes “AR” and its cousin VR, virtual reality, signal an epic profit-making opportunity…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. We’re compelled to emphasize: The ground-floor opportunity in virtual reality and augmented reality might not be available much longer.

Pokémon GO has brought AR into widespread public awareness. And while Nintendo stock is on a ridiculous tear that can’t possibly last… other companies, beneath the radar quietly working away on the technology that makes Pokémon GO possible, are just about to take off. Heres what might be your last chance at the ground floor.


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