Giant Misconceptions and Real Opportunity

February 6, 2012

• Another case of wet sidewalks causing rain: Why the “Super Bowl Indicator” is about as useful as a Ouija board
• Patrick Cox on a fast-growing, $87 billion market... and a tiny player set to dominate
• The next Greece deadline that really matters (hint: It’s not today)
• 610,000 customers taking action: “Bank Transfer Day” more of a success than it first appeared
• The expensive and butt-ugly result when a government boondoggle mates with terrorism fears

So... the New York Giants are Super Bowl champions. So it’s going to be a great year for the stock market, right?

“The so-called ‘Super Bowl Indicator,’” says our resident technician Jonas Elmerraji, “predicts that if an NFC team wins the Super Bowl, the stock market will have a bullish year.”

“On the other hand, an AFC Super Bowl victory predicts a bearish year for stocks. In the last 41 years, the Super Bowl Indicator has had an 80% success rate in determining the market’s direction.”

“Just because there’s a correlation between two things doesn’t mean that there’s a causal link between them,” says Jonas, puncturing the bubble with a well-placed pin.

“Just because your cell phone stops working after a power outage doesn’t mean that the outage broke your phone. In the investing world, that’s one of the most important concepts to understand.”

Indeed, if you examine both the market and the NFL itself, it’s hard to escape the conclusion that the Super Bowl Indicator is about as useful as the entrails of caribou and a Magic 8-Ball. Jonas does exactly that in today’s Penny Sleuth.

Wait a minute, what’s this? The Dow is down this morning, about a third of a percent. And the S&P too. The Nasdaq and the Russell are down even more.

“Today, the U.S. nutraceutical market is worth approximately $87 billion in sales, but is expanding rapidly,” says Patrick Cox, eyeing a sector primed for growth.

“Combining the words ‘nutrition’ and ‘pharmaceutical,’ nutraceuticals are foods or substances derived from foods, either synthesized or purified and sold for health benefits.” You might also know them as dietary supplements.

“Drug and health food stores have long stocked a wide range of nutraceuticals. Increasingly, even grocery stores dedicate shelf space to natural products ranging from natural vitamin supplements to electrolyte-rich sports drinks.”

What’s more, “Many foods are now being fortified with health-promoting ingredients. These include cereals with added omega-3 fatty acids, fruit juices with herbal ingredients that have biochemical properties and milk with vitamin D.”

So it’s a growth market. The downside is that not every product has proven benefits.

This fact brought out a skeptical reader after reading our issue Friday. “Facts are better than fiction,” he writes, “but adding one more nostrum to the growing plethora of ‘natural’ remedies does not represent a significant addition to human health nor investment success.”

No, it does not. Which is why Patrick is quite the skeptic. “I’ve never waved the resveratrol flag,” he says, pointing to the example of the purported “red wine miracle.”

“There has never, in fact, been any real evidence that it conveys beneficial effects to mammals... Recently, a concentrated drug form of resveratrol actually produced harmful effects in humans.”

“Not that long ago,” Patrick goes on, “the health food store industry offered little of real benefit except basic dietary nutrients. More often than not, natural products were ineffective placebos at best, and harmful at worst.”

“This has changed, and this change will accelerate for one reason — exponential growth in science, powered in large part by rapid improvements in information technology.”

“In the past, nature provided the inspiration and raw materials for many of our most-important drugs. Scientists would take clues from some biological process and then modify natural molecules or synthesize variant compounds to develop superior therapies.”

But as the decades progressed and FDA regulation became more onerous, it became more expensive for companies to develop breakthrough drugs — especially the tiny, up-and-coming companies that can build entire new fortunes — the companies that are Patrick’s bread and butter.

That’s all changed now.

“Today,” says Patrick, “scientists armed with a vast new array of tools are seeing that it can be cheaper and more effective just to keep looking for another natural molecule that qualifies as a nutraceutical.” It’s a brilliant end run around the regulators.

But again, not everything the scientists are working on is effective — witness the resveratrol phenomenon. That’s why Patrick is so excited by a nutraceutical that — as we showed in Friday’s issue — is now proven to lower blood levels of C-reactive protein. And CRP is a marker of the inflammation that goes along with nearly every disease of aging.

No, there aren’t double-blind, placebo-controlled tests demonstrating its effectiveness against cancer, heart disease, and Alzheimer’s... but the evidence is starting to come in. Enough evidence to overcome Patrick’s considerable skepticism.

“If I heard this from someone else,” wrote Patrick last year earlier in his research process, “I would almost certainly dismiss the claim as ignorant or dishonest.”

“Given my own initial rejection of this biotechnology, I have to believe that intelligent readers will be as skeptical as I was when it first came to me. You should be, in fact... It was difficult for me to accept the importance and magnitude of this discovery.”

But after reviewing the available evidence and asking the tough questions of the researchers involved, “I’m convinced that this is one of the most important breakthrough technologies of our time.”

“Not only are the implications of this discovery going to change the world as we know it, but they could produce large returns for early investors.” Indeed, he makes a compelling case for why it could be “the last stock you’ll ever need.”

“These are the first robins of spring,” says Chris Mayer about reports that big U.S. companies like Caterpillar plan to expand their domestic manufacturing.

“Cat expects U.S. construction spending will increase in 2012 for the first time since 2004,” says Chris. “And Eaton, another large industrial, followed that up by saying it expects its markets to grow faster in the U.S. in 2012 than anywhere else.”

“A new report by Cushman & Wakefield, a commercial real estate services firm, points out that new leases for industrial property ‘returned to levels not seen since prior to the 2008-09 recession.’ Tenants signed new leases for 306 million square feet, up 14% from a year ago and the most space signed since 2007.”

And in a recent paper from Reynders, McVeigh Capital Management, Chris finds a compelling reason for this expansion. “The wage gap is shrinking. It isn’t that much cheaper to move to, say, China anymore.”



“As wages have gone gonzo in China, its wage edge melts away. U.S. manufacturing wages were 22 times those of China’s in 2005. Today, that wage gap is under 10 times and likely will be under five by 2015.”

This is only one of four factors Chris sees behind the manufacturing revival. He spells out the rest in today’s Daily Resource Hunter.

[Ed. Note: Et tu, Chris? Another editor comes up bullish in the face of the daily laundry list of human failure we chronicle in The 5. Indeed, everything Chris cites above fits right in with Byron King’s vision of Re-Made in America.

The same media outlets fixated on the Super Bowl Indicator are settling on Greece as the reason for today’s setback in stocks.

The Greek government has delayed talks on yet another round of “austerity measures.” Until they’re resolved, talks between the prime minister and the International Monetary Fund look like an intellectual exercise.

“Greece’s leaders have made commitments and they must respect them scrupulously,” intoned French President Nicolas Sarkozy. The part about “or else my country’s banks that lent money to Greece will blow up” was merely implied.

“Market fear has become a familiar friend that will stick around until the Greek debt crisis is resolved,” says our monitor of market sentiment Abe Cofnas.

“Traders have a new deadline to focus on — March 20, when Greece has to make a 14.5 billion euro payment. Fear of a Greek default will remain in the subconscious every step of the way.”

Abe’s favorite way to trade the week-to-week mood has been “binary options” on Germany’s main stock index, the DAX. Last week, his readers had the chance to pick up 119% gains in two days... and another 50% in four days.

We’re a few weeks away from reopening membership to Abe’s one-of-a-kind service, Fear & Greed Trader. Watch this space for updates.

Oil traders are yawning in reaction to the latest U.S. economic sanctions on Iran. A barrel of West Texas Intermediate goes for $97.13.

This morning, President Obama signed an executive order freezing all Iranian government assets held or traded in the U.S. — including those held by the Iranian central bank. The sanctions were included in a defense spending bill the president signed on New Year’s Eve; the move today merely puts them into effect.

After slipping overnight, gold has recovered to where it was at the end of its beat-down on Friday. The spot price as of this writing is $1,724.

Silver’s holding steady too, at $33.71.

Maybe “Bank Transfer Day” wasn’t as big a bust as we thought. The protest — coinciding with Guy Fawkes Day on Nov. 5 — encouraged large numbers of people to transfer their accounts from too-big-to-fail banks to smaller banks or credit unions.

Researchers from Javelin Strategy have concluded that 5.6 million Americans switched banks during the last quarter of 2011. That’s three times the number in the previous three-month span.

But only 11% percent of those 5.6 million cited Bank Transfer Day as the reason they did so. High fees were the reason cited by 26%.

But the real tell might lie in the year-over-year figures... and Javelin has them going back nine years.

“The total volume of those who left their depository financial institution during Q4,” says Javelin’s James Van Dyke, “was not very different than in previous [Q4] measurement periods, and by extension this means that we believe total bank switching would actually have gone down had BTD not been so heavily promoted.”

That adds up to a “measurable impact,” in Javelin’s estimation... something lacking in the “Move Your Money” campaign Huffington Post launched two years earlier.

Measurable? Yes. Meaningful? Hmmm....

From Great Britain, we have a sterling example of what happens when government waste is combined with “terror” paranoia...


Bonnie Alter/CC BY 2.0
And they cost only 47 large each!

Behold, bombproof trash bins. Twenty-five of them now dot London’s financial district.

The City’s old iron trash bins disappeared years ago, a legacy of IRA bombings in the ’80s and ’90s. These new ones have been supposedly tested in the New Mexico desert to be proven indestructible... or at least not to hurt anyone if a bomb is stuffed in the slot.

The LCD displays on the side will have the weather and stock quotes. “In the event of a major emergency or transit upset,” reports TreeHugger.com, “information on escape routes will be shown. With the Olympics coming up soon, traffic information will also be posted.”

The cost: $47,000 each.

Although the search is on for sponsors to help defray some of that.

Here’s the best part: They’re not even trash bins. They’re recycling bins... and they accept only newspapers.

According to the Organization for Economic Cooperation and Development, British newspaper circulation fell 25% between 2007-10.

Nothing like autocratically solving a problem the market’s already addressing...

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. “We went back and forth for an hour,” writes Laissez-Faire Books executive editor Jeffrey Tucker, “agreeing on the great evil, but disagreeing on what should replace it.” Friday night was the Empire Unplugged event featuring Jeffrey and Dean Baker from the Center for Economic and Policy Research.



“Baker is a strong critic of the Fed for reasons both good and bad. On the good side, he is as appalled as Ron Paul about the insider racketeering of the central bank. On the bad side, he would like to see its powers transferred to a body with more political oversight and democratic influence.

“This is exactly the opposite of what I argued for: the complete depoliticization of the entire system.



Watch for Jeffrey’s full account of the event — and video — later this week.
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