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Silence of the bulls:
Where to find profits as markets flatline
by J. Christoph Amberger
Not too far from my house, there’s a road that’s lined with car dealers. And up and down the street, it’s the same story. Too many Pathfinders on the Toyota lot. Too many Ford Explorers on the Ford lot next door. Down the street, too many Excursions. The list goes on.
Meanwhile, guess what’s happening down at our local banks?
First of all, falling prices for used cars (the result of low demand and oversupply) means that for every one of those car leases that expires, local lenders get stuck with another US$600 to US$800 loss. You’d better believe that adds up.
But home foreclosure rates are creeping up too. So are business foreclosures. The Bank of America just declared billions in bad loans.
Over the last 10 years, America learned to count on falling interest rates and rising stock market indexes. But with thousands of small businesses and “startup” companies crushed by record levels of debt... with billions of dollars in stock options plummeting toward zero... and company and personal bank accounts wiped out overnight... being rich in America is suddenly more challenging than it’s been in more than 20 years.
More than US$2 trillion of market value has evaporated over the past year — and that’s only counting the NASDAQ. In the last few months of the year 2000, according to Goldman Sachs, the net worth of U.S. households fell US$875 billion. And the ratio of net worth to disposable income suffered its sharpest drop since 1952!
53% of American families live from paycheck to paycheck. Make that 64% for households with moderate incomes (US$20,000 to US$50,000 p.a.) and 79% for those with incomes of less than US$20,000.
Growth is decelerating, and that most nebulous factor of all — “consumer confidence” — is down. Unemployment — still at record low levels — is slowly inching up: according to the most recent data from the Bureau of Labor Statistics, a unit of the U.S. Labor Department, it has increased from 4.0% to 4.2%!
First, the good news
For those who bid up Pets.com last year, that’s reason enough to run scared. But despite the unctuous growl of the bears, the U.S. economy is still in pretty decent shape. And there are some basic considerations that haven’t made it into the media-fired anti-frenzy.
For starters, a 0.2% increase in the unemployment rate over the last month is statistically pretty insignificant, especially considering that government unemployment rates are derived from polling large samples of households and employers — and have a margin of error of 0.19%.
(Total employment statistics also fall within a “confidence interval” of plus or minus 376,000. If employment rises by 466,000, it really means that the number increased by any figure between 90,000 and 842,000.)
The most recent unemployment numbers for Northern Virginia, for example, are 1.7%. (When Reagan was swept into power, it was upwards of 11%.)
If there’s one piece of good news I can reassure you with in this report, it’s this: no matter what happens, the laws of making money have not been repealed.
Waves and noise
Look at a chart of the Dow Jones Industrial Index since last October: there are steep, steep gains of 500 points in less than a month. And there are drops of 400-plus points in less than 2 weeks. This spells incredible opportunity, both on the long and the short side. But, maddeningly enough, the spikes appear out of sync with the underlying news that drives the market.
If you remember your high-school physics, you will recall that peculiar things sometimes happen when waves combine. Specifically, two waveforms that are precisely 180 degrees out of phase cancel each other out. Physicists call this destructive interference. Sound, for instance, is a wave phenomenon. If the phase angle between noise and “anti-noise” is 0 or 360 degrees, the signals reinforce each other. But two noise waves 180 degrees out of phase result in — absolute SILENCE!
For buy-and-hold investors, the noise/anti-noise behavior of the Dow has resulted in a frustrating flatliner market.
Sure... you can have overnight gains... like the 25% jump you got out of Amazon in a single day, when Wal-Mart announced they’d farm out their e-business to the online bookstore-cum-junk shop. But then the markets actually head south when the president of the United States proposes a tax cut on prime-time television that could put US$20,000 or more in spendable cash into the pockets of taxpayers and investors with medium to high incomes.
But even with a stock market that fails to perform... even with bad news on TV’s “talking head” financial shows or in the newspapers... you and I are going to make a lot of money together. On the very stocks that most other investors will overlook.
Flat markets make it hard to break even, let alone recover losses. But the good news I hope to show you in the pages that follow is that you don’t have to tread water, even in flat stock markets. What you’ll see in this report is exactly how a few investors are ready to make money if the market goes up... stays flat... or even plummets. We’ve done it many times before. As you read this, we’re doing it again. I’ll show you how. But first, you and I have got some more urgent business to take care of. Namely...
There’s also some bad news
In the tricky markets ahead, you’ll have to be especially careful. Because America has never been in the position it is in right now. According to the General Accounting Office, a record number us are dangerously close to retirement... but suddenly, far too many of us are stuck with virtually no savings to speak of.
Last year’s stock market wipeout only made a bad situation worse.
I sincerely hope you’re not in that same situation. But even if you are... or if it’s something you’re trying to avoid... let me be the first to warn you. Index funds and slow-moving blue chips are not going to rise fast enough to make up lost ground. Not in the months ahead. And that’s if they rise at all.
Staying flat isn’t much better than losing a fortune. But there’s no reason to lose money if you don’t have to...
How to get rich safely — in every kind of market
You see, two high-level analysts from financial firm Donaldson, Lufkin & Jenrette just finished a new study with a reassuring result. They took long, hard look at historical trend cycles. Not just for the 1990s. Not just for the bull market that started in 1981. Instead, they analyzed boom and bust cycles — especially with regard to technology — going all the way back to the time of Babylon.
They found that when something historically catastrophic happens... like the wiping out of the Aztecs or the Mayas... or the devastation of a Hundred Years’ War or a global epidemic like the Black Plague... fortunes may change hands. But technological advances still endure. No matter who ends up with the riches. And the trick to staying on the winning side of the curve is understanding which advances will outlast the short-term crisis.
The key is simple. Most of the stocks that crashed last year were “buzz” stocks. And historically, “buzz” is short-term. But lasting advances — especially with long-term technologies — aren’t just about what’s hot in gossip circles. Long-term success comes only with technologies that can satisfy an already existing need in the marketplace.
Take the Industrial Revolution of the late 18th century... the electrification of the Western world in the early 1900s... or the transition of communications from the telegraph to the telephone. Take the course of modern medicine through the Great Depression... two World Wars... Korea, Vietnam, and disco dancing...
No matter what the crisis, the advances endured. And the investors that understood this made fortunes. Sure, Wall Street gave up on Pets.com. We may yet give up on Amazon.com, with or without Wal-Mart. But can you see yourself giving up on cell phones or email? If companies can slash costs using the Internet in revolutionary new ways, can you see them passing up the chance? Can you imagine us giving up on breakthroughs with the Human Genome? Can you imagine a surgeon suddenly opting not to use a laser instead of a scalpel?
As George Bush Jr.’s dad used to say...
“Not gonna happen!”
Nobody wants to take a step backward. Progress marches ahead.
Every 18 months, computer speed still doubles (Moore’s law, not mine...) Every day, I come to my office and log on to find 50 or more emails...
At Johns Hopkins Hospital nearby, they test new cancer treatments every day... And even as you read this, more and more “old economy” companies are going online. Not to destroy their old businesses. But to reinvent them.
My point is, if you understand how history works... and how some trends get ever more profitable, even as others are wiped out... you can still get rich. And you don’t have to watch the broad indexes to do it. In fact, the tighter your focus, the better your profits. For instance...
Last year, while the rest of the market crumbled, one sector boomed. In fact, it went up 82%. But the boom times for this sector are not over yet. Not even close.
Because now that gene scientists have narrowed in on approximately 30,000 protein pairs that control human biology, everything we know about biotechnology has changed forever.
You see, less than a year ago, the main risk in biosciences was falling for market hype. A lot of exciting things were happening. A lot of promises were made. But with over 120,000 unsorted genes identified, few companies knew what to make of the new information.
Narrowing the focus by over 75% means that finding drug targets could happen three times as fast. Don’t worry. You don’t need to be a genetics engineer to profit from this. All you need is a little simple math.
Before the genome breakthrough last January, there were only about 500 “drug targets”... or physiological links... for using medicine to fight disease. Now that a more accurate genome map is complete, the number of drug targets has exploded to over 3,000...
Six times more profit potential...
Add it up. Considering the total drug solutions on the market already... that’s an increase in breakthrough and investment potential of more than 600%.
In other words, six times as many opportunities to get in early on groundbreaking drugs. What’s coming in biotech is an explosion of opportunity.
You remember what we said about technology and necessity. The bigger the need satisfied, the more solid the technological trend. Well, my friend, the need for medical miracles isn’t like the “need” for e-commerce sites. The demand for better cures doesn’t “crash” or go into recession. It’s ongoing. If anything, it’s in a permanently rising spiral. Especially now.
Think about it.
A record number of Baby Boomers are headed for decades of battling heart disease... cancer... diabetes... and all the other diseases of aging. All of them could benefit from the biotechnology boom. Already, healthcare stocks are becoming a reliable “safe haven” in rough markets.
Bill and Hillary’s attack on healthcare in the mid-90s reversed that tide. But when they let up, the market
quickly recovered. Simply because the need for new
medical technology and medical miracles has not gone away.
But what’s really exciting about the months ahead for biotech is not what’s already glutted the headlines... but the incredible next step that lies ahead. This is where knowing a little more about the science behind the stocks really can pay off.
The “Next Big Thing” in biotech stocks
Over the last couple of years, our Taipan team has been hot on the trail of biotech profits. You remember MedImmune... Millennium Pharmaceutical... Closure Medical. Taipan readers made a tidy profit on all of these.
In fact, my team has been able to help investors lock in profits like these time after time. Now biotech stocks are all over the news, even as the rest of the stock market goes stale. But if you’re already starting to feel like you’ve missed out on this one, please don’t. Nothing could be farther from the truth. In fact...
The next wave of profits could be ten times more lucrative!
A lot of analysts are just now getting a grip on the scope of biotechnology. What few of them understand yet is the next step...
And the players who already dominate this field are starting to get a lot of attention. In this issue, the Taipan team is going to show you how to rack up profits. On a few future winners investors haven’t stumbled across yet. I want you to carefully study the case they make. And I am confident that you’ll come to agree with me that the stomach-turning market upheaval we’ve experienced... and probably will “enjoy” a while longer... ranks among the most exciting periods of opportunity in our lifetime!
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