Thoughts from the Frontline

Watch special video of John Mauldin, president of Millennium Wave Investments, as he gives a powerful presentation on Endgame: The End of the Debt Supercycle. This important speech was filmed at the Strategic Investment Conference 2011 in La Jolla, CA.

Watch special video of David Rosenberg, Paul McCulley, John Mauldin, Louis-Vincent Gave and Martin Barnes as they discuss their different economic viewpoints. Moderated by Jon Sundt, president and CEO of Altegris. This animated panel discussion was filmed at the Strategic Investment Conference 2011 in La Jolla, CA. Note: I'm still recovering from a bad flu I caught from my granddaughter, as I travel back from South Africa. Sorry there won't be a letter this week. Please check back again next week. Meanwhile, enjoy the panel discussion video below.

"Bankruptcies of governments have, on the whole, done less harm to mankind than their ability to raise loans." - R.H. Tawney, Religion and the Rise of Capitalism, 1926 "By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. - John Maynard Keynes, Economic Consequences of Peace "Unemployed men took one or two rucksacks and went from peasant to peasant. They even took the train to favorable locations to get foodstuffs illegally which they sold afterwards in the town at three or fourfold the prices they had paid themselves. First the peasants were happy about the great amount of paper money which rained into their houses for their eggs and butter… However, when they came to town with their full briefcases to buy goods, they discovered to their chagrin that, whereas they had only asked for a fivefold price for their produce, the prices for scythe, hammer and cauldron, which they wanted to buy, had risen by a factor of 50." - Stefan Zweig, The World of Yesterday, 1944. The beginning of the end of the Weimar Republic was some 89 years ago this week. There is a stream of opinion that the US is headed for the same type of end. How else can it be, given that we owe some $75-80 trillion dollars in the coming years, over 5 times current GDP and growing every year? Remember the good old days of about 5-6 years ago (if memory serves me correctly) when it was only $50 trillion? With a nod to Bernanke's helicopter speech, where he detailed how the Fed could prevent deflation, I ask the opposite question, "Can ‘it' (hyperinflation) really happen here?" I write this on a plane flying to NYC, with a tighter deadline than normal, so let's see how far we can get. More on where I'm heading at the end of the letter. But first, let me quickly call to your attention a speaking engagement that I'm doing November 9 in Atlanta. It is for Hedge Funds Care, and it's a wonderful event for a children's charity. If you can make it, I hope to see you there. You can learn more and register at http://www.hedgefundscare.org/event.asp?eventID=74.

Watch special video of Neil Howe, historian, economist, and demographer, as he discusses the Four Keys for Decoding America's Future. This fascinating presentation was filmed at the Strategic Investment Conference 2011 in La Jolla, CA.  

Just as only four short years ago it was All Subprime, All the Time, and then it was the Credit Crisis, now it is Europe. (When) will Greece default and which banks will implode as a result? Is there another banking crisis in our future? I just came back from a whirlwind four-country visit to Europe, and I will try to offer a few insights. This week we start with Ireland, move to the problem of Europe at large and, if we're not out of space (and your patience!), we'll visit some last-minute data points. There is a lot to cover, so let's jump right in.

Watch special video of Marko Papic, Marc Faber, John Mauldin, Martin Barnes, and Jonathan Tepper as they debate the Fed's QE strategy. Jon Sundt, president and CEO of Altegris, moderates. This lively panel discussion was filmed at the Strategic Investment Conference 2011 in La Jolla, CA.

This week I am in Ireland and going from meeting to meeting with a wide variety of people. And this week's letter is a wide-ranging interview with me, conducted by that doyen of financial-world interviews, Kate Welling. She really is one of the best, and she has graciously given me permission to share the interview with you this week, while I am researching next week's letter on Ireland and Europe. I hope you enjoy reading it half as much as I did recording it. (Sorry for the letter being late. There was a major technical difficulty. – The Editing Team) But first, in the interest of full disclosure, I want to briefly note to my readers that I have joined the board of Galectin Therapeutics (Ticker: GALT), a small biotech company with unique potential technologies. I get asked from time to time to join a biotech corporate board, but have so far not done so, and the exception is now GALT. Basically (to make a long story short), GALT has a deep repository of research performed in the USSR prior to the fall of the Iron Curtain, on carbohydrates. Russian and Eastern European scientists had traveled the world looking for new carbohydrates in plants, etc., and the research spanned many decades. When Russian science lost much of its funding, some of those famous scientists came to the US and brought this research, which was then quite new. In the West, we had concentrated on using proteins as drugs, ignoring by and large their lowly sugary brethren. In an agonizingly slow process, funding found its way to this research, and some very interesting things were discovered about a particular type of carbohydrate that binds to and blocks a protein called galectin, which appears to cause cirrhosis. It seems to be found in the presence of cancer cells, and according to peer-reviewed research may be the cause of cirrhosis of all types, but specifically of the liver. Mouse and other studies suggest the blocking carbohydrate has the potential to be a cure for cirrhosis, and GALT will be in human trials next year with the very prestigious liver research group at Ludwig Institute in Brussels and plans to be in clinical trials next year for liver fibrosis. One of GALT's molecules also appears to dramatically reduce the side effects of chemotherapy for certain types of cancer treatments. (Phase-two trials indicated a unique combination of increasing median patient survival while reducing the number of severe adverse events by approximately 50%). GALT has an application pending with the government of Colombia, which suggests the possibility of use in Latin America soon). These are wonderful things, of course, but not why I joined the board. In economics, Bastiat used to talk about "the things you can see and the things you don't see." What I "see" in GALT is what is not yet seen, and that is the treasure trove of data on carbohydrates, for which uses are so far only vague speculation. I see the potential for a lot of very interesting research, which will be very costly, but could have real impact, as their current cirrhosis drug candidates have. I should mention that the liver research is highly speculative, as there are no human trials, only mice, rats and human liver-cell culture studies. These are encouraging, to be sure; but as my doctor, Mike Roizen, constantly reminds me, to help temper my enthusiasm, "John, orange juice works in mice!" Investing in small biotechs with "potential" is somewhat akin to investing in junior and exploratory gold mining stocks. If everything works out, the returns can be exhilarating, but the majority of them will go to zero, so you need to do a LOT of homework and have a diversified basket of them. I do that with biotechs. I love each one of my "investments," but I fully recognize that for a whole host of reasons they could go to zero. What can be a wonderful technology may not work in humans, or it can work but another company comes along and does it better and cheaper, or (more likely) they run out of money or have management problems. GALT is a perfect example of what I look for. They have wonderful upside if the technology proves out, but will be a big disappointment if it does not. Clearly, I think there is something there, if I am willing to join the board. I also know that some of you will be tempted to "ride along." Let me say, do not, unless you go to their website, listen to their CEO, Peter Traber, explain the technology and company, read the independent research, and look at the board that chairman Jim Czirr has rounded up. GALT has had "issues" in the past, as my kids would say, and it has taken Jim some time, since he organized a take-over of the board, to get the ship headed in the direction it needed to go; but he is fanatical (almost maniacal) about it, which is of course what you must have. Dr. Traber, formerly in charge of global drug development for Glaxo, is a force in himself and relatively new as the CEO. I am very impressed with him. I really like the management team and the plans going forward. No guarantees of course that the good plans will work out the way we hope. And if you do the research for yourself and like what you see, then be patient. Do not chase the stock price. Pat Cox of Breakthrough Technology Alert introduced me to the company and I bought a few shares, a long time ago. I intend to buy more over the next year; but as a director, I will allocate an annual amount and buy them on a regular, prearranged basis regardless of share price, and will not start to do so for some reasonable time after this announcement. So, I have a mixed bias. As a director I want to see the company shares do well, but I hope they don't get too high, for a while at least. (It's much like my monthly gold purchases: I am glad to see gold is down, as I get more of it when I buy!) Don't buy if your time horizon is measured in less than years. If you feel the need to look at charts and current prices, then I suggest you pass. I have no idea what the stock will do in the short term, nor a timetable for reportable results. You can see the website at www.galectintherapeutics.com. You can request a copy of the independent research by emailing your request to squeglia@galectintherapeutics.com or calling the company at 617-559-0033.

Watch special video of Marko Papic, senior analyst at STRATFOR, as he presents an overview of the geopolitical and financial risks around the world. This informative presentation was filmed at the Strategic Investment Conference 2011 in La Jolla, CA.  

Breathes there a man with brain so dead Who never to himself hath said, “Social Security looks like a Ponzi Scheme?” - With apologies to Sir Walter Scott Today we look at Social Security. In the US, Texas Governor Perry touched the third rail of Social Security and called it a Ponzi scheme, which of course immediately made him the leading candidate in the “shoot the messenger” category. Behind the rhetoric, we look at some actual numbers. No, not the unfunded liabilities, that’s too easy. Let’s look at what a heartless, uncompassionate man President Roosevelt was when he started Social Security (and that’s what many will call me after reading this!). Behind the tongue in cheek, there are some very real issues that do not get addressed when we talk about Social Security, but that need to be part of the discussion. And of course, we must start off with the results of the FOMC meeting, which has me feeling not at all amused. What are they thinking? Apparently, they are seeing the results from another, alternative universe. There is a lot to cover as I head off to London, where I will finish this letter. But first a very important announcement. I am very excited to be able to introduce my readers to a new mutual fund offered by my friends Altegris Investments. This fund is a blend of five commodity trading advisors or CTAs. Normally, to access a CTA you be to be an accredited investor, with all the net-worth requirements and limited liquidity. But Altegris has figured out how to wrap a mutual fund around CTAs and create a fund of commodity traders with all the usual aspects of a mutual fund (daily pricing, liquidity, etc.). I have long been involved in the commodity-trading advisor space (some 20 years) and am a proponent of CTAs as a way to diversify portfolio risk. I have written a detailed report on this fascinating sector in relation to the fund, and it is available for free at http://www.altegrismutualfunds.com/landing/mauldinreports1.aspx, along with more information on the fund (including the offering memorandum and important risk disclosures, which are also included at the end of this letter). The fund has been very well received since its launch and has grown rapidly to over $1 billion. There has been very active interest in the professional community, as advisors and brokers are looking for simple and realistic ways to diversify their clients’ portfolio risk, as well as a way that is truly noncorrelated to typical stock funds and many other asset classes. Whether you are a professional or individual, you really should take the time to research what I think is a very solid fund. My partners at Altegris have decades of experience in the CTA space, with the largest database of CTAs and long-term relationships with many of the managers (I actually started my investment career in the commodity fund space, so have more than a passing knowledge of the arena). Given the potential for volatility in the global markets, I think it makes sense to have some exposure to funds that can go both long and short (depending on their models). I urge you to read my report. http://www.altegrismutualfunds.com/landing/mauldinreports1.aspx

Watch special video of Louis-Vincent Gave, chief executive officer of GaveKal, as he discusses the China Driven Emerging Market Boom. This insightful presentation was filmed at the Strategic Investment Conference 2011 in La Jolla, CA.  

Watch special video of Martin Barnes, managing editor at BCA Research, as he presents his market outlook and fiscal overview. This informative presentation was filmed at the Strategic Investment Conference 2011 in La Jolla, CA.  

What in the wide, wild world of monetary policy is the Fed doing, giving essentially unlimited funds to European banks? What are they seeing that we do not? And is this a precursor to even more monetary easing at this next week’s extraordinary FOMC meeting, expanded to a two-day session by Bernanke? Can we say “Operation Twist?” Or maybe “Twist and Shout?” Not many charts this week, but some things to think about. But first, I have had readers ask me about my endorsement of Lifeline Skin Care and whether I was still pleased. Quickly, let me say that I am more than pleased. I have not mentioned it recently, as the company had to deal with supply issues (partially, from too many orders, which is a good thing) but those have been handled. I read a lot of positive letters from people who use the cream with excellent results. I can clearly see a difference in my own skin. If you use it correctly you will get results But a very interesting endorsement came by way of my cynical daughter Tiffani, who was in Europe recently for 6 weeks. She did not take her Lifeline with her but used another (very) high-end product. She came back and was complaining about how her skin looked. After switching back to Lifeline for two weeks, she notes that she can already see a difference, and the “feel” is improving. Many of the re-orders are coming from men (which is not surprising, as the bulk of initial orders came from my readers), almost the reverse of industry standards. Basically, Lifeline uses patented stem-cell technology in its cream, and it promotes a visible rejuvenation of the skin in about 3-6 weeks (depending on the individual’s skin, how often you use it, etc.) I encourage readers who are (ahem) of a certain age, or simply want to keep their skin looking younger, to click on the link to see a new, very short video; and if you like, you can order at the website. I and a number of friends are enthusiastic users. If you are interested in your appearance, you might want to consider becoming a Lifeline user. And you can use the code WAVE1 to get a $40 discount! www.lifelineskincare.com/page/46/Video.html. Now to the letter!