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Dr. Stephen Leeb
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Dr. Stephen Leeb is a recognized authority on the stock market, macroeconomic trends and commodities, especially oil and precious metals. Dr. Leeb is founder of the Leeb Group, which publishes a line of financial newsletters including The Complete Investor, Leeb Income Performance Letter, Leeb... More
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  • Stocks to make you comfortably wealthy.

    The U.S. economy now shows clear signs of growth. Most likely, U.S. growth will exceed 3% for this quarter and the next one as well.

     However, the second half of this year doesn't look quite as rosy.  By then, much of the government's economic stimulus will start to wear off.  Three percent growth over the next few months could prompt Chairman Bernanke to start cutting back monetary stimulus in the fall as well.  That could have a negative effect on the market.

     Meanwhile, commodity prices are likely to keep rising this year, even if we don't maintain 3% or higher growth. The higher commodity prices will, of course, add to inflationary pressures and also depress growth. 

     In fact, our research shows that the key level of growth to watch is 2%.  With less than 2% growth, the demand for oil can hold steady or decline.  Over 2%, oil consumption rises.

     The combination of rising U.S. oil consumption plus more rapid demand increases in China and the other developing nations should keep oil prices in an uptrend, especially in the second quarter of this year and beyond.

     OUR FUTURE OF LESS

     We've been over this territory with you before, and we have little reason to think anything will change.  We can hope for technological innovations or amazing discoveries of cheap oil, but barring such miracles the world now faces a profound and protracted commodity shortage.

     So perhaps it's time to stop hoping for miracles and start figuring out how we can live in a world with less materials at our disposal.  This will be a fundamental change in the world economy, which until now has been based on ever greater exploitation of natural resources. 

     Of course, we're talking about the long-term here, not the next six months.  Nonetheless, commodities are the building blocks of our modern lifestyle.  If you think governments have a hard time controlling their spending, just wait until the world is forced to control its consumption.  For a society built on wanting and consuming ever more stuff, the withdrawal symptoms could be as painful as what a heroin addict experiences in rehab. 

     Don't shoot us; we're just the messengers.  Please, just use this information to be one of the few who come out ahead over the next decade.

     Despite the questions about the future of the U.S. economy, we're pretty certain about future of the financial markets here.  You will still be investing in stocks for income and growth. However, the stocks that deliver the best performance may be quite different from those which were the market leaders ten years ago.

     THE INDUSTRY OF COMPASSION

     This past Saturday, I was flying back home from a meeting in London.  The weather was dramatic to say the least.  My plane had to land in the middle of a Nor'easter storm.  It's scary moments like these that make you think about what's really important in life – essentials rather than luxuries.

     While I was buckled in my seat, I decided to take my mind off the weather by compiling a list of stocks whose business is to make people’s life better.

     The list I came up with included companies that concentrate on relieving suffering – compassionate stocks, if you will.  With a large and graying population and government health programs destined for huge shortfalls, these companies are almost certain to do well. 

     Healthcare is not like other industry, after all.  You can make do without a bigger house or a new car or a yearly vacation.  But you can't neglect your health, or that of your aging loved ones.  Next to pain and suffering, every other concern pales.

     So here's my list of 6 Compassionate Stocks – companies in the business of relieving ill health and suffering.  I won't discuss their fundamentals here, due to shortage of space, but here are their names and what makes them great long-term picks...

     * Cerner Corporation (NASDAQ:CERN) is the leading supplier of software to the healthcare industry.  There will be a lot of pressure in coming years to cut back on healthcare costs (in fact, there's already a lot in the news on this subject).  Cerner's products create savings by making doctors and hospitals more efficient.  Even though this company is small, its growth potential is large.

     * Amylin Pharmaceuticals (AMLN) – a member of our Fast Track portfolio - is a company we have discussed several times over the past few years.  The company just received some good news from the FDA that sent its shares soaring this morning.  This move is just an indicator that the company's long-term prospects are excellent.  Its major drug shows tremendous potential for relieving adult diabetes, a growing problem in this country.  Plus, its side effects are even more positive.  The drug promotes weight loss, lowers blood pressure, and improves cholesterol balance.  Who wouldn't want those side effects?

     *  Odyssey Healthcare (ODSY).  This may seem like a morbid choice, because Odyssey is the largest hospice care operator in the U.S. Hospices are hospitals for the aged and dying.  Their mission is to make terminal patients as comfortable as possible before the end.

     It's a fact that our society spends enormous amounts of money on medical treatments that only slightly extend people's lives.  For example, Avastin is one of the most successful cancer drugs, but it doesn't cure cancer.  It only prolongs life for a few more months.

     Hospices will become a growth industry as the number of elderly people expands this decade.  It's a win-win industry in that most people would rather spend their final days in comfort, and will pay handsomely to do so.

     * Whole Foods (WFMI) is the largest natural and organic food supermarket chain in the U.S.  And it has operations in other nations too.  Though organic food is more expensive than non-organic, the company balances this by offering non-organic foods at sharp discounts.  In addition, it specializes in catering to people with food allergies, including celiac disease.  Celiac disease is an allergy to gluten, a protein found in wheat and consequently most breads and other baked goods.  Whole Foods carries a large selection of gluten-free products.

     If you've read Michael Pollan's books, you know that eating pesticide-free food is a big and growing concern these days.  Whole Foods' organic lines fill this need, and we think the company will be growing strongly for many years.

     * Medtronic (NYSE:MDT), a leading medical technology company, has been around for a long time.  It makes a variety products, but is perhaps best known for producing heart pacemakers – its expertise in electrical cardiac stimulation dates back to 1957.  However, it also has developed treatments based on a deep brain stimulation (NYSEARCA:DBS) technology.  DBS appears to be the most effective way of dealing with serious, long-term disabilities such as Parkinson disease, obsessive-compulsive disorders, Tourette Syndrome, multiple sclerosis, epilepsy, distonia, and other neurological disorders.  It may not be the most risk-free approach, and science doesn't yet know exactly why it works.  But the fact is it does work and can bring much relief to people with these long-term conditions.

     *  WebMD Health Corp.(NASDAQ:WBMD), our last choice, is another company with what we see as a very secure future.  You should definitely check out the website.  The company puts very useful and comprehensive health information at your fingertips.  Whatever problem is bothering you or someone in your family, you can become better informed by reading this website.  It's a goldmine for hypochondriacs, worried parents of sick children, and anyone who wants to take better care of themselves.

     Obviously, we could add other compassionate stocks to this list, but this will get you started.

     Keep in mind that the world of the future, a world of commodity shortages, may not be as bad as it sounds at first.  You have many options that can add to your quality of life and financial security, including investing in healthcare.

     

    Tags: CERN, BMY, ODSY, WFM, MDT, WBMD
    Mar 16 3:51 PM | Link | Comment!
  • Sleeping With The Jaguars
    The end of last week brought two important announcements, both of which are relevant to our investments, though not terribly cheerful.
     
    The first of these is the latest report on employment from the Bureau of Labor Statistics. It could not have been worse. The horrific details included a larger than expected decline in employment, both in terms of payroll data and household surveys. Unemployment is nearly 10%, if you don't include people who are underemployed or who have stopped looking for work. (If you do include them, the rate could be closer to 17%.)
     
    You may recall that, back towards the middle of this year, everyone was talking about positive second derivatives. This is a nifty bit of calculus/desperation that claimed that, while things were getting worse, they weren't getting worse as quickly.
     
    Unfortunately, Friday's employment report was clearly a negative second derivative. Not only were the numbers worse than expected, they were worse than the previous month's. Whatever forward momentum the economy has, if any, seems to be much less than previously thought.
     
    Oddly, the market did not sell off very much in response to this news. It seems the driving force behind stock prices today is not fundamentals so much as liquidity. So long as that remains true, overvaluations notwithstanding, we cannot accurately call a top.
     
    Our long standing view remains the same, however. The downside risk today dwarfs any upside potential. Sure, prices could rise a little more, but we feel it's only prudent to take a cautious approach over the near term.
     
    As for the other piece of news, you'd think the IOC must have read last week's update...
     
    IN THE SHADOW OF BRAZIL
     
    On Friday we had the announcement that the 2016 Olympics would take place in Rio de Janeiro, Brazil, rather than Chicago. This decision came despite President Obama's last minute plea to the International Olympic Committee.
     
    The Olympics have evolved into serious business since their revival in the 19th century. A host nation must spend enormous amounts of money to create suitable facilities for the games, in return for which it receives a tremendous economic boost to its economy that persists for many years after the actual event. Certainly, the U.S. economy could have used the help. But then, the Brazilians probably feel they've been poor for too long themselves.
     
    We should note that Brazil's victory comes at the expense of not only the U.S. but also Spain and Japan, two other developed nations. It perfectly symbolizes the passing of the baton from the developed world to the developing world that we discussed in last week's update.
     
    Of course, there's a lot to celebrate in the land of the Jaguar these days. This year, Brazil's economy will likely post positive growth, followed by a 5% gain in GDP in 2010. These are much better results than the U.S. economy can hope to see for some time, a further sign that the developing world may soon surpass the West. When that happens, will Latin America still be “the U.S.'s sphere of influence,” or will we find ourselves sleeping next to a newly invigorated Jaguar? But that's still a way down the road.
     
    As for how to make money during this transition...
     
    COLD WINTERS FOR THE DOLLAR SPELL GOOD TIMES FOR ENERGY
     
    One other recent event worth noting is the G20/G7 meeting. In their public statements, this group has shown a certain reluctance to say that the decline in the U.S. dollar has been overdone. In other words, don't count on them supporting the dollar going forward.
     
    Loss of dollar support is certainly positive news for gold.
     
    A declining dollar will also be positive for oil. But there is something else in the wings that could dramatically accelerate an already sure uptrend in energy prices. We are talking about global warming or the lack thereof. Global warming has become a well entrenched ideology among scientists. Increasingly, however, the consensus view states that the next 10 to 20 years could actually be a cooler period within a long-term warming trend. We could see colder winters and lower average worldwide temperatures during this time. But according to the scientific community, a generation of colder temperatures is not reason to turn up the thermostats.
     
    We have always had trouble with zealots whether they be Scientologists or ivory tower ideologues. And global warming is no exception. A few experiences and recent articles make me especially skeptical.
     
    In the summer of 2008 I attended a conference hosted by Accenture in Rio. Sitting next to me for a good part of this event was the head of the National Oceanic and Atmospheric Administration. This man was a Naval Admiral and a Harvard Ph.D. in applied math. He struck me as a soft-spoken, level-headed, plain-speaking man – certainly not someone inclined towards hyperbole. In addition, as his assistant informed me, he was very thick-skinned.
     
    Turns out he had testified before a Congressional committee on the subject of global warming. His frank answer to the Chairman was that there was not enough evidence to conclude global warming is taking place. The Admiral took a lot of verbal disrespect for expressing such an unpopular view, but his expertise in weather patterns cannot be denied. Nor could the lack of expertise by the Senator who lambasted him.
     
    In light of the data suggesting we may experience a cooler period, I find myself more respectful of the Admiral's view.
     
    I was also struck by a recent article in the August 2009 issue of Science in which scientists found it nearly impossible to incorporate the effect of the sun into climate models. Variability and system feedbacks seem to have a bigger influence on temperatures than the sun's radiation, even though we clearly get most of our heat from the sun.
     
    Well, being unable to determine the sun's role in a climate model is a bit like excluding the role of rainfall from agriculture.
     
    Our point is that we cannot assume the global warming theory is complete and proven. All we know is that we are likely to experience some colder winters in the years ahead, and they will in turn affect the demand for energy.
     
    Colder weather will certainly up the demand for natural gas, oil, and coal, which will in turn drive up the prices of these commodities.
     
    Energy prices are correcting at the moment, as they usually do between the driving season and the heating season. However, if we have a cold winter, we can expect gas and oil prices will be bid up substantially within the next 2-3 months. If people start to realize that cooler winters are a long-term scenario, energy prices may receive a long-term bid as well.
     
    Once again, this bodes well for Brazil, a country which is a net energy exporter. It will impact other developing countries which will be consuming commodities hand over fist. And it will affect the U.S., where year-over-year energy prices show a positive gain despite the recent correction. By the start of next year, energy prices could easily be up 100% y-o-y. In the past, such a high rate of change has always signaled trouble for the stock market and the economy. If it happens this time, in the context of high unemployment, the impact could be worse.
     
    Clearly, you should own energy stocks such as Schlumberger (NYSE:SLB), the leading oil service company, Transocean (NYSE:RIG), the leading deepwater driller, and others in our portfolio. The entire energy patch could see extraordinary gains in the years ahead – the result of a long-term trend that could force Al Gore to return his Nobel Prize.

    Oct 05 4:12 PM | Link | 4 Comments
  • No simple solutions to real life investing
    At my annual medical exam last week, my physician told me something that blew me away. Twelve months ago, when I last saw him, he advised me to take selenium supplements. Selenium is a mineral which can be harmful in large doses. In fact, too much can cause side-effects such as hair loss, lethargy, etc. However, your body does need a small amount of selenium for healthy cell functioning. More to the point, many studies in the past suggested that selenium could inhibit the growth of prostate cancer cells. Consequently, physicians across the country have been telling men my age to take a little extra selenium. I followed my doctor's advice, and have been taking selenium for the past year, in addition to some other nutrients such as Vitamin E, which he also recommended.
     
    Last week, after telling me I was in pretty good shape, my doctor told me to stop taking the selenium. Apparently, a new, very large study has been released in which thousands of men were given selenium and Vitamin E over a five and a half year period. The study found that neither of these supplements nor the combination of both reduced the incidence of cancer. In fact, the only thing taking these supplements may have done was give me an alternative explanation for why I lost a little hair and felt tired at times. (Until then I had just blamed the economy.)
     
    Having a background in research, I decided to look up the studies myself to see why the new study produced such different results. Turns out we really can't blame doctors for having recommended these supplements in the past. The early studies certainly did look promising. The problem was that the old studies were done in vitro, meaning in test tubes, while the new study was performed in vivo, meaning with real life patients.
     
    What happens in a living human body, unfortunately, can be a lot more complicated than what happens in a test tube. And while test tube studies can identify new relationships by looking at processes in isolation, those relationships don't always pan out in real life, where many other factors are involved.
     
    So it is in the world of economics and investment...
     
    WHY OIL DOES NOT MARCH TO ITS OWN DRUM
     
    Economies, like living bodies, are highly complex. As investors, we have to be careful not to look at any one relationship in isolation and make it the be-all end-all. As much as possible, we much stay aware of the interplay between many different relationships and trends.
     
    For instance, let's consider our old friend oil, which is always in the news these days. Today, so far, it's dipped under $70. In honesty, it could fall as low as $60 – temporarily – especially if worldwide growth is weaker than expected. Long-term, of course, I expect oil prices will go much higher. Nonetheless, you will often find oil industry experts extolling ways in which oil prices will stay low, despite rising worldwide demand.
     
    The problem is that experts often overlook the fact that oil does not march to its own drum. One example that comes to mind is a recent article in Scientific American by a Vice President of Eni, a leading Italian oil company. The article makes the familiar case that new technology and conservation might help us stretch out the earth's oil supplies for the remainder of this century.
     
    Like other writers, this VP looks at oil production in isolation. He ignores the interrelationships between oil and other commodities and the role emerging economies will play. Because it takes commodities to produce other commodities, oil is intertwined with a host of other industries in a complex array of relationships. Oil prices depend not just on the global supply and demand for energy, but on the fundamentals of water, copper, iron, nickel, etc. Not to mention emerging market growth, population growth, geopolitics, and other factors. Stress on any one of these factors increases stress on the others.
     
    For instance, another article I came across recently points out that 1.3 billion people today – 4X the population of the U.S. - live on roughly $1.25 a day. Try telling them, from the comfort of your Chevrolet Equinox, that they must limit how much oil, potash, or any other essential commodity they can consume!
     
    Truth is, those poor people are desperate for economic growth to improve their lives. And the only way they can have growth is to ramp up commodity consumption – adding infrastructure, building factories, and ramping up production of goods. You'd do the same in their shoes.
     
    In fact, we really can't have worldwide growth without higher consumption of all commodities. From now on, you can expect to see prices of all commodities rise and fall (but mostly rise) in lockstep with each  other.
     
    Bottom line: stay invested in commodities if you want to benefit from global economic growth. Use dips, such as the one which may be shaping up in the commodity pits at the moment, to add to your positions in companies like Potash (NYSE:POT), BHP Billiton (NYSE:BHP), Schlumberger (NYSE:SLB), and others in our portfolios.
     
    And let's not forget...
     
    THE NEXT GEOPOLITICAL TROUBLE SPOT?
     
    We generally separate gold bullion from other commodities because gold functions as a currency more than a commodity. It's more of a savings vehicle than a raw material to be used up. Because the world is complex and risky today, it is all the more important to invest in the ultimate hedge against disaster, which is gold.
     
    Gold makes even more sense when we consider what's currently taking place along the Saudi/Yemeni border. The popular press hasn't picked up on this yet, but it has serious implications.
     
    Yemen is one of the world's poorest nations. For the past five weeks, rebels in the northern part of Yemen (which borders on Saudi Arabia) have been fighting government forces. In their struggle, the rebels are supported by al Qaeda, even though the rebels are Shia Moslems and al Qaeda are Sunnis. Apparently, the particular Shias and Sunnis in this campaign have decided they have a common target of destabilizing Saudi Arabia.
     
    (Not surprising, rumors are floating around saying that Iran is also providing aid to the rebels. A weaker Saudi Arabia, with its oil reserves, would be an easier and more valuable takeover target for Iran than, say, Israel.)
     
    We can't predict the future, but we can imagine the damage the world economy would suffer from an even less stable Middle East.
     
    One final situation that concerns us is the lack of positive signs from the leading economic indicators. This morning's figures show another month of gains, but only in 60% of the indicators. No recession since the 1960s has ended without at least one month in which 100% of the indicators showed gains. The danger is that the market, which has been betting on a vibrant recovery, could be disappointed.
     
    Because the headwinds today look stronger than the tailwinds, continue to hold zero coupon bonds, in addition to gold, for protection against a downturn in the market.
     
    P.S. My doctor has now recommended I start taking Vitamin D, which the latest research suggests can protect against certain forms of cancer. Like the informed patient I try to be, I looked up the studies on Vitamin D (which were positive) and am now taking it. I'll try to keep you posted on whether this supplement proves truly beneficial over time.

    Sep 21 5:15 PM | Link | 2 Comments
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