InvestMacro Forex News

By MoneyMorning.com.au

You’ve probably heard the growing furore surrounding high–frequency trading (HFT).

It’s been hard to miss the stories.

They’ve come with sensational language like ‘looting investors’, ‘rigged market’ and ‘traders’ conspiracy’. It’s a headline writer’s dream.

But it’s a private investor’s nightmare.

Shareholders around the world are fretting about how HFT could impact on their investments.

Stock market pundits are fanning the flames, clamouring for governments to clamp down.

So, how should you react to HFT? Is it possible for a private investor to beat the speed demons who trade stocks with lightning–fast computer programs?

Well, if you follow my advice, yes, it’s absolutely possible. Let me explain…

American financial journalist Michael Lewis has led the charge against HFT.

Mr Lewis has just released a book, Flash Boys, in which he details the perfectly legal ways that brokers take advantage of everyday investors. His previous books include Liar’s Poker and The Big Short. Because Mr Lewis is a famous, best–selling author, his latest book enjoyed a lot of build–up and the mainstream press gave it a big push.

According to Lewis, HFT is just one of the many ways that big institutions squeeze real money out of everyday traders.

But what is HFT?

Simply put, it’s when a tech–savvy and deep–pocketed player uses high–powered computers to analyse short term market trends and then trade on them faster than a human possibly could.

The software can buy and sell a stock at speeds 100 times faster than the blink of an eye. Each time, the owner gets a tiny profit. But when you trade as frequently as these guys do, and in such large volume, those profits can grow from tiny to titanic.

It’s not too far removed from the penny–shaving scheme that Richard Pryor’s character employed in Superman III.

Here’s where it gets dodgy. As Mr Lewis points out in Flash Boys, some firms have spent billions on dedicated connections that let them see pending trades coming from slower data streams.

That means their software can see incoming buy orders before they hit the market. The HFT firm can then make its own high–speed trade in the knowledge that the slower order will be executed milliseconds later.

Since the computer’s order will increase the stock’s bid price, the HFT firm can essentially buy the stock more cheaply than the hapless investor who sent their order down the slow lane…and sometimes even sell the stock to the slowcoach in the next instant. At the higher price, of course.

In short, the HFT firm forces lots of investors to pay tiny amounts more for their stock than they should have, and pockets the difference. In other words: they scalp the market.

This has been going on since long before Michael Lewis threw the cat among the pigeons.

The chart below appeared in The New York Times almost five years ago. Not much has changed since then. It still clearly demonstrates the advantage that HFT operators enjoy over slower players.

Click to enlarge

But the principle at work here is much older.

The search for speed is a logical extension of what the Rothschild banking dynasty was getting up to more than two hundred years ago.

In the early 1800s, the Rothschild family used carrier pigeons to relay price–sensitive information. It’s said that the Rothschilds got the early mail regarding the outcome of the Battle of Waterloo. That let them fleece the UK bond markets before their competitors got a look–in.

The fact is if you want to make money in any market, fast information gives you a critical advantage. That’s just the way it’s been ever since the ancient Babylonians traded barley.

And yet some pundits are calling for governments to limit or ban HFT.

I disagree with that. Think about it. Do you really want the government dictating exactly how companies and investors can trade with each other?

If so, where does it end? Should one able–bodied investor be penalised by the government because he or she can click the ‘buy’ button faster than a person who isn’t as nimble with a keyboard and mouse?

Sure, that’s an extreme example. But if we let the government throttle commerce like this, it’d take us down a dangerous, expensive and unproductive path.

Inside tips to beat HFT

There’s plenty of heat and noise surrounding this issue. But common sense should still prevail when it comes to dealing with HFT.

So how do you beat the scalpers?

The short answer is this: don’t play their game.

There are only two sure–fire ways that you can avoid getting picked clean by HFT operators.

What’s more, they’re both simple solutions.

Regardless of which solution you choose, here’s an inside tip.

Some retail brokers sell out their customers by diverting their orders and letting HFT strategies pick them apart.

It’s worth executing your trades exclusively through ‘smart’ brokers. These are the ones that let you search for liquidity without signalling your intentions to the market.

HFT preys on the most vulnerable players in the stock market. This helps you make sure you’re not one of them.

Now, to beat the scalpers…

Option 1: buy and hold stocks for the long term.

If you only buy and sell stocks infrequently, you give high–frequency investors far fewer opportunities to make money out of you. If you simply hold a stock, there’s no way for them to profit at your expense.

But here’s how you can get a real edge.

Aim to know the value of what you’re buying. That’s something the machines don’t care about and don’t know.

Grasping the fundamentals of valuation will set you on the path to long term investing success.

Option 2: smaller is better.

HFT firms use huge amounts of money to take advantage of tiny price moves in heavily–traded stocks.

So the simple solution is to avoid the kind of stocks that they target.

That means turning away from the blue chip large–cap stocks whose names you hear on the evening news.

I’m talking about focusing on companies that are small enough to avoid the computer screens of the big trading houses.

Of course, I’m a stock analyst who focuses on the small end of the market, so I must disclose a certain bias.

But this is a big part of what excites me about picking winning small–cap stocks.

I’m always on the lookout for companies that are unloved or under the radar of mainstream analysts. These are stocks that I know techno–savvy share scalpers aren’t interested in.

Small–cap stocks are inherently risky and you should never invest more in speculative punts than you can afford to lose.

But here’s the point. If you trade through a big name broker to buy well known stocks, you might be losing money to deep–pocketed institutional investors every time you make a trade.

But if you look for stocks that the big guys won’t touch…the scalpers aren’t as likely to take a cent out of your pocket.

Cheers,
Tim Dohrmann+
Small–Cap Analyst, Australian Small–Cap Investigator

From the Port Phillip Publishing Library

Special Report: Mining Boom Act II

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By MoneyMorning.com.au

By CentralBankNews.info
    Botswana’s central bank maintained its bank rate at 7.5 percent, saying the economic outlook and inflation forecast is consistent with keeping inflation in the bank’s 3-6 percent medium-term objective.
    The Bank of Botswana, which cut its rate by 200 basis points in 2013 as inflation declined, said moderate domestic demand and expected benign external prices contribute to the positive inflation outlook though this could be affected by unanticipated large increases in administered prices and government levies as well as international food and oil prices beyond the current forecast.
    Botswana’s inflation rate eased to 4.4 percent in March from 4.6 percent in February, with the trimmed mean measure of core inflation down to 4.0 percent from 4.1 percent and inflation excluding administered prices down to 5.2 percent from 5.5 percent.
    Botswana’s headline inflation rate fell to 5.8 percent in 2013 from 7.5 percent in 2012 and the central bank expects inflation to remain within its 3-6 percent range this year.
    The bank said in February this would give it scope to support economic activity through the current accommodative policy stance.
    The International Monetary Fund has forecast 3.8 percent inflation this year and 3.4 percent in 2015.
    The central bank said Botswana’s economy was estimated to have expanded by 5.9 percent in 2013, reflecting a 10.6 percent growth in mining output and 5.2 percent growth in the non-mining sector.
    “It is expected that non-mining GDP will remain below potential in the medium term and this will result in low inflationary pressure,” the bank said, adding the influence of demand on economic activity is projected to be modest, mainly reflecting trends in government spending and personal income.
    The central bank has forecast economic growth of 5.1 percent in 2014, supported by higher government spending. It said in February that government spending for fiscal 2014/15 had risen by 8.5 percent.
    The IMF has forecast 4.1 percent real GDP growth this year and 4.4 percent in 2015.

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By MoneyMorning.com.au

‘There are no dry holes,’ the man said. ‘Every well produces good oil and pays for itself.’

That’s what I learned during a talk with an oil company executive not long ago. The man’s operations are mostly in the Eagle Ford play of south Texas. He told me that just a few years ago, his first well cost nearly $30 million to drill and complete, over almost 60 days.

Now, with multiwell drill pads and reusing everything from rig roads to fracking water, his average cost per well is under $6 million; and drilling takes about seven days, with another seven days for completion. Savings go straight to the bottom line and dramatically improve the economics of every well.

So how does this affect your investing outlook? Let’s dig in.

Now, because everything is connected to everything else, developments in one sector affect investments in another. For example, not long ago, a chart graphing out the number of active rotary drilling rigs in the US over the past four years caught my eye. Here we see the number of rigs compared to average oil prices over the same time (the blue line):

Click to enlarge

As you can see, the number of active rigs rose fast starting in late 2009, during the post–crash oil patch recovery. Generally, the pace of US drilling increased along with a rise in oil prices, from the $70—80 per barrel range to the current $100 per barrel zone.

As the chart shows, in 2012, the number of active rigs peaked and then declined to the current plateau (just under 1,800) over the past year. Within this rig count number, there are more rigs drilling for oil, the price for which has been rising, and fewer rigs drilling for natural gas, the price of which has been relatively low.

The rig count decline also reflects increased efficiency of drilling operations, particularly with horizontal and fracking plays. Using current technology and overall knowledge available in the field, a well–run rig can drill significantly more wells with more efficiency than in the past. This is NOT your father’s oil patch anymore. Today, things operate under an entirely different development model.

Let’s look at a similar chart, covering a much longer period of time. It’s the rig count going back to 1973, along with a chart of oil prices over the same time frame. Notice how the rig count from the first chart (above) is reflected on the far right side of this next chart:

Click to enlarge

Production (as measured by rig count) follows prices over time

You can also see within the second chart reflections of other important global issues. First, note the dramatic US rig count spike in the late 1970s in response to a substantial oil price increase at the time. Back then, world oil prices shot upward due to loss of over 3 million barrels per day of global oil supply when Iranian exports broke down after the Iranian Revolution.

By 1985, however, the US rig count crashed to below 1,000 as oil prices settled downward and traded in a relatively low range during the remainder of the 1980s and into the early 1990s. Those were also years when large volumes of new oil supply came online from places like Alaska, the North Sea, Angola and other locales.

After 2000, oil prices rose along with demand from the fast–growing Chinese economy. In fact, Chinese oil demand exceeded that nation’s production by a long shot and triggered a long oil price rise, eventually fuelled even more by financial speculation.

As the chart shows, oil prices rose over the next eight years and eventually spiked at over $147 per barrel in 2008. This energy–financial distortion had much to do with the ensuing global economic crash — although the US and global housing boom was another key element. On those lines, it’s fair to say that rising energy costs pushed many a household over the financial edge. As I noted at the outset, things are connected to each other.

It’s no coincidence that post crash, the US Federal Reserve flooded the world with liquidity in the form of ‘quantitative easing’ (QE). All that money had to go somewhere, of course, and to be sure, much of it went to bail out banks and prop up the stock market. That was the Fed idea.

However, other floods of QE liquidity hit the oil patch and funded a leasing and drilling boom that has delivered significant new amounts of energy to the US economy.

In the aftermath of the 2008 crash and during the recovery that followed, the US energy industry began to shift more and more assets and capital to directional drilling and fracking in ‘tight’ rocks, particularly shale formations. In other words, the technological nature of the US onshore drilling industry changed in a big way coming out of the 2008 crash.

It’s a story that has yet to be fully researched and written, although we can see the broad idea reflected in oil output charts such as this:

Click to enlarge

As the oil chart (above) makes clear, for many decades, US oil output followed the classic ‘Hubbert curve’ of Peak Oil fame.

But by 2008 and afterward, with the tech revolution and ‘shale gale’ in full gear, US output began to move up sharply. New tech — coupled with significant infusions of capital — changed the shape of the Hubbert curve, and now the US produces as much oil as it did back in the late 1980s, with more to come in future years.

So what’s the takeaway?

Well, consider that every barrel of domestic US oil output displaces an imported barrel, so the effect is twofold, if not more. That is, every ‘new’ US barrel is wealth created in country, at about, say, $100 per pop. Plus, each new domestic barrel displaces an imported barrel, which leads to $100 less leaving the US as part of the trade deficit.

Consider also that over the past three years or so, more and more barrels per day of ‘new’ US oil go through refineries and then get exported as product. In a very basic sense, US refiners buy a $100 barrel of crude and export $200 of product. Again, it benefits the US domestic economy and the trade economics of the country.

In fact, the benefits of increased US oil production have been great enough to partially offset the decline in the dollar caused by the Federal Reserve’s QE policies in the first place. Given how much this influx of oil and gas has strengthened the US economy, despite the banking crisis and its fallout, it’s no wonder that in recent years the US dollar strengthened — and given the dollar’s natural relationship with precious metals, prices for the gold declined.

It gets back to the idea that everything is connected to everything else. Oil relates to money and that energy–money dynamic influences the price of gold. What does this mean for you, the investor? It means that in some respects the two resource investing spheres, energy and metals, are counter–balanced.

And in this case when one side of the resource sector declines, we can expect the other to rise. Meanwhile you can count on us to keep you one step ahead of the market.

Byron King,
Contributing Editor, Money Morning

Ed Note: The above article was originally published in The Daily Reckoning US.

Byron King was one of the keynote speakers at Port Phillip Publishing’s recent World War D conference, along with others including Jim Rickards, Satyajit Das, Richard Duncan and John Robb. If you weren’t able to make it to hear them speak about investing in today’s rapidly changing world, you can still get a ‘virtual seat’ with the DVD and MP3 package here.

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By MoneyMorning.com.au

USDJPY remains in uptrend from 101.32, and the rise extended to as high as 102.72. Further rise is still possible after a minor consolidation, and next target would be at 103.00 area. Support is at the bottom of the price channel on 4-hour chart, only a clear break below the channel support will indicate that the uptrend from 101.32 had completed, then the following downward movement could bring price back to re-test 101.20 support.

Provided by ForexCycle.com

Source: George S. Mack of The Life Sciences Report (4/22/14)

http://www.thelifesciencesreport.com/pub/na/do-the-math-ram-selvaraju-on-the-appeal-of-biotechs-in-orphan-diseases

To cast a spotlight on disruptive biotechnology stocks, Raghuram “Ram” Selvaraju of Aegis Capital Corp. taps his experience as a molecular biologist, preclinical investigator and sellside analyst. In this, the last of his three interviews with The Life Sciences Report, Selvaraju highlights micro-, small- and mid-cap biotech names with therapies that may add years to patients’ lives and liftoff to investor portfolios.

The Life Sciences Report: Ram, we’ve seen some recent weakness in biotech stocks. Is it time for a pullback, or is there something else putting pressure on these stocks?

Ram Selvaraju: All this furor over Congressman Henry Waxman and his allies firing off a salvo to Gilead Sciences Inc. (GILD:NASDAQ) about the pricing of its hepatitis C (HCV) drug Sovaldi (sofosbuvir) probably hasn’t escaped anyone’s attention. I don’t believe that Congressman Waxman, with all due respect, has a leg to stand on. Everyone knows that drug manufacturers customarily provide access to therapies for patients who are indigent, or who don’t have adequate coverage from existing private insurance plans, via compassionate access or expanded use programs. Congressman Waxman’s concern for HCV patients in disadvantaged communities is, in my view, misguided.

That doesn’t even begin to factor in the simple economic argument that Sovaldi, priced at $84,000/patient ($84K) over 12 weeks, is actually saving the healthcare system money because existing HCV regimens must be used for longer periods, such as 48 weeks. Cure is a word we don’t see often with respect to serious disease, but we’ve seen Sovaldi, in fact, cure patients in fewer than 12 weeks. For Congressman Waxman to question the pricing of Gilead’s drug is wrongheaded. The fact that he did that publicly is, in my view, a fundamental reason why the biotech sector was under pressure in March.

Gilead has never publicized its response to Waxman’s letter. It is our belief that the company will stand firm on Sovaldi pricing in the U.S., as it has done on multiple prior occasions when the pricing of its anti-HIV drugs was questioned.

TLSR: I’d like to talk about orphan disease indications. It seems counterintuitive to invest in drug development addressing rare disorders. You can’t expect people to deploy risk capital where there’s no upside, but recent experience teaches us that money can be made. Generally speaking, what’s the value proposition in putting money into development of therapies for rare diseases? Why not just stay in oncology stocks?

RS: I think the principal reason the rare disease space has gotten so much traction with investors, and has been the focus of assiduous effort in drug development, is that the economics are actually very attractive. That attractiveness is driven by two fundamental principles. First, because the patient populations are so small, sales and marketing efforts are likely to be significantly less onerous and less expensive than the mass marketing needed for a primary care-targeted drug. Second, again because of that small number of patients, companies can charge a large amount per patient without getting significant pushback from reimbursement agencies. Keep in mind that every drug’s price, at least in the U.S., is set through a discussion between reimbursement agencies and the purveyors of said drugs.

TLSR: Explain why the market—or payers, in this case—supports large reimbursements for rare disease drugs.

RS: Reimbursement agencies don’t fight high prices because they can spread the aggregate cost of high-priced drugs across their entire subscriber base. For the larger reimbursement agencies, that base represents many millions of people. If all those people are paying their health insurance premiums every year and only 1 in 10,000 or 20,000—or maybe even 1 in 100,000—insured patients is in need of a rare disease drug, the cost of that drug is spread over the very large population of covered lives. The reimbursement agencies will happily agree to that because if they don’t provide some incentive, nobody is going to provide drugs for these diseases, many of which are chronic in nature and are underserved by existing therapies.

You suggested investors might stay in the oncology market. A number of rare cancers have cropped up over the course of the past several decades. Many of them are in the domain of hematologic oncology—the blood cancers. Particularly notorious among these are hairy cell leukemia, natural killer-cell lymphoma, peripheral/cutaneous T-cell lymphoma, blastic plasmacytoid dendritic cell neoplasm (BPDCN) and the like. As a large number of these rare cancers afflict very small patient populations, cancers are not exempt from the rare disease category.

TLSR: The difference between rare hematologic cancers and other rare diseases is that the drugs useful for BPDCN and others might be useful in several hematologic diseases. The drug developer can get an approval in the rarest disease, and then begin doing clinical trials in the less rare disease categories, at the same time some physicians begin to use the agents on an off-label basis. I see a difference between the two categories that you mentioned. How do you see that?

RS: I would say that there are extremely rare niche indications everywhere. Some are metabolic in nature, some are oncology-focused and others are central nervous system (CNS)-related. Some diseases were considered rare a few years ago, but seem common today. A good example of that phenomenon is multiple sclerosis (MS). About 15–20 years ago, MS was considered a rare disease, but its prevalence and incidence have been clarified to the point that now at least 500K people are living with the disease just in the U.S. That is clearly above the 200K-patient threshold, the figure used in the Orphan Drug Act to specify what should be classified an orphan disease. Cystic fibrosis is another disorder still well below the Orphan Drug Act’s defined threshold, but it is not something that can be considered ultra-rare any more.

TLSR: What constitutes an ultra-rare disease today?

RS: To me, ultra-rare diseases represent a treatable patient pool of 10—15K individuals or less. There are some rare diseases that afflict only 500–1K patients. That’s what I would call hyper-rare, and it’s very difficult to make money with these because even if a company prices a drug high, it’s going to be difficult to get enough patients to justify the expense associated with clinical development and launch.

It’s also impractical to do expensive Phase 3 trials in hyper-rare indications because so few people have the diseases. That brings up another important question: Given so few people, how does an investigator really demonstrate the effectiveness of a drug? It’s not possible to do a well-powered Phase 3 trial. BPDCN is ultra-orphan, with only 2K patients/year diagnosed. We cover Stemline Therapeutics Inc. (STML:NASDAQ), which is developing SL-401 (human recombinant IL-3 coupled to a truncated diphtheria toxin payload) targeting IL-3R-positive cancers, with BPDCN being the lead indication. This year the company is launching a Phase 2, single-arm trial with only 40 patients, which could lead to approval and launch in 2015.

Another case in point is Catalyst Pharmaceutical Partners Inc. (CPRX:NASDAQ), which we cover. Catalyst is developing Firdapse (amifampridine) for the treatment of an autoimmune neuromuscular disease called Lambert-Eaton myasthenic syndrome (LEMS). The number of LEMS patients across the globe is only estimated at 3–4K. Catalyst is currently doing a Phase 3 trial, and announced on April 1 that it had completed its 36-patient enrollment in the study. It’s a very small trial for a Phase 3, but that’s the largest you can run in a very rare disease like this.

TLSR: Let’s talk about Catalyst for a moment. Your target price is $6, which is more than a double but not quite a triple from current price levels. You have written that Firdapse is very derisked because this molecule has been used for many years in Europe for LEMS. Given that you see it as a derisked asset, why do you believe there’s still so much upside?

RS: A lot of the issues surrounding Catalyst involve the firm’s past. Back in 2009 it failed in Phase 2 with a drug called vigabatrin for the treatment of addiction. Since then the company has been on the comeback trail. Catalyst’s new drug, Firdapse, as you said, has been marketed for quite some time in Europe, where it is the property of BioMarin Pharmaceuticals Inc. (BMRN:NASDAQ), which retains about a 13% ownership stake in Catalyst. BioMarin licensed Firdapse to Catalyst for North America.

While this drug will never be a blockbuster, our view is that it could easily generate around $100M in net sales for Catalyst in North America alone, and should represent a substantial and lucrative market opportunity for a company with a current market cap of just $134M. That’s especially true when you consider that one of the key attractions of rare diseases is that companies don’t need to spend a lot on sales and marketing. There is a named-patient registry for LEMS patients, and it is unlikely that Catalyst will need a sales force of 20–25 people to promote this drug—that is, if the company remains independent. I would argue that if Catalyst manages to secure marketing approval in the U.S. for Firdapse, BioMarin, a company with a $9 billion ($9B) market value, would at least entertain the thought of buying it.

Another reason I consider Catalyst risk-mitigated is that Firdapse is not the only drug the company possesses. Catalyst has a Phase 2 agent called CPP-115, which is a derivative of vigabatrin. Vigabatrin has since been brought to market successfully by Sanofi SA (SNY:NYSE) for other indications. CPP-115 was designed to specifically address some of the toxicities associated with vigabatrin, mainly visual field defects. But CPP-115 could be considered superior to vigabatrin in all the indications where vigabatrin is approved, or has been used successfully in the past. This includes a long line of indications such as epilepsy, infantile spasms, refractory complex partial seizures and the like.

At this juncture, Catalyst is trading at a market valuation that has not accorded any value whatsoever to CPP-115. This is surprising from our perspective, because clearly vigabatrin works. Its derivative, CPP-115, is closely related in mechanism of action and was designed by Richard Silverman, a professor emeritus of chemistry at Northwestern University who was responsible for the design of two blockbuster drugs in the CNS space, Neurontin (gabapentin; Pfizer Inc. [PFE:NYSE]) and Lyrica (pregabalin; Pfizer). Both Neurontin and Lyrica secured peak sales of multiple billions of dollars in the U.S.

To me, not only is Catalyst a risk-mitigated value proposition, but there is significant potential for upside. We believe that our price target price could potentially underestimate the company’s overall long-term prospects.

TLSR: Just to be clear, Firdapse is the primary driver of Catalyst Pharmaceutical at this point, and it’s where the company is directing its capital resources. Is that right?

RS: That is correct. Catalyst has enough capital on hand to complete its Phase 3 trial with Firdapse, report results and file the new drug application (NDA), which we anticipate will occur at the end of Q1/15. But it would need more capital to continue operations through to approval and launch of Firdapse.

TLSR: Is Catalyst still on track for a H1/16 launch of Firdapse?

RS: I would anticipate so, yes. That might well wind up being conservative, because this drug has breakthrough therapy designation, which typically implies faster review times at the FDA. Assuming Catalyst can get the drug filed at the FDA by the end of Q1/15, Firdapse has a substantial possibility of being approved before the end of 2015, which means it could be on the market before the end of 2015, at the earliest. All of these timelines bode well for an investor in Catalyst.

TLSR: We have seen investor interest cycle through HCV to orphan drugs. I’m wondering if you think stem cell companies are next in line. I know you follow a couple of stem cell companies that have milestones this year. Could 2014 be the year investors notice stem cell developers?

RS: We’ve been focused on the stem cell space for quite a while, and have two stem cell-focused companies under coverage, these being Neuralstem Inc. (CUR:NYSE.MKT) and NeoStem Inc. (NBS:NASDAQ). In both of those cases, we believe that 2014 could be a transformative year.

In the case of Neuralstem, we’ve seen the company go from strength to strength. It has put out a great deal of favorable preclinical data recently in animal models. The company also plans to begin dosing in a Phase 1/2 study assessing its proprietary NSI-566 (human fetal spinal cord-derived stem cells) in the context of spinal cord injury (SCI), an indication in which it recently received formal clearance from the FDA to begin treating patients. It has a Phase 2 study ongoing with NSI-566 in amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s disease, which is slated to wrap up patient dosing about the middle of this year, and could potentially report initial efficacy data late in H2/14. One endpoint is to demonstrate a noticeable and meaningful impact on various functional outcomes—forced vital capacity, or the ability to breathe, in particular. With progressive motor neuron disease, ALS patients effectively lose the ability to walk, stand, swallow and breathe on their own. If this drug is able to regenerate patients’ ability to breathe, clearly that would be grounds for accelerated approval—and that would obviously be grounds for a substantial influx of interest in Neuralstem’s stock.

Those two significant value drivers for Neuralstem, which could be considered transformative, occur this year. The initiation of patient dosing in spinal cord injury is a very substantial matter, since spinal cord injury is a complete greenfield opportunity. Nothing currently approved does anything meaningful for these patients. Any impact from the Phase 2 ALS study would be grounds for the company to go to the FDA and ask for accelerated approval, conditional or otherwise.

TLSR: You briefly referenced Neuralstem’s animal data. On March 28 the company reported an ischemic-stroke study in rat models where post-stroke signs were dramatically improved. I’m noting that Neuralstem’s NSI-566 cells actually engraft in the animal’s CNS, which is very much like the StemCells Inc.’s (STEM:NASDAQ) therapeutic model.

RS: That is correct, and is one of the characteristics that first drew us to Neuralstem. When we visited the company’s laboratories in San Diego back in 2010, the team showed us histology data from rat experiments, which not only demonstrated engraftment of human neural stem cells onto rat nervous system tissue, but showed that the human neural stem cells were able to completely regenerate rats’ spinal axonal tracts across the entire rostrocaudal length—meaning that the nerves grew from head to tail. That’s unprecedented. I myself did experiments with cells when I was working in industry, and I never managed to obtain results like that.

This work was the basis for a seminal paper in the journal Cell, “Long-Distance Growth and Connectivity of Neural Stem Cells after Severe Spinal Cord Injury.” Cell is one of the highest impact-factor scientific journals in the world. I expect this is the fundamental thrust of Neuralstem’s ability to demonstrate clinical efficacy with its proprietary neural stem cell-based preparations. The science is cutting edge, and of a very high quality.

TLSR: What about NeoStem? What are you looking for in 2014?

RS: NeoStem has an important upcoming milestone. In six or seven months, the company will unveil data from its Phase 2b PRESERVE trial, with its stem cell solution, AMR-001 (autologous bone marrow-derived CD34+/CXCR4+-enriched cells) aimed at treatment of ST-elevation myocardial infarction (STEMI).

STEMI is one of the most serious forms of heart attack, and is very difficult to treat with existing interventional means. NeoStem is effectively administering AMR-001 into the cardiac tissue, where the cells are expected to play a role in tissue remodeling and prevention of the long-term damage that typically results from the ischemia associated with STEMI. The PRESERVE study closed enrollment in mid-December 2013, and the company anticipates results within about eight months of the close of enrollment—in the October timeframe. If AMR-001 demonstrates statistically significant impact in STEMI, I anticipate it could capitalize NeoStem to be valued at more than $1B. The company currently has a market cap of just under $200M.

TLSR: The PRESERVE trial is with 160 patients, according to ClinicalTrials.gov, and is randomized and double-blind. If the data are statistically significant, would the FDA ask for another study?

RS: It’s debatable whether the FDA would ask for more trials before AMR-001 could be filed for approval. However, if the data are positive, NeoStem will most likely be able to enter into a partnership in the regenerative medicine space. I think the company would be a perfect potential addition for a company like Baxter International Inc. (BAX:NYSE), which intends to split into two entities, very similar to the way Abbott Laboratories (ABT:NYSE) split into Abbott Labs, its medical equipment division, and AbbVie, the pharmaceutical division. I believe that once Baxter’s split is complete, likely in early 2015, the Baxter biotech unit is going to extend its initiative into regenerative medicine, because that’s really what Baxter is all about. Baxter would be one of the frontrunners to partner with NeoStem on AMR-001 if the PRESERVE study reports positive results.

TLSR: StemCells Inc. has demonstrated durable engraftment with its HuCNS-SC cells (purified adult human neural stem cells) in the brains of deceased patients with lysosomal storage disorders. The tissue with engrafted cells was taken at autopsy. Are you familiar with StemCells Inc.?

RS: Yes, I am familiar with the company. StemCells and Neuralstem have been fighting a running legal battle because they have overlapping intellectual property (IP), and each wants to be declared the one whose IP has priority. As of yet, there doesn’t seem to be an end in sight to the litigation. The two companies are targeting different indications, but in my view, the science at StemCells Inc. isn’t as good as the science at Neuralstem. StemCells Inc. does not have the publication track record that Neuralstem possesses. But that’s just my opinion.

I think there’s more than enough room for both of these companies. I would laud any future efficacy data that StemCells Inc. is able to generate that showcase the principle of neural stem cells being able to generate therapeutic efficacy in various contexts. But as of right now, we cover Neuralstem because we believe it has higher quality science.

TLSR: The last time we spoke, you brought up Acorda Therapeutics Inc. (ACOR:NASDAQ), which you recommended when it was just $2/share. Could you talk about your value proposition for Acorda?

RS: Yes. I’ve followed Acorda Therapeutics for a lengthy period of time, and I know its CEO Ron Cohen very well. He is a physician, and has always been focused on meeting the needs of patients. Acorda has been a groundbreaking company, and I think it’s been one of the most underrated stocks in the biotech sector for a long time. The company currently markets Ampyra (dalfampridine), which is the world’s only MS drug approved for use across the entire spectrum of MS, a disease for which there is no cure.

Initially MS manifests itself as a series of attacks, in which patients can’t get out of bed in the morning. They find it difficult to walk, they suddenly fall down, things like that. Existing drugs reduce the extent to which those attacks occur, and their severity, but over time every patient progresses and winds up with long-term disability.

Acorda’s Ampyra is the only agent specifically aimed at improving walking ability in MS patients. It was a groundbreaking therapy when it was approved in January 2010. In my estimation, Ampyra still represents good value for the money because many MS drugs have dramatically increased in price, and Ampyra costs less than $20K/year/patient—a bargain when you consider other agents are in the $50–$60K/year/patient range, even though they are not useful in progressive forms of the disease, whereas Acorda’s drug is.

What I think makes Acorda particularly compelling is that it is developing Ampyra as a treatment for post-stroke deficit. There are 7M people in the U.S. alone with some form of post-stroke cognitive or neurological deficit, such as in the ability to walk, in hand strength, in manual dexterity. The idea is that Ampyra would have the same efficacy in stroke patients that it does in patients with MS. The MS population is, at maximum, only 700K people; the post-stroke deficit market is at least 10 times as large. You can go ahead and do the math.

Acorda is starting a Phase 2b/3 study this year in post-stroke patients, which should read out early next year. If that study is positive, we anticipate that Acorda could get approval in this indication. Acorda is trying to get Ampyra approved in post-stroke deficit on a once-daily basis, where it would have entirely new IP protecting the drug until beyond 2030. It currently has issued IP on Ampyra in MS that goes out to 2027.

TLSR: Is the market ascribing enough value to Ampyra, especially considering the much larger market in post-stroke deficit?

RS: I don’t believe that the market is currently valuing Acorda correctly. Investors appear to think that Ampyra will face generic competition in MS before 2027. And I don’t believe the market is adequately valuing the importance of the post-stroke deficit indication, which is a greenfield opportunity. Like ALS, there is nothing currently approved that can address these disorders, and affected patients are begging for therapy.

On top of everything else, Acorda is going to use what’s called a “responder analysis” in its Phase 2b/3 trial in post-stroke deficit. This is the same clinical study design it used in MS, where both Phase 3 trials were positive. We’re very bullish on Acorda’s prospects; we think that this company could be a force in post-stroke deficit, and we believe the market is currently undervaluing its potential in both indications. Acorda also has a rich pipeline.

TLSR: I know you follow Galectin Therapeutics Inc. (GALT:NASDAQ). This company’s shares are showing relative weakness even against a weak biotech market. What’s your case for this company?

RS: Galectin is a very interesting case. It reported positive data on April 1 from the first cohort in a Phase 1 study of GR-MD-02 (galactoarabino-rhamnogalaturonate) in patients with nonalcoholic steatohepatitis (NASH), or fatty liver disease. This was not a plain-vanilla Phase 1 study in healthy volunteers, so I was surprised by the relatively negative, lukewarm market reaction.

Galectin’s market cap is less than $300M, and this weakness has created a buying opportunity. The company’s closest direct comparable, in my view, is a company called Intercept Pharmaceuticals Inc. (ICPT:NASDAQ), which is currently trading at a market cap of less than $5B. I do not believe that this huge discrepancy in valuation between Galectin and Intercept is in any way justified. I can tell you that the Intercept drug, obeticholic acid (OCA), is effective, and the company may be three to four years ahead of Galectin’s GR-MD-02 in its development cycle. But OCA is not approved, and it has side effects, especially at higher doses. Patients on OCA have been shown to scratch themselves so severely that they bleed, and the drug has been associated with a higher incidence of elevated cholesterol and cardiovascular side effects. Not only does OCA have safety issues, it also cannot reverse liver fibrosis. It can attenuate the progression of liver fibrosis (i.e., slow it down), but it cannot reverse it, which is the target indication.

Our contention has always been that Galectin is potentially a best-in-class company because its drug, GR-MD-02, based on the company’s proprietary galectin-inhibiting platform, has the ability not only to attenuate the progression of fibrosis, but to actually reverse it.

TLSR: Ram, I assume that you perceive GR-MD-02 to be low on side effects and toxicity.

RS: That’s what we’ve seen from the initial cohort of patients. There were no significant treatment-emergent adverse events. The drug was safe and well tolerated, and it also demonstrated, most importantly, attenuation of both fibrosis markers and inflammation markers. Pro-inflammatory cytokines went down. Markers of liver injury went down. Markers of fibrosis went down. These were all assayed using serum biomarker endpoints. The company didn’t actually take biopsies of tissue from the liver to observe the histopathology, but that’s going to come in Phase 2.

One other thing: Since all of Galectin’s drugs, including GR-MD-02, are based on very simple carbohydrate chemistry, they break down in the body to nothing more harmful than simple sugars and water. It is highly unlikely, in our view, that any of Galectin’s drugs would ever show systemic toxicity, or any substantial side effects. All the indications are that Galectin could have a best-in-class drug, and I do not believe the market is adequately giving it credit.

TLSR: Let me ask you about one final company today. Although it’s not in your formal coverage, I know you are familiar with Arno Therapeutics Inc. (ARNI:OTC.MKTS). It’s an early-stage oncology company with several clinical-stage assets. Tell me what the company is focusing on. What are the value drivers in the pipeline?

RS: In my view, the principal driver is onapristone, which is currently in a Phase 1 dose-escalation trial in post-menopausal women with breast and endometrial cancers. The drug is slated to enter a Phase 2 trial before the end of this year. Onapristone is also in clinical development in castration-resistant prostate cancer (CRPC).

Given the multiple cancer indications in which onapristone could be deployed, I believe it could legitimately be considered a pipeline in a single product. Moreover, onapristone has a large-cap pharmaceutical pedigree, having originated from the laboratories of Schering AG, now a unit of Bayer (BAYN:XETRA), and has several unique attributes, including an ability to inhibit nuclear translocation of the mutant progesterone receptor, which is known to be capable of constitutive activation. Thus, we believe that onapristone may be able to evade cancer cells’ canonical mechanisms of resistance.

TLSR: Given onapristone’s mechanism of action in targeting progesterone receptor-positive tumors, how large could the market be?

RS: The cancer types that onapristone is expected to be deployed against represent very substantial markets—breast cancer, endometrial cancers and CRPC, for starters. Even if we assume onapristone winds up a drug of last resort for individuals whose cancer has become resistant to existing therapies, the market could be huge. It would include patients whose cancers have become resistant to drugs such as Tykerb (lapatinib; GlaxoSmithKline [GSK:NYSE]) or Herceptin (trastuzumab; Genentech/ Roche Holding AG [RHHBY:OTCQX]) for breast cancer, or Xtandi (enzalutamide; Medivation Inc. [MDVN:NASDAQ]) or Zytiga (abiraterone acetate; Janssen Biotech Inc., a unit of Johnson & Johnson [JNJ:NYSE]) for prostate cancer.

TLSR: Arno has a couple of Phase 1 programs, aside from onapristone, and a Phase 2 program in glioblastoma multiforme (GBM). Since onapristone is such an early-stage molecule—now in a dose-finding, open-label trial of just 60 patients—how do investors place a value on a program that’s so immature?

RS: A surprising number of savvy investors have ponied up capital. They include UCLA urologist and biotech startup entrepreneur Arie Belldegrun, venture capital firm Pontifax Group in Israel, and OPKO Health Inc. (OPK:NYSE) CEO Phillip Frost, who is a physician and also chairman of Teva Pharmaceutical Industries Ltd. (TEVA:NASDAQ). Belldegrun, in particular, is notable because of his background as a urologic oncologist and because of his track record in the biotech sector, having founded Agensys Inc., a developer of therapeutic monoclonal antibodies, which was sold to Astellas Pharma Inc. (ALPMF:OTCPK) in 2007 for $537M. These investors see the promise in onapristone from a mechanistic perspective, and they have not been afraid to invest at this early stage.

In addition, the company is developing a proprietary companion diagnostic, which makes it all the more attractive and positions onapristone in the same vein as other personalized medicine approaches in cancer, which have achieved significant traction in recent years. Onapristone is the focus, but the other molecules that Arno is working on—namely, AR-42 and AR-12—are both aimed at hot targets (histone deacetylases and the PI3K/Akt pathway, respectively), and therefore could become important value drivers within the next 18–24 months.

TLSR: Onapristone is a type 1 progesterone receptor antagonist, and I know there have been some clinical-stage setbacks in this realm. Has this scared investors away?

RS: The progesterone receptor is a validated target, and no other drugs hit this receptor in the same manner as onapristone. I don’t think those earlier failures have much relevance for Arno Therapeutics and consideration of the risk factors inherent to this company as an investment. The setbacks were in the treatment of uterine fibroids. There is a lot of evidence of efficacy for selective progesterone receptor modulators in uterine fibroid treatment, but the main issue was side effects. In the case of Arno’s drug, while the mechanism may be similar, the clinical indications being targeted are completely different. Even if Arno’s drug has menstruation-suppressing capacity, this would not be a concern in post-menopausal women and obviously not in men with CRPC. Also, the side effect-burden tolerability is much higher in cancer than in other indications.

That said, let me reiterate that, as with any other investment, there are risks associated with Arno Therapeutics. However, we see onapristone as an attractive drug, and would note the distinct similarities in the way onapristone works and the mechanism of action for Medivation’s groundbreaking drug Xtandi. Xtandi has the unique ability to block nuclear translocation of the androgen receptor. Arno’s drug does the same thing, only with the progesterone receptor. The basic impact is the same—to make resistance much more difficult for the cancer cells expressing these mutant, constitutively active receptors.

TLSR: Thank you very much. A pleasure, as always.

RS: The pleasure was mine.

Raghuram “Ram” Selvaraju’s professional career started at the Geneva-based biotech firm Serono in 2000, where he discovered the first novel protein candidate developed entirely within the company. He subsequently became the youngest recipient of the company’s Inventorship Award for Exceptional Innovation and Creativity. Selvaraju started in the securities industry with Rodman & Renshaw as a biotechnology equity research analyst. He was the top-ranked (#1) biotech analyst in The Wall Street Journal’s “Best on the Street” survey (2006) and went on to become head of healthcare equity research at Hapoalim Securities, the New York-based broker/dealer subsidiary of Bank Hapoalim B. M., Israel’s largest financial services group. While at Hapoalim, Selvaraju was regularly featured in The Wall Street Journal, Barron’s, BioWorld Today, and Reuters/AP. He was also a regular guest on the Bloomberg TV program “Taking Stock,” appeared with Bloomberg TV’s on-air correspondents Betty Liu and Gigi Stone and was a guest on CNBC’s “Street Signs with Herb Greenberg.” He is currently an analyst with Aegis Capital Corp.

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DISCLOSURE:

1) George S. Mack conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Arno Therapeutics Inc., OPKO Health Inc., StemCells Inc., Neuralstem Inc., NeoStem Inc. Streetwise Reports does not accept stock in exchange for its services.

3) Raghuram Selvaraju: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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By Dennis Miller, Miller’s Money Forever

Doug Casey is emphatic that a downturn will affect us all. When it comes, we want to minimize the damage. That’s particularly challenging for baby boomers and seniors who may be at, or past, the end of their careers.

In the past I’ve shared some experiences from speakers who had real world experience with hyperinflation. It is not pretty. They were quite candid that many previously wealthy seniors and savers ended up penniless before things got under control. That’s the ultimate catastrophic loss.

So how can you test your safety through diversification?

Start by posing a series of hypotheticals: If this were to happen, how would it affect my portfolio?

Let’s go through a strong sample portfolio, by way of example.

#1. What could happen with a 40% or greater downturn in the market that did not recover for a decade or more?

A good portfolio has good sector diversification; however, even the best would not be immune to an overall market drop. If you have 50% of your portfolio invested with a 20% stop loss, the most you could lose is 10% of your overall portfolio. Diversification is the first step in protection. Additional circuit breakers like strict position limits and stop losses help too.

By using trailing stops, you can enjoy profits from the rising market and protect yourself from a sudden, sharp downturn.

The worst-case scenario: You get stopped out of your positions and have money to invest in a down market—while protecting yourself from catastrophic losses. While no one wants to take a double-digit drop, you would be breathing a sigh of relief for being well diversified and having stop losses and strict position limits in place.

#2. What could happen if we saw a significant jump in interest rates?

This could have an effect on the market, so some of your stocks might be affected. For bond positions with short-term maturities and very low durations you could either hold them to maturity or take a small loss.

#3. What could happen if our government instituted currency controls in response to runaway inflation?

We have written extensively about why part of your portfolio should be invested internationally, which is another form of geographical diversification. If the government followed currency controls with emergency taxes like they did in Cyprus, we could be faced with serious losses. The best hedge against this type of government action is to have some of your nest egg out of the immediate grasp of a predatory government. Many investors in Cyprus fared well because they had some investments outside the country.

#4. What happens there is a rapid jump in inflation?

We are adamant that everyone should keep a good portion of their overall portfolio in core holdings—about 10% or so. Core holdings are a necessary foundation before going into the market. Their purpose is to combat inflation and ensure survival. History has shown that people living through hyperinflation go into survival mode. Hopefully, we never have to experience that… and tap into our core holdings to eat.

Our investment recommendations at Miller’s Money Forever correspond to the portion of your portfolio you want to invest with maximum safety while earning enough to supplement your retirement income. A well-diversified portfolio will also include ample allocation to your core holdings and a smaller allocation to speculation.

#5. What happens if our government decides to confiscate gold again like President Roosevelt did in the 1930s?

We would all comply with the law. Those who saw fit to protect themselves by diversifying and owning metals internationally may be better off. With the world as it is today, however, there is no guarantee our government would not try to confiscate metals you own in other countries or perhaps levy a huge tax on those holdings.

The Foreign Account Tax Compliance Act (FACTA) requires investors to report all of their foreign holdings in excess of $10,000 each year. It would be much easier for the government to try to tax or confiscate foreign holdings than it was in the 1930s.

Many wealthier investors are investing in foreign real estate. That is one thing that is impossible to repatriate (although I wouldn’t be shocked if they tried). There are many experts who specialize in international asset protection.

Why is internationalizing so important? With history as our guide, if the government confiscates gold, it would then peg the dollar to gold at a much higher than current market price. The purpose is to stop runaway inflation, which is, in effect, a pseudo default on all government debt. That would dramatically reduce the value of the dollars held by all citizens, making them dramatically poorer almost overnight.

These are just some examples of events that could have a dramatic impact on seniors and savers. Do we want to handicap the probability? Not me. If any of them did occur, an unprepared investor could incur catastrophic losses. Some might be unable to ever recover.

If none of these hypotheticals ever come to pass, great! I have never complained when a home fire extinguisher had to be replaced because it expired. I hope I never have to pull the pin and use one. There are just prudent safety precautions you have to take. Better safe than sorry.

Diversification is indeed the holy grail of asset protection, if done properly. This includes investment vehicles, currencies, locations, sectors, and timing, to name a few. The next level of protection is position limits and appropriate stop losses. If there is a downturn and it affects only a portion of your portfolio, you may take a loss. Don’t forget the overriding goal: to avoid catastrophic losses.

Miller’s Money Miller’s Money Forever

By CentralBankNews.info

• ECB Coeure: Still room to lower key rates: press (MNI)
• Turkish central bank may keep rates on hold, ease reserves rules (Reuters)
• Dollar and dairy prices due to alter Reserve Bank’s OCR track (Reuters)
• China details cut in rural banks’ reserve requirements (WSJ)
• Draghi gauges Ukraine effect as ECB tackles low inflation (Bloomberg)
• Gov’t frustration ‘risks central bank’s independence’ (Sydney Morning Herald)
• Philippine two-year bonds drop on interest-rate speculation (Bloomberg)
• Slovak banking industry can withstand crises, central bank says (Bloomberg)
• Swedish lesson show even deflation cannot cure the house price bubble (Telegraph)
• Bank Indonesia shifts focus to supply-side of inflation (Jakarta Post)
• U.S. labor force dropouts want back in: Saft (Reuters)
• International policy cooperation: No ‘effective’ advocate (Live Mint)
• Dominican public debt tops 26.2% of GDP: central bank (Dominican Today)
• Oman expects 5% growth in 2014 – central bank (Reuters)

It looks as though the Nasdaq is about ready for another leg lower. Watch these key resistance levels for a short trade this week.

Get These Trade Alerts Every Week with Chris Vermeulen’s ETF Trading Newsletter

Article by Chris Vermeulen

Technical Sentiment: Bearish

Key Takeaways
• AUD/NZD remains capped at 1.0909 ahead of RBNZ this week;
• A break above the resistance is required for the long term uptrend to be validated;
• A pull back below 1.0830 and lower favors the Kiwi.

The last two months has seen Aussie rally higher against the Kiwi, from 1.0535 to 1.0909, pushing for a reversal of the long term downtrend. With a higher swing low in March, the trend will switch to bullish if AUD/NZD completes a higher swing high above 1.0909 – 1.0941. The strategic consolidation ahead of RBZN this week – with expectations that interest rates will be increased from 2.75% to 3.00% – will shape the landscape for weeks to come, depending on which direction the pair finally breaks.

Technical Analysis

As traders are anxiously waiting for the Reserve Bank of New Zealand’s interest decision on Wednesday, Aussie bulls met strong opposition for the third time since last week when reaching 1.0909. This resistance line was also respected back in December 2013 and February 2014; with 38.2% Fibonacci Retracement level (from 1.1576 down to 1.0488) further increasing the resistance confluence.

With a higher swing high in March, AUD/NZD appeared set to break the long term downtrend and establish a higher high above 1.0909 – 1.0941, towards 1.1078 – the 200-Day Moving Average on the Daily chart. The bullish scenario will be placed on hold if AUD/NZD confirms the triple top reversal pattern. A break through the support trendline from March and the 1.0832 price pivot zone will extend downside potential towards the 1.0735 pivot zone (50% Fibonacci retracement and 200 Simple Moving Average on the 4H timeframe). Daily Stochastic is in overbought territory, condition which also suggests a correction is in play.

Resistance levels: 1.0909; 1.0941; 1.1032; 1.1078.
Support levels: 1.0832; 1.0735; 1.0640.

*********
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets

By Laurynas Vegys, Research Analyst, Casey Research

Today I want to talk about crises. Two of the most notable ones that have been in the public eye over the course of the past 6-8 months are obviously the conflicts in Ukraine and Syria. The two are very different, yet both seemed to cause rallies in the gold market.

I say “seemed” because, while there were days when the headlines from either country sure looked to kick gold up a notch, there were also relevant and alarming reports from Argentina and emerging markets like China during many of the same time periods. Nevertheless, looking at the impressive gains during these periods, one has to wonder if it actually takes a calamity for gold to soar.

If so, can the yellow metal still return to and beat its prior highs, absent a major political crisis or a full-blown military conflict? My answer: Who needs a new crisis when we live in an ongoing one every day?

More on this in a moment. Let’s first have a quick look at what happened in Ukraine and Syria as relates to the price of gold. Here’s a quick look at the timeline of some of the major events from the Ukrainian crisis, followed by the same for Syria.

There seems to be a fairly clear pattern in both of these charts. Gold seems to rise in the anticipation of a conflict; once the conflict gets going, or turns out not as bad as feared, however, it sells off.

We see, for example, that as the news broke that chemical weapons were being used in Syria and Obama was threatening to intervene, gold moved up. But when the US did not wade into the bloodshed and Putin proposed his diplomatic solution, gold slid into a protracted sell-off, ending up lower than where it began.

It’s impossible to say with any degree of certainty how much of gold’s recent rise was due to anticipation of the Ukraine/Crimea crisis, but there were certainly days when gold seemed to move sharply in response to news of escalation in the conflict. And again, after it became clear that the US and EU would do little more than condemn Russia’s actions with words, gold retreated. As of this writing, it’s down about $85 from its high a little over a month ago. (We think many investors underestimate the potential impact of tit-for-tat sanctions, but they are not wrong to breathe a sigh of relief that a war of bullets didn’t start between East and West.)

In sum, to the degree that global crisis headlines do impact the price of gold, the effects are short-lived. Unless they lead directly to consequences of long-term significance, these fluctuations may capture the attention of day traders, but are little more than distractions for serious gold investors betting on the fundamentals.

You have to keep your eye on the ball.

The REAL Crisis Brewing

Major financial, economic, or political trends—the kind we like to base our speculations upon—don’t normally appear as full-fledged disasters overnight. In fact, quite the opposite; they tend to lurk, linger, and brew in stealth mode until a boiling point is finally reached, and then they erupt into full-blown crises (to the surprise and detriment of the unprepared).

Fortunately, the signs are always there… for those with the courage and independence of mind to take heed.

So what are the signs telling us today—what’s the real ball we need to keep our eyes upon, if not the distracting swarm of potential black swans?

The big-league trend destined for some sort of major cataclysmic endgame that will impact everyone stems from government fiscal policy: profligate spending, leading to debt crisis, leading to currency crisis, leading to a currency regime change. And not in Timbuktu—we’re talking about the coming fall of the US dollar.

The first parts of this progression are already in place. Consider this long-term chart of US debt.

Notice that government debt was practically nonexistent halfway through the 20th century, but has seen a dramatic increase with the expansion of federal government spending.

Consider this astounding fact: The government has accumulated more debt during the Obama administration than it did from the time George Washington took office to Bill Clinton’s election in 1992. Total US government debt at the end of 2013 exceeded $16 trillion.

Let’s put that in perspective, since today’s dollars don’t buy what a nickel did a hundred years ago.

Except for the period of World War II and its immediate aftermath, never before has the US government been this deep in debt. Having recently surpassed the threshold of 100% debt to GDP, America has crossed into uncharted territory, getting in line with the likes of…

• Japan, “leading” the world with a 242% debt-to-GDP ratio
• Greece: 174%
• Italy: 133%
• Portugal: 125%
• Ireland: 117%

The projection in the chart above is based on the 9.4% average annual rate of debt-to-GDP growth since the US embarked on its current course in response to the crash of 2008. If the rate persists, the US will be deeper in debt relative to its GDP than Ireland next year, deeper than Portugal in 2016, Italy in 2017, Greece in 2019, and even Japan in 2023 (and the US does not have the advantage of decades of trade surpluses Japan had).

Granted, the politicians and bureaucrats say they will slow this runaway train, but we’re not talking about Fed tapering here. Congress will have to embrace the pain of living within its means. We’ll believe that when we see it.

But let’s take a more conservative, 10-year average growth rate (an arbitrary standard many analysts use): 5.3%. At this rate, the US will still be deeper in debt than Ireland and Portugal in 2017, Italy in 2019, Greece in 2024, and Japan in 2030.

Either way, this is still THE crisis of our times; all of the countries mentioned above are undergoing excruciating economic and social pain. It’s no stretch to imagine the kind of social and political turmoil that has resulted from the European debt crisis coming to Main Street USA, as American debt goes off the charts.

It’s also important to understand that the debt charted above excludes state and local debt, as well as the unfunded liabilities of social entitlement programs like Social Security and Medicare.

This ever-growing mountain—volcano—of government debt is a long-term, systemic, and extremely-difficult-to-alter trend. Unlike the crises in Ukraine and Syria (at least, so far), it’s here to stay for the foreseeable future. While some investors have grown accustomed to this government-created phenomenon and no longer regard it as dangerous as outright military conflict, make no mistake—in the mid to long term, it’s just as dangerous to your wealth and standard of living.

Still think it can’t happen here? To fully understand how stealthily a crisis can sneak up on you, watch Casey Research’s eye-opening documentary, Meltdown America.