The executive who fears he might "suddenly disappear" for speaking his truth...
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5 Min. Forecast
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February 6, 2015
· The CEO who fears he might "suddenly disappear" for speaking his truth
· The "big lie" of the jobs numbers, revised and updated
· If you missed the biotech breakout last fall, here's another chance
· Low-risk biotech investing: Yes, it's possible, and we'll show you
the way
· The end of RadioShack and the future of entrepreneurship: A reader
conversation
<http://agorafinancial.com/temp/timestamps/z0000.gif> It says something about
life in these United States in 2015 when the CEO of the premier public-opinion
polling firm frets on national TV that he might "suddenly disappear" for
calling BS on the government's unemployment numbers.
On Tuesday, Gallup CEO Jim Clifton posted a column on his firm's website
declaring, "The official unemployment rate, which cruelly overlooks the
suffering of the long-term and often permanently unemployed as well as the
depressingly underemployed, amounts to a big lie."
True, he's not the first public figure to denounce the jobs numbers so
forcefully. Former General Electric CEO Jack Welch groused in 2012 about how
"these Chicago guys will do anything." But that was sheer political hackery
four weeks before a presidential election. And it was especially rich given
Welch's own history of number-fudging: You don't beat earnings estimates by
exactly a penny per share, quarter after quarter, by happenstance.
But coming from Clifton, the accusation has more gravitas. His column describes
how the unemployment rate excludes legions of Americans who've given up looking
for work... and legions more who work part time but want to work full time.
It's no great revelation if you've been reading The 5 for -- well, from the
beginning in 2007, or nearly any time since. But Clifton put the facts before a
new audience.
<http://agorafinancial.com/temp/timestamps/z0025.gif> On Wednesday, Clifton
went on CNBC to "clarify" his remarks. "Lie" was perhaps too strong, he said.
"Deceptive" was more precise.
"I think that the number that comes out of BLS [Bureau of Labor Statistics] and
the Department of Labor is very, very accurate," he explained. "I need to make
that very, very clear so that I don't suddenly disappear. I need to make it
home tonight."
Hmmm...
Otherwise, Clifton stuck to his guns. The number of full-time jobs as a percent
of the adult population "is the worst it's been in 30 years." Restoring the
American middle class would require "a bare minimum of 10 million new, good
jobs."
<http://agorafinancial.com/temp/timestamps/z0045.gif> The brouhaha is timely,
seeing as the BLS delivered its monthly jobs report this morning.
The wonks conjured 257,000 new jobs for January. The numbers for December and
November were revised upward. The unemployment rate -- the "U-3" figure cited
in the media -- edged up to 5.7%.
As it happens the BLS publishes a number that's more reflective of the true
unemployment rate: It's called the "U-6" figure. It clocks in at 11.3%.
But even that number is incomplete. If you gave up looking for work longer than
a year ago, you're not counted in U-6.
That's where the economist John Williams' work proves its worth. His Shadow
Government Statistics website includes all those people the U-6 figure
excludes... which happens to be the way the BLS calculated the U-3 figure
during the 1970s.
That number grew in January from 23.0% to 23.2%. It's been hovering in the 23%
range -- record territory -- since May 2012.
<http://agorafinancial.com/wp-content/uploads/2015/02/5min_Fantasy_020615.png>
<http://agorafinancial.com/temp/timestamps/z0115.gif> Wall Street's reaction
to the job numbers -- cautious. Because the 257,000 new jobs were more than the
"expert consensus" was counting on.
In the topsy-turvy world since the Panic of 2008, any economic number that
surprises to the upside creates trepidation among traders that the Federal
Reserve might dial back on the monetary heroin going into the Street's veins.
Thus are the major U.S. stock indexes up only modestly as we write -- the Dow
moving past 17,900, the S&P at 2,070.
Treasuries continue to sell off, the 10-year yield now up to 1.92%. And gold is
selling off hard -- down $32 at last check, to $1,233.
Crude? Yet another 2%-or-greater move today -- up a buck as we write, to
$51.51.
<http://agorafinancial.com/temp/timestamps/z0140.gif> "It's time to 'buy the
dip,'" says Greg Guenthner of our trading desk as he examines the biotech
sector.
Back on Oct. 28, Greg spotted a breakout in biotech: "No one's thinking about
backing up the truck right now," he said in our virtual pages. "That's why this
is the perfect time to strike."
Indeed, it was: The iShares Nasdaq Biotechnology ETF (IBB) popped 10% from
there.
Now? "Biotechs are still on the rampage," he says. "Feeble market in January?
Biotechs don't care. They just kept bulldozing forward."
There was a scare on Wednesday when Gilead Sciences (GILD) forecast its 2015
revenue would take a hit; seems insurers are getting itchy about shelling out
$1,000 a dose for its breakthrough hepatitis C treatment.
"But despite Gilead's underwhelming news," says Greg, "the biotech sector still
came out smelling like a rose." IBB promptly bounced off its 50-day moving
average. Greg's looking at another 10-15% move higher from here.
But short-term trades aren't the only way you can play biotech...
<http://agorafinancial.com/temp/timestamps/z0200.gif> "I had an incredible
conversation with a young biotech CEO," recalls our microcap specialist
Thompson Clark. "He filled me in on an ingenious way to make money with biotech
stocks."
This was during a conference last fall at a private club in the Berkshires.
Understand Thompson is usually gun-shy about biotech. "Investing in these
companies is risky," he says. "Really risky. Many go from being worth billions
to $0 overnight.
"But this guy proved that 'value' investors can safely make big, fast gains in
biotechs -- 50-200% returns are not out of the question. I'm still jacked about
it."
Thompson has come up with a way to play biotech that removes nearly all the
potential downside.
<http://agorafinancial.com/temp/timestamps/z0220.gif> Here's how he explained
it to his readers last weekend: "We're not betting on some super-risky biotech
company and crossing our fingers that it works out. Instead, we're going to
take the low-risk royalty model... and apply it to the hugely profitable
biotech sector."
Maybe you've heard about royalty plays in the mining sector. Royalty companies
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<http://agorafinancial.com/temp/timestamps/z0230.gif> "Royalty companies just
sit back and collect money, like landlords," Thompson explains. "I love the
royalty model."
And so it goes with a biotech play he's identified: "It doesn't have big
research and development budgets. It's not dependent on the FDA. And it's
diversified in its exposure to multiple drug companies.
"Instead, it works with small biotech companies owning proven, profitable
drugs. It loans them the money to help them pay the bills and grow their
businesses.
"In exchange for the loans, it receives a percentage on every drug sale the
companies make. That's where they get their royalty. But what happens if the
drug doesn't sell? Well, the good news for us is that these loans are
structured to minimize the downside. For example, the companies are required to
make minimum payments, regardless of sales."
There's your limited downside. And the upside? "One best-selling drug could be
a grand slam bringing the firm tens of millions of dollars" -- and a gain of
200% or more.
Thompson issued his recommendation last weekend. For now, it remains below his
buy-up-to price. But we have to be careful with a company whose market cap is
less than $150 million -- we don't want an influx of new readers to move the
share price artificially. That's why we keep a strict cap on the number of
subscriptions to Thompson's service. For now, there's still limited room
beneath the cap... so if you're interested, you'll want to take advantage right
away.
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<http://agorafinancial.com/temp/timestamps/z0300.gif> "The reader had a
point about the death of individual scientific-engineering creativity," reads
an email in our virtual inbox.
Seems the impending demise of RadioShack has inspired a lively debate among our
readership: Is do-it-yourself culture dead and gone? And what does it mean for
entrepreneurship?
"The items needed to build something are almost impossible for an individual to
obtain anymore," our correspondent goes on. "The individual is essentially
forced to become part of a corporate culture to bring his/her ideas to
fruition. That, or work with things produced already by that culture, which may
not really allow for full realization of an individual's concept.
"Could Steve Jobs have started Apple without RadioShack?"
<http://agorafinancial.com/temp/timestamps/z0320.gif> "It's sad," writes
another reader... who proceeds to paraphrase a letter to the editor he wrote
last year to Model Airplane News (MAN):
"'I started reading MAN about 1950 or so. At that time, you would almost always
have three construction articles -- a control-line, a free-flight and a
rubber-powered model or glider. As time went on, it became two articles. Then,
with the advent of radio-control, it was always one radio-control and one other
one. Then it became simply one radio-control. Last month, it happened. NO
construction articles.
"'I guess you guys know what sells, and the proliferation of ready-built and
ready-to-fly models dictates that you do product reviews rather than
construction articles, but I think it is a passing of an era. I think it is
sad.'
"I got back (essentially) the following reply:
"'Yes, there was no construction article. We cannot get anyone to design for us
anymore. They are all out flying kits and pre-assembled models. If you want
construction articles, send us some designs or names of designers.'
"Such is life," our reader concludes. "The age of instant communication and
instant gratification."
<http://agorafinancial.com/temp/timestamps/z0345.gif> "The RadioShack era is
not dead," another reader counters. "It's just updated.
"My grade 11 high school grandson is building his own computer, and selling
popcorn in the theater to pay for it. How is that different from the '70s?"
<http://agorafinancial.com/temp/timestamps/z0355.gif> "I think I am
remembering days before RadioShack, but there were large tables with
8-12-inch-high lips on them and an ungodly mess/mass of switches, etc., piled
on them. Prices were almost nothing, and they had basically everything needed
to build any kind of electrical gizmo.
"Today, instead of going to RadioShack, you just have to identify the item,
Google it and have it delivered the next week. Remember, everything is subject
to change, except the screwing we are getting/will get from politicians."
<http://agorafinancial.com/temp/timestamps/z0410.gif> "Tell the guy who wrote
in yesterday to simply use his computer and Google," adds another. "Now when
anything of mine breaks on Saturday/Sunday, etc. -- electronic, electrical,
mechanical, etc. -- I simply Google and order with a restricted online/phone
credit card and usually have it Tuesday or Wednesday of the next week."
<http://agorafinancial.com/temp/timestamps/z0415.gif> "Sometimes progress
hurts," writes our final correspondent, "but this is just the natural
progression of things.
"Think back a few decades -- downtowns died as shopping moved to malls. Now the
malls are near extinction. Those who saw the handwriting on the wall are the
ones who will survive. Just another case of history repeating itself."
The 5: Late yesterday, RadioShack filed for Chapter 11. As we go to virtual
press, it appears about half of the 4,000 company-owned stores will close and
the other half will be taken over by Sprint -- assuming no other bidders step
forward during a court-supervised auction.
Yikes. Mobile phones are now a mature business in the United States. Any growth
comes from stealing someone else's customers and/or hoping you can keep your
own customers on the upgrade treadmill. Besta luck, Sprint.
Meanwhile, thanks to everyone this week for the reminiscences and musings over
what it all means. We never cease to be amazed at how smart and thoughtful our
readers are...
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
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