The Daily Reckoning November 26th
Last month, a group of Australian scientists published a warning to the citizens of the country, and of the world, who collectively gobble up some $34 billion annually of its agricultural exports. The warning concerned the safety of a new type of wheat.
As Australia’s number-one export, a $6-billion annual industry, and the most-consumed grain locally, wheat is of the utmost importance to the country. A serious safety risk from wheat — a mad wheat disease of sorts — would have disastrous effects for the country and for its customers.
Which is why the alarm bells are being rung over a new variety of wheat being ushered toward production by the Commonwealth Scientific and Industrial Research Organization (CSIRO) of Australia. In a sense, the crop is little different than the wide variety of modern genetically modified foods. A sequence of the plant’s genes has been turned off to change the wheat’s natural behavior a bit, to make it more commercially viable (hardier, higher yielding, slower decaying, etc.).
What’s really different this time — and what has Professor Jack Heinemann of the University of Canterbury, NZ, and Associate Professor Judy Carman, a biochemist at Flinders University in Australia, holding press conferences to garner attention to the subject — is the technique employed to effectuate the genetic change. It doesn’t modify the genes of the wheat plants in question; instead, a specialized gene blocker interferes with the natural action of the genes.
The process at issue, dubbed RNA interference or RNAi for short, has been a hotbed of research activity ever since the Nobel Prize-winning 1997 research paper that described the process. It is one of a number of so-called “antisense” technologies that help suppress natural genetic expression and provide a mechanism for suppressing undesirable genetic behaviors.
RNAi’s appeal is simple: it can potentially provide a temporary, reversible “off switch” for genes. Unlike most other genetic modification techniques, it doesn’t require making permanent changes to the underlying genome of the target. Instead, specialized siRNAs — chemical DNA blockers based on the same mechanism our own bodies use to temporarily turn genes on and off as needed — are delivered into the target organism and act to block the messages cells use to express a particular gene. When those messages meet with their chemical opposites, they turn inert. And when all of the siRNA is used up, the effect wears off.
The new wheat is in early-stage field trials (i.e., it’s been planted to grow somewhere, but has not yet been tested for human consumption), part of a multi-year process on its way to potential approval and not unlike the rigorous process many drugs go through. The researchers conducting this trial are using RNAi to turn down the production of glycogen. They are targeting the production of the wheat branching enzyme which, if suppressed, would result in a much lower starch level for the wheat. The result would be a grain with a lower glycemic index — i.e., healthier wheat.
This is a noble goal. However, Professors Heinemann and Carman warn, there’s a risk that the gene-silencing done to these plants might make its way into humans and wreak havoc on our bodies. In their press conference and subsequent papers, they describe the possibility that the siRNA molecules — which are pretty hardy little chemicals and not easily gotten rid of — could wind up interacting with our RNA.
If their theories prove true, the results might be as bad as mimicking glycogen storage disease IV, a super-rare genetic disorder which almost always leads to early childhood death.
Although Heinemann and Carman cannot provide rock-solid proof that the new wheat is harmful, they have produced a series of opinion papers that point to the possibilities that could happen if a number of criteria are met:
- If the siRNAs remain in the wheat in transferrable form, in large quantities, when the grain makes it to your plate. And…
- If the siRNA molecules interfere with the somewhat different but largely similar human branching enzyme as well…
Then the wheat might cause very severe adverse reactions in humans.
Opinion papers like this — while not to be confused with conclusions resulting from solid research — are a critically important part of the scientific process. Professors Carman and Heinemann provide a very important public good in challenging the strength of the due-diligence process for RNAi’s use in agriculture.
However, we’ll have to wait until the data come back from the numerous scientific studies being conducted at government labs, universities, and in the research facilities of commercial agribusinesses like Monsanto and Cargill — to know if this wheat variety would in fact result in a dietary apocalypse.
But if the history of modern agriculture can teach us anything, it’s that GMO foods appear to have had a huge net positive effect on the global economy and our lives. Not only have they not killed us, in many ways GMO foods have been responsible for the massive increases in public health and quality of life around the world.
Nevertheless, the debate over genetically modified (GM) food is a heated one. Few contest that we are working in somewhat murky waters when it comes to genetically modified anything. At issue, really, is the question of whether we are prepared to use the technologies we’ve discovered.
In other words, are we the equivalent of a herd of monkeys armed with bazookas, unable to comprehend the sheer destructive power we possess yet perfectly capable of pulling the trigger?
Or do we simply face the same type of daunting intellectual challenge as those who discovered fire, electricity, or even penicillin, at a time when the tools to fully understand how they worked had not yet been conceived of?
In all of those cases, we were able to probe, study, and learn the mysteries of these incredible discoveries over time. Sure, there were certainly costly mistakes along the way. But we were also able to make great use of them to advance civilization long before we fully understood how they worked at a scientific level.
Much is the same in the study and practical use of GM foods.
While the fundamentals of DNA have been well understood for decades, we are still in the process of uncovering many of the inner workings of what is arguably the single most advanced form of programming humans have ever encountered. It is still very much a rapidly evolving science to this day.
While RNAi is not a panacea for GMO scientists — it serves as an off switch, but cannot add new traits nor even turn on dormant ones — the dawn of antisense techniques is likely to mean an even further acceleration of the science of genetic meddling in agriculture. Its tools are more precise even than many of the most recent permanent genetic-modification methods. And the temporary nature of the technique — the ability to apply it selectively as needed, versus breeding it directly into plants which may not benefit from the change decades on — is sure to please farmers, and maybe even consumers as well.
That is, unless the scientists in Australia are proven correct, and the siRNAs used in experiments today make their way into humans and affect the same genetic functions in us as they do in the plants. The science behind their assertions still needs a great deal of testing.
Still, their perspective is important food for thought… and likely fuel for much more debate to come. One thing is sure: the GMO food train left the station nearly a century ago and is now a very big business that will continue to grow and to innovate, using RNAi and other techniques to come.
Here’s a factoid that might shake you out of your leftover turkey-tryptophan stupor: You’re better off putting money in an index fund than a hedge fund.
That was the most interesting tidbit to emerge over the long holiday weekend: “Occupy Wal-Mart” was a bust. “Black Friday” sales improved on last year — barely. And Greece was fixed for the umpteenth time. Thus, the euro soared on Friday, and the dollar got stomped — which drove up stocks and precious metals alike.
According to a Goldman Sachs report, a mere 13% of hedge funds have outperformed the S&P 500 during 2012. A fifth of hedge funds are in the red. For the record, the S&P is up 14% year to date. The average hedge fund is up only 6%.
For “2 and 20” — handing over 2% of assets and 20% of profits to the fund manager — you’d expect better.
The Goldman report blames a host of factors — among them, timid managers still spooked by 2008 and low interest rates leading to high correlations between stocks, bonds, gold and currencies.
We’d suggest another cause: Hedge funds have proliferated to the point that collectively they can no longer outperform the market. At the dawn of the new millennium, there were fewer than 4,000 hedge funds. As of two years ago, there were more than 9,000. As Bill Bonner has been wont to point out lately, “more” does not always equate with “better.”
The preceding article was excerpted from Agora Finacial’s 5 Min. Forecast. To read the entire episode, please feel free to do so here.
Most of America has suffered since the crash of 2007. Property values plummeted, unemployment soared and remained stubbornly high, the use of food stamps continues to set records. Pension plans are going broke and municipalities around the country are teetering on the edge of bankruptcy. All this five full years after the crash.
A federal government stimulus armada led by Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner hurled trillions of dollars at the meltdown. Instead of green shoots, main street seems to be in the middle of seven lean years while Wall Street’s short memories inflate bubbles in junk bonds and government debt.
Left to its own devices, the economy’s healing powers are extraordinary. For instance, the depression of 1920 was a doozy. Unemployment jumped that year from 4 percent to nearly 12 percent, and GNP declined 17 percent.
Had the likes of Tim Geithner taken over as Treasury Secretary, who knows for how long the pain would have dragged on. But it was not a career bureaucrat that took the job but instead a 66 year old industrialist, Andrew Mellon.
By the summer of 1921, recovery was already underway. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923. By 1926, Treasury Secretary Mellon was able to say, “We are now at a very high tide of prosperity.”
Instead of bailouts, Mellow agitated for lower taxes and immediately went to work on peeling away America’s bloated post WWI debt. Mellon had built industrial dynasties in oil, steel, shipbuilding, construction, and banking. To take the Treasury job he resigned directorships at 60 companies.
His first day, as Mellon biographer David Cannadine relates, Mellon arrived for work at 8am, an hour before the staff. “Such a thing had never happened in the memory of any of the Treasury’s night watchmen.”
Mellon knew that if tax rates were lowered on businesses and individuals that money would be reinvested in the economy, creating jobs and promoting economic recovery. But he didn’t immediately get all he wanted. The farm bloc stood in the way of most of his tax agenda, but taxes were reduced and over time Mellon succeeded.
At the same time, Mellon was able to whittle down the federal debt that stood at $24 billion when he took office. By 1929 he had reduced it to $16 billion, saving the government millions a year in interest payments. He believed the domestic debt would be extinguished by 1942. A goal the Great Depression postponed.
The Pittsburgh industrialist believed countries like individuals should pay off their debts. To let debts linger was “a sign of debility and denoted an absence of the essential vigor and foresight which insure future success,” Mellon said. “It was the policy of the thriftless, the ne’er do-well.”
So while Mellon was a financial prodigy, Geithner, is a product of government. He began his career at Kissinger Associates, and then joined the Treasury Department in its International Affairs division. He worked under Larry Summers and Robert Rubin at Treasury and there is some dispute as to which man was the primary mentor to Geithner. Next it was on to the Council on Foreign Relations and then to the International Monetary Fund.
At age 42 he was made President of the Federal Reserve Bank of New York, and then he was nominated to be Secretary of the Treasury. In his public life, Geithner has developed a knack for being in the center of financial crisis, whether at the IMF, NY Fed, or at Treasury.
In March 2008, he arranged the rescue and sale of Bear Stearns. In the same year, he played a supporting role to Henry Paulson,Treasury Secretary and former CEO of Goldman Sachs, in the decision to bail out AIG just two days after deciding not to rescue Lehman Brothers from bankruptcy. Some Wall Street CEOs subsequently expressed the opinion that decisions in which Geithner participated, especially the failure to rescue Lehman, contributed to worsening the global financial crisis. As a Treasury official, he helped manage multiple international crises of the 1990s in Brazil, Mexico, Indonesia, South Korea, and Thailand.
Having never worked in the real world of commerce, Geithner is able act out his inner-sociopath at government posts. In his book Bailout, TARP Special Inspector General Neil Barofsky explained that he could get Geithner to meet with him only by threatening to report the secretary’s behavior to Congress. When they did meet, Geithner was hostile:
As we parried back and forth, Geithner repeatedly reached a pitch of anger, regaling me with detailed expletive-filled explanations that established my apparent idiocy. He would then calm himself down and give me a forced, almost demonic smile.
Barofsky’s psychiatrist wife told her husband Geithner might suffer from narcissism, “and therefore might be psychologically incapable of truly admitting that he made a mistake.”
Geithner did all he could to shovel money to Wall Street in the wake of the crash in the form of TARP, TALF, PPIP, and who knows what all, and wanted taxpayers to step in to cover bondholders. In her book Bull By the Horns, ex-FDIC Chair Sheila Bair, writes, the Treasury Secretary, “did not want creditors, particularly bondholders, in those large, failing financial institutions to take losses.”
Although Geithner circulated rumors to the press that he wanted Bair out as FDIC chair, he never said anything to Ms. Bair to her face. “Tim seldom engaged with me directly, she writes, “the main exceptions being when he was advocating for Citi and needed my help.”
Bair admittedly is not a fan of Geithner. She describes the news that Geithner was appointed Treasury Secretary as “a punch in the gut.” She “did not understand how someone who had campaigned on a ‘change’ agenda could appoint someone who had been so involved in contributing to the financial mess that had gotten Obama elected. Tim Geithner had been the bailouter in chief during the 2008 crisis.”
If Geithner is the bailouter in chief, Andrew Mellon was just the opposite. As the country sank into depression, Treasury Secretary Mellon told President Herbert Hoover to,
liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.
And while Mellon spent most of life in the banking business, he didn’t want to prop up bankers, he advocated letting weak banks fail in order for the banking system to rebound and prosper.
While Geithner’s bailout riot has gone a long way to weaken the dollar, when called on it he has the gall to say. “We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy,” Geithner told the press in 2010, toeing the government line. “It’s not an effective strategy for any country, and it’s not for the US. We’ll never do that.”
While the 59th Treasury Secretary advocated for the gold standard and balanced budgets the current version advocates unlimited government borrowing.
On Bloomberg TV, “Political Capital” host Al Hunt asked Geithner if he believes “we ought to just eliminate the debt ceiling.”
“Oh, absolutely,” Geithner said.
“You do? Will you propose that?” Hunt asked.
“Well, this is something only Congress can solve,” Geithner said. “Congress put it on itself. We’ve had 100 years of experience with it, and I think only once–last summer–did people decide to use it to threaten default on the American credit for the first time in history as a tool for political advantage. And that’s not a tenable strategy.”
Hunt then asked: “Is now the time to eliminate it?”
“It would have been time a long time ago to eliminate it,” Geithner said. “The sooner the better.”
The good news is that Geithner is moving on and you might say, “the sooner the better.” But, is there a Mellon-like candidate in the wings to champion sound money, lower taxes, and reducing the federal government’s $16 trillion debt?
The current consensus pick, Jack Lew, is currently the White House Chief of Staff. Treasury employee Lael Brainard is supposed to be underconsideration. She’s an ex-academic who once worked in the Clinton administration. Neal Wolin is also Treasury employee whose career has “mostly been spent in public service.” Gary Gensler and Sheila Bair have both been regulators. Erskine Bowles and Roger Altman have worked in and out of Washington D.C. for decades.
Even Facebook’s Sheryl Sandberg is an ex-Chief of Staff at Treasury. Larry Fink’s resume looks to be unblemished by government service. However, The U.S. government contracted with his company BlackRock to help clean up after the financial meltdown of 2008 and according to Wikipedia, “Fink’s longstanding relationships with senior government officials have led to questions about potential conflict of interest regarding government contracts awarded without competitive bidding.”
None of these prospects has the stuff of Andrew Mellon, a man who took the job reluctantly but perhaps stayed too long. While technology marches onward and upward, the value of the dollar and the character of Treasury Secretaries continues to digress apace.
Investors are getting no help for Washington and the “change” candidate isn’t changing anything. The government doesn’t provide instructions to build wealth in these troubled times.
Addison Wiggin saw all of this coming years ago, writing a New York Times bestseller, Demise of the Dollar and recently followed that up with The Little Book of the Shrinking Dollar. Inside, Addison suggests dozens of ways to protect your retirement from the shrinking dollar.
Both books are available for sale, here.
By now, you know the new Treasury Secretary will take care of Wall Street just as Geithner did. Make sure you take care of yourself, nobody in Washington is.
Original article posted on Laissez-Faire Today
My goal is to give you the best perspective that I can offer in the arena of energy and mineral resources.
In that spirit, let’s start by looking at the Middle East, which remains a political mess. Hey, what else is new, right? Still, some times are messier than others. Some times offer more opportunity than others.
We’ll start with the big picture. The Middle East mess affects all manner of scenarios for future price and availability of oil in the world. And later on, I’ll discuss a few scenarios.
Right now, headlines from the Middle East describe the battle between Israel and Hamas in and around the Gaza Strip. It’s quite a display of ordnance. In the first four days of conflict, Hamas has fired nearly 1,000 missiles at Israel — that’s 250 per day, over 10 per hour. In fact, that’s more missiles than the Germans fired at London in all of 1944-45. Most of the Hamas missiles were manufactured in Iran and smuggled into Gaza over the past few years.
Against this steel rain, Israel has employed a remarkable anti-missile system called “Iron Dome.” Basically, Israeli radars pick up Hamas missiles in flight and plot the course and trajectory. If a missile looks like it’ll hit an uninhabited area, the Israelis just let it fly to impact. So what if there’s a hole in the ground, right?
But if a Hamas missile is headed for a populated area, then the Israelis fire a low-cost (about $50,000) interceptor to kill it. The idea is that $50,000 is “cheap” compared with the damage a missile hit could cause, including injuries and deaths.
So far, the Israelis have shot down about 90% of Hamas missiles that could’ve harmed people and/or other high-value assets. Nice shooting, and there are several angles to consider:
- Routinely knocking down the Iranian/Hamas missile barrage is an astonishing feat of technology, which sends a message to governments around the world. That is, missile defense actually works. An entire global aspect of operational war-fighting art is now being rendered impotent. Who knew? (Well, some of us knew.)
- By lessening the direct threat to civilians, Israeli policymakers buy time and flexibility to pursue a broad spectrum of responses. On the one hand, there’s no internal pressure within Israel to “make peace” and stop the rockets. At the same time, there’s less popular pressure for the Israelis to roll tanks and “invade” Gaza
- Every Hamas rocket launch fixes a set of coordinates for Israeli military intelligence, which in turn rapidly targets that site. The Israelis employ smart-bombs in reply, which destroy Hamas launch systems while minimizing nearby civilian casualties. It’s a true “revolution in military affairs” in action
- Over time, Hamas is running out of missiles, while not achieving its military or political goals. Plus, in return, Hamas is getting its people and assets blown up. At most other times or eras in human history, that would’ve been known as “losing the war.” Will the global media bother to explain that?
- Through the success of Iron Dome, a small, localized military engagement remains… small. And localized. Indeed, in terms of casualties, more people have died in motor accidents in, say, Europe, in the past week, than in the Israel-Hamas conflict.
As events unfold, other players have chimed in with standard, reflexive anti-Israel, anti-U.S. rhetoric. Neighboring Egypt, for example, is incensed about the conflict, if not very incensed. But not incensed enough to, say, annex Gaza to Egypt and offer citizenship and state-level protection to the people who live in that idyllic garden spot. No way.
Elsewhere in the Middle East, a spokesman for the Iraqi government expressed the idea of Arabs “embargoing” oil exports to the U.S., as punishment for the U.S. “support” of Israel. Of course, the Iraqis haven’t rejected the $4 billion per month of U.S. “aid” that still flows to that country. (Oh, you thought that the expense of the Iraqi war was over?)
Basically, the Israeli ordnance exchange with Hamas has generated plenty of outside blah, blah, blah. Shades of 1973? No, it’s not 1973. It’s a different world. The only gas lines we have in the U.S. are due to Hurricane Sandy, and not to another Arab-Israeli war.
Payback and Blowback
To the north of Israel, there’s an ongoing civil war in Syria. This one is far more deadly than the Israel-Hamas exchange, with close-in combat all around. It’s a bloody, regional version of the “Oil War” scenario that we’ve advanced over the years. Basically, Shiite Muslims are fighting with Sunni Muslims, settling a score that goes back about 1,300 years.
The fighting in Syria has more or less moved to the inner pages of newspapers, and away from network news. Still, every now and again, something interesting trickles out.
Just over a week ago, for example, a Turkish military helicopter crashed in Pervari, in Siirt province of southeast Turkey, near the Syrian border, killing 17 soldiers and aircrew. The official version is that the helicopter went down due to “bad weather.”
Oh, really? Another way of explaining the crash is “surface to air missiles” (SAMs). That is, according to Russian and Israeli accounts, the Syrian government had something to do with that Turkish helicopter going down.
The backstory is that the Syrian government is perturbed that its “rebels” have acquired SAMs from outside interests (guess who) via Turkish routes. In the past couple of months, rebels have shot down Syrian aircraft. Thus, there’s now payback against the Turks from Syria. It’s a tit for tat using SAMs.
Where is this all headed? Well, as they taught us back at the Naval War College, conflict is what often brings clarity to human struggle. Carl von Clausweitz stated it in his own, inimitable way, in his great book On War: “The maximum use of force is in no way incompatible with the simultaneous use of the intellect.”
The Energy Revolution
Just as Israel’s Iron Dome is knocking Hamas missiles out of the sky, revolutionizing military operations and changing political equations on the ground, so is other technology revolutionizing the world of energy.
Recently, the International Energy Agency (IEA) released a report stating that North America leads a “sweeping transformation” in global oil and gas production, based on the fracking boom that we’ve discussed so often here.
In addition to new “supply-side” techniques, in the area of drilling and production, the IEA report focused on how the technology-driven energy revolution is accompanied by a “similarly transformative shift” in global energy efficiency. Indeed, efficiency has a critical role to play going forward.
According to IEA executive director Maria van der Hoeven:
By 2035, we can achieve energy savings equivalent to nearly a fifth of global demand in 2010. In other words, energy efficiency is just as important as unconstrained energy supply, and increased action on efficiency can serve as a unifying energy policy that brings multiple benefits.” (Emphasis added.)
According to the IEA, extraordinary growth in oil and natural gas output in the U.S. will cause an upheaval in global energy flows. One section of the IEA report dealt with new policy scenarios, specifically how the U.S. could become a net exporter of natural gas by 2020. Overall, per IEA estimates, the U.S. could become net-energy self-sufficient by 2035 — but to be realistic, it assumes an almost explosive growth in nonfossil fuel energy supply (meaning solar and windmills).
Furthermore, according to the IEA, North America is emerging as a net oil exporter, based on growing output from Canada’s oil sands.
North American oil exports will accelerate an ongoing massive switch in the direction of international oil trade. That is, by 2035, almost 90% of Middle East oil exports will sail toward Asia, where China and India will account for 60% of future global energy demand growth. In that regard, the Middle East will become somebody else’s problem. Not a moment too soon, some might say.
From the IEA’s perspective, and within North America and Europe, we’ll see a strong shift toward more energy efficiency, coupled with increasing use of natural gas and “renewable” energy sources. That certainly does seem to be how the current deck is stacked — and I have to note that the IEA report lacks much discussion of nuclear power, which is quite an oversight, in my view.
Overall, though, the new IEA report is useful analysis. It was put together by serious scholars and it’s based on hard data. Still, will things play out as the IEA forecasts? As with all such things, we’ll just have to live that long and see, but it’s always useful to think through the big scenarios.
Whether the IEA is right or wrong — in one respect or another — I believe that the energy biz will remain a key part of the U.S. economy. Energy accounts for literally millions of U.S. jobs, and hundreds of billions of dollars of revenue — including gigantic tax flows to localities, states and the federal government. Energy will grow, not shrink. It’s a goose that lays lots of golden eggs.
To sum things up, the global energy arena is changing in fundamental ways, based on new technology that’s evolving, and evolving fast. Even for energy insiders — and I’ve been watching and working with the energy biz for 37 years — it’s hard to stay abreast of developments that occur at breakneck speeds. Following the energy biz requires immersing oneself in several entire industries, reading trade pubs, wrapping one’s brain around all manner of new tech and visiting labs, facilities, policy salons and more.
By way of comparison, and just as with Israel’s astonishing success with Iron Dome, the new energy revolution is vast. The scope of energy developments has yet to be fully understood and absorbed by political and social thinkers, let alone the multitudes out there who are just doing their thing, following their own pathways through life.
It’s not wrong to say that almost everything that a lot of people thought they knew to be “true” has been overtaken by other events, if not by new technology. And do you know what? I’m thankful for that too. We have a wide-open world out there.
There’s much more to discuss in the months ahead — and money to be made in the right kind of investment ideas.
Byron W. King
Original article posted on Daily Resource Hunter