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The Future of Medical Technology |
Bill Bonner, reporting from Buenos
Aires, Argentina...
We left our Crash Alert flag up while we were away in the mountains. And
for a while last week it looked like we were geniuses. Stocks seemed
like they were going to crash.
But along came two very important bits of information.
First, we got word that the crisis was officially over. GDP grew last
quarter. Thanks to all the Cash for Clunkers, Cash for Bankers, Cash for
Houses, Cash for Trash, and cash for every other blessed thing under
heaven, the number crunchers were able to report positive economic
growth for the third quarter.
Let's not get too excited. Stocks bounce. Bonds bounce. An economy
bounces. Even dead economists bounce. And if we're following the
Japanese experience, with a long, slow on-again/off-again period of
depression, we can expect some quarters of growth, followed by quarters
of non-growth. It's going to be a painful adjustment to the 'new
normal,' whatever that is.
The other important bit of news was that the Fed - faced with undeniable
evidence of growth and prosperity - decided to err on the side of
caution. It will keep monetary policy loose from here until kingdom
come, if necessary, in order to avoid a Japan-style slump.
But so far, a Japan-style slump is just what we seem to have...and our
public officials are fighting it, Japan-style.
Unemployment is headed up. The U6 figure - a more accurate picture of
how many people are out of work - is up to 17%. There are 1.5 million
homeless children in the US now, including 300,000 in the state of
California alone. One out of 10 Americans will not bite the hand of
government - for it is the hand that gives him his food stamps.
Foreign direct investment has dropped 30%. International trade is down
10%.
Do you call this a recovery? We don't.
As David Rosenberg puts it, the man on the street is perhaps "less
enthused by the fact that a lower rate of inventory de-stocking is
arithmetically underpinning GDP growth at this time."
In other words, it's 'growth' that only an economist could love...and
then, only an economist who was an idiot. Rosenberg:
"Put simply, a Wall Street Journal/NBC News poll just found
that 58% of the public believe the economic recession still has a ways
to go - and that is up from 52% in September and means that the private
investor, unlike the hedge fund manager, is not interested in adding
risk to the portfolio even after a 60% surge in the equity market.
"Only 29% of those polled believe the economy has hit bottom - imagine
having that psychology with nearly zero interest rates, a bloated Fed
balance sheet and unprecedented fiscal deficits (poll was taken from
October 23-25). Nearly two in three (64%) said the rally in the stock
market (still a bear market rally - not the onset of a new bull market)
has not swayed their view (or ours for that matter). There is going to
be some very tough slogging ahead as far as the economy is concerned."
Growth is largely illusional. It is the result of delusional policy-
making at the Fed.
So, we'll just keep our Crash Alert flag flying.
Meanwhile, gold hit a new record high yesterday. It's at 1,089. More on
gold, below.
The Dow went up too - 203 points yesterday. It's over 10,000 again. Not
very impressive for a bear market bounce. A 50% retracement would take
the Dow to 10,300.
But you have to give the bounce credit. It's been going on since March.
That is impressive.
And now everyone is bullish, except us. We'll see who's right... in the
fullness of time...
Gold seems to be advancing towards a new milestone - $1,100. Makes us
nervous. We always feel more comfortable out in the wide, open
spaces...that is to say, in trades we have all to ourselves.
But gold is still a marginal holding by marginal investors - like us.
Central banks - especially those in emerging countries - have very
little gold. The man on the street doesn't know anything about gold. He
wouldn't know a gold coin if it hit him on the head.
As gold becomes accepted as a true store of value, we can expect more
and more people to want to own it.
Governments are running breathtaking deficits...and accumulating
alarming debts. Japan has a national debt of nearly 200% of its GDP.
Where did that debt come from? It came from 20 years of trying to buy
its way out of a slump with borrowed money. Of course, it didn't work.
But now, Britain and America are following the Japanese lead...and the
Japanese are still at it! At the present rate, Japan's government debt
will grow to 300% of GDP in 10 years. America's debt could grow to
100%...and then 200% of GDP...over the next decade (depending on whose
projections you believe). And Britain, if we read the report in The
Financial Times correctly, will have debt equal to 200% of GDP
within 3 years.
Just what kind of crisis do these numbers portend? It's hard to say.
Probably a combination of confidence, followed by debt default and
inflation.
Would the US actually default? We agree with Paul Samuelson; the answer
is 'maybe.' Samuelson, writing in The Washington Post:
"The idea that the government of a major advanced country would default
on its debt - that is, tell lenders that it won't repay them all they're
owed - was, until recently, a preposterous proposition. Argentina and
Russia have stiffed their creditors, but surely the likes of the United
States, Japan or Britain wouldn't. Well, it's still a very, very long
shot, but it's no longer entirely unimaginable. Governments of rich
countries are borrowing so much that it's conceivable that one day the
twin assumptions underlying their burgeoning debt (that lenders will
continue to lend and that governments will continue to pay) might
collapse. What happens then?
"...People have predicted such a crisis for decades. It hasn't happened
yet. The currency's decline has been orderly, because the dollar retains
a bedrock confidence based on America's political stability, openness,
wealth and low inflation. But something could shatter that confidence -
tomorrow or 10 years from tomorrow.
"Despite huge deficits, interest rates on 10-year Treasury bonds have
hovered around 3.5 percent. In time of financial crisis, investors have
sought the apparent sanctuary of government bonds. But the correct
conclusion to draw is not that major governments (such as Japan and the
United States) can easily borrow as much as they want. It is that they
can easily borrow as much as they want until confidence that they can do
so evaporates - and we don't know when, how or whether that may happen."
Why wouldn't the US just "print its way out of debt?"
Because it's not that easy. In effect, the feds are trying to print
their way out of debt now. They've added huge amounts to the monetary
base. But that money is not getting into the real economy. Instead, it's
going into vaults and speculations.
"Jittery Companies Stash Cash," says The Wall Street Journal.
And banks, too, borrow...but they don't lend. They can borrow at
negligible rates of interest...and buy US Treasury bonds on a leveraged
basis...producing a 20% yield. That means, the US dollar has replaced
the yen as the go-to currency for speculators.
Net effect? Lots of cash in what appears to the Mother of all Carry
Trades. The Financial Times:
"The US dollar has become the major funding currency of carry trades as
the Fed has kept interest rates on hold and is expected to do so for a
long time. Investors who are shorting the US dollar to buy on a highly
leveraged basis higher-yielding assets and other global assets are not
just borrowing at zero interest rates in dollar terms; they are
borrowing at very negative interest rates - as low as negative 10 or 20
per cent annualized - as the fall in the US dollar leads to massive
capital gains on short dollar positions."
But in the economy itself? As in Japan, very little economic progress
comes from this kind of speculation.
Bankruptcies rose 7% last month. Unemployment gets worse.
The financial markets bubble up. The real economy shrivels up. And
people with any sense are stocking up.
David Rosenberg, again, on gold:
We are still contemplating the massive gold purchase by the Reserve Bank
of India - the largest in at least 30 years that took up half of what
the IMF intends to sell. Look for China to come in next.
But here is the reality. All India did was bring gold to a 6% share of
its total FX reserves from 4%. Fifteen years ago, that representation
was closer to 20%. China has increased its gold holdings by 76% over the
past six years but they are a mere 1.9% of the aggregate 2.2 trillion of
reserves and Russia's gold holdings is just under 5%. This is not the
1990s when Bob Rubin was running a hard US dollar policy, US fiscal
deficits were vanishing and gold production was on the rise. Today's
world is exactly the opposite. Policymakers beginning in the 1990s
wanted disinflation and got it. Now they want inflation - it will take
years, maybe a decade, but it will come. For the near-term, we are still
optimistic on Treasury securities but be forewarned that this view has
an expiry date that is earlier than the peak we are likely to see in
gold.
It is very clear that central banks are behaving in a way that would
suggest that gold is now again being considered a currency within the
global monetary system. As we said before, it is all about relative
scarcity and a well-defined supply curve - fiat currency at this
juncture does not share that quality. As a good friend reminded me
yesterday, when the Fed was created nearly a century ago, it was
acceptable to have at least 40% of the money supply backed by gold
reserves. The US now has 8,133 tons of gold in reserve, which equates to
$285 billion at this year's pricing.
Meanwhile, the Fed has spiked the punchbowl to such an extent that the
monetary base now stands at $1.7 trillion. Do the math - under the old
regime (which indeed hamstrung the Fed), the US alone would need to buy
an incremental $400 billion of bullion or the equivalent of what would
be nearly four times the typical level of annual demand. We could do the
same calculation based on M2 but we don't want anyone falling off their
chairs.
And finally today, we're still ruminating about what to tell you about
our trip to the ranch. The funny thing was...it had little to do with
cattle ranching...and a lot to do with the personalities that we brought
with us. It's no easy job being a parent...especially when the kid is 38
years old...and not your kid.
More to come on that another time...
Until then, let's get to today's essay...
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|
The Daily Reckoning
Presents: |
As the unemployment rate soars to a new
26-year high and gold soars to a new all-time high, the distresses and
difficulties of the American economy seem to be intensifying. But these
signs of distress are nothing new to Daily Reckoning readers;
we've been worrying aloud about these things for years. Today, however,
we'll take a brief break from our habitual hand-wringing to explore one
of the things America is "doing right." Read on for the details...
The Future of Medical Technology
By Doug Hornig
Afton, Virginia
In the future, a visit to your family physician, or any specialist, will
begin with a quick scan of the computer screen, where a few keystrokes
will tell the doctor everything he or she needs to know about you - all
the way from how much you weighed at birth, to X-rays of that bone you
broke when you flipped your motorcycle thirty years ago, to how much you
spent on blood work last year, right up to the hypertension pills you
took after dinner yesterday (and maybe even what you ate, although
hopefully not).
Much of your medical info is already stored electronically, of course,
but much more is stuffed into old paper file folders. Nor is there any
centralized database that routes your records wherever they are wanted.
That is going to change, and change dramatically.
The present system has too many embedded inefficiencies, and the
industry wants them gone with yesterday's used latex gloves. Whether you
like it or not, someday soon there will be a collection of bits and
bytes that stores all the most intimate details of your health history.
Making that happen is a daunting job, and a touchy one.
On the one hand, think of how much medical data each American
accumulates each year. Multiply that by 300 million. The amount of paper
currently required to track it all would stretch to the moon. Doctors
want to set fire to that stack.
But on the other hand, they don't want their patients' records falling
into the hands of every Eastern European hacker for whom such data would
be a major arm shot to his fake Viagra business. Data security has to be
tight.
Thus software solutions must be developed both to serve and to protect.
Billions will be spent in the process of digitizing, maintaining, and
guarding medical records, and guess whose pocket the money will be
extracted from. Did you select mine?
Don't care for this idea of white jackets anywhere in the world having
access to your private info at the click of a mouse? Or don't like the
idea of footing the bill for the conversion? Well, tough. On both
counts. You won't be able to prevent the medical business from setting
up the grand database, nor from using your own money to manufacture the
electronic you.
In fact, the government has already installed the plumbing that will
feed the big money shower. As in, very big.
That happened on February 17, when President Obama signed the Health
Information Technology for Economic and Clinical Health Act (HITECH),
which its sponsors had tacked onto the comprehensive American Recovery
and Reinvestment Act (ARRA).
Everyone loves ARRA, right? Well, maybe. But citizens who cheered it
might not have been quite so happy if they were aware of everything they
were agreeing to fund with their hard-earned dollars. Buried inside
HITECH is an allotment of $19 billion (yep, that's billion with a B)
just for the conversion of paper medical records into electronic.
Tell you who was cheering lustily, for certain: health care
software developers. For example, maybe you read about the recent deal
whereby Dell acquired Perot Systems, a premium software company, for
about $4 billion. What that was largely about was HITECH. Dell didn't
have real access to it. Perot Systems - whose annual revenues derive 25%
from government and 48% from health care - did. Sound the wedding bells.
Dell, of course, is by no means the only company eager to step into the
generous governmental shower stall. You can bet that IBM, Hewlett-
Packard, and the rest of the heavies in the field are all busily
preparing proposals, if they haven't already filed them.
And the big guys won't have that field all to themselves. There's a lot
of cash to be spread around. Smaller competitors will nab their share.
Those are the kinds of companies
Casey's Extraordinary Technology searches
for and recommends as longer-term investments. The ones whose bottom
lines will profit the most from political largesse.
Subscribers learned about one such firm in the September issue. There
will be others, as anyone who has both a solid product and the savvy to
play Washington's money game, is going to prosper mightily in the years
ahead.
Tech is the most vital industry in the United States. Learn more about
how to profit from it -
just click here.
Regards,
Doug Hornig,
for The Daily Reckoning
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