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August 23, 2012

August 23, 2012

This Week We Have A New Recommendation

Gold’s recent rise is telling us that more QE is on the way.  More QE means gold, oil, and stock markets will be driven higher.  In summary, we expect a modest correction for the next week or month to be followed by higher stock prices in many countries by the end of the year.  Become a Gold Subscriber today to find out what we are recommending.

To get the full content and our recommendations, become a Gold Subscriber today to receive our weekly Premium Global Market Commentary, where we discuss our formulated plans and investing strategies.

Please click the following link to learn about Gold Subscription Gold Subscription or contact our office at (310) 826-8600.

The End of Moore’s Law — A Revolution in Computing Power

Intel co-founder Gordon Moore famously proposed in the mid 60s that the number of transistors on an integrated circuit would double every two years.  A safer generalization would be that computing power, encompassing both the number of transistors and their speed, would increase at this exponential rate.  This rule of thumb held good for almost half a century, but new developments in a field of nanotechnology that might be called “biocomputing” suggest that a quantum leap past Moore’s Law might be imminent.

Examined through the lens of information theory rather than simply genetics, DNA appears as perhaps the most dense information-storage medium known — far denser than anything created by human beings.  A team led by Harvard Medical School genetics professor George Church has just published a paper (Church et al., “Next-Generation Digital Information Storage in DNA,” Science, 16 Aug 2012), describing its use of DNA synthesis technology to encode in DNA strands the entire text of Dr. Church’s forthcoming book.  (Team members argued for encoding Moby Dick, but Church decided to go for something more contemporary.)  The paper can be found here:Sciencemag.org

This is not new technology, of course; it builds on a generation of research — from Church’s own PhD thesis in 1984, which pioneered direct genome sequencing, to Craig Venter’s successful creation of the first microorganism with synthetic DNA in 2010.  What Dr. Church’s team has done is to use the latest synthesis technology to translate a book from the binary code of its digital form into a set of 55,000 artificial DNA strands, which could then be decoded and translated back into book form.  How dense is the medium?  One gram of DNA could hold on the order of a zettabyte of data — that is, 10,000,000,000,000,000,000,000 (10 to the 21st power) bytes, or a billion terabytes.  That’s the quantity of data that could be stored in a stack of new hard drives 16,000 miles tall.

Clearly, this technology outstrips Moore’s Law by orders of magnitude.  The medium doesn’t just present advantages in terms of its capacity.  It’s also a durable medium, being stable over thousands of years and not being subject to the risks and vagaries of current magnetic media, which can be appreciated by anyone who’s lost data in a hard drive crash.  Of course, it’s still some distance from commercial viability and application; its deployment would depend on a suite of speed and capacity improvements in the technologies by which the DNA molecules can be built and decoded.  But those technologies are also undergoing revolutionary change (see our mention last week of new high-speed portable sequencers from Oxford Nanopore.)

With the capacity to store the contents of the Library of Congress in less than a milligram of DNA, the technology poses this question: What use could we possibly have for such barely conceivable masses of data?  A mindset of scarcity in information storage inhibits our imagination.  Church proposes that with such scarcity effectively abolished, we could set ourselves to imagine “big data” in a new way, becoming shameless data hoarders.  In essence, this new technology means that we will never have to throw data away.  He imagines a widely dispersed army of microscopic biorobots recording environmental data on an enormous scale — archiving data not for immediate use, but available for scraping and analysis in the case of some catastrophic event about which we need more understanding.  On a human level, similar quantities of granular data could be accumulated about brain function, down to the firing of individual neurons.  With no limitations on storage, there would be no cap on the data that could be accumulated, scraped, and crunched to learn more about the causes of strokes, Alzheimer’s, and brain tumors and an infinity of other subjects.

Brazil Farms Out Infrastructure Development — Preparing for the World Cup in 2014, Olympics in 2016, & Stimulating Growth

Find Out What Initiatives They Are Taking…

We Are Monitoring Brazil’s Progress…

Mexico — What to Expect from the Return of the PRI

After a 12-year hold-off from its opposing party members, on July 1, 2012 the Partido Revolucionario Institucional (PRI) regained the presidency of Mexico.  On December 1, 2012, Enrique Peña Nieto will be the new president of Mexico.  Many believe that the PRI represents the traditional elites that governed Mexico for 71 years before the opposition ousted them in 2000.  In any case, the PRI defeated the incumbent PAN party which has support from the upper middle class, and they also beat their strongest opponent, the more left-leaning PRD party and their very outspoken candidate Lopez Obrador.

It is expected that President Peña Nieto will implement some reforms to the energy sector, and will implement some fiscal reforms.  If his reforms take hold, it will be very good for the Mexican stock market, which has been rallying after the election.  The most positive early indication is that the PRI is talking about building a coalition with the pro-business Partido de Acción Nacional (PAN) party to create a more business-friendly Mexican environment.

Energy Reform

The PRI has hinted that it will welcome energy reform.  We expect that the new government will initially focus on shale gas which is found widely in Mexico.  If private companies are allowed to drill for gas, Mexico can enjoy an energy boom.  Natural gas is a definite bright spot in Mexico’s energy picture.  On the other hand, the oil sector in Mexico is almost entirely controlled by the government, and Mexico’s major oil field production has been in serious decline for years.  Historically, oil has been Mexico’s cash cow, but under-investment and bureaucratic management over the past several decades have kept them from being able to replace oil production.

Should President Peña Nieto allow private companies to drill for natural gas, Mexico could enjoy excellent natural gas production increases.  With respect to oil, getting the government to relinquish its monopoly on oil production seems improbable, so we may have to watch Mexican oil production gradually diminish while natural gas production (and revenues) can boom.

Fiscal Reform

Currently, Mexican inflation is rising and is expected to average about 3.5 percent this year and next; a high rate, but tolerable so long as the economy can be continue to expand at its current 4 percent growth rate.  We do not expect a dramatic change in Mexico’s interest rates throughout the remainder of 2012.  So, to stimulate economic growth there are three potential actions to Mexico can take:  1) lower tax rates, 2) cut exemptions to the value-added tax, and 3) cut the gasoline subsidy by raising gasoline prices.  Doing these would help to expand economic growth.

Get Our Analysis On The Mexican Stock Market

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A New Generation of Industrial Robots: Boon or Bane?

Add the current boom in energy production in the U.S. (more on this subject below), and the factors line up strongly for an industrial manufacturing rebirth, and good source of vigor for U.S. GDP growth.

Tesla’s automobile plant relies more on multi-tasking robots and software programmers than auto workers.

Source: New York Times

A Follow-Up on the North American Energy Production Renaissance — In Numbers

In this Week’s Premium Commentary, We Discuss:

  • $226 Billion, 3.6 Million Jobs, and 3 Percent Boost to GDP…
  • $11.6 Billion in Savings Per Year, & a Million More Workers…
  • $65 Billion in Additional Exports by 2017…
  • 6 Million Barrels a Day…and Growing…

Some People Argue that U.S. Energy Self Sufficiency is a Fantasy

Some people wonder if the U.S. oil boom is a short lived phenomenon.  How about the ongoing problem of depletion, which affects every oil field in the world?  What if Saudi Arabia floods the world with their lower cost oil?  To make those arguments, one would be assuming that Saudi Arabia CAN flood the world with cheap oil.  The country’s mature fields experience decline rates like all oil fields do.  We do not believe that they possess the flexibility to turn the spigots on wider in order to lower the cost of oil at will.  Most mature oil fields around the world are producing at their potential.  Saudi Arabia is probably also doing this because the price is high and there are buyers.  We agree that the problem of depletion affects all oil fields.  China, for example has a voracious appetite for oil, yet despite all its development-spending on fields in and around the country, its oil production fell last month due to depletion.

It seems that U.S. oil prices between 80 and 100 USD per barrel and Brent crude oil prices of about 100-120 USD will be a reality for the next few years.  Should the U.S. dollar decline in value, oil prices will rise.  Global oil demand continues to grow at a rate of about 2-3 percent per annum in spite of a serious recession in Europe and a slowdown in the U.S.  Unsurprisingly, demand is coming from India, China and other emerging nations.  Should war develop in the Middle East, we could see crude oil prices spike to much higher levels.

In a recent conversation with a long-time, well-respected oil industry analyst, we went through the arguments for both lower and higher oil prices.  His pricing view is that the price of oil will have to rise to somewhere between 147 and 207 USD per barrel before the world starts to see meaningful demand destruction and substitution of alternative energy sources on a large scale.  He believes that there are too many consumers being added to the global economy each year (and not enough production growth).  Supply, on the other hand, is constrained by geology, money, and politics.

Bears on oil often point to the huge amount of oil in storage, or that there are as many as 482 million barrels floating on the seas en route to new destinations.  In response to this negative, he quipped that a Middle Eastern oil official once said that about 300 million barrels are all in the Bermuda Triangle… and will never be found.

In summary, the U.S. will be wise to continue to discover and develop its energy reserves.  The U.S. has the technology lead in unconventional oil discovery… for the time being.  The logic of no longer sending hundreds of billions of dollars per year to foreign energy producers is inescapable, and now we see that it can do wonders for U.S. manufacturing competition and standard of living.

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