Craig Venter believes he can replace the entire petrochemical industry with algae – algae that's been genetically engineered to turn carbon dioxide into oil suitable for use in existing refineries. It sounds like science fiction, but ExxonMobil believes it's worth $600 million to try. A deal between Exxon and Venter's new company, Synthetic Genomics, was announced today.
Very longtime readers of my work will recall the name J. Craig Venter. I recommended his genomic startup company, Celera, in my newsletter in late 1999. The next year, I interviewed Venter and learned his plan at the time was to disrupt the pharmaceutical industry by replacing medicine's one-pill-for-everyone business model with personalized medicine. Celera, he said, would be at the center of this business by discovering key genetic differences and selling the information to pharmaceutical companies. It sounded like a brilliant strategy, enabled by new industrial genomic tools and enormous amounts of computer power.
Celera raised around $1 billion from investors to pursue this goal. But almost as soon as the checks cleared and the first genome was sequenced, Celera decided to abandon the original strategy. Instead of selling information, the company, coffers now flush with cash, would discover its own drugs.
In 2001, Celera spent $174 million to buy a pharmaceutical development company, Axys. Venter, who opposed the change in strategy, was pushed out of the company a few months later. And the billions raised from investors? More than $950 million has been spent by Celera over the last 10 years. So far, the company has nothing to show for this enormous investment except a few early-stage proteins that have been partnered out to Abbott and Seattle Genetics.
Given this history, I'm certainly skeptical of Venter's latest venture, Synthetic Genomics. I wouldn't be surprised to see the company attempt to raise billions in equity capital based on Venter's name and the deal with Exxon. On the other hand, I've studied the science behind his efforts with algae. His approach does have promise.
Venter is far too smart to make any of the obvious problems inherent in the physics of ethanol or solar. And if there's anyone who can organize the brains and the money to make it happen, it's Venter. He is one of the most determined people I've ever met. To see why Venter thinks it can be done, check out his Technology, Entertainment, Design (TED) conference presentation from 2005, the year he founded Synthetic Genomics.
Congressional Democrats proposed new health care legislation yesterday that would penalize all but the smallest businesses up to 8% of payroll if they failed to provide "health insurance" for every employee. (I've put "health insurance" in quotes because this program has nothing to do with actuarial risks or long-term investing. "Health insurance" as it works today is nothing more than a payment plan for health care.)
The fees on businesses would be used to pay for health care for the poor. Additionally, the Dems proposed a 5.4% "surtax" on individuals with incomes of more than $1 million.
This legislation is dangerous. It directly links a crucial benefit (health care) for millions of people to the wallets of business owners and wealthy people. This legislation is simply legalized plunder. It's using the power of government to steal from Peter to pay Paul.
While that's not new in America, the idea of doing so directly and for health care is particularly dangerous. There's no economic limit to how much health care can be consumed, because there's no real price system or a free market in health care. So as long as someone else is forced to pay for it, demand for health care will soar.
Finally, adding yet another tax to the top wage earners in America raises the question of how long the rich will go along. With the top federal rate at 39% and state income taxes averaging around 5%, this surtax would put wealthy taxpayers at the 50% mark. How hard would you work, and for how long, if half your wages were going to pay for a bankrupt government's entitlement programs? And what will happen when the rich try to stop paying or try to leave? What will happen when thousands of businesses simply shut down or fire most of their workers to avoid these taxes? Get your gold out now is my advice.
When I first wrote about credit-card giant Capital One in the April 2008 PSIA, the company's U.S. credit card chargeoff rate was a little more than 4%. I predicted losses would soar to 10% in the next 18 months... Today, Capital One announced its annualized chargeoff rate for U.S. credit cards – debts the company never expects to collect – hit 9.73% in June, up from 9.41% in May. Chargeoffs for U.S. auto loans rose to 3.89% from 3.2%, and the delinquency rate increased to 8.89%.
Intel, the world's largest computer-chip manufacturer, announced better-than-expected sales today. The company posted $8.02 billion in revenue for the quarter, besting the $7.28 billion Wall Street projection. Intel also projected sales of $8.5 billion (plus or minus $500 million) for the third quarter, much better than the $7.8 billion Wall Street estimate. This is a sign the global economy is stronger than most people think.
I'm in New York City this week for meetings with several major publishers. Their magazines are tanking. Ad sales are down 50% from last year. BusinessWeak is for sale. The bid is $1 (no kidding). The entire ad-based business model for mainstream financial publishers is failing. They're dying. And they can't understand why my business continues to grow.
They don't seem to understand the world has changed: People can get their information from millions of sources now. They don't trust big publishers (and they shouldn't), who have been serving big business instead of their readers for decades. I keep telling these guys, you have to be honest with your readers. You have to publish something that's valuable, unique, and useful. They don't get it. And they won't until it's far too late.
Dr. George Huang's latest issue of the S&A FDA Report just came out this evening. He's found two of the sa
fest trades of the year... both with massive upside potential. George is recommending two biotech penny stocks, both trading at 30%-plus discounts to cash. So someone could buy these companies, scrap the assets, take the cash, and make about 50%... with next to no risk.
And these stocks could double or triple in one day if any of the drugs in the pipeline pan out. To top things off, Seth Klarman – one of the greatest investors in the world – owns a huge chunk of one of these companies.
To learn more about the FDA Report, and gain access to these two super-safe trades, click here...
New highs: Hatteras (HTS) and AmeriGas Partners (APU)
In the mailbag... a few pats on the back. We appreciate your support. And your notes. We read them all: feedback@stansberryresearch.com.
"You guys are great free-market folks! Thank you for your supportive comments on Switzerland. I was broken-hearted to read in the Digest that the Swiss had bowed to the criminals at the Fed, etc. I am a fan of Jefferson, Sowell, Friedman, Hayek and the like. I am not wealthy, but I have worked with some very successful people, several of whom were in Switzerland. I grew to have a huge respect for the Swiss when I travelled there often in '93-'97, working in finance, with two Swiss banks, a large law firm and a wonderful accounting firm. Through the '90's and on, I grew quite fond of the real free market and, having studied much of our history, gained immense respect and appreciation for our Founders. To observe the direction this country has been following for some 80+ years is truly disheartening. And now to see the Swiss bow to the same group-think that seems to be sweeping modern culture is just too much. Keep up your good work" – Paid-up subscriber Joe
Porter comment: The regulators are doing their very best to make it impossible for us to continue publishing. We don't wonder why.
"I am a small time investor and I wouldn't have the ability or resources for the information I get from you. I am so upset with the media and what I hear there, and tho I am not able to get all the info I do recognize when I am being fooled by what I hear them come up with. I use to take Time etc, Money etf magazine but soon learned that the news there had already happened before I got the magazine. This why I am thankful for the newsletter I subscribe to from [Stansberry Research]. Thank you." – Paid-up subscriber Vicki
"You comment in todays Digest encourage all of our subscribers to move a significant amount of assets out of the U.S. before such transfers become illegal. Move them where? Move them without scrutiny???" – Paid-up subscriber Joe C.
Porter comment: We don't understand why this advice is so difficult to understand. You can move money out of the U.S. in lots of ways – including FedEx or wire transfer. It's not illegal. And it's not hard. Finding a bank to take your cash can be difficult, but getting a safe deposit box or even a self-storage unit shouldn't be too hard. Or there are even easier ways – like simply buying property or an operating business in a foreign country. I'd recommend Singapore. Or Panama. Or Uruguay.
"You said: 'While we don't condone huge bonuses for executives who ran their company into the ground, the fact stands that AIG agreed in contract to pay its executives this amount. The government should not have the power to overturn existing contracts. This AIG bonus debacle could set a scary precedent.' I am one of many who had pension and other agreements with a large airline. After wage cuts, our contracts were not honored and neither were the pensions. Now there have been further wage cuts plus union busting and age discrimination on a grand scale. The government did not just allow this to happen; it was an active participant. I think the scary precedent has already been set..." – Paid-up subscriber Joe C.
Porter comment: You're missing one crucial element: bankruptcy. When a firm goes bankrupt, the equity holders are wiped out and the debt holders have to reach a settlement based on whatever assets remain.
The airlines, after they went bankrupt, could tear up their union contracts. Their pension funds were one of many creditors. Bankruptcy is the only legal way to break a contract. It is a severe penalty to the owners and creditors of a firm. What happened to you and other airline retirees is unfortunate, but before your contracts and pensions could be touched, the owners and creditors of the airline were wiped out. That is as it should be.
If the government wants to punish AIG employees by voiding their contracts, the firm ought to be forced into bankruptcy first. In our view, the government ought not to have the right to decide which contracts are valid and which are not (i.e., obligations to repay Goldman Sachs ought not come before obligations to pay employees or other creditors).
Regards,
Porter Stansberry
New York, New York
July 15, 2009