The U.S. shale gale, or fracking revolution, has begun liberating not only “trapped” hydrocarbons like oil and gas, but also a liberation of U.S. foreign policy.

All of a sudden, the U.S. isn’t so beholden to events in faraway places filled with people we don’t truly understand. In fact, at the rate things are going, the U.S.-Canada-Mexico block is moving toward a version of North American energy independence from the rest of the world.

This is as big a trend as we’ve seen in global economics over the past seven decades, so let’s dive in…

Trade flows are reversing. Oil-exporting countries have to find new markets. Oil and tanker ships that used to sail west to the U.S. Gulf of Mexico and East Coast now are sailing east to India and China. While this happens, we’ve had a period of relative oil price stability, which is good for the Western economies that are still healing from the 2008 recession.

The reversal of decades-old oil trading patterns means a tectonic shift in U.S. strategic outlook, which flows directly into the military requirements for the country. Do we need the same Navy or Air Force or Army?

In essence, the U.S. military can back away from its former reflexive process of planning for intensive, long-term, military-based engagement in the Middle East.

I don’t want to be flip and imply that we don’t “need” the Middle East anymore and can just wash our hands and waltz away. No, that’s bar stool analysis. The U.S. still has serious interests in the Middle East, which require a certain military approach, including weapons, doctrine and training.

But looking ahead, the U.S. can plan and conduct its global affairs without being plugged into an intravenous line for oil from parts of the world where we’ve had all manner of trouble for many decades. That’s quite a burden lifted off the backs of national planning authorities.

From a military aspect, this strategic “energy weapon” has changed the thinking. Looking forward, the U.S. military future belongs to long-range systems like ships, aircraft, drones and space satellites, all packed with communications, surveillance, tracking and targeting capabilities.

To the extent that future U.S. power projection requires people on the ground, the days of Big Army — the Cold War concept of mass engagements in, say, Germany — are over. In the future, “boots on the ground” will be troops in the special operations arena, such as Navy SEALs, Army Green Berets, Marine SOC (special operations-capable) assets and such. And they’ll all be humping lots of tech.

For Pentagon planners, the next really hard questions are along the lines of how to rebuild — and pay for — the Army-Navy-Air Force-Marines (and Coast Guard) in a political-military environment in which our nation is NOT importing vast amounts of oil and is thus NOT beholden to anyone’s petro blackmail. That is, we have strategic breathing room, which is a good thing.

But!!! (And there’s always a “but!”) Future military capabilities must at the same time fit into the U.S. system of alliances. Consider U.S. defense treaties with the (oil-importing) nations of Europe, through NATO. Or with (oil-importing) Japan and South Korea. The U.S. is moving toward its own enhanced energy security, but would it be right if the country just ditched long-term allies? That wouldn’t work at all.

An Unexpected Strategic Gift

So as we look at future of energy and modern geopolitics, we need to understand the new reality for America. The fracking revolution, and its so-called “shale gale,” wasn’t planned by anyone, and certainly not the politicians in Washington — many of whom fought and still fight against fracking, tooth and nail.

For an analogy, though, look back about three generations. In the 1930s, the U.S. was mired in the Great Depression. To relieve joblessness and kick-start the economy, President Herbert Hoover commenced, and President Franklin Roosevelt continued, a massive series of “energy” projects such as the hydro dams on the Colorado and Columbia Rivers, as well as the Tennessee Valley Authority (TVA). (And yes, these were Hoover ideas. You can look it up.)

Then — and NOT by previous design — in the 1940s, during World War II, these power-generating assets were critical to U.S. industry. One of the most famous energy-using projects was the Manhattan Project, which built the atom bomb. But looking back, it’s not as if anyone built the Hoover Dam or Grand Coulee dam, or set up the TVA, anticipating that there would be a global war in a few years and U.S. national defense would require all that electricity.

So today, new energy supply from fracking is remaking the global strategic balance. It affects the strategic balance of the U.S. and its place in the world. Energy controls military planning in a big way. Secure domestic energy is a weapon that works.

It’s fair to say that America’s new growing energy security is the culmination of over a century of research across a spectrum of industries now coming together in the oil biz. The trick is for the nation, the politicians and the generals and admirals to figure out how to use it to good effect.

Thanks for reading.

Byron W. King
Original article posted on Daily Resource Hunter

But believe it or not, our new Trade of the Decade is going well.

As you may recall, we began a “Trade of the Decade” back at the start of the 21st century.

“Buy gold. Sell stocks.” That was it. No fancy straddles, hedges or derivatives. Not even any stock selection. Just a simple macro trade that you could stick with for the next 10 years.

How did it turn out? Beautifully. Gold was the top performing asset class of that period from 2000-2010.

We probably would have stuck with that trade for another 10 years, but we were getting a little bored with it. So we looked around for the most despised major asset class we could find… and the most loved. We found them both in Japan.

“Buy Japanese stocks. Sell Japanese bonds” was our new Trade of the Decade.

You can see how much thought we put into it. And you can see too that we had no real insight into the Japanese economy or its stock and bond markets.

We just noticed that Japanese equities had been beaten down for the previous 20 years. Japan was the world’s best performing major market in the 1980s; Japanese industry was the envy of the world. U.S. business schools taught their students to use Japanese expressions… and leading politicians urged the U.S. government to follow the example of Japan’s industrial policy.

But before Americans could learn to say kaizen, the Japanese investment bubble said sayonara. The Land of the Rising Sun has been sinking ever since… until recently.

Mr. Market can be an SOB… but he’s not cruel. A whole generation of investors had gone broke betting that the Nikkei 225 would bounce back. We guessed he would let up on them sometime before another 10 years had passed.

As it transpired, a change of government also produced a change of policy. “Abenomics” it is called… after the island’s new prime minister, Shinzo Abe. The gist of the policy is large-scale bond buying by the Bank of Japan, which promises even more new money than Bernanke.

As it is in the West, so shall it be in the East. The quack policy that was good for the stock-owning geese of North America turned out to be even better for the stock-owning ganders of the home islands of Nippon. Japan’s stock market is the best performer in the world… up 32% so far this year.

Of course, the decade is still young. This bull market could fizzle. But the experts we spoke to in London don’t think it will.

Lord Rees-Mogg died last December. We went to visit his son Jacob, member of Parliament and head of Somerset Capital, which specializes in emerging markets.

“I think there’s more to this rally in Japan than just the printing press,” Jacob observed. “They’re also taking this opportunity to do a fair amount of restructuring. This could be an enduring trend.”

James Ferguson is a macroeconomist and a contributor to our British magazine, MoneyWeek. He also worked in Japan for many years. We asked his opinion.

“This has got much further to go,” he guessed. “Simply because the bear market lasted so long. Now with yields falling… and the yen falling… stocks should go up for quite a while.”

Ah, yes, that brings up the other side of our trade. “Sell Japanese bonds.” That’s doing well too, thanks again to Mr. Abe.

How long will these trends last? How long will our Trade of the Decade stay in the money? Will it still look good in 2020? We don’t know.

So we applaud ourselves now… while we still can!

Regards,

Bill Bonner
for The Daily Reckoning

The scene: a House Ways and Means Committee hearing on Capitol Hill.

We happened to catch this particular piece of political theater as we were getting ready to leave our hotel in Sao Paulo for the return trip to Baltimore. Even in Brazil, the spectacle of our Internal Revenue Service targeting “tea party” groups for special consideration drew attention.

If you didn’t catch it, we’ll give the gritty details in two minutes (or less): Former acting head of the IRS Steven Miller was tied to the whipping post on Friday, and flogged endlessly by members of both parties for authorizing IRS bullying of conservative and religious activist groups.

“You know what?” Rep. Kelly gnarled, lash in hand. The IRS “can do almost anything they want to anybody they want anytime they want. This is very chilling for the American people… get a letter from you folks, or a phone call. It’s with terror that you look at it. And now this kind of reconfirms that.

“I gotta tell you, where you’re sitting, you should be outraged, but you’re not. The American people,” he pressed on, speaking for a whole nation as only politicians seem to be able to channel the will to do, “should be outraged, and they are…

“This is a huge blow to the faith and trust that the American people have in their government.”
At this point, we thought he might snicker himself at the absurdity of what he was saying. But onward he crept.

“Is there any limit to the scope of where you folks can go?… This committee has nothing to do with political parties. It has to do with highly targeted groups. This reconfirms everything that the American public believes.”

Less than provoking laughter, Kelly’s tirade did something we can only imagine happens as rarely as the genuine “glee” of a professional streetwalker; it drew applause from the cheap seats.

While we were in Sao Paulo, we met with a group of gentleman who’d several years ago launched a newsletter on the “Agora model” because there were no such letters in the market. After five years of writing, editing, publishing and marketing the letter, they closed up shop.

“You have no idea how expensive and difficult it is to run a business in Brazil,” Fernando, one of the gentleman suggested. “It takes 3,000 man-hours just to comply with tax filings here.” He referred to Brazil as “the France of South America”. Bureaucrats, tax lawyers, social charges and unions abound. (Lucky for us, we’re engaged in businesses in both countries!)

“What do you have to complain about?” Fernando asked referring to the IRS hearings? “Americans take their tax authorities so seriously. Of course, their motives are political! Why would you think otherwise?!”

Heh.

We republish Rep. Kelly’s reproach less because it provided entertainment while we prepared for the 12-hour journey back home. Rather, we would like to know the answer to his unspoken question: From under which fetid igneous formation did these IRS slugs slither?

Who gives their lives to shaking down fellow citizens to fund political objectives they don’t share? All the while patting themselves on the back for what an efficient “voluntary” tax system we Americans enjoy.

Ha. Ha. Ha.

“Moderate libertarianism may be capturing the fancy of an overtaxed,” Ralph Benko wrote in Forbes.com this morning, “fed-up-with-debt-fueled grandiose government, war-weary, live-and-let-live Republican base and American people.”

Maybe. Maybe not.

Our good friend Ralph Benko has always had a much higher faith in the political process than we do. With all due respect to Ralph’s intent, we should note he gives much of the credit for the rise of moderate libertarianism to the junior senator from Kentucky, Rand Paul.

“We didn’t arrive into this ‘Grandiose Government’ pickle absolutely positively overnight. Sen. Paul and others seek to lead us on the path out and to safety. It will make their job easier if we better understood how we ended up in this gutter in the first place. The road toward serfdom was a long and winding one.”

The American story is lousy with stories of the struggle between the political class and the innovators and wealth creators who actually built the nation. We suspect the political farce over what motives the IRS had in being heavy handed with “conservative” groups will make an interesting footnote in that history. But not necessarily rise to the level of game changer.

Regards,

Addison Wiggin
for The Daily Reckoning

So with a little help from Dad, the girls then turn to making their own dollhouse furniture in only minutes, using a 3-D printer at home. “We may never buy dollhouse furniture again,” Anderson writes. “If you’re a toy company,” he adds with drama, “this story should give you chills.”

For the last 18 months, we’ve been wrestling with a conundrum: How is it that the U.S. energy industry is unlocking vast new stores of oil and gas… and the U.S. biotech industry is discovering how to turn back our biological clocks… at the same time Washington is setting new debt records and Wall Street is back to its old pre-2008 tricks?

Months ago, we made this “Tale of Two Americas” the central theme of the 2013 Agora Financial Investment Symposium, scheduled for this July in Vancouver. As part of our pre-conference research, we were compelled to track down Chris Anderson and talk with him face to face at the SXSW Interactive Festival — an offshoot of the annual South by Southwest gathering in Austin, Texas.

His daughters’ dollhouse furniture is a tiny ripple in the vast ocean of a home-brewed technological revolution that will change the world as we know it. “We went to Thingiverse, an online repository of 3-D designs that people have uploaded,” Anderson explains in his book Makers: The New Industrial Revolution. “Every furniture type we could want, from French Renaissance to Star Trek, was available, ready for the downloading. We grabbed some exquisite Victorian chairs and couches, resized them with a click to perfectly fit our dollhouse scale, and clicked ‘Build.’ Twenty minutes later, we had our furniture.”

No, the results weren’t very sophisticated. “Right now we can print plastic in only a few colors on our MakerBot. The finish is not as good as injection-molded plastic, and we can’t print color details with nearly as fine precision as the painting machines or stencils of Chinese factories.” But give it time, he says: Think back 30 years to the days when you printed two-dimensional documents on crude dot-matrix printers. “Just a generation later, we have cheap and silent inkjets that print in full color with resolution almost indistinguishable from professional printing.”

The future Chris Anderson envisions is about much more than using 3-D printers to make your own trinkets. It’s about opening the doors of entrepreneurship to anyone with a little imagination and an Internet connection.

It’s not only the “next big thing.” We daresay it’s the only thing that can overcome the crushing burden of debt that still looms like a snow ledge over the next generation of Americans. “Any genuine recovery in America,” we wrote in 2011, “will be led by entrepreneurs who generate new ideas and create new jobs.”

Enter Anderson’s new industrial revolution: “Transformative change happens when industries democratize,” he writes, “when they’re ripped from the sole domain of companies, governments and other institutions and handed over to regular folks. The technology to create and design new products is available to anyone today. You don’t need to invest in a massively expensive plant or acquire a vast workforce to turn your ideas into reality. Manufacturing new products is no longer the domain of the few, but the opportunity of the many.”

A Really Rotten Weekend With the Kids: How Chris Anderson Became a Leader of the Maker Movement

Chris Anderson has taken a roundabout journey to becoming the apostle of what’s now known as the Maker movement.

He was a college dropout and punk rocker who paid the bills working as a bicycle messenger. Then he went back to college, applied himself and earned a degree in computational physics from Berkeley. He began writing and editing for the scientific journals Nature and Science. Then he turned to general interest media, working a seven-year stint at The Economist, including a three-year assignment in China.

In 2001, he became the editor of Wired, the magazine that’s covered cutting-edge technology and its impact on the broader culture for the last two decades. He chronicled the Maker movement from its earliest stages. And over the last several years, he transformed from an observer to a participant to a leader of the movement.

An inveterate tinkerer, Anderson’s own foray into entrepreneurship began inauspiciously — in an utterly failed effort to entertain his kids one weekend in 2006. “One Friday, in the Wired offices, these two boxes arrive,” he tells us in a face-to-face interview. “We would always get products for review, and these two boxes show up. One was the brand-new Lego Mindstorms NXT 2006 kit, and the other one was a radio-controlled model airplane. I thought, ‘Best weekend ever, right? Saturday, we’re going to build a Lego robot with my kids, and Sunday, we’ll fly a plane.”

The Lego robot — a three-wheeled thingy — was a bust. “It moved forward until it saw a wall and then it backed up. And the kids were like, ‘You’ve got to be kidding me. We’ve seen Transformers. We know what robots are supposed to do. And where are the lasers? Why isn’t it walking?’”

The plane fared no better. “I flew it straight into a tree, because I suck at flying. I then climbed the tree to get it, which is mortifying.

“I was annoyed at them, I was annoyed at myself; the whole weekend had gone wrong. I was thinking about how it could have gone better. I thought, Well, the problem is we couldn’t build anything really cool with Lego, and the problem is it can’t fly. What if we could build a Lego thing that will fly the plane? I bet the Lego could have flown the plane better than I could have, and that would be cooler than this three-wheeled thing that bounces off walls.”

Then it dawned on him that with some of the other parts that arrived in the boxes that Friday, he could build a crude autopilot. “I came home, Googled ‘autopilots’ and understood a bit of the basics. Then I grabbed the kids and we sat at the dining room table and we built a Lego autopilot. And it worked. Kind of. It could kind of barely fly the plane.” Anderson and family had concocted the first Lego drone. It now sits in the Lego museum in Denmark.

The kids soon lost interest. Anderson did not. Long story short, his do-it-yourself drone experiment in 2006 became a website in 2007 called DIYDrones.com, and then became a company called 3D Robotics in 2009, selling both ready-made drones and drone kits for hobbyists. It has 70 employees in San Diego and Tijuana. Last year, the firm broke $5 million in revenue; this year, the figure is set to double. Anderson has quit the day job at Wired.

And nearly everything about his business embodies the organizing principles of the Maker movement.

Tune in tomorrow to find out how his business and countless others are gearing up to fly sky high.

Best,

David Gonigam

In what feels like the blink of an eye, the broad market is up nearly 17% in 2013…

Look back to earlier this year. The boring stocks led us higher. Your mega-cap, super-safe, dividend-paying names were the stocks to own. These stodgy companies sprinted higher for weeks. Safe became the new speculative.

Now, the rally is broadening.

First, it was short squeezes. Then, the rally focused on the more cyclical names. Energy stocks have found a second wind. Small-caps are moving. Technology names began pushing the market higher. Just yesterday, some of the smaller, more speculative solar stocks moved as much as 70%. I’m talking solar power – the sector everyone loves to hate (at least up until a few weeks ago).

“The most-indebted U.S. companies are rallying more than any time in almost four years compared with the rest of the stock market amid the broadest rally since at least 1995,” reports Bloomberg.

That’s right—even the sickest dogs on The Street are reaping the benefits of this rally.

Here’s another jaw-dropper: according to Finviz.com, 1170 stocks on the major exchanges registered new highs yesterday—compared to only 112 clocking in at new lows. It’s getting downright impossible to find stocks that aren’t moving higher on any given day of the week…

Are these junk stock gains sustainable for the long haul? No.

Does this mean the market has to correct right now? Nope.

Right now, it’s important not to get too caught up in the spectacular, one-day gains you’re seeing from many of these beaten-down names. If you want to ride the garbage stock wave, keep your stops tight. This party won’t last forever…

Regards,

Greg Guenthner
for The Daily Reckoning

Then again, I’ve spent time discussing the future of military technology with several people I know who follow these things from across the pond. Really, there are few things in the world quite like an informed British perspective.

So what’s the intersection of my travels and write-ups? Recently, it was a focus on energy weapons at the tactical, operational and strategic levels. Let’s take a look at where we’re headed – and at a brand new energy weapon the U.S. has in its arsenal…

To get started I’d like to discuss a couple of different “energy weapons” that the U.S. military is developing. These include the Navy’s electromagnetic rail gun that shoots projectiles at Mach 6 and powerful laser beams that can burn holes in the skin of incoming missiles.

These Navy energy weapons are not yet fielded systems. The few specimens are hand-built devices, out in the fleet for a first look. That is, at this stage, it’s all about testing and learning with prototype devices. Looking ahead, there’s plenty of work left to do with rail guns and lasers — from fundamental research to lab applications to systems engineering, to “soldierizing” and “sailorizing” the devices.

In other words, right now, the new rail gun and laser weapons are slightly more than bench-scale models with a coat of Navy gray paint. Yes, they work but you don’t necessarily want to be standing nearby when somebody pulls the trigger (or pushes a button). But there’s plenty of evolution and development down the line. Of course, along the way, the U.S. Department of Defense (DOD) needs to — to use another bureaucratic term — “operationalize” the systems.

Early on, we’ll see the new systems sort of “bolted on” to existing platforms, kind of like how early missile systems replaced gun turrets. Eventually, I foresee entirely new kinds of energy-weapon platforms, meaning ships and airplanes that are purpose-built from the inside out to handle the new equipment. There’s a future for budding naval architects and aerospace engineers out there.

It’s fair to say that new rail guns and lasers are poised to complement, if not overtake, previous weapons like traditional guns and missiles. The key point, at this stage, is that with new energy weapon technologies, we’re on the cusp of a dramatic transformation in the fundamental nature of weaponry, platforms and war-fighting doctrine. This will happen, and it’s investable.

The Other Energy Weapon

Over and above rail guns and lasers, though, what if I told you that there’s something else out there, and that it’s even bigger? Do you know that there’s already an astonishingly powerful energy weapon in the U.S. arsenal? It’s not just a single device, to be sure, but rather a system — or, more accurately, a system of systems. It’s already fielded, and it works! I’ve seen it.

Indeed, this new energy weapon is a strategic game-changer. Plus, there’s no waiting for more development on a traditional — meaning slow and expensive — government timetable, because the technology is perfected.

The basic, essential systems are developed. This energy system is quite operational, with effects already making profound changes in how the world works, as well as global perceptions of U.S. power and capabilities.

What’s this new energy development, and why isn’t it getting any press? Why aren’t generals and admirals pounding their chests in triumph and awarding each other medals? Why aren’t politicians dislocating their shoulders patting themselves on the back and congratulating themselves for their immense foresight and long-range vision?

Because the politicians, generals and admirals had next to nothing to do with this weapon. It was perfected out in the private economy, for the most part.

The Energy Revolution

I’ll suspend the suspense. I’m talking about the U.S. fracking revolution that has begun to liberate all manner of natural gas and associated oil from shale rock and tight sandstones across the U.S. I assure you that this kind of “new energy” is as much a strategic weapon to the U.S. as a rail gun or laser beam.

Fracking has all manner of issues, of course — environmental, logistic, investment and more. But it offers a pathway to energy security to the U.S. It’s already cutting down on oil imports.

That is, due to increased hydrocarbon output from fracking and shale production, the U.S. is no longer an oil market for entire regions of the world. U.S. oil imports from places like Algeria and Angola have collapsed. Imports from Nigeria are way down, and still falling. Same with oil imports from Venezuela, Saudi Arabia and other Middle Eastern nations.

On the economic side, fewer oil imports help the U.S. dollar. That’s a key reason for the strong dollar lately. It likely has something to do with the recent fall in gold and silver prices, too, as well as other global commodities. Stronger dollar means weaker everything else.

Tune in tomorrow for the conclusion of this write-up. There’s plenty more to say about America’s new energy weapon. Until then.

Thanks for reading.

Byron King
Original article posted on Daily Resource Hunter

What happened?

I recently read Garet Garrett’s The American Story, which came out in 1955. It is a well-written history of America — unusual because of its emphasis on the powerful economics that drove the country to great heights. Garrett tells the Dakota story in this book, which is a useful reminder about how economies grow and prosper.

What happened in Dakota was that farmers invested in machinery. The riding plow, the reaper and the combine harvester made the farms far more productive than they had been. Suddenly, the labors of one man could produce 5,000 bushels of wheat. A single miller could turn that wheat into 1,000 pounds of flour.

But that was not all. New railroads connected the farmer to the mill and the mill with markets and ports in the East. The energies released were enormous. Garrett writes:

“So the labor of four men — one a farmer in Dakota, one a miller in Minneapolis and two on the railroad — plus a very low rate for ocean carriage — could put into Europe enough flour to feed 1,000 people for a year.”

Let’s look at another example: steel. In 1870, there was nothing anyone would call a steel industry in the U.S. Americans bought their steel from Europe. Yet 30 years later, Americans would produce more steel than Germany, France and England put together.

Again, the investment in machines and rail and roads unleashed a torrent of once-frozen economic potential.

Those forces worked wonders as a free people tinkered, invented and created. “In sheds and attics and little machine shops everywhere,” Garrett writes, “with sticks and strings and glue and bits of metal, eccentric minds were making models of things that might work, either to save labor or to save time — two thoughts with the same meaning.”

Steam drills. Sewing machines. Electric lamps. Rotary printing presses. Cranes and elevators. Steam engines. Steel ships. Air brakes. Plumbing. Refrigeration. All of these things arrived in the years that followed… and so did a kind of national prosperity the world had never seen.

This is the work of a free people. Testing things. Trying them out. Succeeding and failing. It is a rough laboratory from which winners and losers emerge through trial and error. It is what builds great wealth, great economies and great countries.

It is the American story of two centuries past.

While there are no virgin places for a new American story to take root, no empty continents where a people might go to try to build something from scratch, there are new versions of the American story unfolding in places likely to produce astounding wealth in similar ways.

In places like Mongolia or Myanmar, for example, you find today’s Dakota Territory. Not that Mongolians are as free as those American pioneers, but there is so much frozen potential to unlock by applying technology and know-how and capital to their situations. It’s these mind-bending changes — and the lure of profiting by them — that attract me to explore the world beyond the developed West.

For example, in 10 years, Mongolia may well be among the richest countries, on a per capita basis, in the world.

The long-term trends here are undeniable and will take years to fully play out. I know it is hard to take the long view. I get panicky emails all the time from my subscribers who fret over this or that stock because it is hasn’t gone up after six months or a year. I know most people will not follow me no matter what I say. They will own a stock for a few months or maybe a year, and when it doesn’t pan out, they will sell out. On to the next great thing!

But in the real world, great stories unfold slowly. As with the American story, they take their time in the telling, with many digressions along the way. Learn to enjoy the story and think long term. Don’t get distracted by the daily and weekly march of news and prices.

Keep your sights on the grander story and stick with the original thesis as long as it remains valid!

Regards,

Chris Mayer
for The Daily Reckoning

In few places is this as true as in our reaction to disease. Something that regularly kills a great many people usually doesn’t elicit much of an emotional response. One good example is influenza. We tend to think of influenza, also known as “the flu,” as a common seasonal illness. Infecting up to one in five individuals during a typical year, it certainly qualifies as such. However, despite (or perhaps because of) the ubiquity of the influenza virus, it’s easy to forget what a huge problem it is.

Even during an average year, the influenza virus, in all of its various types and strains, hospitalizes 200,000 and kills some 40,000 people in the U.S. That’s a greater number than those generated by far more dreaded viruses like HIV and hepatitis C. In fact, influenza viruses kill more than HIV and hep C combined.

Worldwide, influenza’s death toll is even more shocking: It’s a safe bet that about half a million people will die of flu infections this year. To give that number some perspective, it’s more than the population of a major city like Miami… each and every year.

The economic toll is correspondingly large. Just in adults, influenza imposes an economic burden of $83 billion per year in the U.S.

Again, to give that number meaning, it’s more than the annual budget for a large state like Florida.

What’s worse about the cost of influenza is that these are typical yearly figures. These numbers aren’t representative of pandemic years — years when a particularly deadly and infectious strain of the virus breaks out. The cost in lives during those years can be far worse. The 1918 “Spanish flu” epidemic, for example, claimed upward of 50 million lives before it ran its course.

Influenza strains, even highly virulent ones, eventually peter out because our immune systems can adapt and defend us. Flu viruses, however, have a high mutation rate. New strains constantly emerge to which we haven’t developed immunity.

Furthermore, influenza is present not only in humans, but also in other animals like birds and pigs. Sometimes, a virus can jump between species or combine its genes with a human-specific version, creating a deadly and highly infectious new variety.

If you’ve read the headlines lately, you know this could be happening right now. Thousands of dead pigs have been mysteriously appearing in Chinese rivers, and people in that part of the world have begun dying of new flu outbreaks.

But that’s not all that’s worrisome. Just as troublesome are news reports of Chinese researchers creating new “hybrid flus.” These strains combine the genes of flu viruses present in several species. They could not only be transmittable to humans, but be highly deadly as well.

Although these Chinese virologists have been creating hybrid strains for benign reasons — to anticipate and prepare for the prospect of man-to-man transmission of these threatening strains — this might not always be the case in other places. Others could use the same methods to create deadly biological weapons. The danger of maliciously modified viruses is so great, in fact, that some experts consider it to be greater than the threat of nuclear terrorism.

Whether from natural or human causes, the next virus pandemic will, sooner or later, hit the globe. Fortunately, the science to counter these threats is maturing rapidly. Innovators are developing prophylactic and therapeutic biotechnology right now to address not only the risk of a deadly pandemic outbreak, but also the much-ignored, but still heavy toll of common seasonal influenza.

Yours for transformational profits,

Patrick Cox

Wikipedia tells us that the steel cent is the only coinage that can be picked up with a magnet. Not exactly a requirement for a good money. It is also the only coin in circulation that didn’t contain any copper. Even gold coins had a little copper back in the day.

Now the country is engaged in wars around the world and here at home: the war on terror, the war in Afghanistan, the war on drugs, the war on obesity. The government is constantly at war. As you might expect, valuable resources are needed, and the integrity of the coinage must be sacrificed just as it was for WWII.

To solve this problem, Congressman Steve Stivers (R-Ohio) introduced H.B. 1719 — the “Cents and Sensibility Act” — on April 24. It mandates that pennies, nickels, dimes, and quarters be composed primarily of steel, specifically U.S.-produced steel. By the way, this is the third time Congressman Stivers has pitched this legislation, and as GoldSilver.com reports, “Conveniently, Worthington Industries, a steel processor that supplies steel blanks for Canadian currency, is located in Stivers’ district and strongly supports the bill.”

We can only be thankful that a plastic button fabricator doesn’t operate in the good congressman’s district.

This sort of thing isn’t new. Kings used to “clip” and “sweat” coins constantly to pad the government treasury. Coins would be called in and filed around the edges, with the resulting loose metal coined into new currency for the government to spend. This practice has gone the way of the buggy whip, with the Federal Reserve conjuring up billions from the ether with the ease of a keystroke.

When you think about it, government would like to get out of the production of coinage altogether. The government is interested in earning what’s known as seigniorage — the difference between the value of money and the cost to produce it. It’s estimated that the cost of producing a $100 bill is 8-12 cents: Now that’s some seigniorage.

On the other hand, the government actually loses money creating pennies and nickels. According to GoldSilver.com, “As of May 8, a penny contains one-half cent worth of metal; nickels contain 4.6 cents. Factoring in production costs, the U.S. Mint reported that a penny cost 2 cents and a nickel cost 10 cents to manufacture in 2012.”

Sheesh, government manages to lose money while making money!

So while Stivers has failed before with his steel currency bill, its time may have come. Washington is swimming in red ink, and according to the House Financial Services Committee, the government would save up to $433 million over a decade by switching metals. Besides, carrying around a pocketful of change is as foreign to young people as reading a paper-and-ink newspaper.

It’s questionable whether the government would save money minting steel pennies, but this might be a step toward getting rid of pennies altogether, an idea that is constantly floated. To completely abandon the lowest denomination of currency is the ultimate surrender to inflation.

According to the folks at RetireThePenny.org, the average American wastes 2.4 hours a year handling pennies. This includes “the ubiquitous 30-second period we sometimes spend waiting for someone who just has to dig through their pockets or purse to find that last cent so they can pay for something with exact change (probably so they don’t get stuck with any more pennies),” writes Susan Headley at About.com.

David Owen wrote for The New Yorker back in March 2008, “More than a few people, upon finding pennies in their pockets at the end of the day, simply throw them away, and many don’t bother to pick them up anymore when they see them lying on the ground. (Breaking stride to pick up a penny, if it takes more than 6.15 seconds, pays less than the federal minimum wage.)”

The minimum wage was $5.85 in some states when the article was published. Now it’s even less worthwhile stopping for a penny with the minimum at $7.25 and more in many states. However, if the penny was minted from 1909-1982, its current melt value is 2.1 cents, so it would be worthwhile to pick up the penny. However, what are the odds that a random penny will be pre-’82?

Just like with the silver dollar, the silver certificate, silver dimes, and copper pennies, eventually Mr. Stivers (or another public servant) will have his way. Then zinc, nickel, and copper will be gone from all coinage. And when that happens, there will be an interesting, and unintended, consequence.

Government has been degrading money for centuries. It will not stop anytime soon. But hopefully, you have enough saved to help keep ahead of the government’s money machine.

That was the basic formula Harris Kupperman, CEO of Mongolia Growth Group (MNGGF), presented at the Value Investing Congress in Las Vegas.

Below are some notes from his inspiring presentation…

Harris suggested that the best places to find ideas are in assets not yet “financialized.” By this, he means assets for which there is no ready public market. No easy way to invest. An example would be farmland in 2004.

In 2004, Harris saw a big opportunity in farmland. The outline of the idea was simple and seems obvious now, but at the time it was often overlooked. There were four main parts. First, rapidly growing and industrializing emerging markets raised the demand for food. Second, existing stockpiles were tight. Third, prices for agricultural goods were low versus inflation. And finally, mandated ethanol usage almost guaranteed corn prices would go up. This would have a spillover effect on many other crops.

The question was: How do you play it? You could buy fertilizer stocks, seed companies, irrigation stocks and the like. (Your editor was doing exactly this. In 2005, I started recommending fertilizer stocks. These went up three–fivefold. We also doubled our money twice trading irrigation stocks. Good times.) While all were plays on the agricultural sector, none had pure leverage to farmland prices. Exposure to farmland is what Harris wanted.

For good reason, as it turned out. Farmland prices would take off. Take a look at the nearby chart — “Iowa Farmland: Prices per Acre” — which Harris used in his presentation.

But there was no way for an investor to buy it… short of buying the asset itself. And that was the point of Harris’ presentation. How you should have played agriculture in 2004 was to build a company yourself that owned farmland.

As Harris said, “Stop attending ‘ag’ conferences looking for ideas if you know the answer: Build it yourself.”

It may sound impractical, but this is exactly what Harris did in Mongolia. When he arrived in 2010, Mongolia had a $7 billion economy. It was building one mine that would produce $8 billion in copper and gold per year. It had a few dozen other things that would total $30–50 billion. And its commodity exports were set to grow from $2 billion in 2010 to $20–80 billion by 2020.

How would all that fit in such a small economy? The answer is: It would force asset prices way up. How to get exposure? Much as with farmland in 2004, Mongolia was not yet “financialized.” There was no easy way to get exposure to Mongolia. So Harris built it himself along with a business partner and team.

He focused on real estate, which has strong leverage to economic growth. Rents increase in a growing economy. In Mongolia, cap rates (or rental yields) were in the high teens. These would compress as the economy matured, sending prices higher. In 2010, Mongolia real estate was worth less than 10% of comparable real estate in Kazakhstan or third-tier cities in China.

Harris created Mongolia Growth Group to get exposure to the Mongolia bull market, which was set to be one of the world’s best bull markets.

So far, things are playing out more or less as expected. Cap rates have started to fall and are now in the midteens. Prime rents have more than doubled since 2010. And Mongolian real estate is still cheaper than most of the rest of Asia’s. Real estate prices have increased at a rate three times faster than economic growth. The platform is set and the potential upside is enormous.

Harris did not pitch Mongolia Growth Group at the conference. His talk was mainly one of sharing his experiences of building a public company and the lessons learned. When you see a great opportunity and there is no way to play it, don’t give up. Build it yourself.

I will, however, recommend the shares of Mongolia Growth Group to you. The stock price is down for no good reason at all, which means you have a better opportunity to grab shares. MGG is much further along now than when we got on board. The Mongolian bull market is still intact. It has a long way to go.

Remember the pieces of Harris’ advice. Find the best bull markets. Get in early. Buy the best assets. Ignore volatility. MGG checks all these boxes. It has great assets, acquired early in a massive bull market. The last piece — ignore volatility — is up to you. Don’t let the stock market’s ups and downs shake you out of what could be a life-changing idea. Sock it away and take a look at the price five years from now. Then take another look five years from then. I suspect the chart will look something like that chart of Iowa farmland prices.

Mongolia Growth Group is a buy.