A little-noticed event happened last week in the foreign exchange markets: The Treasury Department proposed exempting foreign exchange derivatives from the rules required by the Dodd-Frank Act. Of course, this is a good thing. There’s absolutely no reason to regulate foreign exchange markets. They are the most efficient in the world and were in no way responsible for the 2008 crash.
Thankfully, the government made the correct move. Nonetheless, the whole issue was unsettling, and it gives us a hint at the problems ahead with Dodd-Frank. Why were foreign exchange derivatives even considered for regulation in the first place? It’s so obvious that this market wasn’t a problem. Targeting foreign exchange derivatives shows the bureaucratic nature of Dodd-Frank – “Well, they’re called derivatives. Surely they must be investigated.”
However, it doesn’t stop there. There are other absurd areas of regulation. Consider for example dairy farmers. Yes, that’s right – dairy farmers utilize over-the-counter derivatives to lock in milk prices. But under Dodd-Frank, this market may see more regulation. Under the new rules, agricultural cooperatives may soon be considered swap dealers subject to additional regulations.
In the media, Dodd-Frank is commonly praised as the government’s reaction to the financial crisis. But after examining the details, the act is clearly an enormous regulatory burden and mess. Simply put, what do derivatives on milk and hedges on the euro have to do with the 2008 crash? Absolutely nothing.
The sweeping mindset of this Act will do little to address any actual problems, and will do much to regulate and burden markets unrelated to the last debacle. Don’t expect the Dodd-Frank Act to prevent the next crisis, but do expect it to make business more difficult across the board.
Now, let’s get to the issue. First, Jeff Clark will discuss the recent pullback on silver by comparing it to other corrections. Doug Hornig talks about future technologies in synthetic organs. I’ll be back to touch on a movie recommendation and provide some additional links as usual.
How Far Does Silver Fall?
By Jeff Clark, BIG GOLD
With silver dropping roughly 19% in the last three days, a correction is clearly under way. Let’s take a quick look at how far it might drop.
I’ve updated the “corrections” chart, which shows all major pullbacks in silver since our bull market began in 2001. The data measure any clearly visible drop in price greater than 10%, regardless of time length. As you’ll see, some drops occurred over short periods of time, while others were prolonged.
It’s clear that silver has had some large and scary sell-offs. But the “silver” lining to that fact is the realization that our current volatility is perfectly normal.
The average of all corrections is 19%. Applied to our high of $48.70 on April 28, silver would fall to $39.44 if it matched an average drop. So as I write, our current pullback is about average – though it’s been quicker than most.
But corrections don’t happen in a vacuum. It’s generally true that the larger the rise, the bigger the subsequent pullback. Silver has registered an incredible 59% year-to-date gain – and measured from its January 28 low, it’s up an astonishing 82.5%. This is important to note because based on my research, this was the biggest surge in the silver price in the current bull market. Thus, it seems reasonable to expect that the metal might fall more than the average.
You’ll notice a couple corrections where silver fell by about a third; if we dropped 33.3%, we’d hit $32.48. As another reference point, a 25% fall would take us to $36.52. And if it matched the giant 53.9% sell-off, we’d get to $22.45, though I wouldn’t hold my breath for that.
The value in this, of course, is that it gives us some idea of where we might start buying again. I personally would love to see $32 silver, because that would represent a healthy sell-off and appear to have limited downside from there. Only if you believe inflation “loses” would you hesitate to buy at that level.
Regardless of when you start nibbling again, it’s important to remember that the fundamentals driving this market haven’t changed one iota. The two big “Ds” – debts and deficits – are among the largest in history and cannot be repaid in sound currency. The U.S. dollar and other fiat currencies are getting inflated into oblivion – the full ramifications of which have yet to play out. In my opinion, viewing silver as a monetary replacement in our current environment is very prudent.
So maybe the appropriate question to ask isn’t “How far does silver fall?”, but “When do I get to start buying again?”
Check out the brand-new issue of BIG GOLD, which is devoted to how to prepare for the correction in the precious metals industry. We’re employing a couple of strategies that can not only remove the sting of a sell-off, but also prepare you to profit from the next big run-up. And we list prices for every stock in our portfolio where we’re looking to buy again. It’s all risk-free for three months here …
The Printable Kidney
By Doug Hornig
The following brief article underscores why we at Casey’s Extraordinary Technology are so bullish on biotech. Simply put, a revolution is under way that will change medicine – and our lives – forever.
Organ transplants have been around for more than half a century, and some have become quite routine. But the central problem with them has been the same for fifty years: the number of worthy recipients at any given time always outstrips the number of donors. That is not likely to change, ever. With our aging population, in fact, it’s going to get worse.
If donors and recipients were the only two parts of the equation, then nothing could be done. But technology doesn’t sit on an imperfect solution. It moves on, in this case to regenerative medicine. The following is a clip of Dr. Anthony Atala of Wake Forest University, presented at the 2009 TED conference, in which he summarizes the state of regenerative medicine today.
But regenerating organs is a difficult and complex process, and requires a great deal of time for tissue to grow naturally. Is there an even better way? Well, maybe you can print them.
We’ve discussed 3D printers in past issues of this dispatch, but organs are a huge leap beyond machine parts. They’re still very much in the experimental stages –no one has received a printed kidney transplant as yet. However, this year Dr. Atala returned to TED to talk about that subject. While you can probably skip the first half, which repeats much of the 2009 talk, the second half is a genuinely startling glimpse into the future.
What you see is a kidney facsimile (contrary to some news reports, it’s not a functioning one) that was created right on stage. Though it’s just a model, the hope is that one day real organs will be built from scratch, following these steps:
- Cells and biomaterials are inserted into the printer cartridges.
- A CT scan from a patient is used to create a map to guide the printer.
- The printer follows the map and builds biocompatible materials into a proper kidney, layer by layer, ready for transplant.
Eventually, we may even get to the point where the printer can print the new organ right into the recipient’s body.
It all sounds far out, but it may not be that far away.
At the end of the video, you get to see what it’s all about – the human consequences of Dr. Atala’s pioneering research – by meeting one of the earliest recipients of an engineered organ, a college sophomore who’s leading a healthy, normal life ten years after having received a lab-engineered bladder.
( Casey's Extraordinary Technology offers subscribers an easy means of keeping up on – and profiting from – developments in biotech and other fields. Try it for three months under our money-back guarantee.)
Recommended Movie: Restrepo
Last night I rented the new National Geographic documentary called Restrepo, which follows a group of U.S. soldiers in Afghanistan’s Korengal Valley. The film can be streamed from Amazon.com for $4 or found at most other movie outlets. Though some have labeled it an anti-war movie, it’s really not. The documentary simply shows the lives of soldiers in the very violent Korengal Valley. In fact, the film has no political commentary whatsoever; some liberal commentators have dismissed the movie for not being political.
Yes, it’s disturbing to see 18- and 19-year-olds under fire. Yes, some of them are killed. Yes, civilians are caught in the crossfire. It seems the pro-war crowd’s main complaint is that the movie shows the realities of war. If reality sends an anti-war message, that can't be blamed on the directors.
The directors themselves state on movie’s website:
The war in Afghanistan has become highly politicized, but soldiers rarely take part in that discussion. Our intention was to capture the experience of combat, boredom and fear through the eyes of the soldiers themselves. Their lives were our lives: we did not sit down with their families, we did not interview Afghans, we did not explore geopolitical debates. Soldiers are living and fighting and dying at remote outposts in Afghanistan in conditions that few Americans back home can imagine. Their experiences are important to understand, regardless of one's political beliefs. Beliefs are a way to avoid looking at reality. This is reality.
On a side note, the directors of Restrepo put their lives on the line to make this film. This isn’t a film shot by a fat and lazy Michael Moore from thousands of miles away. Recently, Tim Hetherington –one of directors of Restrepo – went too far in his pursuit of photojournalism. On April 20, 2011, he was killed while reporting from Misrata, Libya.
Additional Links and Reads
Euro Gains to Highest Versus Dollar Since December 2009 Before ECB Meets (Bloomberg)This article is a pretty good update on the state of fiat currencies. Tomorrow, the European Central Bank may signal additional rate hikes soon. The Swiss franc has been gaining in expectation of their own rate hike, and the pound is taking a beating alongside the dollar.
Eleven Companies With The Worst Reputations In America: Harris Interactive (Huffington Post)
Based on a survey of 30,000 Americans, Harris Interactive rated the most-hated companies in America. Most of companies on the list are rather predictable but the order is a bit unexpected. For example, Chrysler is more hated than Bank of America.
Some readers may have already heard about Intrade.com. Essentially, it is a prediction and betting market. One can make bets that certain events will take place: from who will be president in 2012 to who will be the next American Idol. The website is a favorite of academic economists with an extreme view of market efficiency. They believe that betting markets will reflect the most accurate probabilities of future events, much like stock prices reflect future cash-flow expectations. In my opinion, the current volume on Intrade is too low for this theory to work. Nonetheless, it’s a fun site to explore.
Well, that’s it for today. Thanks for reading and subscribing to Casey’s Daily Dispatch.
Casey's Daily Dispatch Editor