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The Daily Reckoning | Monday, January 9, 2012 The states are collapsing...and other reasons to be optimistic, One of the best ways to structure a bullish trade on crude oil, Plus, Bill Bonner on the world’s biggest zombie industry and more... ------------------------------------------------------ 10 Million Blind Could Regain Sight In the 21st Century, a new dawn of medicine has emerged that could restore the sight of 10 million people worldwide. It’s a medical breakthrough that is unprecedented in human history. In fact, this amazing technology could eventually improve... and extend... every life of every person on earth. And one tiny California Company, priced under 80 cents per stock, is at the forefront of this revolutionary medical treatment. Click here to get the full details on this explosive penny stock that could significantly advance the field of regenerative medicine — and possibly make you ridiculously rich. In the Company of Misfits How the US has Fallen in With an Unsavory Gang of Debt-Addled Countries Joel Bowman Reporting from Buenos Aires, Argentina... As always, it’s a wonderful time to be an optimist. It is true, Fellow Reckoner, that the state is everywhere collapsing. Europe. Japan. The US. There’s half the world’s “official” GDP right there. (More on that qualification below.) All three economies are up to their eyeballs in debt. All three look on as growth rates fizzle, flatline or even turn negative. All three are folding like a cheap deck of cards. The US, for its part, passed another in a long line of ominous tipping points last year. 2011, according to the US Treasury’s own data, was the year in which total debt — now over $15.2 trillion — finally surpassed annual GDP. During no other peacetime period has debt been such a burden for the American Empire. “Among advanced economies,” reports USA Today, “only Greece, Iceland, Ireland, Italy, Japan and Portugal have debts larger than their economies.” It goes without saying that the above list is hardly the company a healthy, productive economy wants to keep. If these fiscal misfits were a schoolyard gang, they’d almost certainly be skipping class and getting themselves into mischief. If it’s AAA-ratings you want on your report card, they’re not the kids to be hanging out with. Japan, the leader of the gang, is so far gone down the debt hole it has virtually dug itself through to Australia. Where the US and many of the worry-worthy European economies still dally around the low triple digit debt-to-GDP ratios, Japan is way ahead of the curve. Depending on where you get your figures, total debt in The Land of the Rising Sun now is now between 220 and 250% of GDP. Perhaps the most important similarity between these collapsing giants is that all three governing bodies — indeed, ALL governing bodies — are in denial as to the real nature of the situation at hand. The people in positions of appointed power continue to operate under the assumption that they can “do something” to extend the lifespan of their respective states, institutions we’ve occasionally referred to here as the very embodiment of the “Old Experiment”...an experiment that continually fails us at every turn. As the state comes apart, expect the looter class — the politicians — to pull out all the tricks to ensure that their privileged notch on the totem pole is preserved. They’ll promise jobs they can’t deliver. They’ll offer programs they can’t afford. And all the while they’ll be working busily behind the scenes, thieving and conniving and sucking as much value as they can stomach from the system before the whole thing finally collapses. This is the story of Empire and, as Bill explains below, it is not a new story. Empires have been collapsing for generations...hundreds of them have perished. Hundreds more will likely follow. “Hey, wait a minute,” we can hear our Fellow Reckoners groan. “What happened to all the optimism?” Ahh...glad you asked. We qualified the word “official” above because of the enormous — and growing — UNofficial world economy...one that is not contained by borders, restrained by artificial regulations or bludgeoned to death by unscrupulous tax agencies and their morally lobotomized stooges. And therein lies reason to be optimistic... So what is this economy, one that employs roughly HALF of all workers around the world? How is it that this thing, this enterprising behemoth estimated to be worth roughly $10 trillion annually, remains so off the radar? And are you already a part of it, without even knowing so? We’ll be revisiting this topic later in the week but, in the meantime, please enjoy Bill’s notes on empire below, following Steve Belmont’s excellent guest essay, up next... Would You Rather Get A $100,000 Lump Sum, Or $1,000 a Month Over Time? Your answer reveals a ton about the kind of financial future you can expect. New research also shows how one decision over the other could have a big impact on your retirement. These are interesting findings you won’t see anywhere else... Now click here to see what your answer says about you. The Daily Reckoning Presents Crude Oil: The Best Bet for 2012 Steve Belmont Crude oil may not only be the best commodity play for 2012, it could prove to be the best commodity play of the next three to four years, soundly beating both gold and silver. I’m not talking about oil producers, refiners or drillers...or any individual stock — but the real thing: crude oil itself. Don’t get us wrong, we still like gold and silver and will probably recommend jumping back into silver shortly. But you can’t pour gold into a farm tractor and use it to grow more food. You can’t pump silver into a 747 and use it to transport cargo. You can’t use gold or silver to make overall production more efficient and generate a higher standard of living. In fact, you can’t do any of these things without crude oil. This is why crude is and will continue to be the world’s most essential commodity. 5 Reasons to Buy Crude Oil Now 1) Oil supplies have peaked — oil supply lags discovery by approximately 40 years. New oil discoveries peaked in 1965. Not surprisingly, production has basically flat-lined since 2005. Despite all the press given to new deep water discoveries and North American shale supplies, new production is not keeping up with the depletion of old wells. 2) Producing nations are consuming more of their own output and exporting less. Saudi Arabia, Iran, Norway and Venezuela are exporting far less oil than they did in 2006. 3) Global population is growing rapidly and more people are growing accustomed to better, more energy-dependent lifestyles. 4) Crude oil is decoupling from the dollar. For most of 2011, crude oil was a “risk on”, short dollar play. No longer. Crude is rallying in both strong and weak dollar environments. This is bullish. 5) The odds of a preemptive strike against Iran (the 3rd largest oil producer) are the highest they’ve been in years. 33% of global tanker traffic passes through the Strait of Hormuz which Iran has threatened to close in retaliation for global trade sanctions. Expect it to make good on those threats if bombs start falling on its nuclear facilities. Therefore, we believe crude has a better chance of doubling from its current $100 per barrel level than gold has doubling from its current levels of $1,575 per ounce. It’s not that we hate gold. We don’t. Some of the same conditions that favor crude will also favor the shiny stuff. But for “bang for the buck,” we feel crude oil is the best opportunity on the board right now. What is the best way to play it? Energy stocks tend to underperform actual energy products during bullish price spikes. Producer/processor Exxon rose 23.3% and refiner Valero rose 54.5% during crude’s last run-up to $147 per barrel in 2008. Crude oil itself nearly tripled. Why trade crude oil producers, refiners and drillers when we can just trade crude oil itself? I recommend using NYMEX crude oil options. NYMEX crude oil options are the most liquid (no pun intended) oil option market in the world — making buying and selling them about as easy as buying and selling most stocks. NYMEX crude options are a DIRECT PLAY on the price of the oil itself. NYMEX crude oil options also provide big leverage with fixed risk. That means we can devote a small amount of capital to our oil investment while keeping the bulk of our hard-earned dollars in safe, interest-bearing instruments. There are many different ways to structure a bullish trade on crude oil. But I recommend the kinds of structures that provide plenty of time for the trade to succeed. Even though I expect crude to make a very strong move to the upside in 2012, I could certainly be wrong about that. So my favorite way to bet on crude oil right now is to utilize a “bull call spread” that does not expire until 2015. This professional trading strategy may sound complicated, but it is really quite simple. And more importantly, is one of the safest options strategies that professional investors use. The bull call spread I like right now combines two different options. The first gives the investor the right to own 1,000 barrels of crude oil at $125 per barrel. The second option creates obligation to sell 1,000 barrels of crude oil at $150 per barrel. So that means the investor has the right to buy crude oil at $125, but must also sell that crude oil at $150. Therefore, the investor can make the $25 per barrel difference, but no more. $25 times the 1,000 barrel contract size equals $25,000. Subtract the $3,000 cost of the trade to get a net potential of $22,000 — that’s a 7-to-1 maximum upside. If the trade does not work out as hoped, the investor’s maximum possible loss would be the initial $3,000 cost of the trade. That’s the kind of risk/reward opportunity I like. Oil is a buy...maybe the very best buy in the entire commodity sector. Regards, Steve Belmont for The Daily Reckoning Ed. Note: Steve Belmont is a founding partner and Senior Market Strategist for the RMB Group. He is also managing editor of the exclusive alert service, Options Edge, as well as author of the popular RMB Short Course in Futures and Options. A featured speaker at many investment conferences, including Agora Financial’s annual event in Vancouver, Steve has traded commodities and commodity options for over 25 years. In association with Options Edge and Income Booster, he provides exclusive research and recommendations to RMB Group customers. What could be the biggest financial shock of 2012? Not the euro crash. Not the end of the gold bull. Not even a new bank scandal or another crash on Wall Street. You’ll want to see for yourself, while you can still take steps to protect yourself This frightening video spills the details. And now over to Bill Bonner with the rest of today’s reckoning from Baltimore, Maryland... World’s Biggest Zombies Bill Bonner Not much action at the end of last week... Gold closed the week over $1,600. Oil remained over $100. The show goes on! We are watching the destruction of an empire. All empires must go away sometime. They are natural things. And nature puts a time bomb in everything she creates. The US empire is doomed. Just like all the others that went before it. It is doomed by nature herself — condemned by the gods to blow up and die. None of this should be surprising to you, dear reader. We’ve seen this movie before. Hundreds of empires have come and gone. We know how this movie ends. More or less. What we know for sure is that the US is going broke. There is hardly any other plausible outcome. We’ve gone over the numbers so often we don’t need to repeat them. Yes, it is true that the feds could still save themselves....if they had the will. They could cut taxes to a flat 10%...and spend only what they raised in tax revenue... That would do the trick from an economic point of view. But it’s too late for that — politically. Empires have lives of their own. They go forward...expanding...spending...stretching...until, boom, they go too far. Empires do not back up. Some merely go bankrupt. Others are defeated in war. All end disastrously. Only one candidate favors rescuing the nation’s finances and pulling the empire back from disaster. Ron Paul. He is considered such an unelectable kook that the newspapers barely mention him. And the papers are right. He is unelectable. Because he is opposed by the zombies. We have explained how government really works. It is barbarism in action. Powerful insiders use force — police and military force — to transfer wealth and status to themselves. In the process, they turn their clients...and themselves...into parasitic zombies. The zombies support the insiders. The insiders throw the zombies a bone or two. Together they corrupt and destroy the empire. Here is just one example from last week’s news. Bloomberg: Despite the sluggish economy, the nation’s major health insurers have prospered in large part by expanding their role in government programs such as Medicare and Medicaid, according to a study released Thursday. The share of large insurers’ revenues contributed by their Medicare and Medicaid business has jumped from 36 to 42 percent over the past three years. And the report by Bloomberg Government, a research division of Bloomberg LP, suggests that insurers will further increase their reliance on federal dollars with full implementation of the health-care law in 2014 — when Medicaid will expand to cover an eventual 16 million additional low-income Americans and the federal government will begin subsidizing private-insurance policies for an estimated 19 million more. The insurers have become zombified. They no longer do honest work for honest reward. Instead, they lobby for more federal spending on health. They tweak the nation’s laws and its public health programs to make sure they get the grease. They are insiders now... But no sector has more zombies in it than the ‘national security’ industry. Dwight Eisenhower warned the nation in 1961 to watch out for the ‘military, industrial complex.’ He might have saved his breath. The zombies had already taken over. The US was already spending more on ‘defense’ than the net income of all American corporations put together. “In the years since,” writes Todd Purdum in Vanity Fair, “the trend has warped virtually every aspect of national life, with consequences that are quite radical in their cumulative effect on the economy, on the vast machinery of official secrecy, on the country’s sense of itself, and on the very nature of national government in Washington. And yet the degree to which America has changed is noticed by almost no one — not in any visceral way. The transformation has ten hold too gradually and over too long a period. Almost no one alive today has a mature, firsthand memory of a country that used to be very different...” Benito Mussolini was a socialist poet. But when he got into power he, like Barack Obama years later, discovered that it was not a good idea to oppose the military. Instead, he put on a silly uniform himself...and attacked Abyssinia! Dear Readers may have noticed too. Between Obama’s military policies and those of George W. Bush, there is not a dime’s worth of real difference. Why? Because a zombie military is almost impossible to cut down to size. It has already corrupted the political process. Now, the zombies cannot be stopped...or controlled. A bankrupt government can cut almost anything else. But not its military. National security industry insiders glide easily into the seats left by politicians who try to stop them. Ex-generals counsel wimpy Congressmen. Flies and flakes buzz around the trillion-dollar ‘defense’ honey pot. Military spending rose about 70% during the George W. Bush years. Today, the US spends 43 cents of every dollar of military spending anywhere in the world. And now, with the hysteria of “terrorism” and a “nuclear Iran,” who will oppose it? Many of the nation’s biggest manufacturers are weapons producers — Lockheed Martin, Raytheon, Northup-Grumman, L3 and KBR. The jump in employment numbers were largely the result of government hiring. We have seen a figure over 40% for the portion of domestic manufacturing devoted to the zombie defense industry. Among the most profitable businesses in the country are surely the 2,000 corporations getting money for counter-terrorism, homeland security, military intelligence and other boondoggles. In Washington itself, 33 new building complexes have been put up since 2001 whose occupants are somehow involved in top-secret activities. Yes, dear reader, the armed zombies pretend to protect the ‘land of the free.’ But they are its biggest enemies. In 2011, they put through a new defense spending bill...which removed Americans’ ancient habeas corpus rights. The Commander-in-Chief also asserted, and exercised, the right to kill anyone, anywhere...on his own say- so. And both the president and Congress continued to spend money they didn’t have on cockamamie boondoggles even though it is obvious that the nation is going broke. It is only a matter of time now. The empire will be stabbed in the back by its own protectors. Regards, Bill Bonner for The Daily Reckoning