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The Daily Reckoning | Friday, July 6, 2012 A recovery...for the economically blind and the politically deaf, The battle between science and politics...and who’s poised to win... Plus, Bill Bonner on the central bankers playing God and plenty more... ------------------------------------------------------ Only 62 People Know Exactly Why These Four Companies Could Change the World Now you’re #63 “on the inside” — and you’re on the verge of raking in lasting wealth. This could go down in history as the story of our era.  Click here for all the details.   Lowered Expectations Taking Economic Forecasts at Face Value   Joel Bowman Reckoning today from Paris, France... Markets in the US roared back to life last month; a clear sign, say the economically blind and the politically deaf, that all is well in the realm of mammon.  The Dow stacked on 700+ points. In percentage terms, the broader S&P 500 index rose by even more. The dollar strengthened too, as worried European investors flew to the “safety” of the least-bad currency they could find. But what’s this? US manufacturing, a “mainstay of the expansion,” appears to be faltering. Reports out this week tell us that (what used to be) the backbone of the American economy “unexpectedly” contracted for the first time in three years.Bloomberg was on the case: The Institute for Supply Management’s index fell to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May, the Tempe, Arizona-based group’s report showed today. Figures less than 50 signal contraction. Measures of orders, production and export demand dropped to three-year lows. Assembly lines may be slowing as consumers temper purchases of vehicles and other goods and companies limit investments in new equipment. At the same time, export markets for manufacturers like DuPont Co. (DD) and Steelcase Inc. (SCS) are finding it more difficult as Europe struggles with a debt crisis and Asian economies including China weaken. “Manufacturing is gearing down,” said Neil Dutta, head of US economics at Renaissance Macro Research LLC in New York, whose 50.5 forecast was the lowest in the Bloomberg survey. “It’s consistent with the idea that the uncertainty is weighing on businesses. Europe is taking a bite out of the export sector.” Funny how bad news is always “unexpected” or “worse than expected.” Economists are like boxers who always expect to land a punch...but never to receive one. Bad news seems to forever catch them off guard, knocking their quack models and pseudo-theories for six. Alas, it takes a brain to feel pain. Here bereft, the economist is always gingerly back to his feet...and always unprepared for the next uppercut. He should take our advice: Throw in the towel, hang up the gloves and call it a day. But hey, at least the US is not Europe. Not yet. Figures released this week showed Spain’s manufacturing activity falling to its lowest level since May, 2009. “Economists had expected a weak figure,” reported one paper, “but this is even worse than they forecast. It underlines the steady deterioration in Spain’s economy, which is already in recession.” The story was similar across the eurozone, where manufacturing activity continues to slow from the Thames to the Danube. Germany, France, Italy, Spain, the Netherlands and Greece all registered negative growth. As might be expected (by all non-economists), the employment situation worsened too, rising to 11.1% during the month of May...a euro-era record. As is the case elsewhere, total unemployment figures tell only part of the story. The devil is in the demographics, as they say, where an increasingly unsettled euro-youth continues to suffer inordinately high unemployment. Even in the least-bad Eurozone nations, unemployment for those considered “young” ranges between 8- 10%. But in Spain and Greece, one in two people under 25-years of age are without work. What will these kids do with all that spare time on their hands? Will they accept their gloomy, jobless fate sitting down? Will they quietly inherit the debt to which their fathers have shackled them? Will they pay into mandatory welfare programs likely to be extinct long before their time to receive benefits comes due? Never mind all that, say those who created the necessary conditions for this mess...and who continue to throw (other people’s) good money after bad. The Troika is coming! Yes, Fellow Reckoner, after more than a decade of intervention, meddling and knob-twiddling, the statists are back to make the situation worse. Reports MarketWatch: The heads of a delegation of European Commission, International Monetary Fund and European Central Bank officials — known as the troika — will begin a three-day visit to Athens Thursday to assess Greece’s progress made in implementing its latest 173 billion euro ($219 billion) bailout program. “The troika visit will start Thursday and run through to Saturday,” one senior Greek government official said. What havoc can these vapid neckties hope to wreak that they have not already wrought? Haven’t the people had enough of their...involvement? This, from the sidelines of yesterday’s meeting: Greece conceded on Thursday it had slipped “in some respects” in implementing the cuts and reforms demanded by lenders in exchange for saving Athens from bankruptcy, and tried to persuade them to cut the country some slack. Yes, just what the lazing Zorbas need...more “slack.”  And why not? “Give it to ’em!” we say. How much, exactly? At least enough to fashion a decent noose.   If You Own Any of These Gold or Silver Stocks*... Then you may be eligible to instantly collect a cash payment of $784, $1,324, or $2,345 — without having to sell your shares. (*List also includes technology stocks, retail stocks, and more. For a complete list of all 3,097 participating stocks, see this report.) The Daily Reckoning Presents The Race between Science and Politics   Ray Blanco “There are two consequences in history; an immediate one, which is instantly recognized, and one in the distance, which is not at first perceived.” — Frederic Bastiat Last week, the big news was the Supreme Court’s ruling upholding Obamacare. Stocks, already down for the day, plummeted further on the news. Emerging biotechnology companies were among the hardest hit...briefly. Most biotech stocks have already re-bounded from the one-day Obamacare selloff and have soared to new multi-year highs. But that selloff, brief though it was, illustrated a very real battle that is just now unfolding. It is a battle between science and politics — a battle between innovators and price-fixers. This campaign promises to be a difficult and prolonged one, but biomedical innovation will emerge triumphant. Those who oppose Obamacare rail against the program’s price tag and against the fact that it restricts the freedom of choice of American citizens. These are the most immediate issues, and they are important. The downside, however, doesn’t end there. For decades, the US has been a world leader in biomedical innovation. From 2001-2011, for example, I count 15 Nobel Prizes in physiology or medicine that have been awarded to scientists working in the US, whether native-born or otherwise. Today, the bulk of global biomedical research takes place in the US. If we discount academic research and focus solely on privately funded commercial research and development, America’s share is even higher. Often, when I visit labs or speak with biotechnology innovators, I can’t help but notice how many of the researchers are from overseas and choose to pursue their careers here. There is a reason for that, and that has been the relatively free US health care market. This bill, however, could be bad for biotechnology development. For example, it contains a special tax on medical devices — and much of the innovation taking place in the market is in improved diagnostic devices and gene-sequencing equipment. We also have to consider what effect increased government control will have on biomedical innovation. Faced with growing deficits that this bill will only exacerbate, politicians will focus on cutting costs, rather than funding basic research. Rationing and capping compensation for new, lifesaving technologies will become inevitable. A breakthrough therapy could be seen as an expense by a bean-counting government panel. Think of all of the lifesaving advances in biotechnology of the past decades. These were developed by private companies because they expected a profitable market for their inventions and discoveries. Reduce the incentive to innovate and what will the technological landscape look like in a few years, all other factors being equal? A growing army of bureaucrats and regulations threaten to reduce the pace of new medical technologies right when we are on the verge of mind-boggling lifesaving breakthroughs. Enormous advances are being made in treating disease at the genetic and molecular levels, and they show unbelievable promise in treating cancer, cardiovascular disease and even aging itself. We are in a race. On the one hand, we have scientific advance, unraveling the mysteries of life and developing revolutionary new therapies. On the other, we have politicians trying to lock everything down into a stasis, whether they know it or not. Nevertheless, the biotech revolution will continue. The coming breakthroughs will be so huge that no government will be able to stop them. Investors enabling them will earn fortunes. A substantial increase in life spans will bankrupt entitlement programs. New technologies will accelerate a fundamental transformation of the economy. This has been the case all through history. This trend is your friend. Regards, Ray Blanco,  for The Daily Reckoning Editor’s Note: Ray’s dedication to this type of research is nothing short of amazing, and we can think of few people we’d trust more when it comes to keeping track of these trends. So when he says to make this trend our friend, we’re inclined cozy up to it and buy it a beer or two.  Right now he and his colleague Patrick Cox have identified six major events that could return huge “jackpots” over the next 10 years. Click here now to find out what they are.   And now over to Bill Bonner who has the rest of today’s reckoning from Paris, France... Imagining a Universe Without Central Banks   Bill Bonner The God Particle has been discovered!  Yesterday, the saints at central banks in China, Europe and the UK said they would perform what could only be a miracle. The world economy wheezes, rattles and shakes because it has been poisoned by too much debt. The central bankers offer a cure — more debt!  “Central banks take action,” is the headline in today’s Financial Times. “Moves to stimulate global economy,” the FT described them. But what really got our attention was the ‘god particle’ story. Without it, say the scientists who tracked it down, we wouldn’t exist.  Of course, you could say that about a lot of things. Without air, we wouldn’t exist. Or water. Or sunlight.  Could we exist without Homeland Security? Without Twitter? Without rap music? Apparently so. We did...for many thousands of years. Happily. Could we exist without a central bank? Many people would reply ‘no’... Some would say so because they are ignorant. Others would say so because they are just stupid. But any sensible person would admit that human life could exist without a central bank. The US had no central bank before 1913. It had higher rates of GDP growth back then. It had a stronger currency too — the dollar of 1913 was worth about the same as a dollar of one hundred years earlier. Now, it’s worth about 3 cents...and disappearing fast. On the surface of the argument, it would appear that America’s central bank has actually made things worse. Maybe that is a coincidence; post hoc ergo propter hoc...and all that. But maybe there is a cause and effect relationship. Maybe a central bank CAUSES the economy to produce less wealth...and CAUSES the currency to lose value. But central bank apologists insist that times have changed. Modern economies can’t exist without them, they claim. Maybe. All we can say for sure, without benefit of a giant particle collider, or a know-it-all economist, is that the Fed is not the same as the God Particle; the former is a fairly recent innovation...but the latter has always been with us. The Higgs-Boson particle is very small. And very short-lived. No one has ever actually seen it. However, the scientists who get paid to do this sort of thing assure us that it is a big deal, despite what The Financial Times may think. The FT put the ‘god particle’ below the Libor story yesterday, which perhaps shows that the paper has its priorities wrong...or that finance now IS actually more important than God.  According to the reports, Higgs-Boson is the thing that gives mass to other things. For us, this just raises more questions than it answers. It does not explain why other things need mass...nor why they didn’t have it in the past...nor where Higgs-Boson got it...nor what the recipients plan to do with it. The giving of mass, again...we suppose...based on what we read in the paper...and our experience of actually going to mass in the Catholic church...is what makes the particle godlike.  Which merely deepens the mystery for us. God himself would not seem to require mass. He is not like a block of wood, after all. He is more a part of the spirit world...which sounds a bit like the world Higgs-Boson inhabits. And while we accept that He can do what he wants, we also feel justified in assuming that He’s not out to get us with some nasty trick...or merely looking out for NUMERO UNO. Which makes this very different from the Libor story or the central bank story. In the Libor scandal we found Barclay’s bank insiders setting interest rates to suit themselves...rather than letting willing buyers and sellers set rates for themselves. This is, of course, more or less what we’d expected them to be up to...manipulating interest rates, lower, for their own benefit. Both the Chairman of Barclay’s and its chief executive have been forced out as a result. But wait...isn’t manipulating interest rates lower exactly the subject of the central bank story too? The BoE, the BoC and the ECB are pushing down rates, just like the Barclay boys. They think they have the right. They say it will help stimulate growth. Could the universe still exist without these interest rate manipulators? We don’t know; but we’d like to find out! Regards, Bill Bonner,  for The Daily Reckoning ---------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor atjoel@dailyreckoning.com