I assume that you know by now that the president's "green czar," Van Jones, has resigned. Jones had come to prominence by merging environmentalism with grievance politics. Pollution, he maintained, is somehow intrinsically racist.

When he was appointed to his czar status, the mainstream media (MSM) did not find it worth reporting that Jones is, by his own description, a communist. The event he says turned him into a full-fledged communist was the beating of Rodney King by white police. He was not similarly moved, apparently, by the recent beating of black conservative Kenneth Gladney by SEIU union members at a town hall meeting.

Regardless, it's fascinating that a self-avowed communist could be appointed to a top presidential position without notice. If a self- described Nazi were to be appointed by any administration, you can be sure we'd hear about it. Communists, however, make Nazis look like pikers in terms of pure genocidal numbers. According to the book, Le Livre noir du communisme: Crimes, terreur, répression, Communists have killed 94 million people. Originally published in 1997 in France, that book was written by ex-communists. It is now available in English under the title Black Book of Communism: Crimes, Terror, Repression.

Nevertheless, you can call yourself a communist in certain "tolerant" circles and not be seen as supporter of a system that has routinely committed mass murder. So it was not the revelation that Jones is a communist that brought him down. Rather, a single unpaid blogger who goes by the name of Gateway Pundit discovered that Jones had signed a petition that, in essence, accused the Bush administration of either perpetrating or willingly failing to prevent the Sept. 11 terror attacks. It was the final straw.

During the long noisy buildup to Van Jones' involuntary resignation, not one word about the controversy appeared in the paper pages of The New York Times and many other MSM outlets. Only now are those who depend on these old media outlets even hearing Jones' name; and it is often in stories that infer that he was somehow smeared.

It is a remarkable state of affairs when important news and objective fact are being discovered and reported by a lone individual using nothing but his computer and an Internet connection. Meanwhile, old media are losing money and firing reporters daily.

This is the power of technology. We will continue to see this sort of disruption across the board, but this specific lesson concerns old media. Few of these old media institutions are capable of adapting.

This is the silver lining to our current economic troubles. Institutions that have forged alliances with political powers to assure their dominance will fail in hard times. FCC regulators will not be able to save the old, petrified media, no matter how hard they try. Similarly, representatives of other industries that have symbiotic relationships with politicians and regulators, from automotive to pharmaceutical, will be replaced in these difficult times.

When we finally emerge from this government-created fiasco, it will be a far better and more profitable world. As old institutions crumble, new ones will be born, and we'll invest in the best of them.

For transformational profits,

Patrick Cox
for The Daily Reckoning Australia

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You may have read about the discovery, recently, of a new and radically more effective mosquito repellant. Based on molecules found in black pepper, it was not discovered using traditional laboratory methods. Instead, it came about through computer simulations based on knowledge of mosquito cell biology. This is just the tip of the bioinformatics iceberg.

Until recently, cell biology has been something of a "black box." We could observe how cells functioned, but had little insight into the actual mechanisms. Now, though, scientists are learning how cells work on the molecular level.

Using mathematical models and new technologies for detecting molecular processes, researchers are extracting raw data from DNA and modeling the ways genes work and interact. To understand this field, you should view your own genome as a giant software program for manufacturing proteins.

The process of unraveling and decoding the DNA software involves massive amounts of data collection. Then, once collected, correlation and other forms of computer analysis are performed on those data to figure out cause and effect. How big is this challenge?

Consider this: Each human cell contains about 3 gigabytes (3 billion bytes) of pure data and instructions. If this information were written in book form, it would require 5,000 volumes, each 300 pages long. That's 120 times larger than the kernel of the Windows operating system, which is about 25 megabytes of code. This data resides, of course, in each cell's pinpoint-sized nucleus. The human body, in turn, has approximately 100 trillion of these 3-gig cells.

Add to this complexity about 5,000 different proteins expressed by each cell. Different cells, however, express different proteins. These proteins, the proteome, behave as computer commands and serve to communicate between cells.

The decoding of all these systems is, obviously, a huge computational challenge. It has only just begun and it would not be possible, in fact, without recent advances in computer technologies. As more powerful computing comes online, the pace of bioinformatics discovery will accelerate. Quantum computing, because it is particularly suited to sorting out cell biology, will enable a "quantum" leap in understanding.

Today, there are three main areas of research in computational biology. These are genome analysis, protein structure prediction and drug design.

• Genomic analysis is, as you would expect, the statistical analysis of genes. As more and more DNA is analyzed in conjunction with individual medical information, more is known. Among other reasons for performing this analysis, scientists are looking for the genes that cause or contribute to diseases.
• Protein structure predictions are based on computer models that integrate information about the function of these proteins. This is an immense task, as there are tens of thousands of proteins. Ultimately, understanding the proteome will enable truly personalized medicine, with minimal side effects for patients.
• With the knowledge gained from understanding the genome and proteome, computer models of target proteins can be created. Using these virtual proteins, drugs can be designed and tested using in silica simulations before testing in the lab.

The development of these virtual molecules, the heart of computational biology, is ending the practice of shooting blindfolded while hunting for drug candidates. Instead of randomly testing different drug candidates and analyzing the results, the field of candidates can be significantly narrowed using simulations. This radically improves the "hit rate," increasing the speed of drug discovery and lowering costs.

Moreover, computer cell simulations improve as additional data are collected and integrated back into the models. Significant advances have already taken place in this transformational space. Medicine, incidentally, is only one area that is benefiting from bioinformatics. Many of the benefits are taking place in the agricultural sector. The genetic engineering of microorganisms is another area of enormous potential.

This new science of building and experimenting on virtual molecules may be the most important new experimental tool since the scientific method was codified by John Stuart Mill in the 1840s. As Moore's law (the exponentially increasing power and cost-effectiveness of computers) continues to prove true, so will the power and importance of bioinformatics.

Regards,

Patrick Cox
for The Daily Reckoning Australia

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That's going to change.

Moreover, there will be huge profit opportunities, in many enabling technologies, for those who invest accordingly. And today I'm going to tell you about a company that will hand you your best chance to make a transformational fortune.

We know that many current treatments work on some people, yet not others. Some drugs are safe for many people, but have dangerous side effects for others. This is because all of us have individual differences in our genetic code based on heredity and environment. Even slight differences can lead to very different reactions to medications.

This has created serious regulatory problems. Drugs are denied regulatory approval not because they do not work, but because some fraction of the population suffers adverse effects. As a result, we are often denied incredibly effective therapies simply because they are not universally effective.

This shockingly primitive state of affairs exists because, until very lately, we simply have not had the tools to get to the genetic roots of disease. Scientists and pharmaceutical companies haven't precisely known how a particular drug's chemical profile interacts with a genetic one. Medical science, in turn, has been unable to tailor drugs to work with a specific genetic makeup.

This is rapidly changing. Just a few short years ago, the human genome was first mapped. The genome, as you know, is the entire collection of genetic code that defines us at a biological level. Now scientists are studying single genes and their individual expressions.

It is meaningful, from the investor's perspective, that Dr. Francis Collins, the head of the Human Genome Project, has just been selected by the Obama administration to head up the National Institutes of Health. Collins has long been a prominent champion for using the knowledge gained from human genome to accelerate personalized medicine.

This is important because institutional forces, with lobbying clout, always resist change. Much of Big Pharm, and its regulators, are vested in the "one size fits all" model. Many of the old players fear personalized medicine because it threatens the existing hierarchy. Collins' presence at the top of the NIH will help counter this institutional resistance.

Incidentally, Collins has stated that genomics is currently where the computer industry was back in the 1970s - at the beginning of a technological revolution. While he was speaking in scientific terms, we should remember that the '70s was also the right time to begin investing in a diversified portfolio of breakthrough computer technologies. Those who did so, despite claims that it was too risky or early, were made rich.

Dr. Collins is not alone in his views about personalized medicine. Former FDA director under G.W. Bush Dr. Andrew Von Eschenbach urges that the FDA approval process be overhauled and streamlined to help accelerate the adoption of personalized medicine. He is on record predicting that the medical industry will, in fact, undergo this profound metamorphosis.

I won't pretend, by the way, that the prospect of socialized US medicine does not threaten the pace of this transformation. If American pharm's prices and profits are controlled by the same people who run the Post Office and Medicare, it will not be good for R&D. It will not, however, stop progress. It will only shift it offshore.

Canada and much of Europe have squelched innovation in their countries by nationalizing health care. Rather than allowing drug companies the profits needed to fund future medical technologies, they mandate cheap care. This is why we regularly see politicians from these countries coming to the US to avoid long delays or get therapies unavailable in their own countries. I live in Florida, incidentally, and a million or so Canadians winter here annually. The weather is a factor, of course, but so is our superior medical care.

Many Asian and Eastern European countries, though, have learned from America's past successes. They are more than willing to become the next medical science powerhouses.

I speak regularly with the CEOs of some of the most important breakthrough medical companies. Universally, they tell me the same thing. They are all constantly courted by Asian investors who come with the blessings of their political leaders. These American CEOs are saddened, as am I, by the prospect that they may be forced offshore. They are, though, unwilling to halt the progress of medical science in the misguided quest for lower medical costs. I maintain hope, by the way, that Americans will stop this self-destructive move toward socialist health care.

In Greek mythology, Proteus was the son of Poseidon, who could change his shape at will. From this comes the adjective "protean," meaning versatile, flexible and adaptable. It is not coincidence that this also describes the proteins expressed by our genes.

By now, the public is somewhat aware of genome progress. Now that the code is cracked, however, we know that it was simply the first step in the process of developing truly personalized medicine.

Though our genome contains the basic information that determines our biology, our proteome is the entire domain of protein chemistry that regulates the structure and functioning of our individual cells. By extension, the proteome determines how each of our bodies function. Everyone's proteome is unique, because each of us has a unique genome and has been exposed to unique environmental factors.

The human genome contains a staggering amount of information. If it were a book, it would contain a billion words. Yet consider this: Each individual gene can determine the cellular manufacture and function of many, many proteins. Genes are merely the instructions for making proteins. Unlike our genome, which stays mostly the same over time, our proteome is always in a state of flux.

Proteomics concerns itself with these proteins and their interactions. These interactions determine the course of nearly all human diseases. They also open up entire new avenues of treatments and investment.

One important proteomic avenue is cancer chemotherapy. A recent study of personalized medicine by Scottsdale Healthcare showed that when cancer patients were individually profiled at the molecular level, treatments were more successful. Tumors that had resisted shrinkage using several courses of conventional chemotherapy were successfully treated when the patient's individual genetic makeup was used to customize treatment.

Many of these personalized treatments use therapeutic monoclonal antibodies directed against specific proteins. They work only, however, in specific tumors that strongly express that particular protein. For example, tumors need to develop new blood vessels in order to grow. If the protein instructions are known, antibodies can be developed that prevent new blood vessel formation by these tumors. Antibodies can also be developed against other growth factors that feed the tumor's growth.

We have already seen big investor successes in this arena. Early investors in Genentech struck gold. Genentech, now owned by Roche, was the first company to develop a targeted proteomic cancer therapy when it brought the breast cancer drug Herceptin to the market in 1998. Yet Herceptin is effective only in less than a third of breast cancer patients. In some, it can trigger dangerous cardiac side effects.

The FDA, therefore, has approved procedures to test the breast cancer for the genetic protein expression that is specifically targeted by Herceptin. Women can now be individually screened for overexpressing the particular HER2 protein that Herceptin targets.

Regards,

Patrick Cox
for The Daily Reckoning Australia

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There are, I know, politicians and pundits who blame the financial crisis on a "lack of regulation." Frankly, anybody who says that has failed the IQ test, or perhaps the ethics test. For all practical purposes, the American banking system is a branch of the federal government. It has been for decades.

Without government guarantees, backed by taxpayers, Fannie Mae and Freddie Mac could not have attracted the level of investor trust they did. The subprime mortgage and housing bubble wouldn't have been funded. Nor would politicians have had the leverage to pressure banks into offering bad loans. Perhaps most importantly, financial institutions would have had no reason to lavish huge campaign contributions and cushy make-work jobs on the political classes.

The banking crisis, however, is not my primary concern right now. It's happened, despite numerous warnings for years from rational economists and commentators. And it will pass. It is a structural problem, and restructuring is happening even now.

The so-called bailout will delay the emergence of new institutions, but it won't stop it. Alternative institutions are rising that will avoid many of the past mistakes. Some are likely to be offshore. Even Vladimir Putin is talking about metal-backed currencies. It is ironic evidence that others are learning the lessons our political class has forgotten.

My concern at the moment is the federal budget and ongoing deficits. This new expansion of government spending and debt is not some one-time event that markets can repair. According to the Congressional Budget Office, current annual deficits have quadrupled. Independent CBO economists forecast that they will level out in a decade to about triple pre-stimulus levels.

Frankly, I failed to predict the magnitude of these budget increases coming. I expected increases and never believed candidate Obama when he promised to cut net spending. Neither, however, did I imagine he would increase it as much as he has.

It is inevitable, however, that this level of spending will be reduced. It will happen for a variety of reasons. For one, such levels will slow the economic growth Americans are used to. It will stifle productivity and reduce income tax revenues. As it always has before, this will send the political pendulum swinging away from big government.

Incidentally, claims that the spending increases are either a "bailout" or a "stimulus" are bilge. No one has ever seriously tried to explain how spending that does not take place currently can appreciably stimulate the economy in the short run. Still, less than 24% of the stimulus will occur this year. That other 76% stimulates nothing but advocates of government spending.

So today, I want to take the time to deal in some depth with the effects all this will have on breakthrough technologies. I realize, incidentally, that some of my comments may be interpreted as partisan. They shouldn't be. I was a critic of President Bush's spending record as well, though it pales compared with current levels. And for the record, I don't think I've ever registered with either major party, even when I was working with a candidate in the last presidential campaign. He was a Republican, but he understands Federalist principles that would have limited the power of the GOP.

I would gladly vote for the sort of tax-cutting Democrat my father was. Ours was a loyalist Democratic household and my parents revered John F. Kennedy - one of America's great tax cutters. His across-the-board tax cuts were greater proportionately than those passed during the Bush administration. They were enormously successful in promoting spending and economic growth. Give me a Kennedy over a Nixon any day.

Nevertheless, I am prepared for e-mail from those who mistake my criticism of destructively high taxes for partisanship. It's not. Honestly. Economics is called the "dismal science" for a reason. And it often falls to rational economists to play the role of parent, explaining that we just can't afford all those cool toys people want right now.

The term "dismal science," by the way, was coined by a Victorian historian describing the work of Thomas Malthus. Malthus set the standard for doom and gloomers. An Anglican minister and a terrible economist, he predicted the imminent destruction of civilization, if not humanity itself, in the late 1700s. Despite our survival and amazing progress since then, others make similar predictions to this day.

I am, in fact, optimistic about the long run. The economy will not only recover. It will continue to grow exponentially when it does. That doesn't, however, mean that we don't face serious challenges in the short to medium run. This, however, is a unique time historically, with unprecedented opportunities for patient farsighted investors. Rahm Emanuel and Hillary Clinton have both said that you should never let a good crisis be wasted. Though my means of exploiting the crisis are quite different than theirs, I agree with the general sentiment.

There will, however, be delays in technology development. Because so many of the emerging breakthrough technologies today are related to health and longevity, I take those delays personally. While the economy will recover, there are people who will miss out on lifesaving therapies because new technologies are not being funded. This irritates me.

Nevertheless, we need to look at the situation clear-eyed and figure out how to profit from it. And in the process, we may help move some of these revolutionary new technologies forward. There is another Chinese proverb about crises creating opportunity, and this is no exception.

Now, to business.

The most onerous impact of excessive federal spending is the absorption of capital. When finite capital is appropriated through taxation and federal debt creation, this necessarily reduces the level of funding available for research and development.

This simple math is ignored by those who believe it's a good thing to tax the rich, the people who direct most investment capital into emerging technologies. Historically, overall economic well-being is best accomplished through the promotion of new technologies and businesses. Kennedy made that point with his famous statement that "rising tides lift all boats." Right now, the deficit is lowering the tide. Until this sapping of our R&D lifeblood is rectified, transformational technologies will face challenges.

Typically, we know, investors abandon unproven sectors for traditional stability when things get scary. This includes even venture capitalists. New data from PricewaterhouseCoopers, the National Venture Capital Association and Thomson Reuters verify that this is the case.

In the first quarter this year, US venture capital investments fell 61%. In the same quarter a year ago, venture investments were $7.74 billion. This year, the total was barely $3 billion. This is the lowest level in 12 years. Acquisitions of venture-backed companies fell by nearly half from last year. There were no venture-backed IPOs. None.

The one notable bright spot in this picture is health care services. Venture capital investment there is actually up somewhat. As I wrote on several occasions while we were waiting for the train wreck, health care is countercyclical. When times gets tough, the last thing consumers cut back on is medical services.

This is one reason that my Breakthrough Technology Alert portfolio is so heavily weighted with medical biotech today. It's not the only reason, however. It is simply true that a huge percentage of the biggest and most profitable technologies on the near horizon are medical. Significantly longer healthy life, i.e. "time," is the product they will deliver.

Economists talk about the "backward-bending demand curve." It refers to the fact that we max out on stuff. Eventually, if we get enough of something, we value additional units less. Demand for life, however, is unlike any other good or service. It is, in effect, infinite.

Regards,

Patrick Cox
for The Daily Reckoning Australia

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