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jbog, I did not want to put this story below on one of Roy's boards. Jon Rappoport is on Alex Jones, so I hear, I don't watch Alex, but Jon has some interesting thoughts on many issues. This is maybe too conspiratorial for Roy, even thought I emailed it to him, no reply, lol. >>>>
Corona baloney: it’s the money, honey
By Jon Rappoport
March 6, 2020
We all understand that governments can invent money out of thin air. However, inventing a reason out of thin air to invent the money sometimes takes a little more ingenuity.
Enter THE VIRUS. The medical version of Satan.
To new readers: to fully understand the next paragraph, you’ll need to read my previous articles on the “China epidemic” con job (archive here).
—A virus whose very existence is in doubt; the diagnostic tests for the virus are entirely inadequate and useless and misleading; therefore, the case numbers are meaningless; the virus’ supposed origin (Wuhan) is a place where highly dangerous and unprecedented air pollution can account for the all the effects of the so-called virus—and now one prediction on steroids is pegging the eventual global case numbers at 15 million, and the cost of containing the virus at $2.4 trillion. The elite players are visiting their tailors and having their deep pockets deepened further to absorb this (planned) windfall.
Let’s go local to grasp how a city government can scoop up a small piece of the action: Los Angeles.
Mayor Eric Garcetti has released this statement, explaining his declaration of a state of emergency:
“This morning, I joined our County leaders to provide the public with an update on everything we are doing to prevent the spread of coronavirus and protect public health. I have signed a declaration of local emergency for the City of Los Angeles.”
“While there are only a few known COVID-19 cases in the region, the declaration [of emergency] helps us access state and federal funding to strengthen and support our efforts to prepare our region and prevent the spread of COVID-19.”
If I were the mayor of LA, I would have phrased my statement this way: “Groveling on the steps of the US Treasury building, I implored the feds to drop bags of cash on my head. I understand the game. Go along with the charade, pretend we’re in the middle of a vast crisis, follow all the CDC guidelines, pronounce the magic word EMERGENCY, and good fortune will follow. Resist, defect from the artificial consensus, and earn the status of vile outcast. Weighing these two options—only a fool would refuse the federal gifts. I’m sure LOCAL GOVERNMENTS ALL ACROSS THIS GREAT LAND ARE LICKING THEIR CHOPS AND SIGNING ON TO THE OFFICIAL AGENDA. IT’S THE MONEY, HONEY.”
Here is an example of what the great mayor of the great city of Los Angeles is commanding, to stem the tide of the evil virus:
“LAX [airport] is following the guidance provided by the Centers for Disease Control and Prevention (CDC)…installing more than 250 additional hand sanitizer stations and using virus and bacteria-killing disinfectants throughout the airport. We’re cleaning public areas and restrooms at least once every hour, and increasing deep cleaning — focusing on high touch areas like handrails, escalators, elevator buttons, and restroom doors…”
What, no spittoons? No plastic baggies to wear over shoes? No hazmat hoods with visors? No ray guns to kill the virus as it floats through the air? No oxygen tanks and masks to offset the toxic effects of the disinfectants?
Ahem. Is anyone still interested in the system of Federalism, and the principle by which the individual states and the federal government maintain their separate powers? Ha-ha. Just kidding. The federal government, with its ability to conjure money out of nowhere, can offer the states (and even cities) cash to surrender and accept federal policies and edicts.
“You want me to stand on my head? You’ll pay me to do it? I’m in.”
A “virus emergency” is just another scheme to expand federal powers. It’s a lot more than that, as I’ve explained in articles going back 20 years, but here I’m focusing on one element of Scam-Land.
Analogy: You could call the US education system another kind of virus—a social germ. “We’re the feds. Listen up, States. Accept our newest version of No Child Left Behind With A Mind of His/Her Own, and we’ll push money your way. Turn out clueless students without an original thought in their heads, without the ability to read a full paragraph of coherent prose, much less think in logical terms, and we’ll reward you handsomely. We have a whole lineup of programs and plans for the future, and they’re so outrageous we must have millions of dumb-as-wood people who will shrug and buy into them…”
One such outrageous program: a story about a biological virus, a fairy tale for the ages. As with all such jive, a happy ending is there, but only after much misery and fear.
Footnote: As if to prove the corona baloney is real, certain peripheral operations must be launched. An all-time favorite: torpedo the stock market. Ah yes. Top tier investment funds give the market a gentle but firm head-butt, and overnight, individual investors start dumping their shares in this, that, and the other. Headlines scream. Therefore, what more evidence do you need? The virus is coming, the virus is coming. Head for the hills. Pack up the kids. Live in the forest. Dig for roots and tubers. Survive away from the CONTAGION.
“I thought I was healthy. I was drinking fresh juice every morning and running in the park. I’m not even in favor of vaccines. But now I don’t know. I sneezed twice yesterday. For a moment, while I was watching the news, I felt what might have been a hot flash. Better call my doctor and get tested. What? He’s booked up solid for three months? Screw it, I’m going to talk to my boss and see if I can work from home. Who’s that drug dealer friend of your cousin, honey? Maybe he’s selling antivirals.”
Footnote #2: Forget food labels that announce ORGANIC or GMO FREE. When are we going to see stickers on apples that claim: NO CORONAVIRUS. For that matter, when will people starting wearing those stickers on their foreheads?
As I’ve been saying for 30 years, the most important long-term cartel of Globalism is MEDICAL. It flies no partisan banners. It proclaims its political neutrality. It expresses no interest beyond healing.
It thus exemplifies a fabulous cover story for its covert operations. It employs armies of true believers, who will tell you they are SCIENTISTS. The problem is, they’ve undergone massive mind control. It’s called medical school.
They’ve never met a virus they don’t love. Even if that virus turns out to be nothing more than a theoretical artifact, a fabricated construct, a cartoon, a fairy tale spun out on the evening news…
Update: The US Congress has just approved $8.3 billion for ‘fighting the coronavirus.’ Talk about a money pot. Major fingers in that pot, including, no doubt, vaccine companies.
https://blog.nomorefakenews.com/2020/03/06/corona-baloney-its-the-money-honey/
jbog Let me add my thoughts about the article>>>
I needed that. Conspiracy thoughts were in my mind. Like it is a new virus, how did they develop a test for it and get it to all the hundreds of thousands of clinic, hospitals, etc. in the world. I heard of one possible local case and the doctor told her to quarantine herself for a number of days, I guess letting her diagnose her virus? Thus the case count is totally false.
LLY buys North American rights to Erbitux from BMY: #msg-112837296.
Great to see you posting DD, you've always been a wise owl.
Are you following NAVB, formerly NEOPROBE now NAVIDEA BIOTECH.
So close to PDUFA.
Wow Imclone, that seems a long time ago and a lot of baggage, good luck to you but I know you're very gifted in this sector so I need it more.
Erbitux look-back after all these years: #msg-77240378.
Any updates on the LLY/Imclone integration? The article below got me thinking about what LLY is doing. Have there been any major changes (hirings, firings, etc.)? In addition to the current clinical pipeline, I think that there is an opportunity for LLY to provide IMCL with new targets so that IMCL can use its core competency in developing antagonists antibodies to RTKs and other cell surface receptors. I hope that such a cross-talk and expansion of research projects is happening and I hope that LLY is not cutting the IMCL R&D staff. From what I hear, the J&J purchase of Centocor (sp?) worked well, J&J left Centocor alone, and if spun off today Centocor would be much more than J&J's original purchace price.
http://finance.yahoo.com/news/Level-3-expands-services-to-apf-1047705565.html?x=0&.v=1
The Climate Change Lobby Has Regrets
Cap and trade is going to cost them.
By KIMBERLEY A. STRASSEL
Jim Rogers is not happy with the Obama administration. Ever since the White House unveiled its costly climate program, the CEO of Duke Energy has been arguing the proposals amount to nothing more than a tax. Indeed.
Mr. Rogers belongs to the U.S. Climate Action Partnership, about 30 companies that decided they were going to dance with the U.S. government to the tune of global warming legislation. The group demanded a "cap-and-trade" system, figuring they'd craft the rules so as to obtain regulatory certainty, with little upfront cost. At the time, Mr. Rogers explained: "If you don't have a seat at the table, you'll wind up on the menu."
Duke sat, yet it and its compatriots are still shaping up to be Washington's breakfast, lunch and dinner. The Obama plan will cost plenty, upfront, which will be borne by Mr. Rogers's customers. The Duke CEO tells me that he still sees opportunity to change the proposal: "This is not my first rodeo, in terms of working with the legislative process." There nonetheless may be a lesson here for companies that invite the U.S. government to saddle them with huge, expensive regulations.
"People are learning," says William Kovacs, vice president of environment, technology and regulatory affairs at the U.S. Chamber of Commerce (which has been cautious about embracing a climate plan). "The Obama budget did more to help us consolidate and coalesce the business community than anything we could have done. It's opened eyes to the fact that this is about a social welfare transfer system, not about climate."
Truth is, any cap-and-trade system is a tax, even if Mr. Obama's plan has only started to force business proponents to admit it. The government sets a cap on how much greenhouse gas can be emitted annually. Companies buy and sell permits that allow them to emit. Customers bear the price of those permits.
But the political question was always how that first batch of permits would end up with companies. Corporate support rested on the belief they'd be "allocated," for free. This would allow them to delay the day when they'd have to pass costs on to consumers, and ignore, for now, the "tax" question.
It didn't take long for the pols to figure out they could auction off permits and spend the loot. President Obama's auction bonanza would earn the feds $650 billion in 10 years, according to the administration's budget estimate -- and that's a low, low, low estimate.
Thus Mr. Rogers's lament. No one can now pretend that this isn't going to cost, and Duke is going to be tagged as tax collector via higher electricity bills. If the customer outrage won't be enough, some utilities will also be forced into fights with state regulators, who have to approve the rate-hike requests.
Congress isn't sympathetic. Most Democrats want the money to spend, while many Republicans have written off companies asking for government freebies. "What you saw when [the Climate Action Partnership] was draping itself in the name of saving mankind, what they were really doing was trying to create the largest earmark in modern history," says Tennessee Republican Sen. Bob Corker of the "allocation" system.
Mr. Corker has been having fun exposing the self-dealing in recent climate bills. Companies aside, he blew an early whistle on Congress's ambitions to use an auction system to enrich itself. During last year's debate on Sen. Barbara Boxer's (D., Calif.) climate bill, he offered an amendment to require rebates of all auction funds to American families. It helped kill the bill, as did a growing awareness among Midwest and Southern Democrats that the legislation would disproportionately hammer their industries and constituents.
Mr. Obama is promising to return auction money to Americans, via a tax cut he proposed on the campaign trail. Mr. Corker calls this a "sleight of hand," since people were counting on a tax cut in any event. Nobody told them they'd have to fund it with higher energy costs. It's also a wealth transfer -- electricity users in coal-heavy Ohio, for instance, will be funding tax cuts for green Californians. Not that congressional spenders have any intention of using this money for tax cuts in the first place.
All this foreshadows the political battles to come. With the business community moving more uniformly against the bill, the administration will be looking to cut a deal. One way to buy support is to offer a certain percentage of the permits for free. Next comes the fight over how much money the government gets to keep versus how much goes to states or individuals. Expect a lot of political courting of Midwest and Southern members, on whom the fate of the Obama plan hinges.
Business leaders might do better to use this as an opportunity to kill the beast. They might get some credit for protecting their customers from what they are now, finally, admitting is a giant tax -- in the middle of a recession.
Write to kim@wsj.com
Obama's Radicalism Is Killing the Dow
A financial crisis is the worst time to change the foundations of American capitalism.
By MICHAEL J. BOSKIN
It's hard not to see the continued sell-off on Wall Street and the growing fear on Main Street as a product, at least in part, of the realization that our new president's policies are designed to radically re-engineer the market-based U.S. economy, not just mitigate the recession and financial crisis.
The illusion that Barack Obama will lead from the economic center has quickly come to an end. Instead of combining the best policies of past Democratic presidents -- John Kennedy on taxes, Bill Clinton on welfare reform and a balanced budget, for instance -- President Obama is returning to Jimmy Carter's higher taxes and Mr. Clinton's draconian defense drawdown.
Mr. Obama's $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. The budget more than doubles the national debt held by the public, adding more to the debt than all previous presidents -- from George Washington to George W. Bush -- combined. It reduces defense spending to a level not sustained since the dangerous days before World War II, while increasing nondefense spending (relative to GDP) to the highest level in U.S. history. And it would raise taxes to historically high levels (again, relative to GDP). And all of this before addressing the impending explosion in Social Security and Medicare costs.
To be fair, specific parts of the president's budget are admirable and deserve support: increased means-testing in agriculture and medical payments; permanent indexing of the alternative minimum tax and other tax reductions; recognizing the need for further financial rescue and likely losses thereon; and bringing spending into the budget that was previously in supplemental appropriations, such as funding for the wars in Iraq and Afghanistan.
The specific problems, however, far outweigh the positives. First are the quite optimistic forecasts, despite the higher taxes and government micromanagement that will harm the economy. The budget projects a much shallower recession and stronger recovery than private forecasters or the nonpartisan Congressional Budget Office are projecting. It implies a vast amount of additional spending and higher taxes, above and beyond even these record levels. For example, it calls for a down payment on universal health care, with the additional "resources" needed "TBD" (to be determined).
Mr. Obama has bravely said he will deal with the projected deficits in Medicare and Social Security. While reform of these programs is vital, the president has shown little interest in reining in the growth of real spending per beneficiary, and he has rejected increasing the retirement age. Instead, he's proposed additional taxes on earnings above the current payroll tax cap of $106,800 -- a bad policy that would raise marginal tax rates still further and barely dent the long-run deficit.
Increasing the top tax rates on earnings to 39.6% and on capital gains and dividends to 20% will reduce incentives for our most productive citizens and small businesses to work, save and invest -- with effective rates higher still because of restrictions on itemized deductions and raising the Social Security cap. As every economics student learns, high marginal rates distort economic decisions, the damage from which rises with the square of the rates (doubling the rates quadruples the harm). The president claims he is only hitting 2% of the population, but many more will at some point be in these brackets.
As for energy policy, the president's cap-and-trade plan for CO2 would ensnare a vast network of covered sources, opening up countless opportunities for political manipulation, bureaucracy, or worse. It would likely exacerbate volatility in energy prices, as permit prices soar in booms and collapse in busts. The European emissions trading system has been a dismal failure. A direct, transparent carbon tax would be far better.
Moreover, the president's energy proposals radically underestimate the time frame for bringing alternatives plausibly to scale. His own Energy Department estimates we will need a lot more oil and gas in the meantime, necessitating $11 trillion in capital investment to avoid permanently higher prices.
The president proposes a large defense drawdown to pay for exploding nondefense outlays -- similar to those of Presidents Carter and Clinton -- which were widely perceived by both Republicans and Democrats as having gone too far, leaving large holes in our military. We paid a high price for those mistakes and should not repeat them.
The president's proposed limitations on the value of itemized deductions for those in the top tax brackets would clobber itemized charitable contributions, half of which are by those at the top. This change effectively increases the cost to the donor by roughly 20% (to just over 72 cents from 60 cents per dollar donated). Estimates of the responsiveness of giving to after-tax prices range from a bit above to a little below proportionate, so reductions in giving will be large and permanent, even after the recession ends and the financial markets rebound.
A similar effect will exacerbate tax flight from states like California and New York, which rely on steeply progressive income taxes collecting a large fraction of revenue from a small fraction of their residents. This attack on decentralization permeates the budget -- e.g., killing the private fee-for-service Medicare option -- and will curtail the experimentation, innovation and competition that provide a road map to greater effectiveness.
The pervasive government subsidies and mandates -- in health, pharmaceuticals, energy and the like -- will do a poor job of picking winners and losers (ask the Japanese or Europeans) and will be difficult to unwind as recipients lobby for continuation and expansion. Expanding the scale and scope of government largess means that more and more of our best entrepreneurs, managers and workers will spend their time and talent chasing handouts subject to bureaucratic diktats, not the marketplace needs and wants of consumers.
Our competitors have lower corporate tax rates and tax only domestic earnings, yet the budget seeks to restrict deferral of taxes on overseas earnings, arguing it drives jobs overseas. But the academic research (most notably by Mihir Desai, C. Fritz Foley and James Hines Jr.) reveals the opposite: American firms' overseas investments strengthen their domestic operations and employee compensation.
New and expanded refundable tax credits would raise the fraction of taxpayers paying no income taxes to almost 50% from 38%. This is potentially the most pernicious feature of the president's budget, because it would cement a permanent voting majority with no stake in controlling the cost of general government.
From the poorly designed stimulus bill and vague new financial rescue plan, to the enormous expansion of government spending, taxes and debt somehow permanently strengthening economic growth, the assumptions underlying the president's economic program seem bereft of rigorous analysis and a careful reading of history.
Unfortunately, our history suggests new government programs, however noble the intent, more often wind up delivering less, more slowly, at far higher cost than projected, with potentially damaging unintended consequences. The most recent case, of course, was the government's meddling in the housing market to bring home ownership to low-income families, which became a prime cause of the current economic and financial disaster.
On the growth effects of a large expansion of government, the European social welfare states present a window on our potential future: standards of living permanently 30% lower than ours. Rounding off perceived rough edges of our economic system may well be called for, but a major, perhaps irreversible, step toward a European-style social welfare state with its concomitant long-run economic stagnation is not.
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.
Barrons Roundtable
Hang on Tight!
By LAUREN R. RUBLIN
Our go-to group of investment experts sees tough times for the economy -- but good fortune for stockpickers.
ONCE UPON A TIME, WE LIVED IN A WORLD where asset-price inflation begat leverage, which begat more asset inflation, in a virtuous circle known as the great bull market. We bought bad art, good wine and vacation homes (many), and stocks "on the dips," which made us rich. And geniuses, of course.
Then the big, bad wolves -- greed and excess -- came and popped our bubble, and the markets', and all the pretty assets fell to earth. The fairy god-mother -- bearing a strange name for a godmother, Uncle Sam -- tried to clean up the mess with great gobs of money, but little success. The pain, suffering and deleveraging continued, inflation went bananas, everyone shopped at Wal-Mart and the Hamptons returned to scrub and sand. And no one lived happily ever after -- except for incredibly savvy stockpickers -- at least for a good five years. And that, kids, was the story they told at this year's Barron's Roundtable.
Oh, yes, the details: "They" are the 10 investment experts depicted here, who sat down with the editors of Barron's in New York on Jan. 5 to make sense of the epochal events in the economy and financial markets in 2008, predict what will happen in 2009 and share their investment ideas for the new year, which so far looks much like the old. The day was rife with history lessons and warnings -- and optimism, too, that those who find bargains amid the rubble will reap rich rewards. Or, as Meryl Witmer nicely put it, "It is an exciting time to be a stockpicker."
Roundtable Members:
FELIX ZULAUF, founder and president, Zulauf Asset Management, Zug, Switzerland;
MARIO GABELLI, chairman, Gamco Investors, Rye, N.Y.;
ARCHIE MACALLASTER, chairman, MacAllaster, Pitfield, MacKay, New York;
MERYL WITMER, general partner, Eagle Capital Partners, New York;
MARC FABER, managing director, Marc Faber Ltd., Hong Kong;
OSCAR SCHAFER, managing partner, O.S.S. Capital Management, New York;
FRED HICKEY, editor, The High-Tech Strategist, Nashua, N.H.;
SCOTT BLACK, founder and president, Delphi Management, Boston;
BILL GROSS, founder and co-chief investment officer, Pimco, Newport Beach, Calif.;
ABBY JOSEPH COHEN, senior investment strategist and president, Global Markets Institute, Goldman Sachs, New York.
In the first installment of the 2009 Roundtable, you'll find the unabridged version of our little tale, as well as some first-rate stock picks from Meryl and Fred Hickey. The rest of this illustrious crew will share their wit and wisdom in Installments 2 and 3.
Barron's: Let's forget about 2008 -- and that includes most of your stock picks. With the market down 36% from its highs, the government bailing out everything in sight and a new president coming to town, what is the outlook for 2009? Fred, tell us, please.
Hickey: The government can't cure a disease that has been more than a decade in the making. The U.S has built up gigantic financial imbalances, and debt levels the world has never seen. Massive increases in public debt and spending can't replace the lost private-sector debt and cutbacks in consumer spending, allowing us to go on our merry way. The stock market is experiencing a snap-back rally, similar to what we saw in 1930, after the Crash of 1929.
You don't look that old.
Hickey: I wasn't around. They had a name for it, the "little bull market." It came about after the Federal Reserve slashed interest rates to 3.5% from 6%, and later to 1.5%. President Hoover had ordered federal departments to speed up construction projects, and the state governments to expand public works projects. He went to Congress asking for a huge tax cut and a doubling of spending on public buildings, dams, highways and harbors. That sounds familiar. Hoover predicted the crisis would end in 60 days. He received widespread praise for his intervention.
Hickey: The market has had its worst crash since the Great Depression, and a new president is promising to pull out all the stops. We'll have massive infrastructure spending on roads and bridges. We'll have more tax rebates, and the government has made bailout commitments of more than $8 billion to support various markets. It has bailed out almost the entire banking system.
The stock market has rallied about 20%, and could go up 40% or 50%, as the little bull market did. Then reality is going to set in -- the reality that the economy is terrible, the unemployment rate is going to rise, the Fed's policies are imprecise. The dollar could get killed sometime this year, causing all kinds of problems. We have a more protectionist Congress. Deficit spending is unlikely to work. In sum, we have a date with more traditional bear-market levels. You'll see the single-digit P/Es [price/earnings multiples] that were typical in 1982, '74 even 1930 and '32. The market will go down significantly, and then make a bottom.
Black: A lot of the stock market's performance will be contingent on public policy. The consumer is dead. There has been a paradigm shift. The savings rate is going up. People are terrified. It's like my parents' generation after the Depression. Gross private domestic investment won't go up, even if you give corporations tax incentives. There is too much idle capacity already. We can't meaningfully reduce the trade deficit because we don't manufacture enough goods that the rest of the world wants. That leaves government spending to create final demand for U.S. goods and services. Giving a tax cut to people who spend the money at Wal-Mart on products made in China isn't going to do it. Infrastructure and defense spending are the best way out of this mess because by law, defense goods must be made in the U.S. and we have depleted our conventional forces, whether it is tanks or helicopters. Also, cement, concrete and structural steel all are made in the U.S.
As for the market, the current 2009 earnings estimate for the Standard & Poor's 500 stock index is about $60. The market is trading for 15.5 times earnings. If Congress passes an infrastructure-spending bill and we spend between $750 billion to $1 trillion, that could provide enough boost for the economy to turn up by year end. We could be looking at $70 in S&P earnings for 2010, which suggests the S&P, now in the low-900s, could rally to between 980 and 1,050. But again, it is all contingent on good public policy. That's the only thing that will kick-start the economy in 2009.
Faber: There is no such thing as good public policy, certainly not in the U.S. The current crisis was produced largely by policy measures that led to the formation of Fannie Mae and Freddie Mac, and later the repeal of the Glass-Steagall Act, which had prohibited banks from owning brokers. It all led to increased leverage. Fed policy has been a disaster. Instead of smoothing markets, it has increased volatility. By cutting interest rates the Fed created bubbles -- in housing, in commodities. Now that the federal-funds rate has been slashed just about to zero, you're not getting anything for your money when you deposit it in the banking system and buy Treasury bills. There is no such thing as investment; everybody becomes a trader.
With a few exceptions, the U.S. doesn't produce anything. It is a consumption-led economy. When the economy expands, the U.S. imports from other countries, such as China, which increase industrial production and capital spending. From 2002 to 2007 the markets of emerging economies outperformed the U.S. But when the economy slowed in 2008, it was a catastrophe for these economies. They immediately cut spending and production, which affected demand for commodities. Last year, emerging markets were hit much harder than the U.S.
Cohen: The P/E ratio of the Chinese market was more than 50 times earnings at the end of 2007, so the issue isn't only fundamental demand but relative valuation.
Faber: I'm aware of that. I recommended shorting Chinese stocks last year. It would be best at this point for the U.S. to have 10% less consumption. It would make people save again and follow Christian principles of frugality and humility. I doubt it will happen, but it would be good for the U.S.
We've had history lessons, and now, religion lessons. What does any of this mean for 2009?
Faber: The U.S. economy fell off a cliff between October and December, and will stabilize at a lower level of activity. Some indicators may look better than expected, which will justify the present rally. Stocks already are up 25%. If they go up 50% from the Nov. 21 low of 741 on the S&P, you'll have the S&P at around 1,100. Afterward, reality will set in and in real terms the market will go much lower for much longer.
Chris Casaburi for Barron's
Marc Faber: "With the Fed buying up everything, hyperinflation will be the result."
Around the world, governments are throwing money at the system to revitalize debt growth. When an economy is credit-addicted and debt growth slows, it is a catastrophe. With the Fed buying up everything and boosting the federal deficit, hyperinflation will be the result down the line. I am pleased that Barron's just wrote a cover story about the inflation in Treasury bonds ["Get Out Now!" Jan. 5]. This was the last bubble the Fed was able to inflate, aside from their egos.
[Laughter]
So, Marc, you're not too bullish this year.
Faber: Let's put it this way. A true market low will be lower, but in a hyperinflating economy, you can have nominal price gains while going lower in real, or inflation-adjusted, terms. Between the start of 2008 and November, almost every asset market collapsed, but the dollar was strong. After November the asset markets rebounded but the dollar went down again. There's an inverse correlation. Dollar weakness is a signal that the Fed has succeeded in pushing liquidity into the system. Some say the dollar will collapse this year, but collapse against what? The euro? The Russian ruble? These currencies are even weaker. In the very long run, each citizen must become his own central bank. Every responsible citizen must hold some physical gold, platinum and silver -- physically, not through derivatives.
Bill, what do you think?
Gross: For several years we have said we're in the midst of a generational change in the global economy and the financial complex. About two months ago Barton Biggs [a hedge-fund manager and former Roundtable member] said, "I'm a child of the bull market." He went on to explain that he'd been trained to buy the dips, because assets always eventually went up in price.
For the past 50 years asset inflation has been the context, the foundation of much of the economic growth in the United States and around the world. It led to additional leverage, which led to additional asset inflation. In the past 12 months the global economy and financial complex experienced a forced deleveraging. Assets deflated by $20 trillion to $30 trillion. We were all children of the bull market, but the bull market is over. Deleveraging will become the context for the next five to 10 years. It will lead to lower profit margins and higher interest rates.
And this year?
Gross: It depends in part on the extent to which governments can fill the hole left by deleveraging. Can they take us out of an illiquidity trap that is damaging not only to asset prices but the real economy? If so, there is hope for 2009. More likely, policy will come up short and we'll have a global recession, perhaps into 2010.
The important thing for investors is what happens in 2010, 2011 and 2012. We're setting up for a low equity returns, low economic growth, high real interest rates and 5% to 6% to 7% returns, at most, on all asset classes. The double-digit rebound typical after selloffs isn't going to happen.
Oscar, do you agree?
Schafer: I agree with a lot of what Bill says. The economy is experiencing a rain delay. Nothing is going to happen for a while. Although the government's spending efforts will help, they won't be enough to cure the two biggest problems. The first is housing. Unsold inventory of houses is more than a year's worth, and prices could go down another 10%-plus. Mortgages have been reduced and prices are down, but 68% of the public still owns a home, versus 64%, the historical trend. The mortgage-equity withdrawals of recent years are over. Consumers spend 14% of their after-tax income on housing, more than they pay for food. No matter what the government does, it may not help housing, and in turn, the consumer.
A stimulus package also wouldn't speak to the consumer's need to reduce debt. Just as "plastics" was the operative word in The Graduate, "leverage" will be the operative word for the next two to three years in the economy. The world is experiencing a giant margin call. The consumer is deleveraging and increasing his savings. The banks are deleveraging. Stories are rife that banks aren't lending, because they don't have sufficient capital. Further write-downs will continue to impair their capital. This credit contraction leads to a vicious cycle of companies doing poorly, layoffs increasing and foreclosures rising. The economy will be pretty punk into 2010.
Will the market follow the economy?
Schafer: The market may go up a little. Then it will test the November lows. The big story is 2010 and 2011. The averages won't do much, almost like in 1968-82.
How does that help the investor who wants to know what to do with his money in 2009? He can't wait until 2011.
Schafer: I can't help him. [Laughter] I don't know what the market is going to do in the next six to 12 months. It will be a stock-picker's market, but the averages won't rise more than 6% to 8% a year, dividends included. For the first time since 1941, the 10-year return on the S&P 500 is negative.
Hickey: It's hard to predict the market when you don't know what the Fed will do. The Fed has tripled the size of its balance sheet and is plowing ground we have never seen before. Here are my facsimiles of deutsche marks from Weimar Germany [holds up sheaf of papers]. They collapsed in value when Germany started printing money after World War I. It happened very quickly and it can happen again.
The Germans were successful at reflating. But they weren't successful in saving their economy. [Federal Reserve Chairman Ben] Bernanke is on record saying, "I will not make the mistakes of the 1930s. I will not make the mistakes of Japan in the 1990s." He is pushing the limit right now.
Gabelli: So you're saying he's going to make the mistake of the Weimar Republic?
Hickey: There is a possibility of that. Every month that there is a horrible employment, report the government prints more money.
Gabelli: It took Weimar Germany a brief time.
Faber: The worse the economy, the more they will print. It is like in Zimbabwe now, and Latin America in the 1980s. They had large deficits and printed money, and in local currency everything went up. But the currency collapsed.
Schafer: Isn't the federal government increasing its balance sheet to offset the private sector?
Gross: Exactly. The situation isn't similar. The Weimar Republic basically reflated to get out from under its wartime debts. Zimbabwe is a situation unto itself. In the U.S. there has been asset destruction in the trillions of dollars that has to be repaired. To say the Fed's balance sheet has expanded by a few trillion dollars and that this will create hyperinflation is a miscalculation.
Faber: I'm prepared to bet Bill that in 10 years the U.S. has very high inflation. With growing fiscal deficits that may reach as high as $2 trillion next year, it will be hard for the Fed to lift interest rates in real terms. Once they push up rates again, there will be another disaster.
Gross: Marc, you're smarter than that. You know that credit creation is at the heart of economic growth, and to the extent that credit creation has been thwarted, stultified, basically cut by 10% or 20%, economies can't grow.
Faber: The U.S. economy is credit-addicted. In a sound economy, debt growth doesn't exceed nominal GDP growth. Would you agree with that, or do you think debt should always grow at a faster pace than nominal GDP?
Gross: I'm with you there.
Faber: We come at this from different perspectives. You run a company that manages money, and I'm an outside observer of the U.S. financial scene, though I have to admit I bought some U.S. stocks for the first time in 30 years.
Abby, what do you think?
Cohen: First, it is important to recognize that we are not starting from a point of equilibrium, where the economy and the credit markets are working properly. Instead, the Federal Reserve is acting aggressively to provide liquidity not just to the U.S. economy but the global economy. I'm always amused when people, especially those based outside the United States, talk about the terrible U.S. consumer. I recognize the U.S. consumer is over his head in debt. But the impact is seen throughout the world because the U.S. is the world's largest importer. There will be significant consequences when U.S. consumers increase their savings rates rapidly, as they have done in recent months. This impacts other nations that have failed to do a good job of stimulating domestic demand. In many ways, the Fed is acting as the central bank to the global economy.
In 2010 the situation may move back to something more normal. Also, investors helped contribute to the situation we're now in. During several years of below-normal volatility in stock and fixed-income markets around the world, risk appetites reached extraordinary levels. Investors grew willing to take on risk without demanding appropriate levels of return. Some markets have now seen the inverse. There is a fear of illiquidity and risky assets. Thus, some valuation opportunities have been created, though I am not saying the entire market goes up, or goes up dramatically.
In other words, some stocks and bonds are cheap.
Cohen: In recent months, in addition to the rise in risk premiums in stocks and bonds, there has been a high correlation between different types of assets, and within asset classes. The one exception was U.S. Treasuries. Many investors were selling things largely on the basis of liquidity. If you needed to raise cash you sold what you could, including some securities that perhaps offer reasonably good value. Consequently, we enter 2009 with a real disequilibrium within individual asset categories. It gives careful investors an opportunity.
Gross: In a deleveraging process, investors are forced to sell almost everything. The asset of ultimate quality and liquidity -- Treasury bills -- becomes the recipient of demand. On the way down, the most risky and illiquid assets fall most. But even the most liquid, high-quality assets go down for awhile, until the government's checkbook can compensate.
Cohen: I agree generally, but our work indicates some unusual things occurred in 2008. We put together a basket of securities heavily owned by hedge funds, and another of securities that weren't. The stocks owned by hedge funds went down 20 to 25 percentage points more than the others.
Schafer: Goldman Sachs did a great disservice to the hedge-fund business. People were shorting the basket of hedge-fund stocks. This caused heavily owned hedge-fund stocks to go down, creating bad performance for the funds, leading to redemptions and forced selling, a vicious cycle. In the past six months the fundamentals of many stocks have taken a back seat to who owned them. Long term, that isn't good.
Gabelli: That is her point. There are bargains around. Stocks fell below intrinsic value.
Cohen: In the search for liquidity, the funds sold simple assets traded in public markets, because the markets were open. The more liquid securities were the hardest hit. In 2009, investment vehicles that are more complex, highly structured and less liquid may not recover as quickly as those that are publicly traded.
How do you look at valuation, Abby?
Cohen: We use seven different models to evaluate the S&P 500, based on earnings, book value, cash flow and such. We also do detailed return-on-equity analysis. Using a composite of those models, we think fair value for the S&P 500 is somewhat above where the market stands now -- and we have one of the lowest earnings forecasts on Wall Street. We estimate the S&P will earn about $55 this year.
With all these models, why was your '08 forecast so far off?
Cohen: We anticipated a sluggish economy at the time of last year's Roundtable, but changed our forecast to a recession a few weeks later. We adjusted our S&P targets downward. We didn't see the liquidity crisis that developed in the summer.
Is anyone worried about deflation?
Zulauf: The whole process of deleveraging is deflationary. It will last several years. Where most economists will probably err is in how the corporate and household sectors react to this. They probably have built into their models expectations that private households and corporations react to fiscal stimulus as they always did. That is wrong. In previous deep recessions the household sector lost about 5% of its net worth. This time around, it has lost about 20%. Households will become much more cautious for years. Instead of spending, they will save.
There will be changes in the corporate sector, too. S&P earnings peaked at about $100 or so. This year they could slump to $20 or $40. The consensus estimates are way too optimistic. Much depends on whether the problems in the real economy hit the financial industry, causing it to relapse. The behavior and thinking of corporate executives will change dramatically. Companies will repair their balance sheets instead of spending and expanding, and that's why the deleveraging process will take years and years and years. Government and central-bank stimulus won't have the multiplier effects we used to see. Economic growth will be much lower in the next five or six years.
And this year?
Zulauf: We are in a synchronized global slump. Peak to trough, U.S. GDP probably goes down by five percentage points.
Could it be worse than Japan?
Zulauf: It could be worse. Deleveraging usually means return on equity drops below previous cyclical lows. Return on equity for the corporate sector peaked around 15%-16%, and previous cyclical lows were about 8%-9%. ROE probably drops below that in this cycle, which will lead to much lower earnings. That feeds into valuations, which means stocks eventually will go much lower, to single-digit-type P/Es and high dividend yields.
In the past 10 or 20 years risk was high, but perceived risk was low. That is why everyone bought the dips and took on leverage. Now we are moving into a world where perceived risk is high but real risk will eventually turn out to be much lower. This will lead to a different valuation of equities and bonds. In two or three years there will be tremendous bargains in the market. But we are not there yet. We are in a structural bear market. This is a transitional year. We'll have bear-market rallies, and then go down more.
Gross: Typically we think of financial leverage, but corporations have been levered in two additional ways. The lower tax rates of the past 10 to 20 years have to [go] back up. Then there is operational leverage, which is no more obvious than in the auto industry. Corporations have been geared to a high level of global consumption, and now they must eliminate plant, labor and such. Based on tax, financial and operational leverage, the outlook for corporate profitability and profit margins isn't good.
Gabelli: Right after Christmas, layoffs will go up sharply.
Archie, you're usually optimistic.
MacAllaster: I can't believe you people can't find one good thing to say about the market, and at its low last year the market was down more than 50%. The bad news is in the market. Earnings are going to come down hard, but the market has come down even harder. Some bargains are out there, though they are hard to find because P/Es are difficult to determine. Still, a lot of companies are selling for well under book value, and some have high yields. The stock market is probably the place to be, particularly financials. Leverage is coming out of companies, and that will continue. But the process has created bargains.
The corporate bond market also is cheap. There are good bonds yielding 9% and 10%. That compares with 10-year government bonds, which yield 2% or 2.25%.
What do you think about bonds, Bill?
Gross: When we talk about the bond market we typically focus on Treasuries. At today's yields, don't touch them.
MacAllaster: And play the stock market in a conservative way. Don't buy stocks on margin. Keep some cash around, as I have. The Treasury secretary was right to bail out the banks first, though. They should go back to the old way of doing things -- lending money to people who are going to pay it back.
The old story in banking was three, six and three: Pay 3% on deposits, charge 6% on loans and hit the golf course at 3 p.m. Now it should be three, six and 20. Don't let anybody with a handicap under 20 get to be head of a bank.
Meryl, how does the market look to you?
Witmer: I agree that this is a stockpicker's market. There are some incredible values, and some incredibly overvalued shares.
Faber: What is overvalued?
Witmer: I have stocks at five times earnings, and then there is Amazon.com [ticker: AMZN] at around 40 times earnings. Amazon has an attractive business, but not that attractive. There is a real divergence in value. There are opportunities, as well, in the corporate-bond market -- first-mortgage bonds on baseload electric-utility companies, for instance, that were priced recently at 8%-8.5%. And this is five-year paper. That's a lot more than you can get in the government-bond market. Down the quality spectrum you'll find bonds yielding 14% and 15%. Let's say the underlying company goes into bankruptcy; you would be creating it at 30 cents on the dollar of replacement value. There are a lot of opportunities out there. It is an exciting time to be a stockpicker.
Mario, care to say something?
Gabelli: In 15 days we will have a new leader who is going to re-brand America. His first priority as CEO of the country is to create jobs and insure that no adult is left behind in this economic system.
The consumer is getting an enormous cash-flow benefit from lower oil prices. There are 240 million cars in the U.S. and 800 million in the world that are saving around $2.50 a gallon on gasoline. People with high credit scores and equity in their homes are saving money. The missing element is confidence. New tax laws are going to help with that. The working person is going to get a financial stimulus, and even under the most bearish scenarios 91% of those who can will be working in December 2009. You're going to see an investment-tax credit and a change in depreciation, encouraging small businesses to make capital investments. On Sept. 15 somebody shut off the lights for the business person. It has been hell since. We need to go from this hell for businesses to a kind of purgatory. More spending on investments and the possibility of a lower tax rate for corporations would send an interesting message to the business world.
That's nice, but what happens now?
Gabelli: Come April or May, the numbers will be a lot better than in the fourth quarter. Car dealers tell us they are starting to sell cars, but the buyers still need financing. Yes, unemployment is going to rise. But once a new president comes in and enacts fiscal stimulus and promises tax cuts, things will start changing. Once businesses see some stability, they can start planning and looking at cost efficiencies.
As far as corporate earnings go, an enormous tsunami hit the economic world. It is no different than labor strikes in the 1960s. When the steelworkers struck, did you base stock multiples on the absence of earnings, or step back and ask what normalized earnings would be over an economic cycle. And shouldn't the P/E multiple expand to account for depressed earnings?
Is this a good year to buy stocks?
Gabelli: I'm going back to what I think will work: POSP. Plain old stock-picking. It will be a good trading market. The markets won't do much more than 5% up or 5% down, but there are plenty of opportunities for financial engineering and value enhancement -- buying and selling, spinning off companies, selling divisions.
Cohen: This will be an interesting year for consolidation in a number of industries. Some companies are under distress because of balance sheets. Others in the same industry have had more financial success.
Gabelli: The natural-gas industry is one example.
Cohen: To the extent there are good opportunities from a valuation perspective, M&A [mergers and acquisitions] could perk up.
Gabelli: Contrary to the conventional thinking that companies don't have liquidity and won't do deals, there will be substantial activity by corporate buyers. But private-equity is handcuffed. Buying and selling businesses and spinning off of divisions will allow capital to flow to where returns are highest, even with an administration that will take a different approach [than the Bush administration] to antitrust issues.
It is going to be harder to borrow money to buy businesses.
Gabelli: It won't be harder for Johnson & Johnson [JNJ], but it will be harder for Steve Schwarzman [CEO of the private-equity firm Blackstone Group (BX).]
Now that we've solved the problems of the economy and the market, let's move on to your picks for '09. Meryl?
Witmer: I have four. Two are asset-heavy, and two are financials. Kaiser Aluminum sells for 23.50 a share. It has 20 million shares. Kaiser's main business is rolling high-quality, heat-treated plate and sheet aluminum used in the aerospace and defense industries and in general engineering. It also produces forged aluminum products for industrial and automotive uses.
How big is the automotive business?
Witmer: It represents about 8% of revenue. Auto-related profits will be down this year, but that will be manageable. The company has gained market share. Except for an insignificant subsidiary, Kaiser doesn't take on price risk in aluminum. It converts aluminum into usable form for customers and hedges out the metal-price risk. Demand for aluminum plate in the aerospace industry is driven partly by airplane growth, but more by the new monolithic construction of aircraft parts.
Monolithic construction involves carving shapes from steel plate. This has created a sea change in demand for Kaiser's product. The benefit for the airlines is lighter, stronger aircraft. Kaiser is paid by the pound, and producing monolithic parts often requires multiples of the actual weight because as much as 90% of the plate ends up on the machine-shop floor as waste. Kaiser has the only mill with excess capacity, so it will be the major beneficiary of the trend. An expansion project started a few months ago.
Kaiser spent some time in bankruptcy court. How is the balance sheet today?
Witmer: It's strong. Kaiser has $50 million of debt. Book value is $950 million, or $47 a share, twice the stock price. About $16 of book is a tax asset allowing the company to pay no tax on earnings for many years. I put a multiple on taxable earnings and add back the value of the NOLs [net operating losses on which tax credits are based]. The company probably earned about $3.50 a share in 2008, similar to 2007. This year is tricky because they are moving around some plant, and spending a little money to make the forged-aluminum business more efficient. They think they'll be able to put some competitors out of business by becoming the low-cost producer. This business makes no money. If they shut it down there will be a cost. If they lower their costs, it will add significantly to earnings.
How much of their defense business is vulnerable to changes in Pentagon priorities? There is talk of shutting or replacing programs.
Witmer: A major product for them is the plate to protect people in military transport vehicles. That's a growing business as vehicles are sent to Afghanistan. It has made up for some weaknesses in other areas. The airplane build that is ramping up will take up almost all their capacity in monolithic construction.
Schafer: Despite the oil-price decline, have there been any cancellations of aircraft?
Witmer: There are cancellations, but there are fill-ins from the large waiting list. In 2010, earnings could grow from around $3.50 to as high as $6 a share.
Do they supply parts for corporate jets?
Witmer: They do, although this business is small. There are a lot of orders outstanding from airlines, and a lot of planes getting built are using a lot more product from Kaiser. The company will be in the sweet spot for years to come. Let's say they make $5 a share and trade for 10 times earnings. Add back the value of the tax assets and you get a target price of more than $60. Kaiser has a market capitalization of $500 million. Their rolling mill alone, not including other assets, would cost $1.5 billion to replace. The company is selling at a huge discount to replacement value.
My next pick is an electric utility, Allegheny Energy . It trades for $34 a share. Allegheny operates in Pennsylvania, West Virginia, Virginia and Maryland. Its terrific CEO, Paul Evanson, took Allegheny from the brink of bankruptcy in 2003 to investment grade as of May 2007. The company's generation capacity consists of 48 million megawatt hours, sold to 1.6 million customers. Its plants are mainly coal-fired, and its new scrubbers should be in service by the end of 2009, giving it relatively clean electricity production. It is worth owning some electric-utility assets, especially with the focus on electric-powered cars.
Allegheny could earn about $2.20 to $2.30 a share in 2008, so on the face of it, it's not cheap. But a series of events should take place in the next three years that have earnings progressing to $2.90 in '09, $3.60 in 2010 and $5 to $6 in 2011. The events are largely locked in: agreed-to rate increases in Pennsylvania and Virginia and a guaranteed return on its investment in a transmission line that links its western Pennsylvania capacity to power-deficient suburban Washington, D.C.
Gabelli: The grid system Obama is planning will help all the utilities.
Witmer: And create jobs. Allegheny had a lot of trouble getting this transmission line through. In the end, the unions talked to the governors of the states involved about the jobs it would create. In 2011 the electricity Allegheny generates in Pennsylvania will start selling at market rates, which accounts for the large range of my earnings estimates for that year. The stock could trade for a minimum of 10 to 11 times earnings at that point, giving us a two-year target of 50 to 60 a share. The dividend yield is a relatively modest 1.7%, but the company should be able to increase it.
Most of Allegheny's production will move to market rate, except in West Virginia. In Pennsylvania they get 7 cents per kilowatt hour, which is very low. In New York utilities get 13 to 14 cents. They cut a deal years ago to bring rates up to market over time, and the benefits are finally kicking in. They are installing the scrubbers this year. After that, in 2010, the cash starts coming in.
And your financial picks?
Witmer: Assurant is a diversified insurance company. It trades for 30 a share and has 118 million shares outstanding. Its premier business is creditor-placed insurance policies. It is hired by mortgage-servicing companies to monitor homeowner compliance with home-insurance payments. If those payments stop, Assurant places a policy that is billed to the home owner, but whose payment is guaranteed by the mortgage servicer. The rate is about the same as what the homeowner was paying, but the policy insures only the home, not its contents. It is a relatively lucrative contract.
Its home-insurance business has benefited from the current environment. If people aren't making their mortgage payments, they likely aren't making their insurance payments, either. This business has a combined expense ratio of 70%. In other words, it has 30% margins, due to surging business from the housing crisis. Assurant is implementing a similar program with auto insurers, which has good growth potential.
What are the other business lines?
Witmer: It issues warranty-service contracts on appliances, consumer electronics and the like, another attractive business. It also has a nice employee-benefit business, which focuses on helping small and mid-sized businesses provide insurance for employees. It has a health-insurance business for individuals and small businesses.
Trailing earnings per share is more than $6, so the stock trades for less than five times earnings. Even if you take out what may be excess earnings from the home-insurance business, which we estimate would bring earnings down to $4.25, the stock trades for seven times earnings. But the high level of earnings could persist for many years. Plus, Assurant has other growth initiatives, such as the auto business, and some international opportunities. Book value was more than $31 a share as of Sept. 30, after taking write-downs on the portfolio. Assurant traded above 70 per share in the past, but 50 is a reasonable target in the next year or so.
Archie, do you know this company?
MacAllaster: Not well. There are a lot of low P/Es among insurance companies. Some even sell for under book.
Witmer: Assurant's book value is solid. It owns high-quality corporate bonds. My final pick is Discover Financial, the credit- and debit-card company spun out of Morgan Stanley [MS] in June 2007. It trades for 9.50.
It has a lot of things going against it.
Witmer: That's why the price is low. The company has about the most conservative management in the industry, and has managed its capital well. Discover wisely stopped adding cardholders aggressively in California and Florida years ago, unlike other card issuers. Another lender really should buy this for its ability to assess risk.
Discover has its own credit-card network, like Visa [V] and American Express [AXP]. It has made great strides in getting more acceptance at retailers. It also has a consumer-credit-card lending portfolio and a nice debit-card network. It has a solid balance sheet, with equity to managed assets of 11%. Managed assets include credit-card debt both on the books and securitized.
How has the loss experience been?
Witmer: Better than competitors. Tangible book value at the end of the Nov. 30 quarter was $11 per share. The company also won a large antitrust settlement from Visa and MasterCard [MA] that will add about $2 to book value. The stock is trading for 75% of adjusted tangible book. It's not news to anyone that they will have some credit losses. But with a loan portfolio of about $50 billion and net interest income of $4.4 billion, there is room to fund write-offs. We adjust the quarterly provision for loan losses on the income statement to the amount that Discover actually charges off. The company has been building its loan- loss reserve and taking reserves well in excess of its charge-offs. You need to make this adjustment to get apples to apples comparisons over the quarters.
Adjusting for all one-time items, we get annualized earning power of $1.80 to $2 a share consistently over the past eight quarters. The stock is trading at about five times our view of earnings and at a significant discount to book value.
What are they going to report this year?
Witmer: There is noise in the numbers, and they are building reserves. They could earn $1.70 to $2 a share, excluding one-time stuff. As the U.S. consumer continues righting his balance sheet, Discover will trade closer to 15 to 20 a share.
Black: What is the growth in receivables year to year, and what is the delinquency rate as a percentage of the portfolio?
Witmer: Receivables growth is about 5% to 6%, and the delinquency rate is 4.56% of managed loans. Next year delinquencies could rise toward 6%, but their net yield spread is about 8.5%, so they'll still have income.
No short-sale recommendations? Amazon.com sounds tempting.
Witmer: No shorts. The irrational can get more irrational still, though Amazon is a good company.
Fred, you must be shorting something.
Hickey: I'm not, for the first time in years. I've been riding the gold bull market, which has gone up for eight years, and staying out of technology. Tech has been killed. Nine years later, the Nasdaq is 70% below its March 2000 peak. Many top tech com- panies -- Microsoft , Dell [DELL], Intel [INTC] -- are at 1998 levels. Most of the damage has been done. My put options on Research In Motion [RIMM] and Amazon.com worked fabulously last year. I got rid of my puts in the fall and started buying tech stocks, though I plan to sell them after the Obama inauguration. But some names you could hold through the end of the year. Microsoft is one. At 20, it is lower than 10 years ago, when the company did $12 billion in revenue. Now it does $60 billion.
Witmer: Same market cap?
Hickey: The market cap is similar because they have been buying back shares to offset the dilution due to stock options. The dividend yield is 2.7%. The trailing P/E is 10, something you've never seen for Microsoft. Operating cash flow is $19 billion a year. Gross margins are 81%, which gives them a lot of flexibility to offset any weakness in the top line. As the economy weakens, Microsoft is able to cut costs.
The market misperceives Microsoft. Its most visible part -- PC [personal computer] operating systems -- is shrinking. Windows is just 28% of sales. Less visible, and growing rapidly, is the server and tools business, at 23% of its revenue, up 17% in the latest quarter. The SQL server database business is gaining market share, and a new virtualization product, Hyper-V, is one of the hottest technologies in the market. The real jewel is the business division, which now contributes a third of revenue. It grew 20% in the quarter. This is Office and SharePoint, a content-management product, and Unified Communications. Information Week called SharePoint a juggernaut. Companies like Pfizer use it to develop wikis and blogs. Microsoft is making a lot of money as a pick and shovel provider to the industry.
Gabelli: Why was the case made that they needed Yahoo! [YHOO]?
Hickey: They want to be in the search business. Luckily they didn't get it at the price they first offered, but [CEO Steve] Ballmer is on record saying he'd like to buy Yahoo!'s search-advertising business.
MacAllaster: How would you compare Google [GOOG] to Microsoft?
Hickey: Google's stock went from 700 to 300. Even so, I would rather own Microsoft. The stock could go back up to 30 within a year, though it depends if the market makes a bottom in the fall.
Schafer: What about technology generally?
Hickey: It's a cyclical business, and today it is a part of everyone's life. It is very much exposed to the decline in consumer and business spending. Lots of hardware companies are in trouble. Too many semiconductor companies are still being propped up. There will be a lot of consolidation, and bankruptcies.That's why you want to buy cash-flow-generating businesses.
My second pick is Cadence Design Systems . It fell 80% last year. The company has been around a long time. It is No. 2 in software used to design and develop semiconductors and electronic systems. Competitors are Mentor Graphics [MENT] and Synopsys [SNPS]. Cadence sells for under 4 a share. The company had a revenue-recognition problem and several top executives left, including the CEO. There was a failed attempt to take over Mentor. The company looks to be in disarray, but as with Microsoft, it has lots of flexibility. Gross margins are 78%. Cadence recently announced a significant cost-reduction program, including a 12% cut in its workforce. Up until 2008 it was profitable. Now it's a matter of right-sizing the company, reducing expenses. The stock hasn't been this low since 1994. Five officers and directors bought stock in December, including the interim CEO and CFO, who bought 100,000 shares each.The market cap is around $1 billion. Conservatively, revenue will be about $850 million this year, including $500 million in recurring maintenance and service revenue. The forecast for product revenue is small. There is more cash than debt: $560 million, versus $500 million in convertible notes that aren't due until 2011 and 2013. The stock could double.
MacAllaster: How could they lose money when gross margins are 78%?
Hickey: That's why the CEO is gone.
Gabelli: Why did they go after Mentor?
Hickey: I suspect they were trying to mask revenue deterioration. When things get desperate, companies typically do things like try to buy other companies.
On to gold. You have to protect yourself against potential hyperinflation. All the central banks are printing money now. The bull market in gold was rather orderly for the first eight years. We haven't seen the blow-off phase you get in all bull markets. That's coming. In dollar terms, gold was up 5% or so last year. In Indian rupees it was up nearly 30%. The price of almost all other commodities collapsed. I own bullion, the gold ETF [ SPDR Gold Shares (GLD)], some gold stocks and coins. I couldn't get them as the year progressed because demand was so great. But my first pick today is Market Vectors Gold Miners, an ETF. It sells for 32 and mirrors the NYSE Arca Gold Miners Index, a modified market-capitalization-weighted index of publicly traded gold companies. The top five components are Barrick Gold [ABX], Goldcorp [GG], Newmont Mining [NEM], Kinross Gold [KGC] and Agnico-Eagle Mines [AEM].
How has it performed?
Hickey: The ETF dropped 26% last year, so while gold held up, the stocks didn't do as well. One reason is that oil prices were so high; oil is a key component in production costs. Now crude is falling, which will be a help to gold miners in 2009. The fund has $2 billion in assets. It has been around since 2006, and the expense ratio is 0.55%. It gives you broad exposure to the gold-stock business.
My second gold pick is Agnico-Eagle Mines . It fell about 6% last year, so it did relatively well. It trades for 51. Not every stock fell in the 1930s, either. Homestake Mining went from 65 a share in 1929 to 500 in 1935. It had two things going for it: rising production and an increase in the price of gold, against a devalued dollar.
Zulauf: The U.S. was on the gold standard. It devalued the dollar and revalued gold relative to the dollar, and the price went up to 35 an ounce from 28.
Hickey: Gold could go to $2,000 an ounce this year, or next. The Fed is going to pump all kinds of money into the economy and it won't help. It won't get to corporations or the consumer. But it might get to gold and cause yet another bubble. Gold is one of the few assets that has performed well. And, there is a tremendous shortage of physical gold. In times of turmoil it is a classic hedge against inflation.
Gabelli: People withdraw their cash from banks and buy safes and guns and gold.
Zulauf: You can't get a safe at a Swiss bank anymore because they are all rented out.
MacAllaster: Agnico-Eagle doesn't make much money and pays almost no dividend. It earned more than a dollar a share in 2006 and '07. Earnings were cut in half in 2008 because one mine produces zinc and the price of zinc collapsed. The real kicker is that Agnico will quadruple production, from 300,000 ounces in 2008 to 1.2 million ounces in 2010. Capital expenditures will decline to $146 million by 2010 from $900 million in 2008. They have five new mines, in Canada, Mexico and Finland, countries with low political risk. Production costs are around $300 an ounce.
Zuluaf: The industry's break-even is about $430 an ounce. There is a limited amount of gold in the earth's crust, and most of it is in politically unstable places. It is cheaper to buy mining stocks than build new mines.Hickey: Very few gold miners will grow production or earnings this year and next. Agnico's earnings are going up by orders of magnitude. They'll do 40 or 50 cents this year, and $2 to $5 when the new mines come on. Because there is excitement about this company, they were able to do a stock offering in December. There are still a lot of momentum investors. This stock will have momentum.
I also own PowerShares DB Agriculture Fund, an ETF and another play on inflation protection. Assets are equal-weighted among four commodities: wheat, corn, soybeans and sugar. The index is rebalanced every November to maintain the weighting. The management fee is 0.75 basis points [three-fourths of a percentage point].
Gross: It's not worth 75 basis points.
Hickey: It is hard for retail investors to buy futures. It is worth it to them to pay professional managers. The DBA sells for 26 a share. It was down 21% last year.
If you buy this now, when do you sell?
Hickey: After commodities double. Farmers in Brazil and Argentina are having credit problems. They can't buy fertilizer and tractors. Argentina's wheat output may be down 37% this year. There are issues of supply and demand.
My last pick is the iShares FTSE/Xinhua China 25 ETF, which Marc shorted last year. Chinese stocks plummeted 65% in 2008. The bubble burst and they are in a major bear market. This index holds 25 of the largest-cap stocks in China. The fund's top holdings are China Mobile [CHL], China Life Insurance [LFC], Industrial and Commercial Bank of China [349.Hong Kong] and PetroChina [PTR]. This is the most liquid China ETF, with $6 billion of assets. The current price is $31. The average P/E ratio of the stocks is 11.9, and price to book value is 1.7 times. The management fee is 0.74 basis points and the dividend yield is about 2%. As the world emerges from recession, I want to be invested in China. Unlike the West, it isn't burdened by massive debts.
Zulauf: You don't know that yet. There is a dramatic real-estate overhang, and it was all financed by Chinese banks.
Hickey: There may be more problems coming, but the Chinese pay cash for cars. They have $2 trillion of reserves. There is more opportunity there for growth.
Faber: The Chinese economy is in a recession. Emerging markets will have bad economies for some time. But they are reasonably attractive on the basis of valuation.
Zulauf: The Chinese have this mix of a command economy and a capitalist system. It has advantages over our system of free markets and socialism. They are much better at setting long-term goals.
Faber: Asian and Arab countries also have a different concept of time and endurance. Nobody has talked about today's horrendous geopolitical situation. There is a huge mess in Afghanistan, Pakistan, India. The Chinese and Russians won't send divisions with tanks to attack U.S. troops in Afghanistan, but they are very good at channeling weapons into the area.
Hickey: Good reasons to own gold and food.
Faber: I would also consider owning defense-related stocks. There is a transition of power in the world, and countries like China and India are becoming more important. This will lead to tremendous tensions.
Zulauf: China's big mistake was gearing almost all of its manufacturing base to the industrialized economy. In the next 10 years it will try and probably succeed at developing more domestic demand. Many countries that have been dependent on the U.S. consumer are realizing they have to change and go their own way. In the next decade you will see different blocs building. This isn't good for the world.
Faber: The U.S. had a credit bubble. China had an oversupply bubble and an investment bubble. Suddenly the exports aren't there, so there's a double whammy.
Cohen: China's stimulus plan looks a lot like what we expect the Obama administration to put forward. The Chinese are worried about unemployment because thousands of factories have been closed in the Pearl River Delta. They have a shortage of infrastructure. There is a green orientation -- a focus on being more energy-efficient. One big difference is that the long-term focus of government policy here will be raising the savings rate. In China it will be pushing the savings rate down.
Hickey: Here's another difference: They can afford the stimulus plan, and we can't.
Thanks, Fred.
Hey, LLH
Happy New Year, send me an e mail
lidopete
Targeting the Insulin-like Growth Factor Type I Receptor (Igf-Ir) in Cancer: the next Egfr?
Ludwig Dale L
ImClone Systems Inc., New York, USA
Growth factor receptor-mediated signaling cascades contribute to human carcinogenesis, tumor pathogenesis and have also been implicated in cancer resistance to cytotoxic therapy. Monoclonal antibodies that target and inhibit growth factor receptors have become an important therapeutic class in oncology.
Antibody blockade of ligand-dependent receptor tyrosine kinases such as epidermal growth factor receptor (EGFR) on the surface of tumor cells has shown to be effective, both as monotherapy and in combination with cytotoxic agents. Because of its role in tumor growth promotion and maintenance, therapeutic the EGFR has been demonstrated as a meaningful clinical target in multiple tumor types.
Cetuximab, a chimeric IgG1 anti-EGFR blocking antibody, has been approved for treatment of colon cancer, head and neck cancer, demonstrated efficacy in lung cancer, and is being investigated in many other types of solid tumor.
Similar to EGFR, the insulin-like growth factor-I receptor (IGF-IR) is frequently over-expressed in diverse tumor types, both solid and hematologic. It has been implicated in tumor cell proliferation and survival, and as a potential mechanism of resistance to cytotoxic therapy. Crosstalk between the IGF-IR and EGFR in tumors has also recently been reported.
There are now more than a half dozen anti-IGF-IR therapeutic antibodies and several small molecule inhibitors being tested in the clinic. Because of the close homology of the IGF-IR to insulin receptor, particularly in the intracellular kinase domain, small molecule development has been hindered by limitations to target selectivity. Antibody- directed therapy against IGF-IR may therefore be more advantageous.
We have developed IMC-A12, a fully human IgG1 antibody that specifically binds to the IGF-IR with high affinity and blocks ligand-induced IGF-IR activation and signal transduction. It exerts its effects via direct receptor blockade and by mediating efficient receptor internalization and degradation.
In xenograft tumor models in vivo, IGF-IR blockade by single agent A 12 was shown to occur rapidly, resulting in significant growth inhibition of models of many types of solid tumor including breast, lung, colon, prostate, head and neck, sarcoma, and pancreas as well as multiple myeloma.
Early results in Phase I clinical trials appear consistent with the preclinical results, providing preliminary evidence of biologic activity in many different tumor types and a manageable toxicity profile. These results demonstrate that targeting the IGF-IR with drugs such as IMC-A12 may be an effective anti-cancer therapeutic strategy and early promise has already accelerated development of these agents into late stage clinical testing in a diverse array of tumor indications and treatment strategies.
Imc-1121b and Imc-A12: Preliminary Clinical Experience with Anti-Vegfr2 and Anti-Igf-1r Antibodies
Schwartz Jonathan D
ImClone Systems, Inc., Branchburg, New Jersey, USA
IMC-1121B and IMC-A12 are human monoclonal IgG1 antibodies that target, respectively, the vascular endothelial growth factor receptor-2 (VEGFR2) and insulin-like growth factor receptor-1 (IGF-1R). Pre- clinical studies have demonstrated that these therapeutic antibodies confer growth inhibition in multiple in vitro and in vivo cancer models.
Phase 1 studies have been conducted testing the safety, tolerability, pharmacokinetics and preliminary efficacy of these agents in patients with advanced, refractory solid tumors.
Two phase 1 studies have assessed IMC-1121B at multiple weekly (2-16 mg/kg), q14 day (6-10 mg/kg) and q21 day (15-20mg/kg) doses in 61 patients. Hypertension has been the most frequently observed side effect associated with IMC-1121B and has been considered a dose limiting toxicity (grade 3) in a small number of instances. MTD has been determined as 13mg/kg/week and has not been reached for q14/q21 day dosi ng.
Pharmacokinetic analyses have indicated that serum trough levels observed with most doses exceed those associated with anti-tumor activity in pre-clinical tumor models.
IMC-1121B has been associated with substantial tumor control including several partial responses and multiple instances of stable disease lasting at least 5 months in the weekly dosing (n = 37) study. Multiple instances of stable disease >6 months have been observed on the every 2 and 3 week dosing study. Phase 2-3 studies are underway or planned in multiple solid tumors.
Two phase 1 studies have assessed IMC-A12 at multiple weekly (3-15 mg/kg) and q14 day (6-15 mg/kg) doses in 40 patients. Hyperglycemia has been the most frequently observed side effect associated with IMC-A 12 and has been considered a dose limiting toxicity (grade 3) in a small number of instances.
MTD has not been identified for weekly or q14 day dosing.
Pharmacokinetic analyses indicates that serum trough levels observed with most doses exceed those associated with anti-tumor activity in pre-clinical tumor models.
IMC-A 12 has been associated with multiple instances of stable disease lasting at least 6 months in the weekly dosing (n = 24) and q14 day (n = 16) studies. Phase 2 studies are underway or planned in multiple solid tumors.
Whitewashing Fannie Mae
Congress begins its self-absolution campaign.
Henry Waxman's House Committee on Oversight and Government Reform met Tuesday to examine "The Role of Fannie Mae and Freddie Mac in the Financial Crisis." Alas, Mr. Waxman didn't come to bury Fan and Fred, but to bury the truth.
The two government-sponsored mortgage giants have long maintained they were merely unwitting victims of a financial act of God. That is, while the rest of the market went crazy over subprime and "liar" loans, Fan and Fred claimed to be the grownups of the mortgage market. There they were, the fable goes, quietly underwriting their 80% fixed-rate 30-year mortgages when -- Ka-Pow! -- they were blindsided by the greedy excesses of the subprime lenders who lacked their scruples.
But previously undisclosed internal documents that are now in Mr. Waxman's possession and that we've seen tell a different story. Memos and emails at the highest levels of Fannie and Freddie management in 2004 and 2005 paint a picture of two companies that saw their market share eroded by such products as option-ARMs and interest-only mortgages. The two companies were prepared to walk ever further out on the risk curve to maintain their market position.
The companies understood the risks they were running. But squeezed between the need to meet affordable-housing goals set by HUD and the desire to sustain their growth and profits, they took the leap anyway. As a result, by the middle of this year, the two companies were responsible for some $1.6 trillion worth of subprime credit of one form or another. The answer to Mr. Waxman's question about their role in the crisis, in other words, is that they were central players, if not the central players, in the creation of the housing boom and the credit bust. Mr. Waxman released some of these documents Tuesday but kept others under wraps.
In early 2004, Freddie's executive team was engaged in a heated debate over whether to start acquiring "stated income, stated assets" mortgages. And in April of that year, David Andrukonis, the head of risk management, wrote to his colleagues, "This is not an affordable product, as I understand it, but a product necessary to recapture [market] share. . . . In 1990 we called this product 'dangerous' and eliminated it from the marketplace." Freddie went ahead anyway.
At Tuesday's hearing, both Mr. Waxman and former Fannie CEO Franklin Raines argued that Fan and Fred were following the market, not leading it, as if this was exculpatory. The documents plainly show that people at both Fan and Fred clearly understood that these mortgages were risky, thought many homeowners didn't understand them and that they were putting their business at risk by buying up Alt-A and subprime mortgage-backed securities.
One Fannie Mae document from March 2005 notes dryly, "Although we invest almost exclusively in AAA-rated securities, there is a concern that the rating agencies may not be properly assessing the risk in these securities." But they bought them anyway, both to maintain their market share and to show people like Democrat Barney Frank that they were promoting affordable housing.
By April 2008, according to a document prepared for then-Fannie Mae CEO Daniel Mudd and marked "Confidential -- Highly Restricted," Fannie's $312 billion in Alt-A mortgages represented "12% of single-family credit exposure." This book of business, the document notes, "was originated to maintain relevance in market with customers -- main originators were Countrywide, Lehman, Indymac, Washington Mutual, Amtrust." The first four need no introduction; regulators ordered Ohio-based Amtrust to stop lending two weeks ago.
Remember that one of Fannie's roles was supposed to be to buy up mortgage-backed securities in the secondary market and keep that market "liquid." This was, they always argued, the rationale for their $1 trillion-plus MBS portfolios. By becoming buyers of private-label subprime and Alt-A-backed MBS, they did just that -- they liquified and helped legitimize products that they now claim others irresponsibly sold.
Mr. Raines even suggested that Fan and Fred's regulator was to blame for allowing them to get into trouble. "It is remarkable," he told the committee, "that during the period that Fannie Mae substantially increased its exposure to credit risk its regulator made no visible effort to enforce any limits."
What Mr. Raines failed to mention was that, all along, Fannie and Freddie were spending millions on lobbying to ensure that regulators did not get in their way. As the AP reported Sunday night, Freddie spent $11.7 million in lobbying in 2006 alone, with Newt Gingrich, for example, getting $300,000 that year for talking up the benefits of Freddie's business model. (Apologies welcome, Newt.)
Other Republicans on Freddie's payroll included former Senator Al D'Amato and Congressman Vin Weber, and then House Majority Leader Tom DeLay's former chief of staff, Susan Hirschmann. As we know by now, Fan and Fred tried to buy everybody in town from both political parties, and the companies did it well enough to make themselves immune from regulatory scrutiny.
Mr. Waxman calls it a "myth" that Fannie and Freddie were the originators of the crisis. That's a red herring. Mr. Waxman's documents prove beyond doubt that Fan and Fred turbocharged the housing mania with a taxpayer-backed, Congressionally protected business model that has cost America dearly.
Getting Out of the Credit Mess
The last thing we need is policy that encourages or incurs more debt.
By HARVEY GOLUB
The federal government has announced a series of actions in the past few weeks ostensibly designed to make consumer credit more available and invigorate the economy. Obviously, the country is in recession and the recession is likely to get deeper. But will these actions reduce the depth and duration of the recession? Or, in the long run, will they make matters even worse?
Last month the Federal Reserve and the Treasury announced that the government would buy $500 billion in mortgages guaranteed by Fannie Mae and Freddie Mac. They also announced they would lend $200 billion against securities backed by car loans, student loans, credit-card debt, and small business loans. The purpose of both moves is to create lending capacity across key elements of the consumer sector.
Most recently, the government announced that it would subsidize new home mortgages by one percentage point, effectively lowering monthly payments on a 30-year loan by about 10%. The stated reason was to help the housing market, which is crucial to an economic recovery.
With each announcement, the Fed and Treasury were careful to point out they might take additional action in support of these sectors and others as well. And it is a virtual certainty the government will cobble together some program to reduce foreclosures to keep people in their homes. I'm sure that, as other industries or sectors come under pressure, there will be new programs to help. The automobile industry will not be the last to come to Washington.
To begin to understand today's problem, we have to have a sense of how we got there. Between 1994 and second quarter 2008, the U.S, housing stock more than doubled in value from $7.6 trillion to $19.4 trillion. Almost three quarters of that increase was due to a speculative bubble, the root cause of which was government policies designed to increase home ownership, largely among people who would be considered nonprime borrowers -- i.e., people without sufficient documented income or employment history and little or no savings or credit history.
The intellectual start of this mess was in a flawed Boston Federal Reserve study published in 1992 that purported to show that minorities were treated less well than whites. That study led to increased political pressure on banks to modify their standards with increased emphasis through the Community Reinvestment Act, and aided by U.S. Department of Housing and Urban Development regulations in the Clinton administration that required parity of outcomes in the lending process.
The effect of all of this meddling was compounded by the lax or incompetent supervision of Fannie Mae and Freddie Mac. All in all, the government got into the business of encouraging and then forcing lending institutions to make mortgage loans to people who could not pay them back. What we ended up with is a failure of government, which we have erroneously termed a failure of capitalism.
The standards applied to these subprime loans began to be applied to what heretofore had been prime borrowers who also increasingly became overextended. But, as housing prices increased, owners cashed out their equity and bought cars, appliances and other items, including using the freed-up equity to pay for everyday living purchases. Over the past decade alone, U.S. households have taken on some $8 trillion in debt, bringing the nation's current consumer debt load to $14 trillion.
This cynical and unsustainable cycle was abetted by mortgage originators who had little interest in making sure loans were good quality, investment banks that securitized and packaged these loans, rating agencies who forgot fundamental laws of gravity, and purchasers who bought securities they could not possibly understand. This was fueled by borrowers who committed fraud and bought houses, or speculated in them, when there was no realistic chance they could afford them.
All of this led to a huge overleveraging in the consumer market. The increase in debt burden fueled much of the nation's economic growth over recent decades, aided somewhat by increases in productivity and underpinned by easy money from the Federal Reserve. Since consumers represent about 70% of the nation's GNP, and since leverage cannot increase forever, we were bound to see the bubble burst and eventually enter a substantial recession.
So, are the current credit easing actions likely to be helpful or not? In my judgment, measures to create liquidity are likely to be helpful. Financial institutions that lend money to credit-worthy people for reasonable purposes have experienced a substantial reduction in available funding from which they can make loans. Hence the programs to support the securitization markets are sensible because money used for this purpose will be lent and used for purchases. Programs that deliver a short-term reduction in mortgage rates will, at the margin, help absorb some of the available housing stock, reducing the time it will take for housing to reach market-clearing levels.
However, measures intended to reduce foreclosures, per se, are likely to be ineffective at best and morally flawed at worst. When analysts say that people are being foreclosed because house values have declined they are missing the point. A large number of foreclosures are taking place because people can no longer refinance and take value out. They could not afford the houses to begin with and greed or stupidity -- not a falling real-estate market -- have caused their problems. On the other hand, measures to subsidize homeowners facing foreclosures because they have lost their jobs can be helpful.
In the longer term, our nation must delever -- either by reducing the amounts of borrowing or by increasing consumer earning power through economic growth. Relying on growth alone implies a growth rate higher than we have ever experienced in our nation's history. Nonetheless, our public policy must encourage economic growth by lowering tax rates for corporations and individuals while at the same time avoiding what would be growth killers, including "card check" legislation and trade restrictions. Public policy should support higher savings rates, and avoid encouraging increased consumer spending funded by further debt, which may be helpful in the short term but catastrophic in the longer term.
It is not only consumers that must delever. Governments must as well. State and local governments across the nation have incurred direct and indirect debt or obligations in the tens of trillions of dollars -- obligations that cannot be met under any set of reasonable circumstances without an explosion in growth and tax revenues. In fact, we continue to incur debt for politically palatable ideas, like rebate checks, which have very little stimulative power but increase the depth of the hole we're in.
To solve this problem for ourselves and future generations, we must get back to our historic reliance on personal responsibility and market forces, and get government out of economic management. It doesn't do a good job, as the current economic mess amply proves.
Mr. Golub is a former chairman and CEO of American Express.
Dew, What's your e-mail address? I'll scan the list and send it to you. Send it to me at pmccord@sycr.com.
Pam
I have been seeing a lot of this revisionist history lately. There are several people who i worked with at Genentech who seem to be padding their resumes and not ashamed when a PR comes out touting false experience. the funny thing is most of them were virtually pushed out for poor performance.
Dan Lynch resurfaces:
http://finance.yahoo.com/news/CORRECTING-and-REPLACING-bw-13754780.html
>>
As CEO, Mr. Lynch led ImClone through a significant turnaround, helping to restore the company's reputation and to secure FDA approval of ERBITUX…
<<
LOL—a little revisionist history here, IMO.
Thanks (eom).
Imclone Trivia
You might want to ask the same question on the LLY board where a number of ex-IMCLers have begun to congregate.
Before Yahoo unplugged the IMCL message board, there was a thread called Imclone Trivia. Did anyone save a copy of it?
jb..the low was 16 cents in 1995..
gene,
I guess that chart says it all. A rollercoaster ride. Nice to get out at the top.
Thanks, Dew, I agree wholeheartedly. Excess money creates unproductive enterprises, which compete on an ongoing basis with potentially productive ones. The upside of a recession is to liquidate the unproductive ones, which then lets the productive ones use available resources with less competition. This goes for investor money, talented employees, or even commodities subject to supply/demand. It is also why it is so wrong to prop up failing companies.
Given your penchant for money flow analysis, I’d be willing to bet you agree with the concluding remarks in #msg-33749911. Regards, Dew
p.s. Yes, that’s the same BI.
I was open-minded, but today's news suggests Mr. Obama's solution to the economic mess caused by out-of-control Keynesian economics is a lot more Keynesian economics. Time to buy that gold!
Re: Other investment ideas
If you don’t like common stocks, there are some screaming bargains in the fixed-income arena. Munis, for instance (but I would stick to high-quality paper rather than chasing yield). Preferred stocks of many blue-chip companies are now yielding 11% (!)
Some closed-end funds are trading at fire-sale discounts to NAV. Two sister closed-end funds, HQH and HQL, deserve special mention as biotech vehicles. I think 98% of investors would do better owning shares of these funds than they would buying individual biotech names.
Being 100% in cash may work out well for you, but it’s an extreme view, IMO. By the time your indicators are telling you to get back in, the markets may have rallied 30-40%.
Moreover, as you once noted, betting that the world as we know it is coming to an end is not an attractive approach to investing because you lose even when you win!
p.s. I added to MNTA and IDIX today.
>How confident are you that emerging markets will respect patent rights on expensive new medicines?<
Things have improved greatly on this score during the past five years. Now, the key issue for high-priced drugs in emerging markets is not patent protection but rather reimbursement—just as it is throughout the world.
If a company is trying to sell the sixth ACE inhibitor in a given market or the seventh PPI, good luck with that! On the other hand, drugs that meet a bona fide medical need are going to be a good business proposition even in the less affluent countries.
Dew I agree that the valuations are looking better, but my point was that they are kind of irrelevant, unless they stand out as the best on the market, and even then, they will keep getting better until the balance of money supply/money demand goes inflationary again. The demographic question was tangential to my post, and I probably should have left it out, focusing on the overall money supply versus today's spike in the demand for money.
On another note: How confident are you that emerging markets will respect patent rights on expensive new medicines? I have not listened to big pharma webcasts lately.
Oops—message #4731 did not come out right! Here’s what I meant to say:
Insofar as IMCL’s stock will cease trading next week, I invite any lurkers on this board to come over to the Biotech Values board (#board-1418), where we talk about all facets of biotech investing. Hope to see you there!
>Even without the present depression, the gains would eventually reverse as the boomers begin withdrawing money, and getting out of stocks to lock in gains.<
But, neblo, the baby boomer generation is a phenomenon of a few Western countries. As you well know, the big growth story in the next few decades will be in what we used to call the Third World.
Big Pharma (and the rest of the drug/biotech industry by association) is relatively well positioned to capitalize on this trend. Indeed, if you have listened to any Big Pharma webcasts lately, you know that allocation of resources to what are now called emerging markets has become the story in the drug industry.
Let me leave you with this chart, which I’ve reposted from the Biotech Values board:
7-Year Return vs Dividend Yield
The graphs are based on a composite of
all dividend-paying stocks on the NYSE.
Regards, Dew
I take a peek on this board from time to time.
Not much action though. If this board goes down, then biotech values and LLY's ymb is where I'll be.
It'll be nice if this board stays on ihub and we can get others to post more frequently.
RE: The bargains are getting hard to resist.
....
I hope you don't find this off-topic, because it no longer pertains to IMCL, but the story here is done anyway.
Dew, you are a very rational investor, and I mean that in the best sense, with the valuations you calculate, and you tend to act accordingly. My observation is that a strictly rational approach tends to bail out too soon on the upside, and enter too soon on the downside, because a rational valuation is the principal consideration. Before anyone gets the idea that I am advocating a Beach-style emotional approach, please drop that line for a second, and let me elaborate:
I have concluded over time (and a lot of reading on Austrian school economics, the only one that makes any sense to me today) that the biggest single factor, almost the only factor in stock values overall, ie. whether the tide is coming in or going out, is the amount of money looking for a return. In turn, that is dependent principally on the money supply, with allowance made for anomalies due to the demand for money. Demographics determine how much of the money supply goes into investments. Right now, money supply is going ballistic, but the demand for money is stratospheric also. That is why, for example, the Fed is unable to cure deflation by running the printing press: The dollars they create are filed away and used to shore up balance sheets, both at banks and at households. In regular times, the situation is a little different, where the demand for money is predictable, and supply is really the only factor influencing matters.
So how does this affect stock prices in general? It helps to think through the following: It is mathematically impossible for everybody to put $1 into the markets, and everybody to withdraw $2 (excepting dividends, which properly should be considered to increase the investment). Yet over time, the markets go up. Interestingly, Niall Ferguson of Harvard Business School showed a slide in one of his talks where he plotted the S&P500 since inception, against Gold, not dollars, and other than 3 peaks in the late 20s, the 60s, and the 90s stretching to present times but heading back down, the relationship was flat. There can be medium-term divergence, but long-term it looks like stocks and gold are both priced roughly the same. That tells me that the variable is fiat money, which declines in value as more is printed, making it look like the broad market is making gains. The recent peak in stocks was longer-lasting than the others, and I suggest that is due to the baby boom generation's feverish investing for their retirement. The gains were directly proportional to money flows into the markets, yet the understanding did not get out that this was the only reason for the gains, and that the gains would reverse when money flows reversed as those investors got their money out. Even without the present depression, the gains would eventually reverse as the boomers begin withdrawing money, and getting out of stocks to lock in gains. It is still a zero-sum game, with the first ones in and first out winning, the last in and last out, losing. Here, I have made no mention of PE ratios, because they are irrelevant for the market as a whole. When there is more money than investment vehicles, prices go up. When there is less free money (taking into account demand for money here), then prices go down. I saw Warren Buffet's behavior in recent years confirming this: He ran out of values in stocks, and looked everywhere else for returns, and everyone else followed, hence the housing bubble (aside: He thinks it is time to buy stocks now). My conclusion is that one should not invest in the broad market looking for capital gains, only dividends. I don't see that as attractive for a few years more, as earnings are going to take a beating and dividends will likely suffer also.
That leaves individual stocks, where capital gains are possible when the underlying business grows relative to the market, attracting new investors. But again, I don't intend to get in there until the tide has finished going out, even if values are getting really attractive. There is a reason why they say "when they raid the cathouse, they take the piano player also".
Insofar as IMCL’s stock will cease trading next week (#board-1418), where we talk about all facets of biotech investing. Hope to see you there!
i would like to welcome all ymb posters and i mean all
let's keep the love flowing
corky
BB50 approved for general-purpose use:
http://finance.yahoo.com/news/ImClone-Systems-StateoftheArt-bw-13629216.html
It seems like half a lifetime ago that we were talking about this.
>I am in 100% cash in my 401K, and have been since late 2005. IMCL is the only stock I still own.<
The bargains are getting hard to resist. For instance, almost any of the Big Pharma figures to be a lot higher in 2-3 years, IMO. And several of them pay a fat dividend while you wait.
Among the more speculative names, I have large holdings in MNTA and IDIX. The latter has had a strong year and the former had been having a strong year until very recently. I’ve also endured a disaster with GTCB, which is now essentially an out-of-the-money call option. Regards, Dew
Hi Dew, nice to see you posting!
I started a company back in 2006, and merged with another more recently, so we are still at it, same type of business, same place as always.
Regarding yours and the next poster's comments, I admit that in 2000, I backed Bush (sorry, but the alternative was also scary). It was in 2002 that I woke up to what was happening, jolted by the speed of writing and passage of the Patriot Act. After that, my record on the Yahoo board is one of criticising the admin., as a minority.
I am not much interested in politics at this point, except as two points are concerned:
1. Stable money, essential to come out of this depression, and had it been Greenspan's target, would have spared us.
2. "Humble Foreign Policy". Does that sound familiar? National bankruptcy will force this eventually, but might as well do it right away in controlled fashion.
I do not have a lot of confidence in Mr. Obama's priorities on these notes, but am prepared to be surprised. I had NO confidence in McCain on those notes.
PS. I am in 100% cash in my 401K, and have been since late 2005. IMCL is the only stock I still own. When the deflationary liquidation phase is finished (and they can slow it but they can't stop it), then the trick, in my opinion, will be to get into inflation-safe sectors, because it will come on strong. I actually think they won't seriously fight it, because we have nothing but debt, the world has nothing but our cash, and both are denominated in fiat currency, the value of which we control.
These exchanges are a fine swansong to our collective efforts to understand the science, the various management teams and the competition (. Lilly's bid for the company has reduced the havoc to my stock portfolio; the capital gains reeper looms. Cheers to one and all, hoping for recoveries of many sorts in '09. R, LLH
Neblo, you were the leading poster on the Yahoo IMCL board. I learned more from your posts about cetuximab and related biology than from any other source. I was dismayed when you backed Bush, obviously an incompetent tool manipulated by the hawks and oil business proponents. So although I have the greatest respect for your scientific knowledge I am not troubled by your predictions of how our new president will manage. We can expect that he will have the country's interests at heart rather than those of his cronies or himself or some liberal or socialist ideology. Don't let your own political biases blind you to Obama's considerable assets.
Hi, neblo. Obama was not my choice, but I think he will turn out to be OK—or even better than that.
In some ways, this campaign reminded me of LULA da Silva’s run for the presidency in 2002. Many asserted that Lula’s hard-left past assured that he would default on Brazil’s external debt and drive the country into bankruptcy (as happened in Argentina). But LULA turned out to be a pragmatist and Brazil has been one of the greatest success stories of this decade.
In short, campaigning ought not to be confused with governing. Regards, Dew
p.s. Where are you working now?
p.p.s. There are several politics boards on iHub, some of which are open to free iHub members.
Corky, Mr. Obama will govern by all the unconstitutional decree-mechanisms developed and implemented by Mr. Bush, and he won't need a mandate or even a filibuster-proof Senate. I tried warning about this back in 2002/2003 when the discussion was intense on the old Yahoo board. I said many times "be careful about the power you give Bush. It will be used by someone you don't like nearly as much". I was trashed for it. Well, now it's here.
Folks, revolutions are never pretty, but they can always be traced back to the abuses of the preceding regime. I don't look forward to it, but everything starting now, including the economic situation, has been warned about since early in the decade, and the chances to put brakes on it were squandered many times, especially in 2004.
no change
No mandate for Obama, no lopsided Congress
NO REALIGNMENT | No mandate for Obama, no lopsided Congress
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November 5, 2008
ROBERT NOVAK novakevans@aol.com
WASHINGTON -- The national election Tuesday was not only historic for the election of the first African-American president in the nation's history but also for how little the avalanche of Democratic votes changed the political alignment in Congress.
The first Democratic Electoral College landslide in decades did not result in a tight race for control of Congress.
When Franklin D. Roosevelt won his second term for president in 1936, the defeated Republican candidate, Gov. Alf Landon of Kansas, won only two states, Maine and Vermont, and Democrats controlled both houses of Congress by wide margins.
But Obama's win was nothing like that. He may have opened the door to enactment of the long-deferred liberal agenda, but he neither received a broad mandate from the public nor the needed large congressional majorities.
The Democrats fell several votes short of the 60-vote filibuster-proof Senate that they were seeking and also failed to get rid of a key Senate target: Republican leader Mitch McConnell of Kentucky.
Republicans, though discouraged by the election's outcome, believe Obama will be hard-pressed not so much to enact his agenda but to keep his popular majority, which he considers centrist, as he moves to enact ultra-liberal legislation, particularly the demands of organized labor.
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The Change We Need
I'm proud to have the support of businessmen like Warren Buffett.
By BARACK OBAMA
This is a defining moment in our history. We face the worst economic crisis since the Great Depression -- 760,000 workers have lost their jobs this year. Businesses and families can't get credit. Home values are falling, and pensions are disappearing. Wages are lower than they've been in a decade, at a time when the costs of health care and college have never been higher.
At a moment like this, we can't afford four more years of spending increases, poorly designed tax cuts, or the complete lack of regulatory oversight that even former Federal Reserve Chairman Alan Greenspan now believes was a mistake. America needs a new direction. That's why I'm running for president of the United States.
Tomorrow, you can give this country the change we need.
My opponent, Senator McCain, has served his country honorably. He can even point to a few moments in the past where he has broken from his party. But over the past eight years, he's voted with President Bush 90% of the time. And when it comes to the economy, he still can't tell the American people one major thing he'd do differently from George Bush.
It's not change to come up with a tax plan that doesn't give a penny of relief to more than 100 million middle-class Americans -- a plan that even the National Review and other conservative organizations complain does far too little to benefit the middle class. It's not change to add more than $5 trillion to the deficits we've run up in recent years. It's not change to come up with a plan to address our housing crisis that puts another $300 billion of taxpayer money at risk -- a plan that the editorial board of this newspaper said "raises more questions than it answers."
If there's one thing we've learned from this economic crisis, it's that we are all in this together. From CEOs to shareholders, from financiers to factory workers, we all have a stake in each other's success because the more Americans prosper, the more America prospers.
That's why we've had titans of industry who've made it their mission to pay well enough that their employees could afford the products they made -- businessmen like Warren Buffett, whose support I'm proud to have. That's why our economy hasn't just been the world's greatest wealth creator -- it's been the world's greatest job generator. It's been the tide that has lifted the boats of the largest middle class in history.
To rebuild that middle class, I'll give a tax break to 95% of workers and their families. If you work, pay taxes, and make less than $200,000, you'll get a tax cut. If you make more than $250,000, you'll still pay taxes at a lower rate than in the 1990s -- and capital gains and dividend taxes one-third lower than they were under President Reagan.
We'll create two million new jobs by rebuilding our crumbling infrastructure and laying broadband lines that reach every corner of the country. I'll invest $15 billion a year over the next decade in renewable energy, creating five million new, green jobs that pay well, can't be outsourced, and can help end our dependence on Middle East oil.
When it comes to health care, we don't have to choose between a government-run system and the unaffordable one we have now. My opponent's plan would make you pay taxes on your health-care benefits for the first time in history. My plan will make health care affordable and accessible for every American. If you already have health insurance, the only change you'll see under my plan is lower premiums. If you don't, you'll be able to get the same kind of plan that members of Congress get for themselves.
To give every child a world-class education so they can compete in this global economy for the jobs of the 21st century, I'll invest in early childhood education and recruit an army of new teachers. But I'll also demand higher standards and more accountability. And we'll make a deal with every young American: If you commit to serving your community or your country, we will make sure you can afford your tuition.
And when it comes to keeping this country safe, I'll end the Iraq war responsibly so we stop spending $10 billion a month in Iraq while it sits on a huge surplus. For the sake of our economy, our military and the long-term stability of Iraq, it's time for the Iraqis to step up. I'll finally finish the fight against bin Laden and the al Qaeda terrorists who attacked us on 9/11, build new partnerships to defeat the threats of the 21st century, and restore our moral standing so that America remains the last, best hope of Earth.
None of this will be easy. It won't happen overnight. But I believe we can do this because I believe in America. This is the country that allowed our parents and grandparents to believe that even if they couldn't go to college, they could save a little bit each week so their child could; that even if they couldn't have their own business, they could work hard enough so their child could open one of their own. And at every moment in our history, we've risen to meet our challenges because we've never forgotten the fundamental truth that in America, our destiny is not written for us, but by us.
So tomorrow, I ask you to write our nation's next great chapter. I ask you to believe -- not just in my ability to bring about change, but in yours. Tomorrow, you can choose policies that invest in our middle class, create new jobs, and grow this economy so that everyone has a chance to succeed. You can choose hope over fear, unity over division, the promise of change over the power of the status quo. If you give me your vote, we won't just win this election -- together, we will change this country and change the world.
Mr. Obama is the Democratic nominee for president.
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What We're Fighting For
Protectionism and tax hikes are wrong for the economy.
By JOHN MCCAIN
The presidential election occurs at a pivotal moment. Our nation is fighting two wars abroad, suffers from the greatest global financial crisis since the Great Depression, and is facing a painful recession. I believe in the greatness of America. I believe in our capacity to prosper, and to be safer and remain a beacon of light on the global stage. But we cannot spend the next four years as we have spent much of the last eight: waiting for our luck to change. We have to act immediately. We have to fight for it.
The institutions that we counted on -- Wall Street banks, our elected leaders in Washington -- failed us. We must reverse the corruption and arrogance that have overtaken these institutions, and we must place our trust in the hands of those who have never let us down, especially the American family and small businesses.
We need to grow our small businesses, not tax them. I will fight the Democrats' plans to redistribute the fruit of America's labor and turn our economy into a full-fledged disaster. I will cut taxes on families, seniors, savers and businesses. We need to double the child deduction, cut the capital gains tax, and keep jobs in America with a lower business tax.
I will make government finally live on a budget and enforce that discipline by the power of veto. I won't spend nearly a trillion dollars more of your money. I will impose a short-term spending freeze and rid the government of waste, duplication and fraud. And I will chart a different course than the administration and Barack Obama and not spend your money just to bail out Wall Street bankers and brokers. I have a plan to protect the value of homes and get them rising again by refinancing mortgages so your neighbor won't default and further drag down the value of your house.
I will end three decades of failed energy policies; stop sending $700 billion to countries that oppose American values and finance our enemies; and drill for oil and natural gas. We must strengthen incentives for all energy alternatives -- nuclear, clean coal, wind, solar and tide. We will encourage the manufacture of hybrid, flex fuel and electric automobiles. We will lower the cost of energy, and create millions of new jobs.
I will not impose "one size fits all" health care on families and small businesses through expensive mandates and fines. I will bring down the skyrocketing cost of health care with competition and choice, reform the insurance market to be fair, and allow you to keep the same health plan if you change jobs or choose to stay home.
One in five jobs in the U.S. depends on trade and I will fight the threat to those jobs from Democrat plans for isolationism. I won't make it harder to sell our goods overseas and kill more jobs. I will open new markets to goods made in America and make sure our trade is free and fair. And I'll make sure we help workers who've lost a job that won't come back find a new one that won't go away.
Senator Obama wants to raise taxes and restrict trade. The last time America did that in a bad economy it led to the Great Depression.
While most Americans are rightly concerned with the economic crisis, a world of pressing national security challenges also awaits the next president.
The gains our troops have made in the past 18 months in Iraq could be lost if we pull our troops out prematurely and regardless of the conditions on the ground. We have also dealt devastating blows to al Qaeda, especially in Iraq, but terrorists have found sanctuary on the Pakistan frontier among those trying to topple governments in both Kabul and Islamabad.
Afghanistan is reaching a crisis point, just as Iraq did in 2006. As an early supporter of the surge strategy in Iraq, I know that turning around this situation will require more than just increased troop levels. We also need a new, comprehensive strategy, one that integrates civil and military efforts and engages with various Afghan tribes.
Other major threats loom on the horizon: the Iranian and North Korean nuclear programs; aggressive Russian behavior toward its neighbors; Venezuelan adventurism; genocide in Darfur; and global warming. And those are only the dangers that we know of. Just as few expected the Russians to invade Georgia, we remain unaware of precisely where our next crisis will erupt, or when. The only certainty is that, as Joe Biden guaranteed, the tests facing the next president will be more severe if he is seen as weak in national security leadership.
I have devoted my life to safeguarding America. Former Secretary of State George Shultz compares diplomacy to tending a garden -- if you want to see relationships flourish, you have to tend them. I have done that, by traveling the world and establishing ties with everyone from dissidents to heads of state. There is great need for American leadership in the world, and I understand that only by exercising that leadership with grace and wisdom can we be successful in safeguarding our interests.
When I am president, I will not offer up unconditional summit meetings with dangerous dictators, nor will I foreclose diplomatic tools that serve our interests. I will respect our trade agreements with our allies, not unilaterally renounce them. I will close the Guantanamo Bay prison and ban torture. I will expand our armed forces and transform our civil and military agencies to win the struggle against violent Islamic extremism.
I believe that America is an exceptional country, one that demands exceptional leadership. After the difficulties of the last eight years, Americans are hungry for change and they deserve it. My career has been dedicated to the security and prosperity of America and that of every nation that seeks to live in freedom. It's time to get our country, and our world, back on track.
Mr. McCain is the Republican nominee for president.
North,
I really don't see Elan being independent for very long is the credit squeeze continues.
I've fought with many guys on the imclone board that Elan would see $7 while it was trading north of $25. Well reality set set and it's now @ $6.75.
They were trying to sell one of their divisions but they pull that off the market in these conditions.
They do have an debt problem so it wouldn't surprise me if Biogen or even Wythe take a look. If Wythe looks that would be provide a promising view of BAP.
We'll see.
MEDX and MITI are good choices---I have 16x the no. of shares of MEDX as MITI, a position I started just a short time ago.
Do not overlook IMGN and/or SGEN with their conjugated
mabs. I have substantial holdings of both, recently adding to IMGN in light of news from DNA.
I too am looking for a place to park IMCL cap gains. Original basis in 10/98 is $ 3.90.
I look forward to seeing your posts on Y! MEDX board should you choose to join us.
Dew--My current plan is to reinvest a large portion back into LLY. Other than LLY there are a lot of companies that I am considering depending on price.
I want to invest in/add to positions a in European large pharmas--NVS, GSK, and AZN. Currently I only own GSK
I may also add to my Takeda position
The remainder I plan to reinvest in biotechs.
BIIB and possibly GENZ if the price were to come down further
MEDX and Genmab keeping with my antibody theme
Micromet and Ablynx are two earlier stage companies that I am considering
I would not mind adding to my position in ALNY at the right price
Regards,
biophud
Where will you invest the buyout proceeds?
<font size=3><font color=red> “The efficient-market hypothesis may be
the foremost piece of B.S. ever promulgated
in any area of human knowledge!”
My thoughts on LLY purchase:
In general I am satisfied ($70/share is great given these market conditions) and I think that the purchase validates the drug and technology.
At the time of the previous BMY tender, I did not tender any of my shares-in retrospect I realize that this was the wrong decision. However, at that time I justified my decision because I thought that Erbitux would be approved and achieve significant sales. Also, I thought that IMCL would develop other targeted anti-RTK molecules (second generation Erbitux, anti-angiogenesis compounds, etc). Erbitux sales are over 1B and growing and the pipeline has advanced. In fact the depth of IMCL's developmental pipeline has exceeded my expectations. Despite these successes, the final buyout price is that same as the 2001 tender because from 2001-present, there have been multiple events that have inhibited IMCL's share appreciation.
1. RTF/Martha Stewart delayed approval of the drug and tarnished IMCL's name. IMO, the media coverage of IMCL has been consistently negative and bias against IMCL. The IMCL name is tarnished--I wonder what kind of valuation IMCL would get if LLY spun it off (a la DNA/Roche) in a good market under a new name?
2. Avastin->The delay in Erbitux approval enabled Avastin to take a significant portion of the targeted-therapy oncology space; however, with current studies, Erbitux is fighting back and may be superior to Avastin in many instances.
3. AMGN/ABGX molecule-->This was one of my biggest concerns which proved to be unfounded. IMCL has the better molecule (IgG1) and a second generation molecule which it owns completely in Europe and in the US (?).
4. Current financial crisis/market conditions.
I think that I understand IMCL's valuation at $70/share. However as a long term holder since 1999, I had hoped for more--specifically an IMNX-type valuation. Oh well, IMCL holders now have the nice problem of reallocating earnings into other investments.
Regards,
biophud
IMCL is the first and only message board on which I have posted. From what I have seen, the collective intelligence of the board is very high. I appreciate the insights that I have read and consider many of the posters friends.
EORTC link--Multiple IMCL abstracts presented. An impressive and diverse collection of pipeline molecules.
http://www.ecco-org.eu/Conferences-and-Events/EORTC-NCI-AACR-2008/page.aspx/268
Also of note-->data from AMGN on their anti ErbB-3 antibody (developed with ABGX and U3). Interesting because the study looks at combination therapy with c225.
Fully human anti-HER3 mAb U3-1287 (AMG 888) demonstrates unique in vitro and in vivo activities versus other HER family inhibitors in NSCLC models M. Treder1, S. Ogbagabriel2, R. Moor1, U. Schulze-Horsel1, T. Hettmann1, M. Rothe1, R. Radinsky2, D. Freeman2. 1U3 Pharma, Research, Munich, Germany; 2Amgen Inc, Oncology Research, Thousand Oaks, CA, USA
Background: HER3 is a member of the Human Epidermal Growth Factor Receptor (HER) family and is an important component of HER family driven tumorigenesis. Though HER3 lacks intrinsic kinase activity, it is a scaffold for PI3K/AKT signaling for the HER family via heterodimeric interactions. HER3 signaling may be a resistance mechanism for EGFR and HER2 inhibitors. We report unique in vitro and in vivo activities of U3-1287 (AMG 888), the first fully human Anti-HER3 mAb vs. current HER family inhibitors in NSCLC models. Combinations with EGFR inhibitors are also explored. Methods: To determine the inhibition of HER3 oncogenic signaling, A549, Calu-3 and H1975 NSCLC cells were treated with up to 10 mg/ml of U3-1287 (AMG 888), C225 (Anti-EGFR), c2C4 (Anti-HER2) or control mAbs 1 hour prior to heregulin-beta (HRG) or vehicle stimulation. Since HER3 is a heterodimerization partner for HER family members, U3-1287 (AMG 888) was combined with EGFR inhibitors in vitro. To determine in vivo efficacy, mice bearing ~200mm3 A549 NSCLC xenografts were treated 2×/week with anti-HER or control Abs. A549 xenograft tumors were analyzed for the inhibition of pHER3 by Western blotting. The anti-tumor effects of U3-1287 (AMG 888) with an EGFR inhibitor was tested in the Calu-3 and H1975 NSCLC xenograft models. Results: Treatment with U3-1287 (AMG 888) resulted in an inhibition of ligand-induced pHER3, basal pHER3 and pAkt in A549, Calu-3 and H1975 NSCLC cell lines, respectively. In NCI-H1975 cells, combining U3-1287 (AMG 888) with the anti-EGFR mAb C225 resulted in greater pHER3 and pAkt inhibition in vitro than with either single agent alone. Administration of U3-1287 (AMG 888) resulted in tumor stasis in the (EGFR TKI resistant) A549 NSCLC xenograft model vs control and other HER mAbs and tumor inhibition in Calu-3 and NCI-H1975 xenografts compared to IgG treated mice (p < 0.05). Combinations with the anti-EGFR mAb C225 resulted in tumor growth inhibition that was greater than either single agent alone in CaLu-3 (p < 0.001) and NCI-H1975 (p < 0.001) xenografts. Conclusions: U3-1287 (AMG 888) inhibits basal and ligand-induced HER3 oncogenic signaling in NSCLC cell lines in vitro and basal pHER3 in vivo. NSCLC xenografts are sensitive to U3-1287 (AMG 888) treatment as single agent or in combination with an anti-EGFR mAb, including an EGFR TKI resistant model. These data provide preclinical evidence for the potential clinical application of U3-1287 (AMG 888) in NSCLC.
Obama Talks Nonsense on Tax Cuts Revenues will inevitably be diverted from Social Security.
By WILLIAM MCGURN
Article
Now we know: 95% of Americans will get a "tax cut" under Barack Obama after all. Those on the receiving end of a check will include the estimated 44% of Americans who will owe no federal income taxes under his plan.
In most parts of America, getting money back on taxes you haven't paid sounds a lot like welfare. Ah, say the Obama people, you forget: Even those who pay no income taxes pay payroll taxes for Social Security. Under the Obama plan, they say, these Americans would get an income tax credit up to $500 based on what they are paying into Social Security.
Just two little questions: If people are going to get a tax refund based on what they pay into Social Security, then we're not really talking about income tax relief, are we? And if what we're really talking about is payroll tax relief, doesn't that mean billions of dollars in lost revenue for a Social Security trust fund that is already badly underfinanced?
Austan Goolsbee, the University of Chicago economic professor who serves as one of Sen. Obama's top advisers, discussed these issues during a recent appearance on Fox News. There he stated that the answer to the first question is that these Americans are getting an income tax rebate. And the answer to the second is that the money would not actually come out of Social Security.
"You can't just cut the payroll tax because that's what funds Social Security," Mr. Goolsbee told Fox's Shepard Smith. "So if you tried to do that, you would undermine the Social Security Trust Fund."
Now, if you have been following this so far, you have learned that people who pay no income tax will get an income tax refund. You have also learned that this check will represent relief for the payroll taxes these people do pay. And you have been assured that this rebate check won't actually come out of payroll taxes, lest we harm Social Security.
You have to admire the audacity. With one touch of the Obama magic, what otherwise would be described as taking money from Peter to pay Paul is now transformed into Paul's tax relief.
Where a tax cut for payroll taxes paid will not in fact come from payroll taxes. And where all these plans come together under the rhetorical umbrella of "Making Work Pay."
Not everyone is persuaded. Andrew Biggs is a scholar at the American Enterprise Institute and a former Social Security Administration official who has written a great deal about Mr. Obama's plans on his blog (AndrewBiggs.blogspot.com). He notes that to understand the unintended consequences, it helps to remember that while people at the bottom pay a higher percentage of their income in payroll taxes, they are accruing benefits in excess of what they pay in.
"It's interesting that Mr. Obama calls his plan 'Making Work Pay,'" says Mr. Biggs, "because the incentives are just the opposite. By expanding benefits for people whose benefits exceed their taxes, you're increasing their disincentive for work. And you're doing the same at the top of the income scale, where you are raising their taxes so you can distribute the revenue to others."
Even more interesting is what Mr. Obama's "tax cuts" do to Social Security financing. As Mr. Biggs notes, had Mr. Obama proposed to pay for payroll tax relief out of, well, payroll taxes, his plan would never have a chance in Congress. Most members would look at a plan that defunded a trust fund that seniors are counting on for their retirement as political suicide.
And that leads us to the heart of this problem. If the government is going to give tax cuts to 44% of American based on their Social Security taxes -- without actually refunding to them the money they are paying into Social Security -- Mr. Obama will have to get the funds elsewhere. And this is where "general revenues" turns out to be a more agreeable way of saying "Other People's Money."
When asked about his priorities during the second presidential debate, Mr. Obama said that reform of programs like Social Security would have to go on the back burner for two years or so. "We're not going to solve Social Security and Medicare unless we understand the rest of our tax policies," he said.
The senator is right. But you have to read the fine print of his tax cuts to know why.
Write to mainstreet@wsj.com
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