Biotech Values

[Jonathan Robinson]

OT

I used to create the junk product for my clients in Asia. I must say that standards for these bonds have loosened tremendously (but I have thought so for a long time and have been wrong about pricing collapsing). I sold my portfolio of individual junk credits and funds three years ago and the product since then has probably averaged the coupon or about 7-8% per annum.

There was a time when junk spreads widened to about 1000 bps over Treasuries. Now we are talking 300-350 bps. Still a sellers mkt in my view and when things go wrong it will transmit into the corporate loan market, and both effects will then transmit into the LBO market and hedge fund markets. Something on order of Fridson's view (and he is the grandfather of evaluating the sector - very good) would not bode well for whole financial system. But in this case, banks would be fine (except investment banking earnings would collapse) but hedge funds would be in real trouble. And most of these hedge funds use 10-15 to 1 leverage. Many would go way of Amaranth and others would shut because of distance to high water mark. Let's hope his view is too bearish. But I fear direction-wise, he is right and that that direction, could trigger something ugly.

Jon