Replies to post #102823 on Biotech Values

[Biowatch]

"The Pig and the Python"


Old book, by today's standards, but they seemed to have called it right. Although they predicted an uptick/surge in the value of retirement/second/vacation homes, which has gotten out of reach for many.

money is piling into bond mutual funds.

What type of bond funds? Municipals? What city or state out there isn't facing a fiscal crisis, with the possibility of bankruptcy and default? If inflation kicks in, the value will drop and the meager interest won't be much solace.

It's all too easy to believe it when chicken little says, "The sky is falling!"

On the other hand, despite the cost of healthcare, baby boomers are living longer and healthier lives than their grandparents, so can afford to keep working at jobs they enjoy.

[bladerunner1717]

David,

I tend to agree pretty much with Rosenberg's analysis. Whether we call this a "severe recession" or a "mini-depression," I don't think matters much. The 3rd quarter may actually show negative GDP growth.

But what can one expect, really? Households, which held, on average, fourteen different credit cards, can be expected to de-leverage. The household debt to income ratio was something like 134%. But households are retrenching. Credit card debt is down. Delinquencies are down. Applications for new credit cards are down. Late payments are down. The savings rate has gone from around minus 1% (in 2007) to an astonshing +6.4%.

But, admittedly, the deflationary/de-leveraging cycle will take quite a while to unravel. And the housing market, especially here in CA (as well as Nevada, Florida and Arizona) is a disaster. Prices simply haven't come down enough to attract buyers, even with record-low interest rates.

The typical Keynesian stimulus seems not to be working so well this time, although it did work to some extent in limiting the damage. I'm persuaded by Alex Xie's argument that most of the stimulus actually winds up overseas. We need to rethink what kind of stimulus actually works in this globalized economy. And, of course, there are structural constraints (i.e., the deficit) and political constraints (i.e., the Republicans and some Democrats) that make further stimulus impossible.

I'm not sure the Fed has enough arrows in its quiver to make a difference at this point. As someone recently wrote, "The Fed can create money, but it can't create confidence."

I'm not convinced that "It's different this time," even with the baby boomers panicking a bit. It's just that the de-leveraging cycle will take much longer to unwind, mainly because the level of debt was so high. Therefore, bonds may continue to look attractive to some investors as part of a "flight to safety."

Rosenberg would argue with Lowenstein that a projected 12x earnings for the S&P 500 is way too low. Rosenberg sees it as closer to 17X earnings, once earnings projections are restated.

One analyst that I read said Friday was (perhaps) an inflection point, and the Market rallies from here. (I tend to doubt this thesis.) Certainly the Market can rally with jobs and housing lagging, but i think the boomer investors will want to see signs of growth in the economy, before coming back to equities. I suspect that if they wait that long, they may be a little late to the party. But right now, I can't see where growth is going to come from. (Dew has argued that the shipping/transport numbers are a bullish sign for the economy, but Rosenberg takes up that argument and counters by saying that all we saw was an inventory build-up; there is no end demand.)

I have no idea how long this deflationary/de-leveraging cycle has to run. (Rosenberg predicts unemployment at 11% and the DOW at 9000 by the end of the year.) I think the next couple of months could be pretty dismal.

As for small-cap bios, you probably have a much better handle on that than I do. So many small bios seem attractively priced, but the macro situation looks bleak. I think many bio investors who are complaining about how low their stocks are--some invoking various conspiracy theories to explain it--are not paying adequate attention to the macro environment. What are your thoughts are small-cap bios now? What are you saying to your subscribers (without giving away too much info--LOL)?


Bladerunner

[vinmantoo]

BSR_David,

I was thinking of the "it is different this time" comment after reading about how the small investor is done with equities. I see the continued withdrawal from equities as another example of buy high, sell low that often happens with the impatient, the fearful or the over-extended.

I remember reading an interesting article about baby boomers selling off to reduce risk. The author was countering doom and gloom view by pointing out that the boomers comprise a fairly wide age range so it isn't as if there is a short window that everyone needs to sell, nor is it that people will sell off all their equities holdings. I do agree that there will be, and probably already is, a reduction in the percentage kept in equities. Of course if stocks do experience an 1982+ type rebound, you can be sure some of that money withdrawn will come flowing back into equities because people don't want to miss the boat.