1. Ariad Pharmaceuticals (owned Lottery Ticket): The independent Data Monitoring Committee reported today that the Phase 3 trial of oral ridaforolimus in patients with metastatic sarcomas can continue to full enrollment and completion. ARIAD According to the press release, the DMC indicated that the safety data was consistent with the known safety profile of ridaforolimus and recommended no changes in the study protocol. Securing FDA approval for this drug is extremely important to Ariad, and this event is just one step further along the path of achieving that goal. I did not see any detail in this press release on the efficacy of this drug. Possibly more information will be provided soon at the upcoming ESMO conference later this month. Some of my previous discussions about Ariad are:
Ariad Discloses Information from Merck that Nullifies the Importance of Tuesday's News Release About Combo Trial With Herceptin
There is a rule violation associated with Ariad that will need to be cured, possibly today. I own 200 shares which results in a higher exposure than the $300 allocation permitted under LB's Lottery Ticket rules: LOTTERY TICKET PURCHASES: LINKS IN ONE POST
LB has been reminding Headknocker of this particular rule violation by the RB for the entire morning, requesting that Headknocker knock the RB back into Rule Compliance on this holding.
2. Mueller Water Products (MWA) (owned Lottery Ticket): This was a LT added a few months ago at $3.62 Bought 50 MWA as a Lottery Ticket. I noted today that the company had commenced selling 27.5 million in shares. It is understandable that Mueller wants to use the proceeds to pay down borrowings under its credit agreement. Debt coupled with the economic downturn are the major problems for this LT. MWA: Balance Sheet for MUELLER WATER Even after a recent rally in the share price, the P/S ratio is around .37 according to the data at YF: MWA: Key Statistics for MUELLER
3. With a Heavily Indebted Consumer and Government, Will the U.S. Return as the Engine of Growth in the Next Decade?: During this pause and consolidation period in the market, I have been focusing some attention on the big picture again. The last long term secular bull market was led by the U.S. and my current thinking is to tie the major push in U.S. GDP to three events occurring at the same time: (1) the tremendous amount of deficit spending by the federal government that has moved the national debt from 900 billion in 1980, at the start of Reagan's Presidency, to over 12 trillion in a few more months, Debt to the Penny and the upward movement has turned into a spiraling parabolic up move ; (2) a substantial change in the American consumer's willingness to borrow and spend, which made a decisive break with the trends established over decades starting in the mid 1980s; and (3) major technological advances (e.g. computer technology) that contributed to advances in productivity. I mentioned in a comment last night that it was difficult to see the Age of Borrowing in the U.S. continuing as the engine of world growth in the next decade. The U.S. consumer's balance sheet is still leveraged and the government can not continue to spend 1 to 2 trillion dollars per year by borrowing the accumulated savings of more prudent individuals and governments. It is also difficult now to see the major technological breakthroughs that will have the same impact as the changes from the 1980-2000, including the widespread adoption of the internet. But, those changes are hard to anticipate anyway.
Still, I am worried about the next engine for world growth after the current worldwide governmental fiscal and monetary stimulus starts to wind down next year. I do not see the U.S. doing anything much except muddling through for the next five or so years. I suspect that the GDP growth in the U.S. next year will be greater than currently anticipated by economists due to the stimulus, the return of private demand particularly in Asia, inventory restocking, and replacement cycles. This may provide a good opportunity to lighten my stock positions at some point in the later part of 2010.
There may not be much time, maybe another year, when private demand will have to resume in a major way, and it is almost impossible for me to see that happening now in the U.S. with the amount of debt and leverage still in the system. Possibly, in another five years or so, the U.S. can return as a major contributer to world GDP growth. In the meantime, Asia is going to have to carry the ball.
Real wages in the U.S. have been largely stagnant for some time. Adjusted into 1982 dollars, average real hourly wages in the U.S. have risen from $7.88 in 1981 to $8.23 in 2006: Page 4: .harvard.edu/pdf Wages in East Asia, excluding Japan, have increased from about 8% of the U.S. average in 1975 to 39% in 2007. The movement toward a growing middle class in countries like China and India will have to be engine for the next few years: China
This link has a bar chart of India's GDP growth rate since 2006: India GDP Growth Rate And the need for growth would extend to places like Indonesia, countries in Southeastern Asia, and major parts of South America like Brazil, Chile and Argentina.
There was a study released recently that the growth in GDP does not correlate that well with stock market performance. Many of these emerging markets have already had tremendous runs this year. I spent about 30 minutes this morning in locating a few ETFs that focus on Asia-Pacific region, excluding Japan and came up with the following names which I will start to monitor for a nibble or two on weakness:
4. Corporate Bonds Played Out?: Everyone needs to reach their own conclusions on what to do. I noted that David Rosenberg was recommending corporate bonds. I view that segment of my portfolio as played out and consequently I am fully invested already. I am not willing to add much if anything at current prices. I checked the yield of the Vanguard Intermediate-Term Bond ETF, and noted a SEC yield of 4.14% this morning. Vanguard - Vanguard Intermediate-Term Bond ETF Overview That fund attempts to track the Barclays Capital U.S. 5 to 10 Year Government/Credit bond index, or a composite of government and corporate bonds. Vanguard - Investment strategy and policy The average maturity is 7.6 years and the expense ratio is low. Vanguard - Fund Holdings So while that fund may be a tempting holding under different circumstances, I am not going to take the risk for a measly 4% dividend, and there is risk in bond funds. Vanguard's Total Bond ETF fund has a current SEC yield of just 3.64%. Vanguard - Vanguard Total Bond Market ETF Overview It has an average maturity of 6.7 years and a yield to maturity of just 3.8%. Again, this is not for me. Another person will have to buy it. The Ishares ETF for investment grade corporate bonds, LQD, has a SEC yield of around 5% and a yield to maturity of 4.97%, with an average maturity of 12.44 years. iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD): Overview
When I start to think only about buying bank Trust Preferred stocks, which is a disfavored category for me, just to pick up a 8% or so yield with a very long maturity, I know that this category is tapped out for me.
Someone who believes that deflation is the most likely scenario for the foreseeable future could easily reach a difference conclusion than me. In that scenario, a 5% yield from a solid investment grade credit might look enticing. So a lot depends on the individuals personal preferences and predictions. I prefer to have a margin of error built into most of my purchases. For bonds, the credit and interest rate risks are always present. And, I want more yield before I assume those risks.
No comments:
Post a Comment