Bailout II and certain responses...

Ming asked in comments about the bailout, inflation, and about my proposed mortgage bailout.

I still think the bailout as originally posed was a bad idea. I have not had a chance to read the whole 110-odd pages of it, but there was not enough oversight -- it seemed to give SecTreas almost omnipotent powers and nothing to actually help the people who are in danger of foreclosure.
Do not get me wrong, I think we need something. The short form is (and thanks to a poster on the IV Dendreon message board for putting it so simply):
Widget-maker Mr. Factory needs a loan to add to his production capability. Bank X cannot make the loan because of bad mortgages forcing them writedowns due to the mark-to-market (mtm) rule. Bank Y cannot lend the money to Bank X, even though THEY have the capability due to better loan vetting. Bank Y can't do this because Bank X is high risk paper because of the disclosures forced from mtm. Thus, Mr. Factory cannot expand, and add jobs.
In a nutshell, stagnant production, even in the face of higher demand, and a credit freeze.
WAY OVERSIMPLIFIED. But hopefully you get the picture.

So -- yes, taxpayers get a raw deal, but I think we need an economic show of force -- the economy runs on faith (as does our currency) and the credit freeze has to end. The question is how to do this in a fashion that still gives the taxpayer a chance to not see the money invested as a total loss, and to get the economy stronger.

The inflation question ties right into this. A stronger dollar (gee, maybe even tying the dollar to something real again) would ease commodity price increases. Ending stock shorting and stringent controls on commodity trades would ease prices more, and get people feeling better about the stock market and their retirement accounts. Heating oil season is almost upon us, and while I have no answer specifically of how to moderate that -- I'm sure some bright minds can fnd a way to prevent that from being the next shock on the public.
I personally am a fan of nuclear energy. We need to improve the infrastructure of our energy grid -- we lose too much energy simply creating and transferring it. Solar power may not be feasible everywhere but here in southern California it is criminal NOT to have whatever tax breaks necessary to get people developing and using it.

Overall, I agree with Ming's comments on my mortage plan. My plan as proposed would need EXTENSIVE overhauls -- it was (*blush*) a little bit off the top of my head.
However, some tweaks might get it back in shape. The largest and most deserved criticism is that it rewards people who took equity $ out and raised their mortgage. So we need some sort of limitation on what amount over their original mortgage can be refinanced. Perhaps the higher of what they originally bought it for OR the current appraisal. Remember, the whole point of MY bailout is not to reward the companies who packaged and underwrote the CDOs, but to simply allow real homeowners a way to keep their home and avoid foreclosure. The amount over what is refinanced up to wht is owed would be eaten by the taxpayer -- but with some of those bad loans off the books, the credit freeze would thaw more quickly. It is not perfect, but no bailout CAN be perfect. I do see much pain ahead if there is not an answer to some of these issues soon.

On a totally different topic, Elan announced their earnings call will be in late October. We will get to see how the two PML cases afftected Tysabri sales and uptake. My conjecture, from hearing from several practicing neurologists, is that there was VERY LITTLE drop-outs and we will actually still see a new gain of patients. My present-value discounted share price of Elan, just from Tysabri sales projected through 2011, indicate a price of somewhere around $18 to $20 today. Seeing as we are at $10ish, I think it is a screaming buy.
Sometime in October we will also find out if Dendreon's Provenge passed the interim look successfully or not. As a reminder, the interim peek must meet an extremely high statistical significance barrier. This is a good thing -- you don't want companies able to halt trials and start marketing drugs until thoroughly vetted. But with Provenge, we already have two completed Phase III trials, one with startlingly significant results. Analysts seem to be pretty much disregarding any chance of an interim success -- but I think there are better than 60% odds of a successful interim. I say this because the company got the FDA to agree to amend the SPA for the trial, increasing the interim death events and lowering the final number. They admitted this lowered the power of the final, if it is needed. I don't think they would have pushed for something that lowered (even slightly) the chances of the final unless it truly has a decent chance at the interim.
Vexingly, that means there is a 40% chance of a failure at the interim and we may see sub $3 if that happens. I good tactic might be to buy the shares at $5.70 and sell the $10 or $15 May 2009 calls. You will make 20% or so for 8-9 months on the calls and by mid next year the stock should recover should the interim fail. If successful, you get the premium and get called away next May at the $10 or $15 mark -- doubling or tripling your money. A 2 or 3 bagger at best and hardly any downside risk at worst.
The other good news? Dendreon announced at a presentation that they intend to file an Investigational New Drug (IND) application for their TRP-P8 small-molecule by year end. It is intended to treat prostate, breast, ovarian cancers and melanoma. Totally different method of action from their active cellular immunotherapies such as Provenge, so they are not a "one-trick pony" anymore.

Regards,
Trond