ARNA

Longtime readers know I have been a fan of Arena for years.

I am absolutely unhappy with the stock price and have been for years. They were screwed over by the DEA for not getting it scheduled for almost a whole year after Belviq's approval. That killed a lot of momentum. The attitude of doctors for "diet and exercise" and avoiding a pill hurts too, but that is slooooowly changing.

Today's price is about $4.55. And although I am still a fan of the company, I don't see blockbuster price moves soon. So I would be comfortable with selling calls against a position at this point - I want to be long the stock but I think July $5s (if you can get $.35 for them) sound about right. Maybe even the Oct $5s, with the idea of buying them back with some probable summer volatility). On the first you get almost 8% return for 3 months, with another 9% if exercised (all minus commission, of course).

2-5% a month, on a "boring" stock. :-)

Arena wins approval

The FDA, as I expected, approve Arena's drug today, following last month's 18-4 Advisory Committee positive vote. The drug will sell under the name Belviq and is for weight loss - the first such drug approved in the last 13 years. The full release can be viewed here: http://finance.yahoo.com/news/arena-pharmaceuticals-eisai-announce-fda-171300471.html Congratulations to any who were long here. I believe the fun is just getting started. Best regards, Trond Hildahl

Arena (ARNA) garners positive Advisory Committee vote

A couple of years after it should have occurred, but ARNA got a 18-4-1(abstain) thumbs up from the FDA's Advisory Committee today. The company's weight-loss drug Lorquess is up for approval. The stock nearly doubled to $6.85 after opening for trading in after hours - it was halted during the Committee meeting and vote. The actual approval decision is not due until June, but expect fireworks over the next couple days. Congratulations to the longs (of which I happen to be a member in my personal accounts) and to the company. Regards, Trond This site is for educational and informational purposes only. Nothing contained here should be construed by anyone as an invitation or solicitation to buy or sell any security. This site does not contain personalized legal, tax, investment, or financial advice. Users of this site should consult with a qualified adviser to obtain advice suited to their personal circumstances.

Port update

Had a little more time this morning (finally) and was able to update the Port with the ARNA sell last week. It's all timing, sometimes... the one point I was able to log on to look at the actual price (something I do for every Port transaction - whatever time I look, that is the price I use at the bid or ask) ARNA was at just about it's lowest point of the day - $1.48. It was up more than 10% within an hour after that!

Today I sold 200 AMAG (getting tired of waiting for Feraheme sales and safety issues to die down) and 2000 AOB (China pharma hit the skids). I turned around and bought 6000 CLSN at $3.09.

Port now looks like:
2000 NBIX
1600 ELN
400 DNDN
6000 CLSN
2500 SGMO
7000 ONTY
3500 VICL
7000 PZG
2000 MNKD

It's worth just under $125K, which means I've reverted to the mean - I have about a 10% annual return in about 2.5 years. Now, the S&P has returned around -5% and the Nasdaq is 2.8% over that same period, so I can't be too sad but it's absolutely NOT where I want to be (neglecting the Port for 3-5 months at a time doesn't help)! I intend to be back to at least a 13-15% return by the end of the year.

Regards,
Trond

ARNA

I sold all the Port's ARNA this morning at $1.48. I am quite anoyed at myself for not correcting the Port immediately; I have meant to actually post this immediately after the Advisory Committee meeting and could have sold it for around $2 if I had not delayed.

Just a quick notification post; I expect the FDA to deliver a Conditional Response Letter later today.

Regards,
Trond

ARNA and VVUS

Well, the day is nearly at hand for Vivus.

No, not the FDA PDUFA date, but the Advisory Committee meeting about its drug Qnexa. The briefing docs (http://www.fda.gov/downloads/AdvisoryCommittees/CommitteesMeetingMaterials/Drugs/EndocrinologicandMetabolicDrugsAdvisoryCommittee/UCM218824.pdf) were released this morning in preparation for the meeting on Thursday. Investors were expecting an easy efficacy review and a searching safety evalaution. They got what they expected and therefore VVUS is up today. Arena is trailing along, up slightly in sympathy.

I do not know much about VVUS. I want to emphasize I've been following ARNA and not VVUS, so the data I know is imcomplete. However, being me, a couple comments are always in order.

I looked at the safety review summary on pages 3-6 and although it most headlines seem to indicate a relatively benign safety review, it looks bad. Suicidal thoughts, birth defect potential, and this (regarding topiramate, one of the two drugs Qnexa is comprised of):

"associated, in a dose-related manner, with an increased incidence of cognitive-associated adverse events including confusion, psychomotor slowing, difficulty with concentration/attention, and difficulty with memory, speech or language problems, particularly word-finding difficulties."

Hmmm, one less plate of pasta, or fumbling for the right word?

It will certainly be black-boxed for pregnant women, and have strong language for those who may become pregnant.

I think ARNA will get approval by itself, but this market seems to favor VVUS right now. I am considering buying puts on VVUS, as the AC meeting is right before options expiration. They carry quite a premium, so I have no specific strike price in mind - just something to think about.

Regards,
Trond

Watchlists

I recommend that everyone who is interested in individual stocks maintain one or more watchlists.

This is simply a list of companies that you are interested in. Most brokerages allow you to maintain a list, or Yahoo Finance! does quite nicely. If you get into the habit of checking in every day, you'll see a few benefits.

For one, you will hear news about your stocks very quickly. Of course, most people don't live and breathe the market, and conventional wisdom has it that one should not do this as it leads to that most evil practice of all - day trading. Ha!
Of course, conventional wisdom also counsels one to place your long term dollars in mutual funds and let the experts do their thing. As you are reading this, gentle reader, I assume you probably had an internal "Ha!" go off yourself.
It's usually not necessary to know news of a stock that is important to you immediately; very few things will be life and death to a corporation. Biotech may be the exception - trial news can kill or revive those very quickly, of course. But being aware of something at least gives you the power of choice. Here's an example: Oncothyreon (ONTY) received the unwelcome news a couple months ago that Stimuvax trials were being halted on safety concerns. It dropped immediately, of course, but kept dropping some more over the next few days. If this news spooked you, you at least had the chance the next day to sell at a higher price than the succeeding days would have allowed you.
Immersing yourself in the news also mean you are more in tune with your choices. You see earnings announcements, insider buys or sells, product information and the like; and hopefully you begin to understand the company somewhat better over time.

The other main benefit of a watchlist is that you begin to have an appreciation for the daily swings in price. I am not endorsing very active trading (although not disparaging it either) - but knowing that a stock you are strongly interested in is at a low point for the year, with no appreciable bad news or other information, may give you the slight extra nudge to become a shareholder. Entry price does matter - even in the long term, buying a stock at $9 instead of $10.50 will mean several extra percentage points of gain, or allow you to buy more shares than you could otherwise have done. And over the course of months, a swing of a couple dollars in price WILL happen.

I desperately need to update my blog watchlist: JAV is being bought out at $2.19 (a nice gain from my rec about 16 months ago at $1-ish), SGMO probably won't see sub $5 again, and Dendreon almost certainly will never be available at my latest upgrade of under $30.

My additions will include MannKind, Oncothyreon, Paramount Gold, Lexicon, and Opexa. I hope to talk of some of these soon in future posts. MannKind, Oncothyreon, and Paramount are probably the most timely buys; Arena and Elan would be next.

On a final note: I sold some small amounts of Dendreon over the last couple days but intend on holding the majority for the absolutely long haul. The guy who sold Microsoft for 3 or 4 times his stake looked really smart in the short term, but I believe this puppy has legs. :-)

Regards,
Trond

Port 24, ONTY, and ARNA

Well, Oncothyreon (ONTY) had a nice little run today, so I sold the August $5 calls in the Portfolio 24. All 3000 shares are now covered; 30 AUG $5 contracts sold for $0.60 per share.

I really should be selling Elan calls here, as they also have gone up quite nicely, recently, but I think it will hold $8 and the $9s do not have enough premium yet.

The Port now stands at $134,743, with $2,538 in cash. That gives me an annualized return of 18.1%.

I bought ARNA in both my IRA and my brokerage accounts today; the low $3s are a very good entry point. Honestly, the brokerage shares will probably be sold on any kind of bump, but the IRA shares are longer term; the FDA date is 10/22/10 and there should be some appreciation as that date gets closer.

Regards,
Trond

Port 24 update and other news

First some news ...

I have not decided exactly how or when, but I am going to switch out my Port24 (fake money, albeit serious thought) holdings for one of my real life IRAs. It is getting to be too much of a headache to actually manage another portfolio that does not immediately affect my new worth.

This is sad for one specific reason: this was the one portfolio where I tried to focus as exclusively on covered calls as possible. I see that as "safe", even with the priority on pre-earnings biotechs. On the plus side, you'll get to see exactly how I think and react on stocks I own and am thinking about. I do not think I will go to the lengths of posting every move before actually trading; it is my real money and sometimes I will want to make the trade ASAP. I will think more about this over a few weeks and let you know. Feedback is ALWAYS welcome.

Dendreon announced another BIG hiring this morning. Varun Nanda has joined the management team as SVP of Global Commercial Operations. Mr. Nanda comes from Roche/Genentech, where he brought Avastin into commercialization.
I do not see a Rest Of World partnership for Dendreon anymore... with Mr. Nanda and Hans Bishop on board they look ready to market Provenge themselves, worldwide. May 1, and probable Provenge approval, is less than a month away!

Port24:

A fair amount of movement this morning!
I sold 1500 ALTH ($$8.36) and 1000 MELA ($7.32), while buying 500 more Dendreon ($39.11), 7000 PZG ($1.44), and 3500 VICL ($3.45). I sold 29 $5 Jul calls against ARNA, and 5 Apr $40s against the DNDN.

Allos had a nice couple days this week, adding almost $1. It is time to take the gains. I *think* they will have great news in Q2, from an ongoing trial, but in biotech, you take some off the table when you get some gains. I had bought these at $6.68 in October 2009, and sold some calls against them, so I definitely had a winner here.

MELA is the opposite, although I sold so many calls that the loss is not as bad. The FDA delayed their application by 180 days recently, and it fell 20%. I may just get back in, later, but I see this as "dead money" for 3 months.

The 500 Dendreon is just a 8 day play for the almost 3% of option premium. I'd LOVE for Dendreon to close on 4/16 under $40 so I can keep the shares, though!

ARNA will have it's FDA PDUFA date on October 22. The July calls net me a little premium (6% for less than 4 months) while I wait. And heck, with the stock at $3.16, if I "lose" them at $5 I will not be crying!

The two new buys are VICL and PZG.
PZG (Paramount Mining) is a black sheep here, being neither a biotech, nor optionable. A gold exploration company, it is strictly a 2-5 month buy for straight-up capital appreciation. I will talk about this one more later, suffice it to say I have some in my real money IRA as well.
VICL (Vical) has a great pipeline and should have some news in the summer/fall that will allow me to sell some $5 or even $7.50 calls later in the year for some juicy premiums.

That makes the Port now worth $130,206, or a 30% return. Annualized, it is only 15.9%, well shy of my target. On the plus side, the S&P and Nasdaq indices have annualized returns over the same period of -6.75% and 9.5% respectively, so I am beating them. In a month and a week, the Port turns 2!

Regards,
Trond

Port Update

Sold the 4000 GNVC, as planned yesterday, and at $2.88. It is higher today, and it killed me to do it, but I really do want stocks that can have calls sold against them, in the Port. I mostly want to make money here, so if I see something enticing enough, I will buy non-optionable stocks, but the ground rules are there for a reason!

I looked at the other holdings of the Port this morning and nothing appeals to me in terms of selling calls. I have a bunch of cash, and Oncothyreon (ONTY) happens to be a watchlist stock that had bad news this morning. I bought 3,000 shares at $3.41 (and 1k in my real-world IRA at $3.45, earlier) - I'll let the share price shake out a little and then sell calls against them.

So now the Port is comprised of

2000 AOB
2000 NBIX
1600 ELN
400 DNDN
4900 ARNA
2500 SGMO
1000 MELA
200 AMAG
1500 ALTH
3000 ONTY
with $21,585 of cash.

I'm at a 30.8% return in nearly two years, a 16.6% annualized rate. The S&P 500 over that time has returned -7.3% and the Nasdaq has returned 9.3%.

Regards,
Trond

Port 24 and assorted biotech news

Port 24 update:
The only January options I had sold were 10 MELA $10 calls, and they were exercised, with the stock at $11.05 last Friday.

With that cash, I bought 300 more Dendreon shares today, and sold 3 Feb $32 calls against them for $0.89 per share.
I am living by my resolution to be a little more active in the Port! I also sold the following calls today:
16 ELN March $9s for $0.30
15 SGMO Feb $7.50s for $0.25
10 MELA Feb $12.50s for $0.20
2 AMAG Feb $55s for $0.50

I almost sold calls against ALTH - but I feel there is a little more room beneath the stock before selling calls. AOB needs to climb closer to $5 to make it worth selling calls, and NBIX at $2.50 is not satisfactory to sell the $2.50s, and the $5s are not worth anything yet.

The Port 24 thus has the following stocks (covered calls in parentheses)
1500 ALTH
200 AMAG (2)
2000 AOB
4900 ARNA (24)
700 DNDN (3)
1600 ELN (16)
1000 MELA (10)
2000 NBIX
2000 PGNX (20)
1000 RMTI (10)
2500 SGMO (15)
.. with cash of $2,680. This gives me a port value of about $132,500 and a 19.3% annualized return. I'm getting closer to my 24% return, again!

Stocks:
Genvec released a PR that they have licensed their hearing loss pre-clinical work to Novartis, for $5M plus milestones and royalties. They also hit the 184 death interim trigger in the PACT trial on Friday, and will have data in 10 to 12 weeks. I'm nearly as excited about Genvec as I was about Dendreon, but caution that the risk/reward is much slighter here at $2 than at $0.76 when I first mentioned it here a few months ago. I was still buying in my real-world IRA at $1.70, but am probably done for now.

Dendreon had an interview published in the Xconomy online magazine with the new COO Hans Bishop. It is a MUST READ, here: http://www.xconomy.com/seattle/2010/01/19/dendreons-new-operations-man-hans-bishop-aims-to-keep-provenge-trains-running-on-time/

Sangamo had good results (albeit from one patient, in a Phase I trial) here: http://finance.yahoo.com/news/Sangamo-BioSciences-Announces-prnews-1693198508.html?x=0&.v=1

Regards,
Trond

Happy New Year

Thanks to all who read this - I have not been good about keeping up posting, or even the Port 24. I shall strive to do better in the new year, as I want to bring my returns back up to the 24% level.

I am closing out the year with a few calls being sold in the Port. 24 Arena Feb $4s, 10 Electro-Optical Jan $10s, and 20 Progenics Feb $5s ... all with a monthly return of about 4%.
I will be ending 2009 with an annualized rate of return of about 13% - good, but far short of my target. I do take comfort in the fact that I ignored the Port for long stretches of time and would have made a few more percentage points on the calls I neglected to sell.

My worst move this year was to not sell ARNA on the spikes. That cost me around $20,000. Of course I would not have sold at exactly the high point, but I really should have lightened up. On the plus side, I did exactly that with BioCryst - buying low, selling high, and selling a lot of calls in the interim. Dendreon was the clear winner this year - going from around $5 to the current $26.

Next year should see Dendreon achieve FDA approval for Provenge, Electro-Optical gain approval for MelaFund, partnerships for Arena and Neurocrine, and significant appreciation for Elan, Amag, and Allos. I find myself hoping that GenVec starts trading options as I would love to have some GNVC in the Port.

May everyone have a fun and safe New Year!

Regards,
Trond

Port 24 update

Options expiration was yesterday and I was only exercised on 600 Dendreon shares. Elan, Sangamo, American Oriental, Arena, and Electro-Optical calls all expired with the premium as 100% profit.

Dendreon was a little disappointing, as I hate to see any shares of this company go, even in a ficticious portfolio. I had sold the $35s at $0.84, and then bought them back at a profit ($0.20), and then sold the $28s. It closed at $29.51 and so they were called away from me; I now have only 400 shares left (just under 10% of the Port).

I have to say I am a little surprised at Dendreon's strength. The addition of two new Board members (one, Ian Clark, the upcoming CEO of Genentech North America) certainly fueled speculation about the Rest-Of-World partner for Provenge being Genentech.

For me, the only real news of interest coming up is the amended BLA scheduled for mid-November. And the aBLA itself really is not newsworthy as they announced it a month ago. But - the sensitivity analysis should be included and hopefully made public. This sensitivity analysis is important to me because it will show the continued strength of Provenge over time. In April, the final results of the IMPACT trial showed a statistically significant reduction of risk of death of 22.5% over the placebo group. This 8+ month (results were released in April but the results were based off data cut off in January) should show an improving hazard ratio over and above the 22.5% aleready seen. I would like to see 26%+.

Elan will be having their quarterly earnings call on 10/21, but will be upstaged slightly on the 20th when Biogen releases Tysabri numbers for Q3. I expect to see continuing, although not blowout, growth in the patient count. However, I also expect Elan to announce they will swing to profitability in either Q4 or Q1 2010. We should see real growth in revenue from the EDT branch, and unfortunately we probably will not hear any real news of the Alzheimers platform on this call.

In my real money IRA, I have been buying GenVec (GNVC) and MannKind (MKND) for the first time and more Elan (ELN) and Sangamo (SGMO). I am very excited for GNVC but the move started earlier than I thought it would: I started buying at $0.76 per share and it already touched $1 this last week.

I'll be adding a couple watchlist stocks, mentioning now only that Allos (ALTH), AMAG Pharma (AMAG), and MannKind (MKND) should deliver 50-100% returns in the next 12-24 months.

Regards,
Trond

Various stocks and two Port24 trades

One of the nice things about selling covered calls is that when a stock goes down, you can buy back the calls you sold, at a profit.

That is exactly what I did today for the Port; I had sold 6 Oct $35 DNDN contracts for $84 each and bought them back today for $20 each -- $350 profit after commissions.
Then I turned around and sold 6 Oct $28s for $100 each.

Do not get me wrong, Dendreon is still a stock I want to own. But I do not believe it will be above $28 in the middle of October. They announced yesterday that the amended BLA will not be filed until the middle of November, and so I just don't see any real gains through then. If we see a spike downwards, I very well may simply buy these back too...

I also bought (for the Port) 2000 AOB at $4.83 and sold the Oct $5s for $20 each. [disclosure: I also did this today in my real IRA with 1000 shares...]

I did well in selling ALTH - they did get approval, as I thought, but revenue and profits are going to be a few months away and so the market did not treat Allos very well today. As a 6 month stock, I think buying today would be a good thing, but it is not quite right for the Port today.

ARNA is also a screaming buy today. Note it could well drop some more in the next week but at $4.60 a share there is too much upside to ignore it. I have a sizeable stake in the Port already, so will not be buying, but it could make readers very happy one month (Obesity conference at the end of October) and one year (FDA approval) out.

Regards,
Trond

More Port24 calls...

Busy day at lunch.

I sold the remaining 800 ALTH shares at $8.50. The decision date is tomorrow and while I believe they will get approved, the Port wants a steady 2% a month return, not the uncertainty of FDA politics. This is up from the $7.99 purchase price (as well as the premiums on the September calls) so I am ahead of the game.

I also bought 1000 more MELA. The FDA date is 12/7, so the Oct and Nov calls are going to be free money while we wait.

I sold the following calls:
DNDN - 6 Oct $35s for $0.84 (2.8% return)
ELN - 10 Oct $8s for $0.15 (2%)
MELA - 10 Nov $10s for $1.20 (12%, or 6% monthly)
ARNA - 29 Oct $5s for $0.40 (7.5%)
SGMO - 15 Oct $10s for $0.25 (2.8%)

I think the MELA and ARNA calls are the best play of all right now. The stocks may go down slightly but you keep the premium and the stock should recover before the expiration. And of course, if the stock stays where it's at, the premium is pure profit. 6 and 7% a month is nothing to sneeze at!

The Port is now at $138,700 -- a 28.4% annualized return. I have $12,653 in cash and the following positions:

Stock (calls written)
2000 NBIX
1600 ELN (10)
1000 DNDN (6)
2500 SGMO (15)
400 BCRX
4900 ARNA (29)
200 AMAG
2000 MELA (10)

Regards,
Trond

ARNA and the Port24

ARNA had an exciting day. The BLOSSOM results were not quite as good as I hoped - but they will still file an NDA by the end of the year, and should get lorcaserin approval for weight loss.
I expect the shares will be volatile in the next couple months, but should creep upwards to ~$6 or $7 by this time next month.

The Port 24, after options expiration today, is on track.
I was exercised out of the ALTH $7.50 calls, but still have 800 shares that I had sold covered calls against at $10. The $7.50s were very good to me, as I bought the shares at $7.99 and sold the $7.5 strike for $1.65. That is a nice, 14% one month return!
ARNA $6 calls and MELA $10 calls expired, so I was able to keep the full premium (each at around 4%).

The Port is now worth $136,232.09, at a annualized return of 26.8%.

2000 NBIX
1600 ELN
1000 DNDN
2500 SGMO
400 BCRX
1000 MELA
4900 ARNA
200 AMAG
800 ALTH
Cash = $12,550

Port24 update

Well, I had my AOB and MELA called away from me last Friday in the Port. I am sad at losing MELA as I expect it to gain quite a bit over the next couple months - it started Wednesday with a couple dollar spike. I ended up buying some back and selling the $10 strikes. Again, too early, as it is up over $10 today.

On Wednesday I sold 29 ARNA $6 Sept calls at $0.20. They have announced that the BLOSSOM trial results will come out in late September and I halfway expect these will be called away. If it is still under $6 in mid-Sept I will not be crying as I expect at least a 50% stock move on the results soon thereafter.

Yesterday I bought my MELA back at $9.50 and sold the Sept $10s for $0.45. The FDA will rule on MelaFind by December so these should be good for trading until the November series.

Finally, I also bought 1600 ALTH at $7.99... selling 8 Sept $7.50 calls and the other 8 Sept $10 calls. Allos has an advisory committee meeting on Sept 2 so the price should either be above $10 or back in the $6s.

So the Port now has the following holdings: (# calls sold against holding)
2000 NBIX
1600 ELN
1000 DNDN
2500 SGMO
400 BCRX
1000 MELA (10)
4900 ARNA (29)
200 AMAG
1600 ALTH (16)
Cash = $6,567...
... for a total worth of about $125,000. This is a 19.46 annualized return... still below my target of 24% but well above the market returns over a similar period (S&P and NASDAQ).
Note that I actually do not think either the S&P nor the NASDAQ is a correct index to compare the Port against, as I think of this as an absolute return fund. If I am not positive, I don't care if I beat the market by 100%.

Current favorites:
Look for ALTH to return ~30-50% in the next week.
ARNA is one of the best September covered call plays ever at the $5 strike. 10%+ return for less than a month with a large margin of safety.

Regards,
Trond

New buys in the Port 24

Bought 2000 MELA at $7.26, sold 20 AUG $7.50s for $0.70.
Bought 2900 ARNA at $4.70, sold 29 AUG $6 for $0.40.

Cash = $1,208.86 and positions are:

1600 AOB (16) (=calls written against)
2000 NBIX ()
1600 ELN ()
1000 DNDN ()
2500 SGMO ()
400 BCRX ()
2000 MELA (20)
6000 JAV ()
4900 ARNA (29)

ARNA, by the way, may be the safest 3 month play ever.

Regards,
Trond

Port 24 update

Well, it has been exactly one year since I started the Portfolio 24.

It is a model portfolio starting with $100,000.00. I had expectations of making 2% a month, utilizing a covered call strategy. For the year, I fell well short of that, with the Port being worth $89,560 with today's prices. That is an actual 10.5% loss, or 34.5% below my desired return.

While I could use the overall miserable performace of the market (for example, the Nasdaq was down 32 percent and the S&P500 was negative 35% for that one-year period) as an excuse, I prefer to view this as an absolute return portfolio, not a relative. In other words, I do not want to simply beat the market returns, I want to ALSO always make money.

Three things hampered me.

1) Elan absolutely killed me; I bought 800 shares right before the disastrous duo of the ICAD presentation/PML cases. That is a $21,000 mistake at this moment, which would put me at a 10% gain on the year if I had not done that one purchase.

2) I neglected the Portfolio all fall and through the spring. I would have made "some" option premium if I'd been paying attention and selling some out-of-the-money calls. In no way would I have clawed back to even, but I probably left a minimum of $4,000 on the table.

3) I went away from the original strategy somewhat by stocking up on Elan and Dendreon. It worked quite well in Dendreon's case and not so well in Elan's. And it wasn't even the fact I was adding those two names in bulk; I refused to sell calls against them because I didn't want to be called away from perceived large gains.

I bought 1400 shares of BioCryst Pharma today at $2.47, and sold 10 June $2.50 calls for $0.50 -- a nice 20% premium for one month! I also sold 20 $22.50 May calls against Dendreon -- they expire tomorrow and with the stock at $20.90 I think it free money. Granted, the contracts were only $8 each but it came to $130 after commissions.

So right now, the Port stands at $89,566, with the following holdings:

3000 ARQL, 2000 NBIX, 1600 ELN, 2000 DNDN, 2000 ARNA, 2500 SGMO, and 1400 BCRX; $614 in cash. I have 20 Dendreon May calls sold and 10 BioCryst June calls sold. Next week after options expiration I will be more active!

Regards,
Trond

Doom and Gloom

This is a bunch of doom and gloom.

I am usually pretty optimistic, but I have to call it the way I see it. (I am indebted to a number of posters on the InvestorVillage website for their views, which are reflected below and I have bought into) There are certain things occurring in the market, economy, and world that I propose are not being taken seriously enough by the pundits and commentators that most people seem to listen to.

In some ways, this is not their fault.

• From a psychological point of view, “the only thing we have to fear, is fear itself”. If a continuing litany of bad news is the only thing that we are fed, then of course we’ll see a self-fulfilling prophecy.
• Too, as I have mentioned previously, some of the media seems to be “captured” (inasmuch as they are spoon-fed articles of interest from major wire services or hedge funds who have agendas).
• Finally, they WANT to believe we are on the road to recovery. They see their own 401(k) balances headed south, and believe the mantra of cyclical bull and bear markets. After all, we’re in the 16th month of a recession and the average only lasts 11 (since WWII) months.

So why do I hang my head and join the bear crowd? (First, let me state that I do not believe in the Armageddon that some folks say is coming. There are always people who say one should buy canned goods, seed crop, and guns. We will get through this! But it will be months and possibly years longer than most people think)

The market is still overvalued. Everything occurs in cycles – we just finished with a massive bubble and need to see much more downside before we come close to an average. Based on earnings or dividend yield, you can make the argument that we will still see the indices go about 20% lower. Good times tend to be better than expected and downsides tend to be worse than expected.

Specifically within the markets, banks are nowhere near to finished in terms of writing off their bad loans. I have heard they've only written off half of the toxic junk still on their books. And this is the famous slippery slope – when more bad news about the banks and loans appear, downgrades will drive them even lower.

Consumer confidence is shot, and yet investors are not yet at the point of “capitulation” that truly marks the bottom of a market. Every article I read and every market-oriented conversation I have is centered around the question, “When are we going to hit the bottom so I can invest the cash I have ready?”
I have news for you – until we are at the point where the masses are truly ready to swear off stocks entirely, we have not hit bottom. Your grandparents, who lived through the Great Depression and only wanted CDs and savings accounts: that is the kind of capitulation I am talking about.

With stock markets in the tank – guess what the next big emergency is going to be? Pension Funds. They have been trundling along, using rosy projections about 10%+ returns, allowing them to underfund their liabilities. Now the piper is awfully close and we have nothing to pay him with. The Chicago Transit Authotity recently had to float $2 BILLION in bonds to cover their pension payouts, and now are underwater not only on the pension payments, but on the debt service as well. California had budget problems this last winter and when state and local public employees realize their pensions are at risk too, we will see some very angry public servants. We'll also see some very angry taxpayers when they are asked to make up these deficits!

We simply have too much debt still on the books – not only as a country but as individuals. The home is not the ATM it has been in the last few years, credit card companies are tightening requirements, raising rates, and lowering limits as we speak. The Fed recently said it will buy $300B of treasury bonds to get some more liquidity in the market: for one thing this will have to be an off-the-books move, as my last post shows – they only have equity of about $44B. The second impact this has is that again the piper will have to be paid at some point – drastic inflation and higher taxes will invariably follow.

Speaking of homes, not only will they not be useful as a method to pull equity from, but it looks like home prices will continue to fall. The historical average of home price to annual salary is 3:1 – we are still at about a 4:1 ratio now. That means home prices will have to fall by another 25% to get back to the historical average. And recall my point about cycles – to get back to an average, we need to go below the average to allow reversion to the mean. Does that mean home prices will fall another 50%?

Unemployment is perhaps the scariest of all the scenarios to talk about. The latest numbers show a rate of 8.1%. Unfortunately, the commonly used measure of unemployment is the U3 rate – which leaves out folks who are either underemployed or have ceded to despair and stopped looking for work. The “real” rate (known as the U6) now stands at 18%. Nearly one out of five people who want to work are unable to.
Here's a very strange and possible additional outcome: governments will decide to reduce prisoner counts to lessen their costs. Inmates are NOT counted in any measure of the unemployment rates. When released, they will start looking for work and thus will INCREASE the unemployment rates. It's estimated that 0.7% of our population is incarcerated – if 10% of those (the non-violent, victimless, and marijuana-related prisoners) are released we may see an extra 1% rise in the unemployment rate!

Chickens will be coming home to roost. The United States has affected the global economy already – commodity prices have dropped, credit markets worldwide have tightened, and worldwide stock markets have dropped. In turn, we will soon be affected by the world. China has been a large buyer of our treasury bonds; do you think they are going to be pleased about the extra $300B just floated? With all the decifit spending Obama is proposing, we are coming to the point where I fear for the world's faith in our currency. And Obama is just too damn honest about things – at some point he will be forced to admit that his ambitious plans (healthcare, energy, education, as well as the stimulus bill AND all the bailouts given under Bush's and now his administration – oh, and wait until he announces that he is all set to fix Medicare and Social Security!) will require additional taxes. Hmmm... do you feel like going back to the consumerist mentality with THAT hanging over your head?

One last note about the rest of the world – foreign banks are about to hear a certain horizontally-challenged lady singing. Western European banks have lent extraordinary sums (*our* banks aren't the only ones who can over-leverage themselves, you know) to Eastern European countries. Austria's national bank, for example, has lent 70% of its GDP to eastern-bloc countries. They may be bankrupt within a year.

Oil traditionally spikes during the summertime. Can you imagine the pain we are going to experience with the 1.3 million additional unemployed folks this coming summer and a return to $4+ gasoline? Food prices will again climb, as it costs more to transport all the raw and finished materials. People buying less of everything except foods and necessities mean that more retailers go out of business. So what follows that? Commercial real estate will start slipping away too. If you see $4 gas, start thinking about selling your commercial REITs that pay such a lovely dividend.

Bernie Madoff not only set a new record for thievery on a global scale, but may have ruined an entire generation of charitable trusts. Several well known and well endowed charities literally had ALL assets placed with dear ol' Bernie and are now defunct. Everything from soup kitchens to rehabilitation clinics have disppeared, overnight. That adds to not only the general misery of the least fortunate, but may increase the crime rate.

It is not a pretty picture. (Even with the foregoing, I personally think we will work our way through this within three to four years) But in this next few years, I urge you to proceed open-eyed. If two years ago (and I was in this camp myself) you did not think it possible to have the world in the situation we find ourselves in now, what are the chances that you are going to be right about what happens in the next two or three years?

• Take steps to protect the cash you have on hand now.
• Dollar-cost average your way into stock indices (if you have dispoable income AFTER assuring yourself an emergency fund).
• Possibly buy some oil ETFs over the next month to time the coming gasoline price spikes in summer.
• We most likely will have a “bear-market rally” in the next two to three months. I do not believe it will have legs.
• Personally I will take the opportunity to sell some of my individual stocks if they do bounce, and hold on to more cash than I am used to (30 - 40% or so).
• I never would have thought it, but I would even be tempted to buy into a gold ETF if gold drops below $800 per oz.
• Longer term? Short ETFs and SPY/QQQQ/DIA puts, IF they get a bounce by summertime. I do not think the market as a whole will recover for at least one more full year – late summer of 2009 is my prediction.

On an individual basis, I still like Dendreon for the next few months. We'll know in less than 40 days now about Provenge! I like the odds – if the final results are statistically significant, we will see an enormous jump – from $4 today to probably around $20. If not, there is still almost NO chance that the results will be worse than the interim 20% reduction in risk of death over placebo we saw at interim, and the company has signaled they will still refile their BLA with the trial as supportative.

Elan may not move for 4 to 6 months. Tysabri is not increasing with the vigor that I assumed, there will be no Alzheimers news for months, and the market is eying their debt nervously. I actually think it will fall a bit from here, and then recover in the fall. If it goes below $3 I'll be buying hand over fist.

Arena may be the quickest short term play. Results for their obesity drug are due at the end of March – I see the price as very volatile next week and from the present-day $4 I think we'll see $5+ -- a one week 20%+ move would be quite welcome right now!

Discovery Labs is a gamble but also should have some very short term volatility – buys anywhere near $1.10 and sells anywhere around $1.50 until mid-April.

Neurocrine Biosciences is just teasing now. Are they ever going to partner? I will sell when we get a partnership agreement and wait for it to settle with the rest of the market before buying back in.

Finally, Sangamo is very attractive now and perhaps the longest wait of all. I honestly think they'll be bought out within two years, probably at a very nice premium.

Regards,
Trond