 | | The Daily Reckoning | Wednesday, May 23, 2012 |
- Facebook’s flaccid debut: A harbinger of things to come?
- Exciting new pathways toward vanquishing the cancer foe,
- Plus, Bill Bonner on Zuckerberg’s billions and plenty more...
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|  | | | | The Delusion of Regulating Risk | | |  | | Bill Bonner | Reckoning today from Baltimore, Maryland...
At first, when I listened to the accounts of old-time deals and devices I used to think that people were more gullible in the 1860s and ’70s than in the 1900s. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings.
— Reminiscences of a Stock Operator, circa 1923 | Poor Zuckerberg. He’s got all those Facebook shares. And they’re dropping in price. The stock closed a bit over $31yesterday...and then kept sinking... It was down to $30 in afterhours trading.
What did you expect? The company has sales of $4 billion. IF...IF...it were able to claw out a 10% profit margin...and IF a fair multiple for its earnings were, say, 10...the company would be worth $4 billion. Not $100 billion. Four billion dollars. And instead of having shares valued at $15 billion, Mr. Zuckerberg would have shares worth about $800 million.
The Dow itself was flat yesterday. Not a very good showing after so many down days. We’ll keep our ‘Crash Alert’ flag up. The bottom could drop out at any time.
The Facebook IPO looks more and more like the end of an era. The end of the pie-in-the-sky social network era. The end of the post-crisis recovery rally. The end of the public’s residual confidence in Wall Street. The end of America’s youthful energy...its era of growth, innocence and hope for the future.
Now, growth rates are low; they’ve been falling for the last 30 years. The baby boomers are neither booming nor babies. Stocks are passé...people want bonds now. And 63% of voters think their children will be worse off than they are.
At least Zuckerberg has it made. He’s got about 500 million shares and options. But every two dollars they fall costs him about $1 billion. So, he’s lost $5 billion since the company went public on Friday.
Still, we’re not going to feel sorry for him. He’s still got $15 billion or so.
Not that we care how much money he’s got. He could have twice as much; he’d still be a putz. We saw the movie!
More below, after today’s column...
| | | | | Ray Blanco’s Technology Profits Confidential Presents... |
New breakthrough fuel could power your car
It took the earth 300 million years to make the oil we burn.
Imagine if we could squeeze that whole process into just a few months... a few weeks... or even a few days. Because that’s exactly what could be happening.
At least a half-dozen labs and companies are working on this, right now.
If they get it right, we could literally “make” as much gas for your car as you need. We could make fuel for planes, trains, and diesel trucks this way too.
Find out more by clicking here.
| | |
| | The Daily Reckoning Presents | | Superior Biotechnology Leads to Superior Drugs | | |  | | Ray Blanco | We sometimes hear about diminishing returns in cancer research and development in the big pharmaceutical companies. They tell us, traditional drug discovery techniques have picked most of the low- hanging fruit in the field. Cancer cells are tricky devils, able to quickly mutate resistance to our best available therapies.
Revolutions in our understanding of the genome and proteome, however, are opening up new pathways toward vanquishing the cancer foe...
These technologies are maturing and are finally starting to put a dent in the problem. It can take a decade or more to get from the academic lab to the oncologist’s office, but we are beginning to see a harvest in the form of new therapies.
One of the things I love to see in pre-commercial biotech companies is a drug discovery engine that gives it a competitive advantage. An advantage when it comes to discovering and designing next-generation therapies.
Although the main headlines in drug discovery are lately grabbed by breakthroughs in computer modeling or bioinformatics, all successful drug candidates must also be screened in vivo. That is to say, in living organisms.
A superior computer-based discovery process is a huge advantage when it comes to screening millions of potential compounds. Nevertheless, before moving on to human clinical testing, potential suitability must first be verified in animals.
There are the obvious ethical considerations regarding human testing that the FDA helps enforce. However, the prohibitively high cost of testing in humans also demands that a candidate compound be thoroughly vetted before initiating an expensive clinical trial. Researchers must “check their work” as rigorously as possible before assuming these risks.
Here, the older technology has limitations.
Traditional cancer discovery techniques use implanted tumors in animal models to test potential compounds. However, these tumor cell implants, called xenografts, aren’t adapted to an in vivo setting. They are typically grown in a culture and are therefore adapted to that environment.
In this respect, they aren’t truly representative of a real-life tumor, which develops from a mutated cell in a living organism. This causes cancer researchers to drill a great many “dry wells” in their search for a winning formula — since existing in vivo technology turns up a lot of false positives.
One platform is designed to improve on the limitations of the existing technology. It is built upon the revolution in genomics that has enabled researchers to map genetic mutations unique to cancer cells in order to target them.
In addition, advances in genetic engineering now allow researchers to develop custom cell lines that express the same molecular targets as the cancers they want to treat.
It uses mouse stem cells into which cancer-causing gene mutations are inserted. These stem cells are then injected into mouse embryos alongside healthy cells. The chimeric embryos are then implanted into mice, creating a line of custom-made animal models that develop cancers expressing the same cancer targets researchers want to hit.
Unlike tumor xenografts, these tumors are more similar to those that occur in real life, since they form spontaneously in the body. Normal tumor interactions with surrounding tissues are preserved.
Not only that, they also express a genetic variation that is more like what exists in tumors that form naturally in humans.
Since the genetic variation more accurately models what goes on in the real world, it helps identify why some tumors of a specific cancer type respond to a therapy while others do not...
This is important, since resistance to therapy can vary widely from patient to patient, even if the cancer is of the same type.
Companies working towards new ways of discovering drug compounds will maintain the competitive edge in their field. Dilution is the usual downside of investing in pre-commercial biotech companies. Not yet profitable, they need to raise capital to continue funding operations.
However, before you put your money into a small, pre-commercial biotechnology company, you want to make sure they have something no one else is offering.
Regards,
Ray Blanco,
for The Daily Reckoning
Joel’s Note: This is how technology advances...it muddles along for a while, seemingly getting nowhere, but all the time building up knowledge and research for the next quantum leap forward. And that’s what Ray and his colleague, Patrick Cox, focus on...being in the right place when that “disruptive” change occurs. Check out their Technology Profits Confidential newsletter right here to be sure the next big thing doesn’t leave you behind.
| | | | | And now back to Bill with more thoughts... | | | | | Bill Bonner | Seriously, Americans care far too much about money. That’s what people who don’t have it say. They say that too much money is a sign of greed. And that people with too much money can’t relate to everyone else. We lose our sense of community...our public space. People with money live separately from the rest of us. They buy elections and use too much energy...and leave small tips. They’ve got too much power, too much influence, and too much of the pie.
Paul Krugman, Thomas Friedman and Barack Obama want to solve this problem by taking money away from the people who have it. And making it harder for them to earn more.
The guys at J.P. Morgan lost a few billion. You’d think the anti- money crowd would be happy about that. Instead, they want to make a federal case out of it. Practically every pundit is calling for more regulation. “If even good bankers can lose so much,” they say, “we’ve got to get control of them!”
The whole idea that they can regulate risk out of the system is loony. It doesn’t work that way. The more they regulate, the more they distort the market, and the more mistakes investors make.
Investors are buying US treasury bonds, for example, by the boatload. Why? Because the regulators at the Fed have taken the risk out of buying bonds. If interest rates rise, the Fed will buy bonds itself.
Dear Readers and connoisseurs of regulatory FUBARity will appreciate the flexibility of America’s central bank. Its aim is to drive investors into risky assets...by suppressing yields on “safe” treasuries. The unintended consequence is to create depression-like yields...and capital gains for bond buyers. Investors flee stocks...and go into the Treasury bonds the Fed was trying to get them out of. Thus does the Fed manage to bend its right leg far enough to kick its own derriere.
People who don’t like the rich should spend a little time thinking about how the rich got that way. Were they smarter than others? Greedier? Or just luckier?
In our humble observation, we’d say they were a little of all those things. But most of the big increase in wealth the rich enjoyed has come thanks to those same regulators whom the feds want to sic on them.
Yes, dear reader, the rich got richer because of the fixers...not because of the rich themselves. In 1971, Richard Nixon changed America’s money. The old money — backed by gold — flowed to the hardworking producers. It was saved, invested, and put to work. This new money had different ideas. It ran around in different circles. It preferred a different class of friends — bankers, money managers, investors, speculators, venture capitalists, derivative mongers, private equity operators...
You can see this shift illustrated in the difference between Mitt Romney and his father. The ol’ man ran an auto company. He made cars. That’s where the money was back then. He made the Rambler. Remember that? We had one. It was cheap. It was ugly. It ran. What more could you ask for?
But the son never made anything...but money itself. He didn’t run productive companies. Instead, at Bain Capital he was a leading member of the new class of people who fiddled with them.
By 2007, this class had gotten far too big for its britches. The whole capital structure began to wobble. Left alone, it would have crashed to the ground...bringing rich people down to earth with it.
Left to its own devices — without the generous support of the feds — the Dow might have fallen to 6,000 in 2008...and kept falling. And it probably would have brought down J.P. Morgan...and Goldman Sachs...the Bank of America and most of the rest of Wall Street. Even GM, which by then had become a finance company, would have gone out of business.
And today...there wouldn’t be nearly as many rich people to complain about. Problem solved.
Instead, the fixers fixed it so the fixees stayed fixed.
Regards,
Bill Bonner,
for The Daily Reckoning
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