Borealis Gets a Dividend June 8, 2007March 6, 2017 You will recall that Borealis is divided into 5 million shares and that it owns 5 million shares in each of its subsidiaries, such as Roche Bay Mining, which is divided into about 7.5 million shares. If there is a 30 mph head wind and Julie had three times as many marbles as Peter when they started out at 180 mph, how many shares of Roche Bay does Borealis effectively Own? That’s right! Five million! About two-thirds of the total. So the latest is that a little Canadian mining outfit called Advanced Explorations (whose own stock – symbol AXI on the Vancouver stock exchange [oh, stop laughing] – had been suspended from trading until this deal was complete) announced that it has raised $10 million or so to fund its initial work commercializing the Roche Bay iron ore holdings – for which large offtake agreements are already in hand, if we can produce the ore. AXI, which had closed months ago at 31 cents (Canadian) when the trading stopped reopened yesterday on this news and closed at $1.50 (Canadian) on volume of a little more than 1 million shares. As part of the deal, AXI acquires a big chunk of Roche Bay . . . but also gives Roche Bay 8 million warrants to buy AXI stock at 35 cents . . . and Roche Bay yesterday announced that it would be giving a dividend of half on one of those warrants (called ‘share purchase rights’) for each share of Roche Bay held. Bueller? Bueller? Well, since Borealis owns 5 million Roche Bay shares, and Roche Bay is paying out half an AXI warrant for each one, how many chucks could a wood chuck chuck if a wood chuck could chuck wood? Answer: Borealis gets 2.5 million warrants, with a current intrinsic value of $1.15 each (namely, the $1.50 you could sell the stock for yesterday, minus the 35-cent exercise price of the warrants). So, if one assumes the AXI stock will stay at $1.50 – a big assumption, although of course it could also go higher – then these 2.5 million warrants are worth $2,875,000 (Canadian). Could that be enough to help fund WheelTug and some of the other promising technology? Borealis remains a wild speculation; but with this deal closing, the hoped-for iron ore bonanza comes a step closer . . . and a bit of seed cash for WheelTug (and for some of the other hoped-for technological breakthroughs) may become available this October, when the restriction on selling the warrants is lifted. A lot of you are – rightly – skeptical of Borealis. But the company is certainly far ahead of where it was eight years ago, when we started this nutty thread. The plane moved. Delta has signed on to try to retrofit thousands of jets. Crews are drilling core samples up in the subArctic. You never know. Three years from now, our iron ore ships may have come in, and 737s could be pushing back from the gate on their own power. Visions of sugar plum fairies dance in my head. Have a great weekend.
Fun and Games June 7, 2007March 6, 2017 STREET VIEW Alan: ‘Go to Google Maps, type in any address and then click on ‘street view’ in the upper left corner of the map. You can see everything (and everyone) at ‘street level’ – amazing. ‘Walk’ along the street in any direction (you may see people you know!). It works in NYC, at least. WELL, THERE GOES THE REST OF YOUR WEEK I got to 13.5 seconds twice. Escapa! (Thanks, Peter.) Enjoy!
Cauliflower and Your Prostate June 6, 2007March 6, 2017 THINK THERE’S TOO MUCH MONEY IN POLITICS? I do! Click here to help fix it. THE EXAFLOOD From the Sacramento Bee, by Bruce Mehlman and Larry Irving (thanks, Peter): The impending exaflood of data is cause for excitement. It took two centuries to fill the shelves of the Library of Congress with more than 57 million manuscripts, 29 million books and periodicals, 12 million photographs, and more. Now, the world generates an equivalent amount of digital information nearly 100 times each day. The explosion of digital information and proliferation of applications promises great things for our economy and our nation, as long as we are prepared. DNDN So I got a lot of blowback from yesterday’s post, as you might expect. It hit three themes (plus one email saying the drug isn’t needed anyway – just take aspirin and eat curried cauliflower): 1. Two of the doctors recommending against approval of Provenge have big conflicts of interest. 2. The question was changed, yes, but to CORRECT it for what FDA standards say it should be. 3. The second trial people lived shorter than the first trial placebo people, but the second trial people were sicker. Apples to apples, Provenge beat placebo both times. I guess there are two issues here: a) In an ideal world, should the FDA approve it? b) In the real world of current law, WILL the FDA approve it? A much narrower question, and maybe heartless, but certainly relevent to the stock price. Here’s a sampling of the emails, only one of which, in red, was positive . . . followed by my friend’s response. Kerry: ‘Provenge works and the FDA only denied it do to politics and the Conflict of Interest Doctors, Scher and Hussain.’ Richard Lake: ”Substantial Evidence’ IS the FDA standard and if you don’t know that you have no business writing about it and if you did know that you are no better than a paid basher on the DNDN message boards. I personally believe you are ‘short’ ethics.’ Richard Berman: ‘You stated that the FDA changed the efficacy question in the Advisory Committee panel on Provenge. That is correct, however, they changed the question to fit the statutory and regulatory language and to be consistent with the language used for virtually all other cancer drugs. The original language, ‘establish efficacy’ appears no where in the statute or regulations. It is a very high standard, and to scientists is even higher. Remember, these are people to whom gravity is still a theory. The changed language ‘provide substantial evidence of efficacy’ is the statutory and regulatory language and is the language used in other cancer advisory committees. The question was corrected, not changed.’ Richard: ‘I agree with your conclusion regarding DNDN but not with your reasons (or, I guess, your friend’s reasons). For example, he mocks the company for not knowing how its drug works. In fact we don’t know how many drugs work. Phrases like ‘the exact mechanism of action is unclear’ appear with frightening frequency in drug applications. The head of Genetech describes oncology research as a series of ‘semi-rational leaps of faith.’ I try to remember that the FDA is not a drug testing organization but a statistics analyzing one. Provenge’s box score is not too good. FDA Standard: Two trials meet predefined targets with 95% level of significance each, resulting in a composite level of 99.5%. Provenge results: Two trials, neither of which met predefined target. So, after special pleading: Two trials, one of which met post hoc defined target with 95% level of significance but the other still didn’t so, after special pleading: One trial and a meta-trial which combined the two trials into a single data set (sort of like copying from the person sitting next to you) meet the post hoc defined targets with 95% level of significance each resulting in a composite level of who knows?’ Thomas H. Jones: ‘Please go read Dendreon’s 10K per 2007 for the REAL facts about Provenge (access at dendreon.com 10K from SEC filings on website). And please suggest that ALL your readers do the same so they have the facts for themselves. ALL the trial results your ‘friend’ referenced are there for the viewing and they are all POSITIVE . . . The average Overall Survival was 4 1/2 months, with some patients living for years. Eduardo Garcia, who spoke at the FDA advisory council meeting, is a 6+ year survivor.’ Trond Hildahl: ‘You are probably going to get a lot of hate mail – there are some fanatical Dendreon fans. Not all of us are foaming at the mouth, please believe me – but I do want to respond to a couple of your ‘shorting’ points. The FDA’s own requirements state the proper wording should be ‘substantial efficacy.’ Yet the question was worded ‘establish efficacy.’ . . . Maha Hussein, who you mention, actually fell asleep during the patient testimony session! This is not knowable from reading the transcript. Also, Hussein and Dr. Scher, 2 of the 4 NO votes, both have enormous conflicts of interest. Information that has come out since show that both never should have been allowed to serve on the advisory committee. These Drs. BOTH set a new low also by writing letters to the Cancer Letter and then ‘leaking’ them to the press. I could go on and argue a number of your other points, ESPECIALLY regarding the second trial and the number of deaths in the Provenge arm versus the placebo – I think you are flat out wrong in your conclusions . . . but I am not a statistician and this is already too long. Keep in mind the FDA recently advised that they will accept interim trial data from 9902B which will be available in mid 2008. Don’t stay short too long!’ Kevin M. Ward: ‘Maha Hussain – deep conflicts of interest, both from funding for her investigative work AND personal investments. Also, an expert in CHEMO, but NOT in immunotherapies. Should not have been on the panel. . . . Good luck with your short position. As of right now, it’s moved 23 cents against you. The day all this gets resolved and Provenge gets its approval, any short will be toast.’ Matt Kim, MD: ‘The second trial was indeed supportive of the first, the skewed data on first read was shown to be caused by the Provenge group having sicker patients than the control untreated group, on later analysis which the FDA accepted as proper and requires the same analysis for the ongoing trial the second study again like the first showed clear evidence of longer survival . . . I obviously don’t know your Harvard friend, but he is talking out his rear and that is verifiable if you have the integrity to check. I realize this statement is harsh but you put absolute lies in print on your website. Please don’t let your name be associated with lies.’ ☞ Get the gist? Well, here’s the thing. It’s possible these folks are right in buying the DNDN line, and that my friend is wrong. But he wasn’t born a DNDN short. He goes long drug stocks from time to time, also, and could have gone long this one. Before he goes long or short, he does a lot more analysis than most investors . . . and he has a great deal of experience understanding FDA procedures. Confronted with the emails above, he offers the following: (1) There were two doctors who were on the panel and who voted no (among the 4) who subsequently published letters to the FDA in a trade journal known as the Cancer Letter. One was Maha Hussain, the chair person of the Oncology Drugs Advisory Committee. The second is Howard Scher, head of prostate cancer at Memorial Sloan Kettering. That speaks for itself. The third doctor who published a letter opposing the approval was a statistician who was asked by the Biologics division to be on the Provenge panel, but was unable to attend the meeting. All three of the letters explain in detail why the data for show no evidence of efficacy, citing lots of data. (2) The question “Establish Efficacy” was worded by the FDA. It is published on the website. The original testimony from the division director, Celia Witten, is that this is the question the FDA wanted. What actually happened is that three doctors voted “no,” so then the chairman asked if the question could be changed. Dr. Witten said that, well, this was the question they wanted answered, though the committee could also answer a different question. They then went back and asked the fourth doctor, who voted “no.” Then Dr. Witten said that the law uses the words “substantial evidence of efficacy,” so she and the chairman changed the question to “substantial evidence of efficacy.” All of this can be found in the last 20-30 pages of the transcript. The FDA has a technical definition of “substantial evidence of efficacy.” There is a difference in what this means from a regulatory standpoint and what a guy on the street (or an orthopedist–look at the background of the people on the panel, found at the beginning of the transcript) might think it means. (3) The entry criteria for the two trials were the same. Thus, the outcomes should be the same. It also turns out that the patients who received Provenge in the first trial were much healthier than those who received the control, and this difference could easily explain the apparent difference in survival in the first trial. (4) In order for a trial to make a claim, it must demonstrate statistical significance on the primary endpoint. Dor Pharma [a different company with a different drug recently rejected] did not do this. IDM [ditto] did not do this. Dendreon did not do this. IF you do not do this, then, as noted for Dor (and all other companies), any additional data that might be generated from the trial is useful only for generating hypotheses and planning additional trials. It is “post-hoc” analysis. Richard Feynman in The Meaning of It All has an excellent discussion in the second lecture about why post-hoc data analyses are never valid in statistics. The FDA is following Feynman (the Nobel prize winner) in this regard. In reviewing IDM, the FDA concluded that since it did not meet its primary endpoint, it did not show “substantial evidence of efficacy.” Ditto for Dor. Ditto for Dendreon. Ditto for Pharmacyclics (PCYC), which received a rejection letter from the cancer division of the drug division of the FDA earlier this year for a product to treat brain mets. Ditto for Neoprobe (NEOL), which got a rejection letter for brain cancer for the same reason. The FDA has not approved Provenge, will not approve Provenge, and should not approve Provenge. If Provenge would like an approval, it should demonstrate statistically valid evidence of efficacy, like all other approved drugs. ☞ He believes DNDN has nothing, sadly, and will gradually fade away. I, obviously, have no clue. I just know he could be wrong – but generally is right. Certainly, very little ‘smart money’ expected the advisory committee to recommend approval, or the stock would not have been at $4 for so long just before it did (and jumped to $24). And, at least so far, that smart money has been right: the FDA – headed by a prostate cancer expert – has not approved the drug. Meanwhile, from PeterK: ‘Provenge’s ineffectiveness against prostate cancer is no loss except to DNDN and its investors. Aspirin and turmeric are already proven effective in the prevention and treatment of prostate cancer. Aspirin and other NSAIDS help prevent cancers, heart disease and possibly Alzheimers by reducing inflammation, which researchers believe causes or promotes the spread of these and other diseases. Click here. (‘Among daily NSAID users, there was a 12% reduced risk of prostate cancer in those aged 50 to 59, a 60% lower risk in those 60 to 69, and an 83% drop in risk for those 70 and over.’) And here. (‘Rutgers researchers have found that the curry spice turmeric holds real potential for the treatment and prevention of prostate cancer, particularly when combined with certain vegetables.’) Said vegetables include cauliflower, which when fried is delicious with turmeric. Be careful though; turmeric stains things yellow!’
Iran and Your Prostate June 5, 2007March 6, 2017 TO WHOM IT MAY CONCERN Happy BIRTHDAY, Sweetness! THINK THERE’S TOO MUCH MONEY IN POLITICS? I do! Click here to help fix it. CHENEY’S PLAN TO BOMB IRAN – CONFIRMED? Click here. (The idea is, even Bush isn’t nuts enough to do this – so Cheney will get the Israelis to provoke an Iranian attack on American forces and then Bush will start bombing.) GAY ARAB LINGUISTS IN THE MILITARY Stephen Gilbert imagines this dialog: ‘Mr. President, the linguist says there is a terror attack planned for tomorrow.’ ‘I don’t care what he says – he’s gay.’ Because, having now fired 58 (fifty-eight!) gay Arab linguists, that’s essentially what the Republicans who back this nutty policy are saying. Here‘s the latest such story. (And here‘s John McCain affirming his view that gays in the military are an intolerable risk.) President Clinton has long since issued a letter lamenting how Don’t Ask/Don’t Tell went awry. All 21 of our 2004 and 2008 Democratic presidential primary contestants support lifting the ban. And last month, President Carter issued a letter of his own. Even some Republicans have come around. ‘I believe it is critical that we review – and overturn – the ban on gay service members in the military,’ says Wyoming Senator Alan Simpson. ‘I voted for ‘don’t ask, don’t tell.’ But much has changed since 1993. We need every able-bodied, smart patriot to help us win this war.’ DNDN – PROSTATE CANCER – THE NEWS ABC News last night had a piece on Provenge, a drug meant to treat prostate cancer, from a company called Dendreon (DNDN). DNDN was long around $4 a share before it jumped to $24 in a couple of days a few weeks ago . . . then dropped back to $6 in a day. Last night it closed at $8.20. I don’t know whether or how the other networks may have covered it, but ABC was reporting on a demonstration in Washington by prostate cancer patients who wanted the FDA to approve the drug for sale. After all, the FDA advisory panel had voted 13-4 in its favor – it had extended life 4½ months on average in a small clinical trial (and as much as two to three years in a few cases) – yet the FDA had turned it down and the FDA brass would not comment. By the end of the news report any decent human being was screaming at the FDA, through his or her TV set, “People are dying! How can you call for another year’s clincal trials before approving this miracle drug?!” Here are some things ABC did not report (full disclosure: because of these things, I am short the stock): 1. The head of the FDA is probably as eager as anybody to combat prostate cancer – he’s had it. And he has spent much of his life fighting it . . . as head of the National Cancer Institute . . . as Executive Vice President and Chief Academic Officer of the University of Texas M.D. Anderson Cancer Center in Houston, leading a faculty of more than 1,000 cancer researchers and clinicians . . . as founding director of the Prostate Cancer Research Program . . . and on and on. 2. When the advisory panel vote was taken, the question was, “do the data [of the clinical trials] ESTABLISH EFFICACY.” The first 4 panelists unanimously answered: “No.” Seeing the handwriting on the wall, the chair of the panel changed the question. The remaining 13 panelists were asked whether the data showed “SUBSTANTIAL EVIDENCE of efficacy.” They answered yes, and the stock shot from $4 to $24. 3. I’m told by an expert who follows these things closely, the FDA can’t suddenly change the standards by which it approves drugs. If they had stuck with the question that was supposed to be asked, the vote, far from 13-4 in favor, might well have been 17-0 against. So my friend bet the FDA would not accept the recommendation of its advisory panel – and he was right. The FDA said more trials would be needed (that would take two or three years at a cost likely well in excess of $100 million), and the stock dropped to $6. 4. Here is the transcript of the FDA meeting. You are a better man than I if you can make sense of it, but my Harvard-trained doctor pal (who would also very much like to see a cure for prostate cancer – who wouldn’t?) says: Note the testimony that the product does not produce CD8 ‘cytotoxic’ T cells. So how then does the drug work? According to the company in the transcript, ‘we don’t know.’ MAGIC perhaps? His point: the drug is supposed to use the body’s own immune system to attack the cancer – but for that you need T-cells . . . yet they admit it produces none. Note that the overall survival of the Provenge-treated patients in the second trial was numerically less than the survival of the placebo-treated patients in the first trial. Got that? People using the drug survived less long than those using a placebo. Dr. Maha Hussain pointed this out – she was chair in 2005 of the FDA’s committee on deciding the correct endpoints for trials of prostate cancer therapies. She also happens to be chairwoman of the committee called ODAC that advises the drug division of the FDA on cancer products. It’s heartbreaking that the drug hasn’t been proven to prolong life . . . may even shorten it based on the results comparing longevity of the second trial with placebo results of the first. But for now, at least, my friend writes, “The FDA is consistent in applying its standards. If the FDA were to approve Dendreon’s Provenge, then almost EVERY DRUG WOULD HAVE TO BE APPROVED” – because drugs aren’t taken to clinical trials without some encouraging evidence they might work – “and the US market would be flooded with useless placebos. Not only is this against the law (the Kefauver act of 1962 states that drugs must be shown to be safe AND effective), it is very bad policy.” (Because, presumably, since our health care system is already badly strapped even just paying for the drugs that have been proven to work, what if it had to cut back on those in order to pay for, also, loads of drugs that very possibly don’t?) But even if you think Congress should change the law and not require proof it works before a drug can be approved (and if I were denied a cure I thought might help, I would think the same thing), look at it purely from a stock market perspective. Far from the nearly $700 million at which the stock market currently values the company, my friend thinks it’s worth nothing. All it has, he believes, is a drug that does not work. (NTMD, at least, had a drug that did work. It was just that there was no point paying six times what it would cost to buy its two generic components separately.) The options on DNDN tell all. People are paying $2.50 for the right to sell this $8.20 stock at $5 over the next year and a half. Only to the extent it falls below $2.50 will they begin to see a profit. Do not short the stock – how would you like to be sitting there short at $8 and see it run to $24 in a day if my friend is wrong (or right, but something sends it soaring for a while anyway)? And probably do not buy the puts – so many people agree with my friend that they are very expensive, as in the example above. But if you happen to own the stock, consider the parts of the story ABC didn’t tell, disheartening though they are to anyone hoping to prolong life even for a few months. (Which is to say, all of us.)
The Boy with Spiders Living in His Ear And Other Important Clarifications June 4, 2007March 6, 2017 THINK THERE’S TOO MUCH MONEY IN POLITICS? I do! Click here to help fix it. INFLAMMABLE Nick: ‘Ah, yes, flammable and inflammable; also habitable and inhabitable. Something that can be set alight can be inflamed, hence it’s inflammable. Something that can be lived in can be inhabited, so it’s inhabitable. The INs are some sort of verbal activator (I’m sure the linguists have a term for this). The negatives are, properly, uninflammable and uninhabitable.’ ☞ That’s telligible. Thanks. Tom Cuddy: ‘Another favorite of mine: slim chance and fat chance mean the same thing.’ BATED Joel: ‘Artie means ‘bated’ (as in abated, stopped or held) breath, not ‘baited breath.’ This one gets under my skin, as does ‘I could care less’ when what they really mean is ‘I couldn’t care less,’ meaning ‘I care so little that it would be impossible to care less than I now care.’ And ‘Music hath charms to soothe the savage beast’ when the quote is ‘Music hath charms to soothe the savage breast,’ or at least that’s pretty close. Breast, as in heart, not beast, as in nasty ol’ critter. Congreve wrote it, I believe.’ ☞ I went back and changed baited to bated, and found this for Congreve. You were pretty close. Mike Hanlon: ‘It’s ‘bated breath.’ Here‘s a very witty site that explains the whole thing. (For trivia buffs, straightdope.com is a gold mine!)’ ☞ Yes! E.g.: ‘The truth about the boy with ‘two spiders living in his ear.” STUP-AM-I Bruce Stephenson: ‘The other common words ending in ‘efy‘ are putrefy and stupefy . . . though Merriam-Webster lists 16 in total.’ ☞ Well, I am stupefied . . . but it’s not really 16. At least one, ‘beefy,’ is not a verb. And another, ‘defy,’ though a verb, does not mean make d the way liquefy means make liquid or rarefy means make rare. And madefy (make wet) and pinguefy (become or make fatty, oily, or pinguid) – and the rest – seem, as words in actual usage, to have putrefied. GLDDW For those who sold some or all their warrants Friday, the worst they could have done was $4.40 (the low for the day, $4.90 was the high). For those holding on, as discussed at length Friday, it may soon be necessary to put up $5 in cash to convert the warrants to stock. If it is, I plan to do some of that, too. At that point, you’re going from the compartment of your brain, or at least your portfolio, reserved for ‘exhilarating speculations with money you can truly afford to lose’ – which at 38 cents and 70 cents these warrants were – to the compartment (larger, I hope) reserved for ‘solid long-term investments from which you might hope to do better than a bank account . . . always recognizing that even seemingly solid investments can run into unanticipated difficulties.’ (Are you asleep yet?) (And when will we start adding color to our prose? See how that red phrase was meant to connote excitement and danger? Olé! And the gray was meant to convey snooze? Too distracting? Reserve only for purple prose?)
Hanging Teenagers June 1, 2007March 6, 2017 BOGO LIGHTS Ralph Humbertson: ‘Six BoGo lights are off to Africa and six to me for hurricane gifts to family and friends. I think I’ll make this my special little charity. What is the quote? ‘If everyone lit just one little candle, what a bright world this would be.” ☞ It’s not just a quote, it’s Perry Como! MALARIA NETS Jim Gibson: ‘If you like the BoGo promo, you might really like the Nothing But Nets program established by Rick Reilly at Sports Illustrated with the United Nations Foundations. Donate $10 to provide a bed net that protects an African family from malaria – and not a penny of it will be diverted for administrative costs.’ COMING-OUT INSURANCE Pregnant? Worried the baby might be gay? John Kasley: ‘From a Canadian gay website. Click here.’ ☞ In North America, we can laugh about a two-minute video clip like that. But not this one: HANGING TEENAGERS This four-minute clip speaks for itself. GLDD But wait – watch those videos first. Indeed, this long item will be of no interest at all if you don’t own GLDD warrants. See you Monday. You do own some? You’ve watched the videos? Okay, here goes: A friend sent along a copy of a 17-page research report from the Opportunity Research Group. They valued GLDD in various ways, all of which justified a price significantly higher than the current $9 or so a share. Also, Jim Cramer gave it a plug last night. (I know; he also liked Nitromed.) So here is where it gets a little tricky. We have now had 10 consecutive days when the stock closed ‘at or above $8.50.’ The company can, at its option, force conversion of the warrants if the stock trades that high for 20 days in any 30-day trading period. (Take two Advil and click here, jumping down to paragraph 6.1, for the details.) In other words, as soon as two weeks from now, they could let us know we have as little as a month to either (a) sell the warrants for whatever we can get (which was about $4 last night, roughly five to ten times what we paid for them over the last year); or (b) instruct our brokers to exercise them, which means paying $5 each to buy the shares; or (c) sell some and exercise some; or (d) do nothing, in which case the warrants become worthless and, when you realize what you have done, you will not be able to find a building tall enough off the roof of which to fling yourself. As you can tell, I’m partial to the first three options. If you hold the warrants in a retirement account (so the profit is tax-sheltered), or have held them more than a year and a day (so the profit is lightly taxed as a long-term gain) this could be a good time to take your profit. No need to rush to do it instantly this morning ‘at any price’ – but sometime in the next week or two. If you have some warrants that will go long-term within the next few weeks, and you’re in a fairly high tax bracket, I’d wait for them to go long-term. They could go down while you wait, but they could go up – and the one sure thing is that the tax rate on your gain will be lower once the gain is long-term, which tilts the odds toward waiting. If your profit will be short-term (and thus subject to ordinary income tax), and if you’re in a reasonably high tax bracket (so this matters), and if you can afford to exercise the warrants, I’d exercise at least some if not all. Nothing is sure in life, even in the dredging business, but you would have, in effect, paid somewhere between $5.38 and $5.70 for your currently-$9 shares (the cost of the original warrant plus this $5 you had to pay to exercise it) . . . and in a year or two they might be $12 or $15. (And, yes, they might be $5 or zero, so don’t go overboard. But GLDD is a large, old-line company with some basic trends going its way.) NOTE: When you do exercise the warrants, the clock starts all over again on the one-year holding period. Consider the pros and cons of exercising. Basically: is it worth exercising and holding the stock for a year to avoid paying short-term capital gains tax? Assume for a minute you are in the 40% tax bracket (between state and local taxes). Assume, further that the stock doesn’t budge. It was $9 the day you exercised the warrants; and now, a year and a day later, it’s $9 again. In that case, you have the same gain you would have had selling the warrants instead of exercising them. (You paid 50 cents for each warrant and sold for $4 = $3.50 profit. Or you exercised the warrant and so had a basis of $5.50 in the stock which you sold for $9 = $3.50 profit.) Except the second way, you were lightly taxed on that profit. In your 40% bracket, the tax on a $3.50 profit would have been $1.40. In the 17.5% bracket let’s say (between federal and state capital gains tax), just 60 cents or so. Was it worth doing all this to save 80 cents a warrant? Well, in the case of the stock not budging from $9, the answer is probably yes. You tied up $7.60 for a year that otherwise could have stayed in your pocket (the $5 you had to ante up to exercise the warrant, plus the $2.60-after-tax you could have realized just selling the warrants and not bothering with this). But you ‘earned’ 80 cents after tax on this $7.60 – better than a 10% after-tax return. The risk, of course, is that the stock might fall. But then again – and I think a bit more likely – it might rise. A lot of it depends on how much risk you can afford and how overweighted your holdings would be toward dredging if you suddenly put up $5 in cash – real money! – for each warrant that you acquired, on a lark, with pocket change. Next week: Putrefied Inflammable Bated Breath and the Exaflood
This Bank Will Throw Your Dog a Bone May 31, 2007March 6, 2017 BERRY BURST CHEERIOS Hey, Cheerios are . . . reborn! Forget the milk, you can eat ’em right out of the box. I was always more of a cornflakes guy, so this was as much a surprise to me as I imagine it is to you. (Just 100 calories per serving, which they describe as 27 grams, confident no American consumer has any idea what 27 grams is – an ounce. An ounce is not a lot. I’ve gotten letters that weight more than an ounce. But then again, Cheerios, like donuts, are all about the holes, and those don’t weigh a thing.) A GOOD PLACE TO BANK Our investment in Commerce Bank (CBH) has gone no place fast, up barely 12% in what is now closing in on two years, even as everything but its earnings per share – a big ‘but’ to be sure – has been rising sharply. (Earnings have been stunted by the extended ‘inverted yield curve’ – namely, short-term interest rates being higher than long-term rates, when ordinarily the reverse is, for banks, profitably true.) The bank is all about winning fans by dazzling customers with service. Imagine a bank open 361 days a year, from 7:30 in the morning to 8 at night – where the doors open ten minutes before the posted opening time and close ten minutes after the posted closing time. Free checking. ‘No stupid fees.’ Twelve million lollipops (and 2 million dog bones) handed out. J.D. Powers, in its inaugural Retail Banking Survey last year, ranked Commerce Bank #1 – as did Consumer Reports. Greenwich Associates ranked the bank’s call center #1. (Live reps are standing by 24/7 at 888-751-9000.) Even if you’re not a customer, you can go into one of its 500 branches to dump a jar of coins into their ‘Penny Arcade’ machine in return for cash. (Imagine: a preference for paper money over metal, but that’s another story.) They counted $425 million in coins that way last year – at no charge. If you live near a Commerce Bank branch – mainly in New York, Philadelphia, Washington and, increasingly, South Florida – and if your current bank makes you crazy over some insane little problem or charge, you have an alternative. I don’t know whether or when earnings per share will pop back up to the trend line. And even then, the stock may not pop commensurately. Even so, I am happy holding on for the long-term. PINCHOT Ed Shoben: ‘The other five timber-related stocks are (were): Rayonier (RYN), Potlatch (PCH), Pope Resources Units (POPEZ), Timberwest (TWF.UN) and Longview Fiber which has recently been taken out. An interesting column and the Pinchot system is a great way to put all your eggs in one basket. About as wise as putting it all in Las Vegas Real Estate.’ ☞ Like Plum Creek, Rayonier and Potlatch have doubled in the last four years. Pope Resources is up more than fourfold. It might have been an even better retirement plan to invest in these stocks four years ago. Paul Berkowitz: ‘They are all REITS except Pope, which is a master limited partnership. They all seem decent investments, but the clever advertisement for the newsletter conveniently neglects to mention that a large part of the dividends claimed were special dividends paid only when a timber company converted to a REIT. The Graham Investor has a Pinchot FAQ.’ KEITH OLBERMANN IS NOT SUPPORTING GIULIANI In case you missed it . . . here.
The Pinchot Retirement Program Ta-Da! May 30, 2007March 6, 2017 So okay, I got this in the mail. Mailings like this are like little puzzles: You know there’s a catch – but can you figure out what it is? The artistry (I am tempted to say the con artistry, but in this case that would be too strong) always begins with the outer envelope. This one was very good. A standard number 10 business envelope, it sported a first class stamp with one of the New York Public Library lions on it. On really close inspection it was a ‘pre-sorted standard’ stamp, which is the new ‘bulk rate’ (did you know that?), but it had the look and feel of first class – and first impressions are everything. In a blink, the envelope looked like one of those many of us have gotten where, if you owned such and such stock between such and such dates, you may be entitled to participate in a class action settlement. That’s not what this was, but it had that look and feel. In the upper left corner: Claims Administration c/o PRP Dividend Checks 1217 St. Paul St. Baltimore, MD 21202 Then, just above the clear window with my name and address showing through: IMPORTANT PAPERS ENCLOSED To receive your monthly dividend checks, adhere to submission deadline So now I knew I had been presented with a puzzle. (Trust me: there is no such thing as a monthly dividend check you have to ‘claim’ by a certain deadline.) Delighted, I opened it up to see if I could figure it out. Centered at the top of the cover page: CLAIMS FORM To be eligible for the June 8, 2007 check, add your name to the PRP check-distribution list. Who would want to miss getting his June 8 check? (Already, I was thinking of it as mine.) If I had read further, I’d have seen I was being offered a $49.50 monthly True Wealth newsletter subscription (regularly $99), but I skipped straight to the thick enclosure, which had bar codes in the top and bottom right corners. I assume those bar codes were gibberish, to add to the official look and feel, but I wonder what they might translate to say? Some harmless mockery? An inside joke? Perhaps they simply spelled out ‘Pinchot Retirement Plan’ in bar code. Front and center was this bold headline: NOTICE OF YOUR RIGHT TO SHARE IN ‘PINCHOT RETIREMENT PLAN (PRP)’ MONTHLY CHECKS By taking advantage of the plan, it said, ‘you should receive 24 checks – about one every other week. Approximate check-delivery schedule for the next 12 months is as follows’ . . . whereupon the rest of the page was taken up with a list of the 24 dates, in a vertical column. The first three check dates were crossed through – you’re too late! – and the next one, June 8, was highlighted in red. If I acted quickly, I could get that check. Indeed, a Wisconsin paper mill worker had used the Pinchon Retirement Plan ‘to collect $18,500 in One Day.’ Or so said a special red and black copy block that more or less dominated the page. At the bottom of the column of dividend dates was a big bold number: $77,360.00. Okay? Got your attention? I’m guessing that by now you may be curious to know what this plan is. I know I was. Turning the page, I learned nothing of the secret. Just like some of those legal documents you may have seen, there was nothing at all on the second page except, in the middle, in parentheses, small: (This page has been left blank intentionally) Again, the look and feel. It just feels important. It feels like a legal document. These guys are artists! The third page – designated page ‘1-a’ to enhance the official quality – repeats: WISCONSIN PAPER MILL WORKER USES ‘PINCHON RETIREMENT PLAN’ (PRP) TO COLLECT $18,500 IN ONE DAY.’ ‘For most people,’ it goes on to explain, ‘August 7, 2006, was a day just like any other. But for 55-year-old Ron Hanson, it was a morning he’ll never forget. While most of us were preparing our morning coffee, Hanson . . . was cashing a check worth $18,850, according to U.S. Gov’t records.’ Oh, good. Reference to ‘U.S. Gov’t records’ makes it feel all the more official. ‘Incredibly . . . Hanson was not the only one pocketing an enormous payment that day – nor did he collect the largest check.’ On and on it goes, nice big type, easy to read, who can resist? It gives the example of another guy, Paul Lyons, whose ‘original $500 stake is now worth more than $500,000.’ Are you, by now, just DYING to get in on this? To send in your $49.50 for the secret? Hang on . . . you haven’t even met Pinchot yet. Finally, on the sixth page of this document (which is to say, page ‘2-b’), it comes clear – or at least partially clear – that the Pinchot Retirement Plan consists of investing in six timber companies. (Turns out, Gifford Pinchot was the first chief of the U.S. Forest Service, 1905-1910, a pioneer in managing forestry assets.) The first of the six timber companies is revealed. It is: Plum Creek Timber Company, which was first suggested here four years ago, at $26.50. (Today it is $40, plus the dividends you would have had along the way – please send me $49.50.) Stripped of all the pizzazz, the Pinchot Retirement Plan is apparently no more than this: to buy stock in PCL and five other timber stocks, each paying about a 5% annual dividend (but quarterly, so that’s four checks from each of six companies, or – just as promised! – 24 dividend checks a year). So let’s say you were a Wisconsin mill worker – or even a cleaning lady! – and you bought $100,000 worth of each of these six stocks with $600,000 you had set aside. At roughly 5% on all six, you would be receiving $30,000 a year in dividends! That’s $2,500 a month! The letter never mentions ‘5%’ annual dividends. (It mentions ‘30% in dividends‘ Plum Creek would have paid you over the last four years; not the 4.2% a year that, at today’s $40 share price, it currently yields.) And the letter certainly never mentions the sizeable amount of cash you’d have to invest to get dividend checks this big. That could be off-putting to someone who had $49.50 to buy the newsletter but not $600,000 to buy the stocks. Instead of cash, it’s expressed in terms of shares (without saying what they cost). ‘If you owned 2,000 shares of each investment,’ the letter explains, ‘you would have collected $77,360 in payments’ – over two years. Don’t we all usually think of the biannual return on our investments? Or our biannual salary? ‘What do you make over there?’ you ask your college buddy who’s just gone to work at Google. ‘I make $120,000 a two-years,’ she replies. These guys are artists, I tell you! (Meanwhile, just how Paul Lyons started with $500 and grew it to $500,000 with this plan is not disclosed.) So is it worth $49.50 to find out the names of the other five timber companies? And for the rest of this outfit’s advice? (They claim to know of ‘a regular government bond that is now paying 11.6% interest a year.’ Astounding! I want some! Until you notice they never mention which government. Perhaps not ours? Oh.) The bottom line to me is that, first, these guys sure know how to sell. Second – assuming you only take whatever of their True Wealth newsletter advice is good – all you stand to lose is $49.50 (plus a further $79 for each subsequent year unless you cancel) – and even that $49.50 is fully refundable, they say, within the first six months. This is more marketing artistry than con artistry, because – although their pitch is deceptive – it’s not as though they’re plotting to steal your house. As to whether Plum Creek and the other five will continue to perform well – I hope so. I still own most of my Plum Creek. The long-term case for timber, I think, remains strong. But prices have come way up of late, and experts I know are selling; so this may actually not be the greatest time to start. Let alone with anything vaguely approaching 100% of your retirement assets, which is what this direct mail piece seems to be suggesting you do. (To me, 10% would be a more reasonable allocation.) The mailer is filled with testimonials from people who have been thrilled with the success of True Wealth recommendations. If there are folks who’ve not done so well, I’m not sure, given the look and feel of this direct mail piece, they’d be included. But call 866-262-8199 if you want to sign up.
Iran, Iraq, Irat; Iranus, Iraqus, I Rant May 29, 2007January 6, 2017 Tomorrow (really) the Pinchot Retirement Plan.Today . . . CHENEY’S PLAN TO START WAR WITH IRAN Click here. (If he can’t persuade Bush to attack, he’ll persuade the Israelis to strike Iran – just hard enough to get Iran to retaliate against our forces nearby . . . so Bush will go to war. Or so it is alleged.) DID WE INVADE IRAQ FOR THE OIL? If it seems this way to a career officer, might it seem this way to those who distrust us? Retired Colonel Wright writes: No other nation in the Middle East has privatized its oil. . . . [Yet] the $12 billion dollar “Support the Troops” legislation passed by Congress [last week] requires Iraq . . . to privatize its oil resources and put them up for long term (20- to 30-year) contracts. What does this “Support the Troops” legislation mean for the United States military? Supporting our troops has nothing to do with this bill, other than keeping them there for another 30 years to protect US oil interests. . . Adding to such suspicion may be the agenda of the President’s first National Security Council meeting. It was just 11 days after the Inauguration, and already Iraq was the agenda. One good way to dispel this kind of cynicism, if it’s unjustified, would be for the Administration to open up the still secret guest list and still secret proceedings of the Cheney Energy Task Force that did its work months before the attacks of 9/11. WHY DOESN’T THE U.S. PRESS REPORT THIS? Greg Palast is continually coming up with amazing stories – about America – that the BBC airs but American journalists ignore. It makes me crazy, trying to figure out whether he’s crazy, or whether, instead, somehow we’ve lost a vigorous, independent press. (Al Gore’s The Assault on Reason argues persuasively that we have.) Here’s Palast’s latest – “the missing emails – and missing link – that could send Griffin and his boss, Rove, to the slammer for a long, long time.” Read it (please) and tell me: Is this old hat to you? Has it been discredited? Is there a reason Congress didn’t follow up? Can/should we GET Congress to? Have you read Palast’s Armed Madhouse? As I type this, it’s in the top 100 on Amazon – and #15 on the New York Times nonfiction paperback best-seller list . . . but with no link to a review. Has the Times never reviewed it? Why?
Views May 25, 2007March 6, 2017 IF YOU WANT TO KNOW THE WEATHER, LOOK OUT THE WINDOW And what better window than a weatherman’s? Here is the real-time view from Bryan Norcross’s New York apartment. Here is his Miami view. (Here is a review of his Hurricane Almanac.) (One handy thing in hurricane season – this solar-powered flashlight, your buying one of which, as mentioned yesterday, could change a life in Africa.) AND IF YOU WANT TO KNOW THE WEATHER IN AFRICA Here is the view – and sounds! – from a watering hole (day and night, with lights – which don’t bother the lions one way or another). Here are other live web cams. VIEWING THE NEXUS OF MONEY AND POLITICS Here is a really important site (with a really interesting 6-minute tour) that shows not only who gets what from whom, but when – i.e., right before the vote on a particular bill or amendment. MY VIEW: LIGHTNING DOESN’T STRIKE TWICE But how could I resist? Remember Aldabra – a company formed and funded to acquire something (but nothing specific), and warrants we bought at anywhere from 70 cents down to 38 cents each – now $3.88? (Aldabra bought Great Lakes Dredge and Dock; the symbol of the company is now GLDD.) Well, HAPN is the symbol of another such company, this one trading at around $5.80, with warrants (HAPNW) trading at around 32 cents each. The warrants give you the right to buy the underlying stock for $5 any time in the next four years or so – but only if the company succeeds in acquiring something in the next four months. They are close to doing that, but the first risk is that you lose everything if they fail. With money I can afford to lose, I’ve taken that risk, because the people working on the deal have a very strong incentive not to fail. The second risk is that, even if they succeed in completing their acquisition, the company they are acquiring, InfuSystem, may do badly, so again the warrants would be worthless. But if the stock stayed at $5.80, you’d have a double, and if it ever got to $8.50, you’d make ten times your money. So – if you can truly afford risks like these – take a look at their recent quarterly report and, perhaps, call your deep discount broker. (At Ameritrade, the commission for buying 50,000 warrants could be as little as $8. Another broker might charge $1,000.) I assume this bet will fail – what are the chances of doing well with two of these in a row! But . . . as that assumption comes straight from the Don’t Walk Under Ladders school of financial analysis . . . I took the plunge anyway. (And, yes, I’m told: Lightning sometimes does strike the same place twice. Well, for example, lightning rods.) Have a great Memorial Day weekend!