But first a word about stocks.
The sun will come out tomorrow. (If not literally tomorrow.) Long-term, our little gaggle of mostly biotech speculations will be hurt only if people stop getting sick . . . or stop wanting to get well . . . or the government sharply cuts health care costs. The latter might happen if it decides to negotiate drug prices. And I hope it does. But I doubt it will negotiate so hard as to kill the incentive to develop important new drugs.
If you have money you can truly afford to lose, and have not yet dipped your toe in these waters, you’ll be pleased to know these stocks are now on sale. (Stocks like DVAX, CBRX, SIGA, TTNP, YMI, KERX, ALXA, and FCSC – maybe even DCTH – among others.)
And there are loads of non-biotechs to consider, too. I don’t think we will stop dredging our ports, so GLDD at $4.25 seems cheap. I own a few shares of ALN, which purports to be in the food business in China selling at 3 times earnings (warning: this one did not come from anyone smart, and I don’t do my homework). And a few shares of ALU (which does come from someone smart), half the price of two weeks ago and thus back to where I bought it.
In any event, I would not be selling here, even though the market could certainly fall further.
THE S&P IDIOCY – II
S&P has now downgraded Fannie and Freddie from AAA to AA+ status, also. As my wise young friend Zac Bissonnette noted yesterday, that meant that for a few days Fannie and Freddie’s debt was rated higher than that of the U.S. government. This, despite the fact that their AAA rating rested entirely on the expectation that the government – though not legally obligated to do so – will not let them fail. Perhaps, just as a nod to logic, S&P should have downgraded Fannie and Freddie a few days before downgrading their hoped-for guarantor?
The ironies just keep coming.
For example: “In reaction to the downgrade,” a CBS radio newscaster told America yesterday, “a lot of investors are taking their money out of stocks and putting their money into U.S. Treasuries, which some see as safer.” Got that? S&P’s downgrade of Treasuries has stock market investors fleeing into . . . Treasuries for safety. Now that S&P has officially decided they are not completely safe, investors are paying even higher prices to buy them.
(Safe though Treasuries are, I would not rush into them myself, as they pay almost no interest. My reluctant hedge has been GLD – the exchange-traded gold fund – suggested most recently here. Unfortunately, it’s done quite well. It would make me very happy if it stopped doing well. But I’m not willing to bet all my assets on the triumph of common sense.)
And one more note of irony (not to mention the big one, of course, covered yesterday: that for years S&P rated worthless mortgage-backed securities triple-A and caused the financial meltdown that led to the mess we’re in now), compliments of Janet Tavakoli, whose compelling call to decertify the rating agencies I linked to yesterday. Janet writes: “Thank you for the mention. You may have noticed that among other things, S&P said that it downgraded the US even though the economy is ‘strong’ (you can’t make this stuff up) but they are worried about our fiscal trajectory. If this is how they really felt, then they should have downgraded us in September 2008 post bailouts when we didn’t look as ‘strong’ and people were ready to jump out of windows over our fiscal trajectory.”
Paul Krugman did his usual brilliant job in his New York Times column yesterday – and made a point that was new to me:
. . . in those rare cases where rating agencies have downgraded countries that, like America now, still had the confidence of investors, they have consistently been wrong. Consider, in particular, the case of Japan, which S.& P. downgraded back in 2002. Well, nine years later Japan is still able to borrow freely and cheaply. As of Friday, in fact, the interest rate on Japanese 10-year bonds was just 1 percent.
So there is no reason to take Friday’s downgrade of America seriously. [S&P] are the last people whose judgment we should trust.
☞ He went on to say:
. . . The U.S. government is having no trouble borrowing to cover its current deficit. It’s true that we’re building up debt, on which we’ll eventually have to pay interest. But if you actually do the math, instead of intoning big numbers in your best Dr. Evil voice, you discover that even very large deficits over the next few years will have remarkably little impact on U.S. fiscal sustainability.
No, what makes America look unreliable isn’t budget math, it’s politics.
And please, let’s not have the usual declarations that both sides are at fault. Our problems are almost entirely one-sided — specifically, they’re caused by the rise of an extremist right that is prepared to create repeated crises rather than give an inch on its demands.
The truth is that as far as the straight economics goes, America’s long-run fiscal problems shouldn’t be all that hard to fix. It’s true that an aging population and rising health care costs will, under current policies, push spending up faster than tax receipts. But the United States has far higher health costs than any other advanced country, and very low taxes by international standards. If we could move even part way toward international norms on both these fronts, our budget problems would be solved.
So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.
The real question facing America, even in purely fiscal terms, isn’t whether we’ll trim a trillion here or a trillion there from deficits. It is whether the extremists now blocking any kind of responsible policy can be defeated and marginalized.
☞ And, for all its ineptitude, that seems to be what S&P was trying to say.
PLEDGE NOT TO VOTE FOR CANDIDATES WHO TAKE PLEDGES
Bill Merkel: “I’m with Elliott. Pledges take away the flexibility that our representatives have to compromise and, if necessary, select the lesser of two evils. A special interest group (Norquist’s among them) who gets an elected official to sign a pledge is essentially getting a guarantee that that official will vote the way they would like. That sounds a lot like buying votes to me. The only pledge I’d want my elected representatives to sign would be that they’d NOT sign any pledges, otherwise they could simply be replaced by if/then statements.”
LET FRED DEBATE
I don’t want him to win the White House, but Fred Karger – the first openly gay candidate for President – met all the requirements to participate in Thursday’s Fox News Iowa Republican Party Presidential debate. He polled higher than Santorum and tied Pawlenty and Gingrich. But Fox changed its criteria to keep him out. Federal Election Law requires news organizations that sponsor Presidential debates to select participants based on “pre-established, objective criteria.” Sign the petition to let him debate?
Tomorrow (or soon): Our Infrastructure Deficit
Quote of the Day
In 1800, 75% of [an American's] working man's expenditures went for food alone. By 1850, that had dropped to 50%. Today it is a little more than 11%.~The Wall Street Journal, September 20, 1996
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