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Dana Blankenhorn has been a business journalist since 1978, and a futurist all his life.He warned about the coming Houston oil collapse in 1979. He began making a living on the Internet in 1985. He launched the first e-commerce daily for CMP in 1994, warned of the... More
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  • Clinton Reveals Elephant In Pharma Profit Room

    There is a reason why the U.S. leads in drug discovery. We subsidize it.

    American consumers pay more for drugs than those in other countries. It's still true under the Affordable Care Act, aka Obamacare. One of the biggest ways we do this is by denying Medicare, which should be the largest purchaser of drugs, the power to negotiate on prices, as the centralized medical systems of Europe do.

    Like other Democratic politicians, Hillary Clinton wants to change that, and made her proposals on that early this week. The iShares Biotech Index ETF, (NASDAQ:IBB), responded to her proposals by dropping almost 7% in the days since she made them. Many analysts have responded by saying, simply, that it will never happen, because even if elected she would face a Republican Congress.

    Maybe so. But maybe not. Because the American companies that are taking advantage of American consumers are, increasingly, not American.

    Tax inversions are the hottest trend in the pharmaceutical business since statins. Despite regulations designed to stop the practice in 2014 it's still going on. Bloomberg notes two more drug inversions have been done this year, and four more are pending.

    The most popular new location for a tax inversion is Ireland, which I will be visiting in about a week. Since the 2014 crackdown, the Irish Times reports $22 billion in inversion deals have been completed.

    But here's the problem. It's one thing for U.S. companies to fight, and win, a subsidy by U.S. consumers. It's quite another for foreign companies to demand, and win, such a subsidy. In seeking tax benefits, the pharmaceutical industry may have gone a political step too far.

    Companies that have made the move have done so loudly, especially since the regulations aimed at dissuading them, and those stocks could prove especially vulnerable to political backlash. Companies like Horizon Pharmaceuticals (NASDAQ:HZNP), which moved to Ireland by buying Vidara Therapeutics, Abbvie (NYSE:ABBV), which moved by acquiring Shire, or Mallinkrodt (NYSE:MNK), which has been on a buying spree since its move to Ireland, are all vulnerable to a political backlash.

    Analysts have focused on attempts to move companies back by removing their tax advantages, but that's not the place to look. Instead, look at moves to take away their market advantages. It's one thing to argue that U.S. companies should get a subsidy from U.S. consumers to maintain U.S. leadership. It's quite another to argue that Irish or Dutch companies should get those benefits, and if the industry has indeed moved to Europe, they are going to lose an argument that will cost them far more than the tax inversions gained.

    Sep 24 5:46 PM | Link | 4 Comments
  • Investors Should Not Be Rooting For Crooks

    When any businessman breaks the law, or even simple ethics, investors are victims.

    So why do we root for the bad guy?

    Taken Martin Shkreli. He is a bad guy. An Albanian immigrant, a terrible hedge fund manager, he is accused of breaching his duty to an orphan drug company called Retrophin in his use of company funds. They want $65 million. He also raised the price of a drug 20-fold after acquiring it, having done nothing to improve it.

    The guy has a record.

    So he's struck again. This time he has created a shell called Turing Pharmaceuticals, bought a company making an old drug called Daraprim and raised the price of that drug from $13.50/pill to $750. He even bragged about it on his Twitter feed, which usually features tweets about how rich he is.

    This guy makes every honest businessman look bad. He shouldn't be allowed to do this. Yet when Hillary Clinton called him out, citing a New York Times article, guess who got blamed for the 4.5% fall in IBB (NASDAQ:IBB), the biotech ETF? It wasn't Shkreli.

    Too often, we investors are chumps. OK, maybe you bought some BP (NYSE:BP) in March, 2010, right before the Deepwater Horizon disaster, and you're still out 40% on your investment and you missed out on the whole fracking boom? Whose fault was that? To hear too many investors here tell it, it was those nasty, nasty people who held BP's feet to the fire, and sought the maximum punishment the law allowed. Each time BP skated away from greater punishment, they cheered.

    I see the same thing regarding the 2008 crash. Poor Jamie Dimon (NYSE:JPM). Poor, poor Maurice Greenberg (NYSE:AIG). Poor Lloyd Blankfein (NYSE:GS). (Well, on that one get well soon, sir.) The Federal Reserve put literally a trillion dollars into these institutions, because their malfeasance and stupidity was threatening the entire financial system, it never charged anyone with an actual crime, and where do our sympathies lie? They lie with the bankers. They shouldn't.

    So it should surprise no one that Volkswagen (OTCQX:VLKAY) thought it could get away with using software to cheat emissions tests on 11 million diesel vehicles. Someone there thought they would never be caught, and even if caught they would never be held to account.

    The bank robber Willie Sutton was famously asked why he robbed banks and replied. "That's where the money is." Well, the money today is in corporate governance. When are investors going to demand cops in the suites, as we have in the streets, not just to prosecute crime but to prevent it, and let every C-level executive know that there is such a thing as fiduciary responsibility, that they can't act like the stockholders' money is their money, that it is our money.

    And when someone calls for law and order, when are we going to stop calling them a socialist?

    Sep 22 3:28 PM | Link | 9 Comments
  • If It Is 1929 In China, Have We Learned Anything?

    Today is a day to make an Austrian economist's heart go pitter-pat.

    The fall of China's market, becoming more spectacular by the day, is creating a contagion that is triggering a bear market in U.S. stocks.

    To the Austrians, this is heaven. We're all about to lose our faith in central banks, they say. We need hard money, they say.

    But what's money in the first place? Gold is not money. Oil is not money. If we have learned anything in the 86 years since the great Wall Street crash, it is that money is not a noun, but a verb. Money is a medium of exchange, not some object. When everyone is selling, simply ignoring the money problem and buying actually works.

    That's why the Austrians were forced out of Austria in the first place. Europe, specifically Germany and Japan, went in and bought. They told the old debtors to pound sand, they created new money and new structures for themselves, and they bought. When the Austrians landed on these shores with their ignorant economic belief system, many Americans bought the nonsense, and rewrote a history of minor tinkering under Franklin Roosevelt into one of wild deficit spending.

    History shows the wild deficit spending came later, when America learned what Germany had been spending all that money on, and that it worked.

    So there are three ways this thing can go. We can listen to the Austrians, as Herbert Hoover did, and refuse to intervene in the economy. We can tinker at the margins, as Franklin Roosevelt did, and make ourselves feel better.

    Or we can take the opportunity to spend.

    Now is the time for a National Infrastructure Bank, a $1 trillion fund of new projects, with 10-year business models that return the investment. I'm talking toll roads, improved ports, environmental projects, and gigabit Internet for everyone. It's not as if there aren't good places to spend new money. It's not as if there aren't huge problems that demand solution. It's not as if you can't make money solving these problems.

    If this once-in-a-lifetime opportunity is not seized by us, someone else will seize it, and they may not be buying solutions with it, but problems. Right now we're lucky, in that Russia can't afford guns, and China can't afford guns, and even the sheikhs in the Middle East can't afford guns. If we soak up the demand with projects that actually do some good for people, there won't be as much left to buy guns with.

    If it really is 1929 in China, in other words, we have the chance to create a new 1930s. Or go through the old one all over again. Which will we do, focus on the problems or the opportunity?

    Tags: economy
    Aug 24 10:51 AM | Link | 8 Comments
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