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Michael Murphy, CFA
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Michael Murphy grew up in Newark, Delaware, which a sign at the city limits proclaimed: “The Educatoinal Center of the State.” After graduating from the public schools he earned an A.B. cum laude from Harvard College and began working as a COBOL mainframe programmer on an IBM 1401 in the... More
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  • Three Ways Obama Can Resolve The Debt Ceiling Issue On His Own
    Although both the Republicans and the Democrats warn darkly of a U.S. debt default, the truth is there is absolutely no reason it will happen. Even if the two sides never agree on a compromise solution, President Obama has at least three ways to avoid a default.
    First, the Treasury Department has the right to mint coins. They could strike a $1 trillion coin – in palladium would be a nice touch – and deposit it in the bank. Problem solved. Maybe strike two coins, and more than cover this year's deficit.
    Second, he can cite the 14th Amendment that the validity of U.S. government debt may not be questioned, and just keep selling T-bills and T-bonds. Let the Republicans sue him if they want to, as it would take years to wind that case through the courts.
    Third, the Federal Reserve can cancel the $1.6 trillion of U.S. Treasury debt that it holds. The government pays interest on this debt to the Fed, which then rebates almost all of the interest to Treasury at the end of the year. Why?
    President Obama has used the debt “crisis” to frighten seniors that they might not get their Social Security checks. The Republicans have used the debt “crises” to help the voters forget who voted all these programs and tax cuts into law, thus creating the problem. As House Majority Leader John Boehner (NYSE:R) said of his compromise bill today: “This is the best opportunity we have to hold the President’s feet to the fire.” He did not say: “This is the best opportunity we have to raise the debt ceiling,” or “This is the best opportunity we have to address the biggest underlying problem of job creation.” It's clear where his priorities lie.
    The underlying question is why President Obama is letting this play out. My suspicion is that he wants to get Federal spending under control, but wants to be able to blame the Republicans for the negative political or economic fallout. It looks like the U.S. is about to make the European/IMF mistake of implementing austerity in a no-growth economy, so there should be plenty of negative economic fallout in 2012.
    Or maybe Josh Brown of The Reformed Broker is right – when a crazy man gets in a staring contest with a weakling, the crazy man wins.
    A pox on all of them.
    Just remember that the more real and immediate austerity that comes out of this process, the more certain it is that there will be a recession in 2012.
    Jul 29 11:49 AM | Link | Comment!
  • Dear President Obama: 4 Steps To Prosperity

    Dear President Obama:

    As I’m sure you have realized by now, you are pretty much screwed.  A series of Presidents and Congresses before you made many bad decisions that periodically got the economy into a mess.  I am non-partisan about this; the last President with both integrity and fiscal sense was Dwight Eisenhower.  It’s been a long time building. 

    Even with the string of losers that have run this country since Ike, there have been some tough-minded Fed Chairman that kept some limits on the chaos.  But that ended with Paul Volker, and since he left, every mess has been monetized by the Fed and the can kicked down the road.  So now the can is at the end of the road, the messes have gotten so large that everyone knows the next one is the tsunami, and your approval ratings are in the toilet with mid-term elections coming up.

    You had a chance to blame everything on George W., stop the stupid trickle-down bailouts that just turned into eye-popping bonuses for the morons who got us into this (they should all go work for the IMF), and use some dramatic policy changes to give people – what was it?  Oh, yeah.  Change and hope.  But you didn’t do it.  Had your chance.  Muffed it.

    Or did you?  Starting today (and you had better get started today) you have 113 days – three months and 21 days – until the election.  I am not counting Election Day.  Here is what you can and must do to (a) save the country, (b) save your party on November 2, and (c) save your reputation – indeed, turn it from ineffective goat (sorry – tough love, there) to crusading hero for *C*H*A*N*G*E*!!!

    1. You are surrounded by Wall Street and establishment hacks from the Clinton era.  Get rid of them.  Fire Bernanke, Summers & Geithner immediately.  If you are listening to Robert Rubin in any way, stop it.  Or appoint him to something, just so you can fire him.  That’s because in the great tradition of CEOs everywhere, you need them to be the goat, not you.  Blame the failed policies of these guys you fired plus Hank Paulson and George W. Bush for getting us to where we are today.  If anyone asks any embarrassing questions, say you were misled.

    2. You are going to make four major moves to turn this situation around 1800.  Please sit down as you read this; I would not want you to get hurt if you faint.  The first is a fiscal move.  You are going to rebate all individual income taxes paid for the last three years, with a minimum check of $25,000 to single taxpayers and $50,000 to those filing jointly.  Yes, if they filed jointly and paid $2,000 in taxes over the last three years they get $50,000 back.  If they paid $50,000, they get $50,000 back.  If they paid $250,000, they get it all back.  What if they had such a low income they didn’t even file?  They still get $25,000 or $50,000 back.

    I want you to be very Presidential about this.  Go on TV and urge people to take this as a do-over to get rid of their credit card debt, get caught up on their house payments, buy snow tires or do some elective surgery.  You might have Billy Graham talk about the Jubilee Year, if he is still alive.  Urge the community do-gooder organizations to put programs in place to advise people on how not to blow their one-time windfall.

    Nancy Pelosi will be mad as hell.  Harry Reid won’t be – he is going to get whipped in November if you don’t do something popular.  Just point out to Nancy that those paying over $250,000 paid about 80% of the taxes for the last three years, but are only getting 5% of the money flowing back.  I am making those numbers up, but you get my drift.

    Won’t this cause inflation to take off?  Not right away – we have too much unused capacity, and the Chinese have too much stuff in warehouses that they have been churning out to keep their pretend GDP numbers up, with no buyers.  Believe me, GM will not run out of Silverados just because all the tattooed 20-somethings get an unexpected $25,000 in the mail.  But they will sell a hell of a lot of Silverados.  Later, inflation is going to skyrocket anyway, and you can (correctly) blame it on Bernanke, Geithner, Summers, Paulson and Bush.  (And Rubin, if you can find him.  He seems to have disappeared.) 

    Won’t this cause the dollar to tank against the other currencies, gold and silver?  Yes.  But the dollar is a Dead Man Walking.  The Fed has destroyed 94% of the dollar’s value since 1913.  This will destroy the remaining 6%, but not to worry – you are going to blame it on Bernanke et. al., remember?   And that brings us to your second major move.

    3. You are going to leave the Federal Reserve Board as the supervisor of banks, but take away their ability to create money and credit and give it back to the Treasury Department. 

    You have some convenient cover for this: It is what the Constitution called for in Article I, Section 8, Clause 5, because as Thomas Jefferson famously said: “If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.”

    Is that stirring stuff, or what?  You can look straight at the teleprompter and read that, and you’ll have Glenn Beck shouting: “Hallelujah!”  Well, maybe not Glenn Beck, but pretty much everyone else.

    The cool part is that when the Fed was established, there was a backout clause that let the government buy them out for $1 billion.  It must have seemed like a huge amount of money to the banksters that secretly created the Fed.  Today, not so much.

    One warning: President Kennedy decided to end the Federal Reserve System and issued an Executive Order that the U.S. government was to reclaim its Constitutional mandate to control the money.  Three weeks later, he was dead, and Lyndon Johnson vacated the order.  Watch your back; like the naked shortsellers, the banksters can play rough.

    4. Okay, only two to go.  Your third move is to let Federal Reserve Notes die of their own weight by issuing only Treasury Notes in the future that are 100% backed by gold.  You’ll have to revalue gold to about $20,000 an ounce, and stand ready to buy gold at that price with Treasury Notes or sell gold at that price for Treasury Notes.  You will not accept Federal Reserve Notes for gold.  Federal Reserve Notes can still circulate for anyone who wants to use them, with the conversion ratio between FRNs and TNs set by the market.  Believe me, FR notes will disappear in a hurry – an example of good money driving out bad.

    Now, what does revaluing gold to $20,000 an ounce do?  It makes those who hold gold much, much richer.  And who holds the most gold?   You do!  It’s in Fort Knox and the vaults of the New York Fed, which is holding it for you.  Incidentally, I would get it out of there – be sure you count it – and move it back to Fort Knox.  Just being careful.  But the U.S. government holds more gold than pretty much anybody, and if you are willing to pay $20,000 an ounce in crispy new Treasury Notes 100% backed by gold for more of it, then by golly you might even find some sellers and add to the hoard.

    As a thought, the U.S. debt that was issued while the Federal Reserve was issuing notes could be paid off only in FRNs.  Depends how mean you want to be to China, Japan and Russia.  Remember that those guys hold a heck of a lot of gold, too, so you will be doing them a huge favor by revaluing gold to $20,000 an ounce.  They will be able to afford a haircut on the debt repayment.

    5. This is it – your fourth and last move, and it is the lulu that gives you a sweep in November and a second term.  It also saves the whole country, but I know that is a lesser priority than a sweep in November and a second term.

    You are going to abolish all personal and corporate income and Social Security taxes, and urge the states to abolish their income taxes.  Completely abolish them.  Reasonable severance to the civil servants of the IRS, of course, who can then find productive work that does not involve robbing their fellow citizens on a daily basis.  You are going to replace the income and FICA taxes with the Fair Tax.  Please see  I have written about this before and won’t repeat it all here, but basically it is a national sales tax with an up-front rebate to take care of low-income folks. 

    You see, Mr. President, if you want less of something, like cigarette smoking (sorry, couldn’t resist), you raise taxes on it.  We want more income in this country, not less.  More income means more jobs, more savings and more investment.  We want less consumption to get our trade deficit down, and also to get people off the treadmill of keeping up with the Joneses by using their credit cards.  So we tax consumption, not income.  Get it? 

    This makes the expiring Bush tax cuts a non-issue.  And don’t pile a VAT tax or a sales tax on top of the income tax, because that would just depress the economy and make people mad at you.  Now imagine this: You go on TV and tell your loyal subjects that you are not only rebating the last three years of their income taxes in cash, but they will never again have to pay income taxes and you will personally work to repeal the 16th Amendment.  The Republicans won’t even run against you in 2012!  Or maybe they’ll put up Glenn Beck and Rush Limbaugh as sacrificial lambs – big fat sacrificial lambs, so to speak.

    These four steps are all you have to do to get us out of the mess, unleash American ingenuity into a flood of new economic growth and be the hero you know you deserve to be.  (That’s coaching language.) 

    ·       A huge tax rebate to jump-start the economy for real this time

    ·       Get rid of the Fed and their Federal Reserve Notes

    ·       Go back to honest money

    ·       Get rid of the IRS and substitute consumption-based tax revenue

    But if you want a bonus, here’s a fifth idea: Have a one-time tax holiday with no criminal prosecutions for those who have stashed money overseas, either in tax shelters or just illegal cash accounts.  They can bring it back to the U.S. and pay only 10% taxes, no questions asked.  The rich and the thugs – am I being redundant? – with semi-legal or illegal money overseas will bring it back, liquefy our banks and pay you a bolus of cash when you could use it.  As I said, it’s a bonus idea. 

    I have a few others for your second term: Legalize most recreational drugs, tax them and allow them to be distributed through the existing system so you can keep track of who’s using them too much, and get them some help.  The subsequent collapse in the Mexican, Columbian and Afghanistan economies is not our problem.  The savings in prison costs and being able to recapture the inner cities is our gain.

    Speaking of Afghanistan, get out of there right away.  Cut a deal with the Taliban: We’ll stop supporting the corrupt Karzais if the Taliban will guarantee women’s rights, religious freedom and unrestricted Internet access when they take power.  If they break their word after a while, let the Afghani people punish them.  It’s not our job.  After we’re out of Afghanistan, go to Iraq, declare victory and get out of there, too.  That’s not our job, either.  Never was.

    After you save $1 trillion by extricating us from those two wars, let’s talk about banning high fructose corn syrup to reverse the obesity problem, getting rid of the ethanol boondoggle and import tax, and taking another look at the long-term effects of genetically modified seeds, fluoride in the water supply and confined animal feeding operations.  Also regulatory capture in the SEC and FDA.  That ought to be enough to get you to 2016 as the greatest President in 50 years.


    Michael Murphy CFA
    New World Investor

    P.S. As for Social Security and Medicare, the new high economic growth will solve the problem.  Just appoint a commission and kick that can down the road. 

    (From my free Coffee With Michael weekly newsletter)

    Disclosure: No positions
    Jul 09 11:49 AM | Link | Comment!
  • What Katrina Was to FEMA, Swine Flu Deaths Are to FDA - Buy BioCryst
    In contrast to their good job shepherding swine flu vaccines through the approval process, the FDA has failed for months to provide Intensive Care Unit doctors with an an effective intravenous antiviral to treat the sickest victims of H1N1. FDA began a Pre-Emergency Use Authorization process for BioCryst's peramivir almost six months ago. The development of peramivir has been sponsored by HHS, and it has completed Phase I and II trials in the U.S. and Phase I, II and III trials in Japan. It is known to be safe and effective, yet Americans are dying daily in the ICU without timely access to the drug.
    Why is an intravenous antiviral the FDA knows to be safe and effective languishing in their bureaucratic process while Intensive Care Unit doctors plead for it to be released before more victims die? The FDA approached BioCryst Pharmaceuticals of Birmingham, AL almost six months ago to begin the Pre-Emergency Authorization Use process for peramivir. The Phase I and II U.S. trials were sponsored by the Department of Health & Human Services under a $102.4 million contract. FDA had already reviewed Phase I safety data and approved the drug for Phase II studies. They then reviewed the Phase II safety and efficacy data and approved the drug for Phase III studies that may not be completed until 2011. In June, they gave the drug Emergency IND status, so a single doctor with an identified patient can fill out forms and ask the FDA to permit BioCryst to ship a dose of the drug. This shows again that the FDA knows the drug is safe and effective.
    The Emergency Use Authorization (EUA) process is designed to allow drugs in development to be sold or stockpiled to treat an imminent health threat, especially when no other effective treatment is available. There is no intravenous antiviral for the H1N1 flu approved anywhere in the world, including the U.S. Peramivir is the closest to achieving approval, in both Japan and Korea. I expected the FDA's EUA approval process to take no more than 60 days. It has now taken six months, with no end in sight, and many critically ill U.S. swine flu victims have died unnecessarily as a direct result of the delay.

    Most people who contract the swine flu simply suffer through the typical symptoms of flu. But 10% to 20% of the victims, who are often otherwise-healthy children, young adults or pregnant women become sick enough to be hospitalized. Most of those can be treated with Tamiflu or Relenza, which are already in national stockpiles around the world. But a significant portion — as high as 15 per cent, according to the World Health Organization — end up in ICUs for many days or even weeks, hovering between life and death.
    Dr. Paul Hebert, editor of the Canadian Medical Association Journal and an intensive care physician in Ottawa who has treated many of these sickest patients, said: “I've never seen this. As an ICU doctor, it's very, very, very rare I can't deliver enough oxygen to someone to keep him alive. They die of other things, right? They die because their organs fail. In this case, we can barely oxygenate them.”
    Peramivir is a very effective intravenous antiviral that can deliver a large load of drug very quickly, as opposed to the five-day treatment regimen with Tamiflu. Because the H1N1 virus often goes deep into the lungs and replicates much faster than the seasonal flu, many critically ill patients cannot use inhaled Relenza.
    If an ICU patient does not respond to or cannot take Tamiflu or Relenza, the ICU doctors have nowhere else to turn. Although peramivir is available on a case-by-case basis under the awkward, slow Emergency IND process, in most cases the drug cannot be transported to doctors in time to save a patient's life.
    In one recent case, desperate ICU doctors in Great Britain broke open a Relenza inhaler and mixed the contents into an IV bag, saving the life of a 22-year old woman. ICU doctors need an intravenous antiviral immediately, and peramivir is the only one that has completed Phase III clinical trials. Shionogi announced the positive results of their Phase III trials this summer, again showing that intravenous peramivir is a safe and effective drug.
    As a result of the FDA's intolerable delay in issuing the EUA and an order to stockpile the drug, hundreds of Americans have died unnecessarily, including 144 children in the flu season so far. Yet the logic for approval is simple:
    1. Is the drug safe and effective? Yes, as shown by the FDA's review of Phase I and Phase II results, the Japanese Ministry of Health review of Phase I and Phase II results, Shionogi's Phase III results reported recently at the ICAAC Conference in San Francisco, and the FDA's own granting of the Emergency IND status.
    2. Is there a need for the drug? Yes, there is no other intravenous antiviral available for ICU doctors to use when Tamiflu and/or Relenza have failed or cannot be given to the patient.
    3. Is the Emergency IND process sufficient to fill the need in ICUs? No, the cumbersome, slow process has resulted in less than 10 patients having access to peramivir since June, while hundreds have died.
    I am waiting for a crusading journalist, columnist or politician to hold the FDA's feet to the fire on this issue, and demand the Emergency Use Authorization and a substantial stockpiling order immediately. BioCryst has already signed sales reps in Mexico, Brazil, Israel and China, and I expect India and Europe to be next. These countries can place orders for peramivir with less bureaucracy than the FDA, and the drug might be saving lives overseas while Americans are still dying without it.

    To quote one well-known biotech columnist: “
    Murphy...seems to be the only person I hear slamming the FDA about its response to the flu, blaming regulators for dying kids. As if Margaret Hamburg has blood on her hands.”
    My sentiments exactly.

    I expect BCRX to book a large order for the U.S. stockpile, equally large orders from the BRIC countries, Mexico, Israel, Europe and the World Health Organization, and ongoing orders for many years to replenish the peramivir that is used in ICUs or emergency rooms. Thus, my disclosure.
    Disclosure: Long BCRX, obviously

    Sep 21 12:14 AM | Link | 4 Comments
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