Ryan Pollack's  Instablog

History says a boom economy has always been followed by a bust. The bust in turn has always been followed by a recovery. The recovery likewise always begins as a ‘V’. The ‘V’ is really just a natural economic reaction. Excesses in the economy, which have taken different forms throughout time, must be purged. The reason for the ‘V’ can be taken from a lesson in physics with the principle of elasticity. Inventories get replenished just as quickly as they get drawn down upon, and the Fed reaction of lowering interest rates creates easy money for the economy.                                        

The pending ‘V’ always enters a pivotal point where there is a fork in the road. At this point we can continue into another boom or bull market or regress back into recession. If we regress then that is where the ‘W’ is possible. History shows as well there are really no such recoveries as the ‘U’ or ‘L’. Usually the Fed and/or government policy dictate where the economy will go after the initial recovery, although there have been instances of outside forces beyond the control of those two things.

I would also like to distinguish a recovery from a bull market. All recoveries are jobless and fragile by nature because the definition of a recovery is a return to normal or stable state. Jobs are not created in a recovery because as we know jobs are a lagging indicator due to the fact companies are always cautious about adding payroll. Companies make sure that the worst has passed and that there is little or no chance of going back into recession. When companies begin to hire again that is really the start of a bull market and cannot be deemed as a recovery. It is not a normal nor a stable time but a time of aggressive expansion.

   Apple is a tech darling of Wall Street. It has also been one of the best investments this decade. Investors think Apple will always be there for them to stabilize their portfolio. These should be warning signals. Apple was once loved like this twenty years ago too. The company was slow to react to the evolution of the personal computer in terms of size and price. Microsoft’s Windows OS also made the personal computer the easiest it had ever been, up until that point, to use and Apple’s OS was treated like the plague. Many thought Apple would be left behind.

   Then Steve Jobs came back and reinvented the company. The content, distribution, and way we listen to music were changed forever with the IPod. Apple’s Mac line got renewed interest because of the IPod and the laptop became a popular school supply. In this economy, however, with 9.5% unemployment and a rising sense that frugality is good I wonder who is going to buy a luxury PC for a couple of thousand when one can get a different brand of laptop or a PC, printer, and monitor package between $800-$1200? The IPhone was the second new, hit product of the decade. It introduced touch technology in a device that was music player, cell phone, and internet access all in one. Here is the problem. The goal is too lofty for growth in my opinion. The IPhone, especially now at $99 price tag, will eventually start to cannibalize IPod sales. A $99 IPhone will also reduce Apple’s margins per sale on the device. Finally the rate of IPhone sales will likely decrease as it has been a hot product the last couple of years. Soon everyone that wants one will have it and the market for it will have become mature.

   Of course this thesis goes out the window if Apple comes up with the next new, big thing, like it has done twice this decade. But this is the other problem. Apple’s big idea the last couple of years has been tweaks to and price reduction of the IPhone. That, in the long-run, is not a way to increase future growth. And it only erodes margins.

Nice surprise today with a GE-Geron business deal. This could revolutionize how clinical trials are done; testing drugs on human cells instead of animals. This could potentially save billions a year for pharma/biotech in clinical trial costs and thus reducing the expense of drugs for you and I. Not a surprise to see Feuerstein bashing as he does all biotechs. Can't blame the puppet when the master pulls the strings though. He is of no importance to the ultimate performance of the stock.

    Let me get the disclaimer out of the way first. I am not a medical doctor or biologist. I feel too many economist and analysts who do not have a background in these areas pretend that they do and write as such, but really have no clue what they are writing. I am just an investor with an interest in science. With that said I have two companies that I believe are the leaders in the field of stem cell technology and have enormous potential. The two companies are Geron and Advanced Cell Technology.

    Geron is scheduled to begin the first ever human clinical trial with human embryonic stem cells (hESC) as the treatment this summer. The goal is to repair and regenerate the myelin sheath of spinal cord injuries. The myelin sheath is basically the electrical conductor that lets the brain’s signals reach other body parts. When damaged these signals cannot pass the damaged area resulting in paralysis. The results in the 2,000 rats in the animal model are very encouraging. They all regained movement in the lower lumbar region and had zero side-effects i.e. tumors. The reason tumors can occur in these treatments is that the hESC needs to be differentiated to develop into the cell type that is wanted and require a delivery device that hits the injured spot in pinpoint accuracy. If either of these two requirements are not met the hESC can move throughout the body and/or have uncontrolled growth. Geron and Advanced Cell Technology, however, have these requirements covered.

   Geron is not a one-trick pony either. They are also using hESC to develop cardiomyocytes for heart disease which is in product development; islets for diabetes, chondrocytes for cartilage regeneration, osteoblasts for bone regeneration, and hepatocytes for liver disease. The latter four mentioned are still in research phase.

    Visa reported its quarter today and it remains a beacon of light in a still dreary economy. Here are some of the quarter’s highlights:

   The following is sure to rile up people’s emotions whether on social issues or political issues. They will also, however, provide increased revenue to a revenue starved government that says it wants to reduce the national debt, fix the economy, and cure other ills that threaten our nation (and I do not mean swine flu). I am sure some of you have heard these items be debated while chatter about others is picking up steam.

    Offshore Oil Drilling. Safety issues should not be a concern with today’s technology. Other countries, such as Norway, have overturned offshore drilling bans without incident. Not a single rig in the Gulf of Mexico caused a spill, even during Hurricane Katrina. The risk of tankers causing a spill is actually higher than offshore rigs. Tankers are also the favorite target of the Somali pirates. We would benefit by depending less on foreign oil and creating high-paying jobs at home during a time of increasing unemployment and economic distress. People would be needed to survey the ocean floor, construction companies needed to build the rigs, and workers needed to man the rigs. All are high-paying jobs that would increase consumer spending and benefit every town or city on the U.S. coast as well as the federal government through more income tax dollars. As an added benefit the U.S. brings more supply online lowering prices hurting OPEC and decreasing trade imbalances due to oil.

    Invest In Green Technologies. No, I do not have short-term memory loss. I am not contradicting myself either. As much as we want green technology and alternative energy it is not cheap enough or ready for prime-time. Therefore offshore oil drilling (along with natural gas and coal) is the gap filler until green technology is ready for prime-time. The government could provide some subsidies for incentives of traditional energy companies to evolve to green energy companies, make better products, such as a more efficient and shorter charge time for the electric car battery, and upgrading the power grid to allow for solar panels to be part of the network and a place to charge those electric cars (think charge stations with an outlet where pumps would be at gas stations). This would be the new industry where growth for our economy could come from in the future and forever put an end to bubbles in commodities.