Ten percent-plus unemployment be damned, the S&P500 (SPY) finished the week up +3.4% for its first positive performance in a number of weeks. While the back-to-back plus days last week were most impressive, several indices are already beginning to look overstretched to the upside.

(Click Image to Enlarge/ Glossary)

Let us consider this interesting question: What distinguishes the "smart money" from the average investor?

My nomination is a better understanding of risk. The individual investor is always looking backwards and focuses excessively on returns. The pros try to measure risk in many ways -- valuation, economics, or even finding the next black swan. They also implement risk control through the use of sophisticated option positions, long-short trades, or outright short positions.

A message to any Democrat, Republican, or Independent lawmaker who is thinking of abolishing or weakening the Sarbanes-Oxley Act of 2002. As a convicted felon, who committed his crimes in cold blood and with callous disregard for my victims, I will publicly endorse each and every one of you as a champion of the white collar criminal class that are a cancer on the integrity of our great capitalist economic system. If you abolish or weaken Sarbanes-Oxley, you will make it much easier for corporate white collar criminals to cook their books and defraud investors.

According to Floyd Norris's column in the New York Times column:

In early November 1999, the Dow was at 10,500.

10 Years later, it’s a different Dow that sits at 10,000 than we had back then with AlliedSignal, Citigroup (C), Eastman Kodak (EK), GM, International Paper (IP), Minnesota Mining, Philip Morris and SBC Communications now replaced by Cisco (CSC)), Chevron (CVX), Hewlett Packard (HPQ), Kraft (KFT), 3M (MMM), Pfizer (PFE), Travelers (who became Citigroup in 1999, ironically), Verizon (VZ) and Exxon (XOM). The Dow finished 1999 1,000 points higher, at almost exactly 11,500 despite the fact that many people thought computer clocks would fail to roll over and wipe out Western Civilization on January 1st.

Shortly after the market open on Friday, Cel-Sci Corp. (CVM) issued a press release declaring that the company will commence a Clinical Study measuring the effectiveness of the company's LEAPS technology in the treatment of H1N1-hospitalized patients. According to the press release, blood will be drawn from the hospitalized patients and then the cells will be "activated" with the LEAPS-H1N1 treatment "in order to assess the cells' response as the basis for the planned future treatment of this patient population under a next-stage clinical trial protocol." [Quotes were taken directly from Friday's PR]

This study was expected, as the company informed investors in September that the FDA had given Cel Sci the 'go-ahead', but what is significant in my opinion, is the fact that Johns Hopkins has jumped on board. Johns Hopkins University is one of the nation's most prestigious - especially in terms of the School of Medicine. The fact that an "Institutional Review Board" of Johns Hopkins University gave the clearance for the this clinical study to proceed - with the Johns Hopkins name attached to it -should give sceptical investors a 'warm & fuzzy' that there is some significant potential for LEAPS to become an effective treatment for H1N1 patients.

It was announced by Celsius Holdings (CSUH.OB) in a Thursday morning press release that the Celsius calorie burning beverage will soon be available in Ralph's Supermarkets in Southern California.

The product is already entrenched in the NorthEastern portion of the country and a significant push into the heavily populated SouthWest is a logical next step. With fitness and 'looking good' a huge part of the SoCal lifestyle, Celsius has a chance to catch on a big way, in my opinion. Those beach bunnies roller blading down the coastline in skin tight shorts and half tops will only look that much better with a can of everyone's favorite calorie burning beverage in their hand; but of course, that's just my opinion.

Stock price: €69.5 ($103.11)
Conclusion: Future growth in developed markets remains an issue. Current stock price looks full (P/E 21x 2009 and 19.6x 2010), in line with our DCF based valuation estimate.

Q3 sales: Sales up 0.8% like for like (-0.7% reported), adjusted for SAP, sales almost flat. 9 months down 1.9% like for like, up 0.7% reported to €13bn.

Watson Pharmaceuticals, Inc. (WPI) earned $0.54 per share in the third quarter of 2009, down from $0.60 in the same quarter of last year. [Note: our per-share numbers are slightly different than the official results because we don't adjust for interest expenses on convertible contingent senior debentures (CODES).]

This post examines the Income Statement for the quarter in the earnings announcement and the more detailed 10-Q and compares the entries on each line to our "look-ahead" estimates. Our target for Watson's Net Income in the latest quarter was $0.56 per share.

On 4 October 2009, The Wall Street Journal ran an article World Need for Oil Expected to Ease (subscription might be required), where the author, Spencer Swartz, wrote:

The International Energy Agency next week will make a "substantial" downward revision to its long-term forecast for global oil demand, a person familiar with the matter said, marking the second year running the group has slashed its view of the world's thirst for oil.

Berkshire Hathaway (BRK.A) reported results for the third quarter following the close of trading Friday. Operating earnings per share were nearly flat at $1,325 per A share, down slightly from $1,335 in the third quarter of 2008. Operating earnings per share for the first nine months of 2009 declined 11.8% to $3,572 per A share, down from $4,048 per share for the first nine months of 2008.

Net income per share for the third quarter more was $2,087 per A share, more than triple the net income recorded in the third quarter of 2008. However, because net income includes the effects of investment and derivative gains and losses, it is more meaningful to focus on operating earnings per share rather than net income per share.

I have a rule about business meetings. When someone’s elevator pitch includes the explanatory phrase, “We’re going to be Google (GOOG) for __________.” I always respond by asking, “What are you going to do when Google decides to become Google for ___________?” Invariably the pitch-person quickly answers, “Google’s not going into this, it’s not their business model.”

You know, that conversation always makes me smile and, truthfully, it never gets old. One of my favorite versions of this dialog is the, “We’re going to be Google for Music” pitch. (I hear this almost as often as, “We’ve built a better iTunes.” But that’s for a different column.)

Pharmaceutical giant Eli Lilly (LLY) opened a new state-of-the-art biotechnology center in San Diego, part of an ongoing effort by the drugmaker to transform itself into a biotech titan. The move follows a relocation of its ImClone headquarters to a new biopharmaceutical research cluster in New York and construction of its biotechnology research and development complex at company headquarters in Indianapolis, Indiana a year ago.

Lilly's latest biotechnology center is located within an extensive hub of life science activity near the University of California, San Diego and other prominent biomedical research institutes, which the company says is consistent with its strategy to leverage external resources and knowledge to advance its pipeline.

The Swiss pharmaceutical giant Novartis (NVS) said it will invest $1 billion in China over the next five years including a significant expansion of the company’s biomedical research institute in Shanghai. On the heels of the announcement, the company also said it agreed to acquire an 85 percent stake in the Chinese vaccine maker Zhejiang Tianyuan Bio-Pharmaceutical for $125 million in cash.

Demand for healthcare in China is growing rapidly. As the country’s standard of living has risen with increased wealth so too has the burden of chronic diseases associated with lifestyle choices. The government is working to expand access to affordable, basic medical services to all citizens by 2020, and recently announced that it will spend approximately $124 billion over the next three years to further build the nation's health system. Novartis says it aims to support the government's health reform by sharing knowledge and best practices.

There are a lot of doom and gloom headlines around at the moment. Lots of development staff being laid off, games selling far less than expected, major publishers making massive losses and release schedules that look a little thin. What is happening here?:

By Kindred Winecoff

The above picture, from David Beckworth, is shocking. It shows that nominal spending (total demand in an economy) among OECD countries had a jarring drop last year, and that this is the proximate cause of the economic slowdown. (For a short post on why nominal spending matters, see this post). Beckworth is arguing that the Fed screwed up majorly by targeting inflation rather than spending, and is still making the same mistake.

By Kindred Winecoff

Trade skeptics Eyes on Trade noticed that wages decline during a recession:

I didn’t get why the NY attorney general is suing Intel (INTC), other than it’s the same publicity-seeking path his predecessor to get elected governor. Antitrust enforcement is a Federal issue, whether for the US DoJ/FTC/FCC or the Eurocrats in Brussels.

However, blogger Geoffrey Manne suggests that NY has an interest in hurting Intel and helping AMD, given that AMD is talking about building a $3 billion plan in upstate New York. For some reason, I thought the idea of Federalism and the Constitution was to prevent inter-state trade wars, but I guess both have gone out the window along with original intent.

By Kindred Winecoff

China life science news last week was dominated by stories of substantial foreign investments in China’s pharmaceutical sector. The Swiss biopharma Novartis (NVS) led the way, with nearly $1.4 billion in capital commitments to three separate initiatives in China. The company clearly feels that China represents growth – and Novartis has added significantly to its R&D, technical expertise, vaccine and marketing efforts there.

In its most spectacular investment, Novartis will begin a five-year, $1 billion China initiative with two aims: the company will dramatically increase its investment in its China R&D facility, and it will seek to make China one its top three markets worldwide (see story). The investment will increase the size of the company’s Shanghai R&D center from its current employee count of 160 to over 1,000 eventually. At that size, China will rank with Novartis’ R&D facility in Cambridge, Massachusetts. Only the company’s home research facility in Basel, Switzerland will be larger.

CBS reported modest upside to estimates in 3Q09 with most of the excess coming from the syndication business. However, it was still a strong quarter of improvement with the CBS Network returning to positive ad growth, dramatically lower ad revenue declines at the local TV stations, and modest improvement but still deeply negative ad sales at the radio stations and outdoor properties. Furthermore, on the conference call (see transcript here), management noted that Oct and November trends have continued to improve, particularly at the local TV stations which are showing positive growth excluding the huge political spending during 2008's Presidential election.

Management reaffirmed 2009 guidance despite the upside in the third quarter. This disappointed some investors who saw it as a lack of confidence in 4Q ad spending at the TV network. If you add current 4Q EBITDA estimates to year-to-date reported EBITDA you get exactly to the mid point of management's guidance. What the street would have liked was an increase in the low end of guidance to suggest that results would ultimately settle in the top half. I understand that reading but I think it is overly bearish and that the company will reach the high end of its guidance.

I was invited to attend the fifth annual ConnectWise Partner Summit in Orlando this past week and was surprised to discover that it has become one of the premier meeting places for aspiring Managed Service Providers ((MSPs)) and industry enablers.

I was also impressed with the amount of attention ConnectWise’s executives, other event speakers and sponsors, and the conference attendees gave to the convergence of Software-as-a-Service (SaaS), managed services and cloud computing.

Discovery Communications (DISCA) reported another good quarter, making it five in a row since the company went public in September 2009. The upside was not as big this quarter than prior quarters but that is due to factors beyond management control: higher expectations and analyst estimates and a still tough environment for advertising sales. What is in management's control continues to perform as well or better than any peer media company. Ratings are good, channel upgrades are on target and creating value, and cost controls remain strict.

DISCA shares are up 90% since Northlake's initial purchase in mid-September 2008 on the first day of the market crash. I still think upside remains but it will take more help from an economic and advertising recovery to drive future gains. I expect continued strong operating performance and support from merger activity at other cable networks to combine with an ad rebound and take the shares to the mid-$30s in 2010.

Wesco Financial Corporation (WSC) reported results for the third quarter Friday. The company issued a press release and filed the 10-Q report with the SEC. Wesco Financial is a publicly traded, 80% owned subsidiary of Berkshire Hathaway (BRK.A). Berkshire Hathaway also released third quarter earnings Friday.

Wesco reported net income per share of $1.39 for the third quarter and $6.01 for the first nine months of 2009 compared to $2.27 for the third quarter of 2008 and $8.21 for the first nine months of 2008. The company’s results continue to be impacted by weakness in the CORT furniture rental business and Precision Steel’s industrial businesses. In addition, investment income in 2009 has been negatively impacted by lower short term interest rates as well as reduced dividends from Wells Fargo and U.S. Bancorp. These negative developments were partially offset by improvements in underwriting results at the insurance subsidiaries.

When I first read the DirecTV (DTV) press release I was worried the stock would trade down. I saw the results as mixed with a few negatives offsetting plenty of positives. I sure was wrong. As the conference call (see transcript here) concluded, the stock was up 6.1%.

I think part of the gains relate to ongoing takeover speculation as DTV approaches the closing of its merger with Liberty Media Entertainment (LMDIA). LMDIA owns 54% of DTV. The deal dramatically reduces LMDIA's John Malone's influence and simplifies the corporate structure. It also sets up a spin-off of the rapidly growing DirecTV Latin America unit. That step is widely expected and makes DTV an easier and more attractive merger candidate for AT&T (T). AT&T exclusively sells DirecTV service in the telco channel and is already accounting for the bulk of DTV's new subscribers. With telco TV subscriber additions slowing but telcos still needing TV as part of the bundle in the battle with cable, DTV looks like a better and better acquisition candidate.

Biostar Pharmaceuticals, Inc. (BSPM.OB) has completed a private placement that raised $3.6 million in new capital. Biostar will use the proceeds to complete its new raw materials processing facility. By taking its raw material production in house, Biostar will lower costs and ensure its product quality. Biostar plans to sell excess raw materials to other pharmaceutical companies in the Shaanxi province.

For their $3.6 million, investors received 2,060,000 shares of Series B convertible preferred stock, which are comprised of the right to convert 1-for-1 into Biostar common and warrants to purchase 500,000 additional shares. The warrants are exercisable for a period of five years at an exercise price of $3.00 and include a call provision. Biostar is currently trading at a price of $2.40. Disregarding the additional value of the warrants, the investors paid just $1.75 for their shares, a 27% discount.

United Technologies (UTX) is a diversified global provider of high-technology products and services for building systems and aircraft. From an operating perspective, this stalwart blue-chip has weathered the recession better than other well-known peers. Although earnings and market price sagged in 2008, both are recovering quickly as the economy and stock market improves.

When viewed from the perspective of our Fundamentals-at-a-glance earnings and price correlated research tool, United Technologies’ operating excellence versus its peers’ is clearly evident. Figure 1 shows United Technologies’ stock price since 1996 overlaid on their earnings growth. As you can see, stock price tracked earnings very closely over the years. When the price (black line) rose above the earnings line (green line with white triangles) it always returned to the earnings justified price and vice-versa.

Any business or organization that depends on the charity of others is vulnerable to that charity being withdrawn.

The U.S. debt outstanding is just under $12 Trillion dollars.