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  • Gilead's HCV Price Disparity In Egypt Comes Under Fire  [View article]
    The law establishing the Medicare Part D program prohibits Medicare from setting prices for pharmaceuticals, requiring it instead to use a pricing mechanism based on existing market prices. Medicaid and Veterans Affairs are allowed to negotiate (and as a practical matter, often set) prices.

    Democrats have long sought legislation to remove the legal prohibition on Medicare price setting/negotiating.
    Jan 3, 2016. 10:01 AM | Likes Like |Link to Comment
  • Gilead's HCV Price Disparity In Egypt Comes Under Fire  [View article]
    I think your comment about the best and brightest moving into other fields is worth highlighting. I am a physician with > 40 years in the field (including medical school), and have been teaching for > 30 years. There is no question in the minds of senior medical faculty I know that the best and brightest no longer enter medical school. This is the result of decades of stagnant pay, increased regulation, government-mandated oversupply (# of MD's tripled since 1970), loss of autonomy to third-party and government overseers and political vilification. Today, the best and brightest work in Silicon Valley or the like. Don't think this couldn't happen in pharmaceuticals if drug company options become worthless and opportunity dries up.
    Jan 2, 2016. 01:12 PM | Likes Like |Link to Comment
  • Gilead's HCV Price Disparity In Egypt Comes Under Fire  [View article]
    I am long GILD, with a large position. However, as Hillary's election becomes more likely, the pharmaceutical stocks will likely suffer. While I doubt she could get price controls through Congress, there are regulatory (executive) actions she could take, and could probably succeed in getting Medicare the power to negotiate drug prices (which it is currently prohibited from doing).

    I think the dramatic rise in drug prices -- even generics, thanks to exclusive distribution rights -- is building toward a backlash that will bring along some Republicans and make progress in government.

    The right or wrong of this, or the long-term impact on drug development and human health, will not be the issue. Political gain will be the determining factor, and that is against the pharmaceutical companies.

    I have held GILD for quite a while, but despair of what politicians will do to future returns.
    Dec 30, 2015. 07:48 PM | 3 Likes Like |Link to Comment
  • Random Thing I Think I Think: Gambling, Investing, Luck And Skill Edition  [View article]
    I am an avid follower of your posts, and this is my first comment and a small point at that.

    Poker at the serious / professional level is a game of skill with little luck involved. The skill in poker is not in card counting or knowing the odds of drawing the needed card; rather, the skill is in the betting and reading the betting of the other players. As a consequence, in games with very skilled poker players, most hands are settled without anyone showing his cards.

    Luck plays a much larger roles when unskilled poker players enter the game -- they are too ignorant and impulsive to respond rationally to the skilled player's betting signals, and, as a result, will fail to fold when the logic of another player's betting pattern says they should. As a consequence, the cards held by all players -- a function of luck -- plays a much larger role.
    Sep 25, 2015. 04:51 PM | 3 Likes Like |Link to Comment
  • ConocoPhillips: How Risky Is The Dividend?  [View article]
    Of course oil is a commodity, and commodities fluctuate in price. And of course, supply disruptions (Middle East conflict or Venezuela going off line due to collapse of government, etc.). But the over-arching factor in limiting future price increases to the levels we used to see last year ($100) is the ability of fracking technologies to produce ever more oil at ever-decreasing costs. This technology has caused a huge ramp up in US production and if price incentives were to support it, production would go much further. Moreover, these technologies are applicable to many other regions of the world.

    The question isn't whether there will be demand for oil (though that is a factor), but how elastic the supply now has become. If the U.S. lifts its export ban, then the Saudis will ramp up their own production. If prices rise, frackers will be able to pump more. Fracking is easily and quickly brought on line after shut down after price declines. And as the technology spreads to the third world, oil will be readily available at a lift cost of under $40, probably significantly less.

    This expandable supply will in the future keep a cap on prices. The Saudis can no longer be the swing supplier which can prop up prices with cut backs, but rather will only succeed in losing market share if they reduce production. I believe that the longer term future will see oil fluctuating not between $50 and $120, but rather $30 and $50, with fracking being the swing producer able to ramp up production rapidly and profitably when prices near or exceed that ceiling.

    Obviously, my numbers are guesses, and you are correct that anything could happen in the short run. But this is my vision of what will happen in the long run.

    Are the major integrated companies which are heavily invested in high-cost extreme-environment projects going to be able to maintain their profits, cash flow and dividends at current levels if oil averages $45 for the next decade? I'm not enough of a financial analyst to know. Because while $100 oil may come back, it may well not, and probably will not. Is CVX a buy with oil permanently under $50? This scenario is enough of a possibility that one needs to answer that question for himself in the affirmative before investing. An investment thesis that requires $100 oil to come true is too risky for me.
    Mar 18, 2015. 12:00 PM | Likes Like |Link to Comment
  • GE more focused on raising profit margins, analyst says  [View news story]
    My personal concern about GE is their large investment (>10% ?) in alternative energy, particularly wind turbine technology, but also nuclear. In my opinion, only political pressure from environmentalists prop up wind and solar, which cannot stand on its own, and never will in our lifetimes. Nuclear energy is now too costly with safety concerns, long lead times and regulatory strengthening after the Japan debacle.

    Oil and gas prices are down huge, and are going to stay low, probably ranging between $25 and $50 for many years to come. Fracking is a technological process (energy economist Phil Verleger calls it a manufacturing process), and is rapidly becoming more efficient and lower in cost, like all technologies. Once it moves into emerging markets with much lower labor costs (like television manufacturing did), oil will become even cheaper. These technologies will forever keep a lid on oil prices, as they can be idled quickly if there are low prices, and come back on line quickly if oil prices show any signs of life.

    As fracking/horizontal drilling comes down in cost world-wide, lift costs will decline to under $20/bbl, and production will be profitable at $30 or less, meaning production will increase to meet demand at far less than $50, let alone $100.

    Point for GE is that their large investment in non-oil energy technologies in my view is a long-term loser, and it brings into question the competence of management that they cannot see this happening.
    Mar 12, 2015. 08:09 PM | 4 Likes Like |Link to Comment
  • ConocoPhillips: How Risky Is The Dividend?  [View article]
    Phil Verleger (google him) is an MIT-trained economist with 40 years experience as an energy economist. He predicted that the Saudis wouldn't cut production at the November 26 OPEC meeting. He currently predicts WTI (American) crude will fall significantly farther as the Cushing facility in Oklahoma nears capacity in the next two months. The International Energy Agency predicts that while US production growth will slow over the next 2 years, it will not reverse course and start falling.

    Verleger released a paper in December examining fracking as a technology process that, like all technologies (computers, lighting, televisions, etc.), is coming down in cost and increasing in efficiency, and will continue to do so. He further predicts that as emerging economies with much lower labor costs adopt advanced fracking technologies, supplies will further increase in coming years and development and productions costs will decline sharply. For all these reasons, as well as conservation for environmental reasons, Verleger predicts lower world oil prices in the future.

    Part of the Saudi-OPEC strategy of lowering prices for crude is not only to try to stifle US production (a hopeless mission long run as US efficiency improves), but also to reduce the incentive to develop costly alternative energy rivals, such as wind and solar.

    Botom line, I think that the large integrated majors (XOM, CVX, etc.) with their very long term, capital-intensive, high-net-cost projects in remote and costly environments (off-shore, arctic, etc.) are in very big long-term trouble.
    Mar 12, 2015. 07:50 PM | Likes Like |Link to Comment
  • Royal Bank Of Canada: 3 Strong Reasons To Buy  [View article]
    The discussion has drifted from the definition of subprime (which does not mean low down payment, but rather mortgages made to a borrower without the documented ability to make the payments), to the issue of whether the Canadian housing market is in a bubble that may deflate as the US housing market did after 2007. That is an economic, not a definition question. If that were to occur in the future in Canada, the results for RY would depend on their exposure to non-CMHC-insured mortgages. cchennz is completely correct in that.
    Jan 26, 2015. 10:58 AM | 1 Like Like |Link to Comment
  • Royal Bank Of Canada: 3 Strong Reasons To Buy  [View article]
    Here is the perspective from a US mortgage loan officer: "Subprime" in the US means loans that are made to borrowers for whom the ability to repay cannot be documented through income/debt analysis, or who have low credit scores due to a history of mishandling of credit (defaults, short sales, bankruptcy, late or non-payments, judgments, etc.). Post-housing crash in the US, subprime mortgages are rare. The federal government now requires that the paramount consideration in making a loan is an analysis (according to government/agency guidelines) of the ability to repay. If that is substantiated, then it is not a subprime mortgage.

    On the other hand, there are hundreds of thousands of loans that require mortgage insurance, and it is always due to a high loan-to-value (i.e., less than 20% down payment). FHA loans require as little as 3.5% down and automatically require government (FHA) mortgage insurance. Conventional, non-FHA loans with less than 20% down also require mortgage insurance according to government guidelines, but that insurance is issued by private mortgage insurance companies.

    It seems to me that commenters in this thread have been using "subprime" often to mean that a loan requires mortgage insurance. That is not true in the US. There are few to no subprime loans being made, but there are plenty made that require mortgage insurance due to having less than 20% down (loan-to-value > 80%).
    Jan 24, 2015. 09:46 PM | 5 Likes Like |Link to Comment
  • How To Play Gilead In 2015: It's Going To Be A Bumpy Ride  [View article]
    The lowest trade was $85.95 at one moment on December 23, but it traded under $90 for parts of December 23 and 24. I added two lots on December 23, 1,000 shares at $86.94 and 1,000 more a little later at $88.01.
    Jan 16, 2015. 02:01 PM | 3 Likes Like |Link to Comment
  • ConocoPhillips: How Risky Is The Dividend?  [View article]
    Does anyone wonder what happens if oil is $40? History indicates that there could be a substantial period of time with oil lower than even current prices ($48 Brent).
    Jan 12, 2015. 11:04 AM | 2 Likes Like |Link to Comment
  • Oil's Effect On Ford  [View article]
    Anyone counting on higher oil prices to prop up F-150 sales is speculating. My read of the situation is that we have entered an era of lower oil prices, where $50-$60 may be the ceiling, not the floor, and that this era could last several years.

    I am long F 10,000 shares, but am concerned about

    1. the impact of low gasoline prices on sales of the F-150;
    2. on changes in the China auto market (strong move toward electric cars);
    3. on the slump in Europe.

    I understand that there are other reasons to be hopeful, but Ford failed to forecast Europe profits, recall problems, and presumably oil prices. Thoughtful, bold engineers, but not infallible.

    I'm struggling with this one.
    Jan 2, 2015. 03:37 PM | Likes Like |Link to Comment
  • Be Careful With Gilead - It May Be Time To Take Profits  [View article]
    129 comments and no one brought up the ABBV patent lawsuit. There has been a good deal written about it, and I worry that ABBV might come out with a royalty on Harvoni. Most people think this won't happen, and that it will take years to be finalized, but are other readers concerned? (BTW, I am long GILD, sizable position -- not trying to generate short pressure).
    Nov 26, 2014. 11:58 AM | Likes Like |Link to Comment
  • Heinz May Be A Buffett Stock, But This Isn't A Buffett Price  [View article]
    HNZ is my largest position, and I too am shocked that the company would sell itself for so small a premium. HNZ is probably the best single company for an dividend growth investor out there. Superb management, organic growth, shareholder friendly -- until now. HNZ would have earned that premium in dividends and capital gains in about two years. Instead we are being cashed out by a company that pays out nothing to shareholders and depends entirely on the vagaries of the market for returns if one has to gradually liquidate for retirement income.

    I sincerely hope that there is either another, higher offer, or better yet, a shareholder revolt.
    Feb 14, 2013. 11:03 AM | 4 Likes Like |Link to Comment
  • Wal-Mart Remains Built To Last Regardless Of Competitive Threat Of Amazon  [View article]
    I am long WMT, but have always worried about what would happen if unions were ever successful in organizing the company. Surely that would drag down profits and erode WMT's competitive position, as unionization has done in the past to all companies.
    Feb 11, 2013. 02:49 PM | Likes Like |Link to Comment