It is difficult to look at the retail sales data this week and figure out the state of the economy and/or the direction it is heading in. On the one hand, the National Retail Federation reported a higher number of shoppers compared to last year, but the average shopper kept to a tighter budget. The result was a decrease of 2.9 percent in sales from the comparable Thanksgiving weekend period from last year.
If you found out a company developed a ground-breaking new way to treat prostate cancer, you might seriously consider investing in that company in the hope that it produces a billion dollar drug, the pharmaceutical equivalent of a home run!!
Dendreon Corp (DNDN) did just that, with its Active Cellular Immunotherapy (ACI) drug Provenge, which essentially treats a patient’s immune system to recognize and fight cancer. The problem is that Dendreon is a one-trick pony and competition in ACI is heating up and coming from the pharmaceutical giants with much broader product lines and much deeper pockets.
In our view, Dendreon is a lame duck. The only hope for investors is that it gets acquired by one of the large pharmaceutical companies looking to leverage the technology that Dendreon pioneered. But we don’t see a catalyst for this to happen in the near future and while it is looking at partnership opportunities for the European market, it may need to raise more capital to continue to operate until it becomes cash flow positive.
We understand how investors can be excited by ACI, we just don’t think Dendreon is the way to play it.
It’s no secret that Fiat owns a big chunk of Chrysler. Yes, for those of you hiding in your closets during every episode of Budget Talks, Obamacare, and Debt Ceiling, wondering if the end of the world is near, the Italians own one of Detroit’s finest. The big debate over the last few years is between Fiat and the United Auto Workers Trust that still owns 41.5% of Chrysler. The UAW Trust wants to maximize the amount they get paid for selling it’s share to Fiat. This way, they can pay benefits to retired Chrysler employees. Fiat, on the other hand, wants to pay as little as possible, with the idea to own all of Chrysler, so they can take advantage of economies of scale to reduce costs and increase shareholder value. You can see the dilemma.
Back in May and June, if you were invested in REITs, you saw the value of those positions take a huge hit as did most fixed income investments. But REITs aren’t fixed income, you say, so why were they so negatively impacted?
Well, bottom line is that REITs are perceived to be ‘high yield’ plays, or more broadly, that investors invest in REITs for the income they provide. After all, they have to pay out 90% of their income to unit holders. Therefore, when interest rates rise, there is the perception that REITs will be negatively impacted similar to how fixed income reacts to interest rate increases.
This is a myth, however, or at least, not entirely true across all types of REITs. In fact, there are some REITs that may actually benefit from interest rate increases, which usually occur when inflation is rising. Not the case in May and June 2013, but usually, when interest rates are rising, it is accompanied by inflation.