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A distinct possibility the sky won't fall


Hey! Pollyanna is a good friend of mine.

When you find out you've been given the great honor to write for Minyanville, the first thought that runs through your head is "I hope I'm smart and clever enough to keep up." Shortly thereafter, an even more worrisome thought starts filtering in:

"What Minyanville character will I use for my first story?"

You may chuckle, but it is not an insignificant decision. The critters have an important job here. Not only are they a means with which to educate, which critter chosen at any one time imparts subtle (and not so subtle) cues as to the underlying views of the writer.

For my first piece, I chose Snapper because investing in biotechnology is all about rapid moves. You have to respect the ability of any biotech stock to rapidly gain or drop large amounts, sometimes without warning. Snapper is my sector's poster critter so it was a logical choice.

I could have chosen Hoofy, our glass 3/4-full Minyanville denizen who rarely has seen a market without some sort of positives. Without diminishing my prior cautions about falling in love with a stock, investing in biotech - especially development-stage biotech - requires a level of optimism and faith not normally found in those who subscribe to the glass 3/4-empty views of our resident optimistic pessimist, Boo.

While I never ignore the little Boo sitting on my shoulder, I freely admit to being biased to Hoofy's camp. With that background, I present the following little tidbits for the bull camp I've picked up over the past couple of weeks.

Work is beginning to come back for small businesses

Via a story too long for these pages, I belong to an outstanding organization called Digital Eve. It is a collection of people dedicated to helping women advance in the field of technology. Our local DE chapter has a mailing list for members to communicate. Last year, the list was filled with horror stories of lost jobs and lost businesses. Work for the many independent contractors on the list simply vanished to a degree I wouldn't have believed if I did not also see it firsthand. As my wife happens to be a freelance professional graphic designer, I had a front-row seat to the phenomenon where even established contractors would go months (months!) without new contracts.

In the last month, however, business has been flooding back. My fellow DE members are reporting a surge in the number, length, and value of contracts as clients begin to reinvest in technology, advertising, and public relations. In fact, my wife is in the middle of an all-nighter to meet dual deadlines for clients - something that has not happened in months and months.

Hiring is finally happening

A big part of DE is the sharing of job opportunities among members. The number of job openings in technical fields has also increased in the last month. Outsourcing and uncertainty still seem to be plaguing the hiring practices of large companies, but small and medium-sized companies are hiring rapidly. Hiring seems to be particularly strong in companies founded during the dot-com boom who managed to weather the drought because they had smart management, real products, and real markets. Hiring at small businesses rarely makes headlines, but it is especially important because they are the greatest economic engine in the country.

Biotech executives are cautiously optimistic

I wrote previously that biotech execs were worried about election risk and the prospect of another round of big pharma mergers. Despite this, however, they are very optimistic. One key difference between this uptrend and the genomics-driven uptrend we saw in 1999 and 2000 is this one is actually based upon products. When we interviewed the CEOs of the companies we cover for our annual Anniversary Issue, this difference was a common theme.

While there are still valuation disconnects (point me to a time in the market's history when there weren't), the companies that have rallied the most are generally those with the best pipelines and proven product candidates.

Investors are smarter

I've never been a fan of contrarianism based upon individual investor sentiment because it presumes the very people who provide a living for most of us market participants are stupid. I will grant you that the lack of widespread access to places like Minyanville has created a situation where most individual investors have little understanding of how the market works. However, my own experience says this has everything to do with lack of good resources and nothing to do with intelligence. The fact that nobody here at Minyanville thinks investors are stupid is perhaps the most preciously unique characteristic of this community.

I make this point not only because it is a pet peeve of mine, but because it is rapidly changing. A very large number of investors learned valuable lessons when the bubble broke - lessons they have largely retained. My e-mail at Biotech Monthly is full of Subscribers telling me how they are staying more diversified, taking profits off the table even in stocks they love, and protecting their retirement funds by better asset allocation. This is a marked difference from my e-mail back in 1999 when people would share which credit card company had the best cash withdrawal rates for funding day trading accounts.

It is a different world out there than it was in 1999 even though the gains in the market indices in 2003 might indicate otherwise. Those who do not recognize this fundamental shift in basic investor intelligence do so at their peril.

I am no Pollyanna. Well, OK, according to Webster I probably am. I am not, however, ignoring the serious problems of debt, global instability, unrecognized price inflation, the oil tax, election risk, Wall Street fraud, etc. I just think it is necessary to point out there are more than a few rays of sunshine illuminating our market garden despite the otherwise gloomy outlook implied by the aforementioned problems.

Whether that will translate into broad market gains in the rest of the year is tough for me to say. The market has a habit of confounding even the most reasoned expectations. What you should take away from this is that just as there are good reasons why the market shouldn't soar, there are good reasons - several perhaps not so easily recognizable - why the market shouldn't collapse.
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No positions in stocks mentioned.

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