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Friday Rundown: Merck, Pfizer, Commodities, Short Selling


Where's Bubba when some poor store owner in New Orleans needs him?


I'm so happy we're rolling into a weekend I can't hardly see straight. I'm happier still since I'm generally going to leave the computer off and the phones on voice mail the entire week so I can take a break. Despite that, this week has been interesting, so I've a number of short comments on a variety of topics. Let's get to them…

Merck's Victory

In an under-reported story (from a financial standpoint), Merck (MRK) got a big win when a Centers for Disease Control (CDC) advisory panel recommended their HPV vaccine should be a routine vaccination for 11-12 year old girls. Yes, the FDA approved Gardasil already, but the CDC panel's nod means it will have the force of CDC recommendation behind it, and that's a huge deal.

It Is What It Is

I've read some of the testimony from the much-ballyhooed Judiciary Committee hedge fund meeting this week. I've been dismayed at the focus more on who was behind what's being said than what was actually said. Anyone who disbelieves that hedge funds do not buy opinions from independent and investment bank researchers is naïve. It happens every day and will continue to get worse until someone, anyone decides to do something about it.

Generic Zocor, Zoloft

In another bit of news I find endlessly fascinating, Pfizer (PFE) let slip this week a subsidiary will be marketing generic Zoloft, their antidepressant whose patent expires today. This follows news that Merck is doing the same with their lipid drug Zocor. I've always wondered why pharma companies don't participate in generic sales of their own brands. They are likely to have better economies of scale than their generic competitors and should, therefore, be able to produce pills at least as cheaply as generic competitors. Generic drug makers have been a popular investment because of demographic and health care payor trends. You couldn't pay me to invest in that group now.

Kaizan or Complacency

Kaizan or Complacency article was an interesting read and I congratulate him on the courage it took to write it. I'll add my $0.02 worth… I agree 100% that the stock market thinks it runs on fundamentals, but it actually runs on psychology. The US market's ability to gain increasingly depends on the world's population as seeing the US markets as having some additional benefit over other markets. When the world stops seeing that – say for instance because they start looking at the country generally in a less favorable light – then we're all in trouble. What I don't agree with is that this is a US-specific phenomenon. The US is the country that most obviously has the most to lose, precisely because we've benefited the most. Any country who bollocks things on the world stage – financially or otherwise – will see the same effects.

The "Howling at the Moon" Club

I'm just smiling thinking of what Jason Goepfert must be saying to his computer screen every time he reads something like: "Yesterday's gains were likely part of the regular effort to bump stocks up at the end of a quarter." I'm surprised at who keeps saying that given (1) I know they read the Buzz; and (2) Jason showed there is no factual support for that view. Welcome to the "Howling At The Moon" club, Jason!

Watch the Commodities

Was it my imagination or did a larger-than-normal number of people seem really disappointed that folks were making money yesterday? And do you think that was related to the monster jumps in short interest we saw last period? I'm certainly in the camp of people who remain suspicious that Dr. Bernanke is done wringing speculation out of the markets. I think we really need to watch the hard commodities markets (copper, oil, gas, etc.) to see if speculation there has moderated. If they start taking off again, I guarantee we'll get a repeat of his hawkish comments and another rate hike. Or, in your best Pete the Puma voice, "Oh, three or four" more.

It Will Matter

I had an insightful question from a MV reader (are there any other kind?) asking if perhaps the rise in short interest was related to the rise in issuance of corporate debt. Perhaps, and maybe even "probably." But that doesn't limit the fact that rising equity values, rising dividends, and rising interest rates make short positions increasingly expensive. I've been saying for over a year now, I'm not sure when it will matter, only that I'm sure it will eventually matter.

Short-Selling Disclosure?

And since we're on short selling… Perhaps someone can explain to me why short selling shouldn't be subject to the same disclosures as owning shares. Why shouldn't we require funds to disclose their short positions in a similar fashion to how they disclose their long positions, since we've decided that disclosing long positions is important? Why aren't short data available on a tick-by-tick basis, or at least more often than once per month on a two-week delay? If Congress has any sense, they'll rectify that discrepancy about the same time they give the SEC statutory authority to register hedge funds.

Quotes of the Week:

From President Bush's press conference yesterday after the Supreme Court said prisoners at Guantanamo Bay have rights: "We'll work with the courts on this issue." Dear Mr. Bush: You don't "work" with the courts. They've said to alter the policy, so alter it. That's kinda how this checks and balances thing works in our political system.

From the article I Buzzed yesterday about a group of clothiers in New Orleans suffering as a gang of transvestites repeatedly robs their stores: "They're kind of confused because they think they're women so they don't mind hitting women, but they're dudes. If you get hit by one it's like getting hit by a dude."

Have a great weekend and a safe holiday next week. I'll be back in the saddle a week from Monday.
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