Big Pharma's Next Decade Won't Be Lost

by Sebastien Buttet - published on Seeking Alpha on 03/28/11.


When macroeconomists coined the words "lost decade", they referred to a prolonged slump in economic activity and poor performance of financial markets of entire countries for ten years or more. Japan had a lost decade from 1990 to 2000 after its housing bubble burst (and a second one between 2000 and 2010 when expansionary monetary and fiscal policies failed to stimulate the economy). The 1980s were a lost decade for many Latin American countries that could not afford to repay their external debt and eventually defaulted on their obligations.


Investors who bought shares of large cap pharmaceutical companies ten years ago fully understand the meaning of "lost decade". To document the lack of performance of big pharma stocks between 2001 and 2011, we ask a simple question. Suppose that you had invested a hypothetical $10,000 in Pfizer (PFE) stock ten years ago, how much would your shares be worth today, assuming that no dividends were ever reinvested?


Read the full article on Seeking Alpha website.

Don't Bet on a Robust Japanese Recovery

by Panos Mourdoukoutas - 392 words.

Rational or Irrational Exuberance over Japanese Stocks?

As reflected by the precipitous slide in the Nikkei Index, Japanese stocks have been out of favor for more than two decades. Following the disastrous earthquake of March 11, this has changed, however.  In a cover story on March 19th issue, Barron’s prompted investors to buy Japanese stocks now, to take advantage of the country’s reconstruction boom, while a week later, mutual funds and ETFs investing in Japanese equities reported an $1.5 billion inflow.  Is this exuberance about Japanese stocks rational or irrational? 

The answer to this question depends on the comparisons made between the March 11th earthquake and previous disasters. When comparisons are made with the earthquake of 1923 that leveled most of Tokyo, and the disaster of the Second World War that left most Japanese cities leveled this exuberance is rational, as the disasters changed economic fundaments, especially policy. Both disasters prompted policy makers to ease monetary and fiscal conditions that fueled an expansion in the aggregate demand, especially a construction boom that boosted equity prices, especially shares of companies involved directly or indirectly in reconstruction. 

When comparisons are made with the disaster that followed the 1995 that hit the Kobe area, this exuberance is irrational, as the disaster didn’t change economic fundamentals. Monetary authorities did little to stimulate aggregate demand, because they were in a dire situation: they had driven short-term rates to near zero to fight deflation. Fiscal authorities weren’t in better shape either, as they were building bridges to everywhere and nowhere! Stock market gains, as a result were short-lived. After retracing its 25 percent decline in the next twelve months since the earthquake hit, the index continued its decent to new lows.  

Policy makers are in even more-dire situation at the time the March 11th earthquake hit. Thanks to several rounds of quantitative easing both short-term and long-term rates have hovered near zero levels for a prolonged period of time. This means that investors who buy into Japanese stocks now shouldn’t expect a boost from lower rates, and a boost from fiscal policy should be minimal, as money is expected to shift from building bridges to nowhere to repairing bridges to somewhere. Government’s hand to spend freely on infrastructure is further constrained by the country’s heavy debt burden that approached 200 percent of the GDP before the disaster.

Why we bet against NFLX?

by Sebastien Buttet and Panos Mourdoukoutas - published on Seeking Alpha on 03/25/11.

Netflix the company is firing on all cylinders! Thanks to the demise of its main competitor Blockbuster, the company enjoys a quasi-monopoly position in the DVD subscription rental business; its customer base recently crossed the 20 million members milestone and is expected to steadily increase and reach 28 million subscribers in 2011; earnings-per-share have doubled in the last two years; and profit margins should expand further as more subscribers opt to watch movies on-line rather than borrowing them, reducing mailing expenses.

It is no surprise that Netflix the stock (TKR: NFLX) has rewarded its shareholders handsomely in the past two and a half years. The stock made a low of $17.90 on October 27, 2008 and never looked back making an all-time high of $247.55 on February 14, 2011, a 14-fold increase. Positive momentum from institutional and retail investors alike has helped the stock move higher and so did a recent upgrade by David Wilkerson, a lead analyst at Credit Suisse (TKR: CS), with a 12-month price target of $280.


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