Capitulation in Back Month VIX Futures

October 14th, 2010

Yesterday, in VIX Sets Two New Records, I suggested that it was coming, but I never expected it to happen in such dramatic fashion.

In what I believe is an unprecedented move, the VIX futures collapsed today without any movement in the front month VIX futures.

For those who are fixated on the cash VIX and the first two months of VIX futures, the movement in the November through May VIX futures chronicled below probably looks unremarkable, as proportional as it is, but that is exactly the point: the VIX term structure almost never moves in uniform proportions. Typically the front month moves the most, the second month may move half as month as the front month, the third month half as much as the second month and so on. See the links at the bottom for some examples.

Today the cash VIX gained 0.14 points (to close at 19.07) and the front month VIX futures held steady at 20.65, indicating that market participants see the likely October settlement for the VIX one week from tomorrow at about 1.58 points above the current level.

The really interesting part is that at the same time the consensus of opinion is calling for a short-term rise in the VIX, there was an almost audible sigh of, “Oops, we have this one wrong…” when it comes to the longer-term outlook for the VIX.

Yesterday I thought I was going out on a limb when I repeated what has been a consistent position for the last few months:

“I do believe that when estimates of near-term and long-term volatility show a record degree of divergence, some considerable opportunities are presented. As I have spelled out in a number of instances lately, my thinking has been that the back month volatility will likely collapse in order to bring the present and the future back into line. There has been some evidence of that happening during the past two days, but I anticipate that long-term volatility expectations will continue to decline.”

Today it looks as if I picked up quite a few converts. Now the question becomes one of how low the distant month volatility in the VIX futures will fall. Back in April it went as low as the 23s. Today the distant month VIX futures dipped below the 30 level for the first time since June. The May 2011 futures are already down 2.85 points (8.7%) this month and if they are to match April’s levels, there are still another 6 points left to fall.

When back month VIX futures move more than front month futures, I pay attention. Perhaps I should have more company…

Related posts:

Disclosure(s): neutral position in VIX via options at time of writing



Read more here:
Capitulation in Back Month VIX Futures

OPTIONS, Uncategorized

Mid-Week Market Report on Equities and Metals

October 14th, 2010

Oct 14th
Its been an interesting week with stocks, commodities and currencies having a knee jerk reaction to the FOMC minutes released Tuesday afternoon. In short the Fed clearly said there must be more quantitative easing before things will get better. It was this news which triggered a rally in both stocks and commodities.

Quantitative easing is a fast way to devalue the dollar and the Fed is doing a great job at that. As long as the dollar continues to decline the stock market will keep rising.

This week kicked off earning season with INTC and JPM beating analyst estimates. We usually see the market trade up the first week of earnings and then start to sell off by the end of earnings season. Both INTC and JPM sold off on strong volume today despite the good earnings and today’s broad market rally. This just goes to show the market has not forgot about buy on rumor sell on news… The big/smart money sold into the morning gaps exiting at a premium price. Is this foreshadowing for what is to come?

Take a look at the chart below which shows the falling dollar and how its helping to boost stocks and commodities.

While earnings season is trying to steal the spot light in the market, the fact is everything for the past 2 months has been about the US Dollar. If you put a chart of the dollar and the SP500 together they trade almost tick for tick in reverse directions. The amount of money getting pumped into the market cannot last and it will lead to a huge volume reversal day in due time. Until this happens the market will trade higher.

Taking a look at the SPY daily chart the 5, 10, and 14 simple moving averages tend to act as buy zones. The market was choppy from April until about 2 months ago. Now we are seeing the market smooth out and traders are switching to more of a trend trading strategy and not so much looking for extreme sentiment levels which typically signal short term tops and bottoms. Focusing on buying at these moving averages has been providing good support thus far. Stops should be set on a closing basis, meaning if the market is to close below the moving average then exiting the position is a safe play. It’s always best to layer your stops (scale out) in trending market. So stops below the 5, 10, 14 and even the 20ma will provide you with enough wiggle room to riding a trend.

Mid-Week Trading Conclusion:

In short, we are in a strong uptrend and until we get a major reversal day, buying the market is the way to go. The market as we all know is way over bought so if you decide to take a position on your own, be sure to keep it small. I would also like to note that financial stocks were the worst performing on the day so that could be telling us there could be some profit taking in the next day or two.

Chris Vermeulen
www.TheGoldAndOilGuy.com

Get More Free Reports and Trade Ideas Here for Free: FREE SIGN-UP

Read more here:
Mid-Week Market Report on Equities and Metals




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Mid-Week Market Report on Equities and Metals

October 14th, 2010

Oct 14th
Its been an interesting week with stocks, commodities and currencies having a knee jerk reaction to the FOMC minutes released Tuesday afternoon. In short the Fed clearly said there must be more quantitative easing before things will get better. It was this news which triggered a rally in both stocks and commodities.

Quantitative easing is a fast way to devalue the dollar and the Fed is doing a great job at that. As long as the dollar continues to decline the stock market will keep rising.

This week kicked off earning season with INTC and JPM beating analyst estimates. We usually see the market trade up the first week of earnings and then start to sell off by the end of earnings season. Both INTC and JPM sold off on strong volume today despite the good earnings and today’s broad market rally. This just goes to show the market has not forgot about buy on rumor sell on news… The big/smart money sold into the morning gaps exiting at a premium price. Is this foreshadowing for what is to come?

Take a look at the chart below which shows the falling dollar and how its helping to boost stocks and commodities.

While earnings season is trying to steal the spot light in the market, the fact is everything for the past 2 months has been about the US Dollar. If you put a chart of the dollar and the SP500 together they trade almost tick for tick in reverse directions. The amount of money getting pumped into the market cannot last and it will lead to a huge volume reversal day in due time. Until this happens the market will trade higher.

Taking a look at the SPY daily chart the 5, 10, and 14 simple moving averages tend to act as buy zones. The market was choppy from April until about 2 months ago. Now we are seeing the market smooth out and traders are switching to more of a trend trading strategy and not so much looking for extreme sentiment levels which typically signal short term tops and bottoms. Focusing on buying at these moving averages has been providing good support thus far. Stops should be set on a closing basis, meaning if the market is to close below the moving average then exiting the position is a safe play. It’s always best to layer your stops (scale out) in trending market. So stops below the 5, 10, 14 and even the 20ma will provide you with enough wiggle room to riding a trend.

Mid-Week Trading Conclusion:

In short, we are in a strong uptrend and until we get a major reversal day, buying the market is the way to go. The market as we all know is way over bought so if you decide to take a position on your own, be sure to keep it small. I would also like to note that financial stocks were the worst performing on the day so that could be telling us there could be some profit taking in the next day or two.

Chris Vermeulen
www.TheGoldAndOilGuy.com

Get More Free Reports and Trade Ideas Here for Free: FREE SIGN-UP

Read more here:
Mid-Week Market Report on Equities and Metals




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Four ETFs To Play Black Gold

October 14th, 2010

Global economic growth is expected to boost demand for crude oil in the near term future, paving the path to opportunity for the US Oil Fund (USO), the United States 12 Month Oil Fund (USL), the PowerShares DB Oil Fund (DBO), and the iPath S&P GSCI Crude Oil TR Index ETN (OIL).

According to the Energy Information Agency (EIA), global demand for black gold for the remainder of the year is expected to increase to 86.06 million barrels per day, a 2.1 percent increase from last year.  Furthermore, the EIA expects global consumption to jump to 87.44 million barrels per day in 2011, an increase of nearly 300,000 barrels per day from previous forecasts due to resurgent demand in the US, Germany and Japan over the past three months. 

On the supply side, inventories in industrialized nations are expected to decline due to increased demand.  Furthermore, production from non-OPEC nations is expected to slow down in 2011 and OPEC is expected to leave its production levels stable in the coming months with minor production increases to come in 2011.

At the end of the day, a supply and demand imbalance could form in crude oil leading to higher prices and providing positive price support for the aforementioned ETFs.

Although an opportunity may exist in crude oil, it is equally important to consider the inherent risks that are involved with investing in commodities.  Such risks can be mitigated through the use of an exit strategy which identifies when downward price pressure is likely to be seen.  Such a strategy can be found at www.SmartStops.net.

Disclosure: No Positions

Read more here:
Four ETFs To Play Black Gold




HERE IS YOUR FOOTER

Commodities, ETF, Uncategorized

How to Short Gold…If You Dare

October 13th, 2010

With the price of gold hitting new highs seemingly daily, one would have to be rather daring to swim against the tide.  But if you’re looking to take up a contrarian position against continued gold price increases, there are a few ways you could do so.  First, let’s look at what’s driving the current price action.

What’s Driving Gold Prices?

  • Inflation? Historically, people flocked to gold as an inflation hedge.  Since the value of a dollar (or whatever the local currency is) was losing value in the marketplace, gold was attractive as an anchor currency – a hard asset.  In times of inflation, hard assets like real estate and precious metals increase since their supply is viewed as finite while governments can manipulate currencies to either tame or stoke inflation (given enough time).  This time’s different though.  We are not in a period of inflation.  In fact, we may very well be looking at deflation (examples of deflation investments).
  • Fiat Currency Collapse – No, rather than the specter of hyperinflation driving gold this time around, many attribute the rise in price to a virtual race to the bottom in all currencies.  As governments around the world continue to print more currency to stimulate their economies, the fiat currency model is becoming suspect to the point that people are beginning to lose faith in the true value of their local currency.  Gold is now being viewed as a virtual currency replacement – something that the government can’t simply flip a switch and produce more of.
  • Bubble? – Humans find a good bubble too hard to resist.  From tulips to internet stocks to real estate propped up by liar loans, when it starts to look like easy money is being made and you’re left out, the urge to jump on board is often too much to resist.  For the first time in decades, late night infomercials, radio ads and even respected talk shows are now touting the benefits and safety of gold, with people even setting up Gold IRAs. This was unheard of when gold was at $300/ounce, but one cannot help but notice the current frenzy.  After all, it’s the only asset besides bonds (see how to short bonds too) that’s performed well over the prior decade.

Why Gold Prices Could Fall

  • Correction – Even during periods of bubble formation, assets do decline temporarily, and then they drop precipitously in the end.  Given the pause in the $1000-$1100 range previously and then the rapid ascent to $1370, it’s entirely plausible that gold prices have gotten ahead of themselves and could fall an easy 10% – 20% within a couple months.  After all, the financial system didn’t collapse and Europe didn’t implode.  In fact, the Euro is now rallying against the US dollar – which is good for commodity prices in terms of the USD, but also assures us the world is not coming to an end.
  • Politics – Not to get all political on you, but many view the current administration as somewhat loose with the budget and fear further massive entitlement programs and stimulus packages which would further weaken the US dollar and add to the $13.5 Trillion deficit.  If we get a reversal in momentum at the mid-term elections and Democrats lose their majority, there will be gridlock in Washington with a right-leaning Congress.  Gridlock is often good for stocks and may not be so good for spending programs which would require cooperation amongst the House, Senate and Obama.

How to Short Gold

  • Basic Approach: Short (GLD) – GLD is the most popular gold ETF with plenty of volume and a small bid/ask spread.  By shorting shares, you’d benefit from a downside move.  Note however that this opens you up to unlimited losses and if gold really spikes, this could be a dangerous trade.
  • Basic Approach #2: Long PowerShares DB Gold Short ETN (DGZ) – DGZ would be a means to limit your losses by buying the inverse and benefitting from a decline.  ETNs have some risks including issuer solvency risk and futures roll losses (see ETF 7 Deadly Sins for more on what to watch for).  There is no inverse ETF though, so this may be your only choice for a loss-capped 1X approach.
  • Buy Inverse ETF: Long (GLL) – This ETF seeks to replicate 2X the inverse return of gold daily.  This would amplify both your gains and losses.  Note however that leveeraged ETFs tend to lose value over time regardless of the underlying asset performance due to daily resets.
  • Naked Calls: Sell Out of Money Calls on GLD – This is also a risky strategy, but a means to capture some option premium on a rolling basis if you believe gold won’t breach the strike price you choose.  If GLD is at $134 and you sell a call for $140, as long as GLD doesn’t breach $140 by expiry, that option expires worthless and you keep the premium.  It’s risky though, as your losses are unlimited should GLD exceed the strike.
  • Naked Puts: Buy Out of Money Puts on GLD – This is an option to benefit from a drop in gold prices while limiting your loss.  With GLD at $134, you can buy a put option at 130 strike, Dec expiry for around $3 premium (at a cost of $300 for the contract of 100 shares).  Therefore, if GLD drops below $127 by expiry, it’s all profit from there and you’d have capped your loss at $300.
  • Pairs Trade: A nifty trend to watch for is when the premium on the Sprott Physical Gold ETF (PHYS) gets ahead of historical norms and you can simultaneously short PHYS while going long GLD.  See my recent gold pairs trade result, which was the best risk/return money I’ve made in a long time.

Bear in mind that most options expire worthless, leveraged ETFs lose value over time and opening yourself up to unlimited risk can be catastrophic.  Additionally, different methods have different tax liabilities (see gold taxes for differentiation).  But these are some avaialable tools nonethless.  I make no predictions on where gold is headed from here but I do own a small portion of my trading portfolio (full portfolio holdings/performance) due to the trend, hedging, and belief the we may see further currency devaluations for years to come.  Should you decide to go with the drain and go all-in on the gold trend, there are actually some ETFs beating gold worth a look – silver, platinum and others that have industrial utility as well.

Disclosure: Long GLD.

ETF, OPTIONS, Real Estate

The Argentine Boom…And Why It’s Killing the Peso

October 13th, 2010

“This country is in a boom,” said the editor of a financial magazine in Buenos Aires. “Everything is going up. Everything is selling. And inflation is roaring at 25% per annum.”

To hear him tell it, Argentina is everything America wishes to be. Its people shop. Its restaurants are full. Its economy is growing at more than 8% a year.

Why?

“Inflation. Everyone wants to get rid of cash. You hold onto it and it’s worth less and less. So you buy an apartment.”

Amazingly less than 10% of property transactions in Argentina include mortgages. People pay with cash. Still, prices are not as low as you would expect. The lot next to our office is on the market for $250,000.

“It should be about $100,000,” said a friend who keeps an eye on real estate. “But everything is high.”

The cab ride from the airport was 70 pesos when we came 4 years ago. This time it was 128 euros. Two glasses of wine at a local bar were 40 pesos. They would have been half that a few years ago.

“There’s a boom going on,” continued the financial editor. “But it can’t go on forever. You can’t have 25% inflation and have a healthy economy. People don’t make wise investments. They just try to avoid getting ripped off by inflation. They don’t make long-term investments. They just try to park their money where it won’t disappear. That’s why real estate is so expensive. People will save their money and buy an apartment whether they need it or not. They figure it will still be there in five or ten years. The peso won’t be. At least not today’s peso.”

Nor will the dollar.

Regards,

Bill Bonner
for The Daily Reckoning

The Argentine Boom…And Why It’s Killing the Peso originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Argentine Boom…And Why It’s Killing the Peso




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Real Estate, Uncategorized

US Debt on the Shoulders of 90 Million People

October 13th, 2010

Now that the federal government’s fiscal year ended on September 30 and they had to “square up” their accounting, we find some very interesting things, if you will forgive the use of the phrase “very interesting” when I should have used the more descriptive Poop In Your Pants Scary (PIYPS).

One of these PIYPS things is that the one-year increase in the national debt, thanks to the unbelievable fiscal insanity of the deficit-spending Obama administration and the corrupt and moronic Congress, which is not to mention the monstrous monetary insanity of the loathsome Federal Reserve creating so much new money for them to borrow that inflation in prices will destroy us all. It is now revealed that in FY 2010, the national debt rose $1.72 trillion! In one year!

The government, of course, only counts $1.3 trillion of this as “deficit spending,” but nevertheless, $420 billion more debt somehow appeared from somewhere to equal the $1.72 trillion increase in the national debt in one year.

The sheer staggering size of this incredibly enormous $1.72 trillion in borrowed money spent by the federal government is more than all the $1.3 trillion the government collected in personal and corporate taxes!

And remember that this $1.72 trillion is just the deficit-spending, and we are not even including the gigantic $3.5 trillion federal budget for 2010! Gaaaahhhh! We’re Freaking Doomed (WFD)!

If you are thinking that we are NOT doomed by astonishing long-term Congressional fiscal irresponsibility and Federal Reserve monetary treachery, then perhaps you will change your mind if I came over there, hauled you up out of that seat and slapped your face repeatedly until you got some smarts, which usually happens to most people pretty fast, usually about the time I reach out and grab them by the throat so that I can keep their heads from moving around while I am administering a therapeutic dose of Mister Slappy.

There are, of course, a lot of logistical problems associated with my kind, generous Mr. Slappy offer, not the least of which is that, after awhile, my hands would get really sore from the slap, slap, slapping. Ow!

This is why I am going to try to achieve the same “get smart” effect by using my new Mogambo Pedantic Method (MPM) of using real, “it’s going to happen to you” horror to terrorize and shock you into a huge fight-or-flight response, flooding your system with enough adrenaline and other save-your-butt biological hormones and doodads to make your central nervous system more receptive to threatening stimuli.

What threatening stimuli? Well, just the federal budget deficit – alone! – means that each, each, EACH of the 90 million American private-sector workers in the Whole Freaking Country (WFC) must produce enough profit by their labors (as they are the only workers who can actually make a profit from their labors) to pay down another $18,889 in federal debt accumulated over the last year!

And this crushing new debt burden comes on top of these sad, selfsame, sorry 90 million private-economy workers making enough to pay the painful principal-and-interest payments to support their $150,000 share of the $13.5 trillion national debt already in existence!

And this staggering load of debt is, with only some exaggeration, barely enough to even Scratch The Surface (STS) of all the debt that is owed, where $60 trillion is the total of all private debts on top of the national debt, and (staggeringly) all of it relying totally on these same few 90 million people being so immensely productive and profitable that everyone, literally, benefits.

The kicker is that they are supposed to do this on an average household income of $54,000 a year! Hahahaha!

If you are, like me, already raging from an overload of adrenaline in your system generated by the sheer, mortal horror of all of this, then leave it to the Mighty, Mighty Mogambo (MMM) to administer a sedative that will make you smile: Buy gold, silver and oil!

With them you will protect yourself from the federal government’s apparent plan to destroy you by turning the dollar into worthless crap, and it’s so easy to do that you, too, will rejoice as do I, shouting loud huzzahs to the beautiful, blue sky, specifically, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

US Debt on the Shoulders of 90 Million People originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
US Debt on the Shoulders of 90 Million People




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

US Debt on the Shoulders of 90 Million People

October 13th, 2010

Now that the federal government’s fiscal year ended on September 30 and they had to “square up” their accounting, we find some very interesting things, if you will forgive the use of the phrase “very interesting” when I should have used the more descriptive Poop In Your Pants Scary (PIYPS).

One of these PIYPS things is that the one-year increase in the national debt, thanks to the unbelievable fiscal insanity of the deficit-spending Obama administration and the corrupt and moronic Congress, which is not to mention the monstrous monetary insanity of the loathsome Federal Reserve creating so much new money for them to borrow that inflation in prices will destroy us all. It is now revealed that in FY 2010, the national debt rose $1.72 trillion! In one year!

The government, of course, only counts $1.3 trillion of this as “deficit spending,” but nevertheless, $420 billion more debt somehow appeared from somewhere to equal the $1.72 trillion increase in the national debt in one year.

The sheer staggering size of this incredibly enormous $1.72 trillion in borrowed money spent by the federal government is more than all the $1.3 trillion the government collected in personal and corporate taxes!

And remember that this $1.72 trillion is just the deficit-spending, and we are not even including the gigantic $3.5 trillion federal budget for 2010! Gaaaahhhh! We’re Freaking Doomed (WFD)!

If you are thinking that we are NOT doomed by astonishing long-term Congressional fiscal irresponsibility and Federal Reserve monetary treachery, then perhaps you will change your mind if I came over there, hauled you up out of that seat and slapped your face repeatedly until you got some smarts, which usually happens to most people pretty fast, usually about the time I reach out and grab them by the throat so that I can keep their heads from moving around while I am administering a therapeutic dose of Mister Slappy.

There are, of course, a lot of logistical problems associated with my kind, generous Mr. Slappy offer, not the least of which is that, after awhile, my hands would get really sore from the slap, slap, slapping. Ow!

This is why I am going to try to achieve the same “get smart” effect by using my new Mogambo Pedantic Method (MPM) of using real, “it’s going to happen to you” horror to terrorize and shock you into a huge fight-or-flight response, flooding your system with enough adrenaline and other save-your-butt biological hormones and doodads to make your central nervous system more receptive to threatening stimuli.

What threatening stimuli? Well, just the federal budget deficit – alone! – means that each, each, EACH of the 90 million American private-sector workers in the Whole Freaking Country (WFC) must produce enough profit by their labors (as they are the only workers who can actually make a profit from their labors) to pay down another $18,889 in federal debt accumulated over the last year!

And this crushing new debt burden comes on top of these sad, selfsame, sorry 90 million private-economy workers making enough to pay the painful principal-and-interest payments to support their $150,000 share of the $13.5 trillion national debt already in existence!

And this staggering load of debt is, with only some exaggeration, barely enough to even Scratch The Surface (STS) of all the debt that is owed, where $60 trillion is the total of all private debts on top of the national debt, and (staggeringly) all of it relying totally on these same few 90 million people being so immensely productive and profitable that everyone, literally, benefits.

The kicker is that they are supposed to do this on an average household income of $54,000 a year! Hahahaha!

If you are, like me, already raging from an overload of adrenaline in your system generated by the sheer, mortal horror of all of this, then leave it to the Mighty, Mighty Mogambo (MMM) to administer a sedative that will make you smile: Buy gold, silver and oil!

With them you will protect yourself from the federal government’s apparent plan to destroy you by turning the dollar into worthless crap, and it’s so easy to do that you, too, will rejoice as do I, shouting loud huzzahs to the beautiful, blue sky, specifically, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

US Debt on the Shoulders of 90 Million People originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
US Debt on the Shoulders of 90 Million People




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Gold and Commodities Respond to QE2

October 13th, 2010

It took a while, but stock traders have decided they like what they saw from the minutes of the Federal Reserve’s September meeting.

After picking apart the opaque document the way Kremlinologists of old picked apart the pronouncements of the Soviet Politburo, they’ve sent the Dow close to 11,100.

We’re not convinced QE2 – the popular euphemism for a second round of quantitative easing – is a given. There’s a lot of talk in the minutes about going ahead with the “money printing” if the economic data the Fed reviews looks weak. But at the same time, their analysis of recent data from around the country appears to have been fairly sanguine.

For all the Fed governors’ public hand-wringing and jawboning about the lack of inflation in the system, they don’t appear to be freaked out enough to go launch what will no doubt be a vastly unpopular program – at least not yet.

The Bank of Japan, on the other hand, made it abundantly clear it’s going to prop up the stock market with its own version of QE2. BoJ Governor Masaaki Shirakawa made some rather unseemly new noises about the Bank’s desire to buy ETFs.

Gold, in response, popped to near Monday’s record at $1,357. Then the dollar weakened a bit, pushing gold up to $1,366. “Unfortunately, it’s a race to the bottom (in the currencies), and we’re winning, in terms of the dollar,” Charles Nedoss of Olympus Futures in Chicago, and one of our recommended brokers in Resource Trader Alert, told Kitco this morning.

$1,366 turns out to be a key technical level, triggering some short-covering, Nedoss explains. Now we’re up to $1,371 – a $21 gain on the day.

Not to be outdone, the CRB index, a broad measure of commodities, broke above 300 on the open this morning. China released customs data for September showing higher imports of commodities in general, and record imports of crude oil in particular.

The last time the CRB saw 300 was on the way down in October 2008 – when every asset class was being sold off to raise cash.

CRB Index Up 15%

The CRB has moved up smartly, more than 15% in just six weeks, a move that “signals no relief for the uncomfortable shorts in the market,” says Resource Trader Alert editor Alan Knuckman.

“What does it take to turn those shorts into buyers?” he asks. ”Unfortunately for them, this failure to get clues from their surroundings and stubbornness is a positive for the markets.

“With little background in biology,” Alan confesses, “I lack the expertise to know whether a frog in the pot of water lacks the intelligence to know when the burner is on. It is said that the gradual increase in temperature is ignored until it reaches a steady boil… For now this means HOT COMMODITIES!!!”

Addison Wiggin
for The Daily Reckoning

Gold and Commodities Respond to QE2 originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Gold and Commodities Respond to QE2




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, ETF, Uncategorized

Gold and Commodities Respond to QE2

October 13th, 2010

It took a while, but stock traders have decided they like what they saw from the minutes of the Federal Reserve’s September meeting.

After picking apart the opaque document the way Kremlinologists of old picked apart the pronouncements of the Soviet Politburo, they’ve sent the Dow close to 11,100.

We’re not convinced QE2 – the popular euphemism for a second round of quantitative easing – is a given. There’s a lot of talk in the minutes about going ahead with the “money printing” if the economic data the Fed reviews looks weak. But at the same time, their analysis of recent data from around the country appears to have been fairly sanguine.

For all the Fed governors’ public hand-wringing and jawboning about the lack of inflation in the system, they don’t appear to be freaked out enough to go launch what will no doubt be a vastly unpopular program – at least not yet.

The Bank of Japan, on the other hand, made it abundantly clear it’s going to prop up the stock market with its own version of QE2. BoJ Governor Masaaki Shirakawa made some rather unseemly new noises about the Bank’s desire to buy ETFs.

Gold, in response, popped to near Monday’s record at $1,357. Then the dollar weakened a bit, pushing gold up to $1,366. “Unfortunately, it’s a race to the bottom (in the currencies), and we’re winning, in terms of the dollar,” Charles Nedoss of Olympus Futures in Chicago, and one of our recommended brokers in Resource Trader Alert, told Kitco this morning.

$1,366 turns out to be a key technical level, triggering some short-covering, Nedoss explains. Now we’re up to $1,371 – a $21 gain on the day.

Not to be outdone, the CRB index, a broad measure of commodities, broke above 300 on the open this morning. China released customs data for September showing higher imports of commodities in general, and record imports of crude oil in particular.

The last time the CRB saw 300 was on the way down in October 2008 – when every asset class was being sold off to raise cash.

CRB Index Up 15%

The CRB has moved up smartly, more than 15% in just six weeks, a move that “signals no relief for the uncomfortable shorts in the market,” says Resource Trader Alert editor Alan Knuckman.

“What does it take to turn those shorts into buyers?” he asks. ”Unfortunately for them, this failure to get clues from their surroundings and stubbornness is a positive for the markets.

“With little background in biology,” Alan confesses, “I lack the expertise to know whether a frog in the pot of water lacks the intelligence to know when the burner is on. It is said that the gradual increase in temperature is ignored until it reaches a steady boil… For now this means HOT COMMODITIES!!!”

Addison Wiggin
for The Daily Reckoning

Gold and Commodities Respond to QE2 originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Gold and Commodities Respond to QE2




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, ETF, Uncategorized

Look For Pullback In Gold and Silver As A Buy Point

October 13th, 2010

These past few weeks, as the equity markets rallied based on the belief of further quantitative easing by the Fed in November’s meeting, the dollar has collapsed, which I warned readers about a couple of weeks ago. Since that time, gold and silver have had a historic and parabolic rise as investors feel the Fed will continue to ease through the end of the year. Investor sentiment has reversed completely over the last eight to 12 weeks, since I signaled a buy on gold. There are no concerns as bullish sentiment on equities and precious metals reaches record levels. Investors feel the Fed will solve everyone’s problem by devaluing the US dollar. The temporary Band-Aid isn’t fixing any of the core problems. Unemployment is still high and housing is weak. Neither the financials nor the homebuilders are participating in this rally, which leads me to suspect this entire rise in the markets isn’t sustainable as it’s been on low volume and key sectors haven’t yet participated.

In countries where there’s a huge deficit, the only solution to pay back debts is through a devalued currency. Japan has recently intervened to try to devalue the strengthening yen. A strengthening currency to countries with huge obligations can heighten the risk of default, which many countries are facing. Also, a strong currency puts pressure on international corporations that export products abroad. A weak dollar will cause the products to be more expensive to American consumers, hurting demand and growth. More sovereign debt defaults in emerging markets are expected. It appears that many investors ran to the dollar from the euro after the European Debt Crisis. I expect something similar to occur now. The euro is reaching a key resistance level and is overbought. This means a pullback should occur. The US Dollar is extremely oversold and at long-term support. The bearish sentiment on the US dollar is extremely bearish, which indicates a reversal should occur.

As global economies feel the consequences of the United States’ actions, I expect further fallout from weak economic growth and the sovereign debt burdens in Europe. Many investors are pricing in a major move from the Fed. I’m not so convinced, as equity markets are higher and the dollar has moved significantly lower. Investors should realize that unless we see another sovereign debt issue or another bank failure, another major round of easing is unlikely at this point. I believe the investment community is expecting too much from the Fed and it appears the Fed is doing an excellent job stimulating the markets just through speculation of a move rather than the actual move itself.

This last easing from the Fed has met with some more critics and it has definitely increased international tensions. The US dollar has collapsed and is now testing long-term support. I don’t know at this point if the Fed will be so quick to act the next time around unless there’s another deflationary crisis.


Technically the dollar is due for a bounce and investors should look for any pullbacks in gold and silver as a buy point. Instead of the risk associated with buying bullion at these extended prices, many juniors that would be extremely profitable at lower gold and silver prices haven’t broken out yet.

I believe these junior mining companies are presenting a great buying opportunity. Remember on these recent parabolic moves, the faster it goes up, the faster and harder the correction. Last Thursday showed a huge volume reversal day. This indicates to me that some of the smart money are hedging their long gold and silver bullion positions for a correction. Although we may see further upside, the move is about to get exhausted as it has taken out many technical targets and measured moves. Be careful of getting caught up in the hysteria.

Read more here:
Look For Pullback In Gold and Silver As A Buy Point

Commodities

Look For Pullback In Gold and Silver As A Buy Point

October 13th, 2010

These past few weeks, as the equity markets rallied based on the belief of further quantitative easing by the Fed in November’s meeting, the dollar has collapsed, which I warned readers about a couple of weeks ago. Since that time, gold and silver have had a historic and parabolic rise as investors feel the Fed will continue to ease through the end of the year. Investor sentiment has reversed completely over the last eight to 12 weeks, since I signaled a buy on gold. There are no concerns as bullish sentiment on equities and precious metals reaches record levels. Investors feel the Fed will solve everyone’s problem by devaluing the US dollar. The temporary Band-Aid isn’t fixing any of the core problems. Unemployment is still high and housing is weak. Neither the financials nor the homebuilders are participating in this rally, which leads me to suspect this entire rise in the markets isn’t sustainable as it’s been on low volume and key sectors haven’t yet participated.

In countries where there’s a huge deficit, the only solution to pay back debts is through a devalued currency. Japan has recently intervened to try to devalue the strengthening yen. A strengthening currency to countries with huge obligations can heighten the risk of default, which many countries are facing. Also, a strong currency puts pressure on international corporations that export products abroad. A weak dollar will cause the products to be more expensive to American consumers, hurting demand and growth. More sovereign debt defaults in emerging markets are expected. It appears that many investors ran to the dollar from the euro after the European Debt Crisis. I expect something similar to occur now. The euro is reaching a key resistance level and is overbought. This means a pullback should occur. The US Dollar is extremely oversold and at long-term support. The bearish sentiment on the US dollar is extremely bearish, which indicates a reversal should occur.

As global economies feel the consequences of the United States’ actions, I expect further fallout from weak economic growth and the sovereign debt burdens in Europe. Many investors are pricing in a major move from the Fed. I’m not so convinced, as equity markets are higher and the dollar has moved significantly lower. Investors should realize that unless we see another sovereign debt issue or another bank failure, another major round of easing is unlikely at this point. I believe the investment community is expecting too much from the Fed and it appears the Fed is doing an excellent job stimulating the markets just through speculation of a move rather than the actual move itself.

This last easing from the Fed has met with some more critics and it has definitely increased international tensions. The US dollar has collapsed and is now testing long-term support. I don’t know at this point if the Fed will be so quick to act the next time around unless there’s another deflationary crisis.


Technically the dollar is due for a bounce and investors should look for any pullbacks in gold and silver as a buy point. Instead of the risk associated with buying bullion at these extended prices, many juniors that would be extremely profitable at lower gold and silver prices haven’t broken out yet.

I believe these junior mining companies are presenting a great buying opportunity. Remember on these recent parabolic moves, the faster it goes up, the faster and harder the correction. Last Thursday showed a huge volume reversal day. This indicates to me that some of the smart money are hedging their long gold and silver bullion positions for a correction. Although we may see further upside, the move is about to get exhausted as it has taken out many technical targets and measured moves. Be careful of getting caught up in the hysteria.

Read more here:
Look For Pullback In Gold and Silver As A Buy Point

Commodities

Three Reasons To Consider Indian ETFs

October 13th, 2010

As emerging market economies continue to draw attention and appeal and are likely to remain at the forefront of global economic growth in the future, India and the exchange traded funds (ETFs) that track the Asian nation have long-term appeal and for good reason.

The International Monetary Fund (IMF) expects the Indian economy to grow by 8.5% this year and to continue its expansion in the coming years.  One reason India is expected to continue to witness healthy economic growth is its demographics.   To put it bluntly, India is blessed with a young and capable workforce that is relatively well-educated and skilled in the English language.  Furthermore, the Economist states that India’s dependency ratio, which is the proportion of children and old people to working age adults, is one of the best in the world and will remain so for a generation further enabling the country to surpass the growth of its rival emerging markets over the next quarter century.

A second reason India is likely to see healthy economic growth is due to the strength of its private companies.  India is hardly dependent on state patronage, the fuel behind China’s growth, and is primarily fueled by entrepreneurs and business investment.  Furthermore, business confidence appears to be rising in India and IPOs and debt origination are starting to reappear bolstering the nation’s capital markets.    

Lastly, India’s government has started to address the major issues that could potentially hinder economic growth.  The nation’s overall literacy rate is increasing due to a surge in cheap private schools for the poor and the government is focusing on improving mass transport, power generation, water systems and pollution control. 

At the end of the day, India has exceptional potential and could outpace China and other emerging markets in the long-term future.  Some ETFs to play India include:

  • the iPath MSCI India Index ETN (INP), which is structured as a senior, subordinated debt instrument. 
  • the WisdomTree India Earnings Fund (EPI), which is designed to measure the performance of companies incorporated and traded in India that are profitable.  The ETF holds companies such as Reliance Industries and Infosys Technologies (INFY). 
  • the PowerShares India Portfolio (PIN), which boasts Oil & Natural Gas Corporation and Hindustan Unilever in its top holdings.
  • the Market Vectors India Small-Cap Index ETF (SCIF), allowing investors access to smaller companies in India, which tend to have more localized businesses and earnings growth that are more likely to reap the benefits of increasing purchasing power of the Indian consumer.

Although an opportunity seems to exist in these ETFs, it is equally important to consider the risks that are invloved.  To help mitigate the downside effects of these risks the use of an exit strategy is important.  Such a strategy can be found at www.SmartStops.net.

Disclosure: No Positions

Read more here:
Three Reasons To Consider Indian ETFs




HERE IS YOUR FOOTER

ETF, Uncategorized

Biotech, An American Success Story

October 13th, 2010

BioTime Inc. (AMEX: BTIM) announced a breakthrough agreement with Big Pharma. Israeli pharma giant Teva Pharmaceutical Industries Ltd. and BioTime’s majority-owned Israeli subsidiary Cell Cure Neurosciences Ltd. have entered into an exclusive license option agreement. Together, they will develop and commercialize Cell Cure’s Regen for the treatment of age-related macular degeneration.

As far as I can tell, this is the first Big Pharma deal with a subsidiary of a public stem cell company. Obviously, it is great news for BioTime. It is also, however, an important milestone in the maturation of regenerative medicine. I expect the entire industry to benefit from this agreement.

BioTime stock performance

Big Pharma, as you know, is famously risk averse. Typically, established pharmaceuticals shy away from early-stage technologies, preferring to pay more later for less risky therapeutics. In the past, pharma firms have waited for one of their own to act first. Then, fearing that they would be frozen out of an emerging technology, the herd followed. I’m not saying this was the beginning of the regenerative medicine spike, because the economy is still hurting. It is, however, a necessary precursor.

In this case, the actual arrangements of the deal are particularly interesting. Teva, while one of the 15 biggest international pharma companies, is also one of the least bureaucratic and most innovative. 2009 revenues were almost $14 billion, with more than 35,000 employees in 50 countries. Teva has major facilities in Israel, North America, Europe and Latin America. It has grown itself largely by providing high-quality generic drugs and is one of the largest generics manufacturers. Now it is expanding cutting-edge patentable therapies.

Israel is the logical place for this to happen. Israeli biotech is the most aggressive in the world. Israel has more startups per capita then any other country. BioTime’s minority stakeholder, incidentally, is Hadasit Bio-Holdings Ltd. Hadasit was “founded and floated” on the Tel Aviv Stock Exchange so the public could invest in IP generated by Israel’s leading medical research center – the Hadassah University Hospital. Hadassah has produced the majority of Israel’s hospital-based translational research.

Israel’s economy is more than able to spearhead this technology. Few Israeli banks were hit by the toxic debt that brought down so many countries. Moreover, the Israeli government didn’t make the Keynesian mistakes made by the US in response to the financial crisis. Israel’s stimulus package consisted mostly of tax cuts. The economy responded, as a result, in only two quarters. Growth this year was projected in August at 4.7% annualized.

I can’t help but editorialize a bit here, by the way. Twenty years ago, Israel seemed mired in socialism, much like Canada. Israelis, like Canadians, learned there are limits to utopian political visions and instituted market reforms. This should comfort the chronically depressed who believe America is sliding inevitably into permanent decline. Nothing is further from the truth.

The technology at the heart of this agreement, OpRegen, is a proprietary formulation of embryonic stem cell-derived retinal pigment epithelial cells. The press release says it was, “designed by Cell Cure to help save the sight of the baby boomer generation.” AMD is, in fact, the leading cause of blindness in the aging.

“The US Centers for Disease Control and Prevention estimate that about 1.8 million people in the United States have advanced-stage AMD and another 7.3 million have an earlier stage and are at risk of vision impairment from the disease. Most people are afflicted with the dry form of the disease, for which there is currently no effective treatment.”

This is also from the press release: “The ongoing development of OpRegen by Cell Cure is funded through equity investments by BioTime, Teva and Hadasit Bio-Holdings, made simultaneously with this agreement. Additional nondilutive funding for the development of OpRegen has been provided by the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel.

“Subject to the terms of the agreement, if Teva exercises its option to obtain an exclusive license to OpRegen, Teva will have responsibility for funding clinical trials from that point on, obtaining regulatory approvals and marketing the product.

“Cell Cure will be entitled to receive milestone payments and royalties if certain development, regulatory and commercial milestones are achieved. A portion of the milestone payments and royalties received by Cell Cure would be shared with BioTime’s subsidiary ES Cell International Pte Ltd. and with HBL’s affiliate Hadasit Medical Research Services and Development Ltd., the technology transfer arm of the Hadassah Medical Organization (‘HMO’), which have licensed to Cell Cure certain patents and technology used in the development of OpRegen invented by professor Benjamin Reubinoff and professor Eyal Banin.”

Now, I’d like to quote from BioTime CEO Michael West’s blog, where he puts the deal in perspective. I recommend reading the entire post. West is unusual among scientist-CEOs in that he really can write. Rather than paraphrase his words, let me go to the source.

During most of the history of biotechnology, small companies have been the hotbed of medical innovation. But these small firms generally lack the capital to fund the expensive clinical trials necessary for FDA approval and launch of new therapeutics. Therefore, the biotechnology industry has long depended on partnerships with large, profitable pharmaceutical companies to help them fund this work. In reward for funding the development costs, the large partner gets to sell the final product and capture the lion’s share of profits. And the smaller biotechnology company is generally rewarded with upfront monies, substantial milestone payments and a royalty on future product sales.

The problem with this model is that many biotech companies do not have a broad technology platform; they sometimes have only one or two products, and therefore these collaborations often “give away the shop,” leaving little left for the company to develop on its own. In the case of companies in the emerging field of regenerative medicine using human embryonic stem (hES) cells, the problem is not one of giving away the shop. There are many hundreds of potential new therapeutics possible now that we have a means of manufacturing all the cell types of the human body…

On Oct. 10, 2010, BioTime announced a deal between BioTime’s majority-owned subsidiary Cell Cure Neurosciences Ltd. and the pharma giant Teva Pharmaceutical Industries Ltd., both based in Israel. This is the first in what we hope will become a series of strategic corporate alliances for BioTime subsidiaries that will fund the expensive development costs of a wide array of therapeutics in a manner minimizing equity financing and consequent dilution to BioTime shareholders.

In the Cell Cure/Teva agreement, Teva has an option to complete clinical development and to commercialize one cell type – retinal pigment epithelial (RPE) cells for the treatment of retinal disease. While the potential market for a treatment for macular degeneration is very large (some 7 million Americans are at risk of the disease), this agreement still leaves all of our other potential therapeutic products, including the greater than 140 diverse and scalable progenitor cell types that we have isolated from hES cells, open for future possibilities, including commercialization.

This deal may be the first of its kind…but it won’t be the last!

Patrick Cox
for The Daily Reckoning

Biotech, An American Success Story originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Biotech, An American Success Story




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Biotech, An American Success Story

October 13th, 2010

BioTime Inc. (AMEX: BTIM) announced a breakthrough agreement with Big Pharma. Israeli pharma giant Teva Pharmaceutical Industries Ltd. and BioTime’s majority-owned Israeli subsidiary Cell Cure Neurosciences Ltd. have entered into an exclusive license option agreement. Together, they will develop and commercialize Cell Cure’s Regen for the treatment of age-related macular degeneration.

As far as I can tell, this is the first Big Pharma deal with a subsidiary of a public stem cell company. Obviously, it is great news for BioTime. It is also, however, an important milestone in the maturation of regenerative medicine. I expect the entire industry to benefit from this agreement.

BioTime stock performance

Big Pharma, as you know, is famously risk averse. Typically, established pharmaceuticals shy away from early-stage technologies, preferring to pay more later for less risky therapeutics. In the past, pharma firms have waited for one of their own to act first. Then, fearing that they would be frozen out of an emerging technology, the herd followed. I’m not saying this was the beginning of the regenerative medicine spike, because the economy is still hurting. It is, however, a necessary precursor.

In this case, the actual arrangements of the deal are particularly interesting. Teva, while one of the 15 biggest international pharma companies, is also one of the least bureaucratic and most innovative. 2009 revenues were almost $14 billion, with more than 35,000 employees in 50 countries. Teva has major facilities in Israel, North America, Europe and Latin America. It has grown itself largely by providing high-quality generic drugs and is one of the largest generics manufacturers. Now it is expanding cutting-edge patentable therapies.

Israel is the logical place for this to happen. Israeli biotech is the most aggressive in the world. Israel has more startups per capita then any other country. BioTime’s minority stakeholder, incidentally, is Hadasit Bio-Holdings Ltd. Hadasit was “founded and floated” on the Tel Aviv Stock Exchange so the public could invest in IP generated by Israel’s leading medical research center – the Hadassah University Hospital. Hadassah has produced the majority of Israel’s hospital-based translational research.

Israel’s economy is more than able to spearhead this technology. Few Israeli banks were hit by the toxic debt that brought down so many countries. Moreover, the Israeli government didn’t make the Keynesian mistakes made by the US in response to the financial crisis. Israel’s stimulus package consisted mostly of tax cuts. The economy responded, as a result, in only two quarters. Growth this year was projected in August at 4.7% annualized.

I can’t help but editorialize a bit here, by the way. Twenty years ago, Israel seemed mired in socialism, much like Canada. Israelis, like Canadians, learned there are limits to utopian political visions and instituted market reforms. This should comfort the chronically depressed who believe America is sliding inevitably into permanent decline. Nothing is further from the truth.

The technology at the heart of this agreement, OpRegen, is a proprietary formulation of embryonic stem cell-derived retinal pigment epithelial cells. The press release says it was, “designed by Cell Cure to help save the sight of the baby boomer generation.” AMD is, in fact, the leading cause of blindness in the aging.

“The US Centers for Disease Control and Prevention estimate that about 1.8 million people in the United States have advanced-stage AMD and another 7.3 million have an earlier stage and are at risk of vision impairment from the disease. Most people are afflicted with the dry form of the disease, for which there is currently no effective treatment.”

This is also from the press release: “The ongoing development of OpRegen by Cell Cure is funded through equity investments by BioTime, Teva and Hadasit Bio-Holdings, made simultaneously with this agreement. Additional nondilutive funding for the development of OpRegen has been provided by the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel.

“Subject to the terms of the agreement, if Teva exercises its option to obtain an exclusive license to OpRegen, Teva will have responsibility for funding clinical trials from that point on, obtaining regulatory approvals and marketing the product.

“Cell Cure will be entitled to receive milestone payments and royalties if certain development, regulatory and commercial milestones are achieved. A portion of the milestone payments and royalties received by Cell Cure would be shared with BioTime’s subsidiary ES Cell International Pte Ltd. and with HBL’s affiliate Hadasit Medical Research Services and Development Ltd., the technology transfer arm of the Hadassah Medical Organization (‘HMO’), which have licensed to Cell Cure certain patents and technology used in the development of OpRegen invented by professor Benjamin Reubinoff and professor Eyal Banin.”

Now, I’d like to quote from BioTime CEO Michael West’s blog, where he puts the deal in perspective. I recommend reading the entire post. West is unusual among scientist-CEOs in that he really can write. Rather than paraphrase his words, let me go to the source.

During most of the history of biotechnology, small companies have been the hotbed of medical innovation. But these small firms generally lack the capital to fund the expensive clinical trials necessary for FDA approval and launch of new therapeutics. Therefore, the biotechnology industry has long depended on partnerships with large, profitable pharmaceutical companies to help them fund this work. In reward for funding the development costs, the large partner gets to sell the final product and capture the lion’s share of profits. And the smaller biotechnology company is generally rewarded with upfront monies, substantial milestone payments and a royalty on future product sales.

The problem with this model is that many biotech companies do not have a broad technology platform; they sometimes have only one or two products, and therefore these collaborations often “give away the shop,” leaving little left for the company to develop on its own. In the case of companies in the emerging field of regenerative medicine using human embryonic stem (hES) cells, the problem is not one of giving away the shop. There are many hundreds of potential new therapeutics possible now that we have a means of manufacturing all the cell types of the human body…

On Oct. 10, 2010, BioTime announced a deal between BioTime’s majority-owned subsidiary Cell Cure Neurosciences Ltd. and the pharma giant Teva Pharmaceutical Industries Ltd., both based in Israel. This is the first in what we hope will become a series of strategic corporate alliances for BioTime subsidiaries that will fund the expensive development costs of a wide array of therapeutics in a manner minimizing equity financing and consequent dilution to BioTime shareholders.

In the Cell Cure/Teva agreement, Teva has an option to complete clinical development and to commercialize one cell type – retinal pigment epithelial (RPE) cells for the treatment of retinal disease. While the potential market for a treatment for macular degeneration is very large (some 7 million Americans are at risk of the disease), this agreement still leaves all of our other potential therapeutic products, including the greater than 140 diverse and scalable progenitor cell types that we have isolated from hES cells, open for future possibilities, including commercialization.

This deal may be the first of its kind…but it won’t be the last!

Patrick Cox
for The Daily Reckoning

Biotech, An American Success Story originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Biotech, An American Success Story




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

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