InvestMacro Forex News

By WallStreetDaily.com

The complexity of global economies and the financial market can make it difficult to simply understand what’s going on, let alone make investment decisions based on the prevailing conditions.

Not today, though.

Just like every Friday in the Wall Street Daily Nation, we’re letting some carefully selected charts do the talking for us.

This go-round, we’re looking at a certain asset class, the internet and the global economy.

So let’s get to it…

Bond Rout? We Ain’t Seen Nothing Yet

The “Great Rotation” out of bonds and into stocks is well underway. Heck, even the Bond King, PIMCO’s Bill Gross, knows it.

In the last four months, investors yanked $41 billion out of his flagship fund, the PIMCO Total Return Fund (PTTRX).

Think that’s bad? Think again. The bond rout isn’t even close to being finished.

Despite a whopping $140 billion in bond outflows since May, based on a percentage of assets under management, we’ve only suffered a 2.9% withdrawal.

“This compares to 14% in 1994-1995, 8% in 1999-2000 and 5% in 2003-2004,” says Binky Chadha, Chief Strategist at Deutsche Bank (DB).

In other words, we ain’t seen nothing yet!

What Bonds Should We Own Right Now?

So are any bonds performing well? Well, I told you before that convertible bonds perform best in rising interest rate environments, since they represent a hybrid security with both bond and equity characteristics.

Sure enough, they’re up almost 17% year-to-date.

High-yield bonds appear to be hanging in there this year. Somehow. Just like the New Kids on the Block’s fame, though, it won’t last. Bet on it.

What’s the Next Big Internet Revolution?

High-speed internet access transformed the internet. Want proof? Ask AOL, Inc. (AOL) and Netflix, Inc. (NFLX). The development of the technology killed AOL’s business – and gave Netflix a serious boost.

As technology writer, Dan Frommer, points out, Netflix now has more customers than AOL ever did.

So the question now becomes: What’s going to be the next big internet revolution? Or as Frommer (bluntly) puts it, “What will eventually cause Netflix’s decline?”

Rest assured, it’s coming… And, of course, I’m doing my best to identify the specific disruptive technology early for you. So stay tuned.

The Most Surprising Economic Development… Ever?

I alerted you to this surprising trend a few weeks ago.

Basically, economies in developed nations are starting to accelerate, while economies in emerging markets are heading in the opposite direction.

This chart puts it all in perspective:

So much for emerging markets being a “sure-thing” investment, huh?

Of course, if you’re in the mood to make a contrarian bet on emerging markets – one with absolutely zero downside risk – you should check out the latest issue of WSD Insider.

That’s it for this week. Before you go, though, let us know what you think of this weekly column – or any of our recent work at Wall Street Daily – by going here.

Ahead of the tape,

Louis Basenese

The post The State of the World Economy in One Chart appeared first on Wall Street Daily.

Article By WallStreetDaily.com

Original Article: The State of the World Economy in One Chart

By Profit Confidential

Remember the famous words of Mark Twain: “Whenever you find yourself on the side of the majority, it’s time to pause and reflect.” As readers of Profit Confidential know, it was this kind of mentality that lead me to: 1) turn bullish on gold in 2001; 2) turn negative on housing in 2006; 3) turn bearish on stocks in late 2007; and 4) turn bullish on small-cap stocks in 2009 (when the talking heads on the TV were saying “we are heading lower—sell, sell, and sell”).

Fast-forwarding to today, when I look at the key stock indices, I see something similar happening, but the chants I hear now are “buy, buy, and buy even more.” It seems the majority consensus is bullish. They believe the key stock indices will continue to march higher. Even the worst-case scenarios look overly optimistic. Outright euphoria? Maybe not, but we are getting there.

From January to August of this year, the key stock indices have significantly increased in value. The S&P 500 has increased a little more than 14% in the first eight months of this year, and the performances of other key stock indices have been in a similar range. But historically, since 1970, the S&P 500 has risen only about 8.2% per year on average. (Source: “Past Data,” StockCharts.com, last accessed September 10, 2013.)

Some argue that the rise we have seen in key stock indices so far this year, we have seen in the past. However, those times were truly different. For example, in 1997, the S&P 500 increased 31.6% because our economy was booming that year. U.S. gross domestic product (GDP) increased almost 4.5% in 1997. (Source: Federal Reserve Bank of St. Louis web site, last accessed September 10, 2013.) Today, we have no real economic growth.

According to the Bureau of Economic Analysis (BEA), U.S. GDP is growing at an annual rate of 2.5% this year.

I’ve heard some say that the key stock indices are forward-looking and investors are pricing in next year’s economic growth. Saying the very least, since the end of the financial crisis, we have seen our central bank be very accommodative. Now, the Fed is talking about ending those policies. And interest rates are aggressively rising. The yield on the 10-year U.S. Treasury is up 71% from a year ago. The interest rate on the popular 30-year fixed mortgage is approaching five percent.

And when looking at corporate earnings of companies in the key stock indices (the most important reason for stock prices to rise or fall), they give me another reason to be skeptical.

To offset declining earnings, companies are resorting to buying back their stock to boost per-share earnings. It’s outright “financial engineering” to increase corporate earnings.

The share buybacks are massive. We are not talking millions, but multi-billion-dollar share buybacks at a time. Take Halliburton Company (NYSE/HAL), for example; on July 25 of this year, it said it would buy $3.3 billion worth of its own shares at a price between $42.50 and $48.50. (Source: Halliburton Company, July 25, 2013.) I equate that to 12.6% of its outstanding shares—which translates to about the same increase in its per-share earnings. (Source: Yahoo! Finance, last accessed September 10, 2013.)

Aside from reducing the number of shares they have outstanding, companies in the key stock indices are resorting to cost-cutting to show better corporate earnings.

There’s a new trend emerging among public companies. To reduce the healthcare costs of retirees, companies in key stock indices are moving them to “health insurance exchanges,” where they have to create their own plans. This way, companies save on administrative costs. Famous names in the key stock indices that are taking this step include Time Warner Inc. (NYSE/TWX), International Business Machines Corporation (NYSE/IBM), Sears Holdings Corporation (NASDAQ/SHLD), and Darden Restaurants, Inc. (NYSE/DRI). (Source: Wall Street Journal, September 8, 2013.)

For the key stock indices to go higher, companies need to be increasing revenues and earnings the old-fashioned way—not by financially engineering the growth. “Tricks” to boost earnings can only go on for so long.

A stock market rally is justified when you hear that companies in the key stock indices are experiencing rising sales and earnings, when they are spending the cash they are hoarding to invest in their business expansion. None of that is happening right now.

With the back-drop of the Fed’s pulling back on paper money printing, interest rates rising, economic growth weakening, and global demand softening, the risks in the stock market are high. Investors should be cautious.

What He Said:

“Over-built, over-speculated, over-financed and over-done. This is the Florida real estate market right now. For those looking to buy for personal use or investment, hold off! The best deals are yet to come. I continue with my prediction that the hard landing in the U.S. housing market, which is now affecting lenders, will have significant negative effects on the U.S. economy.” Michael Lombardi in Profit Confidential, April 3, 2007. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

Article by profitconfidential.com

By Profit Confidential

In the world of large-cap blue chips, the performance of so many mature, slow-growth corporations in the market is truly remarkable. Ever since the stock market bottom in March 2009, the place to be has been dividend-paying blue chips. While these stocks certainly can experience long periods of non-performance, the dividends add up—and they add up big-time when reinvested in new shares.

A component of the Dow Jones Industrial Average, 3M Company (MMM) is as mature an enterprise as they come. This stock has been doing very well on the equity market, even though its top- and bottom-line growth is anemic.

But in the marketplace for institutional money, 3M offers the “package”—its slight hope for improving earnings, three-percent top-line growth, a current dividend yield of 2.2%, and other positive balance sheet attributes. Dividends have been and will continue to be worth paying for.

From July of 2011 to the beginning of 2013, 3M did nothing on the equity market but pay its dividends. But like so many other blue chips, 3M just took off starting in January; so, in effect, the opportunity cost of owning this previously flat position was significant.

This is how so many blue chips trade. They don’t do anything but pay their dividends until market dynamics lift them higher. 3M’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

Wall Street has been boosting 2013 and 2014 earnings estimates for many blue chips, including 3M. Part of the expectations is a pickup in the U.S. economy, which is highly unpredictable. In 3M’s case, the company is expected to grow its earnings by about six percent this year and 10% in 2014 (according to the Wall Street average).

For such a large, mature enterprise, combined with a very steady dividend, an investor should reasonably expect a high single-digit to low double-digit return on investment per year, assuming that there will be no return to a recession.

In June of this year, the company completed the sale of its Scientific Anglers and Ross Reels fishing equipment businesses to The Orvis Company Inc. 3M didn’t disclose financial details, but they were probably not significant enough to report.

The company’s industrial division experienced solid growth in the latest quarter. The company’s other operating divisions, including safety and graphics, electronics and energy, and healthcare and consumer products, were flat.

Currency impacts affected the company’s sales by 1.3% year-to-date. This was mostly due to a 20% weakening of the Japanese yen compared to the U.S. dollar. In the first half of this year, the company purchased approximately $2.0 billion worth of its own stock, compared to $1.16 billion in shares repurchased in the second quarter of 2012. (See “Strong Cash Flow, Increasing Dividends Make This Old Economy Stock Attractive.”)

Earlier this year, 3M boosted its annual dividend by 7.3%, representing its 55th consecutive year of increases. It’s highly likely the company will do something similar next year, which adds to the attractiveness of this blue chip business.

What I do expect is for the marketplace to continue bidding shares of safe, reliable, dividend paying stocks like 3M. The outlook for increased dividends continues to be very favorable.

Article by profitconfidential.com

By Profit Confidential

China is not dead for investments, folks! In my previous article, I talked about the travel sector and the staggering potential for growth in the emerging markets—but this isn’t the only investment opportunity that may be arising in the second-largest economic hub.

Yes, many analysts and mainstream media outlets have been suggesting China is no longer a viable region for investments. I even heard a hedge fund manager say the potential in U.S. stocks is greater than that of China. While I do favor U.S. companies, to overlook China makes absolutely no sense. (Read “Why Chinese Stocks Are Taking Off All of a Sudden.”)

Just take a look at the recent economic numbers. Assuming they are valid, these numbers prove that there are clearly reasons to get excited about shifting some capital to Chinese stocks or multinational companies that derive a major portion of their revenues from China.

The key exports metric has been rising for two straight months. The country reported a healthy 7.2% rise in its exports in August, up from 5.1% in July and -3.1% in June, according to the General Administration of Customs. (Source: Orlik, T. and Kazer, W., “Economy in China Benefits From Stronger U.S. Demand,” Wall Street Journal, September 8, 2013.) This is extremely positive and indicates that demand for the global economy is on the rise.

A strong Chinese economy makes for a stronger global economy.

With the economic renewal, we are seeing a demand for raw materials from China. China imported 526.7 million metric tons of iron ore for the 12 months to August, up 8.1% year-over-year. (Source: “Freight prices soar on iron ore demand from China,” China Economic Review, September 10, 2013.) Iron ore is used to produce steel, so there is clearly a renewal in industrial output and building in China.

Still not convinced?

Then consider that Chinese consumers are spending at levels many times higher than those in the United States. In August, retail sales in China accelerated 13.4% year-over-year. The strong growth in domestic spending is what the government is trying to push, and it looks like it is working. Strong domestic consumer spending drives gross domestic product (GDP) growth and reduces the dependence on foreign demand.

Industrial production jumped 10.4% in August, well above the 9.7% consensus estimate, and the amount of fixed asset investments surged 20.3% year-over-year. (Source: McDonald, J., “China’s factory output, auto sales improve,” Associated Press, Yahoo! Finance, September 10, 2013.)

And so far, the impact on consumer inflation has been manageable at 2.6% in August, according to the National Bureau of Statistics of China. The reading is well within the country’s targeted range, meaning the country can continue to provide stimulus when needed.

So, if you haven’t done so already, go and take a look at China as an addition to your growth portfolio.

Article by profitconfidential.com

By Profit Confidential

Automakers in the U.S. economy are getting a significant amount of attention these days because they are selling more cars. In August, total light vehicle sales by the automakers in the U.S. economy increased 17% from a year ago. They sold more than 1.5 million cars in August compared to 1.28 million cars last August. (Source: Motor Intelligence, last accessed September 10, 2013.)

On the surface, sales reported by the automakers are exuberant. They show consumers are spending. And if this continues, maybe we will see some economic growth in the U.S. economy.

Sadly, this is a one-sided conclusion. When I look into the details, it turns out Americans are indeed buying cars from automakers—but on borrowed money.

Here’s what you really need to know other than just focusing on the sales by automakers:

Since the Federal Reserve introduced its easy monetary policies, there has been a significant increase in auto loans to the subprime borrowers—those with a low credit score of less than 620—compared to the prime borrowers—those with a credit score of 760 and above. (Reminds me of the housing crisis we saw in the U.S. economy not too long ago.)

In the second quarter of 2009, there was $10.8 billion of outstanding auto loans to the subprime borrowers in the U.S. economy. Fast-forwarding to the second quarter of 2013, this number stood at $21.2 billion—an increase of more than 96% in just a matter of a few years. In the same period, the amount of auto loans to prime borrowers only increased 38%! (Source: Federal Reserve Bank of New York web site, last accessed September 10, 2013.)

Unfortunately, the problem doesn’t end there. Auto loans continue to increase in the U.S. economy. In the second quarter of this year, auto loans as a whole increased to $92.0 billion—the highest level since the third quarter of 2007. (Source: “Household Debt and Credit Developments in 2013 Q2,” Federal Reserve Bank of New York, August 2013.)

Now this will really alarm you…

Auto loans delinquent for 90 days or more in the U.S. economy now sit at 3.6% of all loans. With interest rates already rising, I can only see this number growing.

Are auto loans going to be the next big bubble to burst in the U.S. economy?

I remain cynical of the optimism we are seeing regarding the automakers. If all of the pieces of the puzzle fall into place as I expect, this won’t end well. Those automakers enjoying higher stock prices now may quickly see their fortunes turn.

Michael’s Personal Notes:

I keep a keen eye on the second-biggest economy in the world simply because China is experiencing an economic slowdown that can and will affect the U.S. economy, and hurt the profitability of our U.S. multinational companies.

Since the beginning of this year, the economic slowdown in the Chinese economy has been gaining strength. In the second quarter, we saw the economic growth rate in the Chinese economy fall: the second-biggest hub in the global economy grew at 7.5% in the second quarter, compared to 7.7% growth in the first quarter.

When it comes to economic analysis, one thing I focus on is the long-term trend in statistics. When I do just that, the Chinese economy is going the wrong way—and I believe there’s trouble ahead for China.

We’ve seen this in the past with our own economy; when there’s too much credit and rapid expansion, an economic slowdown usually follows. Just look at what happened during the housing boom in the U.S. economy—credit grew, and we saw ruthless lending practices to attract subprime borrowers.

Right now, we are witnessing a significant amount of credit expansion in the Chinese economy. The total credit to the private sector has increased more than 166% between the first quarter of 2008 and the last quarter of 2012. (Source: International Bank of Settlement web site, last accessed September 10, 2013.) In the chart below you can clearly see how much credit has risen in the Chinese economy. This should be taken as a warning sign of just how deep the economic slowdown in the country must be.

My concern? What happens to the profitability of U.S.-based companies operating in the Chinese economy?

Let’s use General Motors Company (NYSE/GM) as one example. In 2012, the company sold 2.8 million vehicles in the Chinese economy. This brought in $33.36 billion for the company, a staggering 22% of its total sales. (Source: “2012 Annual Report,” General Motors Company web site, last accessed September 10, 2013.)

If we see the economic slowdown in the Chinese economy continue on its path, would companies like General Motors (GM) be able to keep the same levels of sales? And what would happen to GM’s stock price?

GM is just one example of a company embedded in the Chinese economy; there are many more, including Wal-Mart Stores, Inc. (NYSE/WMT), NIKE, Inc. (NYSE/NKE), Caterpillar Inc. (NYSE/CAT), and YUM! Brands, Inc. (NYSE/YUM), and other big American names.

I can’t stress this enough: the U.S. economy is highly connected to the Chinese economy. If the economic slowdown in China continues, then you can expect many large-cap companies in key stock indices to see their stock prices fall.

What He Said:

“If the U.S. housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure—these are the bank stocks I wouldn’t own.” Michael Lombardi in Profit Confidential, May 2, 2007. From May 2007 to November 2008 the Dow Jones U.S. Bank Index of the world’s largest bank stocks was down 65%.

Article by profitconfidential.com

By Profit Confidential

I keep a keen eye on the second-biggest economy in the world simply because China is experiencing an economic slowdown that can and will affect the U.S. economy, and hurt the profitability of our U.S. multinational companies.

Since the beginning of this year, the economic slowdown in the Chinese economy has been gaining strength. In the second quarter, we saw the economic growth rate in the Chinese economy fall: the second-biggest hub in the global economy grew at 7.5% in the second quarter, compared to 7.7% growth in the first quarter.

When it comes to economic analysis, one thing I focus on is the long-term trend in statistics. When I do just that, the Chinese economy is going the wrong way—and I believe there’s trouble ahead for China.

We’ve seen this in the past with our own economy; when there’s too much credit and rapid expansion, an economic slowdown usually follows. Just look at what happened during the housing boom in the U.S. economy—credit grew, and we saw ruthless lending practices to attract subprime borrowers.

Right now, we are witnessing a significant amount of credit expansion in the Chinese economy. The total credit to the private sector has increased more than 166% between the first quarter of 2008 and the last quarter of 2012. (Source: International Bank of Settlement web site, last accessed September 10, 2013.) In the chart below you can clearly see how much credit has risen in the Chinese economy. This should be taken as a warning sign of just how deep the economic slowdown in the country must be.

My concern? What happens to the profitability of U.S.-based companies operating in the Chinese economy?

Let’s use General Motors Company (NYSE/GM) as one example. In 2012, the company sold 2.8 million vehicles in the Chinese economy. This brought in $33.36 billion for the company, a staggering 22% of its total sales. (Source: “2012 Annual Report,” General Motors Company web site, last accessed September 10, 2013.)

If we see the economic slowdown in the Chinese economy continue on its path, would companies like General Motors (GM) be able to keep the same levels of sales? And what would happen to GM’s stock price?

GM is just one example of a company embedded in the Chinese economy; there are many more, including Wal-Mart Stores, Inc. (NYSE/WMT), NIKE, Inc. (NYSE/NKE), Caterpillar Inc. (NYSE/CAT), and YUM! Brands, Inc. (NYSE/YUM), and other big American names.

I can’t stress this enough: the U.S. economy is highly connected to the Chinese economy. If the economic slowdown in China continues, then you can expect many large-cap companies in key stock indices to see their stock prices fall.

What He Said:

“If the U.S. housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure—these are the bank stocks I wouldn’t own.” Michael Lombardi in Profit Confidential, May 2, 2007. From May 2007 to November 2008 the Dow Jones U.S. Bank Index of the world’s largest bank stocks was down 65%.

Article by profitconfidential.com

By Profit Confidential

While valuations are almost always stretched in the world of new listings, there have been some very attractive companies come to market over the last twelve months. In fact, there have been all kinds of initial public offerings (IPOs) lately, which is no surprise with a stock market around its record high.

It’s a tough task trying to keep track of them all along with the action in the broader stock market. In this column, I’ve looked at several successful IPOs, but I recently came across an interesting technology growth story that’s in the right business at the right time.

The company is Rally Software Development Corp. (RALY) out of Boulder, Colorado. The company listed on the NASDAQ in April of this year and was an immediate success on the stock market (reasonable valuations are triumphed by high expectations in the world of IPOs). The company’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

Successful IPOs are not only wealth creators for selling and new shareholders; they typically identify growing companies with growing institutional interest. It’s tough these days to find genuine growth in the business world, so successful IPOs, for me, immediately suggest an enterprise that the marketplace wants over the rest of the stock market. It’s always difficult to get shares in the hottest IPOs; therefore, they are worth adding to your watch list afterward. (See “Startup Company with Innovative Trend Has Real Staying Power.”)

Rally Software is in the business of selling cloud applications for Agile software development (collaborative software development methods for teams). In April, the company sold 6.9 million shares of its common stock at $14.00 per share, including 900,000 shares in the full exercise of the underwriters’ option. Then it sold a follow-on offering of more than 5.5 million shares at $24.75 per share (about 5.3 million of these shares were sold by certain insiders and 250,000 by the company) because of the IPO’s big success.

In its second quarter of fiscal 2014 (ended July 31, 2013), the company’s subscription and support revenues grew 36% to $14.2 million. Total revenues grew 45% to $19.8 million, and the company’s gross margin was 79%, up one percent comparatively.

Generally accepted accounting principles (GAAP) net loss for the second quarter was $2.3 million, or $0.09 per basic and diluted share, based on 24 million weighted average shares. This compares to a net loss of $2.3 million, or $1.09 per basic and diluted share, based on 2.1 million weighted average shares. The company finished the quarter with cash and cash equivalents of $104.7 million.

Next quarter, revenues are expected to grow between 24% and 27%. This fiscal year, total revenues are expected to be between $72.5 and $74.0 million, for a gain of 28% to 30% over the last fiscal year. Profitability is likely a couple years away.

The market for new IPOs is a game, but so is everything else in the stock market. Monitoring the successful IPOs is definitely a worthwhile exercise as a speculator.

Article by profitconfidential.com

By Profit Confidential

The airline sector has reorganized over the past few years, with mergers and route cuts that have resulted in an uptick in prices for passenger travel driven by increased capacity.

Yet with the rise in global wealth, we are seeing an associated rise in travel in the airline sector, especially in the emerging markets and China. (Read “Wealth, Lower Oil Prices, Increased Spending—Airline Stocks Headed Higher?”)

The plane builders, suppliers, and airlines are all faring better, and the future looks optimistic, given the rise in world income levels and the global economic recovery.

In July, international passenger traffic jumped 5.1% year-over-year, according to the International Air Transport Association. (Source: “Solid Demand Growth Continues in July – Asia Weakens as Europe Gains Strength,” International Air Transport Association web site, September 3, 2013, last accessed September 10, 2013.)

The report noted that the top domestic growth was found in China (+10.7% in July) and Russia (+11.7%). Other key areas for growth included India (+6.0%) and Japan (+5.7%). Meanwhile, travel in the U.S. domestic travel market was comparatively muted at 1.5%.

In China, the increase in domestic travel will translate into higher demand for lodging, which I feel will continue to be a growth area in the Chinese market. In addition, the country has become one of the top travel destinations in the world for both business and personal travel.

And this means rising demand for accommodations from the value hotels to the luxury. Having stayed at a popular Chinese hotel chain when I was in China, I can say the quality of the accommodations was first rate. Yet with over 1.3 billion people and an increase in domestic travel as local incomes rise, I see a need for more motels and hotels to be built.

A domestic value-oriented Chinese hotel chain operating in that country is Shanghai, China-based China Lodging Group, Limited (NASDAQ/HTHT). The shares of China Lodging trade as American depositary shares (ADS).

The chart shows the stock currently in a tight sideways channel and a bullish “Golden Cross” with the 50-day moving average (MA) above the 200-day MA, based on my technical analysis. We could see a breakout on the horizon, but be careful, as the stock could also falter down to the $18.00 level.

 Chart courtesy of www.StockCharts.com

The hotel first welcomed patrons in 2005 and aims to deliver high-quality, conveniently located, and reasonably priced hotels from economy to mid-scale. Its brands include Seasons and Starway in the mid-scale pricing area and HanTing Express and Hi Inn in the economy segment.

As of June 30, 2013, China Lodging operated 1,216 hotels and 132,557 rooms across 213 cities in China, which was significantly higher than the previous June’s 863 hotels in 131 cities.

China Lodging has a high occupancy rate (excluding franchised Starway hotels) of 91.3% in the second quarter.

A major portion of its business is originated from its HanTing Club membership with over 11 million members, which accounted for about 80% of the rooms in the second quarter, according to China Lodging.

The growth has been consistent. China Lodging reported five straight years of revenue growth, from $37.31 million in 2007 to $517.56 million in 2012 and the growth is expected to continue this year at 28.3% followed by 21.7% in 2014, according to Thomson Financial.

Article by profitconfidential.com

USDJPY stays in a upward price channel on 4-hour chart, and remains in uptrend from 95.81, the price action from 100.22 is treated as consolidation of the uptrend. Initial support is at 98.75, as long as this level holds, the uptrend could be expected to resume, and one more rise to 101.50 area is still possible. Key support is at the lower line of the channel, only a clear break below the channel support will indicate that the upward movement is complete, then the following downward movement could bring price to 95.00 zone.

Provided by ForexCycle.com

Source: Peter Byrne of The Life Sciences Report (9/12/13)

http://www.thelifesciencesreport.com/pub/na/griffin-securities-keith-markey-gives-performance-review-on-four-top-biotech-names

As science director for Griffin Securities, Keith Markey knows his way around the advanced technologies of the most promising research in biotech. In this interview with The Life Sciences Report, Markey explains the science behind new developments in the antibiotic, diabetic and dermatological fields, highlighting ground-floor investment opportunities that investors will not want to miss.

The Life Sciences Report: In your last interview withThe Life Sciences Report in March, you revealed your best ideas in biotech research. Where do you stand on those names now?

Keith Markey: I am quite pleased with the performance of the four companies that I mentioned:MannKind Corp. (MNKD:NASDAQ), Oragenics Inc. (OGEN:OTCBB), Synthetic Biologics Inc. (SYN:NYSE.MKT) and RXi Pharmaceuticals Corp. (RXII:OTCQX).

Mannkind Corp. recently reported the outcomes of two phase 3 clinical trials investigating the safety and efficacy of its inhalable insulin, Afrezza. The company’s novel delivery technology enables the drug to mimic the normal physiological release of insulin by the pancreas upon consumption of a meal. The Affinity 1 trial enrolled 518 type 1 diabetic patients, who received a basal insulin and either Afrezza or a short-acting insulin analog, NovoLog (Novo Nordisk [NVO:NYSE]). The Afrezza patients were then subdivided to allow comparison of an inhaler that had been used in virtually all of Mannkind’s trials with a new, smaller inhaler that the company will commercialize. The Affinity 2 trial enrolled 353 type 2 diabetics whose disease was inadequately controlled by oral medications. The results of both studies were quite good.

The type 1 trial was set up to prove noninferiority relative to the short-acting insulin analog, and to demonstrate that the two different inhalers operate equivalently. The results showed noninferiority of the insulin analog and comparable performance by the two inhaler devices. Mannkind needed these positive results to get approval for Afrezza from the U.S. Food and Drug Administration (FDA).

The type 2 trial was designed to demonstrate that when Afrezza is added to a regimen of oral medications for diabetics, it improves glycemic control in patients who are no longer fully responsive to the oral medications. Not surprisingly, insulin works. I say it that way because insulin is a hormone. It is not a novel drug—but the Mannkind delivery mechanism is novel.

TLSR: Is Afrezza easy to use?

KM: It’s fantastically easy. Here is the backstory. Some years ago, Pfizer Inc. (PFE:NYSE) attempted to commercialize an inhalable insulin, but it didn’t work for a couple of reasons. First, Pfizer used starch as an excipient, and that tended to clog up the lungs, not necessarily in terms of performance, but in terms of absorption of the insulin. The other problem was that its delivery device was large and cumbersome, a foot long and an inch wide.

Mannkind has approached the problem differently. It found a particle that stabilizes the insulin in a monomeric form. This excipient is readily removed from the lungs—it happens almost instantaneously upon touching the wet surfaces of the alveoli. The delivery device is about the same size as an ordinary police whistle. To make it function, all you have to do is inhale once.

TLSR: How is Mannkind’s stock holding up?

KM: We saw it run up over the past 6–9 months from a low of about $1.85 to well over $8, touching $9, shortly before the clinical trial news came out. Since then, the stock has backed off, partly due to concern about peripheral items related to the clinical trials. For one thing, Mannkind had designed the type 1 diabetes trial in a way that it thought might prove the superiority of Afrezza over a short-acting insulin analog, based upon the pharmacokinetic profile of the two drugs. That did not happen. Be that as it may, the trial showed a significant marketing advantage: Afrezza treatment resulted in a significantly lower level of hypoglycemic events than the short-acting insulin analog, and it lowered fasting blood glucose levels.

TLSR: What is the Mannkind’s market cap?

KM: Its market cap is $1.7 billion ($1.7B), which makes it a mid-cap stock. And the volume of trading has averaged 8.8 million (8.8M) shares per day over the last three months.

TLSR: Does it have other products on the market?

KM: Mannkind has been almost exclusively focused on developing Afrezza for more than a decade. It does have a small number of oncology drugs in very early stages of development.

TLSR: How is its cash situation?

KM: The company has adequate financing, but until it goes commercial, it is going to be burning cash. The company has some warrants that will probably be exercised, which will give it additional capital. It recently made a $160M debt-financing agreement with Deerfield, which gave the company a second $40M tranche in September. And shortly before a long-term convertible debt repayment is due in December, Mannkind will get another $40M. Upon FDA approval, it will get the fourth tranche of $40M. In the meantime, the company is working to get a partnering agreement in place. It is quite possible that such an agreement will come with upfront cash.

TLSR: Is there competition for Afrezza?

KM: The diabetes market is extremely competitive, but one thing distinguishes Afrezza from everything else available—it is an inhalable drug, which makes it convenient to use.

TLSR: Oragenics is involved with antibiotics and probiotics. What are the newest developments there?

KM: Oragenics is working behind the scenes with Intrexon Corp. (XON:NYSE), a leader in synthetic biology, to optimize the production of a natural antibiotic that bacteria use to fight each other. This particular type of antibiotic is called lantibiotic. It has a very unique molecular structure, with very novel amino acids. The collaboration has set up a production cell line and purification scheme that will be adequate for producing sufficient quantities of the lantibiotic to conduct clinical trials. That is important because lantibiotics have historically been extremely difficult, if not totally impossible, to produce in large quantities. The problem is that when you try to grow bacteria that produce a lantibiotic in culture, the lantibiotic kills the cells at concentrations so low that purifying the compound is very difficult to achieve.

TLSR: How are the market cap and stock price holding up for Oragenics?

KM: Oragenics has been doing reasonably well compared to some biotechnology companies. In the last six months, it has traded between $2.80–3.50. The company has not seen a lot of news flow recently, but it is making progress. Just recently, Oragenics reported that Intrexon has created variants of the natural lantibiotic, and that structure-activity studies will commence shortly.

TLSR: Synthetic Biologics is on the forefront of developing products to fight infection. How is its share price faring in light of its scientific prospects?

KM: Synthetic Biologics had a couple of stock price spikes during the past six months, before it settled in the $1.40–1.60 range. We are optimistic about the company for a couple of reasons. Its lead drug is a hormone called estriol (Trimesta), which is being developed for treating multiple sclerosis (MS). It is in a phase 2 trial for relapsing-remitting MS. The goal of the investigator-sponsored study is to demonstrate that Trimesta reduces the number of attacks that an MS patient encounters while on another MS drug, Copaxone (glatimer acetate injection), which is produced by Teva Pharmaceutical Industries Ltd. (TEVA:NASDAQ).

The rationale for using an estriol-based drug stems from clinical evidence that women with MS who become pregnant experience a decline in MS activity. That is, the number of lesions as measured by magnetic resonance imaging (MRI) declines as the pregnancy progresses. During the timeframe of a typical pregnancy, the level of estriol goes from virtually nothing to a very high level at the end of the third trimester. Trimesta emulates the rise that normally is seen at the start of the third trimester. We should know the results of the phase 2 trial in early 2014. At that point, assuming good results, we look forward to Synthetic Biologics entering into a licensing agreement with a large pharmaceutical company.

TLSR: What other catalysts are moving Synthetic Biologics’ share price?

KM: Synthetic Biologics has acquired a novel prophylactic agent for preventing Clostridium difficileinfections, and is moving close to a clinical trial with the compound. We believe that the company will meet with the FDA in the near future to plan a trial for H1/14, followed by the start of a phase 2 trial in H2/14.

In addition, Synthetic Biologics has two programs that are being collaboratively developed under an exclusive agreement with Intrexon Corp. One of the programs targets the bacteria that cause pertussis. The other target is a rather nasty hospital-acquired infectious agent called Acinetobacter baumannii (A. baumannii). The company is making progress in both areas. A large animal study considered a pivotal trial for the pertussis therapy, which is a monoclonal antibody, will begin toward the end of this year, and an investigational new drug (IND) enabling study of the monoclonal antibody against A. baumanniishould begin within the next six months.

TLSR: How is Synthetic’s stock faring?

KM: Remarkably, the stock has been testing its nadir during the past six months. Investors who buy Synthetic stock now should be rewarded when the Trimesta data is released.

TLSR: What is the current story on RXi Pharmaceuticals?

KM: RXi Pharmaceuticals has a presence in the small interfering RNA (siRNA) space for tissue scarring. Those RNA molecules, as you probably know, are regulatory agents found in all cells. They exist to modulate the expression of particular genes by inhibiting the translation of mRNA during protein synthesis.

RXi is looking at two different areas with very similar, if not identical, molecules targeting connective tissue growth factor (CTGF), with the goal of reducing fibrosis or scar tissue formation. CTGF works in conjunction with transforming growth factor-beta to create physiological responses associated with healing in various cells. Unfortunately, in some circumstances, this well regulated messenger system goes awry, and patients end up with dermal hypertrophic scars or keloids. In the eye, this scar formation can cause the retina to tear after surgery has been performed to reattach it, for example. The goal is to develop an anti-scarring drug for multiple applications.

More recently, RXi expanded its product portfolio by acquiring siRNA intellectual property (IP) around vascular endothelial growth factor (VEGF), which could be used in combination with the CTGF siRNA therapy for ophthalmic purposes. The company has also begun working with an academic scientist on a project that addresses retinoblastoma.

TLSR: How are its fundamentals stacking up since the last time we talked?

KM: RXi is doing very well. It has enough cash to carry it forward for at least another 12 months. Data from phase 2 clinical trials for its dermatology product should take the company comfortably to the next inflection point. We could see a nice rise in the stock over the next 12 months as the data arrives in stages.

TLSR: Thanks for your time, Keith.

KM: Thank you, and have a very nice day.

Keith Markey has been an equities analyst for more than 25 years, specializing in the biotechnology, pharmaceutical, medical device and research tools sectors. He is currently the science director for Griffin Securities Inc., an investment bank where he follows emerging healthcare companies with novel technologies. He also works with privately owned companies, helping them restructure operations, license products under development or near commercialization and raise funds from venture capital and high net-worth investors. Markey serves on the board of directors of DS Healthcare Group Inc., which specializes in products that address hair loss. Previously, he held various managerial positions in the research department of Value Line Inc., publisher of the Value Line Investment Survey and Value Line Select. Markey began his career as a biochemist, working in endocrinology and neuroscience at New York University Medical School and Weill Cornell Medical College. His research contributed to the understanding of regulatory biochemistry of the nervous system and stem cell plasticity. Markey received his doctorate in neurochemistry from the University of Connecticut and a master’s degree in business administration and finance from the Leonard N. Stern School of Business at New York University.

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DISCLOSURE:

1) Peter Byrne conducted this interview for The Life Sciences Report and provides services to The Life Sciences Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Life Sciences Report:Synthetic Biologics Inc., RXi Pharmaceuticals Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Keith Markey: I or my family own shares of the following companies mentioned in this interview: Mannkind Corp. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Mannkind Corp., Oragenics Inc., Synthetic Biologics Inc., RXi Pharmaceuticals Corp. Griffin Securities received investment banking fees from Intrexon Corp. within the past 12 months. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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