Heads Up On the Dollar On Wednesday
The U.N. Commission of Experts on International Financial Reform, a specialist advisory committee that includes representatives from the U.S. government, will advise tomorrow that the world should dump the U.S. Dollar as the world’s reserve currency. They will suggest either an international currency unit based on several countries’ currencies, including the dollar (their preferred alternative), or a currency based on the Special Drawing Rights issued by the International Monetary Fund.
Their stated reason will be that having the dollar as THE reserve currency unfairly burdens American policymakers at a time they are trying to deal with huge financial problems. Unfortunately, both Fed Chairman Bernanke and Treasury Secretary Geithner have made comments from time to time that gives the U.N. Commission cover for this position.
Avinash Persaud is a currency specialist and a member of the panel of experts. He is a former currency chief at JPMorgan. Here’s a video of him at the Reuters 2009 Funds Summit in Luxembourg last week:
www.youtube.com/watch?v=5pYJhLyAdpU
Their actual reason for doing this is distrust and anger at the financial mess the U.S. has foisted on the rest of the world, plus a deep fear in China, Japan, the Middle East and Russia that we will simply inflate away the value of the huge amount of Treasury debt they hold. I think that is the unspoken plan, so they are right to worry about it.
To the extent the UN Commissioner has any special knowledge of the situation, it also may be true that things are much worse than the government is letting on. One commentator recently said the government’s attitude towards the voters can be summed up by Jack Nicholson’s line in A Few Good Men: “You can’t handle the truth!” I disagree; I don’t believe the government has any special knowledge at all. I think they are so out of touch that they really have little understanding about what is going on. But that’s a discussion for another day.
The UN Commission seems to think the world can orchestrate a gracefully managed, economically painless withdrawal of the dollar as a world reserve currency. They see the alternative as a free-for-all withdrawal from U.S. assets as our major creditors dump both dollars and Treasuries. That could cause a severe run on the dollar and lead to even worse economic conditions for Americans, probably causing hyperinflation.
The presentation of their report tomorrow may give the dollar quite a hit yet be very good for stocks. I know this is counter-intuitive, but inflation is good for asset values and bad for debt values, so while some foreigners may sell all U.S. assets, most will just sell Treasuries and buy stocks. More details should come out at the G20 Summit in London in April.
The ultimate economic and political impacts of changing the reserve status of the dollar will be:
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The American government will have less economic leeway to deal with its current financial mess, because excess Federal debt creation will lead immediately to a lower dollar and higher imported inflation.
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The value of the dollar will slide, perhaps by 20% against other currencies and 40% or more against gold and other commodities. That’s good for U.S. exports, but bad for Mainstreet America. Any slip-up and hyperinflation becomes a real possibility.
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Treasury bond yields will start rising immediately, as the Bernanke Fed becomes the only buyer. If the dollar really does lose its reserve currency status, Bernanke’s plan to print whatever money it takes will be thwarted.
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The U.S. government will have to find another way to pay its debts and generate credit than just selling Treasuries. Most likely, they will have no choice but to tax U.S. citizens and businesses more heavily.
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American financial habits and lifestyles will be forced to change radically in a world where we have to pay as we go.
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Regional currencies similar to the euro will spring up that are exchangeable into the world currency, but give the regions some autonomy – under the “benign” guidance of the most powerful country. The Middle East and China have indicated they are ready to introduce regional currencies based on the khaleeji and yuan respectively, and Russia would be eager to use the rouble as a regional reserve asset that would give them more control over the former USSR countries.
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The price of gold and silver will go up as they are used more as a currency asset, competitive with the world and regional currencies.
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The price of oil and all other internationally traded commodities will rise in most currencies, and rise a lot in US dollars.
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Any currency like the UK pound sterling or Swiss franc that is not associated with a regional currency will be left out and suffer.
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Economic power and wealth will shift from the West to the East and, to a lesser extent, the Middle East.
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Would it be a good idea to buy into GLD?
I cannot log on to the website using my
name and password I was using in February.
In the wake of the 1973 oil shock brought about by the 6-day Arab nations gang-up against Israel, the same sentiment of shifting away from the US$ as reserve and world trade currency came and dissipated because no other Country or regional currency came close to performing the role of the U.S. Dollar and the United States. The same remain to be seen from the G20 consultations.
In the wake of the 1973 oil shock brought about by the 6-day Arab nations gang-up against Israel, the same sentiment of shifting away from the US$ as reserve and world trade currency came and dissipated because no other Country or regional currency came close to performing the role of the U.S. Dollar and the United States. The same remain to be seen from the G20 consultations this March – April 2, 2009.
I’m, again, having a problem logging-in. I cannot
gain access into “recent posts and member resources
for information on “top buys” and “portfolio”.
This is getting very frustrating, inasmuch, as, I
seem to have this same problem on a regular basis.
Please help!!!
Thanks,
Joseph
I’m,again, having a problem logging-in. I, cannot
gain access into recent posts and member resources
for information in the categories of “top buys”
and “portfolio”. This is becoming very frustrating,
inasmuch, as, I seem to have this very same problem
on a regular basis.
Pleaase help!!!
Thanks,
Joseph
I am unable to view the portfolio or top buy sections. Radar reports and flash alerts are okay. Is anyone else having this problem?
OK, so not much of a ripple. Where did this come from?
Mike, what do you make of mela taking hits the last few days?
Hi Michael,
Any comments on an evaluation attempt by Dan Grundig on Seeking Alpha? His evaluation of Dendron falls in your ballpark expectations. My question relates to any comment you might want to make as to price assuming the company is bought out. A related question would be if you had an opinion (unless I missed it)related to the probability of the Dendeon being capable of going it alone with collaboration vs. being prone to a buyout.
Thanks,
Ken
http://seekingalpha.com/article/131569-how-much-is-dendreon-worth?source=yahoo
Before diving into the valuation process, here is a quick recap of recent Provenge history, and what to expect in the near future.
Provenge, developed by Dendreon Corporation (DNDN), is an active cellular immunotherapy (i.e. vaccine) for treatment of metastatic, androgen independent prostate cancer (AIPC). On 11/13/2006, Dendreon filed the final portion of its Provenge Biologics License Application (BLA) with the FDA. The primary basis for the BLA was Phase III study DEN-9901, which showed median survival of 25.9 months vs. 21.4 months for placebo, and a 41% risk of death reduction. Shortly thereafter, on 1/16/2007, the FDA granted Priority Review for Provenge, which allowed for an accelerated review process reserved for therapies that address unmet medical needs. In late March 2007, an FDA Advisory Committee voted 17-0 supporting Provenge’s safety profile and 13-4 backing its efficacy. Then, in May 2007, Dendreon received an FDA Approvable Letter.
Much discussion ensued on reports of conflicts of interest of several Committee members, due to apparent ties to firms with drugs with which Provenge would compete, and suspicion that the FDA’s decision had been influenced. Afterward, Dendreon received confirmation from the FDA that positive survival data from its in progress IMPACT study (D9902B) would support Provenge approval.
On 4/14/2009, Dendreon announced that primary IMPACT study endpoints had been met, which means data demonstrates at least a 22% reduction in risk of death. The company will present detailed study results at the American Urological Association’s Annual Meeting on 4/28/2009. Dendreon has said it plans to resubmit a Provenge BLA application in Q4 2009. It is likely that the Provenge application will once again receive priority review; this means if Dendreon submits the new BLA in early Q4, an approval decision could very well come as soon as December 2009, and almost surely no later than March 2010.
To approximate the value of Dendreon, I will use two methods. First, if Provenge is approved, it will compete directly with Sanofi’s Taxotere (Docetaxel), which generated about $2.8 Billion in 2008 sales. Although Taxotere is indicated for other cancer indications in addition to Androgen Independent Prostate Cancer (AIPC), it is safe to assume more than 50% of its annual sales are due to AIPC, based on the difference sales of the drug after it gained FDA approval for AIPC in 2004. It is also worth noting that because of the serious side effects of Taxotere, somewhere between 25%-50% of the potential prostate cancer patients refused Taxotere treatment. Taken together, the estimated market for AIPC should be at least $1.8-$2.8 Billion.
Because Provenge has been shown to be much more effective, with few serious side effects, it is reasonable to expect that it will gain greater than 50% of the market share after approval, leading to peak sales estimates between $900 Million to $2.8 Billion a year. Current Price/Sales ratios for cancer-focused biotech with at least one approved product range 4-8 times, and therefore, if Provenge is approved, Dendreon should be valued at $3.6-$7.2 Billion (based on the low end $900 Million sales figure). As of March 5, 2009, Dendreon has 98 million shares outstanding, leading to a price per share of $36-$73. Finally, there is always a chance that Provenge won’t get approved, and so the expected Dendreon share price using a 70% chance of approval will be around $25-$51 ( [0.7*$36]+[0.3*$0] and [0.7*$73+0.3*0], assuming Dendreon is worth $0 per share if Provenge is not approved).
The second method is based on premiums paid in 2008 M&A deals involving cancer-focused biotechs. Three deals stand out as being appropriate for comparison: Eli Lilly’s (LLY) acquisition of Imclone, Takeda’s (TKPHF.PK) acquisition of Millennium Pharmaceuticals, and Celgene’s (CELG) acquisition of Pharmion. In each of these deals, a cancer-focused biotech with one potential blockbuster cancer drug was acquired; the drugs being Erbitux, Velcade, and Vidaza belonging to Imclone, Millennium, and Pharmion, respectively. In all three deals, the premiums paid were around 50%. Therefore, using this method, the current acquisition price tag for Dendreon shares based on Thursday’s (4/16/2009) closing price would be around $25.50.
I made quite a few assumptions here to arrive at these estimates, but I believe they are reasonable, factual, and conservative enough to serve as an initial valuation attempt for Dendreon.
Disclosure: Long DNDN.