USDCHF is facing the resistance of the upper line the price channel again. As long as the channel resistance holds, the rise from 0.9130 could be treated as consolidation of the downtrend from 0.9838, one more fall towards 0.9000 is still possible after consolidation. On the upside, a clear break above the channel resistance will indicate that lengthier sideways consolidation of the downtrend is underway, then range trading between 0.9130 and 0.9350 could be seen to follow.
Here Comes the (Cat) Bride
By Investment U
Anyone who knows anything about dividend stocks knows that an 8.4% yield has to have a catch. Seadrill (NYSE: SDRL) is no exception. By most measures the big dividend is secure, but if you plan on buying into this one, you better know what you’re getting into.
Its current yield of 8.4% is more than twice that of its nearest competitors, Ensco (NYSE: ESV), Noble Energy (NYSE: NBL) and Transocean (NYSE: RIG). Plus, its management team has more deals running at one time than most bookies. But, that is not to say it doesn’t know what it’s doing.
Here’s what Seadrill reported in just the first quarter…
- It had its best operating results ever with an EBITDA of $713 million.
- It beat first quarter earnings and revenue estimates by 35%.
- It increased the dividend, again, by $0.03.
- It increased the company’s rig utilization rate from 86% to 92%.
The one thing that keeps most analysts away from this stock, which may be a good thing, is that the company has so many buy and sell programs for drilling rigs that most analysts can’t understand the stock.
Just recently Seadrill had something in the area of $4 billion flying around in new and used rig deals.
All this activity is geared toward constantly improving the company’s fleet of drilling rigs to deliver the newest and best technology to an industry that, since the Gulf oil disaster, has to have safer operations. It may be confusing, but it will result in the newest and most advanced fleet of rigs in the business.
Also, 60% of the worldwide drilling fleet is approaching 25 years of age, and Seadrill is positioning itself to be the leader in new, safe and leading edge technology. It currently has 19 new rigs under construction with delivery expected between now and 2015.
Ensco, Noble and Transocean offer reasonable growth and dividends, but the ultimate aggressive growth and income idea may be Seadrill. If you can put up with a volatile ride, the 8%-plus dividend is there for the taking. Just go in with your eyes wide open.
Google for the Long Run
A recent Barron’s article stated that Facebook (Nasdaq: FB) will not eat Google’s (Nasdaq: GOOG) lunch. In fact, long term, Google just might win the social-media race. And, as we already know, Google’s stock is leaving its competitors in the dust, topping $900 this year.
Barron’s thinks that despite its recent brush with $920 per share, the search giant should be in most portfolios. And I agree… but only on pullbacks. It currently sits at about 20% above its 200-day moving average. It is not what I consider a screaming buy at these prices.
But there are solid long-term reasons to own it.
Google’s future growth lies in in the fact that despite its huge numbers, only 20% of global advertising spending is done on the Internet, versus 41% on television. This is where Google could get a very big leg up in future revenue gains.
Local advertising alone hit $133 billion last year and only 16% of that is online – another untapped resource.
Analysts think Google’s earnings could run from last year’s $39.88 to $53.39 in 2014. New ventures in peer-to-peer lending and a statistical model that targets businesses being shunned by banks are being viewed as bold new efforts to deploy the company’s cash with good potential.
All the stars are aligned for Google. It has for a very bright long-term picture, but my concern is buying anything at record highs. This is one you want to own and definitely need to have on your bogie board. But, look for pullbacks approaching the 200-day moving average for buying opportunities. Build your position on weakness and dips.
The “Slap in the Face” Award: Hide This Guy’s Checkbook
This one is a smack for the record books, but not a good record.
There’s a fashion designer who has a cat, but not just any cat. This cat has three maids and flies on a private jet. Crazy, right?
Hold on to your hats. This guy wants to marry his cat. His name is Karl Lagerfeld and he is dead serious.
The three maids are there to take down everything the cat does while Karl is away, and he reads it to keep up on his, umm, cat to be. I don’t know what else to call it.
When asked about the need for maids and a private jet for a cat, he said, “Why not?” His only concern is that the cat will become more famous than he is.
Oh, Karl also has a person whose only job is to follow him around with a Pepsi Max on a sliver tray. Thirsty and looney!
Someone should take this guy’s checkbook away from him.
Article By Investment U
Original Article: Here Comes the (Cat) Bride
Forex Weekly: Speculators slashed USD bets as Dollar dropped across the board
Large Speculators slashed US Dollar bets last week. Euro bets Surge
The weekly Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures traders sharply cut their total bullish bets of the US dollar last week and decreased their holdings for a second consecutive week.
Non-commercial large futures traders, including hedge funds and large International Monetary Market speculators, pulled back on their overall US dollar long positions to a total of $28.28 billion as of Tuesday June 11th. This was a decrease from a total long position of $39.12 Billion registered on June 4th, according to position calculations by Reuters that derives this total by the amount of US dollar positions against the combined positions of euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.
On May 28th, US dollar long positions reached their highest level on record (Reuters data) with a total of $43.77 billion before retreating.
See the Full COT Currencies Report & Charts….
US Dollar dropped Across the Board last week to Major Currencies
The US dollar fell sharply across the board against the other major currencies last week in the forex trading action. The American currency continued to decline for a fourth straight week against the euro, the Swiss franc and the Japanese yen while falling against the British pound sterling for a third week. Against the commodity currencies, the the US dollar declined against the Canadian dollar for a second straight week while the Australian and the New Zealand dollars finally staged a rebound from their five-week bearish trends and recorded weekly increases.
See the Full Report and Currency Pair Levels Commentary…
This Week’s Economic Calendar highlights:
Monday, June 17
Canada — existing home sales
Tuesday, June 18
Australia — reserve bank meeting minutes
United Kingdom — producer price index
United Kingdom — consumer price index
United Kingdom — retail price index
euro zone — German ZEW report
United States — consumer price index
United States — housing starts and building permits
Japan — trade balance
Wednesday, June 19
Switzerland — ZEW survey report
United Kingdom — bank of England minutes
United States — FOMC interest rate decision
New Zealand — GDP report
Thursday, June 20
Switzerland — interest rate decision
Switzerland — trade balance report
China — HSBC manufacturing PMI
Japan — leading index/coincident index
euro zone — purchasing managers indexes
United States — weekly jobless claims
United States — Philadelphia Fed reserve survey
United States — leading indicators
United States — existing home sales
Friday, June 21
Canada — consumer price index
Canada — BOC consumer price report
Canada — monthly retail sales
See our full economic calendar for more events.
Finally Some Good News for the U.S. Economy?
By Profit Confidential
Finally, some good economic news is coming to the U.S. economy…
The U.S. Census Bureau has reported that retail and food services sales for the month of May, adjusted for seasonal effects, increased 0.6% from April and 4.3% from the same period a year ago.(Source: U.S. Census Bureau, June 13, 2013.) This is the first report I’ve seen in a long time that shows increasing consumer spending in the U.S. economy.
And the Thomson Reuters/University of Michigan Consumer Confidence Index for May showed consumer spending increasing as well. The index registered at 84.5 in May, improving from 76.4 in April. (Source: Bloomberg, May 31, 2013.) This was the highest level the index has been at since July of 2007.
While this is all good news, my concerns about the U.S. economy remain…
Since the financial crisis in the U.S. economy, the Federal Reserve has been increasing the size of its balance sheet (printing trillions of dollars in new money) and the U.S. government has been spending rigorously, all for the sake of spurring economic growth. Consumer spending in the U.S. economy makes up 70% of our gross domestic product (GDP); hence, it’s vitally important that consumer spending rises if we are to have a sustainable economic recovery.
As it stands, the Federal Reserve is still creating $85.0 billion a month in new money to purchase government bonds and mortgage-backed securities. This may be the biggest reason why economic numbers like May’s retail sales are looking better.
But the unemployment rate in the U.S. economy is still staggeringly high. According to the most recent jobs market report, there are almost 12 million people who are jobless in the U.S. economy; more than 15% of the U.S. population is on some form of food stamps, and that number has been increasing at a serious pace.
Last but not least, there are still millions of Americans in the U.S. economy who are living in a house with negative equity—their house is worth less than the loan on their home.
The minor “pop” we are seeing for some U.S. economic numbers could turn in the wrong direction very quickly. Troubles from the global economy will eventually move into the U.S. economy. Retail sales and consumer confidence increasing is certainly a step in the right direction, but I wouldn’t break out the champagne yet.
What He Said:
“Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis.” Michael Lombardi in Profit Confidential, April 8, 2004. Michael first started warning about the negative repercussions of then Fed Governor Greenspan’s low interest rate policy when the Fed first dropped interest rates to one percent in 2004.
Article by profitconfidential.com
Failed Projections or Just Another Government Lie? You Judge
By Profit Confidential
Not so long ago, the Congressional Budget Office (CBO) said it expected the U.S. government to register a budget deficit in the current fiscal year of $642 billion.
But hold on a minute…
The budget deficit so far (as of May 31, 2013) has already hit $626.3 billion, and we still have four more months to go in the government’s current fiscal year!
Since the beginning of the U.S. government’s current fiscal year 2013, which began in October of last year, the government has posted a budget deficit in six out of the past eight months.
The Department of the Treasury just reported the U.S. government registered a budget deficit of $139 billion for the month of May. The federal government took in $197 billion and paid out $336 billion for the month. (Source: Department of the Treasury Financial Management Service, June 12, 2013.)
Comparing it to last year, May 2013’s budget deficit was 11% higher than that of May 2012.
The government has been raking in a budget deficit of over one trillion dollars in each of the last four years; and with four months still left in this fiscal year, it wouldn’t surprise me to see us register a fifth consecutive year of trillion-dollar-plus deficits, despite being repeatedly told by politicians that our budget deficit this year would come in under $800 billion.
This is troubling news; the more budget deficits the U.S. government registers, the more the national debt will increase, and the more the government will need to borrow to pay for expenses. It’s that simple.
Currently, our national debt stands at $16.9 trillion. (Source: www.investmentcontrarians.com, last accessed June 14, 2013.)
The ratio of the U.S. national debt to the gross domestic product (GDP) of the U.S. economy is close to 110% percent. This means that we owe more than what we produce in one year.
The chart below shows a gruesome picture of our national debt compared to U.S. GDP. Notice the rate of change since 2008—it is skyrocketing.
Chart copyright Lombardi Publishing Corporation, 2013;
Data source: Federal Reserve Bank of St. Louis, June 14, 2013.
The U.S. has been the family that spends more than it earns for many years now. In the short term, spending more than one takes in can work (especially if the Fed just prints new money and gives it to the government to pay its bills). But in the long term, if fundamental changes are not made to the government’s spending habits, financial chaos just starts all over again.
Posting a budget deficit year after year is not sustainable. The debt-infested eurozone nations did very much the same; they borrowed to spend. Look where they are now.
Finally, some good economic news is coming to the U.S. economy…
The U.S. Census Bureau has reported that retail and food services sales for the month of May, adjusted for seasonal effects, increased 0.6% from April and 4.3% from the same period a year ago.(Source: U.S. Census Bureau, June 13, 2013.) This is the first report I’ve seen in a long time that shows increasing consumer spending in the U.S. economy.
And the Thomson Reuters/University of Michigan Consumer Confidence Index for May showed consumer spending increasing as well. The index registered at 84.5 in May, improving from 76.4 in April. (Source: Bloomberg, May 31, 2013.) This was the highest level the index has been at since July of 2007.
While this is all good news, my concerns about the U.S. economy remain…
Since the financial crisis in the U.S. economy, the Federal Reserve has been increasing the size of its balance sheet (printing trillions of dollars in new money) and the U.S. government has been spending rigorously, all for the sake of spurring economic growth. Consumer spending in the U.S. economy makes up 70% of our gross domestic product (GDP); hence, it’s vitally important that consumer spending rises if we are to have a sustainable economic recovery.
As it stands, the Federal Reserve is still creating $85.0 billion a month in new money to purchase government bonds and mortgage-backed securities. This may be the biggest reason why economic numbers like May’s retail sales are looking better.
But the unemployment rate in the U.S. economy is still staggeringly high. According to the most recent jobs market report, there are almost 12 million people who are jobless in the U.S. economy; more than 15% of the U.S. population is on some form of food stamps, and that number has been increasing at a serious pace.
Last but not least, there are still millions of Americans in the U.S. economy who are living in a house with negative equity—their house is worth less than the loan on their home.
The minor “pop” we are seeing for some U.S. economic numbers could turn in the wrong direction very quickly. Troubles from the global economy will eventually move into the U.S. economy. Retail sales and consumer confidence increasing is certainly a step in the right direction, but I wouldn’t break out the champagne yet.
What He Said:
“Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis.” Michael Lombardi in Profit Confidential, April 8, 2004. Michael first started warning about the negative repercussions of then Fed Governor Greenspan’s low interest rate policy when the Fed first dropped interest rates to one percent in 2004.
Article by profitconfidential.com
Action in Dow Jones Transports, Utilities Signaling Caution
By Profit Confidential
The equity market and other capital markets are gyrating on the rise in 10-year Treasury yields. There’s been a lot of unusual movement in currencies as well.
Speculation regarding what the Federal Reserve is going to do about quantitative easing and the lull between earnings seasons are definitely factors.
There is always equity market uncertainty in the weeks before the end of a quarter (though the Dow Jones industrials have held up well). Investor sentiment reflects the collective ambiguity of whether earnings will hold up. In a sense, there’s not enough data to keep equity market speculators happy with their bets. When speculators can’t justify their positions, capital markets get cranky.
Both gold and oil prices have been bouncing off the weaker U.S. dollar. There’s always churn before a quarter ends.
I repeat my view that an equity market sell-off could occur at any time and that investors who are long should not be surprised by some pronounced downside (I wouldn’t sell Dow Jones blue chips).
The correction that both Wall Street and many investors expected did not transpire. The willingness of institutional investors to be buyers has been robust.
The equity market was led this year by a pronounced breakout in blue chips and components of the Dow Jones Transportation Average. It’s still very much worth following these companies and transportation stocks for overall market direction.
The Dow Jones Transportation Average is well off its high of 6,568.41, and this is meaningful. The retrenchment, while well deserved, is a sign that the rest of the equity market is ahead of itself.
Alaska Air Group, Inc. (NYSE/ALK) is down markedly (over 10 points) from its recent high of $68.00. This meaningful pullback is representative of what I consider fair game for the equity market on the whole and is just one more slight bit of evidence favoring a correction.
Following transportation stocks for the market’s overall direction is old school for sure, but I still think it’s worth doing. I’d like to see the transportation index stay above 6,000 for the medium-term health of this market, but if there is to be a pullback, 6,000 is an easy target.
The Dow Jones Utility Average has also blasted higher since January, but it began its retrenchment before transportation stocks. This index is down about 12% from its peak and components were fully priced.
The Dow Jones Industrial Average itself is only down slightly from its high, and this illustrates the zeal that big investors have for owning the equity market’s safest names. (See “Big Investors Still Buying Big-Caps; Will They Be Right?”)
On the cusp of a new earnings season, the choppy trading action in all capital markets should continue until corporations report or there’s news from the Fed.
It does matter if the Dow Jones utilities and transports don’t turn back upward; they are now foreshadowing retrenchment.
Significant caution remains appropriate, and I would not be buying the equity market before solid confirmation from earnings reports.
Article by profitconfidential.com
Small-Cap Stocks the Place to Be—If Economic Growth Is Real
By Profit Confidential
Make no mistake about it. The wealth in America continues to rise as it is in other parts of the world. Fueling the creation of wealth has been the easy monetary policy, which has essentially pushed up the stock market to its record-highs.
Now the economy is also on the mend; albeit, it has largely been driven by the lure of easy money. Yet growth is growth. At this juncture, the growth, while somewhat muted, is there.
Cyclical stocks are faring well and will continue to do so as long as the economy continues to grow. These companies include the likes of General Electric Company (NYSE/GE), Schlumberger Limited (NYSE/SLB), and Cisco Systems, Inc. (NASDAQ/CSCO).
Yet to make the real big gains and increase the overall return of your portfolio, small-cap stocks are the place to have some of your capital working. The small-cap Russell 2000 index is leading the pack so far in 2013, up a healthy 16.25% as of Wednesday.
The reason is that small companies tend to perform well out of a recession and during economic growth.
The stock market has been seeing some shifting of capital into defensive dividend-paying stocks (read “Investors Down-Shift Risk, Search for Safety Ongoing Theme for 2013”), but small-caps delivered their top gains in the months of January, March, May, and, so far, June.
And my feeling is that as long as the economy grows, small-caps will outperform.
Take a look at the chart of the Russell 2000 index below. The index broke north, as shown by the purple oval, out of the bullish ascending triangle. A bullish “golden cross” is firmly in place, based on my technical analysis.
Chart courtesy of www.StockCharts.com
We know that the key to stock market success is to make sure there’s ample diversification in your investment strategy as far as sectors and market caps.
Small-cap stocks entail added risk, but the reward is what could really pay off for your portfolio as far as the total expected return.
If you have too many small-cap stocks, you leave yourself open to excess selling if the market turns lower due to the high beta of small-cap stocks.
You want a good balance and you need to have patience.
I favor small-cap stocks for long-term growth as the valuations tend to be more attractive and worth a look for aggressive investors.
And while the buying of large-cap stocks will always be an integral part of your portfolio, I suggest for added overall portfolio returns, add some small-cap stocks.
Also keep in mind that reward is not without risk, but in my view, small-cap stocks are still attractive and could offer large returns if the economy and easy money continue to expand.
Article by profitconfidential.com
Monetary Policy Week in Review – Jun 10-14, 2013: Indonesia raises key rate as 3 banks cut and 7 hold
By www.CentralBankNews.info
This week 11 central banks took policy decisions with Indonesia becoming the third emerging market central bank to raise rates this year while three banks cut rates (Ukraine, Belarus and Mozambique) and seven kept rates steady (Russia, Japan, Iceland, New Zealand, Korea, Philippines and Peru).
Indonesia’s rate hike was significant because it underscored the determination of central banks in emerging markets to combat inflation and their readiness to take on financial markets and avoid any semblance of economic instability
Brazil has already raised rates twice this year to push down inflation while Egypt raised its rate in March, arguing that high inflation will do more damage to the economy in the medium term than the temporary impact on growth from a rate rise.
Prior to Indonesia’s rate rise, central banks across emerging markets – including Poland, India, Turkey, South Korea, South Africa and Sri Lanka – had relied on words and actual market intervention to curb recent exchange rate volatility.
Bank Indonesia described its 25-basis-point rate rise as pre-emptive move to rising inflationary pressures and maintain economic and financial stability at a time of increasing uncertainty in global financial markets.
Indonesia’s rate rise seems to have taken markets by surprise, though it came just two days after the central bank raised its overnight deposit rate to ease the pressure on the rupiah and last month’s warning by the bank that it would not hesitate to adjust policy rates and was closely monitoring the inflationary pressures from the government’s plan to cut fuel subsidies, which will push up inflation.
Emerging markets have been swept up in an outflow of capital in recent weeks, with stock markets falling, domestic interest rates rising and currencies slipping, especially those of Indonesia, Thailand, India, South Africa and the Philippines.
There were already signs of a change in global sentiment in early May, but the testimony by U.S. Federal Reserve Chairman on Ben Bernanke on May 22 seems to have convinced some major investors to suddenly shift their global portfolios.
Bernanke’s statement that the Federal Reserve could start to “take a step down” in the monthly purchase of $85 billion in assets “in the next few meetings” was seen as a sign of the coming shift in U.S. monetary policy and markets immediately priced-in a total stop in quantitative easing.
Ample global liquidity through quantitative easing and very low U.S. interest rates has cut the cost of holding risky assets, such as emerging market assets and stocks, and the sudden re-pricing of risk has hit global markets hard.
But the shift in sentiment and capital flows may be overdone.
Unlike the 1980s and 1990s, when a tightening in U.S. monetary policy lead to financial crises in emerging markets, most emerging markets are on a much more solid economic and financial footing today, with domestic demand the main driver behind economic growth in most countries.
And even if the Federal Reserve at some point will start to taper its asset purchases, it is a long way away from actually tightening short-term interest rates as economic growth is still weak and likely to remain so for some time.
The prospect of the shift in global capital flows away from emerging markets was a major theme for central banks this week, with both Chile and South Korea commenting in their policy decisions.
The Bank of Korea, which had been faced with the competitive disadvantage of a rising won against the yen following the Bank of Japan’s launch of more aggressive policy easing, said the possibility of an earlier-than-expected tapering of U.S. quantitative easing had lead to fall in the won and higher long-term rates.
The BOK added that possible change in U.S. monetary policy and fiscal consolidation in major countries amounted to downside risks to global growth.
The Central Bank of Chile, which also saw its peso fall in recent weeks, noted that global financial conditions had turned more restrictive, especially for emerging economies, ”in part due to the expectation of an early withdrawal of monetary stimulus in the United States.”
The Central Bank of the Philippines, which has been cutting the rate on its special deposit account in recent months to discourage foreign banks from parking there money there, took the opportunity of a drop in the peso to hold those rates steady.
The Reserve Bank of New Zealand, which intervened earlier this year in an attempt to curb the unrelenting rise in its dollar since March 2009, said its currency remained overvalued though it acknowledged that it had fallen in recent weeks.
This week’s surprise rate cut came from Mozambique, which concluded that inflation had now recovered after taking a hit from flooding earlier this year that affected agricultural output. It was therefore time for the Bank of Mozambique to return to its planned alignment of interest rates to economic growth.
The other two rate cuts came from Ukraine and Belarus. With Belarus cutting its refinancing rate by 150 basis points to 23.5 percent, it has ceded the top spot in global policy rates to Malawi and its rate of 25.0 percent.
Through the first 24 weeks of this year, central bank policy rates have been cut 57 times, or 25 percent of the 230 policy decisions taken by the 90 central banks that are followed by Central Bank News, steady from last week.
The number of rate increases this year rose to 12, marginally up to 5.2 percent of all policy decisions from last week’s 5.0 percent.
Central banks in emerging and frontier markets each account for four of the rate rises, central banks in other markets account for three while Denmark remains the lone central bank in developed markets to have raised rates, but this was purely for currency reasons and not a reflection of inflationary pressures or strong economic growth.
LAST WEEK’S (WEEK 24) MONETARY POLICY DECISIONS:
COUNTRY | MSCI | NEW RATE | OLD RATE | 1 YEAR AGO |
UKRAINE | FM | 7.00% | 7.50% | 7.50% |
BELARUS | 23.50% | 25.00% | 32.00% | |
RUSSIA | EM | 8.25% | 8.25% | 8.00% |
JAPAN | DM | 0.00% | 0.00% | 0.10% |
MOZAMBIQUE | 9.00% | 9.50% | 12.50% | |
ICELAND | 6.00% | 6.00% | 5.75% | |
NEW ZEALAND | DM | 2.50% | 2.50% | 2.50% |
KOREA | EM | 2.50% | 2.50% | 3.25% |
INDONESIA | EM | 6.00% | 5.75% | 5.75% |
PHILIPPINES | EM | 3.50% | 3.50% | 4.00% |
PERU | EM | 4.25% | 4.25% | 4.25% |
NEXT WEEK (week 25) features nine scheduled central bank policy meetings, including India, Namibia, Morocco, Turkey, Georgia, the United States, Switzerland, Norway and Egypt.
In addition, markets will be focused on the Monday/Tuesday meeting by Group of Eight (G8) leaders at Lough Erne, near Enniskillen, Northern Ireland. A source told Reuters this week that the leaders are likely to discuss the role of central banks and monetary policy.
The G8 comprises the United States, Canada, Japan, Russia, Germany, France, Italy and the United Kingdom, which currently holds the rotating presidency.
COUNTRY | MSCI | DATE | RATE | 1 YEAR AGO |
INDIA | EM | 17-Jun | 7.50% | 8.00% |
NAMIBA | 18-Jun | 5.50% | 6.00% | |
MOROCCO | EM | 18-Jun | 3.00% | 3.00% |
TURKEY | EM | 18-Jun | 4.50% | 5.75% |
GEORGIA | 19-Jun | 4.25% | 5.75% | |
UNITED STATES | DM | 19-Jun | 0.25% | 0.25% |
SWITZERLAND | DM | 20-Jun | 0.25% | 0.25% |
NORWAY | DM | 20-Jun | 1.50% | 1.50% |
EGYPT | EM | 20-Jun | 9.75% | 9.25% |
New Biotech Names with Excellent Prospects: Michael Aitkenhead
Source: George S. Mack of The Life Sciences Report (6/13/13) – http://www.thelifesciencesreport.com/pub/na/15361
In a marketplace as diverse as biotech, picking the best and brightest can stymie even the savviest investor. Senior biotechnology analyst and physician Michael Aitkenhead of Edison Investment Research has done meticulous research on both the science and unmet needs to reveal the growth potential of biotechs with vastly different stories, disease indications and markets. In this interview with The Life Sciences Report, Aitkenhead details his thesis on three names, each with the ability to return large multiples on original investment.
The Life Sciences Report: It is clearly in a company’s best interest to get all information out about therapies in development and to confront even negative news when it occurs. The Edison Investment Research business model is to produce corporate-sponsored research where the public company pays for the analyst’s opinion. When there is a negative issue or event surrounding a company, how do you talk to your client about confronting the event?
Mike Aitkenhead: The nature of our client-sponsored research model starts from the moment we engage a research client. We are clear about providing balanced research, whereby we focus on both the positive and potentially negative aspects of the investment case—the risks and the opportunities. The client understands this when we start.
I’ll give you the sum total of our views, and my view in particular. I worked within the traditional sellside (investment bank) research model previously, and think it’s always in a company’s best interest to be transparent about the news flow, whether good or bad. It’s also in the analyst’s best interest to present a balanced view, so that his or her credibility can be maintained with the investment community. Both must never lose credibility. That’s key.
I think it comes across in our research product that we don’t just present the positive aspects of any investment case. Indeed, we’ve had feedback from quite a few buyside (asset management) specialists, both in the U.S. and Europe, about our ability to tease out the various aspects of investment cases, which essentially enables analysts to make informed buy or sell decisions.
Finally, we don’t have specific ratings or recommendations in our research notes, but we do endeavor to derive a fair value. In all the research that we write, we try to provide the investor with sufficient information to make a decent investment decision.
TLSR: Do you perceive that there are advantages to the corporate- or client-sponsored research model?
MA: One of the advantages of our model is that the relationship between the research house and the client is very clear. An annual retainer is paid for research, but we are transparent about that. In contrast to the sellside research model, we have no corporate brokering or investment banking relationship that could color our view on the particular stock of a company.
Coming from a sellside background, I’m acutely aware of the potential pressures on the analyst to write positive and/or supportive research to gain business for the investment banking side. People might argue that having a client-sponsored model is not impartial, but my argument is that it’s potentially more transparent than what investors might see from some standard sellside research houses.
TLSR: You are a physician. Do you find yourself evaluating companies based on how a therapy might fit real patients, not subjects in a double-blind experiment with p values? Does that affect your thinking when you’re looking at a drug candidate?
MA: My answer would be very, very much so. My approach to evaluating drugs is grounded in my background as a physician. While I’m always focused on clinical data, I try to consider a product’s real world applications, how it might be utilized by physicians and perceived by patients. To that end, I try to look beyond simple statistics and endpoints to discover if a particular therapy offers clinically meaningful improvement over the standard-of-care therapy. I take a great interest in comparative effectiveness, and there is a real move, in Europe in particular, to look at the cost benefit of a drug. There is increasing interest in cost-benefit analysis in the U.S. as well.
I also draw on an extensive physician network, covering cardiovascular medicine, transplant surgery and pulmonary medicine, as well as other areas. I tap into these experts for views and insights. These are people with whom I’ve worked, so I know and trust them. They may not all be key opinion leaders, but they’re on the ground treating patients, and they give me real feedback on what they perceive to be clinically meaningful improvements when I run data past them. The physician network element is very important to how I evaluate the companies.
Finally, I’m very keen on attending medical conferences. It’s not so much about hearing the thoughts of key opinion leaders, who may have conflicts of interest due to relationships with the pharmaceutical or biotech companies that support their research. I go to the medical meetings to talk to the community physicians. When I go to neurology conferences, I try to talk to community neurologists about their views on the various drugs coming through the pipeline, what they see as being important to their patients, and whether drugs in development are actually useful for patients.
TLSR: Could we go ahead and talk about some companies? You choose the first one.
MA: CytRx Corp. (CYTR:NASDAQ) has a product, aldoxorubicin, on the cusp of entering phase 3 development. It’s targeting a very large unmet need, soft tissue sarcoma (STS). Much of its competition is dropping away through failure of clinical trials, and aldoxorubicin looks to be one of the few late-stage drugs in development for this indication.
What makes aldoxorubicin particularly interesting is that it utilizes the STS standard-of-care chemotherapy agent, doxorubicin, conjugated to an acid-sensitive linker that binds to circulating albumin after it’s given intravenously. The doxorubicin is then released into acidic tumor tissues. This is a targeted drug delivery, which has a number of advantages. It allows the drug to be retained primarily within the blood compartment and not distributed to healthy tissues and organs. That’s important because one of the concerns with normal doxorubicin use is that the drug gets to the heart, where it can cause long-term damage, as well as into bone marrow and other parts of the body. Binding doxorubicin to albumin as a carrier through the blood is a very clever idea.
The preclinical data have been very supportive, and CytRx’s phase 1b/2 trial has shown quite promising, albeit early stage, efficacy for this drug in patients with advanced STS. These data are encouraging enough for the company to take the drug forward into a pivotal phase 3 trial in second-line soft tissue sarcoma. The company secured a special protocol assessment (SPA) in April from the U.S. Food and Drug Administration (FDA), a written agreement that a single successful phase 3 trial would be sufficient to gain approval as a second-line therapy. We anticipate the trial will start sometime in H2/13.
Parallel to the development of aldoxorubicin as a second-line STS therapy is an ongoing phase 2b trial of aldoxorubicin as a frontline treatment for advanced soft tissue sarcoma. We expect that data sometime in H2/13, potentially toward the end of Q3/13. We have increasing confidence that this frontline trial will be positive because the trial recently passed an interim safety analysis, and further supportive data was recently published at the American Society of Clinical Oncology (ASCO) conference about the drug’s efficacy and safety profile.
TLSR: This phase 3 pivotal trial has yet to begin, and we are probably looking at 2015 before we get any kind of definitive data, are we not? That’s far off. Do you expect the phase 2b trial results as a frontline therapy later this year to be a catalyst?
MA: Our timeline assumes that we would have the data from the pivotal phase 3 sometime in 2015. We’re targeting product launch in 2016. Near term, we have the results of the phase 2b trial in frontline soft tissue sarcoma. That’s quite a large trial, with around 105 patients, and it’s randomized. Furthermore, this is a comparator trial versus doxorubicin alone. I believe the results of the 2b trial will inform not only the company’s plans for taking aldoxorubicin forward in frontline soft tissue sarcoma, but if it’s positive, it should increase our confidence in the second-line opportunity as well.
The way the company has designed this phase 2b comparator trial, going head-to-head with doxorubicin, is wise because doxorubicin is the standard of care. If the frontline trial can show it’s better than the standard of care, with the potential for better efficacy and/or better safety, that would increase our confidence in both the front- and second-line opportunities.
TLSR: Michael, you said that the competition was dropping away. No need to go into a long explanation, but what has failed recently in STS?
MA: If you look at the competitive space recently, you see the failure of ZIOPHARM Oncololgy, Inc. (ZIOP:NASDAQ) palifosfamide, which was an ifosfamide derivative. I was quite cautious about this therapy because the results of a large study, released toward the end of last year at the European Society for Medical Oncology (ESMO) conference, showed that adding ifosfamide (the parent compound of palifosfamide) to doxorubicin in frontline STS was no more effective than doxorubicin alone, and increased toxicity. The difference with CytRx’s aldoxorubicin is that we already have a chemotherapy that works. Now we have a novel way of delivering that chemotherapy that is more targeted and potentially less toxic than doxorubicin itself.
TLSR: Soft tissue sarcomas are such difficult indications. Why are you optimistic about aldoxorubicin?
MA: I’ll comment from the physician-based perspective. I attended the ESMO conference toward the end of last year, where I saw the aldoxorubicin data presented. I used that opportunity to speak to sarcoma physicians who also sat in on both the aldoxorubicin and ifosfamide presentations. They were all highly encouraged by the preliminary aldoxorubicin results. They also cautioned me about the need to monitor closely for potential side effects.
As with doxorubicin we see some hematological toxicity, and that needs to be monitored in ongoing and future studies. Certainly, toxicity will be closely monitored in the current phase 3 pivotal trial, so appropriate treatment will ensure that we are not only improving efficacy but also minimizing toxicity. The physicians I spoke to felt that any increase in hematological toxicity should be quite easily managed with agents such as granulocyte colony-stimulating factor to treat or prevent neutropenia (low neutrophil, a type of white blood cell, count). The bottom line is that I came away from ESMO having spoken to a number of sarcoma physicians who were very encouraged by the initial results from this drug.
TLSR: Medical oncologists and heme/oncs (hematologists/oncologists) are using colony-stimulating factors on an everyday basis with their patients. These are typically not difficult issues for them.
MA: Yes. They’re very adept at managing hematological toxicity. This is one of the areas where, as a physician, I try to delve into the data to find out what’s meaningful. We know that sarcoma patients generally have fairly short lifespans when they reach advanced stages, so you’re looking at relatively modest improvement in progression-free survival and overall survival. It is not only important to improve the efficacy of these agents, but also to be conscious of the side effects, attempting to maintain the quality of a patient’s remaining life as well.
TLSR: With quality of life being an important result and primary endpoint, do you see progression-free survival is an adequate primary endpoint?
MA: Interestingly, in the SPA for the pivotal phase 3 aldoxorubicin soft tissue sarcoma trial, the primary endpoint is progression-free survival, with a secondary endpoint of overall survival. That speaks to the extremely high unmet need in sarcoma. It is our hope that we will not only see improvement in progression-free survival with aldoxorubicin, but also a meaningful improvement in overall survival.
TLSR: What’s your next idea?
MA: Let’s talk about OvaScience Inc (OTC:OVSC). This company has a very novel approach to female infertility, in particular, improving the success rate of in vitro fertilization (IVF), which is the lead indication for its product, AUGMENT (autologous germline mitochondrial energy transfer). This unique technology is based on the groundbreaking work of Jonathan Tilly of Massachusetts General Hospital and Harvard Medical School. He has discovered germline stem cells in human ovaries that are effectively egg-producing stem cells.
The AUGMENT procedure involves extraction of fresh mitochondria (intracellular organelles that produce adenosine triphosphate [ATP], the chemical energy supply in cells) from these egg-producing stem cells, which are called egg precursor cells (EggPCs), and injecting that material into the egg of a woman undergoing the IVF procedure. This technology essentially revitalizes or rejuvenates the egg. There is a clear link between egg quality and the level of energy production in the egg, which relates to mitochondrial number and function, and the egg’s ability to be fertilized and grow into a viable pregnancy resulting in live birth.
The idea is to improve the success rate of IVF and reduce the use of donor eggs, so that a woman may have a genetically matched child. The AUGMENT system will address a large and growing unmet need, particularly with women delaying childbirth to later years and the increasing awareness of infertility. To that end, OvaScience has embarked on a clinical study of AUGMENT in the U.S. to evaluate the technology.
TLSR: Let me understand this. The mitochondria from the egg precursor cells are mixed with sperm cells and injected into the oocyte. Is that right?
MA: That is correct. OvaScience has a proprietary process for identifying these precursor cells in ovaries, isolating the mitochondria and refining them. Essentially it purifies the mitochondria so that they are ready when the woman undergoes the IVF procedure. The sperm is injected into the egg and the mitochondria are injected at that same time.
TLSR: Clinical trials for cancer or other disease agents have defined endpoints associated with the disease. It would be interesting to know what the endpoints might be in the AUGMENT study.
MA: The AUGMENT study has a variety of endpoints—fertilization, implantation, pregnancy tests, scans, all the standard stuff you would follow for a pregnancy. But, ultimately, what OvaScience and investigators are looking for is safety. Is it a safe procedure? Is it effective? Does it improve the success rate as defined by a healthy live birth at the end of treatment? These endpoints will be compared, in part, to historic controls at the centers where the trial is being undertaken. You not only have quite a comprehensive database at each of these centers with regard to historical success rates for IVF at various ages, but there will be a selection of matched controls who are undergoing standard IVF at the same time. It is an interesting study design.
TLSR: So the historic and contemporary control subjects are patients who are not formally part of the clinical trial. Is that correct?
MA: Exactly right. You effectively have two forms of comparison with the AUGMENT procedure, a match with women who will receive IVF at the same time as the AUGMENT study, and also comparison to historic controls. U.S. fertility centers keep very good records for national databases.
TLSR: Going back to endpoints for a moment, is safety of the fetus the primary endpoint?
MA: Safety for both the mother and for the fetus.
TLSR: Would the secondary endpoint be the number of embryo transfers; the number of times it takes to produce a viable pregnancy?
MA: My understanding is that in the 40-patient trial, there will be only one attempt at embryo implantation in each woman. Also, only one embryo will be implanted. One of the potential advantages of the AUGMENT procedure is that it will reduce the need to implant multiple embryos into the uterus. There is a safety risk with multiple embryo transfers and pregnancies involving multiples. The idea is not only to improve the efficacy of IVF, but also improve the safety of the mother and the developing fetus.
One of the important things to remember about OvaScience is that a body of work already suggests that injecting mitochondria can improve the success rate of IVF. However, these previous studies have not used the woman’s own germline, or egg-producing cells or mitochondria. They have used donor mitochondria, or mitochondria from somatic (non-gamete or non-germ) cells. The advantage of using a patient’s own EggPCs and mitochondria is that you have pure, fresh, maternal mitochondria, and avoid the introduction of third-party genetic material into the egg at the time of the IVF procedure.
TLSR: AUGMENT is the lead program at OvaScience. What would be the catalyst that could move the stock? The reason I’m asking is because this stock is up 67% over the past six months and up 25% over the past 12 weeks. What are the market-moving events that could take these shares up further?
MA: The company is, quite wisely, not disclosing interim data from the AUGMENT study. That’s useful because I don’t think people should be misled. It has rightly kept things low key. The first real data point we’ll have from the AUGMENT study will be in H2/14.
Between now and the end of this year, potential catalysts for OvaScience stock are threefold. First, I think we should get more clarity on the company’s plans to commercialize AUGMENT outside of the U.S. Europe is potentially a much larger market than the U.S. in terms of IVF procedures, and there are other large markets like Brazil and Japan. I see clarity on the company’s commercial development strategy outside the U.S. as a potential catalyst because we don’t have much detail on that as yet.
The second catalyst would be expansion of the AUGMENT study in the U.S. in H2/13. Expansion would certainly be a positive sign for the program. Now that the company has raised $35 million ($35M), it is able to expand the study to include more U.S. patients.
The third catalyst could be potential updates on the progress of OvaTure, which is a preclinical program. OvaTure is a very interesting approach to infertility, one that could revolutionize IVF and the treatment of infertility. It essentially generates de novo eggs from the woman’s own EggPCs. This would overcome some of the limitations encountered by women who are getting older and/or require donor eggs. If a new egg can be generated from an EggPC, it could extend the age at which pregnancy is possible. Any potential positive updates on the OvaTure program would certainly be a catalyst for the stock.
TLSR: When will OvaTure get into the clinic?
MA: I assume it will enter clinical development sometime toward the end of 2014.
TLSR: What is the regulatory pathway for these procedures and technology? Is it a device regulatory pathway? I have not seen any references to an investigational new drug application (IND), phase 1, 2 or 3 trials or new drug or biologics license applications (BLAs). What is the pathway?
MA: That’s a very good question, and has been the subject of much discussion among the investment community. Essentially, OvaScience believes that the product is regulated under the 361 HCT/P pathway, which is for low-risk cell- and tissue-based products. One of the key criteria for 361 HCT/P is that there must be minimal manipulation, which is certainly the case with the OvaScience products as they use the patient’s own cells. Under this regulation, AUGMENT would not be subject to a complete clinical study, review and approval process, as would a new drug or biologic.
The company admits that it hasn’t formally consulted with the FDA’s Tissue Reference Group, whose responsibility this would be. But the company doesn’t have to consult if it believes the technology fits the 361 HCT/P requirements. OvaScience has sought a number of independent views about whether it meets those criteria, and management believes it does.
One of the potential risks is that the FDA might say the technology shouldn’t be regulated under the HCT/P pathway, and could require a full BLA-type development program, which would be significantly more expensive. Currently, OvaScience is just doing the single, 40-patient study, which is effectively a marketing study to show the procedure is safe and has some effectiveness. But if it is does the expansion study, the company will build a much larger database to support the product going forward.
My belief is that while there is a risk that the FDA might disagree, AUGMENT appears to meet the criteria for 361 HCT/P product development. Only time will tell, but the company does mention in a Securities and Exchange Commission filing that it has ongoing interaction with the FDA, that the FDA is fully aware of the trial. So the FDA knows what’s going on. The company is not carrying out its trial without any interactions or advice from its regulator.
TLSR: You have one more company that you wanted to talk about?
MA: Yes, GW Pharmaceuticals Plc (GWPH:NASDAQ). It’s a United Kingdom-based company developing Cannabis-derived drugs for the treatment of various diseases. Its most advanced program is Sativex (delta-9-tetrahydrocannabinol [THC] + cannabidiol [CBD]), an oral spray administered under the tongue. It is already approved and marketed in Europe for the treatment of spasticity due to multiple sclerosis (MS).
The drug has been on the market in Europe for three years and the market is growing. GW Pharmaceuticals has partnered with Almirall S.A. (LBTSF:OTCPK) in Europe and Novartis AG (NVS:NYSE) in emerging markets. It is partnered with Otsuka Holdings Co., Ltd. (OTSKF:OTCPK) in the U.S., where it’s in development for treatment of advanced cancer pain, but also soon for MS spasticity. The company has a validated cannabinoid platform that has generated an approved and marketed product that appears to be effective. It also has a broad pipeline of cannabinoid-based therapies in development for various diseases, such as glioblastoma, diabetes, schizophrenia and epilepsy.
What makes the story very interesting is that the company just completed an initial public offering on NASDAQ and raised $30M, which supports the company’s strategy to advance its pipeline of cannabinoid therapies.
GW’s U.S. partner, Otsuka, is currently running phase 3 trials with Sativex as add-on therapy to opioids in advanced cancer pain, with the first data due in 2014. Also, Otsuka has plans to initiate a phase 3 trial of Sativex in MS spasticity. I would anticipate that trial will start sometime next year. GW has entered the U.S. market at a good time. It has raised money to pursue its strategy and there is an increasing acceptance in the U.S., both politically and regulatory, toward the medicinal use of Cannabis.
TLSR: Michael, I’m curious about the phase 3 trial going on in the U.S. for cancer pain. Cannabis is not a narcotic. I know it works for nausea, but what is the mechanism that makes it work for pain?
MA: Two or three extensive phase 2 trials, one of which was undertaken in the U.S., have been done in the pain indication. There is a body of good, supportive clinical data in patients with advanced cancer pain. Going to your question of how it works, the underlying mechanisms of cannabinoid action are quite complex, and have not been fully defined. However, it appears that THC and CBD act via cannabinoid and, potentially, other receptors to induce analgesic effects. In addition, preclinical studies have shown that opioids and cannabinoids have synergistic analgesic effects.
TLSR: Has any potential for abuse been demonstrated? That’s going to be a very important consideration in the U.S.
MA: If you look at the experience in Europe with the MS spasticity, there hasn’t been any evidence of abuse potential with Sativex. I think that relates back to the combination of THC and CBD, which is a 1:1 ratio in the product. The company has specific strains of the Cannabis sativa plant that have been selectively bred to generate specific cannabinoids. But one way to reduce the abuse potential of Sativex is the route of delivery, as a sublingual spray, as well as its combination of THC and CBD. Certainly we don’t see patients reporting the high one might experience by smoking Cannabis.
TLSR: It’s been a pleasure speaking with you. Thank you for the time.
MA: Thank you for your time. It was a pleasure speaking to you.
Dr. Michael Aitkenhead is a qualified physician with more than 12 years’ experience in the healthcare industry, including five years in clinical medicine and seven years in biopharmaceutical equity research. He was formerly a European pharmaceuticals analyst at the Royal Bank of Scotland in London, and prior to this was a European biotechnology analyst with Piper Jaffray. Aitkenhead received his medical degree from the University of Otago, New Zealand, and subsequently completed a master’s degree in business administration at Judge Business School, University of Cambridge.
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1) George S. Mack 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: CytRx Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Michael Aitkenhead: I or my family own shares of the following companies mentioned in this interview: None. 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: CytRx Corp., GW Pharmaceuticals Plc, OvaScience Inc. 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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Why Mobile Technology is Bad for Some Businesses, Great for All Consumers
Here are some of the estimates and statistics we’ve plucked from a McKinsey Global report we mentioned last week:
- 1.1 billion people currently use smartphones and tablets, with a potential to reach two billion to three billion more.
- The processing power of the average smartphone has increased by about 25% per year over the last five years.
- By 2025, nearly 80% of all internet connections could be through mobile devices.
- Near field payments grew 400% in 2012 and are expected to increase 20 fold by 2016.
Take financial services here in Australia, for example. Consumers are moving to mobile banking at a ‘breakneck’ pace, according to The Age this week. The uptake is up to eight times as fast as the original shift to internet banking. Billions of dollars are transacting through the big four banks’ ‘apps’ like CBA’s Kaching or ANZ’s goMoney.
In the Australian Financial Review, Jason Yetton, Westpac’s head of retail and business banking, suggested than within five years mobile technology will have almost completely overtaken PCs for retail banking.
He argued this will give Westpac the opportunity to target consumers with other products like home loans via specialists that can use video conferencing to talk with the customer.
But mobile technology is shaping up to be both an opportunity and a threat for the banks. Check out this from The Australian at the end of May: ‘Major banks are facing increasing competition from Apple, Google and Samsung — particularly from so-called "wallet" payment systems that allow consumers to pay for goods without credit cards from banks.’
Commonwealth Bank chief exec Ian Narev went on the record and said he was just as worried about the threat from major tech companies as he was about normal competition from the other big three banks.
No wonder the McKinsey Global Institute put mobile technology as the biggest disruptive technology that will impact the world until 2025. Of course, banking is not the only industry it will affect. There’s plenty more.
We asked our new technology analyst Sam Volkering here at Money Morning headquarters for his thoughts on the mobile technology trend. He told us:
‘The mindset people have at the moment is they carry around a phone capable of doing all these wonderful things with various apps and what-not. But they’ve got the wrong mindset. People are really carrying around computers with the ability to make phone calls.
‘So it’s not really an evolution in mobile devices so to speak, it’s just an acceleration of the evolution of computing. The trend means three things. Smaller, more powerful and immersive computing. And not in 10 or 15 years, but in the next two or three.’
Here’s a quick snapshot of that accelerating trend. The iPhone 4 has the same performance power as the fastest supercomputer in 1975. The difference is the supercomputer cost $5 million in 1975 and the iPhone 4 is under five hundred bucks today.
Of course, following the trend is one thing. Trying to identify which computers stand to win and lose is the hard part. That’s where Kris Sayce and Sam come into the picture with their new technology service, Revolutionary Tech Investor. The hunt is on. Going by the evidence, they’ve got the wind at their back on this part of the tech space. Stay tuned.
Don’t Miss This
Of course, Kris and Sam are excited by the opportunities in technology stocks and what they see as a transformational revolution that’s about to hit the global economy.
But over at Sound Money Sound Investments, editor Greg Canavan is more worried about China’s slowdown and what it means for the broader market and Aussie economy. He’s worried enough to want to show you a recent talk he recorded with fellow editor of The Daily Reckoning Dan Denning. You can see it here. It’s under thirty minutes. Grab a drink and enjoy.
Until next week.
Callum Newman.
Editor, Money Weekend
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PS. Don’t forget if you want to keep track of the latest things we’re reading and brief commentary on events that happen through the day, check out our Google+ page and Kris Sayce’s as well.
From the Port Phillip Publishing Library
Special Report: Buy These Four Yen Dive Stocks Now
Daily Reckoning: Why it’s Going to Get Ugly When Interest Rates Rise Again
Money Morning: Signs of Stress in the US Bond Markets
Pursuit of Happiness: Improving Your Life Through New Technology