How Political and World Events Affect the Dow Jones Industrial Average

Here's a little study I put together that illustrates how the Dow Jones Industrial Average fared in response to world events and the changing balance of power in U.S. government.

Insourcing? Now There’s a Concept!

Here’s something interesting.  I was just reading a blog article written by a guy named Munjal Shah, the CEO of a company called Riya.  In this article he describes setting up an office in Bangalore, India, in 2002 for a company called Andale, “because,” as Shah explains, “India provided us with a less expensive pool of talent than Silicon Valley did.”

This is the same, very familiar reason given in recent years by countless companies for their need to control costs by outsourcing their IT work to overseas markets.  But guess what.  If Riya serves as any sort of useful barometer of the outsourcing situation, then that tide may be turning.

Here are a few excerpts from Mr. Shah’s article:

Bangalore wages have just been growing like crazy.  To give you an example, there is an employee of ours who took the first 5 years of his career to get from 1% to 10% of his equivalent US counterpart.  He then jumped from 10% to 20% of his US counterpart in the next 1 year.  During his time with us (less than 2 years) he jumped to 55% of the US wage.  In the next few months we would have had to move him to 75% just to “keep him at market.”

[. . .]

However, this huge run up in the wages has destroyed the ROI I referred to earlier.  So today we decided to consolidate all of our engineering and research efforts back to our HQ in California.  We are relocating many of our key folks back to the US, but there are some that we are not bringing back.  Our goal was to keep the payroll costs the same before and after the move. Because wages are still higher in the US we couldn’t bring everyone.

Interesting turn of events, is it not?  It brings to mind the efficient market theories and visions of the ol’ inverse supply and demand curves, establishing market equilibrium, that I had to burn into the grey matter in Economics classes.

Articles such as this one are quite welcome and encouraging to out-of-work IT people in the States, among whom I am one (although I did have what I thought to be a productive interview today; we shall see where it leads).

IMCL Showing Some Strength Today

At precisely 11:32:55 this morning, IMCL broke through its multi-year high.  As I type this it is trading at 43.91.  As Martha might say, “this is a good thing.”

Dow Jones Industrial Average Crosses 13,000 for First Time

In case you weren’t watching, the Dow Jones Industrial Average crossed 13,000 this morning for the first time in history.



As you can see, it crossed the 13,000 line three times by just a few minutes after 10:00.  Of course, this market is based on 2007 dollars, which are fairly weak.  If you were to index this to the high in 2000 based on the value of U.S. dollars in 2000, we probably still have some ground to cover.  But psychologically this is good for the markets in general.

CNBC’s Jim Cramer is predicting that the DJIA will be above 14,000 by the end of the year.  I like that kind of optimism, and I hope he’s right, but I wouldn’t bet the farm on it.

Avastin Quarterly Sales Up 34% Year Over Year

Sales of Genentech's (NYSE: DNA) Avastin in the first quarter this year are reported to have increased 34% over the same quarter last year from $398 to $533 million dollars.  When they file their form 10-Q with the SEC, I believe you will find that Avastin sales in metastatic colorectal cancer over that period are more-or-less flat, while the lion's share of that increase comes as a result of Genentech's having received FDA approval of for its use in combination with chemotherapy agents carboplatin and paclitaxel for first-line treatment of patients with unresectable, locally advanced, recurrent or metastatic non-squamous, non-small cell lung cancer.  That FDA approval came on Oct. 11, 2006.  While not yet FDA approved for treatment of breast cancer, I believe an increasing number of oncologists are also using Avastin off-label in this indication, which also contributed to the increase.  Additionally, opthamologists are using Avastin off-label in the treatment of choroidal neovascular membrane (CNV) in age-related macular degeneration (AMD).

Avastin (bevacizumab) is an anti-VEGF humanized antibody approved for use in combination with intravenous 5-fluorouracil based chemotherapy as a treatment for patients with first- or second-line metastatic cancer of the colon or rectum.  VEGF is an acronym for “vascular endothelial growth factor,” a protein that stimulates the growth of new blood vessels from pre-existing vasculature.

Baker Hughes, Inc.

I just opened a long position in Baker Hughes, Inc. (NYSE: BHI) this morning for $69.40.

This Houston based company is a supplier of products and technology services and systems to the worldwide oil and natural gas industry, including products and services for drilling, formation evaluation, completion and production of oil and natural gas wells.  It's showing a very healthy 27% profit margin and a relatively low multiple of 10, with a forecast of 15% growth in earnings in its next fiscal year.

ImClone Drops on Negative Pancreatic News

ImClone is trading between 7 and 8 percent lower this afternoon as I write this and here is why:

NEW YORK, April 10 /PRNewswire-FirstCall/ -- ImClone Systems Incorporated (Nasdaq: IMCL) and Bristol-Myers Squibb Company (NYSE: BMY) today announced that a Phase III study of ERBITUX(R) (Cetuximab) plus gemcitabine (a chemotherapy) in patients with locally advanced unresectable or metastatic pancreatic cancer did not meet its primary endpoint of improving overall survival.

Link to the whole story.

Needless to say I'm really disappointed by this news.  I was so hoping for positive results out of this trial, not only for the obvious reasons of price appreciation to a stock that I happen to own a lot of, but also for the fact that tens of thousands of people who are diagnosed with this particularly hard-to-treat form of cancer will now not receive a more powerful weapon with which to fight it.

On an investing note, I sold all my shares early this afternoon for an average price of $39.181.  I am considering either buying some Aug. $40 call options or else perhaps simply buying back the shares I sold—hopefully at a lower price.  I do still believe the data to be released at ASCO the 1st week in June will drive the price higher, but things are just a bit too dicey right now to be making any hasty moves.  I've decided to wait for the dust to clear somewhat.

The Analysts Finally Begin to See the Light of Day

Some excerpts from an article by Adam Feuerstein on ImClone for TheStreet.com, Apr. 7, 2007 (all emphasis mine):

[. . .] I have had a love-hate [emphasis on the word “hate”—Rob] relationship with ImClone for years. I've done some of my best work on the stock and, sadly, some of my worst.

[. . .]I think ImClone has a very good stretch ahead of it.[. . .]

At next week's annual meeting of the American Association of Cancer Research, ImClone will be presenting positive survival data from a study of Erbitux in third-line colon cancer as well as positive data from a study combining Erbitux and chemotherapy in second-line colon cancer.

[At the ASCO meeting in June] we'll get more good Erbitux data, including first-line colon cancer data combining Erbitux and chemotherapy (the so-called Crystal study) as well as new and positive data on Erbitux in head-and-neck cancer.

[Referencing a Southwest Oncology Group trial, there is also] Erbitux data from a big pancreatic cancer trial any day.

[. . .] I also think some of the new colon cancer data we'll get in the next few months will help Erbitux gain share in the second-line colon cancer treatment market.

I don't think Erbitux is powerful enough, necessarily, to go after Genentech's (DNA) Avastin in front-line colon cancer, [I disagree.—Rob] but ImClone still wins if doctors see Erbitux as the go-to second-line drug for their colon cancer patients.

This stuff Feuerstein is now (mostly) saying is the stuff I've been preaching for a couple years now. Note the hallowed reverence with which Mr. Feuerstein still prostrates himself before the Avastin juggernaut. I guarantee that behind closed doors Genentech management is not taking a light view of Erbitux about now.

Watch IMCL (ImClone Systems)

Keep an eye on IMCL.  43.08 is the intraday high going all the way back to Mar. 4, 2005.  If it manages to bust through with any kind of momentum and volume, the next level of serious resistance should somewhere in the 46 area.  When that one falls, next stop: 55.

Why Would Google Want AOL?

Here's one from the rumor mill.  I was reading a post in Susan Mernit's Blog, in which she writes:

I got an email from a friend who spent this evening on one of NYC's top restaurants. He said "I was seated near some people from Google and AOL who were celebrating some sort of deal. They'd signed papers and wanted to sit off by themselves so no one could hear them talk."

I don't know what to think of this.  Although Google, I believe, already owns a 5% stake in AOL (a division of Time Warner), I can't imagine their wanting the whole thing, unless they've got a very creative and aggressive plan to turn it around.

According to Time Warner's latest 10-K report, AOL's subscribers in Europe and the United States dropped by 10 million to 15.5 million between Dec. '05 and Dec. '06, and 52% of that loss occurred in the last three months.  That's a very serious problem, and as a Google shareholder myself, I'm not too thrilled at this prospect.

Google's latest 10-K reports $13 billion in total current assets.  They certainly have the wherewithal to acquire the sinking ship, but why would they?