Today's Column
8:30 AM Monday, March 1, 2004: I don't want to depress you. My fear remains a financial crisis that may come as a result of the ongoing need to attract enough foreign capital to fund the U.S. trade and the federal government spending shortfalls. The numbers are frightening. In 2004, the U.S.'s trade deficit and federal government spending deficit will each be around $500 billion. That's $1 trillion that has to be financed this year, much of it from overseas. The implications are ominous: The dollar will continue to weaken and interest rates will rise to attract the monies we need. All this will be soon be made doubly worse by inflation, which will rear its ugly head later in the year. If you don't believe me, check the price of gas at the pump. Look at natural gas. It's doubled in the past 12 months.

I do not want to sound pessimistic. We are presently lucky. Stockmarkets are "hanging tough." Every technical analyst market has recently called for a "market correction" of at least 5%. It hasn't happened. As Todd, my broker fiend, this morning wrote, "The bulls continue to beat back the bears."


Nasdaq, hanging tough

I see four implications:

1. Cash is good. It's good to have more than you had six months ago. Cash is a cushion. It's for a rainy day. It's great for picking up bargains.
2. It's increasingly hard to find fantastic investment "bargains" -- in the stockmarket, in real estate, in startups or privately. So you have to be increasingly selective.
3. It's time to reign in one's expectations, be a little patient and smell the roses.

4. It's a good time to invest in your own business. If you see sound expansion possibilities, now is a great time to borrow money. Interest rates won't be this cheap again for a long, long time. Borrow long at a fixed rate, not short at a variable rate.

The end of this year will look very different to the beginning. I want to be ready for those new opportunities.

"TriPath Imaging (TPTH) Charges Down Track to Success," writes a recent report in TheStreet.com. We own TriPath in our portfolio and I've been buying a little more. TheStreet.Com writes, "Biotech stocks continue to attract much of Wall Street's attention these days, and shares of TriPath Imaging are no exception. The stock is up more than 200% over the past 52 weeks, leaving the Dow Jones biotechnology index's 46% return in the dust. Even so, the shares continue to warrant a close look, especially given the recent 20% selloff in the stock, which likely had more to do with profit-taking than with anything specific to the company. Indeed, the TriPath story has, if anything, gotten more compelling. The company continues to make inroads into the roughly $800 million global market for Pap smears. It's also continuing to develop its promising pipeline of proprietary, genetically-based tests for detecting a number of cancers, including breast, cervical and ovarian. Considering that TriPath just completed another quarter (and full year) in which sales, earnings and strategic milestones either met or beat Wall Street's expectations, it seems worth taking the chance that the company can do the same, if not better, in 2004. Recall that TriPath sells a three-step cancer screening process, the i3 series, that targets both conventional and liquid-based Pap-smear markets. The liquid-based market is still dominated by Cytyc (CYTC) , the only other company besides TriPath that has received FDA approval to replace the conventional Pap smear. According to TriPath's most recent quarterly results, the company is successfully outpacing its rival. In the fourth quarter, TriPath increased its sales of consumables (reagents and disposables used in its screening process) 47% year over year and 8% sequentially from the third quarter. By comparison, sales of Cytyc's ThinPrep system were relatively flat sequentially. TriPath now says it has an 11.5% share of the U.S. Pap smear test market, up 100 basis points from the previous quarter and right on target with the company's goal of gaining 1 percentage point in market share per quarter. TriPath estimates that roughly 50% of this share gain is from labs that were performing conventional Pap smear tests, while the other half came from Cytyc. TriPath signed up 12 new lab customers, representing potentially 170,000 new Pap smear tests, while suffering no losses.

TriPath so far has achieved its earnings targets as well. The company's commercial operation (cervical cytology) was in the black not only for the fifth consecutive quarter in the latest period but also for the whole year in 2003. Given the razors-and-blades nature of the business (sales of screening equipment ensure a steady, recurring stream of reagents and disposables sales), the commercial business appears well on its way toward driving sustainable growth for the forseeable future. Sales of reagents and disposables accounted for 73% of total company sales in the fourth quarter, up from 69% the year before. In the meantime, TriPath has set some ambitious milestones for 2004 that could provide a steady flow of good news to support the stock. The strength of its commercial business should help TriPath break even as a whole by the second quarter. Investors also should expect to keep hearing about new lab customers signing up for the TriPath system, possibly another large company such as Quest (DGX) .Chances for more share gain will be enhanced if and when the company receives FDA approval to use its slides for Digene's (DIGE) human papilloma virus test. A filing is slated for the first half of this year, with an approval expected before the end of 2004. The company also has an FDA submission scheduled for the first half of this year related to its new FocalPoint GS screening system.

A flurry of activity also is scheduled for TriPath's oncology business. In the second half of this year, the company is scheduled to start studies on both its cervical cancer molecular assay and breast cancer staging molecular assay reagent, the latter of which should be available in research-use format. In the meantime, it's quite possible that TriPath could announce more partnership agreements with biotech and pharmaceutical companies, such as its current arrangements with Millennium (MLNM:Nasdaq) and Roche, in the development of its oncology platform. Although it's only February, TriPath already has increased its revenue guidance for this year to a range of $71 million to $76 million from its previous $68 million to $74 million. While this isn't a big move, it lends even more credibility to management's goals and what investors can expect from TriPath in 2004."

What it takes: Finding the "perfect investment" is not easy. I am a limited partner in two real estate syndications of an excellent firm called Broadway Partners. In 2003, Broadway reviewed 210 deals with a combined asking price $23.6 billion and submitted bids for 43 deals representing a combined $6.6 billion. In 2003, Broadway was successful in buying only two. That's fewer than 1% of the deals it looked at. Both of the deals it bought were office buildings, one in Washington D.C. and one in Philadelphia, with a combined cost of $280.5 million. Whichever way you look at the numbers, the conclusion is clear: Searching for a prince or two means kissing a lot of frogs. It's serious hard work.

Even the squeakiest, cleanest of the mutual funds. On February On Feb. 17, New Jersey Attorney General Peter C. Harvey charged PIMCO and three related companies with securities fraud for allowing hedge-fund manager Edward J. Stern's Canary Investment Management LLC to execute frequent trades in PIMCO funds. At the heart of the state's case is a December, 2002, agreement, allowing Canary to make one "roundtrip" trade in PIMCO funds each month. Such trades -- equal-size purchases and sales in the same fund -- aren't illegal. But many funds try to limit their frequency because rapid trading can increase expenses and hurt performance for other shareholders, i.e. you, me and the great unwashed American public.

The problem is that the PIMCO funds' prospectus says the company has the right to refuse investors who make more than six such trades per year. PIMCO boss Bill Gross says that rule applied to Canary as well, but no mention of such a limit is made in an e-mail from PIMCO to Canary that outlined their one-trade-per-month agreement. A copy of the e-mail was attached to the New Jersey complaint. Business Week says it's "troubling ... that Gross didn't know of the relationship earlier, nor did he reveal it immediately after he found out. He tells BusinessWeek he learned of it from investigators in mid-September, several days after New York Attorney General Eliot Spitzer announced a $40 million settlement with Canary over questionable trading at other firms. But PIMCO's connections to Canary didn't become public until the recent New Jersey suit. Should Gross have alerted investors last fall? "We could have handled it better," he says. "We could have told our clients earlier." Such disclosure, adds New Jersey's Harvey, "is what self-policing is about."

In my humble opinion, there's no such animal as "self-policing."

I've had experiences with mutual funds where they will publicly state one policy -- e.g. commissions -- then violate them because of short-term interests, then blame someone else -- either you or your broker. I'm sure there are some honest mutual funds, somewhere. I wonder where. It's depressing to read of squeaky clean Bill Gross's problems with the law and his totally lackadaisical handling of the problem. To think, I was once one of his biggest fans.

Palm's Treo is hot: All my friends have the new $500-plus Handspring Treo 600 cell phone / PDA organizer /camera / emailer / web browser / speakerphone. They claim it saves them on carrying a cell phone and an organizer. Some even claim they no longer need a PC because they can search the web on this device. I personally feel no incentive to own one. It's too big as a cell phone. It's too slow for typing, for email and for browsing the Internet -- two minutes plus to load a typical page. And its camera is miserable. Still, if you want to dazzle your friends, it's useful.


The Handspring Treo 600

An old man was sitting on a bench at the mall.
A young man walked up and sat down. He had spiked hair in all different colors: green, red, orange, blue, yellow. The old man just stared. Every time the young man looked at him, the old man was staring.
The young man finally said sarcastically, "What's the matter old timer, never done anything wild in your life?"
Without batting an eye, the old man replied, "Got drunk once and had sex with a parrot. I was just wondering if you were my son."


Weather has now turned gorgeous in the Coachella Valley, California. This week's BIG news in the Valley is that Wal-Mart (WMT) this Wednesday opens its very first California Supercenter. It's a mile from where I'm staying. The 225,000-square-foot store -- the valley’s largest single store and the equivalent of nearly four football fields -- includes a full line of groceries in addition to Wal-Mart’s usual merchandise mix. The local Desert Sun newspaper writes, "If history is any indicator, the Wal-Mart phenomenon could pick the pockets of several of its retail rivals -- from small hardware stores, to video outlets, to local pharmacies. But the real action will be in the the grocery aisles."

"You’re going to a see a price war among the grocery stores that is unprecedented in Southern California," says Burt P. Flickinger III, managing director of New-York based Strategic Resource Group, whose company consults for retail clients nation wide. "There’s going to be a huge consumer benefit."

Some predict the retail titan’s arrival will cause its big-chain grocery rivals severe financial hardship, forcing them to shut some stores. Nationwide, more than two dozen grocery chains have either filed for bankruptcy or gone out of business after coming under siege by Wal-Mart. The once-established No. 1 grocery player was dethroned in Alabama, Arkansas, Louisiana, Mississippi, New Mexico and Oklahoma, and stalwarts like A&P have come under fire in the Northeast.

The latest victim was the once-mighty Winn-Dixie Stores Inc. grocery chain. Since Wal-Mart entered the Florida grocery market that it once dominated, Jacksonville-based Winn-Dixie has seen its sales plummet. It reported losses of more than $120 million in its most recently completed quarter, has been forced to shutter stores. ... A recent study by Retail Forward Inc., a Columbus, Ohio-based management consultant and research company, concluded that two rival supermarkets close for every new Wal-Mart Supercenter that opens.

I'm routing for Wal-Mart. I find the grocery prices out here far more expensive than New York City and that's saying something.


Harry Newton
I make my daily column (Monday through Fridays) freely available for three reasons: First, writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I'm hoping some of you will send me your investing concerns. To email me, Click here

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