8:30 AM Thursday, June 2, 2005: My
God. The Wall Street Journal headlines "Cash is King."
What they mean is that short-term bonds are a better deal than long-term ones.
And muni bonds, especially short-term ones, are an even better deal. (I like
short-term muni bond floaters. I have my cash in them. I am getting 2.9%
triple-tax-free -- the equivalent about 4.88% taxable.) The Fed has
raised its short-term rates nine times in the past year. You'd expect that to
have had some effect? Here's a chart from the Journal. This is weird
stuff -- a powerless Fed?
Here are two charts I made this morning. The first shows the yield on the 10-year
Treasury Note -- that's 3.907%)..
This one shows the longer-term treasury bond. Notice the steep decline in rates.
Here's what the Journal wrote:
It is tougher
than ever for bond investors to find a bargain.
Enemy No. 1:
the so-called yield curve. As the Federal Reserve has lifted short-term interest
rates, and long-term rates have refused to rise in sympathy, there is scant
difference between short and long rates. So the extra return that investors
historically got for locking their money up in longer-dated bonds is disappearing.
In fact, investors would do about as well holding cash.
That is bad
news for banks, leveraged hedge funds and anyone who borrows money at short-term
rates or lends it at long-term rates. But it is relatively good for investors
willing to accept a humble return on supersafe securities such as money-market
funds and municipal debt. "Cash is not a bad place to hang out,"
says Anton Pil, global head of fixed income at J.P. Morgan Private Bank in
in cash and high-grade munis doesn't grow much faster than prices on consumer
goods, so real returns are pretty low. But bond-market professionals say that
with 10-year Treasurys paying only 4.08%, and corporate bonds looking shakier
by the day, fixed-income investors should take what they can get.
the lesser of evils," says Mark Kiesel, executive vice president and
portfolio manager at Pimco, an asset-management firm in Newport Beach, Calif.
"The old world was 10% to 15% [return]. The new world is 3% to 5%."
between short-term and long-term rates has narrowed at an impressive clip,
defying analysts who expected long-term rates to also rise as the Fed boosted
short-term rates. As of Friday, the yield difference between two- and 10-year
Treasury notes had fallen to 0.43 percentage point, compared with 0.54 percentage
point two weeks ago and more than two percentage points a year ago.
various explanations for the phenomenon: Steady purchases of U.S. long-dated
bonds by Asians (bond purchases drive down bond yields); increased demand
from future pensioners for long-term investments; a shortage of long-term
bonds; market expectations of a recession; and faith in the Fed's ability
to fight inflation.
have come to accept low long-term rates as reality -- and not just in the
U.S.: Long-dated bonds sold by European governments, including France, Germany
and the United Kingdom, pay even lower yields than Treasurys -- a function
of lagging economic growth in those countries, among other factors. Low European
rates also set a ceiling on U.S. rates: If the yield on Treasurys gets too
high, global investors on the prowl for yield will switch from European bonds
into U.S. bonds, pushing the latters' price up and their yield down. If long-term
rates stay low, the difference between short and long rates may narrow further.
So cash -- market
lingo for extremely short-term investments -- looks better than it has in
a long time. One-month municipal paper, for example, pays as much as 3% interest
a year. At first glance, that isn't a lot more than inflation, which is running
at around 2%. Munis, however, are tax-exempt, so for an investor paying 35%
in state and federal taxes, the effective return on muni cash is 4.62%. That
is better than the yield on a 10-year Treasury, without the risk that the
price of the bond will plummet if interest rates rise.
munis beat Treasurys, too. Ten-year bonds issued by California and New York,
for example, pay about 3.75%, the after-tax equivalent of a 5.75% yield. Mark
Kiesel, an executive vice president and portfolio manager at Pimco, an asset-management
firm in Newport Beach, Calif., attributes part of the difference to the fact
that foreign investors, whose purchases of Treasurys help keep their yields
low, don't buy munis, because they can't reap the tax benefit.
market is subsidized, the muni market is not," he says. "Personally
I've got a lot of my money in closed-end muni-bond funds."
I also have money
in closed end muni (New York State specific) bond funds -- including Eaton
Vance and Blackrock. All have done well.
Therapeutics (POTP) holds and Research and Development Day: You
have to picture this: I play two hours of tennis. I bicycle to
the Four Seasons Hotel. I fold my bike, carry it downstairs, park it in the
foyer of the meeting and plonk myself in stinky tennis whites down next to the
dark-blue-suited CFO, who bats not an eyeball or a nose (at my sweaty smell).
Such a nice man. There are 60 people in the room - half investors and half analysts.
There's nothing in the world like attending a 1 1/2 meeting, hearing the company's
pitch and then -- highlight of all highlights -- listening to two doctors tell
us how their patients are responding to our drug called Talabostat.
The doctor's conclusion? They're very pleased. This drug is going places.
The story: Talabostat
is Point's drug. Its job to fight serious cancer. Today's cancer-fighting drugs
aren't very effective, and are toxic. They can (and do) kill you before your
cancer gets you. Talabostat is in Phase 2 trials. That means it's being used
on seriously sick patients who've had (and exhausted) all the other treatments
-- from surgery through chemotherapy. Talabostat has done well for these patients,
keeping them alive beyond where all thought they'd be now.
All of us have an immune system. Contrary to earlier belief, the immune system
of most cancer patients is in good shape. Its problem? It doesn't recognize
the cancer as "the enemy." Talabostat mucks with the immune system,
turning it on to fight the cancer. The goal is to turn cancer into a manageable
disease that you can comfortably live with. Think diabetes. The very early indications
are that Talabostat does just that -- and possibly more: A small handful of
patients found their tumors gone after taking Talabostat and some others found
their tumors substantially reduced. What's even better is that Talabostat has
two major benefits (which means it will be prescribed by doctors and
used by patients):
1. It's a pill. You swallow it. Some of today's cancer drugs need to be injected,
often. Patients don't like that.
2. It doesn't have the side effects of other drugs, like edema (horrible swelling),
fatigue, dizziness, anxiety, nausea, constipation and vomiting. (You feel like
shit and you look like shit.)
Clearly Talabostat could be very big. Point Therapeutics' market cap is $100
million at last night's $4.60 close. There's a long way to go between now, Phase
3, FDA approval, tie-up with a big pharma (for distribution and marketing) and
zillions of dollars of profits rolling in. Figure three to five years. This
a stock for the kids. Point seems to have a good management team and know what
it's doing. I'm rooting for them.
York theater is great: This week we're going
to three shows. The best one, so far, is:
Why the French rejected the EU constitution: The
average French citizen eats 500 snails per year.
I love these teaser drawings.
The benefit of superior logic.
This joke and my comments on Point are purely coincidental. But they do show
the way my twisted brain "functions":
from a doctor's visit one day and told his wife Alma that the doctor said he
only had 24 hours to live.
Wiping away her
tears, he asked her to make love with him. She agreed. They made passionate
Six hours later,
Dave went to her again, and said, "Honey, now I only have 18 hours left
to live. Maybe we could make love again?"
Alma agreed and
again they made love.
Later, Dave realized
he now had only eight hours of life left. He touched Alma's shoulder and said,
"Honey? Please? Just one more time before I die." She agreed. She
rolled over and fell asleep.
Dave heard the
clock ticking in his head. He tossed and turned until he was down to only four
He tapped his
wife on the shoulder to wake her up. "Honey, I only have four hours left!
His wife sat up
abruptly, turned to him and said, "Listen
Dave, give me a break. I have to get up in the morning! You don't."
This column is about my personal search for the perfect investment. I don't
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