It was a bio-bloodbath today, one sparked by an all-out massacre at hedge fund darling Valeant Pharmaceuticals International (VRX).
Market Roundup
The biotechnology firm was already under political pressure due to its strategy of buying up competitors, then dramatically hiking prices for the drugs those firms sold. Federal and state prosecutors recently subpoenaed the company, looking for information on its drug distribution and pricing strategies.
Then today, Valeant shares plunged a whopping $28.13, or 19%, after a leading short-selling research firm questioned the firm’s sales practices. Specifically, Citron Research zeroed in on a relationship Valeant allegedly has with a specialty pharmacy.
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| Another shock to the biotech sector. |
It said Valeant improperly boosted its own sales by dumping too much inventory on a company called Philidor RX Services. Citron also noted that the websites of several other pharmacies bear a striking similarity to Philidor’s, something it said could imply that Valeant has been stuffing inventory elsewhere.
Citron even went so far as to ask: “Is this Enron part deux?” That caused Valeant’s shares to plunge so far, they were ultimately halted.
The company then responded to the Citron allegations with a statement explaining its relationships with specialty pharmacies. But a huge amount of damage had already been done — both to Valeant and its fellow biotechnology stocks. The iShares Nasdaq Biotechnology ETF (IBB) finished down 0.5% on the day, extending its losses from the July peak to 24%.
I haven’t dug deeply enough into Valeant to judge whether Citron is on to something or not. But that’s not the main issue for the broader markets — or investors like you (assuming you don’t own VRX).
The issue is that the markets were already fragile heading into today. Several sectors and individual stocks have been badly lagging the broad averages during this post-September bounce. The last thing nervous investors need is a potential accounting scandal at a large, widely held stock like Valeant.
Take the highly visible hedge fund manager Bill Ackman, who appears on CNBC and in the print press all the time. He owned a whopping 19.47 million Valeant shares as of the end of June. That was 5.7% of the company. Another investment advisory firm called Ruanne, Cunniff & Goldfarb, which runs the $8.1 billion Sequoia Fund, owned 33.88 million shares. That was 9.9% of the float.
There’s no telling exactly how much financial pain they’re suffering. But if they still hold the same number of shares now that they owned as of June 30, they would’ve lost more than $2.5 BILLION TODAY. Wow!
| “Markets were already fragile heading into today.” |
Are they going to face margin calls? Are other hedge funds in the same boat? Will the broader pain in the biotech sector drag down the Nasdaq, which is chock full of these kinds of names?
Lastly, doesn’t it make more sense to follow this strategy: Avoid higher-risk dreck-like VRX … stick with the handful of companies out there that have decent fundamentals and attractive characteristics … and hedge against broad market risk by using inverse ETFs or holding elevated cash levels? Share your thoughts at the Money and Markets website.
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Several of you commented on the Canadian election this week, as well as the deterioration in markets we’re seeing behind the scenes. So let’s get right to those remarks.
Reader Eagle495 said: “Canada today turned back to a Liberal majority to bring the economy back to the average citizen with a strong voting presence of their youngest citizens. I’m betting America will follow them down that road next year with a strong voting presence of our younger citizens also.”
Reader Richard B. said: “Our neighbors to the north figured out that conservative policies don’t really work. Now if more people in the U.S. could figure out that it was the economic policies espoused by Uncle Ronnie and the Bushies that got us to where we are now, maybe we can escape from the nihilistic, self centered ‘party of no’.”
Finally, Reader Richard K. said: “As a Canadian, what I do not understand about the American political system is that the majority of Americans have extremely low opinions on their representatives to the House and Senate … yet 80% or 90% get re-elected to office. Democracy only works when the elected officials are held accountable by the voters who elected them.
“Fortunately for Canada, Canadians have no qualms in voting out their elected officials when they believe the officials and the government they represent no longer serve the best interest of the people, but only the best interest of their party and themselves.”
Stepping away from politics, Reader Chuck B. offered this take on the currency market: “Did you realize the U.S. dollar has been in a slow decline since May, and it just recently had a ‘Death Cross,’ where the 50-day line crossed below the 200-day line? That won’t mean an immediate rise in Inflation, but that could be coming if the trend continues for long.”
Reader Robert P. added that he has “noticed there have been a lot of ‘death crosses’ in a lot of different charts over the last couple of years. That may bear watching, but don’t get too excited before it’s time.”
Thanks for weighing in. You are right that we’ve seen quite a few markets show signs of rolling over, despite the early October bounce. Does that signal more trouble coming down the pike? I tend to think so, as I’ve noted here multiple times. We’ll see.
Anything else you’d like to add? Then don’t forget to use the website as your resource. Here’s the link.
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Today, everyone had the chance to buy a (share of) Ferrari (RACE). The Italian luxury sports car maker sold 17.2 million shares at $52 late yesterday, raising $894 million. The hot Initial Public Offering then began trading this morning, ultimately closing up 5.8% from its offering price.
The earnings flood continued today. Boeing (BA) and General Motors (GM) looked good, but Coca Cola (KO) and Chipotle Mexican Grill (CMG) did not.
Chipmakers are another group of companies whose business stinks. So several of them are throwing in the towel and selling themselves to competitors.
SanDisk (SNDK) said it would let Western Digital (WDC) take the reins as part of a $19 billion deal. Semiconductor equipment maker KLA-Tencor (KLAC) is also selling itself to Lam Research (LRCX) in a $10.6 billion transaction.
Have you made any money off these semiconductor deals? Or are the deal-inspired pops too little, too late given how much ground these stocks have given up in the past year? What do you think about the latest batch of corporate earnings, or the Ferrari IPO? Hit up the website and let me know.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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I think there is a big issue brewing in the commodities market. When Australia elected a liberal, one of the first acts was to levy a large tax on commodity companies in the country.
Now look at Canada. Same MO.
I think the Canadian stock market is in for a surprise.
Liberals have never seen a tax that they did not Love!! They always consider the money of others to be theirs!!
Because the wealthy have gotten that way by exploiting the needy. Not every underpaid employee rolls over and takes it.
Are you saying Bill Gates and Steve Jobs exploited you? Most wealthy people have done something that makes large numbers of peoples lives better and more rewarding. Why would anyone want to exploit people who don’t have anything? Someone has convinced you that you are a victim which I suspect is not true. My life isn’t everything I want it to be, but I never blamed anyone but myself for my misfortune. You must be a very unhappy person. Jim
And many of the rich donate their money to charity!
Some people like to brag how great canadas health care system is and how its paid for by the government . their health care system was based on a continual rising of the price of oil and a constant $150 per barrel but now that oil is less than a third of that healthcare premiums will be going through the roof there and their national debt is spirialing out of control like the u.s. everything only works as long as somebody else has the money to pay for it
Yes, it is in for a surprise. Smart people have been shorting Canada for some time. Of course, taxing commodity companies when commodities are cratering makes no sense. Expect more “no sense” from the new Canadian government.
Canada did very well during the 2001-14 commodities boom. But the boom definitively ended last year, and Canada is now in recession. Its housing market remains over leveraged. The first thing that’s going to hit the new government is the need for fiscal restraint, which they’re not prepared for. Fortunately, Canada went through the downgrade-austerity wringer in the 1990s and is in far better shape than we are. But there are plenty of opportunities to screw things up.
CHANGE IN CANADA, MOVING LEFT AGAIN
Canadians just elected a new Prime Minister (PM) this Monday, Justin Trudeau. Canadians threw the conservatives out. They lost the majority in Parliament. Justin is the liberal son of a famous French Canadian political family whose father was a very influential liberal in the 1970’s. You could look at him as Canada’s Jerry Brown.
Same thing, except while Jerry Brown was a former Jesuit, Justin Trudeau is a former school teacher who reportedly converted to Islam at a mosque in downtown Montreal, Quebec. The local Iman is a radical Wannabist who has connections with Al Qaeda and ISIS. Justin Trudeau appears to be a back door Quisling ( Collaborator).
French Canadians better get used to a future in which they live under aspects of Sharia Law, including only consuming Halal Certified food. Two hour mandatory business closures at noon too for worship in the local Mosque. Soon there will be no more pork on your fork in Canada.
Are you sure you are not just a little incorrect with your statement? I just fact checked your statement and can find NOTHING to confirm what you just said abut Trudeau being a Muslim… :(
NO Eagle……you did not check very hard and long. IT is TRUE…..Trudeau DID Convert to Islam. If fact, here is a pic of him praying in a mosque.
Alahu Akbar baby! Maybe that Canadian wall is not such a bad idea after all.
http://1389blog.com/2013/08/19/now-this-is-disgusting-39/
Its either a clever hoax or the plain truth
99% Sure and he did it ( a formal ritual declaring personal acceptance of Allah being the only true God and Mohammad as his prophet), dressed in white robes, with the Iman in a Mosque in Montreal. I am not surprised you can not find a reference on the net. Its a fact that apparently disappeared down the rabbit hole. Try Youtube.
Anyway, I believe it. It does not matter to me what they do up there, or what we do down here, or what people want to believe. Islam will be a near state religion in 20 years in Western Nations in Europe, Canada, and possibly in the U.S., as well. So, I really have checked-out. Its not my concern.
Oh brother. Don’t you feel even a little embarrassed? You’re fun to ridicule, I’ll give you that. I’m laughing too hard to eat dinner….
Maybe now you will want to apologize to Mr. Bradley with your ridicule?
Why would I apologize to a complete moron? Idiots must learn, and mollycoddling your buddy won’t help him. He deserves to be shamed by anyone with a brain.
liberals don’t have brains hence the term libtarded the only thing they have is their hands out you know GIMME GIMME GIMME MORE…
WHINY WHITES AND THE (liberal) GIRLY MEN
I can take it. Its all a Girly Man can do is complain, criticize, and gossip. Whiny Whites are no match for armed Jihad’s. Let them fall, one by one on their own sword. That works. Words don’t hurt me at all.
Samantha is young, dumb, naive and stupid. A real Shela, she is too.
You’re a moron. Go join ISIS
Who? Everyone here is a Steve. Must be one of those conspiracies Alex Jones is always hyperventilating about.
Sorry Samantha, not referring to you here, Mr Craig is entertaining though, isn’t he…? I will be Steve in Canada from now on. Steve (in Canada). Also very relieved that Canada has rejoined the world as a fair, considerate, welcoming, multi-cultural target of bigots everywhere…
I’ve seldom heard such an uninformed, unfounded bunch of baloney. But the world needs more of you H. Craig. You must be sad to see the back of Harper, least Canadian person anywhere. I would rather have a closet muslim than a closet megalamaniac any day. Steve (and I live in Canada, do you?)
One only needs to look at the chart of Canada (EWC) to see how poorly they have done under the Conservative Harper Government… Despite what the Right Wing Screamers say, the Conservatives are poison to the economy and in turn their stock markets…
The canadien markets dropped in 08/09 in sympathy with the US markets but after that went up until the colllapse in the oil price and the world wide commodity slump. Politics had little to do with those events.
Then why did not the U.S. under a Liberal Administration not slump like Canada under a Conservative Administration?
Because Canada;s economy is commodity based while the US is not. Oil and energy related stocks have taken a huge hit in the US. Bear markets and bull markets have taken place in both Republican and Democrat administrations.
This is the worst recovery since FDRs boondoggle. Jim
Because mikey s. canadas economy was entirely built on the price of higher commodities it had nothing to do with liberal versus conservative philosophies
Mike, I think you’re getting a little carried away with your terminology. Yes today was a down day for biotechnology stocks but a half percent in IBB isn’t a bloodbath. It was down 3% at one point in the middle of the day but gained back 2.5 % by the close. What does that tell you? It is still in an uptrend channel since the big drop the end of Sept although right at the bottom of that channel. If it drops below that then we may actually see a bloodbath in the Nasdaq going forward.
Anyone that believes liberal fiscal policy is a good thing is an absolute Idiot.
You might want to check your U.S. Economic history going back over the past 100 years for the facts……. Perhaps then you might not be so quick to use that word, aye? Actually, I will give you a hint: Going back to 1929 the Stock Market gains under Liberal Administrations (40 years) has been 167 TIMES GREATER than the gains under Conservative Administrations (35 years)… What, Limphog didn’t share that with you?… :(
Try these things
Correlation does not indicate causality.
Economic performance is not just stock market prices.
Economic performance has many variables other than politics.
I could go on but I am not getting paid!
why do you keep ranting about 1929 that’s literally 100 yrs ago and what happens back then will have literally no bearing on whats going on now but what you didn’t say was there 2 recessions under democratic watch back then in the depression ………………… under carter in the 70s….. under Clinton in the 90s and one is starting now under obamas watch but what he always forgets to tell us recessions started under democratically controlled administrations as its doing now the liberals with their hands out always want the same more govt. regulations more govt handouts more programs to distribute moneys and more taxes bigger government and the result is a chokehold on this country less people who want to work less people that know how to work more taxes more regulations and you wonder why companys move overseas try and deny that eagle 495
Oh, please study economics, Jeffery Knight. A progressive income tax built the American middle class. Once Ronnie did the will of the upper bracket, income started its long flatline for most of us. Virtually all new wealth goes to the already-wealthy. All the propaganda from Heritage and its AM radio puppets won’t change those facts.
Don’t listen to Samantha. She is bewitched.
Karl Marx invented the progressive income tax! Jim
your right he did
I don’t think Ron had much to do with it. We have been victims of events that have little to do with politics at all. The computer revolution has greatly increased productivity so that many jobs just aren’t necessary any more. Globalization has also had a profound effect on our wages. When GM figured out they could pay a line worker $3 an hour, with no healthcare, in Mexico or China rather than $35 here they split. GM had literally become an HMO that built cars on the side. Until the rest of the world unionizes we are SOL. We would all do well to ignore propaganda in general no matter which side of the aisle it comes from. I’m sick of the blame game, it accomplishes nothing. Jim
THE LAST PLANTATION
Debt turns free men into serfs and slaves.
I heard Joe Biden whine today about all the unfairness and inequality in America. These are the same things the Liberals complained about seven years ago. So, why haven’t they fixed it? They have had every opportunity. Food stamps and unemployment are not a permanent solution. How about some policies that encourage a little economic growth. Jim
OK I will 2nd that
Let’s try and keep our political views and name calling out of these comments as much as possible. This is a financial site and that is where our focus should be.
Who controls policies that affect our money? Yes, that’s why it’s important to know better than propagandists.
Samantha has got something.
It’s also fun! I love to antagonize whiny Liberals. It’s so easy! Jim
Ok Eagle495, how about the fact that in the modern era (starting in1945 ), Congress has been under Democratic control 70% of the time. If their liberal polices are so economically great why can’t they offset the 30% Republicans control and their screw ups you claim….aye?
The harm to the majority of the population didn’t come until Reagan tax policies came into effect. Democrats have long been compromisers, and have largely let presidents of other beliefs have much of their own way.
You are spewing nonsense as you dream it up. Or maybe you just graduated.
Carter was a compromiser. Reagan was a compromiser. Both Bushes were compromisers. Clinton was a compromiser.
Obama does not know the meaning of the word.
Obama did nothing BUT compromise for his entire first term! Why do you think so many of us were so angry? Follow politics for 5 minutes. And don’t forget what happened afterwards. The American electorate is pathetic. The viral email industry is toxic and stupefying.
Your idea of compromise is different than others. That is ok. Perhaps getting the vast amount of what you desire through regulation is compromise to you.
Clinton’s compromises were terrible for the nation. Telecom deregulation, bank deregulation, “welfare reform” which made sure kids would bring themselves up on their own and rarely see their mothers for any significant time in a day….
Perhaps those who can not afford children should not have them. So they would not miss seeing them.
What welfare reform we still have families that have been on welfare from the 1960s 50yrs and going strong in obamas economy his idea of a country on the right track Is how many people are on food stamps
oh I see you forgot the word WORKING that word is associated with the words TO WORK , a word most liberals and welfare moms don’t know its completely a foreign word to them and you wont find it in the liberal dictionary
Obama is the empty set [ 0 ]. Equivalent to Deep Space Nine.
Liberals conveniently forget the arch criminal Lyndon Johnson and the little peanut farmer started us down the long and winding road to welfare serfdom. Jim
your completely right they did
I have a little VRX through the Janus biotech mutual fund. Depending on the outcome of the allegations, this might be a blip in a wider sector. The fund is actually up for the YTD. Can’t say that about every security.
I want to know how a “short selling” entity, Citron, who are (presumably) short Valeant can make an announcement such as this (Mobileye last month), pocket millions, maybe hundreds of millions, and not be investigated. The answer, I suspect, is that they make enough money off us to hire lawyers until they die. Fair enough if they are correct but if they aren’t, they are no better than the miserable bunch that destroyed the financial system prior to 2008, front run us poor schmucks through high frequency trading 3 feet from the exchange and live happily ever after. Steve
Au contraire, the biotech sector has exhibited exceptional endurance in the face of a nonstop onslaught of attacks from politicians and now, a short selling hedge fund trashing Valeant. I’ve seen this too many times where a hedge fund analyst, who is short a stock, publishes a frightening white paper analysis based on complete speculation.
Start worrying if IBB drops below 285.
Mike, that’s true, I wasn’t long Valeant and (shame) bought a few calls just before the halt. That worked OK. Who knows, maybe I will need a lawyer….Just wondering how these short outfits operate and I have to say, they don’t smell good. Totally agree, IBB a buy at 285 if it gets there and holds. Steve
Mike: I do not own VRX, but given your negative tone on everything, you need to update your information from June to comment on the positions of this stock for the Investment funds you are sighting. Do the homework before you speak.
Mike
The Drug Business is totally operating as a mafia enterprise. It has reached the point were the DOJ cannot afford to ignore. Every American knows this. I doubt, however, that Obama has the gumption to take on such a powerful lobby.
Otherwise, Canadians, like many others, are the victims of Wall Street gone mad; mad with greed and arrogance. I may be able to share with Mike’s readers my factual analysis on how the real economy was sacrificed for the sake of financial engineering i.e. paper assets have gained by the demise of the real asset values. Example: derivatives rather than gold backup, USD up while oil is down… etc
Mike; the whole business of real estate only functioned in service of moving wealth from home owners to the bankers. Mike; with your background am sure you can you comment on this?
As I pointed out before $1.5 Quadrillion (14 zeros) of derivatives floating around the world, all with nothing to back them, except maybe more derivatives. It’s all Monopoly money, and worth less than a hotel on Baltic Ave.
I hear Moodys downgraded 108 companies in Aug.& Sep., versus only 40 upgrades. S&P downgraded 297 companies in the first 9 months of 2015, upgraded 172. Of the companies having debt trouble, about 1/3 are in the oil and gas industry, as might be expected, but that means over 60% are in other fields. That shows debt trouble is spreading.
The real,pain in the oil and gas sector is just beginning. Many of the E&Ps have been selling $80 oil thanks to hedges that will soon be expiring. $46 oil will be more than many of them can handle. I have also read that our traditional safe haven, the electric utilities, may be in for some very rough sledding ahead. There have been very promising advances in solar technology which may soon make them the horse and buggies of the energy business. Jim
Even the oil biggies – XON, CVX, RDS, BP, etc. – are RIFing, cutting CapEx, and even borrowing to avoid cutting dividends. That doesn’t look good. The ratings downgrades and Div. cuts are coming, sooner or later, unless something causes oil to jump higher – like war.
The only mistake Reagan made was compromising with a political party hell-bent on the destruction of the United States.
As a 1st generation immigrant I can tell you that I came to this country for a reason: what the Clinton and Obama administrations have bequeathed to us was not it.
When will you people understand that government isn’t the answer, it is the problem!!!!!
Many of us understand quite well. Unfortunately many don’t. Funny how it’s immigrants that appreciate our freedom more than many natives. We should all pay attention to people like you who have escaped real oppression and injustice. Jim
To todays liberals oppression is to be politically incorrect they whine about their rights but they do not care about other peoples rights they step on along the way
The conservatives are no better. It was Bush, after all, who came up with that NAZI-like Department of Homeland Security.
and the OBAMA ADMINSTRATION made homeland security bigger and more powerful he gave armored personal carriers to just about every police dept out there if you’ve noticed since the Obama administration police depts. have taken on a military style to them with upgradged armaments and tactics
Michael,
What is more telling is how many industries are scandal ridden to the point of systemic corruption. Valeant is only one of many canaries in the coal mine. When this all catches up with the Equity markets…..Katy bar the door!!!
In America we don’t like the other guy’s congressional delegations but keep returning ours’. If we could vote on the other states’ guys things would change.
I don’t buy the argument that the Dollar is elevated in it’s exchange value. Look, since the begining of 2007 the buck has gone up, down and back up again and is exactly where it started!
tommr, do you really think the buck buys as much now as it did in 2007?
Ferrari just went public and John Markman likes self driving car stocks. If these two get together, you better not have a heart condition. Yikes!! Perhaps we need a portal for passenger input.
The latest statements of Mario Drahgi regarding more QE in Europe reminds one of the maxim regarding those other Europeans, the Bourbons, who learned nothing and forgot nothing. Possibly it would be beneficial for them to re-visit Einstein’s definition of insanity. All they are going to get is more fiat currency sloshing around a statist system that accomplished little real progress in the last twenty years.
There’s a new political and financial storm brewing in Europe which has caught the EU hierarchy totally by surprise. After decades of animosity the three left-wing parties in Portugal have put their differences to one side and have agreed on joint action against Brussels-imposed austerity. Like Syriza in Greece, together they have an overall majority in their national parliament. But that’s where the similarities with Greece end, because whereas Tsipras was desperate to keep Greece in the Eurozone, all the Portuguese parties want to bring back the escudo. Here in the UK we have been promised a referendum about EU membership by the end of 2017. It might not even be needed, because by 2017 there might not be an EU to have a referendum about.
Are you kidding? Whoever said conservative policies don’t work forgot that mainstream republicans aren’t conservative, and Obamas disaster is still coming. With the fed deficit going from 8 to 18 trillion, the reckoning for that is still coming. And if younger voters vote for liberals, Democrat or republican, it may work for awhile, but the final reckoning will be hell to pay.Taxes and regulations must be low for productivity to improve and wages and standards of living will follow .Spending money you don’t have and can never pay for, does not work and if you have commen sense you would know it cant work in government either.
I would vote for the first group of politicians that could act as a representative of the people!