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Biotech / Medical : Biotech Valuation
CRSP 57.05-0.6%Dec 9 3:59 PM EST
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To: IRWIN JAMES FRANKEL who wrote (7994)3/10/2003 9:32:56 PM
From: Biomaven  Read Replies (3) of 52153
 
IJ,

My only quibble with your post is the way you spell "boggie man." <g>

Seriously, I was going to post something about this as well - just hadn't gotten around to it. In the past I've often argued that biotech fundamentals (for well-capitalized companies at any rate) are mostly isolated from the rest of the economy. I think I've learnt my lesson and I now concede that biotech stock prices (if not fundamentals) are pretty tightly linked to the rest of the market and economy.

I think Poole is right on - FNME and FRE are potential giant disasters waiting to happen. It is certainly not likely that they will be disasters, but it is at least easily conceivable.

The consumer for the last several years has been monetizing the appreciated value in their housing by re-financing their mortgages for ever larger amounts. (I think I just saw someplace that last week marked the highest-ever number of refinancings). Now this works fine when the real-estate market is rising, but given a couple of years of recession and of falling prices, aided by over-generous appraisals to begin with, and you could see a situation where people walk away from their mortgages. (Or more likely the payments are stretched out somehow to prevent default). In that event the securitized loans peddled by FNM and FRE could be looking sickly.

Peter

P.S. On a relative basis biotechs continue to do well. TSC even had a T/A article today entitled Biotechs Might Have the Cure for This Market
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