Dendreon Corporation's Fuzzy Science

Hardly have I ever seen a stock soar more than 100% in one day. With 32% of it’s outstanding shares in the hands of short sellers, I can’t fathom the pain of the traders who had shorted Dendreon Corporation. Against a float of 75.7 million shares, 92.5 million shares changed hands to close at a 147% gain.

News that a panel of FDA advisers had endorsed its prostate cancer vaccine for approval sent the stock to an all time high of $18.05. Dendreon Corporation, listed on the NASDAQ, has less than 10 analyst covering it so it must have been a shocker for the rest of the market that its prostate cancer vaccine would be recommended for approval.

It is possible that the short sellers have not give-up on the stock and there is a chance that the vaccine might not be approved by the FDA as it will set precedence as the first vaccine to be used to treat cancer. Considering the size of the clinical trials and the use of the vaccine in combination with chemotherapy in treating prostate cancer, its going to take more than the recommendation to get the FDA to approve the vaccine.

Even on the good news, Dendreon Corporation remains a risky investment because the clinical trials failed to achieve the primary end-points and the vaccine increased the survival rate by 4.5 months.

*Dendreon update.

Doing Business in Kenya

The last one year has seen Kenyan ministers and politicians take a keen interest in the Kenyans living abroad. It has now become common practice to see politicians ‘consulting’ Kenyans in the Diaspora and its not unusual to receive a call from Kenyan dignitaries visiting abroad. The government has honed it’s efforts on conferences aimed at encouraging Kenyans abroad to actively participate in doing business in their motherland while the government propagandist, the Government Spokesman, is augmenting the message to Kenyans abroad through internet communications.

A lot of things have changed for the better since the end of Moi’s misrule but very little has changed in the way of fostering a good economic climate. Notable achievements of Kibaki’s government have been the efficient collection of taxes and increased provision of basic services. On the other hand very little has been done to reform the business environment in Kenya. Corruption, lack of the rule of law, low political goodwill and crumbling infrastructure are some of the things that bedevil our nation. Largely, none of Kenya’s industries are properly regulated by the government.

My interactions with Kenyan residents reveals that a lot still needs to be done, not just to woe investors from abroad but also to encourage Kenyans to pursue business ventures back home. As it stands, this government does not consider protection of private property as a high priority and that is why we have no systems in place to protect private businesses or investments. My conversations with an American multi-millionaire, who has a holiday home in Kenya, and represents a group of wealthy partners doing business in Africa revealed that they have not ventured into Kenya because it is a much riskier environment than many other countries.

It would be foolish for any Kenyan living abroad, to venture into investing in Kenya on the basis of Kimunya & Co’s presentation. The government officials and politicians coming abroad are well oiled and will be nowhere to be seen on once they return to the comfort of their castles in Kenya. Anyone attending these conferences and town halls should consider them as road-shows meant to hoodwink gullible Kenyans to risk investing their hard earned money in Kenya.

If you are going to invest in Kenya, don’t do so because Amos Kimunya told you but because you know what you are doing.

Don't Fight the Fed

Almost one year to this date the Federal Reserve Bank stopped publishing data regarding the M3 money supply. According to the Feds "M3 data receives less attention than the other two indicators of money supply". Considering that M3 is the broadest measure of money supply in the US, you would think that the Feds are keen on keeping a tab on liquidity. Far from it.

With margin debt at the NYSE topping $295 billion last month, its no wonder that the today's decision to keep interest rates on hold led to a surge in the 3 major indices. The Feds continued efforts to grease the money market is turning out to be the Bears worst nightmare. Slowing corporate revenue growth has failed to take the steam out of private equity leveraged buy-outs that are being fueled by the Fed's money printing spree.

While investment bankers are only too happy to make their millions out of this scenario, the retail investor is the one who will be hardest hit when this bull market rolls over as was with the dot-com bubble and all the other market down turns. As the market continues to gather steam, the smart money will quietly exit leaving a lot of investors under-water.

I join the traders in cheering on the Fed as they continue to steer this good nation to greater prosperity.

PS. If you believe in conspiracy theories then read all about the Plunge Protection Team (pdf), better known as the PPT.

Ethanol, or Not?

With gas prices in the west coast cruising past the $3 dollar mark and president Bush signing an ethanol pact between the US and Brazil its time to revisit the ethanol stocks. One and a half years later, Bill Gates purchase of convertible securities in Pacific Ethanol now stands at 100% return even with the declining of ethanol margins.

While the Brazilian ethanol industry has been successful, the same said can't be said of the US. Most US ethanol companies have been caught between a rock and a hard place. The profitability of ethanol is largely dependent on the price of politically sensitive commodities, namely corn and oil/natural gas. Unlike last year's state of the union address, this year's address failed to ignite ethanol stocks. And it is because of this that investors have to be wary about the future prospects of ethanol in the US.

With ethanol, the margin largely depends on the cost of corn from which it is made from and also the price of it's substitute, gasoline. Although natural gas prices have declined, rising corn and labor costs have been eating into the ethanol producers margins. For the pure play ethanol producers, it is hard for them to pass on their costs in the face of low gas prices. While some may have hedged their prices during last years oil spikes, it's unlikely that they will see higher margins in the near future with the talk of a slowing economy that may drive down the demand for ethanol. Whats more, the large oil companies are capable of driving down the oil prices in order to kill the competition.

Only two Midwestern grain processing firms that produce ethanol have the flexibility of switching to processing corn for human consumption thus passing on the costs to consumers. With decreasing margins Archer-Daniels-Midland and MGP Ingredients are able to use corn to produce syrup, starch, glucose, dextrose, sweeteners or beverage alcohol. The rest of the ethanol producers are thus left to the mercy of the corn farmers and oil prices.

Even with the current situation, we have certainly not seen the last of the ethanol 'boom'. The sensitivity of oil prices to natural calamities as well as political upheavals in the middle east is all that takes to drive the price of ethanol stocks. With such volatility some investors will make money while others will be left wondering what they got themselves into.

Annuities Are For Suckers

This is a good advertisement for a bad financial product. Next time someone tries to sell you an annuity run for the exits and don't look back.

Enjoy the clip.

Carry Trade Comes To Kenya

In last few years Kenyans in the Diaspora have taken on a much more active role in the economic affairs of Kenya. Previously, Kenyans were mostly involved in sending money to their kin and kith. Later on the remittances have been used for investment purposes in real estate ventures and increasingly in the Nairobi Stock Exchange. But now, a new breed of investors have entered the lending market thanks to a worldwide explosion in liquidity and easy credit access.

Carry trade which has been the reserve of financial institutions is fast gaining ground with retail investors. Individuals have joined the band-wagon of borrowing cheap money and lending or investing it in the form of high yielding currencies and assets. With interest rates in the US, EU and Japan at historically low levels and the ease of transferring money to developing nations it is now possible for individuals to dabble in this practice. The driver for carry trade is the high interest rates and high return on equity in the developing countries.

In essence, carry trade involves borrowing money in the west and selling or investing it overseas thereby making a profit from the spread in yields. As with all forms of investments there is a risk associated with investing in less stable economies. The most notable risk is that of default by the borrower or decline in the principle. There is also the added risk of adverse currency movements especially in times of political instability in developing nations.

Statements by the incoming Central Bank of Kenya governor that he will let the currency markets determine the forex rates raises the risk associated with carry trades in Kenya. Unlike the previous administration which tried to their detriment to stabilize the exchange rates, Professor Njuguna Ndung'u has decided to let the market forces determine the forex rates. This in turn may lead to greater currency volatility and the resultant fluctuations may affect the overall return for overseas investors. Coupled with inflationary pressures on the Kenya Shilling, which the governor hopes to limit to five percent, you have a situation where the decline of the principal might outpace the return on investment.

Further weakening of the US dollar and possible Fed interest rates cut might result in an increase of carry trade in Kenya. On the other hand, the biggest beneficiaries will be firms and businesses in Kenya that will be recipient to these investments. If this practice is successful, it will be a win-win situation for both investors and recipients of the carry trade.

March Madness, Office Rivalries and $10 Bets

NCAA Men's Basketball has nothing to do with winning but everything to do with ego's. Its the only time you can get away with calling your boss a looser. The fun part has always been the nasty nicknames that we make up for all the participants. Critics think that its a waste of productivity but I think its one of the best ways to bury hatchets and interact with everyone in the office.

If you've always wanted to call your boss a mallet-head, this is your opportunity. Let them know what you think of them.

Living Within Your Means

Take care of the cents and the dollars take care of themselves.

You don't have to be Einstein to know the reason why there is a fast-food restaurant or eatery in almost every street is because people no longer prefer to prepare their meals and have come to rely on eating-out. Lunch time traffic is big money for a lot of eateries such that it brings in 25% of revenues for fast-food giants like McDonalds.

To the average customer, $5 dollars is not a lot of money for the convenience and satisfaction of eating-out in addition to the free drink re-fills that come with the meal. While the price of one meal may look trivial, you can imagine how much money employed people spend on lunch in the span of a 30-year career.

Food/Product	Price	Calories
Home-made Sandwich
Whole grain bread - 4 slices	$0.45	260
Pepper jack cheese - 2 slices	$0.50	160
Chicken Deli cuts	$0.50	70
Lettuce	$0.30	10
Baby carrots (side item)	$0.30	30
Water - Office cooler	$0.00	0
Total	$2.05	530
Subway Sandwich
6" Oven roasted Chicken	-	430
Lays Chips	-	150
Soda - Diet Coke	-	0
Total	$6.05	580
Total Saving per day	$4.00	50

It is for this reason that I prefer to prepare packed lunches rather than spend a huge proportion of my outlay buying lunch. The only exception to this is Friday and celebratory outings when I go out for lunch with my colleagues. The compounded growth that you get if you invest the savings wisely makes preparing your own lunch a worthwhile exercise.

Eating-out is good for the country's economy nonetheless it is a costly undertaking for workers especially if they have to rely on their credit card to buy meals.

For Sale - A Fool's Paradise

Tired of your nosey neighbours?

Fed up with the building codes?

Welcome to your own private island. Home away from the frustrations of zoning laws and annoying neighbours.

Located on Lake Victoria, the 2nd largest fresh water lake, is 134.05 acres of forest and rich undergrowth in virgin land. This picture perfect island is located 30 minutes away from Entebbe International airport and is set at 4000 ft above sea level. With clean air, fresh water and tranquility the island provides the ideal location of a gate-away home. Landing sites on all sides of the island and 360° panoramic views views with magnificent sunrises and sunrises provide the best setting for quiet relaxation or entertainment.

With no limitations to owning land in Uganda, unrestricted building codes and cheap labor costs, you can construct a world-class home to match your wildest imagination. The island offers unparalleled privacy and security, as well as peace and the simplistic splendor of the surrounding nature. Inhabited by thousands of bird varieties including wild ducks and small monkeys the island is the perfect setting for your very own African Safari Park.

This once in a life-time investment opportunity can be yours for the price of $1,502,959.

Sexual Harassment & Sexual Offences Act (2006)

Different view points have emerged regarding the contents of the emails and blogs of the alleged sexual activities in Nation Centre. Two schools of thought have come up with diverging opinions regarding this issue. One group claims that the choice to engage in sex at the work-place is a private affair while the second group is saddened by the propagation of sin at Nation Centre. In the eyes of the law, it does not matter if Nation Media employees have willingly chosen to engage in sexual adventures or sin is being committed.

The Sexual Offences Act (2006) addresses the issue of sex advances, sexual conduct and/or refusal to engage in sex in the work place. According to this law, any person who undertakes any unlawful, unsolicited and unwelcome sexual advances or requests for sexual favours is guilty of the offence of sexual harassment.

An offence is committed if the submission to or rejection of such conduct by an individual is made either explicitly or implicitly as a basis of employment or of a career decision affecting such an individual’s employment or career advancement; or such conduct has the purpose or effect of interfering with an individual’s work or educational performance or creating an intimidating, hostile, or offensive working or learning environment; or such conduct is undertaken by a person in a position of authority over the other or in an unequal set up that forces the individual to unwillingly succumb due to extraneous and intimidating situations; and such acts include but are not limited to touching or fondling, exhibiting sexually explicit materials, gadgets or organs, and requests for sexual favours.

Any person who contravenes this law is guilty of the offence of sexual harassment and is liable upon conviction

-to imprisonment for a term of not less than three years or

-to a fine of not less than one hundred thousand shillings

-or to both

As we commemorate International Women's Day on March 8th, let us reflect on the 40 - 60% of women in the work place around the world who experience some form of sexual harassment or unwanted sexual behavior in the workplace.

The Three P's of Happiness

Don't ever let somebody tell you that you can't do something....
You got a dream, you gotta protect it....
If you want something, go get it. Period.
- Chris Gardner, "The Pursuit of Happyness".

Chris Gardner's movie is a stark reminder of how rough life can be. While the movie is different to Gardner's actual experiences, it still manages to capture the reality of the much talked about American Dream. I found Gardner's experiences very relevant in the 21st century despite the ease of life back then in the early 80's. If I missed anything else in the movie I certainly did not fail to grasp the three P's of Happiness that were exhibited by Gardner that led him to success in life. I believe it was because of his character that he was able to overcome obstacles and challenges that came his way.

Passion is all about having the right attitude. Being passionate is the difference between succeeding or failing. Chris Gardner displayed great passion for life and things in general. His attitude reflected in the way he went about doing every task as if his life depended on it. And it did. Most people who have achieved success in their field of work because they are passionate about what they do.

Persistence is all about getting up every time you fall down. Invariably life will at some point overwhelm you and take you down. Getting back on your feet is what separates the winners from the losers. I particularly marveled at the fact that he managed to sell all the bone-density scanners he had despite the fact that most doctors considered the equipment a luxury during because of the declining economic climate at that time.

Performance is the bottom-line of success. Success is all about top performers. With the exception of politics, very few people have made it to the top through poor performance. The sole purpose of the internship that Gardner enrolled in was to pick the top performer. By signing on the most accounts he showed himself capable and he was able to secure himself the job that he yearned for.

The pursuit of happiness is all about passion, persistence and performance. These three are the pillars of success.

Am I Diversified?

"Holding cash is painful, but not as painful as doing something stupid.” - Warren Buffet, the Sage of Omaha.

With my taxes done and my books balanced its time to carry out my financial spring cleaning exercise. If you hold an account with a full-service brokerage firm, their exercise involves an analysis of all your assets (real estate equity and financial securities including those held in your 401K, 529, and IRA). For those with discount brokerage accounts, there are numerous diversification and asset allocation tools that can be found online.

Unlike Jim Cramer's Mad Money diversification analysis, the exercise entails much more than just analyzing the sectors that you hold stocks or their market capitalization. I prefer to use MorningStar's Instant X-Ray to analyze my asset allocation because it provides a pictorial analysis in addition to numbers in tables. As with most free online tools, there's not a lot of information but you can combine the X-ray analyzer with the Portfolio Allocator tool to balance your financial assets depending on your investment strategy.

Unlike previous years, with most indices at all time highs and good stocks overvalued, I am holding onto much more cash than I should. My hope is that the on-going market correction will provide me with an opportunity to buy fairly valued stocks that are in my shopping list.

With the Fed rate held at 5.25%, depending on how much money is in your money market account, it is better to earn up to 5% interest (paid monthly) rather than just being in the stock market for the sake of it.