Really interesting webcast by Thornburg Mortgage at the Wall Street Analyst Forum conference this week.

Fascinating discussion of the reality inside a mortgage company. Some salient points.

• Their own underwritten portfolio of loans is performing pretty well, with better than average serious delinquency numbers.
• Their worst part of their portfolio by far was purchased wholesale from a Californian mortgage bank.
• They believe that their portfolio write-downs, per mark-to-market, have been considerably in excess of true value. They are expecting significant write-ups in the future. Suggesting, that their issues are liquidity rather than loan performance.

Great view inside of a company near the eye of the storm.

Here is just one of the webcast’s from last week’s Rodman & Renshaw Conference, an enormous – and enormously successful – investor event with over 500 companies. Click here to listen.

Rodman has historically specialized in Life Sciences, and this is really interesting presentation from Reponse Biomedical, a small Canadian firm focusing on Cardiac disease and Infectious diseases.

This is a company we interviewed back in March in TWST too – you can read the interview here.

Interesting article in the NY Times today about the impact of large bonuses on performance.  Conclusion of psyche tests – for complex cognitive tasks large bonuses led to no improvement in performance versus smaller bonuses.  Worse – it showed inferior performance.   Hypothesis – stress induced by the higher expectations led to lower performance.

Of course this leads to questions about executive pay – at the C level, and at investment banks.   According to the article, its conclusions were immediately challenged by banking executives when referring to their own firms.   Duh!  Any senior executive is going to challenge anything that would suggest he or she is overpaid.

The executive  pay issue is exactly the same as that faced in baseball.    A-Rod performs no better now he is paid $30m per year, than when he was in Seattle.   The reason senior banking executives at bulge bracket banks are paid so handsomely is that they have convinced their bosses that they are rare and special talents.   Their bosses are easily convinced, because they are generally poor people managers, and because they are using the same arguments themselves to their boss.  Boards of directors bring in compensation consultants to assess fair pay for the top guys.  These consultants are like house appraisers – easily replaced if they provide the wrong answer.

The reason executives are so highly paid, is that they have successfully framed the market environment for their skills.   Scott Boras on one side, with no Theo Epstein on the other.   How have sports teams countered competitive inflation in salaries?  Generally not well.   Salary caps – how about that NASD?   Deep farm systems.   Long terms contracts.  Depth in every position is the best hedge.

Felix Salmon wrote a blog in Portfolio.com yesterday calling for a change at the top of Citi.  He does not believe Vikram Pandit, Citi’s CEO, is capable of handling the severe problems currently facing Citi.  In the blog Salmon wrote,

When Vikram Pandit became Citi’s CEO, he can hardly have expected to keep it if the share price fell to single digits. Now that it’s at $7, I think it’s time for Pandit to offer his resignation. The task facing Citigroup now is not to build a “global universal bank”; it’s to stay alive. And Pandit has given no indication he’s up to that particular job.  

Check it out.   For more:  Finlay on Governance 

Several times a year, we speak with analyst Thomas Au of Pittsford Venture Group about the overall state of the market, and pressing questions about the economy at present. One pressing question that keeps recurring is  at what point did the market begin to move towards the current economic crisis. When did the market become overpriced, paving the way for current market conditions? Mr. Au has a unique perspective on this question:

Mr. Au: From the end of 1991 basically until two months ago, the actual value of the Dow was way over the investment value of the Dow and when I say way over, I mean by more than 50%. The Dow was overvalued for a period of some 17 years, basically a whole generation. It’s still overvalued relative to the investment value of the Dow, but as of today it’s less than 50% overvalued, which is to say it’s within a normal valuation range and two months ago, it was not.

The reason was we just won a major war, a war that in my opinion was fought to keep oil prices low not forever, but let’s say for a decade. We had defeated the bogeyman of the world, the man named Saddam Hussein of Iraq. Our greatest geopolitical rival, the Soviet Union, also collapsed or fell apart in the same year. So we were then the world’s superpower, and basically things were as good as they were possibly going to get globally for the United States in my lifetime.

Today in the year 2008, we have the exact opposite conditions. We now have a bipolar world geopolitically with the rise of China (in fact, China has a much larger trade surplus and more US dollar reserves than we have ourselves); we have high oil prices that maybe are off the recent peaks of $147 a barrel, but high by historical standards; and we’re no longer the world’s hero for being in Iraq – quite the opposite.

For the full interview with Mr. Au, including a complete economic overview, and outlook for the future, click here.  

Really a common sense expert on the development and investment opportunities in emerging markets – most especially China. He now lives in Singapore. Listen here to his keynote speech last night at the Roth Capital China conference in Las Vegas.

His career advice to parents in the West is have them teach their children Mandarin. He likes the Remnimbi. Hates bonds. Likes commodities. Definitely worth a listen.

Savient Pharmaceuticals SVNT (NASDAQ), the specialty pharmaceutical firm, announced the immediate resignation of its President and  CEO Christopher Clement.  Clement has been with the firm since 2002.  The company has appointed senior vice president Paul Hamelin as president.  According to the press release he will lead day-to-day operations of the company.  Clement leaves the firm as it is in its last step to get FDA approval for Puricase.  The drug, according to a June interview in the Wall Street Transcript with Stephan Patten, Portfolio Manager of Sector Asset Management, 

… is a treatment for gout, a treatment that is looking like it will be far and above better than every other gout treatment that exists today.   

The company had an additional press release today that announced a team of experts from the firm’s board of directors intended to assist in the FDA approval process and pre-launch of the drug if approved.  

Board of Directors has formed a BLA Oversight Committee (“the Committee”)to oversee the regulatory and pre-launch activities for the company’s drug, pegloticase, effective immediately. The Committee will be comprised of independent Board members Lee S. Simon, M.D. and Alan L. Heller, who both have extensive experience with the Food & Drug Administration (FDA) process. Dr. Simon will chair the Committee. The Committee will work closely with Savient officers, Dr. Robert Lamm and Dr. Zeb Horowitz, who will continue to lead the Company’s discussions with the FDA.  

The formation of the Committee followed Christopher Clement’s resignation as President, Chief Executive Officer and a director of the company, by mutual agreement between Mr. Clement and the Board.  

The company really needs this approval.  Pushing Clement out the door makes it appear Clement may have been an obstacle to the company’s efforts for approval and ultimate commercialization of Puricase.  Investors should keep a close eye on Savient and the FDA approval process for their new drug.    For more:  NJ Star Ledger   

Jennifer Reinhold wrote a piece in Fortune that explores the possibility we are entering a new ear of CEOs. Reinhold examines a number of different academic studies and analyses that contend a new ear of CEO leadership is upon us.  According to the story,

… a new model is emerging. Collins (Jim Collins author of Good to Great) thinks that legislative, not executive, skills are now ascendant – that top CEOs will be those who are able to create the conditions for things to get done rather than hand down orders (as Hank Paulson learned, what worked at Goldman Sachs didn’t fly in Congress).

David Gergen, the political expert and director of the CPL at Harvard, agrees. “The CEO of the future is going to have to be someone who deals well with government,” he says. The truth is, these days a CEO cannot fully control his destiny in a world of competing entities, ranging from regulatory agencies to angry shareholders, from consumers to foreign powers.

The ability to look beyond the short term to the horizon and inspire employees is another must, given what looks like a prolonged economic slump. Xerox (XRX, Fortune 500)’s Anne Mulcahy, for example, has brought the company back from the brink by rallying her employees around the challenge itself rather than throwing money at them. At Home Depot (HD, Fortune 500), CEO Frank Blake accepted an annual pay package worth one-quarter of his predecessor’s, and he is also finding creative nonmonetary ways to motivate employees, including giving merit awards for great customer service and assigning store workers more decision-making power. 

There is a degree of truth to the article’s premise but do not expect visionary and imperial CEOs to disappear too quickly.  Anyone interested in executive leadership or growing trends in business should check out the Fortune piece. 

Continuing with our special focus this week on Biotechnology, we spoke to analysts and CEOs from across the sector to tell us their favorite biotech picks in this turbulent economic time:

• Array BioPharma Inc. (ARRY)- “I really like the guys at Array. I’ve known them from the get go, from the start of the company, and it is one of the best management teams, in my view, on the Street.”
• Genentech, Inc. (DNA)- “I’ll say it’s Genentech, because they’ve maintained a balance of innovation in an innovative environment — they’ve balanced innovation with the business of pharmaceuticals. And if they’re smart, they’ll maintain that atmosphere, otherwise it will then roll over into a full pharma environment and strategy, which has not been as productive for new drugs in the biotech industry.”
• Halozyme (HALO)- “When you get to the smaller ones, of which there are thousands, I don’t know that there are that many impressive management teams. I have been impressed, however, with a group in San Diego — the management team at Halozyme. I think they’ve done a very nice job of taking a company and leveraging its assets and doing all the right things.”

For the complete biotechnology report, including the full Off the Record report, as well as interviews with analysts giving a complete picture of how the Biotech sector is behaving in this turbulent time, click here.

The tumultuous year and a half tenure for Jerry Yang at Yahoo (Yhoo) NASDAQ is about to come to an end.  Yang,  a co-founder of the once formidable Internet and search company, returned to Yahoo in July 2007.  He returned in what many considered as the “white knight” to replace former CEO, Terry Semel.  Semel, who was not a technologist, had tried to expand Yahoo into a media company as a way to compete with its prime competitor Google.  Semel’s efforts had been failing and Yahoo continued to lag and fall further behind Google.  Expectations on Yang’s return and leadership also failed to turn out as hoped.  During Yang’s short-lived tenure the firm has only seen its fortunes continue to decline.  According to a piece in CNN,

Things only got worse for Yang, due to both his own and previous management missteps and also external forces, including a hostile takeover attempt by Microsoft (MSFT), which was followed by a proxy fight by activist shareholder Carl Icahn.       

Yahoo also saw its search business decline and its strong graphical ad business suffer in the midst of the current economic meltdown.

There has also been an exodus of major executives over the last year, along with recently announced layoffs of 10 percent of the company, which are set to take place December 10.

In addition, Yahoo’s controversial search ad with Google (GOOG) recently collapsed, and its talks to merge with Time Warner (TWX) online unit AOL have dragged on. 

Yahoo has initiated a CEO search with the help of executive search firm Heidrick and Struggles.  Many names are being bandied about as a possible successor to Yang.  A number of the names being suggested include a former Microsoft executive and current Microsoft executive who according to some analysts might help to increase the likelihood of a deal with Microsoft.  Two names being raised are Kevin Johnson and Brian McAndrews.  Johnson originally headed Microsoft’s first attempt to buy Yahoo.  He recently left Microsoft to become the CEO of Juniper Networks (see earlier blog).  It is difficult to imagine he would leave that position at this point to head up Yahoo.  McAndrews is with Microsoft and is currently SVP of the Advertising and Publishing Solutions Group.   Other individuals include Susan Decker, the current president of Yahoo and a close associate of Yang’s along with Peter Chernin of the News Corp., Jan Miller former AOL head, Meg Whitman former head of eBay and others. Whoever is chosen to replace Yang will be on the hot seat.    My own guess is someone from the outside will be chosen and possibly a name not yet being floated.  It is nearly impossible to conceive of any successor who will be able to run Yahoo as an independent firm going forward.  Some kind of deal will need to be made.  For the moment, Microsoft will remain on the sidelines until a replacement for Yang is found.  Once this happens we will see whether Microsoft jumps back into the fray.  Stay tuned, this sure to be an interesting but bumpy ride.   For more:  MarketWatch  Wall Street Journal ZD Net  Minyanville  SeekingAlpha  Silicon Valley/San Jose Business Journal     Silicon Alley Insider  Deal.com