Jonathan Raclin of Barrington Research Associates is a portfolio manager we speak to regularly here at TWST for his unique and passionate views on the market.  In his latest interview with us, Mr. Raclin talks about where the markets are headed. While many see the current situation as once in a lifetime, Raclin sees it as part of a large pattern of bubbles and busts. The real question for Mr. Raclin is: what is the next bubble going to be? Here’s his best guess:

 Mr. Raclin: The real question is where will the next bubble come from, because there will be one. Easter arrives, on a regular basis, on Wall Street. My guess, the next bubble is in government debt. We are essentially creating bonds out of thin air. These extraordinary prices for government paper, the yields are driven by fear, as people are accepting little or no return in order to get their capital returned. That is the next bubble. The big bust will come when the US government can no longer finance its activities, when the great reckoning arrives. I have no idea when, probably some night when we are all asleep. We will awake to find the dollar down a significant amount as somebody like China or whoever says “no mas” to more bonds. It always happens when you are asleep.

For the complete investing strategies report, including the full interview with Mr. Raclin and a wide range of portfolio managers, click here.

Our second focus in the latest issue of TWST is on Gaming & Leisure. Analyst Edward S. Williams of BMO Capital talked to us a little bit about this space, specifically the interactive entertainment area of it. His picks in this area are Gamestop (GME) and Activision Blizzard (NASDAQ: ATVI). Here’s why:

• Gamestop- “One of the reasons why we like GameStop, which is the retailer, is that they stand to benefit from the continued success of the Nintendo platform simply by selling the Nintendo product. In addition, they have a strong and vibrant used video game business that I imagine will experience some growth in the current economic environment as you get a more price-sensitive consumer. And then thirdly, they’ve made some strategic acquisitions, specifically at the end of last year, to move into the French market, which should dramatically increase their presence in the European market. Over time my guess is that the European market will become a material and significant contributor to the company’s top and bottom lines.”
• Activision Blizzard- “One of the key advantages that Activision Blizzard has is their heavy reliance on a product called World of Warcraft, which is a subscription-based game that has about 11.5 million people who play the game on a monthly basis. About 45% of those 11.5 million people are playing the game in the western markets, the North American and European markets, and they are paying somewhere around $15 or 15 euros a month to play the game. That game is a material contributor to the top and, more important, the operating income lines for Activision Blizzard. Besides World of Warcraft, they also rely heavily on the Call of Duty and Guitar Hero franchises, which have been tremendously successful of late and have helped to produce operating margins for Activision Blizzard that are in the mid-20% area, which is slightly higher than what we’ve seen historically from publishers in the category.”

For the complete Gaming & Leisure report, including a full interview with Mr. Williams, as well as a roundtable discussion of the space and more stock picks, click here.

During a recent interview with Dr. Stanislaw Burzynski of Burzynski Research Institute, Inc. we touched on the immediate and future goals for Antineoplastons;

Dr. Burzynski: Our ultimate goal is to obtain the marketing approval of ANP for the treatment of currently incurable types of cancer. Our immediate goal is to develop a successful treatment for brain tumors and that’s the subject of most of our clinical trials that we are conducting in the United States. But as a second goal, we are looking into the possibility of the development of successful treatment for advanced colon cancer and liver cancer. ANP belongs to the group of targeted gene therapies. This is a multi-targeted gene therapy that affects approximately 100 human genes that are instrumental in the growth of such malignant tumors as glioblastoma multiforme. This treatment is the patented property of BRI with the life of the patent extending to 2025.

BRI is also developing a third generation of structurally-altered ANP that BRI believes will exhibit markedly improved anticancer activity in human cancer cell lines that have been resistant to the parental generation. However, increased ANP activity in cell culture experiments may or may not translate into increased efficacy in humans.

The Congressional Oversight Panel (COP) released its latest report, Assessing Treasury’s Strategy: Six Months of TARP.  In what might be considered a surprising conclusion, the COP proffered that the U.S. Government might want to jettison  top management from some of the largest and most troubled banking institutions.  According to a story by Robert Schmidt for Bloomberg The COP,

… suggested that getting rid of top executives and liquidating problem banks may be a better way to solve the economic crisis (then what the government has been doing).

The Congressional Oversight Panel, in a report released yesterday, also said the Treasury may be relying on too rosy an economic scenario to guide its $700 billion bailout, and declared that the success of the program after six months is “mixed.” Three of the group’s members disagreed with at least some of the findings.

The COP, excluding a number of its Republican members, appears to be somewhat closer to the ideas of the highly vocal Nobel economists Paul Krugman and Joseph Stiglitz than to the top economic leaders of the current administration.  The panel’s report will only serve to increase the pressure on top management of some of the country’s largest and most troubled banks (CitiGroup and Bank of America).  I continue to believe Ken Lewis’ time at the top of Bank of America may be short-lived.

Stay tuned.

Ken Lewis gets a surprise vote of confidence from highly regarded analyst, Meredith Whitney.  Whitney, who recently formed her own company, was quoted in Sean B. Pasternaks’s Bloomberg story,

Lewis “has done a great job” except for the Merrill Lynch deal, said Whitney, speaking to reporters today before appearing at a panel discussion in Toronto sponsored by Sprott Asset Management Inc. She called the Merrill Lynch purchase Lewis’s “one major mistake acquisition.”

Whitney was also quoted in SmarTrend in which she stated,

… she thought Lewis’ one mistake (Merrill acquistion) was due to his error in acting like a good citizen than a good chief executive with shareholder interests as his first priority.

While one may understand where Whitney may have come to her conclusion about Lewis, considering what was happening to the financial markets particularly Lehman at the time of the Merrill acquisition, her conclusion appears misguided.   Lewis deserves to take full responsibility for his decision to acquire Merrill and, more importantly, for his subsequent failure to follow-up the initial decision with adequate due diligence as regards to Merrill Lynch.

Whitney’s latest pronouncement of support has come out at the same time that rumors have been growing about potential successors to Lewis.  According to a story by Debra Cassens Weiss for the ABA Journal,

The lawyer (Brian Moynihan) who is leading Merrill Lynch & Co. could end up replacing Bank of America Corp. chief executive Kenneth Lewis.

Lawyer Brian Moynihan took over at Merrill Lynch in January after the ouster of John Thain…

We will just have to wait and see how this all plays out.

In the latest issue of TWST, we focus on Medical Devices. While many in the healthcare industry are quaking in their boots at the prospect of how the new administration will transform the sector, Mr. Nam is not, especially on one key issue: The FDA.

Mr. Nam: My feeling on the FDA side right now is that they’re not going to try to rattle the cage too much. I believe that the FDA is going to review many of the existing processes to ensure that they avoid some of the controversies that they have faced in the past, but I don’t think the FDA is going to suddenly change the parameters of the current trials or start questioning the trial protocols that they have agreed to with the manufacturers involved in the trial. The peripheral aspects of the FDA approval processes of products currently in the midst of clinical trials could change somewhat with the new Administration, but with respect to the core approval process, the FDA typically listens to the
panel on these matters and I believe that the panel is going remain quite independent.

For the complete Medical Devices report, including a full interview with Mr. Nam as well as a variety of other analysts and CEOs from top companies in this space, click here. 

Dr John Sullivan wrote a worthwhile piece that appeared today in the ERE.net website.   Liberum is always focused on executive turnover and most people look at employee turnover with a negative impression.  Dr. Sullivan has attempted to examine turnover from different perspectives to explain why it is often a positive.  Anyone interested in management and company performance should read Dr. Sullivan’s brief but cogent piece.

In a recent conversation with Dr. Stanislaw Burzynski of Burzynski Research Institute, Inc. he explained the research and development focus of the company;

Dr. Burzynsku: Currently, our research and development is focused on cancer treatment and we have four drugs in our pipeline. The names of this group of drugs are antineoplastons; we abbreviate this as ANP. Currently, we have one Phase III trial, which is ready to start very soon. We also have 14 Phase II clinical trials under way, which are nearing completion. We’re hoping that within a year, all of these trials will be closed. We estimate at least 12 of the Phase II trials can progress further to Phase III, if it’s necessary, of course.

The cellular mechanism underlying the anticancer effects of ANP continues to be investigated in both BRI’s own basic preclinical research program and in independent laboratories around the world

As we enter into Q2 of 2009, portfolio manager Alan Wilson of Talon Asset Management is already thinking about 2010. In a recent  interview with TWST, Mr. Wilson told us what he thought 2010 might hold:

Mr. Wilson: We see a risk that by 2010, this deflationary mindset today will reverse. We’re thinking of inflation starting to come back into the system, with a yield curve that has a more of a slope to it than we see today. The question is, how should we be positioned for that type of an environment? It’s starting to make us just think about some of the commodities that have totally imploded.

We suspect that oil has seen its lows. We’re starting to do some work on the oil service companies, which tend to move with about four to six months lead time before you even bottom out in earnings. You have to look around the corner; you have to be forward thinking.

I think 2010 is going to have its set of challenges. The worst scenario would be higher inflation yet low GDP growth, and then all of a sudden people start throwing out the term “stagflation.” Because we’re in global recession, you can’t export your problems, and that ultimately creates challenges for the value of the US dollar. As the foreign investment community sees us with a $2 trillion current account deficit, they start to reassess their dollar exposure. The one thing that our dollar has going for it is a lack of alternatives, and if you need liquidity, that alternatives are extremely limited.

For the complete Investing Strategies report, including the full interview with Mr. Wilson, and a variety of portfolio managers, click here.  

Steve West of Stifel, Nicolaus & Company, Inc. recently gave us some insight into the Restaurant  Sector . When asked about the recovery of the sector Mr West brought up the fast food segment;

Mr. West:  When you think about a recovery, fast food is already outperforming. They are doing pretty well, and as we get into the back half of 2009, assuming the consumer continues to trade down and eat out at fast food, which I think they will, you will see margins start expanding. They will start reaping the benefits of the cheaper food as well, and then the positive same-store sales should help leverage their fixed cost a little bit better as well. I think fast food will improve more before you see casual dining start to improve at all.

Seems that in this economy the value meal is the key to growth in the sector and your waistline