Navarroâ�,��"�s Big Economic Picture

Last week ended with the dollar falling to a 20-month low and global markets turning down on concerns of the U.S. budget and trade deficits and a possible move by China to diversify its dollar holdings.  While a weaker dollar might ordinarily help bring the U.S. trade deficit back into balance, with a Chinese currency fixed relative to the dollar, the only thing we really will get is more inflation and higher interest rates.

As loyal readers are well aware, this dynamic has been a core concern of mine for months but the markets continue to shrug this concern off â�,�“ until the small hiccup last week.  I for one have been planning on a December downturn and see the current rally as nothing more than the usual seasonal bacchanal â�,�“ robust though it has been.   Enjoy it all while it lasts but at this point Iâ�,��"�d rather be in cash or short than long on the broad U.S. indices.

This Weekâ�,��"�s Market Movers
This will be a big week on the data front.  For starters, the housing sector will see both existing and new home sales fly on Tuesday and Wednesday, respectively.  The Fedâ�,��"�s Beige Book comes out, too, on Weds along with a revision to the 3rd quarter GDP.  Starting the new month on Friday, weâ�,��"�ll also get the ISM index and auto sales.  All this adds up to a volatile week.  No one indicator stands out as a market mover but coupled with the aforementioned pressure on the dollar, this week would feature a distribution day or two.

Navarroâ�,��"�s Portfolio Shorts and Longs 
Cash is king for the risk averse.  If you want to try to pick a top, short the Spiders (SPY).  Follow Andrew Vaino for specific stock picks at this point.  Heâ�,��"�s knocking the cover off the ball and biotech is a good space to be in at this juncture in that it is less susceptible to the business cycle.

Vainoâ�,��"�s Biotech Corner: Does Momenta Have Momentum?

NPS Pharmaceuticals (NPSP), which was trading as high as $15 earlier this year, has taken two major hits recently.  In March the stock dropped a third when they announced a delay in getting their Preos osteoporosis drug on the market.  The stock then dropped by almost a half, to $5, in May when they announced that the FDA had recommended a new clinical trial.  They have submitted to the FDA a clinical protocol for a 12 month NDA enabling study to meet this requirement.

Now, a new clinical trial is a major setback, but I donâ�,��"�t think itâ�,��"�s anywhere near a death knell.  The companyâ�,��"�s net current assets will see it through a couple of years.  It is worth noting that Preos was approved for sale in Europe in April.  With an aging population, demand for osteoporosis drugs is only going to increase.

In addition to Preos, NPS licensed Cinacelcet HCl from Amgen. This drug is marketed in Europe and the US for hyperparathyroidism in patients requiring dialysis, and for patients with parathyroid carcinoma.  While revenue from Cinacelet isnâ�,��"�t great, it does demonstrate they know how to sell drugs.

NPS also has a Phase 3 study underway on Teduglutide, a treatment for patients with short bowel syndrome (the drug acts to make absorption through the smaller length of intestine more effective).  Results of this study could be available early next year.  This drug has also shown potential in Crohnâ�,��"�s disease, and a Phase 2a study in support of this has been completed.  If NPS is able to gain marketing approval for Teduglutide there will be nothing to prevent physicians from prescribing it to patients with Crohnâ�,��"�s disease.  While this â�,��"off-labelâ�,� prescribing is not encouraged (and companies canâ�,��"�t market the drug for off-label use) it does occur frequently.

NPS has been dealt a couple of setbacks.  There will always be uncertainty in any clinical trial. My take is a stock trading in the $5 range, with two late stage clinical candidates and an enterprise value $200M more than its market cap seems like a pretty good deal.

Peter Navarro is a business professor at the University of California-Irvine, and can be contacted at pn@peternavarro.com.  Andrew Vaino is a Ph.D. chemist currently teaching at The University of Maine.

DISCLAIMER: This newsletter is written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.