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April 30, 2001

BioTech Cheerleader

By Kathryn M. Welling

Also in this article

  • BioTech Cheerleader

Larry Feinberg has a great "commute" now that he runs Oracle

Partners, his highly successful healthcare and biotech hedge fund group, from some quite nice offices quite near his Greenwich, Conn., home. All the more time to obsess over the prospects, products portfolio performance of companies he follows -and lower rent than Manhattan, to boot.

But the market gods, evidently, weren't pleased. Oracle's move was accomplished around the middle of last year -and the market, as the nearby chart illustrates, has been beating up on Larry's favorite sector pretty much ever since. Oracle, to be sure, has done considerably better than the index, leaving Larry scoffing at rumors that Oracle is foundering -and eagerly anticipating big gains on biotechs bought at bargain-basement prices.

Biotechs aren't going to zero like many nets, Larry?

People just don't seem to understand what is going on in the world. You can understand why they don't, because they're losing all their money in the stock market. I certainly can understand that. But biotechnology isn't a fad. It's science that will fundamentally change everything. Especially medicine. I'm not happy, because I got long and my stocks just won't go up enough. Every day, they start rallying and in the middle of the day, they hit them. I'm not a technology investor, anyway, but the Nasdaq does have Amgen (AMGN) in it, for example.

So you haven't exactly been immune to the Naz's swoon?

Clearly not. But the good thing about truly awful days in the market, like last Wednesday, or Tuesday, is that we can't have many more like that because then there'd be nothing left. Somebody taught me that, a famous commodities trader.

There's some good news for long-term investors amid all the carnage, isn't there? Some great little biotechs were probably thrown out by investors along with the Internet bathwater.

A couple of things are going on. Normally, the healthcare sector does very well in this type of a slowdown. This year, it hasn't, to date. It's been one of the worst-performing sectors in the marketplace. This has been more than just selling. It has been people taking profits in winners and selling the stocks that have held up, also people looking for "valuation shorts."But there's no change in the healthcare sector's fundamentals -they are the best they've ever been. The political climate is the best it has ever been. As I like to say, "Hillary has moved to Chappaqua. We don't have to worry anymore."

Yet healthcare's been really under-performing dramatically. Looking at the various sectors, the large-cap drug stocks are selling now at about a 20 percent P/E premium to the market. Although I'm not a huge fan of big pharma, I think there's already a lot of bad news in the stocks, given that over the last 50 years, they've traded at between a market multiple and three times the market. And in an environment where the economy's slowing, where everybody's earnings are questionable, we know these guys are, for the most part, going to come through with steady predictable earnings growth.