Daily Speculations

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The Chairman
Victor Niederhoffer

Variations on the 10 Plagues

1. According to Exodus 7-11, the Lord released 10 plagues on the Egyptians to induce them to release the Jewish people from slavery: blood, frogs, gnats, flies,  cattle disease, boils, hail, locusts, darkness and the slaying of firstborn sons. As alluded to in a letter to Vic, I bought some Pfizer in November 2004, and the deluge of bad news, disasters, calamities, collapses and disappointments visited upon that company brings to mind the 10 plagues that Jewish people get to reenact, sometimes with "experiential dramatic elements," in their Passover Services.

2. Here are some of the plagues visited upon Henry "Hank" A. McKinnell, Jr., PhD, chairman and CEO of Pfizer, and other stockholders such as myself since I bought it. On April 8, it was announced that Moody's is considering lowering Pfizer's perfect credit rating on long-term debt. On April 7, the FDA asked Pfizer to recall Bextra, a $1 billion painkiller. On April 6, Pfizer announced that its GAAP earnings in 2005 were going to be about half those of 2004, while sales would be flat. The company called 2005 "a transition year." Before that, a hailstorm of tort actions and invitations to class-action suits related to Celebrex...studies showing the painkiller increased heart-attack risk...third-party copayer studies showing members who didn't use Celebrex were healthier than those who used it...brilliant arguments by the lawyers challenging Pfizer's Lipitor patent that left the outcome to close to call...a call for the drug's withdrawal issued by the Citizens Public Interest Group, and the news that they had been successful in 9 of 11 previous such actions...calls and hearings by Congress to reduce Medicare costs by bulk purchasing a la the Canadians...the coming patent expirations in the next four years on drugs generating 40% of sales...the indicia of darkness by the announcement that Pfizer's sales force has in general five sales reps calling on each doctor with exactly the same product but will reduce that to three. Why, never since my foray into the Thai stock market have I been visited by such darkness.

3. Yes, but with all these disasters, isn't Pfizer a good buy? I found 22,0000 references to disaster NYSE including a disaster of the day on Google. To bring it down to manageable size, Mr. Dude Pomada from this office and I studied the performance of all companies that received Wells notice since the end of 2002. Recall that a Wells notice is a formality to notify the company that the staff is considering a recommendation for a civil action alleging violations of laws. There were 37 such companies on this distressed list, and they included ImClone, Gateway and AIG. The results: too late the phalarope in the game for profit. The returns are -0.06% in the next year with a 95% confidence interval going up to + and - 8%.

4. News comes down the pike that Robert Olstein, formerly of the Quality of Earnings report is a master at making money from stocks that have collapsed. His Financial Alert fund has shown some superior performance since its inception a few years ago. Olstein's theories seem sound as a nut, and there are many anecdotes reported in a the Bloomberg story on him that leads on to believe that his knowledge of accounting gimmicks and strengths is far superior to yours and mine. His year-end 2004 holding include such well-known stocks plagued by troubles or graced with virtues surrounded in darkness such as Tyco International, Interpublic, Del Monte Foods, American Greetings, Payless ShoeSsource, Williams Cos., Gray Television, Tommy Hilfiger, Hasbro and Tupperware.

But apparently it's not surefire. The professor reports that in each of the last three years, the performance of his fund has not beaten the equally weighted S&P,(albeit this is a rather stiff hurdle). (To be continued.)

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