Biotechs Help Keep the Bull Running

NEW YORK -- Given the storm that hit Wall Street last week, it's not surprising a little calm descended Monday.

Quiet, subdued and even boring were the watchwords among traders, who seemed more interested in reports Merrill Lynch wants to acquire Herzog Heine Geduld than in the goings-on with stocks.

Still, all but the most cynical market participants were impressed with the action in major averages. Following last week's blockbuster advance, the Dow Jones Industrial Average and Nasdaq Composite each rose about 0.2% while the S&P 500 dipped 0.7%.

"The great news is that there is new leadership [Monday] as the rally baton was passed to the biotechs," observed Charles Payne, president and chief analyst at Wall Street Strategies.

Indeed, the group rallied in near unanimity after Genentech (DNA Quote - Cramer on DNA - Stock Picks) received approval to market its heart-attack treatment in the U.S., and filed for regulatory approval here and in Europe for its asthma drug. Genetech leapt 18.2%, helping the American Stock Exchange Biotech Index rise 4.9%.

Also boosting the sector was a Merrill Lynch upgrade of Human Genome Sciences (HGSI Quote - Cramer on HGSI - Stock Picks), which gained 7.2%.

The meltdown of biotech stocks earlier this year ultimately will benefit investors, according to Payne, "by eliminating -- through attrition -- many wannabes and allowing the real players to shine through."

By players, I wonder whether he means companies or investors.

OK, he was talking about the companies. But it strikes me that last week was a microcosm of the Nasdaq's monster truck rally of late 1999, early 2000. Biotechs lagged the Comp's rise from mid-October until late December, and the sector's explosion thereafter was, in many respects, the broader market's last hurrah. Furthermore, biotech's peak on March 7 augured the broader Comp's top by just three days.

History doesn't necessarily repeat itself but the relationship bears close watching

Follow-On Offering

Friday's piece about NetSol International (NTWK Quote - Cramer on NTWK - Stock Picks) sparked strong reactions via email and in the chat rooms, necessitating a reiteration of a few salient points (and the addition of a few new ones).

First, to repeat, Blue Water Partners' manager Jonathan Iseson's positive postings about the stock under an alias did not violate any laws, according to various sources, if only because there aren't any governing Internet chat rooms. Second, he was "pumping and buying" rather than "pumping and dumping," which is a very important distinction that many people in the chat rooms seemed to either not get or ignore.

Regardless, it is disingenuous for a professional money manager to enter a chat room without fully (and repeatedly) disclosing his true identity and position, especially when he is the majority public shareholder of a small-cap stock. Securities regulators may have yet to enact laws specifically governing such activities, but I suspect they will in the near future.

Many chat-room participants assumed/theorized I wrote the story because I am a shill for the shorts (untrue), or short myself (see the disclosure information listed below). Some people, it seems, believe financial profit is the only motive for anyone's action.

Ironically, many of those same people defended Iseson's actions. Seems they believe a hedge fund manager would make posts on a chat board for purely altruistic reasons, but a journalist must have nefarious intentions. Go figure.

Meanwhile, Blue Water Partners reported its most recent performance figures on Monday. Year to date through May, the fund group is up 37.5% in 2000, with assets of $71 million vs. gains of 135% and assets of $160 million through the end of April, according to HedgeFund.net.

Given Blue Water's exposure to NetSol -- which fell about 65% in May -- that reversal isn't really surprising.

The performance, however, does raise a question about Blue Water's claim -- in a February newsletter to shareholders -- that "every position is always hedged, no matter how concentrated."

Finally, several emailers and chat-room participants wondered about the relationship between Blue Water and HedgeFund.net. (Other news outlets, such as The New York Observer and Stockpatrol.com, have discussed this in detail.)

Here's the skinny, from the Hedgefund.net site:

Tuna Capital, an affiliate company of HedgeFund.net, owns a percentage of Blue Water Partners. As a result, there may be actual or perceived conflicts of interest. Past performance is not an indication of future performance.

At least they disclosed.

(Limited) Power of the Press

To those who are convinced the media manipulate Wall Street (for its own bidding or for others), note IBM (IBM Quote - Cramer on IBM - Stock Picks) rose 3.5% Monday. This is significant because The New York Times columnist Gretchen Morgenson questioned the quality of Big Blue's earnings in Sunday's newspaper.

That critical piece was trumped, however, by a bullish report on IBM from Merrill Lynch on Monday.

True, that's anecdotal evidence, but trust me when I say the media do not have their hands on Wall Street's tiller.

Alas.