The Daily Alpha: Alternative Thinking on Capital Gains Taxes, Hedge Fund Films, and Pharma Fraud

The Daily Alpha: Alternative Thinking on Capital Gains Taxes, Hedge Fund Films, and Pharma Fraud

Garrett Baldwin

April 27, 2016

Volume 100

“If you're an activist investor, a hedge fund or a billionaire, what you're trying to to is to force that company to make a certain amount of money every three months. And you want them to squeeze everything they can every year out of them so you can sell your stock in a year and a day' and pay a lower tax rate.”

That’s Bill Clinton… explaining how short-term capital gains taxes that he lowered operate.

Once again the British press had to cover Clinton’s speech because the mainstream media is too concerned about Beyonce’s Lemonade stand or whatever…

The Daily Mail’s headline: “Bill Clinton takes on Bernie as he attacks 'billionaires' and 'greedy' hedge fund bosses (but that could be rather close to home for Chelsea's hedge fund husband)”

A more succinct headline would be: Man Yells at Cloud.

It’s to the point of frustration that Clinton is out touting his economic record in the 1990s – as if his wife will magically bring that back – while he complains about capital gains taxes.

Doe he suddenly think that raising capital gains will bring in more money for the economy?

Here’s all we need to know:

“After the capital gains tax hike in 1986 from 20 percent to 28 percent, capital gains revenues actually fell from $44 billion a year to $27 billion a year by 1991.  After Bill Clinton cut the capital gains tax down to 20% again, capital gains revenues surged from $54 billion in 1996 to $99 billion in 1999. Lower rates, more revenues.”

I refuse to endorse anyone for President in 2016.

Well, aside from Rex Tillerson – the CEO of Exxon.

Tillerson has years of experience operating a debt-strapped organization that has already received a credit downgrade from S&P. That’s actual experience needed in Washington.

Tillerson runs one of the largest companies on earth – with 75,000 employees, and – according to Steve Coll – operates his own small army.

Furthermore, Tillerson is the one person in the world who holds a dramatic upper hand over Vladimir Putin. Without Exxon’s help, Russia can’t access the technology it needs to extract oil from its Arctic reserves. You know… the source of their money.

Steve Coll’s 2012 portrait of Exxon “Private Empire” was supposed to be a story about how Exxon gets away with everything around the globe. But I saw 150 reasons why Tillerson would make for a much better President than any of my options.

Hopefully, people are seeing the Jonathan Swift absurdity in this little rant.

If anything, I really hope this election brings upon the Rise of the Animals.

This election proves that Golden Retrievers should be in charge of the world.

It’s not like it would be any worse if we operated on a centrally planned tennis ball manufacturing economy that mandated three naps and four walks per day.

“The opportunity set is good, but it’s not this massive, juicy pile of money waiting to be scooped up."

The money in the corner being picked up by hedge funds these days are found in merger-arbitrage strategies. Merger-arb assets are again approaching 2007 levels, and Bloomberg has all the data to prove it in this great breakdown.

Here it is.

“Senate lawmakers investigating price increases by embattled drugmaker Valeant Pharmaceuticals International Inc. also will question one of the company's leading investors, hedge fund manager Bill Ackman.”

Note to self (pulling out tape recorder)…

Write highly popular screenplay about an evil hedge fund manager who destroys a small town and is called to Washington D.C. to testify about his actions. We will systemically retrace his childhood through flashbacks – finding the source of his greed and lust for business mergers.

It will combine elements of Citizen Kane, A Few Good Men, and To Kill a Mockingbird…

In the end, the hedge fund manager breaks down and has a moment where he pledges to do good for the world and volunteers to pay 100% of his profits to taxes to help Washington fund bridges and roads… and seniors’ medicine… and in the end, every stray puppy finds a home.

Call it: “Jeffrey Smith Goes to Washington.”

Sarcasm aside (don’t worry, it will return), the Senate is investigating Valeant Pharmaceuticals… and called Bill Ackman of Pershing Square to testify.

Here’s what Ackman has to say.

The Senate Aging Committee – a literal committee of aging Senators – will host its third meeting on drug prices today to discuss rising drug costs that are squeezing health care budgets around the nation. It’s not clear that they will come away with any solution to rising drug costs.

The Senate Aging Committee will never introduce price controls given the strength of the pharmaceutical lobby in the country. So, it will be interesting to see what they recommend versus what has been proposed by Democratic frontrunner Hillary Clinton.

“You Switched the Samples”

Finally, speaking of pharmaceutical drugs…

Here's a wild story of what happened to me on Tuesday night in Chicago. 

I was doing this big story for a major medical journal. Really excited and got my first client last week. Anyway, they send me to this big conference here -- downtown at the Hilton -- for this keynote speech: "Alternatives to Cardio-Non-Invasive Arterial Plaque-Reducing Therapy.”

Well, the speaker gets up there, and starts talking about this breakthrough drug, and I’m drinking tea and reading this pamphlet about how liver function affects the heart. Over my shoulder, all of a sudden, this guy in jeans and a brown jacket bolts through the crowd and starts pointing at the speaker, saying something about how the guy at the podium “Switched the samples and the pathology reports.” Then he accused him of murder.

It turns out, this speaker apparently was colleagues with this guy, and got mad at him about some liver samples. I have no idea what they were talking about. As they both walked toward the back of the room, the guy in the jeans was screaming something about how this speaker falsified his research, so that this drug that they were unveiling could be approved and the pharmaceutical company C-D could start manufacturing (I think he called it... "Provasic!")

Here I am, covering this conference, on my own dime (it’s not cheap to rub elbows with Chicago vascular surgeons), when this crazy man interrupts this speaker. I will likely miss my deadline by Friday, so I have to come up with a different angle on how to play this. 

I was am looking into the legal ramifications of what happens when samples are switched in labs and how the FDA might respond to the broader crackdown on biotech drugs in the future. Also, it’s interesting to think if this will affect iShares NASDAQ Biotechnology Index (ETF).

It got really bad afterward. They had to lock down the building and a police officer who looked like Cypher in The Matrix was apparently hit in the face with a steel beam.

Anyway, if you see Harrison Ford… arrest him. He’s wanted by the Chicago Police Department.

That’s all for today…


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