When Warren Buffett talks, Wall Street – and Main Street – listen.
And now he’s talking about the future of the U.S. economy.
In a wide-ranging, three-hour interview on CNBC yesterday, Buffett said, “the economy has fallen off a cliff.”
Noting people have "changed their habits", Buffett seemed very frustrated and a little bewildered by it all, although he was composed enough to say "everything will be all right." A notoriously a-political non-partisan, Buffett saved his real wrath for both Democratic and Republican leaders in Washington, saying that everyone should support President Barack Obama, while also noting that the commander in chief has to look like a commander in chief in a time of war – and that hasn’t been the case.
Buffett also said that that inflation is the price we are going to have to pay to win this war, which is one where causalities will continue to mount. The key is confidence that depositors' money will be safe even if banks fail. Buffett has put a fair amount of money to work but is sitting on $24.0 billion. Moreover, if investors got 10% on their investments the markets would re-inflate in a heartbeat, he added.
In the technology sector, there’s a burgeoning story that could rock an entire industry, but few people seem to notice. I’m talking about the bio-pharmaceutical sector, where a slew of recent mergers are giving the life sciences world a whole new look.
Today came news that Roche is in talks to buy the rest of Genentech it does not already own for about $95 per share. According to Reuters the two companies began negotiations after Roche raised its offer price to $93 per share on Friday. Roche apparently wants to snare the 44 percent of Genentech it hasn’t already pinned down.
"The new price was enough to get both sides to the table,'' said the Reuters source. The deal makes sense for Roche. In for a penny, in for a pound and all that.
But that’s just the tip of the iceberg. In another merger announcement today, Merck said it would acquire Schering-Plough for $41.1 billion, combining the makers of cholesterol drugs Zetia and Vytorin into one mega biopharm behemoth. Both firms have been hurting of late, both the victims of the lousy consumer drug market. Sales of both Vytorin and Zetia slid a combined 26% in Q4 of 2008, signaling hard times for the two cholesterol kingpins.
For investors, the deal should be a boon for Schering-Plough stockholders. According to company statements, the transaction offers a premium of 34 percent for Schering-Plough shareholders based on Friday's closing price and will generate savings of $3.5 billion annually after 2011.
The deal followed hard on the heels of Pfizer’s $68 billion buyout of Wyeth, which set the tumblers rolling for both the Roche-Genentech and the Merck- Schering-Plough mergers.
"It seems somewhat inevitable," says analyst Jeffrey Holford of Jefferies in London, in an interview with the Associated Pres, referring to a biopharm market facing a glut of patent expirations on top-selling prescription drugs in 2009. "The industry needs to shrink because there is just not the same market for branded pharmaceuticals going forward as there has been over the last 10 years," he said. "There is overcapacity, and (Merck and Schering-Plough) need to take each other's capacity out of the market."
When the dust settles, we’ll see an entirely new biopharmaceutical marketplace, one that’s been laid low by the recession and one that, after all is said and done, will likely offer less choice and fewer cost options to cash-strapped global consumers.