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TMFHelical (99.12)

Greece Pays Pharma Bill With Bonds

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August 23, 2011 – Comments (0) | RELATED TICKERS: JNJ , NVS , MDT

This is worrisome.  I noticed this news story over the weekend as commented on in Fierce Pharma and it has nagged at me for days.

 

Drugmakers take a hit on Greek bonds

After carrying the public health system's debt on their books for many months--in some cases, more than a year, drugmakers are finally getting paid by the Greek government. Good news, right? Well, there's just one drawback: Greece is paying its drug bills in zero-coupon government bonds.

You don't have to be an economics professor to know that Greece's bonds aren't high-grade securities. So, converting those debts into bonds is costing drugmakers money. Australia's CSL took a $26 million charge against earnings to account for losses in the value of securities it accepted in lieu of cash payments. ... Greece paid Roche with a bond, too. The company sold it--at a discount of 26%, CFO Alan Hippe said. "[B]ut we have now the cash," Hippe said on a conference call last month, Bloomberg reports. "And cash is what counts. We are monitoring our exposure, especially in Southern Europe, very very diligently."

This is worrisome, not just for my holdings with a global footprint, including JNJ, NVS, and MDT, but in a broader context as well.  The move seems like a new spin to me on Smoot-Hawley styled financial protection.  How do you encourage more business, especially with the government of struggling or questionable European countries, when you are punishing existing business.  It is very worisome to me and seems eerily foreshadowing of a further deterioratio in Europe. I'll have to think how I want the portfolio positioned when I have such macro concerns.  I don't think I can simply ignore macro trends, but they are brutally hard to be right about.  Food for thought anyway.  If I continue to 'recover' from this latest 'correction', I think I'll be inclined to start increasing cash again.  I have a decent short term feeling on the markets, but not long term, and cash provides flexibility. 

TMFHelical

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