Global Market Comments
May 19, 2020
Fiat Lux
Featured Trade:
(THE 2020 DARK HORSES OF BIOTECH)
(AMRN), (THOR), (SAN), (NBSE), (OHRP),
(MRNA), (MRK), (AZN), (VRTX), (RGLS), (ARWR)
One of our dark horses came in a big winner this morning.
No, I did not go to the Golden Gate Fields race track on San Francisco Bay and win big on a horse with 5:1 odds, although I might as well have.
Moderna (MRNA) soared to $85 this morning on news of a successful trial of a new Covid-19 vaccine. We recommended it on January 19 at $17.78 for precisely this reason.
Never mind that the trial only involved a mere eight patients, involved RNA, and won’t be available in bulk for two years. That’s all the market wants to hear today.
So, if you are interested in playing the long shot game, I am re-running my January 9 research piece, which was sent out to paid subscribers of the Mad Hedge Biotech & Healthcare Letter. If you want to subscribe to the letter, which has been pulling in long shots on a weekly bases recently, please click here.
For all the flak the healthcare sector has received for the exorbitant prices of its products and services, there’s no denying the fact that this industry had an incredibly remarkable decade -- and biotechnology proved to be one of the most lucrative markets when it comes to stocks that actually double or triple in value, sometimes even overnight.
The primary reason for this is that no one could predict the success or failure of clinical trials with any degree of accuracy, forcing investors to take into account elements of surprise in the valuation process in biotech.
Companies that analysts believe to be prime candidates for acquisition early on in their life cycle would end up repeatedly failing to lure viable tender offers for years. Meanwhile, dark horses emerge from the leftfield and snap up the best deals.
A good case in point would be how experts and investors alike missed the mark on Amarin Pharmaceutical’s (AMRN) cardiovascular treatment Vascepa. On the outset, analysts pegged the new prescription omega-3 treatment as a failure and a money sinkhole.
Instead, Vascepa surpassed all expectations and is now hailed as the fish oil supplement to demonstrate clear-cut cardiovascular benefits to high-risk heart attack patients.
In 2019 alone, Vascepa grew by 85% compared to its 2018 report, coming in between $410 million and $425 million in sales -- and 2020 is expected to be an even better year for this drug as sales are estimated to reach between $650 million and $700 million.
Another example is synthetic protein maker Synthorx (THOR), which was initially tagged as an ominous stock.
The company proved detractors wrong when it went on to fetch huge offers from giant biotech firms, with Sanofi SA (SAN) winning the bidding war over Synthorx to the tune of $2.5 billion.
This new year, though, promises to offer more predictability, especially on the merger and acquisition front.
Several blue-chip biotechs are on the verge of key patent expirations in the next decade. On top of that, these companies are facing tremendous pressure from US politicians to cut down on the prices of their brand name drugs. Today, the State of California announced that it was going into the generic drug industry to undercut the majors.
These dual headwinds are expected to fuel an uptick in the demand for bolt-on acquisitions, which can provide the giant biotechs with healthy levels of profit via large sales volumes as they attempt to slash their slashes to acceptable levels.
With this in mind, big biopharmas will be willing to shell out top dollar to acquire promising companies this 2020.
Which biotechs have the goods to take full advantage of this acquisition demand?
One up and coming company tagged as a red-hot acquisition candidate is NeuBase Therapeutics (NBSE).
Founded in 2018, this Pittsburgh company has raked in $9 million in funding so far to develop treatments that target rare, genetic neurological disorders. Neubase’s platform called peptide-nucleic acid antisense oligonucleotide or PATrOL technology was developed at Carnegie Melon University.
Basically, this technology offers gene-silencing therapies for its patients suffering from rare genetic disorders.
In July 2019, NeuBase engaged in a reverse merger with fellow biotech innovator Ohr Pharmaceuticals (OHRP). This partnership is expected to rake in massive rewards since both companies greatly complement each other’s work.
NeuBase’s work zeroes in on curing rare genetic diseases via gene-silencing treatments while Ohr’s research is geared towards helping patients suffering from cancer cachexia and macular degeneration.
The combined efforts of these two should result in a wider reach as they offer cutting edge treatments to highly lucrative and specialized markets.
As of December 2019, NeuBase has a recorded market cap of $114.38 million. Considering all its assets and the way its pipeline is shaping up, NeuBase could easily be your best sleeper stock in 2020.
Another biotech company to watch out for this year is Moderna Inc (MRNA), which has raised a whopping $1.8 billion in funding over 10 rounds.
So far, this company has attracted blue-chip companies in the form of Merck and Co (MRK), which invested $125 million, and AstraZeneca (AZN) with $474 million so far.
In terms of stability, Moderna has been doing quite well for itself with $68.2 million in estimated annual revenue.
In 2019, Moderna shared that it has at least 11 programs set for clinical trials along with 20 development candidates. Its research leans towards producing cancer vaccines and localized regenerative therapeutics.
Its strategic alliances not only with AstraZeneca and Merck but also with Vertex Pharmaceuticals (VRTX), Biomedical Advanced Research and Development Authority, and even the Bill & Melinda Gates Foundation equip Moderna with a remarkable competitive edge against rivals Regulus Therapeutics (RGLS), Arrowhead Pharmaceuticals (ARWR), and CureVac.
I’m expecting huge movements in the biotech market in 2020 as the curtain rises on all these promising technologies and the rise of this industry becomes impossible to ignore.
The Buyers are Lining Up
“A market has never before come out of a recession with stocks at peak earnings multiples,” said Jonathan Golub, Chief Equity Strategist at Credit Suisse.
Global Market Comments
May 18, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE MARKET IS BRACKETED)
(SPY), (TLT), (VIX), (DIS)
We are all living the Bill Murray movie “Groundhog Day” over and over again. Every day seems to blend seamlessly into the next, ad infinitum.
I think it’s Monday, but I’m not sure. The stock market is open so that must mean it’s Monday to Friday. The trash goes out tomorrow, so it might be Tuesday. No, wait! CBS 60 Minutes was on last night, so it has to be Monday. Maybe.
When a Marine Corp 60mm mortar team zeros in on a target, it is said to be “bracketed.” No matter which way the enemy goes, he gets blown up.
The S&P 500 is now “bracketed”.
If it falls, the support of the free Fed put option kicks in to limit the damage via QE infinity. If the market tries to rally, it is capped by the worst economic data in history, last week joined by a new trade war with China.
Who is the enemy that gets destroyed in this military metaphor? Anyone betting on an imminent upside or downside breakout, especially those who are long the Volatility Index (VIX).
That means the thousands who follow the Mad Hedge Fund Trader have just been given a money-printing machine, a new rich uncle.
For every time the market rallies, you simply buy a vertical bear put option spread in the front month with strikes prices well outside the bracketed area as I did last week with (DIS). When it dives, you strap on vertical bull call spreads, as I did last week with the (DIS) and the (SPY). Then you laugh all the way to the bank.
We could be bracketed a long time. The early data from opening-up states is that consumers returning to stores only amounts to a ruinous 7% of pre-pandemic levels. That suggests the Unemployment Rate will soar to 30% or more before it peaks, exceeding the Great Depression apex. There are easily another 10 million that haven’t been counted yet because the state benefit processors are so slow.
However, as long as we are bracketed, I reckon I can make 10% a month, as I already have done from the Middle of April and in May.
It is not a riskless strategy.
The day an actual vaccine is announced, the market Dow Average could soar by 3,000 points in a day, wiping out the shorts. The White House has been declaring this on a daily basis. But until we get a vaccine the market believes, we will remain bracketed. That could take years, if ever.
Dr. Fauci triggered a 1,000-point market dive with his sobering analysis of the course of the pandemic in the coming months. Don’t count on going back to school in the fall.
No “V” for the economy, said the Fed. The job losses are a complete economic disaster that will take years to recover from. That’s the opinion of Minneapolis Federal Reserve Bank President Neel Kashkari. The president just said Corona deaths will reach 100,000. Buzzkill. Do you think the stock market will notice?
Fed funds futures are discounting negative interest rates in a year. They say they don’t want negative rates but may not have a choice. The markets may go there without them. The disruptions to the financial service will be enormous. Do you really want to pay the bank to deposit your hard-earned money?
Fed Governor Powell warns the worst is yet to come, and the need for more stimulus is paramount. However, negative interest rates which failed in Europe and Japan won’t work here either. The problem is rampant fear, not the overnight cost of funds.
Weekly Jobless Claims are still soaring, up 3 million on the week to 36.5 million. It’s going to get worse before it gets better. The Fed is targeting a peak of 36.5 million. Connecticut is the worst-performing state, California the best.
Stan Druckenmiller says stocks are the most overvalued in his career, says my former client, one of the best traders in the market. My friend David Tepper says they’re the most expensive since 1999. It may be splitting hairs, but how much do you want to own here? Keep those shorts!
Another death knell for US Treasury bonds (TLT) as the April budget deficit soars to $738 billion. That is an $8.85 trillion annual rate. Overissuance is about to destroy deflation big time.
Retail Sales collapse by 16.4%, the worst on record in another Great Depressionary data release. The stock market is starting to lean towards a view that the economy will take years to recover, not months. I’m somewhere in the middle.
A new trade war with China heats up, with the president banning more export items, especially chips for telecom giant Huawei. I guess our economy isn’t bad enough. Knock another few thousand off the Dow.
When we come out on the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates at zero, oil at $0 a barrel, and many stocks down by three quarters, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade.
My Global Trading Dispatch performance had another fabulous week, up an awesome +11.26%, and blasting us up to a new eleven-year all-time high of 20%. It has been one of the most heroic performance comebacks of all time.
My aggressive short bond positions gave back some money on the ‘RISK OFF” posture for the week. However, we offset those losses and a lot more on longs in bonds and shorts in the (SPY) and Walt Disney (DIS).
That takes my 2020 YTD return up to +7.29%. That compares to a loss for the Dow Average of -16.89%. My trailing one-year return exploded to 48.47%. My eleven-year average annualized profit returned to +34.59%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, May 18 at 10:00 AM, the NAHB Housing Market Index for May is released.
On Tuesday, May 19 at 8:30 AM, US Housing Starts for April are printed. Home Depot (HD) and Walmart (WMT) report.
On Wednesday, May 20, at 10:30 AM, weekly EIA Crude Oil Stocks are published. Target (TGT) and Lowes (LOW) report.
On Thursday, May 21 at 8:30 AM, Weekly Jobless Claims are announced. NVIDIA (NVDA) reports.
On Friday, May 22, the Baker Hughes Rig Count follows at 2:00 PM. Alibaba (BABA) reports.
As for me, I am headed back up to Incline Village, NV, a town completely free of Covid-19. The village is thinking of barring entry to all non-residents. Maybe it’s the fresh air.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
May 15, 2020
Fiat Lux
Featured Trade:
(WHY CONSUMER STAPLES ARE DYING),
(XLP), (PG), (PEP), (PM), (WMT), (AMZN),
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)
Global Market Comments
May 14, 2020
Fiat Lux
Featured Trade:
(TEN UGLY MESSAGES FROM THE BOND MARKET),
(TLT), (TBT), (USO), (GLD), (GS), (SPY)
The global bond markets have been screaming an ugly message at us loud and clear, and I’m afraid that it’s not a positive one.
Amazingly, US Treasury bonds have soared early this year, taking the (TLT) up a stunning 40 points.
In the meantime, stocks have suffered the sharpest crash in history, plunging ten times faster than the worst days of the 1929 crash, down 37%.
The implications for your investment portfolio are so momentous and far-reaching that I am going to have to list them one by one.
Read them and weep:
1) The US is in a severe depression.
2) The pandemic is not even close to ending. US deaths topped 85,000 yesterday and may triple from here.
3) The presidential election has become a major source of instability, and no one has any idea of how this will all end. Trump is currently trying to bankrupt the US Post Office to frustrate mail-in voting.
4) The immigration crisis is reaching a humanitarian crisis of epic proportions. It has become our Syria, which landed four million immigrants in Europe.
5) The stock market is in the process of crashing…. Again, failing dramatically at the 200-day moving average. That “Sell in May” thing may work big time this year.
6) The Trump trade is toast. Financials, commodity, energy, coal, and industrial stocks are leading the charge to the downside.
7) Oil (USO) is in free fall and may go negative again, another classic recession predictor. For the first time in history. Most small and medium-sized energy companies will go under. Coal has dropped to a historic low of 19% of US electricity production, less than total alternative sources, and is never coming back.
8) Bitcoin is rocketing, up an eye-popping 100% since the crash began. This has become the big hot money trade of 2020 in addition to that other great flight to safety trade, gold (GLD).
9) The US dollar (UUP) is flatlining, wiping out the growth of the foreign earnings of US multinationals. Foreign economies are collapsing even faster than ours, taking their interest rates and currencies lower at warp speed.
10) The unemployment rate, now at all-time lows, not bottom out for months. The great irony here is that while the president vociferously campaigned on an aggressive jobs program, he may well preside over the biggest job losses in history. The Fed is targeting total unemployment of 52 million, worst than the Great Depression.
For more on this, please read my recent piece, “Why You Will Lose Your Job in the Next Five Years and What to Do About It” by clicking here.
There is another alternative explanation to all of this.
A certain Monty Python sketch about a parrot comes to mind.
That all we saw a giant short squeeze in the hedge funds’ core short position in bonds for the umpteenth time, and that we are almost done.
Hedge funds have grown in size to where they are now the perfect contrary market indicator. It is the classic “Too many people in one side of the canoe” trade. A Yogi Berra quote comes to mind; “Nobody goes there anymore because it is too crowded.”
There are other structural factors at play here which are hard to beat. For more on this, please read my opus on “Why Are Bond Yields So Low” by clicking here.
Long Bonds are About to Take a Chainsaw to Your Portfolio
Global Market Comments
May 13, 2020
Fiat Lux
Featured Trade:
(HERE’S AN EASY WAY TO PLAY ARTIFICIAL INTELLIGENCE),
(BOTZ), (NVDA), (ISRG)
We are now in the throes of a market correction that could last anywhere from a couple of weeks more to a couple of months. So, generational opportunities are starting to open up in some of the best long term market sectors.
Suppose there was an exchange-traded fund that focused on the single most important technology trend in the world today.
You might think that I was smoking California’s largest export (it’s not grapes). But such a fund DOES
The Global X Robotics & Artificial Intelligence ETF (BOTZ) drops a golden opportunity into investors’ laps as a way to capture part of the growing movement behind automation.
The fund currently has an impressive $2.2 billion in assets under management.
The universal trend of preferring automation over human labor is spreading with each passing day. Suffice to say, there is the unfortunate emotional element of sacking a human and the negative knock-on effect to the local community like in Detroit, Michigan.
But simply put, robots do a better job, don’t complain, don’t fall ill, don’t join unions, or don’t ask for pay raises. It’s all very much a capitalist’s dream come true.
Instead of dallying around in single stock symbols, now is the time to seize the moment and take advantage of the single seminal trend of our lifetime.
No, it’s not online dating, gambling, or bitcoin, it’s Artificial Intelligence.
Selecting individual stocks that are purely exposed to A.I. is a challenging endeavor. Companies need a way to generate returns to shareholders first and foremost, hence, most pure A.I. plays do not exist right now.
However, the Mad Hedge Fund Trader has found the most unadulterated A.I. play out there. A real diamond in the rough.
The best way to expose yourself to this A.I. trend is through Global X Robotics & Artificial Intelligence ETF (BOTZ).
This ETF tracks the price and yield performance of ten crucial companies that sit on the forefront of the A.I. and robotic development curve. It invests at least 80% of its total assets in the securities of the underlying index. The expense ratio is only 0.68%.
Another caveat is that the underlying companies are only derived from developed countries. Out of the 10 disclosed largest holdings, seven are from Japan, two are from Silicon Valley, and one, ABB Group, is a Swedish-Swiss multinational headquartered in Zurich, Switzerland.
Robotics and A.I. walk hand in hand, and robotics are entirely dependent on the germination prospects of A.I. Without A.I., robots are just a clunk of heavy metal.
Robots require a high level of A.I. to meld seamlessly into our workforce. The stronger the A.I. functions, the stronger the robot’s ability, filtering down to the bottom line.
A.I.-embedded robots are especially prevalent in the military, car manufacturing, and heavy machinery. The industrial robot industry projects to reach $80 billion per year in sales by 2024 as more of the workforce gradually becomes automated.
The robotics industry has become so prominent in the automotive industry that they constitute greater than 50% of robot investments in America.
Let’s get the ball rolling and familiarize readers of the Mad Hedge Technology Letter with the top 5 weightings in the underlying ETF (BOTZ).
Nvidia (NVDA)
Nvidia Corporation is a company I often write about as their main business is producing GPU chips for the video game industry.
This Santa Clara, California-based company is spearheading the next wave of A.I. advancement by focusing on autonomous vehicle technology and A.I.-integrated cloud data centers as their next cash cow.
All these new groundbreaking technologies require ample amounts of GPU chips. Consumers will eventually cohabitate with state of the art IOT products (internet of things), fueled by GPU chips, coming to mass market like the Apple Homepod.
The company is led by genius Jensen Huang, a Taiwanese American, who cut his teeth as a microprocessor designer at competitor Advanced Micro Devices (AMD).
Nvidia constitutes a hefty 8.70% of the BOTZ ETF.
To visit their website, please click here.
Yaskawa Electric (Japan)
Yaskawa Electric is the world's largest manufacturer of AC Inverter Drives, Servo and Motion Control, and Robotics Automation Systems, headquartered in Kitakyushu, Japan.
It is a company I know well, having covered this former zaibatsu company as a budding young analyst in Japan 45 years ago.
Yaskawa has fully committed to improving global productivity through automation. It comprises the 2nd largest portion of BOTZ at 8.35%.
To visit Yaskawa’s website, please click here.
Fanuc Corp. (Japan)
The 3rd largest portion in the (BOTZ) ETF at 7.78% is Fanuc Corp. This company provides automation products and computer numerical control systems, headquartered in Oshino, Yamanashi.
Fanuc was one of the hot robotics companies I used to trade in during the 1970s and I have visited their main factory many times.
They were once a subsidiary of Fujitsu, which focused on the field of numerical control. The bulk of their business is done with American and Japanese automakers and electronics manufacturers.
They have snapped up 65% of the worldwide market in the computerized numerical device market (CNC). Fanuc has branch offices in 46 different countries.
To visit their company website, please click here.
Intuitive Surgical (ISRG)
Intuitive Surgical Inc (ISRG) trades on Nasdaq and is located in sun-drenched Sunnyvale, California.
This local firm designs, manufactures, and markets surgical systems and is completely industriously focused on the medical industry.
The company's da Vinci Surgical System converts surgeon's hand movements into corresponding micro-movements of instruments positioned inside the patient.
The products include surgeon's consoles, patient-side carts, 3D vision systems, da Vinci skills simulators, da Vinci Xi integrated table motions.
This company comprises 7.60% of BOTZ. To visit their website, please click here.
Keyence Corp (Japan)
Keyence Corp is the leading supplier of automation sensors, vision systems, barcode readers, laser markers, measuring instruments, and digital microscope.
They offer a full array of service support and closely work with customers to guarantee full functionality and operation of the equipment. Their technical staff and sales teams add value to the company by cooperating with its buyers.
They have been consistently ranked as the top 10 best companies in Japan and boast an eye-opening 50% operating margin.
They are headquartered in Osaka, Japan and make up 7.54% of the BOTZ ETF.
To visit their website, please click here.
(BOTZ) does have some pros and cons. The best AI plays are either still private at the venture capital level or have already been taken over by giant firms like NVIDIA.
You also need to have a pretty broad definition of AI to bring together enough companies to make up a decent ETF.
However, it does get you a cheap entry into many for the illiquid foreign names in this fund.
Automation is one of the reasons why this is turning into the deflationary century and I recommend all readers who don’t own their own robotic-led business pick up some Global X Robotics & Artificial Intelligence ETF (BOTZ).
And by the way, the entry point right here on the charts is almost perfect.
To learn more about (BOTZ), please visit their website by clicking here.
