Winning the Nobel Prize in 2020 provided biotechnology companies more traction on Wall Street.
The victory led to commercializing the 2012 discovery, Crispr-Cas9, at breakneck speed, with gene editing companies like CRISPR Therapeutics (CRSP), Editas Medicine (EDIT), and Intellia Therapeutics (NTLA) gaining considerable boost in their values.
Since then, the total market value for the products of these three has more than doubled in recent months to reach $23 billion.
Basically, Crispr-Cas9 functions like molecular scissors.
What makes this technology incredible is that Crispr-Cas9 can classify a single address out of 3 billion letters within the genome by using only a particular sequence. With this, we can repair thousands of genetic conditions and even offer more potent ways to battle cancer.
The market favorite among the gene editing companies so far is CRISPR Therapeutics, with $8.72 billion in market capitalization.
In comparison, Editas has $2.76 billion while Intellia Therapeutics has $4.15 billion.
CRISPR Therapeutics is currently working on a treatment that would implant tumor-targeting immune cells in cancer patients. The company is also prioritizing therapies that could edit cells to treat diabetes.
So far, it has made significant progress in developing treatments for a genetic disorder called sickle cell.
In the US alone, at least 100,000 people suffer from sickle cell disease, with 4,000 more born every year. Conservatively, we can estimate at least 3,000 patients availing of this one-time treatment at over $1.6 million a pop.
To date, CRISPR Therapeutics has five candidates under clinical trials for diseases like B-thalassemia, sickle cell disease, and other regenerative conditions.
It has four more queued, which target diabetes, cystic fibrosis, and Duchenne muscular dystrophy.
Compared to its rivals in the space, it’s clear that CRISPR Therapeutics is ahead when it comes to product development and trials.
Two of its candidates, transfusion-dependent beta thalassemia treatment CTX001 and sickle cell disease therapy CTX110, have already been submitted for clinical tests for safety and efficacy.
Recently, Vertex (VRTX) boosted its 2015 agreement with CRISPR Therapeutics by 10%, with the deal reaching $900 million upfront to push for quicker results in developing CTX001.
This is a crucial move for Vertex, but more so for CRISPR Therapeutics as CTX001 holds a highly lucrative addressable market.
The additional funding significantly widened the gap between the Vertex-CRISPR team and bluebird bio (BLUE) in the race to launch a new gene editing therapy targeting sickle cell disease and beta thalassemia.
To sustain its growth, CRISPR Therapeutics’ strategy is to develop drugs that only require mid-level complexity but can rake in generous financial rewards.
This is a similar tactic used by bigger and more established biotechnology companies like Pfizer (PFE), Novartis (NVS), and Gilead Sciences (GILD).
Evidently, this strategy is a great way to ensure cash flow.
Aside from its earning from the commercialization of these products, CRISPR Therapeutics can also attract larger companies to buy the intellectual property of their breakthrough treatments.
After all, startups generally get 100% premiums in contracts with Big Pharma.
Good examples of this are Novartis that bought AveXis and Roche’s (RHHBY) purchase of Spark Therapeutics.
The Roche-Spark agreement led to the first-ever FDA-approved treatment since gene therapy trials started in the 1990s. It was for the genetic blindness therapy Luxturna, which received the green light in 2017.
The second approved treatment was a muscle-wasting disease therapy Zolgensma, which was the fruit of the Novartis-Avexis acquisition.
Both conditions are rare, but the financial rewards are impressive.
At $2 million for each treatment, Zolgensma sales reached $1.2 billion annually. At the rate the therapy is selling, Novartis estimates that Zolgensma will surpass the $2 billion mark in 2021.
Novartis and Roche aren’t the only ones partnering with smaller gene editing companies.
Pfizer has been working with biotechnology companies BioMarin Pharmaceutics (BMRN) and UniQure (QURE) to develop a treatment for blood-clotting disorder hemophilia.
The COVID-19 frontrunner is also collaborating with Sarepta Therapeutics (SRPT) to come up with a treatment for Duchenne muscular dystrophy.
Gene editing has also served as the foundation for several biotechnology companies out there today like Sangamo Therapeutics (SGMO), Cellectis (CLLS), and Allogene Therapeutics (ALLO).
The market size for gene editing treatments is estimated to be worth $11.2 billion by 2025, with the number rising between $15.79 billion to $18.1 billion by 2027.
This puts the compounded annual growth rate of this sector to be at least roughly 17%.
While this is already groundbreaking with only a handful of companies knowing how to utilize the technology, the gene editing world has come up with a more advanced technique than Crispr-Cas9.
The technology is founded on the “base editing” or “prime editing” technique, which is the simplest type of gene editing that alters only one DNA letter.
So far, one company holds exclusive rights to this technology: Beam Therapeutics (BEAM).
When the technology became public, Beam stock has increased sixfold since its IPO in February 2020.
This latest development can resolve thousands of genetic diseases. However, it still requires further trials since “base editing” can also trigger damaging responses from the body.
Overall, I think CRISPR Therapeutics is the safest among these high-risk stocks.
The data from two of its candidates, CTX001 and CTX110, are incredibly promising. Plus, the added funding from Vertex boosts the confidence of investors that regulatory approval is well on its way.
The company is also capitalizing on the surging price of its stock and investing aggressively across different rare disease programs.
While the company has yet to be considered a major force in the biotechnology world, the potential multiple successes of its products could generate a company worth hundreds of billions.
This potential alone offers an investing opportunity with a substantial asymmetric advantage for its current share price.
However, bear in mind that the stock is still a risk and should be played as a long-term investment. Hence, you should buy on dips.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-04-27 14:00:382021-05-03 00:58:43The Future of Medicine
Below please find subscribers’ Q&A for the March 17 Mad Hedge Fund TraderGlobal Strategy Webinar broadcast from frozen Incline Village, NV.
Q: I’ve heard that the COVID-19 cases are being understated by 16 million. Do you think this is true?
A: Yeah, I've always argued that the previous government's numbers were vastly underestimating the true number of cases out there for political purposes, but we are on the downslide regardless, so that’s good.
Q: When are tech stocks going to bottom out and when can I buy them?
A: I knew I would get this question. This is the question of the day. Picking bottoms is always tough because these are momentum plays and not valuation plays. I’ll give you a couple of levels though. The tech (QQQ) multiple is now at 25X earnings and the S&P 500 (SPY) is at 22X, so your first bottom will be down about 10% from here, or a 22X multiple. And I don’t think we will get much lower than that because tech stocks are growing at 20-25% a year, versus the (SPY) growing at maybe 10%, and I don’t think tech goes to much of a discount in that situation. So, you’re just waiting for interest rates to top out and start to go down, which will be the other indicator of a tech bottom. We had a slowdown in the rise of rates for just a couple of days this week, and tech stocks took off like a rocket. Those are your two big signals.
Q: With the Fed announcement, are you still in the Invesco QQQ Trust NASDAQ ETF (QQQ) bear put spread?
A: Yes, one of them expires in two days so that’s a piece of cake. The other one expires in a month, but it is way out-of-the-money—the April $240-$245 bear put spread, so I’ll keep that for a real meltdown day. But if it looks like we’re getting a breakout, I will come out of that short position so fast it will make your head spin.
Q: Do you like Palantir (PLTR)?
A: Absolutely yes—screaming LEAP candidate. It traded all the way down to $20 two weeks ago and is trading around $25 now. It’s a huge data firm, lots of CIA and defense work, huge government contracts extending out for years, cutting edge technology, and run by a nut job, so yes screaming buy at this level.
Q: Freeport McMoRan (FCX) is taking some pain here, is this still a buy and hold?
A: Yes, it’s taking the pain along with all the other domestic stocks, which is natural. In their case though, it’s up almost 10x from its bottom a year ago where we recommended it, so yeah I'd say time for a rest. So I’m still a buyer of the metals and (FCX) on dips, but like all other metals, it did get overextended. EV manufacturing is doubling this year, which uses a ton of copper. The same is true with solar panels and Chinese industrial recovery. When all your major markets are doubling in size, it’s usually good for the stock. I peaked at $50 in the last cycle and could touch $100 in this one.
Q: What are your thoughts about the Lucid EV SPAC, Churchill Capital IV (CCIV)?
A: Don’t touch it with a ten-foot pole. They only have 1 or 2 concept vehicles for high-end investors to test drive. The rumor is that their main factory will be in Saudi Arabia where the bulk of the seed capital came from. They’ll never catch up with Tesla (TSLA) on the technology. There's always going to be a few niche $250,000 cars out there, and they have no proof they can actually make these things. When they get to a million vehicles a year, then I might be interested. But they haven't done the hard part yet, which is mass-producing battery packs for a million cars. They've only done the easy part which is designing one sexy prototype to raise money. So, stay away from Lucid, I don’t think they’re going to make it.
Q: What about oil?
A: I am avoiding oil plays like the plague.
Q: When do you anticipate your luncheons to be back?
A: Maybe in 2023. I don’t want to scare off my customers by inviting them to a lunch where they all get COVID-19. If I did have a lunch, I’d have a vaccine requirement and a temperature gun to hit them at the door like everywhere else. I really miss meeting subscribers in person.
Q: Should I buy banks like JP Morgan (JPM) at this level?
A: I would say no. That ship has sailed. Wait for a steeper selloff or just let it run. We’ve already had an enormous move and you don’t want to chase it with a low discipline trade, which is what that would be.
Q: What do you think of silver (SLV)?
A: It’s a buy long term, short term it’s in the grim spiral of death along with the other precious metals, which absolutely hate rising interest rates. A silver long here is the equivalent of a bond (TLT) long. When you do go into silver, buy Wheaton Precious Metals (WPM) for the leveraged long play.
Q: Is 3M (MMM) going to extend the upside?
A: Probably yes, that's a classic American industrial play and a great company. I have friends who work there. How could we live without Post-it notes, Scotch Tape, and Covid-19 N-95 masks?
Q: What about Square (SQ)?
A: I love it in the long term, buy on the dips and buy it through LEAPS (long term equity anticipation securities).
Q: Should I unwind my leveraged financial ETF?
A: I’d say take a piece off, yeah; you never get fired for taking a profit. And they have had a tremendous move. Plus of course, the flip side of taking profits on domestic recovery stocks is to buy tech with that money. And eventually, that's what the entire market will do, it just may still be a little bit early.
Q: What’s a good target for LEAPS for CRISPR (CRSP) and Palantir (PLTR)?
A: Put your first strike 30% higher than today’s stock price and go 2 years out in maturity. I noticed on some names, the June 2023’s are starting to trade, but they’re highly illiquid. But if you put a bid in there and you get a market meltdown, you will get hit.
Q: If the long-term future for oil (USO) is so bad, why is it $65?
A: A few reasons. #1, huge short covering action. #2, economy recovery faster than people expected because of the stimulus. #3, a lot of people, mostly in Texas, Oklahoma, and Louisiana, don’t believe that there will be an all-electric grid in 20 years and think that oil will be in demand forever, including the entire oil industry, so they’re in there buying. And #4, the Saudis have held back with production increases to push the price up, so they’re letting it run so they can sell at a higher price. When they do sell, oil crashes again.
Q: Can we re-watch this presentation?
A: Yes, we post it about 2 hours later on the website so all our people in about 135 countries can access it whenever they like. Just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Q: How often do you have these webinars?
A: Every two weeks, and if you need help accessing it on your account page, email customer support at support@madhedgefundtrader.com.
Q: Is it time to initiate short positions on oil companies?
A: Not yet but keep it in the back of your mind. When some of the super-hot economic data come out after Q2, that may be your short in oil—then we may get into the $70’s a barrel. But not yet, there’s still too much upward momentum.
Q: Do you think we will see the 30-year fix below a 3.00% yield again?
A: Yes, in the next recession, which may be 5 or 10 years off because we’re starting at such a low base.
Q: Regarding copper, EV motors require a ton of copper. Doesn’t that make the metals a BUY?
A: That is true, and why we recommended Freeport McMoRan at $4 a year ago and recommended buying every dip. Each one of these rotor motors on each wheel of a Tesla weighs about 100 lbs—I’ve lifted them. Remember I tore apart a Tesla once just to see what made it tick, and they’re really heavy, and they use a lot of copper, and silver as well. So that has always been the bull market case for copper, as well as the fact that China re-emerged as a major buyer for their industrial buildout. That’s why we had a long in the SPDR S&P Metals and Mining ETF (XME).
Q: Do you foresee a good opportunity to go heavy into margin again?
A: Maybe if we get a decent selloff this summer, but you’ll never get the opportunity we had a year ago when you really wanted to put 100% of your portfolio into 2-year LEAPS. The people who did that made many tens of millions of dollars, which is why I get a free bottle of Bourbon every month. That was a once in 20 years event.
Q: What is your 2021 target for the S&P 500 (SPX)?
A: $4,860. It’s in my strategy letter which I sent out on January 6th, and that is all still posted on the website, click here for it.
Q: How do I renew my subscription with your company, and how do I figure out what I bought?
Q: Do you follow the iShares IBoxx High Yield Corporate Bond ETF (HYG)?
A: Yes, that is the high yield junk bond fund, but I have been avoiding long bond plays, as you may have noticed with my screaming short of the past year. We list (HYG) in these slides in the Bonds section.
To watch a replay of this webinar, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER (as the case may be), then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Invitae (NVTA) is one of the biggest, albeit erratic, movers in 2020, but only a handful of investors know about the stock.
In March 2020, the stock was trading at $7.43 per share only to shoot to a whopping $61 by mid-December.
A year since then, Invitae stock sits somewhere at $40—a price that could go right up again in the months to come.
Despite the volatility, Invitae continues to generate excitement among its investors.
In fact, Invitae, which has $7.6 billion in market capitalization, is grouped in with bigger healthcare and biotechnology companies like CRISPR Therapeutics (CRSP), valued at $9.36 billion, and Teladoc Health (TDOC), valued at $28.7 billion.
Its potential is even said to match the likes of up-and-coming tech stocks such as Roku (ROKU), Square (SQ), and Shopify (SHOP), which have market capitalizations of $45.7 billion, $103.07 billion, and $134.6 billion, respectively.
Given its growth in the past months and its impressive 226.8% three-year revenue increase, the projections for Invitae look well-grounded.
In fact, I think it’s reasonable to say that Invitae could be the Tesla (TSLA) of the genetic testing industry.
The genetic testing market is estimated to be worth over $21 billion by 2027, growing at a compound annual growth rate of 10% until then.
In 2020, Invitae reported a 29% year-over-year increase in revenue at $279.6 million.
The company also saw a rise in its testing volume by roughly 41% to reach 659,000 billable units—this, despite the headwinds brought about by the COVID-19 pandemic, when the demand for genetic tests took a back seat to make way for COVID-19 diagnostic and other related medical concerns.
Although some of the tests offered by Invitae are covered by insurance carriers, those that are not covered can be availed for as low as $99 for services like noninvasive prenatal screening and $250 for diagnostic, carrier, or proactive testing.
To put things in perspective, people nowadays are more than willing to shell out at least $100 to discover their ancestry, which in most cases is something they already have an idea about.
So, why would these people be reluctant to spend a bit more than $100 to check if they have to take particular precautions to keep themselves safe from diabetes or heart disease?
In the future, Invitae is well-positioned to offer high-quality genetic tests at more affordable prices as well as cater to higher volumes.
One of the most notable moves by Invitae so far is buying ArcherDX for $1.4 billion in cash and stock in October 2020.
This is a telling move for Invitae in terms of its plans for the future.
ArcherDX is another genetic testing company, which specializes in oncology.\
Specifically, ArcherDX focuses on personalized cancer monitoring as well as liquid and tissue biopsy analysis.
Simply put, ArcherDX specializes in developing tests that determine the most suitable drugs to use for cancer treatments.
To date, there’s already a growing number of competition in the genetic testing market, making Invitae’s acquisition of ArcherDX is a smart move.
Most of them are bigger companies like Roche (RHHBY) with a market cap of $269.57 billion, Illumina (ILMN) with $58.28 billion, Abbott (ABT) with $205.28 billion, and Quest Diagnostics (DGX) $15.6 billion.
Invitae, which only has a market capitalization of $7.6 billion, is considered as one of the minor players.
With the addition of ArcherDX in its portfolio, Invitae’s growth could be fast-tracked as the combined companies could ramp up sales on top of queuing additional genetic tests in their current lineup.
Invitae’s shares have jumped by almost 100% in 2020 but saw an over 25% fall last month. Although it has yet to turn a profit since its creation in 2013, Invitae remains an attractive investment thanks to its top-line growth.
Digging into their numbers, Invitae has actually managed to cut down on its cash burn by roughly $20 million from the first quarter of 2020 through the last quarter, excluding the ArcherDX deal.
That’s a notable improvement for a company and indicative of its capacity to veer towards the right direction.
Invitae has a very strong cash position at the moment, with a massive equity offering just last January. Right now, the company’s stockpile is nearly $800 million, which could carry them for quite some time.
Looking at its path of profitability, the company is also projected to be on track for a 50% to 60% growth in the next few years.
For 2021, Invitae is looking at over $450 million in annual revenue, which is 61% higher than 2020.
At this point, Invitae offers an attractive purchasing opportunity for those who want to get in on the industry before it explodes.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-03-11 13:00:152021-03-15 19:22:48The Tesla Stock of Genetic Testing
Below please find subscribers’ Q&A for the March 3 Mad Hedge Fund TraderGlobal Strategy Webinar broadcast from frozen Incline Village, NV.
Q: Are SPACs here to stay?
A: Yes, but I think that in the next bear market, 80% of these SPACs (Special Purpose Acquisition Companies) will disappear, will deliver large losses, and will continue charging you enormous fees until then. It’s either that or they won’t invest their money at all and give it back, net of the fees. So, I’m avoiding the SPAC craze unless it's associated with a very specific investment play that I know well. The problem with SPACs is that they all come out expensive—there are no bargain basement SPACs on launch day. Me, being the eternal cheapskate that I am, always want to get a great bargain on everything. The time to buy these is actually in the next bear market, if they still exist, because then investors will be throwing their positions away at 10 or 20% discounts. That’s always what happens with specialized ETF, closed-end funds, and so on. They are roach motel investments; you can check-in, but you can never check out.
Q: What do you think of Elizabeth Warren's asset tax idea?
A: It’s idiotic. It would take years to figure out how much Jeff Bezos is worth. And even then, you probably couldn't come within ten billion dollars of a true number. We already pay asset taxes, our local county real estate taxes, and those are bad enough, delivering valuations that are miles from true market prices. There are many other ways to fix the tax system and get billionaires paying their fair share. There are only three things you really have to do: get rid of carried interest so hedge funds can’t operate tax-free, get rid of real estate loss carry forwards which allow the real estate industry to basically operate tax-free, and get rid of the oil depletion allowance, which has enabled the oil industry to operate tax-free for nearly 90 years. So those would be three easy ones to increase the fairness of the tax system without any immense restructuring of our accounting system.
Q: When will share buybacks start?
A: They’ve already started and have been happening all year. There are two ways the companies do this: they either have an outside accounting firm, buying religiously every day or at the end of every month or something like that, so they can’t be accused of insider trading; or they are in there buying on every dip. Certainly, all the big cash-heavy companies like Berkshire Hathaway (BRKB) or Apple (AAPL) were buying their shares like crazy last March and April because they were trading such enormous discounts. So that is another trillion dollars sitting under the market, waiting to come in on any dip, which is yet another reason that we are not going to see any major sell-offs this year—just the 5%-10% variety that I have been predicting.
Q: Is it time to buy Salesforce (CRM)?
A: Yes, Marc Benioff’s goal is to double sales in two years, and the stock is relatively cheap right now because they’ve had a couple of weak quarters and are still digesting some big acquisitions.
Q: Is CRISPR Therapeutics (CRSP) good buy?
A: Yes, I would be buying right here; it’s a good LEAP candidate because the stock could easily double from here. We’ve only scratched the surface on CRISPR technology being adopted and the potential growth in this company is enormous—I'm surprised they haven’t been taken over already.
Q: Will you start a letter for investing advisors on how to deal with the prolific numbers of Bitcoin?
A: There are already too many Bitcoin newsletters; there are literally hundreds of them and thousands of experts on Bitcoin now because there’s nothing to know and nothing to analyze. It’s all a belief system; there are no earnings, there are no dividends, and there is no interest. So, you purely have to invest in the belief that somebody else is going to take you out at a higher price. I think there is a big overhang of selling in that when they raise the number of Bitcoin, we’ll get another one of those 90% crashes that Bitcoin is prone to. So, go elsewhere for your Bitcoin advice; your choices are essentially unlimited now, and they are much cheaper than me. In fact, people are literally giving away Bitcoin advice for free, which means you’re getting what you’re paying for. I buy Bitcoin when they have a customer support telephone number.
Q: Zoom (ZM) has come down a lot after a big earnings report—do you like it?
A: Long term, yes. Short term, no. You want to avoid all the stay-at-home stocks because no one is staying at home anymore. However, there is a long-term story in Zoom once they find their bottom because even after we come out of the pandemic, we’re all still using Zoom. I have like five or ten Zoom meetings a day, and my kids go to school on Zoom all day long. They’re also bringing out new products like telephone servers. They’re also raising their prices—I happen to be one of Zoom’s largest customers. I’m paying $1,100/month now, and that’s rising at 10% a year.
Q: What would be the best LEAP for Salesforce (CRM)?
A: The rule of thumb is that you want to go 30% out of the money on your first strike. So, find a current stock price; your first strike is up 30%, and then your second strike is up 35%. And all you need to double your money on that is a bounce back to the highs for this year, which is not unrealistic. That’s the lay-up there with Salesforce. That’s the basic formula; Advanced Micro Devices (AMD), Walt Disney (DIS), Berkshire Hathaway (BRKB), Palantir (PLTR), and Nvidia (NVDA) are all good candidates for LEAPS.
Q: How often do you update the long-term stock portfolio?
A: Twice a year, and we just updated in January, which is posted on the website in your membership area. If you can't find it, just email customer support at support@madhedgefundtrader.com and they’ll tell you where to find it. And we only do this twice a year because there just aren't enough changes in the economy in six months to justify a more frequent update.
Q: When do you think real estate will come back?
A: It never left. We’ve had the hottest real estate market in history, with 20% annual gains in many cities in 2020. And that will continue, but not at the 20% rate, probably at a more sustainable 5% or 6% rate. Guess what the best inflation play in the world is? Real estate. If you’re worried about inflation, you want to run out and buy a house or two. The only thing that will really kill that market is a rise in 30-year fixed-rate mortgages to 5%, and that is years off. Or a rise in the ten-year treasury to 5% or 6%—that is several years off also. So, I think we’ve got a couple of good years of gains ahead of us. I at least want the market to stay hot until my kids get out of high school, and then I can sell my house and go live on some exotic tropical island with great broadband.
Q: When you’re doing LEAPS, do you just do the calls only or do you do these as spreads?
A: You can do both. Just do the math and see what works for you on a risk/reward basis. You can do a 30% out of the money call 2 years out and get anywhere from a 1,000% to a 10,000% return—people did get 10,000% returns buying deep out of the money LEAPS in Tesla (TSLA) a year ago (that’s where all the vintage bourbon is coming from). Or you can do it more conservatively and only make 500% in two years on Tesla spread. For example; do something like a Tesla January 2023 $900-$950 call spread. If Tesla shares rise to $950, that position is an easy quadruple. But do the numbers, figure out the cost today, what the expiration value is in two years, and there you go.
Q: Do you think overnight rates could go negative as some people predict?
A: Not for a long time. They will go negative at the next recession because we’re starting off such a low base—or when we get the next pandemic, which could be as early as next year. We could get another one at any time from a completely different virus, and it would generate the same stock market results that we got last time—down 40% in a month. We’re not out of the pandemic business, we’re just having a temporary break waiting for the next one to come along out of China or some other country, or even right here in the USA. So that may be a permanent aspect of investing in the future. It could be the price we pay having a global population that's at 7 billion heading to 9 billion.
Q: Expiration on LEAPS?
A: I always go out two years. The second year is almost free, that’s why. So why not go for the second year? It gives you twice as much time to be right, always useful.
Q: My two-year United States Treasury Bond Fund (TLT) $125 put LEAPS have turned very positive. Is this a good trade?
A: That is a good trade, which you should put on during the next (TLT) rally. If you think we’re going to $105 in 2 years, do something like a $127-$130 two-year put LEAP, and there's a nice four bagger right there.
Q: Your Amazon (AMZN) price target was recently listed at $3,500, below last year's high, but I’ve also seen a $5,000 forecast in two years. Are you sticking with that?
A: Yes, I think when you get a major recovery in the economy, Amazon will be one of the only pandemic plays that keeps on going. It’s just taking a rest here with the rest of big tech. The breakup value of Amazon is easily $5,000 a share or more. Plus, they’re still going gangbusters growing into new industries that they’ve barely touched so far, like pharmaceuticals, healthcare, and so on. So yes, I would definitely be a buyer of LEAPS, and you could do something like the January 2023 $3700-$4000 LEAP two years out and make a killing on that.
Q: Anything you can do in gold (GLD)?
A: Not really. Although gold and silver (SLV) have been a huge disappointment this year, I think this could be the beginning of a capitulation selloff in gold which will bring us a final bottom, but it may take another month or two to get there.
Q: How can I sell short the dollar?
A: You sell short the (UUP), or there are several 1X and 2X short ETFs in the currencies that you can do, like the ProShares Ultra Short Euro ETF (EUO). That is the way to do it.
Q: What is the best timing for buying LEAPS?
A: Buy at market bottoms. A year ago, I was sending out lists of 10 LEAPS at a time saying please buy all of these. You need both a short-term selloff in the stock, and then an upside target much higher than the current price so your LEAP expires at its maximum profit point. And if you’re in the right names, pretty much all the names that we talk about here, you will have 30%, if not 300% or 3,000% gains in them in the next two years.
Q: Do you think Tesla’s Starlink global satellite system will disrupt the cell tower industry?
A: Yes, that is the goal of Starlink—to wipe out all ground communication for WIFI and for cell phones. It may take them several years to do it, but if they do pull it off, then it just becomes a matter of pricing. The last Starlink pricing I looked at cost about $500 to set up, open the account, and get your dish installed. And the only flaw I see in the Starlink system is that the satellite dishes are tracking dishes, which means they lock onto satellites and then follow them as they pass overhead. Then when that signal leaves, it locks onto a new satellite; at any given time they’re locked onto four different satellites. That means moving parts, and you want to be careful of any industry that has moving parts—they wear out. That’s the great thing about software and online businesses; no moving parts, so they don’t wear out. And that’s also why Tesla has been a success; they eliminated the number of moving parts in cars by 80%. I’m waiting for Starlink to get working so I can use it, because I need Internet access 24 hours a day, even if all the local hubs are out because of a power outage. I’m now using something called Viasat (VSAT), which guarantees 100 megabyte/second service for $55 a month. It's not enough for me because I use a gigabyte service landline, but when that’s not available then I can go to satellite as a backup.
Q: Is there too much Fed liquidity in the market already? Why is the $1.9 trillion rescue package still positive for the market?
A: Firstly, there is too much liquidity in the market; that is screamingly obvious. If you look at liquidity over the decades, we are just staggeringly high right now. M2 is growing at 26% against the normal rate of 5%-6%. What the stimulus package does is get money to the people who did not participate in the bull market from last year. Those are low-income people, cities, and municipalities that are broke and can’t pay teachers, firemen, and policemen. It also goes to individual states which were not invested in the stock market. It turns out that states that were invested in the stock market like California have money coming out of their ears right now. And it gets money to low wage workers with kids who are certainly struggling right now. So, it is rather efficiently designed to get the money to people who need it the most. There is still half the country that doesn't own any stocks or even have savings of any kind. One or two people might get it who don’t deserve it but try doing anything in a 330 million population country and have it be 100% efficient.
Q: Is inflation coming?
A: Only incrementally in tiny pieces, so not enough to affect the stock market probably for several years. I still believe technology is advancing so fast that it wipes out any effort to raise prices or increase wages, and that may be what the perennially high 730,000 weekly jobless claims is all about. Those jobs that might have been there a year ago have been replaced by machines, have been outsourced overseas, or the demand for the product no longer exists. So, as long as you have a 10% unemployment rate and a weekly jobless claim at 730, inflation is the last thing you need to worry about.
Q: Is there any way to cash in on Reddit’s Wall Street Bets action?
A: No, and I would bet the majority of people who are trading off of these emojis and Reddit posts are losing money. You only hear about these things after it’s too late to do anything about them. I don't think you’ll get any more $4 to $450 moves like you did with GameStop (GME) because in that one case only, there was a short interest of 160%, which should have been illegal. All the other high short interest stocks have already been hit, with short interests all the way down to 30%, so I think that ship has sailed. It has no real investing merit whatsoever.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on July 21, 2020. In fact, not only did we nail the best sectors to go heavily overweight, we also completely dodged the bullets in the worst-performing ones.
For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing, these are the investments you can make, and then not touch until you start drawing down your retirement funds at age 72.
For some of you, that is not for another 50 years. For others, it was yesterday.
There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.
Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted below.
To download the entire new portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com, log in, go “My Account”, then “Global Trading Dispatch”, then click on the “Long Term Portfolio” button.
Changes
I am cutting back my weighting in biotech from 25% to 20% because Celgene (CELG) was taken over by Bristol Myers (BMY) at a 110% profit compared to our original cost. We also earned a spectacular 145% gain on Crisper Therapeutics (CRSP). I’m keeping it because I believe it has more to run.
My 30% weighting in technology also gets pared back to 20% because virtually all of my names have doubled or more. These have been in a sideways correction for the past six months but are still an important part of any barbell portfolio. So, take out Facebook (FB) and PayPal (PYPL) and keep the rest.
I am increasing my weighting in banks from 10% to 20%. Interest rates are finally starting to rise, setting up a perfect storm in favor of bank earnings. Loan default rates are falling. Banks are overcapitalized, thanks to Dodd-Frank. And because of the trillions in government stimulus loans they are disbursing, they are now the most subsidized sector of the economy. So, add in Morgan Stanley (MS) and Goldman Sachs (GS), which will profit enormously from a continuing bull market in stocks.
Along the same vein, I am committing 10% of my portfolio to a short position in the United States Treasury Bond Fund (TLT) as I think bonds are about to go to hell in a handbasket. I rant on this sector on an almost daily basis, so go read Global Trading Dispatch.
I am keeping my 10% international exposure in Chinese Internet giant Alibaba (BABA) and the iShares MSCI Emerging Market ETF (EEM). The Biden administration will most likely dial back the recent vociferous anti-Chinese stance, setting these names on fire.
I am also keeping my foreign currency exposure unchanged, maintaining a double long in the Australian dollar (FXA). The Aussie has been the best performing currency against the US dollar and that should continue.
Australia will be a leveraged beneficiary of the synchronized global economic recovery, both through strong commodity prices and gold which has already started to rise, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.
As for precious metals, I’m baling on my 10% holding in gold (GLD), which delivered a nice 20% gain in 2020. From here, it is having trouble keeping up with other alternative assets, like Bitcoin, and there are better fish to fry.
Yes, in this liquidity-driven global bull market, a 20% return is just not enough to keep my interest. Instead, I add a 5% weighting in the higher beta and more volatile iShares Silver Trust (SLV), which has far wider industrial uses in solar panels and electric vehicles.
As for energy, I will keep my weighting at zero. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free. You are looking at the next buggy whip industry.
My ten-year assumption for the US and the global economy remains the same. I’m looking at 3%-5% a year growth for the next decade.
When we come out 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 still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade. The America coming out the other side of the pandemic will be far more efficient, productive, and profitable than the old.
You won’t believe what’s coming your way!
I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-01-19 09:04:192021-01-20 09:48:12January 19, 2021
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