Global Market Comments
February 24, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE DOWNSIDE OF DOGE, plus THE LAST GLASS OF KOOL-AID)
(SPY), (TLT), (GS), (VST), (TSLA), (WMT), (UNH)
Posts
Mad Hedge Biotech and Healthcare Letter
December 24, 2024
Fiat Lux
Featured Trade:
(THE LAB RESULTS ARE IN)
(GILD), (TSLA), (WVE), (EDIT), (CRSP), (LLY), (NVO), (WMT), (CVS), (CCCC), (RHHBY)
I found myself gridlocked in Bay Area traffic a few days ago, inching past Gilead's (GILD) sprawling Foster City headquarters, when my phone lit up with a call from an old friend at Goldman.
“Alright, tell me—what’s the real story with biotech this year?” she asked, her tone hovering somewhere between curiosity and exasperation. “Half my portfolio feels like a masterstroke, the other half... well, let’s just say it’s testing my patience.”
As I watched a Tesla (TSLA) weave through traffic like it was auditioning for a Fast & Furious reboot, I smiled.
Biotech has always been a bit of a high-stakes chess game—brilliance in one corner, chaos in another, and always a few surprises lurking behind the next move.
“Let me break it down for you,” I said, steering the conversation as carefully as I did my car through the bumper-to-bumper maze.
First, the winners are crushing it, and I mean crushing it. Gilead (GILD) finally cracked the code on HIV treatment, developing what's essentially a vaccine that doesn't require popping pills like they're Tic Tacs.
My contacts in clinical development tell me the Phase 3 data in cisgender women is nothing short of spectacular. With a $6 billion annual market potential by 2028, this isn't just another incremental advance - it's the kind of breakthrough that makes everyone in biotech salivate.
Then there's Wave Life Sciences (WVE) and their RNA editing technology. Remember when we thought CRISPR was the only game in town? Well, Wave just showed us there's more than one way to edit a gene.
Their liver-targeting therapy is the first successful RNA editing in humans - think of it as spell-check for your DNA, but reversible. The market's currently at $1.1 billion, but with 35% CAGR through 2030, this train is just leaving the station.
Speaking of trains leaving stations, molecular glue developers like C4 Therapeutics (CCCC) are watching Big Pharma back up the Brink's truck.
We're talking $8 billion in licensing deals this year alone. After all, when Roche (RHHBY) drops $300 million upfront - not milestone payments, mind you, but cold hard cash - you know they've seen something special in the data room.
But here's where it gets interesting, and I had to pull over at this point in the conversation because my friend wasn't going to like what came next.
CRISPR stocks? Down 20%. Editas (EDIT) and CRISPR Therapeutics (CRSP) are learning that revolutionary science doesn't always translate to revolutionary returns.
My friend Janet at the Fed might be talking about higher rates, but these companies are bleeding cash faster than a Silicon Valley startup's WeWork budget.
The obesity market? Unless your name is Eli Lilly (LLY) or Novo Nordisk (NVO), you're probably not having a great time.
Only three startups cleared $100 million in funding this year. In biotech terms, that's like trying to build a house with pocket change.
The global market's sitting at $4.1 billion, but it's more crowded than a San Francisco coffee shop during a tech conference.
And don't get me started on Walmart (WMT) and CVS (CVS) trying to play doctor. They thought they could disrupt traditional healthcare with their “get your physical next to the garden tools” model.
The result? A combined loss of $250 million and a wave of clinic closures.
The lesson here is clear: just because you can sell lightbulbs and Band-Aids in the same aisle doesn’t mean you should try to diagnose strep throat next to the automotive department.
A kid in a modded Subaru WRX cut me off as I wrapped up the call, but I left my friend with this: In biotech, timing is everything.
Gilead and Wave are showing us that patience pays off when the science is solid. Meanwhile, CRISPR stocks remind us that even the most promising technology needs good timing and deep pockets.
So, watch those clinical trial results like a hawk, and keep an eye on where the venture money's flowing.
But most importantly, remember what my old mentor used to say: "In biotech, you're not just betting on the science - you're betting on the scientist, the CFO, and sometimes, just sometimes, on whether people are ready to get their flu shot next to the garden center."
Now, where's that highway patrol when you need them?
Global Market Comments
September 27, 2024
Fiat Lux
Featured Trade:
(THE MAD HEDGE SEPTEMBER 17-19 SUMMIT REPLAYS ARE UP),
(SEPTEMBER 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (NVDA), (GLD), (SLV), (AGQ), (URA), (X), (PGE), (FDX), (V), (CEG), (NEE), (CCJ), (FSLR), (TLT), (WMT), (FCX), (UBER), (LYFT), (FXB), (T)
Below please find subscribers’ Q&A for the September 25 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe Nevada.
Q: The iShares 20+ Year Treasury Bond ETF (TLT) is not advancing like I had hoped. I’m not sure why the interest rate cuts have not impacted the 20-year maturity—is it too far out?
A: It’s not an issue of maturity; the fact is that the market has been discounting falling interest rates for six months, all the way back to March. It’s a classic “buy the rumor, sell the news” scenario. (TLT) rose $20 off the low this year, and once the rate cut actually happened, all the news was in. That is why I actually went short the TLT a couple of days ago, and that trade immediately started making money. Here’s the real problem: Fed futures are discounting 250 basis points in rate cuts by June of next year. If you don’t think we’re going to get 250 basis points in rate cuts, which is two 50 basis point rate cuts and five 25 basis point rate cuts, then the market is overbought for the short term and we’re selling short. That’s exactly what I did.
Q: Is it too late to buy Tesla (TSLA) and Nvidia (NVDA)?
A: No, it’s not, I think Tesla could hit $300 this year, and Nvidia could revisit $140. However, the more you wait, the more pain you have to take along the way. Nvidia did drop 40% off its high at one point this year, and Tesla dropped 80% off its high. The price of coming in late is pain, so be ready to take that pain or, even worse, to stop out.
Q: What is your take on Japan’s attempt to take over US Steel (X)?
A: Well, it’s entirely political. They definitely picked the wrong year to take a run at US steel because it’s headquartered in Pittsburgh, Pennsylvania, and neither political party can win their election without winning Pennsylvania. Nippon Steel is now 3x larger than US Steel (I covered the company for ten years when I lived in Japan.) It’s the steel factor Jimmy Doolittle bombed in the Pearl Harbor movie. US Steel is using 140-year-old technology—Open Hearth Technology—which hasn’t been updated since the Great Depression. Nippon Steel, meanwhile, is promising to scrap all of that and bring the Steel Industry into the 21st Century. All great ideas for Nippon Steel and their shareholders, but not so great for Unions; all of these takeovers always result in massive layoffs of Union workers. So, that is the issue. That’s where a large part of the added value comes from.
Q: What are the chances that interest rates drop to zero?
A: Zero. I don’t think we’ll ever see 0% interest rates again because people now understand the massive damage that causes to the economy and to savers. So, on the next interest rate cycle, we’ll go down maybe to 2% if we get a recession, but probably not much more than that.
Q: Is it a good time to buy FedEx Corp (FDX)?
A: Yes, it probably is. If there was one rule of trading this year, you buy everything on top of these monster selloffs that are caused by weak guidance. We did it on Palo Alto Networks (PANW) earlier this year—people made a fortune on that. FedEx just did the same thing, so yes, I’m looking very carefully at FedEx calls, call spreads, and LEAPS two years out.
Q: I recently saw a recommendation to buy California Utility Company PG&E (PGE) because of recent revenue gains. Should I take a look?
A: Absolutely, you should. PG&E has gone bankrupt twice in the last 25 years, and the current new management seems to know what they’re doing. They borrowed $20 billion to underground all the long-distance power lines in the state so they won’t be liable for any of these gigantic wildfires that caused the last bankruptcy. Also, you kind of want to own utilities when interest rates are falling because utilities are among the biggest borrowers in the country.
Q: Is Global X Uranium ETF (URA) a good proxy for Cameco Corp (CCJ)?
A: Yes, another one is Consolidation Energy Corp. (CEG), but they’ve all had absolutely astronomical moves ever since the announcement came out that Microsoft was reopening the Three Mile Island nuclear power plant. So, wait for a dip, but the thing is just going up every day right now.
Q: Is it time to buy iShares 20+ Year Treasury Bond ETF (TLT) LEAPS?
A: No, LEAPS territory was last year or the beginning of this year when we were in the $80s (and we issued a ton of (TLT) LEAPS last year.) LEAPS are what you do at market bottoms, not at new all-time highs or two-year highs. Remember, if LEAPS don’t work, they can go to zero, and you want to avoid the zero outcome as much as possible.
Q: Should I look at Visa Inc (V)?
A: Yes, this is another one of those poor guidance situations leading to 20% selloffs. In Visa’s case, they’re being sued by the US government for antitrust because they own 47% of the credit card market. So, I would maybe wait a little bit more, let the market fully digest that, and then Visa’s probably a really strong buy because they’re still growing at 15% a year and minting money like crazy.
Q: Do you see gold going to $3,000 next year?
A: Absolutely, yes, unless it goes to $3,000 this year, which raises a better question: what happens when gold hits $3,000? It goes to 4$,500, because Chinese savers have no other place to put their money except gold. The real estate has crashed and isn’t coming back, they don’t trust their own banks or currency—there really is nowhere else for them to put their own money. They don’t even buy gold miners, they just buy the gold metal and coins. So I think we could see much higher highs than gold, and I’m sticking to my longs.
Q: Will silver continue to lag?
A: No. In fact, in the last couple of weeks, silver has done a big catch-up that is happening because recession fears are going away. Even the soft-landing fears are starting to vaporize—we may have no landing at all. The economy may just keep going, and silver is far more sensitive to the economy than gold is; and that is all silver positive. When we get to the metals, you’ll see how much silver has actually caught up. Silver is probably the better buy here because it tends to outperform gold by two to one.
Q: Do you think the Japanese will cross 100 yen to the dollar in the near future?
A: No, but I think it may cross 100 to the dollar in two years. You’re looking at a permanently weak US dollar from now on. As long as we’re cutting interest rates faster than anyone else, our currency will be the weakest. Japan’s rates are at zero, so they’re not going to cut interest rates at all, which is why we've had this enormous move in the Japanese yen.
Q: Can you give me some good renewable energy stocks and reasons why they are good buys?
A: Well, my favorite renewables are the Canadian Uranium stock Cameco Corporation (CCJ), First Solar (FSLR), which has been the leading industrial-scale solar producer for a long time, and NextEra Energy (NEE), which is very heavily dependent on producing electric power from renewables and also have a 3% dividend.
Q: Why is the euro going up even though their economy is in such terrible shape?
A: Europe has much lower interest rates than the US, and therefore, much less ability to cut interest rates than the US; it is the interest rate cuts that are driving currencies down, and we are the world’s greatest interest rates cutter right now. So, that is why you’re getting outperformance of the euro (FXE).
Q: Financials have moved up over the last two weeks; what’s your take on year-end and beyond? Should I buy Goldman Sachs (GS), JP Morgan (JPM) and Morgan Stanley (MS)?
A: Yes on all three. They’re all big beneficiaries of falling interest rates, improving economies, declining default rates, and rising stock markets. So, you have a triple play on all three of those. I’d be buying the dips on all financials.
Q: When will the sell volatility come back?
A: When you get the Volatility Index ($VIX) over $30. That seems to be the sweet spot for selling volatility. We are now at $15.
Q: If the US sharply increases tariffs, what will be the impact on the economy?
A: It would basically amount to a 20% price increase on everything you buy—from clothes to electronic parts to everything else—and the stock market would crash. Probably 90% of the non-food items Walmart (WMT) sells is from China. That’s why they call it the Chinese embassy. Tariffs are a tremendous restraint of trade and never, ever work, except for targeted items like cars or solar panels. For instance, I am in favor of a 100% tariff on Chinese cars to keep them from demolishing our own car industry as they are currently doing in Europe.
Q: Do we expect commodities like copper (FCX) and foodstuffs to go up as rates are cut?
A: I do. They’re big beneficiaries of falling rates, but more importantly, they’re even bigger beneficiaries of a stimulated Chinese economy, and that’s why we see these monster moves over the last two days.
Q: If you had to invest in one rideshare company, would it be Lyft (LYFT) or Uber (UBER)?
A: Uber—they have far superior management, they’ll be the first into robo-taxis, and they are constantly evolving their model, with Lyft always struggling to catch up.
Q: How will antitrust regulation affect the Magnificent Seven?
A: The bottom line is it will double the value of the Magnificent Seven. If these companies are broken up, the individual parts are worth far more than the whole companies, and we saw this when we broke up AT&T (T) 50 years ago, and the resulting seven companies within a year had a combined market value that vastly exceeded the original AT&T. I actually participated in that deal when I was at Morgan Stanley (since I am 6’4” I was asked to carry the ballots from one floor to another). Expect the same to happen with the Magnificent Seven. They will be worth double or triple more.
Q: If China has a falling population, how will a stimulus program help?
A: Well, it will fill in for the 600 million consumers who were never born as a result of the one-child policy. Not many others are talking about this besides me, but the fact is that the current economic weakness comes entirely from the one-child policy, and there is no way out of that, so they are going to have to keep stimulating again and again, much like the US did through the pandemic.
Q: If you can buy gold and silver on the UK market in sterling, does that make more sense for a UK resident?
A: Yes, it does, since your home currency is in sterling. You will actually get a double play or a “hockey stick effect” because not only is gold going up against the US dollar, but sterling (FXB) is going up against the US dollar, so you’ll get a multiplied effect relative to the pound. We used to play this all day long in Europe in the 1970s and 1980s, back when you had individual currencies to trade and the euro hadn’t been invented yet.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, 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 12 years are there in all their glory.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Fishing in the High Sierras
Global Market Comments
August 22, 2024
Fiat Lux
Featured Trade:
(THE TOP SEVEN CHINESE RETAILIATION TARGETS),
(AAPL), (GM), (WMT), (TGT), (BA), (SBUX), (CAT),
(AND MY PREDICTION IS….)
It’s looking like the trade war between the US and China is going to heat up some more, no matter who wins the presidential election. It is no longer a question of “if”, but “how much” and “when.”
Please forgive me, but I am new at this. I have only been covering China for 50 years now since the Cultural Revolution was sweeping an impoverished, starving third-world communist country.
With a massive US trade deficit with China in 2023, the Middle Kingdom has become a top administration target.
A real trade war would cause thousands of businesses in the US to go bankrupt and leave millions unemployed. Transpacific transportation would ground to a halt, filling up harbors with hundreds of redundant ships.
Trillions of dollars of direct investment in the two countries would be held hostage.
In other words, a trade war would be like cutting off our noses to spite our faces.
Just as America has its Tea Party and right-wing conspiracy theorists, so does China.
Their entire worldview revolves around the merciless exploitation of China by the Western powers that took place during the 19th century.
British trading companies, like Jardine Matheson, imported cheap opium from India and sold it to the Chinese at the point of a gun, triggering three wars. With only primitive weapons at hand, the Chinese were powerless to resist.
By the time of the fall of the Qing Dynasty in 1912, the entire country had been carved up into spheres of influence dominated by the West and Japan.
Then the Japanese invaded in 1937, and 29 million Chinese died. As recently as 1938, my Marine Corps uncle, Colonel Mitchell Paige, was charged with protecting American gunboats cruising the Yangtze River.
To us, this is all ancient history inhabiting dusty textbooks in libraries never visited. Patriotic Chinese feel like this happened yesterday.
You could dismiss all this as academic musings.
But national pride and sovereignty are really big deals in China today.
During China’s last trade war with Japan only five years ago, several Japanese facilities were burned down by angry, uncontrollable mobs, and visiting businessmen were assaulted on the street. Trade ground to a halt.
So it behooves us to analyze which companies will suffer the most from any deterioration in the US-Chinese relationship before markets figure this out. The Chinese are not interested in any “America First” policy in any way, shape, or form.
Here is my hit list:
1) Apple (AAPL) – Yes, Cupertino, CA-based Apple has a big fat bull’s-eye on its back. The company is a vast, finely tuned machine that needs everything to work perfectly to deliver hundreds of millions of iPhones around the world.
The number of things that can go wrong here can’t be counted. What if the one million workers at its Foxconn subcontractor fail to show up for work someday? What if they are not allowed to go to work? What if they burn THAT factory down?
Another problem is that Chinese growth is a key part of Apple’s long-term sales strategy. A Chinese boycott would put a huge dent in those plans.
Remember, Apple is getting it from both sides, with Trump promising a 35% import duty on all Apple products. That would certainly hurt sales.
I’m sure Apple management is on tenterhooks as to how all this will play out in the coming months.
There is no backup plan here. Apple is just too big and too sophisticated to change any part of its incredibly complex supply chain in less than a decade.
2) General Motors (GM) – Is one of the most globalized US companies of all. (GM) can’t build a car in Detroit without 40% of its parts coming from Japan, Mexico, South Korea, or dozens of other countries.
General Motors is also hugely dependent on Chinese sales. It sells more Buicks in China than it does in the US. That is one-third of GM’s total worldwide sales.
Next, the company plans to sell Chinese-made Buicks in America.
While we weren’t looking, General Motors has become a Chinese company, and many others are falling suit.
3) Wal-Mart (WMT) – Imagine walking into your local Walmart one day and finding out that all of the prices have been marked up by 35%.
This is the reason why the company is called the “Chinese Embassy.” I dare you to find anything there that is NOT made in China, except for the food and the flowers (a dozen long stem red roses are only $10!).
Like Apple, the company is so big that any change in its supply chain would take years. You can add Target (TGT) to this hit list for the same reasons.
On top of that, Wal-Mart has 432 stores operating in China. Imagine the effect that a boycott would have there.
4) Boeing (BA) - The local flight school that maintains my plane has been totally taken over by Chinese students. That is because China needs to buy $1 trillion worth of aircraft over the next 20 years, some 6,800 jetliners in all.
Boeing expects to provide the lion’s share of these. The company has already entered the planning phases for the construction of a giant new aircraft assembly plant in China.
It would be really easy for China to switch a major part of these orders over to Europe’s Airbus Industries, which has been aggressively competing to accomplish exactly that.
Boeing didn’t get the business because of the advanced technology seen in the 787 Dreamliner. Chinese were simply attempting to even out the trade balance.
5) Starbucks (STBX) – Starbucks founder Howard Schultz made no secret of his dislike for Donald Trump before the election. With 2,500 stores in China, and plans to double that figure, he had little other choice.
With relations between the US and China turning colder than the firm’s overpriced ice espresso, sales, growth plans, and share prices could take a big hit. Chinese may have to postpone their caffeine addiction until the next Democratic administration.
6) Caterpillar (CAT) – You can’t have an infrastructure boom anywhere in the world without Caterpillar, whose heavy machinery is the gold standard for large public works projects. I have been covering the company for 40 years.
7) Tesla (TSLA) – Tesla’s factory in China is the company’s biggest seller. If the Chinese expropriate or impede in any way such as through strikes, Tesla’s share price would drop by half instantly. I know the Chinese promised to play nice when Tesla made this groundbreaking, technology-transferring investment. But guess what Elon? The Chinese can change their minds.
As a result of the upcoming US round of massive deficit spending, (CAT)’s share has been one of the best performers since the presidential election.
Unfortunately, this time the company is so heavily invested in China that it has also built a large assembly plant there. China accounts for 20% of the firm’s worldwide sales.
Time for a short?
The net effect on the impairment of business at all of these companies will be lower profits, high volatility of profits, and continued uncertainty. The shares will be forced to trade at a discount.
When you are running a mammoth global business, the last thing in the world you want is unpredictability.
It will also bring a rapid rise in inflation, as prices are raised to offset higher costs and a strong dollar.
Who will be the biggest victims?
Working-class Trump voters in Rust Belt states, least able to afford price hikes, especially those who already have jobs in Midwest manufacturing.
Where is the "REFUND" Button?
Global Market Comments
August 1, 2024
Fiat Lux
Featured Trade:
(WHY AMAZON IS THE MOST UNDERVALUED AI PLAY OUT THERE),
(AMZN), (NVDA), (GOOGL), (META), (AAPL), (MSFT), (WMT)
Mad Hedge Biotech and Healthcare Letter
July 30, 2024
Fiat Lux
Featured Trade:
(RETAIL THERAPY, MEET RETAIL RX)
(HUM), (WMT), (WBA), (UNH), (CVS), (TDOC)
In my years of covering the markets, from the trading floors of Tokyo to the halls of power in Washington, I've seen my fair share of unexpected partnerships.
But the recent tie-up between Walmart (WMT) and Humana (HUM) has me sitting up and paying attention.
That’s right. Walmart, the king of rollbacks and home of the $1 hot dog, has found a new tenant for the vacant spaces that used to house its healthcare business: Humana's CenterWell health clinics.
Humana, as you know, is one of the biggest players in the Medicare Advantage game, and is setting up shop in 23 Walmart Supercenters across Florida, Georgia, Missouri, and Texas.
And they're not just dipping their toes in the water – they're diving in headfirst, with plans to have these clinics up and running by the first half of 2025.
Now, I know what you're thinking. "John, why should I care about some dusty old retail giant like Walmart getting into bed with a health insurance company?"
Let me tell you why.
Humana's Q1 2024 earnings were nothing to sneeze at, with revenues growing 11% year-over-year to a whopping $29.6 billion.
And while the company did revise its full-year EPS guidance downward, it maintained its outlook for adjusted EPS and even revised its membership growth in MA plans upward.
This is a big deal, folks. Medicare Advantage plans have been the bread and butter of Humana's business model, underpinning the company's phenomenal share price gains from $25 per share in 2010 to over $550 in late 2022.
With the population aging faster than fine wine, the demand for senior-focused healthcare services will only grow.
But Humana isn't the only one benefiting from this partnership.
For Walmart, renting out these spaces to CenterWell allows them to recoup some of the infrastructure investments they made in building out their 51 Walmart Health clinics, which they recently shut down due to profitability challenges.
It's like finding a roommate to help pay the rent after your startup goes belly up.
But the healthcare industry is like a giant game of Jenga, with players constantly pulling out blocks and hoping the whole thing doesn't come crashing down.
Just look at Walgreens Boots Alliance (WBA), another retail giant that recently announced the closure of 150 of its in-store clinics due to profitability challenges. It's a stark reminder of how difficult it can be to make a buck in this business.
That's why Walmart's pivot to a partnership model with Humana is so intriguing.
By leasing out pre-equipped facilities to CenterWell, Walmart is essentially letting Humana handle the nitty-gritty of patient care while still maintaining a presence in the rapidly growing primary care industry.
It's like having your cake and eating it too, without having to worry about the pesky details of actually baking the cake.
As expected, Walmart and Humana aren't the only ones making moves in the healthcare space.
CVS Health (CVS) and UnitedHealth Group (UNH) are also betting big on primary care, with CVS acquiring Oak Street Health for $10.6 billion and UnitedHealth's Optum division going on an acquisition spree to expand its network of physicians and healthcare providers.
Then, there’s the meteoric rise of telehealth during the pandemic. Companies like Teladoc Health (TDOC) saw their revenues skyrocket as patients turned to virtual care in droves.
While growth has slowed down since the height of the pandemic, telehealth is still a force to be reckoned with and could potentially disrupt traditional brick-and-mortar clinics.
So, what does all this mean for us?
Well, if you're an investor looking to get in on the action, you've got plenty of options. From established players like Humana and UnitedHealth to up-and-comers like Oak Street Health and Teladoc, there's no shortage of companies vying for a piece of the healthcare pie.
With an aging population, rising healthcare costs, and a growing focus on preventative care and chronic disease management, the demand for innovative healthcare solutions is only going to increase in the coming years.
And who knows, maybe one day we'll all be getting our annual check-ups at the local Walmart, with a side of low-priced toilet paper and a jumbo bag of Cheetos.
Stranger things have happened in the wild world of healthcare.
