Global Market Comments
March 1, 2019
Fiat Lux
Featured Trade:
(OH, HOW THE MIGHTY HAVE FALLEN),
(BRK/A), (AXP), (AAPL), (BAC), (KO), (WFC), (KHT),
(AMGEN’S BIG WIN), (AMGN), (SNY), (REGN)
Going through Warren Buffet’s letter to the shareholders of Berkshire Hathaway (BRK/A) you can’t help but notice that his performance nosedived from a breathtaking 21.9% in 2017 to a much more sedentary 2.8% last year. That is with an S&P 500 down -4.4%, including dividends.
That compares to my own 23.67% profit for 2018. But Warren has a much higher bar to reach. He does this with a staggering market capitalization that was pegged at $496 billion as of today. At best, the combined buying power of my Trade Alerts is only about a billion dollars.
And here is the stunning piece of information that should have been the headline. Warren has $112 billion in cash and equivalents, some 22.58% of the total, and an all-time high. That means buying stocks at these levels is the least attractive in the fund’s 57-year history.
Buffet would much rather buy back his own stock. He is willing to pay a premium to book value but only when it trades at a discount to intrinsic value, as he did in size during the fourth quarter of 2018.
Which raises one screaming great question. If Warren Buffet isn’t buying stocks, why should you?
Buffet isn’t even buying Apple, which he only started soaking up in 2017. It now is his second largest holding, with an average cost of $140. I’m amazed that the stock didn’t get crushed on this news, but then we live in a constantly amazing world these days.
The big change in Berkshire Hathaway over the years is that it is becoming more of an operating company and less of an investing one. That is because Buffet is increasingly buying entire companies, rather than exchange-traded stocks. One of the reasons for his cash hoard that an effort to buy a company for high double-digit billions of dollars fell through last year.
Still, Warren bought $43 billion worth of public stocks in 2018 and only sold $19 billion worth. These are his five largest public shareholdings and his percentage of outstanding shares:
American Express (AXP) – 17.9%
Apple (AAPL) – 5.4%
Bank of America (BAC) – 9.5%
Coca-Cola (KO) – 9.4%
Wells Fargo (WFC) – 9.8%
Warren likes to break up his entire holdings into five “groves”, as there are too many companies to follow individually.
1) Wholly owned companies where Berkshire has 80%-100% stakes, such as the BNSF railroad and Berkshire Hathaway Energy.
2) Publicly listed equities like those listed above
3) Companies controlled with third parties, like Kraft Heinz (KHT)
4) US Treasury bills
5) Property/Casualty Insurance operations like GEICO that generate an enormous free cash float
Buffet described the enormous tax benefits his company received from the 2017 tax bill. It amounted to the government’s indirect ownership of Berkshire shares falling, which he humorously calls “AA” shares, from 35% to 21% at no cost whatsoever. That greatly increased the value of the remaining shares.
Warren spent the rest of his letter talking about the Great American Tailwind. Since he started investing on March 11, 1942, one dollar invested in the S&P 500 has grown to an eye-popping $5,288! That works out to an average annualized compound return of 11.8% a year.
The end result has been the greatest creation of wealth and rise in standards of living in human history.
That is a tough record to beat.
Amgen Inc. (AMGN) won big in its patent case against Sanofi SA (SAN) and Regeneron Pharmaceuticals Inc. (REGN). The battle was over Repatha, a cholesterol-lowering drug said to be more potent than Pfizer’s Lipitor.
Billions of dollars in projected sales are anticipated to be at stake, with the court still in the process of determining how much the opposing companies owe Amgen in royalties.
A U.S. jury in Wilmington Delaware confirmed the validity of Amgen's patents on Repatha, rejecting the joint arguments of Sanofi and Regeneron that the documents failed to adequately describe the drug invention or explain the process of creating the antibodies the patents claim to cover.
This ruling confirms that the creation of Praluent, the competing cholesterol drug jointly created by Sanofi and Regeneron, infringed upon Amgen's patents.
The affirmation of these two patents validates three of Amgen's five claims against the opposing drug companies. However, the decision currently does not affect the U.S. availability of Regeneron and Sanofi's drug Praluent.
Praluent and Repatha are drugs categorized as “PCSK9 inhibitors.” These are designed for patients with ultra-high LDL or “bad” cholesterol whose condition cannot be regulated by commonly prescribed medications like Pfizer's Lipitor. These drugs claim to be able to lower a patient's cholesterol level to a "safe" point as opposed to allowing it to plummet to fatal levels.
Both Praluent and Repatha are anticipated to become blockbuster drugs for the biotech companies, with Sanofi and Amgen competing neck and neck in relative positioning.
Amgen's Repatha is projected to rake in an estimated $2.21 billion in sales by 2022, while Sanofi's Praluent is expected to reach roughly $800 million.
The legal battle between these biotech firms started in 2014, with Amgen winning a similar verdict in 2016 which resulted in a court order blocking the sales of Praluent. In October 2017 though, a U.S. Court of Appeals for the Federal Circuit vacated the district court's ruling to ban the sales of the embattled Sanofi cholesterol drug.
Although Amgen triumphed in this latest round, the fight is far from over as Sanofi and Regeneron announced their intention to challenge the ruling. The latter companies plan to file for post-trial motions in the succeeding months with the goal of overturning the verdict. They intend to demand a new trial as well.
Ironically, (REGN) has been the better performing stock since the Christmas Eve Massacre, rising by an eye-popping 27%, compared to (AMGN)’s almost 5.5% gain and (SNY)’s pocket change pick up of 2.1%.
BUY AMGEN ON THE DIP.
Global Market Comments
March 1, 2019
Fiat Lux
SPECIAL FRIDAY TECH EDITION
Featured Trade:
(ABOUT THE TRADE ALERT DROUGHT),
(SPY), (GLD), (TLT), (MSFT),
Long term subscribers are well aware that I sent out a flurry of Trade Alerts at the beginning of the year, almost all of which turned out to be profitable.
Unfortunately, if you came in any time after January 17 you watched us merrily take profits on position after position, whetting your appetite for more.
However, there was nary a new Trade Alert to be had, nothing, nada, and even bupkiss. This has been particularly true with particular in technology stocks.
There is a method to my madness.
I was willing to bet big that the Christmas Eve massacre on December 24 was the final capitulation bottom of the whole Q4 move down, and might even comprise the grand finale for an entire bear market.
So when the calendar turned the page, I went super aggressive, piling into a 60% leverage long positions in technology stocks. My theory was that the stocks that had the biggest falls would lead the recovery with the largest rises. That is exactly how things turned out.
As the market rose, I steadily fed my long positions into it. As of today we are 80% cash and are up a ballistic 13.51% in 2019. My only remaining positions are a long in gold (GLD) and a short in US Treasury bonds (TLT), both of which are making money.
So, you’re asking yourself, “Where’s my freakin' Trade Alert?
To quote my late friend, Chinese premier Deng Xiaoping, “There is a time to fish, and there is time to mend the nets.” This is now time to mend the nets.
Stocks have just enjoyed one of their most prolific straight line moves in history, up some 20% in nine weeks. Indexes are now more overbought than at any time in history. We have gone from the best time on record to buy shares to the worst time in little more than two months.
My own Mad Hedge Market Timing Index is now reading a nosebleed 72. Not to put too fine a point on it, but you would be out of your mind to buy stocks here. It would be trading malpractice and professional negligent to rush you into stocks at these high priced level.
Yes, I know the competition is pounding you with trade alerts every day. If they work, it is by accident as these are entirely generated by young marketing people. Notice that none of them publish their performance, let alone on a daily basis like I do.
You can’t sell short either because the “I’s” have not yet been dotted nor the “T’s” crossed on the China trade deal. It is impossible to quantify greed in rising markets, nor to measure the limit of the insanity of buyers.
When I sold you this service I promised to show you the “sweet spots” for market entry points. Sweet spots don’t occur every day, and there are certainly none now. If you get a couple dozen a year, you are lucky.
What do you buy at market highs? Cheap stuff. That would include all the weak dollar plays, including commodities, oil, gold, silver, copper, platinum, emerging markets, and yes, China, all of which are just coming out of seven-year BEAR markets.
After all, you have to trade the market you have in front of you, not the one you wish you had.
So, now is the time to engage in deep research on countries, sectors, and individual names so when a sweet spot doesn’t arrive, you can jump in with confidence and size. In other words, mend your net.
Sweet spots come and sweet spots go. Suffice it to say that there are plenty ahead of us. But if you lose all your money first chasing margin trades, you won’t be able to participate.
By the way, if you did buy my service recently, you received an immediate Trade Alert to by Microsoft (MSFT). Let’s see how those did.
In December, you received a Trade Alert to buy the Microsoft (MSFT) January 2019 $90-$95 in-the-money vertical BULL CALL spread at $4.40 or best.
That expired at a maximum profit point of $1,380. If you bought the stock it rose by 10%.
In January, you received a Trade Alert to buy the Microsoft (MSFT) February 2019 $85-$90 in-the-money vertical BULL CALL spread at $4.00 or best.
That expired last week at a maximum profit point of $1,380. If you bought the stock it rose by 12%.
So, as promised, you made enough on your first Trade Alert to cover the entire cost of your one-year subscription ON THE FIRST TRADE!
The most important thing you can do now is to maintain discipline. Preventing people from doing the wrong thing is often more valuable than encouraging them to do the right thing.
That is what I am attempting to accomplish today with this letter.
