Global Market Comments
October 23, 2020
Fiat Lux
Featured Trade:
(11 SURPRISES THAT WOULD DESTROY THIS MARKET),
(SPY), (USO), (AMZN), (MCD), (WMT), (TGT)
Note to readers: Sorry for the short letter today but PG&E is about to turn off my electric power to reduce the risk of a wildfire during these high, hot winds from the east so I’m sending you just a few quick thoughts.
The Teflon market is back.
Bad news is good news. Good news is good news.
What could be better than that?
However, there are a few issues out there lurking on the horizon that could pee on everyone’s parade.
Risks of an asymmetric outcome right now are huge. Let me call out the roster for you.
1) The China Trade War Escalates – Every day economic advisor Larry Kudlow tells us that the trade talks are progressing nicely, and every day the administration pulls the rug out from under him with new sanctions. The last chance to avoid the next recession is upon us. A trade deal is the rational thing to do. Oops! There's that “rational” word again.
2) Economic Data Gets Worse - After a great data run into the fall, they are suddenly rolling over. All of the forward-looking data is now 100% terrible.
3) The Fed Raises Interest Rates- This has been the world’s greatest guessing game for the past three years. Jay Powell has just promised NOT to raise interest rates for three years, so an increase would be completely out of the blue and have an outsize impact. The Fed lives in perpetual fear of the American economy going into the next recession with interest rates near zero! That would leave them powerless to do anything to engineer a revival.
3) Another Geopolitical Crisis - You could always get a surprise on the international front. But the lesson of this bull market is that traders and investors could care less about North Korea, ISIS, Al Qaida, Afghanistan, Iraq, Syria, Russia, the Ukraine, or the Chinese expansion in the South China Sea.
Every one of these black swans has been a buying opportunity of the first order, and they will continue to be so. At the end of the day, terrorists don’t impact American corporate earnings, nor do they own stocks.
4) A Recovery in Oil – The next drone attack against Saudi Arabia could send oil really flying. If it recovers too fast and rockets back to the $100 level, it could start to eat into stock prices, especially big energy-consuming ones, like transportation and industrials.
5) The End of US QE - The Fed’s $4.5 billion quantitative easing, relaunched in March, could end as soon as it gets the sense that the economy is recovering too fast. That would take the punch bowl away from the party. Anyone who said QE didn’t work obviously doesn’t own stocks.
6) A New War – If the US gets dragged into a major new ground war, in Iran, North Korea, Syria, Iraq, or elsewhere, you can kiss this bull market goodbye. Budget deficits would explode, the dollar would collapse, and there would be a massive exodus out of all risk assets, especially stocks.
7) US Corporate Earnings Collapse – They already have for the sectors of the economy where you can’t socially distance, like movie theaters, restaurants, and airlines. A much higher third wave of Covid-19 would do the trick nicely, bringing a new round of lockdowns. Do you think stocks (SPY) will notice?
8) Another Emerging Market (EEM) Crash - If the greenback resumes its long-term rise, another emerging market debt crisis is in the cards. Venezuela and Argentina are just the opening scenes.
When their local currencies collapse, it has the effect of doubling the principal balance of their loans and doubling the monthly payments, immediately.
This is the problem that is currently taking apart the Brazilian economy right now. It happened in 1998, and it looks like we are seeing a replay.
9) A Trump Victory – Since the stock market has spent the last six months discounting a Biden win, the opposite result would be a total out of the blue shock. Count on a 10% dive in the (SPY) immediately, and 20% eventually. Polls can be wrong. Who knew?
10) Inflation Returns – Steep tariff increases on everything Chinese is rapidly feeding into rising US consumer prices. What do you think the Amazon (AMZN) wage hike to $15 means? If McDonald’s (MCD), Walmart (WMT), and Target (TGT) join them, we’re there. This is a stock market preeminently NOT prepared for a return of inflation.
I know you already have trouble sleeping at night. The above should make your insomnia problem much worse.
Try a 10-mile hike with a heavy pack every night in the mountains. It works for me.
Down the Ambien, and full speed ahead!
A Threat to Your Portfolio?
Mad Hedge Biotech & Healthcare Letter
October 22, 2020
Fiat Lux
FEATURED TRADE:
(IS THIS COVID-19 VACCINE OUTLIER ON THE FAST LANE?)
(NVAX), (PFE), (AZN), (JNJ), (SNY), (MRNA), (TAK)
It is not at all surprising that the biggest names in the healthcare industry are dominating the COVID-19 vaccine race.
After all, Big Pharmas such as Pfizer (PFE), AstraZeneca (AZN), Johnson & Johnson (JNJ), and Sanofi (SNY) are backed with vast resources that even media favorites like Moderna (MRNA) find challenging to compete against.
For months now though, going head to head with these big-name frontrunners is a clear outlier: Novavax (NVAX).
So far, there are only 10 COVID-19 vaccine candidates that have reached late-stage testing and Novavax’s NVX-CoV2373 has been performing at par (if not better) than its rivals—and the market has definitely noticed.
When 2020 started, Novavax’s market capitalization was less than $130 million and traded at roughly $4 per share.
Ten months into the pandemic, this small biotechnology company’s market cap grew to over $6.5 billion and has been trading at $110 per share—and that is already after a price decrease in the past weeks.
Given the disparity in its size and resources compared to its competitors, it’s safe to say that Novavax has been punching way above its weight class particularly in terms of landing supply agreements for its COVID-19 program.
Novavax first received a CEPI grant in March worth $4 million, which was immediately dwarfed by the $384 million the biotech company got in May.
In a matter of months, Novavax joined the major league players and secured a $1.6 billion funding courtesy of the US government’s Operation Warp Speed program.
In exchange, the biotech company will supply 100 million doses of NVX-CoV2373 to the US upon approval.
Novavax also inked an agreement with the UK for 60 million doses and another with Canada for 76 million doses.
Novavax has also landed deals with Japan through Takeda Pharmaceutical (TAK) and India via the Serum Institute of India.
As expected, the grants and supply agreements were perceived as votes of confidence on Novavax’s work and the company reaped the rewards.
In March, the prices started moving from less than $10 per share to almost $50.
By May, the price moved up to roughly $80 per share.
After its Operation Warp Speed contract in July, Novavax’s price per share soared all the way to $189 before eventually falling to $110 this October.
Novavax has only conducted late-stage testing in the UK. But, Phase 3 is expected to begin in the US soon as well.
Admittedly, a lot is riding on NVX-CoV2373.
However, the company has actually offloaded the majority—if not all—of its financial risks linked to the program.
Riding the momentum of its COVID-19 vaccine candidate, Novavax has been working on a related influenza vaccine called Nanoflu.
Given the market size for this, Nanoflu is estimated to rake in an annual revenue somewhere between $550 million and $1.7 billion.
Another potential blockbuster is respiratory syncytial virus (RSV) vaccine ResVax, which is projected to reach peak sales of $2 billion.
Novavax is also working on a vaccine candidate for the Ebola virus, the Middle East Respiratory Syndrome (MERS-CoV), and Severe Acute Respiratory Syndrome (SARS).
While NVX-CoV2373 is anticipated as Novavax’s moneymaker in the coming years, the biotech company can only realistically expect massive sales from this until 2023.
Looking at the company’s manufacturing partnerships and the aggressive timeline it has taken, Novavax is expected to produce 2 billion doses of its COVID-19 vaccine by mid-2021.
This is great news for its investors because of Novavax’s smaller market capitalization compared to its competitors.
Since the biotech company is projected as one of the first companies—if not the first—to offer a vaccine, then it can cover a substantial market share before its bigger rivals take over the market.
Even if Novavax prices its COVID-19 vaccine cheaply, say, $10 per dose, it can still generate $20 billion in annual sales.
Moreover, the late-stage success of NVX-CoV2373 will definitely cause Novavax’s stock price to skyrocket.
Despite this potential though, it’s important to keep in mind that this biotech company still has a way lower market cap than its rivals.
That means its share price will move a lot higher compared to the stocks of the other vaccine leaders.
Therefore, Novavax’s small size is not a negative for its investors—it is actually an advantage.
So for biotech investors who are searching for a promising COVID-19 vaccine stock, there’s nothing cheaper and more promising than Novavax.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
October 22, 2020
Fiat Lux
Featured Trade:
(IS AIRBNB YOUR NEXT TEN BAGGER?),
(WYNN), (H)
Mad Hedge Technology Letter
October 21, 2020
Fiat Lux
Featured Trade:
(WILL ANTITRUST PROBLEMS UNLEASH GOOGLE?)
(GOOGL), (AMZN), (FB), (AAPL)
The Department of Justice and 11 U.S. states filing an antitrust lawsuit against Google isn’t as bad as it seems.
Abusing its monopoly power to make Google the default search service on browsers, mobile devices, computers, and other devices has meant quarter after quarter of cash cow growth.
Alphabet’s cash reserves are to the point where they can fritter away capital on loss-making divisions like autonomous driving technology Waymo.
Yes, it’s true that Google is no longer the scrappy start-up that they once were, but that doesn’t matter, and they certainly have the financial balance sheet to deal with any litigation that might or might not take place.
Part of the Google shares not selling off was validation that they are resourceful enough to get through this unscathed and they certainly have had years to prepare how to defend itself through the courts.
Google let their position known publicly by tweeting that the “lawsuit by the Department of Justice is deeply flawed. People use Google because they choose to — not because they're forced to or because they can't find alternatives.”
The standard corporate speak that Google uses is just a sign of the times where big tech has dwarfed the banks, is too big to fail and of pure clout in American government, business and society.
This has been a long time coming as the firm has been under investigation by the Justice Department, the Federal Trade Commission, and state attorney general that its search engine and digital advertising businesses may operate as illegal monopolies.
The specific lawsuit will likely reference competitors like Bing for denying them access to user data, as well as targeting Google’s “search advertising.”
It was only in July, Alphabet CEO Sundar Pichai, along with the CEOs of Amazon (AMZN), Apple (AAPL), and Facebook (FB) appeared before a hearing of the House Judiciary Committee’s Subcommittee and were made to look bad for their dominant position in the digital ad game.
Google has repeatedly pointed to earlier antitrust investigations by the FTC and state attorney general into its display search business that concluded in 2013 and 2014 without incident but they surely have known that this issue would pop back up time and time again.
The knock-on effects have been drastic with American innovation sapped of its incubatory juices.
In the modern age of tech, it’s almost impossible to build a unicorn from scratch without getting your business model hijacked from one of the anti-competitive tech firms.
And now — there are 6 tech firms that use their scale and power to drag down innovation.
The consequences have been higher share prices for big tech because if they can’t scare competition out of place, they will either buy them or find internal ways to sabotage their business ala Yelp.
Google’s digital advertising business has faced accusations due to its unrivaled size and volume which is also why it makes so much money.
The company controls some of the most important links in the online advertising chain, centrally its DoubleClick platform, a premier tool for online publishers, helping them to create, manage, and track online marketing campaigns.
This is why the “internet” or the companies that have access to tracking technology know everything about you and can front run the marketing process to cater towards you.
Acquired in 2007, DoubleClick was cited by Senator Elizabeth Warren (D-MA) as one of the major acquisitions Google should be forced to unwind to improve competition in the advertising space.
If DoubleClick were to unwind itself from Google, they would be an instant unicorn out of the gate.
And that isn’t just the only unicorn in the stable, there are many stand-alone unicorns in Google’s umbrella of assets — from Gmail, Google Cloud, Google Maps, YouTube, and even Google’s hardware division that manufactures phones such as the Google Pixel line.
I believe in the argument that the sum of the parts is dragging down each segment meaning once broken from the Alphabet death grip, each unicorn would be able to pursue decisions that are best suited for their own division and not just the parent company Alphabet.
There is only so long that each unicorn is willing to play for the team and once they go out into the wild, each will become its own unique growth company.
One possibility is Google’s search business spun out while the other businesses stay inside under parent company which is also viable since the investigations specifically pinpoint Google search.
Google search controls more than 90% of the world’s search traffic market share and most notably, Yelp complain about Google favoring its own products in search results.
In July, a Wall Street Journal investigation found Google’s search algorithm biased towards its own YouTube videos in search results over those of other services.
Google’s repeated abuses would likely be mitigated just by spinning out Google search and not allowing them to favor itself.
It is highly unlikely that a stand-alone Google search business would cede market share because they are simply the best search engine by a country mile.
They would most likely expand on the lead they already have.
In either case, if Google isn’t broken up, they win, and the share price will rise.
If they are broken up, the victory will be even more emphatic while supercharging each individual asset ending up in an even higher share price.
This could finally offer a jolt of innovation into the stagnant tech space which honestly has too many too-big-to-fail companies that are focused more on financial engineering at this point.
“Wear your failures as a badge of honor.” – Said Current CEO of Alphabet Sundar Pichai
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more