Mad Hedge Technology Letter
February 26, 2021
Fiat Lux
Featured Trade:
(EV INDUSTRY GOES FROM HOT TO HOTTER)
(TSLA), (GM), (EV), (SAIC), (PLTR), (ROKU)
The electric vehicle market is blossoming into a mega tech growth industry and we are just entering the sweet spot of it.
Just take a look at the variety of options now on the market.
China has been doing its best to catch up to the standard bearer Tesla (TSLA) with generous government subsidies spawning a tidal wave of new investment.
A Chinese company partnering with GM has been able to introduce an electric vehicle (EV) selling in China for $4,500 and is now miraculously outselling Tesla's posher cars.
The compact car is proving a home run for state-owned SAIC Motor, China's top automaker.
The Hong Guang Mini EV is being built as part of a joint venture with US car giant General Motors (GM) and yes, this is the same joint venture where Chinese companies “borrow” the proprietary intellectual property.
This is just another example of the breadth of options out there and the insatiable popularity of the mode of transport in a world of climate change and the broad-based pivot to sustainable ecological business.
According to Fortune Business Insights, the global electric vehicle market will be worth $985.72 billion by 2027, growing at a compound annual growth rate (CAGR) of 17.4% over the next six years.
Electric vehicle sales are poised to surpass the highest level on record in 2021.
Edmunds data shows that EV sales made up 1.9% of retail sales in the United States in 2020 and that number is expected to surge to 2.5% this year.
Edmunds analysts anticipate that 30 EVs from 21 brands will become available for sale this year, compared to 17 vehicles from 12 brands in 2020.
Notably, this will be the first year that these offerings represent all three major vehicle categories: Consumers will have the choice among 11 cars, 13 SUVs, and six trucks in 2021, whereas only 10 cars and seven SUVs were available last year.
As it is true that compact vehicles will rule the road in China, Americans have a love affair with trucks and SUVs, to the detriment of compact cars.
Each EV manufacturing decision will need to have localization in mind.
This isn’t to say that China can produce EVs at the quality of Tesla, but it shows that alternative models of EV battery capabilities, range, and performance also have a strong place in the consumer world.
This isn’t just a Tesla world with everyone living in it.
The Chinese government has bet the ranch on EVs as it reduces the smog-induced megacity pollution that has been public enemy one, two, and three.
Clean air is a sensitive topic among Chinese urban dwellers.
The Chinese communist party offers EV license plates for free and they are guaranteed. In many cities, it can take years to receive a license plate for a petrol engine through various lottery systems.
The Tesla Model 3 sells for about $39,000 in China factoring in price cuts due to its local production.
So what does this mean for the short-term future of EVs?
First, they are showing growth numbers that almost every cloud executive would love to put on the radar for many tech investors.
Second, Elon Musk’s Tesla and The Hong Guang Mini EV are primed to be flooded in all markets overseas creating an ironic situation where Europeans are buying a cheaper EV from China instead of the homegrown stalwarts of BMW, Audi, and Mercedes.
China has been adamant that they want to secure higher manufacturing ground and this phenomenon is coming hard and fast for the Europeans and everyone else who have continuously kowtowed to Chinese business.
Reports have linked these Chinese mini EVs to a Latvian automaker who could sell an iteration of the car in Europe. However, the price is likely to be twice as high due to European environmental requirements.
This also paves the way for Tesla to eventually roll out a compact car to sell in the German market and the entire European Union.
Tesla Gigafactory Berlin-Brandenburg is a European manufacturing plant under construction in Grünheide, Germany and the campus is 20 miles south-east of central Berlin on the Berlin–Wrocław railway.
Of course, at first, they will produce the American models of the Tesla, but my guess after that is they will start right-sizing their models for the local market in all shapes and sizes.
This would be the new contact point in terms of funneling Tesla products into Europe and instead of SUV/Pick-up trucks, they will create something more akin to a Fiat-sized car to suit the European market.
Although the EV market is still in its infancy, Tesla not only has first-mover advantage and the best of breed stamp of quality, but has the manufacturing prowess in terms of battery and knowhow that others don’t.
That being said, beneath the robustness of Tesla, a lot of movement is taking place as we speak and we still do not have the 2nd or 3rd Teslas emerging from the pack and we will gain more insight into who that is in the next few years.
For the next 10X bagger, potential start-ups that could take the EV market by storm is where readers should put their money, but this comes with great risk.
But I’ve been pretty good at guessing 10 baggers with recommendations such as Roku (ROKU) and Palantir (PLTR) on the way to achieve 10 bagger status.
As many understood from the first pandemic year of 2020, just throw money into Tesla and watch it explode higher.
Tesla is still an incredibly bullish tech story and I wouldn’t want to get in the way of its up moves.
The moment Tesla’s quality starts to erode and Chinese low-quality EVs catch up, that would be the cue to take profits on Tesla, but that day is long off.
“I discovered Buddha but did not set out to unearth a world religion.” – Said CEO of Microsoft Satya Nadella
Global Market Comments
February 26, 2021
Fiat Lux
Featured Trade:
(REVISITING THE GREAT DEPRESSION)
(EXPLORING MY NEW YORK ROOTS)
Mad Hedge Biotech & Healthcare Letter
February 25, 2021
Fiat Lux
FEATURED TRADE:
(AN UNDER THE RADAR BIOPHARMA PLAY)
(ALNY), (PFE), (BNTX), (MRNA), (NVS), (GME), (BX)
Financial markets have been incredibly volatile in the past months primarily due to the COVID-19 pandemic.
The situation was made even more unpredictable by the GameStop (GME) and bitcoin drama.
So it’s expected that investors are looking for guidance in this time of instability, and a good place to start is the Blackstone Group (BX).
Considering that the basic philosophy of this company is to “buy, fix, and sell,” it’s safe to say that Blackstone only puts its money, time, and effort in promising investments.
Around the time of the pandemic outbreak last year, Blackstone poured in roughly $2 billion investment in a biopharmaceutical company, Alnylam Pharmaceuticals (ALNY).
While Alnylam may be virtually unknown to the public, this is actually a promising company with an impressive backstory.
Founded in 2002, Alnylam is mainly known for its technology, RNAi or RNA interference.
This is a gene-silencing technique, which was discovered by Andrew Fire and Craig Mello back in 1998. The two won the Nobel Prize for it in 2006.
Even before the Nobel, Alnylam has already seen the potential of this technology and started developing it in the early 2000s.
For decades, this work had been underappreciated—up until the COVID-19 pandemic.
This is because the leading vaccine candidates right now, developed by Pfizer (PFE)-BioNTech (BNTX) and Moderna (MRNA), are both mRNA-based drugs.
Although the vaccine developers customized the technology, they still used the same delivery technique that Alnylam developed.
Clearly, there has been a lot of piggybacking on this discovery.
While Moderna, Pfizer, and BioNTech used the technology to create RNA-based drugs for the COVID-19 vaccines, Alnylam decided to utilize it to develop treatments for other diseases.
The first approval was hereditary transthyretin-mediated amyloidosis drug Onpattro, launched in 2018.
As of 2020, sales of this high-priced therapy reached roughly $300 million, ensuring that it was on pace with the company’s target.
Alnylam’s second approved treatment is ultra-rare genetic disease drug Givlaari, which hit the market early last year.
By the third quarter of 2020, sales of this acute hepatic porphyria drug climbed by $67 million despite the effects of the pandemic.
In the next decade, Givlaari is estimated to peak at $550 million annually.
By 2025, yearly sales for Givlaari and Onpattro are projected to hit roughly $1.5 billion in total.
Riding this momentum, Alnylam has been collaborating with Sanofi (SNY) to develop another rare disease drug, Vutrisiran. This could rival the company’s own Onpattro.
Aside from Vutsiriran, Alnylam and Sanofi are also working on a potential novel hemophilia treatment, Fitusiran.
The latest treatment to gain approval is rare kidney disorder drug Oxlumo, which is estimated to net Alnylam roughly $380,000 per patient annually.
While this may be a hefty price tag, it’s expected that insurance companies and governments will be the ones to ultimately shell out the money for these rare disease drugs.
Before 2021 ends, Alnylam is expected to gain FDA approval for another potential blockbuster drug, Inclisiran. This is a cholesterol-fighting treatment, which is a work in progress with Novartis (NVS).
Over the past decade, Blackstone has been quietly stashing multi-billion-dollar stakes in the life sciences.
In 2020 alone, the company poured roughly $16 billion into the industry. This is its largest investment theme for the entire year.
While this business has yet to make a dent on Blackstone’s $600 billion assets, the attention that the companies have been getting is worth noting—and a good place to start is Alnylam.
For a better context of its potential, Blackstone invested $3 billion in a dating app called Bumble (BMBL) back in 2018.
Fast forward to 2021, this company is now worth approximately $14 billion following its recent IPO.
With a market capitalization of roughly $15 billion and for a company that’s not anticipated to generate over $1 billion in annual revenue until 2022, Alnylam’s current price might be considered high by some investors.
Looking at its pipeline though, which is filled with potential blockbusters, and its track record that shows that the company definitely knows how to launch new drugs to the market, I believe Alnylam stock is worth considering right now.
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Global Market Comments
February 25, 2021
Fiat Lux
Featured Trade:
(TAKING A LOOK AT THE ROM)
(ROM)
(BRING BACK THE UPTICK RULE!)
Mad Hedge Technology Letter
February 24, 2021
Fiat Lux
Featured Trade:
(THE LARGEST RISK TO TECH GROWTH SHARES)
(PYPL), (SQ), (GOOGL), (BTC), (TSLA), (FOMO)
The U.S. Central Bank has chosen to be as accommodative as possible in order to put a floor under the stock market with near-zero interest rates and large-scale asset purchases.
This will have an inordinate effect on tech stocks moving forward because the rhetoric from the Fed is as close as one can get to admitting that tech stocks should be bought in droves.
Fed policy won’t kill the rally and talk up higher interest rates until “substantial further progress (to unemployment numbers) has been made,” and “is likely to take some time” to achieve said Fed Governor Jerome Powell.
Yes, it’s possible to attribute some of the bullishness to the “reopening” trade and the massive migration to digital, but the loose monetary policy is overwhelmingly the predominant catalyst to higher tech shares.
As Powell spoke, the Nasdaq did a wicked U-turn in real-time after being in the red almost 4% and sprinted higher to finish up the trading day only ½ of a percent down on the day.
What does this mean for the broader tech market and Nasdaq index?
We started seeing all sorts of wonky moves like Tesla (TSLA) making a $1.5 billion bitcoin (BTC) investment earlier this month.
Fintech player Square (SQ) bought Bitcoin on the dip pouring $170 million into it.
Yes, this isn’t a joke.
Corporations are becoming the dip buyers in bitcoin which would have never been fathomable a year ago from today.
The risk-taking has literally gone into hyper-acceleration in the tech world and is transforming into a fantasy world of corporations swimming knee-deep in capital trying to outdo one another with fresh bitcoin orders of millions upon billions.
That’s where we are at right now in the tech markets.
Treasury Secretary Janet Yellen has also gotten into the bitcoin story condemning the digital gold by saying that bitcoin is an “extremely inefficient” way to conduct monetary transactions.
But because of the extreme low-rate nature of debt, this just gives investors another entry point into the digital gold.
This sets the stage for a correction in tech stocks and the likely reason for it would possibly be higher interest rates or even negative lockdown news or some combination of both.
On the technical side of things, a result of this magnitude would be set off by first, cascading sell orders at one time, eerily similar to what got us the March 2020 low.
This could happen in either biotechnology stocks or Tesla shares and cause performance to deteriorate which could trigger net outflow and that would trigger a violent feedback loop.
Catherine D. Wood is the Founder, CEO, and CIO of ARK Invest and has been hyping up the super-growth tech assets like she was betting her life on it.
The only way she can get away with this chutzpah is in an anemic rate environment that pushes investors to search for yield.
Her reaction to yesterday’s market action wasn’t to buy bitcoin on the dip but go into a safer asset that actually produces something, and she bought another big chunk of Tesla.
Risk-taking and leverage in tech shares have gone up the wazoo which means that any incremental rising of rates is harder for the overall tech market to absorb.
Bitcoin is now being viewed as just one risk point higher on the risk curve than Tesla and that is a dangerous concept.
Technology often promises investors that they are paying for future cash flows of tomorrow and that story doesn’t work if the margins are turning against the management.
The low rates offer the impetus for characters like Wood to boast that she was surprised by how fast companies are adopting bitcoin and that her “confidence in Tesla has grown.”
It is just a sign of the times and even more money has been injected into zombie companies that have no hope of improving margins ala the retail sector.
Awash in liquidity has the ultimate effect of making tech growth stocks even more attractive than the rest of the crowd which is why we have been seeing sharp upward moves in second derivative plays to bitcoin like PayPal (PYPL), Square while the FANGs, aside from Google (GOOGL), have treaded sideways.
Markets tend to overshoot on the upside and downside and as the sell-off was met with shares that came roaring back in a speculative frenzy, we are now in a situation with many markets, even the foreign ones, hitting fresh records, even as the nations they were based in suffered their sharpest recessions since at least the Great Depression.
The overshooting tends to come from the fear of missing out (FOMO) amongst other reasons.
Ultimately, as the corporate list of characters and billionaire hedge fund community load up on tech growth stocks, just a small movement to higher yield could cause a Jenga-like toppling of their strategy and profits.
This could snowball into a massive unwind of positions to meet margin calls after margin calls.
If we can avoid this indiscriminate fire sale, then, like Bank of America recently just said, it’s hard to make a different analysis aside from being overly bullish as the treasury, Fed, and macroeconomic factors have made a major sell-off less likely.
I am bullish technology and would advise readers to go back into growth names as volatility subsides, but keep an eye out for rates creeping higher because, at the end of the day, it’s clearly the biggest risk to the tech sector.
