“20 years ago, I could read the Wall Street Journal every morning and feel that I knew enough to at least start my day. That is no longer true,” said technology guru and venture capital investor, Roger McNamee.
Mad Hedge Technology Letter
August 27, 2021
Fiat Lux
Featured Trade:
(THE NEW NORMAL)
(QQQ)
So now it’s gonna be 2 years — that’s right — the work from home world is here to stay!
And I’m not talking about just Asia being in the early innings of a disastrous delta variant explosion.
Many managers had 1 year baked into the pie, but have we come to terms with the expectations that this work from home thing is here to stay?
Ostensibly, companies will never be able to get workers to come back to the office, then after 2 years, we will be too far down this road to make a U-turn.
Then as the delta variant breathes down our neck, will this turn into year three or four and so on with all the different variants down the pipeline.
Just in the last few years, several European offices allow heat days in the summer which offer workers remote working possibilities when cities sound off official heat warnings.
Some European cities usually deliver excess heat warnings if the mercury surpasses 95 degrees which is usually in June and July and the amount of these days are rising.
Japan might have to start giving mudslide, typhoon, or torrential flooding remote work days if we really want to go deeper in the weeds.
This is just where nature stands today versus how we work from a computer.
Many tech companies might see a 99% attrition rate if the managers move boldly and recall staff for in-person 5 days per week toiling and sharing the same oxygen within the same four walls as their coworkers.
One of the biggest takeaways from the pandemic after the initial uncertainty is the handoff of power back to labor which hasn’t happened in American capitalism for 50 years.
American capitalism has been crushing labor laws as long as I can remember from lacking of maternity and paternity leave to destroying unions and the list goes on.
If you’re a simple worker, you know you finally have options!
That is raising concerns among executives who have historically ruled with an iron fist and aren’t used to workers acquiring negotiating clout.
Remember in Europe, many companies require a 3-month resignation notice after 5 years of work instead of the quick 2 weeks in the U.S.
In France, it’s almost impossible to get yourself fired.
Return dates have been postponed repeatedly. Tech companies such as Amazon and Facebook have pushed them to early next year.
Lyft said it would call employees back to its San Francisco headquarters in February, about 23 months after the ride-sharing company first closed its offices.
Already, many employees are “bombarded” with messages from recruiters and friends, attempting to lure them elsewhere, and there are jobs galore!
10 million to be precise.
Managers want workers back in the office because they say there is a broader sense of connection and familiarity to the platform, to the culture of the organization—to me, this means they love controlling workers, period.
Many surveys have shown that productivity of working remotely is significantly higher than working in the office where introverted workers are bombarded with uncomfortable office politics and extroverted colleagues’ bravado. Not to mention that many companies like to have meetings to plan the next meeting and the hours of commuting that exhaust workers.
Even if 40% of workers are introverted, it would make sense to rollout a full remote workforce because the totality of the remote work is a net benefit over in-person work for the entire staff.
Perceptions of remote work have shifted as the pandemic spiraled out of control.
When professional services giant PricewaterhouseCoopers LLP surveyed employers across the U.S. in June 2020, 73% of respondents said they deemed remote work successful. By January 2021, when PwC released updated data, that figure rose to 83%. Now, more workers also say they want to stay at home full time. In new data released by PwC on Thursday, 41% of workers said they wished to remain fully remote, up from 29% in the January survey.
That doesn’t mean offices can’t have a once per quarter team bonding activity, but the verdict is clear, workers like waking up never to leave their house and get paid for that lifestyle.
The bigger deal now is workers are busy brainstorming how to upgrade or upsize their remote offices to become even more efficient.
They are even thinking how to upgrade their coffee and tea game, personally, I love my Made in Italy Bialetti stovetop espresso maker.
It hits the spot with high quality Arabica coffee beans.
On a personal level, if a company does commit to the in-person faux pas, I am in favor of only in-person every other month and the in-person portion should only be a maximum of 2 days per week that aren’t Monday or Friday.
That’s how little negotiating leverage managers and bosses have these days — I just don’t see how they can push the narrative more than that.
Also, if they want 5 days per week of in-person work, they will have to pay extra to get what they want and that’s not including the hike in salaries that have happened because of the recent inflationary pressures.
Ultimately, there is possibly no way to justify full in-person work in 2021 for a company that can function without it.
And think about it, any company searching to expand a workforce with 100% in-person work will be viewed as a company that has more red flags than a Chinese communist parade.
And I haven’t even talked about the disgust for people ditching their business casual clothing to work in their pajamas, then forcing them to clothe up again.
What a kick in the teeth!
There’s a whole host of reasons we haven’t even mentioned yet like young mothers who must consider a young child and proper child’s care or a worker who is tending to an elderly relative daily.
We can’t just sweep all this under the rug like we used to — these are real issues we must grapple with.
What does this mean for the Nasdaq index that the Mad Hedge Technology Letter predominately follows?
It goes higher.
It means we are fully reliant on tech for longer and this will seep into the share prices.
A broad swath of companies will benefit from this, and the bigger will get bigger because of the network effect.
Another year of this will solidify tech ecosystems and digital infrastructure will become better and stickier.
Companies like Google, Apple, Microsoft will bask in the glory of being highly desirable companies with earning accelerated revenues while stationed at the avant-garde of the U.S. economy.
And in the winner-takes-all tech economy, everyone else is second.
THIS IS THE NEW NORMAL!
“When something is important enough, you do it even if the odds are not in your favor.” – Said Founder and CEO of Tesla and Neuralink Elon Musk
Global Market Comments
August 27, 2021
Fiat Lux
Featured Trade:
(AUGUST 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(ROM), (EEM), (FXI), (DIS), (AMZN), (NFLX), (CHPT), (TLT), (TBT), (AAPL),
(GOOG), (WPM), (GOLD), (NEM), (GDX), (X), (SLV), (FCX), (BA), (HOOD), (USO)
Below please find subscribers’ Q&A for the August 25 Mad Hedge Fund Trader Global Strategy Webinar broadcast from The Atlantis Casino Hotel in Reno, NV.
Q: How does a 2X ProShares Ultra Technology ETF (ROM) February 2022 vertical bull call spread on the ROM look? Would you do $110-$115 or $115-$120?
A: I would do nothing here at $112.50 because we’ve just gone up 10 points in a week. I’d wait for some kind of pullback, even just $5 or $10 points, and then I would do the $110-$115. I’m leaning towards more conservative LEAPS these days—bets that the market goes sideways to up small rather than going ballistic, which it has done for the last 18 months. Think at-the-money strikes, not deep out-of-the-money on your LEAPS from here on for the rest of this economic cycle. The potential profits are still enormous. The only problem with (ROM) is that the longest maturities on the options are only six months.
Q: How do you recommend entering your long-term portfolio?
A: I would use the one-third rule: you put on ⅓ now, ⅓ higher or lower later on, and ⅓ higher or lower again. That way you get a good average price. Long term, everything goes up until we hit the next recession, which is probably several years off.
Q: I keep reading that the Delta variant is a market risk, but I don’t think that investors will look through this. Is Delta already priced into the shares?
A: Yes, what is not priced into the shares is the end of Delta, the end of the pandemic—and that will lead to my “everything” rally that I’ve been talking about for a month now. And we have already seen the beginning of that, especially with the price action this week. So yes, Delta in: dead market; Delta out: roaring market.
Q: Do you think there will eventually be a rotation into emerging markets (EEM), or has the virus battered these markets too much to even consider it?
A: Sometime in our future—not yet—the emerging markets will be our core holding. And the trigger for that will be the collapse of the dollar, which is hitting an interim high right now. When the greenback rolls over and dies, you can expect emerging markets, especially China, to take off like a rocket. That’s going to be our next big trade. I don't know if it will be this year or next year but it’s coming, so start doing your emerging market research now, and keep reading my newsletter.
Q: Is the coming tax hike a problem for the stock market?
A: No, I don’t think so. First off, I don’t think they’re going to do a tax bill this year; they don’t want anything to interfere with the 2022 election, so it may be next year’s business. Also, any new taxes are going to be overwhelmingly focused on billionaires, carried interest, offshoring, and large corporations. The middle class, people who make less than $400,000 a year, will not see any tax hike at all, possibly even getting some tax cuts via restored SALT deductions. So, I don't really see it affecting the stock market at all.
Q: What do you think about Chinese stocks (FXI)?
A: Long-term they’re okay, short term possibly more downside. Interestingly, the bigger risk may not be China itself and how the government is beating up its own tech companies, but the SEC. It has indicated they don’t really like these offshore vehicles that have been listed on the New York Stock Exchange, and they may move to ban them. I’m not rushing into China right now, only because there are just so many better opportunities in the US stock market for the time being. I may go back in the future—it’s a case where I’d rather buy them on the way up than trying to catch a falling knife on China right now.
Q: Do you expect any market impact from the Jackson Hole meeting?
A: Yes, whatever J Powell says, even if he says nothing, will have a market impact. And it will have a bigger impact on the bond market than it will on the stock market, which is down a full point this morning. So yes, but not yet. I imagine we’ll hear something very soon.
Q: September and October tend to be volatile; do you see us having a 5% or 10% pullback in those months?
A: I don’t see any more than 5%, with the hyper liquidity that we have in the system now. There just aren’t any events out there that could trigger a pullback of 10%—no geopolitical events, and the economy will be getting stronger, not worse. So yes, an “everything rally” doesn’t give you many long side entry points, so I just don’t see 10% happening.
Q: What about a Walt Disney (DIS) January 2022 $180-$220 LEAPS?
A: I would do the $180-$200. I think you can afford to be tighter on your spread there, take some more risk because I think it’s just going to go nuts to the upside once we get a drop in COVID cases. By the way, Disney parks are only operating at 70% capacity, so if you go back up to 100% that's a near 50% increase in profits for the company. And it’s not just Disney, but Netflix (NFLX), Amazon (AMZN), and everybody else that’s about to have the greatest number of blockbuster movies released of all time. They’re holding back their big-ticket movies for the end of the pandemic when people can go back into theaters. We’ll start seeing those movies come out in the last quarter of this year, and I’m particularly looking forward to the next James Bond movie, a man after my own heart.
Q: Are EV car charging companies like ChargePoint Holdings (CHPT) going to do as well as the car companies?
A: No. They’re low margin business, so it’s not a business model for me. I like high-profit margins, huge barriers to entry, and very wide moats, which pretty much characterizes everything I own. The big profits in EVs are going to be in the cars themselves. Charging the cars is a very capital-intensive, highly regulated, and low-margin business.
Q: Would a Fed taper cause a 10% pullback?
A: Absolutely not; in fact, I think a taper would make the market go up because Jay Powell has been talking it into the market all year. And that’s his goal, is to minimize the impact of a taper so when they finally do it, they say ho-hum and “okay you can take that risk out of the market.” That’s the way these things work.
Q: What is your yearend target for United States Treasury Bond Fund (TLT)?
A: $132. Call it bold, but I'm all about bold. I think the first stop will be at $144, then $138, then bombs away!
Q: What will it take for (TLT) to dip below $130?
A: Another year of hot economic growth, which Congress seems hell-bent on delivering us.
Q: What are your ProShares Ultra Short 20+ Year Treasury ETF (TBT) targets?
A: When we were at 1.76% on the 10-year bond, the (TBT) made it all the way back to 22 ½. Next year we go higher, probably to $25, maybe even $30.
Q: What’s your 10-year view on the (TBT)?
A: $200. That’s when you get interest rates back to 10% in 10 years on the 10-year bond. So yes, that’s a great long-term play.
Q: How long can we hold (TBT)?
A: As long as you want. Ten years would be a good time frame if you want to catch that $17 to $200 move. The (TBT) is an ETF, not an option, therefore it doesn’t expire.
Q: Are you working on an electrification stock list?
A: I am not, because it’s such a fragmented sector. It’s tough to really nail down specific stocks. I think it’s safe to say that the electric power grid is going to change beyond all recognition, but they won’t necessarily be in high margin companies, and I tend to prefer high-profit-margin, large-moat companies which nobody else can get into, like Apple (AAPL) or Google (GOOG).
Q: What about gas pipelines with high yields?
A: They have a high yield for a reason; because they’re very high risk. If you're going to a carbon-free economy, you don’t necessarily want to own pipelines whose main job is moving carbon; it’s another buggy whip-type industry I would avoid. I’ve seen people get wiped out by these things more times than I could count. If you remember Master Limited Partnerships, quite a few of them went bankrupt last year with the oil crash, so I would avoid that area. These tend to be very highly leveraged and poorly managed instruments.
Q: Best play on silver (SLV)?
A: Wheaton Precious Metals (WPM) is the highest leveraged silver play out there, and a great LEAPS candidate. Go out 2 years and triple your money.
Q: Geopolitical oil (USO) risks?
A: No, nobody cares about oil anymore—that’s why we’re giving up on Afghanistan. China is buying 80% of the Persian Gulf oil right now. We don’t really need it at all, so why have our military over there to protect China’s oil supply?
Q: What about Freeport McMoRan (FCX)?
A: I absolutely love it. Any big economic recovery can’t happen without copper, and you have a huge tailwind there from electric cars which need 200 pounds of copper each, as opposed to 20 pounds in conventional cars.
Q: I see AMC Entertainment Holdings (AMC) is up 20% today; should everyone be chasing this stock?
A: No, absolutely not. (AMC) and all the meme stocks aren’t investments, they’re gambling, and there are better ways to gamble.
Q: Should I buy the lumber dip?
A: Yes. I think the slowdown on housing is temporary because it will take 10 years for supply and demand in the housing market to come back into balance because of all the millennials entering the housing market for the first time. So, that would be a yes on lumber and all the other commodities out there that go into housing like copper, steel, and aluminum.
Q: Should I put money into Canadian Junior Gold Miners (GDX)?
A: No, I would rather go out and take a long nap first. These are just so high risk, and they often go bankrupt. The liquidity is terrible, and the dealing spreads are wide. I would stick with the bigger precious metal plays like Newmont Mining (NEM), Barrick Gold (GOLD), and Wheaton Precious Metals (WPM).
Q: Is Boeing (BA) a buy here?
A: Yes, we’re back at the bottom end of the trading range for the stock. It’s just a matter of time before they get things right, and the 737 Max orders are rolling in like crazy now that there’s an airplane shortage.
Q: What do you think about Robinhood (HOOD)?
A: I like it quite a lot; I got flushed out of my long position on Friday with a 10% down move. Of course, 90% of my stop losses end up expiring at their maximum profit points, but I have to do it to keep the volatility of the portfolio down. So yes, I’ll try to buy it again on the next dip. The trouble is it’s kind of a quasi-meme stock in its own right, hence the volatility; so I would say on the next 10% down day, you go into Robinhood, and I probably will too.
Q: How are the wildfires around Tahoe?
A: They’re terrible and there are three of them. I did a hike two days ago there, and out of a parking lot with 100 spaces, I was the only one there. It’s the only time I’d ever seen Tahoe deserted in August. With visibility of 500 yards, it's just terrible. Fortunately, I was able to hike without coughing my guts out—it’s not so thick that you can’t breathe.
Q: What do you think of US Steel (X)?
A: I like it, I think the whole industrial commodity complex rallies like crazy going into the end of the year.
Q: As a new member, where is the best place to start? It’s just kind of like drinking from a fire hose.
A: Wait for the trade alerts; they only happen at sweet spots and you may have to wait a few days or weeks to get one since we only like to enter them at good points. That’s the best place to enter new positions for the first time. In the meantime, keep reading all the research, because when these trade alerts do come out, they’re not surprises because I’m pumping out research on them every day, across multiple fronts. Be patient— we are running a 93% success rate, but only because we take our time on entering good trades. The services that guarantee a trade alert every day lose money hand over fist.
Q: If they do delist Chinese stocks, will US investors be left holding the bag?
A: Yes, and that will be the only reason they don’t delist them, that they don’t want to wipe out all current US investors.
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 or TECHNOLOGY LETTER (whichever applies to you), then select 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
“The most dangerous word in the English language is “cheap”” said a hedge fund manager friend of mine.
Mad Hedge Biotech & Healthcare Letter
August 26, 2021
Fiat Lux
FEATURED TRADE:
(ANOTHER FORETOLD ACQUISITION)
(PFE), (TRIL), (BNTX), (VTRS), (ALXO)
Another one of my predictions came true.
Last December, I wrote about the impressive potential of Trillium Therapeutics (TRIL) in my letter, titled “The Most Famous Cancer Stock You’ve Never Heard of,” and predicted that it’s going to be an attractive acquisition candidate soon.
Earlier this week, it finally happened.
Leveraging its extra cash from Comirnaty, the COVID-19 vaccine it developed with BioNTech (BNTX), Pfizer (PFE) has decided to push through with acquisitions instead of pursuing buybacks.
And the candidate at the receiving end of this cash flow is none other than one of my buyout candidates last year: Trillium Therapeutics.
The $2.3 billion acquisition was an excellent deal for Trillium, with Pfizer buying the cancer-centered biotech at a 118% premium over the stock’s average price in the past 60 days.
Given that Trillium stock closed at roughly $6 per share before the announcement, the deal practically tripled its worth at $18.50 each.
The price signifies Pfizer’s willingness to pay up to take over Trillium pipeline and portfolio after initially investing $25 million in the smaller company in 2020.
Trillium shares also skyrocket by 188% following the announcement of the deal.
The plan is for Trillium Therapeutics to bolster Pfizer’s oncology and hematology portfolios, with a focus on blood-related cancers.
This recent turn of events has been long awaited by Pfizer investors.
After all, the last time the company exceeded expectations was during its Viagra-driven frenzy era back in the late 1990s. Since then, the stock has been underperforming the S&P 500.
Unquestionably, Pfizer’s work on the COVID-19 vaccine helped the stock recover.
In its second quarter earnings report, Pfizer posted $7.8 billion in sales for Comirnaty alone. This brought the company’s total revenue to roughly $18.7 billion, showing off an 86% boost year over year.
However, even without Comirnaty’s contribution, Pfizer’s revenues still managed to rise.
Through the first six months of 2021, Pfizer’s revenue has reached $33.5 billion—up by 68% year over year. This is impressive considering that it followed the Upjohn spinoff with Mylan, which later became Viatris (VTRS).
Even without the COVID-19 vaccine, Pfizer still has promising growth prospects involving its core businesses.
For one, it has a number of blockbuster drugs that can easily become strong revenue streams for years to come.
For example, Prevnar sales grew by 34% year over year to reach $5.85 billion, pushing Pfizer’s oncology segment to climb by 16%.
Another blockbuster in the making is blood clot treatment Eliquis, which grew by 13% from the $5 billion in sales it generated in the second quarter of 2020.
As for its biosimilars, these notched a bit to more than $1.5 billion in sales last year and recorded a whopping 88% growth year over year thanks primarily to the newly released cancer drugs Zirabev, Ruxience, and Trazimera.
Meanwhile, heart failure treatment Vyndagel, which generated roughly $1.3 billion in 2020, reported an impressive 77% climb year over year for its $501 million in sales in the second quarter of 2021 alone.
Another heavy hitter in Pfizer’s portfolio is kidney cancer medication Inlyta, which reported $800 million in sales in 2020. For the second quarter of this year, the sales for this drug is up 29% year over year, with $257 million.
Management also boosted the company’s guidance from $70.5 billion to $72.5 billion.
Then, it raised it again to $78 billion, then once more to $80 billion. As for its COVID-19 vaccine sales, it increased its estimates from $26 billion to $33.5 billion.
While the sales from the COVID-19 vaccine definitely provided a comfortable boost for the company, its own portfolio of drugs demonstrates the capacity of its core business to drive revenues on its own.
Considering the FDA approval and support for the additional third booster shot, though, I anticipate that Pfizer will continue towards this path of acquiring smaller biotechnology companies in the foreseeable future.
In terms of other clinical-stage biotech firms potentially up for grabs next, the work of ALX Oncology (ALXO) has recently been put under the spotlight as it relates closely to Trillium’s cancer-centered technology.
Global Market Comments
August 26, 2021
Fiat Lux
Featured Trade:
(GOOGLE’S MAJOR BREAKTHROUGH IN QUANTUM COMPUTING),
(GOOGL), (IBM)
