“We want Google to be the third half of your brain.” – Said Co-Founder of Google Sergey Brin
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
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
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
December 17, 2021
Fiat Lux
Featured Trade:
(DECEMBER 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (FCI), (TLT), (TBT), (BITO), (AAPL), (AMZN), (T), (TSLA), (BABA), (BLOK), (MSTR), (COIN)
Below please find subscribers’ Q&A for the December 15 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: With interest rates going up, would it make sense to short heavily indebted companies as a class?
A: Yes it does; those would be old-line industrials and auto companies with very heavy debts. Technology companies essentially have no debt unless they’re startups. So yeah, that’s a good idea; unless of course inflation is peaking right now, which it may be if you solve these supply chain problems, and it becomes evident that retailers overordered to beat the supply chain problems and now have a ton of excess inventory they can’t meet—then the inflation plays will crash. So, not a low-risk environment right now. No matter where you look, you’re screwed if you do, you’re screwed if you don't. So that is an issue to keep in mind.
Q: What do you think of Freeport McMoRan (FCX) short-term?
A: Short term, (FCX) only sees the Chinese (FXI) real estate crisis, which is getting worse before it gets better and could bring a complete halt to all known construction in China. The government is forcing the real estate companies there to run at losses in order to bring the bottom part of their society into the middle class with houses in third and fourth-tier cities. Long term, as annual electric car production goes from a million cars a year to 25 million cars a year and each car needs 200 lbs. of copper, we have to triple world production practically overnight to accommodate that. That can’t happen, therefore that means much higher prices. If you’re willing to take some pain, picking up freeport McMoRan in the low $30s has to be the trade of the century.
Q: Do you see a Christmas rally or a bigger correction?
A: Rally first. Once we get the Fed out of the way today, we could get our Christmas rally resumed and go to new highs by the end of the year. But, January is starting to look a little bit scary with all the unknowns going forward and massive long positions. January could be okay as hedge funds put positions back on in tech that they’re dumping right now. If they don’t show up…Houston, we might have a problem.
Q: Thoughts on the iShares 20 Plus Year Treasury Bond ETF (TLT) Dec 2022 $150-$155 vertical bear put spread?
A: Since I'm in low-risk mode, I would go up $5 or $10 points and not be greedy. Not being greedy is going to be one of the principal themes of 2022 therefore I’m recommending that people do the $160-$165 or even the $165-$170, which still gives you a 30% return in a year, and I think next year this will be seen as a fabulous return.
Q: What about the $100,000 target for Bitcoin (BITO) by the end of the year?
A: That’s off the table thanks to the Fed tightening and Omicron triggering a massive “RISK OFF” and flight to safety move. Non-yielding instruments tend not to do well during periods of rising interest rates, so gold along with crypto is getting crushed.
Q: What will happen in the case of a black swan event in early 2022, like Russia invading Ukraine?
A: Market impact for that would be a bad couple of days, a buying opportunity, and then you’d want to pile into stocks. Every geopolitical event that’s happened in the last 20 years has been a buying opportunity for stocks. Of course, I would feel bad for the Ukrainians, but it’s kind of like Florida seceding from the US, then the US invading Florida to take it back, and the rest of the world not really caring. Plus, it doesn’t help that their heavily nationalist post-coup government has some fascist tendencies. However, we could get global economic sanctions against Russia like an import/export embargo, which would hurt them and destroy their economy.
Q: Will the European natural gas shortage continue?
A: Yes because the Europeans are at the mercy of the Russians, who have all the gas and none of the economy. Therefore, they can export as much or as little as they want, depending on how much political control they’re trying to exert in Europe.
Q: Apple Inc. (AAPL) price target?
A: Well, my price target for next year was $200; we could hit that by the end of the year if we get a rally after the Fed meeting.
Q: 33% of the population is in collection status with personal debt, credit cards, etc—is that a harbinger of a 2008 crash?
A: No, it is a harbinger of excess liquidity, interest rates being too low, and lenders being too lax. However, we aren’t at the level where it could wipe out the entire economy like with defaulting on a third of all housing market debt in 2008.
Q: What should I do with my call spreads for Amazon.com, Inc. (AMZN)?
A: Well, November would have been a great sell. Down here, I’d be inclined to hold onto the spreads you have, looking for a yearend rally and a new year rally. But remember, with all these short-dated plays risk is rising, so keep that in mind.
Q: What do you think of AT&T Inc (T)?
A: The whole sector has just been treated horrifically; I don’t want to try to catch a falling knife here even though AT&T pays a 10% dividend.
Q: What about quad witching day?
A: Expect a battle by big hedge funds trying to push single stocks options just above or below strike prices. It’s totally unpredictable because of the rise of front-month trading, which is now 80% of all options trading with the participation of algorithms.
Q: Is the Alibaba Group Holding Limited (BABA) $230-$250 LEAP in June 2023 worth keeping?
A: I would say yes, I think the Chinese will come to their senses by then, and all the Chinese tech plays will double, but there’s no guarantee. That is still a high-risk trade.
Q: Does the US have an opportunity to export petroleum products?
A: The answer is yes, we are already a net energy exporter thanks to fracking. But, it is a multi-year infrastructure build-out to add foreign export destinations like Europe, which hasn’t bought our petroleum since WWII. Right now, almost all of our exports are going to Asia. No easy fixes here.
Q: Is Tesla Inc (TSLA) a buy at 935 down 300 in change?
A: Not yet; 45% seems to be the magic number for Tesla correction. We had one this year. And Elon Musk hasn’t quit selling yet, although I suspect he’ll end his selling by the end of the year because he’ll have met all his tax obligations for the year. He has to sell these options before they expire and are rendered useless. So that is what’s happening with Tesla, Elon Musk selling. And can you blame him? He almost worked himself to death making that company, time to spend some money and have a good time, like me.
Q: What if your Chinese company gets delisted?
A: Try to get out before it is delisted. Otherwise, the domicile moves to Hong Kong and you’ll have to sell equivalent shares there. I don’t know what the details of that are going to be, but the Chinese companies are trying to force companies to delist from the US and list in Hong Kong so they have complete control over what's going on. Also, I never liked these New York listings anyway because the disclosures were terrible, with Cayman Island PO Boxes and so on…
Q: Is the ProShares UltraShort 20+ Year Treasury (TBT) a good long-term position to hold?
A: It is to an extent—only if you expect any big moves up in interest rates, which I kind of am. This is because the cost of carry for (TBT) is quite high; you have to pay double the 10-year US Treasury rates, which is double 1.45% or about 2.90%, and then another management fee of 1%, so you have kind of a 4% a year headwind on that because of cost. Remember, if you’re short a bond, you’re short a coupon; if you’re double short a bond you’re short twice the coupon and you have to pay that and they take it out of the share price. But, if you’re expecting bonds to go down more than 4%, you’ll cover that and then some and I think bonds could drop 10-20% this year.
Q: What’s the difference between GBTC and BITO?
A: Nothing, both are Bitcoin plays that are tracking reasonably well. I prefer to go with the miners—the Bitcoin providers, that’s a selling-shovels-to-the-gold-miners play. They tend to have more volatility than the underlying Bitcoin, so that’s why I’m in (BLOK) and (MSTR) when I’m in it.
Q: What’s the best way to buy Crypto?
A: If you really want to buy Crypto directly, the really easy way is to go through one of the top crypto brokerage houses, and we’ve recommended several of those. Coinbase (COIN) is the one I’m in. It literally takes you five minutes to set up an account and you can instantly buy Bitcoin linked to your bank account.
Q: What are the fees like for Coinbase?
A: The fees at (COIN) are exorbitant only if you’re buying $10 worth of Bitcoin. If you’re buying like $1 million worth, they’re much, much smaller. But I recommend you start at $10 and work your way up as I did, and sooner or later you’ll be buying million-dollar chunks of Bitcoin which then double in three months, which happened to me this year.
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 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
Mad Hedge Biotech and Healthcare Letter
December 16, 2021
Fiat Lux
Featured Trade:
(TIME TO LOOK AT ONE OF THE LEAST FAVORED BIOTECHS)
(AMGN), (RHHBY), (PFE), (MRK), (GSK), (JNJ), (AZN)
Value investing shouldn’t be an ordeal. It definitely doesn’t have to entail scouring for a needle in a haystack. The truth is, several quality discount stocks are hiding in plain sight. Unfortunately, these have fallen out of favor with investors recently.
While the market has performed quite well in 2021, the technology sector served as the primary driving force behind this positive performance.
In comparison, the healthcare sector has been besieged with negative updates throughout the year. This resulted in a number of excellent biotech healthcare names getting undervalued, and one of them is Amgen (AMGN).
Amgen is widely known as one of the biotechnology and pharmaceutical sector pioneers, alongside Genentech, which has since been acquired by Roche (RHHBY). The company focuses on specialty biologics in the fields of blood disorders, cancer, and immunology.
To date, Amgen has a market capitalization of $119 billion and has generated $25.8 billion in revenue in the past 12 months.
This biotechnology company also holds a relatively solid and steady track record of growth, having grown its revenue by roughly 65% in the past 10 years.
Amgen has also virtually not experienced any significant dip in its sales over the same period—an impressive feat considering the slowly crowding and often tumultuous biotech space.
Looking at its EBITDA margin, or earnings before interest, taxes, depreciation, and amortization, Amgen also emerges as a superior stock compared to others in the industry.
In the past five years, Amgen’s EBITDA margin has consistently been within the 50% range. This is higher than its peers, such as Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), and Johnson & Johnson (JNJ), which only reached 30%, while Sanofi (SNY) recorded roughly 20%.
In addition, Amgen declared a dividend worth $1.76 per share each quarter in October. This represents a 10% jump year over year.
Then, the company opened in December with another dividend increase to reach $1.94 per share by the first quarter of 2022, showing off a 10.2% increase year-over-year.
Since 2011, Amgen has been consistent in increasing its dividend payout annually—a guarantee of the company’s robust and stable business performance.
Moreover, Amgen’s dividend yield is higher than other industry leaders as well. At present, the company offers a 3.5% dividend yield. In comparison, Pfizer gives out 2.9%, while JNJ offers 2.7%.
To sustain its momentum, Amgen has been busy bolstering its pipeline.
Thus far, the company has 58 programs under development. Of these, there are 34 queued in Phase2/3 clinical trials, while there are others submitted for regulatory approval.
One of the promising programs is its collaboration with JNJ, which combines Amgen’s Kyprolis and the latter’s Darzalex Faspro.
Just this December, the US FDA approved this combination treatment for patients suffering from multiple myeloma, a rare type of blood cancer.
In terms of profitability, Kyprolis generated $1.065 billion, and Darzalex Faspro raked in $4.19 billion in sales in 2020.
The high revenues recorded for these drugs last year are indicative of the strong demand from the healthcare industry.
This means that the approval of the combination treatment could lead to a more lucrative payout for both companies moving forward.
Another promising program for Amgen is Tezepelumab, which is a severe asthma therapy it developed with AstraZeneca (AZN).
In July, this treatment was approved for Priority Review by the US FDA. The two companies expect to submit Tezepelumab for approval to the US FDA by the first quarter of 2022.
Meanwhile, Amgen is also working on its first RNA-based treatment, called Olpasiran or AMG 890. This project is for myocardial infarction patients and will work the same way as gene therapies.
Basically, its goal is to target the relevant gene to prevent any damage. Looking at its timeline, Amgen expects Phase 2 results within 6 months.
If this RNA-based project succeeds, Amgen plans to expand its portfolio to include more than 25 first-in-class therapies and three more biosimilars based on this technology.
Doing so will equip the company with a steady revenue runway while also reinforcing its position as one of the top biotechnology companies in the world.
Overall, Amgen looks extremely undervalued these days, making it attractive given how profitable this biotech is and its prospects moving forward.
Mad Hedge Bitcoin Letter
December 16, 2021
Fiat Lux
Featured Trade:
(ANOTHER WAVE OF CRYPTO ADOPTION IS COMING)
(BTC)
Wall Street is finally getting the message.
On the horizon is crypto becoming an investment-grade quality asset and many hedge funds and private equity funds aren’t risking missing the boat.
This translates into more attention given to digital assets from institutional managers than ever before.
Around 35% of hedge fund managers believe that crypto in one form or another is the “can’t miss” asset of the next 10 years.
This is a seismic shift in the attitude of privately managed funds, and it was only last year that crypto was deemed an “asset of interest.”
But with many things in life, people become conditioned and 2021 will prove to the mainstream that this asset is not going anywhere.
What can you expect from now on?
The unadulterated “professionalization” of crypto through and through.
The expertization of the cryptocurrency ecosystem will translate into a more robust infrastructure that will offer many types of new exchanges and DeFi technologies that will segue us into the internet 3.0 or better known as the metaverse.
We are still quite far from being a “traditional” asset, but every little bit helps.
There will also be widespread encouragement at the Federal and State level for a clearer understanding of how crypto will be regulated.
There is still a great deal of confusion, and I am not only talking about Congress whose members hardly understand what the digital gold is about.
But I can say with conviction that we are resolving bottlenecks and it’s true we won’t get fully scaled mainstream adoption next year, but at the conversational level, many are looking out for the next opportunity.
Whether they will jump into it guns blazing is the next issue we will need to consider.
This all stems from investors hoping to participate in the “first mover” effect which is often the path from rags to riches.
Many institutions are now forming new crypto divisions inside the money funds they manage.
Last year, Tudor Investment Corp. founder and Chief Investment Officer Paul Tudor Jones gained the attention of crypto enthusiasts after arguing in an investor memo that bitcoin can serve as an inflation hedge.
Access to digital custody solutions has been a catalyst to manager interest in crypto.
Internal control reports from these custodians, assessments that have been evaluated by independent parties, have helped firms better weigh regulatory, business, and other risks associated with crypto assets.
New regulations will create another wave of institutional money into crypto as a group of managers are on the fence and waiting for the next level of clarity.
The right regulatory framework would allow for even more investment opportunities.
In general, large institutional managers are the most geared towards crypto investments which I would classify as funds with over $10 billion.
There still is much headway to make as around 15% of hedge fund managers have allocated towards crypto and about 10% of private equity funds.
Of these funds that have participated in crypto, it’s highly common to see only 1-5% of their capital invested in the crypto space.
Naturally, this will grow as crypto starts to pose a more attractive financial profile than stocks or fixed income.
Among management firms detailing plans to participate in crypto, nearly half said they would invest directly into cryptocurrencies, and half expect to allocate to crypto derivatives.
Ultimately, the potential return on capital is the driving force behind the desire for institutional money diving into this newly established asset.
The maturation phase will continue into 2022 and missing out on this industry is a suicide mission for private money and these managers know that.
