Global Market Comments
March 10, 2022
Fiat Lux
Featured Trade:
(THE NEXT COMMODITY SUPERCYCLE HAS ALREADY STARTED),
(COPX), (GLD), (FCX), (BHP), (RIO), (SIL),
(PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX)
Mad Hedge Technology Letter
March 9, 2022
Fiat Lux
Featured Trade:
(NICKEL MARKET BECOMES HELLISH)
(JJN), (TSLA), (GM), (F)
Nickel (JJN) is essential for EV batteries, and that spells trouble for certain industries as the price of nickel explodes to the upside.
Projections between 2020 and 2037 reveal that global manufacturing of batteries for EVs and other new energy applications will rise tenfold.
That’s not a typo!
Recently, volatility was so high on nickel that London Metal Exchange, prompted a trading halt.
The price of nickel increased by 250% which many traders blamed directly on the war between Russia and Ukraine.
Unintended consequences have put shivers through the global economic system and higher prices of various types of metals will mean consumers will have less discretionary incomes.
Russia is one of the largest producers of nickel in the world, with miner Norilsk Nickel the number one producer of top-grade nickel globally.
If the metal were added to the sanctions list, it could severely shrink volume to Western suppliers and manufacturers.
EV batteries are one of the highest costs in producing an EV.
The price rise in nickel means that it will cost car manufacturers an extra $3,000 to produce the same car.
Costs are going up around the entire process of making an EV and the pain will be felt with a final sticker price substantially higher than today.
It is plausible that in 2 years we could experience a massive shortage which could exacerbate an already dire supply situation as demand continues to rise.
EVs are getting more popular as the quality of EVs produces gets better with each iteration.
No doubt Tesla helped popularize this type of car.
With the next biggest source of nickel being lower-grade Indonesian supply, and new nickel mines years away from getting online, the only logical conclusion is to bake in lower productivity from Western auto companies.
Ford (F) is planning to make 2 million EVs annually by 2026, GM (GM) hopes to sell 1 million EVs by mid-decade and launch 30 new EV models, and Stellantis plans to sell 5 million EVs by the end of the decade, with 25 new EV models on the way.
These companies are all catching up to Tesla (TSLA).
This will poo poo the momentum of the EV car movement temporarily which many believed would go into overdrive this year.
Once the business model supporting the case to make EVs becomes untenable, large car companies could pull back from these models until supply chains moderate.
Car companies aren’t in the business of building cars that lose money and now the unit economics have been thrown into chaos.
Uncontrollable costs to source raw materials for industrial battery makers such as LG Energy Solution, Panasonic, and Contemporary Amperex Technology Co will be passed to the end-user.
It will also make negotiations tougher with EV makers such as Tesla and Volkswagen. And it isn’t just nickel: Prices of cobalt and aluminum, two other key battery metals are grouped into this price surge as well.
U.S. President Joe Biden's solution for lower oil prices was to go out and buy an EV instead of buying gas at the pump. Well, that solution just became more costly and is rising by the day.
This effectively pushes the green movement further back and the high price of oil taking center stage is ruffling a lot of feathers for the American consumer that will have severe implications at the polls this November.
These costs headaches will also be a drag on EV stocks like Tesla in the short term because they simply won’t be able to deliver the volume of cars they planned to produce.
“Bitcoin is probably rat poison squared.” – Said Legendary U.S. Investor Warren Buffett
Global Market Comments
March 9, 2022
Fiat Lux
Featured Trade:
(HOW MY MAD HEDGE MARKET TIMING ALGORITHM WORKS)
Mad Hedge Biotech and Healthcare Letter
March 8, 2022
Fiat Lux
Featured Trade:
(A BIOTECHNOLOGY AND HEALTHCARE TRIFECTA STOCK)
(ABBV), (NVO), (CPH), (LLY)
A myriad of macroeconomic problems has thrown the stock market and the economy off balance.
Major US indices have been down since 2022, with some like the Nasdaq slipping by over 10% year-to-date due to volatile trading.
Meanwhile, there are businesses on a tear amid the issues.
One of them is AbbVie (ABBV), which gained more than 20% over the past six months.
This growth reinforced AbbVie’s reputation as a rock-solid investment that investors can rely on during uncertain periods.
Looking at its performance, AbbVie can be considered an investor’s trifecta primarily because of the benefits the company offers, namely, high yield, promising growth potential, and solid dividend growth.
AbbVie came off 2021 with 30% growth in its shares despite the global economic slowdown.
During that period, AbbVie reported a 13.4% year-over-year increase in its adjusted EPS at $3.31 and a 7.4% jump for its revenues at $14.9 billion.
This notable performance is mainly due to Humira’s sales, but this won’t be the case in the following years.
In 2018, AbbVie lost patent protection for Humira in Europe and is slated to lose exclusivity in the US by 2023.
For the longest time, AbbVie has depended mainly on Humira as its most vital source of revenue stream.
Nowadays, the company has been taking on a more diversified tactic instead of solely relying on the top-selling drug. The effects can be seen in its fourth-quarter report.
The company’s oncology sector grew by 4.6% to reach $1.9 billion. As for its neuroscience branch, it reported $1.7 billion in revenues or an impressive 19% climb from last year.
While AbbVie has been honing its diversification plans, the company still hasn’t forgotten where its true strength lies: immunology treatments.
Its immunology segment, where Humira is filed under, raked in $6.7 billion in revenues, showing a 13.2% increase compared to the same period.
To keep the momentum and preserve its spot as the leader in this segment, AbbVie introduced two successors to Humira: Skyrizi and Rinvoq.
In the same report, it can be seen that Humira still brought in the bulk of AbbVie’s immunology revenues at $5.33 billion, indicating a 3.5% increase in its previous revenues.
However, Skyrizi and Rinvoq also showed promising results.
Skyrizi sales carried on with its upward trajectory, as seen in the whopping 70.5% jump it recorded to contribute $895 million to the company.
As for Rinvoq, this treatment recorded an even higher jump at 84.4% to reach $517 million.
Throughout 2021, Skyrizi generated $2.94 billion while Rinvoq contributed $1.65 billion in sales. This indicated an 85% growth for Skyrizi and an over 100% year increase for Rinvoq.
Considering their performance, these two immunology successors to Humira are anticipated to move forward at a strong clip as AbbVie bags more FDA approvals for additional uses.
If things go as planned, Skyrizi and Rinvoq can quickly reach a combined revenue of $15 billion by 2025.
Outside its immunology sector, oncology treatment Imbruvica is projected to become another blockbuster.
To date, this drug ranks second to Humira in terms of sales, with roughly $5.41 billion in total in 2021.
Meanwhile, AbbVie has also been busy boosting its neurosciences division.
The company recently acquired Belgium-based Syndesi Therapeutics for approximately $1 billion.
Offering an upfront payment of $130 million, Syndesi granted AbbVie access to its portfolio of novel modulators of the synaptic vesicle protein 2A (SV2A). Among the products in development, the most prized treatment is Syndesi’s lead molecule SDI 118.
This mechanism is currently under Phase 1b trials for its potential use to treat cognitive impairment and other conditions linked to various neuropsychiatric and neurodegenerative diseases. These include Alzheimer’s disease and major depressive disorder.
Basically, SDI-118 targets a patient’s nerve terminals to boost synaptic efficiency.
This would complement the bigger company’s existing neuroscience efforts since AbbVie believes that synaptic dysfunction is an underlying problem when it comes to cognitive impairment associated with several disorders.
Launched in 2017, Syndesi is a biotechnology company backed by Novo Holdings, which owns controlling shares in global companies Novo Nordisk (NVO) and Novozymes (CPH).
Apart from its remarkable performance and growing pipeline, AbbVie’s stock dividend also serves as a strong pull for investors.
AbbVie stands at $1.41 per quarter or $5.64 per year.
Since its inception in 2013, the company has consistently increased its dividend annually.
In fact, AbbVie’s dividend yield of 3.87% remains a key attraction to investors despite the stock’s rising price.
No matter what metrics you use, AbbVie has managed to securely position itself at the top of the healthcare and biotechnology sector.
Over the course of the more than 9 years since AbbVie became a publicly-traded company, only Eli Lilly (LLY) has raked in higher total returns.
While the general market continues to bring uncertainty, AbbVie has been executing all the right moves to provide shareholders a haven to invest their hard-earned cash and earn a steady and rising return.
Mad Hedge Bitcoin Letter
March 8, 2022
Fiat Lux
Featured Trade:
(STAGFLATION COMES TO THE FORE)
(BTC)
It’s been well documented that we are in the midst of worsening inflation pressures and damaging growth prospects.
This is what many call a stagflationary shock, essentially making things worse on all economic fronts at once.
I do believe if we don’t get a decisive change of events in terms of the macro picture in the medium term, this could be negative for the prospects of Bitcoin appreciation for the rest of 2022.
Bitcoin performs best when inflation is moderate yet rising and growth is humming along.
The expanding pie means there is more capital to allocate towards more speculative investments which this European war has proven Bitcoin is.
When the threat of nuclear war presents itself, investors flee speculative assets like growth tech and reign back risk to choose assets such as gold, US dollar, and other hard commodities.
It’s really a shame because we were right on course for a splendid pandemic recovery and all major Western economies were experiencing boomflation — strong growth with high inflation.
Unfortunately, removing the growth part of the equation out of the mix, will the incremental investor want to dive into Bitcoin or allocate their assets to a different sector?
Most likely no.
Unless Bitcoin strengthens itself and presents itself as more appetizing during cataclysmic times, its hard to see investors betting the ranch in Bitcoin right now.
Much of the consensus before the military conflict was that investors were greenlighting 5% of their portfolio into crypto and other alternative investments.
A stagflation scenario would put a serious wrench in that consensus.
The near-term winner has certainly been hard commodities like precious metals evident by nickels' 90% spike in one day.
Even more problematic, stagflation isn’t the kind of economic disruption that can be fixed with a cheeky use of fiscal or monetary policy.
It's all pain with no upside, and what investor likes that?
The invasion sent commodity prices surging and global stock markets and bond yields plunging.
The median American in this environment is going to be more worried about paying more for gas or their spaghetti than investing in Bitcoin.
But financial market prices don't tell the full story. They remain highly volatile, as geopolitics has scared a lot of investors from the markets altogether which is another worry for not only Bitcoin but which is why we are seeing massive selloffs in the overall market.
In times of absolute strain, there is no incremental investor demand for speculative assets and people with money are more likely to buy a 5-bedroom house to bunker down and ride this thing out.
Higher energy prices — already evident in commodity markets — directly feed into higher inflation, but the risks are more sprawling and hard-to-calculate than that implies.
The concept of higher energy prices also will cause the costs of mining Bitcoin to skyrocket because mining is extremely energy-intensive.
This energy spike will be terrible for Bitcoin mining companies who are reliant on the world’s energy markets for their source of energy.
They have no way to circumvent this as their biggest input is energy.
Let’s not assume everyone stops mining, but let’s say the largest miners who have dedicated warehouses full of miners stop mining.
This would cause the network to come to a screeching halt, no blocks would be found until the block difficulty readjusts.
This happens every 2 weeks. Bitcoin’s mining algorithm is about guessing random numbers and hoping you get lucky. The mining difficulty indicates the threshold of a valid magic number. Any number less than the given difficulty is a valid block. Any number larger than the given difficulty is considered an invalid block by Bitcoin’s mining algorithm.
If all large miners were to stop mining, the mining difficulty would decrease (the magic number that determines block validity would actually increase), which means miners can now find a number larger than when large miners were mining and have the block be valid.
Essentially, this is negative for the development of Bitcoin because we would start to see the Bitcoin infrastructure erode.
This is at a time when investors are already questioning the use case of it during the threat of nuclear war or a 3rd world war.
Bitcoin needs all the help it can get and stagflation and miners dropping like flies triggering a collapse of infrastructure won’t help convince the incremental investors that Bitcoin is the place to put real money.
Sell the rallies if we get one.
“Bitcoin actually has the balance and incentives right, and that is why it is starting to take off.” – Said Australian Activist Julian Assange
