Global Market Comments
May 18, 2022
Fiat Lux
Featured Trade:
(WEDNESDAY JUNE 29, 2022 LONDON STRATEGY LUNCHEON)
(HOW “HIGH” CAN MARIJUANA STOCKS GO?)
(TLRY), (CGC), (TOKE)
(TESTIMONIAL)
I called one of my long-time northern Nevada clients the other day to find out why he hadn’t renewed his subscription.
He told me he was quitting the stock market for good and going into the marijuana business. There were no values to be had in stocks anymore and fortunes were to be made growing pot on an industrial scale.
Then what I learned was astonishing.
In the last year, marijuana cultivation in Nevada has soared from 1,000 to 5,000 acres. The number of licensed growers has rocketed from 11 to 220. The industry now injects $50 million a year into the Reno economy. You can’t go anywhere in town without running into a pot shop.
A big impetus was the passage of the 2018 US farm bill which largely decriminalized marijuana at the federal level. States have been legalizing weed for a decade. Local banks are now allowed to accept the proceeds of marijuana sales without getting hit with money laundering charges.
And here’s the real shocker. Pot growers can now get federal crop insurance for growing weed, eliminating much of the risk for farmers! Industry associations expect marijuana to become a $25 billion a year industry by 2023. It’s all proof that if you live long enough, you see everything.
Marijuana is actually quite hard to grow. Not only do fields have to be weeded every day, requiring a large labor input, marijuana is unusually sensitive to literally hundreds of plant viruses. One virus can wipe out an entire crop in three days.
The opioid epidemic has become a major factor in the explosive growth of the pot industry. Thanks to crackdowns at the federal and state level, it is almost impossible to get Vicodin any longer. In Nevada you are tracked like a dope dealer, requiring monthly urine tests to prove you’re actually using and not selling it.
However, the pain is still there. As the baby boomer generation ages (boomers are now 58-74), arthritis is becoming rampant, as are other painful maladies. Since marijuana research has been a career killer for scientists for 100 years, very little is known about the potential benefits. Today, it is being applied to migraine headaches, aching joints, and chemotherapy (it’s a great appetite builder).
When the state of Colorado legalized pot a decade ago, every family in the United States with a child afflicted by certain types of juvenile epilepsy moved there. It was the only cure.
Early during the marijuana boom, I met with the CEO of Tilray (TLRY), the largest publicly listed marijuana company, to see if there was a real trade there.
There wasn’t.
All I heard was pie in the sky predictions, rosy forecasts, and unrealistic business models. What he didn’t mention is that the listed companies still suffer from massive competition from the black market, where prices are 40% lower (it’s tax-free).
I ran a mile, deciding instead to buy more Apple (AAPL) and Tesla (TSLA). That worked. The market has heartily agreed with my analysis, taking (TLRY) down a gut-punching 98% since that meeting. Nice miss!
I talked to my own doctor to see if there was any value in the hundreds of the marijuana-based medicinal products now flooding the market. His assessment was that most products were so diluted that it was impossible to assess whether the active ingredient in marijuana, CDB or cannabidiol, was effective or not. Some contained little more than green food coloring.
We may not know the true effects of CBD for years until years of research has taken place, which is only just now getting started.
As for the public investment opportunities in marijuana, it’s another one of those industries where it’s better to use the product than buy the stock.
Avoid pot stocks like a bad trip.
Investment Opportunity?
Hey John,
Hope you’re doing well.
Quick question: I have $500,000 on the sidelines reserved for Tesla (TSLA) investment. I have been waiting for a correction, too long maybe. Any argument to keep waiting?
By the way, I’m thanking you again for my $300,000 investment in Apple (AAPL) as encouraged by you, which is now worth $2.2 million.
Jay
Greensboro,
North Carolina
Answer: Tesla is likely to see a selloff after it joins the S&P 500 on Monday, December 21. All of the buying for the past six weeks, or $250, has been driven by this one event. Tesla has a long history of 40% corrections after key announcements so I would look to get back in then. Otherwise, keep doing the deep-in-the-money call spreads that I have, made possible by the extremely high 96% implied volatility in the options market. That is four times the (SPX) volatility.
Mad Hedge Biotech and Healthcare Letter
May 17, 2022
Fiat Lux
Featured Trade:
(A BIOTECH PIONEER WITH AN ENDURING LEGACY)
(AMGN), (AZN), (ABBV)
Forever is a long time, and the move to buy and hold stocks for good is a decision that should never be approached lightly.
How can you guarantee that a company is capable of delivering solid numbers every year?
One way to approach this is to consider stocks with a long history, especially when these businesses are frontrunners in steadily growing industries that are on track to keep developing and expanding in the next few years.
In the biotechnology and healthcare sector, a name that fits the bill is Amgen (AMGN).
Amgen is a pioneer in the biotechnology sector, with the company developing innovative treatments in oncology, inflammatory conditions, and biosimilars since the early 1980s.
For the past 12 months, Amgen has generated roughly $24.4 billion in revenues globally.
Its first-quarter results for 2022 showed a respectable 6% year-over-year increase thanks to the double-digit growth of its key drug programs. In effect, the company also reported a 15% rise in its adjusted earnings per share.
In particular, the main growth drivers during this quarter are Repatha, which was up 15% to reach $329 million, Evenity, up by 59% to rake in $170 million, and Prolia, up by 12% to report $852 million.
Amgen prides itself on many products, with revenues growing by double-digit percentages, with several newer treatments in the lineup projected to drive top-line growth for an extended period.
Aside from the potential of Prolia, Evenity, and Repatha, Amgen and AstraZeneca’s (AZN) collaborative work, asthma medication Tezspire, and non-small cell lung cancer treatment Lumakras are anticipated to become top-selling products as well.
Approved in almost 40 countries, Lumakras is expected to gain more regulatory approval in the coming years, making the argument for its blockbuster potential stronger than ever.
On top of these, Amgen has over 24 programs queued for clinical trials, with the company continuously bolstering its pipeline.
Meanwhile, its biosimilar arm is growing with 5 high-quality treatments already out on the market and an additional 6 more expected to be launched from 2023 to 2030.
Among the biosimilars in the lineup, perhaps the most exciting and possibly most profitable would be the biosimilar to AbbVie’s (ABBV) mega-blockbuster Humira. Looking at the timeline, Amgen’s candidate should be out by January 2023.
Apart from being a good defensive stock, Amgen is also a great option for income-seeking investors.
This biotech titan offers a 3.08% dividend yield, which is starkly better than the S&P 500’s 1.37%.
Meanwhile, its cash dividend payout of roughly 47.88% is conservative enough to guarantee that the company manages to sustain dividend boosts in the following years.
Over the past 3 years, Amgen’s payouts have increased by 33.79%—and there’s more where that came from.
Lifesaving treatments are crucial to patients, and available therapies for several conditions can always be improved upon. Moreover, there are many diseases with no approved drugs just yet.
In addition, the global population is aging. The number of people aged 60 and above is expected to approximately double by 2050.
This means that the spending on prescription drugs would also go up as the demographic ages.
Hence, companies like Amgen are anticipated to enjoy an even bigger target market in the coming decade.
Those are strong reasons that ensure the longevity of the businesses in the healthcare sector. For high-quality companies, these can serve as excellent catalysts not only for continuous revenue generation but also for potential blockbuster treatments.
As the largest biotechnology company in terms of market capitalization, Amgen continues to deliver positive returns and promise stability to its shareholders amid all the chaos and uncertainties.
With an excellent dividend, bolstered with a solid pipeline, key franchise programs, and lineup, Amgen is a great target for investors looking for stocks to buy and hold for a long time.
Mad Hedge Bitcoin Letter
May 17, 2022
Fiat Lux
Featured Trade:
(SAM DROPS A BOMB)
(BTC), (FTX)
One of the leading lights of the crypto industry CEO of crypto exchange FTX Sam Bankman-Fried dropped a bomb on the crypto industry and you are going to want to hear what he said.
Many crypto fanatics want to believe that crypto will one day replace the precious American dollar as the global reserve currency.
Walk down the street for a Starbucks latte and dish out some crypto.
Take an Uber to a friend’s house, and dish out some more crypto.
Bill, please!
Well, Bankman-Fried filled us in and out of any person in the world, he understands what’s going on.
Bitcoin will not be the future payment network.
That’s not its use case.
Bankman-Fried cited the inefficiency and high environmental costs as a prohibitive step to adopting crypto as the de facto payment network for the world.
He later says that crypto has scaling problems.
His opinion is highly incongruous with the hopes and dreams of what crypto set out to be and even though it doesn’t change anything in one day, it could adversely affect the incremental investors at a time when crypto prices and system risk have been going in reverse.
Countries such as El Salvador and the Central African Republic have adopted Bitcoin as a legal tender. But recent research by academics in the US found that Bitcoin has scarcely been used for daily payments in El Salvador, despite the rollout of bitcoin ATMs and other measures to encourage its use.
The 30-year-old billionaire, who has expanded FTX into one of the world’s largest virtual asset exchanges, said an alternative type of blockchain known as proof of stake, or other technological innovations, would be required to create a functional crypto payments network.
Ethereum has been working to move to a proof of stake system, which is intended to be less energy-intensive.
This is the only way it will work if the are billions of payments every millisecond and the network will need to digest this right through.
Crypto, in its current form, is woefully unprepared to operate at that capacity.
Other sharp criticisms of Bitcoin stem from the serious environmental concerns about the amount of energy needed to run proof of work cryptosystems.
Crypto regulators around Europe have been sniffing blood in a region that taxes everything to smithereens.
Mining bitcoin consumes more energy than many countries, including Norway and Sweden, according to Cambridge university’s Bitcoin Electricity Consumption Index.
If crypto networks attempted to scale up to these billions of transactions per millisecond, costs would be uncappable and it could crash the network in one day.
Even if Bankman-Fried gave many investors the sour juice we didn’t want to drink, it’s highly positive to be real about what we are dabbling in.
Crypto isn’t the panacea investors are looking for and for the diehards, it won’t replace the US dollar and it won’t have a glorious network of daily payments.
Bankman-Fried alluded to the hope that Bitcoin could represent a safe store of value, but even saying that, look at what’s going in with stable coins and their values dropping by 99%.
There is a lot to sort out in the crypto world and the first six months have doled out a few crushing uppercuts.
I am highly bearish in the short-term on crypt assets and the altcoins is something nobody should touch as the stable coin fiasco could spill its other marginal coins.
BILLIONAIRE CRYPTO ENTREPRENEUR SAM BANKMAN-FRIED
“I know tech better than anyone.” – Said Current President of the United States Donald J. Trump on his Twitter Account in 2018
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
May 17, 2022
Fiat Lux
Featured Trade:
(JULY 28 VENICE, ITALY STRATEGY LUNCHEON)
(WHY OUR BOND SHORTS ARE AT RISK),
(TLT), (TBT), (AAPL), (NVDA)
