Mad Hedge Technology Letter
August 31, 2022
Fiat Lux
Featured Trade:
(BACK TO THE OFFICE)
(COMPQ)
The writing is on the wall for in-person office attendance – it’s never coming back, and why should it?
Sure, the fathers with 3 young children love to go to the office to get away from the noise, but mostly everybody else likes to work from home.
That will not change.
Recent data points back to my thesis and show that the dispersion of young tech workers throughout the United States will alter the make-up of the tech industry.
First, it will make tech wage bills demonstrably lower since most companies have a policy of paying per local wage structure.
If workers move from Manhattan, New York to Boise, Idaho, tech workers will get paid a Boise wage.
The latest thwarted recall by New York state has fallen on deaf ears.
For instance, New York Mayor Eric Adams called on city residents to “get back to work” after the arbitrary lockdowns.
His call to action was met with a resounding thud and Adams recently acknowledged hybrid work may be here to stay.
Nearly one-quarter of workers are in the office twice a week, according to the survey, with that number dipping to 11% for four days a week.
Still, the share of employees who are working fully remote fell from 54% in October 2021 to 28% in late April, the survey said.
While the numbers show more workers are heading back to the office than a few months ago, the survey also unveiled that remote work is likely to persist, as 88% of employers have said a hybrid office model has a high chance of permanent existence.
Naturally, the percentage of fully remote workers was due to dip because the country opened back up, we simply aren’t locked up anymore.
However, I believe we will migrate into a binary world where high-production workers will be able to spell out the type of work environment they want, and low-production workers won’t have any negotiating power to dictate terms.
At the very worst, highly productive workers will be forced into in-person office work 1-2 times per week if they are alpha workers.
This shows the amount of leverage that tech companies have lost in their battle to retrench workers back into the old world that no longer exists.
The world has really changed since early 2020 and the tech industry is still fumbling through the fallout and unintended consequences.
Geographically, this is a disaster for tech strongholds like Silicon Valley and good for the low tax strongholds of Austin, Texas, and Florida.
On the bright side, this phenomenon will produce new, exciting, and successful tech companies from parts of the world we never heard of.
Lastly, for the thriving entrepreneur, these events mean that it has never been cheaper to create and maintain a tech company with no need to pay for office space and the ability to outsource work to an army of remote workers in different time zones.
The elevated job vacant numbers reveal that tech workers are being pickier in what job they want to do and increasingly choosy in what type of politics they hope their employer to have.
Outperformance has never been so important in 2022 and the treatment of top employees compared to low-level employees has never been starker and more polarized.
Essentially, I am highly bullish on the future of technology and it’s up to us to create this thriving environment.
WHO NEEDS THE OFFICE?
“Play by the rules, but be ferocious.” – Said Nike Co-Founder Phil Knight
Global Market Comments
August 31, 2022
Fiat Lux
Featured Trade:
(THE LAZY MAN’S GUIDE TO TRADING),
(ROM), (UXI), (BIB), (UYG),
(TESTIMONIAL)
Mad Hedge Biotech and Healthcare Letter
August 30, 2022
Fiat Lux
Featured Trade:
(THE TIMES ARE A-CHANGING)
(NVS), (LLY), (ALC), (GSK), (PFE), (JNJ), (BMY)
With the US GDP sliding for another quarter, the economic projections are becoming increasingly hostile.
However, investors who have consistently been buying quality stocks could easily consider the gloomy economic conditions as a bump in the road.
One of the most resilient companies in the biotechnology and healthcare industry is Novartis (NVS).
The Swiss drugmaker, which has a massive market capitalization of $207 billion, is ranked as the sixth biggest pharma stock worldwide.
Over the past 12 months, Novartis has delivered better results than the overall pharmaceutical industry and the S&P 500. Its performance, albeit marginally better than the rest, proved its resilience amid such chaotic and complex situations.
Recently, Novartis announced that it would cut loose its Sandoz division, turning it into a standalone spinoff by the second half of 2022.
Basically, Novartis has two main segments: Innovative Medicine and Sandoz.
The company’s Innovative Medicine section comprises roughly 80% of its sales and centers on everything involving patented to prescription products.
Its Sandoz section, approximately 20% of the total sales, is further categorized into franchises: Biopharmaceuticals, Retail Generics, and Anti-Infectives.
The stay-behind business would be composed solely of the products in the Innovative Medicines segment, a combination of Novartis’ oncology and pharmaceuticals business divisions.
This makes Novartis the latest name to be added in the long line of Big Pharma players letting go of their generics division to strip away all but their core products in development.
The plan to spin off Sandoz, Novartis’ division concentrating on generics and biosimilars, has been in the works for quite some time now.
Prior to this announcement, there were even talks of a potential acquisition instead of creating a standalone company. However, no attractive enough offer was given, pushing Novartis to go ahead with its original plan.
Sloughing off the generics and biosimilars divisions could help solve some of the company’s issues.
The generic drug sector has been causing issues for drugmakers as of late, and sales of the Sandoz division have been notably stagnant compared to the steady growth of Novartis’ new drugs sector.
To put things in perspective, Sandoz’s net sales in 2021 was only $9.6 billion, while the company’s Innovative Medicine division raked in a whopping $42 billion.
Getting rid of Sandoz means Novartis could focus on more promising products in its portfolio and develop more blockbuster drugs in its pipeline.
For instance, the company can focus on expanding the treatments involving Cosentyx.
The top-selling drug in Novartis’ portfolio, making up 10% of total revenues, Cosentyx continues to rise rapidly, reporting double-digit growth.
This drug targets psoriatic arthritis and was valued at $7.15 billion in 2019. By 2027, this drug is expected to be worth $13.64 billion.
Most importantly, its patent will last longer as it will expire by 2028 in the US, 2029 in Japan, and 2030 in Europe.
Another blockbuster drug in Novartis portfolio is chronic heart failure treatment Entresto, which accounts for roughly 9% of the company’s total revenues. The growth of this product has been impressive thanks to the high demand in Europe, which means an increase in its sales is almost guaranteed.
Like Cosentyx, its patent will also last longer and is estimated to reach until 2036. This makes Entresto one of the most interesting—if not the most exciting—drug in Novartis’ pipeline.
Novartis is also becoming a significant player in the metastatic breast cancer market, estimated to grow from $15.52 billion in 2020 to $41.74 billion in 2030.
The company’s product in this segment, Kisqali, has been gradually taking up market share and is expected to gain more traction as it expands its indications.
In terms of growth, though, multiple sclerosis drug Kesimpta is the top performer in Novartis’ portfolio. In the second quarter of 2021, sales were at $22 million. In the same period in 2022, the number skyrocketed to $239 million.
Kesimpta is anticipated to become another blockbuster, especially with the projections in the multiple sclerosis market.
This segment is estimated to be worth $25.43 billion in 2022 and will grow to $33.17 billion by 2029. While the growth isn’t as massive as other segments, the exciting news is that Kesimpta has been outpacing the growth rate of the reference market thus far.
The move to eliminate Sandoz is in line with the ongoing aggressive slimming down of the company’s operations.
In 2014, Novartis sold its animal health segment to Eli Lilly (LLY). A few years after, it spun off its eye-care sector to become Alcon (ALC), then sold its consumer health segment to GlaxoSmithKline (GSK) for $13 billion.
Meanwhile, the decision to become a pure-play pharma has become a widespread trend among prominent names in the industry, with the likes of Pfizer (PFE), Johnson & Johnson (JNJ), and Bristol Myers Squibb (BMY) transforming into sleeker and slimmer businesses.
Ultimately, the goal is for these pharma giants to shed unwanted weight to compete in the faster-paced biotechnology world. The plan is to focus all their resources on advancing the science and developing the technology needed to come up with the next groundbreaking innovation.
With Novartis joining the bandwagon, we can expect its growth to accelerate over the long term as it focuses more on strengthening its already solid and impressive pipeline. I highly suggest that you buy the dip.
Mad Hedge Bitcoin Letter
August 30, 2022
Fiat Lux
Featured Trade:
(BACK IN THE BOND MARKET GUTTER)
(BTC)
After a generous reversion to the mean bounce for the price of Bitcoin, Bitcoin has again sold off proving that the biggest talking point out there for crypto enthusiasts is interest rate.
They are too high for Bitcoin to thrive.
Bitcoin was supposed to be the cure for high inflation, but ironically enough, it has been anything but a cure for high inflation.
As inflation has gone from bad to worse, the incremental investor has decided with their wallet to spend not on the beautiful digital gold, but on food, housing, and electricity.
Stagflation elements translate into the consumer being more practical with their hard-earned money. Retail investors aren’t strolling down the street waving fistfuls of Benjamin’s in the air.
As Bitcoin has proven to be one of the most sensitive asset classes to the short-term movement of U.S. interest rates, analysts have been forced to rejig their models for a lower bitcoin price.
The expectation of higher US interest rates will in effect mean lower Bitcoin prices and the reverse is true if expectations of lower interest rates materialize.
Bitcoin cratered again by 5% to hit $19,000 and other major digital tokens also sold off, with ether falling to $1,400.
US Fed Chairman Jerome Powell delivered a hawkish speech to undercut the nascent bitcoin rally.
It’s still plausible that even if inflation has peaked from the 9.1%, it could stay stubbornly high as many of the Fed estimates for next year show a 6% estimate.
An inflation with a 6 at the beginning is still a painful data point and not ideal for the prospects of crypto.
Crypto is 3-4 times more sensitive compared to vanilla S&P stocks meaning it overshoots to the downside during selloffs and overshoots to the upside during rallies.
The crypto market has been plagued by a number of issues including the collapse of stablecoins, which triggered a chain of events that led to the bankruptcy of lending platform Celsius and hedge fund Three Arrows Capital.
It's important for Bitcoin to hang in there and even though this short-term selling pressure is heating up the temperature in the kitchen for Bitcoin investors, investors must think longer term.
Why?
Because the Fed will pivot, they always do.
When the Fed pivots, regulators will then turn to expected interest rate cuts in 2023, which would give crypto investors a lifeline.
That loosening cycle will most likely boost crypto back past that $45,000 level.
If crypto does rebound in 2023 because of lower rates, then this would give incentives for crypto participants to mend the inferior infrastructure that has been so badly exposed in 2022.
The security, trust, and management of the exchanges and intermediaries' needs vast improvement.
If adults can enter the room and start dotting the I’s and crossing the T’s at the back end, the next bull market in crypto might be a little less scandalous and controversial than the last one.
Either case, don’t quit your day job to day trade crypto because the asset class is still unproven and that means going from hero to zero in 5 seconds.
Better days are ahead for crypto as the clock ticks down to the Fed pivot where dovish policies will supercharge the price of Bitcoin and make up for its recent laggard performance.
“The politicians say 'we' can't afford a tax cut. Maybe we can't afford the politicians.” – Said CEO of Forbes Media LLC Steve Forbes
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