August 2022

Building A Recession-Proof Portfolio

In my biotechnology and healthcare newsletter earlier this week, I talked about Amgen (AMGN) and how critical it is to determine recession-proof businesses.

In the next quarters and even years, it will no longer be as vital to identify companies that can bring high growth returns in the short term.

Instead, what’s more important is to find stocks that can withstand any bear market and a recession.

Like Amgen, Gilead Sciences (GILD) also performed better than the S&P 500 (SPY) and the Nasdaq 100 (QQQ) in the past 12 months.

Considering that we are anticipating a steep recession and a potentially brutal bear market in the following quarters, Gilead Sciences is presenting itself as a solid pick.

Some refer to Gilead Sciences as a one-trick pony, but that’s not an opinion I agree with despite the company’s over-reliance on its HIV programs and antiviral treatments.

For perspective, its antiviral portfolio comprises more than 90% of the company’s 2021 revenues while its top-selling products that year are all from its HIV segment.

Although Gilead Sciences has been expanding its portfolio, the company’s HIV program remains its best moneymaker. In the second quarter of 2022, sales of its HIV treatments have risen by 7% year-over-year.

Demand for treatments in this space has climbed in the past months, which allows for more room for growth in the foreseeable future.

Among the HIV treatments, Biktarvy is the best-selling product. It’s also the treatment that continues to gain a bigger market share.

By the second quarter of 2022, Biktarvy has been reported to claim roughly 44% of the market share in the US, marking a 4% increase year-over-year.

Meanwhile, another potential blockbuster is Lenacapavir. This is a new product, which will be marketed as a long-acting injectable HIV treatment once it gains FDA approval. If this gets the green light, this could rake in an estimated $2 billion in the first year of its release.

Aside from its HIV treatments, Gilead Science’s hepatitis franchise has also been steadily growing.

Amid the competition against the likes of Abbvie’s (ABBV) Mavyret, the company’s combo treatments with Sofosbuvir continue to generate significant cash flows and promising sales.

However, this segment raked in $1.9 billion in sales, down 9% year-over-year. The decline could be attributed to the effects of the pandemic.

Nevertheless, Gilead Sciences have been working on updating this particular program and adding newer treatments to deliver better results.

Another segment that saw a spike in 2021 is the antiviral program, primarily due to Veklury or Remdesivir.

When COVID-19 broke, Veklury was hailed as the first-in-line treatment. This led to a substantial boost in sales since 2020, with the company earning $2 billion from the product at that time.

By 2021, Veklury sales skyrocketed by 98% to hit $5.6 billion.

Frankly, no one truly expected Veklury to reach those figures—even Gilead Sciences’ management. In their first-quarter conference call in 2021, the company estimated full-year sales for the product to be roughly $2 to $3 billion.

While Veklury’s numbers are impressive, I think this product’s days are numbered because of the emergence of more competitors and better alternatives in the market these days.

In any case, this treatment is a testament to Gilead Sciences’ ability to deliver effective and reasonably priced antivirals to market.

Moving forward, Gilead Sciences looks to be exploring the oncology sector.

Its move to acquire CAR T-cell therapies via the $12 billion deal with Kita Pharma in 2017 is one of the clearest indicators of this plan.

On top of that, Gilead Sciences also acquired Trodelvy from Immunomedics in 2020. As far as fast-tracking its expansion in the oncology space goes, this definitely pushes the company to the forefront.

As a standalone treatment, this can reach peak sales of $2 billion to $3 billion.

Other than testing it with its own pipeline as a breast cancer treatment, Gilead Sciences has been collaborating with Merck (MRK) to determine the efficacy of Trodelvy when combined with Keytruda as a first-line treatment for non-small cell lung cancer.

Overall, Gilead Sciences is a great addition to a portfolio of recession-proof companies.

While it may not be as impressive as industry titans like Bristol Myers Squibb (BMY), Merck, AbbVie, Pfizer (PFE), and Johnson & Johnson (JNJ), it definitely bears the early signs of improvement, a promising future, and the ability to withstand a recession.

August 11, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
August 11, 2022
Fiat Lux

Featured Trade:

(FINK AT IT AGAIN)
(BLK), ($BTCUSD), (GME), (AMC)

Fink At It Again

Bitcoin Letter

BlackRock (BLK) investment fund was the first asset manager to surpass $10 trillion in assets held as the US Central Bank fueled the largest asset bubble created in human civilization.

That was a great achievement.

This is also why the CEO of BLK Larry Fink, as of April 2022, is worth an estimated US$1 billion according to Forbes Magazine.

Not too shabby.

Fast forward to the end of 2^nd quarter of 2022, BLK was the first to lose $1.7 trillion in assets in the first half of 2022 when the tech market nosedived.

The monumental loss has resulted in some unique unintended consequences that have now manifested in BlackRock migrating into crypto by teaming up with Coinbase on a product designed to help institutional investors trade bitcoin.

The propensity for BlackRock to entertain asset inflow by sliding them into passive funds is great on the way up, but volatility has really twisted the fork into that strategy as the deleveraging in the capital markets has made it harder to achieve alpha.

How will BLKs new partnership work?

The world’s largest asset manager will allow clients to use its Aladdin investment management system to buy, sell and monitor their cryptocurrency holdings via Coinbase’s exchange, the biggest in the US.

BlackRock said the partnership will be focused on bitcoin – at least “initially”.

The move is the latest sign that some of the biggest players in traditional finance – known as TradFi in crypto circles – are confident in the long-term prospects for cryptocurrencies.

This major nod of approval to crypto was a glimmer of good news among the bad as Coinbase, which has been mired in multiple investigations from the Federal government, is handcuffed in regulatory limbo.

The major crypto exchanges have also slashed jobs at a dizzying pace with 1,100 jobs in recent months, after admitting that it hired too quickly during the crypto bull run of 2021.

Institutions made up about three-quarters of Coinbase's $309 billion in trading volumes in the first quarter, the company said in May. Among others, its clients include asset managers, large corporate treasuries, and asset managers.

I believe this is BLK's buy-low approach to the crypto industry as many critical pieces to the crypto infrastructure have flamed out in bankruptcy lately.

BLK wants to cover its bases by being able to take part in the next crypto resurgence if and when that happens.

This also gives them a low-cost exit strategy if the sushi hits the fan.

As investors believe rate cuts will occur next June, that obviously brightens the prospects for crypto prices.

This by no means translates into BLK exposing clients to major crypto investments.

I hear that they are advising high net worth clients into an asset allocation of 1-3%.

I highly doubt there will be a comingling of assets like crypto and equities into one branded ETF.

BLK most likely will silo the crypto business and see if it takes off all while taking a measured approach to its prospects.

The BLK management are already smoothing over the normal talking points like paying lip service to the superior technology of blockchain and how it can be “incredibly innovation and disruptive.”

Buzz words are nice on the ear but usually short on substance.

The truth is that crypto has been an absolute failure since November 2021 and its latest rally has evolved from the backdrop of an expectation of sooner interest rate cuts.

Unfortunately, the crypto industry was one of the few industries in America that got hit by the deleveraging bubble because it is the most speculative.

One might also throw in meme stocks like Gamestop (GME) and AMC (AMC) as secondary losers to the central bank tightening.

Even zombie corporate companies are alive and kicking as the tightening cycle hasn’t been that tight.

We are setting up for a positive 2023 and crypto could really take off when interest rate cuts become the new normal.

Trade Alert - (SPY) August 11, 2022 - BUY

Trade Alert

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

August 11, 2022

Diary, Newsletter, Summary

Global Market Comments
August 11, 2022
Fiat Lux

Featured Trade:

(THE GOVERNMENT’S WAR ON MONEY)
(TESTIMONIAL)

August 10, 2022

Tech Letter

Mad Hedge Technology Letter
August 10, 2022
Fiat Lux

Featured Trade:

(THE VISION FUND NEEDS MORE VISION)
(SOFTBANK), ($COMPQ)

The Vision Fund Needs More Vision

Tech Letter

Last quarter, the tech ($COMPQ) bellwether venture fund Softbank lost $23 billion!

The Founder Masayoshi Son is a genius at losing money.

For those doing the math, that’s over $10 million PER HOUR in Q2 or $3000 per second.

His poor decisions cost the likes of Saudi Arabia, The UAE, and other cashflow-rich entities.

The Saudi oil money got sold on the dream of “reimagining salad delivery” and building coupon apps for dogs.

It didn’t work.

It's fair to say there was a gross misallocation of funds buoyed by an era of cheap capital, and now many of these business models have blown up.

Over-capitalization of startups has a way of masking fundamental business models.

Even Uber. The unit economics make zero sense as a ride-share with higher gas prices, expensive car insurance, higher gross wages, and expensive debt issuances.

They have never justified their valuation and they are still in business only because they are a monopoly.

It’s crazy to think a company like this is still worth an overinflated $61 billion today because it should be closer to $15 billion.

CEO Masayoshi Son's multibillion-dollar investment spree over the past few years has shredded his fat ego as rising interest rates and recession fears decimated tech shares and venture capital investments.

Warren Buffet likes to say when the tide comes in, we get to see who’s swimming naked.

Son added that he will be making big changes over the coming months, looking to be “more selective in making investments,” because “the market and the world are in confusion.”

Vision Funds have backed over 470 startups globally in the past six years, but SoftBank approved just $600 million in investments for the funds in the April-June quarter, a 97% decline in spending from the same quarter last year.

Son is also firing a bloated staff which clearly, he doesn’t need since performance and stock prices have gone out the window.

SoftBank was also forced to sell $10.5 billion of the Chinese e-commerce giant Alibaba’s stock to raise cash in the April-June quarter and dumped an additional $6.8 billion in shares after the quarter ended.

SoftBank saw its losses from stock market investments pile up during the April-June quarter. The Vision Fund alone saw $2.18 billion in losses from its stake in the South Korean e-commerce leader Coupang, which is down 33% year to date, and $1.64 billion in losses from DoorDash, which has dropped 46% since January.

But it’s the Vision Funds' early-stage investments that are seeing the worst results amid an ongoing venture capital slowdown, with startups such as the buy-now, pay-later darling Klarna losing billions in value so far this year.

Startups don’t thrive in this current high inflation, high interest rate, supply chain bottleneck economy.

Stagflation fears have skyrocketed.

Son is finding out the hard way with these young companies decimated and is grasping at straws.

In this world, tech investors must filter the strong amongst the pitiful and the broad-brush approach of buying a massive basket of emerging tech won’t work anymore if a good chunk of them are fat zeroes.

The massive tech bubble is still deflating as the Fed is pedal to the metal with raising interest rates.