“Your time is limited, so don't waste it living someone else's life.” – Said Co-Founder of Apple Steve Jobs
Global Market Comments
August 3, 2022
Fiat Lux
Featured Trade:
(GOOGLE’S MAJOR BREAKTHROUGH IN QUANTUM COMPUTING),
(GOOGL), (IBM)
Mad Hedge Biotech and Healthcare Letter
August 2, 2022
Fiat Lux
Featured Trade:
(A RISING TIDE LIFTS ALL BOATS)
(MRNA), (PFE), (NVAX), (SNY), (BNTX)
Moderna (MRNA) shareholders have one major worry in recent months: that the biotech company’s billion-dollar COVID-19 vaccine sales will eventually dry up.
After all, roughly 67% of the US population has already been fully vaccinated. Hence, it’s not surprising for investors to wonder whether the company’s glory days are over.
As a result, Moderna’s share price has taken a hit. The stock has slipped by over 35% so far in 2022. However, this looks more like an overreaction rather than a response to anything the company has done.
If anything, it seems that investors have read the situation wrong since Moderna recently received a billion-dollar vaccine dollar from the US.
The deal isn’t for the original version of its COVID-19 vaccine though. Instead, it’s for an updated booster candidate that targets the original coronavirus and the emerging omicron BA.4 and BA.5 strains.
Moderna will receive $1.74 billion to supply the US with 66 million doses of the updated booster. This means the price per dose would be $26.36.
This pricing is lower than the deal with Pfizer (PFE) for a similar booster, which had an implied price per dose of $30.48. In total, Pfizer is set to receive $3.2 billion for 105 million doses.
Nevertheless, this new Moderna contract shows a substantially higher price compared to the previous deal wherein the US paid $3.3 billion for 200 million doses.
That particular deal implied that the price per dose of the vaccine was at $16.50. in comparison, Pfizer’s vaccine was priced at $24 per dose.
A probable explanation for this disparity in pricing is the fact that Moderna received approximately $1 billion in funding from the US government courtesy of its Operation Warp Speed program. Meanwhile, Pfizer refused to participate in such a scheme.
Taken together, Moderna and Pfizer are slated to deliver 171 million doses of the updated booster by fall and winter.
Admittedly, those won’t be sufficient to cover the entire US population. This is why both contracts have options that would allow the government to add 300 million doses each as needed.
In terms of delivery, Moderna announced that its candidate should be ready for the fall vaccination campaign by the end of August.
Outside its coronavirus vaccine efforts, Moderna has a promising pipeline of candidates. To date, the company has 46 programs under development including personalized cancer vaccines.
Of these, Moderna has three candidates queued for Phase 3 trials. All of them are investigational vaccines. One is for the flu, another is for the respiratory syncytial virus (RSV), and the third targets the cytomegalovirus (CMV).
The flu vaccine has competition in Sanofi (SNY) and possibly Novavax (NVAX). However, there are no CMV and RSV vaccine candidates in existence.
Needless to say, getting the green light from the FDA for one or both of these vaccine candidates would be a massive win for Moderna.
More importantly, the company would hold the precious first-to-market competitive edge.
Another exciting candidate is Moderna’s collaboration with Vertex Pharmaceuticals (VRTX). The two are working on an inhaled candidate treatment for patients with cystic fibrosis.
Considering that Vertex is practically a monopoly in this space, its partnership with Moderna could mean a potential game changer in the industry.
Overall, Moderna’s lucrative deal with the US government could be indicative of another exciting period for coronavirus vaccine stocks.
After all, a rising tide lifts all boats.
Moreover, this group had the best performers on the market in the past years. Novavax skyrocketed by 2,700% in 2020 following the announcement of its COVID-19 program. BioNTech (BNTX) jumped by 600%, while Moderna climbed by an impressive 1,200%. Even Pfizer reaped rewards from its coronavirus candidate as it rose by 59% during the same period.
While these vaccine stocks won’t likely repeat their stellar performances, there are still several investment opportunities involving these companies.
The key is to choose a business that does not simply depend on its coronavirus vaccine gains but also leverages the opportunities to expand and diversify its portfolio.
This is what Moderna has been doing. With numerous programs in its pipeline, the company has turned itself into a multi product business that offers stability and growth. Investors eager to add a vaccine stock in their portfolio should buy the dip.
Mad Hedge Bitcoin Letter
August 2, 2022
Fiat Lux
Featured Trade:
(POWELL BOOSTS CRYPTO)
(BTC), (ETH)
After Bitcoin’s nosedive from $31,000 to $19,000, the digital gold has transitioned into a phase of low volatility.
This lull has helped out stabilize the asset class.
At one point, $12,000 was on the table but now, as recessionary fears have started to creep back into the market psyche, an expectation of loosening the liquidity regime appears to be in the cards.
Or so that is what the market is pricing in and when we look at the Fed Funds rate, it shows a forecast of interest rate cuts starting after March 2023.
Interest rate cuts are highly bullish for cryptocurrency because lower interest rates mean easier access to borrowing money to pour into alternative assets like crypto.
The tighter the money policy, the more conservative investors become preferring to invest in real estate and energy assets.
This year certainly hasn’t been the year of Bitcoin, yet we roll into the last half of the year hoping that 2023 will deliver rate cuts to crypto traders.
Positive signs have been filtering through following the Federal Reserve's announcement to raise interest rates by 75 basis points, bitcoin climbed over $24,000.
Ethereum has more than doubled bitcoin’s gains over the same period, jumping as much as 57%.
The future expectation of rate cuts has been boosted because of US Central Bank Governor Jerome Powell’s weak testimony.
Signaling the bringing forward of rate cuts because a recession could come is bullish Bitcoin.
However, the current problem we have is 9.1% inflation devouring the 2.5% Fed Funds rate.
The probable result is when the Fed finally does pivot to a more dovish stance, it will do so while admitting defeat to inflation.
In the most recent Cleveland Fed inflation expectations, July is estimated to be 8.8%.
To be sure, the total market capitalization for all crypto assets is still down roughly 60% from its peak reached in November 2021. But cryptocurrency prices have rebounded over the first half of July with fresh buying having sent the sector's total market cap back above $1 trillion.
The 200-day moving average (DMA), which traders use as a technical gauge for whether an asset's trend is broadly higher or lower, still sits far above current levels and is declining for both bitcoin and ether.
As far as crypto fundamentals go, Ethereum's merger is a potential positive for markets through the summer. Core developers of the Ethereum blockchain have slated its software upgrade from proof-of-work to proof-of-stake, the so-called "Merge," for as early as the week of September 19.
People like hearing hard dates and we are still waiting for one from Ethereum.
Ultimately, what is abundantly clear is that the lack of appetite to raise rates is good news for all risk assets as we move forward into 2023.
This means we won’t see a repeat of a disastrous sell-off that occurred the past year in crypto.
Since the middle of June, the bitcoin dip has been bought and I can easily see a scenario where crypto continues to inch up if inflation comes down to a 5-7% range which is entirely possible.
Crypto, the industry itself, has a lot of work to do, but the macro picture is what is powering the price right now.
“The function of leadership is to produce more leaders, not more followers.” – Said American Political Activist Ralph Nader
Global Market Comments
August 2, 2022
Fiat Lux
Featured Trade:
(AN INSIDER’S GUIDE TO THE NEXT DECADE OF TECH INVESTMENT),
(AMZN), (AAPL), (NFLX), (AMD), (INTC), (TSLA), (GOOG), (META)
Last weekend, I had dinner with one of the oldest and best-performing technology managers in Silicon Valley. We met at a small out-of-the-way restaurant in Oakland near Jack London Square so no one would recognize us. It was blessed with a very wide sidewalk out front and plenty of patio tables.
The service was poor and the food indifferent, as are most dining experiences these days. I ordered via a QR code menu and paid with a touchless Square swipe.
I wanted to glean from my friend the names of the best tech stocks to own for the long term right now, the kind you can pick up and forget about for a decade or more, a “lose behind the radiator” portfolio.
To get this information, I had to promise the utmost confidentiality. If I mentioned his name, you would say “oh my gosh!”
Amazon (AMZN) is now his largest holding, the current leader in cloud computing. Only 5% of the world’s workload is on the cloud presently so we are still in the early innings of a hyper-growth phase there.
By the time you price in all the transportation, labor, and warehousing costs, Amazon breaks even with its online retail business at best. The mistake people make is only focusing on this lowest of margin businesses.
It’s everything else that’s so interesting. While its profitability is quite low compared to the other FANG stocks, Amazon has the best growth outlook. For a start, third-party products hosted on the Amazon site, most of what Amazon sells, offer hefty 30% margins.
Amazon Web Services (AWS) has grown from a money loser to a huge earner in just four years. It’s a productivity improvement machine for the world’s cloud infrastructure where they pass all cost increases on to the customer who, once in, buy more services.
Apple (AAPL) is his second holding. The company is in transition now justifying a massive increase in earnings multiples, from 9X to 25X. The iPhone has become an indispensable device for people around the world, and it is the services sold through the phone that are key.
The iPhone is really not a communications device but a selling device, be it for apps, storage, music, or third-party services. The cream on top is that Apple is at the very beginning of an enormous replacement cycle for its installed base of over one billion phones. Moving from upfront sales to a lifetime subscription model will also give it a boost.
Half of these are more than four years old, and positively geriatric in the tech world. More than half of these are outside the US. 5G has added a turbocharger.
Netflix (NFLX) is another favorite. The world is moving to “over the top” content delivery and Netflix is already spending twice as much on content as any other company in this area. This is why the company won an amazing 44 Emmys last year. This will become a much more profitable company as it grows its subscriber base and amortizes its content costs. Their cash flow is growing by leaps and bounds, which they can use to buy back stock or pay a dividend.
Generally speaking, there is no doubt that the pandemic has pulled forward some future technology demand with the stay-at-home trend. But these companies have delivered normal growth in a hard world.
5G has enabled better Internet coverage for everyone and increased the competitiveness of the telecom companies. Factory automation has been another big area for 5G, as it is reliable and secure, and can be integrated with artificial intelligence.
Transportation will benefit greatly. Connected self-driving cars will be a big deal, improving safety and the quality of life.
My friend is not as worried about government-threatened break-ups as regulation. There will be more restraints on what these companies can do going forward. Europe, which has no big tech companies of its own, views big American tech companies simply as a source of revenue through fines. Driving companies out of business through cutthroat competition is simply not something Europeans believe in.
Google (GOOG) is probably more subject to antitrust proceedings both in Europe and the US. The founders have both retired to pursue philanthropic activities, so you no longer have the old passion (“don’t be evil”).
Both Google and Meta (META) control 70% of the advertising market between them, which is inherently a slow-growing market, expanding at 5% a year at best. (META)’s growth has slowed dramatically, while it has reversed at (GOOG).
He is a big fan of (AMD), one of his biggest positions, which is undervalued relative to the other chip companies. They out-executed Intel (INTC) over the last five years and should pass it over the next five years.
He has raised value tech stocks from 15% to 30% of his portfolio. Apple used to be one of these. Semiconductor companies today also fall into this category. Samsung with 40% margins in its memory business is a good example. Selling for 10X earnings is ridiculously cheap. It is just a matter of time before semiconductors get rerated too.
He was an early owner of Tesla (TSLA) back in the nail-biting days when it was constantly running out of cash. Now they have the opposite problem, using their easy access to cash through new share issues as a weapon to fight off the other EV startups. Tesla is doing to Detroit what Apple did to the cell phone companies, redefining the car.
Its stock is overvalued now but will become much more profitable than people realize. They also are starting to extract services revenues from their cars, like Apple has. Tesla will grow revenues by 30%-50% a year for the next two or three years. They should sell several millions of the new small SUV Model Y. Most other companies bringing EVs will fall on their faces.
EVs are a big factor in climate change, even in China, the world’s biggest polluter. In Europe, they are legislating gasoline cars out of existence. If you can make money building cars in Fremont, CA, you can make a fortune building them in China.
Tech valuations are high, there is no doubt about it. But interest rates are much lower by comparison. The Fed is forcing people to buy stocks, enabling these companies to evolve even faster.
Tech stocks have a lot more things going for them than against them. The customers keep coming back for more.
Needless to say, the above stocks should make up your short list for LEAPS to buy at the coming market bottom.
Mad Hedge Technology Letter
August 1, 2022
Fiat Lux
Featured Trade:
(The iCar)
(APPL)
