“The stock market is very much a mood ring,” said Josh Brown, of Ritholtz Wealth Management.
Mad Hedge Biotech and Healthcare Letter
August 29, 2023
Fiat Lux
Featured Trade:
(WEIGHTY RETURNS)
(NVO), (LLY), (SNY), (AMGN), (PFE), (AZN)
These days, the narrative around transformative weight-loss drugs just got a little juicier. Here's the lowdown: Heart-failure patients are now giving a nod to Novo Nordisk’s (NVO) Wegovy. But, why?
The intel shows that the overweight community, grappling with heart woes, noticed a stamina uptick and weight drop when on Wegovy. The buzz was so compelling that it got its spotlight moment at the European Society of Cardiology Congress in Amsterdam. Plus, the New England Journal of Medicine gave it some ink.
Dive into the numbers, and you'll find that out of about 530 individuals with hearts not really pulling their weight (pun intended), the Wegovy brigade shed 13% of their body weight. That’s in stark contrast to the 3% that the placebo group managed.
More walking, less heart huffing-puffing - Wegovy users clocked in 17 times more steps on the treadmill and showcased fewer heart hiccups. Oh, and fewer side effects? Check.
Rewinding the tape, GLP-1 drugs initially stepped into the arena as the remedy for Type-2 diabetes. But then, surprise! Novo’s Ozempic and Eli Lilly’s (LLY) Mounjaro became the talk of the town. Not just because they were treating diabetes, but because those popping them shed an eye-catching 15% to 20% of their body weight. That's blockbuster material right there.
Eventually, Novo bagged the FDA's green light first for weight loss with Wegovy, and its demand skyrocketed so much so that medical maestros started prescribing Ozempic and Mounjaro to folks with weight woes. Now, all eyes are on the FDA's next move concerning Lilly’s weight-loss contender.
Now, here’s the kicker. This isn’t Wegovy’s first rodeo in the spotlight. Earlier this month, eyebrows were raised when it was revealed that these new kids on the block, known as GLP-1 agonists, might be the next superhero squad against a gamut of diseases.
Yet, GLP-1 might not just stop at obesity and heart diseases. It can also combat a spectrum of illnesses, including Alzheimer's. As expected, Novo and Lilly are doubling down on this potential, exploring these drugs' impact on liver and kidney diseases. As the benefits of GLP-1s unfold, insurers will probably be queuing up to offer coverage.
Let’s paint a clearer picture in terms of market potential.
Nearly 42% of U.S. adults grapple with obesity. The World Obesity Atlas dropped a bombshell—by 2035, over 4 billion global citizens might be tipping the scales, adding an astronomical $4 trillion in health costs.
The repercussions? Beyond the obvious heart diseases, strokes, and type 2 diabetes, they are also prone to mental health challenges, like depression and anxiety.
The economic ripples? Staggering. A drug that can be the silver bullet for such a widespread health epidemic could be the next Wall Street darling.
The next 10 years will likely see the GLP-1 agonists market touching an annual $86 billion. Yet, these figures might be leaning heavily on diabetes and off-label prescriptions.
With the World Health Organization cautioning about a billion obese and 2 billion overweight individuals by 2030, it's clear—this market is about to get a whole lot bigger.
With promises like these, it's no shocker that investors are tossing their coins into the ring. Both Novo and Lilly have seen their valuations triple, and Lilly's net worth now towers over its peers at a staggering $500 billion, crowning it the globe's pharmaceutical kingpin.
However, it’s wise to remember that it's one thing to climb the mountain and another to stay on the summit. Even in this early stage, competitors have started to emerge, including Amgen (AMGN), Sanofi (SNY), AstraZeneca (AZN), and Pfizer (PFE).
By 2025, the biopharma giants could potentially unveil their very own GLP-1-based wonder drugs for obesity, chipping away a quarter of Novo and Lilly's market dominance by 2032.
In the ever-evolving theater of biopharma, GLP-1 agonists, led by stalwarts like Wegovy, are emerging as the new front-runners. While the rewards seem tantalizingly vast, savvy investors know the pharmaceutical landscape is punctuated with highs and inevitable lows.
And here's a golden nugget: in the dynamic world of stock trading, every dip is an opportunity disguised as a setback. So, if you're seeking a stock market mantra for this burgeoning sector, remember to buy on the ebb, not the crest. It's in these valleys that fortunes are made, setting the stage for robust returns. Dive in wisely.
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
August 29, 2023
Fiat Lux
Featured Trades:
(LAST CHANCE TO ATTEND THE WEDNESDAY, SEPTEMBER 6, 2023 SAN DIEGO, CALIFORNIA STRATEGY LUNCHEON)
(A NEW THEORY OF EQUITIES)
CLICK HERE to download today's position sheet.
Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in San Diego California at 12:00 noon on Wednesday, September 6, 2023.
The event will be held at a famous downtown San Diego restaurant with a spectacular harbor view. An excellent meal will be followed by a wide-ranging discussion and an extended question-and-answer period.
I’ll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Tickets are available for $279.
I’ll be arriving on time and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at an exclusive private restaurant in the downtown San Diego. The precise location will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for the luncheons, please click the BUY NOW! button above or click here.
So far, 2023 is playing out just as I expected. A fantastic first half is being followed by a flat second half. Since the October 15 bottom, the Dow Average has risen by an eye-popping 3,000 points.
Followers of the Mad Hedge Fund Trader are already up by 60% so far in 2023.
However, I have been getting some pushback from some of my readers, especially the many new ones. Yes, the Dow Average is still off 2,500 points from its all-time high, after one of the sharpest selloffs in history.
However, we are only just getting started.
While climbing the base of Italy’s Cinque Torre recently at 9,000 feet (where I always get my best ideas), I had an epiphany.
I finally realized that nothing less than a New Theory of Equities was needed to get followers to understand WHY the Dow will rise from 34,500 to 240,000 by 2030, a gain of 695%. If I’m wrong, it will happen by 2031 or 2032.
It’s really very simple. Recall the laws of supply and demand?
From 2010 to 2020, roughly $6 trillion was invested in financial assets. Because the Great Recession and the 2008-9 crash had just happened, some 94% of this money went into bonds, while only 6% went to equities.
During the entire decade, portfolio managers, strategists, and hedge fund managers pronounced that bonds were overpriced and would imminently crash.
Instead, they went up for ten years.
Fast forward to 2021. A new decade has begun and bonds around the world were offering negative inflation-adjusted real returns. The planet was massively overweight bonds.
Many people don’t realize how stupidly low-interest rates still are right now. Triple “C” rated bonds are yielding what Triple “A” paper was a decade ago, about 7.5%.
I looked at municipal bond yields the other day and my eyes almost popped out of my head when I saw 2.45%. This is a yield that is so low that it is beyond any economic rationale.
So, what happens next.?
Let’s say that those bond/equity cash flow weightings reverse, that all new investment for the coming decade goes 94% into equities and 6% into bonds. Stock markets would rise for the decade while bonds fall. There’s your Dow at 240,000 right there.
Portfolio managers, strategists, and hedge fund managers predicting that stocks are overpriced and ready for a crash will be wrong for ten years. We won’t be massively overweight equities until 2030.
They are wringing their hands that stock prices have outrun fundamentals. In fact, the opposite is true. Fundamentals are outrunning stock prices….in a big way. Productivity and profit margins are exploding. Think AI, quantum computers, and rapid robotization.
Traditional asset managers would correctly point out that price-earnings multiples are not exactly cheap. And they’d be right if you were only looking at tech growth stocks, the market leaders since 2009. The big caps are priced at mid-20s multiples.
This ignores the huge chunk of the market, the value stocks, that are selling at low teens or single-digit multiple and basically haven’t moved in a decade.
What happens next is that value stock multiples rise to match those of the FANG. Add in earnings growth and that gets you to 240,000 also. By the way, in this scenario price earnings rise a lot, from the current 20 to 30, 35, or even 40.
I’ve seen it all before.
The fact is that American companies cut costs so dramatically since 2020 that they have spectacular earnings leverage in 2023 and beyond. This year, it was cut, or die. Many US companies are now over-prepared for a recession that may not actually happen.
Where are the breadlines and soup kitchens?
Except that this time it’s different.
Remember the 2009 Obama stimulus package? It amounted to a measly $831 billion because Republicans were doing everything they could to block it and Obama was new at the job. Only major banks, brokers, insurance companies, and car makers got bailed out. The rest of us were left to twist in the wind.
This time, the aggregate stimulus is looking like $10 trillion by the time you add in packages 1,2,3,4, Covid-19 rescues, an infrastructure bill, and Biden’s latest $729 Climate/Inflation Fighting/Deficit Reducing bill which is only just now hitting the economy.
But wait, there’s more!
It gets better.
You have to live in Silicon Valley to know this, but the rate of technology innovation has increased by tenfold since the nineties and is far broader than ever imagined. You won’t believe what’s coming your way!
You might ask what happens if interest rates rise further, and they will. The answer here is simple: only invest in the non-borrowing part of the stock market. It turns out that all big tech companies are in fact are net lenders to the system because their cash flows are so enormous. That explains the “Magnificent Seven.”
Other industries benefit from rising rates, like banks, brokers, insurance companies, payday lenders, and money managers. Companies that DO borrow substantially you don’t want to buy anyway, as they are in the wrong industries.
Interest rates would have to get really high before they act as a drag on the stock market, like 6%, 7%, or 8% and that is probably a 2030 event.
The bottom line here is that we are about to see the biggest binge of equity buying in 50 years. Yes, it really WILL be a new American Golden Age and Roaring Twenties.
Start practicing that Charleston!
Yes, stocks are about to become what bonds were in 2010.
I have run this scenario past several of my big-time hedge fund buddies and they ask why I’m being so conservative. They are looking at a Dow Average of 300,000 or 400,000 by 2030 if everything plays out as I expect.
I guess I’m just a conservative kind of guy. Old age and arthritis will do that to a person. Even one that climbs mountains.
Is That A 240,000 Dow?
On Cortina’s Cinque Torre
“Never sell short anything just because it is expensive,” said the late Ace Greenberg, CEO of the late Bears Stearns
(THE MARKET APPEARS TO BE IN A CONSOLIDATION PHASE AS INTEREST RATES CONTINUE TO BITE)
August 28, 2023
Hello everyone,
Welcome to a new week. A Non-Farm Payroll week. And the week after the Fed informed us that interest rates would keep rising. The hype about Nvidia's (NVDA) earnings was well and truly put in its place once Powell at Jackson Hole started his speech. Many are now scratching their heads – is this a bull or bear market?
It’s complicated. This year through July, the S& P has risen 19.5% for a total return, including dividends, of 20.7%. When the market hit its bottom on Oct. 11, 2022, and then rose into June 2023 to gain 20%, many thought that a new bull market had begun. But alas, the markets had other ideas. This pause in August has been a healthy lull – which may continue into September. Only in a fantasmagorical land would the market continue up without a pause. Let me remind you, we are part of the real world and markets will take a breath when they have run too hard. They are also responding to interest rate movements and other fundamental data. So, let’s interpret the market movement as a non-trending market, which is in a period of consolidation.
Are you anxious about the market movements? Then step back from your micro analysis of the markets and take the macro view. I often rant about taking the big picture view of the market because investors sometimes sell their stocks when markets are drifting or correcting off their highs. And when the market has fallen quite substantially, many investors are often too nervous to buy. There are times when we would all like to grab the market and shake it out of its annoying directionless movements, but the market always knows the way. We just must be patient enough to follow and understand there is a time to have a break and a time to buy. The time to sell is an individual thing because it depends on whether you are short-term focused or investing for the long term.
I am bullish on the markets in the long term.
If you are looking for somewhere to put some funds now, 90-day T-bills are a good idea. Make sure you hold some cash, so you can make great stock buys/option trades as we near the end of this consolidation phase of the market.
Since interest rates started rising many people worldwide have been struggling with the cost-of-living pressures. People in the U.S. and elsewhere are tossing up whether to pay the utility bill or buy food, students are doing without many things, so they can buy textbooks and retirees are canceling overseas travel in favour of shorter breaks in their own country. Yet, many businesses are short of staff. And they will probably stay that way. Who is going to work for $7.25 an hour when you may be able to drum up some business working in an online platform like Fivver or Superprof for triple that amount? Furthermore, Gen Z, and other generations increasingly see the financial markets as a way to invest and earn some cash flow. The pandemic was a jolt to the world economy, and people are now deciding what they are worth and sending that sentiment out to the community.
Housing is another area that shows a picture of extremes. I have just read about a 71-year-old woman who has rented a house for 25 years, and at the beginning of August, she received an eviction notice. The rate of homelessness in Australia has become extreme. And the statistics are startling. About 19,300 Australians aged 55 or over are currently homeless, and 440,000 older households will be unable to find or afford suitable housing by 2031 as shown by research from the Australian Housing and Urban Research Institute. The research goes on to show that the total number of people aged 55 or over with a mortgage debt is 1,504,793, a 63% increase in 10 years. The Australian retirement system is built on the assumption or the expectation that older people will own a home by the time they retire. This is increasingly not the case.
Some housekeeping:
As per your request on the survey, I connected many of you with your peer last week. I hope you have made contact and find the connection helpful. If you would like to be set up with a buddy to learn more about the markets and trading, please drop me an email to request it. My email is munroj1461@gmail.com
I will be holding a Zoom on Thursday this week. Although I will send out a blanket invitation to everyone, you are welcome to drop me a note and let me know if you can attend.
I am still working on the social get-together date.
Impact of interest rates and inflation on the country.
Wishing you all a great week.
Cheers,
Jacquie
The stock market has long been a dynamic and complex environment, characterized by rapid fluctuations and intricate patterns that often baffle human traders. Over the years, technological advancements have transformed the way trading is conducted, with one of the most significant breakthroughs being the integration of artificial intelligence (AI). AI trading, powered by machine learning algorithms and advanced data analysis, has redefined how financial markets operate. This article delves into the pioneers of AI trading in the stock market, exploring the individuals and companies that laid the foundation for this revolutionary approach.
The roots of AI trading can be traced back to the late 20th century when pioneering individuals and institutions began experimenting with computational models to predict stock market movements. John Holland, a computer scientist and professor at the University of Michigan, is often credited as an early visionary in the application of AI to trading. He developed genetic algorithms that mimic the process of natural selection to optimize trading strategies, a concept that laid the groundwork for algorithmic trading techniques.
Simultaneously, companies like Renaissance Technologies, founded by mathematician James Simons, were making strides in applying quantitative analysis to trading. Simons and his team harnessed complex mathematical models to identify hidden patterns in financial data. While not explicitly AI, these approaches were precursors to the machine learning-based methods that would later revolutionize the industry.
The emergence of machine learning techniques breathed new life into AI trading. This approach involves training algorithms to improve their performance on a specific task by learning from data. As computational power increased, machine learning algorithms became more sophisticated, allowing traders to process vast amounts of data and recognize intricate patterns that were previously impossible to detect.
One of the pioneers who paved the way for machine learning in finance is David Shaw, the founder of D.E. Shaw & Co. In the late 1980s, Shaw's team began using machine learning algorithms to identify arbitrage opportunities. Their success propelled the integration of AI and machine learning into the financial industry, marking a turning point in how trading strategies were conceived.
As computing power continued to grow exponentially, high-frequency trading (HFT) emerged as a dominant force in the stock market. HFT relies on lightning-fast algorithms to execute trades in milliseconds, capitalizing on small price discrepancies. While controversial, HFT has undeniably reshaped the trading landscape, and AI plays a pivotal role in executing these rapid trades.
Among the key figures in the HFT realm is David Siegel, co-founder of Two Sigma Investments. Established in 2001, Two Sigma leveraged AI and data science to develop quantitative trading strategies. The company's success highlighted the potential of combining AI with market data to generate profits in real-time.
Deep learning, a subset of machine learning focused on neural networks, has further propelled AI trading to new heights. Neural networks are designed to mimic the human brain's structure, allowing them to process complex data and recognize intricate patterns. This technology has proven particularly adept at analyzing financial time-series data, which is crucial in predicting market movements.
A key trailblazer in applying deep learning to finance is Marcos López de Prado, a researcher and founder of True Positive Technologies. López de Prado's work has centered on developing algorithms that can discern meaningful signals from market noise. His efforts have not only enhanced trading strategies but also contributed to risk management practices.
The success of AI trading hinges on the availability and quality of data. Market data, economic indicators, news sentiment, and a plethora of other information sources feed into AI algorithms, enabling them to make informed trading decisions. The ability to process and analyze data swiftly and accurately is a cornerstone of effective AI trading strategies.
Simultaneously, individuals like Andreas Clenow, a quant trader and author, have advocated for a systematic approach to trading based on data-driven research. Clenow emphasizes the importance of long-term strategies and disciplined execution, aligning with AI's capability to analyze historical data and project future trends.
While the pioneers of AI trading have undoubtedly achieved remarkable success, the field is not without its challenges. Market unpredictability, overfitting of algorithms to historical data, and the risk of large-scale financial disruptions are just a few of the potential pitfalls. Additionally, the ethical considerations surrounding AI trading, such as its potential to exacerbate market volatility or exploit informational advantages, have sparked debates within the financial community.
The pioneers of AI trading in the stock market have reshaped the landscape of finance, ushering in a new era of data-driven decision-making. From early experiments with genetic algorithms to the sophisticated neural networks of today, these visionaries have harnessed the power of technology to uncover patterns and opportunities that eluded human traders. While challenges persist, the ongoing evolution of AI trading continues to redefine how markets operate, promising both new avenues for profit and novel avenues for scrutiny in the years to come.
Midjourney prompt: "The early pioneers of AI trading"