Mad Hedge Biotech and Healthcare Letter
October 24, 2023
Fiat Lux
Featured Trade:
(INNOVATION OVER EXPIRATION)
(ABBV), (ALPMY), (PFE), (BAX)
In the current investment landscape, with the nearly 5% annualized yield from the 10-year U.S. Treasury bond casting a formidable shadow, making a case for investing in stocks might seem like an uphill battle. Especially so when one considers the sluggish performance of several stocks over the past two years, excluding those in niches like artificial intelligence and weight loss.
Yet, history teaches us a vital lesson: high-quality dividend stocks, especially in the biotech sector, tend to outpace most other asset classes in the long run. While the broader market has seen fluctuations and shifts towards safer options like CDs, dividend magnates in the biotech space, like AbbVie (ABBV), command attention for value and income investors.
Ever since its spin-off from Abbott Laboratories in 2013, AbbVie has carved a niche for itself. The sheer numbers are a testament to this: an eye-catching 270% growth in its dividend payouts over the last decade.
This performance positions it with a current yield of 3.99%, making it one of the most attractive propositions within the biopharma dividend landscape.
Further sweetening the pot is its moderate cash payout ratio of 42%, indicating a strong potential for more generous dividend increases in the foreseeable future.
Still, as with any investment, it's paramount to factor in the challenges ahead. AbbVie's journey with Humira, the anti-inflammatory drug, serves as a case in point.
Commanding a price tag of $50,000 annually, Humira wasn't just another drug in the market; it was a pharmaceutical marvel that earned the accolade of being the highest-grossing drug in history. But the winds of change are inevitable.
AbbVie's U.S. patent protection for Humira has expired, signaling an era where the company has to look beyond this blockbuster drug for its revenue streams.
The spotlight now is on Skyrizi and Rinvoq, AbbVie's next-gen immunology therapies. These drugs have shown commendable performance since their introduction to the market. However, the looming question is whether they can step into Humira's colossal shoes.
While some analysts remain skeptical about Skyrizi and Rinvoq matching up to Humira's performance benchmarks before 2030, AbbVie's internal projections are more bullish, eyeing a turnaround by 2025.
But amidst these contrasting forecasts, there's a silver lining that both skeptics and optimists agree upon: buoyed by its robust cash flows, AbbVie is expected to sustain, if not enhance, its dividends for at least the next decade.
Pivoting slightly and shining a light on its innovative pursuits, AbbVie unveiled promising results for Rinvoq in a mid-stage trial for vitiligo treatment.
For the uninitiated, vitiligo is a condition where individuals experience a loss of skin pigment, affecting varied parts of the body. The potential market for vitiligo treatments is substantial, with current valuations at $410.5 million, projected to burgeon to $625.8 million by 2031.
The increasing number of vitiligo cases globally plays a significant role in this growth trajectory. To put things in perspective, the Global Vitiligo Foundation in 2021 estimated that nearly 70 million people worldwide are affected by this condition, with a sizable fraction being children.
Navigating this emerging and competitive landscape is no small feat. Powerhouses like Astellas Pharma (ALPMY), Pfizer (PFE), and Baxter (BAX) are just a few of the giants that dot this arena. Every move by AbbVie, especially its endeavors with Rinvoq, is more than just corporate strategy; it's a tango in a fiercely competitive ballroom.
Now, coming full circle to the heart of the matter: What does this all mean for an investor with a keen eye on biotech dividends? AbbVie's journey is both a testament to its past prowess and an indicative nod to its future trajectory. While Humira's glory days might be seeing a horizon, the dawn of Skyrizi and Rinvoq offers a fresh chapter filled with both risks and rewards.
For those already holding AbbVie stocks, the prudent strategy might be a blend of patience and perseverance, enjoying the dividends while staying attuned to the market's pulse. Investments, after all, are as much about the art of patience as they are about the science of numbers. Today's challenges could well be the stepping stones to tomorrow's successes. I suggest you wait for a better entry point and buy the dip.
Global Market Comments
October 24, 2023
Fiat Lux
Featured Trade:
(POPULATION BOMB ECHOES),
(MOS), (AGU), (WEAT), (CORN), (SOYB), (RJA)
(A SHORT HISTORY OF HEDGE FUNDS)
Legendary Fortune Magazine editor, Winslow Jones, created the first hedge fund out of a shabby office on Broadway Avenue in New York City in 1948 and generated monster returns over the next 20 years.
He got the idea of a 20% performance bonus, now an industry standard, from ancient Phoenician sea captains who kept a fifth of the profits from successful voyages. Jones must have had a historical bent.
Then came the second generation titans, George Soros, Julian Robertson, and Michael Steinhardt, who made their debut in the sixties.
I count myself among the third generation along with Paul Tudor Jones and Louis Bacon, who launched funds in the late eighties when there were still fewer than 200 funds and $25 million was still considered a lot of money.
The really big money showed up in the nineties when the pension funds found them during the 1990s.
After that, we suffered through the many ordeals that followed, including the collapse of Long Term Capital in 1995, the Amaranth blow-up in natural gas in 2006, the Lehman Brothers bankruptcy in 2008, and John Paulson’s hair-raising 50% drawdown in 2011.
Today, there are over 7,000 hedge funds, thought to manage some $2.8 trillion, which dominate all financial markets.
Hedge Funds Do Have Their Advantages
“Wall Street denizens are always ready to suspend disbelief when dubious maneuvers are used to manufacture rising per-share earnings , particularly if these acrobatics producer mergers that generate huge fees for investment bankers,” said Oracle of Omaha, Warren Buffet.
The gaming industry has undergone a remarkable evolution over the past few decades, with rapid advancements in technology pushing the boundaries of what is possible in the realm of entertainment. The integration of artificial intelligence (AI) into video games has been a pivotal force in this transformation, enhancing gameplay, graphics, and overall user experience. Generative AI, a subset of AI, holds immense potential to radically reshape gaming. In this article, we will explore how generative AI is poised to redefine gaming, touching upon various aspects, and highlighting key examples of gaming companies that are actively investing in this technology.
Generative AI: A Brief Overview
Generative AI is a branch of artificial intelligence that focuses on creating content, often in the form of text, images, music, or other media, that closely resembles content produced by humans. It operates on the concept of generative models, such as GANs (Generative Adversarial Networks) and Transformers, which have gained significant attention due to their remarkable ability to generate content that is both creative and highly realistic.
Generative AI in Gaming
Generative AI has already begun making inroads into the gaming industry, promising to revolutionize various aspects of game development, design, and gameplay. Here are some ways in which generative AI is set to reshape the gaming landscape:
- Procedural Content Generation (PCG): Procedural Content Generation has been a part of gaming for many years, creating worlds, levels, and objects algorithmically. Generative AI can take this to the next level by creating more complex and dynamic game environments. For example, No Man's Sky, developed by Hello Games, uses generative AI to create an entire universe of procedurally generated planets, creatures, and ecosystems, offering a virtually infinite and diverse gaming experience.
- Realistic NPCs and Characters: Non-playable characters (NPCs) and player characters are integral to the gaming experience. Generative AI can be employed to create lifelike characters with their own personalities, dialogues, and backstories. Companies like Electronic Arts (EA) are investing in AI to enhance the realism and diversity of characters in their games like The Sims and FIFA, making them more believable and relatable to players.
- Dynamic Storytelling: Traditionally, games have followed predefined storylines, but generative AI can introduce dynamic storytelling, where the plot and narrative evolve based on player decisions and interactions. The game "AI Dungeon," developed by Latitude, utilizes GPT-3's natural language processing to generate dynamic and interactive storylines that adapt to the player's choices.
- Game Design and World Building: Generative AI can assist game designers in creating intricate and detailed game worlds. Game developers like Ubisoft are exploring the use of AI in designing and populating open-world games like Assassin's Creed, reducing the workload of manual content creation while maintaining high-quality graphics and gameplay experiences.
- Visual Enhancements: Enhancing graphics and visual effects is a perpetual goal in the gaming industry. Generative AI can improve graphics rendering, anti-aliasing, and even upscale older games to modern resolutions. NVIDIA's DLSS (Deep Learning Super Sampling) technology utilizes generative AI to upscale graphics in real-time, improving performance and visual fidelity in supported games.
- Player Behavior Prediction: Generative AI can analyze player behavior to provide a more personalized and immersive gaming experience. By understanding player preferences, games can adapt, offering tailored challenges and content. Amazon Game Studios is exploring AI-driven player behavior prediction in its upcoming games to enhance user engagement.
- Cheat Detection and Prevention: Online multiplayer games often face issues with cheating and hacking. Generative AI can be used to develop sophisticated cheat detection systems that recognize abnormal player behavior and respond to it. Riot Games, the developer of League of Legends, has implemented AI-driven systems to identify and ban cheaters in its popular game.
Examples of Gaming Companies Investing in Generative AI
- NVIDIA, a leading graphics card manufacturer, has been at the forefront of integrating generative AI into gaming. Their DLSS technology uses AI to upscale graphics, improving performance and image quality. Additionally, NVIDIA has explored the use of AI for generating virtual landscapes and characters for game development.
- Ubisoft, a renowned game developer and publisher, has embraced generative AI in game design and world-building. Their use of AI algorithms in games like Assassin's Creed has significantly reduced the manual labor required to create expansive, detailed game worlds.
- Electronic Arts (EA) has invested in AI to enhance the realism of NPCs and characters in their games, such as The Sims and FIFA. The use of AI-driven animation and character behaviors has made in-game interactions more authentic and engaging.
- Hello Games, the creators of No Man's Sky, Hello Games, have utilized generative AI to craft an entire universe with an almost infinite number of procedurally generated planets, creatures, and ecosystems. The game showcases the potential of generative AI in creating vast, diverse game environments.
- Amazon Game Studios has been exploring the application of AI to predict player behavior and offer more personalized gaming experiences. This approach aims to increase player engagement and satisfaction.
- Riot Games, the developer of League of Legends, Riot Games, has been at the forefront of using AI to detect and prevent cheating in online multiplayer games. Their AI-driven cheat detection systems have contributed to a fairer and more enjoyable gaming environment.
- Latitude, the developer of "AI Dungeon," has leveraged OpenAI's GPT-3 to create a text-based, dynamically evolving gaming experience. Players can interact with the AI to generate unique and interactive storylines.
The Future of Gaming with Generative AI
As generative AI continues to advance, it holds the potential to reshape the gaming industry in profound ways. The examples of companies mentioned here represent just the tip of the iceberg in terms of what's possible. Here are some of the potential future developments:
- Hyper-realistic Games: Generative AI can lead to hyper-realistic graphics and gameplay, blurring the lines between reality and virtual worlds. Games may become indistinguishable from live-action films.
- Infinite Content: With procedurally generated content, games can offer endless variety and replayability, ensuring that players never experience the same game twice.
- Personalized Experiences: AI-driven personalization can make every player's gaming experience unique, tailoring challenges, storylines, and character interactions to individual preferences.
- Cross-Platform Play: Generative AI can help facilitate seamless cross-platform gaming by optimizing graphics and performance for different hardware and platforms.
- AI-Generated Game Design: Entire games could be generated by AI, from concept to gameplay mechanics, drastically reducing development time and costs.
Challenges and Concerns
While the integration of generative AI into gaming promises numerous benefits, it also brings forth some challenges and concerns. These include:
- Quality Control: Ensuring that AI-generated content meets the desired quality and standards can be a significant challenge for developers.
- Ethical Concerns: The use of AI in character creation and storytelling raises ethical questions about representation, bias, and privacy.
- Intellectual Property: The ownership of AI-generated content, including characters, art, and music, can be a legal and intellectual property challenge.
- AI Fairness: AI algorithms must be carefully designed to avoid biases and discrimination in character and world generation.
- Data Privacy: The use of AI for player behavior prediction and personalization must be accompanied by strict data privacy safeguards.
Conclusion
Generative AI is set to revolutionize the gaming industry by enhancing the quality of graphics, creating dynamic storytelling experiences, and personalizing gameplay. Companies such as NVIDIA, Ubisoft, EA, and Hello Games have already made significant investments in this technology, showcasing its potential in various aspects of game development. As generative AI continues to evolve, it promises to reshape the future of gaming, offering players more immersive, diverse, and engaging experiences than ever before. However, developers must navigate challenges related to quality control, ethics, intellectual property, fairness, and data privacy to fully harness the transformative power of generative AI in gaming.
(THE BATTLE BETWEEN THE BULLS AND THE BEARS WILL BE COMING TO A STAGE NEAR YOU IN THE 4TH QUARTER)
October 23, 2023
Hello everyone,
Welcome to the final full week in October. We have Halloween, Thanksgiving, and Christmas/New Year ahead of us.
And we have a packed economic calendar and earnings. Here’s what’s on our plate this week.
Monday, Oct. 23
8:30 a.m. Chicago Fed National Activity Index (September)
10:00 a.m. ET Euro Area Consumer Confidence Flash
Previous: -17.8
Tuesday, Oct, 24
9:45 a.m S&P Global PMI Composite preliminary (October)
9:45a.m S&P Global PMI Manufacturing (October)
9:45a.m S&P Global PMI Services (October)
10 a.m. Richmond Fed Index (October)
8:30 p.m. ET Australia Inflation Rate
Previous: 6%
Earnings: Alphabet, Microsoft, F5, Visa, Texas Instruments, General Electric, NextEra Energy, Raytheon Technologies, Sherwin-Williams, Dow. Inc, General Motors, 3M, PulteGroup, Halliburton, Coca Cola, Kimberly-Clark, Corning.
Wednesday Oct, 25
8 a.m. Building permits final (September)
10 a.m. New Home sales (September)
10:00 a.m. ET Canada Interest Rate decision
Previous: 5.0%
Earnings: Hilton Worldwide, General Dynamics, Old Dominion Freightline, T-Mobile US, Boeing, Hess, Meta Platforms, Raymond James Financial, Align Technology, Whirlpool, International Business Machines, O’Reilly Automotive.
Thursday Oct, 26
8:30 am Durable goods orders (September)
8:30 am GDP (Q3)
8:30 am Initial claims (week ended Oct. 21)
8:30 am Wholesale inventories preliminary
8:15 am ET ECB Interest Rate Decision
Previous: 4.5%
Earnings: Honeywell International, Keurig Dr Pepper, Northrop Grumman, PG&E, Mastercard, Amazon, Royal Caribbean Group, Tractor Supply, United Parcel Service, Willis Towers Watson, Hasbro, Southwest Airlines, Comcast, Hershey, Intel, L3Harris Technologies, Ford Motor, Dexcom, Capital One, Chipotle Mexican Grill, Emphase Energy.
Friday, Oct, 27
8:30 am Personal consumption expenditure (September)
8:30 am Personal income (September)
8:30 am ET US Core PCE Price Index
Previous: 3.9%
Earnings: Phillips 66, Chevron, AbbVie, Stanley Black & Decker, Exxon Mobile, Colgate-Palmolive, T. Rowe Price Group.
We have all seen how Bonds have been shoving stocks down the hillside. They are down but not out and could possibly rally well in the Q4. Stocks are a great hedge against inflation. Many portfolio managers and analysts are arguing that the high for the year is not in and that we could see a 4-6% gain by the end of the year.
Analysts are starting to see green shoots. Some argue that banks are bottoming just as they did in March of 2020, which ended in a year-end rally that commenced in Q4. Furthermore, they see expanding breadth for stocks. In other words, we should see more stocks rising than falling. And analysts argue that is a buy signal for the Russell 2000, retail via the SPDR S&P Retail ETF XRT and regional banks via the SPDR S&P Regional Banking KRE. Portfolio managers are also expressing interest in transports as they are deeply oversold. Included here are airlines and railroads. (That doesn’t mean you go out and buy all these stocks straight away. The bulls and bears will likely be squabbling for a while yet, so just be patient.)
On the other side of the coin are those that see the stock market moving lower. Several analysts see investor emotions taking over when they see the stock market falling and then realize something is very wrong. As this realisation becomes apparent a washout becomes inevitable as many investors decide to get out, either because they can’t take it anymore or because they expect a terrible event is close at hand – a climatic stock market drop and/or an economic depression. Cash is the best protection here. Cash reserves soften the performance drawdown, and you are well-positioned when the selling gets heated.
The high in Bond Yields is expected to peak around 5.25%. And we may not even get to that number.
The Middle Eastern conflict has created another layer of uncertainty over the market. The threat of the war escalating and drawing in allies and other neutral countries should be recognized and taken seriously. All countries need to work together to de-escalate the Middle Eastern conflict.
S&P 500
From a technical standpoint the S&P has broken weekly trendline support, so we could see more downside to around the mid 4,100’s. If you look at the S&P through an Elliott Wave lens, particularly over the last couple of years, since peaking at 4,819 in January 2022, you could interpret that it is undergoing a very complex correction structure, which is still developing and risks testing the 3,800 level over coming weeks/months.
Earnings and economic data will certainly have a strong influence over the markets this week.
Gold
The uptrend in Gold should continue and extend onto the next key chart resistance at $2,072. The next key target after that is $2,244. Support should hold around mid $1,900, but a push lower to $1900/$1880 cannot be ruled out.
Brent Crude Oil
Brent Crude displays a developing 14-month Inverse Head and Shoulders reversal formation with a potential upside target of around $126.50. A sustained break above neckline resistance at $97.85 will confirm this reversal target.
In other news:
Aid trucks have entered Gaza from Egypt, but the real challenge will be in distributing this aid where it is needed.
Israeli attacks on Gaza have increased.
The U.S. has pledged to provide Israel and Ukraine with billions of dollars in aid.
Still no Speaker in the House.
David Attenborough, 97, is back at work.
He will present the third series of the BBC’s award-winning natural history programme, Planet Earth. It will air later this year on BBC One.
My son, Alex, grew up watching Attenborough’s natural history documentaries. When Alex was aged three I started buying him Attenborough documentary DVDs and books. These included Our Planet, The Blue Planet, Life, The Life of Birds, The Life of Mammals, Life in the Undergrowth, Tiny Creatures, Life in the Freezer, Plants behaving Badly, The Private Life of Plants, and Planet Earth. It gave him a wonderful appreciation of the wonders of nature – something that he still holds today. Thomas the Tank Engine and Bob the Builder were quickly cast aside when David Attenborough became an alternative.
Global warming and the Aedes Aegypti mosquito
Around half the world’s population could be at risk from dengue due to global warming.
Where once this disease was confined to the small pockets of Asia, researchers now confirm that dengue can be found across several continents. In fact, the incidence of dengue has increased by at least 30-fold over the past 50 years.
Half a million cases were reported to the WHO in 2000, rising to 5.2 million in 2019, with the true number of annual infections now estimated to be up to 96 million.
The disease is now considered endemic in more than 100 countries globally. Global warming is driving increasingly hotter and wetter climates in which mosquitos, the main transmitter of dengue, can survive, breed, and further spread.
Dengue is already on the rise in Europe. Its spread has increased across France over the past 12 years; it was identified in more than 70 regions in 2022, compared to just six in 2010.
Analysis from Airfinity, a science data analyst company, showed that locally acquired infections in France could reach 3,000 annually by 2030. Cases of the virus have also been reported in Spain and Italy in recent years, and British experts believe it’s only a matter of time before it takes off in the UK.
It seems that the mosquito that carries dengue, the Aedes albopictus, is often transported into Europe via shipping containers or people’s cars.
In response, funding is being invested into mosquito trapping and monitoring systems at UK ports that aim to detect the insects.
Many dengue infections are asymptomatic, but the virus can occasionally cause fever, body aches, and a rash. Although most cases recover in one to two weeks, some can require hospital care and result in death. In total, 36,000 people die from the infection every year.
The mosquito that transports the dengue virus can be found in Central and Far North Queensland, so if you are ever thinking of travelling to that area of Australia taking precautions is crucial. Wear long sleeves and use insect repellent regularly. There is currently no vaccine to prevent dengue fever in Australia. (There are four different variations of the virus that cause dengue fever, which essentially means that dengue fever behaves like four different viruses, and is why scientists and researchers have struggled to make progress on dengue prevention and treatment methods.)
Wishing you all a wonderful week.
Cheers
Jacquie
Mad Hedge Technology Letter
October 23, 2023
Fiat Lux
Featured Trade:
(A SIMPLE GUIDE TO QUANTUM COMPUTING)
(RGTI), (IONQ)
According to IBM, Quantum computing is a rapidly emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.
Used correctly, quantum computers are incredibly fast and effective. They can perform calculations in a few seconds for which today's supercomputers would need decades or even millennia. This fact is also referred to by experts as quantum superiority.
Why Buy Quantum Computing Stocks?
Quantum computing isn’t so crazy as you think and it’s inching closer to reality.
These types of transcendent technologies are what investors need to key in on to help make their tech stock portfolio better than ever.
This will enable researchers to break new ground in areas such as pharmaceutical drug discovery, weather forecasting, cybersecurity, and computational chemistry.
It will also result in unprecedented gains for owners of quantum computing stocks.
The Best Quantum Computing Stocks
Will quantum computing be successful? That's the multi-trillion dollar question.
We're in the first innings of a long ball game if the game has even started.
Still, there are already some pioneers that are re-imagining the field.
Here are two quantum computing stocks to put on your radar:
Rigetti Computing, Inc. (RGTI)
Rigetti Computing builds and deploys integrated quantum computing systems leveraging superconducting qubit technology.
CEO Chad Rigetti has a simple and clear thesis on this space: “In the next decade, a single Rigetti quantum computer could be more powerful than the entire global cloud industry today.”
Rigetti will need the capital infusion from going public because the firm doesn’t have any positive revenue to talk about. The IPO delivered a much-needed financial lifeline and the additional $458 million in funding came after an initial $200 million was raised previously. That could also be a big con about the sub-sector, it might be years until an actual profitable income stream is built.
Whoever said that Rome was built in one day?
Quantum computing is only at the beginning of its development. It is difficult to estimate how large the market demand for this product will be. It's also uncertain how quickly Rigetti or competitors like IonQ will be able to expand their technical capabilities. This is an entirely new technological territory, so there are zero guarantees here in this tech sub-sector.
Needless to say, Rigetti is a concept stock for now. One has to believe in the underlying vision of quantum computing to place a bet here. Otherwise, it would be wise to switch to other stocks without a quantum computing business plan or corporate strategy.
IonQ (IONQ)
IonQ produces quantum hardware and software.
IonQ was faster to market than Rigetti, making it the first publicly traded quantum computer stock. Also, the company is backed by a number of influential investors including Bill Gates, Silver Lake, and Fidelity.
Unfortunately, like many SPACs these days, IonQ only exists on paper. That means there is still very little operational business. IonQ only did a few million in revenue last year and had no revenue in 2019 or 2020. In fact, free cash flow is projected to remain negative through at least 2026. Also, it will take multiple technological leaps - such as machine learning - to reach a point where quantum computing can reach mass markets and make IonQ successful.
RGTI’s market cap is only $125 million and IonQ’s is $927 million and they are cheap for a reason.
Investors aren’t willing to pay for the time it's willing to take for quantum computing to go mainstream yet.
However, if a reader is willing to invest with a 35-year view, then it would make sense to invest 1% of one’s portfolio into these names and also at a time when interest rates are trending lower.
These types of loss-makers and far-in-the-future bets work better when the cost of capital is lower.
Expect some stock appreciation as investors start to bet on the Fed lowering interest rates.
Global Market Comments
October 23, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WAS THAT THE CAPITULATION?),
(SPY), (TLT), (TSLA), (NVDA)