Global Market Comments
February 28, 2024
Fiat Lux
Featured Trade:
(AMERICA’S DEMOGRAPHIC TIME BOMB),
(THE BEST TESTIMONIAL EVER)
You can never underestimate the importance of demographics in shaping long term investment trends, so I thought I’d pass on these two highly instructive maps.
The first shows a map of the world drawn in terms of the population of children, while the second illustrates the globe in terms of its 100-year-olds.
Notice that China and India dominate the children’s map. Kids turn into consumers in 20 years, stay healthy for a long time, draw on few government services, and power economic growth.
The US, Japan, and Europe shrink to a fraction of their actual size on the children’s map, so economic growth is in a long-term secular downtrend there.
There is more bad news for the developed world on the centenarian’s map, which show these countries ballooning in size to grotesque, unnatural proportions.
This means higher social security and medical costs, plunging productivity, and falling GDP growth.
The bottom line is that you want to own equities and local currencies of emerging market countries and avoid developed countries like the plague.
Use any major meltdowns this year to increase your exposure to emerging markets, as I will.
Would You Rather Own Them?
Or Them?
I was pondering an FXE trade alert from MHFT today when my cell rang with a Berkeley, CA area code. Since I know a couple of people in that part of the world, I answered, and it was none other than John Thomas.
Had I not heard his voice on the MHFT webinars, I would have thought I was being conned. But given that I’m in the last month of a trial run, he actually called to find out how I was doing with the service and what I thought.
Here’s the short version of what I told him.
I’m a pretty experienced investor, but definitely not sophisticated when it comes to using options, or for that matter, trading currencies and commodities.
My first trade with MHFT – a (FXY) vertical call spread – literally scared the hell out of me, so I used a tiny position size. I think I made around $900 ($400 more than my trial subscription, so there’s that).
But through the process of using John’s trade ideas, I learned. Fast. Nothing will help you grasp the potential of option strategies like doing them. And as I write this, I have multiple positions on courtesy of MHFT that are on track to deliver double digit percentage gains in a matter of weeks!
I can’t quite comprehend how he knows so many well-placed people, but he’s incredibly adept at grabbing insights from them, turning these into an investment thesis, and making it incredibly clear and actionable to this reader base.
One day he’s writing about a chat with a three star general and the next you’re buying a call spread on Palo Alto Networks. He connects the dots in a ridiculously useful way.
But it’s more than just the idea, it’s the timing of the idea. The world is full of people who can say “hey, cyber-security is a big deal.” Or, “wow, the euro is getting killed.” But the actual trade execution to profit from that in the near term? He’s freaky good.
I also love the defined exit strategy. Look, if you’re the most disciplined human on the planet and never let a bad trade turn into a long term “investment,” more power to you.
I am not. I hate when I do it, but it’s happened more than once. With MHFT, the exit is well marked. You can’t miss it. Personally, I find that removes significant stress, not to mention risk.
Today, I was over at my local Schwab office – before John called – and was raving about MHFT. Not stark raving. Good raving. I’d be surprised if they aren’t signing up for a trial as I write this.
John, thanks for the call. That was a really nice surprise.
But more importantly, thanks for great work, thinking, and ideas. Enjoy your travels and I look forward to meeting you at one of your conferences.
Neil
Dublin, Ohio
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
Mad Hedge Biotech and Healthcare Letter
February 27, 2024
Fiat Lux
Featured Trade:
(CASHING IN ON CURES)
(LLY), (NVO), (JNJ), (PFE), (MRK), (BIIB)
In the biotechnology and healthcare industry, reaching a $1 trillion market cap is akin to scaling Mount Everest without oxygen. Yet, Eli Lilly (LLY) has emerged as an unexpected contender, catching the investing world’s attention by not just climbing the mountain but being on the verge of planting its flag at the summit.
A year ago, if you'd whispered in my ear that Eli Lilly's stock was about to skyrocket nearly 140%, I might have choked on my coffee. But here we are, and the buzz isn't just about the rocket ride — it's whether Eli Lilly can be the first biopharma behemoth to hit the $1 trillion market cap. Wild, right?
So, what's cooking at Eli Lilly that's got everyone so revved up? Well, they've got a couple of aces up their sleeve.
Sure, they've been making waves with Verzenio for breast cancer and Jardiance for diabetes, but the real game-changer? Tirzepatide, sold under their brand name Mounjaro for type 2 diabetes and is now strutting the stage as Zepbound for weight loss. This isn't just any old drug; it's the blockbuster that's got everyone from Wall Street to Main Street talking.
But what makes tirzepatide so darn special? It's the first of its kind, a dual GLP-1/GIP agonist, making it a heavyweight champion in the fight against obesity. With sales already blasting past the $5 billion mark in record time, it's like watching a rocket take off without any signs of slowing down.
Now, I know what you're thinking. "But hey, aren't there other big fish in the sea?" Sure, Johnson & Johnson (JNJ), Pfizer (PFE), and Merck (MRK) are doing their thing, but next to Eli Lilly's recent performance, they're looking a bit like they're running in slow motion.
And while Novo Nordisk (NVO) has been gaining traction in the diabetes market with its own version of the treatment, Eli Lilly’s tirzepatide is in a league of its own. In fact, this drug is projected to become the top-selling treatment in history, with the potential to rake in sales north of $25 billion.
For context, AbbVie (ABBV) Humira had an annual record of $21.2 billion, and that’s already the recorded highest-selling therapy in history. But, the road to hitting these goals demands many more new indications.
That’s why it comes as no surprise that tirzepatide is eyeing a new target: metabolic dysfunction-associated steatohepatitis, or MASH for short. It's a fancy way of saying "a really bad liver problem," and it's a growing issue globally.
Beyond tirzepatide, Eli Lilly's expanding in a few other markets. Alzheimer's, for one, where their potential therapy, donanemab, is making waves and presents a potential competitor to Biogen’s (BIIB) Leqembi.
And let's not overlook their recent wins with cancer medicine Jaypirca and ulcerative colitis therapy Omvoh. It's like Eli Lilly's hitting bingo on every card.
With all these in mind, can Eli Lilly truly reach that $1 trillion valuation? With their current market cap already north of $715 billion, it looks like the company is ready to take home the title. Assuming a modest compound annual growth rate of about 7%, that trillion-dollar dream could become reality quicker than you can say "biopharma giant."
As investors, industry watchers, and, frankly, anyone with a pulse on the future of medicine keep their eyes glued to this unfolding story, the message is clear: Eli Lilly is not just about the numbers. It's about setting new benchmarks, pushing boundaries, and cashing in on cures in the most spectacular way possible.
So, if you're wondering where the smart money is heading in the biotechnology arena, following Eli Lilly's trail might just lead you to a treasure trove of opportunities. I suggest you buy the dip.
Global Market Comments
February 27, 2024
Fiat Lux
Featured Trade:
(Trade Alert - (PANW) – BUY)
BUY the Palo Alto Networks (PANW) January 17, 2025 $290-$300 out-of-the-money vertical Bull Call spread LEAPS at $4.00 or best
Opening Trade
2-27-2024
expiration date: January 17, 2025
Number of Contracts = 1 contract
A 32% selloff in the (PANW) on disappointing guidance is the best entry point we are going to get for this LEAPS this year. Is hacking going out of style? I think not. If anything, it is going to get much worse, thanks to AI.
While the chance of winning a real lottery is something like a million to one, this one is more like 10:1 in your favor. And the payoff is 150% in a year. That is the probability that (PANW) shares will rise by only 9.90% over the next 11 months.
The logic behind this LEAPS is fairly simple.
After keeping interest rates too low for too long, and then raising them too far too fast, what does the Fed do next? It then lowers interest rates too far too fast. In other words, a mistake-prone Jay Powell will keep on making mistakes. That’s what you get with a Fed chair who only has a degree in political science.
I am using the very conservative $290-$300 strike price. (PANW) shares only need to return to where they were two days ago to hit the maximum profit point in this position, and they have 11 months to do it.
If that is not enough profit for you, perhaps you should consider another line of business.
I am therefore buying the Palo Alto Networks (PANW) January 17, 2025 $290-$300 out-of-the-money vertical Bull Call spread LEAPS at $4.00 or best.
Don’t pay more than $5.00 or you’ll be chasing on a risk/reward basis.
I am going out to only a January 17, 2025 expiration because I think this trade will work fairly quickly. Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.
Let’s say the Palo Alto Networks (PANW) January 17, 2025 $290-$300 out-of-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $3.80-$4.20, which is typical. Enter an order for one contract at $3.80, another for $3.90, another for $4.00, and so on. Eventually you will enter a price that gets filled immediately. That is the real price. Then enter an order for your full position at that real price.
A lot of people ask me about the appropriate size. Remember, if the (PANW) does NOT rise by 9.90% in 11 months, the value of your investment goes to zero. The way to play is to use a venture capital approach and buy LEAPS in ten different companies. If one out of ten increases ten times, you break even. If two of ten work you double your money, and if only three of ten work you triple your money.
You never should have a position that is so big that you can’t sleep at night, or worse, need to call John Thomas asking if you should sell at a market bottom. Please also note that I don’t follow LEAPS prices on a daily basis. I tend to buy them and forget about them. So if the stock suddenly doubles, which is possible, I WILL NOT send out a trade alert to take profits. That is up to you.
There is another way to cash in. Let’s say we get half of your double in the next three months, which from these low levels is entirely possible. Then you could earn half of the maximum potential profit in months. You can decide whether to keep the threefold return or go for the full 1 ½ bagger. It’s a nice problem to have.
Notice that the day-to-day volatility of LEAPS prices is miniscule since the time value is so great, usually sporting implieds of less than 10%. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.
Look at the math below and you will see that a 9.90% rise in (PANW) shares will generate a 150% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 15.5:1 across the $290-$300 space.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.
This is a bet that (PANW) will not fall below $300 by the January 17, 2025 option expiration in 11 months.
Here are the specific trades you need to execute this position:
Buy 1 January 2025 (PANW) $290 calls at………….…….$40.00
Sell short 1 January 2025 (PANW) $300 calls at…..……$36.00
Net Cost:………………………….………..…….........……...….....$4.00
Potential Profit: $10.00 - $4.00 = $6.00
(1 X 100 X $6.00) = $600 or 150% in 11 months.
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep-in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
“Those who expect double digit returns going forwards are going to be severely disappointed,” said Bill Gross, CEO of bond giant, PIMCO.
The Amazon of Latin America is a stock that has done well this year, but that doesn’t mean the party is over.
Like many other tech stocks this year, they have performed exceptionally strong in the past year and MercadoLibre (MELI) is no different.
The stock has returned 42% in the past year and the 13% dip from the most recent earnings report has presented an appetizing entry point.
The Amazon of Latin America fell the most in nearly two years after posting fourth-quarter earnings that fell short of analyst estimates, hoisting a major hurdle to the major stock rally over the past year.
Shares slumped 13% Friday, the worst intraday drop since May 2022, after the company reported earnings per share of $3.25 — about half of the $7.17 analysts had forecast. It was the first miss since at least mid-2022.
The lower number, which was boiled down to one-off costs and higher logistics left a sour taste in the mouth of MELI investors.
MercadoLibre's revenue growth over the last three years has been in overdrive, averaging 56.8% annually.
This quarter, MELI registered an impressive 41.9% year-on-year revenue growth.
Usage Growth As an online marketplace, MercadoLibre generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Over the last two years, MercadoLibre's daily active users, a key performance metric for the company, grew 24.6% annually to 145 million. This is fast growth for a consumer internet company.
In Q4, MercadoLibre added 48 million daily active users, translating into 49.5% year-on-year growth.
Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like MercadoLibre because it measures how much the company earns in transaction fees from each user.
Furthermore, ARPU gives us unique insights as it's a function of a user's average order size and MercadoLibre's take rate, or "cut", on each order.
MercadoLibre's ARPU growth has been excellent over the last two years, averaging 16.8%. The company's ability to increase prices while growing its daily active users at such a fast rate reflects the strength of its platform, as its users are spending significantly more than last year. This quarter, ARPU declined 5% year on year to $29.39 per user.
It posted full-year net revenue of around $14.5 billion and net income of $1.2 billion for the year. Revenue and payment volumes beat expectations for the last three months of 2023.
Naturally, buyers and sellers gravitate towards a singular marketplace, consolidating the dominion of Amazon and Mercado Libre while marginalizing smaller retailers.
This monopolistic stranglehold, compounded by the excessive capital investments requisite for technological infrastructure, inventory management, and advertising, perpetuates a vicious cycle of exclusion and inequality, relegating smaller players to the fringes of the digital marketplace.
MELI is part of this duopoly in South America and I see any big dips as good buying opportunities.