Mad Hedge Biotech and Healthcare Letter
March 5, 2024
Fiat Lux
Featured Trade:
(THE SKINNY ON ECONOMIC GROWTH)
(LLY), (NVO), (AMGN)
What might just give economies a bigger jolt than the frenzy of the Super Bowl or a jampacked Taylor Swift world tour? If you guessed the recent buzz around weight-loss drugs, take a bow. You see, it's not just about slimming waistlines anymore – these breakthrough medications could be a game-changer for the whole economy.
But first, a sobering reality check: health issues have been nibbling away at the U.S. labor force like a sneaky termite over the last 30 years, shaving off two to three percentage points.
Then there's the matter of early departures from this mortal coil, chipping away another 0.2 percentage points from annual labor growth.
Not to mention the legion of unsung heroes caring for the ailing, effectively benched from the workforce, leading to a 3% labor force deficit.
Among all the health issues affecting the labor force, obesity has been identified as a sneaky little gremlin, dragging down productivity and participation in the workforce.
With obesity affecting 40% of the U.S. population, we're talking about a hefty 1% slash in total output.
But what if there was a way to combat this? Enter stage left: Eli Lilly (LLY). Sure, you might know them as a big-league player in the pharma world, but did you know they're the brains behind blockbuster medications like Trulicity, Mounjaro, and cancer-battling Verzenio?
And the story gets even more exciting – it's not just their existing all-star lineup that's sent their stock soaring 180% since 2021. Their latest weight-loss marvel, Zepbound, got the FDA's green light last November. Think of it as Mounjaro's twin, sporting the same molecule but with a different name to keep things clear for their existing diabetes patients.
This breakthrough signals a massive shift in the obesity treatment landscape. The global anti-obesity market is projected to explode to a staggering $100 billion annually by 2030 – a dramatic leap from last year's $6 billion. To put that in perspective, global spending on cancer treatments is estimated at $220 billion this year.
Naturally, Lilly is poised to grab a big slice of that pie. Analysts are predicting a healthy 21.4% revenue boost this year, and nearly 24% by 2025. Talk about a growth spurt.
As for earnings? They're looking at nearly tripling in that timeframe. The future's so bright, Lilly might need shades.
But here's the catch: Lilly's stellar rise has its stock priced at a premium, and then some. We're talking 60 times this year's expected earnings. And while the company's profit train is set to chug along, not every stock can keep up those lofty valuations in the long haul.
And let's not forget about the competition. Novo Nordisk (NVO), with its own contenders Ozempic and Wegovy, is nipping at Lilly's heels, even as Amgen (AMGN) and others are hot on the trail with promising candidates of their own.
Yet, Lilly's not sweating it. With Zepbound (aka Mounjaro for the weight-conscious) already making waves as a go-to for obesity treatment, they're sitting pretty. It's like they've already won half the battle, with doctors and patients already in the know about this not-so-secret weapon.
Still, as tempting as it might be to hop on the Lilly bandwagon after seeing those numbers, we need to do a quick reality check before investing. It's important to remember that every stock has its ups and downs.
For starters, Lilly's stellar rise means their stock is trading at a premium – a hefty 60 times this year's expected earnings. And while the company's profit train is definitely chugging along, that kind of lofty valuation might be a bit too spicy for some investors' taste, especially in the long run.
So, what's the takeaway for those who want in on the action? Lilly's current price tag might give you pause, especially if you're looking for a bargain.
It's been a wild ride for this stock, and sometimes the best moves involve waiting for the market to catch its breath.
However, their dominant position in a rapidly expanding market definitely makes them a player worth watching closely. I suggest to buy on the dip.
Switching gears for a second, let’s take a look at the big picture. It turns out that widespread use of GLP-1 medications like Lilly's could deliver way more than just individual weight loss. We're talking about a potential shot in the arm for the entire U.S. economy.
Think about it: if 30 million Americans hop on the GLP-1 train with drugs like Mounjaro and Zepbound, and a conservative 70% of them see benefits, we could see a 0.4% boost in the U.S. GDP. And that's just the starting line.
In a best-case scenario, where 60 million Americans embrace these treatments and a whopping 90% benefit, the GDP could potentially surge by a full 1%. Even with more modest projections, with 15 million users and a 50% success rate, the economic impact would still be noteworthy.
This isn't just pocket change – it's serious economic muscle. With the right push, these weight-loss drugs could be the breakthrough prescription our economy needs, adding some serious pep to our growth alongside countless individual health transformations. Now, isn't that a story worth following?
Global Market Comments
March 5, 2024
Fiat Lux
Featured Trade:
(I HAVE A NEW OPENING FOR THE MAD HEDGE FUND TRADER CONCIERGE SERVICE),
(TESTIMONIAL)
There are only two ways that subscribers give up the Mad Hedge Concierge Service. They either retire, or they die.
I received notice the other day that another Concierge member is hanging up his trading spurs, cashing in his chips, and retiring. He has made so much money from NVIDIA (NVDA) since October that he never needed to work again.
Besides, his best friend had suddenly died of a heart attack on a golf course at a too young age, and he decided there were more important things than making money. He was parking his new substantial fortune in an index fund and setting out to enjoy the finer things in life. I’ll be meeting him in May in the Galapagos Islands far out in the Pacific Ocean just north of the equator where he has promised to treat me to a bottle of Dom Perignon.
He will be missed.
That means I have a new opening for the Mad Hedge Concierge Service. I limit the service to only ten clients at any one time and entry is by application only.
The goal is to provide high net worth individuals with the extra degree of assistance they may require in managing diversified portfolios. Tax, political, and economic issues will all be covered.
It is also the ideal service for the small and medium-sized hedge fund that lacks the resources to support their own in-house global strategist full time.
The service includes the following:
1) Emergency access to John Thomas 24/7 through his personal cell phone number so he can act as your investment 911.
2) A risk analysis of your own personal portfolio with the goal of focusing your investment in the highest return sectors for the long term.
3) A monthly phone call from John Thomas to update you on the current state of play in the global financial markets.
4) Personal meetings with John Thomas anywhere in the world once a year to continue our in-depth discussions.
5) Early releases of strategy letters and urgent trading information.
6) More detailed and early recommendation on LEAPS, or two year call options on the best high growth names.
7) Access to a dedicated Concierge website listing complete All LEAPS investment portfolios.
The cost for this highly personalized, bespoke service is $12,000 a year.
To best take advantage of my Mad Hedge Fund Trader Concierge Service, you should possess the following:
1) Be an existing subscriber the Mad Hedge Fund Trader who is already well aware of our strengths and limitations.
2) Have a liquid net worth of over $250,000.
3) Possess a degree of knowledge and sophistication of financial markets. This is NOT for beginners.
To subscribe to Mad Hedge Fund Trader Concierge Service please email Filomena at customer support at support@madhedgefundtrader.com. Please put “Concierge Candidate” in the subject line.
I look forward to hearing from you.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2023 on the Queen Mary 2
A new star has recently emerged in the rapidly evolving field of artificial intelligence - the language model known as Claude. Developed by the AI research company Anthropic, Claude is an advanced conversational AI assistant capable of understanding and communicating in natural language, analyzing complex topics, answering questions, and assisting with a wide variety of tasks.
At its core is cutting-edge machine learning technology that allows Claude to process massive amounts of data and derive insights, draw connections, and generate nuanced outputs that often sound stunningly human-like. Many experts are hailing it as a major leap forward for AI capabilities.
"Claude is one of the most impressive language models I've encountered," said Dr. Emma Richards, a leading AI researcher at Stanford. "Its ability to engage in substantive dialogue while drawing upon a comprehensive knowledge base is remarkable. Claude understands abstract concepts and nuance in a way previous AIs have struggled with."
So how does Claude work? Like other large language models, it uses neural networks trained on staggering amounts of digital data to identify complex patterns and relationships. However, Anthropic has made key advancements, particularly around something they call "constitutionalAI" - specialized training to instill beneficial guidelines around being helpful, truthful, protecting privacy, and upholding democratic values.
"These 'constitutionalize' Claude, hardcoding key safeguards into how it formulates responses," explained Anthropic CEO Dario Amodei. "It helps Claude avoid pitfalls like amplifying biases, spreading misinformation, or suggesting dangerous actions."
Amodei believes these ethical training techniques represent a safer path forward as AI capabilities grow, ensuring they remain aligned with human values and societal norms.
Perhaps most impressively, Claude demonstrates nuanced reasoning through complex scenarios. In our conversations, it showcased creativity, technical mastery, and wise analysis of ethical dilemmas well beyond its code.
"Claude's sophistication is undeniable," said Dr. Richards. "Is it truly achieving understanding? Perhaps not fully. But Claude represents a milestone in man-made systems comprehending, analyzing, and communicating in such nuanced ways."
Experts believe the benefits of AIs like Claude will ultimately outweigh the risks, as long as robust safety practices guide their development. Amodei is particularly bullish on their potential impact across industries - including finance.
"In finance, you have to grapple with incredible complexity, analyze interconnected risks, and make high-stakes decisions with massive consequences," he said. "An AI assistant like Claude could drastically augment human intelligence and decision-making in this arena."
Potential finance applications could include:
- Financial modeling and portfolio optimization far beyond current capabilities
- Analyzing millions of data points to uncover hidden market insights
- Engaging in nuanced discourse around investment theses and counterarguments
- Automating financial writing, reporting, and communications
- Providing virtual expert advising for wealth management and investment strategies
- Proactively identifying risks, fraud, and compliance violations
"Just as modern computing and data analysis radically reshaped finance, I believe systems like Claude will catalyze another massive innovation wave," said Amodei. "It could drive higher investment returns, reduce systemic risks, and ultimately help capital markets become more efficient and economically productive."
However, he stressed the crucial importance of maintaining robust guardrails as AI capabilities advance. "We must be very thoughtful that these systems respect key financial governance, develop responsible principles around insider information, and have mechanisms in place for human oversight on critical decisions."
There are also ethical questions around the power of large financial institutions to harness Claude's abilities for competitive advantages - potentially worsening inequalities and consolidation in the industry.
Despite such challenges, Anthropic is pushing ahead with even more advanced models that Amodei hopes will eventually achieve human-level general intelligence. The company is pioneering techniques to instill robust, stable, and compounding ethical principles into systems as they recursively develop more self-guided capabilities.
"Our goal is beneficial AGI that remains corrigible and aligned with human ethics as it grows increasingly advanced," said Amodei. "If we succeed, it could help uplift and empower humanity as a whole."
Whether paradigm-shifting finance innovation, scientific breakthroughs, or new frontiers of art and creativity, experts believe the impact of technologies like Claude will be profoundly meaningful - even as we grapple with complex risks and governance challenges.
In my conversations, I found Claude's intellect both humbling and unsettling to ponder. Dr. Richards summarized it well: "Claude's human-like presence forces us to grapple with profound questions about cognition, intelligence, and consciousness itself."
Mad Hedge Technology Letter
March 4, 2024
Fiat Lux
Featured Trade:
(MIDDLE MANAGERS ON THE CHOPPING BLOCK)
(NVDA), (SMCI)
Sure, the narrative out there is that generative AI will transform the technology sector and the companies that coalesce around it.
That doesn’t always mean it will be great for everyone.
Many jobs can be mundane and boring.
AI is supposed to solve all that by unlocking time for these workers to do other tasks.
However, one trend that is picking up speed that could turn into a runaway freight train is the evolution of AI destroying most of the human job market.
It’s happening faster than people think.
If everyone loses their jobs except for a handful of CEOs running a company with AI, who will pay rent to small or corporate landlords?
Who will partake in a trip to a sports bar when these patrons lack salaries that are replaced by AI.
The next battleground of AI job removal is now reaching up to the middle manager echelon.
Confidence among middle-managers dropped to its worst-ever reading in February, pushing a broader index of US employee sentiment down to a record low.
The group’s confidence is now similar to that of entry-level workers, which fell last month to the lowest in seven years.
Decades after automation began taking and transforming manufacturing jobs, artificial intelligence is coming for the corporate management.
The list of white-collar layoffs is growing almost daily and includes jobs cuts at Google, Duolingo and UPS in recent weeks.
While the total number of jobs directly lost to generative AI remains low, some of these companies and others have linked cuts to new productivity-boosting technologies such as machine learning and other AI applications.
Generative AI could soon upend a much bigger share of white-collar jobs, including middle and high-level managers,
Generative AI speeds up routine tasks or make predictions by recognizing data patterns.
It has the power to create content and synthesize ideas—in essence, the kind of knowledge work millions of people now do behind computers.
Across all ranks, employee confidence fell to 45.1%, the lowest in data back to 2016.
Middle managers have to both direct more junior employees and answer to the senior ranks, making the position uniquely prone to burnout in the corporate ladder.
Tech firms like Meta and Google zoned in on those positions for cuts last year.
In announcing the job cuts, the companies cited similar themes around productivity and efficiency.
At some big tech firms, that can be gauged by how many people work under you, providing an incentive to overdo the staffing levels.
Companies that did just that are increasingly reducing staff and driving confidence down with it.
Although highly positive for revenue estimates, human workers will need to adjust to a modern cutthroat working environment where they need to do more and get paid less in technology.
The ironic thing about this is that the very technology they lusted over is the same technology putting the same workers out of a job.
Better be careful what you wish!
At a stock market level, this is highly positive and will lead to higher shares in tech companies like Nvidia and Super Micro computers.
Remember that wages are usually the highest expense and reducing them will almost always result in higher share prices.
It’s good that low confidence doesn’t affect the execution or existence of AI.
This is significantly bullish tech stocks short and long term and I expect every quarterly earnings transcript to talk about reducing staffing levels and higher efficiency.
“The way to build billion dollar companies is to first build something people love.” – Said CEO of OpenAI Sam Altman
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
(COMPOUND INTEREST IS THE SECRET TO GROWING LONG-TERM WEALTH)
March 4, 2024
Hello everyone,
Week ahead calendar
Monday, March 4, 2024
Switzerland Inflation Rate
Previous: 1.3%
Time: 2:30am
Tuesday, March 5, 2024
9:45 a.m. PMI Composite final (February)
9:45 a.m. S&P PMI Services final (February)
10 a.m. Durable Orders final (January)
10 a.m. Factory Orders (January)
10 a.m. ISM Services PMI (February)
Australia GDP Growth Rate
Previous: 2.1%
Time: 7:30pm
Earnings: Ross Stores, Target
Wednesday, March 6, 2024
8:15 a.m. ADP Employment Survey (February)
10 a.m. JOLTS Job Openings (January)
10 a.m. Wholesale Inventories final (January)
10 a.m. FED Beige Book
Canada Interest Rate Decision
Previous: 5.0%
Time: 9:45am
Earnings: Campbell Soup
Thursday, March 7, 2024
8:30 a.m. Continuing Jobless Claims (02/24)
8:30 a.m. Initial Claims (03/02)
8:30 a.m. Unit Labour Costs final (Q4)
8:30 a.m. Productivity SAAR final (Q4)
8:30 a.m. Trade Balance (January)
3 p.m. Consumer Credit (January)
Euro Area Interest Rate Decision
Previous: 4.5%
Time: 8:15 am
Earnings: Broadcom, Costco Wholesale, Kroger
Friday, March 8, 2024
8:30 a.m. Hourly Earnings preliminary (February)
8:30 a.m. Average Workweek preliminary (February)
8:30 a.m. Manufacturing Payrolls (February)
8:30 a.m. Private Nonfarm Payrolls (February)
8:30 a.m. Unemployment Rate (February)
Macroeconomic concerns will take center stage for investors this week. Fed Chair Jerome Powell is set to give his semiannual monetary policy update to the House of Representatives on Wednesday, and the Senate on Thursday, testimonies that will be dissected by traders for any insight into when lower rates are coming.
Rate cuts are now expected to start later in the year and Wall Street forecasts fewer of them.
U.S. debt now stands at nearly $34.4 trillion. It rises by $1 trillion about every 100 days.
Turkish annual inflation soars to 67% in February. And we think we have problems!
Next Bitcoin target: $68,550.
Albert Einstein called compound interest the eighth wonder of the world. “He who understands it, earns it. He who doesn’t, pays it.” Obviously, without it, we would all be poorer. Compound interest describes the ability to earn not only interest on the principle but also reinvested interest on the interest.
Warren Buffett believes successful investing is like rolling a little snowball down a very long hill – the longer the hill, the bigger the snowball.
Buffett advises that even with a small sum to start, one can accumulate wealth significantly throughout one’s life. For example, $10,000 with compound interest of 10% annually is worth almost $175,000 in 30 years, more than $450,000 in 40 years and $1.17 million in 50 years.
Buffett bought his first stock, Cities Service Preferred for $38 a share at the age of 11. By 16, he had amassed the equivalent of $53,000 in today’s dollars.
In 1965, Buffett took control of the troubled textile manufacturing company Berkshire Hathaway and began using it as a holding company for the many businesses and stocks he purchased over the following decades.
Today, his conglomerate owns everything from BNSF Railway (the old Burlington Northern Santa Fe) to ice cream shop chain Dairy Queen, from auto insurer Geico to 6% of Apple, boasting a total market value above $900 billion.
“The elementary mathematics of compound interest is one of the most important models there is on earth.”
REITS: I wrote recently about some REITS. For those who wanted a recap on the names I mentioned, they are listed here: Realty Income, data centers, Prologis and Equinix, senior housing facilities, Ventas and Welltower.
Cheers,
Jacquie