Mad Hedge Biotech and Healthcare Letter
May 2, 2024
Fiat Lux
Featured Trade:
(BUT WEIGHT, THERE’S MORE)
(LLY), (NVO)
You know that feeling when you find a crumpled $20 bill in an old jacket? That’s a little like what Eli Lilly must be feeling with tirzepatide, only replace that $20 with a cool $34 billion forecast by 2029. Yeah, it’s been that kind of party over at Lilly.
Tirzepatide, the magic ingredient in both Zepbound for weight loss and Mounjaro for diabetes, is turning heads—and not just because it’s raking in the cash. This drug is proving to be a one-stop-shop for boosting Lilly’s bottom line and shaking up the market.
Since Zepbound’s launch in November 2022, Lilly’s stock has been on a tear, skyrocketing from $349.95 to a whopping $733.51.
That’s a gain of over 109%. It’s like Eli Lilly has turned into the Usain Bolt of the biotech and pharma sector, sprinting past the S&P 500 and its pharma peers without breaking a sweat.
Actually, Lilly's got a double-whammy against the competition. Not only does Tirzepatide keep raking in successful studies, but it's also got a sweet price point.
We're talking about Zepbound being a good 20% cheaper than Novo Nordisk's (NVO) big hitter, semaglutide.
Essentially, patients get the same results, but a lot less strain on their wallet. This combination easily gives Lilly a serious edge in the diabetes and obesity drug battle.
But wait, there’s a hiccup. Despite the blockbuster status of Zepbound, there’s a bit of a snag recently with this drug—supply can’t keep up with demand.
It makes you wonder whether this is a classic case of "too much of a good thing," right?
This shortage has even made the US Food and Drug Administration limited availability list. But fear not, Lilly’s got plans to boost production with a new facility in Concord, North Carolina by year-end.
Still, this supply problem didn’t stop Lilly from coming up with tirzepatide’s latest party trick: tackling obstructive sleep apnea (OSA).
Basically, OSA disrupts your sleep by making your throat muscles a bit too enthusiastic at night. They tighten up and block your airway, leaving you gasping for air (not exactly the recipe for restful sleep). Untreated OSA can be a serious health hazard, linked to heart problems down the line.
And here's a scary statistic: 80 million adults in the US have sleep apnea, but a whopping 85% of those cases go undiagnosed. That's right, millions are unknowingly battling a condition that disrupts sleep, increases the risk of heart problems, and leaves you feeling like a zombie all day.
Given these figures, it’s not surprising that Lilly’s looking to turn this challenge into the next big opportunity.
In fact, recent studies have shown tirzepatide could reduce those pesky episodes of stopped breathing during sleep by about 30 times an hour compared to a placebo. Talk about a breath of fresh air.
So, how much money will tirzepatide rake in at its peak? Well, it's already approved for diabetes AND obesity, but there's room for even more growth.
To date, Lilly is projected to rake in $25 billion in peak sales for this drug, but with recent developments, even that seems low.
Think about this: Tirzepatide made over $5 billion last year – its first full year on the market.
Then, it snagged the obesity indication in November 2023, now pharmacies can't keep it on the shelves, showing demand is off the charts.
Now, I know you’re wondering if you’ve missed the boat with Lilly’s stock price more than doubling in a blink.
But here’s the kicker: there’s potentially a lot more upside. Beyond tirzepatide, Lilly’s got a full deck with new drugs and a solid dividend that’s been fattening wallets at a rapid clip—up 101.6% in the last five years alone.
So, what’s the bottom line? If you’re looking to park some cash in a stock that has a track record of turning medical breakthroughs into gold, you might want to give Eli Lilly a closer look.
After all, betting on a company that’s leading the charge in medical innovation can sometimes feel like finding that $20 bill—only a lot, lot bigger.
Global Market Comments
May 2, 2024
Fiat Lux
Featured Trade:
(THE UNITED STATES OF DEBT)
(TLT)
SAN MATEO, CA – May 1, 2024 – Franklin Templeton, a global investment management leader, today announced a groundbreaking collaboration with Microsoft to develop a state-of-the-art financial AI platform. This transformative initiative will reshape the financial services landscape, blending Franklin Templeton's investment expertise with Microsoft's cutting-edge AI technology. The platform promises to redefine personalized client experiences and streamline operations within the financial industry.
Transforming Financial Services Through AI
The collaboration marks a significant turning point in how financial institutions leverage artificial intelligence. By harnessing Microsoft's Azure AI services—including Azure OpenAI Service (GPT-4 model), Azure AI Search, and Azure AI Document Intelligence—Franklin Templeton will be uniquely positioned to create a platform tailored to the specific needs of the financial industry.
"The future of how we work with clients to best meet their desired investment outcomes will require strong technological resources," said Jenny Johnson, President and CEO of Franklin Templeton. "The newly introduced platform we are developing is specifically tailored for investment management, leveraging the full range of Microsoft's AI resources, as a key driver of investment success."
The aim is to create an AI-driven system that delivers unparalleled personalization, enhanced risk management, and superior investment strategies. Franklin Templeton expects to provide its clients with highly tailored investment insights and recommendations, optimizing portfolios in response to rapidly shifting market conditions.
The Promise of Personalized Services
A crucial focal point of this partnership is offering a seamless, highly personalized experience for every client. The AI platform will analyze vast amounts of client data – including risk tolerance, financial goals, and investment preferences – to deliver customized advice and portfolio solutions.
"This partnership is not simply about harnessing AI; it's ultimately about human connection and better client experiences," said Satya Nadella, Chairman and CEO of Microsoft. "Microsoft's technology will allow Franklin Templeton to offer truly individualized financial solutions, helping people achieve their goals with the insight and agility that the market demands."
Unlocking Operational Efficiency
Beyond personalized client experiences, the new financial AI platform promises to redefine operational efficiency within Franklin Templeton. The platform is expected to automate routine tasks such as data analysis, report generation, and compliance monitoring. By streamlining these processes, Franklin Templeton's investment professionals will have more time for high-value activities like client consultation and strategic decision-making.
This enhanced efficiency, enabled by AI, is poised to boost productivity and reduce costs, ultimately resulting in a more focused and streamlined operational model for Franklin Templeton.
A Collaboration Focused on Innovation
The Franklin Templeton-Microsoft partnership marks a convergence of two industries committed to innovation and transformation. Franklin Templeton's deep understanding of financial markets complements Microsoft's leading expertise in cloud computing and artificial intelligence. The synergy is expected to catalyze further advancements in financial services.
Analysts predict this groundbreaking collaboration will inspire similar partnerships across the industry, paving the way toward broader AI adoption in a traditionally conservative sector.
Responsible AI Integration
Given the critical and sensitive nature of financial services, the partnership places a strong emphasis on responsible AI principles. Both Franklin Templeton and Microsoft have pledged to prioritize transparency, explainability, and fairness in the development and deployment of AI solutions.
The companies acknowledge that earning and maintaining trust is crucial to the success of their efforts. Clients will have clear insights into how their data is used to power AI-driven recommendations, with continuous communication around the processes.
A Vision for the Future of Finance
The Franklin Templeton-Microsoft alliance heralds a new era in financial services: one where AI empowers a deeply personalized client experience, optimizes complex processes, and ultimately drives better investment outcomes.
"We strongly believe the collaboration with Microsoft is essential to Franklin Templeton’s strategic commitment to leveraging technology to drive investment success for our clients while simplifying the complexity of wealth management," commented Johnson.
Mad Hedge Technology Letter
May 1, 2024
Fiat Lux
Featured Trade:
(THE BIG RETAILER DIVING INTO FINTECH)
(WMT), (PYPL)
The takeaway I get from Walmart’s (WMT) push into fintech is that fintech is becoming mighty crowded in the short-term and this trend most likely won’t change anytime soon.
Walmart has been one of the big companies trying to beef up online commerce so it’s no surprise that wants to marry up this initiative with an in-house digital payment mode.
It could be that sometime in the near future that the likes of PayPal, Klarna, and Affirm who don’t have their e-commerce platform will be muscled out of this digital payment space.
Walmart’s in-house fintech startup One has begun offering buy now, pay later loans for big-ticket items at some of the retailer’s more than 4,600 U.S. stores.
The move puts One raises the question of whether major retailers need the help of outside payment apps.
Right now, Affirm, the BNPL leader has been the exclusive provider of installment loans for Walmart customers since 2019.
One is a mobile one-stop shop for saving, spending, and borrowing money.
Affirm helped the WMT generate $648 billion in revenue last year.
Ironically enough, offerings from both One and Affirm are available at checkout, and loans from either provider are available for purchases starting at around $100 and costing as much as several thousand dollars at an annual interest rate of between 10% to 36%.
Electronics, jewelry, power tools, and automotive accessories are eligible for the loans, while groceries, alcohol, and weapons are not.
One’s no-fee approach is especially relevant to low- and middle-income Americans who are “underserved” financially.
One could generate roughly $1.6 billion in annual revenue from debit cards and lending in the near term, and more than $4 billion if it expands into investing and other areas, according to Morgan Stanley
Walmart can use its scale to grow One in other ways. It is the largest private employer in the U.S. with about 1.6 million employees, and it already offers its workers early access to wages if they sign up for a corporate version of One.
Fintech players including Block’s Cash App, PayPal, and Chime dominate account growth among people who switch bank accounts and have made inroads with Walmart’s core demographic.
The three services made up 60% of digital player signups last year.
One has the great advantage of being majority-owned by a company whose customers make more than 200 million visits a week.
It can offer them enticements including 3% cashback on Walmart purchases and a savings account that pays 5% interest annually, far higher than most banks, according to customer emails from One.
One has access to Walmart’s sizable and sticky customer base, the largest in retail and that is worth a lot right there.
It’s entirely feasible that Walmart keeps growing its digital platform and in-house fintech app to somewhat look like a tech company in a few years.
I’ve written a few times about how Walmart is mimicking many of the best practices from the great tech companies and who knows, they might even employ a cloud division to take care of its own data and warehouse operations.
The day where outsourcing much of the data to software companies is very much over for big companies like WMT who are making deep inroads and investment into their tech prowess.
WMT’s stock has always been given that non-tech premium and I believe that will slowly change around as the growth rates start to pick up.
WMT is one of those American companies that are strongly positioned to do well in inflationary times and picking up all the $100,000 per year white collar professionals is a massive victory as they figure out ways to monetize this higher spend base.
This is a great company to buy on any dip and hold long term.
“The most terrifying words in the English language are: I'm from the government and I'm here to help.” – Said Former US President Ronald Reagan
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
( THE YEN IS FACING A DILEMMA)
May 1, 2024
Hello everyone,
Welcome to May, and what could be a continuation of the market behaviour we saw in April. The market is in the doldrums about what the Fed might say on Wednesday. Investors are already interpreting and theorizing possible outcomes, hence putting the market on the back foot.
As we wait to decipher the Fed’s stance on the road ahead, let’s look at what Bank of America thinks about this market correction.
According to the firm, investors should not panic. Instead, they should use the downside movement as a promising entry point before the market swings back to the green this summer.
It’s that ‘buy on the low, sell on the high’ idea. Most of the reluctance to buying at these times comes from the mindset: ‘But, what if the market (or stock) goes lower?’ Answer: you buy in small parcels at different levels, average in.
That’s how I approach the market. Take what the market gives you.
During election years, headwinds in April and May can be expected. But this is mostly temporary. Seasonality supports buying the dip prior to a summer rally. Volume indicators for the S&P 500 are suggesting a pause ahead of upsides in the summer.
Why is the Japanese Yen cratering?
The Japanese stock market has been rallying over the past few years. From its Covid-induced low in 2020, the Nikkei has run to a record high of over 38,000. That gallop has even outdone the U.S. S&P500 over the same period.
Japan’s previous three decades saw stagnant performance and low economic growth. Now in 2023/2024, we see Japan’s stock market entering a new era of strength, but alongside this strength, the Japanese Yen has collapsed.
On Monday morning the Yen briefly touched 160, a 34-year low compared to the U.S. dollar. However, in what may have been the Bank of Japan's intervention, the dollar dived below 157 in a heartbeat not long after the low was reached. In January 2023 the Yen was sitting at 129. So, what gives?
The Yen’s collapse can mostly be explained by the rising U.S. interest rates. The currency’s fortunes are mostly tied to expected interest rate differentials. In other words, the Yen will fluctuate in accordance with the anticipated difference between the interest rates in Japan and other parts of the world, most particularly the U.S.
So, when the U.S.’s interest rates are higher than Japan’s, it puts pressure on the yen. And the reasons for this are twofold. Firstly, due to Japan’s low interest rates, the yen is often used in the so-called “carry trade.” This means investors can borrow at a low interest rate to invest in an asset with a higher return. So, you might see a fund manager borrowing yen and investing it in a higher-yielding foreign instrument, pocketing the difference.
The interest rate differentials between Western powers and Japan also impact investment and hedging in Japan’s $4.2 trillion portfolio of overseas assets. When Japanese investors see that interest rates are far higher in other developed nations, they’ll often increase their investment in these overseas assets, pulling down the yen. Hence the rising interest-rate differential between the U.S. and Japan has become quite a dilemma for the yen over the past few years.
In the short to medium term, there is little likelihood of change here for JPY/USD. With the resilient U.S. economy and inflation showing signs of accelerating, many believe the Fed is unlikely to cut interest rates soon, which will see the yen remaining at the mercy of developments, particularly in the U.S.
But the tide will eventually turn. U.S. and European central banks will eventually cut their respective interest rates, lessening the painful interest-rate differential for Japan.
Bank of America argues that the Bank of Japan may hike rates in the third quarter, and the U.S. could cut rates. This would then pave the way for yen appreciation.
QI Corner
Cheers,
Jacquie
Global Market Comments
May 1, 2024
Fiat Lux
Featured Trade:
(SEVEN REASONS TO BUY CHARLES SCHWAB),
(SCHW), (TLT), (GS), (MS), (C), (BAC),
(TESTIMONIAL),
(TAKING A BITE OUT OF STEALTH INFLATION)