Mad Hedge Biotech and Healthcare Letter
October 31, 2024
Fiat Lux
Featured Trade:
(BORN WITH A SILVER SEQUENCE)
(ILMN), (PACB), (TMO)
When my kids were born years ago, the most advanced technology in the delivery room was the fetal heart monitor, which had all the predictive power of a Magic 8 Ball with a medical degree.
Those primitive days feel like ancient history now.
Today, as I watch my friends' grandchildren entering the world, they're getting something I would have traded my first hedge fund for: a complete genetic blueprint that makes a heart monitor look like two cups and a string.
Enough nostalgia. Let me cut straight to the chase, because nothing makes me twitchier than analysts who dance around the point like nervous fathers in a delivery room.
What I want to say is that I'm betting big on something called whole genome sequencing (WGS) for every newborn. And don't worry - this isn't just another biotech pipe dream cooked up by optimistic PhDs with too much venture capital.
Having spent years in Japan during the 1970s watching semiconductor technology transform from an expensive curiosity into an industrial necessity (rather like sushi in Manhattan), I recognize the same patterns emerging here.
The cost trajectory alone is enough to make a value investor weep with joy - from $100 million per genome in 2001 (roughly the price of a small island) to less than $600 today, with Illumina (ILMN) pushing to bring it to $100.
And what do we get for this bargain-basement pricing?
The numbers from the GUARDIAN project are juicier than an insider trading tip - and completely legal, I might add.
They're screening newborns for over 200 genetic conditions, while most hospitals are still stuck at 30, like they're using a genetic View-Master instead of an IMAX theatre.
In their first 4,000 participants, they found actionable diagnoses in 3.7% of newborns - conditions that traditional screening would have missed like a banker misses market crashes.
Let's look at the hard economics.
In NICU settings, ultra-rapid genome sequencing is already saving $14,265 per child and changing patient management in 37% of cases.
Early intervention in spinal muscular atrophy alone saves over $4 million in lifetime costs per patient - the kind of numbers that make healthcare administrators actually smile, a rare sight indeed.
These clinical benefits translate directly to the bottom line.
Just consider the market size. We're looking at $62.9 billion by 2030, growing at 18.2% annually.
The newborn screening market alone will hit $2.27 billion by 2025, and if that doesn't get your investment synapses firing, you might want to check your own genetic predisposition to opportunity recognition.
But impressive market numbers are just the beginning.
The technology landscape is shifting faster than trading algorithms during a Flash Crash. Stanford Medicine is now diagnosing genetic diseases in under eight hours - a process that used to take longer than getting approval for a mortgage.
Companies like Illumina, Pacific Biosciences (PACB), and Thermo Fisher Scientific (TMO) are playing a game of genetic leapfrog, each advance more impressive than the last.
Meanwhile, Sophia Genetics and their AI cohort are turning genetic data into actionable insights faster than you can say "double helix."
Having watched technology transformations unfold before, I know what I'm seeing.
My years in Japan taught me one crucial lesson (aside from never mix wasabi with everything just because you can): the difference between routine technological advancement and true paradigm shifts is as clear as the gap between a good investment and a great one.
What we're witnessing now - plummeting costs, advancing technology, and clear market demand - is rarer than a hedge fund manager admitting they were wrong.
And the implications are staggering. Think about this: we're approaching an era where every child starts life with a complete genetic roadmap.
It's like getting the ultimate user manual at birth, except this one actually tells you something useful, unlike those assembly instructions from Swedish furniture companies.
Smart money should be building positions now, while the broader market is still scratching its head like a freshman in advanced calculus.
The companies that establish themselves as leaders in this field won't just be successful - they'll be as fundamental to healthcare as smartphones are to teenagers.
As both a parent and an investor who's seen more market cycles than a laundromat, I haven't been this excited since I discovered you could actually make money going short. This is one of those rare moments when doing well and doing good align so perfectly, it's like finding a unicorn that also files your taxes.
Don't miss this one. Some opportunities in life are as rare as a bearish call at a bull market convention - this is one of them.
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
October 31, 2024
Fiat Lux
Featured Trade:
(ORDER EXECUTION 101)
Given the recent difficulty in placing orders in this violent, illiquid market, I have been inundated with requests for how to execute orders. So, I thought I’d take some time today to expound on the basics of order execution 101.
There are three basic ways to intelligently get an order into the market:
1) The No Brainer Average In. Buy half on receipt of my Trade Alert and half at the close. It’s that simple. If there is a tight spread and lots of volume, such as you usually get with the (SPY), just go to the market.
This is what a lot of institutions do and is why you get the volume spikes in the market at the opening and the close every day.
If you are trying to get into an illiquid position, such as with a far-month option on the Japanese yen, the spreads can be quite wide, possibly as much as 10%.
Going to the market can mean giving up a large chunk of your profit upfront. So, place limit orders in the middle of the spread, giving the market makers time to lay off risk in the underlying security or in the futures.
That will enable them to tighten up the spread and fill your order without taking you to the cleaners.
2) The Scale In. Let’s say I issue a trade alert to buy a spread at $4.00. The market is indicating a price of $3.85-$4.15. Break this down into seven orders of $3.85, $3.90, $395, $4.00, $4.05, $4.10, and $4.15. Then, forget about them.
By the end of the day, one will certainly get done, and maybe a few more. They will all get done only if the stock drops. But whatever happens, you will end up with a nice average and the low of the day in a rising market.
The reverse logic is true for put spreads.
2) The Principal Method. If you are a large, high-net-worth individual or institution, you can call your broker and ask him to make a market in any security. He will give you a bid and an offer wide enough to compensate for the risk he is taking, and you just lift the leg you want.
Warning: if your broker consistently loses money trading with you, he will quit returning your phone calls. That has happened to me a lot.
3) The Discretionary Method. Find a broker you trust to execute on a best-efforts basis at his discretion. He will want to grow your business and will do the best price he can. Expect to pay a higher commission and fees for this service, as you should. A lot of independent financial advisors now operate on this basis.
4) Overnight GTCs. If you live in a foreign time zone when the US stock market is closed, such as Australia, simply enter a spread of Good-Until-Cancelled orders overnight. For example, if I send out a trade alert to buy at $9.00, enter limit orders GTC at $9.00, $9.10, $9.20, $9.30, and $9.40. You should get done on some or all of these. This also applies to Americans who work during the day or don’t want to sit in front of a screen all day.
But a good broker worth his salt will usually earn his keep and then some, so it is worthwhile.
He has the news feeds right in front of him, has access to in-house and third-party research, like this newsletter, and is talking to clients and other traders all day long. So he should use this information to your advantage.
Don’t expect his service to be price competitive with discount online execution services. You get what you pay for.
Better not to be penny-wise and pound-foolish. Caution: many brokers won’t take these orders unless they know you well, as they are afraid of getting sued.
Be very careful of using limit stop losses these days. In the big flash crashes, some unfortunate investors got filled with market orders down 90%, especially with ETFs.
Better to let your broker use a “pocket” stop loss where he will call you before executing
If you get a Trade Alert from me and the security has already moved 5%, don’t chase it. The 3% rule applies to ETF’s.
Sometimes, merely going for a refill on your coffee, taking out the trash, or reading the morning papers is enough to miss an opportunity in this market.
I know because I have done it plenty of times myself.
Keep your discipline. Wait for the price to come back to you, or wait for the next Trade Alert. There are plenty of fish in the sea, and it is just a matter of time before another juicy one swims by.
Which One Did You Say I Should Buy?
“All we need to know about crude right now is that we have it coming out of our ears, both here and in the Middle East, and that’s why it’s headed to $60,” said Scott Nations, president of the options trading firm, NationsShares.
The legal profession, long considered a bastion of human intellect and nuanced judgment, is facing a disruptive force: Artificial Intelligence (AI). No longer confined to science fiction, AI lawyers are emerging as a powerful force, capable of performing tasks traditionally handled by human attorneys, from legal research to contract drafting and even courtroom arguments. This revolution is raising profound questions about the future of law, the role of human lawyers, and the very nature of justice itself.
AI's Expanding Legal Toolkit
While the idea of an AI lawyer arguing a case in court might seem futuristic, the reality is that AI is already making significant inroads into the legal field. Here's how:
- Legal Research: AI-powered platforms like ROSS Intelligence and Lex Machina can sift through mountains of case law, statutes, and legal documents in seconds, providing attorneys with relevant precedents and legal arguments far faster than traditional methods.
- Contract Analysis and Drafting: AI algorithms can analyze contracts, identify potential risks and loopholes, and even generate draft agreements, saving lawyers countless hours of tedious work.
- Predictive Policing: AI is being used to analyze crime data and predict where future offenses are likely to occur, raising ethical concerns about bias and potential discrimination.
- Due Diligence: In mergers and acquisitions, AI can automate the laborious process of due diligence, reviewing documents and identifying potential red flags.
- E-Discovery: AI tools can quickly analyze vast amounts of electronic data in legal cases, identifying relevant evidence and saving time and costs.
The "Robot Lawyer" in the Courtroom
While AI is already transforming many aspects of legal practice, the most dramatic development is the emergence of AI systems capable of representing clients in court. DoNotPay, a company founded by Joshua Browder, has developed an "AI lawyer" that runs on a smartphone and provides real-time guidance to defendants in traffic court. The system listens to the court proceedings and advises the defendant on what to say through headphones. Although still in its early stages, DoNotPay claims its AI lawyer has successfully contested parking tickets and helped users negotiate lower bills with companies.
The Benefits of AI in Law
Proponents of AI in law argue that it offers numerous advantages:
- Increased Efficiency and Speed: AI can automate tedious tasks, freeing up lawyers to focus on more complex and strategic work.
- Reduced Costs: By automating tasks and increasing efficiency, AI can make legal services more affordable and accessible.
- Improved Accuracy: AI algorithms can analyze vast amounts of data and identify patterns that humans might miss, leading to more accurate legal analysis and predictions.
- Increased Access to Justice: AI-powered tools can provide legal guidance and assistance to people who cannot afford traditional legal representation.
The Challenges and Concerns
Despite the potential benefits, the rise of AI lawyers also raises significant challenges and concerns:
- Job Displacement: As AI takes over routine legal tasks, there are concerns that it could lead to job losses for paralegals, legal secretaries, and even some attorneys.
- Ethical Considerations: Questions arise about the ethical implications of AI making legal decisions, especially in areas with significant consequences, such as criminal justice.
- Bias and Fairness: AI algorithms can perpetuate and amplify existing biases in data, potentially leading to unfair or discriminatory outcomes in legal cases.
- Lack of Human Connection: Some argue that AI lacks the empathy, compassion, and understanding of human nature that are essential for effective legal representation.
- Regulation and Accountability: The legal framework for regulating AI in law is still developing, raising questions about accountability and liability in cases of AI errors or misconduct.
The Future of the Legal Profession
The rise of AI lawyers is not likely to completely replace human attorneys in the near future. Instead, it is more likely to lead to a transformation of the legal profession, with AI and humans working together in new ways.
- AI as a Tool: Lawyers will increasingly use AI as a tool to enhance their efficiency and effectiveness, leveraging its capabilities for research, analysis, and document review.
- New Legal Roles: New roles will emerge, such as AI trainers, AI ethicists, and legal technologists, who specialize in developing and implementing AI solutions in the legal field.
- Focus on High-Level Tasks: Human lawyers will likely focus on tasks that require uniquely human skills, such as negotiation, client counseling, strategic thinking, and courtroom advocacy.
- Increased Specialization: Lawyers may become more specialized in niche areas of law, working alongside AI systems that handle more routine tasks.
The Need for Adaptation and Collaboration
The legal profession must adapt to the rise of AI to remain relevant and effective. This requires:
- Embracing Technology: Law schools and legal professionals need to embrace AI and other technologies, incorporating them into legal education and practice.
- Developing New Skills: Lawyers need to develop new skills, such as data analysis, AI literacy, and ethical reasoning, to thrive in an AI-powered legal landscape.
- Collaboration: The legal profession needs to collaborate with technology experts and ethicists to ensure that AI is developed and used responsibly in the legal field.
The AI Revolution: A New Era of Justice?
The rise of AI lawyers marks a significant turning point in the history of law. While it presents challenges and raises concerns, it also offers the potential for a more efficient, accessible, and equitable legal system. By embracing AI and adapting to its capabilities, the legal profession can harness its power to improve access to justice and serve clients more effectively in the 21st century.
The debate is just beginning. As AI continues to evolve, the future of law remains to be written.
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 Technology Letter
October 30, 2024
Fiat Lux
Featured Trade:
(LACK OF AI ROCKS THE KOREAN HEAVYWEIGHT)
(SAMSUNG), (SK HYNIX)
It’s not just about smartphones for Samsung anymore, their stalwart chip business is in full-blown crisis mode as they have been too slow to adapt to the artificial intelligence revolution.
It shows that if a company is asleep at the wheel, how quickly and how far they can fall back.
Samsung is Korea’s flagship tech company, and it is like the Titanic in a way because it is hard to turn around with the amount of employees it has.
Old habits die hard, and management simply wasn’t prepared for the giant leap forward in semiconductor chips.
Remember when their flagship smartphone, named the Galaxy, was the best phone in the world?
Oh, have times changed?
Concerns are piling up that the company is losing out to smaller rival SK Hynix in AI memory and failing to gain on Taiwan Semiconductor Manufacturing.
Overseas investors have sold about $10.7 billion worth of the South Korean company’s shares on a net basis since the end of July.
That hope has been snuffed out with the company admitting delays with its latest-generation HBM chips in early October, soon after SK Hynix said it had begun volume production. Meanwhile, US rival Micron Technology is stepping up efforts in HBM as well and has reported strong demand for its offerings.
Beyond its lag in AI memory, Samsung has struggled with a costly, yearslong effort to close the gap with TSMC in the foundry business. Like Intel— which has run into similar difficulty with plans to expand its outsourced chipmaking operations — the Korean firm is now moving to cut jobs and make other efforts to stop the bleeding.
Jay Y. Lee — a grandson of Samsung’s founder who was appointed executive chairman two years ago — was acquitted of stock manipulation charges in February after years of legal issues. Three months later, the company unexpectedly replaced its semiconductor division head with Jun Young-hyun, a memory chip veteran.
Samsung executives and engineers are now in full unison, heading towards the exits, looking for greener pastures, and that is a massive red flag.
It certainly isn’t a good optics when the best talent is looking for another job, but that is where we are at with Samsung.
In the short term, I don’t expect a quick turnaround because the management problems are real, and to get competitive in AI is a tall order.
Just look at AMD, they are about a year behind Nvidia, and Samsung isn’t even in the ballpark.
I expect a slow slide into irrelevancy and foreign shareholders dumping big swaths of Samsung stock backs this theory.
In the short term, readers shouldn’t get too fancy with picking AI stocks because there is a massive risk to the downside, considering how expensive the equity market is right now.
Samsung won’t be the last company to be swept up by the dustbin of tech firms.
In the U.S., it is clear which companies are behind and which are leading.
Microsoft is definitely one to buy the dip on.
I definitely envision at least one fiercer rally in AI stocks as we cruise past the U.S. election.
