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
May 6, 2025
Fiat Lux
Featured Trade:
(AN OLD, BORING DOG WITH NEW TRICKS)
(GSK)
GSK (GSK) isn’t the name that makes your inbox light up or your broker call in a frenzy. No breaking news banner, no meme-stock frenzy. Just a 15% YTD climb while the rest of the healthcare sector stayed in bed.
It’s the kind of move that doesn’t come with fanfare — but it does make you sit up and ask, wait a minute, what’s going on here?
I was at a biotech conference in Basel once, back when I was helping Swiss Bank sort out its Japanese equity derivatives book. Sitting across from me was a pharma strategist with a pension for skepticism and a wine list habit to match. We were trading war stories about the market’s favorite pastime: chasing biotech rocket ships.
He shook his head and said, "The flash fades. The cash sticks." I laughed, nodded, and promptly forgot about it. But seeing GSK quietly tack on 15% YTD while the rest of the healthcare sector has been napping? That line just came roaring back.
That stuck with me. GSK — the British pharma mainstay formerly known as GlaxoSmithKline — isn’t anyone’s idea of a moonshot. No one’s quitting their day job because of a GSK short squeeze. But what it lacks in fireworks, it makes up for in fundamentals, and frankly, that’s more useful in a market like this one.
Let’s get right into it: Q1 2025 numbers just dropped, and they did not disappoint. Revenue was up 4% year-over-year, and earnings per share beat analyst expectations by a comfortable 15.6%. Not the kind of thing that gets retail investors frothing, but real, tangible outperformance in a quarter when much of the healthcare sector has been flatlining.
GSK’s guidance for the year calls for 3–5% revenue growth and 6–8% EPS growth. These aren't blockbuster figures, but they’re dependable. And in a year where the S&P 500 has had more mood swings than a caffeinated options trader, boring might just be beautiful.
Now let’s talk valuation. GSK’s forward non-GAAP price-to-earnings ratio is currently sitting at 8.8x. That’s well below its five-year average of 12.3x, which implies around 40% upside if the market decides to re-rate the stock closer to historical norms.
Even if it doesn’t, that low P/E means you’re not paying up for growth that may or may not materialize. You're buying earnings now, and at a discount.
The dividend doesn’t hurt either. At 4.4%, it’s comfortably above the sector median of 1.6%. And this isn’t a fly-by-night payout either. GSK has shelled out dividends for 23 straight years, with a payout ratio of just 19%.
There’s also the buyback angle. Management has approved $1.33 billion in repurchases for Q2 2025, which is roughly 3.4% of the company’s market cap. That’s not nothing, and it signals a level of confidence from inside the house that’s worth noting.
Of course, it’s not all sunshine and roses. GSK expects its long-term revenue growth to slow post-2026, projecting a CAGR of 3.5% through 2031. That’s down from the 7% they’re targeting through 2026.
Some might see that as a red flag. I see it as realism. Pharma is cyclical. Patent cliffs are real. And growth eventually slows — even in biotech land.
But margins tell another story. GSK’s core operating margin hit 33.7% in Q1, already above their 2026 target of 31%. If that holds, or improves, the impact on profit leverage over the next couple of years could be meaningful.
In plain English: they’re squeezing more out of every pound they earn.
On a longer timeline, the math still works. Assuming steady margins and modest revenue expansion, GSK’s forward P/E could drop to 6.7x by 2031. At that level, it’s almost unreasonably cheap for a company still growing, still paying a dividend, and still buying back its own stock.
In the late 1990s, I was running one of the first global hedge funds with exposure to Japanese equity derivatives — a market that made GSK look like a thrill ride. What I learned back then was that patience, paired with a good entry point, often beats flash and momentum.
GSK right now feels a lot like that. Quietly undervalued. Misunderstood. But building.
No one’s getting rich overnight with this stock. But if you get a dip, it’s worth stepping into. Not for drama. Not for headlines. But for the sort of predictable, well-capitalized earnings stream that keeps the portfolio steady when the rest of the market forgets what a balance sheet looks like.
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
When John identifies a strategic exit point, he will send you an alert with specific trade information on 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
May 6, 2025
Fiat Lux
Featured Trade:
(THEY’RE NOT MAKING AMERICANS ANYMORE)
(SPY), (EWJ), (EWL), (EWU), (EWG), (EWY), (FXI), (EIRL), (GREK), (EWP), (IDX), (EPOL), (TUR), (EWZ), (PIN), (EIS)
If demographics are destiny, then America’s future looks bleak. You see, they’re just not making Americans anymore.
At least that is the sobering conclusion of the latest Economist magazine survey of the global demographic picture.
I have long been a fan of demographic investing, which creates opportunities for traders to execute on what I call “intergenerational arbitrage”. When the number of middle-aged big spenders is falling, risk markets plunge.
Front run this data by two decades, and you have a great predictor of stock market tops and bottoms that outperforms most investment industry strategists.
You can distill this even further by calculating the percentage of the population that is in the 45-49 age bracket.
The reasons for this are quite simple. The last five years of child rearing are the most expensive. Think of all that pricey sports equipment, tutoring, braces, SAT coaching, first cars, first car wrecks, and the higher insurance rates that go with it.
Older kids need more running room, which demands larger houses with more amenities. No wonder it seems that dad is writing a check or whipping out a credit card every five seconds. I know, because I have five kids of my own. As long as dad is in spending mode, stock and real estate prices rise handsomely, as do most other asset classes. Dad, you’re basically one generous ATM.
As soon as kids flee the nest, this spending grinds to a juddering halt. Adults entering their fifties cut back spending dramatically and become prolific savers. Empty nesters also start downsizing their housing requirements, unwilling to pay for those empty bedrooms, which in effect, become expensive storage facilities.
This is highly deflationary and causes a substantial slowdown in GDP growth. That is why the stock and real estate markets began their slide in 2007, while it was off to the races for the Treasury bond market.
The data for the US is not looking so hot right now. Americans aged 45-49 peaked in 2009 at 23% of the population. According to US census data, this group then began a 13-year decline to only 19% by 2022.
You can take this strategy and apply it globally with terrific results. Not only do these spending patterns apply globally, but they also backtest with a high degree of accuracy. Simply determine when the 45-49 age bracket is peaking for every country, and you can develop a highly reliable timetable for when and where to invest.
Instead of poring through gigabytes of government census data to cherry-pick investment opportunities, my friends at HSBC Global Research, strategists Daniel Grosvenor and Gary Evans, have already done the work for you. They have developed a table ranking investable countries based on when the 34-54 age group peaks—a far larger set of parameters that captures generational changes.
The numbers explain a lot of what is going on in the world today. I have reproduced it below. From it, I have drawn the following conclusions:
* The US (SPY) peaked in 2001 when our first “lost decade” began.
*Japan (EWJ) peaked in 1990, heralding 32 years of falling asset prices, giving you a nice back test.
*Much of developed Europe, including Switzerland (EWL), the UK (EWU), and Germany (EWG), followed in the late 2,000’s, and the current sovereign debt debacle started shortly thereafter.
*South Korea (EWY), an important G-20 “emerged” market with the world’s lowest birth rate, peaked in 2010.
*China (FXI) topped in 2011, explaining why we have seen three years of dreadful stock market performance despite torrid economic growth. It has been our consumers driving their GDP, not theirs.
*The “PIIGS” countries of Portugal, Ireland (EIRL), Greece (GREK), and Spain (EWP) don’t peak until the end of this decade. That means you could see some ballistic stock market performances if the debt debacle is dealt with in the near future.
*The outlook for other emerging markets, like Indonesia (IDX), Poland (EPOL), Turkey (TUR), Brazil (EWZ), and India (PIN) is quite good, with spending by the middle-aged not peaking for 15-33 years.
*Which country will have the biggest demographic push for the next 38 years? Israel (EIS), which will not see consumer spending max out until 2050. Better start stocking up on things Israelis buy.
Like all models, this one is not perfect, as its predictions can get derailed by a number of extraneous factors. Rapidly lengthening life spans could redefine “middle age”. Personally, I’m hoping 72 is the new 42.
Emigration could starve some countries of young workers (like Japan), while adding them to others (like Australia). Foreign capital flows in a globalized world can accelerate or slow down demographic trends. The new “RISK ON/RISK OFF” cycle can also have a clouding effect.
So why am I so bullish now? Because demographics is just one tool in the cabinet. Dozens of other economic, social, and political factors drive the financial markets.
What is the most important demographic conclusion right now? That the US demographic headwind veered to a tailwind in 2022, setting the stage for the return of the “Roaring Twenties.” With the (SPY) up 27% since October, it appears the markets heartily agree.
While the growth rate of the American population is dramatically shrinking, the rate of migration is accelerating, with huge economic consequences. The 80-year-old trend of population moving from North to South to save on energy bills is picking up speed, and the Midwest is getting hollowed out at an astounding rate as its people flee to the coasts, all three of them.
As a result, California, Texas, Florida, Washington, and Oregon are gaining population, while Missouri, Iowa, Nebraska, Kansas, and Wyoming are losing it (see map below). During my lifetime, the population of California has rocketed from 10 million to 40 million. People come in poor and leave as billionaires, as Elon Musk did.
In the meantime, I’m going to be checking out the shares of the matzo manufacturer down the street.
“This could be the beginning of the end of the bond market,” said my friend, the legendary hedge fund manager, David Tepper.
For generations, securing a loan, particularly a mortgage, has been synonymous with lengthy delays, mountains of paperwork, and nerve-wracking uncertainty. Borrowers traditionally faced weeks, sometimes even months, navigating a complex process involving manual data entry, extensive document checks, and subjective underwriting decisions. But this cumbersome reality is rapidly fading as Artificial Intelligence (AI) injects unprecedented speed and efficiency into the lending world, compressing approval timelines from weeks into mere minutes and fundamentally reshaping how credit is accessed and granted.
The Drudgery of Traditional Lending
The traditional loan approval process was notoriously slow and fraught with potential bottlenecks. It began with applicants submitting piles of documents – pay stubs, tax returns, bank statements, and identification. Loan officers or processors then manually sifted through this information, painstakingly entering data into disparate systems. This stage alone was ripe for errors and delays.
Next came verification, requiring cross-checking submitted details against various sources, often involving phone calls or further documentation requests. The core of the process, underwriting, relied heavily on human judgment to assess creditworthiness based primarily on credit scores, income, and debt-to-income ratios. While experienced underwriters brought valuable expertise, this stage could be subjective, prone to unconscious bias, and time-consuming, especially during peak application periods. For borrowers needing swift financial decisions, whether for a home purchase, a small business expansion, or an emergency, these protracted timelines often led to missed opportunities and significant stress. Industry estimates suggest closing a mortgage in the U.S. traditionally took anywhere from 30 to 60 days – a lifetime in today's fast-paced digital economy.
AI Steps In: The Mechanics of Accelerated Approvals
Artificial intelligence, particularly machine learning (ML) and associated technologies like Natural Language Processing (NLP) and Optical Character Recognition (OCR), tackles these traditional bottlenecks head-on.
Tangible Results: Efficiency Gains and Market Impact
The impact of AI on lending speed is not merely theoretical. Financial institutions implementing these technologies are reporting significant improvements. FORUM Credit Union, using automated underwriting, estimated it could process up to 70% more loans compared to purely manual methods. Research published on ResearchGate indicated banks using AI-driven document automation saw loan approvals processed 70% faster. Fintech lenders, built from the ground up with AI, often provide decisions almost instantaneously, setting a new standard for customer expectations.
This speed translates into increased capacity, allowing lenders to handle higher volumes without compromising quality or needing to proportionally increase staff. It also accelerates loan funding, a critical advantage in competitive markets like auto loans offered through dealerships.
Beyond Speed: Enhanced Accuracy, Fairness, and Experience
While speed is the most dramatic benefit, AI offers other significant advantages. By minimizing manual data handling, it drastically reduces costly human errors. The ability to analyze diverse datasets, including alternative data, holds the potential to make lending more inclusive, providing access to credit for individuals with "thin" or non-traditional credit files, such as recent immigrants or young adults.
AI also enhances the customer experience. AI-powered chatbots and virtual assistants provide 24/7 support, answering borrower questions instantly and guiding them through the application process. AI can personalize loan offers based on individual profiles and financial situations, providing tailored solutions rather than one-size-fits-all products.
Navigating the Hurdles: Bias, Privacy, and Regulation
Despite its transformative potential, AI implementation in lending faces critical challenges.
The Future is Fast: What's Next for AI in Lending?
Looking ahead to 2025 and beyond, AI's role in lending will only deepen. Trends include hyper-automation, where AI orchestrates end-to-end processes with minimal human touch. Generative AI is poised to further enhance customer interaction through more sophisticated chatbots and to automate the generation of reports and summaries. We may see greater integration with blockchain for enhanced security and transparency in transactions. The focus will continue to be on using AI not just for speed, but for creating highly personalized, seamless, and fair borrowing experiences. Financial institutions, both traditional players and fintech disruptors, recognize that leveraging AI effectively is no longer optional but essential for staying competitive.
Conclusion: A New Era of Lending
Artificial intelligence is irrevocably changing the loan approval process. By automating tasks, analyzing data at scale, and enabling near-instantaneous decisions, AI delivers the speed and efficiency demanded by modern consumers and businesses. While significant challenges around bias, privacy, and regulation must be carefully managed, the benefits are undeniable. The transition from laborious, weeks-long processes to streamlined, minutes-long approvals marks a profound shift, promising a future where accessing credit is faster, potentially fairer, and more accessible than ever before.
Mad Hedge Technology Letter
May 5, 2025
Fiat Lux
Featured Trade:
(COST OF DIGITAL CONTENT ON THE RISE)
(NFLX), (DIS)
