Global Market Comments
August 4, 2023
Fiat Lux
Featured Trades:
(WEDNESDAY, SEPTEMBER 6, 2023 SAN DIEGO, CALIFORNIA STRATEGY LUNCHEON)
(THE HISTORY OF TECHNOLOGY)
(BUSINESS IS BOOMING AT THE MONEY PRINTERS)
CLICK HERE to download today's position sheet.
I have just finished leisurely reading Tom Standage's book The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century's On-Line Pioneers.
Standage discusses the creation and development of the telegraph system and how it revolutionized communication in the 19th century.
The book claims that modern Internet users are in many ways the heirs of the telegraphic tradition, meaning that how people used the telegraph during the 19th century parallels how people use the Internet today.
Standage goes on to suggest that by studying how the telegraph developed and created certain trends in society, we can learn a lot about the challenges, opportunities, and pitfalls of the Internet today.
From discussing the social impact of both systems with the development of online social interactions to the way that business and work was revolutionized, the book has it all!
You can laugh about how Victorians flirted and developed romantic connections over Morse code and you can marvel at the way getting more rapid information, particularly with the invention of the stock ticker, allowed financial markets to emerge and grow.
If your Bloomberg slaves are looking for an educational and entertaining read, click here.
All of the high-grade paper used by the US Treasury to print money is bought by one firm, Crane & Co., which has been in the same family for seven generations.
Last year, the Feds printed 38 million banknotes worth $639 million. Although we have seen the Fed’s severe monetary tightening cause the money supply to fall off a cliff, the administration’s recent reflationary efforts have spurred a big increase in demand for paper for $100 dollar bills.
The US first issued paper money in 1861 to finance the Civil War, and Crane has been supplying them since 1879.
The average life of a dollar bill is 21 months. Who said no one was doing well in this economic slowdown? M1, or notes and coins in circulation, is already exploding, that to 14 years of quantitative easing. Is this a warning of an imminent jump in inflation?
In the meantime, check out the new 3D $100 bill. It includes the latest anti-counterfeiting techniques, like a new blue security strip, tiny liberty bells that morph into the number 100, and “United States of America” micro-printed on Franklin’s jacket collar. The new bills started entering circulation in 2013.
It’s ironic that the balanced scales, a symbolic reference to the founding fathers’ commitment to maintaining a balanced budget, are still on the new Benjamin, now that we have a $31 trillion national debt that is growing rapidly.
Old Ben must be turning over in his grave.
"Go to Heaven for the climate. Go to Hell for the company," said American humorist, Mark Twain.
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
August 3, 2023
Fiat Lux
SPECIAL PRECIOUS METALS ISSUE
Featured Trades:
(WHAT’S UP WITH GOLD?),
(GLD), (UGL), (PPLT), (PLAT), (WPM)
(THE ULTRA BULL CASE FOR GOLD)
CLICK HERE to download today's position sheet.
Mad Hedge Biotech and Healthcare Letter
August 3, 2023
Fiat Lux
Featured Trade:
(A FUTURE-PROOF INVESTMENT)
(UNH), (CI), (HUM), (CNC)
With a staggering market cap of $472 billion and a network reaching scores of policyholders, UnitedHealth Group (UNH) is an undisputed titan in the health insurance industry.
To put this into perspective, its competitors such as Cigna (CI), Humana (HUM), and Centene (CNC) have market caps of $86.42 billion, $56.64 billion, and $36.32 billion, respectively.
However, the past year witnessed a slight dip in UnitedHealth’s share price by 2%, which noticeably lags the broader market's return of 17%.
This raises a question: Is UnitedHealth’s investment appeal dwindling, or is it merely in a brief pause?
One can't discuss the health insurance sector without addressing the brewing storm of growth in its forecast. This sector is expected to welcome a turbocharged surge fuelled by an escalating burden of maladies and an expanding aging population worldwide.
The global landscape is witnessing a steep rise in various chronic afflictions - from cardiovascular and respiratory conditions to neurological disorders, cancer, musculoskeletal diseases, and diabetes. With the world population growing savvier about the financial cushioning health insurance provides, we're staring at a potential boom in this sector.
Take a gander at the numbers: The global health insurance industry was valued at a hefty USD 2.17 trillion in 2022.
Fast forward to 2032, and we're talking about a market swelling to an eye-watering USD 4.37 trillion. And with a projected CAGR of 7.3% from 2023 to 2032, we can safely say the health insurance express isn't slowing down anytime soon.
With this backdrop, let's dive into the compelling aspects of investing in UnitedHealth.
First, let's delve into the favorable aspects of investing in UnitedHealth. The core rationale is simple: healthcare is perennial. As long as human beings exist, healthcare will always be needed.
In the United States, individuals or their employers inevitably need to secure health insurance on a monthly basis. The constant evolution and improvement of healthcare services create a fertile ground for potentially substantial earnings in both the insurance and healthcare delivery sectors.
UnitedHealth, a veritable powerhouse, operates two key divisions - one specializing in health insurance and prescription coverage, and the other focused on healthcare provision. This dual-pronged approach has the potential to create sustained shareholder value.
Finding a flaw in this favorable proposition is challenging, particularly when examining the figures.
The company amassed an impressive $93 billion in revenue in the second quarter of 2023 alone, making it one of the world's largest corporations. It outperformed analysts' predictions of $91 billion, and the earnings per share of $6.14 surpassed Wall Street estimates of $5.99.
Although the company's medical care ratio did increase from 81.5% to 83.2% as expected, this was offset by a robust revenue growth that outpaced the rise in medical and operational costs.
UnitedHealth provides insurance to over 51 million individuals, with an addition of over a million new policyholders in 2023. UnitedHealth's scale allows it to keep costs low, forming a formidable entry barrier for new market contenders.
Moreover, its quarterly revenue experienced a notable 63% increase over the past five years, hinting at significant growth potential. This suggests that UnitedHealth's future growth prospects remain robust.
Straight from the company itself, UnitedHealth anticipates growing its earnings per share (EPS) between 13% and 16% annually. Moreover, the company has shown consistent dividend growth, with an annual increase of 10% since 2010.
This indicates a company that excels in operating its business model over time, suggesting potential stability and growth in both share price and dividends.
One key strategy of UnitedHealth is its diverse portfolio, developed over the years through strategic acquisitions like home health company LHC Group and analytics firm Change Healthcare. This diversity has allowed the company to maintain a growth rate exceeding 10% over the last five years.
UnitedHealth's most significant growth driver remains its premiums, but the company also saw an additional $2 billion in revenue from services and $1.2 billion from product sales last quarter.
Although it faces potential increases in medical costs, the company's diversified portfolio helps it maintain strong profit growth, with adjusted earnings per share rising 10% to $6.14 year-on-year.
Despite the overall positive outlook, it's worth noting that UnitedHealth's shares have decreased by about 4% this year. While the stock is trading at 23 times trailing earnings, slightly below the healthcare industry average of 25, the company's consistent growth could justify a higher valuation.
Overall, UnitedHealth remains a promising investment in the long run despite some short-term volatility, as it offers a blend of stability and growth. It may well be a stock worth considering for those looking for a long-term hold in the healthcare sector. I suggest you buy the dip.
An AI-powered David is boldly challenging the Goliath in the credit landscape. Upstart (UPST), a groundbreaking fintech player, employs the power of this technology to critically evaluate borrowers, enabling financial establishments to make astute lending determinations.
What makes Upstart's strategy stand out is its gutsy move to outfox Fair Isaac's FICO score - a rating system that's reigned supreme in the credit market for over 30 years. Unlike the traditional method, this company pulls in a variety of aspects like career trajectory, academic background, and other distinct personal markers.
With this innovative approach, Upstart's AI-powered models are able to spread their loan-offering net wider, snagging more borrowers and serving up loans at friendlier rates. This not only trims down the specter of default but also makes it an enticing prospect for investors.
They're not just investing in a company, they're also potentially hitching a ride with a trailblazer aiming to flip the script on how creditworthiness is gauged, possibly shaking the very foundations of the $4 trillion consumer lending industry.
Its cutting-edge AI technology has the power to sift through a staggering 1,600 individual data points pertaining to a loan applicant in less time than it takes to blink. It’s so rapid that 84% of nods of approval are immediate and totally automated, bidding goodbye to the need for meddling human hands.
When you stack this up against the old guard FICO, it’s like comparing a supersonic jet to a horse and buggy. FICO meanders through a mere five core data parameters, and the time it takes for a human assessor to finally stamp their approval can be as long as a drawn-out cricket match.
That said, Upstart's journey in the stock market has seen its fair share of turbulence since its December 2020 IPO.
After debuting at a modest $20, the stock saw an impressive 780% surge by October 2021. However, the market's fickle nature was soon revealed.
By the end of 2022, Upstart had plummeted, losing a staggering 95% of its value. Then, as of July 26, 2023, it rallied, marking a dramatic 390% upswing.
Such dramatic shifts reflect the influence of interest rates and broader economic trends. When interest rates hovered below 1%, borrowing boomed, making Upstart a popular choice among loan seekers.
However, the Federal Reserve's series of interest rate hikes over the past 18 months caused a sharp decline in loan applications, impacting Upstart's fortunes.
In light of these fluctuations, Upstart's financial performance has faced significant challenges. In Q1, revenues fell to $103 million, marking a 67% year-on-year decline.
Loan originations via the platform fell by 78% to $997 million compared to the same period last year.
Net losses also spiked to $129 million, a steep drop from the net income of $32.7 million in Q1 of the previous year.
Despite these worrying trends, investors appear to be displaying unwavering faith in Upstart's future.
This optimism may stem from several positive developments during this period. Notably, Upstart secured an impressive $2 billion in funding for the next 12 months for its loans. In a significant vote of confidence, investment giant Castlelake also agreed to acquire $4 billion of Upstart's consumer loans.
The cash influx will likely encourage banks to approve more loans, while Upstart can avoid bearing these on its balance sheet.
Additionally, borrowers approved by Upstart's AI models experienced 53% fewer defaults than those approved by major U.S. banks at the same rate.
This implies that partnering banks could approve 173% more loans without a corresponding increase in default rates.
While it's exciting to envision Upstart flourishing half a decade from now, showcasing robust revenue growth and remarkable profitability, we must also remember the company's recent, significant downturn. Consequently, any future predictions come with a fair share of risk.
At present, Upstart's price-to-sales ratio stands at 7, reflecting the company's performance. This metric could be justified for a firm demonstrating rapid growth and high efficiency. But given Upstart's recent challenges, it might seem overvalued.
Upstart could prove a valuable addition to a portfolio at the right time. However, given the current inflated stock price, prospective investors might be better off waiting for a more attractive entry point signaled by positive news and more consistent performance.
Mad Hedge Technology Letter
August 2, 2023
Fiat Lux
Featured Trade:
(SPOT ON WITH SPOTIFY)
(SPOT), (AMZN), (APPL)
