Global Market Comments
July 15, 2020
Fiat Lux
Featured Trade:
(11 FACTORS THAT COULD KILL OFF THIS BULL MARKET)
I have lately been besieged with emails from followers asking if they should sell everything, put all their money into cash, and if the great bull market is well and truly over.
My answer is the same to all. If a full-throated and affirmative “NOT YET”. Things may look scary now, but they could get a lot worse, and eventually, that will take place.
I’ll tell you why. I have a laundry list of issues that could kill the bull once and for all. And while some of them are flashing alarm signals, many aren’t. I’ll go through them one by one.
The Pandemic Gets Totally Out of Control – Shutting down much of the economy and preventing kids from going back to school. As the stimulus tap (call it what it really is, disaster rescue) runs dry, tens of millions will lose jobs. Stocks could make a secondary low similar to the one we saw in March.
The Trade War –If each escalation is met with Chinese retaliation, then both countries will stay in a Depression. At some point, cooler heads may prevail but that is no sure thing. Having met several men who endured the 1936-38 Long March, I can assure you that the Chinese have a far better ability to sustain pain than we do. And the Chinese don’t have an election this year.
Cyber Terrorism – Imagine that you sat down to turn on your computer one day and nothing happened. The Internet was down, all financial transactions ceased, the power went out, and all food distribution ceased. America’s Internet infrastructure is far more vulnerable than most people realize. That's why I have been recommending cybersecurity stocks for the past decade. Certainly, my own local utility, PG&E (PGE) doesn’t maintain security to s military standard. It should.
Debt Levels in China – It’s easy to forget that perhaps 40% of China’s government-owned financial institutions are de facto bankrupt. They have been accumulating bad loans for decades and hiding them on their balance sheets and essential negative net worth. If one suddenly goes under, it could easily lead to a cascading series of bankruptcy’s much like we saw in the US during the 2008 financial crisis that spills over to the US and Europe. Back then, we lost Lehman Brothers and Bear Steans and could have lost everyone if the government hadn’t stepped in.
Debt levels in the US – Passage of the latest stimulus bill means the US national debt is about to soar from $24 to $22 trillion by 2021. The markets are ignoring this for now. It won’t forever.
Movement to the Left – Trump has run the most radically right-wing government in American history. Can you believe that we are now in the concentration camp business? The risk is that the electorate responds by installing a radical left-wing government in 2020 in reaction. That would bring a return of 90% personal tax rates, 28% corporate tax rates, the elimination of long term capital gains treatments, and other policies with a strong anti-business tilt.
Global Interest Rates at Zero –Once at zero central banks will be powerless to get us out of recessions buy cutting rates. Just look at how Japan has done over the past 30 years.
2020 Election – It going to be loaded with fireworks to be sure. The rancor may get so extreme on both sides that it literally scares people out the market.
Middle East War – War with Iran, which is now threatened daily by the administration, will be an enormous drag on the US economy. Investment shifts from machinery to weapons, which have no impact on productivity.
Trump Blows Up – The president implements a policy that is so deleterious to the US economy that the stock market panics. Some would argue we are already there.
Climate Change Accelerates – That is already happening but is hurting countries closer to the equator than ourselves, like India and Egypt. The US military certainly considers this an existential threat. Increased severe hurricanes, heat caused crop failures, wildfires, and more frequent flooding are already having severe localized effects. Imagine all that getting much worse. And there are severe impacts which we haven’t even thought about yet. The first effect we have already seen? Higher insurance premiums for everyone. Good luck getting new fire insurance in California or flood insurance in Florida.
She Doesn’t Live Forever
"There's a 70% chance you could lose it all," said Jeff Bezos to his parents when asking for a $100,000 investment to start Amazon. "I want you to know the risks because I want to be able to come home for Thanksgiving."
The QQQ is trading around 257 as I write this.
I am going to suggest a short term debit spread on the index based on the fact it was so oversold.
I am going to suggest you trade next week's expiration, which is the 24th.
Here is how you close the position:
Buy to Open July 24th - $257 Call for $6.30
Sell to Close July 24th - $263 Call for $4.30
The net debit will be $2.00 per spread.
The suggestion is based on the fact that I expect a short term bounce in the QQQ.
Because I am suggesting short-dated options, limit the trade to a four lot or 0.8% of the tracking portfolio.
The maximum gain on a four lot would be $1,200.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
July 14, 2020
Fiat Lux
Featured Trade:
(UPDATE ON THE COVID-19 VACCINE FRONTRUNNER)
(AZN), (MRNA), (RHHBY), (LLY), (PFE), (JNJ)
Mad Hedge Biotech & Healthcare Letter
July 14, 2020
Fiat Lux
Featured Trade:
(GILEAD SCIENCES REMDESIVIR MIRACLE)
(GILD), (RHHBY), (LLY), (MYL)
With the flu season just around the corner and herd immunity nowhere in sight, the pressure to develop a COVID-19 vaccine becomes even more urgent. From where things stand right now though, it looks like we could have a vaccine either already available on the market or ready to hit the market around this time in 2021.
We know we’ll need hundreds of millions of vaccine doses, and the majority of the vaccine programs today are getting built on industrial-scale vaccine platforms. This is positive news.
On an even more positive update, a handful of biotechnology and health care companies are now on late-stage testing for the COVID-19 vaccine.
Leading the charge so far is AstraZeneca (AZN), which received $1.2 billion in financial assistance courtesy of the US government’s Operation Warp Speed program.
AstraZeneca is working on an experimental vaccine, called AZD1222, with the University of Oxford and China National Pharmaceutical Group (Sinopharm).
So far, this is the only COVID-19 vaccine candidate in late-stage Phase 3 trials.
The trials are scheduled to be conducted in different countries, with some already in progress in South Africa, Brazil, and of course, the UK.
The stage will enroll over 10,000 people in the UK alone. The goal is to determine AZD1222’s efficacy in a sizeable group aged 18 and older.
What we know about AstraZeneca’s vaccine candidate is that it’s created from a weakened version of adenovirus, which comes from one of the virus types that causes the common cold. It also includes genetic material from COVID-19, which was added to help the patient’s body recognize the pathogen and trigger a defense mechanism to fight off the infection.
Researchers say that the best-case scenario is for the Phase 3 efficacy results of the AstraZeneca vaccine to be available by this fall.
However, AstraZeneca remains an attractive stock even sans its Covid-19 program thanks to its remarkable drug pipeline. With the foresight to stockpile drugs during this pandemic, the company’s earnings are projected to continuously grow.
In the past five to six years, AstraZeneca has been aggressive in investing in its pipeline to combat patent losses. Now, the company joins Roche (RHHBY) and Eli Lilly (LLY) in the list of companies with the most innovative candidates that are poised to launch commercial products capable of driving growth in the next decade.
A notable growth driver for AstraZeneca is its cancer franchise, particularly its key drug Tagrisso, which is set to tap into a massive market.
Before AstraZeneca was dubbed the leader in the COVID-19 vaccine race, there was Moderna (MRNA). Actually, this small biotechnology company is also expected to begin its late-stage Phase 3 trial in July.
Like AstraZeneca, Moderna is also one of the companies included in the Operation Warp Speed project and received $483 million from the government.
Unlike AstraZeneca, Moderna appears to be experiencing delays due to conflicts between the company’s experts and the US government scientists.
While Moderna shares jumped by over 200% since the pandemic started, these reported tensions represent a risk for its investors. It is particularly alarming because the company is a clinical-stage biotechnology company with no marketed products.
Although Moderna’s timeline remains to be the most aggressive, it could easily drown in the competition.
Keep in mind that other companies competing for the top spot in the COVID-19 race are all established and armed with extensive experience in launching new drugs to market. The list includes Pfizer (PFE), which has a market capitalization of $185.86 billion, and Johnson & Johnson (JNJ) with $375.40 billion.
Needless to say, the inexperience of companies like Moderna could prove to be a handicap in this highly competitive race.
Gilead Sciences (GILD) has been in the spotlight for months now. The company gained even more attention when the FDA granted it emergency authorization to use its drug Remdesivir as a COVID-19 treatment.
To date, there are roughly 20 clinical trials for Remdesivir across the globe --- and Gilead is wasting no time to expand the use of this drug.
In a recent announcement, the company shared that Remdesivir will also be tested as an inhaled formulation for outpatients.
To compare, the drug is currently given in intravenous form to patients who are already considered severe cases. This latest iteration of the drug could offer a COVID-19 treatment to those with mild cases which could eventually lead to early treatment of the disease, making hospitalization unnecessary.
At the moment, Remdesivir shortens the recovery period of hospitalized COVID-19 patients by four days or roughly 31%.
Gilead will test this inhaled formulation of Remdesivir on 60 healthy participants in the US.
Aside from testing its inhaled formulation, the company is also planning to test an IV version of Remdesivir. This could be used for outpatient settings, such as nursing homes and infusion centers.
There are also trials to determine whether the efficacy level of Remdesivir could increase if combined with other drugs. For this, Gilead is working with Roche (RHHBY) for its Actemra and Eli Lilly (LLY) to test Olumiant. Both are used to treat rheumatoid arthritis.
Since the pandemic started and Gilead’s COVID-19 efforts, the company’s shares jumped by 17.5% so far, topping the 2% decline of the S&P 500 Index.
A notable factor that has been fueling Gilead’s improvement is the US government’s confidence in Remdesivir.
In early July, the Department of Health and Human Services all but wiped clean the company’s Remdesivir supply as it contracted Gilead to sell 500,000 treatment courses to US hospitals through the end of September.
This purchase adds up to $1.2 billion in Remdesivir sales in the third quarter of 2020 alone, with the drug estimated to generate $1.8 billion in the fourth quarter.
This puts the estimated total sales of Remdesivir at $3 billion for this year.
The company set the price for each course of Remdesivir treatment at $2,340 for the government, with a price tag of $3,120 for private US insurers. At this price point, every patient is estimated to save $12,000 in hospital bills.
This is actually lower than the anticipated pricing of Remdesivir. Initially, the cost per treatment course was projected to reach $5,080.
However, this pricing estimate is intended for developed countries.
For developing countries, Gilead forged deals with various generic manufacturers to ensure that the treatment is provided at substantially lower prices.
So far, the company has established licensing deals with generic drugmakers in 127 developing countries.
One of them is Mylan N.V. (MYL), which has received authorization from the Indian government to market its generic version of the Remdesivir.
Mylan’s version, which will be sold under the brand name Desrem, is expected to be around $62.40 per vial.
This is about 80% cheaper than Gilead’s Remdesivir, which costs $390 for each vial.
Outside its COVID-19 efforts, Gilead’s FDA application for rheumatoid arthritis drug Filgotinib is expected to inject the company’s top line with a much-welcomed sales growth.
Although Gilead’s 2019 top line fell flat, its first-quarter earnings report showed a promising 5% year-over-year bump in its sales. This growth is primarily attributed to the continuous improvement of its HIV product line, which showed a 14% increase in sales.
Overall, Gilead remains a value buy.
Gilead stock currently trades at 11.6 times its expected earnings over the course of the next 12 months, which is well above its average 7.3 times earnings.
The stock offers a quarterly dividend of $0.68, yielding a reasonable 3.5% annually. As modest as it sounds, this still well above the usual 2% that shareholders typically expect from an average stock.
Global Market Comments
July 13, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE COME HERD IMMUNITY),
(INDU), (TSLA), (SPY), (GLD), (JPM), (IBB), (QQQ), (AAPL), (MSFT), (DCUE), (NVDA)