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The Bottom Building Process Has Begun

I have an arrangement with several large hedge funds where they pay me a small fortune every month for the privilege of calling me one day a year.

Wednesday was that day.

It was a day when the $20 billion hedge fund waited on hold while I got off the phone with the $100 billion hedge fund. And that?s not including urgent calls from the White House, the office of the Joint Chiefs, and the Federal Reserve.

Of course, no one needs to tell these guys how to chew gum. They were interested to know if they were missing anything.

The advice I gave them was very short and simple: ?Keep your eye on the economic data, and ignore everything else.?

You can palpably feel the tension when enduring crisis like these. The Internet noticeably slows down. Transatlantic and Transpacific phone lines get clogged up. Traffic on our website, www.madhedgefundtrader.com, rises tenfold.

So do plaintive emails from followers, everyone of which I attempt to answer quickly. To save time, I will give a generic answer to all of you in advance: ?No, it is not time to stop out of your ProShares Ultra Short 20+ Treasury Bond ETF (TBT) position at the $46 handle.? We are at a multiyear peak in bonds, and this is absolutely not the place to puke out. That?s why I always keep my positions small.

You have to allow room for markets to breathe and still be able to hang on when it goes against you. It is also nice to have the dry powder to double up.

I know some of you are suffering from sleepless nights, so I?ll make it easy for you. We have hit bottom for the year. This is the best time in three years to buy stocks, just in case you forgot to load up at any time since 2011. Ditto for bonds on the sell side.

Earnings started coming out last week, and many companies have been delivering blockbuster reports, as I expected. Over all, I think we can expect total S&P 500 earnings to rise by $11.

This means that, given the market?s recent 10% plunge, stocks are now selling at 12.5 X 2015 earnings. That is a rare bargain. It is a chance to buy shares at 2011 valuations. Don?t blink and miss it.

The big driver hasn?t been the Ebola virus, the risk of which has been wildly exaggerated by the media, but the collapse of the price of oil.

I think we got very close to a bottom of the entire move this morning when we tickled $80. I take North Dakota fracking pioneer John Hamm?s view: If this isn?t the bottom, it is close, and wherever the bottom, we will race right back up to $100 sometime next year on China?s insatiable demand.

That means you buy stocks right now.

For a fuller explanation of the fundamentally bullish argument for the stock market, please click here ?10 Reasons Why the Bull Market is Still Alive?.

 

TBT 10-16-14

SPX 10-16-14

VIX 10-16-14

SPX 10-15-14

BRENT 10-14-14

TNX 10-16-14

IWM 10-16-14

John Thomas - Young Man - ArmedNow Is the Time to Have a Gunslinger Working on Your Behalf

An Update on Gilead Sciences

I spoke to a friend of mine the other day who works for a health care venture capital firm, and I thought I?d pass through a few tidbits.

Gilead Sciences (GILD) is basking in the glow of the most profitable drug launch in history. Its blockbuster Sofobuvir treatment for hepatitis C, launched in 2013, inhibits the RNA polymerase that the hepatitis C virus (HCV) uses to replicate its RNA. In traders? parlance, it kills the bug.

(GILD) has taken in $5.7 billion in sales of Sofobuvir during the first half of 2014, and could sell as much as $10-$12 billion for the full year.

The drug is so revolutionary, that it on the scale of medical miracles of decades past, such as Salk vaccine immunizations for polio and penicillin treatments for bacterial infections. So far, Sofobuvir has cured a breathtaking 90% of patients.

Now the company is using various drug combinations that produce even higher success rates with fewer side effects, and may be expended to treat other life threatening diseases. These could take Sofobuvir sales as high as $15-$18 billion in 2015.

A big controversy regarding Sofobuvir has been its immense cost, which works out to $84,000-$135,000 per patient. This has become a bigger issue with the advent of Obamacare, now that the government is picking up much of the tab.

But, that?s a bargain compared to full treatment of the disease, which can run as high as $350,000 per patient. That is, unless you don?t care if you die.

Partly in response to these complaints, the company is making the drug available at deep discounts in 91 emerging nations that account for 50% of all Hepatitis C cases globally. What it loses on margins there it will make back in volume.

With any luck, we may see hepatitis C wiped out in my lifetime, as I have already seen with smallpox (I saw some of the last few live cases in kids in Nepal in 1976).

All of this makes the stock appear a bargain at its current $106 price. At a multiple of a subterranean 12X earnings, the stock should hit $140 next year.

You all know that health care is one of my three core industries to bet on for the long term (there others are energy and technology).

The short-term driver of the share price for (GILD) is obviously whether the health care sector is in, or out of vogue. But for the long term Gilead looks like a good bet to me. And I don?t even have hepatitis.

For more depth on the company, please refer to my earlier piece, Keep Gilead Sciences on Your Radar, by clicking here.

 

GILD 10-6-14

XLV 10-6-14

Sovaldi - Pills

ChemestryThe Formula for Immense Profits

Back at the Ranch

?Give us all your money,? said the largest of the three men who snuck up behind me at the entrance to the Orlando Marriott World Hotel. It was 1:30 AM, pitch dark, and the area was abandoned.

I had my wallet out to pay the taxi driver, brimming with $5,000 in cash, my winnings at the blackjack tables at the just completed SALT conference in Las Vegas. He took off like a shot, and I was left standing there, alone.

I turned around, put my wallet in my back pocket, took off my horn rimmed glasses and said, in my most intimidating, ?I?m going to kick your ass? manner possible, ?Trying this on a Marine with post traumatic stress is a really bad idea.? The three would be muggers backed up as fast as they could and disappeared into the swamps.

It?s all about attitude.

I mentioned the incident to the hotel staff while checking in. They were horrified, apologized profusely, and gave me a triple upgrade to the presidential suite with a $100 room service credit.

Welcome to Orlando!

I was making a 24 hour pit stop in the Sunshine State to give the good news about where the financial markets will be in 2030 to a conference of top performing independent investment advisors. After knocking their socks off, I felt I had just made several lifetime friends.

I even got to trade war stories with a fellow Dessert Storm pilot who flew OV-10 twin tailed Broncos. Once, in Kuwait I was with a Marine ground unit that came under fire. The NCO said, ?Don?t worry, the Broncos are inbound.? When I heard the BRRRRRR of its M60 machine guns, it sounded like music to my ears. I thanked him for his service, and saving my ass.

This being the heart of the Deep South and the former confederacy, I was questioned about my California politics. I told my audience they had a choice. They could listen to Fox News all day, read the conspiracy theories in the Drudge Report, and live in a permanent state of anger.

Or they could work with a guy with inside access like me, gain insights into the administrations actual thinking, and learn what they are really going to do. I hand out ticker symbols too. I suggested that the latter generated a better investment return for clients, and most agreed.

The reality is that most of the country agrees on 99% of everything I told them. It is only the media (better ratings), fundraisers (more money), and politicians (more votes) who are driving us to our corners, and the internet gives everybody flame thrower.

I also get the opportunity to influence the course of events in my own small way. The White House Staff, The Treasury Secretary, the Chairman of the Federal Reserve, the Secretary of State, the Joint Chiefs of Staff, and the Director of the CIA don?t spend time with me because I wear nice Italian suits and tell funny jokes.

You can almost count on one hand the number of people around who have been refining a global economic and political view for nearly half a century.

I also said I really loved their key lime pie and pecan pralines.

It was one of those non-stop days. After a scant four hours of sleep I was up at 7:00 AM for breakfast, delivered a 90 minute keynote speech at 8:00, and followed that up with a Global Strategy Luncheon with some of my oldest most loyal and newly enriched readers.

One made more than the 68% last year following my Trade Alerts. Then I hauled my lunch guests back into the conference to listen to me participate in a panel discussion.

I ended the day meeting with my own national staff in my greatly upsized suite, who flew in from around the country. Mad Day Trader Jim Parker was happy to flee Chicago for a day. Nancy of operations was there as fresh faced as always, as was Doug the Web developer, who we are now calling ?the lumberjack,? since he has a beard and lives in the middle of nowhere in remote Vermont.

We devised a series of new groundbreaking products, which you will be hearing about shortly. Such is life on the cutting edge of online financial education. Oh, and prices are going up too, as befits our industry beating performance.

I caught an early dinner with an old hedge fund buddy from Tampa, discussing the current state of the world. Then it was back to the hotel for an extended drinking session with the staff, who are indispensable in helping me run my global media empire.

No rest for the wicked.

By the way, I am writing all this to you from first class seat 2C on Virgin America flight VX 305, nonstop from Orlando to San Francisco. It is a perfect day, and we have just crossed the vast expanse of the ?Big Muddy,? Mark Twain?s home waters, known to you all as the Mississippi River.

I mentioned to the pilot that with my frequent flier points and platinum status the crew should have lined up and saluted when I came on board. They laughed. Then I asked if he noticed the old Strategic Air Command B-52 bomber at the airport entrance.

He said he did, and that he had worked on the birds as a senior tech in the old days, charged with arming the nuclear warheads on the cruise missiles. He was amazed when I told him the Germans designed the Stratofortress during WWII so they could bomb New York.

They never built it, but the Americans did when they found the plans at the end of the war. Out of the original fleet of 500, 75 still fly, and the Air Force intends to keep flying them until 2050, when they will be 100 years old. No kidding. A lot of Air Force pilots still say it was the best plane ever designed.

Got to love Boeing Aircraft (BA). Made in the USA.

I recounted my own stories of flying on nuclear armed missions from Anderson Air Force Base on Guam in the Pacific to North Korea, only to turn around ten minutes before we entered their air space.

We did this every Monday-Thursday, dropped conventional 500 pound bombs at a Western Australian missile range on Fridays, and took the weekends off to drink beer on pristine Tauragi beech, mindful of the armed Japanese soldiers still lurking in the jungle nearby. This was 1973.

There were no windows for the ten-hour flight. Even the front windshield carried removable steel blast shields. Good thing they always carried a spare coffee maker.

The message to the Kim Il-sung regime was clear. Be nice, or we fly the extra ten minutes. President Teddy Roosevelt (I met his oldest daughter Alice, no kidding, again!), wisely called this ?walking softly, but carrying a big stick.? Well, maybe not so softly.

The flight out was uneventful. I noticed that the older passenger next to me was wearing an $8,000 Brioni jacket identical to mine, so I complimented him on his taste in clothing. He turned out to be the head of the Neurology Department at the University of Arizona Medical School, so we spent three hours discussing the ins and outs of Obamacare. It turned a long flight into a short flight.

Bottom line? It?s going to work, give the health care industry a long overdue shake up, unleash free market competition, and improve the quality of care for all, while reducing the costs. But it may take a decade to work out the kinks. Expect a lot of disruption until then.

I added that it was also creating the investment opportunity of the decade. He said ?Oh?? and I gave him a handful of ticker symbols Gilead Sciences (GILD), the iShares Biotech ETF (IBB), Pfizer (PFE), and HCA Holdings (HCA). These doctors, so smart, yet so useless when it comes to managing their own money.

I asked if these views were controversial in ultra red state Arizona, and he said ?yes.? But at a certain point, people of all political persuasions just want the facts so they can get on with their lives. So true, so true.

We then talked about what a great guy Barry Goldwater was (another bomber pilot, B-25?s), and how his political career was ended by an unfair Johnson smear campaign (the little girl counting down the petals of a flower until a hydrogen bomb went off in the background).

Some things never change.

As is my way, I then convinced him to give me a complete physical while remaining in my seat. Was hiking 2,000 miles a year in the mountains with a 60 pound pack killing me? Was it doing more damage to my poor aging body than it was worth?

He gave me the once over. At 45 beats a minute, I had the resting heart rate of a teenaged Olympic athlete. My blood pressure at 110/70 was fabulous. Even the big toe that I froze in a high altitude blizzard last winter and was still black would get better (?That toenail really looks like it wants to come off?) (the other first class passengers are now looking over curiously). The knees would get better over my summer break. He said whatever I was doing, I should keep doing it.

It looks like I will be around for a while.

The passenger in the other seat next to me was a stunning 6?1? blonde from Atlanta. After Stacy read my website through the onboard Wi-Fi, she handed me her business card with her cell number scratched on the back.

I?m not the player I was in decades past, but it is still nice to get this kind of attention when you are Social Security age. Now I know why they call them Southern Belles.

We just crossed the snow covered High Sierras and have begun our descent into San Francisco. It?s time to fold up my laptop and fasten my seatbelt.

I?m sorry, this is turning into a bit of a ramble, but it is a long flight. This is my life, a never-ending series of utterly fascinating conversations about everything with everybody. It seems there is now a shapely brunette in the seat behind me who also wants my business card.

See you at my weekly Global Strategy webinar on Wednesday.

Wink. Wink.

IBB 5-19-14

GILD 5-19-14

PFE 5-19-14

HCA 5-20-14

John Thomas

Bronco AircraftOV-10 Bronco Light Attack Aircraft

How Obamacare Will Boost Your Portfolio

Still basking in the glow of 2013?s spectacular 26% gain in the Dow, I sat down on a rock on a high mountain the other day to try and figure out what happened.

The last time I saw a move this healthy was back in the nineties, when a perfect trifecta of the internet going mainstream, cheap graphical user interface enabled personal computers, and an easy to use World Wide Web conspired to create a Dotcom boom and send risk assets everywhere ballistic.

Sure, the advent of cheap domestic energy unleashed by the fracking and horizontal drilling of natural gas is a game changer. But that isn?t enough to suddenly convert every investor from a pessimist to an optimist, a Cassandra to a Pollyanna, or a bear to a bull. So what else is helping to send stocks ever Northward?

Fortunately, I brought along an abacus with me to my high altitude retreat. So I ran a few numbers. Approximately 18% of US GDP is derived from the health care industry in some form or another. In Europe they spend only 8%, live longer, and certainly eat better food (I spent two months field testing it last summer).

So what happens when America?s Affordable Care Act, otherwise known as Obamacare, brings our spending down to European levels? The savings would amount to 10% of GDP, or $1.6 trillion. That is a handsome amount of change.

Where would all of this money go? The short answer is: to you and me. To be precise, I get half, and you get half, which works out to $800 billion for each of us, per year.

The reality is a little more complicated than that. We are not going to get our new found wealth in unmarked bills stuffed in a duffle bag left at a dead drop in the middle of the night. Rather, the payoff will come in an indirect form. We will get better quality health care for less money, and more of us will get it, some 48 million to be precise. Oh, and we get to live longer too.

What are we going to do with this windfall? Buy stocks, and lots of them. At least that?s what the stock market thinks. Hence, last year?s ballistic move in equities. This year could be just as good.

If fact, we will be buying a lot of everything, which is why the auto industry is on fire, real estate is recovering, yet the bond market hasn?t crashed. This amount of money hitting the financial system over the coming decade could well be the appetizer to an investment ?golden age? during the 2020?s.

This is fabulous news for asset owners of all stripes, and pretty good for everyone else as well. Companies with rising share prices are much more likely to hire and expand capital investment than those with falling ones, raising standards of living.

The way this happens is what makes Obamacare so interesting, unlike the purely government sponsored plans now in operation in Europe and Asia. It does this with a heavy reliance on the private sector to unleash free market capitalism on the health care industry for the first time in its history.

At last, they will be thrown into the merciless pit of dog eat dog, cutthroat competition where the rest of us have already been living for quite some time. They will be the losers, and we will be the winners.

I have been studying health care for about 40 years now. I was once destined to become a medical researcher at the Center for Disease in Atlanta. But the Defense Department found out I was pretty good with numbers, and I found myself in a bleak part of Northern Nevada now known as Area 51.

When improving relations with the Soviet Union wound things down there and all the aliens went home, there was nowhere else for me to go but the stock market. Suffice it to say, I still know which end of a test tube to hold up.

Health care is the last 19th century industry that operates in this country (except possibly for coal mining). It is fragmented into local monopolies spread amongst the country?s 3,141 counties.

I haven?t had health insurance myself for seven years. After paying on a Blue Cross of California policy for 20 years, they suddenly cancelled my policy claiming an alleged pre existing condition. My real pre existing condition was that I was a 55-year-old white male.

Since I was paying out of pocket for every trip to the doctor, I became an expert on what things cost. The first thing that I learned is that no one in a doctor?s office knows what anything costs. They deliberately don?t know. That way they can feign innocence when you get hit with a whopping big bill.

It was only with the greatest persistence that I was able to chase down the actual dollar cost of tests and procedures. Needless to say, my health care providers considered me a nut case and a pain in the ass. Some refused me care.

This is the land of the $100 plastic hypodermic needle, the $300 paper gown, and the $1,000 saline drip (it?s salt water). MRI Scans can cost $6,000, or $1,500 at the hospital down the street. In fact, I?ve had friends show up for procedures at hospitals with a $3 gown they bought on Ebay, but were still forced to use the identical $300 version.

This is why the wealthiest guy in the county is often the one who runs the local hospital, or sells specialized prescribed treatments and procedures. From 1995 to 2012, dermatologists saw a 50% increase in annual incomes to an average $471,000 while most of America saw a steady decline in real take home pay. Oncologists and gastroenterologists did as well. This is especially true in rural parts of the country where there is a chronic shortage of doctors. Competition is anathema to these people.

What broke the health care system in this country is that there was a total absence of cost control, but an unlimited ability to get paid. If you?re having a heart attack, you don?t shop around for the hospital offering the best deal on surgery that week, as we might for a new set of tires or a new computer. Being the savvy consumers that we have become, if we don?t like the prices down at the mall we just go online. That?s tough to do with health care.

With insurers or the government picking up the tab whatever the cost, there was no incentive to do so anyway. Doctors excessively ordered tests to protect themselves from lawsuits, thanks to a tort system run amuck. Drug companies kept inventing new diseases (do any of you male readers suffer from ?low T??). Indulgent lifestyles assured that ever rising numbers of us got sick, driving prices skyward.

By creating national exchanges selling plain vanilla policies and setting rigorous standards on what they will pay for (?death panels? to opponents), American health care costs are now falling for the first time in history. 2013 saw the first year on year fall on record. This is only the beginning of that $1.6 trillion plunge in costs.

No one really knows what the marginal cost of an MRI scan is. But if you count the capital cost of buying a new $1.4 million machine, deduct the fee the specialist to read the scan, the $60,000 annual salary of the technician to run it, along with maintenance and depreciation, and I bet you get a number a hell of a lot less than $6,000. We are soon going to find out what the marginal cost really is.

This is why opposition to Obamacare has been so violent and vehement four years after it became law. Those who have been feeding off of the gravy train for so long will do anything to protect it. $1.6 trillion buys a lot of lobbyists in Washington DC. Most opposing Obamacare in the media are being paid to do so. Ask them exact details about exactly why it is so bad and they either mumble some lame ideological explanation or go mute.

States that support Obamacare and set up their own exchanges, like California, New York, and Kentucky, are seeing dramatic reductions in the cost of health care costs and insurance, up to 50% in some cases. Those that oppose it, such as Texas, are not.

The great irony in all of this is that the states opposing Obamacare need it the most. The 13 states of the old southern Confederacy suffer the worst health in the country. Take three states out of the national averages, Georgia, Mississippi, and Alabama, and the average male life span jumps from 78 to 82. I?m told they eat pure lard down there, not exactly a health food.

So Obamacare is basically a giant federal program that shifts money away from the two coasts toward the South and Midwest, or out of blue states into red ones. This is the same pattern for all large government programs. Why they are against Obamacare one can only imagine, except possibly the name.

I have been pointing out to the administration for years that they have greatly underestimated the long-term impacts of Obamacare on the economy, most of which are positive. This has led them to unintentionally undersell the program. The impact of the world?s large economy is so enormous that it was impossible to foresee all of the unintended consequences. The only way to find out was to do it.

I?ll give you a couple of examples. Take the ?Obama lied? issue, where the president promised voters they could keep their existing doctors and insurance. By setting minimal coverage and care standards the government put out of business the ?junk insurance? industry, which provides questionable policies with deductibles of $8,000 or more, low lifetime maximums, and boot you off your coverage as soon as you sneeze. They had a bad habit of taking in your premium income and disappearing as soon as you made a major claim, with denials at some companies running as high as 50%.

Banning these rip-offs from the industry is all well and good. But nobody knew there were so many such polices, over 5 million. It turns out that no research had been done on this ugly little backwater, as it was purely a private sector enterprise. Then the cancellation letters all went out at once, to the shock and surprise of everyone.

There is the fact that so few have signed up for the free and subsidized coverage. When you are living paycheck to paycheck, about 20% of the country, even $100 a month is too much to spend. Many just don?t like doctors or hospitals and will only sign up after they are seriously ill, probably at the prompting of a social worker.

I can tell you from my journalist days that 40% of the population doesn?t read newspapers at all, either the online or hard copy kind. Unless something appears on ESPN or the Golf Channel, they have no clue that it exists. There are those who still can?t operate a computer, as unbelievable as that may seem in the 21st century.

Then there is the website fiasco, the most easily preventable error in the entire rollout. I would bet big money that Health and Services Director, Kathleen Sebelius, has never built her own website. For her, I highly recommend Building a web Site for Dummies (click here for Amazon), which helped me get Mad Hedge Fund Trader off the ground seven years ago.

I was outraged when I heard that the lead contract for the construction of the website was given to a Canadian firm. I raised my hand and said ?Hey, we out here in Silicon Valley know how to build websites too.? They should have just given the whole thing to Google (GOOG). But that would have raised conflict of interest questions, as founders Larry Page and Sergei Brin were two of Obama?s largest donors.

Corporations will get, thankfully, out of the health care business completely, offloading coverage to Obamacare as fast as they can. Small companies are already doing this in large numbers because workers can get better coverage for less money. This will level the playing field with foreign competitors for the first time in more than half a century, whose own governments cover the health care costs of their employees for free.

Those in the hedge fund, banking, and oil industry luxuriating in $30,000 a year formerly tax free Cadillac insurance plans now have to pay ordinary income tax on benefits worth more than $10,000 a year. With most of the tax subsidy gone, there is little reason for employers to continue with these perks.

What is the bottom line for the shareholders in all of this? A substantial reduction in costs that drops straight to the bottom line, creating surging profits and stock prices.

All of the above is a major reason why health care has been a major plank in my trading portfolio for the past six months, and may remain so for the next decade. Followers of my Trade Alert Service cashed in on my long in the Health Care Sector Select SPDR ETF (XLV).

Those who took my advice to buy hepatitis drug manufacturer Gilead Sciences (GILD) joyfully watched it run away to the upside. Expect this to be a recurring theme in my equity coverage. (XLS), (XPH), and (XBI) are on the menu and looking tasty.

Every country in the world that has implemented national heath care has been successful. We are the smartest people in the world, so there is no reason we can?t make it work as well, if not better. Only political obstacles stand in the way.

It could well be that the stock markets are the first to see these momentous changes, far ahead of we mere mortals. Such is the wisdom of markets. So far, your investment portfolio agrees.

It will be at least a decade before we can judge the results of Obamacare, it is so vast and complex an undertaking. Up for grabs are individual markets for over 10,000 different treatments and services. It is far too early to call it a failure or a success. In any case, the earliest it can be repealed is 2025, after Hillary Clinton completes her second term as president. So get used to it.

What about my own insurance? I am going to wait until the last possible moment to sign up for Obamacare, when they are about to come for me with handcuffs and a taser. I bet many other Americans plan on doing the same.

By then, the website should be working and the costs brought in line with reality. Then I?ll buy the cheapest possible policy, the popular ?Bronze? plan.

After all, who needs health insurance if they are going to live forever?

XLV 1-17-14

GILD 1-17-14

XPH 1-17-14

ObamaThey Said This Would Be So Easy