March 15, 2019

Global Market Comments
March 15, 2019
Fiat Lux

Featured Trade:

(JNJ), ($INDU), (PFE), (NVS), (AZN)

Buy Johnson & Johnson on the Bad News

When one of the 30 Dow Average companies ($INDU) gets into trouble, I sit up and take note, stand to attention and drill down with a magnifying glass.

After all, it may have a major important on an important tradable index, thus opening up an investment opportunity. It also may sound the alarm for a great single stock pick. That is certainly the case with New Brunswick, NJ based Johnson & Johnson, one of the oldest companies traded on the NYSE.

What piqued my interest today was the news that the company lost another talcum power lawsuit, which is alleged by plaintiffs to contain asbestos. This has been among the catalog of urban conspiracies for decades now.

Johnson & Johnson (JNJ) is, in fact, carrying on with their mission to strengthen their pharma sector which has consistently served as their top revenue driver in the past years. While their strong performance in this segment has always been led by their oncology portfolio, with sales of their cancer drugs increasing by 22.1% worldwide in the previous quarter, it looks like more and more products are on their way to becoming JNJ’s blockbuster items.

The company estimates to launch more than ten new drugs — all of which have the potential to be blockbuster products — by 2021. On top of these, JNJ expects to complete 50 line extensions on their existing products. Both efforts are anticipated to temper the effects of generic drugs that are threatening to hamper the sales of a lot of key products in JNJ’s portfolio.

The latest potential blockbuster drug for JNJ is Esketamine which is an anti-depressant aimed at treatment-resistant patients. This was developed by the company’s pharmaceutical arm, Janssen Pharmaceuticals Inc. This new groundbreaking product was approved on March 5 by the FDA and will be marketed as Spravato. It is hailed as the first prescription depression drug developed from ketamine, which is more commonly used as an anesthetic.

Although ketamine has long been tagged as a party drug, aka “Special K”, and is approved as an anesthetic, no company has patented its use. This is where Janssen swooped in and patented the left section of the molecule, called esketamine, and sent their application to FDA. The approval of this drug, which FDA described as a “breakthrough therapy” thus receiving priority review, translates to a potential cash cow for JNJ as it successfully legitimized the application of ketamine as an anti-depression drug.

Aside from depression, FDA is also taking into consideration the applicability of esketamine to patients afflicted with mood disorders such as bipolar disorder. The organization looks at it as a potential solution for reducing suicides as well.

Other drugs projected to rake in massive sales for JNJ pipeline include psoriatic arthritis Tremfya, prostate cancer medication Erleada, and metastatic urothelial cancer treatment Erdafitinib. With the addition of Spravato on the list, sales are expected to reach more than $1 billion.

However, no company is perfect and the same goes for products — even if they are poised to become blockbuster drugs. A major hindrance for the success of Spravato is cost.

Here’s a sample quote for potential patients.

A one-month initial treatment will cost somewhere from $4,000 to $7,000. The exact price will depend on the dosage and if it’s availed wholesale. Expenses for follow-up treatments will reach $2,360 to $3,500 a month. All in all, Spravato could become as expensive as an electroconvulsive treatment or even a transcranial magnetic stimulation therapy. Worse, this treatment might have to be shouldered by the patients themselves.

Another deterrent for investors looking into JNJ is the continuing issue concerning the talcum powder lawsuits which claim that the talc items of the company contain asbestos that resulted in ovarian cancer among many of its female users. As of August 2018, a Missouri court has ordered JNJ to pay 22 women a total of $4.7 billion for damages. While the company announced its decision to appeal the ruling, the case has been a huge red flag for investors ever since.

Nonetheless, it appears that JNJ remains a solid stock for a lot of investors.

With an annual revenue of $81.6 billion, (JNJ) is anticipated to stay ahead of its competitors Pfizer (PFE) ($53.4B), Novartis (NVS) ($51B), and AstraZeneca (AZN) ($21.9B). Taking into consideration currency impact, which is expected to negatively affect sales by roughly 1.5%, JNJ’s revenues are projected to hit $80.4 to $81.2 billion this year.

While it still has a long way to go, the recent approval of Spravato spelled higher confidence in JNJ’s revenue growth this year. The company’s purchase of robotic surgical instruments manufacturer Auris Health, for $3.4 billion further strengthened its dominance in the industry.

In the past month alone, its shares rose by 4.55%. Investors are also anticipating more growth until the next earnings report, which is anticipated to show $2.10 earnings per share for the company. This represents a 1.49% year-over-year increase.






A Killer?

February 14, 2019

Global Market Comments
February 14, 2019
Fiat Lux

Featured Trade:

(PFE), (MRK), (MVS),
(TLT), (TBT), (MUB), (LQD),

February 13, 2019

Global Market Comments
February 13, 2019
Fiat Lux

Featured Trade:

 (SPY), (INDU), (NVDA)
(TLT), (TBT)

Bidding More For the Stars

The stock market has turned into the real estate market where everyone is afraid to sell for fear of being unable to find a replacement. Will it next turn into the Bitcoin market?

Risk assets everywhere are now facing a good news glut.

My 2019 market top target of 28,000 for the Dow Average is rushing forward with reckless abandon.

This year’s price action really gives you the feeling of an approaching short term blow off market top.

A few years ago, I went to a charity fundraiser at San Francisco’s priciest jewelry store, Shreve & Co., where the well-heeled men bid for dates with the local high society beauties dripping in diamonds and Channel No. 5.

Amply fueled with champagne, I jumped into a spirited bidding war over one of the Bay Area’s premier hotties who shall remain nameless. Suffice to say, she is now married to a tech titan and has a local sports stadium named after her.

Obviously, I didn’t work hard enough.

The bids soared to $23,000, $24,000, $25,000.

After all, it was for a good cause. But when it hit $26,000, I suddenly developed a severe case of lockjaw. Later, the sheepish winner with a rampant case of buyer’s remorse came to me and offered his date back to me for $24,000.  I said, “no thanks.” $23,000, $22,000, $21,000?

I passed.

The altitude of the stock market right now reminds me of that evening.

If you rode the S&P 500 (SPX) from 700 to 2,800 and the Dow Average (INDU) from 7,000 to 28,000, why sweat trying to eke out a few more basis points especially when the risk/reward ratio sucks so badly as it does now?

And if there was ever an excuse to take a break, it is my blistering January 9.4% return.

I realize that many of you are not hedge fund managers and that running a prop desk, mutual fund, 401k, pension fund, or day trading account has its own demands.

But let me quote what my favorite Chinese general, Deng Xiaoping, once told me: “There is a time to fish, and a time to hang your nets out to dry.  You don’t have to chase every trade.

At least then, I’ll have plenty of dry powder for when the window of opportunity reopens for business. So, while I’m mending my nets, I’ll be building new lists of trades for you to strap on when the sun, moon, and stars align once again.




January 31, 2019

Global Market Comments
January 31, 2019
Fiat Lux

Featured Trade:
(SPY), ($INDU), (TLT), (GLD), (FXE), (UUP),

Market Gets a Free Pass from the Fed

When the Oxford English Dictionary considers the Word of the Year for 2019, I bet “PATIENCE” will be on the short list.

That was the noun that Federal Reserve governor Jerome Powell had in mind when describing the central bank’s current stance on interest rates.

Not only did Powell say he was patient, he posited that the Fed was currently at a neutral interest rate. The last time he opened on this matter four months ago, the neutral rate was still 50 basis point higher, suggesting that more rate hikes were to come.

What a difference four months makes! The last time Powell spoke, the stock market crashed. Today, he might as well fire a flare gun signaling the beginning of a stampede by investors.

The Dow ($INDU) average at one point gained 500 points. Lower rates for longer term meant that bonds took it on the kisser. And gold (GLD) absolutely loved it as they now have less competition from interest-bearing instruments.

The US dollar (UUP) was taken out to the woodshed and beaten senseless paving the way for a nice pop in the euro (FXE). Even oil (USO) took the cue as cheaper interest rates mean a stronger global economy that will drink more Texas tea.

I believe that the Fed move today will definitely take a retest of the December 24 lows off the table for the time being. Now, if we can only get rid of that damn trade war with China, it will be off to the races for risk in general and stocks specifically.


What Did You REALLY Mean Jay?

January 17, 2019

Global Market Comments
January 17, 2019
Fiat Lux

Featured Trade: 

($INDU), (EK), (S), (BS), (CVX), (DD), (MMM),
 (FBHS), (MGDDY), (FL), (GE), (TSLA), (GM)

What Happened to the Dow?

When I joined Morgan Stanley some 35 years ago, one of the grizzled old veterans took me aside and gave me a piece of sage advice.

“Never buy a Dow stock”, he said. “They are a guarantee of failure.”

That was quite a bold statement, given that at the time the closely watched index of 30 stocks included such high-flying darlings as Eastman Kodak (EK), Sears Roebuck & Company (S), and Bethlehem Steel (BS). It turned out to be excellent advice.

Only ten of the Dow stocks of 1983 are still in the index (see tables below), and almost all of the survivors changed names. Standard Oil of California became Chevron (CVX), E.I du Pont de Nemours & Company became DowDuPont, Inc. (DD), and Minnesota Mining & Manufacturing became 3M (MMM).

Almost all of the rest went out of business, like Union Carbide Corporation (the Bhopal disaster) and Johns-Manville (asbestos products) or were taken over. A small fragment of the old E.W. Woolworth is known as Foot Locker (FL) today.

Charles Dow created his namesake average on May 26, 1896, consisting of 12 names. Almost all were gigantic trusts and monopolies that were broken up only a few years later by the Sherman Antitrust Act.

In many ways, the index has evolved to reflect the maturing of the US economy from an 18th century British agricultural colony, to the manufacturing powerhouse of the 20th century, to the technology and services-driven economy of today.

Of the original Dow stocks, only one, US Leather, vanished without a trace. It was the victim of the leap from horses to automobile transportation and the internal combustion engine. United States Rubber is now part of France’s Michelin Group (MGDDY).

American Tobacco reinvented itself as Fortune Brands (FBHS) to ditch the unpopular “tobacco” word. National Lead moved into paints with the Dutch Boy brand. It sold off that division when the prospects for leaded paints dimmed in 1970 (they cause mental illness in children).

What was the longest lived of the original 1896 Dow stocks? General Electric (GE), originally founded by light bulb inventor Thomas Edison. It went down in flames thanks to poor management and was delisted in 2018. It was a 122-year run. Today, it is one of the great turnaround challenges facing American Industry.

Which company is the American Leather of today? My bet is that it’s General Motors (GM) which is greatly lagging behind Tesla (TSLA) in the development of electric cars (90% market share versus 5%). With a product development cycle of five years, it simply lacks the DNA to compete in the technology age.

What will be the largest Dow stock in a decade? Regular readers already know the answer.





January 15, 2019

Global Market Comments
January 15, 2019
Fiat Lux


Featured Trade:
($INDU), (SPY), (SDS), (TLT), (TBT), (FXE), (FXY),
(UUP), (DDP), (USO), (SCO), (GLD), (DGZ), (ITB)