Posts

August 26, 2019

Global Market Comments
August 26, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TWEET THAT SANK A THOUSAND SHIPS),

(SPY), (TLT), (GOOGL), (FB), (DIS), MSFT), (WMT), (IWM)

August 19, 2019

Global Market Comments
August 19, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHAT A ROLLER COASTER RIDE!),
(SPY), (TLT), (VIX), (VXX), (M),
(WMT), (FB), (AMZN), (GOOGL), (IWM)

August 9, 2019

Global Market Comments
August 9, 2019
Fiat Lux

Featured Trade:

(AUGUST 7 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (XLK), (GLD), (DIS), (TLT),
 (FXA), (FXY), (VIX), (VXX), (UNG), (USO)

August 7 Biweekly Strategy Webinar Q&A


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August 5, 2019

Global Market Comments
August 5, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or TAKING THE ELEVATOR DOWN),
($INDU), (SPY), (TLT), (IWM), (WMT), (FXB)

July 31, 2019

Global Market Comments
July 31, 2019
Fiat Lux

SPECIAL FIXED INCOME ISSUE

Featured Trade:
(ITALY’S BIG WAKE UP CALL),
(TLT), ($TNX), (TBT), (SPY), ($INDU), (FXE), (UUP), (USO),
(WELCOME TO THE DEFLATIONARY CENTURY),
(TLT), (TBT),

July 22, 2019

Global Market Comments
July 22, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR BRACE YOURSELF),
(SPY), (TLT), (FXA), (FCX), (MSFT),
(TESTIMONIAL)

The Market Outlook for the Week Ahead, or Brace Yourself

When you have constant jet log, you often have weird dreams. Take this morning, for example.

I dreamed that Fed governor Jay Powell invited me over to his house for breakfast. While he was cooking the bacon and eggs, Donald Trump started to call him every five minutes ordering him to lower interest rates. Jay got so distracted that the bacon caught fire, the house burned down, and we all died.

Fortunately it was only a dream. But like most dreams, parts of it were borrowed from true life.

Brace yourself, this could be the deadest, least interesting, most somnolescent week of the year. Thanks to all of those “out of office” messages we are getting with our daily newsletter mailings, I know that most of you will be out on vacation. Trading desks everywhere are now manned by “B” teams.

Then, the most important data release of the month doesn’t come out until Friday morning. It will be weak, but how weak? Q1 came in at a robust 3.1%. Q2 could be under 1%. The bigger unknown is how much of this widely trumpeted slowdown is already in the market?

Given the elevated levels of stock markets everywhere, most traders will rather be inclined to bet on which of two flies crawls up a wall faster. Such are the dog days of summer.

We here in Europe are bracing for the next ratchet up in climate change, where every temperature record is expected to be broken. It is forecast to hit 92 in London, 106 in Paris, and 94 in Berlin. Still, that’s a relief from India, where it was 120. Five more years of global warming and India will lose much of its population as it will become uninhabitable.

I shall have to confine my Alpine climbing to above 8,000 feet where hopefully it can reach the 70s. By the way, the air conditioning in Europe sucks, and the bars always run out of ice early.

While the Fed is expected by all to cut interest rates a quarter point next week, we have suddenly received a raft of strong economic data points hinting that it may do otherwise.

Inflation hit an 18-month high, with the CPI up a blistering 0.3% in June. That’s why bonds (TLT) took a sudden four-point hit. Soaring prices for apparel (the China trade war), used cars, rents, and healthcare costs led the charge. Is this the beginning of the end, or the end of the beginning?

The Empire State Factory Index hits a two-year high, leaping from -8.6 in June to 4.3 in July. No recession here, at least in New York.

Microsoft (MSFT) blew it away, with spectacular Q2 earnings growth, wiping out conservative analyst forecasts. Azure, the company’s cloud business, rose a spectacular 64%. Nothing like seeing your number one stock pick for 2019 take on all comers. Buy (MSFT) on every dip.

An early read on Q2 GDP came in at a sizzling 1.8%. Many forecasts were under 1%, thanks to the trade wars, soaring budget deficits, and fading tax revenues. That’s still well down from the 3.1% seen in Q1. It seems no one told Main Street, where retail sales and borrowing are on fire, according to JP Morgan’s Jamie Diamond.

US Retail Sales rose a hot 0.4% in June, raising prospects that the Fed may not cut interest rates after all. Stocks and bonds both got hit. Don’t panic yet, it’s only one number.

If the Fed only looks at the data above, it would delay a rate cut for another quarter. If they choose that option, the Dow Average would plunge 1,000 points in a week. The market-sensitive Fed knows this too.

However, the Fed has to be maintaining a laser-like focus on the Conference Board Index of Leading Economic Indicators, which lately have been rolling over like the Bismarck and always presage a recession. For your convenience, I have included a 60-year chart below with the recessions highlighted.

And there were a few soft spots in the numbers as well.

China growth slowed to 6.2%, a 27-year low. Never mind that the real rate is probably only 3%. The slowdown is clearly the outcome of the trade war. That’s what happens when you make war on your largest customer. Markets rallied because it was not worse.

Banks beat on earnings, but stocks yawned, coming off an “OK” quarter. It’s still the sector to avoid with a grim backdrop of sharply falling interest rates. They’re also getting their pants beat by fintech, from which there is no relief.

There is no end to the China trade war in sight, as Trump once again threatened another round of tariff increases. It looks like the trade war will outlast the presidential election, since the Chinese have no interest in helping Trump get reelected. The puzzle is that the stock market could care less.

Trump’s war on technology expanded. First, Facebook (FB) got hit with a $5 fine over privacy concerns. Now Google (GOOGL) is to be investigated for treason for allegedly helping the Chinese military. In the meantime, Europe is going after Amazon (AMZN) on antitrust concerns. If the US isn’t going to dominate technology, who will. Sorry, but this keyboard doesn’t have Chinese characters.

June US Housing Starts fell 0.9%, while permits dove 6%. If builders won’t build in the face of record low interest rates, their outlook for the economy must be grim. Maybe the 36% YOY decline in buying from Chinese has something to do with it.

Oil popped on the US downing of an Iranian drone in the Straits of Hormuz, which I flew over myself only last week on my way to Abu Dhabi. Expect this tit for tat, “Phony War” to continue, making Texas tea (USO) untradeable. In the meantime, the International Energy Agency has cut oil demand forecasts, thanks to a slowing global economy.

My strategy of avoiding stocks and only investing in weak dollar plays like bonds (TLT), foreign exchange (FXA), and copper (FCX) has been performing well. After spending a few weeks out of the market, it’s amazing how clear things become. The clouds lift and the fog disperses.

My Global Trading Dispatch has hit a new high for the year at +17.78% and has earned a respectable 2.54% so far in July. Nothing like coming out of the blocks for an uncertain H2 on a hot streak.

My ten-year average annualized profit bobbed up to +33.12%. With the markets now in the process of peaking out for the short term, I am now 70% in cash with Global Trading Dispatch and 100% cash in the Mad Hedge Tech Letter. If there is one thing supporting the market now, it is the fact that my Mad Hedge Market Timing Index has pulled back to a neutral 44. It’s a Goldilocks level, not too hot and not too cold.

The coming week will be a fairly sedentary one on the data front after last week’s fireworks, except for one big bombshell on Friday.

On Monday, July 22, the Chicago Fed National Activity Index is published.

On Tuesday, July 23, we get a new Case Shiller National Home Price Index. June Existing Home Sales follow.

On Wednesday, July 24, June New Home Sales are released.

On Thursday, July 25 at 8:30 AM EST, the Weekly Jobless Claims are printed. So are June Durable Goods.

On Friday, July 26 at 8:30 AM EST, we get the most important release of the week, the advance release of US Q2 GDP. The numbers are expected to be weak, and anything above 1.8% will be a surprise, compared to 3.1% in Q1. Depending on the number, the market will either be up big, down big, or flat. I can already hear you saying “Thanks a lot.”

The Baker Hughes Rig Count follows at 2:00 PM.

As for me, I’ll be attending a fund raiser tonight for the Zermatt Community band held in the main square in front of St. Mauritius church. If you don’t ski, there isn’t much to do in the winter here but practice your flute, clarinet, French horn, or tuba.

We’ll be eating all the wurst, raclete, beer, and apple struddle we can. As an honorary citizen of Zermatt with the keys to the city, having visited here for 51 years, I get to attend for free.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

Mad Hedge Market Timing Index

 

 

 

 

 

 

 

 

 

July 17, 2019

Global Market Comments
July 17, 2019
Fiat Lux

SPECIAL BIOTECH ISSUE

Featured Trade:
(FIVE BIOTECH STOCKS TO BUY AT THE BOTTOM),
(SPY), (VRTX), (JNJ), (ISRG), (CELG), (BMY), (AMGN), (ILMN)

Five Biotech Stocks to Buy at the Bottom

No sector has been beaten, maligned, and abused more than the biotech sector in recent years. However, some of them are so bad they’ve become good, which piques my interest.

Investing in biotech stocks is not for the faint of heart. The road to developing and commercializing new drugs is long and riddled with hard battles, and an anxious investor won’t be able to sleep at night.

However, the returns offer incredible gains when everything falls into place. In this sector you’re almost buying lottery tickets rather than investing in shares.

In 1919, the term “biotechnology” was coined by a Hungarian agricultural engineer named Karl Ereky to define the merging of two industries: biology and technology. Almost a century later, Ereky’s vision has been realized with thousands of products and services available in the biotech market today. 

Despite the advancements of this industry though, the majority of the buy-and-hold investors choose to steer clear of biotech stocks — and for sensible reasons. 

It’s no secret that investing in biotechnology firms can be unnervingly risky. Since its advent, investors have been regaled with horror stories of costly stage three drug trials going bust or plummeting stock prices due to the expiration of critical patents. Needless to say, these stories have soured would-be investors on the whole biotech world.

However, inadequate information and a lack of understanding of how the biotech industry really operates along with reliance on the performance of only a handful of biotech stocks may have caused investors to miss out on attractive risk-reward relationships. Not all biotech investments lead to disastrous results.

You may be surprised to learn that shares of the biotech industry has collectively gone up by approximately 70% in the past five years. This proves just how much these biotech companies rewarded their enduring. Success in biotech investing is simply a matter of buckling down to do your homework and applying a tad of common sense. 

Throughout this decade, one sector has managed to outperform the S&P 500 index (SPY) in terms of total return annually: the healthcare sector. While there’s no guarantee that healthcare stocks will go on to beat the S&P 500 in the years to come, the fact remains that people will continue to need medicines as well as healthcare services regardless of the country’s economic status. The increasing reliance of the healthcare industry on technology has put the biotech industry smack dab in the center of all these demands. 

I’ll give you some of my favorite plays in the sector.

Vertex Pharmaceuticals (VRTX)

Big-cap pharmaceutical company Vertex Pharmaceuticals Inc currently has the monopoly on the treatment of cystic fibrosis (CF) with three approved drugs out in the market, KalydecoOrkambi, and Symdeko, along with several promising products in the pipeline to target other auto-immune diseases. 

In June, Vertex turned its sights on the genetic therapy part of the business via an expansion of its ongoing collaboration with CRISPR Therapeutics (CSPR). Vertex also purchased gene therapy firm Exonics Therapeutics to strengthen its foothold in this revolutionary technology. 

Given the spectacular success of Vertex with CF treatments, its work with gene therapy is projected to bring in another blockbuster deal to the company. To ensure its monopoly in the CF market, Vertex has been aggressively seeking additional regulatory approvals to cater to younger CF patients. If the company succeeds, its target market of 75,000 CF patients would gain an additional 44,000.

Vertex is not limiting its efforts in this field though. To seal its position as the leader in CF treatments, the company is looking at developing triple-drug therapies as the next big development in their treatment plans. It has been performing clinical trials on three varying triple-drug combinations. If approved, these therapies would be able to address approximately 90% of the total number of CF patients. 

As for the remaining 10% with no operational CF treatment, Vertex aims to address this via its work on gene editing alongside CRISPR Therapeutics. Aside from CF, the two companies have commenced clinical studies on applying gene-editing therapies to treat rare blood diseases and sickle cell disease.  

Overall, Vertex is a certified outperformer in the world of big-cap biotech and provides good value to its shareholders.

Johnson & Johnson(JNJ)

Johnson & Johnson (JNJ) is one of the most attractive names in the biotech space. While the lawsuits against it involving alleged toxic baby powder endanger (JNJ)’s equity, the company is still hailed as one of the most notable innovators in the healthcare ecosystem. 

The company recently disclosed its progress in developing an AIDS vaccine. Although the negative headlines about the company can be a cause of concern to some, it could turn out to be a win-win situation for long-term investors who can then take advantage of the bargain basement stock price. 

(JNJ) has reinforced its stronghold in the fields of neuroscience, oncology, and immunology with these three areas generating over 72% of the company’s drug sales in the first quarter. In fact, (JNJ) recently received an FDA approval on its myeloma drug Dexamethasone. Its collaborative work on cancer treatment with Celgene’s (CELG) Revlimid and its own Darzalex received the FDA’s green light as well. 

Apart from developing new treatments and medications, (JNJ) is also moving forward in the development of its robotic sector. Earlier this year, the company purchased robotic surgery firm Auris Health for $3.4 billion in an effort to dethrone the current sector leader Intuitive Surgical (ISRG).

With all that is in its drug and services pipeline along with its earlier successes, (JNJ) raised its 2019 outlook despite its legal woes. The biopharma giant now anticipates a sales growth of 2.5% to 3.5%. Meanwhile, its adjusted earnings per share now stands somewhere in the range of $8.53 and $8.63 per share.

Celgene (CELG)

Celgene (CELG) is one biotech stock that you can get on the cheap. It offers shares trading at only 7.4 times expected earnings. 

With its shares trading well below the total book value courtesy of the pending acquisition by Bristol-Myers Squibb (BMY), investors would be hard-pressed not to take advantage of the opportunity to add a company leading in the development of treatments for cancer, blood disorders, and immunological conditions. 

Aside from the looming acquisition, another reason for Celgene’s dirt-cheap stock involves the decision to sell blockbuster immunology drug Otezla to allow Bristol-Myers Squibb to appease the Federal Trade Commission’s concerns over the deal. Nonetheless, Celgene’s remaining drugs still perform well in the market. 

Its blood cancer drugs, Revlimid and Pomalyst, are the leading go-to drug for multiple myeloma. Revlimid has been approved to treat two additional rare blood diseases, myelodysplastic syndromes and mantle cell lymphoma. Another winner in Celgene’s lineup is its solid tumor drug Abraxane, which has been approved for advanced breast cancer treatment along with non-small-cell lung cancer and advanced pancreatic cancer.

Celgene’s pipeline is loaded with promising winners as well, with myelofibrosis drug Fedratinib and multiple sclerosis treatment Ozanimod up for FDA approval this year. Three additional blood disease drugs including Luspatercept are also in the works along with a cell therapy called Liso-cel, which engineers the body’s immune cells to target particular types of cancer. Celgene’s work with Bluebird Bio is expected to bring another cell therapy procedure called bb2121, which is anticipated to bolster the biopharma firm’s dominance on the multiple myeloma market. 

Amgen (AMGN)

With its ability to flex its financial muscles at will, Amgen (AMGN) has accumulated nearly $30 billion in cash and investments. In the past four years, it has recorded an average annual net profit of roughly $6 billion.

The company has achieved tremendous success in developing groundbreaking technology and edging out its competition courtesy of its innovative treatments like the post-chemo therapy called Neulasta. Its cholesterol drug Repatha and arthritis medication Enbrel are both impressive performers in the market as well.  

Despite its aggressive drive to acquire small biopharma firms, Amgen is actually a pretty safe investment. Throughout the years, the company has made a conscious effort to diversify its portfolio to steer clear of dependence on a single product. 

In fact, no single drug provides more than one-fourth of Amgen’s total income. Among its products, only two drugs generate over a tenth of its revenue. This pattern of revenue diversity doesn’t stop here either as Amgen’s pipeline has nine Phase 3 trials and an additional five Phase 2 trials. 

Illumina (ILMN)

One of the incredible developments in healthcare involves the unlocking of the secrets of the human genome – and Illumina (ILMN) has been widely recognized as the leader in this field. In fact, this company has performed more than 90% of all gene sequencing procedures ever recorded. 

Branded as the “gold standard” for gene sequencing, Illumina’s highly accurate technology has turned the company into one of the leaders in the biotech space. Illumina is projected to dominate the industry for a very long time.  

More importantly, Illumina has managed to make these treatments affordable. Using Illumina’s technology, the cost of human genome therapy has been remarkably cut from a staggering $100 million back in 2002 to an affordable $1,000 today. 

Despite its potential, Illumina released lower-than-expected revenue guidance for this year. However, its track record indicates that the company has the tendency to underpromise but overdeliver. 

Its revolutionary gene sequencing equipment NovaSeq has made remarkable progress since its availability in 2017 and has yet to reach its peak. Illumina has been on the lookout for high-growth markets currently in their infancy in an effort to become a pioneering force in other fields. 

A good example of this is Illumina’s move on noninvasive prenatal testing (NIPT), which has recently gained popularity among patients. The company released an updated and more powerful version of its fetal genome detector system VeriSeq this year. This technology offers the quickest processing time compared to its rivals.

Illumina is also looking to utilize gene sequencing to bolster cancer research efforts and screening through its TruSight Oncology 500, which is a molecular test used to detect lung cancer. Since its release in 2018, the company has been seeking ways to expand TruSight’s application to include blood tests capable of detecting the very early stages of several types of cancer.

Another significant growth driver for Illumina is population genomics, with the United States, France, Singapore, England, and other countries already utilizing the company’s technology. Consumer genomics also shows a promising fiscal advancement for Illumina. To date, the company has been catering to major providers including Ancestry and 23andMe. Illumina even created its own genealogical spinoff called Helix.