June 10, 2014
- And just like that, biotech is hot again…
- Treating cancer with a daily pill: Paul Mampilly hears from top researchers at “the Woodstock of medicine”
- Small-business owners emerge from the bunker, cautiously…
- “Easy financing terms” and record-high leases: Is the auto sector topping?
- On the watch for Chinese fraud… the country where prostitution no longer pays… $3.5 million out the window in an instant… and more!
“We’re seeing a strong resurgence in the biotechs,” says Greg Guenthner of our trading desk.
During the first eight weeks of 2014, the biotech sector jumped 30% — on top of the 60% gains it posted during 2013. “Almost every single day,” Greg refreshes our memory, “a different biotech would easily rise double digits. And while this was an active trader’s paradise, these stocks did end up getting a little ahead of themselves.”
Now they’re staging a comeback. “In just a few weeks, these stocks have gone from losers back to winners,” says Greg. “As of this morning, the biotech sector is up more than 12% on the year, compared with gains of just 5.5% in the S&P 500…
Nearly every small and midsized biotech stock jumped on the news that Merck was buying a small player called Idenix Pharmaceuticals — which leaped 229% on the day.
That’s powerful affirmation of Paul Mampilly’s declaration in our virtual pages two months ago, shortly after he came on board as our investment director: “I believe we are in a golden age for biotechnology and investing in biotechnology. The medical breakthroughs we are going to see in the coming decades are going to make fortunes for some investors.”
And after a visit to Chicago late last month, he’s more convinced than ever…
“Cancer won’t be a death sentence for much longer,” says Paul, still sorting through his notes from the annual gathering of the American Society of Clinical Oncology.
“The ASCO meeting,” Paul explains, “is the Burning Man — or if you’re older, the Woodstock — of medical conferences in the United States. This year, an estimated 25,500 attended.” And listen to what some of the most elite cancer doctors told him…
- …about a pending thyroid cancer drug: “What blew me away — and what should blow you away — are these response rates. This is a truly amazing disease-free survival,” said a Stanford researcher
- …about a recently approved skin cancer drug: “A few years ago, we had very little to offer patients, and now many more patients can be cured using these new therapeutic approaches, even if their melanoma has spread,” said a scientist at the University of Texas’ MD Anderson Cancer Center
- …about the state of the art in breast cancer treatment: “If an oncologist practicing in 1964 at the time of ASCO’s founding was placed in a time capsule and transported to the 2014 ASCO Annual Meeting, she could be forgiven for thinking she had arrived in another universe,” said the chief of breast cancer surgery at Memorial Sloan-Kettering Cancer Center.
“I predict that in 15 years, most of us will simply take a pill or get an injection and live with our cancers,” says Paul.
“In other words, cancer is going to get knocked down to the status of a chronic disease. By chronic, I mean that you’ll take a medicine for your cancer and lead a normal, productive life.”
Rather than removing a tumor or an entire organ, “a doctor will take a small tissue sample of a patient’s cancer tumor. Next, a lab will match his cancer tumor to see which specific cancer gene molecule is causing it. And then he’ll get a drug that’s designed precisely to knock out the cancer gene molecule causing the cancer.”
No, we’re not there yet. “But each year,” Paul enthuses, “five more of these kinds of targeted cancer drugs are going to become available to patients. And each year, these drugs are going to become more effective and less toxic.”
[Ed. note: Are you saying to yourself, “That’s swell, but my retirement can’t wait another 15 years for these drugs to come to market”? If so, Paul is on the case of a medical device whose maker is set to tap the massive $147 billion in annual spending on obesity in the United States.
The firm’s current market cap? A mere $130 million. That’s a whole lot of potential… and it’s about to be unleashed one week from today, as you can learn in this presentation.]
Stocks are pausing for breath after the Dow and the S&P set record closes again yesterday. All the major indexes are in the red as we write, but not much.
Gold is putting $1,250 further in the rearview, up to $1,260. Crude is flat after a sharp move up yesterday, at $104.48.
The deepest small-cap correction in two years is over, says Jonas Elmerraji of our trading desk.
“Small-cap stocks move bigger and faster than their blue chip counterparts,” he says — “and while that’s one of the biggest advantages of investing in small names during strong markets, it’s also one of the biggest downsides when markets get dragged lower. And since March, that’s exactly what was happening across the board in the small-cap world.”
Until about three weeks ago… when the small-cap Russell 2000 bounced smartly off the blue line on this chart…
Yes, small caps were in a slump for much of the spring — like biotechs. “But the most obvious message from the chart,” says Jonas, “is the fact that small caps are still very much in an uptrend” — one that goes back to October 2011.
Jonas, by the way, is still looking for a few people bold enough to take his $10,000 trading challenge. Give him only five minutes of your time… for only five trading days… and he’ll show you how to squeeze $10,000 out of the market, whether it’s rising or falling. He’ll send along details later this week, but only if you let us know you’re interested. Drop us your email address here — there’s no obligation and nothing to buy.
Small-business owners might — we emphasize might — be coming out of a seven-year funk.
The National Federation of Independent Business is out this morning with its monthly optimism index. It’s now notched three straight months of improvement. And at 96.6, the number is its highest since September 2007. Hey, that’s even before the “official” recession got underway, in December of that year…
The internals are a mixed bag. Important factors like plans to add jobs and plans to boost capital spending? They actually fell. But expectations for sales and business conditions improved.
That’s borne out by the part of the survey in which respondents are asked to cite their “single most important problem.” Two years ago, “poor sales” were in roughly a three-way tie with “taxes” and “red tape.” Check out the numbers now…
Still, business owners face rising costs as their suppliers contend with rising costs of energy and labor. Thus, “it is clear that small businesses are unwilling to invest in an uncertain future,” says NFIB chief economist Bill Dunkelberg. “As long as this is the case, the economy will continue to be ‘bifurcated,’ with the small business sector not pulling its historical weight,” relative to Fortune 500 companies.
Is it time to call a top in the auto sector?
Last week brought news that U.S. auto sales hit a nine-year high. This morning brings news that the average auto loan now stretches to 66 months, according to the consumer credit rating firm Experian. This too might be a nine-year high, but we don’t know — the data go back only eight years. Heh…
The average amount being financed now? $27,612, a record.
Because payments are rising relentlessly, 30.2% of all new vehicles being financed are now financed through leases. That compares with 27.5% a year ago.
How much longer can it last? The Federal Reserve’s consumer credit numbers show Americans still hesitant to run up their credit cards; all the growth is in student loans and auto loans.
We won’t hazard a guess here. But if you want a good used car, a bunch of lease vehicles will be hitting the lots another three years from now.
Gee, the used car shortage brought about by the feds’ “cash for clunkers” program five years ago will finally be over.
Maybe America still does have the rule of law going for it. At least in relative terms.
China? Not so much. From this morning’s Wall Street Journal: “One of China’s most important financial companies moved to secure metals at a warehouse while concerns about fraud in commodities markets spread to a second Chinese port.”
Citic Group — a state-owned investment company — is asking the courts to intervene, lest it lose the rights to its massive stash of copper, aluminum and other metals.
The story goes back to something we explored earlier this year — how Chinese traders are buying these industrial metals and using them as collateral for loans. Here’s the Journal’s new wrinkle: “The trading firms hold the deed to the metal, which can be used to secure financing, but the metal stays in a warehouse. Banks fear a private Chinese company may have used the metal as collateral to get multiple loans, potentially defrauding the lenders and trading firms.”
Translation: “There are fears that lenders have issued multiple claims on the same collateral,” says our macro strategist Dan Amoss. “Such fears could build up to a violent unwind of the commodity-backed loan trade, which would further depress the base metal and machinery sectors.”
As it is, the price of copper has surrendered all of the gains it made since it began rallying hard five weeks ago.
The red metal has made a round trip from $3.04 a pound to $3.19 on May 28… and back to $3.04 this morning.
You know your economy is hosed when prostitution doesn’t pay.
“Prostitutes more than double their earnings by moonlighting as currency traders in Puerto Cabello,” Bloomberg News reports from that perpetual basket case of Venezuela. “They are the foreign exchange counter for sailors in a country where buying and selling dollars in the streets is a crime — and prostitution isn’t.”
The black-market rate for dollars is 11 times the official rate. That translates to 153% annual inflation, in the estimation of Johns Hopkins professor Steve Hanke.
Bloomberg runs the numbers: “A typical stint with a dollar-paying foreigner would earn a prostitute about 6,800 bolivars in fees and currency exchange arbitrage in the black market. The same service paid in bolivars… would earn them 3,000 bolivars.”
Or as a prostitute calling herself Giselle says, “We can make more in two hours here than working in a shop in a month.”
The reporter informs us she was sipping a 12-year-old whiskey as she said that. Good detail.
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. “With hackers stealing tens of millions of customer details in recent months,” says a Reuters dispatch, “firms across the globe are ratcheting up IT security and nervously wondering which of them is next.”
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But even expensive in-house experts won’t always be enough. That’s when specialized contractors enter the picture — commanding their own massive fees.
Some of those contractors are publicly traded.
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