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Thursday, March 30, 2023


Monday Medical Miracle – Health Care Finally Passes

Paul Krugman summed it up nicely:

There is, as always, a tunnel at the end of the tunnel: We’ll spend years if not decades fixing this thing.

Love it or hate it, the US has just taken a big step towards nationalized health care so maybe now we can finally stop talking about it and move on with the investing!  I think medical devices (IHI) should do well with 32M new patients – that's a play we made quite a while ago though and, like pretty much everything else in this market – they look a little toppy. 

As I noted in the Weekend Wrap-Up, we came to the decision to get back to cash on Friday, removing all uncovered bullish bets and adding our disaster plays, no longer hedges (as there's not much to hedge) but as bets that the Global markets are due for a little correction at this point.  I'm already feeling good about the decision as the futures look awful this morning (8am) as the Hang Seng dropped 2% (437 points) and couldn't get back over 21,000 during the session and has now given up all of March's gains.  The Dow is still up about 400 points in March as well – hopefully our fall won't be as violent as what the Hang Seng saw this morning.  India held up well, only losing 1% after Friday's surprise rate increase. 

The Dollar was very strong after the Health Care vote and we're sitting below $1.50 to the Pound and we've bounced off $1.35 to the Euro twice this morning – a break below there could get very interesting!  The Yen is staying down at 90.5 to the Dollar, which is a relief for Japanese exporters but I'm not sure they'll hold 90 this week.  Copper broke below $3.40 on Friday – confirming our bearish turn and is at $3.32 this morning.  Gold once again is testing $1,100 and silver failed $17 at $16.82 with $16.50 being a bearish signal for metals.  Oil dropped all the way to $79.31 this morning and we'll see if they can get back over $80 but we are going to be thrilled with our short plays (see wrap-up) in that sector

Risk aversion has come up after developments in India and Greece,” said Henrik Gullberg, a fixed-income strategist at Deutsche Bank AG in London. “Any exiting of the current accommodative policy stance is bad for risk appetite and good for the dollar.”  Greek bonds tumbled for a third day, with the yield on the two-year note jumping as much as 18 basis points to 5.55 percent. National Bank of Greece SA, the nation’s biggest lender, led stock declines in Athens, sinking as much as 5.3 percent. The cost of insuring against a default on Greek government bonds rose, with credit-default swaps climbing 26 basis points to 356 – something we'll have to keep a close eye on this week. 

Chancellor Merkel told investors they shouldn’t expect this week’s European Union summit to agree on assistance for Greece, resisting calls for the specifics of a rescue plan, which helped send Greek bonds to their lowest in more than three weeks.  Europe is down 1% across the board ahead of the US open as the dollar pushes that $1.35 mark.  There is a lot of concern over in Europe that the ECB and BOE will follow India's Central Bank in raising rates but that concern will not be mirrored by US investors, most of whom are not aware that India has a Central Bank and many of whom, sadly, can't identify India on a map

Something we should all have plenty of practice identifying this year is failing banks.  On Friday, the FDIC shut down 7 banks, bringing our 2010 total to 37, on pace to shatter last year's record of 140!  As I pointed out in yesterday's "Hedging for Disaster – 5 Plays that Make 500% if the Market Falls," the FDIC seems to step in when banks are already critically short of assets.  The pattern we noted on Friday was that the FDIC had to make up 40% of the implied assets to shut down the banks.  In the case of Utah's $1.6Bn Advanta bank, the FDIC could not find anyone willing to take over the operations and the fund took a hit of $636M on that bank alone

The US may not have officially lost it's AAA rating yet but bond investors have voted with their feet as it costs the US government 3.5 basis points more to borrow money for two years than it does for Buffett's BRK/A as well as PG, JNJ and LOW – who have all recently gotten better terms than Uncle Sam on their loans.  The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating.

The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves.  “It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. “It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary.”  

While Treasuries backed by the full faith and credit of the government typically yield less than corporate debt, the relationship has flipped as Moody’s Investors Service predicts the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving “substantially” closer to losing its AAA rating, Moody’s said last week.  I may have mentioned liking TBT at some point…

What I'm not liking is cracks showing up in the armor of even those companies that serve our top 10% club.  TIF missed estimates despite positive sales growth as gross margins decline due to, you guessed it – rising commodity prices (diamonds and gold) as TIF is yet another corporation that is having trouble passing along costs.  Just as scary as TIF if news that the Four Seasons in Maui has gone delinquent on its $425 million of mortgages.  MSD Capital LP, the private investment firm of Dell Inc. founder Michael Dell and his family, skipped the February payment on the debt as it seeks to restructure the loan

The Four Seasons Maui has struggled in the past year along with most luxury hotels in Hawaii. Its occupancy fell to 60% in last year's third quarter from 79% a year earlier, according to Realpoint. Its net cash flow declined from $32.9 million in 2007 to $10.9 million in the first three quarters of 2009.  MSD Capital bought the Four Seasons Maui for $280 million in 2004. It then refinanced the property in 2006 with the two mortgages totaling $425 million.

What is the world coming to when the Four Seasons can't make their mortgage payments?  Like I said – I'm not regretting our decision to get to cash one bit – sounds like Michael Dell can use some…



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Tests for cancer WILL be necessity though.  GPRO, MYGN, and others will benefit as well.

Lots of browser problems – any recommendations for an alternative?

Gel, Firefox.

 Gel, Chrome

I’m holding a MYL ‘ Jan 15c.  What should I write against it this time, trying to protect 3.70 profit? (Thx Pharm!)

 Pharmboy……Cancer…….a word that puts fear into people.  Seems money always flows toward this entity.    
Diagnostic tests.   Here’s a factoid.   Cardiologists are losing their lock on the lucrative market of diagnostic angiography and stent placement as evidence accumulates that the former is often unnecessary and the latter often ineffectual.  As they lose these they are moving into areas where they have no formal training but have the technical skills to do stuff that pays. Their hospitals let them do this because they also profit.    Examples are placing stents and other devices in the peripheral vessels and reading (interpreting) coronary CTAs (computerized angiograms, an xray study).  They also set up vascular labs in their offices and do ultrasound and other studies on peripheral vessels (none of them near the heart, or even related to the heart).  As always, the clever physician will find a way to game the system and  continue to make money.  These are concepts that lawmakers and policy makers understand poorly, probably because they can’t believe that a physician would do something for which he has little training, just to make money.  As an insider, I see it regularly and clearly.  I’m not sure the health care bill addresses such activity AT ALL.  I doubt it.  

Phil, Whats the rule re adjusting option positions?  When the premium is less than 25%? thanks Phlit

Pharmboy, you were liking RNN under a dollar but I missed it, and it’s made a strong move lately.  What’s the news and do you think it’s going higher?

iflan – VOLC makes a device for looking at the plaques in the arteries (which is why I recommended them).  These are critical for understanding PAD and help in treatment modalities, and SPNC makes a device for blasting these plaques out, so stints need not be put in (our private company is competing with SPNC).  VIAP has a small molecule for reducing the size of the plaques (in clinical trials, which is why I like them for 13c – I am in at 19c).   Europe is also buying devices (from our private company data, as is Asia).  I am after economies of scale with patient populations, and devices are one way to do it and cheaper than stints and drugs at this point.
Look at psoriasis, which is stratisfied into severe, moderate and mild.  75% of the population is in the mild category, and would you give Enbril for it (20K/yr).  Devices are reimbursed at $165/pop, and it takes 7-10 treatments for 6-12 mo of remission.  That is a fraction of the costs.  This is just one example.
As for cancer, that is in my latest writeup which should be out later today or tomorrow.  Cancer, Immunological disorders are the next wave for Pharma and devices/diagnostics.

Hi Phil : On my Bull call positions where I also sold puts, are u recommending I close out the "put" side of the spread.

If you like CSCO, then you will also like JNPR ( Juniper Networks ) . I have both.

RNN/mrm – yes….that is a run up, and out for a while now.  I hate chasing, but an initial 1/5 entry would be ok.  ARIA, CRIS and others have also moved substantially the past few weeks.  Could this be the spring/summer run for biotechs.

Pharm- what do you think of hnsn?

DCTH – data to be released this month.  Taking less risk, June 5/7.5 bull call spread is $1.  I am buying the May 5s for 2.20.  DCTH makes a device for giving chemotherapeutics directly to the tumors, reducing the side effects.

HNSN/jro – David played them a while ago.  At 2.16, a small position is fine.  I don’t know much about the technology, but it is in the cardiospace for devices.  They were at $30 a while ago, and $8.  Problem is catheters is in their technology. Something that is out of favor.  When things are out of favor, may be a buy opportunity, but be prepared to DD several times.

Doug Kass capitulates…?
"All this said, I have been wrong — at least, Mr. Market has been saying so!

The discipline of recognizing the errors in the timing of one’s analysis and, even more important, respecting Mr. Market’s price action are integral parts of the investment equation — whether or not the price action is later confirmed or unconfirmed by the fundamentals."

Hello all. I have a new Buy of the Week up in China Automotive Systems Inc. (CAAS). Read about why I think CAAS is a great play for this week and could be worth 3-5% before it even releases earnings. Check it out here.

Good Investing

 Phil, what do you think of SWN here?  I know they have a heavy bias on natural gas, but they seem to be a well managed company with E&P as well.
Congrats on the vote last night.  I have officially started my 10 year plan towards my exit from medicine.  Next plan is to be slum lord and take obama money for apartments.

Just bought 1000 shares of Boston Beer (SAM). – Samuel Adams They are the largest specialty beer brand. 4th quarter profts have doubled. Big margins and no debt.. This is my health care play, as with free health care, then that will leave lots of money for the beer.

Shorting TNA at $55.30

Out at $55.36 for a $0.06 loss

adjusting question from phlit — your answer was when the premium is less than sold option, could you show me in my example of AAPl, I sold april 210 call for 5.04 now the premium is 17.20, are you lookinh at the current premium and 25% of 17.2 is about 4.25 which is less than 5.04 I sold so I should go ahead and roll to Jan 12 250 caller for 15.55 credit.  Is this how you calculate the 25% — Please correct me if I am wrong thanks ahead

how do you short TNA? it give me message that it is not available for borrowing

JRW,  Joined you for that short, uneventful ride via TZA.  Lost a penny.   Last week, 68.50 was significant.  I’m waiting until there.

Jo/Apartments – LOL

that is an impressive layout. maybe i ll stop working on my taxes & read all afternoon 🙂

 gel – I’m gonna be a slum dog millionaire :).   Seriously, plenty of people who have apartment complexes in phoenix who are overleveraged.  Some of these places can be turned into the type of places that get on the govt dole.  If their dishing out the money, might as well join the movement. 

WSM having a nice day.  Maybe in those apts Jomama, you can include a mixer, knives, and other goodies…..

tch / short
I used my own stock from the non-daytrading part of my portfolio

Pharmboy, thanks for telling me to cut and run on CTIC!  They’re a "house of pain" today!

Well, I have to catch a plane; good hunting to all. IWM is above resistance so be careful !!

 nice pharm!  

Jomama … SWN very cheap here as long as Nat Gas doesn’t collapse .. IMO.

Shorting COF again ….  been good for scalping …. very pricey here but in the grips of the algos

Phil: what do you think about this:
The disparity between six-year oil at $86 a barrel in the commodity market and large cap oil producers at a median $58 a barrel in the stock market points to opportunity, we believe, in recommended high quality producers like ExxonMobil (XOM), Canadian Oil Sands Trust (COSWF.PK), Total (TOT), Chevron (CVX), PetroChina (PTR) and ConocoPhillips (COP).
Trading above the 40-week average of $83, oil for the next six years acts like it has to be part of global economic growth and that new supplies do not come cheaply. Oil does look cheap in oil stocks, which live in the shadow of governments who would like to load them down with more taxes. Ironically, higher taxes only drive up oil prices more, as we see it. Nonetheless, there can always be negative surprises in commodity prices or government actions.
We think the gap between 86 and 58 is more than wide enough to cushion moderate risk in committing to high quality producers. We measure the price of oil in the stock market by multiplying the median McDep Ratio of 0.77 by $75 a barrel, which is our long-term price assumption used in calculating the denominator of the McDep Ratio. There is a rich suite of attractive stocks at low McDep Ratios in our continuous analysis.

Jo…. good long term payout, but the grief factor would make it too painful for me. Fundamentals and timing is right tho.

 PHARM, what do you think of Celgene here?  close to 52 week high, but their fundamentals look pretty good.  The new reform really favors patent holders imho?  your thoughts are always welcome.

 gel, grief is relative.  

 morx…taxes?  fuggidaboudit.  I never file personal  taxes until after April 15th.  I’m 1 in 126  who does so regularly, according to my tax guy.   He and I both like this, as he has more time for MY taxes.  Everyone else is done.  So every April he automatically files an extension.  I call him in March.  

Jo… Before to take that step, get a bulletproof vest and a couple of bodyguards, and take a walk through Cabrini – Green project in Chicago. When I was in the medical equipment manufacturing business, I took a tour of some OEO facilities with the Director, as part of a requirement to get a multi-million dollar contract. It was profitable and was a profound education for me. Reminded me of a visit I made to the slums in Beiruit – same stuff !

SS, You around today? 

Phil, Do you see a possible put spread play on SHLD or are they not to be messed with? 

judah – yep.

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