Enjoy the Bounce; It Will Be Short Lived

Oil is leading the market higher, which means the House of Saud is your master…again.

Biotechs, however, were delivered death–indicative of risk off.

What they’ll tell you about today is that stocks bounced, soon to be bankrupt oil companies rallied, and how oversold we truly are. None of that matters when the leading industries are utilities and government bonds continue to gain steam.

This market isn’t built to rally, only to crash into brick walls in cars made from dynamite sticks. Breadth was below 60%. Participation was pathetic. If you bought into this rally, you’re playing yourself and deserve to lose all of you money, and much, much more.

This story, like the Martin Skkreli narrative, has run its course and is now boring to me. WBA is suspending their relationship with Theranos. The companies valuation of $10 billion can no longer be justified. The unicorn has been slain.

Walgreens Boots Alliance Inc. said it will stop sending lab tests to Theranos Inc.’s Newark, California, facility after U.S. regulators found severe deficiencies at the lab.

The companies have been working together to provide lab testing to consumers through a handful of Walgreens stores in California and Arizona. Theranos’s lab in Arizona, where it does the majority of its analysis, isn’t affected. Shortcomings at the California lab jeopardized the health and safety of patients, the Centers for Medicare and Medicaid Services said in a letter to Theranos made public on Wednesday.

“No patient samples will be sent to the Newark lab until all issues raised by CMS have been fully resolved,” Walgreens said Thursday.

As a group, biotech stocks are doing worse than oil stocks this year. The reason?

All presidential candidates are promising to bring forth the wrath of baby Jesus on the industry. For years, this industry has been innovating, enjoying a renaissance in revolutionary breakthroughs, partly thanks to being financed by highly priced drugs. There is a lot of push back against that now.

But more specific to the stock action, I think it’s simply a barometer of risk being shredded. After all, what is more risky than a phase 2 drug company trading with a market cap of $2 billion or more?

Today’s action is abysmal, indicative of the lack of demand for these risky assets now. It has the feel of forced liquidation, a hedge fund going bust. The underperformance v the SPY is very noteworthy.

Baker Bros is the most widely followed fund who specializes in life sciences. Year to date, they are getting poleaxed, possibly by as much as 30%.

Here are their top holdings.

Considering January isn’t even done, I’d call that a life changing event, one that would coerce any investor to consider pulling money out of the sandtrap.

Classic parlour game of smoke, mirrors and funny jokes are being played on OPEC, by none other than Vlad “the impaler” Putin.

Alexander Novak said in St. Petersburg that Russia would be willing to discuss output levels with the Organization of Petroleum Exporting Countries, Interfax reported on Thursday. Four OPEC delegates said they had not heard yet of any plans for talks. The group’s next scheduled meeting is in June.

“It’s possible that Russia could be testing the waters to gauge how OPEC members would respond to the idea of cuts,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former senior oil official at the White House.

Oil is still up, but well off its highs.

Treasuries are the honey badger of asset classes now. Despite a stronger tape, albeit rapidly weakening, TLT is unchanged–because smarter money knows what’s coming.

Just to let you know where I am now: mostly cash. I have 25% in TLT, up 6 points from basis, 33% in SPY, and the rest cash. I have zero desire, whatsoever, to take on non-systematic risk with individual longs now.

We’re in a bear market; trade accordingly.

That being said, Jeff Macke, Raul and Option Addict will be hosting our second online bootcamp, starting in a few weeks. If there is demand, we will do these once per quarter.

Macke will go over his investment philosophy in a live webinar for two days and Option Addict will discuss market technicals and set ups for another two. Raul will wrap it up with a live Exodus demo. There is extreme value add to this event. I strongly recommend coughing up the pittance for admission to get some hands on intel regarding whatever the hell this market is doing right now.

Details to follow.

I suppose Freeport didn’t want to pay the extortion Indonesia requested of them. Nonetheless, this is going to hurt its stock, as Indonesia is hugely important to the companies prospects. Their mines are valued in the tens of billions there.

Indonesia has asked for a $530 million deposit toward building a new smelter in exchange for prolonging the permit, a request that Adkerson said this week was inconsistent with the company’s previous understanding with the government. Ariyono didn’t elaborate on the issue Thursday.

Energy and Mineral Resources Minister Sudirman Said told reporters on Wednesday that the government’s priority was to ensure operations continue so that the local economy is unaffected. He said the money would be proof of Freeport’s commitment to the smelter, as the government bids to reap more value from the nation’s mineral trove.

Freeport, which mined $2 billion of copper and $1.4 billion of gold in 2014 from Grasberg, also wants to extend its contract to operate in Indonesia. That expires in 2021, and the company has agreed to sell shares as part of the negotiation. An Indonesian official said this month that Freeport had offered the government an 11 percent stake in its local unit for $1.7 billion. Freeport confirmed an offer had been made though it didn’t give details.

This will likely be resolved soon. In the meantime, the stock is down, retracing some of yesterday’s gains.

Interfax is reporting that Russia is in talks with OPEC about a 5% reduction in supply. Interestingly enough, the great vodka state just announced record oil supply, surpassing Soviet era numbers.

Nevertheless, this is exactly the sort of jargon that will crush the hopes and dreams of crude shorts, infiltrating their small brains, forcing them to cover shorts.

The country’s production of crude and a light oil called condensate is on track to reach 10.89 million barrels a day in January, up 83,000 barrels a day — or the biggest monthly increase since September 2014, according to Bloomberg estimates based on Energy Ministry data.

The potential for a monthly record arises as Russia’s oil industry and state begin talking among themselves about output levels. Company officials and Russia’s Energy Minister spent last night discussing the possibility of coordinating actions with the Organization of Petroleum Exporting Countries due to unfavorable global prices, according to the ministry.

Brent is up 7%, behaving more like a 3-d printer stock than a world commodity.

There is, however, the distant chance nothing arises from these talks.

“The issue of oil-market volatility is being actively discussed,” Kremlin spokesman Dmitry Peskov told reporters Thursday on a conference call. “It is too early to predict the outcome of these talks.”