Biotech Stocks Are Being Liquidated; Is Baker Bros in Trouble?

Thu Jan 28, 2016 11:07am EST 13

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.

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OPEC Doesn’t Know What the Hell Russia is Talking About; Denies Talks

Thu Jan 28, 2016 10:43am EST 4

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.

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ARK PRODUCTION CONTINUES, UNDETERRED BY MARKET ACTION

Thu Jan 28, 2016 10:20am EST 0

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.

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Freeport Allows its Indonesian Export License Expire

Thu Jan 28, 2016 9:54am EST 0

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.

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Crude Goes Parabolic After Reports of Russian-OPEC Talks to Reduce Oil Supply

Thu Jan 28, 2016 9:43am EST 0

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.”

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$CAT CEO: ‘There Will Be a Bottom and a Turn’

Thu Jan 28, 2016 9:15am EST 1

Oil is rallying. Futures are up. Caterpillar crushed estimates and reduced the Goldman Sachs sell rating into the laughing stock of Wall Street. The market looks promising, early on.

Here is the CEO of CAT, in an interview this morning, throwing shade at iron ore–but lecturing Joe “hairpiece” Kernen about the upward turn that will come to CAT’s business.

Earlier he was discussing China, detailing CAT’s 30% year over year reduction in sales there, sounding somewhat optimistic about the future, inspite of the sales drop.

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Getting This Out of the Way: Gold is Behaving Well

Thu Jan 28, 2016 8:26am EST 2

I’m not a fan of the yellow metal, mainly because its a wild underperformer and is loved by bedlamites everywhere. But, I’d be remiss, almost irresponsible, if I didn’t point out how well its performed during 2016–amidst all of the tumult and calamity.

If you must play it, go with the commodity itself, via GLD or an ETF that holds a basket, like GDX. Or, if you insist, try the larger capped names. Here is the gold sector, sorted. By cap, in Exodus.

Bottom line: As soon as stocks bounce, gold will be kicked into the streets. It is NOT an ark. It is a pretend ark, made from weaker woods, luring scared people onto its vessel–dooming them from existence. Nevertheless, and whether I like it or not, gold has been a safe haven, up 4% as a group for the year–the only sector in the black alongside silver and gas utilities.

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Last Friday Evening Goldman Downgraded $CAT to Sell; Today They Beat and Guided Up

Thu Jan 28, 2016 8:07am EST 5

It was such an emergency to downgrade CAT, some huge loser at Goldman Sachs issued a report last Friday at 6pm, like a thief in the night, saying the company was a sell. While all this transpired, 99% of market participants were either at the pub and/or about to eat dinner. But not the microbe at Goldman. He had to make sure the world knew how smart he was, before the weekend began.

The company just reported earnings, crushing the bottom line. We all know how impaired the commodity market is and the struggles going forward. Guess who else knew about them?

THE FUCKING CEO OF CAT! Obviously.

He just guided up for all of 2016, effectively punching the unnamed Goldman analyst in the face with a jellied donut!

Shares are soaring.

Good morning. I’m just getting warmed up.

Details of the CAT quarter.

Caterpillar beats by $0.05, misses on revs; guides FY16 EPS above consensus, revs in-line

Reports Q4 (Dec) earnings of $0.74 per share, excluding non-recurring items, $0.05 better than the Capital IQ Consensus of $0.69; revenues fell 22.6% year/year to $11.03 bln vs the $11.42 bln Capital IQ Consensus.

Co issues guidance for FY16, sees EPS of $4.00 vs. $3.53 Capital IQ Consensus Estimate; sees FY16 revs of $40-44 bln vs. $43.48 bln Capital IQ Consensus Estimate.

The outlook for 2016 sales and revenues does not anticipate improvement in world economic growth or commodity prices
Sales in Construction Industries are expected to decline about 5-10% from 2015; Sales in Energy & Transportation are expected to decline about 10-15 percent from 2015; Sales in Resource Industries are expected to be down about 15-20 percent from 2015

The 23% decrease in revenue was primarily due to lower sales volume and the unfavorable impact of currency due to continued strengthening of the U.S. dollar against most currencies, with about half of the impact from the euro

The two most significant reasons for the decline in sales in 2015 were weakening economic growth primarily in developing countries and substantially lower commodity prices, most notably oil. While sales for both new equipment and aftermarket parts declined in all segments, most of the decrease was for new equipment

Sales declined in all regions

In North America, sales decreased 26% due to lower end-user demand, primarily in Energy & Transportation, and unfavorable changes in dealer inventories, mostly in Construction Industries

In EAME, sales declined 20% , mostly due to lower end-user demand for products used in Energy & Transportation applications and the unfavorable impact of currency, as sales in euros translated into fewer U.S. dollars

Sales decreased 36% in Latin America, primarily due to widespread economic weakness across the region, which had a negative impact on construction and mining activity and demand for products used in oil and gas applications

The most significant decrease was in Brazil
Asia/Pacific sales declined 16%, primarily due to lower end-user demand for Energy & Transportation applications and products used in mining.

Sales decreased in all segments

Energy & Transportation’s sales declined 29% as sales decreased due to lower end-user demand and the unfavorable impact of currency. Construction Industries’ sales decreased 18%, primarily due to the unfavorable impact of changes in dealer inventories as dealers decreased inventories more significantly in Q4 of 2015 compared to Q4 of 2014.

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Former Fed Governor, Robert Heller, Sees Three Rate Hikes in 2016

Wed Jan 27, 2016 11:51pm EST 10

I am building a case of wide spread mental instability amongst our current and former Federal Reserve members. It’s one thing to have made a mistake and live up to it. It’s entirely another thing to say you were wrong and then continue the same path, knowing you’re making matters worse.

Enter former Fed Governor, Robert Heller–born in Germany.

With his own mouth, he says things are fucked up and how GDP will only grow at 1%. Yet, in the very same breath, he’s calling for 3 rate hikes in 2016.

Why?

Heller is only the first of many Fed heads to make a media appearance, post Yellen meeting. Prepare to have your minds boggled over the days and weeks to come, as one Fed head after the next discusses the virtues of tightening into the teeth of a world ending deflationary vortex.

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Let’s Take a Look at Some Cool Hedge Funds

Wed Jan 27, 2016 11:30pm EST 2

All of the bull market mavens are getting their brains blown out in 2016. I will not beat around the bush, most of these guys were once great investors. They got rich and fat, started to walk around like pigs, chortling about Wall Street. Now they’re being slaughtered.

Rather poetic, if I don’t say so myself.

These are approximate returns based off recent SEC filings.

Tiger Global: -18% (NFLX, JD)

Greenlight Cap: -15% (AAPL, GM)

Pershing Sq: -11% (VRX, APD)

Paulson: -12% (VRX, AGN)

Icahn: -15% (CVI, AAPL)

Lone Pine: -10% (VRX, PCLN)

Berkshire: -8.5% (WFC, KHC)

Third Point: -8.5% (Dow, AMGN)

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