BIOTECH MUST BE SLAUGHTERED

Listen to me you late Lucy’s: the biotech index comprises of 75% of the winners up more than 30% for the year, thus far. In other words, all of the spec money is being made in one fucking sector. Let me remind you, this is a sector without profits and in many cases revenues.

As per Exodus, have a look at the valuation of the biotech sector, compared to previous years.

The median price to sales ratio is now upwards of 29x. That’s fucking lunacy. Within the drug sector, the majors, the median PE is 40 and the median p/s is 7.69–taking into account all drug companies with caps greater than $5 billion.

Naturally, you’re inclined to disagree with me, as is the case during most euphoric runs. While it’s true, innovation and evolutionary change is transpiring in the biotech sector right now; it’s also true that many of these companies are merely in phase 1. In the past, a phase 1 company would be valued in the low $100-$200 million range. Now they’re worth in excess of a billion. Too much dumb money is abundant in this one space. Get out now, else lose your nuts in the great biotech collapse of 2015.

I am not calling for a market pullback. Instead, I think we will see a rotation out of biotech into stocks that are growing fast, but haven’t run yet.

Names that pop up in my screens include: SBNY, BIDU, BABA, GLW, PCLN, AAP, PACW, FB, CMG, MIDD, SWI–just to name a few.

A rotation out of biotech into tech, banks and retail would be healthy for a prospective bull market in 2015. Should we continue running up biotech like this, the eventual collapse is going to be worse and investor sentiment and subsequent washout will be exponentially more painful.

Directed by Carol Reed, in Britain, The Third Man is one of the best films ever made. Starring Citizen Kane alumni, Joseph Cotten and Orson Welles, the film paved the way for lots of ‘atmospheric’ films to come, including a classic made by Welles himself several years later, called Touch of Evil.

It’s classic film noir. Although Welles’ part wasn’t that big, it certainly had a profound effect on the movie (extra Harry Lime).

It’s worth noting that Welles rewrote much of his character’s part, responsible for the film’s most memorable moments (extra cuckoo clock).

Addendum: This is a superb short film, reenacting Orson practicing his lines for The Third Man.

EXTRA: There are several Welles films floating around youtube– free to watch. Having seen them all, I’ll be highlighting my favorites each week.

In my estimation, this is the best version of Jane Eyre ever made (1943).

https://www.youtube.com/watch?v=z8FNQ5J4qOI

Enjoy.

I am gonna keep this real short and concise for all of you booze hounds out there. In this business of ours, top producers are hard to catch. As an employer, you need to woo and pay a signing bonus in excess of 100% of a big producers trailing 12 month’s production to get him/her to jump ship. In other words, if you’re doing $2 million in annual gross production, you can look forward to a $2 million check, just to switch firms. This is part of the reason why your broker keeps switching firms every 5 years.

Like I was saying, top producers are hard to come by, which leads me to Janus Capital. Not only did Janus Capital land a top producer, hiring Bill “shut the fuck up while you’re in my boardroom” Gross, they got a living fucking legend.

Ten thousand years from now, men will be reading their children tales of Wall Street at bedtime, and Bill Gross will be in most of them. He was the man who raised ALL OF THE MONEY for bonds. He is a fucking machine, Rambo in the boardroom, stabbing out pikers for lunch and eating other whales for dinner.

Granted, analysts are skeptical about Bill’s divine powers to attract ALL OF THE MONEY to head on over to Janus. But these analysts, inherently, are pikers–losers who could’t make it in sales or trading.

It is my belief that JNS is going to absolutely destroy numbers, making a mockery of all the smaller men who bet against Bill. Time will tell, naturally.

This is a conviction buy and hold for me.

Pardon my eruption of joy this morning. It’s fucking snowing here on the first day of spring.

This is an orderly move higher, one that I believe can be bought. With some of the cash I have left, I added to my BABA position, making it a top 3 holdings. And, going against the grain, I started a new position in ANF. It’s a very small one. In short, I will likely add to this name over the next month. I am not a fan of their stores, as clothing of that sort is better suited for 13 year olds. Nevertheless, it is now trading at historically absurd levels. Bear in mind, despite their decelerating revenues, they are still free cash flow positive and can really become a cash cow with a few tweaks. This might become a private equity target before the year is over.

We’re gonna run these bastard grocery shoppers over with our Impalas, then hop out the fucking car and scream at them for fucking with our vehicle.

This is it folks: the biggest motherfucking rally of the year is about to resume. Everyone gets access to the harem (bring your own coke). Those heavily cashed up get kicked down the pyramid, head chopped off when they reach the ground.

Everyone else, REJOICE and BEHOLD a New World Order (Extra Grande Recursive Order of the Knights of the Lambda Calculus) is upon you, a perversion of capitalism that will serve as the dawn of equanimity when dealing with the pressures of how to properly dispose of all this fucking money we’re about to rake in.

I want you to get a few things through your thick skulls.

1. The market doesn’t give a shit about top line growth anymore. This is a mature bull market that demands bottom line growth and profits. If your stock isn’t pulling at least 25 million in free cash flow per annum, it will be dismantled.

2. Biotech is running because once drugs get approved, they are immensely profitable. Most of the time, small biotechs partner with giant firms and simply rake in a percentage of the cash for their r&d. Biotechs aren’t running because revenues are set to explode. They are running in the hopes of profits exploding.

3. If you’re buying any stock trading in excess of 15x sales, you are setting yourself up for failure.

4. Chinese companies cannot be valued based on American correlations. Since the entire nation of China is filled with liars and thieves, there is a very harsh penalty imposed on all chinese valuations, even the biggest firms like BABA.

5. If your stock missed earnings for 2 quarters in a row, it is dead money until they beat again.

6. Gross margins is what really drives stocks higher, not charts.

7. Unless you’re really good at entries, assume that all new purchases will be early. Buy in smaller increments and relish in sell offs when they present themselves, instead of dreading them.

8. Utilizing margin is an excellent way to blow up your accounts, if you suck. If you know what you’re doing, margin is par for the course. Be smart about it.

9. If your stock is somewhat illiquid, be patient and use limit orders. You’ll be surprised how much money you can save with limits over the course of a year. On the other hand, don’t be unrealistic about your prices. If a stock is trading 20.35 x 20.42, due to an illiquid situation, put the order in slightly below the bid in a weak tape to get done. In a strong tape, feel free to place the order slightly above the ask. You’ll be surprised to learn that some buyers are waiting for size on the ask to show up, in order to accumulate a position, and get done quick. Many times I’ve had orders sitting above the ask and my trading desk would call me to find out if I had more stock to sell. I’d simply ask how much the buyer wanted and give it to them or use that knowledge to my advantage by canceling the sales and executing buys instead, knowing someone was thirsty for stock. Get it? Good.

What a stupid thing to say, no? After all, how can one be so one directional in the face of overwhelming atrocities? Very simple.

Over the past 6 years, the markets, and western finance, have been tested more than in any other period in modern times. The results have been nothing less than stellar. We know, no matter how shallow the set back, central banks are here to bid. We understand that stocks might trade down for a period of time, but ultimately, the anonymous bidder comes to play.

So, as an allocator of assets, how in the world can I base present and future decisions around anything but higher stock prices?

Eventually the economy will recess and stocks might languish for a bit. Rest assured, when that time comes, the Fed will be there to ensure that stocks lift higher. This is all cotton candy, crayons in the ears, crazy talk; I realize that and know it’s all a game. But you’d be an idiot if you thought the Fed and central banks were going to lose control now, after what we saw in 2008 and 2011.

Sectors will overheat, like biotech is now. Corrections will come and go, like March of last year. All that being said, the stocked market is now mandated, by the powers vested in government, to trade higher, forever and ever and ever.

I don’t care how many cures for cancer there are in development. Nothing warrants this sort of run in biotech, with the sector now up 31% for the year. More than 15 biotechs are up double digits today, led by gains in JUNO, KITE and FOLD. Looking at the sector makes you want to go out and pick the next one, laggards. For example, AGIO was down for the year, until today. KITE and BLCM were lagging, not anymore.

I took this overzealousness to blow out of my NRDM position, a position that I managed to turn a 30% loss into a 20% profit through sheer hard headed averaging down. I got lucky and now I am hitting the bricks.

I will keep the other medicine man stocks in my portfolios because they are real companies, with real drugs, heading higher. SGEN, ICPT and JAZZ are my largest biotech holdings. GILD and AMGN are my largest drug holdings and quit calling them fucking biotechs. Their market caps are upwards of $100 billion. Sure, I’d love to grab one today and sell out with a 30% profit tomorrow. But The PPT Exodus hybrid chart is at the very top end of the range, a prelude of some selling to come.

One day this sector is going to blow up and kill a bunch of people. Don’t think it can’t happen to you–because it can and it will.

With some of the NRDM proceeds, I added to BABA and MUSA.

I had bought BABA much higher than present values. There isn’t much to like or “enjoy” about China. I am not particularly fond of its stupid history, government or its food. I do, however, like the company of American chinese people and favor American chinese food over the vegetable laden crap that some of you mentally ill liberals deem as “authentic chinese food” or “real.”

In other words, I do not like China. I feel it is a country wrought with systemic corruption, a cesspool of liars and thieves trying to outdo one another in order to attain absurd wealth. Nonetheless, there is one company that I feel will curry the favor of our investors over a period of time. This period of time might be 1 week or 1 year. But, eventually, Americans will buy the shit out of BABA.

Why?

Because it is the pure play on Chinese consumerism. It is the sole way to play the transformation from man in a coolie hat to man being driven about town in his brand new Buick. Yes, for some odd reason, the Chinese love a good Buick.

With immense scale, free cash flow, government clout, and a CEO with a head shaped like a football, there isn’t a way BABA doesn’t work higher, eventually.

As such, I added to my position here today, reducing my basis to $91. I will buy more on dips.

NOTE: To finance this trade, I booked profits on SKX.

Last night another OPEC official stated they could not and would not reduce production, in order to maintain market share. Clearly, these people, with over a trillion in cash reserves, mean business. Furthermore, he stated they’d be glad to discuss coordinated production cuts with non-OPEC members. In other words, they are going to bankrupt the Bakken Shale, no matter the cost.

This morning, T. Boone Pickens said oil would trade back to $90 within 12-18 months. Do not laugh at this man, for he’s accomplished more than most of us combined. There is something happening in the space now, something that is far and beyond what lies in your juvenile charts. Steer clear of the sector and avoid it altogether. There comes a point in a man’s life when he evolves and no longer commits mistakes of his former youth. I believe last year was a turning point in my career, one that blazoned a new path for Le Fly, one that elevated my investment acumen to levels you could only dream of attaining.

Remember, it’s important to respect your adversaries, just before killing them.

While it’s true, I am beating the S&P 500 this year like a wet dog in China, by 15%. It’s also true that I have ground to make up for last year’s chicanery. But listen to me now, ever so quietly: my methods have changed and so will my performance.

Early this morning, bloody murder is taking place in the crude pits. I like anti-crude plays and will update you on a need-to-know basis.