Welcome to H2 2020. Think about how hard it is to be a stock-picker in the present situation. It is tough not only for newsletter writers, but also for analysts at brokerages, portfolio advisors, fund managers, and gurus. It is harder still for those marketing and advertising their services, who have to lure in new clients with no certainty that performance will be good.

Today I am reminded of a top economics professor at MIT I heard a lecture from a few years ago at a session at The Bronx High School of Science, which we both attended, but not at the same time. Andrew Lo, Science '77, spoke about the risks in biopharma stocks, using a proxy for the sector which he called the Biopharma Megafund owning all startups. The idea was that it would also own all the drug finds which would eventually be divested and acquired, or part of licensing and royalty deals with the majors. These Lo called clinical stage pharmaceutical companies. But owning the whole startup sector made the Biopharma Megafund subject to adverse selection, meaning that the worst research was dominant in the stocks owned.

He stated that the US Food & Drug Administration attempt to get drugs developed is essentially “failure driven.”

To resolve this, Prof. Lo suggested that the way to invest better would be for the Megafund to own not the shares of the startups, but bonds used to fund them. The bonds could be funded by private capital or government. I am still waiting for someone to create this. With bonds barely paying for most investors this is an appealing way to boost returns.

Prof. Lo, born in Hong Kong, came to the US as a child from a highly talented family. He is no relation to my late friend Sylvia Lo. But I am thinking of both of them as we confront the new reality in Hong Kong. On Thursday the first Hong Konger flying a freedom flag on “handover day” was arrested under the new Chinese security law for the officially separately governed former Crown Colony.

The time has come to admit to the USA any Hong Konger who wants to leave and doesn't have the right to go to the US. And we should also consider using US funds to help small caps working to discover a vaccine against coronavirus, instead of labeling it with a racist trope, Kung Flu, as does President Trump. Leaving the selection to big pharma risks very high prices for new drugs.

The latest hot hope for a virus pill from BioNTech, whose ADRs trade as BNTX, confirmed by Pfizer which is buying the technology, is my main reason for supporting Prof. Lo's study. PFE rose 4.8% and BNTX 9.4%.

I am shocked by the staggering price levels planned for its Covid-19 drug hope remdesivir by Gilead. As the company itself cannot predict future demand, the analysts are all over the map, with Silicon Valley Bank Leerink forecasting sales of $1.5 billion this year and over $8 billion in 2021-24. Meanwhile Raymond James says sales will peak at $900 million next year and then crash because of vaccines and treatments we don't know about yet. Today while stocks gained, healthcare bellwether HCA's “junk bond of 2047” climbed 2% to 125¢ on the dollar. When a bond goes up its yield falls, remember.

As if Germany didn't have enough problems what with fake accounts at Wirecard, today the DAX went down with a technical collapse.

More for paid subscribers follows starting with a new buy.

Food

I am buying back Alimentation Couche-Tard of Canada, ANCUF, because its drive-in highway shops are likely to continue to keep the drivers going, while seating eateries will not only waste time but risk contamination. Its main business is in the US, but it also is all over Europe, Latin America, and the Far East. Way to go. It just reported Q4 profits doubled despite lower sales levels. It operates here under the Circle K label and in Europe as Ingo and is Couche-Tard in Quebec and French-speaking countries. I hope to pay under $31.32. It trades in US dollars also in Canada. It duly rose after my article appeared but fell back on Thursday and, I expect, in Toronto Friday when Wall Street was closed. 

I particularly appreciate Alimentation Couche-Tard fresh bread which is part of its francophone tradition, an a rare beast on American highways.