This special issue: covers WuFlu; Amarin results, and a 'back-channel theory' about WHO, and investor worries about Pandemic bonds .

 

Pandemic pandemonium- pummeled the Senior Averages persistently on Tuesday, as investors increasingly came to grasp much of what we've been talking about, not for days, but for more than a month. (Thanks to a few members that appreciated we were out on a limb a bit speculating a bit about what was 'really going on', and unfortunately we were spot-on to a degree I wish we were not.)  

In any case, once we knew yesterday that a 'Classified Briefing' would be taking place today, you knew there was something they knew that we're not supposed to have known. Now we know at least part of that as HHS in an afternoon press-briefing acknowledged the CDC's hours-early alert regarding preparations for WuFlu to come here. It's almost a shame that they trotted-out Larry Kudlow to argue it's contained and so on; and that's not the correct, nor is it the best political (hand-holding) approach for the President. At the same time HHS says the President told them to prepare so of course the proper things are being done, even if glossed over.  

And that takes us to the President; who might worry that 'candor' from Sanders versus smooth-talk hand holding from Kudlow and Trump, might also be counterproductive (again even though Trump is taking the right moves to protect the Country and was furious when the cruise ship sick passengers were flown back with the relatively healthy). Sanders has no case here (just the opposite if we got mediocre healthcare systems with a single-payer even though many if not most people want that); but will try to make one in tonight's debate (probably).  

Technicals don't matter so much here; other than algo-trigger points, as it's pretty obvious that all fundamental assumptions are out the window. I know people say this is temporary; just briefly lost growth and so on; but it is the shock value and the ability to come back is there; but when that's the manifest front-and-center issue isn't clear yet. I'd 'guess' (and that's a guess only) that 'peak fear' will be seen probably within a few weeks. 

In-sum: emotional anxiety is only part of this. As people recoil from social interaction (whether the flu, actual, or imaginary, or feared) you get lower consumer activity and traveling, and that's already a factor we discussed for over a month. All that changes with even more 'domestic cocooning'; a prospect with the CDC's alert today; and the 'State of Emergency' that has been declared by the City of San Francisco today.

(2nd video focuses on 'why' WHO failed to proactively warn adequately)

Tuesday (final) MarketCast

Pre-close (intraday) MarketCast

Daily action - continues the 'WuFlu Crash of 2020'. Technical levels are worth noting; but they won't control or contain the overall market slide for a long period of time. An actual containment would, while where this now heads (mitigation) means a longer slug-fest to get a handle on disease.

Now a word about Amarin (AMRN) who reported Q4 earnings; which in my view were fine, considering the wider-label approval came after most of the Quarter was over. They noted that most of the 800-strong team for sales has been hired; which suggests an effort to go-it-alone rather than hold-off pending a buy-out. That probably restrains those looking for fast action; but doesn't matter to investors who are interested in more mature results from the unprecedented clinical results from Amarin's Vascepa.

That wider label uses straight-forward language that doctors like; but also I think that enhances the prospects for easily-understood marketing, plus TV commercials, that so far are unclear to viewers if they don't know that they are viewing a Vascepa ad. (Unbranded promotion is all they can do pending FDA review of prescription drug promotion. In a couple months I expect to see flat-out ads for lowering cardiovascular risk with Vascepa. It will increase awareness among all sorts of healthcare folks unfamiliar for now with Vascepa, and not in fields where pharma reps would call on.)  

Most clinicians rank the REDUCE-IT study up there with an original statin study that launched the largest selling class of medications ever. With the optimism expressed by the CEO today regarding prevailing in litigation as pending with generics, this should (presuming they do prevail) help set it even further on track to achieve serious cardiovascular benefit.

I was really encouraged by the progress Amarin enunciated for insurance coverage; which I already suggested was their January-February course of action; and was. That 80-90% of insurers now cover it (often as what's called Tier 2 Preferred, which is just above generic) will assist patients in obtaining Vascepa for reasonable co-pays and not needing other funding or coupons (such as even Amarin's website offers for those who need).

Recently we've mentioned that Epinova, the AstraZenaca (AZN) trial intending to compete, became a terminated study. AZ won't be pursuing CDV risk reduction for that medicine based on the study. Vascepa is the only drug that has been proven to reduce major adverse cardiovascular events and is the first to do so since statins, and though advised to combine, has low to no side effects like the myalgia often experience with high statin use.  

There are other tests ongoing which should help heighten research of the use of Vascepa combined with others (such as Gilead Sciences GILD drug for fatty liver); and the EVAPORATE study which should indicate whether it's also effective at reducing plaque in the arteries directly and in the brain. If it is effective on amyloid plaque (we don't know yet) that would be truly an amazing development; because it could delay early-Alzheimer's if so.  

Internationally, Amarin is advancing Vascepa. Health-Canada approved; and it's pending in the EU. Even China is progressing; even if that's not a core focus in China (the partner there doesn't see delay in trial due to the WuFlu epidemic; which I found interesting that JT the CEO noted today).  

Importantly, Amarin expects more than 10 years patent protection both in Canada and Europe; since they filed 'without' a lipid lowering approach in those cases; but simply broad 'cardiovascular risk reduction'. (Good idea I think.) The need for preventative care is very large really globally; and in the wake of recovering from the WuFlu Pandemic; everyone will focus on normal healthcare like preventing or delaying risk of stroke or heart attack of course. Yes, Vascepa lowers inflammation; but isn't targeted at flu.

Also Amarin believe it is in a very good cash position; adequate to meet positive cash flow and marketing; and guidance was conservative. They expect gross margins to approach 80%, which is higher than I thought. If so they can handle the increased operating costs they've outlined which includes direct-to-consumer advertising. Earnings for the last Quarter in my view were slightly better than the consensus expectation. They might revert to net losses while ramping sales revenue; but that prospect was in guidance previously made by JP (CEO) at the JP Morgan conference. As for now; they conservatively estimate 600-700 million in 2020 sales.  

I do have a 'take' on that; as I think they're wise; but will do better than is projected; hence they're conservative. Why; with the Press Release there was reference to inventory increases (presumably of EPA fish oil etc). So they plan purchases approximating $250 million for 2020, roughly twice amounts spent for inventory purchases in 2019. Extrapolated, that would be closer to support sales of over $1 Billion. So that would be well over last year's cushion of about 30% based on sales of $430 Million. Hence it might be that real expected sales are about $850 million for 2020, which is almost double year-over-year and above their estimates. That's fine of course and makes it less of a challenge to beat Quarterly estimates.    

Finally, while Amarin did not comment much on the trial; remember they are the plaintiffs; so ideally should prevail as I've discussed because of a compromise on research and Patent Law if the Court didn't concur. They have made lots of progress and in some ways are just getting started as the FDA wider label is obtained; competition is even more sidelined, and the litigation is almost history. What remains now is simply progress after the Court proceedings (expected in March) and 'if' there's any partnering with another pharmaceutical company, we might hear about it then.  

Finally, I'm pleased that JT expressed some passion as well as optimism; while of course there's no clarification about any future partnerships. In a sense JT was conservative about the 1st Quarter (patients have co-pays and deductibles to contend with); but new patients largely offset this, and the enlarged sales-force is just kicking-in (is how I interpreted that).  

Now there's a reference to a 'late-breaker' to be announced at ACA (the American Cardiologists Association); there is no clarification as required to be confidential until revealed at ACA. No idea what that might be, but I suspect it's a further plus. Clearly AMRN has required patience, but most of the key pieces are together; more indications might be forthcoming; at the same time potential competitive products have largely withdrawn. So for now at least the ramp should be higher and steadily so, with erratic behavior in the stock one day becoming a memory of the earlier days.  

At the same time if truly 'going it alone' (for now) it's a longer game-plan for investors; but I didn't get a chance to ask a question on the Call about their 'vision' or conceptual plans (they'd likely not respond to it either); so we don't know. Even if they 'desire' a buyout, they'd not likely show their hand in such an overt way. We'll update again after the ACA (which might delve into the NASH Trial realm; but we'll see).  

Wednesday... after too-much-to-cover tonight ... might try again to turn to the upside; but like this morning: unlikely to be sustainable. A widespread virus sort of leaves open-ended possibilities... and a bit of psychopathic behavior from a small percentage of people as this spreads.  

The influx of people from multiple countries is the risk; closing schools but not for the longest Spring Break in history; and telecommuting... all that is interesting (and possibly essential); and I would hope the virus is so well under control as the President sees it. I'm thinking he means well by his hand-holding, because he had to sign-off on the emergency measures; so it is only politics to say he under-appreciates it.  

The global impact is as I unfortunately suggested it could be many weeks ago; the biggest event of this Century so far; and the Chinese missed the opportunity to control it by thinking intimidation or propaganda somehow cover it all up. There is delusional thinking; such as the Tokyo Olympic Committee saying they won't cancel; as they can take countermeasures. What countermeasures? The only countermeasure might be the return of warm weather which may suppress the virus at least seasonally. (So then we have cases of WuFlu in the 'warmer' Middle East and Canary Islands; so do we know this will dissipate with the onset of Spring? Hopefully..). 

Prior highlights follow:   

Wall Street 'propaganda'- suggesting for weeks the epidemic wasn't any more than a blip has proven wrong. Some analysts came out last week in a belatedly recognition things were changing; days after we forewarned it was not a situation where central banks could stem the tide overall. Late today a Chinese Aviation Minister made comments about 'starting up' the Chinese Airline flights, since the virus was 'under control'. I didn't believe them at the start of the virus; and I don't now. I'd like to; but really this is a move likely capable of backfiring if they actually do it prematurely. Aside a diversion (which may help rally the market on such early hopes) the bank situation matters; because of so many firms there at risk of failure.  

Clearly the Fed and PBOC or others have roles; but monetary policy here or in China, really takes a backseat to a lack of modern 'bankruptcy laws' in China and Hong Kong, as generally fail providing for reorganization when businesses spiral downward in out-of-control situations. Chapter 11 style arrangements would help. 

So keep in mind that China contributed half of the world's growth recently and that means the USA is not entirely an island devoid of concern (that's an economic concern, as discerned separate from medical concerns with regard to the actual spread of the virus). As I have said for weeks, if U.S. cases expand severely; what you saw so far will be minor by comparison.

And lower rates (nonsense about the Fed cutting to zero like Europe did, to no avail) won't help. I mentioned of course the Fed has to stay friendly; but it can't kill the virus. Ask the CDC, NIH and Gillead Sciences on that. The supply-chain issue will not be solved by easier monetary policy. And Gillead is not yet able to report success with it's drug efforts on the virus; and that is so sad. 

At some point if this worsens (especially in Europe) rates can dive due to more foreign funds coming in; but concurrently you could get free-fall in a slew of stocks and ETF's, which are a danger I've previous noted related to the dangerous concentration of money into often-dissimilar stocks. At first though, with markets cratering on Monday, we oddly may rebound.

What we have here is what I've forewarned of. So the efforts of weeks to try being informative about the pathogens both medically and politically if you will; aren't necessary to expand on-now. So let's highlight tidbits:

• You know there's 'something wrong' when we now learn that the US Senate is going to be provided with 'classified briefings' on WuFlu as of tomorrow;

• A spike in WuFlu especially in Italy and South Korea too, is freaking the world; as the globe quietly shifts (as I have also forewarned) from containment to trying to mitigate the impact of the corona-virus;

• A 'travel warning' has JUST been issued to South Korea;

• South Korea early Tuesday is considering lock-down like China;

• Spain reports first case of WuFlu;

• Now we know about the 7000 'unreported' self-isolated people; they are all in California and had flown back from any of the hotspots; no data on their condition or percentage of infections is available;

• And Chinese airlines talk about resuming service (ridiculous);

• When (not if I fear) the under-reported cases are grasped; and as this gets into Africa or more countries with low capacity to address or help their populations.. well it won't just be markets that are 'at-risk;

• The President is in India today (incredible to have a rally there; so I'll tend to think it's more than his well-known ego involved; but possibly unannounced travel to Afghanistan, and might be associated with the ceasefire and/or agreement; but just wild speculation about that.. but it should be something more given the taxpayer dollar for all this);

• The WuFlu mortality rate may seem encouraging on the surface; but it is a lot of people, therefore such data is not so comforting;

• Furthermore the fear of that fatality denominator (of a couple percent) rising, alone, is causing cocooning in the United States and Europe in my view for a couple weeks already; not just South Korea of course;

• Luxury goods purveyors from China and South Korea (and elsewhere of course) are or were in Milan for Fashion Week. Now they return to their home countries, and some may be exposed to WuFlu. Austria as an example closed their rails to Italy to try to protect their Country. Of course I expect more of that;

• Problem is; the failure to designate this as a 'pandemic' slows speed of response and increases prospects of spread (even to New York);

• Today I obtained a copy of the Northern Command US Navy alert to all stations. This includes CENCOM; Africa Command, Pacific Fleet and so on. It's about 'Force Protection' for Naval personnel with very detailed guidelines (it's unclassified so media could report it);

• This guidance specifically about COVID-19 (WuFlu) is authored by the Undersecretary of Defense, and signed by Vice Admiral Sawyer, Deputy Chief of Naval Operations, and refers to it as.. a pandemic;

• Hence my view is supported by the Pentagon not pulling punches, as they must protect our Forces and secure our Bases; and not wait for a politically-driven statement from WHO or CDC.

'Free Everything'  

'The Bern' was a part of this market's defensiveness too; although it is hard to discern how much; since most of the big market drop is related to the pandemic. (I know neither WHO or CDC haven't declared it that ..yet.. stay tuned they will.) Stocks will decline more on that, even if we get an intervening bounce. And I do expect a bounce. 

In the course of 5 minutes late today, the trend of 'pulling guidance' that started with United Airlines, moved to MasterCard. Many more coming as they ratchet-down revenue and earnings guidance for the year or just flat-out say the truth: it's impossible to divine right now. And remember it is an S&P that was priced for perfection.  

As to Bernie... well.... a couple thoughts. Other than saying what he'd do on day one (besides wonderful relations with Cuba I suppose); he is truly a complete anomaly for our system. What Bernie poses, regardless of the Congress at this point, is nevertheless beyond prediction; so not pleasing to Wall Street (his ideas of a financial transaction tax aren't the big deal).  

We have no idea what he'd be going to able to get done first. If it's banks, so their weakness probably tells you people would be pulling out. There sort of is no scenario to 'model' from. That frustrates the algo crowd too.  

I have young friends that favor Bernie, and think they'll be fine with their IRA's and so on; so welcome the healthcare and student loan pictures. It is not so simple and they are overly impressed by grandiosity. I point out to them that if (your) income stream collapses and home lenders want to be paid, you'll not see mortgage loans forgiven like student loans might be; and that's rather problematic.  

With yet-higher debt a crash in housing and disposable incomes could

make the financial debacle of 12 years ago look like a picnic. I hated the debt picture already thanks to all administrations since Clinton (who had a nice recovery so could balance the Budget at least). Raising Debt from here with baby boomers retiring soon, and needing to draw-down IRA's (mandatory minimum annual withdrawals too) is courting disaster. 

Moderate Caution is our 'glue' 

You need not be a fan of Trump or Bernie, to realize why adult common sense is not a boring moderate stance. 'The Center' is the glue that holds the Country together. If Bernie would stop brainwashing his followers and embrace free markets, with tax loopholes fixed, and additionally push his other programs for health (etc) fine; but discard the socialist nonsense if he wants the Nation to thrive, not merely at best, survive. Of course if he keeps up this pseudo-Marxist stuff; he won't be in the center of the ring.   

In-sum: we need stability right now. When there's a crisis you don't just blow up the system. You create stability and then implement changes in an evenly-based strategy; not grandiose generalisms. Bernie lured folks with magical promises like just disappearing college debt, and youngsters really want that. Marx and Lenin lured people too; but the Czar was even more of a plutocrat than Trump. And Trump had similar goals as Bernie.

Yes, both Trump and Sanders are 'populists'; one in-favor of individual vs the other favoring big Government making the social decisions. But both 'claim' to be for the working man. They are more alike than either side will admit; and while the drama makes for divisiveness; the reality is 'centrism is the new normal', even if unexciting. Too many are impressed by 'grand schemes' and not how to pay for them; or how they erode our liberties. 

Bottom-line: some new ideas and millennial thinking are welcome; it is their generation that inherits all this after all. Sudden implementation of a radical idea (even if it has merit) invites a whirlwind, not a solution.

Also; if the US actually was turning away from free markets, bonds could crash because interest rates would have to rise to attract funds to a new Nanny State and that alone crashes stocks, despite any 'friendly Fed'.

So if you get both stocks and bonds down that could equal recession or worse. And that's even if there wasn't a supply-chain-driven pandemic co-morbidity (a tough word but makes the point) to deal with.

Should be get all three; pandemic and a stock and bond break; well that's how you get a Depression; perhaps with a decade of suffering without so much as money to get by, much less funds to even achieve most plans.  

Of course that won't happen if the Nation hasn't lost its collective mind.... politically. However COVID-19 makes all of that somewhat moot for now. Sanders (if he wants to broaden appeal) should just preach for a Nanny State, as he's really wrong about Western Europe.. they're free market capitalist countries will nanny state social programs.  

If he's a big socialist he's not 'just' trying to emulate Western Europe. By the way Communist China is a somewhat free (more 'command' market) nation that is authoritarian with mediocre health plans but good schools at the University level; no free speech (though it's in their Constitution).  

But after the Epidemic, that may change as Chinese people admire the US system .. not excess corporatism (a real problem here); as they, like the main base of President Trump (and we suspect most Democrats too), desire upward social mobility with freedom. Perhaps Trump should focus on what they have in common; and perhaps Sanders should not make a flattering comment about Cuba on CBS '60 Minutes' weeks before Florida has a primary (unless he wants to come in a distant 3rd or so). 

Again; in this viral-political hybrid topic tonight; a key point: both really are populists. Neither (Trump used to) pointed at the cause: tearing apart our Industrial base for 40 years. Too much personality blame; a ridiculous debate between these candidates (including Democrats) that's trying to pin blame on some contemporary politician after more than 4 decades of stupidly deconstructing American industry. Trump is fighting to recover at least part of that; Sanders should do the same rather than socialize it to an excessive extent; and the COVID-19 WuFlu may actually become a factor in pushing supply-chains (especially medications) back to the USA more than all the rhetoric from the politicians.  

Fortunately Trump made a good deal with our neighbors and with China; and now the sad situation (whether an engineered bioweapon or not) will play out; and you already know that reliance on China will continue as it has for 2 years, to unwind, as we become self-reliant to a greater degree. And that's a necessary thing for America (and for Europe) which WuFlu in a tragic way hits home strongly. (More follows.)

Phenomenal cash flows - into stocks contribute to what has become not just an affirmation of our 'don't fight the Fed' and 'don't fight the tape' call for the market to generally maintain traction during this year's early phase of course; but also created a 'Pavlovian' buy-the-dips mentality that still persists..and will resume after certain shakeouts with timing dependent to a degree not on trotting-out Larry Kudlow to tell us the virus is just a blip (he's wrong, though wish he was right); but actual events.  

Complacency among investors is something we warning about; but when you get it from officials, it tends to obscure changes (like supply-chains) which might just prove to not be reversible. Neither Kudlow nor China for now know the extent of the supply-chain shifts, much less the virus itself. But we do now that most manufacturers were already shifting sources as well as increasing that trend when the WuFlu virus struck.  

Stock markets of course are discounting mechanisms; but insufficiently at this point discount impacts; with even the travel industry not hit as hard as conceivable, if this becomes a full-blown pandemic (fingers crossed that may be avoided), so we wouldn't make travel plans or place market bets on it yet. People in China are living on their savings already; focuses shift from luxury goods spending to basic essentials and healthcare, and that is something little seen in the USA as of now; but conceivable. 

So is the market at a 'tipping-point'? On a short-term basis, headlines are the risk, as well as 'actual' spread of the diseases. But aside that we should see vulnerability for the S&P because cash shouldn't be allocated now if one hasn't already participated (with exception of special situations because I'm referring more broadly to the tech-FANG-driven S&P or NDX of course); although several should do just fine in the much longer-run 'if' China gets a handle on the virus; which for now is in a 'mitigation' stage.  

Oddly some healthcare and even Energy as well as domestic telco's also provide a combination of safe-haven status; as well as their relative lack of participation in the frenzies that preceded the over-3300 extension of the S&P. If the rest of the world doesn't have to emulate China and now it seems South Korea by going to 'mitigation' stages; that would really help things a lot. Mitigation, which I discussed last night, means containment essentially failed, and they are trying to mitigate the toll of casualties.  

Defeating the Flu Bomb

Earlier this month, we shared researchers publishing of WuFlu's genome, which included the strands of HIV. That's why it mostly vanished in media at the same time note that at least 3 HIV antiviral drugs (one from Gilead Sciences I noted before) are now being used in Clinical Trials in China.

Using that genome, the University of Texas, Austin team, in collaboration with the National Institutes of Health (NIH), identified specific genes that code for a spike protein you see in the graphic. They injected the genes into mammalian cells in a lab dish; producing the spike proteins.

Next, using a detailed (cryogenic electron microscopy) technique a 3D map was created. The blueprint revealed the molecule's structure, and that's impressive speed. A professor of epidemiology at the University of Michigan (not part of a study) says it's a very important step forward and may help in the development of a vaccine.  

The Texas team is sending the atomic 'coordinates' to research groups around the world, which was my point about 'not' suppressing details of the vulnerabilities in the original genomic structure that got suppressed a bit. It was necessary to understand the way antibodies bind, thus giving a better chance of creating weakened antigens; hence making a vaccine. 

So, what I learned today is that NIH colleagues will now inject these spike proteins into animals to see if they trigger antibody production. Still, worry prevails since getting a vaccine (barring miracle response of just using the protein as depicted and injecting it) is likely about 18 to 24 months off. It that's the case, there won't be one in time for next Winter's flu shot.  

 

Meanwhile. . despite warnings there are only 13 cases of WuFlu in the United States so far; when you 'cull-out' the cases related to evacuees. It is good news; considering how many were close to potential exposure (I am thinking for-instance of the Delta flight from Tokyo to Honolulu with 2 infected passengers it turned-out; and we're nearly at 14 days since). At the same time, what about 7000 passengers on 'voluntary isolation'? 

Of course fingers are crossed WuFlu doesn't expand here; but that won't be sufficient to change the financial implications for many companies and for that matter might even increase the reticence to travel abroad or take a cruise, simply because we feel 'sort of' safe. And by no means is CDC or yours truly suggesting we take anything for-granted here in the U.S.

Conclusion leaned clearly toward some sort of short-term correction (in late January / early February after initially higher S&P records). Of course the liquidity injections and alternating influences from 'epidemic' and now even political influences, are contributing to market swings.  

If anything I've been conservatively optimistic thru 2019 and reiterated old sayings: 'don't fight the tape', and 'don't fight the Fed'. The only revision is variable extents of one or more pullbacks; as clearly relates to the WuFlu progression; the Fed injections; or a bit more politically. 

We remain circumspect while market stresses were notably alleviated by making a 'Phase One' deal with China (it's not superficial); while of course near-term Middle East chaos, and now as the WuFlu epidemic  throws wrenches into behavior of the market and more uncertainties to contend with ahead (regardless of near-term money flows here); we're not enthused about sustainability of any rebound for now.