E Market Briefing For Jan. 6, 2020

Fewer salesmen hired than thought at this point (no shortage of applicants) and maybe a desire to minimize layoffs if they anticipate a deal is forthcoming sooner rather than later, is also hinting at some discussion at least with suitors. Impossible to know; which is why I've said it's just a question of how high, not whether AMRN goes higher. As to the legally (gold-digging?) generics (and that's not an unfair term as this isn't an overpriced drug like so many that ramped prices for sheer greed); generics are likely not an issue; but that of course for the Reno Court to decide (or the parties). Its enough 'possibly' to hold suitors off temporarily (Reno Hearing is Jan. 13). Competition; sure but even if Acasti gets a favorable 'Clinical Trial' outcome (pending this month too and I think prompted at least a question or two that I got); if they have to show an 'outcomes' trial, that's another period of possibly years (at least months) before 'time to market'. Vascepa finally got it's broad label approval after the multiyear 8000 patient REDUCE-It Trial, and FDA postponed it from earlier in the year until recently; keeping it off the 'initial 'formulary' for at least a few healthcare plans; such as the (oft-criticied Kaiser group in California). Open-enrollment is behind now; so some think that holds back subscriptions. We suspect growth regardless; and actually believe there will be pressure on Kaiser or other holdouts to get with this. 

Amarin / Vascepa has 'at least' first-mover advantage; for now 'only-mover' advantage. Now we're 'in' at lower prices (mid-teens); hence there's some cushion. It trades pretty wide every day. While of course that reflects a changing of hands as ownership transfers from on-news high buyers, or of course very low-cost early buyers who now have a new tax year (taxes due in 2021) .. to 'new' holders and institutions; hence the average cost-basis increases, and that's a plus for those who don't want to make the (likely) mistake of selling a blockbuster stock far too soon. I understand the sell-half and hope-you're-wrong mentality; I've done it frequently; sometimes early (that was on Amgen where it tripled I took my gain and then it tripled again years ago)...in fact it's that drug co. that caused me to come-up with a sell part and let profits ride approach. For Amarin; sure I think there's some of that; but out of the way within days. Then, if the generic challenge is disposed of (if); we can envision a steadier move higher. VASCEPA does work; so if Dublin plays it right (and not 'too' clever); investors will discover it's likely a buy even here; not a sell.

Friday's market might encounter some resistance resulting from the overnight buildup in Middle East tensions. (Editor: this entire section was prepared either before and then a bit more as news began arriving.)  

Meanwhile, units of the 82nd Airborne are moving to Kuwait (huge base there would takeover in-event Bahrain was for any reason unavailable or hit in an Iranian attack). So I totally understand a desire to stop the Shia efforts to control Iraq. The actual 'protestors' were protesting not us but the Iraq government's chumminess with Iran, and that's not reported in a thorough way by most mainstream media; as they were assaulted, in many instances, by the Shia militia while Baghdad's regime ignored it because they are 'too close' to Tehran, which they once fought for the 7 years most Iraqis remember well.  

An 'absence of fear' - is being cited by many market observers, and in a surprising sense, by too many technicians and analysts, as they look at the late 2019 behavior; and measure it 'as if' it were only the S&P.  

That's not to say there aren't stretched fundamentals; in the leadership area that's for sure. This has been a year of 'multiple expansion' more than growth of profits for even the momentum winners; not just most of the also-rans or laggards. It's hard to imagine a new year without more actual profitability; but few seem to imagine how diverse all this is.

If the downtrodden really catch up; if the China deal is more substantive than the naysayers suggest; if the Fed maintains a sort of neutrality; if there is no geopolitical hostile engagement; if the 10-year stays shy of 2.0%; well you see what I mean. There's an argument for onward and upward; but common sense suggests we be prepared for setbacks.  

Nevertheless the setbacks may be in the form of corrections and again shakeouts (we identified a couple in 2019 and are looking for another in the very near-term; but it can be shuffled around by the timing of China signing; which now looks to be January 15th or so). Hence it depends. If the conflict in Iraq expands (I chat about that in the 2nd video a bit as it matters since the actual 'protestors' were suppressed by Iraq security and the Hezbollah Shia radicals were allowed to assault our Embassy); if Oil prices shoot up; if North Korea gets antsy; again variables. If none of that intervenes; well, the beat goes on in an Election Year.  

I'll touch on all of that and more in a future report as things evolve. For now experience in the market suggests an open-mind and not labeling this as an 'automatic' run-into a brick wall of resistance, even though it is entirely possible that the FANG-type S&P leaders are doing that. It's just that pending China's signing (hints of market jitters appeared as the S&P didn't rally so hence Thursday's clue it was market exhaustion); at the same time end of the year 'balancing crosscurrents' defy analysis as to how those alone impact January's behavior.  

In-sum: most overworked asset classes have unattractive returns, or at least less attractive percentage prospects given what has occurred over the year just past. However that means greater selectivity and care; at the same time with an eye on credit markets, because most managed portfolios (or algorithms) won't be thinking in common sense; but base moves off trends in-force (or levels broken) or simply the 10-year as a for-instance. Meanwhile tension with Iraq/Iran can actually help sustain Oil prices; and that for now is more of a positive than negative (for Oil), at the same time we're more optimistic about WTI in 2020 anyway.  

This was a grand year for the S&P; a year of ignoring politics (not that they're unimportant; but so far were expected to be mostly noise..which won't be the case later in 2020); but not the Fed. And you just might be at an inflection point (not now but in a few months) where the growing economy meets revised ECB and ultimately Fed policies, and stocks do start to sniff-that-out; which is a good news on the economy might be a lesser stimulus for stocks; given that the market anticipated recovery in the now-over transition year, as I've often discussed. That however isn't to say some sectors can't advance while others cool their heels a bit.  

I'm well aware that some stalwart market veterans either retired; got ill (sadly) or burned their hedge funds so bad by excessive bearishness.. resulting in a perception that 'veterans' can't be right and that somehow this is an infantile stock market for dreamy-eyed millennials only. Hah!

It is no such thing. It required a recognition of credit markets and a Fed ready to inject liquidity as needed; of a 'different' sort of investing style; of the downside (consistency while it works) that the algorithmic-driven management brings (even as I disdain the approach; I appreciate what it does to the markets for better and for worse).

And common sense that if analysts tell us (as they have for over a year) that 'high wealth individuals' are all selling and out of the market; that's encouraging, not discouraging, as I noted. If truly big money was out of the market; they can complain and moan all they want; but they already sold. The next thing they'll do I said a year ago is buy; the only question is when. So they waited until this Fall to 'chase' S&P, in some cases for peer matching; and in some cases desperate. It makes some sectors very expensive; while others are looking attractive (Industrials, Oil, even banks a bit, and some biotech). That is a reason I have in-mind for now; a rotation as we've discussed and nuances of which are evolving.  

Bottom-line: will it be as simple as a 'continuation pattern' in 2020. No, I really doubt that. Aside the signing with China (sell the news possibly; depends on how substantive the deal is) the S&P is pressing too high.  

Late tonight we learned that North Korea declared that Pyongyang is abandoning its moratoriums on nuclear and intercontinental ballistic missile tests, state media reported. Secretary Pompeo on CBS tonight says 'we hope' Chairman Kim would stick to his pledge; as we did with regard to heavy training with the South Koreans.  

And of course the ramping on tensions with Iraq, which by virtue of just standing aside let the rabble Hezbollah march on our Embassy. I took time to watch videos they took threatening to kill any employee of the Embassy they find. In this case President Trump is correct that these are pro-Iranian; what is omitted is that the militias that fought Isis with us were pro-Iran all along; and that many of the former police and army were Sunni, and had gone over to the ISIS side during the early fights. I talked a bit about this in the intraday videos. It's tough; but government in Baghdad has never really been 'our friend', and although reinforcing the Green Zone is exactly what must be done for the moment; Trump likely 'gets it' in this case that the sectarian split there isn't easily fixed. (We flew 100 US Marines there from Kuwait earlier; more on the way.)

On this New Year's we'll pray for the safety of our troops and diplomats, as there will not be another Benghazi debacle (shame on one group for already saying that), as we'll address the market a bit more below.  

(Macro) action - continues to view adjustments in this market as fairly reasonable; healthy; and as we retain cautious optimism going into the New Year; while ideally desiring an adjustment higher for small-caps as well as some of the steam concurrently coming-off overworked FANGs or similar stocks.  



Yes when things look positive and risk appears low; be careful. But just as noted at clearly spiky periods 'last year', we astutely avoided selling short or seriously playing the downside, even when we properly looked for shakeouts and corrections.  

That's because we looked for all of that to be part-and-parcel of overall 'new' uptrend behavior in the S&P, that we viewed coming-off a 'cycle low' at Christmas 2018. For most other stocks it was seen as a year of 'transition', and now we've evolving past that with technology and sure, the political aspects later next year (depends who the Democrats run in a sense). One thing we've said thru 2019 was not that it's unimportant, but that it was 'noise' from a market standpoint, meriting being ignored with regard to the S&P's pattern. That was an appropriate stance.  

(For new members: we viewed late 2016 as a time to get 'in' the market if Trump won, with a 'to the Moon rally' and then proclaimed it spiked as well as ended in late January 2018, which it did 2 days after indicted. I then looked for a rotational 'rinse and repeat' (called a Maytag Market) for the year; which 'was' a sort of bear market for a majority of stocks.  

I called for a collapse in the Fall of 2018 as soon as I returned from the tech show in Berlin. . . where I determined AMD would be supreme for the ensuing year if it dropped to 16-17, which it did... and I called for a market 'crash' that Fall. Got it and then proclaiming a capitulation and a washout literally on Christmas Eve 2018. Later determining that was a 'cycle low' and not 'just' a pullback in the prior uptrend, was key to our stance for the past year. That means 2020 is a continuation potentially, as opposed to stretching an old decade-long uptrend. It's important that one grasp the implications of 2020 being a phase within a new structure rather than simply stretching an old one. That are concerns though.) 

Now, as we go into 2020, the domestic political (later) and geopolitical global (possibly sooner) issues become potentially more disruptive for markets. Although ironically, if the current tension with Iran turns-into a serious fight, then Oil prices might pop well above this 60/bbl area that we looked for when others were so negative on Oil (and we demurred).

Credit markets remain the key of course aside exogenous events; and a growth in earnings that isn't here yet; but is necessary to offset what's happened in 2019; which is 'anticipation' of a further multiple expansion that I consider unrealistic for the S&P, unless some of the heavy lifting is transferred to the broad list, thus not asking the overdone momentum leading crowd everyone knows to carry the weight of progression. 2020 won't likely be a full Goldilocks year; even if some that were negative a year ago seemingly envision that occurring through the year ahead.

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