Regeneron – The End of the Bull?

Regeneron, REGN, makes a compelling example of allure of biotech stocks for investors. After breaking out higher in 2009 from a multi-year base, it’s stock went on to post gains of more than 5000% in 5+ years, peaking in August of 2015. Since that time, it has declined almost 50%, something difficult for buy-and-hold investors to experience, unless they got in real early and are still positive on their positions (which only makes it slightly less difficult).

Notice how in 2015 the stock eventually fell below its rising 200 day moving average, bounced off of (green) support and made one more attempt to move higher. That next move higher failed and made a lower high and has now broken below the black uptrend support and once again fallen below (a now falling) 200 day moving average.  Price sits at the bottom of support and a continued probe lower and hold below will likely be the trigger that REGN’s uptrend is done (as in put a fork in it) and to expect much lower future prices. Take note and memorize what has occurred as this is a classic long term topping pattern that most all investments mirror when their bull run eventually ends.     

What You Want vs. What You Need

“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” - John Maynard Keynes

 “Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” ― Sam Ewing

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We all understand the destructive effects of inflation has over time but what happens when inflation is as low as it has been over the past 20 years? What you say, inflation has not been low? Your personal experiences says otherwise? Our Government’s Bureau of Labor Statistics (BLS) begs to differ. Prices on average over the past 20 years has been 55.6% which works out to be an annualized rate of ~2.02%. One of the lowest 20 year periods …. Ever. So who’s right?

 The problem as we uncover when peeling back the onion, is how the BLS calculates its numbers. To avoid going down that rat hole into a hornets nest, it’s safe to say that inflation is the sum of the prices of things that are rising and the rest that are rising more. Unfortunately, as it works out, the things that you want are rising while the things you need are the things that are rising more. This has never been so apparent than in the most recent 20-year data presented in the chart below.

 One scrutinizing the chart may point out that food and beverage prices (a need) have been rising at an “average” rate. The devil is in the details here too. Looking under the hood you will see the things that are healthier (unprocessed and natural foods) are rising at a much faster rate than things like fast food. Oh and while I do have some millennial readers, no, cellphone service is NOT a thing you need.

It's Coming, Are You Ready?

Automation may wipe out 1/3 of America’s workforce

In a new study that is optimistic about automation yet stark in its appraisal of the challenge ahead, McKinsey says massive government intervention will be required to hold societies together against the ravages of labor disruption over the next 13 years. Up to 800 million people—including a third of the work force in the U.S. and Germany—will be made jobless by 2030, the study says.

The bottom line: The economy of most countries will eventually replace the lost jobs, the study says, but many of the unemployed will need considerable help to shift to new work, and salaries could continue to flatline. "It's a Marshall Plan size of task," Michael Chui, lead author of the McKinsey report.

In the eight-month study, the McKinsey Global Institute, the firm's think tank, found that almost half of those thrown out of work—375 million people, comprising 14% of the global work force—will have to find entirely new occupations, since their old one will either no longer exist or need far fewer workers. Chinese will have the highest such absolute numbers—100 million people changing occupations, or 12% of the country's 2030 work force.

The details:

• Up to 30% of the hours worked globally may be automated by 2030.
• The transition compares to the U.S. shift from a largely agricultural to an industrial-services economy in the early 1900s forward. But this time, it's not young people leaving farms, but mid-career workers who need new skills. "There are few precedents in which societies have successfully retrained such large numbers of people," the report says, and that is the key question: how do you retrain people in their 30s, 40s and 50s for entirely new professions?
• Just as they are now, wages may still not be sufficient for a middle-class standard of living. But "a healthy consumer class is essential for both economic growth and social stability," the report says. The U.S. should therefore consider income supplement programs, to establish a bottom-line standard of living.
• Whether the transition to a far more automated society goes smoothly rests almost entirely "on the choices we make," Chui said. For example, wages can be exacerbated or improved. Chui recommended "more investment in infrastructure, and that those workers be paid a middle wage."
• Do not attempt to slow the rollout of AI and robotization, the report urged, but instead accelerate it, because a slowdown "would curtail the contributions that these technologies make to business dynamism and economic growth."

October 2017 Charts on the Move Video

The markets look tired and even though we are continuously making fractional new highs, there is a clear lack of broad based participation. Instead we are seeing sector rotation. In spite of that, seasonality patterns still are a tailwind for risk assets through the balance of the year.

My latest Charts on the Move video can be viewed at the link below

https://youtu.be/w1_pn1SpM8Q

Investment Truths

1. If you need to spend your money in a relatively short period of time it doesn’t belong in the stock market.

2. If you want to earn higher returns you’re going to have to take more risk.

3. If you want more stability you’re going to have to accept lower returns.

4. Any investment strategy with high expected returns should come with the expectation of losses.

5. The stock market goes up and down.

6. If you want to hedge against stock market risk the easiest thing to do is hold more cash.

7. Risk can change shape or form but it never really goes away.

8. There’s no such thing as a perfect portfolio, asset allocation or investment strategy.

9. No investor is right all the time.

10. No investment strategy can outperform at all times.

11. Almost any investor can outperform for a short period of time.

12. Size is the enemy of outperformance.

13. Brilliance doesn’t always translate into better investment results.

14. “I don’t know” is almost always the correct answer when someone asks you what’s going to happen in the markets.

15. Watching your friends get rich makes it difficult to stick with a sound investment plan.

16. If you invest in index funds you cannot outperform the market.

17. If you invest in active funds there’s a high probability you will underperform index funds.

18. If you are a buy and hold investor you will take part in all of the gains but you also take part in all of the losses.

19. For buy and hold to truly work you have to do both when markets are falling.

20. Proper diversification means always having to say you’re sorry about part of your portfolio.

21. Day trading is hard.

22. Outperforming the market is hard (but that doesn’t mean it’s impossible).

23. There is no signal known to man that can consistently get you out right before the market falls and get you back in right before it rises again.

24. Most backtests work better on a spreadsheet than in the real world because of competition, taxes, transaction costs and the fact that you can’t backtest your emotions.

25. Compound interest is amazing but it takes a really long time to work.

26. Investing based on what every billionaire hedge fund manager says is a great way to drive yourself insane.

27. It’s almost impossible to tell if you’re being disciplined or irrational by holding on when your investment strategy is underperforming.

28. Reasonable investment advice doesn’t really change all that much but most of the time people don’t want to hear reasonable investment advice.

29. The best investment process is the one that fits your personality enough to allow you to see it through any market environment.

30. Successful investing is more about behavior and temperament than IQ or education.

31. Stock-picking is more fun but asset allocation will have more to do with your overall performance.

32. Don’t be surprised when we have bear markets or recessions. Everything is cyclical.

33. You are not Warren Buffett.

34. The market doesn’t care how you feel about a stock or what price you paid for it.

35. The market doesn’t owe you high returns just because you need them.

36. As Yogi said :It's tough to make predictions, especially about the future.