Equity investors got a double dose of potential tightening, in terms of monetary policy (Powell taper tantrum) and bank regulation (Liz Warren’s best buddy potentially in charge), on top of Omicron anxiety…
Between the tightening talk and Omicron anxiety, The Dow and Small Caps ended the month deep red, the rest of the majors unchanged, and Nasdaq eked out modest gains…
Or put another way…
“Team transitory” is dead
“Team no tantrum” is next
LA County Sheriff Boots China-Linked Covid Testing Firm After FBI Warns Over DNA Data
LA County Sheriff Alex Villanueva has notified the LA County Board of Supervisors that LASD will not work with a China-linked genetics firm hired by the county to conduct Covid-19 testing and registration, after the FBI shared “very concerning information” about Fulgent Genetics Corporation – which was awarded a no-bid contract for the work.
“This letter is to inform you the Los Angeles County Sheriff’s Department (Department) will not participate in COVID-19 registering or testing with Fulgent Genetics Corporation (Fulgent), due to the fact the DNA data obtained is not guaranteed to be safe and secure from foreign governments and “will likely be shared with the Republic of China,“” wrote Sheriff Alex Villanueva in a Monday letter.
Villanueva writes that on Nov. 24 he was contacted by the FBI’s Weapons of Mass Destruction Coordinator, who shared “very concerning information” about Fulgent.
“I was shocked to learn Fulgent had strong ties with BGl2, WuXi3, and Huawei Technology 4 , all of which are linked to the Chinese Academy of Medical Sciences, the Peoples Republic of China (PRC) State Council and are under the control of the PRC.” the letter continues. “I was even more shocked to learn Fulgent made no attempt to disguise the fact they willuse the genetic information obtained in future studies.“
NEW: The L.A. County Sheriff has notified L.A. County that LASD will not work w/ a genetics firm the County hired for mandatory COVID-19 testing/registration of County employees after he received a recent briefing from the FBI warning him about the firm’s links to China. @FoxNewspic.twitter.com/WHtFcEZlPI
Villanueva then blasted officials over how Fulgent was hired in the first place, writing “I am deeply concerned as to the vetting process which either failed to discover this, or
discovered it, but chose to ignore it. A simple internet search would have uncovered all
of the above facts.“
“Entering into a no-bid contract with Fulgent Genetics and allowing them to have the DNA data obtained from mandatory COVID-19 testing, for unknown purposes, has shattered all confidence my personnel have in this entire process under the County mandate. Many personnel have long suspected this information was being used in an unnecessary manner due to a rushed mandate that we now know will have long-term unintended consequences that will not be fully known for some time.
The FBI felt strongly enough regarding Fulgent being used to test County personnel that they held an emergency briefing to disclose their concerns.” -LA County Sheriff Alex Villanueva
According to FoxLA‘s Bill Melugin, “multiple L.A. County employees” have contacted him in recent weeks “furious” about Fulgent’s sharing of medical information.
More:
On August 4th, the L.A. County Board of Supervisors issued an executive order mandating all County employees provide proof of vaccination against COVID-19, or face potential termination. L.A. County awarded a no-bid contract to Fulgent to provide testing/registration services.
Fulgent Genetics was also awarded a contract to provide COVID-19 testing for New York City public schools through the 2021 school year. https://t.co/h1N8en0bMc
Should the worrisome omicron coronavirus variant turn out to be more contagious and more severe than currently circulating versions of the virus, the COVID-19 antiviral pills developed by Pfizer and Merck will likely be effective at reducing the risks of hospitalization and death from that variant. Why? Because both medicines disrupt parts of the virus’ genome that are necessary for its replication and which, unlike the virus’ spike protein that most vaccines target, rarely mutate.
The Pfizer pill (Paxlovid) is a combination of the ritonavir protease HIV inhibitor and a new protease inhibitor that targets a specific enzyme that the coronavirus needs to replicate and grow. Merck’s pill (molnupiravir), developed with Ridgeback Biotherapeutics, is a ribonucleoside analog; when the virus incorporates it during replication, it basically causes the virus to mutate itself death.
Early indications in the clinical trials suggested that both medicines were so effective that it would have been unethical to continue enrolling control subjects to take placebos. In October, Merck reported initially that its pill reduced the risk of hospitalization or death from COVID-19 infections by 50 percent. However, the latest data from Merck suggests that its molnupiravir pill reduces the risks of COVID-19 hospitalization and death by about 30 percent.
In early November, Pfizer reported that its Paxlovid treatment reduced “the risk of hospitalization or death by 89% compared to placebo in non-hospitalized high-risk adults with COVID-19.” Yesterday, Pfizer CEO Alberta Boula told CNBC that he has a “very high level of confidence that the treatment will not be affected” by the omicron variant.
On November 4, the United Kingdom’s regulatory authorities approved molnupiravir as a treatment for COVID-19 infections. Meanwhile, the U.S. Food and Drug Administration (FDA) continues to dawdle over approving medications that were so effective that independent Data Monitoring Committees ruled that it would be unethical to continue giving placebos to study participants.
Speaking of dawdling, the FDA has long stymied the development and roll out of another vital component for the effective use of these antiviral medications: namely, at-home COVID-19 testing. Both pills must be taken by people within 3 to 5 days of exposure or symptom onset to be most effective at preventing hospitalization and death. That means that people need to be able to test themselves quickly, easily, and cheaply.
Up until mid-October, the FDA had approved only two over-the-counter at-home COVID-19 diagnostic tests, one of which has now had to be recalled. In the last month and a half, agency regulators have finally gotten around to authorizing nine more. The good news is that preliminary evidence suggests that current self-tests would be able to detect omicron variant infections.
A February 2021 poll by researchers at the Harvard T.H. Chan School of Public Health reported if COVID-19 self-tests cost $1 a piece, 79 percent of Americans would test themselves regularly at home. That figure dropped to only 33 percent if the cost was $25 per test. In the poll, the vast majority of respondents said that positive test results would spur them to take precautions to protect their family, friends, and work colleagues from becoming infected. According to the poll, 94 percent would stay home, 93 percent would isolate from family members, and 90 percent would wear a mask and make sure household members/close contacts got tested.
A quick internet check finds that most COVID-19 self-tests are still not widely available and those that are available cost more than $20. Of course, speedier FDA approval of COVID-19 self-tests would have spurred competition between brands that would have made them more widely available and lowered their prices to consumers.
Interestingly, New Hampshire public health officials began offering to send free (tax-paid) at-home COVID-19 tests to any of the state’s residents on Monday. In less than 24-hours, 100,000 households had requested them, exhausting the “Live Free or Die” state government’s supplies. (I brought home 28 COVID-19 self-tests that were being given away by public health functionaries on the streets of Glasgow, Scotland, while I was there covering the U.N. climate change conference.)
In October, the Biden Administration announced that it would spend $1 billion on purchasing and distributing at-home COVID-19 tests for free at public health clinics, food pantries, and community centers. The goal is to ramp up production to 200 million at-home tests in December. That amounts to around 0.6 tests per American per month. That’s not enough testing to diagnose in a timely fashion a lot of people who could benefit from the new COVID-19 antiviral pills when the FDA finally gets around to approving them.
Let’s hope that the worst fears about the omicron variant are not realized, but ramping up access to millions of cheap COVID-19 self-tests daily would enable people who do become infected to voluntarily take measures to prevent transmitting the virus onward to family, friends, and their fellow Americans.
Should the worrisome omicron coronavirus variant turn out to be more contagious and more severe than currently circulating versions of the virus, the COVID-19 antiviral pills developed by Pfizer and Merck will likely be effective at reducing the risks of hospitalization and death from that variant. Why? Because both medicines disrupt parts of the virus’ genome that are necessary for its replication and which, unlike the virus’ spike protein that most vaccines target, rarely mutate.
The Pfizer pill (Paxlovid) is a combination of the ritonavir protease HIV inhibitor and a new protease inhibitor that targets a specific enzyme that the coronavirus needs to replicate and grow. Merck’s pill (molnupiravir), developed with Ridgeback Biotherapeutics, is a ribonucleoside analog; when the virus incorporates it during replication, it basically causes the virus to mutate itself death.
Early indications in the clinical trials suggested that both medicines were so effective that it would have been unethical to continue enrolling control subjects to take placebos. In October, Merck reported initially that its pill reduced the risk of hospitalization or death from COVID-19 infections by 50 percent. However, the latest data from Merck suggests that its molnupiravir pill reduces the risks of COVID-19 hospitalization and death by about 30 percent.
In early November, Pfizer reported that its Paxlovid treatment reduced “the risk of hospitalization or death by 89% compared to placebo in non-hospitalized high-risk adults with COVID-19.” Yesterday, Pfizer CEO Alberta Boula told CNBC that he has a “very high level of confidence that the treatment will not be affected” by the omicron variant.
On November 4, the United Kingdom’s regulatory authorities approved molnupiravir as a treatment for COVID-19 infections. Meanwhile, the U.S. Food and Drug Administration (FDA) continues to dawdle over approving medications that were so effective that independent Data Monitoring Committees ruled that it would be unethical to continue giving placebos to study participants.
Speaking of dawdling, the FDA has long stymied the development and roll out of another vital component for the effective use of these antiviral medications: namely, at-home COVID-19 testing. Both pills must be taken by people within 3 to 5 days of exposure or symptom onset to be most effective at preventing hospitalization and death. That means that people need to be able to test themselves quickly, easily, and cheaply.
Up until mid-October, the FDA had approved only two over-the-counter at-home COVID-19 diagnostic tests, one of which has now had to be recalled. In the last month and a half, agency regulators have finally gotten around to authorizing nine more. The good news is that preliminary evidence suggests that current self-tests would be able to detect omicron variant infections.
A February 2021 poll by researchers at the Harvard T.H. Chan School of Public Health reported if COVID-19 self-tests cost $1 a piece, 79 percent of Americans would test themselves regularly at home. That figure dropped to only 33 percent if the cost was $25 per test. In the poll, the vast majority of respondents said that positive test results would spur them to take precautions to protect their family, friends, and work colleagues from becoming infected. According to the poll, 94 percent would stay home, 93 percent would isolate from family members, and 90 percent would wear a mask and make sure household members/close contacts got tested.
A quick internet check finds that most COVID-19 self-tests are still not widely available and those that are available cost more than $20. Of course, speedier FDA approval of COVID-19 self-tests would have spurred competition between brands that would have made them more widely available and lowered their prices to consumers.
Interestingly, New Hampshire public health officials began offering to send free (tax-paid) at-home COVID-19 tests to any of the state’s residents on Monday. In less than 24-hours, 100,000 households had requested them, exhausting the “Live Free or Die” state government’s supplies. (I brought home 28 COVID-19 self-tests that were being given away by public health functionaries on the streets of Glasgow, Scotland, while I was there covering the U.N. climate change conference.)
In October, the Biden Administration announced that it would spend $1 billion on purchasing and distributing at-home COVID-19 tests for free at public health clinics, food pantries, and community centers. The goal is to ramp up production to 200 million at-home tests in December. That amounts to around 0.6 tests per American per month. That’s not enough testing to diagnose in a timely fashion a lot of people who could benefit from the new COVID-19 antiviral pills when the FDA finally gets around to approving them.
Let’s hope that the worst fears about the omicron variant are not realized, but ramping up access to millions of cheap COVID-19 self-tests daily would enable people who do become infected to voluntarily take measures to prevent transmitting the virus onward to family, friends, and their fellow Americans.
LA County Sheriff Boots China-Linked Covid Testing Firm After FBI Warns Over DNA Data
LA County Sheriff Alex Villanueva has notified the LA County Board of Supervisors that LASD will not work with a China-linked genetics firm hired by the county to conduct Covid-19 testing and registration, after the FBI shared “very concerning information” about Fulgent Genetics Corporation – which was awarded a no-bid contract for the work.
“This letter is to inform you the Los Angeles County Sheriff’s Department (Department) will not participate in COVID-19 registering or testing with Fulgent Genetics Corporation (Fulgent), due to the fact the DNA data obtained is not guaranteed to be safe and secure from foreign governments and “will likely be shared with the Republic of China,“” wrote Sheriff Alex Villanueva in a Monday letter.
Villanueva writes that on Nov. 24 he was contacted by the FBI’s Weapons of Mass Destruction Coordinator, who shared “very concerning information” about Fulgent.
“I was shocked to learn Fulgent had strong ties with BGl2, WuXi3, and Huawei Technology 4 , all of which are linked to the Chinese Academy of Medical Sciences, the Peoples Republic of China (PRC) State Council and are under the control of the PRC.” the letter continues. “I was even more shocked to learn Fulgent made no attempt to disguise the fact they willuse the genetic information obtained in future studies.“
NEW: The L.A. County Sheriff has notified L.A. County that LASD will not work w/ a genetics firm the County hired for mandatory COVID-19 testing/registration of County employees after he received a recent briefing from the FBI warning him about the firm’s links to China. @FoxNewspic.twitter.com/WHtFcEZlPI
Villanueva then blasted officials over how Fulgent was hired in the first place, writing “I am deeply concerned as to the vetting process which either failed to discover this, or
discovered it, but chose to ignore it. A simple internet search would have uncovered all
of the above facts.“
“Entering into a no-bid contract with Fulgent Genetics and allowing them to have the DNA data obtained from mandatory COVID-19 testing, for unknown purposes, has shattered all confidence my personnel have in this entire process under the County mandate. Many personnel have long suspected this information was being used in an unnecessary manner due to a rushed mandate that we now know will have long-term unintended consequences that will not be fully known for some time.
The FBI felt strongly enough regarding Fulgent being used to test County personnel that they held an emergency briefing to disclose their concerns.” -LA County Sheriff Alex Villanueva
According to FoxLA‘s Bill Melugin, “multiple L.A. County employees” have contacted him in recent weeks “furious” about Fulgent’s sharing of medical information.
More:
On August 4th, the L.A. County Board of Supervisors issued an executive order mandating all County employees provide proof of vaccination against COVID-19, or face potential termination. L.A. County awarded a no-bid contract to Fulgent to provide testing/registration services.
Fulgent Genetics was also awarded a contract to provide COVID-19 testing for New York City public schools through the 2021 school year. https://t.co/h1N8en0bMc
This is Part 1 of an exclusive interview with Rosemont Seneca, a U.S. based professional trader focused on event-driven and distressed situations. Rosemont spent their career on the buy-side working as a financials analyst and their investing/trading style is inspired in equal parts by Icahn and Druckenmiller.
Like me, Rosemont is not an RIA and does not hold licenses. Market commentary and opinion expressed in this interview are personal views, not investment advice or solicitation for business.
QTR’s Note: The point of this blog is to bring to the reader information and perspectives they, or the mainstream media, may not otherwise find on their own. The cool thing about FinTwit is that you get to meet people based on their ideas and investing acumen and not their identities. I have been following Rosemont on Twitter for years and love their perspective and takes on the market – their takes often stand at odds with my own and they have helped me broaden my horizon and be less bearish on markets, while still maintaining my skepticism about monetary policy. They have chosen to remain completely anonymous with me, which I respect, and I have never personally met or otherwise know anything about the identity of Rosemont. That doesn’t matter, however, because I like their ideas and their commentary. You can follow Rosemont on Twitter here.
Bernard Baruch, 1919 / Photo used for @rosemontseneca’s Twitter profile
Q: Hi Rosemont. Thanks for agreeing to an interview for my readers despite wanting to stay anonymous. Right off the bat: why do you use Bernard Baruch for your Twitter profile photo?
Baruch is one of the most fascinating Wall Street characters of 20th Century. He has tremendous intuition and gut instinct for the markets, macro economics and politics and he reminds us that the three are intertwined at all times
That’s a great segue to my next question: you recently got very bullish on gold when you hadn’t been in the past – what caused that shift in attitude?
We saw a global risk contagion event in capital markets today (11/26); Bitcoin lost over 8.0% of its value, the S&P dropped -2.2% and gold ended the session flat on the day after a mostly positive session. We expect more days like this in 2022.
This is the first time since the post-GFC period in 2009 that we’ve purchased or held gold instruments in our portfolios. At present we own an 8.0% position in the GLD ETF and periodically traffic in Barrick Gold and Newmont equities. Recall that during the Q4 2018 ‘Taper Tantrum’ and most acute phase of the COVID dislocation in Q1-Q2 2020, gold futures, ETFs, and gold miner equities protected your wealth from severe capital market drawdowns.
Gold is an umbrella we hope will keep us dry if it rains very hard next year.
Holding gold in a portfolio today is a pragmatic ‘TINA’ bet borne of healthy caution in the wake of a multi-year equity bubble that has begun to run amok.
The reality is gold is not an optimal investment for compounding wealth in the long-run; owning the GLD ETF since inception in 2004 has returned a roughly 8.0% CAGR which is adequate for a pension fund or retiree but relatively mediocre vs. the alternatives.
Investors are better off owning Walmart, Costco, McDonald’s or Starbucks and grow our capital tax-efficiently with high-ROE/RoIC ‘compounders’ that pay dividends. The gold ‘streamers’ such as Wheaton and Franco-Nevada however happen to be very interesting investments with compelling business models that have generated compounder-like returns for Shareholders over the last two to three decades.
We’ve come a long way from the market depths of March 2020 and perhaps it’s time to take a more cautious stance going into year-end. We are currently operating on the premise that the Nasdaq and S&P could see negative returns in 2022. If the indices see a drawdown of 10-20% (or greater) we expect gold to appreciate or hold its value in real terms next year. There are labor and supply chain shortages globally that will definitely impact the gold mining industry. If CPI hits escape velocity and reaches 8-10% higher next year, we’ll be content with a 10% allocation in gold as we expect institutional and speculator capital flows to put a firm bid behind the yellow metal.
You’re one of the very few out there calling the entire crypto space a bubble. What’s the key argument in differentiating crypto from other assets? Is crypto worth zero or is there a value and, if there is, where does the value come from?
In the last few years market participants have adopted a pseudo-religious attitude towards Bitcoin, Ethereum, and a whole host of crypto currencies. People have come to either ‘believe’ or ‘not believe’ in the asset class and its prospects.
What we can definitely say today is that there are over 14,850 different crypto currencies trading on over 430 venues with a combined ‘market capitalization’ of roughly $2.5 trillion dollars. To our best knowledge these assets produce zero cash flow or dividends, exhibit very high volatility, remain subject to boom-bust sequences, and are used as an apparatus for elaborate criminal hacking schemes.
Photo: Time.com
The average daily volume of these 14,000+ crypto currencies is roughly $150 billion per day. We estimate that approximately 90% of this turnover is driven by purely speculative or gambling capital flows from small retail traders. If we assume that roughly 2-3% of average daily volume consists of bona fide commercial transactions (including portfolio investment), this leaves almost $10 billion of daily volume that derives from money laundering, fraud and other illicit schemes etc.
Some governments have rushed to legalize, adopt or allow for crypto currencies to proliferate in their economy for fear of stymieing or not supporting innovation. Others have taken a hardline stance and begun to outlaw the usage of crypto in their banking and financial system. We are of the view that Bitcoin-like protocols present a clear & present danger to many emerging market countries’ ability to issue currency and sovereign debt over the next decade. As the true nature of these crypto assets become more evident, we’ll see more and more countries outright ban and prosecute their usage in their economies.
Bitcoin and Ethereum (combined 60% of total crypto market capitalization) may very well survive and find a way to thrive due to ‘fiat-by-consensus’ adoption. Under that scenario they clearly will not trade to zero. But that doesn’t negate the presence of a current bubble where 99% of cryptos are of near-zero ultimate value. Promoters have come to euphemize cryptocurrencies as ‘projects’ but most cryptocurrencies are outright frauds.
We think it’s time for crypto investors and regulators to have a more honest, empirical framework for discussing the intrinsic value and risks of these crypto assets. If we can handicap real estate on cap rates and LTV ratios and equites on P/E ratios and cashflow yields, we should adopt a framework for Bitcoin and Ethereum etc (Dogecoin?) that doesn’t border on the pseudo-religion.
I wrote an entire article based off your assumption that we are once again in a 1999-2000 style crash setup. What were the signs that helped you recognize this?
In the wake of the COVID crisis and ensuing Monetary/Fiscal stimulus, too many people with very little financial literacy or professional training took up day-trading of equities, options and crypto currencies as a hobby and eventual vocation. The prudent, cautious amongst us (Warren Buffett included) were seemingly left behind in the speculative frenzy that ensued in the summer of 2020.
We’re often reminded to not confuse investing/trading luck with skill. Regardless, many very young people made a lot of money in a very short period and thought that this process was somehow normal or even sustainable. To be perfectly clear: there was nothing normal about the Meme Stock frenzy, SPAC mania, or crypto and NFT bubble that erupted.
When we witnessed trillion-dollar market caps such as Tesla and Nvidia trading like biotechs in the frenzy of Q4 of 2021, we decided we’d seen enough of this equity market mania. It was eerily reminiscent of Cisco, Lucent, Intel in 1999. The equity market today feels bloated and reckless; it’s probably a good time to start taking chips off the table and leave the party while people are still having fun.
November 2021 was a harsh reminder that valuations and capital structures eventually do matter; people will learn the hard way.
What are the most likely catalysts to set the market off moving lower?
Nobody rings the bell at a market top, but negative catalysts include:
– inability to eradicate COVID in Europe & Asia will keep global trade and travel routes shut for another year
– cascade of lingering supply chain woes = potentially very recessionary
– debilitating energy price spikes in 2022-2023 = looming stagflation
– margin loan balances are at historically very high levels
– continuation of the Tech selloff we witnessed in Q4 2021
– fraud & accounting malpractice (always prevalent in manias)
– Fed signaling significantly higher interest rates in the aftermath of inflation
– Geopolitics: a potential Kamala Harris Presidency would see Russia and China turn belligerent overnight
What’s your take on how we’re handling Covid? You’ve mentioned what happened to our economy over the last 18 months was “economic terrorism”. Will we learn – either through people revolting or negative consequences – or will we continue down this Orwellian path?
It’s very disappointing to see how politicized the pandemic became in the United States. It obviously didn’t help that COVID struck in an Election year, but there will be plenty of blame to go around the table when a proper post-mortem analysis is conducted years from now. We hope that Bethany McLean (Enron: The Smartest Guys in the Room) will eventually write a thoroughly unbiased expose on the timeline of policy decisions in 2020. We’re of the firm belief that our Leaders in Washington D.C. did more harm than good in the early months of this pandemic.
We can safely conclude the 2020 COVID shutdowns are the direct cause for the supply chain dislocations and hyperinflation that Americans are about to suffer. The shutdowns that we witnessed in the United States were a flawed policy decision akin to willful pilot error or ‘economic terrorism;’ Federal and State Governments suffocated millions of livelihoods and permanently destroyed hundreds of thousands of perfectly viable small & medium family-owned businesses. The larger, better capitalized multinational corporations capable of accessing capital markets and Government Stimulus Programs not only survived, they eventually thrived.
What happened can only be described as a crime.
Part 2 of this interview, where we discuss inflation, the Biden administration, why China banned crypto and more, can be found here.
—
DISCLAIMER:
It should be assumed I or Rosemont Seneca has positions in any security or commodity mentioned in this article. None of this is a solicitation to buy or sell securities. Neither I nor RS hold licenses or are investing professional. None of this is financial advice. Positions can always change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I get shit wrong a lot.
Putin Says Russia Ready To Unveil New Hypersonic Missile
Russian President Vladimir Putin revealed a new hypersonic weapon during a speech at the Russia Calling! Investment conference hosted by VTB Bank on Tuesday, according to RT News. He told attendees the new weapon is a high-speed missile that is “necessary” as a defense shield against “Western actions.”
“We have already successfully conducted tests, and from the beginning of the year, we will have in service a sea-based hypersonic missile of Mach 9,” Putin said.
The president didn’t name the new missile but likely referred to the Zircon, the world’s first hypersonic cruise missile. He said successful testing of the missile would lead to the naval deployment next year.
“Now, it is especially important to develop and implement the technologies necessary to create new hypersonic weapons systems, high-powered lasers and robotic systems that will be able to effectively counter potential military threats, which means they will further strengthen the security of our country,” he said.
A video from Monday shows the state-of-the-art missile launching from Admiral Gorshkov frigate. The missile successfully struck a target more than 248 miles away. There have been multiple tests of the missile in the last two weeks.
It appears Putin and state media want the world to know that they’re leading the hypersonic weapons race that they claim will render all the NATO border defenses completely useless.
According to Kremlin deputy premier Yury Borisov, Russia is kicking America’s ass at hypersonic weapons development and aims to maintain its lead.
News of the latest hypersonic missile comes as White House officials are reviewing options after increasing fears of a Russian invasion of Ukraine.
Will New Jabs Be Necessary To Fight Omicron? Here Is Goldman’s Answer
Over the weekend, Goldman Sachs’ analysts slammed the latest round of variant hysteria and insisted that the omicron variant will likely be remembered as a laughable sideshow, not unlike “Delta-plus”. By Sunday night, the word had spread – don’t fall for the latest round of COVID variant FUD. It’s just one more tool for the Biden Administration and Dr. Anthony Fauci to push their own agenda while trying to frighten Americans into getting both the original jabs and their booster.
In its latest note, the Goldman team started by ticking off a bunch of new stats about omicron that millions of Americans can probably site by memory at this point. The variant is roughly ~50 mutations, with ~30 on the Spike protein and ~10 on the receptor binding domain.
A map of omicron’s mutations shows that the variant has several attributes believed to promote immune escape. However, this doesn’t necessarily guarantee that the variant will eventually replace delta as the most pervasive variant in the world.
After mapping out four market-moving scenarios, Goldman is taking three parallel approaches to addressing the omicron variant from the perspective of Moderna, maker of the second most-popular American COVID jab (after the Pfizer-BioNTech jab, of course).
Should the authorized 50μg booster dose of Spikevax prove insufficient to boost waning immunity against Omicron, with data on the first two expected in the coming weeks, the company is trying to 1) evaluating whether a higher dose booster of Spikevax (100 μg) can neutralize the variant, 2) studying two multi-valent booster candidates (mRNA-1273.211, which includes several mutations in Omicron also present in the Beta variant and mRNA-1273.213, which includes many mutations also present in the Beta and Delta variants) in the clinic.
As Goldman prepares to host Stephane Bancel at a summit for clients set for tomorrow, the analysts note that releasing an omicron specific booster isn’t the only way to conquer this new strain. After all, it has only infected less than 200 people so far.
Offering faint praise for Moderna, Goldman said the flexibility of the mRNA platform would support a swift transition to produce a new formulation of the vaccine if needed.
Moderna’s CEO Stephane Bancel reiterated during his latest round of interviews that his company is poised to produce another round of vaccines within months – that is, if the world still cares about omicron three months from now.
Bancel’s eagerness to speak to perceived faults in his company’s breakthrough vaccine is actually self-serving; one order from the US government for a bloc of millions of new omicron-focused vaccines might be Moderna’s best chance at meeting Wall Street’s lofty sales projections.
Since we can’t always trust Bancel’s warnings about the short-comings of his own vaccine (given the overwhelming need to talk his own book outweighing the public’s health), how can the public determine whether a new round of shots are necessary?
Well, it looks like Goldman has some answers about the “regulatory path forward”.
First, Moderna’s Spikevax is authorized as a booster for multiple populations at the 50μg dose level and MRNA is working to test the ability of the current vaccine dose to neutralize the Omicron variant with data from in vitro neutralization assay experiments expected in the coming weeks.
Recall, in similar in vitro experiments performed for other variant strains, when compared to the ancestral strain (Wuhan), one week after the participants’ second dose of the primary series the Delta variant led to a 2.1-fold reduction in neutralizing titers, and a 7.3 or 8.4-fold reduction in neutralizing titers occurred with versions of the Beta variant relative to the ancestral strain. This level of reduction in neutralizing titers led MRNA to begin development of a booster candidate (mRNA-1273.351) against both the Wuhan strain and the Beta variant.
MRNA is evaluating three different approaches should the currently authorized 50μg booster dose of Spikevax (mRNA-1273) prove insufficient to boost waning immunity against the Omicron variant.
In vitro studies will be performed to evaluate whether sera from vaccinated individuals from its high-dose booster (100ug of Spikevax) can neutralize Omicron. Recall, MRNA has completed dosing of 306 participants in a safety and immunogenicity study of the high dose booster.
Studying two multi-valent booster candidates in the clinic that MRNA designed to anticipate mutations such as those that have emerged in the Omicron variant. The first candidate (mRNA-1273.211) includes several mutations present in the Omicron variant that were also present in the Beta VOC, and MRNA has completed dosing in a potentially pivotal safety and immunogenicity study of mRNA-1273.211 at the 50 μg (N=300) and 100 μg (N=584) dose levels. A second multi-valent candidate (mRNA-1273.213) includes many of the mutations present in the Omicron variant that were also present in the Beta and Delta variants, and MRNA has completed dosing at the 100μg (N=584) dose level and also plans to evaluate the 50 μg dose level in ~584 participants. MRNA will expand testing of sera from completed and ongoing multi-valent booster studies to determine if these candidates can provide superior neutralizing protection against Omicron.
Advance an Omicron-specific booster candidate (mRNA-1273.529), within the existing strategy to advance variant-specific candidates for a subset of variants of significant concern. MRNA noted its precedence advance new candidates to clinical testing in 60-90 days.
Goldman continues: Should an Omicron-specific vaccine be necessary, an outstanding question on the forward will be whether it should be administered as a booster or as a primary series, which MRNA expects will be discussed with regulators and which we expect to be informed by data that has yet to be generated and emerging epidemiology. On the approval process for an Omicon-specific vaccine, MRNA noted two potential scenarios at the discretion of regulators: 1) while there is no established correlate of protection (COP) based on neutralizing antibody levels, evidence of a COP is emerging based on studying breakthrough cases, which may support a regulatory path forward; 2) through an immunobridging study, whereby MRNA would need to demonstrate that the neutralizing antibody titer levels are at the same level (or higher) than levels observed in the Ph3 COVE study of Spikevax.
How will this impact MRNA’s manufacturing?
MRNA is producing vaccine at scale and anticipates it would take on the order from a few weeks to one-two months to switch over production to a novel formulation of the vaccine. Similar to Spikevax, production capacity will largely depend on whether an Omicron-specific vaccine would be administered as a booster or a primary series.
Interestingly, in an endemic market, MRNA anticipates demand for a lower number of doses per vial (~5 doses), noting glasswear is currently a limiting factor for supply. If Omicron necessitated that the population receive a new vaccine, the vaccine could be supplied in a 10-dose vial as it is now, in which case supply may be greater than current capacity.
What do we model for?
We model for FY22 vaccine revenue of $29.5bn per ~2bn doses (guidance of 2bn-3bn)and our COVID-19 vaccine revenue stream in 2023+ ($10.5bn per year) serves as a proxy for a COVID-19, flu or combination respiratory viral vaccine incorporating both.
Valuation: Our 12-month price target of $395 is based on a blended 50% DCF value of $411 and 50% value of $378 based on a 13x P/E multiple (mean multiple for large US pharma) applied to our FY22(75%)/FY23(25%) EPS forecasts. Our 13x target P/E multiple is in line with the mean consensus multiple assigned to large pharma, which we believe is appropriate given MRNA’s platform and growth profile. For our DCF value, we continue to employ a 10% WACC and 6% TGR.
Downside risks: Clinical/technology setbacks, failure of mRNA medicines to achieve the expected safety profile, failure to demonstrate clinical proof of concept across the remaining modalities, failure to successfully develop mRNA medicines across modalities or achieve the projected commercial profile, physician/payer pushback on use and coverage, approval of competitor drugs, regulatory headwinds, IP risk, manufacturing difficulties and financing/dilution.
Former Trump chief of staff Mark Meadows will appear before the Jan. 6 House committee, according to its chairman in a statement on Tuesday.
So far, Meadows has engaged with the committee via his attorney and has “produced records to the committee, and will soon appear for an initial deposition,” Rep. Bennie Thompson (D-Miss.) said in a statement.
Thompson’s panel “expects all witnesses, including Mr. Meadows, to provide all information requested and that the Select Committee is lawfully entitled to receive,” the statement read. “The committee will continue to assess his degree of compliance with our subpoena after the deposition.”
Earlier this month, after he was issued subpoenas, Meadows indicated through his lawyer that he wouldn’t cooperate and described the House investigation as a partisan exercise. About two weeks ago, he declined to attend a hearing before the Jan. 6 committee, prompting the panel to threaten to hold him in contempt of Congress.
Meadows’s lawyer, George Terwilliger, told news outlets on Tuesday that the former White House chief of staff won’t be handing over information subject to executive privilege.
“As we have from the beginning, we continue to work with the Select Committee and its staff to see if we can reach an accommodation that does not require Mr. Meadows to waive Executive Privilege or to forfeit the long-standing position that senior White House aides cannot be compelled to testify before Congress,” Terwilliger’s statement said.
Meadows appreciates the Jan. 6 committee’s “openness to receiving voluntary responses on non-privileged topics,” he said.
Former White House adviser and then-candidate Donald Trump campaign manager Steve Bannon was held in contempt of Congress in October for refusing to cooperate. Bannon in November was indicted on two misdemeanor contempt of Congress charges, which carry penalties of 30 days to 1 year in jail as well as fines, according to the Department of Justice.
Bannon, who currently hosts the “War Room” show, is the first person to be held in contempt of Congress in decades.
Meadows, Bannon, and other former Trump officials have echoed the former president’s argument that information and materials that the Jan. 6 is trying to obtain fall under executive privilege. Earlier this month, Bannon said that the indictment should alarm Americans.
“Not just Trump people and not just conservatives—every progressive, every liberal in this country that likes freedom of speech and liberty should be fighting for this case. That’s why I’m here today: for everybody. I’m never going to back down,” Bannon remarked.
Earlier this month, District of Columbia Judge Tanya Chutkan denied Trump’s request for an injunction to prevent the National Archives from providing the House panel with documents.
US Could Run Out Of Cash In Late December, CBO Warns
After Janet Yellen warned markets a month and a half ago that the US could run out of cash as soon as December 15, analysts did some math and found that this warning seems to be a “conservative estimate” with Goldman estimating that the Treasury can probably maintain at least a $50BN cash balance — the minimum balance that we would expect the Treasury to use to project its deadline — until early January, though a higher deficit scenario would take the Treasury below this around Dec. 15, as Yellen’s recent letter to Congress suggests.
In other words, if Yellen was trying to instill a sense of urgency (in hopes that Republicans will fold again and give Democrats carte blanche to hike the debt ceiling to some even bigger ridiculous number), it’s not working. So to spark at least a little panic and get politicians to move, moments ago the CBO said in a statement that if the debt limit remained unchanged and if the Treasury transferred $118 billion to the Highway Trust Fund on December 15, as currently planned, the Treasury would most likely run out of cash before the end of December.
As a result, the office projects that, “if the debt limit remained unchanged and if the Treasury made that transfer in full, the government’s ability to borrow using extraordinary measures would be exhausted soon after it made the transfer,” it said, referring to a Dec. 15 transfer of funds to a federal highway account.
“In that case, the Treasury would most likely run out of cash before the end of December,” the CBO said in a report Tuesday.
This reminds us of what Goldman also said a few weeks ago, namely that since it is unlikely that Congress will be in session in early January, the practical deadline for raising the debt limit is likely to be whenever Congress adjourns for the year (probably sometime the week of Dec. 20).
And yet, if the CBO was hoping to escalate the urgency over the potential US default, it failed because as top Senate Republican Mitch McConnell said moments after the CBO statement was released, the U.S. won’t default on its obligations and he is in talks with Majority Leader Chuck Schumer on a path forward to extend the debt limit.
He also says Congress will continue to fund the government to avoid a lapse Dec. 3.
In short, we are back to where we were just before the mid-October caving by McConnell. Only this time, the Kentucky republican can’t afford to fold again having stated that his concession two months ago is as far as he goes. And with Democrats unlikely to move on their own despite recent conciliatory rhetoric, we now have a potential US default to add to the growing number of bricks in the wall of worry as we enter the critical final month of the year.
