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Inflation – Cassandra Speaks

Inflation – Cassandra Speaks

Authored by Bill Blain via MorningPorridge.com,

“The way to crush the bourgeoise is to grind them between…

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Inflation - Cassandra Speaks

Authored by Bill Blain via MorningPorridge.com,

“The way to crush the bourgeoise is to grind them between the millstones of taxation and inflation.”

Inflation should be front and centre for markets – give or take Ukraine, Oil, etc. How real is it, and just how bad could the consequences be? Not talking about it is one way to ensure it hurts.

Contrary to expectations, World War Last didn’t break out yesterday. Either the Russians are stepping back or they are retreating in a forward direction while adding thousands of new troops… Who knows..? Who to believe? In the absence of evidence or a credible reason for Putin pressing the auto-destruct button while he’s winning, (er, yes, he probably is as the West discomboffulates around the issue, beset by leadership crises, division, energy prices and distrust), can we now look forward to Spring?

And get back to worrying about real stuff. Like inflation?

The news this morning is UK inflation hitting a 30-year high, home price rises in the US and UK earning more than the average working wage, and the Fed Minutes – yawn. Put these together and it looks torrid. Yet the market seems unbovvered…  There is a strong likelihood the Fed will hike 50 bp in March and up to 10 times in the next (whatever length of time) years/months/minutes… Whateva… Expectations of aggressive moves in rates have doubled in recent weeks.

Commentary in the bond market ranges from the risks of over-aggressive policy mistakes, arguments about how long “transitory” inflation might last, and the risks of further supply and wage driven inflation hikes. Surprisingly few comments I can find deal with rising stagflation risks – which seems likely to me in the face of a consumer price shock, the Fed aggressively tightening rates, and I as alluded to a few days ago, a looming credit-shock as banks kick away supports for sound but struggling companies. (I reckon we are about to see a corporate Armageddon unless banks ease their risk parameters.)

It’s worth remembering: most Central Bank tightening cycles end up in a downturn.

Let’s try to go back to basics on inflation.

Conventionally, inflation is “everywhere a monetary phenomenon”, apparently. If money is too cheap, it will unbalance demand and supply causing prices to rise – so goes the conventional theory. For the last 12 years we’ve seen incredibly easy monetary policy (aka experimentation) distort the price of money absolutely – negative yields, NIRP and ZIRP. But, apparently, there was no inflation. Inflation remained stubbornly below target.

Except of course there was massive inflation within the system.

The mechanisms that drove cheap money since 2010 did nefarious damage within the financial asset system. Quantitative Easing buying back bonds to force interest rates lower caused the relative price of financial assets to shift. Negative interest rate policy forced investors to take more risk for less yield. The money pumped into the financial markets did not fertilize the real economy by boosting “real” lending – but was internalised within financial assets, pushing up the prices of bonds massively, and stocks by insane amounts. Inflation – pure and simple. The corporate bond market saw record volumes – but much of that remained in the financial asset market as debt was used to buy-back stock.

The result was 12 years of record inflation in financial assets while the real economy effectively deflated. Now – in a host of ways – financial asset inflation is crossing back over into the real economy. All it took was a catalyst: the Pandemic.

Most economists think in terms of linear process. Action A causes result B. They worry about time-lags in policy implementation, or that central banks will make policy mistakes, turning recovery into a downturn by being overaggressive on monetary tightening. Press a button here, pull a lever over there, and inflation can be stemmed. A few think austerity politics, and raising taxes, is the right way to control spending and deflate inflationary expectations.

Expectations is an interesting word. The reality is inflation is about consequences and the predictably unpredictable way individual’s expectations respond to economic stimuli and signals. I heard a very interesting example of this earlier this week on a podcast: the theory our perceptions of inflation are coloured by our learned experience of it.

When I was young, working and trying to buy my first flat in the inflationary bubble that was the late 1980s, I knew and feared high inflation. I remember scrambling to buy a flat, any flat, because inflation meant house prices could only go higher, thus driving up flat prices…. And being left in negative equity when it inevitably popped.

My perception today is inflation is now thoroughly embedded in the economy – while supply chains may sort themselves, and energy scarcity may prove short-lived, a host of consequences, driving more consequences are now on the march. Inflation is driven not just by the prices of money, but by scarcity, wage demands, producer debt, and currency fluctuations. All of these are unstable and will see inflation rattle and roll markets for years rather than months. On top of that, put a layer of expectations – which will get progressively worse – and they trigger a vicious negative feed-back loop of inflation reinforcement.

Check back on the Porridge website – I’ve been warning about this for years! Hence, calling this porridge: Cassandra Speaks.

In contrast, one of my much younger (and a darn-sight cleverer) colleagues thinks inflation will still prove transitory, that shocking CPIs are a lag effect of the pandemic and supply chain stresses. He reckons wages will kept in line by corporate competitiveness – no one can afford to pay higher wages.. He thinks the only risk is Central banks driving the global economy into an unnecessary recession. (His scenario will get interesting as private sector workers start to demand the kind of wage rises the public sector is achieving..) Problem is – he ain’t seen it before..

To illustrate some real risks, let’s think about the UK and Europe.

  • To call the UK politically fragile would be an understatement. There is a serious risk the multiple political failures to monetise Brexit, to “level” the economy, and control graft and corruption, even as the national debt balloons will result in crashing economic confidence in the nation. The result of these negative factors will be/is a run on sterling – and a crashing FX rate is the fastest way to ramp up inflation.

  • The ECB faces an even deeper crisis. What should it do to balance the inflation hawks like Germany – an economy in recovery, versus the weakening southern brethren that are increasingly dependent on ultra-low rates to fund flatline economies, and EU largess to fund social and infrastructure rebuilds? Without the ECB as buyer of first and last resort, who will buy Greece or Italy (or Spain or Portugal) debt? As the unsupportable unstable debt mountains become obvious – what price the Euro? Or how will national politics trump the politics of Brussels? All happening as the ECB is run by a political appointee with little expertise in inflation…

My point is simple…. Inflation is here, it’s here to stay and it’s here to really, really, really ***k us up.

Changing the topic – Meta

A Clegg is the name a particularly nasty horsefly in Scotland. If it bit you …. you knew about it.

Paradoxically, if you ever met Nick Clegg, former deputy prime minister and leader of the UK Liberal Party, it’s unlikely you would recall much beyond an earnest and dull moment. A very “nice” chap would be my damning indictment of the man. Thus far Nick Clegg’s wiki obituary would have said something about being David Cameron’s stooge and fall-guy, becoming the first UK party leader to lose his seat at a general election because the electorate considered his sell-out of his party’s core-values so he could sit at Dave’s big table to be unforgivable.

Apparently not.. He will now become Meta’s (aka Facebook) President of Global affairs – meaning he will be the fall-guy for its death by a billion regulatory cuts. Mark Zuckerberg said Nick will “lead our company on all our policy matters”, which should be yet another massive sell signal for the beleaguered stock. Not only has Facebook’s obsolescence as an advertising revenue farm been exposed, and the Metaverse is not only unproved and unlikely, but now they are entrusting a man who couldn’t find his way out of a wet paper bag to lead the company through a political minefield. Ok – I’m being harsh… but seriously?

And, finally, a topic I must write more about: New Finance and the Death of Banking.

Yesterday Citigroup effectively gave up its efforts to remain/join the big league in investment banking. It’s going to focus on more profitable sectors – which seems to mean banking the middle corporate market, trade and treasury services, and wealth management… which incidentally are all areas where “De-Fi” (the hip term for doing banking better than banks) is likely to eat their lunch. When I started reading the reports this morning I was thinking to myself how much like fellow banking dinosaur HSBC Citigroup now looks, but the FT beat me to it in: Citi’s Jane Fraser ditches ambition to break into Wall Street’s big league.

It’s difficult to see how banks are going to compete in a new market. Regulation has dramatically reduced their risk appetite. Risk is now held in the asset management business. Their tech systems are older than steam-punk and not-fit-for-purposes. Their only cache in fight for customers is their brand and personal branch service – I jest. What branch service. High Street banks are faceless.

Which is interesting, because increasingly Goldman and JPMorgan dominate global finance by monetizing their reputation and brand. No one ever lost their job for giving a mandate to Goldman Sachs… Ha. Ha. Ha. said the former president of Malaysia.. One does hope the Vampyre Squid sucking the face off humanity will get calamari-ed as a result of 1MDB scandal…..

Tyler Durden Thu, 02/17/2022 - 08:13

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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Another country is getting ready to launch a visa for digital nomads

Early reports are saying Japan will soon have a digital nomad visa for high-earning foreigners.

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Over the last decade, the explosion of remote work that came as a result of improved technology and the pandemic has allowed an increasing number of people to become digital nomads. 

When looked at more broadly as anyone not required to come into a fixed office but instead moves between different locations such as the home and the coffee shop, the latest estimate shows that there were more than 35 million such workers in the world by the end of 2023 while over half of those come from the United States.

Related: There is a new list of cities that are best for digital nomads

While remote work has also allowed many to move to cheaper places and travel around the world while still bringing in income, working outside of one's home country requires either dual citizenship or work authorization — the global shift toward remote work has pushed many countries to launch specific digital nomad visas to boost their economies and bring in new residents.

Japan is a very popular destination for U.S. tourists. 

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This popular vacation destination will soon have a nomad visa

Spain, Portugal, Indonesia, Malaysia, Costa Rica, Brazil, Latvia and Malta are some of the countries currently offering specific visas for foreigners who want to live there while bringing in income from abroad.

More Travel:

With the exception of a few, Asian countries generally have stricter immigration laws and were much slower to launch these types of visas that some of the countries with weaker economies had as far back as 2015. As first reported by the Japan Times, the country's Immigration Services Agency ended up making the leap toward a visa for those who can earn more than ¥10 million ($68,300 USD) with income from another country.

The Japanese government has not yet worked out the specifics of how long the visa will be valid for or how much it will cost — public comment on the proposal is being accepted throughout next week. 

That said, early reports say the visa will be shorter than the typical digital nomad option that allows foreigners to live in a country for several years. The visa will reportedly be valid for six months or slightly longer but still no more than a year — along with the ability to work, this allows some to stay beyond the 90-day tourist period typically afforded to those from countries with visa-free agreements.

'Not be given a residence card of residence certificate'

While one will be able to reapply for the visa after the time runs out, this can only be done by exiting the country and being away for six months before coming back again — becoming a permanent resident on the pathway to citizenship is an entirely different process with much more strict requirements.

"Those living in Japan with the digital nomad visa will not be given a residence card or a residence certificate, which provide access to certain government benefits," reports the news outlet. "The visa cannot be renewed and must be reapplied for, with this only possible six months after leaving the countr

The visa will reportedly start in March and also allow holders to bring their spouses and families with them. To start using the visa, holders will also need to purchase private health insurance from their home country while taxes on any money one earns will also need to be paid through one's home country.

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