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Jeremy Grantham Doubles Down On Market Apocalypse, Warns Of 17% Crash, Doesn’t Rule Out “Brutal Decline” To 2,000

Jeremy Grantham Doubles Down On Market Apocalypse, Warns Of 17% Crash, Doesn’t Rule Out "Brutal Decline" To 2,000

It was several years ago…

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Jeremy Grantham Doubles Down On Market Apocalypse, Warns Of 17% Crash, Doesn't Rule Out "Brutal Decline" To 2,000

It was several years ago when Jeremy Grantham quietly turned from stock bull to vocal permabear, and while his market notes turned breathlessly alarmist (if only to those who were long his multi-billion fund GMO), such as this from June 2020 "Stock-market legend who called 3 financial bubbles says this one is the ‘Real McCoy,’ this is ‘crazy stuff’", it wasn't until early 2021 that Grantham's warnings of an imminent crash became especially shrill... and wrong. Recall, back in January 2021, Grantham wrote that "Bursting Of This "Great, Epic Bubble" Will Be "Most Important Investing Event Of Your Lives", while was followed by warnings of a "Spectacular" Crash In "The Next Few Months."

Needless to say, no crash followed as the Fed and other central banks went all in on stabilizing the market, resulting in an epic year for risk assets which closed 2021 at all time highs, while GMO suffered not only steep losses but also substantial redemptions, a humiliating outcome for Grantham who had previously called the bursting of both the dot com and housing bubbles, but failed to account for just how determined the Fed is to avoid another bubble bursting.

Grantham then tried his market-timing luck once more, this time with somewhat better results, when in January 2022 he doubled down on the fire and brimstone. The GMO founder revisited a familiar theme, namely that we are currently living in a superbubble - only the fourth of the past century - and like the crash of 1929, the dot-com bust of 2000 and the financial crisis of 2008, Grantham was  "nearly certain" the bursting of this bubble has begun, sending indexes back to statistical norms and possibly further.

How much lower? The value manager saw the S&P tumbling by nearly 50% to 2,500 from its then recent all time highs of 4,800 weeks ago (he appears to enjoy forecasting 50% drops as will apparent in a second). He also predicted that the Nasdaq Composite will sustain an even bigger correction.

“I wasn’t quite as certain about this bubble a year ago as I had been about the tech bubble of 2000, or as I had been in Japan, or as I had been in the housing bubble of 2007,” Grantham told Bloomberg in a “Front Row” interview last January. “I felt highly likely, but perhaps not nearly certain. Today, I feel it is just about nearly certain.”

Well, maybe not that certain, because one year later stocks did drop, but nowhere nearly as much as Grantham predicted, with the S&P sliding 20% in 2022 and the Nasdaq losing a third. Hardly the catastrophic bursting of a superbubble which has inflated stock prices by order of magnitude.

But with Grantham, now 84 and eager to make at least one more historic call before his career is over, is not giving up and in a new paper published today titled "After a Timeout, Back to the Meat Grinder!", the value investor is doubling down on his call from last January (and January 2021... and June 2020), and warns - again - that the popping of the bubble in US stocks is far from over and investors shouldn’t get too excited about the strong start to the year for the market.

According to Grantham, the value of the S&P 500 at the end of the year should be about 3,200, which in retrospect is well above his previous bubble-bursting forecast of 2,500.  That equals a 17% full-year drop and a 20% decline for the year from current levels. Not satisfied with his bearish forecast, Grantham hopes to outbear the likes of Mike Wilson, and believes the index is likely to spend some time below that level during 2023, including around 3,000.

“The range of problems is greater than it usually is — maybe as great as I’ve ever seen,” Grantham told Bloomberg in an interview from Boston.

“There are more things that can go wrong than there are that can go right,” he added. “There’s a definite chance that things could go wrong and that we could have basically the system start to go completely wrong on a global basis.”

Grantham, who is desperate to eventually "nail the crash" as the biggest bear, is also quietly doubling down on his apocalyptic call from a year ago and said he doesn’t discount the idea that the benchmark index could fall to around 2,000, a 50% drop from the current price, which he says would be a “brutal decline." He is, of course, right... if the Fed were to ever allow that to happen. The problem is that Powell would step in long before the S&P dropped anywhere near there and would instruct Blackrock to buy any and all ETFs. Meanwhile, the only brutality has been the collapse in GMO's assets which had been cut by half since 2015 through the end of 2020, as the fund kept doubling down incorrectly on ever more bearish scenarios.

The irony, of course, is that if Grantham is - finally - correct, it will only force Powell to exit from his "Fed put" hibernation and start bidding up risk assets, thus leading to even more pain for bears.

Beside Grantham's bearishness, GMO - which is a value fund - has struggled with lackluster returns in the decade following the global financial crisis as growth stocks led the longest bull market in US stocks on record. But now, as the Federal Reserve tries to tame elevated inflation with aggressive interest-rate increases, value strategies are enjoying a revival. The GMO Equity Dislocation Strategy, which is long value equities and short those the company sees as being valued at “implausible growth expectations,” had gained nearly 15% last year through November; alas it has to more than double to regain its lost AUM.

Value has worked “quite a lot better” over the past year and has outperformed growth during that stretch. Before that, growth had a solid 10-year run, though value had been outperforming in the decades prior to that, Grantham said. “In the range of value versus growth, value is still much more attractively positioned than growth,” he explained. “It’s gone half the way back, but it’s still cheaper.” Value stocks could outperform growth ones by 20 percentage points over the next year or two, he added.

As to what might be currently attractive, Grantham says an investor could divide value stocks into four quartiles. The third group — made up of “the pretty cheap” — did well last year and is no longer super attractive. But the cheapest quartile, which didn’t have the best year, could be poised to hold up best. “It will have a very good time,” he said.

Grantham views the process of further stock market pain playing out now as similar to the popping of bubbles following other rare “explosions of investor confidence” such as in 1929, 1972 and 2000. While many are attributing last year’s slide in stocks to the war in Ukraine and the surge in inflation, or reduced growth from Covid-19 and ensuing supply chain problems, Grantham believes the market was due for a comeuppance regardless.

While the first and “easiest” leg of the bubble’s bursting is over, Grantham says that the next phase will be more complicated. Seasonal strength in the market in January and during the current period of the presidential cycle could keep the market buoyant in the early part of the year.

“Almost any pin can prick such supreme confidence and cause the first quick and severe decline," he wrote echoing what he has said again, and again, and again. “They are just accidents waiting to happen, the very opposite of unexpected. But after a few spectacular bear-market rallies we are now approaching the far less reliable and more complicated final phase.”

For Grantham's sake, we hope he is right because at 84, he is rapidly running out of time for the apocalypse to finally hit.

Grantham's full note is below (pdf link).

Tyler Durden Tue, 01/24/2023 - 14:05

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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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