Fed said make bread

“Perhaps the Federal Reserve in their statements should simultaneously give everyone a placebo and tell them everything is going to be OK. Look, I am not going to understand how it is, all I know is that far too much emphasis is placed on the single actions of the smartest academic minds around, at least in the field of economics. They watch the data and make decisions accordingly, in the same way that single business owners do, to the best of their ability”


To market to market to buy a fat pig. What a relief sports lovers! Now that the Fed meeting is out of the way and that the giant Fed blankey has been handed to Mr/Ms. Market, he/she can sleep better knowing that rates will probably go up in December and that global anxieties have lifted a little. Great, thanks for that, if the Fed says that then we can all sleep a little better. This is a classic case of going to the doctor and feeling better already just sitting in the waiting room, and even better once the doc gives you the thumbs up.

Perhaps the Federal Reserve in their statements should simultaneously give everyone a placebo and tell them everything is going to be OK. Look, I am not going to understand how it is, all I know is that far too much emphasis is placed on the single actions of the smartest academic minds around, at least in the field of economics. They watch the data and make decisions accordingly, in the same way that single business owners do, to the best of their ability.

If you sell hot dogs at a corner stand in New York and demand seems to be dropping, you start to explore solutions, discount your product to attract back customers, work longer hours to meet your desired daily revenues, make sure the condiments administered are slightly less to save costs, work quicker or change location. All these have a knock on impact in the broader economy, in a tiny way. For the record, the cheapest hot dog I came across in New York was the corner of Broadway and Wall Street, opposite the Trinity Church, one of the richest parishes in the world. So you have religion, finance, showbiz and cheap hot dogs in full view. Put that in your economics text book.

Getting distracted, to read the full FOMC statement, be my guest. Cullen Roche makes some good points (fresh back from completing an Iron Man, good for him) in his post titled: The Fed is Navigating Global Uncertainty Well (So Far): “It’s now clear that China’s economic weakness is having a significant impact around the world, but it is not causing anything remotely similar to a 2008 style financial crisis. In fact, US economic data has basically continued to muddle through. It’s weak, but it’s not catastrophic. And parts of the housing market actually look very strong. So, the Fed has tilted their position ever so slightly to set the table for the potential that they could raise rates later in the year or early 2016.”

So there you go, stocks in New York, New York flew after the announcement, all the major indices closing over a percent higher on the day, after having been slightly lower just before the FOMC statement. Sigh, if only people were as attentive to their portfolio make up and the companies they owned, rather than worrying about the Fed the whole time. Other big news last evening was that Pfizer were in talks with Allergen, in what could be the biggest takeover deal of the year, the WSJ reports -> Pfizer, Allergan Considering Combining. Allergan has a market cap of 113 billion Dollars, this would eclipse the AB InBev bid for SABMiller (which was extended yesterday, AB InBev happy after having done due diligence). Allergan is best know for Botox! And best known for being based in Dublin, guess what, low tax rates there!

Back to local is lekker, in Jozi, Jozi we closed almost flat (14 points down in the end) after having spent most of the day in the red. Discovery was on a tear again, the share price hit an all time high. MTN was under pressure again, the stock was down just over two and a half percent by the close. Uncertainty = sell first and ask questions later. The stock traded nearly 1 percent of the market cap again, over 3 percent of all shares in issue have traded over the last three trading sessions.

At some stage we need to hear from the regulators and the company in Nigeria, a few good points were made, for instance RencapMan on Twitter (who is Charlie Robertson) pointed out that the fine was 1 percent of Nigerian GDP. And someone else pointed out that if a fine of the same quantum was dished out to Apple, they would have to pay the US government 190 billion Dollars. Depleting all of their cash resources. Any sane country looking to attract FDI would not fine their biggest investor in their economy a ludicrous amount.

It is not like they committed a monster crime, and had very short time frames as far as I am understanding it. How to win friends and influence investor decisions, something the lefties and regulators always know how to do well. There is a reason why South Korea has amongst the fastest internet in the world and why North Korea has basically no internet. Anyhow, we wait for clarity, I am sure that the business wants that too for their shareholders. Clarity and a conclusion.


Company corner

Amgen, one of the newest additions to the Vestact recommended stock stable, reported numbers post the market last evening. This is a company that I have been watching for about 8 years, back when Lehman Brothers still housed employees and actually had a family. The numbers were for Q3 and were a pretty solid beat, guidance was also a little higher than the previous range. Preliminary guidance was released for 2016 too, the group expects revenues in the region of 21.7 to 22.3 billion Dollars for that financial year, with EPS in the region of 10.35 to 10.75. The share price closed last evening at 162.67, in simple terms the share price trades in the middle of the guided range (10.55 USD EPS) on 15.4 times earnings. The yield at current levels is just below 2 percent.

Nice, what do they do however? Their Google finance profile pretty much sums it up: “Amgen Inc. (Amgen) is a biotechnology company. The Company is engaged in discovering, developing, manufacturing and delivering human therapeutics. The Company’s sales and marketing forces are located in the United States and Europe.” What are human therapeutics? Therapies that are extracted from biological sources. They are looking to produce cost effective therapies based on advances in cellular and molecular biology, says their business mission statement.

The business itself was started with three biological sources, three people, 35 years ago. The first CEO, George Rathmann, worked from a trailer to give his scientists space in the lab. That is how you achieve economic freedom. The company listed in 1983, looking to raise money early on. A young researcher, Fu-Kuen Lin and his team worked round the clock for two years to produce one of the most successful drugs in biotech history, EPOGEN.

If that sounds familiar it is associated with cycling and all the wrong reasons around the most famous bike rides of them all, the Tour de France. EPOGEN (third largest drug in terms of sales for the company) is used to treat patients with low amounts of red blood cells, a condition known as anaemia. And it is normally used to treat people with chronic kidney conditions, people who would be on dialysis. It helps the body create more red blood cells and raises hemoglobin levels. You can see why healthy humans would benefit from taking this drug whilst participating in sport. The company also managed to deliver another blockbuster by the mid eighties, NEUPOGEN. It helps your body produce more white blood cells, and is particularly useful when people are undergoing chemotherapy.

The company continued through to present day, producing other blockbusters like ENBREL (currently their number one drug by sales), which treats Psoriasis and Rheumatoid Arthritis, as well as Ankylosing spondylitis. ARANESP is used to treat anaemia that is caused by both kidney failure or chemotherapy, SENSIPAR is another therapy used in the treatment of adult patients for secondary hyperparathyroidism, as a result of being on dialysis. You see the theme here. More recently Amgen have been involved in drugs that treat cancers, VECTIBIX, which treats colon or rectal cancer, equally in woman genome therapies, PROLIA treats postmenopausal osteoporosis, high risk patients.

AMGEN have also recently acquired businesses that treat speciality caners, rare forms, as well as tricky to treat. Kidney, liver, leukaemia, that realm. A more recent therapy is Neulasta (their second biggest seller), which is also used in helping the body create more white blood cells whilst you undergo chemotherapy. Kyprolis (their fastest growing drug by revenue, up 46 percent quarter-on-quarter) is used to treat multiple myeloma, a cancer of the plasma cells.

More recently, Corlanor, which treats heart disease and as recent as the end of August, Repatha, which is an injectable prescription medicine called a PCSK9 inhibitor. What is that? They dramatically lower LDL cholesterol levels. LDL is Low-density lipoprotein, the bad cholesterol. Do you feel like you should have been paying more attention in your biology and chemistry lectures? I don’t blame you. Just two days ago the FDA approved one of Amgen’s therapies, IMLYGIC, (and I am going to copy and paste from a release) “the first FDA-approved oncolytic virus therapy, for the treatment of melanoma lesions in the skin and lymph nodes.” Skin cancer is still the most common kind of cancer in the USA.

Why own a company like this? It is a simple question. They spend nearly one-fifth of all revenues in research and development, they are hugely cash generative. Plus, to be frank, I would rather much own a company and part with my money to own a piece of a business that is trying to cure humanity. The therapies may be wildly expensive, there may be an ethical argument to cost of the treatments, without that, the company would not be able to recoup the money spent engaging in finding these cures. They are busy working on a breakthrough drug (known at the moment as AMG334, developed in conjunction with Novartis) that would treat episodic migraines. As well as other biosimilar therapies, for treating breast cancer, lung cancer, as well as arthritis/Crohn disease/ulcerative colitis biosimilar, adalimumab is the Monoclonal antibody. Now you really wish you had paid attention!

The company is in an exciting space currently, there are plenty of opportunities, the stock is up only 2.2 percent year to date and looks cheap in their respective peer grouping, well placed to acquire bolt on businesses if needs be. And with the bigger pharma companies shopping for biotech companies, who knows! We add Amgen as a buy to our core grouping of stocks.


Linkfest, lap it up

Mark Perry has a look at on of the unintended consequences of raising minimum wage – Minimum wage = minimum on-the-job training = maximum misery for unskilled workers. Do you agree with his logic?

This is a very interesting read about the global cloud seeding industry – Weather on Demand: Making It Rain Is Now a Global Business. It was interesting to see how wide spread it is, especially that the Chinese government uses it throughout most of the country.

As demand patterns shift in China, steel producers are looking for new markets to sell their product. The result is that cheap Chinese steel is hurting local producers but it means that it now cheaper to construct and that more construction projects should go ahead. It is never a good idea to artificially elevate prices to protect an inefficient local industry because it ultimately means that you spend more resources to get less. Over the long run inefficiencies always die out – China Steel Head Says Demand Slumping at Unprecedented Speed


Home again, home again, jiggety-jog. Asian markets are not as up as I would have expected, US futures are a little lower. European markets and ourselves opened lower today, with the Rand weakening to the Dollar. Most likely people moving cash back to the US in anticipation of rate hike that will come at some point.


Sent to you by Sasha and Michael on behalf of team Vestact.

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