Dear New World Investor:

Happy Bastille Day! July 14 is the French National Day celebrating the anniversary of the storming of the Bastille on July 14, 1789, a major event of the French Revolution. In the US, we could be celebrating the likely end of Fed fear as the main driver of the stock market, even though it is about to be replaced by recession fear.

The precipitating event, of course, was yesterday’s Consumer Price Index report. Those who want to scare you the most will focus on the year-over-year change in the total number, +9.1%, the highest number since 1981, the year I left Capital Research to start a technology stock investment newsletter. Inflation in the US is now higher than it is in Mexico.

Those who want to scare you the least will focus on the month-over-month change in the core number, +0.7% – still not good. The graphic below shows the year-over-year changes in different components of the CPI. They are named from highest to lowest inflation in June on the right-hand side. As you can see, gasoline is #1 (+59.9% – no surprise) and household energy is #3 (+21.9%). Gasoline is 2.6% of the average household budget, but energy is 6.8%, so that really bites, too. Food at home was +12.2% and is 8.1% of the average family’s budget. The only categories under the Fed’s 2% target were toys (+1.9%), IT hardware/services (-1.2%), and rental cars (-7.7%).

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The rate of inflation has dropped noticeably recently in hotel rooms (+25.1% in March to +10.0% in June), used cars (+41.2% in February to +7.1%), and the aforementioned rental cars (+39.1% last October to -7.7%) as some of the pandemic-related lockdowns and supply chain issues got unkinked. The recent drops in oil, gasoline, and other commodity prices will help for a while, but I expect them to be heading higher by yearend.

There has been a lot of demand destruction within the last few weeks – signs of it are everywhere. Retail inventories are building up rapidly as consumers sharply cut back on discretionary purchases. It’s probably a safe bet that the inflation rate for July (reported August 10) and August (reported September 13 – both before the next Fed meeting on September 20-21) will be lower than 9.1%.

As you know, the Fed primarily looks at the core Personal Consumption Expenditures Index that won’t be reported until July 29, the day after their next meeting. But even though they think the core PCE is the best measure of inflation, they are political animals and know they have to respond to yesterday’s report. Wall Street immediately priced in a 100% probability of a 75 basis point (3/4 of 1%) hike in the Fed funds rate, and an 83% probability of a 100 bp increase – up from a 0% probability a week ago. The Bank of Canada just did a 100 bp hike.

And that’s why I think we can celebrate the end of Fed fear. The worst case is priced in, and it caused a 28.42 point or 0.7% drop in the S&P 500, adding yesterday and today. If high inflation is going to continue we’d likely see it in declining bond prices, but for the first time in a long time we’re seeing the opposite.

This is a chart of the iShares 20+ Year Treasury Bond Exchange-Traded Fund (TLT) versus a popular commodity fund, the Invesco DB Commodity Index Tracking Fund (DBC). When this line is rising, bonds are outperforming commodities. When it’s falling, commodities are outperforming bonds. For the past year or so, commodities crushed bonds. It’s been a historic underperformance by bonds, exactly what you’d expect to see in times of high inflation. But in May, the ratio stopped falling. And in June, bonds started beating commodities by a meaningful margin for the first time in over a year:

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Investors are rotating out of commodities and back into bonds, the kind of behavior you see when inflation is peaking.

So the next worry is earnings estimates. Reporting season has begun and gets hot and heavy over the next three weeks. There’s enough uncertainty to think most managements will give cautious guidance. Based on consensus forecasts, S&P500 earnings for the June quarter are expected to increase 3.5% year-over-year on 11.3% higher revenues, driven predominantly by Energy. Excluding Energy, the S&P 500’s June quarter earnings growth rate estimate would be -5.3%. Analysts have started to cut earnings estimates in the past two weeks, but just barely, and are even more reluctant to cut revenues.

And after earnings season, all eyes will turn to a possible recession. The Atlanta Fed’s GDPNow model is improving but still in negative territory at -1.2%. (It will be updated again tomorrow.)

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Whether we have two down quarters in a row or not, the official arbiter of US recessions, the National Bureau of Economic Research, is not likely to say a recession has started unless it lasts longer and gets a lot worse than what we’ve seen so far.

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I don’t know if that will happen – much depends on when the Fed backs off and what happens after the Ukraine war ends. I do know that biotech stocks will move on clinical trial developments and healthcare spending, not what the economy does. Apple will sell a ton of new iPhones, Corning will provide miles of government-paid optical fiber, businesses will advertise on Facebook. Rocket Lab will keep launching satellites for all the new companies competing in space, Velo3D will benefit dramatically from the “Made in America” trend, and Acreage Holdings will sell a lot of newly-legal marijuana in New Jersey and New York. We’re going to be OK.

Market Outlook

The S&P 500 lost 2.9% since last Thursday and is back in bear market territory, down 20.5% year-to-date. The Nasdaq Composite fell 3.2% and is down 28.1% for the year. The small-cap Russell 2000 dropped 3.5% and is down 24.0% in 2022.

The seasonality chart of the US midterm elections for the past 72 years shows that the stock market may be about to begin a bottoming process. It’s been pretty accurate so far:

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The fractal dimension is very, very close to the 30 level that means the downtrend is over. We’ve seen it go under 30 before for a short period, but a consolidating upturn should start soon.

Top 5

Changes this week: None

Near-Term – chronological order
AGNPF Algernon Pharmaceuticals – chronic cough results
AAPL Apple – September new iPhone introduction
OIL iPath Pure Beta Crude Oil Exchange-Traded Note – crude should rise quickly
GBTC Grayscale Bitcoin Trust – Bitcoin is coming out of one of its periodic sharp drops
META Meta – Bounce from overdone selloff
VLD Velo3D – Rapid revenue growth; low market cap

Long-Term – alphabetical order
GRPH Graphite Bio – second-generation genetic editing
NVTA Invitae – the winner-take-most of genetic testing
META Meta – a leader in the metaverse
RKLB Rocket Lab – #2 to SpaceX in space
VLD Velo3D – Return manufacturing to the USA

Virus Update

I’m stopping following the impact of the virus. It looks like it’s endemic, like the flu, and not affecting the stock market anymore. I’ll bring the charts back if things change.

The US Dollar

The dollar is trading inside a positive trend channel and is getting elevated inside the channel, at least in the short term. The 50-day moving average is down at channel lows around 104. The 200-day moving average is at 98. The Relative Strength Index is getting very overbought, but as we know overbought can stay overbought for longer than most expect. Most of the speculators are all-in on a higher dollar – it’s a very crowded trade, and those usually don’t work out. A lower dollar would be good for growth stocks and especially for precious metals.

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Coming Events
Earnings reports for my recommendations start on July 26.

Tuesday, July 19
SCYX – ScyNexis – 4:30am – International Society for the Study of Vulvovaginal Diseases

The $20-For-$1 Stocks

Say you put $2,000 into a stock that goes from 50¢ a share to $10. The $2,000 turns into $40,000. Then you put the $40,000 into another stock that goes from 50¢ to $10. That turns the $40,000 into $800,000. You did it with two stocks, and never risked going negative more than $2,000. (Not that you won’t be mad at me if the first one works and then the second one doesn’t, taking your $40,000 to Money Heaven.)

If you can afford it – and it would not be too big a position in your portfolio – putting $2,000 into each of these 12 speculative biotechs might be a good way to start.

The market capitalizations of these recommendations are typically very low. At the same time, Initial Public Offering valuations had moved very high. We were seeing $750 million to $900 million valuations for a good preclinical/Phase 1 IPO, and even $300 million to $500 million for mediocre Phase 1s. I don’t see how investors make 5x to 10x in a reasonable, three- to four-year period if they buy at those valuations. How many biotechs have moved north of $10 billion within 5 years after pricing an IPO in the $700 million to $900 million range? Hardly any. Buying these out-of-favor, fallen, or forgotten companies that can get important products through the FDA at very low market capitalizations seems like a much better strategy to me.

Risks

Development-stage biotechs are subject to investor sentiment swings from wildly optimistic to excessively pessimistic – mostly the latter recently. After the Primary Risk for each company, I’ve added the clinical stage of their lead product, the probable time of their first FDA approval, and the probable time of their next financing.

As always, you need to think about an appropriate position size. You could buy a full position upfront and then just hold on, or buy some upfront and leave room to add more on the inevitable financings, transient clinical trial setbacks, and the like.

Algernon Pharmaceuticals (AGNPF – $2.37) said its new chronic kidney disease (CKD) research program repurposing Repirinast, a Japanese asthma drug, showed an additive improvement when given in combination with Telmisartan, a blood pressure-lowering medication that is front line standard of care treatment for CKD. They will receive final material for 90-day toxicology studies in late July 2022 and begin a small Phase 1 trial in the December quarter. Algernon has applied for patents for Repirinast to treat CKD as well as for dosing and in combination with several cholesterol-lowering and/or antihypertensive drugs.

AGNPF is a Hold for the chronic cough results due this month.
Primary Risk: Ifenprodil fails in clinical trials.
   Clinical stage of lead product: Phase 2/3
   Probable time of first FDA approval: 2023
   Probable time of next financing: 2022

Invitae (NVTA – $2.81) partnered with Worldwide Clinical Trials, the industry’s leading global, midsize, full-service contract research organization (CRO), to use Invitae’s Explorer tool – part of its real-world data platform that enables access to aggregated genetic testing results.

Around the world, 300 million people have a rare disease, and 72% of those diseases have genetic origins. This partnership helps Worldwide to recruit patients faster and pinpoint optimal study locations to help its sponsors uncover new and potentially lifesaving treatments for people suffering from rare diseases. Buy NVTA under $10 for a first target of $50 and eventually $100+ when they become the Amazon of genetic testing.
Primary Risk: A competitor starts taking significant market share.
   Clinical stage of lead product: NM
   Probable time of first FDA approval: NM
   Probable time of next financing: Not needed

ScyNexis (SCYX – $1.83) had record weekly sales of Brexafemme in late May at 508 prescriptions. That’s a run rate to SCYX of roughly $100,000 a week or $5.2 million a year.

They are doing an oral presentation on Tuesday at the International Society for the Study of Vulvovaginal Disease World Congress on Outcomes of Oral Ibrexafungerp in Patients with Vulvovaginal Candidiasis who Failed Fluconazole Therapy. Buy SCYX under $2 for a first target price of $20 now that Brexafemme is approved and a buyout at $50.
Primary Risk: Ibrexafungerp fails to sell.
   Clinical stage of lead product: Approved
   Probable time of next FDA approval: mid-2022
   Probable time of next financing: 2023 or never

Biotech & Digital Dominators MegaShift
There are at least four ways to make money in the stocks of these large, growing, dominant companies. You can:
* * Buy a stock and hold it
* * Buy a stock and write a call option against it
* * With a Level IV options account, write an out-of-the-money put option
* * With a Level IV options account, write an out-of-the-money put option and use part of the premium to buy an out-of-the-money call option

Apple (AAPL – $148.47) got a record 52 Emmy award nominations, including 20 nominations for the comedy series Ted Lasso. It was the most-nominated comedy series for the second year in a row. They have another big hit with the new drama series Severance, which got 14 nominations. Apple TV+ also announced a Friday night baseball doubleheader schedule.

The Monness Crespi Hardt analyst cut his target price from $199 to $174. Citi cut their target price to $175 while saying there are at least five reasons to buy the stock:

* * The iPhone 14 is expected to launch on September 14, with a foldable iPhone 15 in 2023
* * A mix shift that continues to skew away from lower-priced Android phones toward mid-range and premium-priced products
* * Apple’s plans to buy back around $90 billion in stock
* * “Sticky” services revenue and potential for more devices-as-a-service offering
* * New product launches such as augmented reality/virtual reality (AR/VR) headsets and the Apple Car in 2025, neither reflected in current estimates and market cap

AAPL is a Buy under $150 for new iPhone rollouts and augmented/virtual reality products.

Other Tech

Fastly (FSLY – $11.30) fell after Morgan Stanley downgraded the stock because they are more cautious on Internet infrastructure stocks. Piper Sandler lowered their target price from $19 to $13. In contrast, I think Internet infrastructure spending will accelerate during economic softness or a recession because (1) it clearly saves companies lots of money; and (2) it dramatically improves customer experience, a powerful advantage in the clients’ fight for market share. FSLY is a Buy up to $20 for a 2- to 5-year hold to $80+ as Compute@Edge drives customer acquisition and revenue growth.
Primary Risk:Content and applications delivery networks are a competitive area.
   Probable time of next financing: None needed

Rocket Lab USA (RKLB – $3.91) said they supported a significant milestone for the Defense Advanced Research Projects Agency (DARPA) and the Space Development Agency’s (SDA) Mandrake-2 mission. In June, the two Mandrake-2 spacecraft, Able and Baker, successfully demonstrated closing and maintaining an optical communications link for the full test duration of 40 minutes at a range of 70 miles. In that time, more than 280 gigabytes of data were transferred between the satellites. This was a major step in DARPA and SDA’s vision to provide an assured, resilient, low-latency, high-volume data transport communication system worldwide via a mesh network of optically interconnected space vehicles.

Rocket Lab’s Advanced Solutions subsidiary provided space software, mission simulation, and testing solutions. Since its launch, the two spacecraft have been operated from the Rocket Lab Operations Center in Littleton, Colorado. The Rocket Lab team is responsible for daily spacecraft health and status monitoring, payload tasking, and trajectory control between the spacecraft to support the optical cross-link testing. In addition, because Rocket Lab is vertically integrated they supplied the star trackers and reactions wheels for the spacecraft, enabling the high-precision attitude determination and control required to achieve the optical communications link. RKLB is a Buy up to $13 for my $30+ target as low earth orbit satellites and space exploration grow.
Primary Risk: A new competitor emerges.
   Probable time of next financing: None needed

Velo3D (VLD – $2.20) said Pratt & Whitney has acquired an end-to-end solution from Velo3D to evaluate the Sapphire printer for manufacturing production jet engine components. This is the first Sapphire printer to be located at Pratt & Whitney, which previously used Velo3D’s contract manufacturer network to produce printed and finished parts.

Pratt & Whitney is a subsidiary of Raytheon Technologies, which is a launch participant of President Biden’s AM Forward initiative, a new program encouraging companies to explore the use of additive manufacturing to transform supply chains and drive innovation. Raytheon Technologies’ commitment includes seeking small-medium-enterprise manufacturers’ involvement in over 50% of its requests for quotes on products manufactured using additive technologies, as well as seeking to simplify and accelerate the procurement process of AM parts. VLD is a Buy up to $6 for my $50 target as Velo3D’s high-tolerance metal parts printing business grows.
Primary Risk:A new 3D metal printing competitor emerges.
   Probable time of next financing: None needed

Inflation MegaShift

Gold ($1,708.10) fell to close just above support at the 61.8% retrancement level of the all-time high. The fractal dimension still is in consolidation mode but headed downward again. If it breaks below 55 it will mean a new downtrend is underway. I don’t think that will happen, although continued strength in the dollar could cause it.

Miners & Related

Sandstorm Gold (SAND – $5.56) closed their acquisition of nine royalties and one stream from BaseCore Metals LP. CEO Nolan Watson said: “The addition of this Royalty Package will contribute meaningful immediate and long-term growth to the Company’s portfolio and help position Sandstorm as the go-to mid-tier royalty company.” SAND is a Buy under $10 for a $25 target.
Primary Risk: Prices of precious metals fall due to US dollar strength.

Cryptocurrencies
Cryptocurrencies are a diversifying asset that offer a unique opportunity to make (or lose!) a lot of money quickly. You can easily buy Bitcoin and other cryptocurrencies at Coinbase, Block, or Robinhood.

Bitcoin (BTC-USD on Yahoo – $20,513.14) is fluctuating around $20,000, as it’s been doing since mid-June. As the Ponzi schemes and frauds like Luna and Celsius blow up, and overleveraged players like Three Arrows go bankrupt, it pressures bitcoin because they sell what they can to stave off the inevitable. I’ve tried to keep you out of the leveraged and distributed finance (DeFi) junk that’s now collapsing because they lacked the most important basic feature of the cryptocurrency revolution: You do not have to trust a counterparty. In many cases, they also were not decentralized, had a central authority, and had an unlimited supply. All no-nos in my book.

Bitcoin will survive and thrive. I’m still targeting $100,000 before the next halving in 2026.

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Bitcoin is down about 70% from its November all-time high, while ethereum is down about 77%. Yet venture capitalists are raising large funds to continue to invest in both blockchain companies and their underlying cryptocurrencies. So far this year they have invested over $18 billion in blockchain-related companies, on track to beat 2021’s record year of over $31 billion. The smart money is buying. BTC-USD, ETH-USD, GBTC and ETHE are Strong Buys.
Primary Risk: Bitcoin falls due to over-regulation or is surpassed by another cryptocurrency.

Oil – $96.29

Oil peaked at $122 a barrel on June 8. Today, a barrel of West Texas Intermediate traded closed at $96.29. That’s a 21% drop – a bear market!?! – and it’s already taken gasoline prices down about 40¢ a gallon. The drop has encouraged the often-wrong large speculators to short oil futures. They haven’t been this bearish since early 2019. Back then, oil had crashed 40% in two months. The trend-following speculators piled on and oil rallied more than 20% in the following two months. Extreme pessimism and a crowded trade are contrarian indicators – oil is about to go up, probably to around $130.

Long-term supply and demand trends remain very bullish for oil prices. Demand grows every year and even OPEC just said they expect global oil demand growth to exceed the increase in supplies by one million barrels a day next year. To fill the gap, OPEC would need to hike production significantly, but members are already falling far behind the volumes needed right now due to under-investment and political instability. As Neal Dingmann, Truist’s managing director of energy research, said: “Nearly all the OPEC+ members would be already producing more right now if they could. So, again, to me the only real true capacity, unfortunately out there, prior to all the issues, was in Russia.” Got OIL?

The July 2026 Crude Oil Futures (CLN26.NYM – $53.16) are a Buy the under $55 for a $200+ target.

The iPath Pure Beta Crude Oil Exchange-Traded Note (OIL – $31.05) is a Buy under $36 for an $80+ target.

* * * * *

* * * * *

Your learning from the crypto-pocalypse Editor,

Michael Murphy CFA
Founding Editor
New World Investor

All Recommendations

Check out the complete Portfolio page HERE.

Buys
These are the stocks everyone needs to own because transformative events are happening over the next year or two, and I expect to hold them long-term.

$20-for-$1
  Aptose Biosciences (APTO – $0.85) – Buy under $2.50, ultimate target $30
  Bellerophon Therapeutics (BLPH – $1.31) – Buy under $5, first target $30, then $100
  Compass Pathways (CMPS – $11.36) – Buy under $20, hold a long time for a 10x return
  Graphite Bio (GRPH – $3.31) – Buy under $9, hold a long time
  Inovio (INO – $2.00) – Buy under $7, hold a long time
  Invitae (NVTA – $2.81) – Buy under $10, first target $50, then $100+
  Medicenna (MDNA – $1.29) – Buy under $3, first target $20, then maybe $40
  ScyNexis (SCYX – $1.83) – Buy under $2, target price $20, then $50

Other Biotech
  TG Therapeutics (TGTX – $6.17) – Buy under $7, target price $25+

Tech Dominators
  Apple Computer (AAPL – $148.47) – Buy under $150 for new iPhones
  Corning (GLW – $31.99) – Buy under $33, target price $60
  Gilead Sciences (GILD – $61.81) – Buy under $70, target price $100
  Meta (FB – $158.05) – Buy under $250, target price $400
  SoftBank (SFTBY – $19.00) – Buy under $25, target price $50

Other Tech
  First Trust NASDAQ Cybersecurity ETF (CIBR – $40.07) – Buy under $40; 3- to 5-year hold
  Fastly (FSLY – $11.30) – Buy under $20; 2- to 5-year hold to $80+
  PagerDuty (PD – $25.45) – Buy under $30; 2- to 5-year hold
  QuickLogic (QUIK – $7.38) – Buy under $10, target price $40
  Liberty Media Acquisition Corporation (LMACA – $9.83) – Buy under $10, target price $20 to $30
  Rocket Lab (RKLB – $3.91) – Buy under $13, target price $30+
  Velo3D (VLD – $2.20) – Buy under $6, target price $50

Inflation
  A Short-Sale or REO House – $447,000 – Buy while fixed mortgage rates are low
  Bag of Junk Silver – ($18.33) – hold through silver bull market
  Sprott Gold Miners ETF (SGDM – $22.75) – Buy under $28, target price $50
  Sprott Junior Gold Miners ETF (SGDJ – $26.11) – Buy under $39, target price $100
  Sprott Physical Gold and Silver Trust (CEF – $15.72) – Buy under $18, target price $30
  Global X Silver Miners ETF (SIL – $23.93) – Buy under $30, target price $50
  Coeur Mining (CDE – $2.76) – Buy under $5, target price $20
  First Majestic Mining (AG – $6.89) – Buy under $11, next target price $23
  Paramount Gold Nevada (PZG – $0.43) – Buy under $1, first target price $10
  Sandstorm Gold (SAND – $5.56) – Buy under $10, target price $25
  Sprott Inc. (SII – $33.70) – Buy under $40, target price $70

Cryptocurrencies
  Bitcoin (BTC-USD – $20,513.14) – Buy
  Grayscale Bitcoin Trust (GBTC – $13.13) – Buy
  Ethereum (ETH-USD – $1,184.48) – Buy
  Grayscale Ethereum Trust (ETHE – $8.75) – Buy

International & Other Recommendations
  EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ – $30.29) – Buy under $38 for a $66 target in 12 to 18 months
  KraneShares Bosera MSCI China A Share Fund (KBA – $36.60) – Buy under $40 for a three- to five-year hold
  Morgan Stanley China A-Shares Fund (CAF – $16.28) – Buy under $18 for a three- to five-year hold
  KraneShares CSI China Internet ETF (KWEB – $29.45) – Buy under $40 for a double over the next three years
  Acreage Holdings (ACRDF – $1.02) – Buy under $2 for the Canopy Growth merger
  Mongolia Growth Group (MNGGF – $1.18) – Buy under $1.30; long-term hold

Energy
  Crude Oil Futures – July 2026 (CLN26.NYM – $53.16) – Buy under $55; $200+ target
  iPath Pure Beta Crude Oil Exchange-Traded Note (OIL – $31.05) – Buy under $36; $80+ target
  Energy Fuels (UUUU – $5.31) – Buy under $8; $30 target

Holds
These are holds but not sells – yet. They could get moved back to one of the buy categories if their prices drop or outlook improves, or they could become sell recommendations in the future.
  Algernon Pharmaceuticals (AGNPF – $2.37) – Hold for chronic cough results
  Akebia Biotherapeutics (AKBA – $0.43) – Hold for FDA meeting
  Arch Therapeutics (ARTH – $0.05) – Hold for buyout
  CohBar (CWBR – $0.19) – Hold for human trials of CB5138-3

Publisher: GwynRose LLC, 5348 Vegas Drive, Suite 868, Las Vegas, NV 89108

New World Investor does not act as a personal investment adviser or advocate the purchase or sale of any security or investment for any specific individual. The recommendations and analysis presented to members are for the exclusive use of members. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time. Nothing in this presentation should be considered personalized investment advice. No communication to you by Michael Murphy or any of our employees or contractors should be deemed as personalized investment advice.

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