Dear New World Investor:

The headline September Consumer Price Index continued to cool, but was hotter than expected this morning, as was the Producer Price Index yesterday and the nonfarm payrolls report last Friday. Another 75 basis point increase is a sure thing at the Fed’s November 2 meeting and probably at the December 14 meeting.

Prices rose 8.2% year-over-year, down from August’s 8.3% and June’s 40-year high of 9.1%. Economists expected the headline inflation rate to drift down to 8.1%. The month-over-month increase was 0.4% versus the consensus expectation for 0.2%.

Core consumer prices, which exclude food and energy, rose at the fastest annual rate since 1982. The core consumer price index, which excludes food and energy, rose 6.6% from a year ago, marking the highest level since 1982 – a 40-year high. The month-over-month increase was 0.6% for the second month. Wall Street had forecast a 0.4% monthly rise.

Interestingly, the month-over-month change in core goods was zero. But services prices less energy advanced by the most since 1990 on a monthly basis. Changing consumer preferences are underpinning services inflation and have helped ease demand for goods. Meantime, a strong dollar is diminishing foreign demand for US-made products.

If the bears were in charge, the market should have puked today. Instead, in the first minute of trading the S&P 500 had a 2.4% decline to a new 52-week low, trading below the 3,500 level for the first time since 2020 and just 98 points above the early 2020, pre-pandemic peak at 3,393. Treasury yields surged, with the 30-year rate briefly hitting 4.0%, the highest since 2011, and the yield on policy-sensitive two-year notes spiking above 4.5%. From that bottom, the S&P shot up 5.1% to close with a 2.6% gain for the day.

That happened for four main reasons:

1. Both institutions and retail were extremely bearish coming into the news, so there was no one left to sell or short.
2. Inflation is rolling over, although the Fed acts like they don’t know it.
3. The labor market is rolling over, although the Fed acts like they don’t know it.
4. The Fed is utterly trapped. And they must know it.

Let’s dive in.

1. Both institutions and retail were extremely bearish coming into the news, so there was no one left to sell or short.

The latest BofA worldwide survey of fund managers shows the largest underweight of global equities in its history.

Last week’s National Association of Active Investment Managers survey at 19.8 was above the lowest point for the index since early 2020, but still a historically low ranking.

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Retail is just as worried. The CNN Fear & Greed Index was deep in fear territory.

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2. Inflation is rolling over, although the Fed acts like they don’t know it.

Inflation in the US has rolled over, albeit slowly:

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About 25% of the headline CPI is currently free-falling commodities. I don’t expect that to continue for long, especially oil (see below), but right now the LEADING inflation indicators have begun to turn down sharply:

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And whether the trend has turned is ALL that matters for equities. Here is what happened after the peak was in during the December quarter of 1974. I remember it well.

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Shelter costs are the biggest services component and make up about a third of the overall CPI index. They rose 0.7% for the second month. Both rent of shelter and owners’ equivalent rent were up 6.7% on an annual basis, the most on record.

But the way those costs are calculated reflects what was happening in mid-2021, not right now. Economists expect the housing components of the report to be elevated for quite some time, given the lag between real-time changes in rents and home prices and when those are reflected in Labor Department data. Bloomberg Economics doesn’t expect year-over-year rates for the major shelter components to peak until well into the second half of next year.

On the left of this chart is the CPI’s 9-12 months delayed rent data. On the right is the real-time rent data from Redfin.

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3. The labor market is rolling over, although the Fed acts like they don’t know it.

The Job Openings and Labor Turnover Summary has turned down sharply as companies cancel hiring plans. That always is Phase 1, to be followed by Phase 2: layoffs.

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This morning saw the sixth straight week of increasing applications for unemployment benefits, although the numbers may be impacted by Hurricane Ian.

4. The Fed is utterly trapped. And they must know it.

I wrote about this last week. The Fed’s interest rate increases strengthen the dollar, which is the same as weakening other currencies. That effectively exports inflation and forces those central banks to respond. The Fed already has broken the Bank of Japan (defending its bond market), the Bank of England (defending its pension system), South Korea (asking for dollar swap lines), and maybe Credit Suisse and/or Deutsche Bank.

Bank of America’s proprietary Credit Stress Indicator jumped four points last week to close at the 74th percentile, exceeding the June peak of 71 and entering the “critical zone” north of 75 beyond which the risk of credit market dysfunction rises exponentially. The bank said it’s not yet too late to avoid a catastrophic outcome if the Fed slows down: “This means a slower pace of rate hikes at immediate upcoming meetings and a potential pause subsequently, to allow the economy to fully adjust to all the extreme tightening already implemented, but still working its way through the financial system’s plumbing. Failure to do so raises the risk of credit market dysfunction, which, if occurred, would be difficult to contain and fix.”

The problem is that while Fed tightening is often brutal for the rest of the world, this one is especially bad. The broad dollar index is at a major high, which means slow torture for emerging and frontier markets with $4.2 trillion of debt denominated in dollars. There is $13.4 trillion of offshore dollar debt outside US jurisdiction with no clear lender-of-last-resort. Borrowers are being hit by the double shock of both the higher dollar and surging dollar loan-rates. Some of this debt must be rolled over on the three-month lending markets, with a rising risk premium for good measure.

The first hint of a change in direction came from Federal Reserve Vice Chair Lael Brainard. She said policymakers must be prudent in lifting rates higher amid global macroeconomic uncertainty as previous hikes still work their way through the economy: “Moving forward deliberately and in a data-dependent manner will enable us to learn how economic activity, employment, and inflation are adjusting to cumulative tightening in order to inform our assessments of the path of the policy rate.”

Then Treasury Secretary Janet Yellen worried aloud about “adequate liquidity” in Treasury bonds and alluded to allowing big banks to hold more US Treasuries so the government can fund its deficits. This is Quantitative Easing, just named differently. I expect it to happen after the midterm elections, with oil, gold, stocks, and bitcoin rallying hard on it.

With US core inflation at 40-year highs, the Fed cares zero about the rest of the world. But it has reached the point where what’s happening is way beyond raising rates. It’s breaking stuff, which means that the idea of a Fed pivot is very real. It will happen for sure if the repurchase agreement (repo) or Treasury markets freeze, or if we see some big insolvency. The markets will take off like a rocket when it happens and it will be without warning.

Market Outlook

The S&P 500 lost 2.0% since last Thursday and even after today’s rally is down 23.0% year-to-date. The Index has gone down more persistently than even in 2008:

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At the height of the panic buying today, more than 45% of all NYSE securities traded on an uptick. That’s the second-highest amount in at least 25 years on the day after the S&P 500 set a 52-week low, suggesting short-covering.

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The Nasdaq Composite lost 3.8% and hit a two-year low today. It is down 31.9% for the year. The small-cap Russell 2000 dropped 1.4% and is down 23.0% in 2022, exactly matching the S&P.

The fractal dimension is almost back to full consolidation, indicating that the seven-week downturn was just consolidating the previous eight-week upturn. The energy could release for real in either direction in a trend that should last for three months or so, but we could see additional consolidation before that.

Top 5

Changes this week: None

Near-Term – chronological order
AAPL Apple – New iPhone preorders
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
INO Inovio – INO-4800 China trial results and VGX-3100 HPV Phase 3 results by yearend
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 US

Economy

The Atlanta Fed’s GDPNow forecast for September quarter real GDP increased again to +2.9% due to continued strength in personal consumption expenditures growth and gross private domestic investment growth. The first estimate will be published on October 27, in time for President Biden to claim “no recession” for the midterm elections. Perhaps that will counteract the Republican talking points of “runaway inflation” and “soaring gas prices.”

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Coming Events
All times below are ET, and most presentations and slides are archived on the companies’ websites so you can listen to them.

Sunday, October 16
ARTH – Arch Therapeutics – 4:40pm – Symposium on Advanced Wound Care

Thursday, October 20
SCYX – ScyNexis – 12:15pm – Infectious Disease Week poster presentation

Friday, October 21
SCYX – ScyNexis – 10:30am – Infectious Disease Week poster presentation

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. 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 good 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.

Arch Therapeutics (ARTH – $0.04) will have two poster presentations at this weekend’s Symposium on Advanced Wound Care (SAWC) fall conference, with one receiving the honor for “Highest Scoring Poster Abstract in Case Series/Study Category.” This is the major gathering of wound care specialists and AC5 ha hit a home run two years in a row. ARTH is a Hold for a buyout.
Primary Risk: AC5 fails to sell or the internal trial fails.
   Clinical stage of lead product: External approved. Internal trial 2023
   Probable time of first FDA approval: External done. Internal 2023
   Probable time of next financing: June 2022 quarter

Compass Pathways (CMPS – $10.11) held their Capital Markets Day (two-hour VIDEO HERE). Management said they will begin the first-ever Phase 3 program of psilocybin therapy globally by the end of this year. The Phase 3 program is composed of three clinical trials, two pivotal trials, and one long-term follow-up.

Pivotal trial 1 is a single dose (25mg) monotherapy compared with a placebo in 375 patients. This trial is designed to replicate the treatment response seen in their Phase 2b trial in 233 patients.

Pivotal trial 2 is a fixed repeat dose monotherapy in 568 patients using three dose arms: 25mg, 10mg, and 1mg. This trial is designed to investigate if a second dose can increase the number of responders and/or improve the response seen in the Phase 2b trial and explore the potential for a meaningful treatment response from repeat administration of 10mg.

The primary endpoint in both pivotal trials is the change from baseline in the Montgomery–Åsberg Depression Rating Scale total score at week six. CMPS is a Buy under $20 for a very long-term hold to a 10x.
Primary Risk: Their drugs fail in the clinic.
   Clinical stage of lead product: Phase 2
   Probable time of first FDA approval: 2024
   Probable time of next financing: Mid-2023

Inovio (INO – $1.70) announced positive interim results from their ongoing Phase 1/2 clinical trial evaluating INO-3107 for the treatment of HPV 6- and HPV 11-associated Recurrent Respiratory Papillomatosis in adults. 16 of the first cohort of 21 participants, 76%, showed a statistically significant improvement in the clinical endpoint of the number of surgical interventions needed to control papilloma growth. Six participants required no surgical intervention during the trial. INO-3107 was also observed to be well-tolerated and immunogenic. INO is a Buy under $7 for a very long-term hold.
Primary Risk: Their drugs fail in the clinic.
   Clinical stage of lead product: Phase 3
   Probable time of first FDA approval: 2023
   Probable time of next financing: Mid-2024

ScyNexis (SCYX – $2.50) will have three poster presentations on the FURI trial in invasive candidiasis at next week’s ID (Infectious Disease) Week. 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: late-2022
   Probable time of next financing: second half of 2023 or never

Biotech MegaShift

TG Therapeutics (TGTX – $5.72) will have five poster presentations at the European Committee for Treatment and Research in Multiple Sclerosis annual meeting, being held October 26 – 28 in Amsterdam. Buy TGTX under $7 for a target price in a buyout of $25 or more after the MS drug is approved.
Primary Risk: FDA turns the MS drug down.
   Clinical stage of lead product: Filed for approval.
   Probable time of next FDA approval: September 28, 2022
   Probable time of next financing: March 2023 quarter

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 – $142.99) is turning themselves into a bank, and I predict they will become a one-stop financial shop: loans, mortgages, insurance, you name it. They announced a new savings account for Apple Card that will allow users to save their Daily Cash and grow their rewards in a high-yield savings account from Goldman Sachs with no fees, no minimum deposits, and no minimum balance requirements. Soon, users can spend, send, and save Daily Cash directly from Wallet. AAPL is a Buy under $150 for new iPhone rollouts and augmented/virtual reality products.

Gilead Sciences (GILD – $66.46) said the FDA accepted their supplemental Biologics License Application for Trodelvy for the treatment of adult patients with breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting. The FDA granted priority review, as they do for therapies that, if approved, would be significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions when compared to standard applications. The Prescription Drug User Fee Act (PDUFA) target action date is currently set for February 2023. GILD is a Long-Term Buy under $70 for a first target of $100.

Meta Platforms (META – $130.29) held a really important presentation on the metaverse (VIDEO HERE). They unveiled the $1,500 Meta Quest Pro, the first in a new line of advanced headsets built for collaboration, creativity, and getting things done. It features full-color mixed reality and will be used for business applications, as well as entertainment, fitness, education, and gaming. Microsoft’s CEO participated in the event.

It’s the first headset that integrates inward-facing sensors to capture natural facial expressions and eye tracking. Raise an eyebrow, smile, or simply make eye contact with someone, and your avatar will do the same. All of this helps improve social presence – the feeling that you’re right there together with someone no matter where in the world you are. I agree with this SeekingAlpha author: this is a big win.

Meta’s Quest Store has surpassed $1.5 billion in sales. One-third of all apps have had $1 million or more in revenues. Multiple apps have crossed the $1million revenue mark in 24 hours. 33 apps have made over $10 million in revenue, up from 22 in February. The number of apps making over $5 million has more than doubled in a year. It’s already a big, very attractive business.

Bernstein named the stock its top pick. Loup Ventures said Apple and Meta will be the big winners when the tech market turns. It’s no accident that we own them both. META is a Buy under $250 for a $400 target in 2023 or 2024.

Other Tech

Rocket Lab USA (RKLB – $4.11) successfully launched its 31^st Electron rocket, its eighth launch this year, breaking its old record of seven launches in 2020. There is one more scheduled for December that will be the first launch from their new US Launch Complex 2 at Virginia Space’s Mid-Atlantic Regional Spaceport within NASA’s Wallops Flight Facility.

According to Citi research, the space industry had $250 million in revenues in 2010 and $425 in 2020. They expect it to hit $1 trillion in 2040. 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

Inflation MegaShift

Gold ($1,670.00) tumbled the most in more than two weeks this morning after the inflation data set the stage for more aggressive interest-rate hikes by the Fed. Gold is down about 20% from its March peak. BUT when the Fed pivots – and they will – gold and silver are going to new all-time highs. There is a ton of fractal energy to get there.

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 – $19,442.25) went to $18,195.90 after the inflation print and then rallied with high-beta stocks to close up for the day but down for the week. It should outperform even gold and oil when the Fed pivot hits.

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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 – $89.14

OPEC+ September crude oil output rose 170,000 barrels a day but was still 3.57 million barrels a day short of the quotas. Saudi Arabia was near quota, Russia was far below, and Nigeria hit their lowest production since the survey began in 1988

Crude oil showed the biggest weekly build since March as the Biden Administration drained 7.7 million more gallons from the Strategic Petroleum Reserve, the third biggest drain ever, behind only two individual weeks in August and September. The SPR is at a 40-year low. They seem to be scrambling to push gas prices lower ahead of November 8 now that they’ve lost OPEC. But the US is cutting production:

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So is it now OPEC++?

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Probably not, because President Biden said Saudi Arabia will face “consequences” for the OPEC+ production cut. I still think fighting OPEC is a bad policy.

The great DUC decline continues unabated…down to the lowest point since 2013…this is not good.

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US commercial stocks of distillate fuel (diesel and heating oil) are at perilously low levels ahead of winter. At just 106 million barrels, the are the lowest seasonally (for mid-October) since weekly records started in 1982. Using monthly data, it’s the lowest for October since 1951. Time has effectively run out to re-build the commercial stocks. Meanwhile, US exports of refined petroleum products surged last week above 7.0 million barrels per day for the first time ever.

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Let’s hope for a mild winter in both the US and Europe. 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 – $31.57) is a Buy under $36 for an $80+ target.

* * * * *

This is pretty mind-blowing: a podcast that is entirely generated by artificial intelligence where Joe Rogan interviews Steve Jobs This will answer all of your questions about how much AI will change everything… and how soon.

* * * * *

Your investigating surveillance capitalism 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 – $0.59) – Buy under $2.50, ultimate target $30
  Bellerophon Therapeutics (BLPH – $1.04) – Buy under $5, first target $30, then $100
  Compass Pathways (CMPS – $10.11) – Buy under $20, hold a long time for a 10x return
  Graphite Bio (GRPH – $3.18) – Buy under $9, hold a long time
  Inovio (INO – $1.70) – Buy under $7, hold a long time
  Invitae (NVTA – $2.37) – Buy under $10, first target $50, then $100+
  Medicenna (MDNA – $0.81) – Buy under $3, first target $20, then maybe $40
  ScyNexis (SCYX – $2.50) – Buy under $3, target price $20, then $50

Other Biotech
  TG Therapeutics (TGTX – $5.72) – Buy under $7, target price $25+

Tech Dominators
  Apple Computer (AAPL – $142.99) – Buy under $150 for new iPhones
  Corning (GLW – $30.58) – Buy under $33, target price $60
  Gilead Sciences (GILD – $66.46) – Buy under $70, target price $100
  Meta (META – $130.29) – Buy under $250, target price $400
  SoftBank (SFTBY – $18.77) – Buy under $25, target price $50

Other Tech
  First Trust NASDAQ Cybersecurity ETF (CIBR – $37.92) – Buy under $40; 3- to 5-year hold
  Fastly (FSLY – $7.77 – Buy under $20; 2- to 5-year hold to $80+
  PagerDuty (PD – $21.90) – Buy under $30; 2- to 5-year hold
  QuickLogic (QUIK – $6.11) – Buy under $10, target price $40
  Rocket Lab (RKLB – $4.11 – Buy under $13, target price $30+
  Velo3D (VLD – $3.66) – 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 – ($18.78) – hold through silver bull market
  Sprott Gold Miners ETF (SGDM – $20.90) – Buy under $28, target price $50
  Sprott Junior Gold Miners ETF (SGDJ – $23.86) – Buy under $39, target price $100
  Sprott Physical Gold and Silver Trust (CEF – $15.56) – Buy under $18, target price $30
  Global X Silver Miners ETF (SIL – $24.65) – Buy under $30, target price $50
  Coeur Mining (CDE – $3.54) – Buy under $5, target price $20
  First Majestic Mining (AG – $8.19) – Buy under $11, next target price $23
  Paramount Gold Nevada (PZG – $0.30) – Buy under $1, first target price $10
  Sandstorm Gold (SAND – $4.83) – Buy under $10, target price $25
  Sprott Inc. (SII – $32.42) – Buy under $40, target price $70

Cryptocurrencies
  Bitcoin (BTC-USD – $19,442.2519,442.25 ) – Buy
  Grayscale Bitcoin Trust (GBTC – $11.25) – Buy
  Ethereum (ETH-USD – $1,318.12) – Buy
  Grayscale Ethereum Trust (ETHE – $8.39) – Buy

International & Other Recommendations
  EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ – $24.82) – Buy under $38 for a $66 target in 12 to 18 months
  KraneShares Bosera MSCI China A Share Fund (KBA – $30.06) – Buy under $40 for a three- to five-year hold
  Morgan Stanley China A-Shares Fund (CAF – $13.65) – Buy under $18 for a three- to five-year hold
  KraneShares CSI China Internet ETF (KWEB – $22.24) – Buy under $40 for a double over the next three years
  Acreage Holdings (ACRDF – $1.40) – Buy under $2 for the Canopy Growth merger
  Mongolia Growth Group (MNGGF – $1.22) – 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 – $31.57) – Buy under $36; $80+ target
  Energy Fuels (UUUU – $6.47) – 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 – $2.50) – Hold for IPF/chronic cough trial
  Akebia Biotherapeutics (AKBA – $0.29) – Hold for FDA meeting
  Arch Therapeutics (ARTH – $0.04) – Hold for buyout

Sell
  Liberty Media Acquisition Corporation (LMACA – $10.01)

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

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