Dear New World Investor:

Fed Chairman Powell spoke today. This struck me as a notable shift from Powell: “Indicators of wage growth show a gradual decline toward levels that would be consistent with 2% inflation over time.” He didn’t even mention core services ex-housing—the Fed’s proxy for concerns about wages sustaining higher services prices. The Fed’s interest rate increases are over, although they will continue to shrink their balance sheet.

Click for larger graphic h/t @NickTimiraos

He also said: “There are very many signs that the labor market is getting more balanced” and “By so many measures, the labor market is gradually cooling” and at the margin, the Treasury yield increase could mean less need to raise the Fed funds rate further. The 10-year Treasury yield hit 4.988%, its highest level since 2007 – 16 years.

Hedge Funds continue adding to their short Treasuries futures position that now has reached the largest short position in history. Crowded trades rarely work out.

Click for larger graphic h/t @WinfieldSmart

Powell also said we know the fiscal path is ultimately unsustainable. The US posted its third largest deficit on record in 2023, spending $1.7 trillion more than it brought in. This was a $300 billion increase in deficit spending compared to 2022. The US is now spending 44% of GDP per year, the same levels as World War II. We are now spending a higher percentage of GDP than what was seen in 2008, one of the worst recessions in history. The Biden Administration is set to pay over $850 billion in interest on its debt this year. This is larger than the DoD budget of $813 billion.

Click for larger graphic

A Note on “Hedonic Adjustments”

The inflation boffins use hedonic adjustments to reduce reported price increases. For example, if a laptop computer cost $1,000 in 2019 and $1,500 in 2023, you might think that would be a 50% increase in the inflation indices. But if it runs twice as fast with twice the solid-state RAM, they will cut that $1,500 in half and – voilà! – the laptop now “costs” $750 and is a 25% decrease in the inflation indices. If you’ve had a 30% increase in pay over those four years, they think you should be happy that the price of a laptop has “fallen” by 25%. Too bad you actually have to pay 50% more for it.

One of the most outrageous hedonic adjustment areas is used cars, The Manheim Used Vehicle Value Index is +114% since 1997. Because of hedonic adjustments, the CPI calculation is +22%. It costs you an arm and a leg to buy a dumpy econo-car with 100,000 miles and collision damage but the good news is there has been no auto inflation.

Click for larger graphic h/t @JeffWeniger

Market Outlook

The S&P 500 lost 1.6% since last Thursday. In all odd years in the last 22 years, the S&P made the seasonal August-October low by October 13 at the latest. The last time it bottomed later was in 1999 when it bottomed on October 18. This means that the drop yesterday and today is likely to be only a pullback in an uptrend. The Index is up 11.4% year-to-date. The Nasdaq Composite lost 2.9% but still is up 26.0% for the year. The small-cap Russell 2000 dropped 1.8% and now is down 3.3% in 2023. It’s been a lousy year for small-cap stocks, especially small-cap biotech. This, too, shall pass.

The fractal dimension flattened this week, the first hint that this downturn could turn into a trend. I think that’s very unlikely, but it bears watching.

Top 5

Changes this week: None

Near-Term – chronological order
TGTX TG Therapeutics – Rapid recovery from overdone pullback
EQT EQT –natural gas price rebound
USL United States 12 Month Oil Fund, LP – crude should rise quickly
FCX Freeport McMoRan – copper shortage this fall
SFTBY SoftBank – for ARM IPO valuation
AKBA Akebia – Vadadustat NDA approval 2024
VLD Velo3D – Rapid revenue growth; low market cap

Long-Term – alphabetical order
EQT EQT – largest US natural gas company
GBTC Grayscale Bitcoin Trust – Bitcoin is headed for $100,000
NVTA Invitae – the winner-take-most of genetic testing
META Meta – a (the?) leader in the metaverse
RKLB Rocket Lab – #2 to SpaceX in space
SCYX ScyNexis –First new antifungal in 20 years
VLD Velo3D – Return manufacturing to the US

Economy

The Atlanta Fed’s GDPNow model increased its estimate of September quarter real GDP growth to +5.4%. We get the first estimate from the government next Thursday morning – watch for the “Wow, way stronger than expected” bulls face off against the “Fed has to increase” bears.

Click for larger graphic

In contrast, the St. Louis Fed Economic News Index, their real GDP “nowcast,” was projecting growth of only 1.93%. The Atlanta Fed is more accurate.

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

Saturday, October 21
SCYX – ScyNexis – 8:35am – First data on SCY-247 @ 11th Congress on Trends in Medical Mycology (TIMM)

Tuesday, October 24
GLW – Corning – 8:30am – Earnings conference call
Short Interest – After the close

Wednesday, October 25
EQT – EQT – After the close – Earnings release; call tomorrow
META – Meta Platforms – 5:00pm – Earnings conference call

Thursday, October 26
September quarter real GDP – 8:30am – First estimate
EQT – EQT – 10:00am – Earnings conference call

Big Tech: The 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 – $175.46) CEO Tim Cook’s latest trip to China included a visit to manufacturing facilities run by Luxshare Precision Industry Co. Luxshare is a major Apple AirPods supplier that has also won iPhone 15 order and – most important – was named as an assembler of the Vision Pro spatial computing headset that will be available early in 2024. I expect it to be a huge hit. AAPL is a Buy under $150 for new iPhone rollouts and augmented/virtual reality products.

Corning (GLW – $27.42) got a good writeup on Seeking Alpha: Corning: Supportive Megatrends Coupled With A Recovery Story. The author pointed to margin leverage potential that exists due to right-sizing staffing and price actions in the Display segment, an underappreciated product portfolio with a recovery story supported by client destocking activities, and a solid balance sheet, best-in-class R&D team, supportive valuation, and tasty yield. I agree on all counts. GLW is a Buy under $33 for the 5G cellular buildout, followed by the smartphone upgrade to use 5G services. My target is $60 in 2024 .

Gilead Sciences (GILD – $78.44) began a new Phase 2 clinical trial in Europe to evaluate lenacapavir as a twice-yearly HIV prevention option in people who could benefit from HIV pre-exposure prophylaxis (PrEP) in France and the United Kingdom. In Europe in 2022 more than 100,000 people were newly diagnosed with HIV. Less than 15% of people in Europe who could benefit from PrEP are accessing PrEP options.

Another good SeekingAlpha article is Gilead Sciences Stock Is Cheap, With Broad Pipeline. The author wrote: “GILD is dirt cheap despite its broad pipeline, solid profitability (EBITDA margin is quite solid), and low valuation multiples (~30% lower than the sector’s medians). Usually, Gilead Sciences doesn’t have both the current high dividend yield and such a significant FCF yield it has today, adding to the argument for its current undervaluation.” Agree. GILD is a Long-Term Buy under $80 for a first target of $120.

Meta Platforms (META – $312.81) is the #1 user of Nvidia’s AI semiconductors.

Click for larger graphic h/t @learnbiotech

Morgan Stanley said to forget TikTok, Meta’s Reels is where it’s at. Reels continues to gain adoption, a positive signal for engagement and monetization in 2024. According to their survey of 2,000 Americans aged 16 and up, 79% of Instagram users are now using Reels, up from 74% in May, and 36% are on Reels daily versus 34% in May.

Facebook Reels adoption also continues to trend upwards. Sixty-nine percent of Facebook users are now engaging with Reels compared to 65% in May, while 30% use Facebook Reels daily, up from 27% in May.

They added that the engagement growth in Reels could result in “high-teens” revenue growth for the company in 2024, resulting in roughly $20 in earnings per share.

According to market research firm Wallaroo Media, TikTok has more than one billion monthly active users, compared to 2.9 billion on Facebook and 2.2 billion on Instagram. META is a Buy under $150 for a $400 target in 2024.

Small Tech

Rocket Lab USA (RKLB – $4.21) trades at a 98% discount to SpaceX’s latest valuation. Yet not only is it second to SpaceX in launches, but Neutron will compete meaningfully with SpaceX’s Falcon 9 when it is released. Unlike every other small launch company, Rocket Lab has strong competitive advantages including its two launch complexes, deep vertical integration, innovation in new technologies, and an end-to-end space solution for customers. The stock was just recommended on SeekingAlpha: Rocket Lab: Reaching For The Stars. 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.

Biotech MegaShift: 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 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.

Akebia Therapeutics (AKBA- $0.83) will have five poster presentations at the American Society of Nephrology Kidney Week from November 2-5. Buy AKBA up to $2 for the vadadustat launches in the EU, UK, and (after FDA approval in March 2024) the US.
Primary Risk: Vadadustat not approved in the US.
   Clinical stage of lead product: Vadadustat NDA to be refiled by 9/30/23
   Probable time of next FDA approval: March 2024
   Probable time of next financing: Late 2024 or never

Aptose Biosciences (APTO – $2.16) announced that two abstracts on tuspetinib, Aptose’s Phase 1/2 myeloid kinase inhibitor in development for acute myeloid leukemia (AML), have been accepted for poster presentations at the European School of Haematology (ESH) 6th International Conference, being held October 29-31, in Estoril, Portugal.

Aptose is planning to hold a clinical update webcast on October 30 to provide additional up-to-date data on tuspetinib. I expect them to report data on 30 patients. APTO is a Buy under $2.50 for a $30 target in a buyout.
Primary Risk: Either drug fails in clinical trials.
   Clinical stage of lead product: Phase 2
   Probable time of first FDA approval: 2025
   Probable time of next financing: Late 2025

ScyNexis (SCYX – $2.00) presents its first data on SCY-247 this Saturday at the 11th Congress on Trends in Medical Mycology (TIMM). This is their wholly-owned, second-generation fungerp. Buy SCYX under $2.50 for a first target price of $20 after ibrexafungerp is approved for hospital use and a buyout at $50.
Primary Risk: Ibrexafungerp fails to sell.
   Clinical stage of lead product: Approved
   Probable time of next FDA approval: 2023/2024
   Probable time of next financing: Never

Inflation MegaShift

Gold ($1,985.70) moved up today and will have its best week in seven months as investors scramble for safe-haven assets. I think gold finally is ready for prime time. Next stop: all-time highs.

The fractal dimension consolidated a little more this week, but it is about to turn down and signal an uptrend, almost certainly to new all-time highs. That brings in the trend-followers, computer bots, and FOMO day traders to create a blow-off move.

Miners & Related

Sandstorm Gold‘s (SAND – $4.88) Ian Grundy, EVP: Corporate Development, did a deep dive into Sandstorm’s portfolio and the latest updates from their key growth assets: Greenstone, Platreef, Robertson, Hod Maden, and more.

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 – $28,723.30) benefited from both safe haven demand and more pressure for spot exchange-traded funds. The SEC decided not to appeal their DC Circuit Court of Appeals loss to Grayscale, but I don’t think they will approve a spot fund until all the fraud is gone. With FTX gone and Sam Bankman-Fried on trial, we’re almost there. There are two large potential ones left: Changpeng Zhao (Binance) and Tether.

Click for larger graphic h/t @NotChaseColeman

It looks like both may have been used to launder money for terrorists, so the US will use KYC/AML (Know Your Customer/Anti-Money Laundering) regulations to go after them.

Click for larger graphic

BTC-USD, ETH-USD, GBTC, and ETHE are Strong Buys.
Primary Risk: Bitcoin falls due to over-regulation or is surpassed by another cryptocurrency.

Grayscale Bitcoin Trust (GBTC- $22.30) filed a new S-3 with the SEC yesterday to convert to an exchange-traded fund. It remains my favorite way to buy bitcoin at a discount.GBTC is a Buy under net asset value.
Primary Risk: Bitcoin falls due to over-regulation or is surpassed by another cryptocurrency.

Commodities

Oil – $90.56

Oil is back over $90 as crude stocks fall sharply, demand stays strong, and the Middle East war heats up. Israel began ground raids inside the Gaza Strip. This week, there was a US drawdown of 4.491 million barrels of crude oil and 2.371 million gallons of gasoline.

Cushing, Oklahoma, crude oil total stocks fell to 21.013 million barrels, the lowest since October 31, 2014. Cushing “tank bottoms” loom.

Click for larger graphic h/t @zerohedge

At least the Strategic Petroleum Reserve is full (end sarcasm). Oil refiners in China, the world’s largest crude importer, ramped up daily usage to 15.5 million barrels a day last month, the highest rate on record. According to Bloomberg, that is fresh evidence of robust consumption that will support global prices.

Click for larger graphic h/t @C_Barraud

Chinese refiners are shrinking fuel exports as domestic demand jumps. Bloomberg said overseas sales of gasoline and diesel dropped from August’s highs and Beijing isn’t expected to issue any more quotas this year.

In the latest example of a totally bankrupt energy policy, the Biden Administration is making a deal to import more oil from Venezuela if the sanctioned dictator Maduro promises he will have a more fair election next year. If Maduro doesn’t uphold deal for more fair election, the US could re-impose sanctions, perhaps late next year. As Danielle DiMartino Booth said: “Redefining naïveté.”

It is a six-month sanctions relief…it’s a joke. We bowed to a dictator for maybe, maybe 200,000 barrels per day. We have a friendly northern neighbor that could supply the US with more sour barrels (for much longer than six months) if only the administration hadn’t axed the Keystone XL pipeline. They seem to think that oil production is like a light switch that can be turned on and off. Venezuela’s infrastructure is in tatters. This is the most shortsighted policy ever.

Reuters reported that: “Russia expects a visit by Venezuelan President Nicolas Maduro as the two oil producers deepen their cooperation and Russian companies seek to invest more in the South American country, President Vladimir Putin’s oil point man said on Monday.”

US oil production from the top shale basins is set to decline in November by the most since December 2022. JPMorgan wrote: “.. we are turning bullish once again on the global energy complex. We reiterate our $80/barrel long-term target and view .. that the upside risk to oil is $150/barrel over the near to medium term and $100/barrel long-term.

Click for larger graphic h/t @carlquintanilla

I think they are way low.

The July 2026 Crude Oil Futures (CLN26.NYM – $71.95) are a Buy under $70 for a $200+ target. Only buy futures for all cash; do not use margin.

The United States 12 Month Oil Fund, LP (USL – $40.79) is a Buy under $40 for a $100+ target.

EQT (EQT – $43.08) increased their base divided 5% to an annual rate of 63¢ per share. CEO Toby Rice said: “Since initiating our base dividend in late 2021, we have increased the dividend by more than 25% cumulatively over that period, which underscores our confidence in the sustainability of our business and our ability to achieve a free cash flow breakeven price among the lowest in North America. Consistent and reliable long-term base dividend growth will remain a key tenant of our shareholder return framework, and is underpinned by our peer-leading low-cost, multi-decade inventory position.”

EQT is a buy under $35 for a first target of $70 and a long-term hold for much higher prices.
Primary Risk:Natural gas prices fall.

Freeport McMoRan (FCX – $35.23) reported September quarter revenues up 16.4% from last year to $5.82 billion, beating the $5.5 billion estimate. Pro forma earnings of 39¢ per share also beat the 33¢ consensus.

On the conference call (SLIDES HERE and TRANSCRIPT HERE), management said they produced 1.1 billion pounds of copper, 532,000 ounces of gold, and 20 million pounds of molybdenum in the quarter. They sold all the copper and molybdenum, but only 399,000 ounces of gold.

Their average realized prices were $3.80 per pound for copper, $1,898 per ounce for gold, and $23.71 per pound for molybdenum. Their average unit net cash costs were $1.73 per pound of copper, up 18% from last year due to higher Indonesian export duties that they are disputing.

Guidance for the December quarter is 1.1 billion pounds of copper, 580,000 ounces of gold, and 20 million pounds of molybdenum. For the full year, that will bring them in at 4.06 billion pounds of copper, 1.74 million ounces of gold, and 80 million pounds of molybdenum. Capital expenditures for 2023 are expected to approximate $4.8 billion, including $1.9 billion for major mining projects and $1.6 billion for the Indonesia smelter projects.

On the copper market:

Click for larger graphic

Every 10¢ per pound increase in copper prices adds $420 million in earnings before interest, taxes, depreciation, and amortization (EBITDA). They have a deep pipeline of future projects:

Click for larger graphic

And they are committed to paying out half of their free cash flow to shareholders:

Click for larger graphic

Freeport is an exceptionally well-run company that we mainly own for the impending copper shortage.

Click for larger graphic h/t @WinfieldSmart

FCX is a buy under $44 for a $65 target within two years.
Primary Risk: Copper prices fall.

* * * * *

Click for larger graphic h/t @BrianFeroldi

* * * * *

Beating the market with other people’s money is hard:

Click for larger graphic h/t @BrianFeroldi

* * * * *

Your getting perspective on Israel/Gaza Editor,

Michael Murphy CFA
Founding Editor
New World Investor

All Recommendations

Priced 10/19/23. 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.

Tech Dominators
  Apple Computer (AAPL – $175.46) – Buy under $150 for new iPhones
  Corning (GLW – $27.42) – Buy under $33, target price $60
  Gilead Sciences (GILD – $78.44) – Buy under $80, target price $120
  Meta (META – $312.81) – Buy under $250, target price $400
  SoftBank (SFTBY – $21.09) – Buy under $25, target price $50

Small Tech
  Enovix (ENVX – $10.21) – Buy under $20; 4-year hold to $100+
  First Trust NASDAQ Cybersecurity ETF (CIBR – $45.78) – Buy under $40; 3- to 5-year hold
  Fastly (FSLY – $14.81) – Buy under $20; 2- to 5-year hold to $80+
  PagerDuty (PD – $20.30) – Buy under $30; 2- to 5-year hold
  QuickLogic (QUIK – $9.14) – Buy under $10, target price $40
  Rocket Lab (RKLB – $4.21) – Buy under $13, target price $30+
  Velo3D (VLD – $1.35) – Buy under $6, target price $50

$20-for-$1
  Akebia Biotherapeutics (AKBA – $0.83) – Buy under $2, target $20
  Aptose Biosciences (APTO – $2.16) – Buy under $10, ultimate target $30
  Compass Pathways (CMPS – $5.76) – Buy under $20, hold a long time for a 10x return
  Inovio (INO – $0.46) – Buy under $7, hold a long time
  Invitae (NVTA – $0.61) – Buy under $10, first target $50, then $100+
  Medicenna (MDNA – $0.29) – Buy under $3, first target $20, then maybe $40
  ScyNexis (SCYX – $2.00 – Buy under $3, target price $20, then $50
  TG Therapeutics (TGTX – $6.68) – Buy under $12 for buyout at $30+

Inflation
  A Short-Sale or REO House – ($415,400) – Hold
  Bag of Junk Silver – ($23.17) – hold through silver bull market
  Sprott Gold Miners ETF (SGDM – $24.81) – Buy under $28, target price $50
  Sprott Junior Gold Miners ETF (SGDJ – $27.54) – Buy under $39, target price $100
  Sprott Physical Gold and Silver Trust (CEF – $18.33) – Buy under $18, target price $30
  Global X Silver Miners ETF (SIL – $24.93) – Buy under $30, target price $50
  Coeur Mining (CDE – $2.61) – Buy under $5, target price $20
  First Majestic Mining (AG – $5.68) – Buy under $11, next target price $23
  Paramount Gold Nevada (PZG – $0.33) – Buy under $1, first target price $10
  Sandstorm Gold (SAND – $4.88) – Buy under $10, target price $25
  Sprott Inc. (SII – $28.42) – Buy under $40, target price $70

Cryptocurrencies
  Bitcoin (BTC-USD – $28,723.30) – Buy
  Grayscale Bitcoin Trust (GBTC – $22.30) – Buy
  Ethereum (ETH-USD – $1,565.33) – Buy
  Grayscale Ethereum Trust (ETHE – $11.78) – Buy

Commodities
  Crude Oil Futures – July 2026 (CLN26.NYM – $71.95) – Buy under $70; $200+ target
  United States 12 Month Oil Fund, LP (USL – $40.79) – Buy under $40; $100+ target
  EQT (EQT – $43.08) – Buy under $35; $70 first target
  Energy Fuels (UUUU – $7.77) – Buy under $8; $30 target
  Freeport McMoRan (FCX – $35.23) – Buy under $44; $65 target within two years

International & Other Recommendations
  EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ – $28.38) – Buy under $38 for a $66 target in 12 to 18 months
  KraneShares Bosera MSCI China A Share Fund (KBA – $21.31) – Buy under $40 for a three- to five-year hold
  Morgan Stanley China A-Shares Fund (CAF – $11.89) – Buy under $18 for a three- to five-year hold
  KraneShares CSI China Internet ETF (KWEB – $26.11) – Buy under $40 for a double over the next three years
  Acreage Holdings (ACRDF – $0.30) – Buy under $2 for the Canopy Growth merger
  Mongolia Growth Group (MNGGF – $1.06) – Buy under $1.30; long-term hold

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.
  Arch Therapeutics (ARTH – $0.60) – Hold for buyout

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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