Dear New World Investor:

The S&P 500 decisively snapped a four-day losing streak today by gaining 330 points from its intraday low. The Index still lost 5.5% since last Thursday and fell 4.2% in August. It is down 16.8% year-to-date.

And here comes September! When the S&P has been down year-to-date through the end of August, it has averaged a decline of 3.4% in September, whereas September has been flat when the index was up year-to-date heading into the month. For the remainder of the year, the Index has averaged a loss of 1.2% when coming into September with year-to-date losses and a gain of 3.3% when coming into September up year-to-date.

But everyone already has sold or gone short for a further decline (see below) and inflation has peaked (also below). The ADP business payrolls survey rose only 132,000 for August, down from +270,000 in July and far short of the +300,000 expected. It was the smallest gain since the start of 2021. Weakening in the job market clearly is one of the Fed’s goals to tame inflation.

Tomorrow morning’s August payrolls number (+300,000 expected) could set off a rip-your-face-off rally if it is weak, or a final V-shaped plunge and recovery if it is strong. Exacerbating that, stock market volume has been very low with so many of the big money players at the beach, and the first few tradings days after Monday’s Labor Day holiday often set the tone until Thanksgiving.

The Nasdaq Composite lost 6.8% from last Thursday and 4.6% in August. It is down 24.7% for the year. The small-cap Russell 2000 dropped 5.5% and is down 18.8% in 2022.

Just before Fed Chairman Powell dropped the hammer last Friday at the Jackson Hole conference, the Fed’s favorite inflation indicator, the Personal Consumption Expenditures Index, was reported down 0.1% in July from June, the first time in two years that has happened, with the core index up just 0.1%.

The PCE rate of inflation over the past year dropped to 6.3% from 6.8% in the June. The Fed’s favorite core rate of inflation edged down to 4.6% from 4.8% in the 12 months ended in July. It had touched a 40-year high of 5.3% in February.

The last Consumer Price Index and Core CPI was the first time in 13 months that analysts were too high. It had been 13 months in a row where it kept coming in hotter than they estimated. Fundstrat pointed out that many CPI components “are starting to fall like a rock.”

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Rental price growth has rolled over, with 8.5 million people behind on their rent at the end of August, according to Census Bureau figures. And 3.8 million of those renters say they’re somewhat or very likely to be evicted in the next two months.

Housing prices showed the most negative month-over-month decrease since 2011, and that was June for April and May homes.

Quit rates have rolled over and the Harris Poll indicates a massive swing in worker-perceived power now feeling they cannot quit, regret for job hopping, and with fewer openings to move to. JPMorgan pointed out that jobless claims recently jumped 10% above their preceding three-month average. Every time in history that has happened, the economy eventually entered into a recession. There have been no false signals with this indicator, and whenever this indicator goes off, the S&P 500 returns an average of 11% over the subsequent 12 months.

It’s all moving in an aggressively dis-inflationary pattern and the Fed knows it. When the CPI, PCE, and Producer Price Index, as well as all of the core measures, are missed by analysts and the relevant economic data is 90% pointing to disinflation and deflation, investors should be optimistic.

The question is: Will the Fed maintain its newly aggressive posture and tip the economy into a second recession in three years, or will Powell et. al. back off to see what the impact is of their Quantitative Tightening to date?

I think they will back off, defined as a 25-basis pont increase in the Fed funds rate at the September 21 meeting. But a strong payroll number tomorrow and another big CPI print on September 13 could mean another 75-basis point increase. However, I think that’s already discounted in the market, so stocks go up either way.

But Wall Street disagrees with me…really disagrees with me. The CBOE’s put/call ratio is back near the highs made in early June, shortly before the most recent rally in the S&P began.

Large speculators – the funds or banks that trade huge volumes of futures contracts – hold a net position (long contracts minus short contracts) on the E-mini S&P 500 Index futures that is short 250,000 contracts, the largest net short position in about two years.

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Historically, there were seven times the net short position hit 250,000 contracts on the E-mini futures for the first time in the preceding three months.

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Aside from the very short term, usually when these large speculators go all-in on shorts they are wrong. With the S&P 500 down about 7% since the recent signal two weeks ago, the very short-term underperformance might have already been realized.

The Invesco QQQ Trust Exchange-Traded Fund (QQQ) that tracks the Nasdaq 100 has posted the largest increase in short selling among ETFs, according to data analytics company S3 Partners. Short interest in the QQQ rose $5.4 billion, or 28%, to nearly $25 billion, or 14% of its free float, in the 30 days ending Wednesday.

If we get a weak payrolls number tomorrow, today’s 330-point rally from the lows is going to look like kid stuff.The fractal dimension is close to fully consolidated and could support a meaningful rally.

Top 5

Changes this week: None

Near-Term – chronological order
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 US

Economy

US manufacturing growth steadied in August at the slowest pace in over two years, while a measure of materials costs declined for the fifth-straight month in a sign that supply chain-related inflationary pressures are easing. The Institute for Supply Management’s gauge of factory activity held at 52.8, matching the lowest level since June 2020, according to data released today. Readings above 50 indicate expansion, and the latest figure compared with a median projection of 51.9 in a Bloomberg survey of economists.

Prices paid for materials used in the production process fell 7.5 points to the lowest level since June 2020. The gauge plunged 18.5 points in the prior month.

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

Friday, September 2
August payrolls – 8:30am – +300,000 expected; July was +528,000

Monday, September 5
Markets closed – Labor Day
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Wednesday, September 7
SCYX – ScyNexis – 10:20am – World Anti-Microbial Resistance (AMR) Congress
CMPS – Compass Pathways – 10:30am – Citi BioPharma Conference
AAPL – Apple – 1:00pm – iPhone 14 Introduction

Thursday, September 8
GILD – Gilead – 10:25am – Wells Fargo Healthcare Conference
GLW- Corning – 10:30am – Citi Global Technology Conference

Friday, September 9
SCYX – ScyNexis – 5:30pm – Mycoses Study Group Education and Research Consortium Biennial Meeting

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.

Arch Therapeutics (ARTH – $0.02) submitted an application to the Centers for Medicare & Medicaid Services (CMS) for a unique Healthcare Common Procedure Coding System (HCPCS) billing code to enable providers to bill AC5 specifically. Doctors currently rely on a 2022 CMS rule establishing principles for billing synthetic skin substitutes in physician office settings, but there is no guarantee of coverage or payment.

The company filed a proxy statement for the September 29 annual meeting. There are seven items:

1. Elect four directors – vote Yes
2. Approve a reverse stock split of not less than 1-for-100 and not greater than 1-for-200 – vote No Way
3. Approve an increase the number of authorized shares of common stock – vote No
4. Approve, on an advisory basis, the compensation of Executive Officers – vote No
5. Approve, on an advisory basis, how frequently stockholders believe we should conduct an advisory vote on the compensation of our Named Executive Officers – vote No
6. Approve a proposal to grant discretionary authority to adjourn the Meeting, if necessary, to solicit additional proxies – vote No
7. Ratify the appointment of Baker Tilly as independent auditors – vote Yes

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 2022
   Probable time of first FDA approval: External done. Internal 2023
   Probable time of next financing: June 2022 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 – $157.96) will introduce iPhone 14 next Tuesday. Expect the usual rumors of disappointing sales and supplier cutbacks right up until they announce December quarter results around the end of January. AAPL is a Buy under $150 for new iPhone rollouts and augmented/virtual reality products.

Corning (GLW – $33.87) will build a new cable manufacturing facility in Gilbert, Arizona, based on a long-term relationship with AT&T, the nation’s largest fiber internet provider, as the carrier expands its fiber service. Corning has invested more than $500 million in fiber and cable manufacturing since 2020 to nearly double capacity, all supported by customer commitments. GLW is a Buy under $33 for the 5G cellular buildout, followed by the smartphone upgrade to use 5G services. My first target is $60 in 2023 .

Meta Platforms (META – $165.36) is the biggest threat to Apple as the metaverse unfolds, so Apple has quietly begun hiring for roles aimed at poaching the Facebook and Instagram advertisers that felt the biggest brunt from Apple’s privacy updates.

Meta introduced the first end-to-end shopping experience on WhatsApp, allowing people in India to browse the JioMart catalog, add products to their cart, and pay to complete purchases, all within WhatsApp. I expect this to expand worldwide.

And they are getting into content creation. Users can watch Surrounded, an immersive comedy special, in Virtual Reality on their Meta Quest 2 headsets on September 9 at 9:00pm EDT. The special features sets from the Just for Laughs Comedy Festival in Montreal. Users can also watch the special on Just For Laughs’ Facebook and Instagram accounts and on Messenger’s Watch Together, but the VR consumers will have a more immersive experience and bragging rights.

I think the future of VR lies in a combined hardware/services model, and Zuckerberg will copy Apple’s iPhone model to try to dominate the metaverse. Those two plus Snap, Microsoft, and Google look likely to be the winners. META is a Buy under $250 for a $400 target in 2023 or 2024.

Other Tech

PagerDuty (PD – $24.10) reported July second-quarter results after the close. Revenues grew 33.6% from last year to $90.25 million, beating the consensus estimate for $88.22 million. They had a pro forma loss of four cents a share, half of the eight-cent loss estimate. For the October third quarter they guided revenues of $92.0 million to $94.0 million, above the consensus for $92.53 million.

The stock is up $1.45 in aftermarket trading. I’ll have a full analysis next week. PD is a Buy up to $30 for a 2- to 5-year hold as their digital operations management Software-As-A-Service gains market share.
Primary Risk:Digital operations management is a competitive area.
   Probable time of next financing: None needed

Velo3D (VLD – $4.36) said Hermeus, a company developing hypersonic aircraft for defense and commercial applications, has bought an original Sapphire and a large-format Sapphire XC to print Inconel 718 for Hermeus’ Chimera engine and Quarterhorse aircraft. Quarterhorse’s first flight is planned for 2023.

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 ($1,706.50) had its fifth straight monthly drop, the longest losing run in four years, responding to the hawkish Fed and consequent strong dollar. It hit a six-week low today, stopping right at the 61.8% retracement level that has held several times in the last year.

It looks like Europe is about to start raising interest rates rapidly, which should strengthen the euro and weaken the dollar, relieving some of the pressure on gold. Of course, a weak payrolls number would mean an immediate rally. There is a huge amount of fractal energy to power it.

Miners & Related

Sandstorm Gold (SAND – $5.34) closed the first part of the previously announced reverse takeover transaction of Horizon Copper, including the sale of the their 30% interest in the Hod Maden project to Horizon and the receipt of a $200 million gold stream on production from Hod Maden. This returns Sandstorm to a pure-play royalty and streaming company once again. 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 – $20,032.69) seems to have really strong support around $20,000, indicating a relatively low-risk entry point. My preferred way to buy bitcoin still is the Grayscale Bitcoin Trust (GBTC – $12.28).

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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.

International & Other Recommendations
It is important to hold some non-US assets, especially in China. China’s government never gave U.S. inspectors a look at the books of Chinese businesses, for fear of revealing state secrets at its big state-run companies. A few years ago, Congress said enough is enough and passed a law saying Chinese companies would get kicked off US exchanges if they don’t play along soon. A standoff ensued, which just ended on August 26 when the China Securities Regulatory Commission and the U.S. Securities and Exchange Commission (SEC) agreed on audit protocols.

EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ – $30.81) is a Buy under $38 for a $66 target in 12 to 18 months.

KraneShares Bosera MSCI China A Share Fund (KBA – $33.42) is a Buy under $40 for a three- to five-year hold.

Morgan Stanley China A-Share Closed-End Fund (CAF – $14.89) is a Buy under $18 for a three- to five-year hold.

KraneShares CSI China Internet Exchange-Traded Fund (KWEB – $29.33) is a Buy under $40 for a double over the next three years.
Primary Risk of all four: China falls into a recession.

Acreage Holdings (ACRDF – $1.01) is in the right business. According to a recent Gallup poll, 16% of Americans said they smoked marijuana in the past week, while just 11% said they smoked a tobacco cigarette. It marks the first time that smoking pot is more popular than smoking cigarettes in America. It also is the highest percentage of reported past-week marijuana use since Gallup began tracking the data since 2013.

Experimentation with weed has also grown in America — by a lot. In 1969, when Gallup first asked the question of whether you have ever tried marijuana, only 4% of Americans answered yes. Today, nearly half of Americans say they have tried it. How can Phillip Morris and Altria not acquire marijuana companies?

ACRDF is a buy under $2 for a hold for the Canopy Growth merger and beyond.
Primary Risk: Canopy Growth does not acquire the company.

Oil – $86.43

Oil is in complete freefall, down over 10% in three days after falling for a third consecutive month in August in the longest run since April 2020. Investors are focusing on tightening monetary policy around the world that could crimp economic growth and hit oil demand. The lockdown of the Chinese megacity of Chengdu to contain a COVID-19 outbreak added to the negative sentiment.

Yet in the real world of physical – not paper – oil, OPEC+ just said the oil market will have a small surplus of just 0.4 million barrels per day in 2022, much less than forecast earlier, due to the underproduction of its members. OPEC+ meets on September 5 to set production quotas, just over a week after cartel leader Saudi Arabia said the group may cut oil output.

Last week’s storage data showed a crude draw of 3.326 million barrels and a gasoline draw of 1.172 million barrels. So far in August, the US has drawn crude inventories at a rate of nearly 300,000 barrels a day, despite the fact the Strategic Petroleum Reserve has released stocks at a rate of more than 700,000 barrels a day during the same period. The SPR releases end, in theory, in late October

Oil demand will increase for decades. There literally are not enough metals available to replace fossil fuels with wind turbines, solar panels, and battery technology.

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

The iPath Pure Beta Crude Oil Exchange-Traded Note (OIL – $30.57) is a Buy under $36 for an $80+ target.

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Your reading The Politically Incorrect Guide to Economics 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 – $0.78) – Buy under $2.50, ultimate target $30
  Bellerophon Therapeutics (BLPH – $1.13) – Buy under $5, first target $30, then $100
  Compass Pathways (CMPS – $16.10) – Buy under $20, hold a long time for a 10x return
  Graphite Bio (GRPH – $3.30) – Buy under $9, hold a long time
  Inovio (INO – $2.33) – Buy under $7, hold a long time
  Invitae (NVTA – $2.97) – Buy under $10, first target $50, then $100+
  Medicenna (MDNA – $0.91) – Buy under $3, first target $20, then maybe $40
  ScyNexis (SCYX – $2.46) – Buy under $2, target price $20, then $50

Other Biotech
  TG Therapeutics (TGTX – $7.36) – Buy under $7, target price $25+

Tech Dominators
  Apple Computer (AAPL – $157.96) – Buy under $150 for new iPhones
  Corning (GLW – $33.87) – Buy under $33, target price $60
  Gilead Sciences (GILD – $64.95) – Buy under $70, target price $100
  Meta (META – $165.36) – Buy under $250, target price $400
  SoftBank (SFTBY – $19.62) – Buy under $25, target price $50

Other Tech
  First Trust NASDAQ Cybersecurity ETF (CIBR – $41.29) – Buy under $40; 3- to 5-year hold
  Fastly (FSLY – $8.77) – Buy under $20; 2- to 5-year hold to $80+
  PagerDuty (PD – $24.10) – Buy under $30; 2- to 5-year hold
  QuickLogic (QUIK – $6.62) – Buy under $10, target price $40
  Liberty Media Acquisition Corporation (LMACA – $9.86) – Buy under $10, target price $20 to $30
  Rocket Lab (RKLB – $5.27) – Buy under $13, target price $30+
  Velo3D (VLD – $4.36) – 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 – ($17.581) – hold through silver bull market
  Sprott Gold Miners ETF (SGDM – $20.04) – Buy under $28, target price $50
  Sprott Junior Gold Miners ETF (SGDJ – $23.87) – Buy under $39, target price $100
  Sprott Physical Gold and Silver Trust (CEF – $15.45) – Buy under $18, target price $30
  Global X Silver Miners ETF (SIL – $22.38) – Buy under $30, target price $50
  Coeur Mining (CDE – $2.62) – Buy under $5, target price $20
  First Majestic Mining (AG – $7.00) – Buy under $11, next target price $23
  Paramount Gold Nevada (PZG – $0.35) – Buy under $1, first target price $10
  Sandstorm Gold (SAND – $5.34) – Buy under $10, target price $25
  Sprott Inc. (SII – $35.55) – Buy under $40, target price $70

Cryptocurrencies
  Bitcoin (BTC-USD – $20,032.69 ) – Buy
  Grayscale Bitcoin Trust (GBTC – $12.28) – Buy
  Ethereum (ETH-USD – $1,585.86) – Buy
  Grayscale Ethereum Trust (ETHE – $11.56) – Buy

International & Other Recommendations
  EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ – $30.81) – Buy under $38 for a $66 target in 12 to 18 months
  KraneShares Bosera MSCI China A Share Fund (KBA – $33.42) – Buy under $40 for a three- to five-year hold
  Morgan Stanley China A-Shares Fund (CAF – $14.89) – Buy under $18 for a three- to five-year hold
  KraneShares CSI China Internet ETF (KWEB – $29.33) – Buy under $40 for a double over the next three years
  Acreage Holdings (ACRDF – $1.01) – Buy under $2 for the Canopy Growth merger
  Mongolia Growth Group (MNGGF – $1.40) – 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 – $30.57) – Buy under $36; $80+ target
  Energy Fuels (UUUU – $7.25) – 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 – $4.57) – Hold for IPF/chronic cough trial
  Akebia Biotherapeutics (AKBA – $0.37) – Hold for FDA meeting
  Arch Therapeutics (ARTH – $0.02) – 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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