|
|
|
 |
|
|
|
|
|
Daily Intelligence Briefing
|
|
|
|
|
|
|
|
|
Wednesday, September 11, 2019
|
|
|
|
|
|
|
|
|
Identifying Change-Driven Investment Themes – Five sections, explained here.
|
|
|
|
|
|
We bring you our Daily Intelligence Briefing courtesy of McAlinden Research Partners. The report is provided to Hedge Connection members for free. Below is snapshot, login to view the full report. Not a member? Join today. McAlinden Research Partners is offering a complimentary one-month subscription to receive the Daily Intelligence Briefing – to Hedge Connection clients/friends. Activate yours by contacting Rob@mcalindenresearch.com and mentioning “Sent by Hedge Connection”
|
|
|
|
|
|
|
I. Today’s Thematic Investment Idea
A deep dive into a market driver with alpha generating potential.
|
|
|
E-Cig Giant Juul Slapped by the FDA Again. Where Do Tobacco Firms Turn?→
|
|
|
Summary: Juul Labs, the leading producer of US e-cigarettes, has once again drawn the ire of the Food and Drug Administration for violations of marketing policies. Juul, which saw its valuation soar to $38 billion in 2019, has also seen its vaporizers blamed for hundreds of hospitalizations and 6 deaths in recent months, and now faces an ever-more rocky road to full regulatory approval in the American market. An FDA rejection for Juul would throw the future plans of cigarette giant Altria, which owns a 35% stake in the e-cig startup, into question and bolster its competitors that have begun diversifying their offerings in preparations for a world after cigarettes. Read more +
|
|
|
|
|
|
|
|
|
|
|
|
II. Updates of Themes on MRP’s Radar
Follow-up analysis of key market drivers monitored by MRP.
|
|
|
|
|
|
|
FOMC: Fed Loan Data Reveal the Waning Power of Rate Cuts
|
|
|
China Banks: China to become more selective in supporting distressed banks, say Moody’s and Fitch
|
|
|
Robotics & Automation: Bear Robotics is raising big bucks for robots that deliver food to restaurant patrons
|
|
|
Streaming: 75% of Streamers Reportedly Aren’t Interested in Disney+ or Apple TV+
|
|
|
Oil: Oil Flashcrashes After Trump Fires Security Advisor Bolton
|
|
|
Pharma: Pharma stocks fall as draft of House Democratic drug price plan surfaces on Capitol Hill
|
|
|
Trump Tweets: A JPMorgan bot analyzed 14,000 Trump tweets and found they’re having an increasingly sharp impact on markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV. Active Thematic Ideas
MRP’s active long and short themes, with an archive of follow-up reports.
|
|
|
See Them Here →
|
|
|
|
|
|
|
|
|
|
V. Macroeconomic Indicators
Key data releases relevant to MRP’s Active Thematic Ideas.
|
|
|
See Them Here →
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E-Cig Giant Juul Slapped by the FDA Again. Where Do Tobacco Firms Turn?
|
|
|
|
|
|
|
|
|
|
|
|
Summary: Juul Labs, the leading producer of US e-cigarettes, has once again drawn the ire of the Food and Drug Administration for violations of marketing policies. Juul, which saw its valuation soar to $38 billion in 2019, has also seen its vaporizers blamed for hundreds of hospitalizations and 6 deaths in recent months, and now faces an ever-more rocky road to full regulatory approval in the American market. An FDA rejection for Juul would throw the future plans of cigarette giant Altria, which owns a 35% stake in the e-cig startup, into question and bolster its competitors that have begun diversifying their offerings in preparations for a world after cigarettes.
|
|
|
|
|
|
Early this week, the US Food and Drug Administration (FDA) said Juul Labs, which now commands more than 70 percent of the e-cigarette market in the United States, illegally marketed its vaping products as a less harmful alternative to traditional cigarettes. Juul’s vaporizers are thumb-drive-shaped devices that deliver a powerful dose of nicotine from liquid-filled pods.
The New York Times reported that the FDA referred to a statement by Kevin Burns, the company’s chief executive, that had once been posted on the Juul website, in which he said that the company’s vaping system was designed to “heat nicotine liquid and deliver smokers the satisfaction that they want without the combustion and harm associated with it.” Research into the long-term effects of e-cigarettes is at an early stage, which is one of the reasons the FDA is trying to restrict marketing assertions by Juul and other companies in the industry.
Additionally, Juul was reportedly directly targeting social media channels frequented by young people and, “despite commitments Juul has made to address this epidemic, Juul products continue to represent a significant proportion of the overall use of ENDS (electronic nicotine delivery systems) products by children. Some of this youth use appears to have been a direct result of Juul’s product design and promotional activities and outreach efforts.” Juul’s sweet flavoring has oft been cited a possible draw for minors.
This is the latest crackdown on Juul, which has become somewhat of an industry punching bag for activists and regulatory authorities who want to reign in the budding e-cig industry until conclusive testing is done on their products. Back in March convenience stores and gas stations were effectively banned from selling most flavored e-cigarettes by the FDA, following concerns about teens acquiring e-cigarettes at such locations. In June, San Francisco went so far as to suspend the sales and distribution of all electronic cigarettesthat have not undergone premarket review by the US FDA.
Beyond the regulatory legal hurdles that e-cigarette manufacturers now face, many are wondering if the devices are already proving deadly.
Kansas health officials on Tuesday confirmed the first death in the state associated with an outbreak of serious lung disease related to vaping or using e-cigarettes. It is at least the sixth such death reported nationwide. The U.S. Centers for Disease Control and Prevention is investigating a “cluster” of lung illnesses that it believes may be linked to e-cigarette use after such cases were reported in 14 states – however, the center also does not have evidence that an infectious disease was behind the illnesses and that more information was needed to determine whether they were in fact caused by e-cigarette use. According to the Washington Post the suspected catalysts are not the e-cigarette modules themselves, but adulterants purported to have THC containing oil derived from vitamin E, known as vitamin E acetate. Investigators at the U.S. Food and Drug Administration found the oil in cannabis products in samples collected from patients who fell ill across the United States.
Nearly 100 possible cases of severe lung illness had been reported across multiple states between June 28 and August 18 alone after a spate of illnesses broke out this summer. Healthline reports that the total number of vaping-related illnesses has now reached more than 450 possible cases in 33 states and 1 U.S. territory.
Juul, and other e-cigs like it, are seen as the mainline product of the future for the big players in the tobacco industry. Juul alone had a valuation of $16 billion before Altria, owner of Marlboro and one of the world’s leading producers of tobacco cigarettes, took a 35% ownership stake in the company in late 2018, pushing the company to its current estimated valuation of $38 billion. Altria is so deeply invested in Juul that Piper Jaffray lowered its rating of the tobacco giant to neutral from overweight on Tuesday.
One of the biggest competitors to vaping is already going mainstream in the US, with FDA approval. The alternative known as snus (also known as snuff), a moist powdered tobacco typically sold in small lozenge-sized pouches, is one of the fastest growing tobacco products on the market, with sales up 250% to $60 million last year, according to IRI data. Swedish Match’s Zyn, which began a US rollout earlier this year is an oral pouch that contains nicotine salts but no tobacco leaf. Earlier this summer, Altria plans to compete with a new 80% stake in certain companies of Burger Söhne Holding AG, a Switzerland-based maker of oral nicotine products. Wells Fargo Securities said Altria’s investment gives the company “an immediate answer to Swedish Match’s Zyn with a broader selection of nicotine strengths … and seven flavors.” British American Tobacco has also submitted a number of applications for its Camel brand of snus.
Snus, however, is illegal throughout Europe (excluding Sweden) and is currently dominated by local variants in Africa and Asia, making vaping the dominant alternative to tobacco in international markets for the foreseeable future – that is, if tobacco is to be unseated at all.
Philip Morris International, the world’s largest tobacco company, also wants to diversify away from cigarettes. According to executives, the company is actually dedicated to eliminating cigarettes as a whole, outlining a mission to “unsmoke the world” while retaining the tobacco. Quartz reports that the company is now focusing on converting its countless consumers to electronic alternatives like its new IQOS device, which heats small rolls of tobacco (refills called “Heetsticks” that resemble miniature cigarettes) and creates vapor containing nicotine to be inhaled. The IQOS is already available in more than 40 countries and launching in the US this month, carrying FDA approval. IQOS is expected to represent 40% of company sales by 2025, up from 14% last year”. If Juul doesn’t get FDA approval, Piper Jaffray expects Altria stock would trade off on the negative news, given its stake, though its IQOS tobacco heating system could benefit.
This could complicate the planned mega-merger between Philip Morris International and Altria, worth $200 billion, that was announced late last month. Philip Morris, originally an operating company of Altria before being spun off in 2008, is supposed to be Juul’s pipeline to critical foreign markets since PMI has been the dominant player in international sales over the last decade. But if Altria’s Juul fails to receive eventual FDA approval, as former FDA head Scott Gottlieb believes it could, the negative effects would likely become a contagion for PMI.
However, data from Euromonitor International indicates North America only represents a 5% share of the global tobacco market, showing there is much more growth potential for electronic cigarettes elsewhere around the world. Asia-Pacific region is by far the biggest tobacco market in the world with a 66% share, followed distantly by Western and Eastern Europe and the Middle East and Africa with 9% shares. So, while vaping appears to be stuck in legal and regulatory limbo in the US following Juul’s latest issues, that doesn’t necessarily mean investors should hit the panic button on vaping just yet.
|
|
|
|
|
|
|
|
|
|
|
|
Tobacco Firms (PM, MO, BTI, SWMAY) vs S&P 500 (SPY)
|
|
|
|
|
|
|
|
|
|
|
|
|
Source material for today’s market insight…
|
|
|
|
|
|
|
|
|
|
|
|
E-Cigs
An Altria Bull Slashes His Price Target on the Stock Citing Uncertainty
Piper Jaffray’s Michael S. Lavery lowered his rating on the stock to Neutral, citing less confidence in the company’s future and uncertainty around the future of vaping.
Beyond uncertainty around the upcoming merger with Philip Morris, he also noted regulatory scrutiny facing Juul, in which Altria owns a $12.8 billion stake. Though he believes Juul’s earnings potential may not be fully appreciated by Wall Street, he’s less sure the company will come out unscathed after the Federal Trade Commission and Food and Drug Administration have raised concerns.
“Preventing youth use of e-cigarettes is a top priority for the FDA, and this trend has not appeared to improve yet,” he wrote. “JUUL just received an FDA warning letter, indicating it is still under close scrutiny. Recent reports of illnesses associated with vapor products appear to be driven by black market products, but they still taint the consumer and regulatory perception of [the] entire category.”
Read the full article from Barron’s +
|
|
|
E-Cigs
Here’s What We Know About The Mysterious Outbreak of Vaping-Linked Illnesses And Deaths
E-cigarettes have been on sale for more than a decade, but reports of vaping-linked illness started proliferating this year. Patients typically experienced coughing, chest pain or shortness of breath before their health deteriorated to the point they needed to be hospitalized, according to the Centers for Disease Control and Prevention. Other reported symptoms include nausea, vomiting, diarrhea, fatigue, fever and weight loss.
As of Friday, officials count 450 US cases of potentially vaping-related illness spread among 33 states and one territory. Officials are still trying to figure out what, exactly, is causing people to fall ill. They think chemicals are to blame.
Officials add that there are no particular vaping devices or products linked to all cases and are looking into potential contamination or counterfeit, as many victims report buying marijuana on the street rather than from a store.
Sen. Richard J. Durbin (D-Ill.) on Friday accused the FDA’s acting chief, Norman “Ned” Sharpless, of “sitting on his hands,” tweeting that he would call for the leader’s resignation if he did not “take action in the next 10 days.”
Read the full article from ScienceAlert +
|
|
|
E-Cigs
FDA says Juul ‘ignored the law’ and warns it may take action
The Food and Drug Administration has put vaping giant Juul on notice with a pair of letters calling out the company for misleading statements about its products and ongoing targeting of teens.It is demanding written answers to a boatload of pertinent questions and expects Juul to respond within two weeks or risk “even more aggressive action” by regulators.
“We request that you provide any and all scientific evidence and data, including consumer perception studies, if any, related to whether or not each statement and representation explicitly or implicitly conveys that JUUL products pose less risk, are less harmful, present reduced exposure, or are safer than other tobacco products,” the FDA told Juul.
Furthermore it asked Juul to explain why it uses a 5% nicotine concentration in its products, which could increase the likelihood of addiction, and why the company uses nicotine salts, a substance that reduces harshness and allows greater nicotine concentrations.
In a statement, Juul said that it was “reviewing the letters and will fully cooperate.”
Read the full article from TechCrunch +
|
|
|
E-Cigs
Asia Smokers Are New Target for Embattled E-Cigarette Maker Juul FDA says Juul ‘ignored the law’ and warns it may take action
Juul Labs Inc., the e-cigarette pioneer grappling with negative publicity and government crackdowns in the U.S., is setting its sights on Asia, home to half the world’s smokers. The San Francisco company in recent months has begun selling its vaping devices in South Korea, Indonesia and the Philippines, and is looking into entering more markets in the region.
South Korea will be a major battleground, with British American Tobacco Plc and Japan Tobacco Inc. releasing high-tech devices this summer, after Juul began selling its products there in May. South Korea was one of the first markets Philip Morris chose when expanding IQOS sales in Asia beyond Japan, and local player KT&G Corp. has its own device. By the end of the year, Juul expects to have nationwide distribution in convenience stores, according to Bishop.
Going into Asia won’t be easy for Juul. It means navigating a maze of different smoking cultures, socioeconomic levels and regulatory regimes across a slew of countries at various stages of development. Some countries such as Singapore and Thailand ban e-cigarettes, while others are considering restrictions. Juul has yet to find a way into China, the world’s biggest tobacco market, which is controlled by state monopoly China National Tobacco Corp.
Read the full article from Bloomberg +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select a theme to see when and why we added it. Also included is a link to all recent Market Insight reports we’ve written about that theme, allowing you to track its progress.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States JOLTS Job Openings Slip in July
The number of job openings fell to 7.217 million in July 2019 from a downwardly revised 7.248 million in the previous month and below market expectations of 7.311 million. The job openings level declined in wholesale trade (-55,000) and in federal government (-11,000), but increased in information (+42,000) and in mining and logging (+11,000).
Click here to access the data +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States NFIB Business Optimism Index Falls
The NFIB Small Business Optimism Index fell 1.6 points from the previous month to 103.1 in August 2019, as fewer owners said they expect better business conditions and real sales volumes in the coming months.
Still, job creation accelerated, positive earnings trends improved, and quarter-on-quarter sales gains remained strong. The Uncertainty Index rose 4 points, suggesting that small business owners are reluctant to make major spending commitments. The main impediment to more growth is the record level of no qualified workers.
Click here to access the data +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada Housing Starts Rise More Than Expected
The seasonally adjusted annual rates of housing starts in Canada rose 1.9 percent from a month earlier to 226,639 units in August 2019, beating market expectations of 215,000. Urban starts increased 2.0 percent to 213,663 units, as single-detached urban starts jumped 13.6 percent to 53,275 units, while multiple urban starts fell 1.4 percent to 160,388 units.
Click here to access the data +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Jobless Rate Falls Back to Lowest since Mid-1970s
The UK unemployment rate fell to 3.8 percent in the three months to July 2019, back to its joint lowest since the October to December 1974 period and slightly below market expectations of 3.9 percent. Unemployment declined by 11,000 to 1.294 million and employment rose by 31,000 to 32.777 million, below forecasts of a 53,000 increase. Meanwhile, total pay growth picked up to 4 percent, the fastest since mid-2008.
Total earnings growth, including bonuses, rose by an annual 4.0 percent in the three months to July, the highest rate since mid-2008.
Click here to access the data +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France Payroll Employment in the Private Sector Revised Lower
French payroll employment in the private sector increased by 45.8 thousand, or 0.2 percent, to 19.59 million in the second quarter of 2019, revised lower from a preliminary estimate of 0.3 percent and compared to a 0.5 percent rise in the previous period. Net private job creation in market services grew 33.6 thousand (vs 73.4 thousand in Q1).
Year-on-year, private payroll employment increased by 251.2 thousand, or 1.3 percent.
Click here to access the data +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Korea Unemployment Rate Lowest Since 2013
The unemployment rate in South Korea fell sharply to 3.1 percent in August 2019, well below 4.1 percent in the same month of the previous year and 4.0 percent in July 2019. It was the lowest unemployment rate since November of 2013.
Click here to access the data +
|
|
|
|
|
|
|
|
|
|
|
|
MARKET INSIGHT UPDATES: SUMMARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOMC
Fed Loan Data Reveal the Waning Power of Rate Cuts
After the central bank lowered its target rate for overnight loans between banks on July 31 to a range of 2% to 2.25%, demand for credit among companies of all sizes was little changed in August from the first seven months of the year, based on the Fed’s own data. Total loans outstanding rose by a seasonally adjusted $10.1 billion last month, to $2.36 trillion. That’s an increase of 0.43%, versus an average of 0.34% in the January-through-July period and 0.74% last year.
The National Federation of Independent Business’s latest monthly index of sentiment among U.S. small businesses, released Aug. 13, included a special question that asked participants whether a 100 basis-point reduction in borrowing costs would change their capital spending plans over the next 12 months. Only 12% said “yes,” while 21% said “no” and 24% said they weren’t sure. Another 43% said they “were not planning on borrowing money.” And while last week saw a boom in corporate bond issuance, with investment-grade-rated firms raising about $75 billion in the U.S. – the most for any comparable period since records began in 1972 – Bloomberg News reports that the bulk of the proceeds went toward refinancing debt rather than toward capital expenditures.
The economists at JPMorgan Chase & Co. said it best when they wrote in a Sept. 4 research note addressing global conditions that “it is still unclear how much good lower rates will do given business sentiment is so depressed. But doing nothing may be even worse.
Read the full article from Bloomberg +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Banks
China to become more selective in supporting distressed banks, say Moody’s and Fitch
China is expected to continue to extend support to problematic banks, but authorities will be selective in their approach after pumping in billions of yuan to bail out three banks in the last four months, say analysts.
In general, as big banks bring higher volatility to the system and markets when in trouble and pose a greater risk of contagion, analysts typically incorporate a very high level of support to state-owned banks, a high level of support to large regional banks, and a moderate level of support to small regional banks. Specifically, Chinese regulators are likely to avoid declaring non-viability for the four Chinese global systemically important banks, the report said.
The announcement by Bank of Jinzhou that it will skip payments to international investors on additional tier 1 (AT1) dollar bonds is a point in case. The coupon skip could be part of gradual government moves to weaken investor assumptions of implicit state support and encourage greater differentiation of risk pricing between financial institutions.
Read the full article from South China Morning Post +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robotics & Automation
Bear Robotics is raising big bucks for robots that deliver food to restaurant patrons
Investors are apparently on board with the idea with robot servers. According to a new SEC filing, Bear has so far locked down at least $10.2 million from a dozen investors on its way to closing a $35.8 million round. That’s not a huge sum for many startups today, but it’s notable for a food service robot startup, one whose first model, “Penny,” spins around R2-D2-like, gliding between the kitchen and dining tables with customers’ food as it is prepared.
At least, this is what will theoretically happen once Bear begins lining up restaurants that will pay the company via a monthly subscription that includes the robot, setup and mapping of the restaurant, along with technical support.
They may also be looking at the bigger picture, wherein everything inside restaurants is getting automated — from robotic chefs that fry up ingredients to table-mounted self-pay tablets — with servers one of the last pieces of the puzzle to be addressed.
Read the full article from TechCrunch +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Streaming
75% of Streamers Reportedly Aren’t Interested in Disney+ or Apple TV+
A PC Mag survey of 1,001 streaming users in the US asked specifically about Disney+, Apple TV+, HBO Max, AT&T TV Now, and NBC Universal. According to the survey results, a whopping 75% of current streaming subscribers said they don’t plan on subscribing to any of the new services.
Disney+ had the most interest of respondents, at 14%. Apple TV+ and HBO Max each had the interest of 5% of respondents. AT&T TV Now came in at 3%, NBC Universal had 2%, and 0.2% answered “Other.”
A further breakdown of survey results showed that the disinterest of new streaming services was close to even across current users of all existing streaming services. 75.3% of Netflix subscribers, 73.4% of Amazon Prime subscribers, 76.3% of Hulu subscribers, 74.6% of CBS All Access subscribers, and 63.6% of HBO Now subscribers answered that they were not interested in new streaming services.
Read the full article from Cord Cutters News +
|
|
|
|
|
|
|
|
| There is much more to this report! McAlinden Research Partners offers Hedge Connection members weekly access to the Daily Intelligence Briefing research for free – click here to view. (You must be logged in first). Not a member? Join today. McAlinden Research Partners is offering a complimentary one-month subscription to receive the Daily Intelligence Briefing – to Hedge Connection clients/friends. Activate yours by contacting Rob@mcalindenresearch.com and mentioning “Sent by Hedge Connection” |
|
|
|
Leave a Reply