The Daily Alpha - 09.22.15

The Daily Alpha - 09.22.15

Garrett Baldwin

Today's Alternative Thinking on Good Drugs, Hedge Fund Pay, Africa's Surging Art Market, Solar Panels in Mumbai, and a Big Year ahead for Bitcoin... Here's the five quotes of the day...

1. “How do I sleep at night? You know, Ambien”

Well, this escalated quickly.

MSMB Capital founder Martin Shkreli has just thrown himself into the 2016 Presidential race, but not as a candidate.

The hedge fund founder and CEO of Turing Pharmaceuticals jacked up the price of a popular HIV drug from $13.50 per pill to roughly $750. The company purchased the 62-year-old drug called Daraprim in August. After the New York Post featured the price change, which will dramatically affect patients,

Shkreli was a target on Twitter.

He received one question about how he is able to sleep at night.

His answer: Ambien.

This didn't go over well. Nor does it end well, because now the political candidates are starting to weigh in.

After the Post report on Monday, Democratic candidate Hillary Clinton tweeted that she planned to target “price gouging” in the specialty pharmaceuticals arena. As a result, the entire biotech index slumped by more than 2% on Monday. It still remains down this morning.

Clinton’s plan will demand that pharma companies reinvest profits into research to promote more generic and imported drugs. Sounds great on paper, but the problems always come in the implementation.

[Note to self. Idea for movie about situation. The plot is Wall Street meets Dallas Buyers Club.]

Shkreli's price hike isn't an isolated incident.

There have been many cases of firms purchasing an existing, and comparatively inexpensive drug, reclassifying it as a specialty drug, and then hiking the price significantly.

Two recent cases involved Valeant Pharmarceuticals (VRX), which is currently under Congressional investigation over a similar action on CV meds Isuprel (the price went from $215 per vial to $1,346) and Nitropress ($257.90 per vial to $805.61). Hedge fund Pershing Square Capital Management is one of Valeant’s largest shareholders.

Shkreli has taken the offensive on the topic. He argues that the company will be doing just that. He said in an interview with CNBC that Turning will new research into improving the existing drug, and cited cases where the drug failed to perform for certain patients.

However, previous investors have raised flags about investments he has made in the past, and even accused him of using one drug as his own “piggybank” to pay back unsatisfied investors, according to the New York TImes.

Regardless, we can expect to hear Shkeli’s name a lot during the Democratic debates.

In 2012, it was Warren Buffett’s tax rate.

In 2016, it will be Martin Skreli’s profit margins.

2. “You can jack up the tax rate on investments to whatever you like — that doesn’t mean that anybody is going to pay it.”

Speaking of 2016 campaign talking points…

Kevin D. Williamson at the National Review does the hedge fund and private equity industries justice by taking a baseball bat to the political talking points that companies in the financial space benefit from “tax loopholes” carved out to put one class of Americans ahead of the other.

As he explains, there’s one important thing about myths… Well… they’re myths.

In a must read, Williamson cuts that the beast of the U.S. tax code, and brings head-shaking reality to the debate over carried interest and the argument that Washington has any idea what it’s doing.

As he points out, Goldman Sachs’ regulators aren’t smart enough to work at Goldman Sachs, and the people who write the tax code aren’t as smart as the people with money to react to it. Simply put, it’s Washington, and the reason why companies like General Electric don’t pay taxes isn’t the fault of capitalism. It’s the problem of cronyism and a poorly written tax code that creates massive unintended consequences, not “loopholes.”

Next year, we’re going to hear a lot about how the richest in America need to pay  their fair share. This comes when Bernie Sanders wants to hike tax rates back to marginal levels of 90% (an no one will ever pay that) and create trillion-dollar deficits over the next decade to pay for every do-good project dreamed up by career politicians. As noted, Sanders’ utopia is financially impossible because there isn’t enough money to confiscate.

Williamson rightly concludes what the obvious that seems to have escaped politicians: “Soaking Wall Street will not solve the fundamental political problem underlying our unbalanced national finances: The American middle class wants a much larger welfare state than it is willing to pay for.”

3. "You could buy a piece of good art for 20,000 Naira [about $100 at current conversion rates]. Today it would sell for millions."

Strong demand and skyrocketing prices are the qualities that anyone is looking for in an alternative investment. Sometimes that market pops up from under the radar and takes us all by surprise.

According to CNN, contemporary African art has gained the attention of investors around the world, and there isn’t a sign of demand slowing down any time soon. The report indicates that the auction market for African art is growing at an incredible rate.

Last year, Sotheby's, whose combines African and Oceanic art in its auctions raked in $84 million, compared to about $4 million in the middle of last decade. Now, the company is thinking about hosting auctions dedicated solely to this exploding market.

It’s another sign that Africa is broadening its economic and cultural reach around the globe. With Nigeria, South Africa, and Egypt leading the way in economic growth for the continent, the exporting of culture will be worth monitoring as it aims to boost influence and intrigue in the 21st century.

This is another way to tap into the expected growth, but how fast is too fast for this art market?

That’s a conversation we’ll be exploring in the coming weeks at the Alpha Pages.


4. “Indian industry stands ready to partner and work with the government to achieve the ambitious target set by the Prime Minister Narendra Modi”.

As noted last week, India makes a compelling case as a market for future clean energy investment.

With an overwhelmed energy infrastructure grid and a rising population that is getting wealthier and demanding more electricity, it’s worth exploration. That’s especially true after the National Democratic Alliance government outlined an ambitious target of 175 GW of clean energy by 2022

On Tuesday, Indian Minster of State for Power, Coal and Renewable Energy issued a call to U.S. financing companies, laying out a case for capitalizing on the potential in this market.

Here’s his statement and the opportunity.


5. “To me this debate that we’re having right here is the debate of whether Bitcoin matters or whether the technology that Bitcoin introduced is going to matter.”

Is Bitcoin here to stay? Fortune magazine makes no definitive case and repeatedly calls it a digital currency, a moniker that has outlived its prime and is no longer an accurate portrayal of the technology.

Investors are out at TechCrunch in San Francisco right now, debating its future.

Fortune poses a popular question, but they don’t provide a definitive vision in their editorial.

But you’ll find those answers in the November issue of Modern Trader.

In preparation for this issue, the editorial team worked with industry experts and today’s most important voices in the Bitcoin space. This is the most exciting issue of Modern Trader yet. Editor Steve Lord takes a deep dive into why Blockchain technologies and their investment potential; contributors from around the world explain why 2016 will be a critical year, and Modern Trader sat down with Tyler Winklevoss to discuss he and his brother’s latest venture – the Bitcoin trading exchange known as Gemini.

Subscribers of Modern Trader will receive this magazine much sooner than it hits newsstands and the web, so take a look and learn how you can get access right here.



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