Global Macro Trading Journal

This disease and stock shorts are bit of a complex situation because even though the sick person is 'long' the stock of the company with the possible cure, he is also short the price of the drug. So there is another variable to take into account. If they price the drug too high, then the insurance companies might not cover it. That looks like what is going on with SRPT and thats why the stock faded despite FDA approval

Martin Shkrelli took a lot of flack for hiking drug prices for rare drugs, so you would think he squeezed a lot of sick folks. Well, not really, he squeezed more the insurance companies paying for the whole thing. Perhaps the patients would pay more in the future, through higher insurance premiums. But those higher costs are probably only a fraction of the costs to the insurance companies, given that those were rare diseases and most of the time, they dont have to cover anything as people dont get the disease. So any increase in payment might not even happen, or if it does, it might take quite a while and will be modest

He also said he did that to pay for the R&D of those same rare diseases to try to find a cure. Which would then close the 'short' of those sick folks once and for all. To the extent that he as telling the truth, what he was doing was a good thing.
And I believe, I got every reason to be pissed off at him. Him and his buddies teamed up to do that BS squeeze on KBIO and I had a big loss on that. There is still a lot of sketchy things that happened in that squeeze that will probably lead to civil action down the line (like a 10%+ holder selling before the 6 month swing rule was up, he was forced to turn over the profits to the company, that just made no sense). But those drug price hikes on rare drugs, it can be justified if you think about it
 
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If he does find a cure, not only he will close the short of the folks that are sick now, but he will close it for those that will be sick in the future, for the rest of the existance of humanity. Especially if you consider that after 20 years, exclusivity rights drop off and it goes generic, forever. Isn't that worth it a small increase insurance premiums (or a decline in insurance profit margins)?
 
VRX practices are harder to justify, they were running the price hike arb without much R&D going on. But Turing has a huge R&D budget, the figures I heard about are a lot higher as % of revenues than big pharma out there. And if I recall Shkrelli had a drug go well recently, so it looks like it is starting to pay off. Now, if you are talking KBIO or the criminal trial he is facing now (for the phony 'consulting' he did to pay for his huge hedge fund loss from shorting a small cap bio that soared), then he is total scumbag. But the price hikes, I think the media got that wrong
 
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If Turing cures just one disease over the next decade, the entire world will owe them an apology. Just one cure and all the current and future shorts (forever) that will be covered are worth a lot more than little increases in premiums.
 
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I'll throw my 2 cents in on RE. Renting is not necessarily bad, and you cannot look at it from a purely financial standpoint.

I agree that from a financial view owning RE is like owning equities, if you can handle the drawdowns, you should always be long. Even more so for RE because it's illiquid and tends to throw off cash(rent).

But if you don't care about money or value freedom more than money, a house will lock you down for the foreseeable future. This point is immensely crucial.

And there's the timing thing. What's better than being long equities from 1990s never having sold? Having sold in 2000, rebuying in 03, selling in 07 and rebuying in 09. Easier said then done of course.

I agree you have to rebuy in at some point, but as you yourself Daal argued, if you can handle the drawdown, who cares when you rebuy? So a person loses out on 1 year of +10% appreciation, what's that matter in the long term?
 
jj90 said:
I'll throw my 2 cents in on RE. Renting is not necessarily bad, and you cannot look at it from a purely financial standpoint.

I agree that from a financial view owning RE is like owning equities, if you can handle the drawdowns, you should always be long. Even more so for RE because it's illiquid and tends to throw off cash(rent).

But if you don't care about money or value freedom more than money, a house will lock you down for the foreseeable future. This point is immensely crucial.

And there's the timing thing. What's better than being long equities from 1990s never having sold? Having sold in 2000, rebuying in 03, selling in 07 and rebuying in 09. Easier said then done of course.

I agree you have to rebuy in at some point, but as you yourself Daal argued, if you can handle the drawdown, who cares when you rebuy? So a person loses out on 1 year of +10% appreciation, what's that matter in the long term?
More...

I dont own RE, I own REITs and with the dividends I receive I can pay my rent and live anywhere I want in Brazil. I get the freedom to move AND the protection against increase in prices. In the US, a potential plan is to own selected REITs (with a lot of exposure to your area) in a tax-free retirement account

And with regarding to timing, equities is a lot easier because its cheap and liquid, RE is so expensive (IIRC, transaction costs are around 10%, plus you got to pay tax) and illiquid. If there is one market one shouldn't be trying to get out to rebuy lower, its RE. If the person is a first time buyer (removing tax from consideration) MAYBE it makes sense to time the buy but if you consider the P&L of the short, if you had the numbers showing up in your platform everyday, you would cover that short instantly. But because the P&L only happens in math land, people feel that they can ignore it
 
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The idea of building a REIT portfolio to hedge housing costs is better than what people do, which is to take out a big mortgage to buy a home. Then they will end up paying a lot more for that RE because of interest costs. Whatever disposible income people have to pay in mortgage payments, they could set aside to buy some diversified REITs. This is not to say that this would work for everyone, some people just dont have the discipline. They need a bill coming in every month in order to save money to pay it, if they feel like this REIT thing is optional, then they might not save and blow that money in other things. Thats where behavior finance comes in, one got to change the plan in order to fit the person
 
In Brazil, looking at some estimates, one can earn around 4-5% real by buying real estate (price per square foot/rent per squarefoot minus tax or without tax in case of owner occupied). With the REITs, you can get around 8-9%. This is also what makes me confident that the stock market is undervalued. REITs are so ridiculously cheap, where in the world can you close your housing short and still earn 8-9% a year (plus price appreciation, and given thats all inflation protected, its 8-9% real)? REITs are being dragged down by the cost liquidity (which rises in a recession as people need cash to pay back debts and expenses). A source of liquidity is the stock market, and REITs is a competing instrument. So they all get hit by the liquidity discount
 
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Assuming finance hasnt broken down in Brazil, if long-term inflation linked bonds yield 6% real pre-tax (and they do) and REITs pay 8-9% real (after-tax), then stocks are priced to return 10-15% real. The CAPE ratio also suggests that
 
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