Juggling Dynamite

Innate Immunotherapeutics is a small Australian biotech company who’s main drug is an investigational treatment for multiple sclerosis.  New York House Rep Chris Collins is a board member and was Innate’s largest shareholder with a position valued at over $45 million earlier this year.  Collins was very vocal in recommending the stock to friends, family and colleagues and  bragging of how many millionaires he’d made by promoting the company:

“I talk about it at every turn, just like you talk about your kids hitting a home run and your daughter getting into law school,” Collins told The Hill earlier this month.

Trouble is that the drug failed all of its 93-patient trials and this morning the shares fell 97% to 4 cents from a high of $1.20 in January.  Collins’ $45 million is now trading at less than 1.4 m and his followers who bought in later, have fared even worse. See:  House Republican’s favorite biotech stock just plunged by 90%:

At least four of Collins’ Republican House colleagues followed suit, buying into Innate in January when the company traded at an all-time high of about $1.20 per share. Collins’ chief of staff, Michael Hook, is among Innate’s top 20 shareholders, as are two of the congressman’s children.

Word to the wise:  whenever someone recommends a ‘hot’ investment tip, your risk radar should be on high alert.  Tale as old as time.  Usually the person is already holding and looking for others to ‘buy in’ to push share prices higher and/or allow them to sell their own holdings.  Often the person may totally believe they are genius and are giving you a hand up.  Well-meaning delusion and hubris are very common.

If you do decide to bet on ‘hot’ tips, the primary question should not be ‘how much can you win’ if it succeeds, but rather ‘how much can you afford to lose’ in the overwhelming likelihood that the bet will fail.  Eyes wide open.  Speculative gains usually end equal and opposite in the other direction.  Here’s the chart.

As fresh-faced CNBC hosts come and go, a few guests have decades of real life market experience. Fewer still are independents free to call conditions as they seem them, unconstrained by their corporate sales targets for proprietary financial products and services. Marc Faber summarizes several of the key issues working against financial stability and sustainability of current asset prices in this clip.

Marc Faber, publisher of the “Gloom, Boom & Doom Report,” discusses his market outlook.  Here is a direct video link.

The Bank of International Settlements (BIS) is a board made up of 60 different central bank heads, that meets bi-monthly in Basel, Switzerland and bizarrely issues reports where they talk about central bankers (ie., themselves) in the third person.   Rather like a Monty Python skit where the clerk at one counter pretends they are not the same guy you spoke with at the other. Their latest missive is classic.  After two decades of aiding and abetting devastating financial bubbles, they are once more warning see Central banks raise alarm about new crash after steep rise in lending.

Here they are: “keeping interest rates too low for long could raise financial stability and macroeconomic risks further down the road, as debt continues to pile up and risk-taking in financial markets gathers steam.”

As “risk-taking in financial markets gathers steam”?  Hmm.  As shown in this chart from Lance Roberts, having just grown back their losses for the second time since 2000, buy and holders are once more ‘fully in’ at a secular peak in valuations with average cash levels less than 5% for most managers, ETFs, mutual funds and Do-it-yourselfers.  Convinced once more that this time is different, they will be selling for the exits at the next cycle bottom as they did in the last two.  Central banks are the architects of this nightmare on Main Street, and investor lemmings play a leading role in their own demise. Sad story!