Musings: Viruses, Chronic Disease, and a Medical Tech Stock

Alex here with your latest Friday Macro Musings…

As always, if you come across something cool during the week, shoot an email to alex@macro-ops.com and we’ll share it with the group.

Latest Articles/Podcasts/Videos —

Your Monday Dirty Dozen [CHART PACK] — I review our confirmed sell signals in equities, revisit the indications of overbought and overloved stocks, and then reiterate our long bond call

Articles I’m reading —

Ray Dalio shared his and his team’s thoughts on the coronavirus and potential market impacts this past week. The article is titled “Our Early Thinking on the Coronavirus and Pandemics”. They run through a number of past pandemics, going all the way back to the Spanish Flu which occurred during WWI. I’m not sure how much of this is useful from a practical investing standpoint but it’s interesting and does give you some context in case things get much worse. Here’s the link and an excerpt:

“As for the spreading of this virus, as with any sort of unknown, there are 1) actual events and 2) the expectations of events that get reflected in market pricing.  Generally speaking, these once-in-a-lifetime big bad things initially are under-worried about and continue to progress until they become over-worried about, until the fundamentals for the reversal happen (e.g., the virus switches from accelerating to diminishing). So we want to pay attention to what’s actually happening, what people believe is happening that is reflected in pricing (relative to what’s likely), and what indicators that will indicate the reversal.”

In addition, Bianco Research is putting out some worthwhile reading materials on the virus which you can find here.

Charts I’m looking at—

This chart is from Cornerstone Macro. The green line shows the Bloomberg Economic Surprise Index of Leading Indicators while the grey line shows the relative performance of industrials (XLI) versus the S&P (SPY). It suggests that industrials may be in for a big rebound in relative performance. This also fits with the underlying strength of breadth/participation that I’m seeing in the sector. There’s a lot of strong tapes in XLI right now.

Book I’m reading —

Not a book, but a long white paper Michael Mauboussin and his team at Credit Suisse put out last year. It covers the all-important concept of moats (competitive advantage). I read everything by Mauboussin. He’s one of the smartest reads on investing and market theory. The paper is well worth your time.

On the subject of moats (and floats), here’s one of the best discussions on the subject I’ve ever come across from the Fundoo Professor. It’s a great slide deck that explores how Buffett so ingeniously exploited the investing power of the two to make his billions. You can find the presentation here.

Trade I’m looking at —

Here’s a company I’ve recently started looking into, Livongo (LVGO). LVGO provides a digital health platform that assists people living with chronic illnesses, such as diabetes. The platform connects to wearables, provides personalized digital guidance, as well as access to health coaching.

Unfortunately, the chronic disease market is booming here in the US as well as elsewhere. Apparently, more than half of the US population suffers from one or more chronic conditions — example, over 4k Americans are diagnosed with diabetes each day.

Anyways… LVGO’s TAM is large and growing. This gives the fast growing (FY19’ revenue growth is expected to be around 160%) quite a long runway.

Currently, the stock is knocking on some support. We’ll have to see if it holds. I’m considering putting on a small starter position next week if I like what I find while doing more digging over the weekend. If you have any thoughts or insight on the company, please shoot them my way!

Quote I’m pondering —

As investors, we also always have to be aware of our innate and very human tendency to be fighting the last war. We forget that Mr. Market is an ingenious sadist, and that he delights in torturing us in different ways. ~ Barton Biggs

That’s it for this week’s macro musings.

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

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