(+) Tailwinds Research Group om inflasjonen og eiendomsmarkedet

With almost three months left in 2022, we are very close to setting a new record in the stock market. That would be the number of Fridays where the S&P is down over 1%. After this past Friday’s shellacking, we achieved our 14th of these week-ending meltdowns. The record is 15 but doesn’t it feel like we’ve broken through that already?

The biggest driver of the market will always be the policies of the Federal Reserve. Sure, other issues come into play and factor into things. For instance, the world shutting down for the pandemic caused a major selloff. But, don’t forget, the FED easily overcame the lockdown by showering free money on the masses. Federal Reserve policies determine the level of liquidity in the system and this drives markets.

Right now, liquidity is leaving the system. As long as the next move by the FED remains tightening, markets are not going higher. And, at this time, the FED is solely focused on inflation and, therefore, we are not going to get any relief anytime soon.

Despite the market being down over 20% on the year, I continue to believe the next big move in stocks will be in the downward direction. I have been preaching caution for a long time and will keep banging on that drum until I see evidence that we have reached a time where the FED feels it has accomplished their goal and decides to take their foot off the brake.

Generally one would think that slowing inflation would be the cause of the shift if FED policy. When the numbers demonstrate success in the fight against inflation, our central bank would breath a sigh of relief and indicate to the world that rates have peaked. However, if you are expecting this outcome, you’re likely wrong.

The FED has proven itself to be hopelessly behind the curve in predicting inflation and now in predicting a recession. Recessions cause the end of inflation and we are about to enter one. I state this with the certainty that every recession has been foretold by a housing price correction and we are seeing it now. Housing is the main driver of the economy and it’s officially dead.

Inflation is not a leading indicator but a lagging one. It tells you what has happened in the past and is not predictive of the future. Our government sent out checks indiscriminately for far too long and that resulted in inflation…that shouldn’t be a surprise, but somehow it fooled our bankers.

Now the opposite is taking place. Consumers are not only getting no government freebies but they are taking a hit to their wallet as prices climb. Gas is up, groceries are up, electricity is up, the list is ubiquitous. Now we just wait for adjustable mortgages to go up. This is going to be the biggest kick the groin for homeowners and it’s just starting to ripple through the system.

Instead of a subsiding in inflation telling the FED to lighten up, what concerns me is the markets sending this message. Just as in 2021 the MEME stocks and their kin rallying suggested too much liquidity, the opposite is likely to take place here in 2022; the cracks are starting to appear in the global financial system and I fully expect them to widen.

What I’m saying here, and let me be very clear and decisive about this, is for the near future I expect the market to continue lower, perhaps quite dramatically. With the FED stuck in the rut of playing catch up, I am convinced the investment community will send the message that they have overshot in their tightening. Markets do this by collapsing.

We are on the verge of seeing a meltdown and until the FED changes course, the stock market will be a very dangerous place to exist.

Back in May, I penned an article titled, Stepping on Rakes. In this piece I cited the importance of the Volatility Index ($VIX) in predicting market lows. Here’s a chart of the VIX that I put in the newsletter along with a quote an associated quip.

“In both the Great Recession of 2008 and the pandemic meltdown of 2020, the VIX touched on levels north of 80. Those values were unprecedented in history and coincided with the start of major market reversals.

There were also several other times over the last two decades where the VIX traded well over 40. These spikes marked reversals of shorter market corrections.

Where do we stand today? While volatility seems to be higher than average for an extended period of time right now, it’s not trading anywhere near panic levels. This implies to me that the market’s correction has yet to reach maximum levels of investor fear; a necessary ingredient for a true bottom to take place.»

As such, I remain convinced that the overall market is headed lower. I’m not turning bullish until I see the VIX spike and hear panic from Wall Street. We have had an epic rally and that generally will lead to an epic selloff before things are back in balance.”

Since then my feelings on the market are unchanged. We saw a bear market rally which almost immediately reversed to hit new lows. But, panic has yet to set in. On Friday the VIX was at $31, elevated but nowhere near high enough to spark a reversal.

Therefore, I will continue to preach caution to readers and suggest keeping a lot of powder dry. I get the sense we will have a great buying opportunity soon, but we are not there yet.

As I mentioned last week, I got my start in investing in the summer of 1987, right before the crash. On October 19, 1987, a day commonly referred to as “Black Monday”, we witnessed the biggest crash in market history with stocks trading down 22%. It was a bloodbath.

However, even on Black Monday, not every stock was down. Despite the overwhelming preponderance of losers, there were winners to be found. And that on the worst day in history.

Even if the markets’ selloff continues here, I don’t expect we’ll see anything resembling Black Monday again. And, even if we do, it doesn’t mean all stocks are headed lower. The average stock in TW’s portfolio remains well off the lows set earlier this year and I’m sticking with my prediction that, on average, those lows will not be exceeded.

Obviously, in order for that to be the case, our companies need to execute on their business. Which brings me to TFF Pharma ($TFFP), a company that this week set a new low for the year.

I have been a staunch supporter of TFF for a long time. They are a interesting combination of a platform technology that has the opportunity to disrupt the delivery of many pharmaceutical products along with internal programs that are developing unique versions of drugs that have demonstrated great efficacy and safety profiles.

It has been my ardent belief that the potential upside of the platform technology was anchored by the value being created in the internal programs. Based on my valuation metrics, TFF is a bargain solely valuing it on VORI and TAC.

With the continued delays in their ability to partner on others company’s drugs, this belief is now being tested. Later this month, I expect we’ll see data from both the VORI and the TAC programs. These phase 2 trials, which are both open label, appear to be going very well. This was seconded by data released on a compassionate use patient recently at a conference in Paris.

Both drugs look to be efficacious at lower dosages, greatly increasing their safety profiles and expanding their market opportunities. Safety drives everything with drugs and, if survival is better on TFF’s versions (something we won’t find out for a while, but appears quite likely to be the case), they will dominate in market share.

We are coming to a very important time for TFF. The potential of these programs will be demonstrated in the data. Will partners step up? Is the NPV of the internal pipeline truly worth more than the current share price of TFF? The company has about 1 year of cash on the balance sheet; it is essential for them to notch a win sometime in the next couple months or the markets will increasingly lean in on the stock.

My take on TFF at this time is that the market is completely discounting the potential for partnerships. And, while investors sell out of frustration over delays, the pendulum is swinging too far. If the internal programs perform, investors buying here will be fine. The delivery platform’s partnership opportunities are simply an option that should eventually pay out for investors.

Reiterating my theme of liking my portfolio companies while hating the market, I think it’s important that investors keep their toes in the water in these stocks but remain cautious overall. I consider Tailwinds’ approach to micro-cap investing to be truly “Public Venture Capital” and high-risk assets, such as micro-cap companies, should never represent the bulk of your savings.

I like to take a long-term perspective on my companies. As long as they are executing, the stocks will fluctuate but should pay off in the end. Anixa ($ANIX) is one that comes to mind when I think about a company that, after having had some issues getting programs going, is now firing on all cylinders. And, this is truly reflected in the stock market as ANIX is up 60% this year; stellar performance in the face of a terrible market.

Looking back a year ago, Anixa was suffering through delays on both their programs. Cleveland Clinic was taking forever to start the breast cancer vaccine trial and Moffitt had decided, at the 11th hour, to make changes to the CAR-T trial. It seemed like things would never get going.

Today it’s a completely different story for Anixa. Both programs are in phase 1 and the early read on each of them is one of success. This success was discussed with TW’s audience this past week on a Zoom call with Dr. Amit Kumar, Anixa’s CEO. Normally only for premium subscribers, I’m making that video available here for all to view.

Why? Because, despite being up 60%, I think Anixa is incredibly undervalued and that over the next 3-6 months we will see incredible data from two blockbuster programs that will propel shares higher. If you don’t own this stock, I think you’re making a big mistake. And, if you’ve read this far into my newsletter, I’m happy to give you a freebie every so often.

I would compare Anixa of a year ago with INmune Bio ($INMB) today. Like Anixa, INmune has two potentially blockbuster programs. And, similar to Anixa, both programs are torturing investors with delays, an FDA hold on XPro and incredibly slow enrollment for INKmune. Owning INMB for the last 6-9 months has felt like an extended session in the dentist’s chair; it has stunk.

But, it’s these times in which opportunity is created. Let’s look forward 6 months from now. I predict that XPro’s hold will have been removed and patients will be rapidly enrolling in their trial. At the same time, we should not only see progress on enrollment in INKmune (more centers coming online should change that trend) but we could also see an IND filed for a solid tumor trial in the US.

Simply put, in 6 months, things should look dramatically different at INmune. If these future events do happen as I expect, the stock should also look dramatically different at that time. What is your investment time horizon? If you look beyond days and weeks, stretching your investments into months and years, this is a pretty good time to be picking up shares.