The Other Day in Jackson Hole and Amsterdam

Jerome Powell, that famous astrologer and centuries-old sailor... The Federal Reserve doesn't know... The other day in Jackson Hole and Amsterdam... Dave Lashmet on another development for a leading weight-loss drug... What it could mean... 2,600 times the price of gold...

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Just when you think the machinations of the central bank can't get any more puzzling...

Federal Reserve Chair Jerome Powell has made so many public appearances over the years where he attempted to pontificate with certainty on the future moves of the economy.

Now he has gone and let loose a flowery analogy to say that the Fed has no idea what's going to happen – pretty much ever.

I (Corey McLaughlin) know Dan Ferris just covered this "stoner wisdom" in his latest must-read Friday essay. But as I mentioned last week, I've been away from daily writing for a few days... so I need to get my latest Federal Reserve observation off my chest, too.

Here's what Powell said near the end of his latest public remarks at an annual central-bank confab in Jackson Hole, Wyoming...

As is often the case, we are navigating by the stars under cloudy skies. In such circumstances, risk-management considerations are critical.

Look... Taken on its own, that's not an entirely bad outlook to have. Admitting what you don't know is admirable and can be successful in life and investing.

But taken in context, the line from Powell is almost comical. It's one he'll be remembered by for a while... and not just for casting himself as a centuries-old sailor and astrologer. Most importantly for individual investors, it reveals more than Powell perhaps intended.

'As is often the case'?...

Does Powell remember keeping rates near zero for about six to nine months longer than even remotely necessary back in the middle of 2021 and early 2022? Does he disagree that this policy fueled the inflation that the U.S. has been dealing with since? Where was this risk management then?

And where was the risk management when the Fed added an extra trillion dollars to its balance sheet during the same period, well after the shock of the onset of the pandemic was over? I don't know. (And this isn't a criticism we present only in hindsight. I (and others) made it at the time, too.)

It's dandy that Powell is willing to admit that the Fed doesn't know what's coming next... but remember this the next time the central bank makes any declarations about anything being true.

Let's also try and translate Powell's analogy... I can only presume the "stars" are the Fed's dual mandate from Congress of "stable prices" and "maximum employment." And he evidently means the central bank is trying to sail the economy toward the "soft landing" it so desires upon an approaching shore.

Here's what's unsaid: The Fed is also scared of what's to come. In our view, this future is a stretch of higher-than-usual inflation and/or higher interest rates – no matter the weather over the next few years.

Just look at what the Fed chair also said on Friday toward the end of his speech. Considering the path of inflation over the past year, strong U.S. gross domestic product ("GDP") this year, still-low unemployment, and the Fed and other central banks' goal of 2% inflation, Powell said...

These uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little. Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment. Doing too much could also do unnecessary harm to the economy.

If nothing else, this should reinforce why you should always put your financial future in your hands, as much as you can, and nobody else's.

Who would you have rather believed in 2020 and 2021? Someone like Powell running the U.S. central bank who was telling the world inflation was "transitory"... or independent thinkers who said he was full of it and you should prepare for more inflation instead?

We'll have a little bit more to say about the Fed this week, particularly about its balance sheet and the influence of it. But today, we have some other, more tangible matters to address, too – like some other big news out of another destination conference...

Our colleague Dave Lashmet has been in Amsterdam for the past few days...

The European Society of Cardiology's annual meeting has been running there since Friday and wrapped up today. Dave, editor of our Stansberry Venture Technology newsletter, traveled there to do some boots-on-the-ground research on the latest breakthroughs in weight-loss drugs.

You may remember that Dave wrote to you earlier this month about the leaders in the weight-loss drug race – specifically Novo Nordisk (NVO), a stock pick that Dave gave away for free during a 2020 presentation...

Earlier this month, Novo Nordisk reported that one of its new weight-loss drugs, Wegovy, reduced the risk of heart attack and stroke by 20% in a trial of 17,000 patients with heart problems (many of whom were obese).

As Dave explained in his earlier report, the results opened the door for heart doctors to prescribe Wegovy, meaning potentially $12 billion per year in additional revenue. (That's why the stock was up 17% in a day earlier this month.)

In Amsterdam on Friday, Novo Nordisk presented results from another, smaller trial of Wegovy that showed more promising results for heart treatment in people with obesity.

In a one-year trial of about 530 people with heart failure and severe obesity, Wegovy's course of 2.4 milligrams per week triggered massive weight loss – of more than 25 pounds versus less than 5 pounds on a placebo – and saw far fewer heart-failure events in patients by a magnitude of 12 to 1.

As Dave told us on Friday after the results came out, there were also fewer side effects if you got the drug than the placebo: "Basically, people had more cardiac events if they did not get the drug."

Dave was in an auditorium with a few thousand others, mostly doctors, as Novo Nordisk presented its data...

He saw the doctors' reactions: huge applause from the 3,000 doctors in the room, he said. Another 500 were outside the doors watching the presentation on a big screen. There were hundreds, maybe thousands more who would have come in had there been enough chairs.

This is important information, of course, since these doctors represent many more possible patients and sales for Novo Nordisk given the addressable market.

As Dave pointed out to us, heart failure afflicts 64 million people globally with an annual death rate of 10% to 15%. And roughly half of those folks are also obese, meaning these results could be applied to about 32 million potential patients globally, with a good chunk in the developed world.

Wegovy – the brand name for Novo Nordisk's higher-dose version of the drug semaglutide – isn't cheap right now. It sells for about $20,000 per year, per person. And demand for it is already surging, as we'll explain momentarily.

For this heart-failure and obesity trial that Novo Nordisk presented, patients with an average age of 70 and a body mass index ("BMI") of 37.5 received once-weekly injections. And the control group had twice as many "serious adverse events" than people on the drug.

There was only one cardiac death among patients in the trial – and it was from the placebo group. As Dave reported, the most telling statistic was the change in how patients on the drug performed in a six-minute walking test on a treadmill compared with those on the placebo...

Patients came in walking an average of 320 meters (or 350 yards) in six minutes. On the placebo, that didn't change. On the drug, after a year, these folks could walk 20 meters more because every step they took was lighter.

It was not a random outcome. The drug worked.

So what could this mean for Novo Nordisk's business?

Well, a lot.

Wegovy is just one of three new semaglutide drugs that Novo Nordisk intends to provide for people with obesity. The others are an injectable called Ozempic, originally approved by the U.S. Food and Drug Administration to treat Type 2 diabetes, and a higher-dose once-daily pill called Rybelsus.

Together, these drugs – and a few earlier-generation forms that they are replacing – accounted for $10.5 billion in sales for Novo Nordisk last quarter. They should hit $40 billion in sales by year's end, at current production rates. And add on to that in the future, because as Dave says...

The dose of Wegovy these people got was 2.4 milligrams per week, which means every pound of drug serves four thousand patients for a year. Given the $20,000 per person per year cost, that means it sells for $80 million a pound – or $180 million per kilo – more than 2,600 times the price of gold.

It's fair to say that Novo will seek to make more of this drug, Dave says, and it can afford to...

There are 32 million heart-failure patients globally who could be treated with Wegovy. Since this is tied to advanced age and obesity, it's most often a developed-world disease – conservatively, figure 10 million of the 32 million live in developed countries. If Novo can hit 10% of this 10-million-person market, that's 1 million people, at $20,000 each – or $20 billion in revenue.

Pretty soon, you are talking real money.

So, he's bullish now... And this is nothing new for him.

As we mentioned, Dave shared Novo Nordisk as a free pick during a 2020 presentation he gave to Stansberry Research subscribers where he talked about the companies developing weight-loss drugs in response to the U.S. obesity epidemic...

Dave's Venture Technology subscribers are now sitting on a roughly 145% gain in Novo Nordisk shares since his initial recommendation back in June 2020, even factoring in shares that they already sold for a 104% gain.

These are precisely the gains Dave seeks in Venture Technology...

He has recommended more than 30 stocks that have doubled or more since launching the service in 2014, including names like Nvidia (NVDA) well before it became a household stock pick.

A big part of these results is Dave going places where other stock market analysts don't... like conferences across the globe where he can talk to doctors and see their reactions to new research in person or other places where he can see developments firsthand.

If nothing else, you will be tremendously educated reading every one of Dave's issues.

Similarly, Dave delves into smaller companies you won't usually see covered elsewhere that have the potential for massive growth in their share prices, too. Without a Venture Technology subscription, you'll likely hear about them only after they've taken off.

Dave's research isn't cheap, but right now, you can claim a 55% discount off the regular subscription price... Click here for more information right now, including how you can get started with a 30-day trial to get to know Dave's work and see if it's right for you.

New 52-week highs (as of 8/25/23): Brown & Brown (BRO), CBOE Global Markets (CBOE), Cameco (CCJ), Comfort Systems USA (FIX), Intuit (INTU), Ingersoll Rand (IR), and Verisk Analytics (VRSK).

In today's mailbag, feedback on Dan Ferris' latest Friday essay on the Federal Reserve's "stoner wisdom" and 2% inflation goal... and Chaikin Analytics analyst Briton Hill's Masters Series essay from Sunday making a case for "why record credit-card debt is a good thing"... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Thank you for such a clear explanation and history. I have been searching for the reasoning behind the 2% ideal for inflation and now I know why I couldn't find it. The federal spenders prefer that deplorables simply boil slowly with creeping inflation since they might jump off a hot griddle of high inflation and turn on the politicians. Yet we may soon see that resistance anyway." – Subscriber Rickye H.

"Jerome Powell: I challenge you. I allege that the correct inflation target is 0%.

"Why? Because the only thing the Federal Reserve sells is currency units. In the US, this would be dollars. Any inflation target that is greater than 0% is saying that what the Federal Reserve is selling us is less valuable with each passing year.

"Who is the sane businessperson that would say that he/she wants to sell us something that is less valuable next year than what he/she is selling us today? Keep in mind that what a businessperson sells us today affects the value of his inventory tomorrow.

"Or maybe said businessperson doesn't give a darn what his inventory is worth tomorrow.

"So I repeat: Why is that a good proposition?" – Subscriber Kevin B.

"Another great essay from Dan! There actually is a two-part answer to the question Chairman Powell couldn't or wouldn't answer. It isn't a good answer, but it is way more honest than the babble he served up. And this comes from me, an architect who tried but dropped an economics minor in college.

"So part one: Given a choice between deflation and inflation, the government will always choose inflation. Because deflation is a showstopper. Discretionary spending grinds to a halt. You say to yourself 'I'm not going to buy that car because it will be cheaper in 6 months.' And if everyone starts acting like that, the economy dives. And if the economy dives, tax revenue dries up. So the politicians always want inflation. Plus, inflation favors the debtor since they get to pay back their debt with cheaper money. And we all know who is the greatest debtor of them all. Okay, so you ask why 2% and not 5%? Well now you're being ridiculous. Obviously 5% would be bad. I say that tongue in cheek of course. But really, 2% just sounds like a small and harmless number. I think it is literally an arbitrary target chosen based on its perceived harmlessness. Someone probably focus-grouped it.

"Part two is this: inflation is really just the government's way of stealing from you, so they need a target that is big enough to keep their party going but small enough that you don't notice the money leaving your wallet. Again, they probably focus-grouped it.

"I would stand up and cheer if Powell gave an honest answer rather than pissing on us and telling us it's raining." – Subscriber R.M.

"Hey Dan, Another classic from you! I thought Yellen was the Dark Lord!? The stoner surfer and the pearl of stoner wisdom analogy was perfect. I laughed myself to tears! It reminded me of the Alice in Wonderland caterpillar stoned on his hookah pretending to be so wise, yet full of BS. Thank God we have you and Stansberry to explain what the wise stoner caterpillars in DC are really saying!" – Subscriber Larry N.

"Dear Dan: As a long-time 'Stoned Surfer' who's 'rocked a lot of waves' over 50 years of surfing it like really like hurts to be like lumped in with like sounding like Jerome Powell. Like, mellow out Bro!!! Always appreciate the Friday Digest." – Subscriber Tim F.

"Thanks, Dan, for another great piece. I think that ChatGPT writes a better draft report grade for my fantasy football league, than Powell and Yellen explain their starry explanations." – Subscriber Steve R.

"You should be distinguishing between good debt and bad debt. Consumption debt, such as fly now and pay later is a disaster. Any loan that cannot be paid back is a disaster. Are these credit card holders not the same people defaulting at historic rates on auto loans and student loans? Any debt priced at 20% interest should be classified as troublesome if not disastrous!" – Subscriber David G.

"I, of course, agree with your conclusions as per the methods of payment and reasons of causation. And you sounded upbeat which is appropriate regarding your main points. But could you have also discussed that the 'convenience' of credit cards will make it more likely to have [central-bank digital currency] foisted on us and give the Fed the complete control they have always wanted." – Subscriber Larry D.

"While the portion of such due to the 'cashless boom' is not something to fret over (assuming the debtors pay their balances off w/o incurring substantial interest), what is the % of the $1 trillion owed by those who use it for day to day expenses and whose balances continually grow? These levels of society are conveniently forgotten to trumpet how everything is great and getting better when our society has very deep economic problems which continue to worsen." – Subscriber Robert B.

All the best,

Corey McLaughlin
Baltimore, Maryland
August 28, 2023