I'm Placing Selective Bets in a Market That Isn't Deserving of Trust

As I discussed in my column on Monday, I am proceeding with extreme caution with the current market for several reasons, including the political unknowns. I think in the coming weeks we will see multiple instances of voter fraud in several states exposed. While this probably will not be enough to overturn the presidential outcome, it could make the usual transition extremely bumpy and will do nothing to alleviate the distrust and acrimony on both sides of the aisle. As or more important, we have two Senate runoff elections in Georgia in early January that will determine whether the divided government the markets have been rallying on over the past week is confirmed. In light of the more than $100 million spent on behalf of the Senate challenger in South Carolina who lost by 10 percentage points, I don't want to even speculate on how much money will be spent in these two races. However, I would bet my IRA that it will be more money than has ever been spent on any Senate race in American history. I also think investors are overlooking the growing possibility that some sort of regional lockdowns could be instituted in the first quarter of 2021. Yes, there does appear to be an effective vaccine on the horizon. However, that vaccine probably will not begin to be widely distributed until spring. In the meantime, Covid-19 cases are increasing in almost every state as a second wave of coronavirus sweeps over the nation. A similar outbreak has already triggered a second round of lockdowns in France, England and Germany. We also are likely to have a new administration that will be more open to following the science and instituting these sorts of extreme restrictions. Given that the lockdowns here did not have the effect desire the first time around, this move if it happened would meet Einstein's definition of insanity. More importantly, it would have severe repercussions for the economy and the markets -- potential factors I don't think are reflected in the current trading levels of equities. Consequently, I continue to raise cash within my own portfolio whenever the market is in rally mode. I also continue to make small bets using covered calls on select opportunities in the market when they present themselves. I took advantage of a 15% decline in Supernus Pharmaceuticals in trading Tuesday to add some exposure to my core holdings in this small biopharma. This is a name I have touched on several times this year. The pullback in the stock was triggered by a complete response letter, or CRL, from the Food and Drug Administration (FDA) around the company's new drug application for SPN-812 for the treatment of ADHD in pediatric patients 6 to 17 years old. The CRL appears to have nothing to do with the drug itself. The FDA has done a great job of approving in record time new treatments, therapeutics and tests for Covid-19 throughout 2020. Unfortunately, we have seen a lot of these type of picayune actions delaying drug candidates not related to Covid-19 in the second half of this year. I think is just a matter of the FDA being overwhelmed with its workload, and I expect SPN-812 to still be approved, but now in the first half of 2021. Last week, Supernus crushed both top- and bottom-line expectations with an impressive third-quarter earnings reports. The company also lifted its full-year guidance for revenue and operating earnings substantially, which made it a fairly easy call to take advantage of Tuesday's selloff in the stock in one of the few moves I am making in this market right now.

I'm Placing Selective Bets in a Market That Isn't Deserving of Trust

There are reasons to proceed with extreme caution in the current market, including the possibility that the U.S. won't have a divided government.

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