cpatches, Author at Channelchek

Survey Says ESG Fund Managers Don’t Want to Divulge Too Much

Posted on September 21, 2022September 21, 2022 by cpatches

ESG Fund Sponsors are Reacting to Increased Scrutiny

Cautious exchange-traded fund (ETF) sponsors are creating a smokescreen to avoid trouble for themselves.

Environmental, Social, and Governance (ESG) investing works best with openness and transparency. Until now, ETF and mutual fund managers have shown themselves eager to share their ESG guidelines and how the underlying investments fit. After all, achieving and maintaining a designation that allows your fund to grab a chunk of the $2.5 trillion category is good business. Pending regulations which could impact the underlying investments and fund’s ESG status’ have caused fund managers to exercise more caution than they have in the past when sharing information.

ESG Fund Survey

Sage Advisory is a $16.5 billion financial advisor serving clients that choose ESG as a theme for their investments. In each of the past four years, Sage has surveyed fund managers to produce their Stewardsip Report. The 2002 report was released today.

ETF providers that responded to the survey offered much less manager disclosure and transparency about their environmental, social, and governance activities compared with the previous year’s responses. According to the report, there was also a distinct change in tone. The advisory group wrote in its report, this is likely because of pending regulation in Europe and from the U.S. Securities and Exchange Commission that would more clearly define ESG investments. If something the fund manager is doing changes its category, the fund manager would prefer to know and take action before investors find out through a third party.

“There was a noticeable difference in terms of reading the responses, and seeing the restrained language, almost kind of a legalese language to the responses that had not been there in the past,” said Emma Harper, senior research analyst for ESG risk management at Sage Advisory who compiled the survey.

About the Survey

The ESG survey has 69 questions and covers seven areas of stewardship, including proxy voting, climate, and governance. Sage sent surveys to 34 ETF providers and received responses from 23 issuers, including seven of the ten largest ETFs in the U.S. by AUM. Including non-ESG assets, the respondents combined AUM is about $37.5 trillion.

Ms. Harper said, “It was almost by-the-book in the way they are explaining things, rather than all the flourishing details and pretty pictures of the things they can do.”

Harper said it was harder to get responses regarding proxy voting, specifically the number of times they voted against management. Large ETF providers have always tended to vote with company management and against shareholder proposals.

“Across the board this year, we had a number of providers saying ‘that’s confidential,’ or ‘here’s our voting record in general; go find that percentage for yourself.’ It wasn’t an easy straight answer for a number of them,” Harper said.

Regulators

Some asset management firms are thought by government watchdogs to be overstating ESG credentials. This suspected “greenwashing” could cause huge outflows if proven. Worse yet, regulators have been acting on concerns. German officials raided Deutsche Bank’s DWS unit over greenwashing claims, and the SEC fined BNY Mellon $1.5 million over misstatements about ESG for some mutual funds.

With one in three dollars in U.S. fund investments said to follow ESG industry rankings, the SEC’s fraud radar has been turned up, and they are investigating. The Commission is also proposing stronger disclosures and reporting, and wants to assure that a funds label accurately reflects its management style.

Currently, there are no standards that define ESG, just as there are no standards that define styles such as growth or value.

Take Away

In its report, Sage said it believes the proposed regulations and fines “has both positive and negative consequences.” Without a clear definition, investors will become frustrated and may find the sector less attractive. As greenwashing becomes more difficult and investors are better able to judge the fund’s purpose, investors can better understand the underlying assets.

ESG funds and ESG investing became a big thing during the pandemic era investment craze. It was a sector that had high returns that fed on themselves as more investors chased its snowballing momentum. It now constitutes one out of every three dollars in a fund. As the sector ages and regulators require better definitions, the growth of funds may be hampered by a lack of available investments. Alternatively, the appetite for these funds may decline as other investment “fads” take its place.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.sageadvisory.com/Form-ADV-Part-2A.pdf

https://www.sageadvisory.com/perspectives/2022-annual-etf-stewardship-report/

https://www.bloomberg.com/news/articles/2022-09-02/esg-funds-face-reckoning-as-bear-market-slows-investing

September’s FOMC Meeting and Powell’s Unflinching Resolve

Posted on September 21, 2022September 22, 2022 by cpatches

The FOMC Votes to Raise Rates for Fourth Time

The Federal Open Market Committee (FOMC) voted to raise overnight interest rates from a target of 2.25%-2.50% to the new level of 3.00% – 3.25% at the conclusion of its September 2022 meeting. The monetary policy shift in bank lending rates was as expected by economists, although many have urged the Fed to be more dovish, others suggest the central bank is behind and should move more quickly. The early reaction from the U.S. Treasury 10-year note ( a benchmark for 30-year mortgage rates) is downward slightly, while the S&P sold off 26 points and the Russell 2000 remained unfazed. Equities later sold off as the Chairman held a press conference.

The statement accompanying the policy shift also included a discussion on U.S. economic growth continuing to remain positive. The FOMC statement said recent indicators point to modest growth in spending and production. Job gains were also seen as strong in recent months, and the unemployment rate remains low.

However, the statement points out that inflation remains elevated. The Fed believes this reflects supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

Russia’s war against Ukraine is causing tremendous human and economic hardship, according to the Fed. The statement indicated the inflation risks related to the is an area they are paying attention to.

Source: FOMC Statement (September 21, 2022)

The Federal Reserve made clear it was continually assessing the appropriate actions related to monetary policy and the implications of incoming information on the economic outlook. The Committee says it is prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede reaching the Committee’s goals. This is to include a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments, according to the statement.

*Source: Federal Reserve Board and Federal Open Market Committee release economic projections from the September 20-21 FOMC meeting*

Each member of the Federal Open Market Provides forward-looking assumptions on expected growth, employment, inflation, and individual projections of future interest rate policy. The table above indicates the range of expectations.

Take-Away

Higher interest rates can weigh on stocks as companies that rely on borrowing may find their cost of capital has increased. The risk of inflation also weighs on the markets. Additionally, investors find that alternative investments that pay a known yield may, at some point, be preferred to equities. For these reasons, higher interest rates are of concern to the stock market investor. However, an unhealthy, highly inflationary economy also comes at a cost to the economy, businesses, and households.

The next FOMC meeting is also a two-day meeting that takes place July 26-27. If the pace of employment and overall economic activity is little changed, the Federal Reserve is expected to again raise interest rates.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.federalreserve.gov/newsevents/pressreleases.htm

Will Europe’s Natural Gas Dilemma Permanently Bring Manufacturing to the U.S.?

Posted on September 21, 2022September 21, 2022 by cpatches

Image Credit: Kateryna Babaieva (Flickr)

Natural Gas Intensive Manufacturing’s Latest Move from Europe to the U.S. is a “No-Brainer”

Is Europe moving manufacturing jobs to the U.S.?

As Russia’s Nord Stream 1 pipeline gas shipments have been curtailed by 89%, and European countries have agreed to sweeping cuts in natural gas consumption, some manufacturing in Europe has had to make difficult decisions. For them to stay in business or to protect profitability, moving to where the supply chain flows more freely may be a choice forced on companies.

The industries most impacted by unpredictable supply and skyrocketing gas prices are those that make steel, fertilizer, chemicals, and other feedstocks. Many of these same industries have been (unintentionally) incentivized to relocate operations to the U.S. by Washington’s growing menu of incentives for manufacturing and green energy. This government support, if their operations comply with certain standards, and the need for stable energy availability has already caused some businesses to cross over to the U.S.

Some economists have suggested that this could bring a new era of deindustrialization to Europe, and industrial jobs to the U.S.

The Decision to Make the Move

This month Ahmed El-Hoshy, chief executive of Amsterdam-based chemical firm OCI NV announced an expansion of an ammonia plant in Texas. “It’s a no-brainer to go and do that in the United States,” El-Hoshy told the Wall Street Journal.

Luxembourg-based ArcelorMittal SA, said this month it would cut production at two German plants, then reported better-than-expected performance by an investment earlier this year in a Texas facility. ArcelorMittal makes hot briquetted iron, a raw material for steel production. In their July earnings call, Chief Executive Aditya Mittal attributed the facility’s value in part to being in a “region that offers highly competitive energy and, ultimately, competitive hydrogen.” The facility that Mr. Mittal moved operations to has plenty of room for growth, Mr. Mittal explained to shareholders they own 100% of expansion rights.

Pandora A/S the Danish Jewelry maker, and Volkswagen AG announced U.S. expansions earlier in 2022. Even U.S. headquartered companies are making changes. Last week, The Wall Street Journal reported Tesla is pausing its plans to make battery cells in Germany as it reviews qualifying for tax credits under a new act signed by President Biden in August.

“We are increasing our investments [in the U.S.] also in order to stay with all of our partners who are investing,” said Stefan Borgas, chief executive of RHI Magnesita NV. The company, which makes materials used by factories such as steelmakers that must withstand intense heat, is spending $8 million on its European plants so that certain processes run on alternative fuel, such as coal or oil meet European guidelines. Borgas has said that they are also very positive about steel demand in the U.S., where incentives have helped pave the way for green-energy changes. Manufacturers like RHI Magnesita see hydrogen as the key to replacing fossil fuels and reducing emissions in plants. Promised spending on projects by Washington is expected to boost the production of hydrogen and eventually lower its price.

Many companies remain cautious about changing their strategies because of the cost, difficulty, and time involved in building projects such as smelters for aluminum production. But they are also realistic about the potential for natural gas to never again flow through the Nord Stream pipeline at levels previously experienced. Those that have decided to relocate are likely not moving operations back, it just wouldn’t be practical. This would lead to a permanent increase in North America for manufacturing requiring energy from natural gas and blue hydrogen produced by natural gas.

Take Away

Industries that rely heavily on natural gas or other products derived from natural gas are having a tough time in Europe. Some have moved operations to North America, and many more are considering the move. Helping to make the decision to locate manufacturing operations in the U.S. comes from the recently signed Inflation Reduction Act, which incentivizes building greener processes. These incentives would hep reduce the cost of building a new plant or factory in the U.S.

Paul Hoffman

Managing Editor, Channelchek

Sources:

https://www.wsj.com/articles/high-natural-gas-prices-push-european-manufacturers-to-shift-to-the-u-s-11663707594?mod=hp_lead_pos3

https://www.wsj.com/articles/europe-checks-its-thermostats-as-russia-crimps-natural-gas-supplies-11658827804?mod=series_europeenergyshortage

https://www.pbs.org/newshour/world/europe-is-facing-an-energy-crisis-as-russia-cuts-gas-heres-why#:~:text=DID%20RUSSIA%20CUT%20OFF%20GAS,a%20pillar%20of%20the%20economy.

https://corporate.exxonmobil.com/climate-solutions/hydrogen#:~:text=What%20is%20blue%20hydrogen%3F,that%20produces%20no%20CO2.

Cypress Development (CYDVF) – Clayton Valley Takes a Leap Forward

Posted on September 20, 2022September 20, 2022 by cpatches

Tuesday, September 20, 2022

Mark Reichman, Senior Research Analyst, Natural Resources, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Proving it can be done. Cypress achieved a major milestone with the production of 99.94% lithium carbonate (Li₂CO₃) made from lithium-bearing claystone from the company’s Clayton Valley Lithium Project in Nevada. The Li₂CO₃ was made using intermediate concentrated lithium solution, or ~2,200 parts per million lithium, produced at Cypress’ lithium extraction facility. Following direct lithium extraction (DLE) at the pilot plant, Saltworks Technologies completed the processing system design and pilot work to make the battery grade Li₂CO₃. Cypress has engaged Saltworks to integrate their designs into Cypress’ pilot plant program.

Suitable for use in electric vehicle batteries. The samples produced surpass minimum industry requirements for standard battery grade, or >99.5% Li₂CO_3, used in electronics and achieved industry requirements for enhanced battery grade Li₂CO₃ for use in electric vehicle batteries. Independent analyses of product samples were completed by SGS Canada Inc.

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This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.

Ayala Pharmaceuticals (AYLA) – Lowering AYLA To Market Perform

Posted on September 20, 2022September 20, 2022 by cpatches

Tuesday, September 20, 2022

Ayala Pharmaceuticals, Inc. is a clinical-stage oncology company focused on developing and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined patient populations. Ayala’s approach is focused on predicating, identifying and addressing tumorigenic drivers of cancer through a combination of its bioinformatics platform and next-generation sequencing to deliver targeted therapies to underserved patient populations. The company has two product candidates under development, AL101 and AL102, targeting the aberrant activation of the Notch pathway with gamma secretase inhibitors to treat a variety of tumors including Adenoid Cystic Carcinoma, Triple Negative Breast Cancer (TNBC), T-cell Acute Lymphoblastic Leukemia (T-ALL), Desmoid Tumors and Multiple Myeloma (MM) (in collaboration with Novartis). AL101, has received Fast Track Designation and Orphan Drug Designation from the U.S. FDA and is currently in a Phase 2 clinical trial for patients with ACC (ACCURACY) bearing Notch activating mutations. AL102 is currently in a Pivotal Phase 2/3 clinical trials for patients with desmoid tumors (RINGSIDE) and is being evaluated in a Phase 1 clinical trial in combination with Novartis’ BMCA targeting agent, WVT078, in Patients with relapsed/refractory Multiple Myeloma. For more information, visit www.ayalapharma.com.

Robert LeBoyer, Vice President, Research Analyst, Life Sciences , Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Lowering AYLA To Market Perform. We are lowering our rating on Ayala Pharmaceuticals to Market Perform. Our Investment Thesis was based on successful development of AL101 and AL102 in several indications. However, the clinical trials have not advanced as we had anticipated while the risk to the stock has increased.

Clinical Trials. AL101 and AL102 were designed to block activation of the NOTCH pathway and its effects on cancer growth. We viewed the Phase 2 for AL101 in Adenoid Cystic Carcinoma (ACC) and the Phase 2/3 for AL102 in desmoid tumors as both Orphan indications as well as proof-of-concept that could lead to combination regimens in cancers with NOTCH mutations that are aggressive and difficult to treat. The Phase 2 TENACITY trial testing AL101 in triple-negative breast cancer (TNBC) was the first indication that could open large patient populations for AL101/AL102. However, this indication, as well as the collaboration with Novartis for multiple myeloma, has been discontinued.

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Avivagen Inc. (VIVXF) – Slower Quarter but Increasing Activity

Posted on September 20, 2022September 20, 2022 by cpatches

Tuesday, September 20, 2022

Avivagen is a life sciences corporation focused on developing and commercializing products for livestock, companion animal and human applications that, by safely supporting immune function, promote general health and performance. It is a public corporation traded on the TSX Venture Exchange under the symbol VIV and is headquartered in Ottawa, Canada, based in partnership facilities of the National Research Council of Canada. For more information, visit www.avivagen.com. The contents of the website are expressly not incorporated by reference in this press release.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Results for Q3. Total revenue for the quarter was $48,606 (all figures are in Canadian $), down from $505,886 the previous year and below our estimate of $100,000. The decrease was due to lower sales in the OxC-Beta product. Net loss was at $1.9 million versus a loss of $1.5 million in the prior year and our loss estimate of $1.54 million. The increased net loss was due to higher salaries expense and a decrease in government grants.

Sales Update for OxC-Beta. Avivagen sold a total of 350 kilograms of OxC-Beta during the third quarter, down from 925 kg in Q2 and 2,550 kg in Q1. Thailand ordered 250 kg during the quarter while Taiwan ordered 100 kg. The average price per kilogram in the quarter was $103.10 versus $102.27 in the second quarter.

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Detecting Deepfake Voice is Now Crucial to Security

Posted on September 20, 2022September 20, 2022 by cpatches

Deepfake Audio Has a Tell – Researchers Use Fluid Dynamics to Spot Artificial Imposter Voices

Imagine the following scenario. A phone rings. An office worker answers it and hears his boss, in a panic, tell him that she forgot to transfer money to the new contractor before she left for the day and needs him to do it. She gives him the wire transfer information, and with the money transferred, the crisis has been averted.

The worker sits back in his chair, takes a deep breath, and watches as his boss walks in the door. The voice on the other end of the call was not his boss. In fact, it wasn’t even a human. The voice he heard was that of an audio deepfake, a machine-generated audio sample designed to sound exactly like his boss.

Attacks like this using recorded audio have already occurred, and conversational audio deepfakes might not be far off.

Deepfakes, both audio and video, have been possible only with the development of sophisticated machine learning technologies in recent years. Deepfakes have brought with them a new level of uncertainty around digital media. To detect deepfakes, many researchers have turned to analyzing visual artifacts – minute glitches and inconsistencies – found in video deepfakes.

Audio deepfakes potentially pose an even greater threat, because people often communicate verbally without video – for example, via phone calls, radio and voice recordings. These voice-only communications greatly expand the possibilities for attackers to use deepfakes.

To detect audio deepfakes, we and our research colleagues at the University of Florida have developed a technique that measures the acoustic and fluid dynamic differences between voice samples created organically by human speakers and those generated synthetically by computers.

Organic vs. Synthetic voices

Humans vocalize by forcing air over the various structures of the vocal tract, including vocal folds, tongue and lips. By rearranging these structures, you alter the acoustical properties of your vocal tract, allowing you to create over 200 distinct sounds, or phonemes. However, human anatomy fundamentally limits the acoustic behavior of these different phonemes, resulting in a relatively small range of correct sounds for each.

In contrast, audio deepfakes are created by first allowing a computer to listen to audio recordings of a targeted victim speaker. Depending on the exact techniques used, the computer might need to listen to as little as 10 to 20 seconds of audio. This audio is used to extract key information about the unique aspects of the victim’s voice.

The attacker selects a phrase for the deepfake to speak and then, using a modified text-to-speech algorithm, generates an audio sample that sounds like the victim saying the selected phrase. This process of creating a single deepfaked audio sample can be accomplished in a matter of seconds, potentially allowing attackers enough flexibility to use the deepfake voice in a conversation.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Logan Blue, PhD student in Computer & Information Science & Engineering, University of Florida and Patrick Traynor, Professor of Computer and Information Science and Engineering, University of Florida.

Detecting Audio Deepfakes

The first step in differentiating speech produced by humans from speech generated by deepfakes is understanding how to acoustically model the vocal tract. Luckily scientists have techniques to estimate what someone – or some being such as a dinosaur – would sound like based on anatomical measurements of its vocal tract.

We did the reverse. By inverting many of these same techniques, we were able to extract an approximation of a speaker’s vocal tract during a segment of speech. This allowed us to effectively peer into the anatomy of the speaker who created the audio sample.

*Deepfaked audio often results in vocal tract reconstructions that resemble drinking straws rather than biological vocal tracts. Logan Blue (The Conversation)*

From here, we hypothesized that deepfake audio samples would fail to be constrained by the same anatomical limitations humans have. In other words, the analysis of deepfaked audio samples simulated vocal tract shapes that do not exist in people.

Our testing results not only confirmed our hypothesis but revealed something interesting. When extracting vocal tract estimations from deepfake audio, we found that the estimations were often comically incorrect. For instance, it was common for deepfake audio to result in vocal tracts with the same relative diameter and consistency as a drinking straw, in contrast to human vocal tracts, which are much wider and more variable in shape.

This realization demonstrates that deepfake audio, even when convincing to human listeners, is far from indistinguishable from human-generated speech. By estimating the anatomy responsible for creating the observed speech, it’s possible to identify the whether the audio was generated by a person or a computer.

Why this matters

Today’s world is defined by the digital exchange of media and information. Everything from news to entertainment to conversations with loved ones typically happens via digital exchanges. Even in their infancy, deepfake video and audio undermine the confidence people have in these exchanges, effectively limiting their usefulness.

If the digital world is to remain a critical resource for information in people’s lives, effective and secure techniques for determining the source of an audio sample are crucial.

When Stocks Instead of TIPS are Better Hedges Against Inflation

Posted on September 20, 2022September 20, 2022 by cpatches

What’s the Best Inflation Fighter for Your Savings? Stocks or TIPS?

At a minimum, an investor with an eye toward having more, not less, in the future needs to beat the rate of inflation. Ideally, since the investor ties up their money, the buying power in their account should provide the current inflation rate plus a risk premium over the medium to long term. During the past few months, a number of long-term savers/investors have asked me what I thought about TIPS as a means of exceeding inflation. I have strong opinions on these Treasury securities. My thoughts are rooted in having been a portfolio manager for the country’s second-largest fixed income fund manager back in 1996 when the U.S. Treasury asked for our input on the design of the new bond. The Treasury wanted us to approve of the bonds enough to invest in them – in early 1997 I pulled the trigger on $100 million in the first ever TIPS auction – that was 25 years ago, and there is now enough data to compare the performance of Stocks, TIPS and the rate of inflation. Which one provides better inflation “protection”?

Some Details on TIPS

If you aren’t aware of the intricacies and history of the Treasury Inflation-Indexed Securities, dubbed TIPS, as the working name for the project back in 1996, here’s what you should know in a two paragraphs.

Interest rates were declining through the late 1990s and the Treasury Secretary Robert Rubin had a plan to lessen the government’s interest rate burden by issuing a bond with costs that would be lower with the declining inflation and interest rates. The Canadians, British, and Australians all had a bond type that floated with the countries’ inflation index. The Canadian-style bond had a fixed rate of interest where the principal accreted upward with an inflation index. On this new principal, an unaffected fixed-rate (coupon) would pay interest. The British and the Aussies paid the inflation addition with the coupon, the bondholder didn’t have to wait until maturity to be compensated for price increases. The U.S. adopted the Canadian system of accreting to principal.

The new bond was to be helpful to the U.S. Treasury, the conservative investor, and even the Federal Reserve. Inflation was sinking at the time, so investors were attracted in part to the idea that the securities effectively have a floor since the Treasury would never lower the principal accretion to below zero even if deflation became a problem. Retirees were told they should be thrilled to have a low-risk investment to choose from that paid inflation plus. The U.S. Treasury was looking forward to being able to reduce the interest costs of its debt as there were still bonds outstanding that were paying 14%. As for the Chairman of the Federal Reserve, Alan Greenspan, he was thrilled he’d have a constantly updating investor-driven mechanism that would indicate the market’s current expectation of inflation.

Inflation “Get Real”

Through the late seventies and into the early eighties, inflation was a big influencer on all household decisions. Durable items like washing machines were purchased sooner rather than later because they may cost much more later. Even borrowing to buy made good financial sense. As for investing or saving, buying short bonds or CDs that always paid more than inflations and then reinvesting similarly when it came due provided the investor with a little more income than inflation (and sometimes a free toaster). The stock market had years where it had negative returns, but for the medium or long-term saver, it far exceeded inflation. This has not seemed to have changed.

“Get Real” is a slogan that had been used by brokers trying to build enthusiasm for TIPS when they first came out. It refers to real yield, or put another way, the yield after inflation. TIPS were designed to pay the inflation rate plus an interest rate, so the investor earns a real yield. What no one anticipated when the securities were designed is the real yield could go negative, thus providing the investor with inflation minus whatever supply and demand decided.

The chart below demonstrates that over a recent 11-year period, TIPS paid negative real rates about a third of the time. They did not provide the investors with a return above the rate of inflation as originally envisioned.

Stocks are not designed to be correlated with the rate of inflation, but they generally do well when the economy is flourishing or expected to flourish (these periods tend to be associated with inflation). And equities fall off when there is a contraction or expectations of a bad business climate. The chart below uses the Russell 2000 Small-Cap Index as a measure of stock market performance. The period shown demonstrates that if one is looking to keep up with or beat inflation by any margin, Small-Cap stocks can be viewed as far superior to TIPS.

During the period from August 2012 until August 2022, prices have risen a combined amount of 28.558%, according to a calculator provided by the Bureau of Labor Statistics. During the same period, an investment in TIPS provided 13.11% to the saver/investor. This equates to a real return of negative 15% over ten years. If the purpose of the investor is to keep up with and beat inflation, TIPS have failed as a decent option.

As for stocks, the downside over short periods has been much larger and deeper declines than TIPS. However, after year one, the declines were never large enough to show underperformance. TIPS failed its main goal of inflation plus. If an investor instead put money in small-cap stocks, they would have exceeded inflation by 110%.

While this is not predictive of the future, it is compelling evidence for anyone with a time horizon beyond a few years to look at the true risk profile of each. TIPS have performed worse than inflation. One reason for this is that bond prices have been held lower than the market would naturally have them because the Fed has taken so many on its balance sheet.

Take Away

The performance of the stock market over the medium to long term has a long history of beating returns of other assets, especially those of bonds. Treasury Inflation-Indexed Securities, the official name for the bond, does not have a “P” in it. The “P” was supposed to stand for “Protected.” Just prior to the first auction, the name was changed as government lawyers pointed out these may not protect the investor from inflation.

The Federal Reserve owns a third of the outstanding U.S. Treasuries, including a large allocation of TIPS. This unnatural demand holds prices artificially below where the market would price them without the Fed’s impact. This skewing of the results would have been upsetting to former Fed head Alan Greenspan who felt the main appeal to the security was their ability to help predict future inflation.

Stocks have risks, and bonds have risks, if it’s inflation you’re looking to overcome, inflation-linked bonds have been historically off the mark.

Paul Hoffman Managing Editor, Channelchek

Sources

https://www.nytimes.com/1982/02/05/business/record-set-on-30-year-us-bonds.html

https://www.treasurydirect.gov/instit/annceresult/tipscpi/tipscpi.htm

https://www.bls.gov/data/inflation_calculator.htm

https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

The GEO Group (GEO) – NYC NDRS

Posted on September 19, 2022September 19, 2022 by cpatches

Monday, September 19, 2022

The GEO Group, Inc. (NYSE: GEO) is a leading diversified government service provider, specializing in design, financing, development, and support services for secure facilities, processing centers, and community reentry centers in the United States, Australia, South Africa, and the United Kingdom. GEO’s diversified services include enhanced in-custody rehabilitation and post-release support through the award-winning GEO Continuum of Care®, secure transportation, electronic monitoring, community-based programs, and correctional health and mental health care. GEO’s worldwide operations include the ownership and/or delivery of support services for 103 facilities totaling approximately 83,000 beds, including idle facilities and projects under development, with a workforce of up to approximately 18,000 employees.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

NDRS. We hosted GEO CFO Brian Evans and EVP Pablo Paez for a series of investor meetings in NYC. The discussion revolved around the Company’s positive operating performance in a challenged market, the debt restructuring, and the BI business.

Operating Performance. As we have highlighted previously, The GEO Group has strung together some of its best operating performance ever over the past twelve months, even in the face of challenging market conditions due to government policy changes. Conditions, especially in the immigration sector, would suggest a continued positive operating environment for the Company.

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FAT Brands Inc. (FAT) – New York City NDRS

Posted on September 19, 2022September 19, 2022 by cpatches

Monday, September 19, 2022

FAT Brands (NASDAQ: FAT) is a leading global franchising company that strategically acquires, markets, and develops fast casual, quick-service, casual dining, and polished casual dining concepts around the world. The Company currently owns 17 restaurant brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli’s, Twin Peaks, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe & Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses, and franchises and owns over 2,300 units worldwide. For more information on FAT Brands, please visit www.fatbrands.com.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

NYC NDRS. We hosted FAT Brands CEO Andrew Wiederhorn and members of the management team in New York City for investor meetings last week. The tone of the meetings was positive with management highlighting the significant opportunities to grow EBITDA.

Outstanding Franchisee Conference. In late August, the Company hosted its franchisees for a conference. Reports from the meeting indicate an upbeat franchisee group, with FAT inking 150 new franchisee contracts over the three day conference, driving the backlog of new locations to over 1,000. We believe the new contracts are an indicator of the franchisee groups’ confidence in the FAT Brands model.

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This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

Entravision Communications (EVC) – A Sign Of Good Things To Come?

Posted on September 19, 2022September 19, 2022 by cpatches

Monday, September 19, 2022

Entravision Communications Corporation is a diversified Spanish-language media company utilizing a combination of television and radio operations to reach Hispanic consumers across the United States, as well as the border markets of Mexico. Entravision owns and/or operates 53 primary television stations and is the largest affiliate group of both the top-ranked Univision television network and Univision’s TeleFutura network, with television stations in 20 of the nation’s top 50 Hispanic markets. The Company also operates one of the nation’s largest groups of primarily Spanish-language radio stations, consisting of 48 owned and operated radio stations.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Accelerates purchase of Cisneros. The company announced that it paid $22 million and will pay another $22 million in April 2023 for a total of $44 million for the remaining balance that it owes for Cisneros. This accelerates the payment plan for 49% of Cisneros that it agreed to acquire in 2021. Under the original plan, the company was expected to have paid as much as $60 million over the next 2 years.

Frees management. We believe that the advanced timeline for the payment, which is expected to have included performance fees, frees management to pursue growth opportunities outside of its existing Latin American territories.

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This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

Digerati Technologies (DTGI) – Our View Of The Proposed Transaction

Posted on September 19, 2022September 19, 2022 by cpatches

Monday, September 19, 2022

Digerati Technologies, Inc. (OTCQB: DTGI) is a provider of cloud services specializing in UCaaS (Unified Communications as a Service) solutions for the business market. Through its operating subsidiaries, T3 Communications (T3com.com), Nexogy (Nexogy.com), SkyNet Telecom (Skynettelecom.net) and NextLevel Internet (nextlevelinternet.com), the Company is meeting the global needs of small businesses seeking simple, flexible, reliable, and cost effective communication and network solutions including cloud PBX, cloud telephony, cloud WAN, cloud call center, cloud mobile, and the delivery of digital oxygen on its broadband network.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Patrick McCann, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

A vehicle for up-listing. The company announced its plans to enter a business combination with Minority Equality Opportunities Acquisition Inc. (MEOA), a Special Purpose Acquisition Company (SPAC). The transaction, which will result in an up-list to the NASDAQ, should allow the company easier access to the capital markets going forward and potentially accelerate its roll-up strategy.

Transaction details. The SPAC holds $128 million cash in trust. However, there will be SPAC shareholder redemptions prior to the deal closing. We conservatively assume 95% redemption, which would result in proceeds of an estimated $6.4 million in cash. At that redemption rate, Digerati shareholders and warrant holders will retain a 73% equity stake, with 21% going to sponsor shares and 6% going to SPAC shareholders.

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This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

How New Technology Reduces Inflation Data

Posted on September 19, 2022September 19, 2022 by cpatches

Why Apple Can Hold the Line on iPhone Prices and Keep Getting Relatively Cheaper

Inflation in the U.S. is surging to near a 40-year high, with prices on food, fuel and pretty much everything seeming to rise more every month.

Smartphones may be an exception.

Apple, for example, recently announced its new versions of the iPhone and other gadgets, and turned a lot of heads when it said it wouldn’t charge more despite higher costs to make the devices.

This is puzzling because companies typically raise prices in line with inflation – or at least enough to cover the increased costs of making their products.

Consumer price data tells an even more befuddling story. The latest consumer price index data suggests smartphone prices are actually down 20.4% in August from a year ago, according to an index released on Sept. 13, 2022. That’s the biggest drop of any detailed expenditure item the Bureau of Labor Statistics tracks, and contrasts with the overall 8.3% increase in prices.

What’s going on?

As an economist teaching business school students, I enjoy exploring and explaining these economic puzzles. I believe there are two basic explanations – one for the data and another for Apple.

Why Consumer Prices on Smartphones Fell

The story behind the consumer price index data is easier to explain, if a bit technical.

The 20% drop over the past year isn’t unusual for smartphones. In fact, according to the index, they almost always go down from month to month. Since the end of 2019, smartphone prices have come down a whopping 40%.

And though smartphones are showing the biggest drop in the index, tech gear more broadly – from computers to smartwatches – also tend to fall over time. In the previous 12 months, televisions are down 19% and what the government calls information technology commodities are down 8.8%.

Part of the reason for their steady decline is found buried in the Bureau of Labor Statistics website. The consumer price index tries to measure a constant quality of goods and services in the economy. This means it seeks to track the price changes of the exact same set of goods and services each month. It’s comparing the price today with the price of the exact same thing a month or year ago.

For most goods, it’s not really an issue because their quality doesn’t change much over relatively small periods of time. For example, an apple you bite into today is pretty much the same as an apple you ate a year ago.

Smartphones and other technology-heavy gadgets are different. Because smartphones are constantly improving in quality – with the latest updates of an iPhone or Samsung Galaxy awaited breathlessly every year – it is more difficult to ensure you’re comparing prices of products of the exact same quality.

For rapidly improving items, the Bureau of Labor Statistics uses what are called “hedonic regression models” to estimate these changes in quality over time. Hedonic models measure the same amount of satisfaction. While this sounds complicated, the goal is simple: to figure out how much each new smartphone feature changes the price.

As a consumer, you are essentially doing this whenever you decide whether it is worth paying the extra money for that marginally better camera or extended battery life when buying a new phone.

And so, the 20.4% drop doesn’t mean you’re going to pay less for a new smartphone. But it does suggest you’re getting 20% more bang for your buck versus the same phone a year earlier. Whether it’s worth it is another question.

Why Apple Kept Prices Flat

That brings us to why Apple didn’t change its prices, even as the quality of the iPhone improved and supply chain costs went up.

Beyond the quality issues, one of the main ways supply chain problems are affecting phones is in the shortage of computer chips. If there is any product dependent on computer chips, it is smartphones. The shortage has resulted in delays to produce cars, trucks and many other consumer items.

The shortage has also increased the price of semiconductor parts. The U.S. government’s producer price index shows the price of semiconductor parts like chips and wafers steadily rising since the COVID-19 pandemic began in 2020, after falling for years. Chip prices are likely going up 20% in the next year.

For these and other reasons, analysts were expecting Apple to increase its prices.

Instead, Apple released its latest iPhone models at the same prices as the last two models, or US$799 for the iPhone 14 and $999 for the pro version. Keeping prices constant during inflationary times means iPhones are getting relatively cheaper.

So why isn’t Apple increasing prices? Is it just being kind to its customers, who have fueled tremendous profits for the company over the past decade?

Probably not.

With a gross profit margin of over 40% – meaning that’s how much it makes over the cost of producing all its products and services – Apple can probably afford to absorb increased chip and other component costs.

My best guess, since the smartphone market is fairly competitive, is that Apple is keeping prices the same to build market share in the U.S. – beyond the record 50% it recently hit – so the iPhone remains one of the best-selling smartphones.

So while the cost of almost everything we buy is rising, you can take some comfort in knowing at least one item is getting both better over time and not succumbing to an inflationary price spiral.