Author: phoffman@channelchek.com

Should Investors Expect Ongoing Monetary Policy Tightening Through 2023?

Posted on by phoffman@channelchek.com

Is the Fed Falling Behind on Slowing the Economy?

Is the Federal Reserve’s monetary policy losing out to inflationary pressures? While supply chain costs have long been taken out of the inflation forecast, demand pressures have been stronger than hoped for by the Fed. One area of demand is the labor markets. While the Federal Reserve has a dual mandate to keep prices stable and maximize employment, the shortage of workers is adding to demand-pull inflation as wages are a large input cost in a service economy. As employment remains strong, they have room to raise rates, but if strong employment is a significant cause of price pressures, they may decide to keep the increases coming.

Background

The number of new jobs unfilled increased last month as US job openings rose unexpectedly in April. The total job openings stood at 10.1 million. Make no mistake, the members of the Fed trying to steer this huge economic ship would like to see everyone working. However, with the Bureau of Labor Statistics (BLS) reporting “unemployed persons” at 5.7 million in April as compared to 10.1 million job openings, creates far more demand than there are people to fill the positions. Those with the right skills will find their worth has climbed as they get bid up by employers that are still financially better off hiring more expensive talent rather than doing without.

This causes wage inflation as these increased business costs work their way down into the final cost of goods and services we consume, as inflation.

Where We’re At

The 10.1 million job openings employers posted is an increase from the 9.7 million in the prior month. It is also the most since January 2023. In contrast, economists had expected vacancies to slip below 9.5 million. The increase and big miss by economists’ forecasting increases in job opportunities is a clear sign of strength in the nation’s labor market. This complicates Chair Jerome Powell’s position, along with other Fed members. 

It isn’t popular to try to crush demand for new employees, but rising consumer costs at more than twice the Fed’s target will be viewed as too much.

The Fed says that it is data driven, this data is unsettling for those hoping for a pause or pivot.


The Investment Climate

These numbers and other strong economic numbers that were reported in April, create some uncertainty for investors as most would prefer to see the Fed stimulating rather than tightening conditions.

But the market has been resilient, despite the Feds’ resolve. The Fed has raised its benchmark interest rate ten times in the last 14 months. Yet jobs remain unfilled, and the stock market has gained quite a bit of ground in 2023. The concern has been that the Fed may overdo it and cause a recession. While even the Fed Chair admitted this is a risk he is willing to take, he also added that it is easier to start a stalled economy than it is to reel one in and the inflation that goes along with expansion.

So the strong labor market (along with other recent data releases) provides room for the Fed to tighten as there are still nearly two jobs for every job seeker. Additional tightening will eventually have the effect of simmering inflation to a more tolerable temperature. If the Fed overdoes it on the brake pedal, according to Powell, he knows where the gas pedal is.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bls.gov/news.release/pdf/empsit.pdf

How Can Scientists Design Opioid Drugs that Won’t Cause Side Effects?

Posted on by phoffman@channelchek.com
Opioid neurotransmitters are located in many areas of the body, including the brain, spine and gut.

Understanding the Molecular Pathways of How Opioids Work

Your body naturally produces opioids without causing addiction or overdose – studying how this process works could help reduce the side effects of opioid drugs. Opioids such as morphine and fentanyl are like the two-faced Roman god Janus: The kindly face delivers pain relief to millions of sufferers, while the grim face drives an opioid abuse and overdose crisis that claimed nearly 70,000 lives in the U.S. in 2020 alone.

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, John Michael Streicher, Associate Professor of Pharmacology, University of Arizona.

Scientists like me who study pain and opioids have been seeking a way to separate these two seemingly inseparable faces of opioids. Researchers are trying to design drugs that deliver effective pain relief without the risk of side effects, including addiction and overdose.

One possible path to achieving that goal lies in understanding the molecular pathways opioids use to carry out their effects in your body.

How Do Opioids Work

The opioid system in your body is a set of neurotransmitters your brain naturally produces that enable communication between neurons and activate protein receptors. These neurotransmitters include small protein-like molecules like enkephalins and endorphins. These molecules regulate a tremendous number of functions in your body, including pain, pleasure, memory, the movements of your digestive system and more.

Opioid neurotransmitters activate receptors that are located in a lot of places in your body, including pain centers in your spinal cord and brain, reward and pleasure centers in your brain, and throughout the neurons in your gut. Normally, opioid neurotransmitters are released in only small quantities in these exact locations, so your body can use this system in a balanced way to regulate itself.

The problem comes when you take an opioid drug like morphine or fentanyl, especially at high doses for a long time. These drugs travel through the bloodstream and can activate every opioid receptor in your body. You’ll get pain relief through the pain centers in your spinal cord and brain. But you’ll also get a euphoric high when those drugs hit your brain’s reward and pleasure centers, and that could lead to addiction with repeated use. When the drug hits your gut, you may develop constipation, along with other common opioid side effects.

Targeting Opioid Signal Transduction

How can scientists design opioid drugs that won’t cause side effects?

One approach my research team and I take is to understand how cells respond when they receive the message from an opioid neurotransmitter. Neuroscientists call this process opioid receptor signal transduction. Just as neurotransmitters are a communication network within your brain, each neuron also has a communication network that connects receptors to proteins within the neuron. When these connections are made, they trigger specific effects like pain relief. So, after a natural opioid neurotransmitter or a synthetic opioid drug activates an opioid receptor, it activates proteins within the cell that carry out the effects of the neurotransmitter or the drug.

Opioid signal transduction is complex, and scientists are just starting to figure out how it works. However, one thing is clear: Not every protein involved in this process does the same thing. Some are more important for pain relief, while some are more important for side effects like respiratory depression, or the decrease in breathing rate that makes overdoses fatal.

So what if we target the “good” signals like pain relief, and avoid the “bad” signals that lead to addiction and death? Researchers are tackling this idea in different ways. In fact, in 2020 the U.S. Food and Drug Administration approved the first opioid drug based on this idea, oliceridine, as a painkiller with fewer respiratory side effects.

However, relying on just one drug has downsides. That drug might not work well for all people or for all types of pain. It could also have other side effects that show up only later on. Plenty of options are needed to treat all patients in need.

My research team is targeting a protein called Heat shock protein 90, or Hsp90, which has many functions inside each cell. Hsp90 has been a hot target in the cancer field for years, with researchers developing Hsp90 inhibitors as a treatment for many cancer types.

We’ve found that Hsp90 is also really important in regulating opioid signal transduction. Blocking Hsp90 in the brain blocked opioid pain relief. However, blocking Hsp90 in the spinal cord increased opioid pain relief. Our recently published work uncovered more details on exactly how inhibiting Hsp90 leads to increased pain relief in the spinal cord.

Our work shows that manipulating opioid signaling through Hsp90 offers a path forward to improve opioid drugs. Taking an Hsp90 inhibitor that targets the spinal cord along with an opioid drug could improve the pain relief the opioid provides while decreasing its side effects. With improved pain relief, you can take less opioid and reduce your risk of addiction. We are currently developing a new generation of Hsp90 inhibitors that could help realize this goal.

There may be many paths to developing an improved opioid drug without the burdensome side effects of current drugs like morphine and fentanyl. Separating the kindly and grim faces of the opioid Janus could help provide pain relief we need without addiction and overdose.

Demystifying Enterprise Value: Unlocking Opportunities in the Stock Market

Posted on by phoffman@channelchek.com

Why Some Investors Evaluate a Stock Using Enterprise Value vs. Market Cap

Stock selection between different companies is always an apples to oranges comparison – even when the companies are in the same industry. But uncovering comparative value among the universe of stocks and other investment options is fundamental to successful investing. So successful stock market investors must sift for certain criteria, these filters are often financial measures. While data such as Earnings Per Share and P/E ratio get a  lot of attention, other metrics may help investors sort and filter to create their watch list, as some companies move toward the investor’s buy list. One of these is Enterprise Value in comparison to Market Capitalization.

Understanding Enterprise Value

Enterprise value (EV) is the total value of a company, defined in terms of its financing. It includes the current market capitalization (share price x shares outstanding) and compares it to the cost to pay off debt, then adds in asset values. The below calculation results in establishing  the company’s enterprise value, indicating what one might think should be the minimum needed to buy the company.

EV=Market Cap+Debt-Cash

The result can be thought of as the potential cost to acquire a business based on the company’s capital structure. As a concept, enterprise value gives you a realistic starting point for what one would need to spend to acquire a public company outright.  In reality, it typically takes a premium to EV for an acquisition offer to be accepted.

Trading Below Enterprise Value

When a company is trading below its enterprise value, it suggests that the market is valuing the company at a price lower than what its underlying assets would be worth if sold separately. In some circumstances, This situation presents investors with potential opportunities and indicates that further research and investigation may be prudent.

A popular example of a company that has traded below EV, or less than the net of its assets and debt, is Apple. The company has had on its books massive amounts of cash, along with longer-term assets, the value less any debt is higher than the market cap (Outstanding Shares x Price Per Share). 

Looking for Potential Buys

There are times when it may be worth considering an investment in a company that is trading below its enterprise value:

Temporary Market Pessimism: Companies may experience short-term setbacks, negative market sentiment, or sector-wide pessimism that leads to their stock price trading below enterprise value. It is important to assess whether the company’s fundamental strengths remain intact despite these challenges. If the negative sentiment appears temporary and the company is expected to rebound, it could be a window of opportunity.

Mispricing and Market Inefficiencies: The stock market is less than perfectly efficient, and mispricings do occur. Investors who identify stocks trading below enterprise value due to market inefficiencies can potentially capitalize on these pricing discrepancies. The investor may have to roll up their sleeves to do more analysis to determine whether the undervaluation is based on actual fundamental weaknesses or if it is a result of temporary market inefficiencies.

Asset-Rich Companies: Companies with significant tangible or intangible assets, such as real estate, patents, or intellectual property, may trade below enterprise value. Investors may find these stocks attractive as the underlying assets can provide a margin of safety and potential upside. Assessing the value and potential monetization of these assets is crucial before considering an investment.

In the case of Apple above, cash is easier to evaluate than real estate, patents, or other assets.

Considering Sellling

While stocks trading below enterprise value can present attractive opportunities, there are circumstances when it may be wise to consider selling.

Fundamental Deterioration: If a company’s underlying financials are weakening, for example, declining sales, increasing debt levels, or increased costs of doing business could indicate a problem. It is important to evaluate whether the company’s operational challenges are likely to persist, as this could impact its ability to sustain value.

Industry Decline or Structural Issues: Some companies trade below enterprise value due to broader industry decline or structural issues specific to the company. If the industry’s prospects are exoeriencing prolonged weakening, or the company faces inherent challenges that limit its growth potential, it may be prudent to sell the stock, even if it appears undervalued based on enterprise value alone.

Take Away

Understanding enterprise value and using it while sifting through opportunities could help bring stocks to the surface that one may not have considered.  

Using EV as an evaluation tool is not a slam dunk, if investing was that easy we’d all be wealthier. However it is a good starting point to isolate stocks and then evaluate why they may be trading below EV. Is it warranted, is it unwarranted?

Let Channelchek be your data source for small and microcap stocks, many of which can be found to be trading below enterprise value. Sign-up for a no-cost account and gain access to information to over 6,000 less talked about companies as well as insightful daily emails.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.investopedia.com/terms/e/enterprisevalue.asp

The Week Ahead – Debt Ceiling, Beige Book, and Employment

Posted on by phoffman@channelchek.com

The Holiday Shortened Trading Week Started with Positive Market News

It’s a four-day trading week in the US as the calendar changes from May to June. The US stock and bond markets will open on Tuesday knowing a government debt default is now likely averted as President Biden and House Speaker McCarthy reached an agreement Sunday on a deal to raise the nation’s debt ceiling. They have ensured the citizenry they have enough support in Congress to pass the measure this coming week. As far as economic reports, jobs and the labor market will be in the spotlight.

The market is focused on the labor market because Fed policymakers are paying attention to jobs numbers to determine if conditions are so strong they may indicate wage inflation or if they weakened and not strong enough to withstand another rate hike at the June 13-14 FOMC meeting.

Tuesday 5/30

•             9:00 AM ET, FHFA House Price Index. While interest rates have risen, housing prices have been flat to up. Continued demand caused prices to increase by .5% in February, it is expected prices rose again in March by a .3%.

•             10:00 AM ET, the Consumer Confidence index has been sinking and is expected to sink further in May to 100.0 from April’s 101.3. If you recall, April was much weaker than expected, reflecting a sharp decline in job and income expectations.

•             1:00 PM ET, Thomas Barkin is the CEO of the Richmond Federal Reserve district. In light of the PCE inflation indicator late last week and statements by Fed Chair Powell the Friday before, insight into thinking from FOMC members could move market sentiment.

Wednesday 5/31

•             8:50 AM ET, Susan Collins is the CEO of the Richmond Federal Reserve District. Comments by Fed district CEOs may get heightened attention this week as the market looks for clues as to what monetary policy changes may occur from the FOMC meeting in two weeks.

•             9:45 AM ET, The Chicago PMI is expected to fall in May to 47.0 versus 48.6 in April which was the eighth straight month of sub-50 contraction. Above 50 indicates economic expansion, and below 50 reflects a receding economy.

•             10:00 AM ET, Job Openings and Labor Turnover (JOLTS) have been declining. Forecasters put April’s openings at 9.35 million.

•             1:30 PM ET, Patrick Harker is the CEO of the Federal Reserve Bank of Philadelphia. He will be speaking. 

•             2:00 PM ET, If volatility sets in for the last two hours of trading on Wednesday, it may be because the Fed’s Beige Book is released. This report outlines the economic conditions in each of the Federal Reserve Districts. The FOMC uses the contents as a basis for its decision-making.

•             3:00 PM ET, Farm Prices may not be the most awaited for inflation indicator, but it is important as it is a leading inflation indicator. Agricultural prices for April are expected to have risen by 1.3% month-over-month. These increases will work their way into the Producer Price Index (PPI) and the Consumer Price Index (CPI).

Thursday 6/1

•            8:30 AM ET, Jobless claims for the May 27 week are expected to come in at 235,000 versus 229,000 in the May 20 week, which was lower than expected but followed 248,000 in the prior week.•             

•             8:30 AM ET, Released will be the second estimate for first-quarter Nonfarm Productivity. It is expected to remain the same as the first estimate, at minus 2.7 percent.

•             10:00 AM ET, The Institute for Supply Management (ISM) Manufacturing Index has been contracting over the last six months. May’s consensus is 47.0 versus April’s 47.1.

•             11:00 AM ET, The Energy Information Administration’s weekly update on petroleum inventories in the US is expected to show a decline of 12.5 million barrels.

•             1:00 PM ET, Patrick Harker is the CEO of the Federal Reserve Bank of Philadelphia. He will be speaking. 

•             4:30 PM ET, The Fed’s Balance Sheet report tells unveils if the Fed has been on track with monetary policy initiatives like quantitative Tightening (QT) and if the troubled bank outlets are getting more or less use. Obviously, this has been getting much more scrutiny by investors.

Friday 6/2

•             8:30 AM ET, The Employment Situation report is supposed to show a 180,000 rise is the call for nonfarm payroll growth in May versus 253,000 in April. Average hourly earnings in May are expected to rise 0.3 percent on the month for a year-over-year rate of 4.4 percent; these would compare with 0.5 and 4.4 percent in April, which were higher than expected. May’s unemployment rate is expected to edge higher to 3.5 percent versus April’s 3.4 percent, which was two-tenths lower than expected.

What Else

Look for a vote on the debt ceiling that is likely to pass both houses of Congress and be signed into law quickly this week.

Artificial intelligence, or AI, has been in the news at an escalating pace. While most agree it can make life better, there are also fears that if not governed, it can cause devastating problems. The White House is asking for input and comments before 5pm July 7. Get more information here.

On Tuesday May 30th and Wednesday May 31st, Tonix Pharmaceutical Holdings will be in South Florida presenting to investors as part of our Meet the Management Series. If you’d like to attend one of these roadshows, presented by Senior Management of Tonix, go here for more information.

Paul Hoffman

Managing Editor, Channelchek

Sources:

https://us.econoday.com/byweek.asp?cust=us

https://www.whitehouse.gov/wp-content/uploads/2023/05/OSTP-Request-for-Information-National-Priorities-for-Artificial-Intelligence.pdf

Noble/Channelchek  “Meet the Management” Roadshow Schedule

This Travel Segment Has Taken Investors Far

Posted on by phoffman@channelchek.com

Investors Have Far Fewer Reservations Against Investing in Leisure

Memorial Day Weekend in the U.S. marks the beginning of the travel season. After a few years on hiatus, as a result of Covid-19 restrictions, travel in 2023 is expected to surpass pre-pandemic numbers. While many investors are focused on the debt ceiling, less accommodative monetary policy, and looking for an entry point to invest in AI technology, post-pandemic travel plans are increasing – and the returns of some companies reflect this. One segment of the travel sector has benefitted and provided double-digit YTD stock returns. Below we discuss this segment and the potential for the future.

Travel Booking Stocks

When was the last time you went to an airline website to book a flight with them, or even a hotel for that matter? Most of us now find ourselves on a booking website when we’re planning a vacation. On these platforms, we can compare prices more easily, and if we’d like, add on extras like a car rental. Some even have proprietary package deals.

Technological advancements have created even greater efficiencies among booking and vacation travel package companies. Other positives for growth are pent-up demand, diversified revenue streams, and valuations still considered attractive. These all provide a backdrop and potential for the medium and long-term growth of the travel booking industry.

Source: Koyfin

The chart above is a year-to-date sampling of examples of stocks in this leisure segment that have outperformed the overall market (S&P 500). Below, from weakest performer to strongest, are details of each company’s unique business, market cap, and other interesting investor information:

  •  Expedia (EXPE) is a global travel company that provides a wide range of travel services, including flights, hotels, car rentals, and vacation packages.

This is a large cap stock with a current market cap of $14.33 billion, at $96.85 per share.

The company is headquartered in Seattle, Washington.

  • Booking Holdings (BKNG) is a travel company that owns a number of popular travel brands, including Booking.com, Priceline.com, and Kayak.com.

This is a large-cap stock with a current market cap of $97.61 billion, at $45.41 per share.

The company is headquartered in Norwalk, CT.

  • Allegiant Travel (ALGT) is a leisure travel company that provides travel services and other products to under-served cities in the U.S. This includes flights between vacation destinations. As of February 1, 2023, Allegiant operated a fleet of 122 Airbus A320 series aircraft.

This is a small cap stock with a current market cap of $1.85 billion, at a price of $99.96 per share.

The company is headquartered in Las Vegas, Nevada.

  • Travelzoo (TZOO) has a unique business model as it operates as an Internet media company that provides travel, entertainment, and deals from travel and leisure businesses worldwide. Publication products include the Travelzoo Top 20 email newsletter, Travelzoo emails, Travelzoo Network, Travelzoo mobile applications, Jack’s Flight Club website, Jack’s Flight Club mobile applications, and Jack’s Flight Club newsletters.

The year-to-date performance of TZOO is 10x that of the S&P 500.

In a research report dated April 28, 2023, Michael Kupinski, the senior research analyst for media and entertainment, had this to say about Travelzoo, “We believe that there is a disconnect with investors and the improved fundamentals at the company. Near current levels, the TZOO shares appear compelling, trading at 5.3 times Enterprise Value to our 2024 cash flow estimate or below the low end of the company’s 10-year and 15-year average trading ranges.” See the report here.

Current market cap is $133.05 million, at $8.69 per share.

The company is headquartered in New York, NY.

Image: “This Memorial Day weekend could be the busiest at airports since 2005” – AAA Newsroom

Take Away

Travel booking companies are well-positioned to benefit from the recovery of the overall leisure industry. Small cap travel booking companies are often more nimble and innovative than larger companies; this could give them an advantage in the travel booking market.

People are spending more money on travel. Companies like those mentioned above welcome the opening of China, allowing citizens to travel and return. In addition to the overall post-pandemic volume of business, travelers are spending more money on trips than they did before the restrictions.

Paul Hoffman

Managing Editor, Channelchek

Sources

AAA NEWSROOM (5/15/23)

Channelchek/TZOO (April 28, 2023)

News From the Biotech Sector has become Increasingly Rewarding

Posted on by phoffman@channelchek.com

2023 May Be the Year the Biotech Sector Cures Itself of Malaise

A pivotal point for biotech stocks seems to have been reached. It’s almost mid-2023, and barely a week goes by without news driving a biotech company’s stock price upward to gain returns that one would expect to take years to achieve in a broad basket index position. The most recent news causing this price action is yet another clinical-stage therapeutic company. Shares of PDS Biotech are up 27% since yesterday and 41% month-to date. This week’s move is attributable the company reporting positive trial results.

PDS Biotechnology (PDSB) is a clinical-stage immunotherapy company with a developing pipeline of targeted immunotherapies for cancer and infectious disease.

The impetus for the price move was the announcement of interim data from a Phase 2 trial investigating its PDS0101 in combination with Merck’s  KEYTRUDA®. The trials were in patients with unresectable, recurrent or metastatic human papillomavirus head and neck cancers.

The results were quite positive and will be featured in a poster presentation and in a head and neck cancer expert panel discussion at the 2023 American Society of Clinical Oncology (ASCO) Annual Meeting being held June 2-6 in Chicago.

These are highlights of the results showing the interim data of the efficacy of PDS Bio’s PDS0101 in combination with KEYTRUDA®:

The estimated 12-month overall survival rate was 87.1%. Published results are 36-50% with approved ICIs used alone*.

  • Median progression-free survival was 10.4 months (95% CI 4.2, 15.3). Published results are median PFS of 2-3 months for approved ICIs when used as monotherapy in patients with similar PD-L1 levels*.
  • A disease control rate (disease stabilization or tumor shrinkage) of 70.6% (24/34)
  • Confirmed and unconfirmed objective response rate was 41.2% (14/34 patients), which is identical to the preliminary response rate data PDS Biotech previously reported at ASCO 2022 (7/17 patients). To date these responses have been confirmed in nine of the 34 patients (26.5%), including one complete response.
  • 15/34 patients (44.1%) had stable disease.
  • 9/34 patients (26.5%) had progressive disease.
  • 4/48 (8.3%) of patients had a Grade 3 treatment-related adverse event (TRAE). No Grade 4 or higher TRAEs were observed.

A main driver of the stock market enthusiasm can be found in the safety and efficacy results in the interim data. “This data showed an estimated 12-month survival rate of 87% and a progression-free survival of 10.4 months, which is very encouraging given the poor prognosis these patients face,” stated Lauren V. Wood, M.D., PDS Biotech’s Chief Medical Officer and a co-author of the study. “Furthermore, we remain encouraged by the safety profile of PDS0101 in combination with KEYTRUDA®, with only 8% of patients experiencing a Grade 3 treatment-related adverse event without more serious Grade 4 or 5 events. We believe these data are encouraging for HNSCC patients and indicate that the addition of the HPV16-targeted immunotherapy PDS0101 to KEYTRUDA® should be further evaluated for its potential to enhance survival in HPV16-positive head and neck cancer patients.”

To understand the company PDS Biotechnology better, visit the research page on Channelchek, and also review this Channelchek video that shares key information about PDSB.

The Nature of Biotech Investing

Drug discovery and development is a long, uncertain path that often takes 10–15 years, with costs that could exceed $1–2 billion for any new drug ultimately approved for clinical use. Unlike unregulated products, it’s a significant achievement for a candidate to get as far as clinical trials. Attaining interim results showing high efficacy and tolerance is a very positive sign and one that will most often cause a large price jump. Negative results can have the opposite effect.

Events that cause small-cap biotech stocks to experience significant price jumps could include:

  • Positive clinical trial results: As with PDS Biotechnology, when a small-cap biotech company releases positive clinical trial results, it can generate significant investor interest and drive up the stock price.
  • FDA approvals: Taking is a step further, FDA approvals of drugs or medical devices can significantly boost a small-cap biotech company’s stock price, as it can open up a new revenue stream for the company.
  • Partnerships and collaborations: Partnerships and collaborations with larger companies can cause a small-cap biotech stock to rise as it indicates a level of validation for the company’s technology or products, and provide needed funding to bring research and development along the lengthy timeline.
  • Acquisition rumors or deals: When rumors or announcements of an acquisition by a larger company circulate, it can cause a small-cap biotech stock to rise as investors anticipate a potential buyout premium.
  • Analyst upgrades: If an influential analyst upgrades their rating on a small-cap biotech stock, it can increase investor interest and drive up the stock price.

Companies You May Want to Watch

There is data and information on well-over 200 small-cap biotech companies on Channelchek. Below is a select group that investors may want to follow. 

Cocrystal (COCP): Cocrystal Pharma, Inc. is a clinical-stage biotechnology company discovering and developing novel antiviral therapeutics that target the replication process of influenza viruses, coronaviruses, hepatitis C viruses and noroviruses.

Axcella (AXLA): Axcella is a clinical-stage biotechnology company pioneering a new approach to treat complex diseases using endogenous metabolic modulator compositions. The company’s product candidates are comprised of EMMs and derivatives that are engineered in distinct combinations and ratios to reset multiple biological pathways, improve cellular energetics, and restore homeostasis.

Tonix Pharmaceutical (TNXP): Tonix is a clinical-stage biopharmaceutical company focused on discovering, licensing, acquiring and developing therapeutics to treat and prevent human disease and alleviate suffering. Tonix’s portfolio is composed of central nervous system, rare disease, immunology and infectious disease product candidates.

Onconova Therapeutics (ONTX):   Onconova Therapeutics is a clinical-stage biopharmaceutical company focused on discovering and developing novel products for patients with cancer. The Company has proprietary targeted anti-cancer agents designed to disrupt specific cellular pathways that are important for cancer cell proliferation.

MAIA Biotechnology (MAIA):   MAIA is a targeted therapy, immuno-oncology company focused on the development and commercialization of potential first-in-class drugs with novel mechanisms of action that are intended to meaningfully improve and extend the lives of cancer patients.

Ocugen (OCGN): Ocugen, Inc. is a biotechnology company focused on discovering, developing, and commercializing novel gene and cell therapies and vaccines that improve health and offer hope for patients across the globe. The company impacts patient’s lives through innovation that forge new scientific paths.

PDS Biotechnology (PDSB):  This was positive news for PDS Biotech, but there work isn’t finished and they have other immunotherapy products in their pipeline based on proprietary T cell-activating technology.

Take Away

As we approach the halfway point of 2023, biotech stocks that had traded sky-high during the pandemic era had been paid far less attention to since. But the tide appears to be turning as news such as that reported by PDSB, and partnerships and even acquisitions have been on the rise.

It’s an interesting sector that, for better or worse, is barely correlated with the rest of the stock market.

Paul Hoffman

Managing Editor, Channelchek

Sources

PDS Biotechnology Press Release (May 25, 2023)

PDS Biotechnology Video

Young Investor’s Skills are Apparently Well-Suited for Today’s Markets

Posted on by phoffman@channelchek.com

The CFA Institute and FINRA Study on Gen Z Investors Would Put Smiles on Their Parent’s Face

Google’s AI chatbot Bard defines Generation Z, or Gen Z, as “the demographic cohort succeeding Millennials and preceding Generation Alpha.” Broadly, the media use the mid-to-late 1990s as starting birth years and the early 2010s as ending birth years as Gen Z. If one looks at the dates, most had internet in their homes on the day they arrived from the hospital after birth. Technology has advanced since then, and the generation that never knew life without is well-equipped to make it work for them.

Generation Z is considered more proactive about their money than their parents or their parents  parents. A survey by the CFA Institute and FINRA Investor Education Foundation  determined that 60% or 6 out of 10 of the Gen Z population owned at least some investments. Some 41% said they were investing in individual stocks, and 35% in mutual funds. The most popular investment? Crypto.  It was reported that 20% are invested in cryptocurrency and/or non-fungible tokens.

The report clarified that these investors are not yet retirement focused, but instead growing assets to have enough money for traveling or saving for unexpected expenses.

Why Gen Z’s Interest

The FINRA/CFA Institute report gave multiple reasons why young people are getting into investing. These include the ability to learn about investing through social media and other online platforms, the existence of apps that let them invest small amounts, such as through fractional shares, as well as the underlying fear of missing out on a more passive way they could make money.

Top Challenges to Meeting Financial Goals

Source: FINRA Foundation

With many sources easily accessible to this connected generation, Generation Z literally have a world of information in their hand, some of it very good, and some of it is probably worthless or damaging. Social media and internet searches take up the top means of learning about investing for this generation. Still on the subject of learning, they are least likely to talk to a financial professional.

Sources of Information Gen Z Use to Learn About Investing

Source: FINRA Foundation

The FINRA/CFA study drilled down deeper to discover the most popular online sources used by Gen Z  for investor information. The highest on the list is YouTube followed by internet searches. Lowest on this list is Facebook.

Source: FINRA Foundation

Portfolio Size and Nature

The median investor from this generation has an account worth $4,000. The women had smaller accounts averaging $3,000 versus Gen Z men, whose accounts averaged $5,000. 

Investing began very early for some as 25% of Gen Z investors said they began investing before they turned 18. The report indicated that starting at a relatively young age is common in the U.S., Canada, and the U.K.  The technology of today allows investors to start small and trade incrementally, even fractionally. This along with curiosity and comfort with technology, is the driver to the first step.

Source: FINRA Foundation

The report was based on a survey of 2,872 investors and non-investors who were aged 18 to 25, as well as millennial and Generation X investors in the U.S., Canada, U.K., and China.

When first starting out, Gen Z most of these investors (44%) gravitated toward cryptocurrencies, according to the report. The median average they first began investing with is $1,000.

Take Away

The youngest adults are finding themselves motivated to invest, more so than any generation before. The top reason is it is easier for the generation to be involved in the markets. Many trade crypto, and own individual stocks. Video content as well as online searches are the primary sources of investment information.

As an aside, this article prompted me to look at the age demographics provided by Google Analytics for Channelchek. Channelchek provides investor information in both written and video formats. Out of the six age groups that Google tracks, 14% of our site traffic since the beginning of the year is attributable to the Gen Z age group.

Should you have any requests for content, or if you are well-versed in a topic that you think Channelchek readers may benefit from, click my name below to send an email, I’d enjoy speaking with you.

Paul Hoffman

Managing Editor, Channelchek

Sources

CFA/FINRA Report (May 2023)

Bard, from Google AI Provided Minor Cross-reference Information

https://en.wikipedia.org/wiki/Education_of_Generation_Z

Details of the United States Credit Watch and Downgrade Status

Posted on by phoffman@channelchek.com

Fitch Has Placed the United States and Some of its Debt on Credit Watch

What does it mean that rating agency Fitch has put the US debt on credit watch?

According to Fitch Ratings, a rating service that is one of the top three Nationally Recognized Statistical Rating Agencies (NRSRO), has placed the United States AAA Long-Term, Issuer Default Rating (IDR) on rating watch and at risk of a downgrade. The primary reason for the rating agency warning is the apparent standstill of negotiations related to the US borrowing limit along with the approaching day that the US may not be able to refinance the interest portion of approaching US Treasury Bills (T-Bills), US Treasury Notes (T-Notes), and US Treasury Bonds (T-Bonds).

Implications

When a top credit rating agency places a country’s debt on credit watch, it means that the agency is considering lowering that country’s credit rating if conditions remain unchanged or worsen. This would have a number of negative consequences for the country, and could negatively impact those that operate within its economy, this could include:

  • Higher interest rates on government borrowing
  • Higher rates on corporate debt priced off of US Treasuries
  • Higher mortgage rates spread to US Treasuries
  • A decline in the value of the country’s currency
  • Increased difficulty in attracting foreign investment

A downgrade of the US government credit rating below AAA would be a major event with far-reaching consequences above and beyond the immediate impacts bullet-pointed above.

Wording of the Fitch Ratings Warning

Rating agencies like Fitch, Moody’s, and S&P are private companies. Debt issuers pay to have their debt issues rated to provide investors with information and a framework of value. These rating agencies or NRSROs are somewhat akin to providers of equity research to stock market participants via company-sponsored research.

Some of the main categories listed by Fitch titled, KEY RATING DRIVERS, are “Debt Ceiling Brinkmanship”, “Debt Limit Reached”, “X-Date Approaching”, “Debt Default Rating Implication”, “Potential Post Default Ratings”, and “High and Rising Public Debt Burden”.

The concern with debt ceiling brinkmanship according to Fitch is the “increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x-date (when the U.S. Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt).”

Fitch’s warning indicates it still expects a resolution to the debt limit before the x-date. However, it believes risks have risen that the debt limit will not be raised or suspended before the x-date and that the government could begin to miss payments on some of its obligations.

Fitch pointed out that the US reached its $31.4 trillion debt ceiling on Jan. 19, 2023. While the US Treasury has taken what Janet Yellen called “extraordinary measures” she also expects the measures could be exhausted as early as June 1, 2023. The cash balance of the Treasury reached USD76.5 billion as of May 23, and sizeable payments are due June 1-2.

The x-date has been defined as the day the US can’t meet its obligations without borrowing above the current Congressional debt limit. Failure to reach a deal “to raise or suspend the debt limit by the x-date would be a negative signal of the broader governance and willingness of the U.S. to honor its obligations in a timely fashion,” Fitch warned. The rating agency indicated this “would be unlikely to be consistent with a ‘AAA’ rating”   

Fitch also addressed the 14th amendment discussions and other unconventional solutions, “avoiding default by non-conventional means such as minting a trillion-dollar coin or invoking the 14th amendment is unlikely to be consistent with a ‘AAA’ rating and could also be subject to legal challenges,” Fitch advised.

The debt default rating warning comes from basic understanding of the role of a rating agency. However, Fitch did offer an opinion on the likelihood. “We believe that failing to make full and timely payments on debt securities is less likely than reaching the x-date, and is a very low probability event.

If a default did occur, Fitch indicated it would be more than one level adjustment to some debt affected. Fitch’s sovereign rating criteria would lead it to downgrade the sovereign rating (IDR) to Restricted Default (RD). Actual affected securities would be downgraded to ‘D’. Additionally, other LT debt securities with payments due within 30 days could be expected to be downgraded to ‘CCC’, and ST T-Bills maturing within the following 30 days could be expected to be downgraded to ‘C’.

“Other debt securities with payments due beyond 30 days would likely be downgraded to the expected post-default rating of the IDR,” Fitch wrote.

The US has a high and rising public debt burden, according to the rating agency. It points out that government debt fell to 112.5% of GDP at year-end 2022 (compared to 36.1% for the ‘AAA’ median). It peaked during the pandemic at 122.3%. Fitch forecasts debt to increase to 117% by end-2024. Debt dynamics under the baseline Congressional Budget Office (CBO) assumptions project that the ratio of federal debt held by the public to GDP will approach 119% within a decade under the current policy setting, a rise of over 20 pp. Fitch also recognizes the added cost of financing, adding, “interest rates have risen significantly over the last year with the 10-year Treasury yield at close to 3.7% (compared to 2.8% a year ago).”

Take Away

The decision to put a country’s debt on credit watch is not made lightly. One company announcement such as this can have an impact felt across the globe. It’s important for them to get this right. NRSROs typically would only put a sovereign nation, especially the US, where its debt is often called “the risk free rate,” and the US dollar serves as fiat currency. Firch did this because they view it as responsible and in line with what securities analysts and the rating services they work for are expected to watch out for.

In the current case of the United States debt ratings, the main concern is the political gridlock in Washington, which has made it difficult to reach an agreement on raising the debt ceiling. If the debt ceiling is not raised, the United States will eventually run out of money to pay its bills, which would trigger a default. Fitch would be embarrassed (and arguably irresponsible) if they maintained a AAA rating just one week before the US Treasury Secretary indicated the nation couldn’t roll its debt.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.fitchratings.com/research/sovereigns/fitch-places-united-states-aaa-on-rating-watch-negative-24-05-2023

The FOMC Minutes Define Two Determinants of Future Policy

Posted on by phoffman@channelchek.com
Image Credit: Federal Reserve (Flickr)

Federal Open Market Committee Minutes Reveal Uncertainty

The Federal Reserve released the minutes of its last Federal Open Market Committee (FOMC) meeting. They show the Fed, as a whole, at the May 2-3 meeting as less than clear as to the near-term direction of monetary policy. The U.S. central bank officials are best described as believing they need to be nimble and react, keeping their options open rather than have a plan to continue raising interest rates or hold them steady after future meetings.

Fed officials remained concerned about inflation. Conversations and debates centered on the impact of tighter financial conditions and the degree of lag with which monetary policy would have an impact. According to the meeting minutes, the expected lag could mean their tightening campaign is nearly finished.

This release provided long-awaited insight and shed a modicum of light on how seriously Fed officials were considering changing course or holding interest rates steady when they met last month.

Actual Decision

Federal Reserve officials moved unanimously to raise interest rates at the central bank’s meeting on monetary policy in May despite significant debate at the time over whether pausing tightening efforts would instead be the more prudent move.

The minutes from the Fed’s May 2-3 meeting show concerns and offer clues as to what is important to various factions of the FOMC.

Key Language in Minutes

Banking

“Participants noted that risks associated with the recent banking stress had led them to raise their already high assessment of uncertainty around their economic outlooks. Participants judged that risks to the outlook for economic activity were weighted to the downside, al­though a few noted the risks were two-sided.”

In their discussion, various participants commented on developments in banking, noting that the banking system was sound and resilient. They also patted themselves on the back, saying that, “actions taken by the Federal Reserve in coordination with other government agencies had served to calm conditions in that sector, but that stresses remained.”

 Some participants noted that the banking sector was well-capitalized overall. The belief is that “the most significant issues in the banking system appeared to be limited to a small number of banks with poor risk-management practices or substantial exposure to specific vulnerabilities.”

U.S. Debt Ceiling

“Some participants also noted concerns that the statutory limit on federal debt might not be raised in a timely manner, threatening significant disruptions to the financial system and tighter financial conditions that weaken the economy.”

Inflation

“Regarding risks to inflation, participants cited the possibility that price pressures could prove more persistent than anticipated because of, for example, stronger-than-expected consumer spending and a tight labor market, especially if the effect of bank stress on economic activity proved modest.”

A few members felt further tightening could bring supply and demand imbalances more in line and reduce inflation pressures.

“Some participants cited the possibility that further tightening of credit conditions could slow household spending and reduce business investment and hiring, all of which would support the ongoing rebalancing of supply and demand in product and labor markets and reduce inflation pressures.”

Lag of Policy on Economy

A number of members saw evidence that policy was on track to rebalance price pressures and having its desired effect.

“In discussing the policy outlook, participants generally agreed that in light of the lagged effects of cumulative tightening in monetary policy and the potential effects on the economy of a further tightening in credit conditions, the extent to which additional increases in the target range may be appropriate after this meeting had become less certain.”

“Participants agreed that it would be important to closely monitor incoming information and assess the implications for monetary policy.”

There are two factors that the FOMC minutes noted would be determinants to whether additional policy actions would be needed, they are:

“…the degree and timing with which cumulative policy tightening restrained economic activity and reduced inflation, with some participants commenting that they saw evidence that the past years’ tightening was beginning to have its intended effect.”

“… the degree to which tighter credit conditions for households and businesses resulting from events in the banking sector would weigh on activity and reduce inflation, which participants agreed was very uncertain.”

“Some participants commented that, based on their expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings.”

“Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.”

“Almost all participants stated that, with inflation still well above the Committee’s longer-run goal and the labor market remaining tight, upside risks to the inflation outlook remained a key factor shaping the policy outlook. A few participants noted that they also saw some downside risks to inflation.”

Uncertainty

Some participants commented at the meeting that they, “saw evidence that the past years’ tightening was beginning to have its intended effect.”

The members seemed to not have a handle on the impact of the health of the banking industry’s impact, the minutes read, “the degree to which tighter credit conditions for households and businesses resulting from events in the banking sector would weigh on activity and reduce inflation, which participants agreed was very uncertain.”

 Take Away

The path forward for monetary policy is, as the Federal Reserve has continually stated, data dependent. The clarity of trends of the data is unclear in part because of any expected lag, the health of banking, and the stickiness of inflation.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.federalreserve.gov/monetarypolicy/fomcminutes20230503.htm

Ashton Kutcher’s Venture Capital Firm Gets Disruptive

Posted on by phoffman@channelchek.com

Sound Ventures is More Evidence of How Much Capital AI is Attracting

Around investment circles, it is not unusual to debate what Cathie Wood is touting as disruptive and “the next big thing.” Another hedge fund manager that gets that kind of attention is Michael Burry, whose Tweets are followed by an army of “Burryologists” working to decode his words or advice. But the watercooler talk never before included Ashton Kutcher – at least not until now. The actor, originally made famous by his portrayal of a less-than-intelligent character on the TV sitcom, That 70’s Show, is a partner in a successful hedge fund he co-founded.

The firm, Sound Ventures, made news this month with an announcement that it had closed a $240 million artificial intelligence (AI) fund. The stated purpose of the fund is to invest in early-stage AI companies that have the potential to make a significant impact on life. Part of Kutcher’s interest in AI is what he believes the technology’s has potential to solve some of the world’s biggest problems. His list includes poverty, disease, and climate change. Kutcher and his business partner, Guy Oseary,  say they are committed to investing in AI companies that are working to make a positive impact on the world.

Since 2015, Sound Ventures has invested in a number of successful companies that, include tech disruptors Airbnb, Spotify, and Uber. As far as AI, Kutcher says he is most interested in AI companies that have the potential to revolutionize various industries, the focus being companies that are at the forefront of this technology.

The venture Capital (VC)  firm announced in early May that it closed the Sound Ventures AI Fund. The fund was oversubscribed by nearly $240 million. It is noteworthy that C3.AI, the heart of ChatGPT, has a market cap of just 10 to 12 times this amount. So while this may not sound like a huge sum, it is significant relative to the size of the companys the fund may invest in.

The fund seeks to invest in AI businesses at the foundation model layer. Currently, the fund’s portfolio of companies includes OpenAI, Anthropic and StabilityAI.  Kutcher, Oseary and Effie Epstein lead Sound Ventures as general partners.

Sound Ventures has already been investing in AI for the past decade, “and we believe that this moment in history will dictate the trajectory of this technology,” Epstein said. “Our team is well positioned to continue investing in and supporting exceptional founders that are thoughtfully shaping the future through artificial intelligence.”

Take Away

Famous investors and famous people have the ability to draw attention to their investment activities. Actor Ashton Kutcher, his neighbor Guy Oseary, who is a talent manager, and Effie Epstein, who was formerly head of investor relations at iHeartMedia, are able to draw a good deal of attention to their investment work.

The activity of Sound Ventures also demonstrates the ability to raise capital for anything that is tied to artificial intelligence.

Paul Hoffman

Managing Editor, Channechek

Sources

Pichbook Kutcher

Fortune Kutcher

Investors Should Be Clear on the Difference Between Algo driven and AI Based

Posted on by phoffman@channelchek.com

Understanding the Distinction between Algorithm-Driven Functionality and Artificial Intelligence

Technological advancement doesn’t sleep. Rapidly evolving and unfolding, it is hard to keep up with the difference between, machine learning, artificial intelligence, and generative AI. Natural language processing and speech recognition also have massive overlaps, but are definitively different. Two “whiz-bang” technologies that are often confused, or at least the words have been used interchangeably are “artificial intelligence” and “algorithm-driven functionality.” While both concepts contribute to the advancement of technology, one would fall behind if they don’t understand the distinctions. Below we aim to clarify the dissimilarities between algorithm-driven functionality and artificial intelligence functionality, shedding light on their unique characteristics and applications will help investors understand the nature of companies they may be evaluating.

Algorithm-Driven Functionality

Algorithm-driven functionality primarily relies on predefined rules and step-by-step instructions to accomplish specific tasks. An algorithm is a sequence of logical instructions designed to solve a particular problem or achieve a specific outcome. Algorithms have been utilized for centuries, even before the advent of computers, to solve mathematical problems and perform calculations.

In state of the art technology, algorithms continue to play a crucial role. They are employed in search engines to rank web pages, in recommendation systems to suggest personalized content, in market analysis to indicate potential trades, and in sorting to organize data efficiently. Algorithm-driven functionality typically operates within predefined parameters, making it predictable and deterministic.

While algorithms are powerful tools, they lack the ability to learn or adapt to new situations. They require explicit instructions to perform tasks and cannot make decisions based on contextual understanding or real-time data analysis. Therefore, algorithm-driven systems may not best fit a complex situation with dynamic scenarios that demand flexibility and adaptability.

Artificial Intelligence Functionality

Artificial intelligence encompasses a broader set of technologies that enable machines to simulate human intelligence. AI systems possess the ability to perceive, reason, learn, and make decisions autonomously. Unlike algorithm-driven functionality, AI algorithms are capable of adapting and improving their performance through continuous learning from data.

Eventually they can have a mind of their own.

Machine learning (ML) is a prominent subset of AI that empowers algorithms to automatically learn patterns and insights from vast amounts of data. By analyzing historical information, ML algorithms can identify trends, make predictions, and generate valuable insights. Deep learning, a specialized branch of ML, employs artificial neural networks to process large datasets and extract intricate patterns, allowing AI systems to perform complex tasks such as image recognition and natural language processing.

AI functionality can be found in various applications across different sectors. Chatbots like ChatGPT can understand and respond to human queries, autonomous vehicles navigate and react to their surroundings, and recommendation systems that provide personalized suggestions are all examples of AI-driven technologies. These systems are capable of adapting to changing circumstances, improving their performance over time, and addressing complex, real-world challenges.

Differentiating Factors

The key distinction between algorithm-driven functionality and AI functionality lies in their capability to adapt and learn. While algorithms are rule-based and operate within predefined boundaries, AI algorithms possess the ability to learn from data, identify patterns, and modify their behavior accordingly. AI algorithms can recognize context, make informed decisions, and navigate uncharted territory with limited explicit instructions.

What freightens many is AI functionality exhibits a higher degree of autonomy compared to algorithm-driven systems. AI algorithms can analyze and interpret complex data, extract meaningful insights, and make decisions in real-time without relying on explicit instructions or human intervention. This autonomy enables AI systems to operate in dynamic environments where rules may not be explicitly defined, making them suitable for tasks that require adaptability and learning.

Take Away

Algorithm-driven functionality and artificial intelligence functionality are distinct concepts within the realm of technology. While algorithm-driven systems rely on predefined rules and instructions, AI functionality encompasses a broader set of technologies that enable machines to simulate human intelligence, adapt to new situations, and learn from data. Understanding these differences is crucial for leveraging the strengths of each approach for a given solution and harnessing the full potential of technology to solve complex problems and drive innovation to provide solutions and benefit.

Paul Hoffman

Managing Editor, Channelchek

Source

Eweek October 3, 2022

Solid Evidence a Recession is Unlikely this Year

Posted on by phoffman@channelchek.com

Reliable Data, Not Emotions, are Pointing to a Growing U.S. Economy

In roughly one month, we will be halfway through 2023. While many point to the Fed’s pace of tightening and the downward sloping yield curve, as a reason to run around like Chicken Little warning of a coming recession, a fresh read of the economic tea leaves tells a different story. Just today, May 23, the PMI Output Index (PMI) rose to its highest reading in over a year. Home sales figures were also reported to show that new homes in May sold at the highest rate in over a year. These are both reliable leading indicators that point to growth in both services and manufacturing.

U.S. Composite PMI Output Index

Business activity in the U.S. increased to a 13-month high in May due in large part to strong growth in the services sector. This is a reliable indication that economic expansion has growing momentum. Despite the negative talk of those that are concerned that the Fed has lifted interest rates closer to historical norms and that the yield curve is still inverted, in part due to Covid era Fed yield-curve-control, the numbers suggest less caution might be warranted.

S&P Global said on Tuesday (May 23) its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to a reading of 54.5 this month. It indicates the highest level since April 2022 and is up from a reading of 53.4 in April. A reading above 50 indicates growth, this is the fourth consecutive month it has been above 50. The consensus among economists was only 52.6.

Home Sales

One sector that is directly impacted by interest rates is real estate. However, new home sales rose in April, this is a clear sign that prospective buyers are making deals with builders.

New homes in April were sold at a seasonally-adjusted annual rate of 683,000, Its the highest rate since March 2022. The April data represents a 4.1% gain from March’s revised rate of 656,000,. The report was from the Census and Department of Housing and Urban Development and was reported Tuesday May 23. Economists had expected new home sales to decline to 670,000 from a March rate of 683,000. It was the largest month-over-month increase since December 2022.

Leading Indicators

PMI is forward-looking as it surveys purchasing managers’ expectations and intentions for the coming months. By capturing their sentiment on future orders, production plans, and hiring intentions, PMI offers insights into economic trends that have yet to be reflected in other after-the-fact indicators.

Home sales are considered a leading indicator because they can serve as a measure of other needs and broader economic trends. Home sales have a significant impact on related sectors, such as construction, home improvement, finance, and consumer spending. Changes in home sales can influence economic activity and indicate shifts in consumer confidence, employment levels, and overall economic health.

While many economic reports offer rear-view mirror data, these reports are true indicators of business behavior as it plans for future expectations, and consumer behavior as it is confident that it will have the resources available to purchase and outfit a new home.

The upbeat reports prompted the Atlanta Federal Reserve to raise its second-quarter gross domestic product estimate to a 2.9% annualized rate from a 2.6% pace. The economy grew at a 1.1% rate in the first quarter.

Take Away

Many economists are negative about the economic outlook later this year. Market participants have been positioning themselves with the notion that there may be a late year recession. Is the notion misguided? Recent data suggests there may be buying opportunities for those willing to go against the tide of pundits preaching recession.

No one has a crystal ball. In good markets and bad, there is no replacement for good research before you put on a position, and then for as long as the position remains in your portfolio.

Channelchek is a great resource for information to follow the companies not likely being reported in traditional outlets. Turn to this online free resource as you evaluate small and microcap stocks.

Paul Hoffman

Managing Editor, Channelchek

Sources

World Economic Outlook

Barron’s (May 23, 2023)

Reuters (May 23, 2023)

We May Soon Know if Yellen’s “Extraordinary Measures” are Extraordinary Enough

Posted on by phoffman@channelchek.com

The Pace of the U.S. Treasury Burn Rate Toward a $0.00 Balance

The US Treasury Department is nearing its last ounce of blood as it has been bleeding operating funds. All parties know that the debt ceiling has to be raised if the country is to avoid a financial catastrophe. Still, an impasse on debt ceiling negotiations continues. While the House of Representatives has passed a borrowing cap plan, it is not expected that the Senate would agree on the spending reductions, and President Biden made clear he would not sign it.

The markets, of course, have been paying attention, but for the most part, they have chosen to ignore the drama. Anyone that has been involved in the markets for a few years knows that in the past, there have been stop-gap measures or 11th hour decisions that have avoided a US debt default.

It is Getting Close

The US Treasury reported last Thursday that it had $57.3 billion in cash on hand. As with any ongoing entity, each week, it receives revenue and pays expenses. So the daily balance runoff fluctuates by different amounts each day. A snapshot is reported each Thursday along with other US financial data. The current pace, while not a precise rate to gauge the net burn rate, is useful.

The operating balance used to pay our bills as a nation has declined from $238.5 billion at the start of May, when tax collections helped boost balances. That’s a $181.2 billion decline over 18 days, or $10 billion per day. If the pace holds, the United States balance sheet reaches zero before the June 1 date previously estimated by US Treasury Secretary Janet Yellen.

Image: @GRDector (Twitter)

How are Officials Reacting?

The US reached its Congressionally imposed borrowing cap in January. Since then, there has been a cutting back on spending, as had been announced in January by Janet Yellen. The Treasury has since been operating under an “Extraordinary Measures” plan, reducing less than critical spending to pay obligations that can not be ignored without great consequence. This bandaid approach will go on and, at this point, can only be “fixed” if the debt ceiling is raised once again by Congress.

Treasury Secretary Janet Yellen has been clear in warning lawmakers that the Treasury’s ability to avoid default could end as soon as June 1. The nation has to increase its ability to legally borrow to make its payments while its obligations exceed its revenue.

Averting a June Crisis Without Congress

While most US citizens are aware of the mid-April individual tax date, corporate tax dates are quarterly. The next time most corporations pay their estimated taxes is June 15th. If Secretary Yellen can squeeze the Treasury balances until June 15th, she will no longer be driving on fumes – instead, she will have added a little more gas, not enough to get her to the next corporate tax date.  

Another thought depends on one’s interpretation of the 14th Amendment. This amendment of the US Constitution contains several provisions, one of which is Section 4. This section states that “the validity of the public debt of the United States, authorized by law… shall not be questioned.” While the exact interpretation of this provision is a matter of legal debate, it has been suggested that it could potentially provide a legal basis for the government to continue meeting its financial obligations, even if the debt ceiling is reached.

Some argue that the 14th Amendment could empower the President to bypass the debt ceiling and ensure that the government continues to pay its debts on time, based on the principle that the United States must honor its financial obligations.

Source: US Treasury (May 18, 2023)

Stalled Talks

Although the date of $zero balance is not far off if the President and Senate doesn’t agree to the House plan, or if the House is inflexible, negotiations have moved in fits and starts with Congressional leaders meeting on and off with each other and with the Executive branch.  

If the nation does default, it will unleash global economic and financial upheaval. The full consequences are not known since it’s never happened before. Those likely to see funds come to a crawl or be turned off are:

  • Interest on the debt: While the debt itself would continue to be serviced, a stringent austerity plan could potentially result in reduced payments towards interest on the national debt.
  • Government programs and agencies: Funding for discretionary programs, such as infrastructure projects, education initiatives, environmental programs, or research grants, could be reduced or eliminated.
  • Social welfare programs: Payments for social welfare programs, such as unemployment benefits, food assistance, housing subsidies, or healthcare subsidies, may be reduced or scaled back.
  • Defense spending: Military expenditures and defense contracts may face cuts, impacting payments to defense contractors and the procurement of military equipment and services.
  • Government salaries and benefits: Austerity measures could involve salary freezes, reductions, or furloughs for government employees, including civil servants, military personnel, or elected officials.
  • Infrastructure projects: Funding for infrastructure development and maintenance, including transportation systems, highways, bridges, and public facilities, may face reductions or delays.
  • Grants to states and local governments: Payments to states and local governments for various programs, such as education, healthcare, or community development, could be reduced.

The above are not set in stone, it’s important to note that the specific impacts of an austerity plan would depend on the policies and priorities set by the government, and different austerity measures are also a matter of negotiation.

While Yellen, the Congressional Budget Office, and multiple other forecasters think the $Zero date is likely during the first two weeks of June, it’s possible that the Treasury will have enough funds to carry it through the middle of the month, which would add more time.

However, as it looks now, the US Government is running on fumes; in the past, it has not allowed itself to completely run out of gas. If today’s situation follows past history, the markets will get scared a few more times before the US leaders agree and the country is back to business as usual.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://fiscaldata.treasury.gov/datasets/daily-treasury-statement/operating-cash-balance

https://home.treasury.gov/news/press-releases/jy1483