Author: phoffman@channelchek.com

Why Sports Leagues Now Welcome (and Even Pursue) Gambling

Posted on by phoffman@channelchek.com
Image Credit: (DraftKings)

How Legalized Sports Betting has Transformed the Fan Experience

A couple of days before Christmas, I went to see the NHL’s Nashville Predators play on their home ice against the defending Stanley Cup champion Colorado Avalanche.

Amid all the silliness of a modern pro sports experience – the home team skating out of a giant saber-toothed tiger head, the mistletoe kiss cam, a small rock band playing seasonal hits between periods – there was a steady stream of advertising for DraftKings, a company known as a sportsbook that takes bets on athletic events and pays out winnings.

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 Affleck, Knight Chair in Sports Journalism and Society, Penn State.

Its name flashed prominently on the Jumbotron above center ice as starting lineups were announced. Its logo appeared again when crews scurried out to clean the ice during timeouts. Not only was “DraftKings Sportsbook” on the yellow jackets worn by the people shoveling up the ice shavings, it was also on the carts they used to collect the ice.

This all came a few days after the Predators announced a multiyear partnership with another sportsbook, BetMGM, that will include not only signage at their home venue, Bridgestone Arena, but also a BetMGM restaurant and bar.

If I had cared to that evening, I could have gone onto the sports betting app on my smartphone and placed a wager on the game. Tennessee is one of 33 states plus the District of Columbia where sports betting is legal. On Jan. 31, 2023, Massachusetts became the latest state to legalize the practice.

The point of depicting the whole scene is simply this: In the nearly five years since the Supreme Court allowed states to legalize sports betting, a whole industry has sprouted up that, for tens of millions of fans around the country, is now just part of the show.

Betting’s seamless integration into American sports – impossible to ignore even among fans who aren’t wagering – represents a remarkable shift for an activity that was banned in much of the country only a few years ago.

A New Sports World

Let’s look at the numbers for a start.

Since May 2018, when the U.S. Supreme Court overturned a law that limited sports betting to four states including Nevada, US$180.2 billion has been legally wagered on sports, according to the American Gaming Association’s research arm. That has generated $13.7 billion in revenue for the sportsbooks, according to figures provided to me by the AGA, the industry’s research and lobby group.

Before the NFL kicked off last September, the AGA reported that 18% of American adults – more than 46 million people – planned to make a bet this season. Most of that was likely to be bet through legal channels, as opposed to so-called corner bookies, or illegal operatives.

So, who’s betting on sports? In an interview, David Forman, the AGA’s vice president for research, told me that compared with traditional gamblers – those who might play slots, for instance – “sports bettors are a different demographic. They’re younger, they’re more male, they’re also higher income.”

They’re people like Christian Santosuosso, a 26-year-old creative marketing professional living in Brooklyn, New York. Santosuosso didn’t bet on games until it became legal. Now he and his buddies will pool their money on an NFL Sunday to spice up both the interest in a game and the conversation in the room.

“It’s entertainment,” he told me in a phone interview. He explained that even a tough gambling loss can be amusing or funny, a way to look back on the mistakes your team made that ended up affecting whether you won the bet. But he added that he has a limit on how much he’ll bet.

Coverage and Conversation

Shortly after Supreme Court ruling in 2018, I wrote a piece for The Conversation asking if the media would start to produce content aimed at bettors.

The answer has been an unequivocal “yes” – and it seems to have helped change the way sports betting is talked about.

As I write this, if I look at the front page of ESPN.com, I see that the University of Georgia is a 13.5-point favorite over Texas Christian University in the college football national championship. It’s front and center, right next to the kickoff time and the TV network where it’s airing.

But that’s the least of it.

ESPN has broadcast a gaming show since 2019, “Daily Wager.” In September 2022, the sports conglomerate announced an array of new content centered on betting advice and picks. And SportsCenter anchor Scott Van Pelt is famous for his “Bad Beats” segment, in which Van Pelt typically highlights how a team on the winning side of the point spread falls apart at the last second in a crazy way.

Meanwhile, a cottage industry of betting tip channels has emerged on YouTube – if you type “#sportsbetting” into YouTube’s search bar, you’ll find thousands of them.

Another example of how things have changed: On Jan. 2, 2023, the University of Utah’s football team had the ball first and goal with 43 seconds left, down 21 points to Penn State in the Rose Bowl. The game was essentially over. However, the commentators noted that a touchdown would mean a lot to some people.

Who? Why? The announcers didn’t elaborate, but the implication was obvious: Those who had bet the over – wagering that together the two teams would score more than 54 points – had a lot riding on that touchdown. So, in a sense, did ESPN. In a blowout, fans of both teams are likely to tune out. But when there’s money riding on something like the over, eyes stay glued to the screen.

Utah ended up scoring on third down with 25 seconds remaining. Final score: Penn State 35, Utah 21.

The Danger and the Ceiling

I’ve been editing sports articles since the early 1990s and have run the sports journalism program at Penn State since 2013. I have noticed how my students now routinely talk about the point spread – the expected margin of victory – and even the over-under, a wager on the total number of points scored.

That just did not happen so often when I first got to State College, nor in the newsroom before that.

Sports leagues were once vehemently opposed to gambling. And while they’re still concerned about keeping players from betting, many leagues – particularly the NFL – have made a complete U-turn since legalization.

There are multiple reasons for this change of heart. While the concern used to be about losing the integrity of the game to a betting scandal, now sports leagues can argue that legal betting allows for better monitoring of potential cheating. If heavy betting happens on one team, or if there’s sudden shift in betting patterns, it’s all visible to the sportsbooks and might indicate nefarious activity.

There’s also significant fan interest in legal wagering – 56% of Americans adults, and nearly 7 in 10 men, recently told Pew that they’ve read at least a little about how widespread legal sports betting has become.

And, of course, there is big money from a new sponsorship group – the sportsbooks – that helped drive overall NFL sponsorship revenue to a record $1.8 billion in the 2021 season.

The danger, of course, is gambling addiction.

And while the AGA is quick to note that its member companies pledge to give information about problem gambling to their customers, legalization has undoubtedly provided easier and more secure access to sports betting.

Keith Whyte, executive director of the National Council on Problem Gambling, said in a telephone interview that research by his group had found that roughly 25% of American adults bet on sports, somewhat more than the AGA’s estimate. That percentage has jumped from roughly 15% before the Supreme Court ruling, per the NCPG.

While that’s a big increase, it also suggests that perhaps there is a ceiling coming up – in other words, when all the states that will do so legalize sports betting, wagering still won’t be done by many more people than now, Whyte speculated.

“I think it’s changing the market in a lot of ways,” Whyte said, “but my guess is it’s mainly to increase the intensity – and associated risk of problem gambling – among fans that were already engaged fans.”

Retail Investors are Again Impacting Markets and Leaving a Mark

Posted on by phoffman@channelchek.com
Image Credit: Focal Foto (Flickr)

The Percentage Volume of Retail Transactions Has Surpassed 2020’s Level

Retail investors were a strong market force in 2021, and after a hiatus through much of 2022, they may be setting the tone in 2023. As a whole, the investors that fall into this category are watching signs that the US Federal Reserve and other central banks may be near the end of their rate hikes. This, coupled with last year’s sell-off, was taken as a sign to selectively jump back into positions. The positions they have been putting on have been moving the needle in the “risk-on” category; this has sent many of last year’s losers up double digits.

Data from JP Morgan demonstrate retail transactions have recently surpassed the market volume peak reached in the Fall of 2020. The more volume as a percentage of trades, the more influence over price movements any investment group has.

JPMorgan Data Shows Retail’s Market Percentage Has Quickly Grown

Retail Investors as % of Investors (JPM)

What Prices Have They Impacted?

During the last week in January, retail market orders as a percent of market value reached 23%, according to JPMorgan. Comparatively, it got to 22% a few times when GameStop (GME) was confounding institutional money while surging in valuation. As with the increase in retail volume during 2020, the renewed interest in committing to trades can have an outsized impact on sector movements and those of favorite stocks.

During the pandemic lockdown period, many self-directed investors chose to follow groups such as r/WallStreetBets on Reddit and forums on other chatrooms and platforms. One strategy that worked was directed at hedge fund short positions. It involved massive buying of stocks that were heavily shorted. The goal was to force the shorts to cover, which would produce buying and a higher stock price. This was effective enough to have caused significant problems with both institutional investors and the brokerage community settling the trades.

As January came to a close Many of the same risk trades, have gotten attention. AMC Theatres (AMC) is up 70% YTD. Cathie Wood’s ARKK fund, which invests in speculative disruptive companies, has risen nearly 46%. Also in the fund category is an ETF that invests in so-called meme stocks (MEME), this is up 41%.

Bitcoin (BTC.X), which had been presumed on its deathbed toward the end of last year, is up over 42% as it continues to track technology.  

Will They Again Score?

“Mark my words, it’s going to end in tears,” was a popular line amongst market pundits back in 2020-2021. The Great Unwashed, the Meme Stock Investors, the market participants Jim Kramer called Robin Hoodies don’t have a long track record. But the track record they do have is worth noting.

According to JP Morgan, as of the first week in February, Tesla (TSLA) was the most sold stock by retail investors. Others that have been sold include those categorized as green and infrastructure stocks tied to EVs and 5G broadband.

The most purchased were Amazon (AMZN) and APPLE (AAPL). The hashtag #MOASS, or Mother of All Short Squeezes, has been trending most days on Twitter. The stock tied to the posts is AMC (AMC, APE), as there has been ongoing news surrounding this classic meme stock. One meme stock that has not attracted that much attention is Bed Bath and Beyond (BBBY). The company, which is trading at $3.20 after having been at $22.80 less than a year ago, is on life support, and closing dozens of stores amongst talk of bankruptcy. For those that were able to withstand the retail short-squeeze in BBBY, they may be able to cash in.

Take Away

If the “risk-on” trend among retail investors continues, discretionary institutional money has learned to pay attention. Self-directed investors should also pay attention to new activity, and any rotation from  one cooling sector to one that is heating up.

In addition to following the news on Channelchek, investors can watch the Investor Movement Index (IMX) reported on the last weekend of each month by TDAmeritrade. For additional insight, it is always fun to check in on what the message boards are buzzing about and sorting through the serious and the nonsensical on Reddit and Twitter.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://imx.tdameritrade.com/imx/p/imx-pub/

https://realmoney.thestreet.com/jim-cramer/jim-cramer–15483915

https://www.yahoo.com/now/bed-bath-beyond-announces-87-080504711.html

https://www.marketwatch.com/story/theyre-baaaaack-retail-participation-in-the-stock-market-just-surpassed-the-gamestop-days-11675423836?mod=home-page

https://www.bespokepremium.com/category/think-big-blog/

The Silver Price Rise Still Has Significant Momentum

Posted on by phoffman@channelchek.com
Image Credit: Alvin Trusty (Flickr)

Global Dynamics Have Helped Silver’s Impressive Price Increase

In mid-October, silver performance began outpacing gold, and it has stayed more or less on track since. During this 3.5-month period, silver had better than a 25% gain in value. What’s behind its current strength, and can it continue to outperform not only the mineral it is most closely associated with but the overall stock market as well? Much of the price rise is likely in response to perceived growing demand in much the same way as petroleum prices have risen each time China is rumored to be opening up after their pandemic response, but there is more to the story.

Silver would have more of a tailwind than gold in a growing global economy as it’s an industrial metal with growing utility in manufacturing. Gold is used for primarily for jewelry and a diversifying store of wealth. So this enhances its performance as it gets its value from scarcity like gold, is a precious metal that investors speculate in, and is becoming more in demand to build photovoltaic cells, electronics, and medicines. The appeal of silver can be used as an indicator that investors see the global economy growing stronger, with more demand for industrial metals. While much of the focus surrounding a full opening of China has centered on renewed demand for petroleum, the impact should reach much farther.

Source:Koyfin

Other industrial metals have also gained as Chinese pandemic restrictions have eased. China is the worlds largest consumer of metals, copper and iron-ore futures on Comex each climbed by nearly 11% in January.

In addition to its functional utility, the price increase has also come at a time when uncertainty and in some cases turmoil around the globe has caused investors to seek shelter in precious metals.

There is more causing the strength as well. There is substantially more demand now than before the coronavirus shutdowns because in many parts of the world there is a push toward alternative and clean-energy production. This includes more products with more electrical connectors, the ability to produce power from solar, and other technology that is more in demand now than ever.

Over the same three-month-plus period as above, both gold and silver gained while the ICE U.S. Dollar index, a benchmark for the international value of the dollar, lost over 8%. The Fed slowing its interest rate hikes has had a depressive impact on dollar strength. It now simply takes more dollars to buy the same amount of silver.

Take Away

There are a number of factors why silver has been outperforming gold, the stock market, and the US dollar. These include its reputation as a store of value, parts of the world gearing up for what is expected to be an energy renaissance, the opening of the largest metals consuming country, and a weakening dollar.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.barrons.com/articles/silver-gold-prices-economy-51675291146?mod=hp_LEADSUPP_2

Investing in 2023 May Require Different Slices of the Market

Posted on by phoffman@channelchek.com
Image Credit: Phillip Pessar (Flickr)

Diversifying Your Diversified Portfolio

Different investing environments call for adjustments to portfolios. What’s in your equity portfolio mix? Whether you’re an index investor, stock picker, or a 60/40 with a regular rebalance investor, stocks of different companies, different sectors, and different sizes are not the same. The characteristics of each slice of your portfolio can swing performance from negative to positive. For example, the Dow Industrials have returned less than 2.50% this year, while the large-cap Nasdaq 100 and the small-cap Russell 2000 have exceeded the Dow’s performance by well over 10%.

Performance

The reason for the tech large-cap resurgence may be a reaction to last year’s sell-off, a declining dollar, some surprise strength in earnings, or any combination of things. Can the large-cap rally be trusted? Time will tell. Small-caps are also doing well; they had been running behind the other indexes in terms of performance based on price/earnings averages and overall return. The two have different forces driving the performance of each; for this reason, investors looking to diversify could find comfort in allocating to large and smaller stocks if they haven’t already. The 60% of a 60/40 mix should be mixed and varied if the investor is truly interested in diversification. Recent performance shows small-cap stocks have outperformed over the last six months with the Dow Industrials in second place and measured year-to-date with the Dow barely getting off the starting line – the small-cap index however has taken off.

Source: Koyfin

The Russell 2000 index turned around in late summer last year after it hit its low. The large-caps didn’t bottom until early winter, a little over a month ago. This discrepancy in timing shows they trade on different factors and often have very different investors. One example is large-cap stocks are in the news each day and easily driven by hype, while small-cap stocks that are out of the spotlight are driven by other factors, including growth prospects, sharp pencil analysis, and even raw speculation.

Source: Koyfin

Market Strength

The optimism that kicked off 2023, includes the Fed nearing the end of its aggressive tightening, a healthy labor market, and an economy that is still flush with capital looking for a home. Add in a weakening dollar, as US interest rates have remained stagnant, and last year’s weak markets may continue to unwind their negativity as higher highs are reached.

A Word on Diversification

An investor in a fund that tracks the S&P 500 may feel they have the diversification of 500 multi-industry stocks. They do have exposure to 500 stocks, however the top 10 of the 500 represents more than 25% of the performance of the index – and most of these would qualify as tech stocks. For this reason diversifying away and into investments that are less correlated to tech may be prudent. Small-cap stocks, especially considering the past six months, would seem to be the best offset to this concentration risk.

If an investor is astute enough to understand market dynamics, digest research on industries and companies within those industries, and know how to recognize high-quality objective research, the investor may do better hand selecting a variety of stocks rather than being an index investor or even a single index investor.

This experience doesn’t happen automatically, if you are already there, may I suggest signing up for Channelchek’s daily emails to get introduced to, and stay on top of some interesting small companies (small and microcap)? And if you don’t believe that you are at that level yet, let Channelchek build on your knowledge with exclusive video content, insightful articles, and top-tier company research?  

The year 2023 will be filled with opportunity. Let Channelchek help you explore. Complementary registration here.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.barrons.com/articles/tech-earnings-amd-intel-stock-51675279355?mod=hp_LEAD_1

Ongoing Increases in the Overnight Interest Rate Target Can be Expected Says FOMC Statement

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

Jerome Powell and FOMC Will “continue to monitor the implications of incoming information”

The Federal Open Market Committee (FOMC) voted to raise overnight interest rates from the previous target of 4.25% – 4.50% to the new target of 4.50% – 4.75%. This was announced at the conclusion of the Committee’s first scheduled meeting of 2023. The monetary policy shift in bank lending rates was as expected by economists and the markets as the overwhelming consensus was for a 25 bp move.  It has been less than 12 months since the Fed began this tightening cycle, overnight rates since the beginning of last year have increased from near 0.00% to the current target of up to 4.75%.

One recent market focus has been that inflation has been, by most measures, trending lower each month.  While lower increases may suggest that inflation is successfully being wrung out of the system, Powell and the other FOMC members have a 2% target for inflation which guides their policy. The current level is more than two times as high. The art of being the nation’s top bankers and economists trying to provide a soft landing for the still strong economy, is difficult. The result of the actions taken by the Fed can only be seen in the rearview mirror, months after the action.

Synopsis of Fed Decisions

The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point increase in the primary credit rate to 4.75 percent, effective February 2, 2023. In a related decision, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 4.65 percent, effective February 2, 2023.

Text from Federal Reserve’s Statement February 1, 2023

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated.

Russia’s war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

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 statement suggests the Fed continues to remain data dependent, but expects further increases will follow. The statement did not provide strong guidance as to what to expect following future meetings.

Chairman Powell’s 2:30 PM ET press conference can be viewed here.

Paul Hoffman

Managing Editor, Channelchek

Cultivating a Microbiome that Reduces the Incidence of Cancer

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

Microbes in Your Food Can Help or Hinder Your Body’s Defenses Against Cancer – How Diet Influences the Conflict Between Cell ‘Cooperators’ and ‘Cheaters’

The microbes living in your food can affect your risk of cancer. While some help your body fight cancer, others help tumors evolve and grow.

Gut microbes can influence your cancer risk by changing how your cells behave. Many cancer-protective microbes support normal, cooperative behavior of cells. Meanwhile, cancer-inducing microbes undermine cellular cooperation and increase your risk of cancer in the process.

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 Gissel Marquez Alcaraz, Ph.D. Student in Evolutionary Biology, Arizona State University and Athena Aktipis, Associate Professor of Psychology, Center for Evolution and Medicine, Arizona State University.

We are evolutionary biologists who study how cooperation and conflict occur inside the human body, including the ways cancer can evolve to exploit the body. Our systematic review examines how diet and the microbiome affect the ways the cells in your body interact with each other and either increase or decrease your risk of cancer.

Cancer is a Breakdown of Cell Cooperation

Every human body is a symphony of multicellular cooperation. Thirty trillion cells cooperate and coordinate with each other to make us viable multicellular organisms.

For multicellular cooperation to work, cells must engage in behaviors that serve the collective. These include controlled cell division, proper cell death, resource sharing, division of labor and protection of the extracellular environment. Multicellular cooperation is what allows the body to function effectively. If genetic mutations interfere with these proper behaviors, they can lead to the breakdown of cellular cooperation and the emergence of cancer.

Cancer cells can be thought of as cellular cheaters because they do not follow the rules of cooperative behavior. They mutate uncontrollably, evade cell death and take up excessive resources at the expense of the other cells. As these cheater cells replicate, cancer in the body begins to grow.

Cancer is fundamentally a problem of having multiple cells living together in one organism. As such, it has been around since the origins of multicellular life. This means that cancer suppression mechanisms have been evolving for hundreds of millions of years to help keep would-be cancer cells in check. Cells monitor themselves for mutations and induce cell death, also known as apoptosis, when necessary. Cells also monitor their neighbors for evidence of abnormal behavior, sending signals to aberrant cells to induce apoptosis. In addition, the body’s immune system monitors tissues for cancer cells to destroy them.

Cells that are able to evade detection, avoid apoptosis and replicate quickly have an evolutionary advantage within the body over cells that behave normally. This process within the body, called somatic evolution, is what leads cancer cells to grow and make people sick.

Microbes Can Help or Hinder Cell Cooperation

Microbes can affect cancer risk through changing the ways that the cells of the body interact with one another.

Some microbes can protect against cancer by helping maintain a healthy environment in the gut, reducing inflammation and DNA damage, and even by directly limiting tumor growth. Cancer-protective microbes like Lactobacillus pentosus, Lactobacillus gasseri and Bifidobacterium bifidum are found in the environment and different foods, and can live in the gut. These microbes promote cooperation among cells and limit the function of cheating cells by strengthening the body’s cancer defenses. Lactobacillus acidophilus, for example, increases the production of a protein called IL-12 that stimulates immune cells to act against tumors and suppress their growth.

Other microbes can promote cancer by inducing mutations in healthy cells that make it more likely for cellular cheaters to emerge and outcompete cooperative cells. Cancer-inducing microbes such as Enterococcus faecalis, Helicobacter pylori and Papillomavirus are associated with increased tumor burden and cancer progression. They can release toxins that damage DNA, change gene expression and increase the proliferation of tumor cells. Helicobacter pylori, for example, can induce cancer by secreting a protein called Tipα that can penetrate cells, alter their gene expression and drive gastric cancer.

Healthy Diet with Cancer-Protective Microbes

Because what you eat determines the amount of cancer-inducing and cancer-preventing microbes inside your body, we believe that the microbes we consume and cultivate are an important component of a healthy diet.

Beneficial microbes are typically found in fermented and plant-based diets, which include foods like vegetables, fruits, yogurt and whole grains. These foods have high nutritional value and contain microbes that increase the immune system’s ability to fight cancer and lower overall inflammation. High-fiber foods are prebiotic in the sense that they provide resources that help beneficial microbes thrive and subsequently provide benefits for their hosts. Many cancer-fighting microbes are abundantly present in fermented and high-fiber foods.

In contrast, harmful microbes can be found in highly-processed and meat-based diets. The Western diet, for example, contains an abundance of red and processed meats, fried food and high-sugar foods. It has been long known that meat-based diets are linked to higher cancer prevalence, and that red meat is a carcinogen. Studies have shown that meat-based diets are associated with cancer-inducing microbes including Fusobacteria and Peptostreptococcus in both humans and other species.

Microbes can enhance or interfere with how the body’s cells cooperate to prevent cancer. We believe that purposefully cultivating a microbiome that promotes cooperation among our cells can help reduce cancer risk.

A Debt for Equity Swap Plan Drove 700% Gains in These Shares

Posted on by phoffman@channelchek.com
Image Credit: Eden, Janine, and Jim (Flickr)

Corporate Debt for Equity Swap Announcements Can Have an Immediate Impact on Share Price

AMC Theatres (AMC, APE) announced plans to hold a meeting in mid-March on capital restructuring. One of the expected outcomes is a plan to swap equity for some outstanding debt. APE shares jumped after the announcement. Another company this week, Motorsports Games (MSGM), shares skyrocketed triple-digits after its announcement to shore up company finances with a debt-for-equity swap. What is a debt/equity swap, and does it always lead to strengthening share prices?

Debt for Equity Swap Basics

Two methods by which companies finance their operations, growth, or other investment is by issuing stock (equity), or borrowing (debt). Both have advantages and disadvantages. One reason a company may swap equity for debt is to restructure and reduce borrowings with a creditor. Perhaps cash flow is tight and restrictive, yet the entity is still viable. Cutting interest costs frees capital and may even help the lender avoid problems receiving timely payments.

The company may also use the method to strengthen its balance sheet by altering the proportion of debt to equity.

Motorsports Games Swap

In the case of Motorsports Games (MSGM), the company had fallen out of compliance with the rules required to maintain a listing on the Nasdaq exchange. MSGMs change in corporate financing allowed it to move back into full compliance with Nasdaq, while repaying $1 million in debt with 338,983 shares of stock. The move has the added benefit of increasing liquidity and reducing interest expense.

According to a research note by Mike Kupinski, Director of Research at Noble Capital Markets, “Following the swap, the parent company increased its ownership from 700,000 shares to 1,038,983 shares, representing 62.1% of the votes outstanding.” Kupinski said, “The move significantly improves the company’s liquidity and reduces its interest expense. Notably, the move adds confidence that Motorsport Network has confidence in Motorsport Games.”

Read the full research note here.

Source: Koyfin

AMC Theatres Plans

The CEO of AMC, Adam Aron, has proven to be very creative with financing. The company managed to cash in on a windfall after its share price soared during periods when shorts in the company had been severely squeezed by retail traders. This has left the company with enviable options. The company is planning a capital restructuring, including swapping equity for its debt. Details of this won’t be released until next month after AMC Theatres holds a special meeting on March 14 to discuss the deal.

If past history is any indication, there will be a lot of chatter and trading activity in AMC and APE before and after the meeting.

Take Away

The primary reason for a company to contemplate a debt-to-equity swap is to adjust its financing to improve financial conditions. In some cases, the company finds itself being hurt by the cost of servicing its debt, this offers relief. Avoiding any negative news surrounding missing a payment or even bankruptcy is often an underlying reason.

But there can be as many reasons as there are corporate situations. Motorsports Games seem to have hit a home run for their shareholders and their holding company as its share price is now trading over 700% above where it had been before the announced plans.

The massive increase in share price of MSGM is unusual, gains this large are situation dependent. Maintaining a position on a major exchange certainly fed into the rally in its shares.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.wsj.com/livecoverage/stock-market-news-today-01-30-2023/card/amc-stock-ape-units-converge-yJr98TziAirswGLkHge3

https://www.nasdaq.com/articles/consumer-sector-update-for-01-31-2023:-rent-msgm-spot-vsco

https://www.channelchek.com/research-reports/25575

https://investor.amctheatres.com/newsroom/news-details/2022/AMC-Entertainment-Holdings-Inc.-Announces-110-Million-Equity-Capital-Raise-a-100-Million-Debt

https://www.barchart.com/stocks/quotes/AMC/cash-flow/annual

Will February Follow Through On January’s Gains

Posted on by phoffman@channelchek.com
Image Credit: Ben Welsh (Flickr)

January’s Stock Market Performance Bodes Well for the Rest of 2023

The stock market has put in a solid January in terms of overall performance. Following month after negative month last year, this is a welcome relief for those with money in the market which is beginning to look welcoming to those that have been on the sidelines. While the Fed is still looming with perhaps another 50-75 basis points in rate hikes left to implement over the coming months, the market has been resilient and has already made up for some of last year’s lost ground.

Source: Koyfin

For the month (with an hour left before market close on January 31), the Nasdaq 100 is up over 10.8% for the month. Over 10%  would be a good year historically, of course averaging in last year, it is still solidly underperforming market averages. The small-cap Russell 2000 index is also above 10%. Small-caps have underperformed larger cap stocks over several years and are seen to have more attractive valuations now than large caps as well as other fundamental strengths. These include a higher domestic US customer base in the face of a strong dollar, fewer borrowings that would be more costly with the increased rate environment, and an overall expectation that the major indexes will revert to their mean performance spreads which the small-cap indexes have been lagging. The S&P 500, the most quoted stock index is up over 6% in January, and the Dow 30 Industrials are up almost 2.4%.

Rate Increases

The stock and bond markets hope for a solid sign that the FOMCs rate increases will cease. The reduced fear of an ongoing tightening cycle will calm the nervousness that comes from knowing that higher rates hurt the consumer, increases unemployment, reduces spending and therefore hurts earnings which are most closely tied to stock valuations.

January Historically

January rallies, on their own, statistically have been a good omen for the 11 months ahead.  When the S&P 500 posts a gain for the first month of the year, it goes on to rise another 8.6%, on average for the rest of the year according to statistics dating back to 1929.  In more than 75% of these January rally years, the markets further gained during the year.

Other statistics indicate a bright year to come for the market as well. Using the S&P 500, it rallied for the final five trading days of last year and the first two of 2023, it gained for first five trading days of the new year, and rallied through January. When all three of these have occurred in the past, after a bear market (20%+ decline), the index’s average gain for the rest of the year is 13.9%. In fact it posted positive returns in almost all of the 17 post-bear market years that were ushered in with similar gains.

Follow Through

Beyond history, there is a reason for the follow-through years. January rallies are signs of confidence, they indicate that self-directed investors and professional money managers are buying stocks at the lower prices. It suggests they have a strong enough belief that conditions that caused the bear market have or will soon reverse.  

And this is quite possibly where the markets are at today. The lower valuations seem attractive, this is especially true of the overly beaten down Nasdaq 100 stocks and the small-caps that had been trailing in returns since before the pandemic.

Federal Reserve Chair Powell is looking to make money more expensive in order to slow an economy that is still exhibiting inflationary pressures. He is not, however, looking to crush the stock market. Fed governors seem to be concerned that the bond market prices haven’t declined to match their tightening efforts, but a healthy stock market helps the Fed by giving it latitude to act. Powell will take the podium post FOMC meetings eight times this year.

Each time his intention will be to usher in a long term healthy economy, with reasonable growth, low inflation, and jobs levels that are in line with consumer confidence.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.ndr.com/news

https://tdameritradenetwork.com/video/how-to-read-the-technicals-before-the-market-changes

https://www.marketwatch.com/story/last-years-stock-market-volatility-has-carried-over-into-january

https://www.barrons.com/articles/stocks-january-gains-what-it-means-51675185839?mod=hp_LATEST

Game of Chicken With the US Economy Getting Under Way

Posted on by phoffman@channelchek.com
Image Credit: US Embassy, South Africa (Flickr)

US Debt Default Could Trigger Dollar’s Collapse – and Severely Erode America’s Political and Economic Might

Republicans, who regained control of the House of Representatives in November 2022, are threatening to not allow an increase in the debt limit unless spending cuts are agreed to. In so doing, there is a risk of the U.S. government could move into default.

Brinkmanship over the debt ceiling has become a regular ritual – it happened under the Clinton administration in 1995, then again with Barack Obama as president in 2011, and more recently in 2021.

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, Michael Humphries, Deputy Chair of Business Administration, Touro University

As an economist, I know that defaulting on the national debt would have real-life consequences. Even the threat of pushing the U.S. into default has an economic impact. In August 2021, the mere prospect of a potential default led to an unprecedented downgrade of the the nation’s credit rating, hurting America’s financial prestige as well as countless individuals, including retirees.

And that was caused by the mere specter of default. An actual default would be far more damaging.

Dollar’s Collapse

Possibly the most serious consequence would be the collapse of the U.S. dollar and its replacement as global trade’s “unit of account.” That essentially means that it is widely used in global finance and trade.

Day to day, most Americans are likely unaware of the economic and political power that goes with being the world’s unit of account. Currently, more than half of world trade – from oil and gold to cars and smartphones – is in U.S. dollars, with the euro accounting for around 30% and all other currencies making up the balance.

As a result of this dominance, the U.S. is the only country on the planet that can pay its foreign debt in its own currency. This gives both the U.S. government and American companies tremendous leeway in international trade and finance.

No matter how much debt the U.S. government owes foreign investors, it can simply print the money needed to pay them back – although for economic reasons, it may not be wise to do so. Other countries must buy either the dollar or the euro to pay their foreign debt. And the only way for them to do so is to either to export more than they import or borrow more dollars or euros on the international market.

The U.S. is free from such constraints and can run up large trade deficits – that is, import more than it exports – for decades without the same consequences.

For American companies, the dominance of the dollar means they’re not as subject to the exchange rate risk as are their foreign competitors. Exchange rate risk refers to how changes in the relative value of currencies may affect a company’s profitability.

Since international trade is generally denominated in dollars, U.S. businesses can buy and sell in their own currency, something their foreign competitors cannot do as easily. As simple as this sounds, it gives American companies a tremendous competitive advantage.

If Republicans push the U.S. into default, the dollar would likely lose its position as the international unit of account, forcing the government and companies to pay their international bills in another currency.

Loss of Political Power Too

Since most foreign trade is denominated in the dollar, trade must go through an American bank at some point. This is one important way dollar dominance gives the U.S. tremendous political power, especially to punish economic rivals and unfriendly governments.

For example, when former President Donald Trump imposed economic sanctions on Iran, he denied the country access to American banks and to the dollar. He also imposed secondary sanctions, which means that non-American companies trading with Iran were also sanctioned. Given a choice of access to the dollar or trading with Iran, most of the world economies chose access to the dollar and complied with the sanctions. As a result, Iran entered a deep recession, and its currency plummeted about 30%.

President Joe Biden did something similar against Russia in response to its invasion of Ukraine. Limiting Russia’s access to the dollar has helped push the country into a recession that’s bordering on a depression.

No other country today could unilaterally impose this level of economic pain on another country. And all an American president currently needs is a pen.

Rivals Rewarded

Another consequence of the dollar’s collapse would be enhancing the position of the U.S.‘s top rival for global influence: China.

While the euro would likely replace the dollar as the world’s primary unit of account, the Chinese yuan would move into second place.

If the yuan were to become a significant international unit of account, this would enhance China’s international position both economically and politically. As it is, China has been working with the other BRIC countries – Brazil, Russia and India – to accept the yuan as a unit of account. With the other three already resentful of U.S. economic and political dominance, a U.S. default would support that effort.

They may not be alone: Recently, Saudi Arabia suggested it was open to trading some of its oil in currencies other than the dollar – something that would change long-standing policy.

Severe Consequences

Beyond the impact on the dollar and the economic and political clout of the U.S., a default would be profoundly felt in many other ways and by countless people.

In the U.S., tens of millions of Americans and thousands of companies that depend on government support could suffer, and the economy would most likely sink into recession – or worse, given the U.S. is already expected to soon suffer a downturn. In addition, retirees could see the worth of their pensions dwindle.

The truth is, we really don’t know what will happen or how bad it will get. The scale of the damage caused by a U.S. default is hard to calculate in advance because it has never happened before.

But there’s one thing we can be certain of. If there is a default, the U.S. and Americans will suffer tremendously.

Do Some Money Measurements Double Count?

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

Can Correlations Help Define Money?

According to popular thinking, the government’s definition of money is of a flexible nature. Sometimes it could be M1, and at other times it could be M2 or some other M money supply. M1 includes currency and demand deposits. M2 includes all of M1, plus savings deposits, time deposits, and money market funds. By popular thinking what determines whether M1, M2, or some other M is considered money is whether it has high correlation with key economic data such as the gross domestic product (GDP).

However, since the early 1980s, correlations between various definitions of money and the GDP have broken down. The reason for this breakdown, many economists believe, is that financial deregulation has made the demand for money unstable. Consequently, the usefulness of money as a predictor of economic activity has significantly diminished.

Some economists believe that the relationship between money supply and the GDP could be strengthened by assigning weights to money supply components. The Divisia indicator, named after the French economist François Divisia, adjusts for differences in the degree to which various components of the monetary aggregate serve as money. This, in turn, supposedly offers a more accurate picture of what is happening to money supply.

The primary Divisia monetary indicator for the US is M4. It is a broad aggregate that includes negotiable money market securities, such as commercial paper, negotiable CDs, and T-bills. By assigning suitable weights, which are estimated by means of quantitative methods, it is held that one is likely to improve the correlation between the weighted monetary gauge and economic indicators.

Consequently, one could employ this monetary measure to ascertain the future course of key economic indicators. However, does it make sense?

Defining Money

No definition of money can be established by means of a correlation. A definition is supposed to present the essence of the subject being identified.

To establish the definition of money, we must determine how a money-using economy came about. Money emerged because barter could not support the market economy. A butcher who wanted to exchange his meat for fruit would have difficulty finding a fruit farmer who wanted his meat, while the fruit farmer who wanted to exchange his fruit for shoes might not have been able to find a shoemaker who wanted his fruit.

The distinguishing characteristic of money is that it is the general medium of exchange. It has evolved from the most marketable commodity. According to Murray Rothbard:

Just as in nature there is a great variety of skills and resources, so there is a variety in the marketability of goods. Some goods are more widely demanded than others, some are more divisible into smaller units without loss of value, some more durable over long periods of time, some more transportable over large distances. All of these advantages make for greater marketability. Eventually, one or two commodities are used as general media—in almost all exchanges—and these are called money.

With money, the butcher can exchange his meat for money and then exchange money for fruits. Likewise, the fruit farmer could exchange his fruit for money. With the obtained money, the fruit farmer can now exchange it for shoes. The reason why all these transactions become possible is because money is the most marketable commodity (i.e., the most accepted commodity).

According to Rothbard:

Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a “claim on society”; it is not a guarantee of a fixed price level. It is simply a commodity.

It follows then that all other goods and services are traded for money. This fundamental characteristic of money is contrasted with other goods. For instance, food supplies the necessary energy to human beings. Capital goods permit the expansion of the infrastructure that, in turn, permits the production of a larger quantity of goods and services. Contrary to the mainstream thinking, the essence of money has nothing to do with financial deregulation as this essence will remain intact in the most deregulated of markets.

Some commentators maintain that money’s main function is to fulfill the role of a means of savings. Others argue that its main role is to be a unit of account and a store of value. While all these roles are important, they are not fundamental. The basic role of money is to be a medium of exchange, with other functions such as unit of account, a store of value, and a means of savings arising from that role.

Through an ongoing selection process over thousands of years, individuals have settled on gold as money. In today’s monetary system, the money supply is no longer gold, but metal coins and paper notes issued by the government and the central bank. Consequently, coins and notes constitute money, known as cash, that is employed in transactions.

Distinction between Claim and Credit Transactions

At any point in time, an individual can keep money in a wallet or somewhere at home or deposit the money with a bank. In depositing money, an individual never relinquishes ownership over the money having an absolute claim over it.

This contrasts with a credit transaction, in which the lender of money relinquishes a claim over one’s money for the duration of the loan. As a result, in a credit transaction, money is transferred from a lender to a borrower. Credit transactions do not alter the amount of money. If Bob lends $1,000 to Joe, the money is transferred from Bob’s demand deposit or from Bob’s wallet to Joe’s possession.

Why Are Various Popular Definitions of Money Misleading?

Consider the money M2 definition, which includes money market securities, mutual funds, and other time deposits. However, investing in a mutual fund is, in fact, an investment in various money market instruments. The quantity of money is not altered because of this investment; only the ownership of money has temporarily changed. Hence, including mutual funds as part of money results in double counting.

The Divisia monetary gauge is of little help in establishing what money is. Because this indicator was designed to strengthen the correlation between monetary aggregates such as M4 and other Ms with an economic activity indicator, the Divisia gauge can better be seen as an exercise in curve fitting.

The Divisia of various Ms, such as the Divisia M4, does not address the double counting of money. The M4 is a broad aggregate and includes a mixture of claim and credit transactions (i.e., a double counting of money). This generates a misleading picture of what money is.

Applying various weights to the components of money cannot make the definition of money valid if it is created from erroneous components. Furthermore, even if the components were valid, one does not improve the money definition by assigning weights to components.

The introduction of electronic money has supposedly introduced another confusion regarding the definition of money. It is believed that electronic money is likely to make the cash redundant. We hold that electronic money is not new money, but rather a new way of employing existing monetary transactions. Regardless of these new ways of employing money, definitions and the role of money do not change.

Conclusion

The attempt to strengthen the correlation between various monetary aggregates and economic activity by using variable weighting of money supply components defeats the definition of money. The essence of money cannot be established by means of a statistical correlation, but rather by understanding what money is about.

About the Author

Frank Shostak is an Associated Scholar of the Mises Institute. His consulting firm, Applied Austrian School Economics, provides in-depth assessments and reports of financial markets and global economies. He received his bachelor’s degree from Hebrew University, his master’s degree from Witwatersrand University, and his PhD from Rands Afrikaanse University.  

Debt Ceiling Risk and Solutions to be Addressed by Biden and McCarthy

Posted on by phoffman@channelchek.com
Image: President Biden reads newspaper before a phone call with Kevin McCarthy, Aug. 23, 2021 (The White House)

Could the Debt Ceiling Challenges be Ironed Out Before the Eleventh Hour?

The market-moving potential of key meetings in Washington on Wednesday, February 1st, includes more than the FOMC decision on monetary policy. Up the road from the Federal Reserve building, also scheduled for the first of the month, will be another important meeting for the markets. House of Representatives Speaker Kevin McCarthy will be headed to the Oval Office for a discussion to resolve other risks to the US economy, risks that could quickly spin out of control. High on the list is the national debt limit. Without a plan, the inability for the government to borrow above the current debt ceiling, could impact trust in the credit rating of US debt. This would move bond prices lower as rates would naturally rise at even the smallest prospect of a US default.  

Why It’s Critical to Markets

A debt limit increase would allow the government to finance existing obligations. These obligations have, as in the past, expanded beyond the borrowing cap imposed on the US Treasury. An inability to roll existing maturing debt or afford additional interest rate costs would cause a default. The reverberations of this can not be understated as US Treasuries, like US currency, is the backbone of the worlds financial system.

An actual default could precipitate a mega financial crisis, threatening jobs, asset values, and trust.  

The US reached its technical borrowing limit of $31.4 trillion in January. US Treasury Secretary Yellen enacted planned accounting moves that will allow the federal government to pay its bills until sometime in June by postponing some obligations. Before then, a solution must be devised by lawmakers that would then be signed by the President in order for the government to take on new debt and fund its responsibilities.

The Meeting Agenda

President Biden and House of Representatives Speaker Kevin McCarthy will meet at the White House to find common negotiating ground to avert a default. They currently seem far apart on a potential solution as the President’s party wishes to raise the debt ceiling quickly and resume business as usual in DC, while many in the House Speaker’s party are looking for concessions and spending cuts before they agree to raise the borrowing limit.

Republican lawmakers don’t currently support a measure that would let the country pay its debts unless there is agreement on various spending cuts going forward. The White House, which must sign or veto anything passed in Congress, has said raising the debt limit is critical and non-negotiable, citing the risk to the US economy from a default.

Both Biden and McCarthy will want to come away from this meeting with something their constituents and the onlooking financial markets can be comfortable with, and at the same time provides assurance to the world that is also looking on.

Congress has always passed an increase in the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or change the definition of the debt limit. Congressional leaders in both parties have believed in the end that it is best. However, the negotiations tend to go to the eleventh hour with escalating showmanship on all sides.

The eleventh hour comes sometime in June. Skeptics of any success of this face-to-face talk have a long history on which to hang their skepticism. However, McCarthy being new to his role and Biden having an aggressive spending agenda may help to shape a quicker outcome than in the past.

On Sunday, January 9th, McCarthy said that Republicans would not allow a US default that cuts into Social Security and Medicare, this would be “off the table” in any debt ceiling negotiations.

“The President will ask Speaker McCarthy if he intends to meet his Constitutional obligation to prevent a national default, as every other House and Senate leader in US history has done,” a White House spokesperson said.

The statements following, both by the White House and the Speakers camp, may cause a sigh of relief or elevate the level of panic.

Politics Involved

House Speaker McCarthy, in order to be elected speaker, agreed to rules that made it easier for his party to oust him over policy disagreements. He said he’d focus on discretionary spending, which has increased dramatically in the past two years with infrastructure and semiconductor legislation and a green-energy bill supported by Democrats.

“I think everything, when you look at discretionary, is sitting there,” McCarthy said. “We shouldn’t just print more money, we should balance our budget. So I want to look at every single department. Where can we become more efficient, more effective and more accountable?”

Biden, who is contemplating seeking re-election in 2024, has been sharply critical of McCarthy’s Republican caucus. He characterized them as “fiscally demented” earlier this month, threatened to veto their legislation and accused them of trying to balloon the deficit, favoring billionaires, raising middle-class taxes and threatening benefit programs.

Take Away

In the past, debt ceiling news typically made the top headline when the negotiations are truly in the eleventh hour. The meeting on Wednesday between two politicians that have a lot to gain from a successful outcome may avert a late Spring crisis and provide calm in what is already a cloudy economic environment. An agreement would be positive for the markets – lack of agreement will likely be taken as business as usual.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/debt-limit

https://www.reuters.com/world/us/biden-were-going-have-discussion-about-us-debt-with-house-leader-2023-01-20/

https://www.whitehouse.gov/cea/written-materials/2021/10/06/the-debt-ceiling-an-explainer/

The Week Ahead – FOMC Policy Decision & Briefing Amidst Key Earnings Reports

Posted on by phoffman@channelchek.com

The Fed May Try to Talk Rates Up While Increasing Overnight Levels by a Lower Amount

There will be plenty for the market to digest this week. While all ears will be on what Fed Chairman Powell says following Wednesday’s FOMC policy announcement, investors will get to also digest a barage of earnings reports. The quarterly reports, from various sectors, may set the tone for their industries. These include reporting on Monday by Advanced Micro (AMD), Amgen (AMGN), Caterpillar (CAT), Exxon Mobil (XOM), McDonald’s (MCD), Pfizer (PFE), and United Parcel (UPS). On Tuesday Meta Platforms (META) will be one of the most talked about, then on Wednesday the market gets a barrage from tech and pharmaceutical companies as Alphabet (GOOGL), Amazon.com (AMZN), Apple (AAPL), Bristol-Myers (BMY), Eli Lilly (LLY), Honeywell (HON), Merck (MRK), and Qualcomm (QCOM) are all scheduled to report operating performance.

Monday 1/30

  • With no consequential economic releases, market direction may take its tone from earnings reports from a wide swath of industries (see tickers above).

Tuesday 1/31

  • The first of 2023’s eight scheduled two-day FOMC meetings begins.
  • 8:30 AM ET, Employment Cost Index is expected to have risen 1.1% for the fourth quarter. For the last five quarters, large gains of 1 percent and more have been keeping wage inflation a concern.
  • 8:30 AM ET, After jumping 7 points in December, the consumer confidence index is expected to firm only 0.7 of a point to 109.0 in January. The pattern in consumer attitudes and spending is often the largest influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and possibly higher stock prices as a result.

Wednesday 2/1

  • 7:00 AM ET, the Mortgage Bankers’ Association (MBA) compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction. The composite index is expected to come in at 27.9%, while the Purchase applications are expected to show a reading of 24.7%. The data provides a gauge of not only the demand for housing, but economic momentum.
  • 9:45 AM ET, Construction Spending, for December is expected to slip 0.1 percent after moving 0.2 percent higher in November. Spending has been flat in recent months as gains in non-residential construction have been offset by declines on the residential side.
  • 10:00 AM ET, Job Openings and Labor Turnover Survey (JOLTS), which have been steady to lower, are expected to fall to 10.2 million in December versus 10.458 million in November.
  • 2:00 PM ET, FOMC meeting concludes with statement of policy shift. The Fed is expected to reduce its rate hike magnitude to 25 basis points. A 0.25% increase would raise the overnight Fed Funds rate range up to 4.50% –  4.75%.
  • 2:30 PM ET, Fed Chair Powell’s press briefing. The purpose of the briefing is to provide additional context to the FOMC’s policy decisions and to allow for questions-and-answers with the press. There has been concern that the market has been pushing rates down out in terms beyond two years to maturity. This could be a undermining the Fed’s stated objective by tightening. If this is true, the briefing may be filled with language that tries to convince the bond markets, that the Fed is determined to slow the economy by pushing rates up.

Thursday 2/2

  • 7:30 AM ET, the Challenger Job Cut report counts and categorizes announcements of corporate layoffs based on mass layoff data from state departments of labor. The job-cut report doesn’t distinguish between layoffs scheduled for the short-term or the long term, or whether job cuts are handled through attrition or actual dismissals. Also, the job-cut report does not include jobs eliminated in small batches over a longer time period. Unlike most economic data, this series is not adjusted for seasonal variation.  
  • 8:30 AM ET, Nonfarm Productivity is expected to rise to a 2.4 percent annualized rate in the fourth quarter versus growth of 0.8 percent in the third quarter. Unit labor costs, which rose 2.4 percent in the third quarter, are expected to rise to a 1.5 percent rate in the fourth quarter.
  • 10:00 AM ET, Factory Orders are expected to rise 2.2 percent in December following  November’s steep 1.8 percent drop. The expected increase comes in the wake of a surge in aircraft orders.

Friday 2/3

• 8:30 AM ET, Nonfarm Payroll is expected to have grown 185,000 in January versus 223,000 in December which was the eighth straight month and tenth of the last eleven that payroll growth exceeded the average economists expectation.  Average hourly earnings in January are expected to rise 0.3 percent on the month for a year-over-year rate of 4.4 percent.

What Else

The tone of the chatter that is expected to come from Fed officials is one of continued hawkishness. The Fed’s preferred inflation measure (PCE) was at 4.4% for all of 2022, and has been trending downward. This is more than double the stated target of 2%. The question they are now facing is, whether they should soon pause tightening and observe the impact of previous moves. Or if the solid employment numbers and strong bank reserve positions leave room for continuing the war on inflation through aggressive overnight rate hikes. Powell’s press conference after the 2 pm announcement on Wednesday should reveal quite a bit.

Paul Hoffman

Managing Editor, Channelchek

How Does the Moderna Cancer Vaccine Work?

Posted on by phoffman@channelchek.com
Moderna is testing an mRNA vaccine in combination with pembrolizumab to treat melanoma (The Conversation)

Moderna’s Experimental Cancer Vaccine Treats But Doesn’t Prevent Melanoma – a Biochemist Explains How it Works

Media outlets have reported the encouraging findings of clinical trials for a new experimental vaccine developed by the biotech company Moderna to treat an aggressive type of skin cancer called melanoma.

Although this is potentially very good news, it occurred to me that the headlines may be unintentionally misleading. The vaccines most people are familiar with prevent disease, whereas this experimental new skin cancer vaccine treats only patients who are already sick. Why is it called a vaccine if it does not prevent cancer?

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 Mark R. O’Brian, Professor and Chair of Biochemistry, Jacobs School of Medicine and Biomedical Sciences, University at Buffalo.

I am a biochemist and molecular biologist studying the roles that microbes play in health and disease. I also teach cancer genetics to medical students and am interested in how the public understands science. While preventive and therapeutic vaccines are administered for different health care goals, they both train the immune system to recognize and fight off a specific disease agent that causes illness.

Melanoma is an aggressive form of skin cancer

How Do Preventive Vaccines Work?

Most vaccines are administered to healthy people before they get sick to prevent illnesses caused by viruses or bacteria. These include vaccines that prevent polio, measles, COVID-19 and many other diseases. Researchers have also developed vaccines to prevent some types of cancers that are caused by such viruses as the human papillomaviruses and Epstein-Barr virus.

Your immune system recognizes objects such as certain microbes and allergens that do not belong in your body and initiates a series of cellular events to attack and destroy them. Thus, a virus or bacterium that enters the body is recognized as something foreign and triggers an immune response to fight off the microbial invader. This results in a cellular memory that will elicit an even faster immune response the next time the same microbe intrudes.

The problem is that sometimes the initial infection causes serious illness before the immune system can mount a response against it. While you may be better protected against a second infection, you have suffered the potentially damaging consequences of the first one.

This is where preventive vaccines come in. By introducing a harmless version or a portion of the microbe to the immune system, the body can learn to mount an effective response against it without causing the disease.

For example, the Gardasil-9 vaccine protects against the human papillomavirus, or HPV, which causes cervical cancer. It contains protein components found in the virus that cannot cause disease but do elicit an immune response that protects against future HPV infection, thereby preventing cervical cancer.

How Does the Moderna Cancer Vaccine Work?

Unlike cervical cancer, skin melanoma isn’t caused by a viral infection, according the latest evidence. Nor does Moderna’s experimental vaccine prevent cancer as Gardasil-9 does.

The Moderna vaccine trains the immune system to fight off an invader in the same way preventive vaccines most people are familiar with do. However, in this case the invader is a tumor, a rogue version of normal cells that harbors abnormal proteins that the immune system can recognize as foreign and attack.

What are these abnormal proteins and where do they come from?

All cells are made up of proteins and other biological molecules such as carbohydrates, lipids and nucleic acids. Cancer is caused by mutations in regions of genetic material, or DNA, that encode instructions on what proteins to make. Mutated genes result in abnormal proteins called neoantigens that the body recognizes as foreign. That can trigger an immune response to fight off a nascent tumor. However, sometimes the immune response fails to subdue the cancer cells, either because the immune system is unable to mount a strong enough response or the cancer cells have found a way to circumvent the immune system’s defenses.

Moderna’s experimental melanoma vaccine contains genetic information that encodes for portions of the neoantigens in the tumor. This genetic information is in the form of mRNA, which is the same form used in the Moderna and Pfizer-BioNtech COVID-19 vaccines. Importantly, the vaccine cannot cause cancer, because it encodes for only small, nonfunctional parts of the protein. When the genetic information is translated into those protein pieces in the body, they trigger the immune system to mount an attack against the tumor. Ideally, this immune response will cause the tumor to shrink and disappear.

Notably, the Moderna melanoma vaccine is tailor-made for each patient. Each tumor is unique, and so the vaccine needs to be unique as well. To customize vaccines, researchers first biopsy the patient’s tumor to determine what neoantigens are present. The vaccine manufacturer then designs specific mRNA molecules that encode those neoantigens. When this custom mRNA vaccine is administered, the body translates the genetic material into proteins specific to the patient’s tumor, resulting in an immune response against the tumor.

Combining Vaccination with Immunotherapy

Vaccines are a form of immunotherapy, because they treat diseases by harnessing the immune system. However, other immunotherapy cancer drugs are not vaccines because, while they also stimulate the immune system, they do not target specific neoantigens.

In fact, the Moderna vaccine is co-administered with the immunotherapy drug pembrolizumab, which is marketed as Keytruda. Why are two drugs needed?

Certain immune cells called T-cells have molecular accelerator and brake components that serve as checkpoints to ensure they are revved up only in the presence of a foreign invader such as a tumor. However, sometimes tumor cells find a way to keep the T-cell brakes on and suppress the immune response. In these cases, the Moderna vaccine correctly identifies the tumor, but T-cells cannot respond to it.

Pembrolizumab, however, can bind directly to a brake component on the T-cell, inactivating the brake system and allowing the immune cells to attack the tumor.

Not a Preventive Cancer Vaccine

So why can’t the Moderna vaccine be administered to healthy people to prevent melanoma before it arises?

Cancers are highly variable from person to person. Each melanoma harbors a different neoantigen profile that cannot be predicted in advance. Therefore, a vaccine cannot be developed in advance of the illness.

The experimental mRNA melanoma vaccine, currently still in early-phase clinical trials, is an example of the new frontier of personalized medicine. By understanding the molecular basis of diseases, researchers can explore how their underlying causes vary among people, and offer personalized therapeutic options against those diseases.