The Bullish ESG Investment Fund Trend Reversed Recently

Image Credit: Marco Verch (Flickr)

Will ESG Investing be Able to Recycle Itself in 2023?

Investment trends run in cycles. As a new trend is recognized, it attracts new money, which drives up prices, until there isn’t as much additional money left to keep the trend going strong. At some point, investors may feel there is a more profitable use for their capital, and the old trend then falls out of favor. Over the decades, sustainable and social investing have had several up cycles, followed by a hiatus and then a new incarnation. Where is ESG investing in its cycle in 2023?

Background

Environmental, social, and governance (ESG) holds as an underlying promise that companies and those that invest in them can do well by doing good. Just a couple of years back, investors trillions of dollars into ESG strategies. This had the effect of causing many businesses to alter their business model in ways that would conform to an unofficial ESG designation(s).

Investment companies aimed to fill the demand by creating new ESG funds, at the same time the business of creating ESG profile rankings also grew. Professionally managed assets with ESG mandates surged to an astronomical $46 trillion globally in 2021. According to Deloitte’s Center for Financial Services, assets, ESG funds represented nearly 40% of all assets under management.

The first couple of years this decade were riddled with black swan events, investment assets swelled on many fronts. Investors in ESG have recently stepped back and moved the most money out of U.S. sustainable funds in more than five years (4Q). The fund industry experienced nearly $6.2 billion pulled from professionally managed funds catering to environmental, social, and governance strategies. As compared to the trillions in the funds, this is not overly significant. What is significant is the reversal of what had been a strong trend of inflows.

Sustainable funds overall netted more than $3 billion in positive flows for all of 2022 – traditional U.S. funds experienced more than $370 billion in withdrawals during the year. A lower percentage but still significant as it was the first calendar year of net outflows since Morningstar began tracking data in 1983.

According to a new report from Morningstar, flows of money into U.S. sustainable mutual funds and ETFs has declined since its record high in the first quarter of 2021. The withdrawal of money comes as many companies are improving their ESG scores. The decline in 4Q 2022 came as a myriad of factors soured investors on many market sectors.

Political Winds Changing

But stock market sentiment may only be part of the story. There are louder and louder voices that are questioning the purity of this newer incarnation of social investing. They ask if it provide for what is good and best overall? There is even some confusion by investors that remember the older versions of social and environmental investing that specifically excluded things like nuclear power. Today many ESG scores view carbonless nuclear generation as clean.

Where there is money, there is also politics. This is part of what originally helped the trend pick up steam. Now opposing political voices are causing some second looks at the overall benefits. The most recent examples include the person who moved the electric vehicle (EV) movement out so far into the spotlight that the car company he founded is the most valuable in the world (market cap). Elon Musk made one of his negative ESG comments as a tweet responding to self-described “Hero of the Environment” and author, Michael Shellenberger.

Image: Twitter (@elonmusk)

Less political, but perhaps more important, Federal Reserve Chair Jerome Powell made his official position clear during a conference titled Central Bank Independence and the Mandate—Evolving Views. Standing before an international audience in Stockholm, Sweden, Powell said, “we resist the temptation to broaden our scope to address other important social issues of the day. Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.”

The New York Times ran the following headline:

Image: NYT Headline January 10, 2023

Performance

Sustainable funds lagged behind the broader market in performance. Remember, there was an increasing supply of names that were attaining ESG status. Also their lack of exposure to the top-performing oil and gas sector and its 66% gain during the year hurt performance.

The drag in the last quarter of 2022 was even more pronounced as it was the first period in more than three years that U.S. sustainable funds had a lower organic growth rate than the total U.S. fund market. During the fourth quarter, sustainable funds shrank by 2.2% compared with an 0.8% shrinkage in the overall U.S. landscape.

Morningstar’s sustainable fund universe encompasses mutual funds and ETFs “that, by prospectus or other regulatory filings, claim to focus on sustainability; impact; or environmental, social, and governance factors.”

Take Away

Last year while the overall markets were gloomier, ESG investors slowed and then reversed their piling into ESG funds. These funds had attracted 40% of fund assets, so it is no surprise they paused. However last quarter was the first decline since 1983. Part of the issue is the normal cyclicality of investment trends. Make no mistake; sustainable investing is not dying, but it suffers from a lack of clarity as to how companies are scored, and who is doing the scoring.

Investors that wish to keep the entire universe of opportunities open to their portfolios can still invest in stocks that suit their appetite for many factors, including environmental, social, or corporate governance. A little digging through analyst research reports ought to provide enough information to steer one clear of companies individuals would rather not be part of, and those they feel especially good about owning.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.morningstar.com/products/esg-investing

https://www.yahoo.com/now/musk-rips-satanic-esg-world-233742968.html

https://www.barrons.com/articles/esg-investing-big-test-reckoning-51650041442

https://www.barrons.com/articles/us-esg-sustainable-funds-outflows-51674767507?mod=hp_LEAD_5

https://www2.deloitte.com/us/en/insights/environmental-social-governance.html?icid=top_environmental-social-governance

FDA Says Congress Needs to Act on Cannabidiol (CBD) Before it Can

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Cannabidiol (CBD) not Covered Under any Existing FDA Regulatory Framework – Ball Now In the Hands of Congress

The U.S. Food & Drug Administration (FDA) called on Congress to set a new regulatory pathway for cannabidiol, or CBD, the non-psychoactive ingredient in cannabis plants. The FDA said it is willing to work with Congress to create one. The regulatory body said the same is true for CBD in animal products. CBD has been in a form of regulatory limbo since the passage of the 2018 Farm Bill that legalized hemp, the base ingredient to make CBD. The extract is now found in many wellness products and is widely used in all 50 states. The FDA says it is not a food or a supplement, it may now be up to Congress to define its niche.  

According to an FDA press release, the use of CBD raises safety concerns, in particular regarding its long-term use. It cited the potential harm to the liver, interactions with some medications and possible harm to the male reproductive system.

The FDA’s Reasoning

A high-level FDA working group that was to decide which FDA framework CBD products fall under, and related regulatory pathways, announced that it doesn’t easily fit within a regulatory framework that exists at the agency. On January 26 the FDA announced, “that after careful review, the FDA has concluded that a new regulatory pathway for CBD is needed that balances individuals’ desire for access to CBD products with the regulatory oversight needed to manage risks.” They said the FDA is prepared to work with Congress to create a legal, workable framework.

At the same time the FDA also denied three citizen petitions that had asked the agency to conduct rulemaking to allow the marketing of CBD products as dietary supplements. 

The FDA listed safety concerns surrounding CBD use. “The use of CBD raises various safety concerns, especially with long-term use. Studies have shown the potential for harm to the liver, interactions with certain medications and possible harm to the male reproductive system.” They were also concerned about children and CBD exposure, and women who are pregnant.

The reason for a new regulatory pathway, according to the FDA, is that it would “benefit consumers by providing safeguards and oversight to manage and minimize risks related to CBD products.” The FDA said these may include clear labels, prevention of contaminants, CBD content limits, and measures, such as minimum purchase age. “In addition, a new pathway could provide access and oversight for certain CBD-containing products for animals,” the FDA said.

According to the FDA, existing foods and dietary supplement authorities provide only limited tools for managing risks associated with CBD products. Under the law, any substance, including CBD, must meet specific safety standards to be lawfully marketed as a dietary supplement or food additive.  The FDA said “we have not found adequate evidence to determine how much CBD can be consumed, and for how long, before causing harm. Therefore, we do not intend to pursue rulemaking allowing the use of CBD in dietary supplements or conventional foods.”

The FDA said CBD also poses risks to animals, and people could be unknowingly exposed to CBD through meat, milk and eggs from animals fed CBD. Therefore, it is not apparent how CBD products could meet the safety standard for substances in animal food.  “A new regulatory pathway could provide access and oversight for certain CBD-containing products for animals,” according to the release.

The FDA said it “will remain diligent in monitoring the marketplace, identifying products that pose risks and acting within our authorities. The FDA looks forward to working with Congress to develop a cross-agency strategy for the regulation of these products to protect the public’s health and safety.”

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.marketwatch.com/story/fda-says-it-will-not-regulate-cbd-and-calls-on-congress-to-act-11674759895

https://www.fda.gov/news-events/press-announcements/fda-concludes-existing-regulatory-frameworks-foods-and-supplements-are-not-appropriate-cannabidiol

PCE Inflation Versus CPI Inflation, What’s the Difference?

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The Increasing Popularity of the PCE Inflation Gauge

US inflation, by a number of official measures, reached its highest level in 40 years last year. For a large percentage of investors and shoppers, this is their first experience of prices quickly rising. For decades, on many tech products, prices declined over time (while adding functionality). There are a number of different measures of inflation reported regularly – they impact us in different ways. Knowing the difference, whether you’re investing, planning a purchase, or expecting a cost of living (COLA) increase, is helpful. Below we go through the different measures so you understand the impact of say “headline CPI” versus “core PCE.”

According to James Bullard, the president and CEO of the Federal Reserve Bank of St. Louis,  “measuring inflation is one of the most difficult issues studied by economists.”

By definition, inflation is the percentage change in overall prices in the economy over a specified period, commonly quoted as a year-over-year change. It’s much more than an increase in the prices of a few products. Given the inherent difficulties in following every price in the country, economists have created price indexes to approximate the overall price level.

PCE Inflation

Before the year 2000, the Federal Open Market Committee (FOMC) primarily focused on the Consumer Price Index (CPI) as its inflation gauge. We’ll explain CPI next, but for the Fed, when it now says it has a 2% inflation target, PCE is the data used.

Though the two indexes have a lot of overlap, there are reasons why the PCE is considered a better tool by policymakers.

The PCE price index, which rose 5.5% in November 2022 from a year earlier, is derived from a broader index of prices than the CPI’s more narrow set of goods and services. The argument as to why policymakers gave an edge in the late 1990s to make the change in 2000 is that a more comprehensive index (such as PCE) of prices provides a better way to gauge underlying inflationary pressures. Since the PCE includes more goods and services, the index’s weights for particular items will differ dramatically from those in the CPI. For example, housing has a weight of about 16% in the PCE price index versus 33% in the CPI. The varied items more accurately reflect actual costs to consumers since they may substitute one for another as prices of items change at different rates. This ability to substitute is a primary reason why PCE tends to print lower than headline CPI.

CPI Remains Important

The most widely cited measure of inflation is the headline Consumer Price Index (CPI), which is calculated by the Bureau of Labor Statistics (BLS). This index was created in 1919 as officials devised a way to measure rising consumer prices just after World War I.

The CPI, which rose 6.5% for all of 2022, measures the price changes for a basket of goods and services purchased by the typical urban consumer. The items in this basket are weighted by their relative importance in consumer expenditures. For example, housing—rent and other spending on shelter—accounts for 33% of the index, while medical care accounts for nearly 9%.

This index, like others, takes into account changing consumption. New items come in and old items leave. The example I like to use is that prohibition began in January 1920, just after CPI came into use. Alcohol was not part of the index back then, whereas it is today (5.78% increase in 2022), product adoption changes.

The CPI weights had been adjusted every two years using two years of consumer spending data. Starting in 2023, the BLS will update weights annually using one year of data.

Headline PCE Inflation versus Headline CPI Inflation

The increasing popularity of the PCE is because the index’s weights are updated monthly, versus annually for CPI (prior to 2023 updates were every two years). Thus, the PCE can quickly reflect the impact of new technology or an abrupt change in consumer spending patterns. For example, the onset of the coronavirus pandemic quickly shifted consumption from services like restaurants to services like communication technology. Since the headline PCE uses more timely, actual outlays, it provides the FOMC a more accurate consumer experience in terms of inflation.  

The stated target by the FOMC is 2%, a level that policymakers judge to be consistent with achieving price stability and maximum employment. On average, inflation was hovering below this target before the pandemic’s economic ramifications (from 1995 through 2019 PCE average equaled 1.8%).  

Other Inflation Measures

While the FOMC targets headline PCE inflation, policymakers also watch other measures to gauge inflationary pressures. The headline PCE measure can be quite volatile due to the effects of extreme price movements for certain products. To get a sense of where underlying inflation really is, economists often look at some summary measure of inflation that doesn’t include these volatile prices.

A so-called “core” index—whether it be PCE or CPI—excludes food and energy components. That has some simplicity around it, but it’s not satisfactory. There are better ways to analyze underlying inflation than to throw out certain goods and services, especially those that hit low- to moderate-income consumers the hardest when prices rise. And even if you exclude food and energy prices, the remaining part of the index is still affected by their volatility; restaurant prices would be a classic example.

More recently, other statistical ideas have been developed. One method looks at price change distribution for the entire range of goods and services.3

One commonly used measure of this type is the Dallas Fed trimmed-mean PCE inflation rate, which removes the upper tail (the largest price changes) and the lower tail (the smallest price changes) and then takes a weighted average of the price changes for the remaining components. This measure has been popular as a tool for examining trends and overall inflation as opposed to special factors that might be driving inflation. Of course, these types of measures4 tend to be more persistent and move more slowly than headline inflation measures.

Take Away

While market concerns over inflation for many years were low and most may have been more concerned about deflation, the current tight supply of goods and labor, coupled with the easiness of money, has ushered in a period where markets are likely to feel the impact of each inflation post.

Understanding the most watched inflation gauges will help sort out whether a trend or single post is likely to cause a change in course on interest rates. Or is it more likely a blip that will on average work its way out? The Fed is currently targeting a PCE inflation rate of 2%. The current pace is more than double this, but trending down after the Fed tightened in 2022 at a record pace. The Fed and the markets are now awaiting the impact of those cuts as there is a lag in applying the economic brakes (to lessen inflation) and when the economy has its biggest reaction to the Fed’s heavy pressure on the brake pedal.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.federalreserve.gov/newsevents/speech/powell20200827a.htm

https://files.stlouisfed.org/files/htdocs/publications/review/11/07/bullard.pdf

https://www.usinflationcalculator.com/

https://ycharts.com/indicators/us_consumer_price_index_alcoholic_beverages_unadjusted

https://www.stlouisfed.org/publications/regional-economist/2022/sep/making-sense-inflation-measures#authorbox

Cancer Cells Response to Surroundings

Image Credit: NIH Image Gallery (Flickr)

How Cancer Cells Move and Metastasize is Influenced by the Fluids Surrounding Them – Understanding How Tumors Migrate Can Help Stop Their Spread

Cell migration, or how cells move in the body, is essential to both normal body function and disease progression. Cell movement is what allows body parts to grow in the right place during early development, wounds to heal and tumors to become metastatic.

Over the last century, how researchers understood cell migration was limited to the effects of biochemical signals, or chemotaxis, that direct a cell to move from one place to another. For example, a type of immune cell called a neutrophil migrates toward areas in the body that have a higher concentration of a protein called IL-8, which increases during infection.

In the past two or three decades, however, scientists have started to recognize the importance of the mechanical, or physical, factors that play a role in cell migration. For example, human mammary epithelial cells – the cells lining the milk ducts in the breast – migrate toward areas of increasing stiffness when placed on a surface with a stiffness gradient.

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, Yizeng Li, Assistant Professor of Biomedical Engineering, Binghamton University, State University of New York.

And now, instead of focusing on just the effect of the “solid” environment of cells, researchers are turning toward their “fluid” environment. As a theoretician trained in applied mathematics, I use mathematical models to understand the physics behind cell biology. My colleagues Sean X. Sun and Konstantinos Konstantopoulos and I were among the pioneering scientists who discovered how water and hydraulic pressure influence cell migration through theoretical models and lab experiments. In our recently published research, we found that human breast cancer cell migration is enhanced by the flow and viscosity of the fluids surrounding them, clarifying one of the factors influencing how tumors metastasize.

How Fluids Affect Cell Migration

Cells in the human body are constantly exposed to fluids of different physical properties. Water is one such fluid that can direct cell migration. For example, we found that how water flows across the membranes of breast cancer cells influences how they move and metastasize. This is because the amount of water traveling in and out of a cell causes it to shrink or swell, inducing movement by translocating different parts of the cell.

The viscosity, or thickness, of body fluids varies from organ to organ, and from health to disease, and this can also affect cell migration. For example, the fluid between cancer cells in tumors is more viscous than the fluid between normal cells in healthy tissues. When we compared how quickly breast cancer cells move in confined channels filled with fluid of normal viscosity versus fluid of high viscosity, we found that cells in high viscosity channels counterintuitively sped up by a significant 40%. This discovery was unexpected because the fundamental laws of physics tell us that inert particles should slow down in high viscosity fluids due to increased resistance.

We wanted to figure out the mechanism behind this surprising result. So we identified what molecules were involved in this process, discovering a cascade of events that allow high viscosity environments to enhance cell motility.

We found that high viscosity fluids first promote the growth of protein filaments called actin, which open channels in the cell’s membrane and increase water intake. The cell expands from the water, activating another channel that takes in calcium ions. These calcium ions activate another type of protein filament called myosin that induces the cell to move. This cascade of events induces cells to change their structure and generate more force to overcome the resistance imposed by high viscosity fluid, meaning the cells aren’t inert at all.

We also discovered that cells retained “memory” after exposure to a high viscosity medium. This meant that if we put cells in a high viscosity medium for several days and then returned them to a normal viscosity medium, they would still move at a faster speed. How cells retain this memory is still an open question.

We then wondered whether our findings on viscous memory would remain true in animals, not just in Petri dishes. So we exposed human breast cancer cells to a high viscosity medium for six days, then placed them in a normal viscosity medium. We then injected the cells into chicken embryos and mice.

Our results were consistent: Cells pre-exposed to a high viscosity medium had an increased ability to leak into surrounding tissues and metastasize compared to cells that were not pre-exposed. This result demonstrates that the viscosity of the fluids in a cell’s surrounding environment is a mechanobiological cue that promotes cancer cells to metastasize.

Implications for Cancer Treatment

Cancer patients usually don’t die from the original source of the tumor, but from its spread to other parts of the body.

When cancer cells travel through the body, they move into spaces that will have varying fluid viscosity. Understanding how fluid viscosity affects the movement of tumor cells could help researchers figure out ways to better treat and detect cancer before it metastasizes.

The next step is to build imaging and analysis techniques to precisely examine how cells from various types of lab animals respond to changes in fluid viscosity. Identifying the molecules that regulate how cells respond to changes in viscosity could help researchers identify potential drug targets to reduce the spread of cancer.

A Good Place to Start to Evaluate Specific Biotech Companies?  

Image Credit: Andrea Piacquadio (Pexels)

Exploring and Discovering Biotech Stocks

When it comes to hand-selecting companies for investment, a critical ingredient for success is information. This ingredient becomes even more critical with biotech companies. Each year, many companies have been involved in medicine, medical equipment, genetics, and wellness that take off and provide investors with double or triple-digit gains. During the same years, there are stocks in the sector that, on the surface seem to have just as much going for them, yet a diligent peak below the surface demonstrates their success is less probable.

The ability to get below the surface is one reason the JPMorgan Health Symposium draws between 8,000 and 10,000 attendees each year. Attending is an expensive commitment, but firsthand information, insights from others that are in-the-know, and exposure to scientific paths, trends and research that barely existed a few years earlier, can pay off.

If you were not among the 8,000 counted as attending at the 2023 JP Morgan Health Symposium, you’ll want to know, Noble Capital Markets, teamed with Channelchek to provide a video recap with insights and key takeaways on some of the biotech trends that may be worth exploring. This takeaway, coupled with select company presentations and questions from two top equity analysts in the field is sure to build on your current health sector knowledge.  Go Here For More Information (and free access).  

Trends Worth Exploring

Molecular diagnostics, involves taking DNA or RNA which is our unique and easily obtainable genetic code, and analyzing the sequences for red flags. These markers can pinpoint the chance for emergence of specific diseases. This field has expanded rapidly in recent years, with some products now being used regularly. But the potential is for far more to be developed and approved for use. This provides for tremendous profit potential.

Alternative pain relief, non-opioid and non-NAISD pain medications for chronic sufferers, could benefit millions who suffer eah day. The potential runs the gamut from chronic headaches or back pain to situations where one is recovering from surgery, sports injuries, or accidents. Millions of prescriptions are written each year for pain medications. This has, in part fed into the opioid crisis in the U.S. It has prompted an almost emergency-level need for replacing older addictive medications with effective alternatives.  There are a number of companies making gains in this area of great need.

Gene therapy is a technique to treat or cure disease by modifying one’s genes. In many cases, the hope is that it leads to a permanent cure. New gene therapies are being developed for a wide swath of ailments including life-threatening disease. It is expected to be in many cases the next generation of cure. The methods for gene therapy include replacing a disease-causing gene with a healthy copy, or inactivating the disease-causing gene. In other cases a modified gene may be introduced to help treat the disease. The research and development include cancers, infectious disease, organ failures, and autoimmune problems. Many of these companies will be opening the door to welcome life improvements for the some people, and curing what are now incurable diseases for others.

Drilling Down at the Company Level

It may feel uncomfortable to suggest that investing in and backing the right companies that resolve health issues can be profitable to you. But, the truth is, without investments and interest in stock ownership, tomorrow’s miracle drugs would never come to exist.

Watch the Takeaway from the JP Morgan conference with an eye toward what the company presenters deem important, and then listen to the analysts that also drill deeper beyond concept and stage of development, they discuss finances, which for many less experienced biotech investors, isn’t focused on enough. The companies selected for the Noble Capital Markets Takeaway all fall within one the fields mentioned above.  Register Here.

Possible Side-Effects

The J.P. Morgan Healthcare Symposium was held in mid-January. It is one of life science’s largest and most frenzied sharing of information related to the industry. Not everyone gets to go. We’re enthusiastic to be bringing you a slice of the excitement in hopes that you deepen your understanding of not just these companies, but what to look for in others as well.

Paul Hoffman

Managing Editor, Channelchek

Source

https://www.jpmorgan.com/solutions/cib/insights/health-care-conference

https://www.sfchronicle.com/sf/article/JPMorgan-health-care-conference-brings-8-000-to-17706261.php#:~:text=The%20JPMorgan%20health%20care%20conference%2C%20the%20largest%20industry,the%20first%20time%20since%202020%2C%20drawing%208%2C000%20attendees.

What MRI and fMRI Scans of Programmers’ Brains Reveal

Image Credit: Alex Shipps (Canva)

This is Your Brain – This is Your Brain on Code

Steve Nadis | MIT CSAIL

Functional magnetic resonance imaging (fMRI), which measures changes in blood flow throughout the brain, has been used over the past couple of decades for a variety of applications, including “functional anatomy” — a way of determining which brain areas are switched on when a person carries out a particular task. fMRI has been used to look at people’s brains while they’re doing all sorts of things — working out math problems, learning foreign languages, playing chess, improvising on the piano, doing crossword puzzles, and even watching TV shows like “Curb Your Enthusiasm.”

One pursuit that’s received little attention is computer programming — both the chore of writing code and the equally confounding task of trying to understand a piece of already-written code. “Given the importance that computer programs have assumed in our everyday lives,” says Shashank Srikant, a PhD student in MIT’s Computer Science and Artificial Intelligence Laboratory (CSAIL), “that’s surely worth looking into. So many people are dealing with code these days — reading, writing, designing, debugging — but no one really knows what’s going on in their heads when that happens.” Fortunately, he has made some “headway” in that direction in a paper — written with MIT colleagues Benjamin Lipkin (the paper’s other lead author, along with Srikant), Anna Ivanova, Evelina Fedorenko, and Una-May O’Reilly — that was presented earlier this month at the Neural Information Processing Systems Conference held in New Orleans.

The new paper built on a 2020 study, written by many of the same authors, which used fMRI to monitor the brains of programmers as they “comprehended” small pieces, or snippets, of code. (Comprehension, in this case, means looking at a snippet and correctly determining the result of the computation performed by the snippet.) The 2020 work showed that code comprehension did not consistently activate the language system, brain regions that handle language processing, explains Fedorenko, a brain and cognitive sciences (BCS) professor and a coauthor of the earlier study. “Instead, the multiple demand network — a brain system that is linked to general reasoning and supports domains like mathematical and logical thinking — was strongly active.” The current work, which also utilizes MRI scans of programmers, takes “a deeper dive,” she says, seeking to obtain more fine-grained information.

Whereas the previous study looked at 20 to 30 people to determine which brain systems, on average, are relied upon to comprehend code, the new research looks at the brain activity of individual programmers as they process specific elements of a computer program. Suppose, for instance, that there’s a one-line piece of code that involves word manipulation and a separate piece of code that entails a mathematical operation. “Can I go from the activity we see in the brains, the actual brain signals, to try to reverse-engineer and figure out what, specifically, the programmer was looking at?” Srikant asks. “This would reveal what information pertaining to programs is uniquely encoded in our brains.” To neuroscientists, he notes, a physical property is considered “encoded” if they can infer that property by looking at someone’s brain signals.

Take, for instance, a loop — an instruction within a program to repeat a specific operation until the desired result is achieved — or a branch, a different type of programming instruction than can cause the computer to switch from one operation to another. Based on the patterns of brain activity that were observed, the group could tell whether someone was evaluating a piece of code involving a loop or a branch. The researchers could also tell whether the code related to words or mathematical symbols, and whether someone was reading actual code or merely a written description of that code.

That addressed a first question that an investigator might ask as to whether something is, in fact, encoded. If the answer is yes, the next question might be: where is it encoded? In the above-cited cases — loops or branches, words or math, code or a description thereof — brain activation levels were found to be comparable in both the language system and the multiple demand network.

A noticeable difference was observed, however, when it came to code properties related to what’s called dynamic analysis.

Programs can have “static” properties — such as the number of numerals in a sequence — that do not change over time. “But programs can also have a dynamic aspect, such as the number of times a loop runs,” Srikant says. “I can’t always read a piece of code and know, in advance, what the run time of that program will be.” The MIT researchers found that for dynamic analysis, information is encoded much better in the multiple demand network than it is in the language processing center. That finding was one clue in their quest to see how code comprehension is distributed throughout the brain — which parts are involved and which ones assume a bigger role in certain aspects of that task.

The team carried out a second set of experiments, which incorporated machine learning models called neural networks that were specifically trained on computer programs. These models have been successful, in recent years, in helping programmers complete pieces of code. What the group wanted to find out was whether the brain signals seen in their study when participants were examining pieces of code resembled the patterns of activation observed when neural networks analyzed the same piece of code. And the answer they arrived at was a qualified yes.

“If you put a piece of code into the neural network, it produces a list of numbers that tells you, in some way, what the program is all about,” Srikant says. Brain scans of people studying computer programs similarly produce a list of numbers. When a program is dominated by branching, for example, “you see a distinct pattern of brain activity,” he adds, “and you see a similar pattern when the machine learning model tries to understand that same snippet.”

Mariya Toneva of the Max Planck Institute for Software Systems considers findings like this “particularly exciting. They raise the possibility of using computational models of code to better understand what happens in our brains as we read programs,” she says.

The MIT scientists are definitely intrigued by the connections they’ve uncovered, which shed light on how discrete pieces of computer programs are encoded in the brain. But they don’t yet know what these recently-gleaned insights can tell us about how people carry out more elaborate plans in the real world. Completing tasks of this sort — such as going to the movies, which requires checking showtimes, arranging for transportation, purchasing tickets, and so forth — could not be handled by a single unit of code and just a single algorithm. Successful execution of such a plan would instead require “composition” — stringing together various snippets and algorithms into a sensible sequence that leads to something new, just like assembling individual bars of music in order to make a song or even a symphony. Creating models of code composition, says O’Reilly, a principal research scientist at CSAIL, “is beyond our grasp at the moment.”

Lipkin, a BCS PhD student, considers this the next logical step — figuring out how to “combine simple operations to build complex programs and use those strategies to effectively address general reasoning tasks.” He further believes that some of the progress toward that goal achieved by the team so far owes to its interdisciplinary makeup. “We were able to draw from individual experiences with program analysis and neural signal processing, as well as combined work on machine learning and natural language processing,” Lipkin says. “These types of collaborations are becoming increasingly common as neuro- and computer scientists join forces on the quest towards understanding and building general intelligence.”

Reprinted with permission from MIT News” ( http://news.mit.edu/ )

Causes of Paused or  Halted Trading in Company Stocks

Image credit: Alex Proimos (Flickr)

Discovering Why Trading is Halted on One of Your Stocks

Fair and orderly trading is an admirable goal of any system of exchange. As part of this ideal, exchanges, the SEC, and brokers can temporarily halt trading in stocks. The impact of news, or tripped circuit breakers designed to decelerate snowballing reactions (both human and programmed reactions), are the most common reasons to halt trading. There have also been events when a computer glitch, either feeding into an exchange or into the exchange’s systems, has triggered a pause or a halt. A total of 77 stocks were reportedly halted after the opening on the NYSE (January 24). They were all labeled “LULD,” this code is used to indicate it was a volatility trading pause. But officials at the NYSE say they’re still looking into it.

Reasons to Halt Trading

Companies listed on a U.S. stock exchange are responsible for notifying the listing exchange about any announcements or corporate developments that might affect trading in its stock. These often include:

  • Changes related to the financial health of the company
  • Changes in key management individuals
  • Major corporate transactions like restructurings or mergers
  • Significant positive or negative information about its products
  • Legal or regulatory developments that affect the company’s ability to conduct business
  • A circuit breaker has been reached due to volatility

Stock Halt Codes

Each day the exchanges list stocks as they are paused or halted and include a code to indicate the reason. The codes help market participants understand for how long it may be halted and for what general reason. It’s a good idea to be familiar with the codes shown below.

LUDP or LULD: Volatility trading pause (high volatility risk for investors).

T1: News pending (halted to give investors of all varieties ample time to evaluate).

H10: This is not enacted by the exchange but instead by the SEC (could be any number of regulatory reasons).

Image: Two of the many stocks halted on January 24, 2023 (NYSE Website)

The reason for the recent multiple stock pauses was available immediately on the NYSE website. Many of the stocks showed they were opening down substantially; the exchange says they are looking into this further.  

There are also times when a circuit breaker stops trading across the market exchange. This is not the reason for the multiple pauses experienced in January, but also worth mentioning. There are three levels of halt based on size of the markets (S&P 500) move.

Level 1: 15-minute halt due to a 7% decrease from the S&P 500’s previous close

Level 2: 15-minute halt due to a 13% decrease from the S&P 500’s previous close

Level 3: Day-long halt due to a 20% decrease from the S&P 500’s previous close

Take Away

When the market opens and it is not business as usual, a lot of frustration can be saved by knowing market rules and finding resources to get a fast answer. While other traders wait for their favorite news service to report on it, going directly to the NYSE website to, in this case, get a listing of affected stocks and why, can put you ahead of those that are waiting for CNBC or another news outlet. Nasdaq also will post paused or halted stocks and use the same codes as above to indicate why.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.forexfactory.com/news/1201898-nyse-trading-open-sees-unusual-number-of-halted

https://www.zerohedge.com/markets/market-goes-haywire-dozens-nyse-trading-halts-open-after-technical-glitch

https://www.finra.org/investors/investing/investment-products/stocks/trading-halts-delays-suspensions

https://www.bloomberg.com/news/articles/2023-01-24/nyse-sees-unusual-number-of-trading-halts-at-open-of-trading-ldacqfyp?srnd=premium

https://www.nyse.com/trade-halt-current

Why Are Central Banks Buying Gold?

Image Credit: Pixabay (Pexels)

Central Banks Turn to Gold as Losses Mount

In 2022, central banks purchased the largest amount of gold in recent history. According to the World Gold Council, central bank purchases of gold have reached a level not seen since 1967. The world’s central banks bought 673 metric tons in one month, and in the third quarter, the figure reached 400 metric tons. This is interesting because the flow from central banks since 2020 has been eminently net sales.

Why are global central banks adding gold to their reserves? There may be different factors.

Most central banks’ largest percentage of reserves are US dollars, which usually come in the form of US Treasury bonds. It would make sense for some of the central banks, especially China, to decide to depend less on the dollar.

China’s high foreign exchange reserves are a key source of stability for the People’s Bank of China. But the high amount of US dollars ($3.1 trillion) may have been a key stabilizing factor in 2022, but it could be too much if the next ten years bring a wave of money devaluation that has never happened before.

Central banks have been talking about the idea of issuing a digital currency, which would completely change the way money works today. By issuing a digital currency directly into a citizen’s account at the central bank, the financial institution would have all access to savers’ information and, more importantly, would be able to accelerate the transmission mechanism of monetary policy by eliminating the channels that prevent higher inflation from happening: the banking channel and the backstop of credit demand. What has kept inflation from going up much more is that the way monetary policy is passed on is always slowed down by the demand for credit in the banking system. This has obviously led to a huge rise in the prices of financial assets and still caused prices to go through the roof when the growth in the money supply was used to pay for government spending and subsidies.

If central banks start issuing digital currencies, the level of purchasing power destruction of currencies seen in the past fifty years will be exceedingly small compared with what can occur with unbridled central bank control.

In such an environment, gold’s status as a reserve of value would be unequalled.

There are more reasons why a central bank might buy gold.

Central banks need gold because they may be preparing for an unprecedented period of monetary devastation.

The Financial Times claims that central banks are already suffering significant losses as a result of the falling value of the bonds they hold on their balance sheets. By the end of the second quarter of 2022, the Federal Reserve had lost $720 billion while the Bank of England had lost £200 billion. The European Central Bank is currently having its finances reviewed, and it is predicted that it will also incur significant losses. The European Central Bank, the US Federal Reserve, the Bank of England, the Swiss National Bank, and the Australian central bank all “now face possible losses of more than $1 trillion altogether, as once-profitable bonds morph into liabilities,” according to Reuters.

If a central bank experiences a loss, it can fill the gap by using any available reserves from prior years or by requesting help from other central banks. Similar to a commercial bank, it may experience significant difficulties; nevertheless, a central bank has the option of turning to governments as a last resort. This implies that the hole will be paid for by taxpayers, and the costs are astronomical.

The wave of monetary destruction that could result from a new record in global debt, enormous losses in the central bank’s assets, and the issuance of digital currencies finds only one true safe haven with centuries of proven status as a reserve of value: Gold. This is because central banks are aware that governments are not cutting deficit spending.

These numbers highlight the enormous issue brought on by the recent overuse of quantitative easing. Because they were unaware of the reality of issuer solvency, central banks switched from purchasing low-risk assets at attractive prices to purchasing any sovereign bond at any price.

Why do central banks increase their gold purchases just as losses appear on their balance sheets? To increase their reserve level, lessen losses, and foresee how newly created digital currencies may affect inflation. Since buying European or North American sovereign bonds doesn’t lower the risk of losing money if inflation stays high, it is very likely that the only real option if to buy more gold.

The central banks of industrialized nations will make an effort to shrink their balance sheets in order to fight inflation, but they will also discover that the assets they own are continuing to depreciate in value. A central bank that is losing money cannot immediately expand its balance sheet or buy more sovereign bonds. A liquidity trap has been set. Quantitative easing and low interest rates are necessary for higher asset values, but further liquidity and financial restraint may prolong inflationary pressures, which would then increase pressure on asset prices.

The idea that printing money wouldn’t lead to inflation served as the foundation for the monetary mirage. The evidence to the contrary now demonstrates that central banks are faced with a serious challenge: they are unable to sustain multiple expansion and asset price inflation, lower consumer prices, and fund government deficit spending at the same time.

So, why do they buy gold? Because a new paradigm in policy will unavoidably emerge as a result of the disastrous economic and monetary effects of years of excessive easing, and neither our real earnings nor our deposit savings benefit from that. When given the choice between “sound money” and “financial repression,” governments have forced central banks to choose “financial repression.”

The only reason central banks buy gold is to protect their balance sheets from their own monetary destruction programs; they have no choice but to do so.

About the Author:

Daniel Lacalle, Ph.D., economist and fund manager, is the author of the bestselling books Freedom or Equality (2020), Escape from the Central Bank Trap (2017), The Energy World Is Flat (2015), and Life in the Financial Markets (2014).

Daniel is a professor of global economy at IE Business School in Madrid.

Are Naked Shorts Depressing Your Investment Portfolio?

Image Replicated from Twitter (1/23/2023)

Small-Cap Companies are Punching Back on Naked Shorts in Growing Numbers

The hashtag #NakedShorts has been trending on Twitter for over a week. To save Channelchek readers any embarrassment that may occur from Googling this term, especially at work, below are specifics on this market jargon. Also included below are specifics on why this has been trending and how it may impact self-directed retail traders and even small publicly traded companies that have the potential to be impacted by an illegal practice that apparently is not uncommon.

What are Naked Shorts?

Naked short selling of stocks is the illegal practice of short-selling shares that have not been allocated and verified to exist. Most shorting of stock occurs only after the trader borrows the security or determines that it can be borrowed before they sell it short (without owning). So naked shorting refers to short pressure on a stock that may actually be larger than the tradable shares in the market. This can place downward pressure on shares as they are sold, at times in excess of their existence.

Despite being made illegal after the 2008–09 financial crisis, naked shorting continues in practice because of loopholes in rules and discrepancies between physical and electronic trading systems.

Small Caps Revenge

Empowered by the activities of Gamestop (GME) and others, a growing number of small-cap companies are devising plans to go after naked short sellers.  This could help their companies trade at a fairer value rather than be artificially depressed by illegal trading practices.

Companies involved in heightening integrity in the markets for their stock are companies like Verb Technology Co. Inc. (VERB), a provider of interactive video-based sales apps with operations in Newport, California, and Lehi, Utah. Verb said this week it was joining education company Genius Group Ltd. (GNS), e-scooter and e-bike maker Helbiz (HLBZ), and Creatd Inc. (CRTD) designed for creators in coming up with measures to ensure “greater integrity in the capital markets” as Verb Chief Executive Rory J. Cutai said in a statement.

The move gained impetus last week as Genius Group said it had appointed a former F.B.I. director to lead a task force investigating alleged illegal trading in its stock, first disclosed a few weeks ago. Genius CEO believes there has been a measurable cost to the company. “We want this to stop,” he said. “They’re taking value away from our shareholders. They’re predators. They’re doing something illegal, and we want it to stop, whether that means getting regulators to enforce existing regulations or put new ones in place,” he said.

Legality of Naked Short Selling

In regular (legal) short trading, an investor borrows shares from someone else and pays an interest rate or “rebate rate.” They then sell them in anticipation of the stock price falling. The trade is a winner if the price falls and the seller buys them back at a lower price (netting out rebate rate) to close out the open short sale.

In naked short selling, investors don’t borrow the stock. They skip right to selling unowned with a promise to deliver them at a later date. If that promise is not fulfilled, it’s a failure to deliver.

Recently, companies such as AMC have paid a special dividend to determine, and frankly hurt, those short sellers that have not abided by the rules by first borrowing the security it sold.

Image: Elon Musk has been very vocal, Tesla is a company that hedge fund managers have routinely shorted (Twitter)

What Some Companies are Doing

Last week Helbiz said it was going to punch back at naked short positions. Creatd CEO Jeremy Frommer, meanwhile, is behind Ceobloc, a website that aims to end the practice of naked short selling. “Illegal naked short selling is the biggest risk to the health of today’s public markets” is how the site introduces its mission.

Genius just set guidance for 2023, saying it expects revenue of $48 million to $52 million, up 37% from its 2022 pro forma guidance. Last Thursday, the stock rose a record 290% in volume of about 270 million shares traded. That crushed the daily average of about 634,000. The CEO says this is another indicator of wrongdoing, given that the company’s float is just 10.9 million shares. “Clearly, that’s far more shares than we created,” the founder, Roger Hamilton points out.

Take Away

It is unclear what the task force of the small-cap companies intends to do. Companies like AMC Theaters (AMC) waged war by declaring a dividend that was a different class of stock. Shareholders would have to verify their ownership of a registered share in order to receive the dividend. This went a long way to verify what is in the float that is legitimate and that which is not.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.marketwatch.com/story/small-cap-companies-are-going-after-naked-short-sellers-in-growing-numbers-its-the-biggest-risk-to-the-health-of-todays-public-markets-11674480805?mod=newsviewer_click

https://www.investopedia.com/terms/n/nakedshorting.asp

The Week Ahead – PCE Inflation, Big Tech Earnings, No Fed Speeches

With a Light Week Ahead for Economic Reports, Investors Eye Big-Tech Earnings

In contrast to recent weeks, which began quietly as investors waited on late-week releases (i.e.: inflation, Beige Book, Fed announcements, etc.) before getting involved, this week is relatively quiet for economic reports. With less to be concerned about undermining any new positions, early week activity, without a holiday, may help increase volume. The scarcity of economic numbers could also cause more attention to be paid to earnings reports. This coming week we’ll receive a slew of big tech companies reporting. Disappointment may cause tech, which is showing signs of life early in 2023, to fall behind again. Whereas surprises on the upside could help unwind some of last year’s dismal big tech performance. Small Cap stocks, for their part, are keeping pace with the Nasdaq 100 mega stocks.

Earnings of both small-caps and mega-caps this week may produce a clear front-running segment based on capitalization.  

There’s a Fed meeting next week. While the consensus seems to be for a 25 bp hike, Fed governors have been clear in recent addresses that the tightening cycle is not over. The PCE number late this week is considered the Fed’s favorite inflation gauge. There are no scheduled addresses by Fed regional presidents leading up to the two-day meeting that concludes on February 1.  

Monday 1/23

  • 8:30 AM ET The index of leading economic indicators, which has been in steep decline (dropped a full 1.0 percent in November), is expected to have fallen a further 0.7 percent in December. The index of leading economic indicators is a composite of 10 forward-looking components, including building permits, new factory orders, stock market performance, and unemployment claims. As such, estimates pre-report tend to be very close to the actual number. The report attempts to predict general economic conditions six months out.

Tuesday 1/24

  • 9:45 AM ET, The Purchasing Managers Index (PMI) has been drifting down further into contraction – no relief is expected for January. Manufacturing is seen at 46.5 with services at 45.5.

Wednesday 1/25

  • 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.

Thursday 1/26

  • 8:30 AM ET, Forecasters see Durable Goods Orders rebounding 2.8 percent in December, which would more than reverse November’s steep 2.1 percent decline. Yet the gain is seen concentrated in aircraft as both ex-transportation and core capital goods orders are seen falling 0.2 percent.
  • 8:30 AM ET, Gross Domestic Product, or GDP for the fourth quarter is expected to have slowed to a 2.7% annualized growth versus third-quarter growth of 3.2%. Positive growth would indicate that the economy is not in a recession.
  • 8:30 AM ET, Jobless Claims are a weekly report. For the January 21 week, it is expected to come in at 202,000 versus a very low 190,000 in the prior week. The Fed focuses on jobs; the very strong numbers (low) suggest the Fed has room to tighten without being overly disruptive to job creation. Also, a tight labor market can be viewed as inflationary.
  • 10:00 AM ET, New Home Sales in December are expected to revert to the downward trend at a 614,000 annualized rate versus November’s 640,000. Higher home sales reverberate throughout the economy in terms of spending and growth.

Friday 1/27

• 8:30 AM ET, Personal Income is expected to have increased a monthly 0.2 percent higher in December, with consumption expenditures expected to have decreased 0.1 percent. These would compare with respective November gains of 0.4 and 0.1 percent.

The PCE inflation readings for December, which are part of the PI numbers, are expected to show no change overall and up 0.3 percent for the core (versus respective gains of 0.1 and 0.2 percent) for annual rates of 5.0 and 4.4 percent (versus November’s 5.5 and 4.7 percent).

What Else

The Federal Reserve is very likely through most of its overnight Fed Funds tightening cycle.  Japan, which had gone through decades of having a deflation problem, is now experiencing the highest inflation in 41 years. The Bank of Japan has not adopted the aggressively hawkish monetary policy that the US has. The US central bank, chaired by Jerome Powell, must be looking on and holding his stated opinion that he’d rather do too much tightening than too little.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.reuters.com/markets/us/wall-st-week-ahead-tech-stock-rebound-faces-doubters-with-earnings-season-ahead-2023-01-20/

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

When Could the Fast-Tracked Alzheimer’s Drug Reach Patients Who Could Benefit?

Image credit: National Human Genome research (Flickr)

What the FDA’s Accelerated Approval of a New Alzheimer’s Drug Could Mean for Those with the Disease – 5 Questions Answered about Lecanemab

The U.S. Food and Drug Administration (FDA) approved the medication Lecanemab, sold under the brand name Leqembi, on Jan. 6, 2023, through an “accelerated approval pathway” that fast-tracks promising clinical treatments for diseases in which there are no other currently effective options.

James E. Galvin, a neurologist from the University of Miami School of Medicine, specializes in the study of Alzheimer’s disease and Lewy body dementia. Below he explains the drug’s clinical potential to help ease the suffering of the roughly 6.5 million Americans who live with Alzheimer’s.

How Does Lecanemab Work, Biologically Speaking?

Lecanemab is a monoclonal antibody that targets beta-amyloid, a naturally occurring protein that becomes toxic when it clumps together to form the characteristic plaques that accumulate in the brains of people with Alzheimer’s disease. The drug is given through intravenous infusions every two weeks.

Antibodies are Y-shaped proteins circulating in the blood that recognize and neutralize substances in the body that they see as foreign, such as bacteria and viruses. A monoclonal antibody is produced by cloning, or making a copy of, a single white blood cell so that all the offshoot antibodies are derived from the same cell and bind to one specific target. In this case, lecanemab binds only to beta-amyloid proteins.

Lecanemab binds to a particular form of beta-amyloid as it clumps, called a protofibril. Studies suggest this is the species of beta-amyloid that is both most likely to aggregate into plaques that disrupt cell functioning and to play a role in the development of Alzheimer’s disease.

Earlier trials of other monoclonal antibodies failed to demonstrate a benefit and had more side effects, possibly because they targeted forms of beta-amyloid either too early or too late in the aggregation process.

Image:  Misfolded beta-amyloid proteins aggegrate into clumps, called plaques, that form in the brains of people with Alzheimer’s

Could Lecanemab be a Game Changer for Alzheimer’s Treatment?

Potentially, yes, for people with early-stage Alzheimer’s disease. Medications such as lecanemab have the potential to interfere with the progression of Alzheimer’s disease by removing beta-amyloid from the brains of people who are suffering with it.

Two recent publications describe results from two different phases of clinical trials.

One study, published in early January 2023, reported the results of a phase 3 clinical trial that included 1,795 participants, half of whom received lecanemab and another half who didn’t. In that trial, treatment with lecanemab not only met all its clinical outcomes and safety requirements, but it also reduced the amounts of beta-amyloid measured in imaging tests and in the blood.

Researchers also saw reductions in the levels of tau – the protein responsible for the neurofibrillary tangles that accumulate inside the neurons in patient’s with Alzheimer’s. And they found reduced levels of other proteins that measure brain injury and degeneration. This suggests that lecanemab could potentially address the disease by targeting it through both direct and indirect pathways.

A separate study published in December 2022 reported the results of a phase 2 study with 856 participants. Lecanemab treatment also led to significant reductions in amyloid plaques on brain imaging tests, reductions in blood measurements of amyloid and tau protein and slowing of disease progression. These findings provide independent confirmation of the phase 3 findings and support the potential of lecanemab in the treatment of Alzheimer’s disease.

What Were the Results?

After 18 months of treatment in the phase 3 study, lecanemab slowed disease progression by 27% compared with the control group. Compared with those who didn’t receive the treatment, participants treated with lecanemab also showed 26% less decline on cognitive testing and a 36% slower loss of function in everyday activities. The study also found a marked reduction in the amount of beta-amyloid deposits in the brains of those who received the treatment.

These outcomes are the some of the largest effects yet seen in any Alzheimer’s disease clinical trial. While not cures, they provide hope that by significantly slowing physical, cognitive and functional decline while also removing amyloid, the course of disease might be altered in a way to give patients improved quality of life.

It is important to remember that the trial was only carried out over 18 months, so we do not fully know the long-term benefits of lecanemab. Ongoing long-term studies will hopefully bring additional insights. However, some recent simulation models have suggested that lecanemab treatment may provide long-term benefits and improve overall quality of life.

While lecanemab has shown clear benefits, it also comes with some notable potential adverse effects that need to be considered. In this case, the concerns are very specific to treatment with amyloid monoclonal antibodies.

In the phase 3 clinical trial, of the 1,795 participants, 12.6% taking lecanemab experienced swelling of the brain on MRI scans compared to 1.7% of those who received the placebo. Overall, only 2.8% of participants experienced any symptoms – mostly headaches.

In addition, 17.3% of those who received lecanemab had small hemorrhages, or bleeds, of the brain on MRI scans compared to 9% in the placebo group. While few participants experienced complications, at least three deaths due to brain hemorrhage have been reported in individuals enrolled in an ongoing long-term study. But notably, each of these people appear to have had additional risk factors.

How is Lecanemab Different from Other Treatments?

The currently available Alzheimer’s treatments – which include donepezil, rivastigmine, galantamine and memantine – primarily treat symptoms. They do not address the underlying disease processes, and they have modest clinical benefits.

One medication that does treat the disease, aducanumab, sold under the brand name Aduhelm, was approved by the FDA in 2021 under the same accelerated process as lecanemab. But it has not become widely used due to controversy about its efficacy and pricing.

So lecanemab could offer the first disease-modifying medication with undisputed results for people living with the early stages of Alzheimer’s disease. It is important to note that lecanemab was not studied in and was not approved for individuals with moderate or severe stages of Alzheimer’s disease.

When Could Lecanemab Reach Patients Who Could Benefit?

Although lecanemab has received approval from the FDA, it will likely be several months before it is available for clinical use.

Eisai and Biogen, the pharmaceutical companies that developed lecanemab, recently published guidelines on their pricing policy and roll-out plans for the drug. However, the Center for Medicare and Medicaid Services has said that for now, therapies targeting beta-amyloid will not be covered by insurance except for those individuals who are enrolled in clinical trials funded by the National Institutes of Health. And commercial insurance companies generally follow Medicare guidance.

Lecanemab will have an estimated out-of-pocket cost of $26,500 per year. The drugmaker has already filed a supplemental application for traditional FDA approval. If that approval is granted, it is more likely that Medicare and commercial insurance payers will cover most of the cost of lecanemab, which would make the drug much more widely accessible to those living with Alzheimer’s disease.

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, James E. Galvin, Professor of Neurology, University of Miami.

New Tax Benefits Investors are Being Granted

Image Credit: Thomas Galvez (Flickr)

The IRS (Actually Congress) Makes it Less Taxing to Invest

As we enter the new tax season, there is something important investors of all ages, incomes, and investment styles may have missed. Buried in the CONSOLIDATED APPROPRIATIONS ACT, which is the $1.7 trillion legislation passed just before the holidays, is a section called the SECURE 2.0 Act of 2022. If you missed it, and don’t wish to wade through the 4,100 pages of legislation, I’ve summarized seven key features below.

I’m not a tax attorney, CPA, or IRS employee, so although my reading comprehension is decent, use the below as a starting point, then get advice from professionals or sources, including IRS.gov, you’ve come to rely upon.

Investor Benefits

It’s not a stretch to expect that SECURE 2.0 will affect most Americans’ tax-advantaged investing accounts —  and most likely in a beneficial way. The bill, which builds on a retirement act passed in 2019, includes changes to 401(k)s and 403(b)s. Additionally, it now includes emergency needs provisions, ROTH changes, new rules for saving and withdrawing from retirement plans, and a 529 plan change that will be welcome for those trapped balances.

The vast majority of SECURE 2.0’s new rules begin this year, but some are not implemented until 2024 or even later.

Seven Key Areas to Help Taxpayers

#1 Automatic Enrollment and Plan Portability (Starts 2025)

This requires businesses adopting new 401(k) and 403(b) plans to automatically enroll eligible employees, starting at a contribution rate of at least 3%, beginning in 2025. It also permits retirement plan service providers to offer plan sponsors automatic portability services, transferring an employee’s retirement accounts to a new plan if they change jobs. This could benefit those that would be confused by the myriad of investments in a brokerage IRA as compared to a prepackaged 401(k) eligible retirement plan at the new employer.

#2 – Emergency Savings (Starts 2024)

Defined contribution retirement plans would be able to add an emergency savings account in the form of a designated Roth account eligible to accept participant contributions for non-highly compensated employees starting in 2024. Contributions would be limited to $2,500 annually (or lower, as set by the employer), and the first four withdrawals in a year would be tax and penalty-free. Depending on plan rules, contributions may be eligible for an employer match. In addition to giving participants penalty-free access to funds, an emergency savings fund could encourage plan participants to save for short-term and unexpected expenses.

#3 – Student Loan Debt (Starts 2024)

Employers will be able to “match” employee student loan payments beginning in 2024 with matching payments to a retirement account. This aids workers with increased retirement savings while they are paying off educational loans.

#4 – 529 Plans Rolled to Roth (Begins 2023)

After 15 years of aging, 529 plan assets can be rolled over to a Roth IRA for the beneficiary over five years. This is subject to the annual Roth contribution maximum with a lifetime cap of $35,000. The rollover is treated as a contribution towards the annual Roth IRA contribution limit.

#5 – Distributions Required by Law (Begins 2023)

When you’ve built up your IRA, 401(k), or 403(b) or other tax-advantaged money, you can’t shelter it from taxes forever. In the past, the IRS required you to pull an amount out, based on their calculation, each year upon reaching 72 years of age. This money is then fully taxable if it was sheltered from taxes when it was placed in the account. The Act now gives us an extra year to allow our investments to grow before beginning withdrawals. Starting in 2023, the age at which owners of retirement accounts must start taking required minimum distributions (RMDs) increased to 73.

The SECURE 2.0 Act then increases the age at which RMDs must start to 75 starting in 2033.

There had been a steep penalty for failure to withdraw your RMD. It has been dropped from 50% of the amount not taken to 25%. By any measure, 25% is still a severe penalty, but it is better than having forgetfulness cost you 50% of your money. Better yet, the penalty will be reduced to 10% for IRA owners if the account holder withdraws the RMD amount previously not taken and submits a corrected tax return in a timely manner. The rationale is that self-managed IRAs are more likely to be missed than assets in 401(k) plans.

Additionally, Roth accounts in employer retirement plans will be exempt from the RMD requirements starting in 2024.

#6 – Increased Catch-Up Contributions (Begins 2025)

Starting the first day of 2025, individuals ages 60 through 63 years old will be able to make catch-up contributions of up to $10,000 annually to a workplace plan; this amount will then be indexed to inflation. The catch-up amount for people aged 50 and older has not changed for 2023 ($7,500.) There is, however, a “but.” If you earned more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from this Roth requirement.

IRAs currently have a $1,000 catch-up contribution limit for people aged 50 and over. Starting in 2024, that limit will be indexed to inflation, meaning it could adjust every year based on federally determined cost-of-living changes.

#7 – Employer Matching for Roth Accounts (Begins 2024)

Employers will be able (although not required) to provide employees the option of receiving vested matching contributions to Roth accounts. Until now, any employer match in a sponsored plan was made on a pre-tax basis. Contributions to a Roth retirement plan are made after tax, after which earnings can grow tax-free.

In 2024, Roth RMDs from an employer-sponsored plan is no longer required. This money can stay invested and even grow tax-free for as long as the account owner deems it prudent.

 

Take Away

The SECURE 2.0 Act provides over 90 changes that impact taxes, at the same time, could mean increased business for the firms involved in administering qualified plans. The law builds on earlier changes that increased the age at which retirees must take RMDs.

There are many small provisions in the new law; the highlights include helping younger workers save while they continue to pay off student debt, also making it easier to move accounts from one employer to another and to enable people to save for emergencies within retirement accounts.

Older Americans could feel a more immediate benefit from the increased age at which retirees must begin taking RMDs from IRA and 401(k) accounts and the increase in the size of catch-up contributions for older workers’ plans.  

SECURE 2.0 provides increased opportunities to save for retirement. Everyone’s financial situation is different. As always, consult a tax professional to understand how these changes best apply to your situation. We encourage you to consult Channelchek and other trusted sources of investment information as you weigh decisions related to the investments themselves.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf

https://www.adp.com/spark/articles/2023/01/secure-20-act-of-2022-what-it-means-for-your-business.aspx#:~:text=Referred%20to%20as%20SECURE%202.0,improve%20retirement%20outcomes%20for%20employees.

The Current Debt Ceiling Austerity Plan

World Bank Photo Collection (Flickr)

Extraordinary Measures as Outlined by US Treasurer Janet Yellen

There’s no doubt, the US Secretary of the Treasury, Janet Yellen, has been working overtime to provide an austerity plan as the US debt ceiling has just been reached. In the absence of the legal ability to sell debt in excess of the current outstanding, going to the bond markets and issuing Treasury Bills/Notes/Bonds is off-limits to the US government. So what’s a Treasury Secretary to do? The government has bills and other liabilities that are coming due, and today’s higher interest rates create a larger discount and nets less for the Treasury when rolling over some securities. This can be very problematic if the US stops paying bills on time or if there is a risk of default on debt; the US dollar can tumble, interest rates can skyrocket, and faith in our economic engine can unravel. You can imagine what this has the potential to do to equity markets.

In a letter, Yellen wrote to Congress dated January 19, she outlines the Treasury Department’s contingency plan, while Congress is expected to develop its own more permanent financial solution.

In the letter, she says the Treasury will cease adding to the Civil Service Retirement and Disability Fund (CSRDF) for those values not currently required to pay beneficiaries. Under ongoing business practices the CSRDF invests in special-issue Treasury securities specifically for its use. These securities count against the debt limit.

Similarly, the Postal Accountability and Enhancement Act of 2006 provides that investments in the Postal Service Retiree Health Benefits Fund (PSRHBF) are made in the same manner as investments for the CSRDF. The treasury will suspend additional investments of amounts credited to the PSRHBF.

It is expected that the CSRDF and the  PSRHBF will be made whole as part of the eventual solution.

She ends the letter by urging Congress to act swiftly as her measures will not provide a solution beyond late Spring.

Letter Dated January 19, 2023

Take Away

When the US bumps up against its debt limit it creates many problems. From a macro approach, if they raise the debt limit automatically may only serve to kick the spending can down the road. To have no upper limit long term can come back to hurt the US dollar and those that use it for purchases. Creating a strict upper limit serves to provide fiscal restraint but may stand in the way of economic stimulation. A government with its spending hands tied may find it problematic in times of war or other crises.

As the Secretary of the Treasury postpones payments or debt issuance, this has in the past not saved money, it has only delayed acquiring it through borrowing.

Depending on how intense the game of chicken becomes in the halls of Congress, the debt, equity, and Forex markets could become tumultuous.

Paul Hoffman

Managing Editor, Channelchek