Author: phoffman@channelchek.com

Cathie Wood Believes the Fed is Playing Economic Jenga

Posted on by phoffman@channelchek.com

Ark Invest Warns of a Deflationary Ripple that Could Spread Around the Globe

Pricing, whether it be of the stock market, private placements, or other alternative investments is impacted by investor demand, and demand is the result of differing views. Cathie Wood, the Ark Investment Management CEO, has held the view that the U.S. and global economies are close to a deflationary spiral. She pointed to more evidence this week, and sounded the alarm for the potential dire consequences of the Federal Reserve’s ongoing rate tightening measures. According to Wood, deflation tied to China and actions by the U.S. central bank could set off a chain reaction of deflation-induced economic slowdowns, not just within the United States but across international markets.

Source @CathieDWood (X, August 14, 2023)

Ms. Wood, the 67-year-old market veteran, who falls in the category of celebrity investor, has many fans and followers. She shared her concerns in a string of posts on X, the platform formerly known as Twitter. Wood stated, “China is exporting deflation in a more profound way than I believe many economists and strategists appreciate.”

She explained that producer prices in China, the world’s second largest economy, were impacted by the U.S. dollar strengthening by 15% against the Chinese yuan, despite the devaluation adding around 15% to Chinese PPI, the Chinese reported a decline in the PPI inflation measure by 4%.

Source @CathieDWood (X, August 14, 2023)

Wood expressed China is exporting deflation. She posted that, under normal circumstances, the 15% depreciation of the yuan against the dollar in 2022 should have led to a 15% increase in China’s annual producer inflation rate. Since it instead dropped 4%, In her math, this is creating near a 20% downdraft on prices of Chinese goods.

Source @CathieDWood (X, August 14, 2023)

Turning her focus to China’s economic trajectory, Wood recounted the country’s impressive growth following its entry into the World Trade Organization in 2001. Over nearly two decades, China’s real GDP experienced a sustained double-digit expansion. However, Wood pointed out that rapid growth often conceals underlying economic vulnerabilities, including excessive debt and leverage. Her firm believes these vulnerabilities are now creating cracks in China’s economy.

Source @CathieDWood (X, August 14, 2023)

Wood suggested that China might attempt to halt the depreciation of the yuan. However, this would necessitate selling off U.S. dollars and acquiring yuan, which, in turn, tightens monetary policy and fuels the economy’s fragility, even amid efforts to stimulate it.

Source @CathieDWood (X, August 14, 2023)

Ark Invest’s CEO posted, “The Fed has precipitated and exacerbated the risk of a global deflationary bust.” Drawing attention to the central bank’s remarkable 22-fold increase in the Fed funds rate, Wood warned that the repercussions of this move would first impact China and subsequently ripple through the rest of the world.

Recent economic data from China underscores the challenges it currently faces. Second-quarter GDP growth came in at 6.3%, falling short of the 7.3% projection by economists. Furthermore, new bank loans for July plummeted by 89% month-over-month, marking the lowest level since 2009, according to data from the People’s Bank of China.

The deflationary trend is evident in inflation figures as well. July inflation data showed both consumer and producer price inflation rates in negative territory.

Adding to the concerns, a trio of data released from the China National Bureau of Statistics revealed lackluster performance. Retail sales rose by a modest 2.5% year-over-year in July, well below the anticipated 4.5% increase. Industrial Production also lagged, with a 3.7% rise compared to the consensus estimate of 4.4%. Moreover, fixed asset investment figures raised further questions about the country’s economic health.

Take Away

There are certainly competing inflation forecasts opposing those coming out of Cathie Wood’s firm. However, her warnings do serve as a reminder, from a veteran in the asset management business, of the interconnectedness of global economies and the potential ramifications of central bank policy decisions. As markets continue to navigate the crosscurrents, attention remains on policymakers and economic indicators for signs of any change in trends.

Paul Hoffman

Managing Editor, Channelchek

Sources

Cathie Wood’s X Post

http://www.stats.gov.cn/english/PressRelease/202308/t20230815_1942019.html

Was Michael Burry Wrong to Say, “I Was Wrong to Say Sell”?

Posted on by phoffman@channelchek.com

Michael Burry Has a Huge Bet According to His Just Filed SEC 13-F Report

It looks like Michael Burry has changed his mind, again. At the beginning of 2023, Burry,  the founder of Scion Asset Management, was not positive at all on the stock market. The market then moved up in an epic rally. By late March, he announced in a tweet, “I was wrong to say sell.” Over the coming months stocks that had been beaten down the prior year, moved up significantly.

In his quarterly SEC 13-F filing today, the hedge fund manager that was portrayed in the movie “The Big Short” reported that he is more than just short the S&P 500 and Nasdaq 100. Burry held a huge leveraged short position as of June 30th. The position represents 84% of Scion’s assets under management (AUM), and is in the form of an all-or-nothing marketable options trade.

Source: Koyfin

About His Position

Burry recognized losses during the second quarter. The long positions he had put on earlier were underwater when he sold. The only conclusion is that he must have switched again from bullish to bearish – at least on these specific stocks. He then, with a broad brush, shorted large-cap stocks using stock options on ETFs. As of quarter-end 51.05% of his portfolio held puts on SPY and 42.54% held puts on QQQ.

Burry manages $1.7 billion. The puts used to short the S&P 500 ETF (SPY) and Nasdaq 100 (QQQ) is a broad brush that shows a great deal of confidence that large-cap stocks are headed lower before the options expire. It is a huge bet, while a short using puts has less downside than a straight short that, if unmanaged, can move against the owner an infinite amount, options have a window when they can be sold or exercised. If the position doesn’t work out, losses can be 100%.

Take Away

A lot can be learned from celebrity investors and fund managers. The lesson that investors may glean from Michael Burry’s first six months of 2023 is that you don’t sit in a bad position. Or, changing your mind is okay. The new positions indicate a high degree of confidence that large-cap stocks will fall apart over the coming months. It is just two positions, but they speak volumes in terms of his market call.

Paul Hoffman

Managing Editor, Channelchek

https://whalewisdom.com/filer/scion-asset-management-llc

https://www.channelchek.com/news-channel/michael-burry-suggests-he-is-now-bullish

Is Gary Gensler on His Way Out at the SEC?

Posted on by phoffman@channelchek.com

The SEC May be Poised to Become more Accommodating to Cryptocurrency

In what is being reported as a developing story that can significantly impact securities and crypto regulation, rumors are circulating that SEC Chair Gary Gensler may be on the way out as head of the agency.  The reports are pointing to Hester Pierce as the most likely person to replace him. How would this impact public markets and the future state of cryptocurrency regulation? We discuss these questions and thoughts below.

Background

Whale (@whalechart) is a crypto news provider with an account on the microblogging platform X.  It is widely respected, with 363,000 followers. Whale announced this morning (August 14), “SEC Commissioner Hester Peirce is being considered to replace Gary Gensler as the head of the regulatory agency.”  This small post (or tweet) has triggered waves of speculation about the upcoming course of securities regulation for both registered products and cryptocurrencies like Bitcoin.

Ms. Peirce is known for her strong support of innovation and outside-the-box thinking. She has been a commissioner of the SEC since 2018, appointed by President Trump. Pierce is a former academic and lawyer who has specialized in securities law and financial regulation. She is known for her views on the regulation of cryptocurrencies and other emerging technologies.

What the SEC May Look Like Under Hester Pierce

Peirce, who has a reputation as being pro-innovation, has been a bold advocate for embracing disruptive technologies like cryptocurrencies and blockchain. If the rumors are accurate and she does find her way to the position of top securities cop, it could signal a shift towards a more accommodating regulatory stance, with a leader whose thoughts on fintech and digital assets are known.

If the days are indeed numbered for the SEC’s current head Gary Gensler, the traditional and digital asset markets would mainly view this as a positive. President Biden’s appointee, Gary Gensler, has been a catalyst behind the intensified scrutiny and rule-making within the overall cryptocurrency realm. His time in the position has led the SEC’s tightening its grip on digital asset exchanges and clamping down on many Initial Coin Offerings (ICOs).

Gensler has been acting to protect consumers, but many critics argue that the SEC under his lead, has been led to too much interference in free markets. With Peirce potentially in the drivers seat, the probability of the regulator embracing crypto assets in a less restrictive way increases dramatically.

Those impacted the most by a changed SEC head have weighed in already with diverse ideologies and opinions. Advocates assert that her penchant for innovation could sow the seeds for heightened financial growth. They contend that a friendlier regulatory outlook might be the medicine needed to embolden new ideas and investors to explore new opportunities – this, they say, could give the economy a lift.

Those opposed to a Hester Peirce nomination warn against a looser regulatory environment that could leave investors exposed to heightened risks. Their call is for the SEC to remain a vigilant guardian of investor interests, standing as a wall against potential deceit or market manipulation.

As the news regarding Peirce’s probable elevation continues to spread on social media and in articles like this, the pressing question many market participants are trying to discern is, will the SEC take a gentler road to new tech innovations or will it hold overly tight to its role concerning investor safety? If the change happens, there could be a celebratory bump in the value of crypto assets and others.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://publish.twitter.com/? Whale

https://foggymedia.in/blog/SEC%20Commissioner%20Hester%20Peirce%20Considered%20to%20Replace%20Gary%20Gensler/

https://cointelegraph.com/news/this-scenario-could-see-sec-gary-gensler-resign

https://coinmarketcap.com/community/articles/64d9f66a62115c7ccfb3c1ec

The Week Ahead –  SEC 13-F Filings, FOMC Minutes, Housing Numbers

Posted on by phoffman@channelchek.com

The Trading Week Ahead Could See Investors Continuing to Adjust to the Flattening Yield Curve

Bill Ackman says he’s short the U.S. Treasury long bond. Michael Burry, who tends to see things before others, had been short a derivative of Treasuries two summers ago, was he involved in interest rates this most recent quarter-end? We will get a glimpse into what these two, plus Warren Buffett and a host of others, as time runs out on their 13-F filing as of the close of business on Monday.

Last week many investors went from betting on a soft-landing a few weeks ago to now thinking interest rates along the curve are too low. The impetus for the shift was the CPI and PPI reports last week had provided nothing for the Fed to stop or slow down tightening. This concerns stock market investors. Higher rates, at a minimum, are beginning to provide an attractive alternative to a stock market that has already run up above average. This is because investors can now be choosier as their cash is far more productive, even after inflation, than it has been in years. Individual companies that have great prospects, rather index ETFs where you hold the good with the bad, would seem more prudent in the current scenario.

Monday 8/14

•             13-F Day is the SEC deadline for funds that manage more than $100 million in assets, that they must divulge positions held as of the end of the previous quarter. For example, Michael Burry’s Scion Asset Management hedge fund, Warren Buffett’s Berkshire Capital Holdings, and all U.S. asset managers of size have 45 days from quarter-end to file. A very large percentage choose to file on the 45th day, August 14th is 45 days from June 30th. Investors pour through the 13_f filings of top investors looking for insights.

Tuesday 8/15

•             8:30 AM ET, The consensus for Retail Sales for July is up 0.4% after an unexpectedly poor showing in June of a gain of 0.2%. Retail sales measure the total receipts at stores that sell merchandise and related services to final consumers. Sales are by retail and food services stores.

•             8:30 AM ET, Import and Export Prices are expected to show that import prices increased 0.2% in July after falling 0.2% in June. Export prices are expected to have increased 0.1% after dropping 0.9% in June. The underlying value of this report is the measure of global inflationary trends. Import price indexes are compiled for the prices of goods that are bought in the United States but produced abroad and export price indexes are compiled for the prices of goods sold abroad but produced within the U.S.

•             4:00 AM ET, Treasury International Capital is the tracking of who holds U.S. securities, or put another way, where in the world are U.S. Stocks, U.S. Treasuries, Agencies, and Corporate Bonds. TIC has recently been watched by a wider group as it is a measure of foreign demand for our assets. The prior number (May) showed net long-term transactions abroad of U.S. securities at $25.8 billion.

Wednesday 8/16

•             7:00 AM ET, The Mortgage Bankers Association (MBA) compiles data which indicates demand for mortgages. Data from the previous week indicate a drop in their Purchasing index of 2.7%, and a decline in its Refinance index of 4.0%.

•             8:30 AM ET, Housing Starts month over month for July are expected to have increased to 1.464 million from 1.44 million in June.

•             9:15 AM ET, Industrial Production had fallen 0.5 percent for two straight months; forecasters expect a rebound of 0.3 percent in July. After falling 0.3 and 0.2 percent, manufacturing output is seen as unchanged. Capacity utilization is expected to rise to 79.1 from 78.9 percent, still below what is considered inflationary.

•             10:30 PM ET,  The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S., whether produced here or abroad. The inventory level impacts prices for petroleum products.

•             2:00 PM ET,  FOMC minutes are from the meeting three weeks ago, where the Fed adjusted the overnight target upward. This report has recently been market-moving as it details the issues of debate and consensus among policymakers.

Thursday 8/17

•             8:30 AM ET, Initial Jobless Claims are expected to have fallen the week ended August 12th to 240,000 following a 21,000 jump to 248,000 last week, in the absence of inflation data, the market places adds emphasis on unexpected results in the labor market.

•             10:00 AM ET, E-Commerce Retail Sales for the second quarter are scheduled for release. During the first quarter, online retail transactions had increased by 3%.

•             4:30 AM ET, the weekly report on the Fed’s Balance Sheet is now awaited each week as it provides statistics on whether the Fed is fulfilling its quantitative tightening promise on schedule. It also  could provide an early tip-off if there is a problem within the banking system. The report from the week prior showed $8.208 trillion in assets, and bank reserve credit declining $18,685 billion.

Friday 8/18

•             10:00 AM ET, The Quarterly Services Survey is not usually a large focus, but it is the only economic number printing on what may very well be a lightly traded late summer Friday. The report includes industry information; professional, scientific, and technical services; administrative & support services; and waste management (NAICS 51, 54, and 56). Last quarter, these industries experienced 2.9% growth, or 9.7% year-on-year.

What Else

A press release dated Friday, August 11th, stated that Greg Steube, a Representative from Florida’s 17th district had filed “Articles of Impeachment Against Joseph Robinette Biden, Jr., President of the United States, For High Crimes and Misdemeanors.” What this could mean for markets, if the past is an indicator, is very little. There could be days where traders are largely distracted by news stories that may come from this, but the soundness of the U.S. or the global economy is not likely to be hanging in the balance on any outcome from the proceedings.

Paul Hoffman

Managing Editor, Channelchek

Sources

Steube.house.gov

https://www.econoday.com/articles/high-points-for-economic-data-scheduled-for-august-14-week/

https://thehill.com/homenews/house/4150478-florida-republican-rep-files-articles-of-impeachment-against-biden/

Steube.house.gov

Investors in Gambling are Winning Big this Year

Posted on by phoffman@channelchek.com

How the Popularity of Parlay Betting is Helping the Major Players

The business of gambling keeps growing as more types of wagers become popular and a friendlier legal environment encourages major players like DraftKings (DKNG) and FanDuel (PDYPF), as well as smaller online sites. A new online betting trend has been particularly profitable for companies who include it in their product line-up. Although specific financials remain undisclosed, parlay betting has dramatically added to the bottom line of some sportsbooks.

While not public, an analysis published in Barron’s of state gambling regulatory data shows the average amount the house keeps from the wagers is around 20% for parlay bets. This compares quite favorably to the 5% kept by conventional individual outcome wagers.

What is a Parlay Bet?

A parlay bet is a type of sports bet where you combine two or more individual bets into one single all-or-nothing bet.  The payout for a parlay bet is much higher than for a single bet, but the probability of winning is much lower.  

For example, let’s say you want to bet on the following three NFL games:

The Dallas Cowboys to beat the New York Giants

The Tampa Bay Buccaneers to beat the Philadelphia Eagles

The Miami Dolphins to beat the New York Jets

You could place three separate bets on these games, but you would only win a small amount of money if all three bets won. Instead, you could place a parlay bet on all three games. If you win the parlay bet, you will win a much larger amount.

The payout for a parlay bet is calculated by multiplying the odds of each individual bet together. So, if the odds of the Cowboys winning are 1.50, the odds of the Buccaneers winning are 2.00, and the odds of the Dolphins winning are 1.75, the odds of the parlay bet winning would be 1.50 x 2.00 x 1.75 = 5.25.

This means that if you bet $100 on the parlay bet, you would win $525 if all three bets won.

Gambling companies emphasize that parlays are no gimmick. The odds aren’t skewed in the company’s favor or anything shifty; rather, parlays introduce higher odds against bettors due to the cumulative impact of various outcomes. Betting on multiple events, even up to 10, compounds the odds of each event’s success. This is how the casinos’ 4% to 5% edge evolves into a substantial 20%.

Margins are Better for Companies

The increase in earnings from these bets has helped lift stock values much higher than the overall market.

The growing popularity of parlay bets has also served to increase the appetite in the U.S. for sports betting. In 2018 a Supreme Court’s ruling opened the doors for sports gambling, leaving the decision to legalize it to individual states. Since then, 38 states and Washington, D.C. have legalized sports betting, with online betting approved in 24 of them. The operators amassed a gross revenue of $7.5 billion in 2022, as per the American Gaming Association, and numerous analysts speculate that further state legalization and innovative trends such as parlays could propel the market up to $30 billion or more.

The big two, DraftKings and Flutter/FanDuel dominate the market after spending heavily for years on advertising.  Their state-of-the-art technology and popular parlays have helped increase market share. The companies are now veering away from over-the-top marketing, as evidenced by the 49% dip in TV ad spending by online sports betting firms in Q2, and DraftKings’ 10% reduction in marketing expenditures in established markets during the latest quarter.

Regardless of market dominance, parlays are poised to proliferate due to their popularity and profitability. While Las Vegas has long capitalized on the attractiveness of quick riches, the advent of online companies’ represents a distinct shift in the dynamics. Unlike casinos that can’t dramatically boost their own profitability in games like blackjack, the digital platforms can reach the masses electronically and digitally.

As mentioned, this surge in parlays resonates with the penchant for sudden riches, and can be witnessed  far beyond Las Vegas. The recent Mega-Millions $1.55 billion prize had players lined up in the summer heat to pay for an almost impossible chance of winning. Platforms like Robinhood appealed to the high-risk high-return nature of many and amassed more brokerage customers in a year than any other company in history.

Parlays effectively tap into and profit handsomely off the mentality of all-or-nothing large gains. A mere $10 parlay could translate into thousands in winnings, mirroring the “got to be in it to win it” feeling of the lottery. But here, the bettor can feel more in control.

Take Away

The overall stock market performance is reported each trading day in popular indexes, but there are individual sectors that rise, or fall separately and at a different pace than each index. Index funds and ETF buyers are beginning to realize that a portion of their portfolio invested in industries and companies that are showing more strength than the S&P, Dow, or Nasdaq indexes may allow for enhanced performance. Many keep the largest allocation in an indexed fund or ETF to still maintain the diversification that prompted the indexed fund investment to begin with.

This December hundreds of investors will be attending NobleCon19 in order to discover actionable ideas they can invest in. The investment conference is the place where both professional and self-directed market participants go to become familiar with less mainstream companies and management. You’re invited – go here for all the information you will need to join us in Florida later this year.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.igb.illinois.gov/

https://www.barrons.com/articles/sports-betting-parlay-online-gaming-apps-25914b0f?mod=hp_columnists

X.com’s CEO Speaks Up

Posted on by phoffman@channelchek.com
Source: CNBC, (August 10, 2023)

X, the Company Formerly Known as Twitter – Here’s Why It Rebranded

If you’re like me, when Elon Musk announced a rebranding of Twitter to the new name X, you waited for the punchline – or thought of it as a stunt. Although weeks later I’m still typing “Twitter” into my search bar, and still refer to posts as tweets.” I have become sure that this is no stunt, it is a business decision. A decision that begs the question, Why?

This week, X’s CEO, Linda Yaccarino shared her insights in a CNBC interview. She explained the company’s decision to rebrand from Twitter, citing alignment with owner Elon Musk’s overall strategic vision for the platform and how Musk, who has owned the URL X.com since his PayPal days, has championed the social media company as the future, all-encompassing app.

“Elon has been talking about X, the everything app, for a very long time,” Yaccarino said during the interview with CNBC’s Sara Eisen. “Even when we announced that I was joining the company, I was joining the company to partner with Elon to transform Twitter into X, the everything app,” Yaccarino said.

Yaccarino, who took the helm in June, indicated the transformation and growth include extended video content, articles, and even subscriptions to content providers.

“Think about what’s happened since the acquisition,” X’s CEO elaborated, “Experiences and evolution into long-form video and articles, subscribe to your favorite creators, who are now earning a real living on the platform. You look at video, and soon you’ll be able to make video chat calls without having to give your phone number to anyone on the platform.”

Attention was brought to the once microblogging platform’s  intentions to facilitate transactions between users, friends, and content creators. The past Twitter was confining, she explained, the new brand will allow evolution without a legacy mindset.

“The rebrand represented really a liberation from Twitter,” she said. “A liberation that allowed us to evolve past a legacy mindset and thinking. And to reimagine how everyone, how everyone on Spaces who’s listening, everybody who’s watching around the world. It’s going to change how we congregate, how we entertain, and how we transact all in one platform.”

The CNBC host asked about the risk in light of name recognition, Yaccarino responded likening the change Johnson & Johnson made by spinning off Band-Aids and Tylenol brands under the new name Kenvue. Her reply suggested the tech giant is almost entrepreneurial now, and can begin with a start-up mentality.

“If you stay Twitter, or you stay whatever your previous brand is, change tends to be only incremental. And you get graded by a legacy report card,” Yaccarino said. “And at X we think about what’s possible. Not the incremental change of what can’t be done.” She pointed to the new product changes and infrastructure improvements, saying it “answers the question of ‘why rebrand?’”

About Yaccarino’s Duties

She is operating independently under Musk’s leadership, Yaccarino assured.

“The roles of Elon and myself are well-defined.” She continued, “Elon is working on accelerating the rebrand and working on the future,”  adding, “and I’m responsible for the rest. Running the company, from partnerships to legal to sales to finance.”

Questions regarding Yaccarino’s autonomy within Musk’s framework had arisen due to his comprehensive control over the company and his ventures like Tesla and SpaceX.

Yaccarino, formerly a senior advertising executive at NBC Universal, underscored X’s dedication to enhancing the advertiser experience. This commitment arose from brands withdrawing from the platform following Musk’s acquisition of Twitter.

A large part of the Twitter brand has in the past been questioned by advertisers related to trust and safety. Yaccarino disclosed that X’s trust and safety team is now more capable compared to its pre-acquisition state. While acknowledging that not all content may align with everyone’s views, she highlighted efforts to improve the platform’s content environment.

In November, Twitter disbanded its ethical artificial intelligence team and downsized its trust and safety department. This move halted the team’s work on “algorithmic amplification monitoring,” which mainly aimed to scrutinize content amplification during elections and political events. This stands in sharp contrast to the trust which the new brand has been building.

Rebuilding advertiser confidence stands as a large challenge for Yaccarino. Musk has claimed continuous spikes in user engagement, but concrete data supporting these claims are slim. Yaccarino pointed out the return of prominent brands like Coca-Cola and Visa to advertising under her leadership, facilitated by her direct engagement with marketing and communication executives.

Yaccarino asserted that brands are now insulated from the risk of adjacency to problematic content. She acknowledged that content that is “lawful but awful” can be challenging to manage but emphasized the company’s new content controls in reducing such risks for advertisers.

Yaccarino also addressed the threat posed by Meta’s Threads, indicating that while it hasn’t fully taken off since its high-profile launch, it’s essential to stay vigilant about competitors. Despite already commanding substantial advertiser spending through Instagram and Facebook, Meta’s Threads has yet to introduce advertising.

As for a potential octagon face-off between Musk and Meta CEO Mark Zuckerberg, Yaccarino took a playful stance saying that if the event occurred, Musk “is training” and noted the potential for a great brand sponsorship opportunity.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.nbcnews.com/news/us-news/twitter-rebrands-x-elon-musk-loses-iconic-bird-logo-rcna95880

https://www.wsj.com/articles/j-j-says-new-band-aid-and-tylenol-company-to-be-named-kenvue-11664365578

https://www.cnbc.com/video/2023/08/10/x-corp-now-a-much-healthier-and-safer-platform-than-a-year-ago-says-linda-yaccarino.html

Lab-Grown ‘Ghost Hearts’ Work to Solve Organ Transplant Shortage

Posted on by phoffman@channelchek.com
A ‘ghost heart’ is a pig’s heart prepared so that it can be transplanted into people. Provided by Doris Taylor

Combining a Cleaned-Out Pig Heart with a Patient’s Own Stem Cells

Heart disease is the leading cause of death worldwide. The World Health Organization estimates that 17.9 million people lose their lives to it each year, accounting for 32% of global deaths.

Doris Taylor is a scientist working in regenerative medicine and tissue engineering. Her work has focused on creating personalized functioning human hearts in a lab that could rule out the need for donors. Taylor has dubbed these hearts “ghost hearts.” This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts like Doris Taylor, Regenerative Medicine Lecturer at the University of New Hampshire.

What are the biggest challenges facing organ donations today?

Currently, patients in need of a heart transplant need to join a waitlist, and hearts become available when someone else has died. Because there are not enough hearts to go around, only the very sick are put on the waitlist. The U.S. transplants about 11 hearts a day, and on a given day there are more than 3,000 people waiting for a heart.

Even when organs are successfully transplanted, it isn’t a Hollywood fairy-tale ending. A person receiving an organ transplant essentially trades one disease for other medical complications and diseases. Toxic drugs necessary to prevent rejection can cause high blood pressure diabetes, cancer and kidney failure. These are serious medical issues that also affect people emotionally, financially and physically.

About 18% of people die in the first year after a transplant.

What is the so-called “ghost heart”? How does it work?

The ghost heart is a heart whose cells have been removed. All that remains is the heart framework, or scaffolding. It’s called a ghost heart because removing the cells causes the heart to turn from red to white. A human heart wouldn’t work as a scaffold because so few are available to work with.

So my team and I went with the next best thing: a pig heart. Pig hearts are similar to human hearts in terms of their size and structure. Both have four chambers – two atria and two ventricles – responsible for pumping blood. And structures from pig hearts such as valves have been used in humans safely.

To remove the cells, the pig heart is gently washed through its blood vessels with a mild detergent to remove the cells. This process is called perfusion decellurization. The cell-free heart can then be seeded with new cells – in this case, a patient’s cells – thus forming a personalized heart.

Doris Taylor speaks at the 2023 Imagine Solutions Conference.

What role do stem cells play in creating a heart?

If you lined up the cells needed for an average-size 350-gram human heart, they would stretch for 41,000 miles. Stacked on top of one another, they would amount to 2 billion lines of cells, or enough to fill seven movie screens. But heart cells don’t divide. If they did, hearts could likely repair themselves.

Stem cells, on the other hand, do divide. They can also form into specialized cells – in this case, heart cells. Nobel Prize laureate Dr. Shinya Yamanaka discovered a method to make stem cells out of blood or skin cells from an adult. My team and I employed this method to obtain stem cells, then grew those cells into billions. After that, the team used chemicals to “differentiate” them into heart cells. We employed this method to obtain billions and billions of heart cells.

The first time I saw heart cells beating in a dish it was life-changing. But while the cells are alive and beat, they are not a heart. To be a heart, these cells need to be placed into a form that lets them become a unified organ, to mature and to be able to pump blood. In a human body, this happens during development; we had to reproduce that capacity in the lab.

In 2022, a pig heart that had been genetically engineered to reduce rejection and improve acceptance was transplanted into a human. Why is it better to build a heart from scratch using pig scaffolding instead?

Let me be clear: Any heart is better than no heart. And xenotransplantation – the process by which nonhuman animal organs are transplanted into humans – opened doors for all scientists in this field.

The patient received a pig heart that had been gene-edited. Human genes were added, and some pig genes were removed, but the heart still essentially comprised pig cells within a pig scaffold. As a result, the individual had to take anti-rejection drugs that suppressed the immune system. And, unbeknownst to doctors, the heart was carrying a pig virus that ultimately killed the patient two months following the transplant.

I believe these sorts of problems are avoided with the ghost heart. My team removes the pig cellular material from the scaffold, leaving only the protein structure and blood vessel channels behind. The proteins are so similar to human scaffold proteins they don’t appear to cause rejection.

Is the 2024 Social Security COLA level a Foregone Conclusion?

Posted on by phoffman@channelchek.com

It Seems Likely that Grandma and Grandpa are Getting a Much Smaller Raise Next Year

In 2023, Social Security recipients received the highest COLA in more than 40 years, 8.7%. At the same time, the entire U.S., including those retired, was impacted by the highest annual inflation in over 40 years. The result is the increased pay impacted recipients differently. Those with a higher percentage of variable costs or expenses, especially where inflation was worst, such as rent, travel, or fuel did not benefit as much, if at all. Those with a greater percentage of fixed costs may have found themselves with more money at the end of each month.

Consumers in the U.S., including Social Security recipients, have not had their purchasing power eroded as much during the first seven months of 2023, as they experienced in 2022. Social Security cost of living adjustments (COLA) are based on a formula that will cause the increase paid next year to rise almost by a third of what it rose at the beginning of 2023.

While not yet official, the new forecast comes after the release of July’s Consumer Price Index (CPI), and is largely based on little change over the next 45 days.   

How is a COLA Calculated?

Ignore for a moment the inflation rate percentages you see in the news headlines. The 12-month CPI is calculated by using the set cost of a basket of goods during the month, divided into the cost of the same basket a year earlier. SSA COLA is calculated by the average price of the basket July, August, and September, and dividing it by the average of these months a year earlier. The CPI used in this case is not the CPI-U (all urban consumers) typically reported in the news, but instead, CPI-W (Urban Wage Earners and Clerical Workers). CPI-W is calculated on a monthly basis by the Bureau of Labor Statistics. The most recent release was August 10, 2023.

COLA increases are rounded to the nearest tenth. The adjusted benefit payments are effective as of the first month of the new year.

What to Expect

Social Security recipients could see a 3% bump up next year, based on July’s CPI data, and the current stagnation in the level of inflation. A 3% COLA would raise an average monthly benefit of $1,789 by $53.70 and the maximum benefit by $136.65 per month.

Retired Americans who find Social Security a nice addition to 401(k) or 403(B) investment returns or ample pensions may find themselves with a few extra dollars to take road trips or treat themselves to dining out, or gifts for grandchildren. But investors looking for industries that may benefit from the fatter checks older Americans will receive may find that there is little difference in spending for the majority.

In its recent survey of retirees, the Senior Citizens League found that more than 66% of those that completed its survey have postponed dental care, including major services such as bridges, dentures, and implants. Another 43% said they have delayed optical exams or getting prescription eyeglasses. Almost one-third of survey participants said they have postponed getting medical care or filling prescriptions due to deductibles, out-of-pocket costs, and unexpected bills.

Persistent high prices aren’t the only challenge. Findings from the survey suggest more than one in five Social Security beneficiaries (23%) report they paid tax on a portion of their benefits for the first time this past tax season.

Take Away

When economic numbers are released, they are of interest to a expansive variety of economic stakeholders. This includes investors determining how new statistics will impact corporate earnings, economists deciding how it could impact the Fed’s next move, equity analysts reviewing their industry and companies in the sector, the young couple looking to furnish a new home, and those past their working years that are in general more vulnerable.

The CPI number from July and those that will be reported for August and September will have a noticeable impact on the high percentage of elderly in the U.S. come January 2024.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.ssa.gov/oact/cola/latestCOLA.html#:~:text=The%20Social%20Security%20Act%20specifies,the%20Bureau%20of%20Labor%20Statistics.

https://www.wsj.com/articles/social-security-payment-increase-cola-2024-retirement-a3fce38e

https://www.ssa.gov/news/press/factsheets/colafacts2022.pdf

https://www.wsj.com/articles/social-security-payment-increase-cola-2024-retirement-a3fce38e

https://www.ssa.gov/news/press/factsheets/colafacts2022.pdf

Standard and Poor’s Abandons ESG Scoring

Posted on by phoffman@channelchek.com

Why S&P Global Ratings Dropped Its Alphanumeric ESG Ratings

As evidence that new concepts need to go through a cycle and find their place, S&P Global Ratings has stopped including environmental, social, and governance (ESG) ratings on its reports. S&P Global Ratings is the credit ratings division of Standard & Poor’s. The division specializes in providing company-sponsored research, analysis, credit ratings, and data to assist investors in evaluating the creditworthiness and risk associated with financial instruments and entities.

In an official press release titled, S&P Global Ratings Update On ESG Credit Indicators released this month. The prominent and perhaps best-known Nationally Recognized Statistical Ratings Organization (NRSRO) revealed its decision to discontinue the publication of new ESG credit indicators, and will not be updating those ESG scores previously determined.

Source: S&P Global Ratings, Dated August 4, 2023

S&P defines ESG credit indicators as “those ESG factors that can materially influence the creditworthiness of a rated entity or issue.” The rating agency said in the release that it had initially begun publishing alphanumeric ESG credit indicators for publicly rated entities in some sectors and asset classes in 2021. “These indicators were intended to illustrate and summarize the relevance of ESG credit factors on our rating analysis through the use of an alphanumerical scale,” the agency added, “They supplemented the narrative paragraphs in our credit rating reports where we describe the impact of ESG credit factors on creditworthiness.”

It has been just two years, and S&P has changed its reporting, if not its methodology. The release explained that after further review the “dedicated analytical narrative paragraphs in our credit rating reports are most effective at providing detail and transparency on ESG credit factors material to our rating analysis, and these will remain integral to our reports.” So there is no separate breakout rating, but to the extent that an ESG related factor could impact creditworthiness, S&P will include the discussion in its write-ups, and it will be reflected when appropriate in an institutions’ security ranking.

S&P Global was clear that the immediately implemented policy does not affect its ESG principles criteria or its research and commentary on ESG-related topics, including the influence that ESG factors may have on a companies ability to pay interest and return principal.

Fitch Ratings, chief credit officer, Richard Hunter told Pension and Investments that: “Fitch believes that there are profound limits to what text disclosures can do for investors monitoring an entire portfolio of hundreds of serviced issuers and bonds. This is the second time in less than amonth that the two NRSROs demonstrated very different methodologies. After Fitch Ratings downgraded U.S. backed Treasuries and other obligations, S&P said they would not unless the U.S. was going to miss a payment.

To round out the big three institutional rating agencies,  Moody’s said in a statement that it “incorporates all risks, including those related to ESG, into its credit ratings when they are material, and also publishes ESG scores on a 1 to 5 scale.”

Take Away

The definitions, overall landscape, and actions taken to support sustainability are evolving.  S&P Global Ratings’ decision to not separately rank obligors is a strategic recalibration in its presentation of ESG factors that may impact an entities ability to pay. It believes the credit factors don’t warrant a separate carve-out within their reports – and that clarity and assessing creditworthiness is best discussed and not boiled down to an alphanumeric rating for use by investors.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.spglobal.com/_assets/documents/ratings/esg_credit_indicators_mr.pdf

https://www.pionline.com/esg/esg-scores-ended-sp

https://www.marketplace.spglobal.com/en/datasets/s-p-global-esg-scores-(171)?

Retail Investors Await Institutional Investors’ SEC Filings

Posted on by phoffman@channelchek.com

For the Third Time This Year, Investors Get to Peak Behind the “Smart Money” Curtain

What’s smart money doing?

If retail investors weren’t always eager to know what hedge fund managers, corporate insiders, and others building positions in a stock have been doing, shows like CNBC’s Closing Bell, news sources like Investors Business Daily, and communities like Seeking Alpha would get far less attention. Next week, the most followed institutional investors are expected to make their quarter-end holdings public. This will usher in a lot of buzz around the surprise changes in holdings and even short positions in celebrity investor portfolios.

Popular SEC Filings

The most popular SEC filings from the supposed “smart money” that small investors look to for ideas are:

Form 13D – This is a filing that is required to be made by any person or group that acquires 5% or more of a company’s voting securities. The filing must disclose the person’s or group’s intentions with respect to the company, such as whether they plan to take control of the company or simply invest in it.

Investors may recall Elon Musk’s accumulation of Twitter shares was incorrectly filed on form 13-G which is for passive investors. He later had to amend his filing on 13D as his accumulation of shares was discovered to be predatory.

Form 4 – This is a filing that is required to be made by any officer, director, or 10% shareholder of a company when they buy or sell shares of the company’s stock. The filing must disclose the number of shares bought or sold, the price per share, and the date of the transaction.

This is the filing that the public used to discover that in 2021, Mark Zuckerberg sold Meta (META) shares (Facebook) almost daily for a total of $4.1 billion. The same year Jeff Bezos sold $8.8 billion worth of Amazon (AMZN) stock, mostly during the month of November.

Both of the filing types mentioned above are as needed, they don’t have a recurring season. However, another popular filing is form 13-F, these much anticipated filings occur four times each year.

Form 13F – This is a quarterly report that is required to be filed by institutional investment managers with at least $100 million in assets under management. The report discloses the manager’s equity and other public securities, including the number of shares held, the CUSIP number, and the market value.

Investors will pour over the quarter-end snapshot of the account and measure changes from the prior quarter, especially from investors like Warren Buffett, Bill Ackman, and Cathie Wood for insights. When Michael Burry filed his 13-F in mid May 2022, he had a position showing that he was short Apple (AAPL). Headlines erupted across news sources, and this certainly had an impact on the tech company’s stock price as other investors questioned its high valuation against any positions they may have had.

The Consistency of the 13-F

The SEC 13-F is a regular filing for large funds. Interested investors can generally mark their calendars for when a funds 13-F will be released. The SEC requires a quarterly report filed no later than 45 days from the calendar quarter’s ends. Most popular managers wait until the last minute, as they may not be so eager to share their funds positions any sooner than needed. This means that most 13-F filings are on February 15 (or before), May 15 (or before), August 15 (or before), and November 15 (or before). In 2023, August 15th is next Tuesday. During the second quarter of 2023 there seemed to have been significant sector rotation, and a reduction in short positions among large funds. This will make for above average interest.

Famous Investors that file a Form 13F

The legendary investor Warren Buffett is the CEO of Berkshire Hathaway. His company’s Form 13F filings are closely watched by investors around the world.

Warren Buffett, last filed a 13-F on May 15, 2023

Ray Dalio is the founder of Bridgewater Associates, one of the world’s largest hedge funds. His company’s Form 13F filings are also very popular with investors.

Ray Dalio, founder of Bridgewater Associates, last filed a 13-F on May 15, 2023

Michael Burry is the investor who famously bet against the housing market in the lead-up to the 2008 financial crisis. His company’s Form 13F filings are often seen as positions of a highly regarded contrarian.

Dr. Michael Burry, last filed a 13-F on May 15, 2023

Cathie Wood is the CEO of ARK Invest, a firm that invests in disruptive technologies. Her company’s Form 13F filings are often seen as a bellwether for the future of technology. Wood is always open and transparent about her funds holdings. This may explain why she is among the earliest filers after each quarter-end.

Cathie Wood, last filed a 13-F on July 10, 2023 for the second quarter ended June 31, 2023

Drawbacks to Using Form 13F

While Form 13F filings can be a valuable source of information for investors, it isn’t magic. And if it is going to weigh heavily as part of an investor’s selection process, some drawbacks should be considered.

The information is delayed: Form 13F filings are not real-time information. They are usually filed 45 days after the end of the quarter, so the information is already outdated by the time it is available to the public.

The information is not complete: Form 13F filings only disclose the top 10 holdings of each fund. This means that investors do not have a complete picture of the fund’s portfolio.

It is not always clear if a position is based on expectations for the one holding, or should be viewed in light of the full portfolio, balancing risk and potential reward. For example, an investment manager may be bullish on tech and long a tech megacap with a lower than average P/E ratio and as of the same filing, short a similar amount of a tech megacap with a higher P/E ratio. The fund manager may be bullish on both, and the nature of the positions may indicate an expectation that the P/E ratios are likely to move toward a similar ratio. If there is just a focus on one side (long or short), the investor may read the intentions or expectations wrong.

Take Away

As earnings season fades, the third week in August will provide a mountain of information on what institutional investors were doing during the second quarter. This is a great place to find ideas and understand any changes in flows.

Investors should be cautioned that this is only a June 30th snap shot, and these holdings may have changed days later.’

Paul Hoffman

Managing Editor, Channelchek

Sources

https://fintel.io/search?search=ray+dalio+13-f

https://fintel.io/i13fs/ark-investment-management

https://whalewisdom.com/filer/scion-asset-management-llc

https://www.vrresearch.com/blog/learn-about-hedge-funds-from-13f-filings

https://www.forbes.com/sites/rachelsandler/2022/01/06/mark-zuckerberg-sold-facebook-stock-nearly-every-weekday-last-year-for-almost-11-months/?sh=6cebeeb03f71

https://www.sec.gov/Archives/edgar/data/1418091/000110465922045641/tm2212748d1_sc13da.htm

AI Model Can Help Determine Where a Patient’s Cancer Arose

Posted on by phoffman@channelchek.com

Prediction Model Could Enable Targeted Treatments for Difficult Tumors

Anne Trafton | MIT News

For a small percentage of cancer patients, doctors are unable to determine where their cancer originated. This makes it much more difficult to choose a treatment for those patients, because many cancer drugs are typically developed for specific cancer types.

A new approach developed by researchers at MIT and Dana-Farber Cancer Institute may make it easier to identify the sites of origin for those enigmatic cancers. Using machine learning, the researchers created a computational model that can analyze the sequence of about 400 genes and use that information to predict where a given tumor originated in the body.

Using this model, the researchers showed that they could accurately classify at least 40 percent of tumors of unknown origin with high confidence, in a dataset of about 900 patients. This approach enabled a 2.2-fold increase in the number of patients who could have been eligible for a genomically guided, targeted treatment, based on where their cancer originated.

“That was the most important finding in our paper, that this model could be potentially used to aid treatment decisions, guiding doctors toward personalized treatments for patients with cancers of unknown primary origin,” says Intae Moon, an MIT graduate student in electrical engineering and computer science who is the lead author of the new study.

Mysterious Origins

In 3 to 5 percent of cancer patients, particularly in cases where tumors have metastasized throughout the body, oncologists don’t have an easy way to determine where the cancer originated. These tumors are classified as cancers of unknown primary (CUP).

This lack of knowledge often prevents doctors from being able to give patients “precision” drugs, which are typically approved for specific cancer types where they are known to work. These targeted treatments tend to be more effective and have fewer side effects than treatments that are used for a broad spectrum of cancers, which are commonly prescribed to CUP patients.

“A sizeable number of individuals develop these cancers of unknown primary every year, and because most therapies are approved in a site-specific way, where you have to know the primary site to deploy them, they have very limited treatment options,” Gusev says.

Moon, an affiliate of the Computer Science and Artificial Intelligence Laboratory who is co-advised by Gusev, decided to analyze genetic data that is routinely collected at Dana-Farber to see if it could be used to predict cancer type. The data consist of genetic sequences for about 400 genes that are often mutated in cancer. The researchers trained a machine-learning model on data from nearly 30,000 patients who had been diagnosed with one of 22 known cancer types. That set of data included patients from Memorial Sloan Kettering Cancer Center and Vanderbilt-Ingram Cancer Center, as well as Dana-Farber.

The researchers then tested the resulting model on about 7,000 tumors that it hadn’t seen before, but whose site of origin was known. The model, which the researchers named OncoNPC, was able to predict their origins with about 80 percent accuracy. For tumors with high-confidence predictions, which constituted about 65 percent of the total, its accuracy rose to roughly 95 percent.

After those encouraging results, the researchers used the model to analyze a set of about 900 tumors from patients with CUP, which were all from Dana-Farber. They found that for 40 percent of these tumors, the model was able to make high-confidence predictions.

The researchers then compared the model’s predictions with an analysis of the germline, or inherited, mutations in a subset of tumors with available data, which can reveal whether the patients have a genetic predisposition to develop a particular type of cancer. The researchers found that the model’s predictions were much more likely to match the type of cancer most strongly predicted by the germline mutations than any other type of cancer.

Guiding Drug Decisions

To further validate the model’s predictions, the researchers compared data on the CUP patients’ survival time with the typical prognosis for the type of cancer that the model predicted. They found that CUP patients who were predicted to have cancer with a poor prognosis, such as pancreatic cancer, showed correspondingly shorter survival times. Meanwhile, CUP patients who were predicted to have cancers that typically have better prognoses, such as neuroendocrine tumors, had longer survival times.

Another indication that the model’s predictions could be useful came from looking at the types of treatments that CUP patients analyzed in the study had received. About 10 percent of these patients had received a targeted treatment, based on their oncologists’ best guess about where their cancer had originated. Among those patients, those who received a treatment consistent with the type of cancer that the model predicted for them fared better than patients who received a treatment typically given for a different type of cancer than what the model predicted for them.

Using this model, the researchers also identified an additional 15 percent of patients (2.2-fold increase) who could have received an existing targeted treatment, if their cancer type had been known. Instead, those patients ended up receiving more general chemotherapy drugs.

“That potentially makes these findings more clinically actionable because we’re not requiring a new drug to be approved. What we’re saying is that this population can now be eligible for precision treatments that already exist,” Gusev says.

The researchers now hope to expand their model to include other types of data, such as pathology images and radiology images, to provide a more comprehensive prediction using multiple data modalities. This would also provide the model with a comprehensive perspective of tumors, enabling it to predict not just the type of tumor and patient outcome, but potentially even the optimal treatment.

Alexander Gusev, an associate professor of medicine at Harvard Medical School and Dana-Farber Cancer Institute, is the senior author of the paper, which appeared on August 7, 2023, in Nature Medicine.

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

Antitode for a Potential Indexed Fund Bubble?

Posted on by phoffman@channelchek.com

Equity Research Allows Investors to More Confidently Step Away from the Growing Index Valuations

Hedge Fund Managers Michael Burry and Bill Ackman have expressed deep concern over indexed funds for a years and for different reasons. Burry primarily fears a bubble growing, and Ackman agrees but also fears investors are giving away control to parties that may not have their best interests at heart. Both make understandable cases. Below we discuss the overall concerns and how an individual investor who shares their concerns may “hedge” their portfolio against these risks.

Michael Burry

“The bubble in passive investing through ETFs and index funds as well as the trend to very large size among asset managers has orphaned smaller value-type securities globally,” Michael Burry told Bloomberg News in August of 2019. “Orphaned” presumably refers to a lack of attention now paid to this market segment.

Burry’s concerns centered around the idea that the rise of passive investing could lead to distortions in the stock market. He believed that as more and more investors put their money into indexed funds, the valuations of the companies included in those indices might become disconnected from their underlying fundamentals as fund managers were required to own the index at the established weighting. In his view, this could create a bubble-like situation where certain stocks are overvalued due to indiscriminate buying driven by the popularity of index funds.

While many view this hedge fund manager, made most famous by the movie The Big Short, as a pessimist, it is easy to think of him as an optimist finding opportunity, even where there could be trouble.

As he discussed then, the rush into indexed funds has punished small cap value stocks. Burry also highlighted, “There is all this opportunity, but so few active managers.”

Bill Ackman

“We believe that it is axiomatic that while capital flows will drive market values in the short term, valuations will drive market values over the long term. As a result, large and growing inflows to index funds, coupled with their market-cap driven allocation policies, drive index component valuations upwards and reduce their potential long-term rates of return,” according to Bill Ackman in a statement which agrees with Burry’s thoughts. Bull Bill Ackman also sees another risk.

In a letter to shareholders earlier this year, the activist investor, and big boss at Pershing Square Capital, made the point that the passive funds not only follow indexes but encourage active managers to stay close to the index where investors pay for active management, but get index-like results because the fund company fears shareholder reaction if returns deviates sharply from the index benchmark.

More telling is Ackaman’s fear of proxy votes and other governance taken out the hands of the masses and bestowed on so few. Ackman believes that passive managers like Vanguard, BlackRock, and State Street hurt investors by concentrating corporate power in a small group of players “who get larger by the minute.” With 20%  or more of fund flows headed to an indexed fund or ETF, Ackman wonders who will “look out for one another’s interests?”

Actively Managed and Self-Directed Investing

The Nasdaq 100 index just reorganized in order to lessen potential risks to being overweighted in a few stocks. Surrounding this event and through the years there has been no shortage of discussion around index bubbles and why some see indexes as an eventual train wreck:

“Is There an Index Fund Bubble?” (Bloomberg, September 4, 2019)

“The Index Fund Bubble Is Coming” (The Motley Fool, January 23, 2020)

“Is the Index Fund Bubble About to Burst?” (Investopedia, March 11, 2021)

“The Index Fund Bubble Is Real, and It’s Going to Burst” (MarketWatch, April 20, 2022)

“The Index Fund Bubble Is Even Bigger Than You Think” (Barron’s, May 23, 2023)

And there is also fear in the consolidation of power into the hands of a few fund companies that could impact all of us more subtly.

While index fund investing is growing in popularity and has been rewarding, investors can prepare by scaling down these investments and making their own selections, weighting their portfolio in a way that makes more sense in light of the risks to them. This could include seeking managed funds with a manager that has a good track record over the years, but it also may mean adding stocks that are not well represented in major indexes. Investors like to use Morningstar for fund selection, for stocks information including excellent research on what Burry termed “small-cap value stocks,” and other small and microcap offerings is likely found on Channelchek.

The Forgotten Benefits of Equity Research

Informed stock market investors read equity research reports for several reasons:

Informed Decision-Making: Equity research reports provide detailed analysis and insights about a company’s financial performance, industry trends, competitive landscape, and growth prospects. Investors may save weeks putting together enough information to believe they understand an opportunity enough to make a decision.

Valuation Insights: Research reports will include valuation models that estimate a company’s intrinsic value. This can help investors understand whether a stock is overvalued, undervalued, or fairly priced, guiding their buy, sell, or hold decisions. Some research will actually provide an analyst’s price target.

Risk Assessment: Equity research reports assess the risks associated with an investment. This could include factors like regulatory changes, industry volatility, management quality, and financial stability. Understanding these risks helps investors manage their portfolios effectively.

Industry and Market Trends: Research reports not only focus on individual companies but also provide insights into broader industry trends and market dynamics. Investors can gain a better understanding of how macroeconomic factors might impact their investments.

Company Performance Analysis: Detailed financial analysis in these reports helps investors understand a company’s revenue streams, profit margins, debt levels, and growth potential. This information is crucial for evaluating a company’s overall financial health.

Competitive Landscape: Equity research reports often compare a company’s performance to its competitors. This analysis helps investors gauge a company’s competitive position within its industry.

Long-Term Investment Strategy: Investors with a long-term perspective can benefit from equity research by identifying companies with strong growth potential, sustainable competitive advantages, and solid management teams.

Industry Diversification: Research reports can make it easier for investors to diversify holdings by defining the category the company is in and even highlighting opportunities in various sectors or industries.

News Interpretation: Equity research reports can provide context and interpretation for press releases and other news including, earnings releases, and developments related to the company. This helps investors understand the potential impact on the stock price.

Investor Growth: For novice investors, equity research reports can provide valuable insights into how professionals analyze stocks and make investment decisions, enhancing their investment knowledge over time.

It’s important to note that equity research reports are typically produced by financial analysts working for brokerage firms, investment banks, or independent research firms. Investors should exercise critical thinking and compare and contrast multiple sources of information.  

Take Away

Credible professional investors make the case that the surging assets in index funds are leading to a bubble. There is also concern that control is taken out of the hands of individuals and placed in the hands of a few large companies whose corporate interests may not match individual investor interests.

Taking back control of the management of one’s portfolio may seem daunting, but quality equity research is a tool that can serve to help the selection process while at the same time increasing the self-directed investors’ understanding of what is important to watch. Channelchek is a no-cost platform leading the way in North America, providing company-sponsored research on small and microcap stocks.  

Individual stock investors may also wish to consider attending NobleCon19, in December. This investment conference is widely recognized as the place investors go to discover small emerging companies that they may act upon through their traditional brokerage account. Discover more about about NobleCon19 here.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bloomberg.com/news/articles/2019-08-28/the-big-short-s-michael-burry-sees-a-bubble-in-passive-investing

https://www.harriman-house.com/press/full/2958#:~:text=%E2%80%9CIndex%20funds%20and%20other%20passive,is%20good%20reason%20for%20this.

https://www.marketwatch.com/story/bubble-in-passive-investing-offers-small-cap-opportunity-big-short-investor-says-2019-08-28

Different Impacts of Gasoline Price Volatility on Industries

Posted on by phoffman@channelchek.com

Industries are Impacted in Multiple Ways by Rising Gas Prices

High gas prices have again become a consideration when planning a roadtrip. The rollercoaster ride of very highs, then lows, and back again to highs, since the beginning of the decade has been numbing.  The uncertainty of changing costs from one season to another has made it difficult for both businesses to plan, and for any individual driver, it all impacts decisions well beyond your weekend getaway.

Over the years, the price at the pump was driven up from factors such as geopolitical tensions, storms including hurricanes, a flood in Mississippi, and normal heightened demand during the summer driving season. On an individual level, increased gasoline costs translate to less disposable income for other necessities and luxuries. But, from an investor standpoint, the ramifications of soaring gas prices reach far beyond the service station, it deeply affect the broader economy and industry segments.

Conversely, plummeting gas prices mean lighter expenditures for households and businesses alike, relieving financial strains on transport-centric sectors such as airlines and trucking. However, these price drops also cast a shadow on some industries, especially the oil sector.

Below we highlight the direct and indirect adverse repercussions of high gas prices.

The Economic Ripples of Gas Prices

Employment

Job growth serves as a pivotal indicator of an economy’s recovery, and economists warn that surging gas prices could undermine hiring practices. Gas prices might prompt businesses to rethink their hiring plans, leading to a temporary hold as uncertainty about the economy’s well-being unfolds. Decreased discretionary spending and sales can influence a company’s hiring capacity.

Retailers

An indirect effect of soaring gas prices is a reduction in consumer discretionary spending due to a larger share of income being budgeted toward gasoline. Higher prices also induce consumers to drive less, even to places like malls and shopping centers. This is substantiated by both academic and industry studies, showing a direct correlation between driving miles and gas prices.

While shoppers might cut back on driving, they tend to increase online shopping when gas prices climb. Searches for online shopping surge in tandem with escalating gas prices.

Nonetheless, all retailers face added pressure to pass on the increased expenses they incur, particularly in shipping costs to consumers. Anything requiring transportation, from lumber to electronics, could incur higher costs due to surging gas prices. This holds true for products manufactured overseas or components sourced internationally. Moreover, products containing petroleum-derived materials or plastics also experience price hikes.

Auto Industry

Historically, the automobile industry responds to surging gas prices by producing smaller, more fuel-efficient vehicles, such as hybrids and all-electric cars capable of traveling long distances on a single charge. Consumers have shown robust support for this shift, evident from the upward trajectory of hybrid and all-electric vehicle sales in the United States since 2010, while sales of gas-guzzling trucks and SUVs lag.

Airlines

Fuel expenses are the single largest operational costs for airlines, constituting a substantial proportion of their overhead. Hence, fluctuations in oil prices significantly impact their bottom line. With rising gas prices, airlines are compelled to hike ticket prices, potentially discouraging non-essential air travel and burdening consumers financially.

To hedge against volatile oil costs, airlines often engage in fuel hedging, buying or selling expected future oil prices through various investment products. This strategy safeguards airlines from surging prices and sometimes even capitalizes on them.

New Jobs and Freelancers

Prospective job candidates must factor in commuting costs when evaluating potential positions. Some workers have had to decline job offers due to the exorbitant costs of commuting, consuming a significant chunk of their salary. Freelancers, most directly Uber and Lyft drivers,  also feel the impact of higher gas prices, limiting their geographical scope of business as commuting expenses render some gigs unprofitable.

Take Away

Rising gas prices usually parallel a growing pessimism about the economy. While economists and analysts may debate the precise degree to which gas prices affect the economy, there undeniably exists a connection between consumer confidence, spending behaviors, and gas prices. This mood and actual level of sales have an impact on stock market activity, depending on how long fuel prices are expected to stay high (or low).

Paul Hoffman

Managing Editor, Channelchek