phoffman@channelchek.com, Author at Channelchek

In The Global Race for Fusion Energy – the U.S. Leaps Ahead

Posted on December 14, 2022December 14, 2022 by phoffman@channelchek.com

Why Fusion Ignition is Being Hailed as a Major Breakthrough in Fusion – a Nuclear Physicist Explains

American scientists have announced what they have called a major breakthrough in a long-elusive goal of creating energy from nuclear fusion.

The U.S. Department of Energy said on Dec. 13, 2022, that for the first time – and after several decades of trying – scientists have managed to get more energy out of the process than they had to put in.

But just how significant is the development? And how far off is the long-sought dream of fusion providing abundant, clean energy? Carolyn Kuranz, an associate professor of nuclear engineering at the University of Michigan who has worked at the facility that just broke the fusion record, helps explain this new result.

What Happened in the Fusion Chamber?

Fusion is a nuclear reaction that combines two atoms to create one or more new atoms with slightly less total mass. The difference in mass is released as energy, as described by Einstein’s famous equation, E = mc2 , where energy equals mass times the speed of light squared. Since the speed of light is enormous, converting just a tiny amount of mass into energy – like what happens in fusion – produces a similarly enormous amount of energy.

*Fusion is the same process that powers the Sun. NASA/Wikimedia Commons*

Researchers at the U.S. Government’s National Ignition Facility in California have demonstrated, for the first time, what is known as “fusion ignition.” Ignition is when a fusion reaction produces more energy than is being put into the reaction from an outside source and becomes self-sustaining.

The technique used at the National Ignition Facility involved shooting 192 lasers at a 0.04 inch (1 mm) pellet of fuel made of deuterium and tritium – two versions of the element hydrogen with extra neutrons – placed in a gold canister. When the lasers hit the canister, they produce X-rays that heat and compress the fuel pellet to about 20 times the density of lead and to more than 5 million degrees Fahrenheit (3 million Celsius) – about 100 times hotter than the surface of the Sun. If you can maintain these conditions for a long enough time, the fuel will fuse and release energy.

*The fuel is held in a tiny canister designed to keep the reaction as free from contaminants as possible. U.S. Department of Energy/Lawrence Livermore National Laboratory*

The fuel and canister gets vaporized within a few billionths of a second during the experiment. Researchers then hope their equipment survived the heat and accurately measured the energy released by the fusion reaction.

So What Did They Accomplish?

To assess the success of a fusion experiment, physicists look at the ratio between the energy released from the process of fusion and the amount of energy within the lasers. This ratio is called gain.

Anything above a gain of 1 means that the fusion process released more energy than the lasers delivered.

On Dec. 5, 2022, the National Ignition Facility shot a pellet of fuel with 2 million joules of laser energy – about the amount of power it takes to run a hair dryer for 15 minutes – all contained within a few billionths of a second. This triggered a fusion reaction that released 3 million joules. That is a gain of about 1.5, smashing the previous record of a gain of 0.7 achieved by the facility in August 2021.

How Big a Deal is this Result?

Fusion energy has been the “holy grail” of energy production for nearly half a century. While a gain of 1.5 is, I believe, a truly historic scientific breakthrough, there is still a long way to go before fusion is a viable energy source.

While the laser energy of 2 million joules was less than the fusion yield of 3 million joules, it took the facility nearly 300 million joules to produce the lasers used in this experiment. This result has shown that fusion ignition is possible, but it will take a lot of work to improve the efficiency to the point where fusion can provide a net positive energy return when taking into consideration the entire end-to-end system, not just a single interaction between the lasers and the fuel.

*Machinery used to create the powerful lasers, like these pre-amplifiers, currently requires a lot more energy than the lasers themselves produce. Lawrence Livermore National Laboratory, CC BY-SA*

What Needs to Be Improved?

There are a number of pieces of the fusion puzzle that scientists have been steadily improving for decades to produce this result, and further work can make this process more efficient.

First, lasers were only invented in 1960. When the U.S. government completed construction of the National Ignition Facility in 2009, it was the most powerful laser facility in the world, able to deliver 1 million joules of energy to a target. The 2 million joules it produces today is 50 times more energetic than the next most powerful laser on Earth. More powerful lasers and less energy-intensive ways to produce those powerful lasers could greatly improve the overall efficiency of the system.

Fusion conditions are very challenging to sustain, and any small imperfection in the capsule or fuel can increase the energy requirement and decrease efficiency. Scientists have made a lot of progress to more efficiently transfer energy from the laser to the canister and the X-ray radiation from the canister to the fuel capsule, but currently only about 10% to 30% of the total laser energy is transferred to the canister and to the fuel.

Finally, while one part of the fuel, deuterium, is naturally abundant in sea water, tritium is much rarer. Fusion itself actually produces tritium, so researchers are hoping to develop ways of harvesting this tritium directly. In the meantime, there are other methods available to produce the needed fuel.

These and other scientific, technological and engineering hurdles will need to be overcome before fusion will produce electricity for your home. Work will also need to be done to bring the cost of a fusion power plant well down from the US$3.5 billion of the National Ignition Facility. These steps will require significant investment from both the federal government and private industry.

It’s worth noting that there is a global race around fusion, with many other labs around the world pursuing different techniques. But with the new result from the National Ignition Facility, the world has, for the first time, seen evidence that the dream of fusion is achievable.

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, Carolyn Kuranz, Associate Professor of Nuclear Engineering, University of Michigan. Carolyn Kuranz receives funding from the National Nuclear Security Administration and Lawrence Livermore National Laboratory. She serves on a review board for Lawrence Livermore National Laboratory. She is a member of the Fusion Energy Science Advisory Committee.

How Equity Analysts Can Improve Your Performance in 2023

Posted on December 14, 2022December 14, 2022 by phoffman@channelchek.com

Image Credit: Kampus Productions (Pexels)

Everything You Always Wanted to Know About Equity Analysts* (*But Were Afraid to Ask)

Determining the potential of a company stock involves more time and perhaps more understanding than the average self-directed investor can provide. Fortunately, there are investment analysts that specialize in equities and spend their days staying current on the industry, individual companies, and the risks associated with the overall market. The investment world is becoming more transparent as the work of these well-educated professionals has become more accessible to DIY investors.

Just what is it that equity analysts do, and how do individual and professional investors benefit from their work?

The Value of Equity Analysts

Equity analysts have a deep understanding of company financials. This begins with formal education, as most true analysts have an accounting background that may include an MBA and, in many cases, the highly esteemed Chartered Financial Analyst (CFA) designation.

In addition to being able to read and pull data for analysis from financials, they understand the industries they cover. This is important because external trends up or down in input prices or competition will impact the whole sector, including the companies they cover. A macro view of what is impacting the industry is foundational to understanding a company within the industry.

For individual investment opportunities, the analysts’ focus is on the equity portion of the capital structure, but understanding debt levels and factors that could impact debt financing is critical to building an overall financial picture. Comparing the financial structure to company goals and initiatives provides information on how realistic they may or may not be based on internal factors.

Using data from the past and present, an analyst will build a model tailored to the specific company. These models are usually detailed spreadsheets with many interconnections between the various categories. The models generally include industry growth trends, the company’s own numbers (past, current, and projected scenarios), and then what-if scenarios. Financial models are a tool used to estimate the valuation of the company, how it changes under various scenarios, and then compare the business to its peers.

Shocking a forecast for different risks is important to assess the overall risk to the forecast.

The main risks impact different industries differently. For example, a healthcare company may be more or less immune to inflation, a mining operation could benefit from it, and a hospitality-based business could be hurt by it. Analysts assess the potential impacts of known risks and weigh them into their evaluation.

Primary Risks

The primary risks impacting any industry could be thought of as Business Risks, the challenges of a particular company’s circumstances. This could include the ability to hire talent, legal changes that could be impactful, natural resource availability, etc.

Market Risk or systemic risk is the idea that a sinking stock market will weigh on all stocks. While an analyst may choose top performers if the price target assigned was from an evaluation under average market growth of X%, an actual experience of negative Y% is a risk to the forecast.

Sovereign Risk has become a much bigger concern as trading partners like Russia, and China has shown us that politics and business policies can greatly impact U.S. trading partners. This risk tends to be greater among large international companies.

Foreign Exchange Risk. An analyst will review the impact of conversion back to the native currency and profit impacts. They may even project whether customers could be lost if the U.S. dollar becomes too costly.

Inflation Risk, what might the impact be on the company under various possible scenarios? A company with a large inventory may actually go through a beneficial period while prices are rising.

Interest Rate Risk is the real threat of inflation because it typically raises the cost of money. If the company is a large borrower and will be rolling maturing debt at new interest rate levels, the analyst will determine how this impacts operating costs and profit going forward.

Liquidity Risk. If a company’s stock is not well followed and trades sporadically, selling shares to raise capital may be severely hindered and, therefore, negatively impact the company’s ability to finance its business plan. What is interesting to note here is that analyst coverage of a company by itself has been shown to improve a stock’s liquidity. This is because more information about companies, even if not positive, helps investors understand the company, its risks, and its value.

Equity analysts benefit investors (retail and institutional) that are looking for information and an evaluation from a professional to weigh against their own evaluation. But they also benefit issuers as their stock may get less attention if there is minimal quality information available.

Direct Access to Management

Analysts essentially have a hotline to the covered company’s CEO and CFO to ask questions and get details of any change within the company or outside change that may impact results. Most investors don’t have this, so relying on analysts takes on even more importance.

Nuances Known to Analysts

The best reason to check the thoughts and forecasts of a seasoned analyst as part of your own due diligence is that every company has so many moving parts. A good analyst will be aware of what a DIY investor won’t know about the company. For example, the veteran analysts that provide research to Channelchek. On an ongoing basis, they have their finger on the pulse of the companies they cover.

There’s an opportunity you will want to take advantage of on Wednesday, December 15. You will meet online the Wall Street Analysts who are behind the research published on Channelchek. During this no-cost meeting, the veteran analysts have been asked to uncover what they are looking at, especially as it relates to companies they are bullish on.

This could be a great kickoff to organizing your portfolio for 2023 as these analysts cover the less talked about and perhaps the most overlooked stocks – stocks with great potential and “nuance” that you may have missed.

Learn more by clicking here, or the banner above.

Paul Hoffman

Managing Editor, Channelchek

Fed Pivot, Money Supply, and Investment Returns

Posted on December 13, 2022December 13, 2022 by phoffman@channelchek.com

Image Credit: Karolina Grabowska (Pexels)

Why Investors Are Obsessed with the Fed “Pivot”

“Investors should not care whether the Fed pivots or not if they analyze investment opportunities based on fundamentals and not on monetary laughing gas,” writes economist Daniel Lacalle, PhD. In his latest article, published below. LaCalle takes on the journalists and economists that see market risk differently than himself. This is a thought-provoking read for anyone who has been living on a diet of mostly CNBC, and Yahoo Finance, as exposure to diverse market viewpoints is considered healthy. – Paul Hoffman, Channelchek

Obsessed Investors

In a recent Bloomberg article, a group of economists voiced their fears that the Federal Reserve’s inflation fight may create an unnecessarily deep downturn. However, the Federal Reserve does not create a downturn due to rate hikes; it creates the foundations of a crisis by unnecessarily lowering rates to negative territory and aggressively increasing its balance sheet. It is the malinvestment and excessive risk-taking fuelled by cheap money that lead to a recession.

Those same economists probably saw no risk in negative rates and massive money printing. It is profoundly concerning to see that experts who remained quiet as the world accumulated $17 trillion in negative yielding bonds and central banks’ balance sheets soared to more than $20 trillion now complain that rate hikes may create a debt crisis. The debt crisis, like all market imbalances, was created when central banks led investors to believe that a negative yielding bond was a worthwhile investment because the price would rise and compensate for the loss of yield. A good old bubble.

Multiple expansion has been an easy investment thesis. Earnings downgrades? No problem. Macro weakness? Who cares. Valuations soared simply because the quantity of money was rising faster than nominal GDP (gross domestic product). Printing money made investing in the most aggressive stocks and the riskiest bonds the most lucrative alternative. And that, my friends, is massive asset inflation. The Keynesian crowd repeated that this time would be different and consistently larger quantitative easing programs would not create inflation because it did not happen in the past. And it happened.

Inflation was already evident in assets all over the investment spectrum, but no one seemed to care. It was also evident in non-replicable goods and services. The FAO food price index already reached all-time highs in 2019 without any “supply chain disruption” excuse or blaming it on the Ukraine war. House prices, insurance, healthcare, education… The bubble of cheap money was clear everywhere.

Now many market participants want the Fed to pivot and stop hiking rates. Why? Because many want the easy multiple expansion carry trade back. The fact that investors see a Fed pivot as the main reason to buy tells you what an immensely perverse incentive monetary policy is and how poor the macro and earnings’ outlook are.

Earnings estimates have been falling for 2022 and 2023 all year. The latest S&P 500 earnings’ growth estimates published by Morgan Stanley show a modest 8 and 7 percent rise for this and next year respectively. Not bad? The pace of downgrades has not stopped, and the market is not even adjusting earnings to the downgrade in macroeconomic estimates. When I look at the details of these expectations, I am amazed to see widespread margin growth in 2023 and a backdrop of rising sales and low inflation. Excessively optimistic? I think so.

Few of us seem to realize a Fed pivot is a bad idea, and, in any case, it will not be enough to drive markets to a bull run again because inflationary pressures are stickier than what consensus would want. I find it an exercise in wishful thinking to read so many predictions of a rapid return to 2% inflation, even less, when history shows that once inflation rises above 5% in developed economies, it takes at least a decade to bring it down to 2%, according to Deutsche Bank. Even the OECD expects persistent inflation in 2023 against a backdrop of weakening growth.

Stagflation. That is the risk ahead, and a Fed pivot would do nothing to bring markets higher in that scenario. Stagflation periods have proven to be extremely poor for stocks and bonds, even worse when governments are unwilling to cut deficit spending, because the crowding out of the private sector works against a rapid recovery.

Current inflation expectations suggest the Fed will pivot in the first quarter of 2023. That is an awfully long time in the investment world if you want to bet on a V-shaped market recovery. Even worse, that pivot expectation is based on a surprisingly accelerated reduction in inflation. How can it happen when central banks’ balance sheets have barely moved in local currency, reverse repo liquidity injections reach trillion-dollar levels every month and money supply has barely corrected from the all-time highs of 2022? Many are betting on statistical bodies tweaking the calculation of CPI (consumer price index), and believe me, it will happen, but it will not disguise earnings and margin erosion.

To cut inflation drastically three things need to happen, and only one is not enough. 1) Hike rates. 2) Reduce the balance sheet of central banks meaningfully. 3) Stop deficit spending. This is unlikely to happen anytime soon.

Investors that see the Fed as too hawkish look at money supply growth and how it is falling, but they do not look at broad money accumulation and the insanity of the size of central banks’ balance sheets that have barely moved in local currency. By looking at money supply growth as a variable of tightness in monetary policy they may make the mistake of believing that the tightening cycle is over too soon.

Investors should not care whether the Fed pivots or not if they analyze investment opportunities based on fundamentals and not on monetary laughing gas. Betting on a Fed pivot by adding risk to cyclical and extremely risky assets may be an extremely dangerous position even if the Fed does revert its pace, because it would be ignoring the economic cycle and the earnings reality.

Central banks do not print growth. Governments do not boost productivity. However, both perpetuate inflation and have an incentive to increase debt. Adding these facts to our investment analysis may not guarantee high returns, but it will prevent enormous losses.

About the Author

Daniel Lacalle

Daniel Lacalle, PhD, 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).

Why Rate Increases May be Nearing an End

Posted on December 13, 2022December 13, 2022 by phoffman@channelchek.com

Arguments Can be Made for Rates Being Too Low and for Rates Being Too High

The Federal Reserve has raised the Fed Funds rate from an average of 0.08% in January 2022 to its current 4.05%, and a likely adjustment to 4.25% to 4.50% tomorrow. Inflation, as measured by CPI and even the Fed’s favorite, the PCE deflator, has been showing a decreasing rise in prices. So investors within all affected markets are asking, how much more will the Fed raise rates? Ignoring any suggestion that “this time it’s different,” I looked at US interest rates and inflation going back to 1962 and may have found enough consistency and historical norms to help determine what to expect now and why.

Are Increases Nearing an End?

I’ll start with the conclusion. The data suggests that the movement of market rates depends on whether higher current inflation is being caused by temporary or long-lived factors. The 10-year Treasury Note market believes current inflation is mostly temporary. This is shown by its yield, having touched 4.25% in late October, and then falling. The ten-year is now near 3.50%, despite the 0.75% increase in overnight rates implemented on November 2. If the combined wisdom of the Treasury market is reliable, this suggests FOMC rate increases are nearing an end. Perhaps one more smaller hike and then a wait-and-see period. The Fed would then monitor prices while past increases work their way through the economy.

Powell’s Concerns

At his last address on November 30^th, Fed Chair Jay Powell indicated he’d rather go too far (with tightening) and then reignite the economy rather than err on the side of not doing enough and having a bigger problem. The markets and the media largely ignored this, but it’s important to know what the Fed Chair believes is prescient and is sharing publicly. Powell also said, “Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.” And then he said something very telling, Powell added, “It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

Market Thinks Inflation is Temporary

But, the markets are overjoyed by the last two months of inflation data. Despite what the nations top central banker is saying. Markets may be right, but if they are wrong (bond and stock markets) spotting it early can help stave off losses. If inflation, which is lower than it had been, but not historically low, proves more permanent, for example, if employers continue to have to bid up the price of workers, and demand for goods causes commodity prices to rise, then the Fed will have paused too early. This will lead to a more difficult challenge for the Fed as compared to tightening too much. The data used in this article are from the Federal Reserve Economic Data (FRED) maintained by the Federal Reserve Bank of St. Louis.

Actual and Expected Inflation

The St. Louis Federal Reserve publishes a market estimate of expected average inflation over the next ten years. It is derived from the 10-year Treasury constant maturity bond and 10-year Treasury inflation-indexed constant maturity bond. It was first published in 2003. Over 2003-2021, 10-year inflation expectation averaged 2.0%, the same as GDP deflator inflation. During the second quarter of 2022, the expected 10-year inflation was 2.7%, or less than 1.0 percentage point above its 2003-2021 average. In contrast, GDP deflator inflation was 7.6%. A significant wedge exists between current and expected inflation.

The breakeven inflation rate represents a measure of expected inflation derived from 10-Year Treasury Constant Maturity Securities (BC_10YEAR) and 10-Year Treasury Inflation-Indexed Constant Maturity Securities (TC_10YEAR). The latest value implies what market participants expect inflation to be in the next 10 years, on average.

Beginning with the end of the last recession on April 1, 2020, the Treasury bond data used in calculating interest rate spreads is obtained directly from the U.S. Treasury Department.

Take Away

The Market’s expectation of 10-year average inflation is dramatically different from current inflation, even at inflation’s new lower pace. This implies the market believes it to be temporary.

If the market’s expectation of inflation is accurate, there is an average difference between Fed Funds and the PCE deflator of 1.6% (since 1962). The last read on PCE was October 2022 at 6%. Reducing this by 1.6 would provide a Fed Funds level of 4.4%. This level is in line with historic averages and likely where we will be after the FOMC meeting wraps up on December 14. This comparatively high rate relative to where we began the year may be considered neutral.

Will the Fed stop at neutral? Are the markets right? Powell said he’d rather err on the side of going beyond what is needed, which suggests the Fed will continue some. As for the markets, being on the side of the markets is how you make money, but getting out before trouble arises is how you keep the money. Markets are not always accurate forecasters and since economic behavior and debt levels tend to adjust slowly, prudent portfolio management suggests it is wise to keep an eye out for today’s interest rates still being too low.

Paul Hoffman

Managing Editor, Channelchek

Source

https://www.federalreserve.gov/newsevents/speech/powell20221130a.htm

https://beta.bls.gov/dataQuery/search

The Winners of California’s Floating Wind Turbine Projects

Posted on December 12, 2022December 12, 2022 by phoffman@channelchek.com

Image Credit: Scottish Government (Flickr)

How Do Floating Wind Turbines Work? Five Companies Just Won the First US Leases for Building them off California’s Coast

Northern California has some of the strongest offshore winds in the U.S., with immense potential to produce clean energy. But it also has a problem. Its continental shelf drops off quickly, making building traditional wind turbines directly on the seafloor costly if not impossible.

Once water gets more than about 200 feet deep – roughly the height of an 18-story building – these “monopile” structures are pretty much out of the question.

A solution has emerged that’s being tested in several locations around the world: wind turbines that float.

In California, where drought has put pressure on the hydropower supply, the state is moving forward on a plan to develop the nation’s first floating offshore wind farms. On Dec. 7, 2022, the federal government auctioned off five lease areas about 20 miles off the California coast to companies with plans to develop floating wind farms. The bids were lower than recent leases off the Atlantic coast, where wind farms can be anchored to the seafloor, but still significant, together exceeding US$757 million.

So, how do floating wind farms work?

Three Main Ways to Float a Turbine

A floating wind turbine works just like other wind turbines – wind pushes on the blades, causing the rotor to turn, which drives a generator that creates electricity. But instead of having its tower embedded directly into the ground or the seafloor, a floating wind turbine sits on a platform with mooring lines, such as chains or ropes, that connect to anchors in the seabed below.

These mooring lines hold the turbine in place against the wind and keep it connected to the cable that sends its electricity back to shore.

Most of the stability is provided by the floating platform itself. The trick is to design the platform so the turbine doesn’t tip too far in strong winds or storms.

Three of the common types of floating wind turbine platform. Josh Bauer/NREL

There are three main types of platforms:

A spar buoy platform is a long hollow cylinder that extends downward from the turbine tower. It floats vertically in deep water, weighted with ballast in the bottom of the cylinder to lower its center of gravity. It’s then anchored in place, but with slack lines that allow it to move with the water to avoid damage. Spar buoys have been used by the oil and gas industry for years for offshore operations.

Semisubmersible platforms have large floating hulls that spread out from the tower, also anchored to prevent drifting. Designers have been experimenting with multiple turbines on some of these hulls.

Tension leg platforms have smaller platforms with taut lines running straight to the floor below. These are lighter but more vulnerable to earthquakes or tsunamis because they rely more on the mooring lines and anchors for stability.

Each platform must support the weight of the turbine and remain stable while the turbine operates. It can do this in part because the hollow platform, often made of large steel or concrete structures, provides buoyancy to support the turbine. Since some can be fully assembled in port and towed out for installation, they might be far cheaper than fixed-bottom structures, which require specialty vessels for installation on site.

The University of Maine has been experimenting with a small floating wind turbine, about one-eighth scale, on a semisubmersible platform with RWE, one of the winning bidders.

Floating platforms can support wind turbines that can produce 10 megawatts or more of power – that’s similar in size to other offshore wind turbines and several times larger than the capacity of a typical onshore wind turbine you might see in a field.

Why Do We Need Floating Turbines?

Some of the strongest wind resources are away from shore in locations with hundreds of feet of water below, such as off the U.S. West Coast, the Great Lakes, the Mediterranean Sea and the coast of Japan.

Some of the strongest offshore wind power potential in the U.S. is in areas where the water is too deep for fixed turbines, including off the West Coast. NREL

The U.S. lease areas auctioned off in early December cover about 583 square miles in two regions – one off central California’s Morro Bay and the other near the Oregon state line. The water off California gets deep quickly, so any wind farm that is even a few miles from shore will require floating turbines.

Once built, wind farms in those five areas could provide about 4.6 gigawatts of clean electricity, enough to power 1.5 million homes, according to government estimates. The winning companies suggested they could produce even more power.

But getting actual wind turbines on the water will take time. The winners of the lease auction will undergo a Justice Department anti-trust review and then a long planning, permitting and environmental review process that typically takes several years.

The first five federal lease areas for Pacific coast offshore wind energy development. Bureau of Ocean Energy Management

Globally, several full-scale demonstration projects with floating wind turbines are already operating in Europe and Asia. The Hywind Scotland project became the first commercial-scale offshore floating wind farm in 2017, with five 6-megawatt turbines supported by spar buoys designed by the Norwegian energy company Equinor.

Equinor Wind US had one of the winning bids off Central California. Another winning bidder was RWE Offshore Wind Holdings. RWE operates wind farms in Europe and has three floating wind turbine demonstration projects. The other companies involved – Copenhagen Infrastructure Partners, Invenergy and Ocean Winds – have Atlantic Coast leases or existing offshore wind farms.

While floating offshore wind farms are becoming a commercial technology, there are still technical challenges that need to be solved. The platform motion may cause higher forces on the blades and tower, and more complicated and unsteady aerodynamics. Also, as water depths get very deep, the cost of the mooring lines, anchors and electrical cabling may become very high, so cheaper but still reliable technologies will be needed.

But we can expect to see more offshore turbines supported by floating structures in the near future.

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, Matthew Lackner, Professor of Mechanical Engineering, UMass Amherst.

Why the Fed Adjusts to Steer Inflation to 2%

Posted on December 12, 2022December 12, 2022 by phoffman@channelchek.com

Image Credit: Shvets Production (Pexels)

Fed Wants Inflation to Get Down to 2% – But Why Not Target 3%? Or 0%?

What’s so special about the number 2? Quite a lot, if you’re a central banker – and that number is followed by a percent sign.

That’s been the de facto or official target inflation rate for the Federal Reserve, the European Central Bank and many other similar institutions since at least the 1990s.

But in recent months, inflation in the U.S. and elsewhere has soared, forcing the Fed and its counterparts to jack up interest rates to bring it down to near their target level.

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, Veronika Dolar, Assistant Professor of Economics, SUNY Old Westbury.

As an economist who has studied the movements of key economic indicators like inflation, I know that low and stable inflation is essential for a well-functioning economy. But why does the target have to be 2%? Why not 3%? Or even zero?

Soaring Inflation

The U.S. inflation rate hit its 2022 peak in July at an annual rate of 9.1%. The last time consumer prices were rising this fast was back in 1981 – over 40 years ago.

Since March 2022, the Fed has been actively trying to decrease inflation. In order to do this, the Fed has been hiking its benchmark borrowing rate – from effectively 0% back in March 2022 to the current range of 3.75% to 4%. And it’s expected to lift interest rates another 0.5 percentage point on Dec. 14 and even more in 2023.

Most economists agree that an inflation rate approaching 8% is too high, but what should it be? If rising prices are so terrible, why not shoot for zero inflation?

Maintaining Stable Prices

One of the Fed’s core mandates, alongside low unemployment, is maintaining stable prices.

Since 1996, Fed policymakers have generally adopted the stance that their target for doing so was an inflation rate of around 2%. In January 2012, then-Chairman Ben Bernanke made this target official, and both of his successors, including current Chair Jerome Powell, have made clear that the Fed sees 2% as the appropriate desired rate of inflation.

Until very recently, though, the problem wasn’t that inflation was too high – it was that it was too low. That prompted Powell in 2020, when inflation was barely more than 1%, to call this a cause for concern and say the Fed would let it rise above 2%.

Many of you may find it counterintuitive that the Fed would want to push up inflation. But inflation that is persistently too low can pose serious risks to the economy.

These risks – namely sparking a deflationary spiral – are why central banks like the Fed would never want to adopt a 0% inflation target.

Perils of Deflation

When the economy shrinks during a recession with a fall in gross domestic product, aggregate demand for all the things it produces falls as well. As a result, prices no longer rise and may even start to fall – a condition called deflation.

Deflation is the exact opposite of inflation – instead of prices rising over time, they are falling. At first, it would seem that falling and lower prices are a good thing – who wouldn’t want to buy the same thing at a lower price and see their purchasing power go up?

But deflation can actually be pretty devastating for the economy. When people feel prices are headed down – not just temporarily, like big sales over the holidays, but for weeks, months or even years – they actually delay purchases in the hopes that they can buy things for less at a later date.

For example, if you are thinking of buying a new car that currently costs US$60,000, during periods of deflation you realize that if you wait another month, you can buy this car for $55,000. As a result, you don’t buy the car today. But after a month, when the car is now for sale for $55,000, the same logic applies. Why buy a car today, when you can wait another month and buy a car for $50,000 next month.

This lower spending leads to less income for producers, which can lead to unemployment. In addition, businesses, too, delay spending since they expect prices to fall further. This negative feedback loop – the deflationary spiral – generates higher unemployment, even lower prices and even less spending.

In short, deflation leads to more deflation. Throughout most of U.S. history, periods of deflation usually go hand in hand with economic downturns.

Everything in Moderation

So it’s pretty clear some inflation is probably necessary to avoid a deflation trap, but how much? Could it be 1%, 3% or even 4%?

Maybe. There isn’t any strong theoretical or empirical evidence for an inflation target of exactly 2%. The figure’s origin is a bit murky, but some reports suggest it simply came from a casual remark made by the New Zealand finance minister back in the late 1980s during a TV interview.

Moreover, there’s concern that creating economic targets for economic indicators like inflation corrupts the usefulness of the metric. Charles Goodhart, an economist who worked for the Bank of England, created an eponymous law that states: “When a measure becomes a target, it ceases to be a good measure.”

Since a core mission of the Fed is price stability, the target is beside the point. The main thing is that the Fed guide the economy toward an inflation rate high enough to allow it room to lower interest rates if it needs to stimulate the economy but low enough that it doesn’t seriously erode consumer purchasing power.

Like with so many things, moderation is key.

The Week Ahead – CPI and Last FOMC Decision in 2022

Posted on December 12, 2022December 12, 2022 by phoffman@channelchek.com

FOMC Meeting and “Wall Street Wish List” May Impact Your Portfolio Most

Is the Fed really tightening lending rates to cool the economy? Because consumer rates have been headed lower since October. This last FOMC meeting of 2022 may help the markets to understand that something has to give. A 7.7% y-o-y CPI, a 3.75-4.00% Fed Funds target, and a 3.45% 20-year constant maturity treasury can not co-exist for long. Treasury investors either need to earn more to keep up with expected inflation realities, inflation needs to show a more certain downtrend or the Fed needs to go back to lowering Fed Funds levels. Having lived through the last three years of markets, which I can attest from experience, are very different from the previous 30 years, I’m still putting my money on what the Fed Chairman tells us he’s doing. However, markets being what they are will move with the moves of the masses, and that is what’s “right” because that is what makes money.

The December FOMC meeting is front and center this week. We also get a new CPI report pre-meeting. Expect volatility, especially with longer-term treasuries already priced for a great CPI number.

Monday 12/12

2:00 PM ET, Treasury Statement, forecasters see a $200.0 billion deficit in November that would compare with a $191.3 billion deficit in November a year ago and a deficit in October this year of $87.8 billion. The government’s fiscal year began in October. The size of the budget deficit is important because it impacts the amount of treasury issuance, and then supply and demand take over in terms of interest rates demanded to fill the supply.

Tuesday 12/13

6:00 AM ET, Optimism is expected to remain low. The small business optimism index has been below the historical average of 98 for ten months in a row and deeply so in October at 91.3. November’s consensus is 90.8.
8:30 AM ET, CPI for November is the first information with potential market-altering data to be released this week. It will be the last look at CPI for a month during 2022. CPI is expected to be 0,% for the month or 7.3% y-o-y. Do you remember how the market rallied on the better than the consensus 7.7% last month? Any deviation from the consensus could cause an impact.

Wednesday 12/14

8:30 AM ET, Atlanta Fed Business Inflation Expectations for December. While we have no consensus data, The Atlanta Fed’s Business Inflation Expectations survey came in last month at 3.3% expected. The survey number provides a monthly measure of year-ahead inflation expectations and inflation uncertainty from the perspective of firms. The survey also provides a monthly gauge of firms’ current sales, profit margins, and unit cost changes.
2:00 PM ET, FOMC Announcement, let the trading week unofficially begin as markets shuffle with new information from the 2:00 PM announcement and press conference that follows. After a series of 75 bp moves, the Fed is expected to be less aggressive with a 50 bp increase.

Thursday 12/15

8:30 AM ET, Jobless Claims for the December 10 week are expected to come in at 230,000, or unchanged from the prior week. A large deviation from this number could move markets as employment is a Fed mandate.
9:00 AM ET, Wall Street Wish List. Seasoned Analysts from Noble Capital Market’s veteran team discuss the sectors and companies they cover and perhaps provide actionable ideas as to where they may lean in the year ahead. Information for free online event is here.

Friday 12/16

9:45 AM ET, PMI Composite Flash. At 46.2 in November, the services PMI has been sinking deeper into contraction though expectations for December’s flash is a little slower pace of contraction at 46.5. Manufacturing, at 47.7 in November, is expected little changed at 47.8.

What Else

The weekly focus is on the FOMC decision and press conference. Register for Channelchek emails and receive our synopsis of the FOMC outcome immediately post announcement.

It may turn out that the Wall Street Wish List is the most profitable sharing of ideas that you receive headed into the new year. Don’t miss this by clicking on the banner below to allow you free access.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_long_term_rate&field_tdr_date_value=2022

https://econoday.com

Microglia, the “Janitors” of the Brain Show Promise Treating Neurodegenerative Disorders

Posted on December 9, 2022December 9, 2022 by phoffman@channelchek.com

Harnessing the Brain’s Immune Cells to Stave off Alzheimer’s and Other Neurodegenerative Diseases

Many neurodegenerative diseases, or conditions that result from the loss of function or death of brain cells, remain largely untreatable. Most available treatments target just one of the multiple processes that can lead to neurodegeneration, which may not be effective in completely addressing disease symptoms or progress, if at all.

But what if researchers harnessed the brain’s inherent capabilities to cleanse and heal itself? My colleagues and I in the Lukens Lab at the University of Virginia believe that the brain’s own immune system may hold the key to neurodegenerative disease treatment. In our research, we found a protein that could possibly be leveraged to help the brain’s immune cells, or microglia, stave off 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, Kristine Zengeler, Ph.D. Candidate in Neuroscience, University of Virginia.

Challenges in Treating Neurodegeneration

No available treatments for neurodegenerative diseases stop ongoing neurodegeneration while also helping affected areas in the body heal and recuperate.

In terms of failed treatments, Alzheimer’s disease is perhaps the most infamous of neurodegenerative diseases. Affecting more than 1 in 9 U.S. adults 65 and older, Alzheimer’s results from brain atrophy with the death of neurons and loss of the connections between them. These casualties contribute to memory and cognitive decline. Billions of dollars have been funneled into researching treatments for Alzheimer’s, but nearly every drug tested to date has failed in clinical trials.

Another common neurodegenerative disease in need of improved treatment options is multiple sclerosis. This autoimmune condition is caused by immune cells attacking the protective cover on neurons, known as myelin. Degrading myelin leads to communication difficulties between neurons and their connections with the rest of the body. Current treatments suppress the immune system and can have potentially debilitating side effects. Many of these treatment options fail to address the toxic effects of the myelin debris that accumulate in the nervous system, which can kill cells.

A New Frontier in Treating Neurodegeneration

Microglia are immune cells masquerading as brain cells. In mice, microglia originate in the yolk sac of an embryo and then infiltrate the brain early in development. The origins and migration of microglia in people are still under study.

Microglia play important roles in healthy brain function. Like other immune cells, microglia respond rapidly to pathogens and damage. They help to clear injuries and mend afflicted tissue, and can also take an active role in fighting pathogens. Microglia can also regulate brain inflammation, a normal part of the immune response that can cause swelling and damage if left unchecked.

Microglia also support the health of other brain cells. For instance, they can release molecules that promote resilience, such as the protein BDNF, which is known to be beneficial for neuron survival and function.

But the keystone feature of microglia are their astounding janitorial skills. Of all brain cell types, microglia possess an exquisite ability to clean up gunk in the brain, including the damaged myelin in multiple sclerosis, pieces of dead cells and amyloid beta, a toxic protein that is a hallmark of Alzheimer’s. They accomplish this by consuming and breaking down debris in their environment, effectively eating up the garbage surrounding them and their neighboring cells.

Given the many essential roles microglia serve to maintain brain function, these cells may possess the capacity to address multiple arms of neurodegeneration-related dysfunction. Moreover, as lifelong residents of the brain, microglia are already educated in the best practices of brain protection. These factors put microglia in the perfect position for researchers to leverage their inherent abilities to protect against neurodegeneration.

New data in both animal models and human patients points to a previously underappreciated role microglia also play in the development of neurodegenerative disease. Many genetic risk factors for diseases like Alzheimer’s and multiple sclerosis are strongly linked to abnormal microglia function. These findings support an accumulating number of animal studies suggesting that disruptions to microglial function may contribute to neurologic disease onset and severity.

This raises the next logical question: How can researchers harness microglia to protect the nervous system against neurodegeneration?

Engaging the Magic of Microglia

In our lab’s recent study, we keyed in on a crucial protein called SYK that microglia use to manipulate their response to neurodegeneration.

Our collaborators found that microglia dial up the activity of SYK when they encounter debris in their environment, such as amyloid beta in Alzheimer’s or myelin debris in multiple sclerosis. When we inhibited SYK function in microglia, we found that twice as much amyloid beta accumulated in Alzheimer’s mouse models and six times as much myelin debris in multiple sclerosis mouse models.

Blocking SYK function in the microglia of Alzheimer’s mouse models also worsened neuronal health, indicated by increasing levels of toxic neuronal proteins and a surge in the number of dying neurons. This correlated with hastened cognitive decline, as the mice failed to learn a spatial memory test. Similarly, impairing SYK in multiple sclerosis mouse models exacerbated motor dysfunction and hindered myelin repair. These findings indicate that microglia use SYK to protect the brain from neurodegeneration.

But how does SYK protect the nervous system against damage and degeneration? We found that microglia use SYK to migrate toward debris in the brain. It also helps microglia remove and destroy this debris by stimulating other proteins involved in cleanup processes. These jobs support the idea that SYK helps microglia protect the brain by charging them to remove toxic materials.

Finally, we wanted to figure out if we could leverage SYK to create “super microglia” that could help clean up debris before it makes neurodegeneration worse. When we gave mice a drug that boosted SYK function, we found that Alzheimer’s mouse models had lower levels of plaque accumulation in their brains one week after receiving the drug. This finding points to the potential of increasing microglia activity to treat Alzheimer’s disease.

The Horizon of Microglia Treatments

Future studies will be necessary to see whether creating a super microglia cleanup crew to treat neurodegenerative diseases is beneficial in people. But our results suggest that microglia already play a key role in preventing neurodegenerative diseases by helping to remove toxic waste in the nervous system and promoting the healing of damaged areas.

It’s possible to have too much of a good thing, though. Excessive inflammation driven by microglia could make neurologic disease worse. We believe that equipping microglia with the proper instructions to carry out their beneficial functions without causing further damage could one day help treat and prevent neurodegenerative disease.

Vanguard Drops Net Zero Pledge – Will Others Follow?

Posted on December 9, 2022December 9, 2022 by phoffman@channelchek.com

Will Asset Managers Start Stepping Back from ESG Pledges?

The Net Zero Asset Managers (NAZM) initiative is an international group of 291 asset managers with 66 trillion in combined AUM. They all signed that they are committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. This week the number of asset managers was reduced by one as Vanguard, with $8.1 trillion AUM left the agreement. Vanguard said it made the decision in an effort to better speak for itself on its views and to be certain to balance client’s needs and returns along with climate impact in its funds’ investments.

“Industry initiatives like NZAM can advance constructive dialogue, but they can also create confusion about the views of individual firms. We want to provide greater clarity that Vanguard speaks freely on important matters such as climate risk. After a considerable period of review, we have decided to withdraw from the NZAM in order to provide clarity on what our investors want about the role of index funds and how we think about material risks, including climate-related risk,” said Alyssa Thornton, a spokesperson for Vanguard.

Firms that have signed the NAZM agreement are coming under a lot of pressure from states, pension funds, and others to defend how this is measurably best for the assets left in the care of the manager.

Vanguard, the world’s top mutual fund manager, official statement read, “We have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors.” Again, the themes are to not be beholden to outside control over its decisions and the company developing its own measurements of material risks from world energy-related moves.

Vanguard, said the change “will not affect our commitment to helping our investors navigate the risks that climate change can pose to their long-term returns.”

Is This Going to Be a Trend?

There is a movement growing with large clients asking investment firms to explain how their energy-investment-related decision is in line with their fiduciary role. Roughly a week ago, Consumers’ Research and 13 state attorneys general asked the Federal Energy Regulatory Commission to review Vanguard’s request to own energy company stocks. “Americans are paying sky-high electricity rates and companies like Vanguard are making the problem worse,” Will Hild, executive director of Consumers’ Research, wrote in an op-ed for the Wall Street Journal.

Another issue Hild has with Vanguard is its meddling with strategic decisions and corporate governance at energy firms. Hild wrote, “With more than $7 trillion in assets under management, the Pennsylvania-based investment firm has publicly committed to pressuring utilities to lower their emissions.” Hild then accused, “Vanguard appears to be not only putting America’s critical infrastructure at risk but violating its agreement only to control utility company shares passively. To protect U.S. consumers and safeguard national security, FERC should investigate the company’s conduct.”

Vanguard isn’t the only firm of the 291 that are being questioned by their largest customers.

Today North Carolina State Treasurer Dale Folwell sent a letter to BlackRock’s board of directors calling for Fink to step aside because the CEO’s “pursuit of a political agenda has gotten in the way of BlackRock’s same fiduciary duty” to its investors. “A focus on ESG is not a focus on returns and could potentially force us to violate our fiduciary duty,” Folwell wrote. North Carolina has approximately $14 billion with Blackrock, and $111 billion under management.

BREAKING: North Carolina Treasurer @DaleFolwell just called for @BlackRock CEO Larry Fink to RESIGN, saying his obsession with driving ESG and net-zero objectives is at odds with BlackRock’s fiduciary duty to shareholders.https://t.co/LeGIfn9CJd
— Will Hild (@WillHild) December 9, 2022

But the fiduciary knife can be cut both ways. Those that are more concerned with any impact that continued fossil-fuel use would have on climate and economies stand behind the argument that it is not in anyone’s best interest not to follow a net zero 2050 goal. “It is unfortunate that political pressure is impacting this crucial economic imperative and attempting to block companies from effectively managing risks — a crucial part of their fiduciary duty,” said Kirsten Snow Spalding, a vice president at sustainability nonprofit Ceres and a NZAM founding partner.

Meanwhile in order to be able to best decipher how to view concepts like net zero investing, the Texas Senate Committee on State Affairs will hold a hearing on December 15 to discuss the impacts of environmental social governance (ESG) policies on state pensions. The panel has asked Vanguard, BlackRock, StateStreet and ISS to appear and answer questions about their ESG practices. Texas previously asked the four firms to turn over documents in August. The Lone Star state had subpoenaed BlackRock to provide additional documents in person after the firm failed to comply with certain aspects of the initial request.

Take Away

All trends, whether investment related or not go through a vetting period, followed by a continued push and pull to seek balance. Firms that have signed on to NAZM can do their own analysis and develop their own plans that best serve their customers. The NZAM may only get in the way. Yet, they don’t have to back-off of caring about and keeping in mind environmental principles, they can just better tailor them to those they are contracted to invest for. An outside global organization is less likely to understand how to be a fiduciary for a Vanguard fund that may be used in the Louisiana state pension system. And with more investment firms acting independently, more and better opportunities will grow from the competition.

ESG, which is in a related family, will also develop and evolve over time. Down the road, investors, analysts, and organizations providing ESG scoring can get revised measures on impact and adjust scoring based on effectiveness.

Paul Hoffman

Managing Editor, Channelchek

Sources

NetZeroAssetMgars (NZAM)

VanguardLeavesNZAM

VanguardPullsOut

VanguardAntiWoke

Musk’s Twitter Drama is Fantastic Marketing

Posted on December 8, 2022December 8, 2022 by phoffman@channelchek.com

“Twitter Files” May be With us For a While

The hashtag #TwitterFiles is trending on Twitter and is likely to be for some time to come. After Elon Musk released the first set of documents that strongly suggests wrongdoing by both political parties, agencies of the government, and perhaps even elected officials, Twitter founder and former CEO Jack Dorsey joined the discussion on the social media/microblogging site. Dorsey’s tweet suggested impatience with the method with which Musk is sharing what is discovered within the Twitter offices and files.

Dorsey (@Jack) tweeted on Wednesday, “If the goal is transparency to build trust, why not just release everything without filter and let people judge for themselves?” He further tweeted, “Including all discussions around current and future actions? Make everything public now. #TwitterFiles.”

Elon Musk, who has promised to make Twitter more open tweeted back, “Most important data was hidden (from you too) and some may have been deleted, but everything we find will be released.”

The cause for Dorsey’s tweet may have been the result of learning that Jim Baker, a former FBI lawyer, was filtering documents released in the exposé. This was mentioned by Matt Taibbi the writer of the first installment of the “Twitter Files.” Taibbi suggested there is a delay in getting the second installment out because Baker was filtering documents to be released in the exposé, leading to the delay of the second batch of information. The journalist chosen to present the second installment of the Twitter files is named Bari Weiss.

Jim Baker has a reputation that includes distrust, and his name is often preceded by the word “disgraced [former FBI agent].” “The news that Baker was reviewing the ‘Twitter Files’ surprised everyone involved, to say the least,” Taibbi tweeted Tuesday night. ” Twitter chief Elon Musk acted quickly to ‘exit’ Baker Tuesday.”

Future installments are being compiled, according to Taibbi. “Reporters resumed searches through Twitter Files material — a lot of it — today,” he tweeted. “The next installment of ‘The Twitter Files’ will appear @bariweiss. Stay tuned.”

Does Jim Baker deserve to be scorned? Baker’s alleged involvement in the Twitter censorship of the Hunter Biden laptop in the final weeks of the 2020 presidential election has become a news story all its own, in a blog post by Jonathan Turley who is a constitutional law expert, Turley wrote a review titled “Six Degrees from James Baker: A Familiar Figure Reemerges With the Release of the Twitter Files.”

Was Dorsey involved in censorship? As for Dorsey’s level of involvement in censorship at Twitter before he was forced out, Taibbi referenced the former executive a number of times. “An amazing subplot of the Twitter/Hunter Biden laptop affair was how much was done without the knowledge of CEO Jack Dorsey, and how long it took for the situation to get ‘unf***ed’ (as one ex-employee put it) even after Dorsey jumped in,” Taibbi tweeted Friday.

“There are multiple instances in the files of Dorsey intervening to question suspensions and other moderation actions for accounts across the political spectrum,” Taibbi tweeted.

There is nothing better than drama to draw people to social media platforms. Musk’s open file policy is creating substantial drama and, for many, increased usage of Twitter. If Musk was to release the files all at once, as suggested by Jack Dorsey, the platform would have one large burst of activity and then settle down. The method he instead is using to share information includes assigning a journalist to unveil batches of documents, and this ought to keep the #TwitterFiles trending into 2023 and increase Twitter’s user base.

Paul Hoffman

Managing Editor, Channelchek

Sources

Jonathan Turley Blog

https://www.newsmax.com/newsfront/jack-dorsey-twitter-twitter-files/2022/12/07/id/1099552/?fbclid=IwAR2282nibsrSQorrtVo3q62HjZPFMps-usQ8PxbB6MlKINwT-100msznpA0

Jack Dorsey Tweet

The Trend Away from Opioids Provides Investors with Many Opportunities

Posted on December 8, 2022December 8, 2022 by phoffman@channelchek.com

The Growing Field of Non-Opioid Pain Alleviation

Is there money to be made for investors in the business of controlling pain? There is a decreased willingness or ability of doctors to prescribe opioids because of the risk of addiction. This is just one reason the companies making breakthroughs in controlling or alleviating pain are set to get a bigger chunk of the growing industry. The other driver is an aging populous with increased longevity. The non-opioid pain management developments include novel medicines and medical devices to treat, prevent, or assess causes. Investors could benefit from growing their awareness in this healthcare space, particularly some of the smaller companies concentrating on the pain management sector.

The pain management (PM) industry is rapidly growing. Estimates on the potential for the industry were captured in a report by Zion Market Research. The report shows the trajectory of the pain management therapeutics industry is likely to amass earnings of about $81.9 billion by 2026. This is an increase of $16.3 billion over 2019 earnings. Reduced opioid use has opened a path for inventive new therapeutics to become the new go-to where an opioid would have been prescribed previously. This provides investors with an even broader spectrum of publicly traded opportunities to review.

Segments in Pain Management

Treatment of chronic pain has a large base as a major healthcare service. This base provides a solid footing for the business of pain management therapeutics. Pain-relieving drugs such as opioids have been the “go to” medication for patients with severe pain. But their usage needs to be short-term or limited to treat pain in the terminally ill. The reduced and safer use of opioids leave many sufferers needing new alternatives.

As with any other investment space there is a wide swath of segmentation and sectors within the business. The primary pharmaceutical segments in pain management include:

Anesthetics

NSAIDS

Anticonvulsants

Anti-migraine agents

Antidepressants

Non-narcotic analgesics

Neuropathic Pain

Arthritic Pain

Cancer pain

Post-operative Pain

Chronic Back Pain

Fibromyalgia

Migraines

The anticipated growth of pain management therapeutics within North American healthcare is expected to happen on several fronts. Players include the nimble, creative small growth companies as well as the huge established names. Large companies involved in the segment include Novartis AG, Purdue Pharma L.P., AstraZeneca Plc., Mallinckrodt Pharmaceuticals, GlaxoSmithKline Plc., Teva Pharmaceutical Industries Ltd., Pfizer Inc., Depomed, Inc., Johnson & Johnson Services, Inc., Endo International Plc., Merck & Co., Inc., and Abbott Laboratories. These are big corporations where successful individual products aren’t as impactful to the bottom line or stock price movement.

The smaller, more nimble prospects, where developments have a greater impact on value could be worth learning about. There are a number of them that have developed solutions that are just now becoming adopted and substituted for old methods of treatment. Below is a list of five companies in this space that may be worth becoming familiar with:

Baudax Bio Inc.

(BXRX) is a pharmaceutical company. It is focused on innovative products for acute care settings. Baudax Bio markets ANJESO®, the first and only 24-hour, non-opioid, intravenous (IV) COX-2 preferential non-steroidal anti-inflammatory (NSAID) for the management of moderate to severe pain. In addition to ANJESO®, the Company has a pipeline of other innovative pharmaceutical assets including two clinical-stage, novel neuromuscular blocking (NMBs) agents and a proprietary chemical reversal agent specific to these NMBs.

BXRX is currently trading at $3.45 and has a market cap of $1.73 million.

PainReform Ltd

PRFX is a clinical-stage specialty pharmaceutical company. It is focused on the reformulation of established therapeutics. The company’s product PRF-110 is based on the local anesthetic ropivacaine, targeting the post-operative pain relief market. PRF-110 is an oil-based, viscous, clear solution that is deposited directly into the surgical wound bed before closure to provide localized and extended post-operative analgesia.

PRFX is currently trading at $0.41 and has a market cap of $4.36 million.

NanoVibronix

NAOV is engaged in manufacturing of noninvasive biological response-activating devices which target wound healing and pain therapy, without the assistance of medical professionals. The primary products of the company include WoundShield which is patch-based therapeutic ultrasound device to help regenerate tissue and healing by using ultrasound to increase local capillary perfusion and tissue oxygenation; PainShield which is a disposable patch-based therapeutic ultrasound technology to treat pain, muscle spasm and joint contractures; and UroShield which is an ultrasound-based product designed to prevent bacterial colonization and biofilm in urinary catheters, increase antibiotic efficacy and decrease pain. Most of the company’s revenue comes from the U.S.

NAOV is currently trading at $0.37 with a market cap of $12.14 million.

electroCore Inc.

ECOR is a commercial-stage bioelectronic medicine company with a platform for non-invasive vagus nerve stimulation therapy initially focused on neurology and rheumatology. The company’s product gammaCore is FDA-cleared for adjunctive use for the preventive treatment of cluster headache and for the acute treatment of pain associated with episodic cluster headache and migraine headache in adult patients.

ECOR is trading at $0.28 and has a market cap of $20.27 million.

Bioelectronics Corp.

BIEL is an electroceutical company. It develops wearable, neuromodulation devices to safely mitigate neurological diseases. Its product line includes Actipatch Musculoskeletal Pain Therapy, Allay menstrual pain therapy, Smart insole heel pain therapy and Recovery RX post-operative and Chronic wounds therapy. The company sells its products to wholesale distributors, directly to hospitals and clinics, and consumers.

BIEL tades for under $0.01 a share, but has a market cap of $59.36 million and average trading volume of 13.4 million shares.

Take Away

Investing based on trends that are building is one method to develop a longer-term investment portfolio. One trend that is likely to continue is the move away from addictive opioids used for pain management and towards both pharmaceutical and device-based solutions. As with many sectors this year, stock valuations are down. Does this make one or more of them a smart buy?

Small and microcap investing come with its challenges. Help sort through the plusses and minuses of life sciences companies, both in biotech and medical devices, as two top equity analysts discuss what they look for when evaluating the fundamentals of a company’s prospects. The free event held online on December 15^th will also include analysts with expertise in other industries sharing what they deem important in the industries they cover. All in all, it will help small, and microcap investors in the life sciences and other sectors better understand what the seasoned veterans look at.

Paul Hoffman

Managing Editor, Channelchek

Sources:

https://www.zionmarketresearch.com/news/pain-management-therapeutics-market

https://www.channelchek.com

https://channelchek.vercel.app/news-channel/New_Developments_in_Pain_Management___a_NobleCon_Online_Investor_Event___Presenting_Companies

Cathie Wood Expands on Her Expectations of Deflation

Posted on December 7, 2022December 7, 2022 by phoffman@channelchek.com

Image Credit: Singularity University (YouTube)

An Alternative View of Today’s Economy by Cathie Wood

Cathie Wood made the argument that investors comparing the current economic crosscurrents to the 1970s are developing forecasts based on the wrong data-set. Speaking at the Finimize Modern Investor Summit via video, the ARK Invest funds founder instead suggested the current economy and inputs are similar to a different period – she then made a case for her reasoning.

“If you go back to the 19-teens (1912-1922), then the period was very similar to the period we’re in today,” she said at the Investor Summit. That period featured a war, a pandemic (Spanish flu), and supply-chain problems. “It was the most prolific period for innovation in history,” she said, pointing to the disruptive impact of electricity, the telephone, and the car.

Wood explained that inflation went from 24% in June 1920 to -15% in June 2021. She made clear she isn’t forecasting deflation this severe; however, she is expecting year-over-year inflation to swing into negative territory, with prices going down. “What has happened during the last few years is going to flip, and we think that the market will flip back to a preference for growth stocks and our innovation strategy,” she said.

Wood also elaborated on a tweet she issued earlier about how deep the inversion was of the yield curve.

“That’s the bond market saying, ‘hello, Fed, are you watching?'” She said Federal Reserve Chair Jerome Powell is trying to be the reincarnation of Paul Volcker at a time when it’s not appropriate. “I think that’s a mistake because this is not a 15-year problem; it’s a 15-month one,” said Wood. She highlighted that commodity prices are tumbling, supply chains are improving, and companies are

Ark Invest funds have been positioned in a more concentrated waiting pattern while Wood waits for inflation dynamics to be supportive of innovation. She gave an example; the innovation fund, for instance, has been narrowed to 32 companies from 58, Wood said, as she highlighted that the firm has become less convinced China is supportive of innovation.

Take Away

It’s worth reviewing the differing opinions of several investors that have made above-average returns in their careers. While almost no one is always correct, there are many different right ways to make money in any market.

The Ark flagship fund is down 63% this year; in the past, Wood has indicated her funds’ time period to measure return is five years, not one. Perhaps investors with a longer holding period can garner useful ideas from her pounding the deflation drum, while investors with a shorter time horizon are concerned about inflation.

Paul Hoffman

Managing Editor, Channelchek

Demand for Tankers Causes Shipping Rates to Explode

Posted on December 7, 2022December 7, 2022 by phoffman@channelchek.com

Oil Tanker Day Rates To Be Supported By The EU’s Ban On Russian Crude

Over the past 12 months, global container shipping rates have steadily declined to their long-term averages as supply chain snarls have receded and backups at ports have disappeared.

Now, another segment of the cargo shipping industry is seeing day rates explode to record highs.

So-called dirty tankers, those that carry crude oil, are charging over $100,000 a day for their services as international sanctions against Russia force ships—including Suezmaxes, Aframaxes and very large crude carriers (VLCCs)—to take longer, more circuitous routes. Carriers that once made deliveries to the North Sea port of Rotterdam via the Baltic Sea are now having to sail to China, India and Turkey, which are twice or three times the distance. All three Asian countries have said they will continue to buy Russian oil.

The Baltic Exchange Dirty Tanker Index, which measures shipping rates on 12 international routes, rose as much as 243% for the 12-month period through the end of November.

So how high could rates go? According to Omar Nokta, a shipping analyst at Jefferies, they could potentially climb to between $150,000 and $200,000 a day.

We’re almost there now. The Aframax day rate to ship oil from the Black Sea to the Mediterranean hit an astronomical $145,000 a day during the week ended November 18, according to Compass Maritime.

Russia Oil Turmoil To Drive Tanker Market Higher

This week, the 27 countries of the European Union (EU) officially banned crude imports from Russia, the world’s number two producer, and on February 5, 2023, all Russian oil products will be banned. This will have the effect of disrupting global trade routes further, driving up rates even more.

As you can see below, Europe’s imports of Russian oil were already down dramatically from the beginning of 2022, when the country invaded Ukraine. Before the ban, the Netherlands was the only remaining European destination for deliveries outside of the Mediterranean and Black Sea basin. To help offset the loss of Russian supply, Norway will ship a record volume of North Sea oil in January, Bloomberg reports.

Oil Tankers Generating Record Revenues, Stocks Hitting New Highs

Due to changes in shipping routes, demand for oil tankers is expected to surge to levels not seen in three decades, according to Clarkson Research. The U.K.-based group is forecasting that the number of ton-miles, defined as one ton of freight shipped one mile, could increase 9.5% next year. That would mark the largest annual increase since 1993.

Volumes are already at pre-pandemic levels, with VLCCs and Aframaxes having exceeded 2019 volumes for the first time since the second quarter of 2020.

Oil Tankers Generating Record Revenues, Stocks Hitting New Highs

Also supporting rates is the fact that oil carriers are replacing vessels at a historically low pace.

In July, Clarksons reported that new shipbuilding orders for container vessels had surpassed those for tankers for the first time ever. Whereas the global order book for containerships stood at 72.5 million deadweight tonnage (dwt)—a measure for how much weight a ship can carrier—the orderbook for crude oil and oil product tankers was 34 million dwt, a new record low.

This has contributed to massive revenues and net income, which should keep carriers in a strong position even as container rates have dried up. Last week, Mitsui O.S.K. Lines president Takeshi Hashimoto told JPMorgan analysts that he believes profits will remain strong due to the company’s liquified natural gas (LNG) business as well as dry bulkers and tankers.

Frontline, the fourth largest oil tanker company, just reported net income of $154.4 million in the third quarter, compared to $108.5 million estimated.

Below you can see how revenues have surged for companies such as International Seaways, Ardmore Shipping and Scorpio Tankers.

With the S&P 500 still down more than 14% for the year, shares of a number of oil tankers have hit new all-time highs in recent days. Among those are Ardmore, International Seaways and Euronav. Teekay Tankers was up 226% year-to-date, while Scorpio was up 323% over the same period.

Will these returns continue? I can’t say, of course, but the structural support doesn’t appear to be going away anytime soon.

The Baltic Dirty Tanker Index is made up from 12 routes taken from the Baltic International Tanker Routes. The S&P 500 is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (09/30/22): Mitsui OSK Lines Ltd.

This article was republished with permission from Frank Talk, a CEO Blog by Frank Holmes of U.S. Global Investors (GROW). Find more of Frank’s articles here – Originally published October 21, 2021

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