Category: Uncategorized

Is Florida a Financial Industry Disruptor?

Posted on by phoffman@channelchek.com
Image: The author attending a stylish financial industry event in Boca Raton, FL

The Emerging Financial Centers and the Brain Drain from Other Cities are Changing Where Deals Get Done

They used to call it “god’s waiting room,” now they call it home.

If you haven’t guessed, I’m talking about Florida, and more specifically, the big-name financial firms that have either moved their headquarters to “Wall Street South” or have built a much larger presence in West Palm Beach, Miami, Fort Lauderdale, or the Tampa area. I made the move myself some years back after more than 20 years managing large funds for some of the most prestigious firms in NYC – now, some of those very firms are discovering what I have learned, that the weather, costs, and culture make both living and working a lot easier.

Each investment company that chooses South Florida as a region to grow its firm, brings even more sophisticated investors and dealmakers to those already in the state —face-to-face networking is now high caliber and done with ease. Everyone in the industry is benefitting from the closer proximity to each other and being able to meet and make introductions in an environment that, in my opinion, is much more conducive to making acquaintances, building trust, and even having some fun.

Florida is a Disruptor

My old firm, Goldman Sachs, just built out 35,000 feet of office space in the Miami, Brickell area. This is on top of their ongoing presence in Miami and West Palm Beach. They aren’t alone, the absence of a state income tax, coupled with a government that is business-friendly helped prompt hedge fund billionaires and native New Yorkers Paul Singer and Carl Icahn to relocate their firms to Florida.

Other prestigious firms have done the same; Blackstone opened an office in Downtown Miami in 2021. Citadel, relocated its headquarters from Chicago to Miami in 2021. D1 Capital Partners, a hedge fund, announced plans to relocate to South Florida in 2022. Merrill Lynch expanded its presence within Florida a bit sooner, 2020. Hedge fund, Tiger Global Management, announced plans to relocate to South Florida in 2022. In November of 2022, fund manager Ark Invest founded by Cathie Wood moved its headquarters out of NYC to St. Petersburg, FL. And the list goes on, and is growing.

In addition to lower costs of business, the areas these companies are moving to offer an educated base and a financially astute talent pool from which to hire.

And the financially savvy populous is getting deeper as professionals looking to relocate out of colder, high tax states, are moving down and becoming part of the already strong ecosystem. The ever-increasing depth of players include experienced attorneys, accountants, bankers, consultants, insurers, IT experts, and others with which to conduct world-class business dealings.

The other ingredients are here as well. Asset managers require convenient public and private executive airports. Local officials must also be conversant enough in their industry to regulate it intelligently, S. Florida checks both of those boxes too. It takes more than one large asset management firm to generate a demand for services sufficient to build the critical mass necessary to sustain an ecosystem. Florida has passed the tipping point and has already been labeled “Wall Street South.”

Florida Infrastructure

The ecosystem also includes facilities for tradeshows, networking events, and conferences. As an example, this coming December 3-5, Noble Capital Markets, a boutique investment bank located in Boca Raton, FL, will hold its massive, 19th annual investment conference, NobleCon19, at the 52,000 square foot, state-of-the art facility just opened on the Florida Atlantic University campus (FAU), in Boca Raton.

Noble’s 19th Annual Small-cap Investor Conference has been the “must-go” event in the area for 19 years. In 2023 the Noble can now expand this annual event into a facility that boasts the latest technology and conference facilities. This means investors and presenters at NobleCon19 will have an ideal setting to discover new opportunities and more room to welcome and network with the areas new financial executive neighbors, along with other attendees from across the globe.

 

From Good to Great

There are three defining factors that have helped the S. Florida region grow from an area with many small and mid-size financial firms to a strong and expanding financial center.

In no particular order, these include:

Greater reliance on virtual teams now makes physical proximity to key players less important . Even as many firms reel staff back into the office, companies are far more comfortable reaching team members virtually.

More associated professionals are moving to the emerging centers. When major investors and financial services giants such as Goldman Sachs, Blackstone, Citadel, Ark Invest, and Icahn Enterprises set up shop in a location, expertise follows. This is almost a requirement in sectors such as private equity, where deals are paved by personal relationships, social networks and professional networks.

The major cities in Florida already have existing professional and educational infrastructures. Of course, if the firms leadership is from out of town, it will naturally have a bias in favor of the schools they attended or are familiar with. But it is becoming easier to lose that bias when they learn that, for instance, in Palm County, Florida Atlantic University College of Business’ Executive Education just earned a prestigious global endorsement in the 2023 Financial Times rankings for open enrollment professional education programs – FAU ranked No. 2 in the United States.

Home Life

As one might imagine, with thousands of highly paid professionals looking for homes and “their new favorite restaurants” that real estate values are increasing and entire neighborhoods are becoming wealthier at every level. This growth feeds on itself and the improvements draw more top talent that then call South Florida the place they live and work.

Take Away

South Florida lost its reputation as a large retirement home where Grandma lives, and is now seen as an emerging financial powerhouse where big and small financial firms want to be to do business, grow their network, and live a better life.

With modern infrastructure, lower costs, top professionals, entertainment, and state of the art conference facilities, the trend is likely to continue.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bizjournals.com/southflorida/news/2022/09/27/goldman-sachs-expands-office-in-downtown-miami.html

https://www.channelchek.com/news-channel/the-value-of-faus-success-highlights-the-power-of-recognition

Goldman’s Chief Economist More Optimistic

Posted on by phoffman@channelchek.com

Jan Hatzius Thinks the U.S. Will Avoid a Recession

The July hike in rates will be their last, according to a new forecast by Goldman Sachs’ chief economist, Jan Hatzius. In an analyst note dated July 17, Mr. Hatzius reduced his forecast for a recession over the next 12 months to only 20% from an already lower tha peers 25%, citing inflation that has dropped precipitously over the past year.

“We are cutting our probability that a US recession will start in the next 12 months further, from 25% to 20%,” Hatzius wrote. “The main reason for our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession.”

The forecast follows the previous weeks CPI and PPI reports that show both had decelerating price increases from previous periods, with consumer prices up just 3% from a year ago.  The report pointed to a faster-than-expected decline in core inflation, which showed to a 4.8% increase from a year earlier. Core inflation readings don’t include food or energy prices that may be up or down based on factors unrelated to economic strength or weakness.  

With inflation on the run, economists don’t expect the Fed to stop short of finishing the job. On July 25-26 next week the Federal Reserve is widely expected to adjust rates up another quarter-percentage point. Goldman’s Hatzius wrote he expects this will be the final increase in the Fed’s tightening cycle.

“We do expect some deceleration in the next couple of quarters, mostly because of sequentially slower real disposable personal income growth — especially when adjusted for the resumption of student debt payments in October — and a drag from reduced bank lending,” he wrote.

Monetary policymakers have raised interest rates sharply over the past year, approving 10 straight rate hikes in the span of one year to lower inflation that was as high as 9%. In a little over a year, the base overnight bank lending rate was pushed up from near zero to near 5.25%, the fastest pace of tightening since the 1980s. If Hatzius and many other economists are correct, Officials are expected to approve an 11th rate hike at the conclusion of their two-day meeting next week, the FOMC did not raise rates at the June meeting, choosing to assess the economy for a longer period before deciding.

Increased interest rates elevates costs on consumer and business loans, which then slows the economy by forcing employers to cut back on spending. Higher rates have helped push the average rate on 30-year mortgages above 7% from half that level a couple of years back. Borrowing costs for everything from home equity lines of credit to auto loans and credit cards have also spiked. This helps slow demand, less demand is less inflationary.

The labor market has remained strong despite the Fed’s assault on business conditions. Taken all together Goldman Sachs is more bullish on a soft landing for the US economy.

“The main reason for our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession,” he wrote. For context the average recession expectation has been 15% since WWII. Hatzius’ adjusted forecast is still above the average of 15%, but well below the median forecast on Wall Street, of 54%. 

According to the note, encouraging CPI data is not a trend set to fizzle out, as fundamental signals highlight further disinflation to come, “Used car prices are sliding on the back of higher auto production and inventories, rent inflation still has a long way to fall before it catches up with the message from median asking rents, and the labor market has continued to rebalance with an ongoing downtrend in job openings, quits, reported labor shortages, and nominal wage growth,” wrote Goldman’s Hatzius.

Take Away

No economist has a crystal ball, but when Goldman Sachs issues a note, the markets pay attention. In its note this week it reports expectations that the odds of a recession in the next year have fallen to just 20%, citing encouraging economic data, including, employment, consumer sentiment and slowing inflation. Goldman’s senior economist expects just one remaining interest rate hike in the Federal Reserve’s tightening cycle, and that is expected in July.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.goldmansachs.com/about-us/people-and-leadership/leadership/management-committee/jan-hatzius.html

https://www.bloomberg.com/news/articles/2023-07-17/goldman-s-hatzius-cuts-odds-of-us-recession-in-next-year-to-20?srnd=premium#xj4y7vzkg

https://www.foxbusiness.com/economy/goldman-sachs-trims-us-recession-odds-next-year

Gold Could Get Much Stronger from BRICS Plans

Posted on by phoffman@channelchek.com

The BRICS Currency Project Picks Up Speed

On Friday, July 7, 2023, news broke in the financial market media that the “BRICS” (that is, Brazil, Russia, India, China, and South Africa) will implement their plan to create a new international currency for trading and financial transactions, and that this new currency will be “gold-backed”. Most recently, on June 2, 2023, the foreign ministers of the BRICS – as well as representatives from more than 12 countries – met in Cape Town, South Africa (interestingly at the “Cape of Good Hope”). Among other things, it was emphasized that they wanted to create an international trading currency. Undoubtedly, this is an undertaking that could have consequences of epic proportions.

After all, the BRICS countries represent about 3.2 billion people, approximately 40 percent of the world’s population, with a combined economic output nearly the size of the economy of the United States of America. And there are also many other countries (such as Saudi Arabia, United Arab Emirates, Egypt, Iran, Algeria, Argentina, and Kazakhstan) that might want to join the BRICS club.

The goal of the BRICS countries is to reduce their economic and political dependence on the US dollar, challenging “US dollar imperialism”. To this end, they want to create a new international currency for commercial and financial transactions, replacing the US dollar as the means of transaction unit.

The reason is obvious. The US administration has on many occasions used the greenback as a “geopolitical weapon” and engaged in a kind of “financial warfare”: Washington sanctions enemy countries by denying them access to the US dollar capital market, but above all, it shuts them off from the international US dollar-centric payment system.

The freezing of Russia’s currency reserves (the equivalent of almost 600 billion US dollars is currently at stake) has set off alarm bells in many non-Western countries. It has reminded a number of them that holding US dollars comes with a political risk. This, in turn, has prompted many to restructure their international foreign reserves: holding fewer US dollars, switching to other (smaller) currencies, but above all, buying more gold.

But how might the BRCIS manage to swim away from the US dollar? While no details are available yet about how the new BRICS currency might be structured, it should not stop us from speculating about what lies ahead.

The BRICS could establish a new bank (the “BRICS-Bank”), funded by gold deposits from BRICS central banks. The physically deposited gold holdings would be shown on the asset side of the BRICS bank’s balance sheet – and could be denominated, for example, “BRICS-Gold”, where 1 BRICS-Gold represents 1 gram of physical gold.

The BRICS-Bank can then grant loans denominated in BRICS-Gold (for example, to exporters from BRICS countries and/or to importers of goods from abroad). To fund the loans, the BRICS-Bank makes a credit contract with the holders of BRICS-Gold: The holders of BRICS-Gold agree to transfer their deposit to the BRICS-Bank for, say, one month, or one or two years, against receiving an interest rate. What is more, the BRICS-Bank, and it can also accept further gold deposits from international investors, who can hold (interest-bearing) BRICS-Gold deposits this way.

BRICS-Gold could henceforth be used by the BRICS countries and their trading partners as international money, as an international unit of account in global trade and financial transactions. Incidentally, the new de facto gold currency would not even have to be physically minted but could be and remain an accounting-only unit while being redeemable on demand.

The exporters from the BRICS countries and the other member countries would, however, have to be willing to sell their goods against BRICS-Gold instead of US dollars and other Western fiat currencies, and the importers from the Western countries would have to be willing and able to pay their bills in BRICS gold.

How do you get BRICS-Gold? Those demanding BRICS-Gold must either get a BRICS-Gold loan from the BRICS-Bank or purchase gold in the market and deposit it with the BRICS-Bank or a designated custodian, and the gold deposit is then credited to his account in the form of BRICS-Gold.

For example, in payment transactions, the goods importer’s BRICS-Gold deposits (held, for example, at the BRICS-Bank) are credited to the account of the exporter of goods (also held at the BRICS-Bank or at a correspondent bank or gold custodian).

However, the transition, the use of BRICS-Gold as an international trade and transaction currency, would most likely have far-reaching consequences:

(1.) It would presumably lead to a (sharp) increase in the demand for gold compared to current levels, with not only gold prices measured in US dollars, euros, etc. but also in the currencies of the BRICS countries increasing (substantially).

(2.) Such an increase in the gold price would devalue the purchasing power of the official currencies – not only the US dollar but also the BRICS currencies – against the yellow metal. Also, the prices of goods in terms of the official fiat currencies would most likely skyrocket, debasing the purchasing power of presumably all existing fiat currencies.

(3.) The BRICS countries would build up gold reserves to the extent that they run, or will run, trade surpluses. They would presumably be the winners of the “currency switch”, while the countries with trade deficits (first and foremost, the US) would lose out.

BRICS official gold holdings, in billion US dollars, Q1 2023

 Source: Refinitiv; The BRICS’ gold reserves amounted to 5452.7 tons in the first quarter of 2023 (market value currently around 350 billion US Dollars).

These few considerations already show how disrupting the topic of “creating a new gold-backed international trading currency” could be: The BRICS could well trigger landslide-like changes in the global economic and financial structure. Still, it will be interesting to see how the BRICS countries intend to proceed at their August 22-24 meeting in Johannesburg, South Africa.

About the Author:

Dr. Thorsten Polleit is Chief Economist of Degussa and Honorary Professor at the University of Bayreuth. He also acts as an investment advisor.

Is this the Soft Landing They Told Us Could Not Happen?

Posted on by phoffman@channelchek.com

Weighing in on Powell’s Chances of a Hard Landing

Is the U.S. economy headed toward a soft landing? While rare, the numbers are beginning to argue in favor on the side of a soft landing versus a hard one. An economic soft landing is a situation in which the Federal Reserve is able to slow economic growth without causing a recession. A hard landing, on the other hand, is a situation in which the central bank’s efforts to slow down economic growth lead to a recession. Recent inflation reports, employment numbers, and economic growth figures are looking more and more like monetary policy over the past year and a half, may be defying past performance; the U.S. might be able to avoid a situation where the economy shrinks (negative growth).

Background

The Federal Reserve has been facing a difficult challenge for almost two years as inflation spiked well above the Fed’s 2% target. In fact increases in prices were at a 40-year high as inflation began to soar toward double-digits. Fed monetary policy, which effectively controls the money in the economy, that in turn impacts interest rates, has been acting to raise rates to bring inflation under control. Less money increases the cost of that money (rates), which dampens economic activity.

There has been, and continues to be, a risk that the Fed raises interest rates too high or too quickly, this is the hard landing economic path. The hard landing scenario is more common than soft landings.

The Federal Reserve has a miserable record of achieving soft landings. There have been a few occasions when the Fed has been able to slow down economic growth without causing a recession. One example of success is 1994-1995. During this period the Fed raised interest rates by 2.5% from a starting point of 4.25% in order to bring inflation under control. However, the economy continued to grow during this period, and there was no recession.

Today’s Scenario

The current state of the U.S. economy is uncertain. Inflation is at a 40-year high, and the Fed has been raising interest rates in an effort to bring it under control. However, there is a risk that the Fed will raise interest rates too high or too quickly, which could lead to an economic hard landing, with job losses and negative growth. In fact, after an FOMC meeting in November, Fed Chair Powell said it would be easier to revive the economy if they overtighten, than it would be to lower it if they don’t tighten enough. So to the Fed Chair, a hard landing is better than no landing at all.

There has been a high level of concern amongst stakeholders in the U.S. economy.  One reason is that the U.S. economy is already slow. GDP growth in the first quarter of 2023 was 2.0%, and it is expected to slow in the second quarter. Maintaining  growth while pulling money from the system to reduce stimulus is a difficult maneuver. In fact, it usually ends as a hard, undesirable economic landing.

Another factor that is of concern this time around is the state of the housing market. Home prices rallied with low interest rates during and post pandemic. A fall-off in housing would have a ripple effect throughout the economy, leading to job losses and lower consumer spending. So far, housing has held up as new home sales are strong, and demand for existing homes remains elevated as homeowners with low mortgage rates are deciding to stay put.

Where from Here?

On Monday (July 11), Loretta J. Mester, president and CEO of the Federal Reserve Bank of Cleveland, warned during an address in San Diego that the central bank may need to keep hiking rates as inflation has remained “stubbornly high.” Fed governors go into a blackout period on July 15 as they always do before an FOMC meeting. That meeting will be held on July 25-26. So there is no telling if the voting FOMC members are going to dial back their hawkishness in light of this week’s more favorable CPI report that shows yoy inflation at 3%.  

The Fed’s favored inflation gauge is PCE. The next PCE report is not to be released until July 28, after the July FOMC meeting. The previous report showed that in May, inflation was running at 3.8% over 12 months.

The banking system, which showed some cracks back in March, seems to be shored up; although some problems still exist, a full-scale banking crisis does not seem likely. The Fed would obviously like to keep it this way.

Employment gains were the smallest in 2-1/2 years in June, however the unemployment rate is close to historically low levels and wage growth is still strong, so although wages are not fully working their way into the final cost of goods or services, the industries having to pay the higher wages are likely absorbing some of the cost, which could pull from profits.

Part of the Fed’s tightening has been the less talked about quantitative tightening. This reduces the Fed’s balance sheet which swelled as part of the reaction to the pandemic.  Reducing this in a meaningful way will take time, but even if the Fed remains paused on rate hikes, there is still $90 billion scheduled to be pulled from the economy each month as maturities will be allowed to mature from the Fed’s holdings without being rolled. This my eventually cause U.S. Treasury rates and mortgage rates to tick up as increased Treasury borrowing, and decreased Fed ownership may put downward pressure on prices.

Take Away

The recent CPI report is causing some that argued a soft landing is achievable to celebrate and those that thought it impossible to consider it a possibility. The chances appear greater, and a soft landing is certainly a desirable outcome for stock prices and U.S. economy stakeholders. From here, there are a number of factors that can increase the risk of a hard landing, they include the pace of additional interest rate hikes, and the behavior of the housing markets. We’re entering a period where we will not hear any commentary from Fed governors, and the next major inflation indicator comes after the FOMC meeting, so markets will be on the edge of their seats until July 26 at 2 PM Eastern.

Paul Hoffman

Channelchek, Managing Editor

Sources

https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20220126.pdf

https://www.bea.gov/data/gdp/gross-domestic-product#:~:text=Real%20gross%20domestic%20product%20(GDP,real%20GDP%20increased%202.6%20percent.

https://www.pionline.com/economy/cooling-inflation-gives-investors-momentary-breather-asset-managers-say

https://www.bea.gov/data/personal-consumption-expenditures-price-index#:~:text=The%20PCE%20price%20index%2C%20released,included%20in%20the%20GDP%20release.

Reasons to Be Even More Positive on Small Caps in the Second Half

Posted on by phoffman@channelchek.com

Statistically, 2023 Should Finally Be the Year for Small Caps

It has been six months since I shared the hard data and a graphic from Royce Investment Partners. In the firms most recent letter to investors, the firm reiterated the reality that after any consecutive five-year period where small-cap stocks had returned less than five percent, the following year, returns averaged 14.9%. Senior management of Royce again stated in its July newsletter, that a five-year low-performing period occurred 81 times in history, 81 times small caps had a sixth year with very good returns.

Source: Koyfin

Are Small Cap Stocks on Track to Make it 82 Times in a Row?

The five-year period 12/31/83 through 6/30/23, was below 5% for each year. January kicked off the sixth year return was up over 5%.  Since the strong January, we have had a strong June, and so far July. Year-to-date, the Russell 2000 index is up 9.4%, which is a strong six months – with six months to go. If it stays on course, small caps will keep the “100% of the time history.”

What is even more exciting is that in the month of June alone, the small cap index was up 6.9% and so far in July is up on the month and outperforming large cap indexes, which are all down on the month.   

Source: Koyfin

While a 100% of the time track record is comforting, the idea that so far only months that start with the letter “J” have been up, and after this month, we run out of “J” months, is concerning. The Royce newsletter dated July 7th has pointed out another positive statistic for where we are now.

Co-CIO Francis Gannon recognized, “It’s true that January and June were the only months so far in 2023 when the Russel 2000 had positive returns. There were four straight down months in between.” Gannon explained that this is also a rare occurrence that has occurred only nine times since the start of the Russell 2000 on the last day of 1978. The Co-CIO said, “For the eight periods for which we have data, subsequent one-year returns averaged 24.7%; subsequent three-year returns averaged 21.0%; and subsequent five-year returns averaged 16.8%.”

Source: Royce Capital Partners

These numbers work on a simple, buy-the-dip phenomenom, but quantify it in a way that gives investors confidence that at a minimum there is a rationale behind expanding holdings in small cap stocks.

Take Away

Investing, at it’s core, is putting statistics on your side, expecting that it is not different this time, then letting historical probabilities play out.  Large cap stocks are expensive compared to small caps. This may not be the only reason the two scenarios discussed in newsletters from Royce Capital Partners have played out. But other factors, including a rebalancing of the Nasdaq 100 Index this summer, strongly favor a more competitive performance of small cap stocks in 2023 than we have experienced in five years.

Paul Hoffman

Managing Editor, Channelchek

Sources

Bullish for the Long Run—Royce (royceinvest.com)

Release – European Patent Granted for ZyVersa Therapeutics’ Lead Asset, Cholesterol Efflux Mediator™ VAR 200 for Use in Patients with Diabetic Nephropathy/Diabetic Kidney Disease

Posted on by aweinsoff@channelchek.com

Research News and Market Data ZVSA

Jul 7, 2023

  • Cholesterol Efflux Mediator™ VAR 200 is in phase 2a development to reduce renal cholesterol and lipid accumulation that damages the kidneys’ filtration system in patients with glomerular diseases, including diabetic kidney disease, focal segmental glomerulosclerosis, and Alport syndrome

WESTON, Fla., July 07, 2023 (GLOBE NEWSWIRE) — ZyVersa Therapeutics, Inc. (Nasdaq: ZVSA, or “ZyVersa”), a clinical stage specialty biopharmaceutical company developing first-in-class drugs for treatment of inflammatory and renal diseases, announces that the European Patent Office granted a patent covering the company’s Phase 2a-ready Cholesterol Efflux Mediator™ VAR 200 (2-hydroxypropyl-beta-cyclodextrin) for use in diabetic nephropathy/diabetic kidney disease (Patent Number EP 2 836 221).

VAR 200 was developed in the labs of Dr. Alessia Fornoni, Katz Professor of Medicine, Chief, Katz Family Division of Nephrology & Hypertension, and Director of Peggy & Harold Katz Drug Discovery Center at the University of Miami. ZyVersa was granted an exclusive, worldwide, license for the development and commercialization of VAR 200 by L&F Research LLC, which was founded by Dr. Fornoni and others to obtain the intellectual property that had been released to the Inventors by the University of Miami.

“Approval of this patent claiming our Cholesterol Efflux Mediator™ VAR 200 for use in treating diabetic kidney disease speaks to the innovative and important research conducted by Dr. Fornoni and her team involving removal of excess cholesterol and lipids that damage the kidneys’ filtration system. There are no therapeutic options available that address this issue,” said Stephen C. Glover, ZyVersa’s Co-founder, Chairman, CEO, and President. “Strengthening our intellectual property portfolio for VAR 200 and expanding our patent protection and exclusive rights into additional geographic regions will further enable ZyVersa to increase shareholder value as VAR 200 advances into clinical trials, which are planned for initiation in the fourth quarter of this year. There is a tremendous need for effective treatments to slow progression of renal disease.”

About Cholesterol Efflux Mediator™ VAR 200

Cholesterol Efflux Mediator™ VAR 200 (2-hydroxypropyl-beta-cyclodextrin, 2HPβCD) is a phase 2a-ready drug in development to ameliorate renal lipid accumulation that damages the kidneys’ filtration system, leading to kidney disease progression. VAR 200 passively and actively removes excess lipids from the kidney.

Preclinical studies with VAR 200 in animal models of FSGS, Alport syndrome, and diabetic kidney disease demonstrate that removal of excess cholesterol and lipids from kidney podocytes protects against structural damage and reduces excretion of protein in the urine (proteinuria).

The lead indication for VAR 200 is orphan kidney disease focal segmental glomerulosclerosis (FSGS). VAR 200 has potential to treat other glomerular diseases, including orphan Alport syndrome and diabetic kidney disease.

About ZyVersa Therapeutics, Inc.

ZyVersa (Nasdaq: ZVSA) is a clinical stage specialty biopharmaceutical company leveraging advanced, proprietary technologies to develop first-in-class drugs for patients with renal and inflammatory diseases who have significant unmet medical needs. The Company is currently advancing a therapeutic development pipeline with multiple programs built around its two proprietary technologies – Cholesterol Efflux Mediator™ VAR 200 for treatment of kidney diseases, and Inflammasome ASC Inhibitor IC 100, targeting damaging inflammation associated with numerous CNS and other inflammatory diseases. For more information, please visit www.zyversa.com.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this press release regarding matters that are not historical facts, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These include statements regarding management’s intentions, plans, beliefs, expectations, or forecasts for the future, and, therefore, you are cautioned not to place undue reliance on them. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. ZyVersa Therapeutics, Inc (“ZyVersa”) uses words such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,” “intends,” “may,” “will,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “guidance,” and similar expressions to identify these forward-looking statements that are intended to be covered by the safe-harbor provisions. Such forward-looking statements are based on ZyVersa’s expectations and involve risks and uncertainties; consequently, actual results may differ materially from those expressed or implied in the statements due to a number of factors, including ZyVersa’s plans to develop and commercialize its product candidates, the timing of initiation of ZyVersa’s planned preclinical and clinical trials; the timing of the availability of data from ZyVersa’s preclinical and clinical trials; the timing of any planned investigational new drug application or new drug application; ZyVersa’s plans to research, develop, and commercialize its current and future product candidates; the clinical utility, potential benefits and market acceptance of ZyVersa’s product candidates; ZyVersa’s commercialization, marketing and manufacturing capabilities and strategy; ZyVersa’s ability to protect its intellectual property position; and ZyVersa’s estimates regarding future revenue, expenses, capital requirements and need for additional financing.

New factors emerge from time-to-time, and it is not possible for ZyVersa to predict all such factors, nor can ZyVersa assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements included in this press release are based on information available to ZyVersa as of the date of this press release. ZyVersa disclaims any obligation to update such forward-looking statements to reflect events or circumstances after the date of this press release, except as required by applicable law.

This press release does not constitute an offer to sell, or the solicitation of an offer to buy, any securities.

Corporate and IR Contact:
Karen Cashmere
Chief Commercial Officer
kcashmere@zyversa.com
786-251-9641

Media Contacts
Tiberend Strategic Advisors, Inc.
Casey McDonald
cmcdonald@tiberend.com
646-577-8520

Dave Schemelia
dschemelia@tiberend.com
609-468-9325

Traders Vexed by VIX – Should They Be?

Posted on by phoffman@channelchek.com

As the Fear Index Screams Upward, It’s Worth Noting It is Still Near It’s 2023 Low

Suddenly, the Volatility Index or VIX, is trending. While the month of June showed extremely low volatility in stocks, the FOMC Minutes on July 5th lit a fuse on investors during a relatively low-volume holiday trading week. Whether the VIX level increases or remains elevated from here remains to be seen, but it is important to understand what it usually indicates, what it does not, and how traders use the CBOE’s Volatility Index.

The VIX, short for the Chicago Board Options Exchange Volatility Index, is a measure of market volatility. It is calculated based on the prices of S&P 500 index options, and it is often referred to as the “fear index” because it tends to rise when investors are feeling more fearful about the market. It reached its low point of the year (-40%) on June 22nd as volatility has been trending down since the start of Spring. While it bounced in dramatic fashion this week, it is important to note that this is a thinly traded week, and the index is still -29% YTD.

The Vix is Up Over 13% in Less Than a Week

Source: Koyfin

What is the VIX that is So Important?

The VIX index is a derivative instrument that is widely traded. By some, to hedge portfolio risk, by others to speculate on the direction of stock market volatility. According to the CBOE, it is “a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX).” The CBOE uses prices in the SPX Index (S&P 500) with short expiration dates, then it generates a 30 day projection of how quickly prices may change, which is volatility. It is often called the “fear index” as volatility shows a more erratic market that both stems from fear and produces fear.

The Index is not a perfect predictor of market activity, but it can be a useful tool for investors. It is important to remember that the VIX index is based on options prices, and options prices can be volatile themselves. As a result, the VIX index can sometimes give false signals.

How is it Used

Investors use the VIX index in a number of ways. Some investors use it to gauge the overall level of risk in the market. Others use it to help them decide whether to buy or sell stocks. And still others use it to hedge their portfolios against market volatility.

To gauge the overall level of risk in the market. The VIX index is a good way to get a sense of how worried investors are about the market. A high VIX index indicates that investors are feeling more fearful, while a low VIX index indicates that investors are feeling more confident.

Some investors use the VIX index to help them decide whether to buy or sell stocks. If the VIX index is high, they may be more likely to sell stocks, as they believe that the market is likely to be volatile. If the VIX index is low, they may be more likely to buy stocks, as they believe that the market is likely to be stable.

Investors can use the VIX index to hedge their portfolios against market volatility. For example, they can buy VIX futures or options to smooth returns or protect themselves from losses if the market becomes more volatile.

It is important to remember that the VIX index is not a perfect predictor of market activity. It is based on options prices, and options prices can be volatile themselves. As a result, the VIX index can sometimes give false signals. However, the VIX index can be a useful tool for investors who are looking to get a sense of the overall level of risk in the market and to help them make informed investment decisions.

Take Away

The Vix Index is off its low for the year,  it was reached in late June. The speed at which it rose this week may caused fear, but the move could be exaggerated by a holiday-shortened thinly traded week in the markets. There does however seem to have been a change in thinking among the securities markets. U.S. Treasury rates out in the longer periods rose after the FOMC minutes were released. The stock market for months has been viewing good economic news as bad and bad economic news as good. The minutes, coupled with an employment report this week indicate a still strong economy. The stock market was wishing for weak economic reports as participants feared higher Fed induced interest rates.

Whether the new sentiment among bond traders holds remains to be seen. If it does, the yield curve will take on a normal slope. Will a positively sloping curve be viewed by stock market investors and those that believed the inverted curve indicated a recession as bullish? Time will tell.

Paul Hoffman

Managing Editor, Channelchek

Investment Articles from the First Half, That are Still Well-Worth Understanding

Posted on by phoffman@channelchek.com

The Markets During the First Half of 2023 Were Reflective of the People that Trade Them

Financial markets reflect the collective actions and expectations of market participants. This includes rational analysis, irrational emotions, and at times less than rational analysis. The emotions and number crunching get their cue from a daily barrage of information including: profits, policy, panic, prices, politics, purchasing power, the president …and that’s just the Ps. So each day, as Channelchek prepares to deliver research, articles, and pertinent video content to subscriber’s inboxes, we plow through an abundance of information and hope to share what is either not being addressed or covered, or present front page news from the point of view of seasoned investors, not less experienced news writers.

Below are six articles, one from each month this year. Although I have favorites not included here, and these may not have been the most read or shared, they told a slightly expanded story than found on the mainstream take on the subject and are still relevant to some investors.  

As a content provider to this popular investment research platform, my job is not to call the market; it is to present thoughts and knowledge to help investors make decisions on small and microcap stocks along with the overall universe of investment opportunities. The insights below from earlier this year are still quite current, and worth digesting.  

January 2023

Will Three Bank Regulators Kill Cryptocurrency in 2023?

On the very first business day of 2023, three regulators announced concerns over businesses involved in cryptocurrency citing the lack of oversight, lack of standards, and unknown risk. As the year progressed, the three federal agencies, which do not include work on oversight being done by the SEC or CFTC, are now working hard to regulate what banks can do involving crypto. The SEC for its part has been creating headaches for some of the larger crypto exchanges. Banks are having a particularly difficult time incorporating the asset in their business.

February 2023

Michael Burry Warns Against the Market Hoping for Economic Weakness

Investment content providers love Michael Burry. The reason is that readership goes through the roof whenever his name is mentioned. Still, if there is nothing to write about the subject, or if it is old news, the writer, blogger, or vlogger is doing investors a disservice.

We’re choosy about when to take one of Burry’s rare tweets and decipher them for readers. But, we always try to be among the first when his fund’s public holdings are reported each quarter on SEC form 13-F. But there are only few times during the year when there is actually worthwhile news. This is because Burry is usually tightlipped. Unless required by a regulator, the successful hedge fund manager is out of the public spotlight, presumably crunching numbers and rebuilding old guitars.

This article is good advice that can be used any time the Fed is trying to reel in inflation.

March 2023

The CFA Institute Makes First Major Change to Program Since Inception

It was 1963 the last time the CFA Institute (Chartered Financial Analyst) made any changes to their prestigious designation. However, the investment world is changing, and the CFA Institute is responding in order to better serve those that benefit from the services of skilled analysts. In 2023 CFA candidates will have more choices, more study material available, and the ability to take credit for their rigorous studies beginning after passing Level I.

Some thoughts on why, eligibility, and the new focus are presented here along with how it should help keep the credential fresh and more useful.  

April 2023

U.S. Money Supply, Here’s Why it’s Critical for Inflation Forecasts

It wasn’t too long ago that the Federal Reserve did not announce its intentions. If a Fed-watcher or market participant wanted to know for certain if the FOMC adjusted monetary policy, the best they could do is see if measures of money supply increased or decreased. Weeks later the FOMC Minutes would be released, and the markets would know for sure what the Fed did at the previous meeting.

When the Fed became more transparent, the market focus on money-supply disappeared. This has now reversed as the stimulative money that had been injected into the economy to prevent undue weakness during the pandemic is now being methodically removed via quantitative tightening (Q.T.). The renewed focus on M2 is to make sure the Fed sticks with its plan. Signs that it may not be impact the amount of money available to chase goods and services, this impacts inflation.

The Fed’s battle to drain the cash put into the system, and do it in a way that doesn’t crash banks, or the overall economy is perilous, is continuing and well worth understanding.

May 2023

Solid Evidence a Recession is Unlikely this Year

Economists and news writers have been negative about the economic outlook, scaring people with the word recession since before the year even began. And while there are some weaknesses, the stimulative money supply is still exceedingly high, jobs are more abundant than workers, and home sales have not reacted as expected when mortgage rates rise from 3% to 7%.

The often-repeated line that the downward slope of the yield curve is a time-tested indicator of an impending recession was the echo chamber talking point that probably didn’t apply to this economy because of a novel Fed policy.

From a textbook position, those saying a negative yield curve indicates a recession got the answer right if they were taking a college quiz. However, those that were saying this inverted yield curve indicates a recession may have flunked. And if you copied off the economist next to you, and they somehow missed that the Fed owned 33% of all U.S. Treasuries outstanding, and because of their policy of yield-curve-control, the yield curve was not market-driven, and therefore not a reliable indicator of anything. What we know is that when the Fed buys one out of every three bonds, it leaves a mark on the area of the curve that they are active.

With higher than expected GDP released last week, most have stopped talking about a recession in 2023. We put out several articles beginning in 2022 explaining why others may have this yield curve indicator wrong, this is addition is most recent.

I highly recommend reviewing this article if your summer backyard barbecues include conversations about economic strength (or weakness).

June 2023

Why Small Cap Stocks Started to Attract Mega Cap Investors

Small Cap stocks had been lagging behind larger companies. Historically they are more volatile, but investors expect to be compensated over time for the additional risk they take. Yet, over a longer than normal period, they still lagged. This seemed to have changed; during the first week in June there were some days that small company returns had a little more giddy-up than they had in recent months or years. On June 6th we published the above article.

Small cap stocks finished the month well ahead of the large caps and even mega-cap companies. This momentum has carried into the second half.

Let’s Start the Second Half of 2023 Together

If you are one of our free subscribers, thank you for trusting us as one of your news and research resources.

If you have not yet signed up, now is a great time to make sure you don’t miss any research, videos, special events, and market insights. Sign up here.

I hope you found these six articles compelling, and if you have not registered for no-cost insights to your inbox each day, here’s your chance to start the second half with a slightly different investment angle.

Paul Hoffman

Managing Editor, Channelchek

The Week Ahead –  FOMC Minutes and Thin Markets Could Mean Fireworks

Posted on by phoffman@channelchek.com

This Week’s Focus Will be Defining More Precisely What the Fed’s Bias Is

A holiday-shortened week, coupled with the expected lighter trading volume, has the potential to create a situation where markets or individual stocks overreact to news, then stock prices settle back closer to the starting point after a short period. This is a bigger than normal risk on Wednesday, the first regular trading day of the week, as the Federal Reserve releases the FOMC minutes from the  June 13-14 meeting.

Monday 7/03

•             * Abbreviated trading session US markets. NYSE 1 PM close, US bond market 2 PM close.  

•             9:45 AM ET, The final Manufacturing PMI for June is expected to come in at 46.3, unchanged from the mid-month advanced read. This is below 50 and indicates significant contraction.

•             10:00 AM ET, The ISM Manufacturing Index has contracted for the last seven months. June’s consensus is 47.3 which would be a slight increase from May’s 46.9.

•             10:00 AM ET, Construction Spending for May is expected to continue to rise by 0.5 percent. This follows a strong 1.2 percent in April.

Tuesday 7/04

•             * Independence Day USA. Markets and government offices closed.

Wednesday 7/05

•             10:00 AM ET, Factory Orders are expected to rise 0.9 percent in May versus April’s 0.4 percent gain. Factory Orders are a favorite leading indicator of many economists when determining if the activity is likely to pick up or slow.

•             2:00 PM ET, FOMC Minutes from the most recent meeting when the Fed left rates unchanged will be poured over by Fed watchers and market participants to evaluate any bias beyond what is already known.

•             4:00 PM ET,  New York Federal Reserve president John C. Williams is the President will be speaking. Williams serves on the Federal Open Market Committee; his addresses reflect the Fed’s Twelfth District’s perspective on monetary policy.

Thursday 7/06

•             7:30 AM ET, Challenger Job Cut Report was 80,089 in May. The monthly report counts and categorizes announcements of corporate layoffs based on mass layoff data from state labor departments.

•             8:45 AM ET, Lorie Logan is the President of the Dallas Federal Reserve, she will be giving an address pre-market opening.  

•             9:45 AM ET, The PMI Composite Final is expected to confirm advanced reads of the purchasing managers survey.

•             10:00 AM ET, JOLTS, the report on job openings is expected to read 9.9 million for May. The PMI Composite Final is expected to confirm advanced reads of the purchasing managers survey. April’s 10.103 million was much higher than expected and pointed to strong resilience in labor demand.

•             11:00 AM ET, EIA Petroleum Status Report (EIA) provides weekly information on petroleum inventories in the US, whether produced here or abroad. The level of inventories helps determine prices for petroleum products.

Friday 7/07

•             8:30 AM ET, Employment is expected to have risen 213,000 for nonfarm payroll in June versus 339,000 in May, which was much higher than expected. Average hourly earnings in June are expected to rise 0.3 percent for the month with a year-over-year rate of 4.2 percent; these would represent very little change. June’s unemployment rate is expected to hold unchanged at 3.7 percent.

•             11:00 AM ET, EIA Petroleum Status Report (EIA) provides weekly information on petroleum inventories in the US, whether produced here or abroad. The level of inventories helps determine prices for petroleum products.

What Else

This is a popular vacation week among professional traders and investment managers. Any direction that may seem to take shape may not have legs as the month progresses.

Happy Independence Day to the United States; may it have many more.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.econoday.com/

IPO Activity Should Pick Up According to Analysts

Posted on by phoffman@channelchek.com

The Current Environment for IPOs is Best in Over 15 Months

Does the elevated reading of the Consumer Confidence report, along with the extended period of low market volatility, and belief the Federal Reserve is near the end of the tightening cycle, set the climate for more companies going public? Goldman Sachs Research just released readings of its IPO Issuance Barometer. This measures the environment for initial public offerings (IPOs) using many different metrics. There is only one out of more than a dozen factors which does not support the expectation that the IPO climate is improving for companies.

As stock market prices stabilize and corporate executives grow more confident, the economic conditions in the United States are becoming more favorable for IPOs according to Goldman Sachs Research.

The GS IPO Issuance Barometer has risen to 93, a level consistent with steady IPO activity. After hitting a low point of 7 in September 2022, the Issuance Barometer is now at its highest level since March 2022. A reading of 100 represents the historical average number of IPOs realized in a given month.

The measure takes into account several factors including the S&P 500 drawdown (the difference between the index’s current value and its 52-week high), CEO confidence levels, the ISM Manufacturing Index, the six-month change in two-year Treasury note yields, and the S&P 500’s trailing enterprise value/sales ratio.

The most impactful contributor behind the improvement in the IPO Barometer has been the stabilization of stock market prices. Chief U.S. Equity Strategist at GS Research, David Kostin notes in the report that the S&P 500, which represents U.S. stocks, has remained relatively stable due to indications of resilient economic growth and the expected end of interest rate hikes by the Federal Reserve. Kostin also highlights that the drawdown in the S&P 500 has been the most significant factor influencing IPO activity. The largest decline from peak to trough this year was 8%, compared to an average of 13% since 1928. In the second quarter, the maximum drawdown has been only 3%. Additionally, market volatility has decreased, as indicated by the VIX, which measures the implied volatility of the S&P 500, dropping below 15, its lowest level since before the pandemic.

Although the S&P 500 has reached a new 52-week high, it is still 10% below its all-time high in January 2022.

The other components in Goldman’s IPO gauge that have also made large contributions to its current reading include improvements in CEO confidence, despite the fact that the median professional forecaster gives a 65% probability of a recession in the next 12 months. Short-term Treasury yields seem to have reached their peak, suggesting that the Federal Reserve’s tightening cycle is nearing its end. Also positive for companies deciding if now is a good time to go public is that stock valuation multiples remain high compared to historical levels. The only variable in the barometer that has not improved since September 2022 is the ISM Manufacturing Index.

Although the positive macroeconomic conditions have yet to translate into increased IPO activity, follow-on stock offerings, which occur after a company has gone public, have shown greater resilience. This year, there have been eight U.S. IPOs exceeding $25 million in size, excluding special purpose acquisition companies (SPACs) and spin-offs. These deals have raised a total of $2.4 billion in gross proceeds, compared to $3.8 billion for the entirety of 2022.

Forecasts from Goldman Sachs’ economists indicate a 25% chance of a recession in the next 12 months, but they suggest that the environment for IPOs could further improve in the second half of the year. Additionally, analysts at Goldman Sachs Research have recently increased their year-end price target for the S&P 500 to 4500, representing approximately a 2.5% increase from the current level.

If the U.S. economy experiences a “soft landing” characterized by stable equity prices and interest rates, modestly improving CEO confidence, an uptick in the ISM Manufacturing Index, and flat valuation multiples, the IPO Issuance Barometer could reach 119 (compared to 93 as of May 31). This would indicate an even more supportive environment for IPO activity according the research.

What Else?

After having an empty IPO calendar last week, six deals are scheduled this week.  Four of them exceed $100 million. According to Renaissance Capital, a provider of IPO ETFs, there have been 46 U.S. deals so far in 2023. This is a 21% increase over the same period last year, and 89 deals have been filed which is a 16% increase.

Also likely to get the attention of management teams sitting on the fence determining if the timing is right, are returns. According to Renaissance, the ETF ticker symbol IPO, which invests in initial offerings, is up 26% so far this year. The S&P 500 is up only 13%.

Paul S. Hoffman

Managing Editor, Channelchek

Sources

https://www.goldmansachs.com/intelligence/pages/the-economic-backdrop-for-ipos-in-the-us-is-improving.html

https://www.marketwatch.com/story/consumer-confidence-jumps-to-17-month-high-as-inflation-slows-americans-more-optimistic-on-economy-b698f34b?mod=home-page

https://www.renaissancecapital.com/

Why US ‘Dollar Doomsayers’ Could be Wrong About its Imminent Demise

Posted on by phoffman@channelchek.com

Dollar Global Usefulness Can Not Easily be Replaced

The prospect of the dollar being knocked from its perch as the primary fiat currency is worrisome to many Americans. Anxiety has been recently increased by news of short-term arrangements in which countries want to exchange more directly with one another in their native currency. China has established quite a few of these agreements over the past year. But is the widespread global use of the dollar in jeopardy?  

Daniel Gros is a Professor of Practice and Director of the Institute for European Policymaking at Bocconi University. In the article below, originally published in The Conversation, Professor Gros offers his insight and expectations for the US currency.  

Is the end of the dollar’s reign upon us? The prospect is worrisome to Americans.

The position of the US dollar in the global league table of foreign exchange reserves held by other countries is closely watched. Every slight fall in its share is interpreted as confirmation of its imminent demise as the preferred global currency for financial transactions.

The recent drama surrounding negotiations about raising the limit on US federal government debt has only fuelled these predictions by “dollar doomsayers”, who believe repeated crises over the US government’s borrowing limit weakens the country’s perceived stability internationally.

But the real foundation of its dominance is global trade – and it would be very complicated to turn the tide of these many transactions away from the US dollar.

The international role of a global currency in financial markets is ultimately based on its use in non-financial transactions, especially as what’s called an “invoicing currency” in trade. This is the currency in which a company charges its customers.

Modern trade can involve many financial transactions. Today’s supply chains often see goods shipped across several borders, and that’s after they are produced using a combination of intermediate inputs, usually from different countries.

Suppliers may also only get paid after delivery, meaning they have to finance production beforehand. Obtaining this financing in the currency in which they invoice makes trade easier and more cost effective.

In fact, it would be very inconvenient for all participants in a value chain if the invoicing and financing of each element of the chain happened in a different currency. Similarly, if most trade is invoiced and financed in one currency (the US dollar at present), even banks and firms outside the US have an incentive to denominate and settle financial transactions in that currency.

This status quo becomes difficult to change because no individual organisation along the chain has an incentive to switch currencies if others aren’t doing the same.

This is why the US dollar is the most widely used currency in third-country transactions – those that don’t even involve the US. In such situations it’s called a vehicle currency. The euro is used mainly in the vicinity of Europe, whereas the US dollar is widely used in international trade among Asian countries. Researchers call this the dominant currency paradigm.

The convenience of using the US dollar, even outside its home country, is further buttressed by the openness and size of US financial markets. They make up 36% of the world’s total or five times more than the euro area’s markets. Most trade-related financial transactions involve the use of short-term credit, like using a credit card to buy something. As a result, the banking systems of many countries must then be at least partially based on the dollar so they can provide this short-term credit.

And so, these banks need to invest in the US financial markets to refinance themselves in dollars. They can then provide this to their clients as dollar-based short-term loans.

It’s fair to say, then, that the US dollar has not become the premier global currency only because of US efforts to foster its use internationally. It will also continue to dominate as long as private organisations engaged in international trade and finance find it the most convenient currency to use.

What Could Knock the US Dollar Off its Perch?

Some governments such as that of China might try to offer alternatives to the US dollar, but they are unlikely to succeed.

Government-to-government transactions, for example for crude oil between China and Saudi Arabia, could be denominated in yuan. But then the Saudi government would have to find something to do with the Chinese currency it receives. Some could be used to pay for imports from China, but Saudi Arabia imports a lot less from China (about US$30 billion) than it exports (about US$49 billion) to the country.

The US$600 billion Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, could of course use the yuan to invest in China. But this is difficult on a large scale because Chinese currency remains only partially “convertible”. This means that the Chinese authorities still control many transactions in and out of China, so that the PIF might not be able to use its yuan funds as and when it needs them. Even without convertibility restrictions, few private investors, and even fewer western investment funds, would be keen to put a lot of money into China if they are at the mercy of the Communist party.

China is of course the country with the strongest political motives to challenge the hegemony of the US dollar. A natural first step would be for China to diversify its foreign exchange reserves away from the US by investing in other countries. But this is easier said than done.

There are few opportunities to invest hundreds or thousands of billions of dollars outside of the US. Figures from the Bank of International Settlements show that the euro area bond market – a place for investors to finance loans to Euro area companies and governments – is worth less than one third of that of the US.

Also, in any big crisis, other major OECD economies like Europe and Japan are more likely to side with the US than China – making such a decision is even easier when they are using US dollars for trade. It was said that states accounting for one-half of the global population refused to condemn Russia’s invasion of Ukraine, but this half does not account for a large share of global financial markets.

Similarly, it shouldn’t come as a surprise that democracies dominate the world financially. Companies and financial markets require trust and a well-established rule of law. Non-democratic regimes have no basis for establishing the rule of law and every investor is ultimately subject to the whims of the ruler.

When it comes to global trade, currency use is underpinned by a self-reinforcing network of transactions. Because of this, and the size of the US financial market, the dollar’s dominant position remains something for the US to lose rather for others to gain.

Equity Investors Shouldn’t Fear Quadruple Witching if They Understand It

Posted on by phoffman@channelchek.com

June Quad-Witching is the Friday Before a Three-Day Weekend

Double, triple, and quadruple witching hours are often characterized by increased stock market activity as traders manage expiring positions in the last hours of trading. Friday, June 16th is a quadruple witching which may demonstrate increased activity as it leads into a weekend where markets are closed on Monday.

The term “quadruple witching hour” is used to describe the simultaneous expiration of stock options, stock index futures, and stock index options and single stock futures contracts on the same day. This happens only four times a year on the third Friday just before a quarter end. The same expiration date of all three types of stock derivatives can cause unusual swings as expiring derivative positions can cause increased trading volume and unusual price action in the underlying assets as traders close, roll, or offset expiring derivative positions, particularly in the final hour of trading.

Options Expirations and Futures Contracts

Stock index options, and stock options, are financial instruments that grant the holder the contractual right, but not the obligation, to buy (call option), or sell (put option) a specific quantity of an underlying security or value of an underlying index at a predetermined price (strike price) within a specified period. The final day of the period is known as the option’s expiration date.

Stock index options are options based on the broad market indexes, such as the S&P 500 or the NASDAQ-100. These options give investors exposure to the overall market’s performance rather than individual stocks.

Stock options work similarly, but are based not on index values, but on stock price.

Stock index futures and single stock index futures are contracts that obligate (not optional) traders to buy or sell an index at a specific price or a single stocks at a specific price on a future date.

Expiration Fridays often witness heightened trading activity, as investors attempt to rebalance portfolios and positions. This can cause increased volume and produce significant price fluctuations in the underlying, impacting both individual stocks and the overall market.

Arbitrage Opportunities

Though much of the trading in closing, opening, and offsetting futures and options contracts during witching days is related to the squaring of positions, this increased, and at times, frantic activity can create price inefficiencies, this may provide short-term arbitrage opportunities for those skilled and quick enough.

The arbatrageurs would generate even more volume into the close on quadruple witching days as traders attempt to profit on small price imbalances with large trades that may execute a buy and sell in seconds.

Additional Reasons To Care About Triple Witching

As four types of derivatives, with related underlying indexes and securities expire, traders, especially before a long weekend, will often seek to close out all of their open positions well in advance of the close. This can lead to increased trading volume and intraday swings. Traders with large short positions are particularly exposed to price movements that could be more difficult to manage leading up to expiration. Arbitrageurs try to take advantage of abnormal price action, this actually serves to keep prices more in synch.

The higher trading volumes can be one-sided and potentially result in wider bid-ask spreads and greater slippage. Investors mindful of the potential one-sided liquidity challenges may decide to wait for the smoke to clear the following week, or see if they can benefit by feeding into demand if they can.  

Traders who are skilled at interpreting trends, and have great execution, may find quick opportunities to make money during these multiple expiration dates.

Take Away

Quadruple expiration dates, which happen four times a year, can have significant implications for traders and investors. It is best to, at a minimum, know the dates to understand unusual price moves. Understanding the intricacies of option expiration, and multiple witching hours helps investors navigate markets. Advanced traders may even find ways to capitalize on the moves intraday.

June 2023 is unusual in that the quadruple witching hour comes before a three-day weekend; this could push more volatility to earlier periods during the afternoon.

Paul Hoffman

Managing Editor, Channelchek

Unhyped Information to Improve Investment Success

Posted on by phoffman@channelchek.com

Retail Traders Looking in the Right Place, Never Had it So Good

Do you feel like every time you buy a stock, it goes down? You’re not alone, it’s a common complaint. Yet there’s a large universe of industries, companies, and ideas to choose to invest in. And at the same time, a flood of people who make a living telling you where you should invest. So why do so many investors buy after a run-up, perhaps even at the high, then watch their holdings languish?

Part of the problem may be in how the self-directed investor, consumes information. Watching investment news, digesting a fast-talking influencer’s words, or being told which moving average to rely on is, at best a good start to knowing what the masses are seeing, but taking time away from the hype, and absorbing well-presented material, data, and other information will provide a better look at companies in a way that could help prevent the late-in-the-trade buys that retail investors are known for.

Multiple Sources of Investment Information

When it comes to making investment decisions, the probability of success should increase if you take a look from different angles by using a few sources of trusted information. Beginner investors learn quickly that, if success was as easy as just buying your favorite TV stock pickers love of day, viewers of shows like Mad Money on CNBS would all be rich. It clearly doesn’t work that way.

But if you’re not prone to acting on hype, watching stockpickers fall in and out of love, every show is entertaining. If you are prone to hype, as most humans are, you have to be suspicious of anyone who has to come up with a stock or two for each show (or article). Then speak or write about it with a convincing and engaging style. Keep in mind, viewers or readers are their customers, they lose customers if they’re boring, they gain customers by instilling hope. Yet, as a person who managed billions in institutional funds, I can attest to you that most days, it is best to sit on your hands, monitor your current holdings, and keep scouring resources for high-probability stocks to watch.

Celebrity CEOs

Another problem with mainstream media’s financial news is the coverage universe is typically only familiar household names. You can turn on Fox Business, read the Wall Street Journal, or even Yahoo Finance and expect that on any given day there will be information on Apple, Tesla, and Microsoft, and they’ll be highlighting celebrity CEOs of similar companies. As mentioned earlier, there is a large universe of stocks to choose from. If the only stocks that have your attention are the huge names, largely held by funds and transacted by Wall Street’s most powerful, you could be in the same position you’d be in if you came down from the stands at a pro basketball game and played for a couple of quarters. You’re considered lucky if you put any points on the board.

Broadening your watchlist stocks to include companies that you have to search for, because they aren’t hyped, may include making a few additions to your stock market news, information, and analysis regimen.

News Information and Analysis

In addition to the traditional sources for investment ideas, including TV market analysts, stock picking columnists, and any paid-for advertorial seen on even big name financial websites and publications. You may wish to explore lesser-known companies and review emotionless equity investment research. Outside of stock research, you may find an appealing company you never heard of by viewing videos that invite you to “Meet the CEO” and listen to someone who knows the company better than anyone. If you’re in a metropolitan area, you may get on an email list to see what roadshows are within driving distance so you can attend and better understand an opportunity. Investors who aren’t near financial hubs that attract roadshows can still benefit from face-to-face presentations, including questions and answers at an investor conference geared toward their interests.

Investment Research

Receiving up-to-date research from analysts that never forget they have a reputation to maintain used to be difficult for retail investors. It was expensive to subscribe to financial firms’ research, and with good reason. Large investor’s could afford it because they stood to benefit most from the insights, justifying the cost. And the firm doing the research and setting the price was justified because maintaining a staff of analysts is expensive. But it kept a lot of good info from smaller players. This has evolved recently and become more fair.

The availability of quality stock research began to fall off last decade as regulatory bodies began making rules on who can provide valuable research, based on financial licenses, company registrations, and compensation arrangements.

Equity research that was once paid for by subscribers, has now taken a similar path as “free” trading apps. Retail customers, or institutional are not the ones paying for it, in many cases, the company that wants to be evaluated is. This is called company-sponsored research or CSR.

There are a number of firms that now provide this investor service, Channelchek, with the expertise of the equity analysts at Noble Capital Markets, is the largest provider of CSR in North America.

So no hype investment research is available, and more companies are recognizing how it helps interest in their stock if investors have trusted sources evaluating their business.

Video Presentations

While it isn’t hard to find the CEO of Tesla or many other mega-cap companies talking about their plans, the CEO’s of the thousands of less celebrated, often higher potential, companies have to be sought out and there has to be a means to understand their plans, ideas, and expectations. Technology has helped solve some of this. In fact YouTube and similar platforms has opened the floodgates to information on everything from fixing your air conditioner, to how to braid hair. While there are many video presentations best avoided, presentations direct from company management, in a six months or younger video, can provide tremendous insight, and confidence to pull the buy trigger, or even confidence to decide not to.

A large selection of content of this type can be found in Channelchek’s Video Library.  

In-Person Roadshows

A roadshow is essentially management of a company, getting out of their office and meeting in different towns with investors. This could be done individually, perhaps at a financial institutions office, or in a reserved area in a public restaurant or other venue. This is particularly interesting as not only do investors get to look the person presenting directly in the eye, they benefit from questions being asked from all the other interested investors – they often have a great question you hadn’t thought of.

While every firm that conducts road shows has its own way of getting the word out, Noble Capital Markets organized roadshows list their calendar of roadshows on Channelchek.

Investment Conferences

While roadshows are great if it’s a company you want to hear from, and if it is convenient, a conference with many interesting companies, and perhaps in a vacation destination, can really help investors in a few short days hear many management presentations, ask questions and listen to other’s questions, and meet and network with investors of all levels. These events tend to be held in vacation destinations, so self-directed investors tend to bring family members, and professionals can spend a productive day of work enjoying a beautiful change of scenery.

I won’t even try to hide that I have a favorite conference.

Each year Noble Capital Markets puts on a popular two or three day investor event called NobleCon. Now in its 19th year, it attracts companies with interesting stories and business models from various industries, and professional and retail investors from three continents.

Now in its 19th year, NobleCon19 will be held in Late Fall 2023. The plans are pretty hush, but the opportunities for presenting companies and those looking to enhance their portfolios, I’m told, will be even greater than previous NobleCons. That’s a high hurdle.

Take Away

Understanding that the person on TV saying a stock is a buy, sell, or hold is, in a way, part of a reality TV show that needs to entertain to retain an audience, could improve your investment performance. Much of what is written is the same. Frankly, most days, there is little or nothing worth acting on, but they aren’t going to tell you this – it’s just not in their best career interest.

Alternative sources of ideas and information involve less hype and include, company- sponsored research, management discussions on video, roadshows, and investment conferences.

Most years there are many opportunities, most of these are under the radar companies that, even after they do well, are still under the radar. The ability to find these companies is becoming easier to all investors, but not if they are not looking for it.

Paul Hoffman

Managing Editor, Channelchek