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Happy 203rd birthday to Florence Nightingale, the founder of modern nursing. She rose to fame during the Crimean War, when her hygiene standards substantially reduced the mortality rate at army hospitals. The healthcare industry still relies on some of her ideas, such as using data as a tool to improve hospital care. The “lady with the lamp” is still lighting the path forward.
On January 30th, 2023, President Joseph Biden announced that the public health emergency (PHE) and national emergency declaration related to the COVID-19 pandemic will finally end on May 11, 2023, after being in place for over three years.
And so, this Health Capital Topics article will discuss the changes that will take place after both declarations cease, and the implications for stakeholders. (Read more…)
Because the inflation data came in roughly as expected, Wall Street sees the door still open for the Federal Reserve to leave interest rates alone at its next meeting in June. That would be the first time it hasn’t raised rates at a meeting in more than a year, and a pause would offer some breathing room for the economy and financial markets.
Today is the last day of the US Covid-19 public health emergency, which has been in place since Jan. 31st, 2020. With it comes the end of certain Covid-era rules, though some telehealth protections have been extended through the end of 2024. Here’s to all the medical professionals who got us through, and a remembrance for the millions who lost their lives to Covid.
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Brightline, a California-based mental health startup, laid off 20% of its staff this week following a data breach. North Carolina is the latest state to consider changes to the prior authorization process that advocates say delays care. A board member at Geisinger claims that consolidation prompted the healthcare provider to sell to Kaiser Permanente. Texas Gov. Greg Abbottsaid the state should address mental health issues in the wake of a shopping mall mass shooting, but did not call for gun control reform.
Finally, here is where the major benchmarks ended yesterday:
The S&P 500 Index was up 18.47 points (0.5%) at 4137.64; the Dow Jones industrial average was down 30.48 (0.1%) at 33,531.33; the NASDAQ Composite was up 126.89 (1.0%) at 12,306.44.
The 10-year Treasury yield was down about 8 basis points at 3.441%.
CBOE’s Volatility Index was down 0.80 at 16.91.
Oilfield services providers and other energy companies were among the laggards Wednesday, pressured by a more-than 1% drop in WTI crude oil futures.
Financial sector stocks struggling to escape the effects of the bank volatility earlier this spring helped push the KWB Regional Bank Index back near a 2½-year low reached last week.
The S&P 500 and the Dow are coming off their worst weeks since March. And even with the Fed signaling the end of interest rate hikes, analysts don’t expect the market to perk up all of a sudden. Goldman Sachs, Bank of America, and Morgan Stanley predict the S&P will end the year lower than its current level. US oil prices, meanwhile, have fallen for three consecutive weeks over economic concerns.
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We mentioned the annual “Woodstock for Capitalists” meeting last week on this ME-P. Here are the highlights.
On the regional banking crisis: W. Buffett bashed leaders at the banks that failed this spring (First Republic, SVB, etc.), saying they “should suffer” and face “punishment.” But he also blamed the “totally crazy” bank regulations that incentivize bad behavior and “very poor” messaging around the debacle from politicians and the media. Buffett thinks the government was right to intervene to protect SVB depositors, claiming, “It would have been catastrophic” otherwise.
On the status of the dollar: “We are the reserve currency. I see no option for any other currency to be the reserve currency,” Buffett said. He called the notion of bitcoin or other tokens dethroning the dollar a “joke.”
On Berkshire’s investment in Apple: The value of Berkshire’s stake in Apple has ballooned to $151 billion, amounting to nearly half the value of its entire stock portfolio. “It just happens to be a better business than any we own,” Buffett said.
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US ends Covid-19 public health emergency: Like Title 42, the US public health emergency for Covid-19 will end on this Thursday. That may limit access to testing for millions of Americans, but it won’t affect the availability of treatments and vaccines.
Many pharma companies reported earnings in the last week, and the common thread is crashing Covid-related sales.
For example, AstraZeneca’s Covid medication sales dropped $1.5b in Q1, Merck’s Covid antiviral sales fell 88% from the same quarter in 2022, and Roche’s diagnostics division sales fell 28% from Q1 2022, thanks to low Covid-test demand. Clearly, pharma companies have to figure out how to pivot their strategies in a post-Covid world.
The CDCwill not continue to track Covid-19 community spread as the country enters the endemic stage of the pandemic.
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The Food and Drug Administration approved Wednesday the first-ever vaccine to combat severe respiratory syncytial virus, or RSV. Arexvy, the new vaccine developed by GlaxoSmithKline, was approved for adults 60 and older and was 82% effective at preventing lower respiratory tract illness caused by RSV, according to trial data. It was also 94% effective in those who had at least one underlying medical condition.
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The Federal Reserve voted unanimously to raise interest rates by a quarter point yesterday, the tenth rate hike since the central bank started its battle against inflation last March. The move comes amid ongoing fragility in the banking sector triggered partly by higher interest rates, and following the collapse of three regional banks. Markets had anticipated the rate hike, and remained fairly muted after the Fed’s announcement.
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Finally, here’s where the major indexes ended up:
The S&P 500® Index was down 28.83 points at 4090.75; the Dow Jones industrial average was down 270.29 (0.8%) at 33,414.24; the NASDAQ Composite was down 55.18 (0.5%) at 12,025.33.
The 10-year Treasury yield was down about 7 basis points at 3.367%.
CBOE’s Volatility Index was up 0.52 at 18.30.
Energy companies were among the market’s weakest performers as crude oil continued a recent decline, with WTI crude futures falling more than 4% under $70 a barrel—a nearly six-week low.
Semiconductor and financial shares were also weak. The U.S. dollar index dropped sharply in the wake of the Fed announcement before rebounding.
After three years of keeping us all updated on Covid case counts, Johns Hopkins University will stop updating its Covid-19 tracking dashboard next month. The tracker was viewed 2.5+ billion times and cost $13 million to run.
The CDC is the nation’s leading science-based, data-driven, service organization that protects the public’s health. For more than 70 years, it put science into action to help children stay healthy so they can grow and learn; to help families, businesses, and communities fight disease and stay strong; and to protect the public’s health.
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And now, Emory University in Atlanta Georgia says goodbye to COVID vaccine requirements and updates guidance. For those who would like to read a copy of the most recent CDC guidelines on COVID: click here.
According to Bloomberg, SoftBank Group Corp.’s first earnings report without founder Masayoshi Son went a lot like those he presided over the past few years: The Japanese conglomerate lost billions of dollars on failed startup bets.
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ZOOM-The videoconferencing company that became a household name during Covid is cutting 15% of its workforce, or about 1,300 people. CEO Eric Yuan said the “uncertainty of the global economy” was partly to blame, but he also admitted the company “made mistakes.” To own up to those mistakes, Yuan said he’s reducing his upcoming fiscal year salary by 98% and ditching his 2023 corporate bonus. Zoom shares are down about 85% from their 2020 highs’ according to Bloomberg.
U.S. equities finished near their lows of the day as the markets continued to digest mixed earnings data and last night’s State of the Union Address from President Joe Biden. Meanwhile, yesterday’s commentary from Fed Chairman Jerome Powell remained in focus after he acknowledged that inflation pressures are coming down but more needs to be done to finish to job.
Earnings season continued in earnest, as Chipotle Mexican Grill missed estimates, but Uber Technologies topped quarterly expectations and issued a positive outlook, and Yum! Brands also bested the Street’s projections. Outside earnings, Activision Blizzard fell as U.K. regulators are challenging Dow member Microsoft Corporation’s near $69 billion takeover agreement of the gaming company.
The economic calendar was relatively light, but mortgage applications rebounded last week, and wholesale inventories were unrevised at its previously reported modest increase.
Treasury yields were lower, and the U.S. dollar was little changed, while crude oil prices were higher to add to a weekly advance, and gold saw a modest gain.
Asia finished mixed and Europe was mostly higher with the markets continuing to grapple with monetary policy uncertainty across the globe.
President Biden plans to end both the public health and national emergencies originally declared to address the Covid pandemic in 2020 (and extended several times since) on May 11th 2023.
The White House just disclosed the plan while opposing efforts by Republican lawmakers to end the emergency declarations immediately with a bill called the Pandemic Is Over Act. The end of the emergencies will mean that many Americans will have to start paying for COVID tests, treatments, and vaccines.
It also signals a shift in how serious the government considers the pandemic to be. But, is this wise?
More than 300 people are still dying each day on average from covid-19, most of them 65 or older, according to data from the Centers for Disease Control and Prevention. While that’s much lower than the 2,000 daily toll at the peak of the delta wave, it is still roughly two to three times the rate at which people die of the flu — renewing debate about what is an “acceptable loss.”
And, U.S. equities started off the new week with solid losses, as protests in China over its zero-tolerance COVID policy kept investors on edge. Adding to the mix, BlockFi filed for bankruptcy amid the continued fallout within the cryptocurrency markets. Equity news was in short supply on this Cyber Monday, with reports suggesting Black Friday weekend activity was solid despite the highly inflationary environment, while gaming stocks were in focus following a tentative agreement to renew casino licenses in Macau.
The economic calendar was light today, with the lone report of note showing manufacturing activity in the Dallas region unexpectedly improved but remained solidly in contraction territory.
Treasury yields were mixed, while the U.S. dollar rallied, crude oil prices were higher, and gold traded to the downside.
Markets in Asia and Europe finished lower amid the global uneasiness toward China.
Children’s hospitals are asking the federal government to declare a public health emergency to help them deal with the surge of RSV cases. Infants are being hospitalized at seven times the rate of 2018.
DEFINITION: Respiratory syncytial virus, also called human respiratory syncytial virus and human orthopneumovirus, is a common, contagious airborne virus that causes infections of the respiratory tract. It is a negative-sense, single-stranded RNA virus.
The US will extend its Covid public health emergency through the spring of 2023 in anticipation of another winter surge.
The emergency, first issued in January 2020, broadens eligibility for both Medicaid and the Children’s Health Insurance Program, and the government estimates that ~15 million people will lose their benefits from those programs once it ends.
Markets: Stocks closed their otherwise terrible week on a high note following another solid jobs report for October. The US economy added 261,000 jobs last month, more than expected, though the unemployment rate ticked up to 3.7%. The Fed wants to see the labor market loosen up before it’s willing to slow down its rate hikes.
Stock spotlight: Carvana, the online used car retailer that surged during the pandemic, suffered its worst day ever and closed near its all-time low. Carvana’s plunge of more than 95% this year makes it a prime example of Covid darlings that were caught flat-footed when the macroeconomic environment deteriorated and pandemic trends (like huge demand for used cars) snapped back to normal.
DraftKings stock had its worst day on record, down nearly 28%, after revealing a longer-than-expected path to profitability.
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Is China going to loosen its Covid policies? Investors pounced on rumors this week that Beijing was thinking about relaxing its draconian Covid precautions, sending Hong Kong’s Hang Seng Index to its best week in a decade. Separately, Reuters obtained a recording of a former Chinese disease control official telling a conference that China would be making big changes to its “dynamic-zero” Covid policy.
Under a law passed by Congress last November, cryptocurrency firms are supposed to begin recording their clients’ detailed transaction data in 2023, with reports sent to the IRS and to investors the following year. From the beginning, industry executives have pushed back, complaining that the legislation was drafted too broadly. Now, the Treasury Department and the Internal Revenue Service are likely to push off a January date for the firms to begin tracking data such as customers’ capital gains and losses, according to anonymous insiders. The move would mean the tax agency waits longer to get the kind of data it gets for stocks or bonds.
Bitcoin: $20,289.61
Markets: After another boring trading session, stocks wait to complete the first half of 2022—which will come at 4pm ET today.And, the carnage from Bed Bath & Beyond is a result of the company reporting a big sales decline from the previous year and showing CEO Mark Tritton the door.
Economy: Fed Chair Jerome Powell and two other central bank chiefs spoke about their inflation-combating efforts at a conference in Portugal. All three acknowledged that recent economic shocks (COVID, the war in Ukraine) have upended how inflation was understood for decades. “I think we now understand better how little we understand on inflation,” Powell said.
COVID, Inflation, and Value Investing: Millennial Investing
I was recently interviewed by Millennial Investors podcast. They sent me questions ahead of time that they wanted to ask me “on the air”. I found some of the questions very interesting and wanted to explore deeper. Thus, I ended up writing answers to them (I think through writing). You can listen to the podcast here.
By the way, I often get asked how I find time to write. Do I even do investment research? Considering how much content I’ve been spewing out lately, I can understand these questions. In short – I write two hours a day, early in the morning (usually from 5–7am), every single day. I don’t have time-draining hobbies like golf. I rarely watch sports. I have a great team at IMA, and I delegate a lot. I spend the bulk of my day on research because I love doing it.
This is not the first time I was asked these questions. If you’d like to adapt some of my daily hacks in your life, read this essay.
How has Covid-19 changed the game of value investing?
Value investing has not changed. Its fundamental principles, which I describe in “The Six Commandments of Value Investing,” (one-click sign up here to receive it in your inbox) have not changed one iota. The principles are alive and well. What has changed is the environment – the economy.
I learned this from my father and Stoic philosophers: You want to break up complex problems into smaller parts and study each part individually. That way you can engage in more-nuanced thinking.
Let’s start with what has not changed. Our desire for in-person human interaction has not changed. At the beginning of the pandemic, we (including yours truly) were concerned about that. We were questioning whether we were going to ever be able to shake hands and hug again. However, the pandemic has not changed millions of years of human evolution – we still crave human warmth and personal interaction. We need to keep this in mind as we think about the post-pandemic world.
What we learned in 2021 is that coronavirus mutations make predicting the end of the pandemic an impossible exercise. From today’s perch it is safe to assume that Covid-19 will become endemic, and we’ll learn how to live with it. I am optimistic on science.
Let’s take travel, for example. Our leisure travel is not going to change much – we are explorers at heart, and as we discovered during the pandemic, we crave a change in scenery. However, I can see business travel resetting to a lower base post-pandemic, as some business trips get resolved by simple Zoom calls. Business travel is about 12% of total airline tickets, but those revenues come with much higher profit margins for airlines.
Work from home. I am still struggling with this one. The norms of the 20th-century workplace have been shaken up by the pandemic. Add the availability of new digital tools and I don’t need to be a Nostradamus to see that the office environment will be different.
By how much?
The work from home genie is out of the bottle. It will be difficult to squeeze it back in. My theory right now is that customer support, on-the-phone types of jobs may disproportionately get decentralized. The whole idea of a call center is idiotic – you push a lot of people into a large warehouse-like office space, where they sit six feet apart from each other and spend eight hours a day on the phone talking to customers without really interacting with each other. Current technology allows all this work to be done remotely.
On another hand, I can see that if you have a company where creative ideas are sparked by people bumping into each other in hallways, then work from home is less ideal. But again, I don’t think about it in binary terms, but more like it’s a spectrum. Even for my company. Before the pandemic, half of our folks worked outside of the IMA main office in Denver. Most of our future hires will be local, as I believe it is important for our culture. However, we provide a certain number of days a year of remote work as a benefit to our in-office employees.
From an investment perspective, we are making nuanced bets on global travel normalizing. We don’t own airlines – never liked those businesses, never will. Most of their profitability comes from travel miles – they became mostly flying banks.
Office buildings I also put into a too-difficult-to-call pile. There was already plenty overcapacity in office real estate before the pandemic, and office buildings were priced for perfection. The pandemic did not make them more valuable. Maybe some of that overcapacity will get resolved through conversion of office buildings into apartments. By the way, this is the beauty of having a portfolio of 20–30 stocks: I don’t need to own anything I am not absolutely head over heels in love with.
What is the importance of developing a process to challenge your own beliefs?
My favorite quote from Seneca is “Time discovers truth.” My goal is to discover the truth before time does. I try to divorce our stock ownership from our feelings.
Let me give you this example. If you watch chess grandmasters study their past games, they look for mistakes they have made, moves they should have made, so in the future they won’t make the same mistake twice. I have also noticed they say “white” and “black,” not “I” and “the opponent.” This little trick removes them from the game so that they can look for the best move for each side. They say “This is the best move for white”; “This is the best move for black.”
You hear over and over again from people like Warren Buffett and other value investors that we should buy great companies at reasonable prices, and I’d like to dig deeper on that idea and its two key parts, great companies and reasonable prices. Could you tell us what it takes for a company to qualify as a “great” company?
This question touches on Buffett’s transformation away from Ben Graham’s “statistical” approach, i.e., buying crappy companies that look numerically cheap at a significant discount to their fair value, to buying companies that have a significant competitive advantage, a high return on capital, and a growth runway for their earnings.
The first type of companies often will not be high-quality businesses and will most likely not be growing earnings much. Let’s say the company is earning $1. Its earnings power will not change much in the future – it is a $5 stock trading at 5 times earnings. If its fair value is $10, trading at 10 times earnings, And if this reversion to fair value happens in one year, you’ll make 100%. If it takes 5 years then your return will be 20% a year (I am ignoring compounding here). So time is not on your side. If it takes 10 years to close the fair value gap, your return halves. Therefore you need a bigger discount to compensate for that. Maybe, instead of buying that stock at a 50% discount, you need to buy a company that is not growing at a 70% discount, at $3 instead of $5. This was pre-Charlie Munger, “Ben Graham Buffett.”
Then Charlie showed him there was value in growth. If you find a company that has a moat around its business, has a high return on capital, and can grow earnings for a long time, its statistical value may not stare you in the face. But time is on your side, and there is a lot of value in this growth. If a company earns $1 today and you are highly confident it will earn $2 in five years, then over five years, if it trades at 10 times earnings, a no-growth company may be a superior investment if the valuation gap closes in less than 5 years, while one with growing earnings is a superior investment past year 5.
Both stocks fall into the value investing framework of buying businesses at a discount to their fair value, looking for a margin of safety. With the second one, though, you have to look into the future and discount it back. With the first one, because the lack of growth in the future is not much different from the present, you don’t have to look far.
There is a place for both types of stocks in the portfolio – there are quality companies that can still grow and there are companies whose growth days are behind them. In our process we equalize them by always looking four to five years out.
What qualifies as a “reasonable price”?
We are looking for a discount to fair value where fair value always lies four to five years out. In our discounted cash flow models, we look a decade out. Our required rate of return and discount to fair value will vary by a company’s quality. There are more things that can go wrong with lower-quality companies than with the better ones. High-quality companies are more future-proof and thus require lower discount rates. We are incredibly process-driven. We have a matrix by which we rate all companies on their quality and guestimate their fair value five years out, and this is how we arrive at the price we want to pay today.
Why do you believe that buying great companies sometimes isn’t a great investing strategy?
Because that is first-level thinking, which only looks at what stares you in the face – things that are obvious even to untrained eyes and thus to everyone. First-level thinking ignores second-order effects. If everyone knows a company is great, then its stock price gets bid up and the great company stops being a great investment. With second-level thinking you need to ask an additional question, which in this case is, what is the expected return? Being a great company is not enough; it has to be undervalued to be a good stock.
We are looking for great companies that are temporarily (key word) misunderstood and thus the market has fallen out of love with them. Over the last decade, when interest rates only declined, first-level thinking was rewarded. It almost did not matter how much you paid for a stock. If it was a great company, its valuations got more and more inflated.
You’re a big advocate of having a balanced investment approach that is able to weather all storms. What investments have you found that you expect will be able to hold their buying power if inflation persists through 2022 and 2023?
There are many different ways to answer this question. In fact, every time I give an answer to this question I arrive at a new answer. You want to own companies that have fixed costs. You want assets that have a very long life. I am thinking about pipeline companies, for instance. They require little upkeep expense, and their contracts allow for CPI increases (no decreases); thus higher inflation will add to their revenue while their costs will mostly remain the same.
We own tobacco companies, too. I lived in Russia in the early ’90s when inflation was raging. I smoked. I was young and had little money. I remember one day I discovered that cigarette prices had doubled. I had sticker shock for about a day. I gave up going to movies but somehow scraped up the money for cigarettes.
Whatever answer I give you here will be incomplete. It’s a complex problem, and so each stock requires individual analysis. In all honesty, you have to approach it on a case-by-case basis.
With higher inflation, you’d expect bond yields to rise, since bond investors will demand a higher return to keep pace with inflation. However, CPI inflation is currently over 6%, and the 10-year Treasury is sitting at 1.5%. Why haven’t we seen Treasury yields rise more, and what does it mean for investors if a spread this wide persists?
I am guessing here. My best guess is that so far investors have bought into the Fed’s rhetoric that inflation is transitory due to the economy’s rough reopening and supply chain problems. I wrote a long article on this topic. To sum up, part of the inflation is transitory but not all of it.
I am somewhat puzzled by the labor market today. I’ve read a few dozen very logical explanations for the labor shortage, from early retirement of baby boomers to the pandemic triggering a search for the meaning of life and thus people quitting dead jobs and all becoming Uber drivers or starting their own businesses. Labor is the largest expense on the corporate income statement, and if it continues to be scarce then inflation will persist.
I read that employees are now demanding to work from home because they don’t want to commute. The labor shortages are shifting the balance of power to employees for the first time in decades. This will backfire in the long run, as employers will be looking at how to replace employees with capital, in other words, with automation. If you run a fast-food restaurant and your labor costs are up 20–30% or you simply cannot hire anyone, you’ll be looking for a burger flipping machine.
If we continue to run enormous fiscal deficits, then the US dollar will crack. The pandemic has accelerated a lot of trends that were in place. We were on our way to losing our reserve currency status. Let me clarify: That is going to be a very slow, very incremental process. It will be slow because currency pricing is not an absolute but a relative endeavor, and the alternatives out there are not great. But two decades ago the US dollar was a no-brainer decision and today it is not. So we’ll see countries slowly diversifying away from it. A weaker US dollar means higher, non transitory inflation.
You wrote The Little Book of Sideways Markets, in which you point out that history shows that a sideways market typically occurs after a secular bull market. With the role that the Federal Reserve plays in the financial markets, do you still anticipate that valuations will normalize in the coming years?
I say yes, in part because declining interest rates have pushed all assets into stratospheric valuations. Rising bond yields and valuations pushed heavenward are incompatible. Yes, I expect valuations to do what they’ve done every time in history: to mean revert. In big part this will depend on interest rates, but if rates stay low because the economy stutters, then valuations will decline – this is what happened in Japan following their early-1990s bubble. Interest rates went to zero or negative, but valuations declined.
The stock market today is very much driven by the Federal Reserve’s monetary policy. Is there a point at which they are able to take the gas off the pedal and allow markets to normalize?
I am really puzzled by this. We simply cannot afford higher interest rates. Going into the pandemic our debt-to-GDP was increasing steadily despite the growing economy. In fact, you could argue that most of our growth has come from the accumulation of debt (the wonders of being the world’s reserve currency). Our debt has roughly equaled our GDP, and all of our economic growth in some years equaled the growth in government debt.
During the pandemic we added 40% to our debt in less than two years. We have higher debt-to-GDP than we had during WWII. After the war we reduced our debt. Also, we were a different economy then – we were rebuilding both the US and Europe. As a society we had a high tolerance for pain.
Just like debt increases stimulate growth, deleveraging reduces growth. Also, I don’t think politicians or the public care about high debt levels. So far debt has only brought prosperity. However, higher interest rates would blow a huge hole in government budgets. If the 10-year Treasury rises a few percentage points, interest rates will increase by the amount we spend on national defense. One thing I am certain about is that our defense spending will not decline, so higher interest rates will lead to money printing and thus inflation.
I am also puzzled by the impact of higher interest rates on the housing market. Housing will simply become unaffordable if interest rates go up a few percentage points. Loan-to-income requirements will price a huge number of people out of the market, and housing prices will have to decline. This Higher rates will also reduce the number of transactions in the real estate market, because people will be locked into their 2.5% mortgages, and if they sell they’d have to get 4-5-6% mortgages. There are a lot of second-order effects that we are not seeing today that will be obvious in hindsight. Housing prices drive demand in adjacent sectors such as home improvement. And think of the impact of higher rates on any large purchase, for example a car.
We’re seeing the continuing rise of China has a big player in the global economy, and I know you like to invest internationally. As a value investor, how do you think about China’s rise as a global powerhouse and how it might affect the financial markets?
During the Cold War there were two gravitational centers, and as a country you had to choose one – you were either with the Soviets or with the West. Something similar will likely transpire here, too. I have to be careful using the Cold War analogy, because the Cold War was driven by ideology – it was communism vs. capitalism. Now the tension is driven by economic competition and our unwillingness to pass the mantle of global leader to another country.
We are drawing red lines in technology. Data is becoming the new oil. China is using data to control people, and we want to make sure they don’t have control over our data. Therefore, the West wants to make sure that our technology is China-free. The US, Europe, and India will likely be pursuing a path where Chinese technology and Chinese intellectual property are largely disallowed. We have already seen this happening with Huawei being banned from the US and Western Europe. Other countries, including Russia, will have to make a choice. Russia will go with China.
Also, we are concerned that most chip production is centered in Taiwan, which at some point may be grabbed by China. The technological ecosystem would then have to undergo a significant transformation. This has already started to happen as we begin to bring chip production back to the US and Europe.
The pandemic made us realize that globalization had made us reliant on the kindness of strangers, and we found we could not even get facemasks or ventilators.
Globalization was deflationary; deglobalization will be inflationary.
This increased tension between countries has led to your investing in the defense industry. Could you tell us how you think about this industry?
Despite the rise of international tensions, the global defense industry has been one of sectors that still had reasonable (sometimes unreasonably good) valuations. We have invested in half a dozen US and European defense companies. The US defense budget is unlikely to decline in the near future. There is a common misperception that Republicans love defense and Democrats hate it. Those may be party taglines, but history shows that defense spending has been driven by macro factors – it did not matter who was the occupant of the White House.
There are a lot of things to like about defense businesses. They are an extension of the US or European governments. Most of them are friendly monopolies or duopolies. They have strong balance sheets, good returns on capital, and predictable and growing (maybe even accelerating) demand. They are noncyclical. They have inflation escalators built into their contracts. I don’t have to worry about technological disruptions. They are also a good macro hedge.
We added to our European defense stocks recently for several reasons. Europe has underinvested in defense, relying on the US Yet we have shown time and again that we may not be as dependable as we once were.
Snapchat shares tanked 30% in extended trading after the social media company told Wall Street that it would not meet revenue and profit targets this quarter.
Starbucks joins the Russian exodus as thecoffee chain will fully exit the Russian market several days after McDonald’s sold its Russian business. Russia is not a significant market for Starbucks, which derives less than 1% of its revenue from its 130 locations in the country.
Conan O’Brien has sold his digital media company, Team Coco, to SiriusXM in a heavyweight deal valued around $150 million. The acquisition is further proof that companies see big money in long conversations.
T-Bond: 2.854%
Capitalism:
Airbnb may shut down all of its mainland China listings by the summer.
Pfizer and BioNTech said that three doses of their Covid vaccine offer strong protection for kids younger than five, and they’ll submit the data to health regulators this week. No other vaccines are authorized yet for this age group.
Chipmaking giant Broadcom is in talks to acquire VMware in what would be among the biggest tech deals ever (nearly $60 billion, potentially).
The US COVID death toll officially reached 1 million, an amount greater than the combined populations of Boston and Orlando. Coming three months after the country reached 900,000 deaths and less than two and a half years after the first recorded US cases. It’s a reminder that despite dropped mask mandates and summer months approaching, the virus continues to be a threat.
New Omicron sub-variants that appear adept at eluding immunity from prior infections have caused yet another spike in reported cases and hospitalizations. US cases have jumped 60% over the past two weeks, to an average of 90,000 new cases every day.
That figure is far short of the real infection rate, as states have shuttered many large testing sites, and cases discovered from at-home tests often go unreported.
The IRS destroyed data for an estimated 30 million filers in March 2021, according to the Treasury Inspector General for Tax Administration. The decision, prompted by a backlog of paper filings, has sparked anger in the tax community. “It just further damages the IRS’ reputation in the business community and in the public,” said Larry Harris, director of tax services at Parsec Financial.
More than $200 billion has been wiped off the cryptocurrency market today alone, as investors are sent into a panic. Ethereum, the world’s second largest digital currency plummeted by 20% in the space of 24 hours. Bitcoin, the original cryptocurrency started in 2009, dropped by 9%, but overall it is down 50% since its all time high in November. Chaos on the market has seen other currencies such as Shiba Inu and Dogecoin losing 30% and 25%, respectively. Meanwhile Terra Luna, which was among the top 10 most valuable cryptocurrencies had 98% of its value wiped out overnight, falling to below one dollar per coin.
Immediately after becoming the interim CEO of Starbucks (NASDAQ: SBUX), Howard Schultz suspended the company’s share-repurchase program. “This decision will allow us to invest more into our people and our stores — the only way to create long-term value for all stakeholders,” he said in a press release.
Snowflake, Meta, Microsoft and Uber — are all down from 20% to as much as 60% year to date. The technology stock sector, especially unprofitable firms and richly valued software names, have been hit the hardest as of late. The NASDAQ Composite slid more than 13% in April, dropping almost 30% from its all-time high.
President Biden, anticipating the milestone of one million American lives lost to Covid-19, said in a formal statement on Thursday that the United States must stay committed to fighting a virus that has “forever changed” the country.
Finally, Microsoft founder Bill Gatessaid on Tuesday that he tested positive for COVID-19 and is experiencing mild symptoms. In a series of tweets, the billionaire shared that he was “lucky to be vaccinated” and will be isolating until he’s healthy again.
• 108,700 additional physicians became employees of hospitals or other corporate entities – 83,000 of that shift occurred after the onset of COVID-19. • Hospital and other corporate entities acquired 36,200 additional physician practices over the three-year period, resulting in a 38% increase in the percentage of corporate owned practices. • 58,200 additional physicians become hospital employees – 51,000 of that shift occurred after the onset of COVID-19. • 50,500 additional physicians became employees of corporate entities – 32,000 of that shift occurred after the onset of COVID-19.
Markets: All three indexes closed lower (the Dow’s sixth-straight week) following the FOMC’s guidance on future interest rate hikes. Peloton shares fell to a record low yesterday with new CEO Barry McCarthy’s revival plan not inspiring confidence.
Economy: The April jobs report showed a labor market that continues to chug along. US employers added a more-than-expected 428,000 jobs and the unemployment rate remained low at 3.6%. The economy has recovered almost 95% of the jobs lost due to Covid pandemic.
You’ve got a sense of your ideal retirement age. And you’ve probably made certain plans based on that timeline. But what if you’re forced to retire sooner than you expect? Aging baby-boomers, corporate medicine, the medical practice great resignation and/or the pandemic, etc?
Early retirement is nothing new, but it’s clear how much the COVID-19 pandemic has affected an aging workforce. Whether due to downsizing, objections to vaccine mandates, concerns about exposure risks, other health issues, or the desire for more leisure time, the retired general population grew by 3.5 million over the past two years—compared to an annual average of 1 million between 2008 and 2019—according to the Pew Research Center.1 At the same time, a survey conducted by the National Institute on Retirement Security revealed that more than half of Americans are concerned that the COVID-19 pandemic has impacted their ability to achieve a secure retirement.2
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There’s no need to panic, but those numbers make one thing clear, says Rob Williams, managing director of financial planning, retirement income, and wealth management for the Schwab Center for Financial Research. Flexible and personalized financial planning that addresses how you’d cope if you had to retire early can help you make the best use of all your resources.
So – Here are six steps to follow. We’ll use as an example a person who’s seeing if they could retire five years early, but the steps remain the same regardless of your individual time frame.
Step 1: Think strategically about pension and Social Security benefits
For most retirees, Social Security and (to a lesser degree) pensions are the two primary sources of regular income in retirement. You usually can collect these payments early—at age 62 for Social Security and sometimes as early as age 55 with a pension. However, taking benefits early will mean that you get smaller monthly benefits for the rest of your life. That can matter to your bottom line, even if you expect Social Security to be merely the icing on your retirement cake.
On the Social Security website, you can find a projection of what your benefits would be if you were pushed to claim them several years early. But if you’re part of a two-income couple, you may want to make an appointment at a Social Security office or with a financial professional to weigh the potential options.
For example, when you die, your spouse is eligible to receive your monthly benefit if it’s higher than his or her own. But if you claim your benefits early, thus receiving a reduced amount, you’re likewise limiting your spouse’s potential survivor benefit.
If you have a pension, your employer’s pension administrator can help estimate your monthly pension payments at various ages. Once you have these estimates, you’ll have a good idea of how much monthly income you can count on at any given point in time.
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Step 2: Pressure-test your 401(k)
In addition to weighing different strategies to maximize your Social Security and/or pension, evaluate how much income you could potentially derive from your personal retirement savings—and there’s a silver lining here if you’re forced to retire early.
Rule of 55
Let’s say you leave your job at any time during or after the calendar year you turn 55 (or age 50 if you’re a public safety employee with a government defined-benefit plan). Under a little-known separation-of-service provision, often referred to as the “rule of 55,” you may be able take distributions (though some plans may allow only one lump-sum withdrawal) from your 401(k), 403(b), or other qualified retirement plan free of the usual 10% early-withdrawal penalties. However, be aware that you’ll still owe ordinary income taxes on the amount distributed.
This exception applies only to the plan (including any consolidated accounts) that you were contributing to when you separated from service. It does not extend to IRAs.
4% rule
There’s also a simple rule of thumb suggesting that if you spend 4% or less of your savings in your first year of retirement and then adjust for inflation each year following, your savings are likely to last for at least 30 years—given that you make no other changes to your withdrawals, such as a lump sum withdrawal for a one-time expense or a slight reduction in withdrawals during a down market.
To see how much monthly income you could count on if you retired as expected in five years, multiply your current savings by 4% and divide by 12. For example, $1 million x .04 = $40,000. Divide that by 12 to get $3,333 per month in year one of retirement. (Again, you could increase that amount with inflation each year thereafter.) Then do the same calculation based on your current savings to see how much you’d have to live on if you retired today. Keep in mind that your money will have to last five years longer in this instance.
Knowing the monthly amount your current savings can generate will give you a clearer sense of whether you’ll have a shortfall—and how large or small it might be. Use our retirement savings calculator to test different saving amounts and time frames.
Step 3: Don’t forget about health insurance, doctor!
Nobody wants to spend down a big chunk of their retirement savings on unanticipated healthcare costs in the years between early retirement and Medicare eligibility at age 65. If you lose your employer-sponsored health insurance, you’ll want to find some coverage until you can apply for Medicare.
Your options may include continuing employer-sponsored coverage through COBRA, insurance enrollment through the Health Insurance Marketplace at HealthCare.gov, or joining your spouse’s health insurance plan. You may also find discounted coverage through organizations you belong to—for example, the AARP.
Step 4: Create a post-retirement budget
To make sure your retirement savings will cover your expenses, add up the monthly income you could get from pensions, Social Security, and your savings. Then, compare the total to your anticipated monthly expenses (including income taxes) if you were to retire five years early and are eligible, and choose to file, for Social Security and pension benefits earlier.
Take into account various life events and expenditures you may encounter. You may not pay off your mortgage by the date you’d planned. Your spouse might still be working (which can add income but also prolong certain expenses). Or your children might not be out of college yet.
You’re probably fine if you anticipate that your monthly expenses will be lower than your income. But if you think your expenses would be higher than your early-retirement income, some suggest that you take one or more of these measures:
Retire later; practice longer.
Save more now to fill some of the potential gap.
Trim your budget so there’s less of a gap down the road.
Consider options for medical consulting or part-time work—and begin to explore some of those opportunities now.
To the last point, finding a physician job later in life can be challenging, but certain employment agencies specialize in this area. If you can find work you like that covers a portion of your expenses, you’ll have the option of delaying Social Security and your company pension to get higher payments later—and you can avoid dipping into your retirement savings prematurely.
When you retire early, you have to walk a fine line with your portfolio’s asset allocation—investing aggressively enough that your money has the potential to grow over a long retirement, but also conservatively enough to minimize the chance of big losses, particularly at the outset.
“Risk management is especially important during the first few years of retirement or if you retire early,” Rob notes, because it can be difficult to bounce back from a loss when you’re drawing down income from your portfolio and reducing the overall number of shares you own.
To strike a balance between growth and security, start by making sure you have enough money stashed in relatively liquid, relatively stable investments—such as money market accounts, CDs, or high-quality short-term bonds—to cover at least a year or two of living expenses. Divide the rest of your portfolio among stocks, bonds, and other fixed-income investments. And don’t hesitate to seek professional help to arrive at the right mix.
Many people are unaccustomed to thinking about their expenses because they simply spend what they make when working, Rob says. But one of the most valuable decisions you can make about your life in retirement is to reevaluate where your money is going now.
This serves two aims. First, it’s a reality check on the spending plan you’ve envisioned for retirement, which may be idealized (e.g., “I’ll do all the home maintenance and repairs!”). Second, it enables you to adjust your spending habits ahead of schedule—whichever schedule you end up following. This gives you more control and potentially more income.
Step 6: Reevaluate your current spending
For example, if you’re not averse to downsizing, moving to a less expensive home could reduce your monthly mortgage, property tax, and insurance payments while freeing up equity that could also be invested to provide additional monthly income.
“When you are saving for retirement, time is on your side”. You lose that advantage when you’re forced to retire early, but having a backup plan that anticipates the possibility of an early retirement can make the unknowns you face a lot less daunting.
Markets: Stocks rallied very late in the day to close in the positive green. It may be the start of a turnaround or just a rest before they resume their decline.
Bonds: Over in the bond market, the yield on the 10-year Treasury note touched 3% for the first time since 2018, continuing an upward trend that coincides with the Fed’s move to raise interest rates and shrink its balance sheet.
Economy: The US economy is projected to recover all of the 22 million jobs it lost at the beginning of COVID by this summer, according to Fitch Ratings. Back in the fall of 2020, Moody’s warned that the US wouldn’t recoup all of those jobs until 2024.
Markets: Yesterday was a tale of two markets. The Dow, which is home to blue-chip corporations like P&G, gained, while the NASDAQ, comprised of tech stocks, fell. Netflix is now the worst performing stock in the S&P this year.
Covid: The DOJ appealed a judge’s ruling that overturned a federal mask mandate for transportation. The move came at the suggestion of the CDC, which determined that people should still wear masks in indoor public transportation settings.
Homes: The median existing-home price in the US hit an all-time high of $375,300 in March, up 15% from the year before. With surging mortgage rates and higher home prices, the average borrower is paying ~38% more than they would have for the same home a year ago, according to Realtor.com.
Q: What is the plan for a future with COVID? A: A new 136-page report written by dozens of experts provides a comprehensive roadmap to the next normal both to address the pandemic and protect against future biosecurity threats. The group identified 12 key areas of focus, including long COVID, equity, and vaccines. The report also addressed concerns about how the end of the pandemic will disrupt the U.S. health care system when policies introduced during the public health emergency come to an end.
I was recently interviewed by Millennial Investors podcast. They sent me questions ahead of time that they wanted to ask me “on the air”. I found some of the questions very interesting and wanted to explore deeper. Thus, I ended up writing answers to them (I think through writing). You can listen to the podcast here.
By the way, I often get asked how I find time to write. Do I even do investment research? Considering how much content I’ve been spewing out lately, I can understand these questions. In short – I write two hours a day, early in the morning (usually from 5–7am), every single day. I don’t have time-draining hobbies like golf. I rarely watch sports. I have a great team at IMA, and I delegate a lot. I spend the bulk of my day on research because I love doing it.
This is not the first time I was asked these questions. If you’d like to adapt some of my daily hacks in your life, read this essay.
Today’s consumer price index [CPI] reading is expected to show that March prices surged 8.4% over last year.
Treasury yields rose and stocks dropped in anticipation of higher interest rates and a cooling economy. The tech-heavy NASDAQ lost more than $1 trillion in market value in just the past five trading sessions.
US average gas prices sank to their lowest level in more than a month, at $4.11 a gallon. The easing is likely a reaction to the White House’s big release of crude reserves and lock-downs in China reducing overall demand for fuel.
US digital health company investment financing experienced a dip in Q1 of 2022, dropping to $6 billion from the $6.7 billion invested in Q1 2021. In addition, the average size of each investment deal dropped from $46 million last year to just shy of $33 million.
Last week was a bit rudderless with anecdotal stories in the stock market — like Elon Musk buying a big chunk of Twitter (TWTR) — pushing and pulling market sentiment.
But, as with the heart of any earnings season, the big banks will be among the first to put up Q1 numbers. According to Zacks Director of Research Sheraz Mian in his latest Earnings Trends piece this week, all the big banks, including JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC), have seen lower revisions ahead of the reports. This is especially true with Citi, which has higher exposure to Russia.
And, global venture funding dropped 19% from Q4 2021 to the first quarter of this year—the steepest drop in at least four years, according to CB Insights. The number of companies that nabbed “unicorn” status (a valuation of at least $1 billion) fell to a five-quarter low.
Finally, the average number of US COVID-19 cases has hit its highest level in a month, but due to the draw-down in testing centers and the uptick of at-home tests, experts assume that many cases are going unreported. Dr. Fauci opined that we must assess our own risk levels, which reflects the US’ shift in strategy to treat Covid like an endemic disease.
In case you missed it: If you or a loved one are 50 or older, or are moderately or severely immunocompromised, you can get an additional Pfizer or Moderna COVID-19 booster shot at no cost to you.
The CDC recommends an additional booster shot for certain individuals to increase protection from severe disease from COVID-19. People over the age of 50, or who are moderately or severely immunocompromised, can get an additional booster of Pfizer or Moderna 4 months after their last dose.
This is especially important for those 65 and older who are at higher risk from severe disease and most likely to benefit from getting an additional booster.
Learn More: Remember: Medicare covers the COVID-19 vaccine, including booster shots, at no cost to you. Find a COVID-19 vaccine location near you.
Markets: Wednesday’s surge was brief as stocks sank yet again following failed peace talks between Russian and Ukrainian officials. RIVIAN investors lost about $117 billion in market capitalization in the last four months due to concerns around its production capabilities.
Government: The Senate approved a $1.5 trillion spending bill that will fund the government for the current fiscal year and provide $13.6 billion in aid for Ukraine.
WHO: In the US…March 25th, the day Hawaii—the only remaining state with an indoor mask mandate—lifts its mask requirements and April 18th, when the CDC’s loosened guidance for mask mandates on public transportation is expected to take effect. These moves would mean virtually all Covid restrictions would be lifted, marking the unofficial end of the pandemic in the states. Globally…the WHO has been meeting every three months to decide whether or not to continue calling Covid a “pandemic.” The group is expected to keep the label through April—and most likely June as well—and with it, a number of programs that directly help low-income countries. But if the WHO removes the label, then projects like Covax to help vaccinate low-income nations and pledges from drug companies to leave patents off Covid drugs could disappear. And, Harvard epidemiologist Caroline Buckee told Science that the ultimate decision to end the pandemic would come down to “an opinion-based consensus” from within the the WHO.
MARKETS: The S&P 500 fell into a correction for the first time in two years, joining the NASDAQ Composite, as Russia sent troops into pro-Russian regions in Ukraine. The S&P 500 index ended down 1% at 4,304.76, below the correction level at 4,316.91, which would represent a 10% drop from its January 3rd record close. A correction is commonly defined by market technicians as a fall of at least 10% (but not greater than 20%) from a recent peak. The last time the S&P 500 entered a correction was February 27th 2020, when the market was being whipsawed by fears about the outbreak of the COVID pandemic.
And, this bearish market isn’t sparing 2021 winners like Home Depot, which fell the most in nearly two years after supply-chain bottlenecks squeezed its margins. HD was the Dow’s biggest gainer last year.
IRS: According to a news release issued by the IRS, taxpayers now have the option to verify their identities during live, virtual interviews with agents. The agency stresses that no bio-metric data will be required for those interviews.
However, taxpayers once again have the option to verify their identity using ID.me’s facial recognition services. Addressing privacy concerns, the IRS says new requirements are in place to ensure that images provided will be deleted upon verification. That would apply to any new IRS accounts created and those where selfies have already been collected.
33.6% of COVID Infections Were in Unvaccinated Persons
According to a recent CDC study. Among 422,966 reported SARS-CoV-2 infections in LAC residents aged ≥18 years during November 7, 2021–January 8, 2022:
• 33.6% were in unvaccinated persons • 13.3% were in fully vaccinated persons with a booster • 53.2% were in fully vaccinated persons without a booster • Unvaccinated persons were most likely to be hospitalized, representing 2.8% of COVID infections • Unvaccinated persons were most likely to be admitted to an ICU, or 0.5% of COVID infections • Unvaccinated persons were most likely to be require intubation for mechanical ventilation, or 0.2% of COVID infections.
Endemic: A constant presence and/or usual prevalence of a disease or infection, such as the Corona virus, within a geographic area. (Hyperendemic is a situation in which there are persistent high levels of disease occurrence.)
Markets: Major stock market indexes, the S&P 500 and NASDAQ posted their best week so far this year. And, potential buyers for Peloton include Amazon, Nike, Apple, Google, Netflix, Microsoft, or a private equity firm.
Inflation: The monthly inflation report will drop on Thursday, and consumer prices are projected to have jumped 0.5% from the previous month and 7.3% over the past year—the biggest increase since 1982.
Earnings: From Snap’s 59% gain to Meta’s 26% wipeout. the companies reporting this week—Pfizer, Disney, Coca-Cola, Pepsi, Twitter and Zillow know that any small stain on their financials could lead to a stock plunge.
Oil: The big news is that US oil prices topped $90 for the first time since 2014, despite attempts by the Biden administration to keep them down. Gas prices are back up to their highest levels in more than seven years.
Covid: The US death toll from Covid-19 has now surpassed 900,000. And, Omicron has gotten more people around the world sick at the same time than at any point since the 1918–1919 flu pandemic, the WSJ points out.
Economy: The jobs report stunned experts by adding 467,000 jobs last month, far more than expected and a sign of an extraordinarily strong labor market.
STOCK MARKET: Alphabet Inc., announced a 20-for-1 stock split in the form of a one-time special stock dividend, aiming to draw a wider audience for its shares.
Covid: Pfizer asked the FDA to authorize its two-dose Covid shot for children under 5 years old. Those 19 million children represent the only age group that isn’t currently eligible to get a Covid vaccine.
NHTSA: The National Highway Traffic Safety Administration (NHTSA) has cited more reckless driving since the pandemic began, including drivers not wearing seat belts and blowing through speed limits.
StocksMarkets: The stock indexes surged higher—and the Dow [DJIA] had its best day of 2022. Just how volatile was the market this week? The S&P swung at least 2.25% every single day…and ended up on Friday afternoon around where it will start today Monday morning.
Economy: New data showed that overall compensation climbed 4% annually last quarter, the biggest jump in two decades. That’s still not enough to keep up with inflation, which is climbing at its fastest pace since 1983.
PANDEMIC: Americans are not OK during the pandemic. According to the General Social Survey, the share of people who said they were “very happy” plunged from 31% in 2018 to 19% in 2021, while the share of people who were “not too happy” surged from 13% to 24%. Over the past few decades, the very happy people had outnumbered the not-too-happies by about three to-one.
Stock Markets: US stocks staged a big afternoon comeback for the second day in a row … but still not big enough to close in the green. American Express was the top performer in both the S&P and the Dow after the company reported its highest billings volume ever in Q4. And, enthusiasm over meme stocks more broadly appears to be dwindling along with cryptos. And, while NASDAQ took a hit, Microsoft reported quarterly sales of more than $50 billion for the first time ever.
Economy: The weight of the financial world is on Jerome Powell’s shoulders today. The Federal Reserve chair will provide an update on the central bank’s views on sky-high inflation and its plan for interest rate hikes this year (though none are expected until March).
Pandemic: Pfizer and BioNTech started clinical trials for an Omicron-specific vaccine yesterday. The results will help the pharma partners decide whether to replace their current jab formula with one that targets the most dominant Covid variant. The new vaccine is being tested both as a three-shot series for un-vaccinated participants and as a booster for the already vaccinated.
Markets: The S&P 500 closed below 4,500 points for the first time since October after a heavy sell-off in the final hour of the trading day. Netflix stock tumbled in after-hours trading when it revealed slowing subscriber growth for the prior and current quarters.
Economy: The number of people filing jobless claims took an unexpectedly big jump last week after a period of historically low readings. The pop is likely a sign of Omicron disruptions hitting the labor market, and economists expect it to be temporary.
Telemedicine: Fraud and Abuse During the COVID Pandemic
By Susan Walberg
The COVID-19 pandemic has brought with it huge challenges for people all over the world; not only the obvious health-related concerns but also shutdowns, unemployment, financial difficulties, and a variety of lifestyle changes as a result.
When the COVID pandemic struck, CMS quickly recognized that access to care would be an issue, with healthcare resources strained and many providers or suppliers shutting down their offices or drastically limiting availability. Patients who needed routine care or follow-up visits were at risk for not receiving services during a time when healthcare providers were scrambling to enhance infection control measures and implement other new safety standards to protect patients and healthcare workers.
The Centers for Medicare and Medicaid Services (CMS) has responded by easing restrictions and regulatory burdens in order to allow patients to receive the healthcare services they need without undue access challenges. One key area that has changed is the restrictions related to telehealth services, which were previously only paid by Medicare under certain circumstances, such as patients living in remote areas.
Among the changes and waivers CMS has offered, telemedicine reimbursement is among the more significant. Telemedicine services, which includes office visits and ‘check ins’ are now allowed and reimbursed by Medicare. In addition to reimbursement changes, CMS has also relaxed the HIPAA privacy and information security enforcement standards, paving the way for providers to adopt a new model of providing services electronically.
You can also listen to a professional narration of this article on iTunes, Google & online.
Mr. Market was less than kind to our portfolio over the last few months, and especially the last few weeks. I cannot tell you how little it worries us what Mr. Market thinks about our stocks at any particular point in time. We love* our portfolio even if the Mr. Market doesn’t fancy it today.
Also, before we take Mr. Market seriously, let us tell you about the rationality of Mr. Market lately. The World Health Organization (WHO) names each variant of the Covid virus by going to the next letter of the Greek alphabet. After Delta, which is currently the most predominant variant of the virus ravaging the world, there must have been nine others that were not important enough because we never heard of them. Why nine? Because when the latest variant of concern was found in South Africa, it emerged that the letter Nu was supposed to be applied to it. But Nu sounds a lot like new. WHO didn’t want to confuse people, so it skipped to the next letter in the Greek Alphabet, which is Xi – oops, that’s the Chinese supreme dictator. So, for the sake of global political stability, that letter was skipped, too.
This brings us to Omicron, the name of the latest variant.
This is where this story gets a bit more interesting.
The one disruption that really puzzles me is the labor shortage. There are millions of jobs going unfilled today. I hear stories of Starbucks stores being closed due to a lack of workers. Every service that has a heavy labor component has gotten worse – be it restaurants, ride-sharing, or pharmacies. There happens to be a cryptocurrency, one of thousands, that is also named Omicron. I still cannot grasp the logic behind it, but that cryptocurrency was up 900% on the day the South African variant was christened. There must have been a trading algorithm or a lot of bored investors looking for the next gamble, to drive something seemingly worthless up 900%.
That is the drunken Mr. Market that is pricing our stocks today.
I am going to repeat what you will find me saying several times in the letter: We own businesses that are priced, not valued, by Mr. Market thousands of times a day. We have done a lot of work on each company in the portfolio, and through diligent research we have reached the conclusion that each is worth more than the price it is changing hands at today. Are we going to be right about each and every stock? Of course not. This is a numbers game. But we use a time-tested methodology centered on common sense and the cash flows these businesses generate. Also, this is not our first rodeo. We’ll go on making small tweaks, taking advantage of Mr. Market’s manic-depressive moods, at least when it comes to anything that generates cash flows.
Of course, we could change our investment process and load up on the cryptocurrency called Pi Coin, which happens to take its name from the letter in the Greek alphabet that follows Omicron. But I think we all agree we should stick to our knitting, buying high-quality businesses that are significantly undervalued. (Anyway we already loaded up on pie during Thanksgiving.)
Our advice – enjoy this holiday season. Spend time with your loved ones; don’t look at your portfolio. Let us worry about it – after all, we own the same stocks you do.
According to Wikipedia, in economics, inflation refers to a general progressive increase in prices of goods and services in an economy.[1] When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money.[2][3] The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualised percentage change in a general price index.[4]
Healthcare Not a Part of the US Inflation Surge: Who Knew?
However, according to Jeff Goldsmith, overall health spending has only risen by 4.4% since January of 2020, and the percentage of GDP devoted to health has fallen by more than half a percent, from 18.1% pre-pandemic to 17.5% in October. This is despite four surges of COVID hospitalizations, overflowing ICUs and ERs, labor shortages, and other COVID-related stresses. Health system staffing levels are still nearly a half-million lower than they were pre-pandemic. Had the federal government not stepped in through the CARES Act, FEMA funding, and temporary suspensions of Medicare rate cuts, the nations’ hospitals would have been seriously damaged by COVID-related financial stresses, which are far from being over.
The majority of COVID-19 patients being treated in hospitals are unvaccinated or have not received a booster dose of the vaccine. These hospitalizations show how vaccines work and highlight the importance of continued vaccination efforts. President Biden has emphasized that vaccines, boosters, and therapeutic drugs have lessened the danger of COVID-19 for vaccinated people.
Vaccine Recommendations: A new recommendation from the CDC says that people who were initially immunized with the Pfizer vaccine should now receive their booster dose after five months, down from six. Some people with weakened immune systems will soon be eligible for a fourth dose of the COVID-19 vaccine and an Omicron specific vaccine could be ready by March.
Vaccine Mandates:The Supreme Court is weighing the Biden administration’s requirement that workers get vaccinated or be tested regularly for COVID-19. Many states and cities have created their own vaccine rules and employers are left confused about what to do next during the legal battles and the current rise in cases.
At-Home Testing Shortage: There is a shortage of COVID-19 at-home test kits and kit prices are rising as are reports of price gouging. The White House announced a policy to make at-home tests freely available to Americans. Learn more about at-home tests and their accuracy here.
Antiviral Pills:Doctors express concern that the limited supply of antiviral drugs is unlikely to ameliorate the strain hospitals are experiencing. The U.S. doubled its order for Pfizer’s COVID pill so there’s enough for 20 million people.
Stock Markets: An inflation report couldn’t stop stocks from pushing higher yesterday, likely because it wasn’t worse than expected. Biogen shares tumbled after Medicare said it would limit coverage of its controversial $28,000 Alzheimer’s drug, Aduhelm; as the ME-P has noted.
Covid Pandemic: The current Omicron wave is projected to peak by January 19th in the US, according to an influential model from the University of Washington. Then, cases are expected to plummet “simply because everybody who could be infected will be infected,” Washington professor Ali Mokdad told the AP. Cases appear to have already peaked in Britain.
StockMarkets: The three major equity indexes begin 2022 near record highs after closing out their best 3-year performance since 1999. The top-performing S&P sectors: Energy, whose 48% annual gain was its best ever (thank you, soaring oil prices). Real estate was the second-best performing sector at 42%, while tech and financials both rose 33%. The biggest winner in the S&P was Devon Energy, which gained nearly 190%. Ford, Moderna, and nine others in the index more than doubled their stock price. Microsoft rose 51%, and Apple’s 34% gain has it sitting close to a $3 trillion market capitalization.
Covid Medicine: Omicron has caused a rapid explosion of Covid cases in the US—the 7-day rolling average of nearly 400,000 new cases on Saturday was more than double the number from one week before. With hospitalizations also ticking higher, officials are warning that health systems will be overloaded before the Omicron wave is expected to peak in mid-January. And, Dr. Anthony Fauci said yesterday that health officials are looking at adding a negative test requirement after five days of quarantine. Under existing guidance, you can emerge from isolation without showing a negative test.
Entering the Last Chapter of Covid, From Omicron and Beyond – With Dr. James R. Baker, Jr., M.D.
Richard Helppie welcomes back University of Michigan Professor Emeritus of Internal Medicine, and Virologist, Dr. James R. Baker, Jr., M.D., who brings words of both encouragement and warning as the world comes to what he feels is the beginning of the final throws of the Covid-19 pandemic.
Dr. Baker has been a valued guest on the Common Bridge since the beginnings of the coronavirus over a year ago, and brings thoughtful, scientific, data-driven analysis to the most significant health issue of our lifetime.
Markets: The stock market will enjoy a well-deserved day off on Christmas Eve after the S&P closed at an all-time high yesterday. Crocs suffered its worst trading day since April 2020 after its announced $2.5 billion acquisition of the footwear label Hey Dude got a thumbs down from investors.
Covid: The FDA approved Merck’s Covid pill for adults at high risk for severe disease, just one day after they greenlit Pfizer’s pill. And the CDC shortened the required isolation time for health workers who test positive to combat potential employee shortages during the Omicron wave.
StockMarkets: Stocks gained for the second straight day as a mini “Santa Clause Rally” picks up steam. Tesla made its grand return to the $1 trillion market cap club after Elon Musk said he was “almost done” selling 10% of his stake.
Economy: Consumer confidence rose this month to its highest level since July, showing that Omicron and inflation concerns are no match for the formidable American shopper.
Markets: Down big one day, up big the next—that’s the Omicron-era stock market for you. Stocks surged yesterday following a 3-day losing streak, with travel companies leading the way.
Covid: The FDA is set to authorize Covid pills from Pfizer and Merck this week, Bloomberg reports. These treatments, which are intended to be taken by vulnerable people shortly after they are infected, could significantly reduce the burden on strained hospitals. Experts say the pills are a pandemic medical milestone second only to vaccines.
The Federal Reserve announced that it will stop buying bonds about three months earlier than initially planned. The Fed now plans to trim its monthly Treasury and mortgage-backed security purchases by $30 billion a month starting next month. The new pace is expected to put an end to bond buying by March.
The Fed also announced that it would leave interest rates unchanged at near-zero percent. The announcement paves the way for three interest rate hikes by the end of 2022, which could weigh on tech and growth stocks.
Markets: Stocks reversed their post-Federal Reserve announcement rally with a stinker of a day—especially tech stocks. Semiconductor companies like AMD and Nvidia got particularly thwacked.
Covid: The CDC recommended adults use Moderna’s and Pfizer’s Covid vaccines over J&J’s due to the risk of developing rare but serious blood clots.
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