May 4, 2020
200 Treatments - Almost 100 Vaccines In Development
In the past I have talked about how many drug companies were working on treatments and vaccines. I am happy to report that currently there are nearly 200 treatments and almost 100 vaccines in development. The FDA is working very hard primarily on COVID-19 and approving drugs quicker than ever. Protocols are now being approved in three days rather than 9 to 12 months in the past. Vaccine trials can take months however a COVID-19 drug trial should require only a few weeks. Progress is developing very quickly, do not discount the intelligence and ingenuity of companies in the U.S. companies and all across the world. (Source Info: Barrons)
Carnival Cruise
Carnival is looking to set sail once again with a target date of August 1st in North America. The company will utilize eight of its ships with 3 leaving from Miami, 3 leaving from Galveston, Texas, and 2 taking off from Port Canaveral, Florida. With states beginning the reopening process, I look forward to hearing more plans from businesses as the economy gets going once again. I think this is great news and I look forward to a normalization in society. Would you be ready to set sail with Carnival on August 1st?
May 5, 2020
Economy Is Reopening – What Will Consumers Do?
Now with states starting to open up their economies the question becomes what will consumers do? In a survey from gallop poll 20% of those surveyed said they would go right back to their normal daily spending, 70% had a wait and see attitude that would determine their spending, and the remaining 10% had no idea what they would do. My feeling is there have been many couples that both are still working and have nowhere to spend their earnings and have built up reserves that they will make up for lost time. Also, we hear the concern about 30 million people out of a job, but the other side of that is they are getting an extra $600 a week on top of unemployment which they have nowhere to spend. I believe of that 70%, half of those will go back to spending in a very short time frame, weeks not months. What do you feel you will do?
May 6, 2020
Investing In The Stock Market
From time to time I hear that the market is a rigged system and does not give investors a fair shake. I have totally disagreed with this for years and now we have proof on how fair the markets are and how well they held up during March. We need to thank the 2010 flash crash because corrections were made after that terrible experience. Just think about it, no exchange suffered an outage in March, and in March we had record trading volume of nearly 16,000,000,000 shares per day , something unheard of just a few short years ago. Four times we saw circuit breakers kick in which shut the market down for a certain period of time, when the time was up the markets returned right back to trading as if nothing had happened. So, while some may think it is not a fair system, it is a system that held up very, very well during a very difficult time. The marketplace is still a great place to put an order in and buy a great company at a great price and hold that company as an investor. If you are a trader, then I will wish you good luck the same as I do in Las Vegas when someone steps up to the blackjack table.
May 7, 2020
Peloton Stock
There are many crazy ways that companies try to get their stock prices higher and one of those companies is Peloton. What they are saying is that they are not an exercise company but a technology company because they provide the videos through technology. If that is not a stretch, I don’t know what it is. If you read the conference calls of older established companies like J.P. Morgan, General Motors, or even a truck maker that we own in the portfolio, you will see them discu ss the technological advancements they have had. Unfortunately for stock premiums, but rightfully so they are still considered a bank, a car manufacturer, and a truck manufacturer. Every large company needs to have the ability to incorporate technology into their business, but that does not automatically make them a tech company. Peloton is making this claim because technology companies get a higher valuation than an exercise company would. I would bet in 6 to 12 months this company will lose 30 to 50% of its value as home restrictions are lifted and the sales of their exercise bikes which is what they really do drop off dramatically. Unless they can find some other ways to generate profitable revenue, I’d recommend avoiding this stock.
Pollution And Livestock
Some people have been commenting on the fact that since we are driving less, pollution is dropping, which is true. But one thing that people may not realize is that 14.5% of greenhouse gases comes from livestock, according to the Food and Agriculture Organization of the United Nations. Cattle accounts for most of the livestock GHG at 65% followed up by pigs at 9%. I don’t see how we could cut omissions in this area. I see no way to put any type of filters on the manure that is distributed from the animals’ exhaust system, LOL.
May 8, 2020
S&P 500 Index
The S&P 500 index has held up well this year and is now down just about 10% for the year. I am however extremely worried about how the market will perform moving forward. The S&P 500 is not the diversified basket of equities people make it out to be as the big five tech names: Microsoft, Apple, Amazon, Facebook, and Google now make up more than 20% of the entire index. This has propelled the stock index to be extremely tech heavy. If you add the information tech sector, the c ommunication services sector (which includes many tech companies like Netflix and Google), and Amazon (which is in the consumer discretionary sector) you will have accounted for about 40% of the entire market. I believe many have rushed to tech as a “safe haven” during this time which has borrowed stock price appreciation from the future. As the economy normalizes and valuations adjust, I believe there will be a major shift to the companies with low valuations that have fallen out of favor during this time period. This means not only will the major tech companies likely see lower growth or even declines, but the entire S&P 500 index would also be affected by these large positions and have reduced returns. Did we not learn a lesson from the tech boom? I guess many of the investors today were not old enough to be investing then so they have not learned that lesson yet.
Unemployment
It is of course difficult to find good news in an economic jobs report that shows a post-World War 2 record 20.5 million people lost their jobs in April and an unemployment rate of 14.7%. The financial crisis of 2008-2009 saw peak unemployment of about 10%, but we are still off the record during the Great Depression which was estimated to be 24.9%. While this is difficult, the positive news is 78% of those counted as unemployed said their layoff is temporary and more than 18 million workers believe they will return to work within 6 months. This is one reason why I believe this unemployment situation should not be compared to the financial crisis or the Great Depression. People were not that optimistic about the prospects of having a job like they are now. Also, pair that with the stimulus money from the Federal Government and actions taken by the Fed and I believe we will have a good economic recovery starting very soon.
This newsletter is for informational purposes only and should not be used as investment advice. If you would like to discuss more in detail your investment needs or have other investment questions, feel free to call me at 858-546-4306 or visit our website at Smartinvesting2000.com.