Being plugged into the latest economic trends is crucial when it comes to making sound investments. Julie Jason speaks with Simon Constable, co-author of a new guide to help smart investors make sound decisions using economic trends.
FINRA foundation offers tools for understanding investment issues
If you are an investor, do you watch economic trends?
Some economists believe that being aware of economic trends gives investors an edge. I spoke with economist Simon Constable a few weeks ago to discern how his work might provide some insights and guidance to today’s investors. Constable is co-author of “The Wall Street Journal Guide to the 50 Economic Indicators That Really Matter: From Big Macs to ‘Zombie Banks,’ the Indicators Smart Investors Watch to Beat the Market.”
Constable and his co-author, Robert E. Wright, made a provocative statement in the book, which was written in 2011, a few years after the market bottomed on March 9, 2009: “The financial crisis of 2008-09 and its aftermath suggest that most investors were insufficiently nimble because they were looking at what the economy was rather than what it would become.”
They observed: “Discerning the economy’s direction — whether it will soar, plummet, or stagnate — may sound difficult, and it certainly isn’t easy, but the economy can’t help but constantly provide statistical clues about its health.”
And they provided a tool chest of 50 indicators for investors to follow.
I asked Constable the obvious question: What do the economic indicators tell us about today? Is there a bear market on the horizon?
Constable advised: “The stock market and economy are related like cousins. They are related, but can be estranged for many years.” So, there won’t be simple answers to my questions. That is, the 50 indicators will not provide a clearly defined stock market forecast. Reviewing them will provide insights, however, by watching trends as they develop.
Now, that’s quite a bit of work for the everyday investor. Being pragmatic, I asked Constable for a shortcut:
Could he identify one, two or three of the most important indicators to follow?
He offered this starting point: The Weekly Leading Index (WLI), developed in the 1980s to take an accurate read “on the future of the entire economy,” is published by the Economic Cycle Research Institute (ECRI). The WLI “is a composite leading index that anticipates cyclical turning points in U.S. economic activity by 2-3 quarters,” according to ECRI. The inputs include measures of money supply, housing activity, the labor market, and equity and bond market prices.
For this indicator to be meaningful in calling a recession, trend changes need to be “pronounced, persistent and pervasive,” explained Constable.
As it says in Constable’s book: If “there is a turn in the WLI growth rate that satisfies the three P’s, then a recession (or the end of one) can be expected seven to eight months later.” When the WLI growth rate is trending up, the economy is growing.
The best way to look at trends is graphically. ECRI provides access to free graphs (with underlying data) online at. When you visit this site, look at different time frames.
For an example of this indicator at work, change the dates at the bottom of the graph. Take a look at the end of 2005 through the end of 2009 to pick up economic trends before the financial crisis up to the year the stock market bottomed (March 2009). Zoom out to pick up 1970 through 2017.
Look for warnings as well. At the height of the 2007 market, the November-December 2007 ECRI Outlook cautioned: “The growing weakness in the growth rates of ECRI’s leading indexes is a warning that recessionary weakness could develop. One key danger is a sustained credit crunch because the credit crisis is clearly not over. … [Our] Leading Index[es are] now approaching [their] worst reading[s] since the 2001 recession. … Also, the breadth of deterioration evident in the latest data on the components of ECRI’s many leading indexes has rarely been seen except near the cusp of a recession.”
Returning to today, we are not in a 2007 market, based on economic trends. However, the economy is not the sole arbiter of stock market movements — for one, consider rare but impactful “black swan” events.
In the end, following indicators can help investors evaluate their investments in the context of the broader economic picture.
* * *
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/comments ([email protected]). To hear Julie speak, visit here.
(c) 2018 Julie Jason.
Distributed by King Features Syndicate Inc.
The Next Generation of Sin Stocks to Ride Out a Bear Market
While the recent stock market rally has technically pushed the Dow Jones Industrial Average out of a bear market, many investors aren’t convinced it will last.
They expect that once the euphoria surrounding the $2 trillion stimulus plan wears off, the market will resume its slide downward as the economic impact of the coronavirus takes hold in the next few quarters.
Sin stocks, so named because they are things that we should go without but can’t seem to part ways with, are historically a great investment during downturns.
The added stress and uncertainty means an uptick in business for the companies producing these sinful indulgences.
Things like alcohol, cigarettes, weapons and gambling all fall under the umbrella of sin stocks, so companies like Altria (NYSE:MO), Diageo (NYSE:DEO), Sturm Ruger (NYSE:RGR) and MGM Resorts (NYSE:MGM) are all widely considered to be sin stocks.
And while they can make great investments during times of uncertainty, there’s a new breed of sin stocks that could generate even larger returns over the coming months as Americans turn to their (new) favorite vices.
Here’s a short list of “next gen” sin stocks that we expect to do very well.
While this is by no means a “new” vice, it is only in the last few years that it’s been possible to directly invest in companies that produce and sell marijuana. That wasn’t possible during the 2008 financial crisis, so it will be interesting to see how the major players do during their first economic downturn.
Just like smoking, we expect demand to hold up very well, if not increase, during times of turmoil.
Consider the larger companies like Canopy Growth (NYSE:CGC), GW Pharmaceuticals (Nasdaq:GWPH) and Cronos Group (Nasdaq:CRON).
Being a “gamer” is a lifestyle now, with livestreaming on YouTube and Twitch and professional Esports leagues formed around the most popular titles like Call of Duty and Overwatch.
Video games are big money now, and the larger production studios will continue to generate massive revenues as the culture grows in the years ahead.
Look at the big studios with strong franchises like Activision Blizzard (Nasdaq:ATVI) which has the Call of Duty and Overwatch franchises and Electronic Arts (Nasdaq:EA) which has the Madden, Battlefield and FIFA franchises.
Social Media Platforms
If you have a child or grandchild under the age of 30, you are probably very aware of the effort it takes to get their attention away from their phones and all the social media apps or platforms that they are using.
Tik-Tok, Twitter, Facebook, and Instagram are all designed to keep users engaged and spending as much time as possible on their platforms. The publicly traded ones are Twitter (NYSE:TWTR) and Facebook, which also owns Instagram (Nasdaq:FB)
While there are no guarantees when it comes to investing, as the coronavirus causes more people to spend time at home, they’ll be spending more time using the products and services of these next generation sin stocks, and that should translate to more revenues and higher profits for the companies.
Bitcoin Collapse Should End Discussion About it Being ‘Digital Gold’
For as long as Bitcoin and other crypto currencies have been in existence, a constant drum beat from its evangelists was the belief that it was “digital gold.”
The claim of course was an effort to throw a halo around cryptocurrencies as a “safe haven” and a “store of value” during times of crisis or economic uncertainty.
Per the Coinbase blog (emphasis theirs):
“Gold, and bitcoin, are safe havens from fiat currency devaluation, which historically tends to be incited by surging government debt. Armed with a myriad of technological advantages, accelerating development, and maturing global market, Bitcoin is a store of value to rival gold in the digital age.”
Not only that, but the same article says that Bitcoin is in fact better than gold (emphasis mine):
“Bitcoin development is accelerating and has already proven a myriad of advantages over precious metal…”
Those advantages are essentially listed as portability, scarcity, divisibility, privacy, low transfer fees and “auditability.”
Yesterday’s market rout, with the Dow Jones Industrial Average collapsing 2,352 points to have its worst trading day since “Black Monday” in 1987, should have been the day where Bitcoin could finally live up to its promise.
All it had to do was not drop as much as the broad market and perform similar to gold, Bitcoin would have a landmark day.
Instead, it got decimated, plunging 12% to close at $5,700.
In the past five days alone it has lost more than one-third of its value.
Gold, in case you are wondering, has lost a mere 6% in the last 5 days, and during yesterday’s market rout it only lost 0.74%.
One of those two “rivals” proved to be a safe haven and a store of value during these scary times.
The other proved to be nothing more than a speculative investment, providing absolutely no store of value.
Yesterday alone, the cryptocurrency market lost $62 billion in market cap, according to CoinMarketCap.
In the past month, roughly 50% of the value of the entire cryptocurrency market has been erased.
Store of value?
Safe haven like gold?
Not even close if you ask Andrew Button at Motley Fool.
“While Bitcoin fans were caught off guard by BTC’s dramatic slide, the truth is that it wasn’t surprising at all. Put simply, apart from the scarcity, Bitcoin has nothing in common with gold. Gold is a physical asset you could trade if global financial institutions shut down; Bitcoin can’t be used without access to a computer. Gold is as old as human civilization; Bitcoin is younger than social media. Gold is used in manufacturing and jewelry; Bitcoin hasn’t seen any practical use case outside of black markets. The two assets simply have nothing in common whatsoever.”
While the siren song of “digital gold” is alluring, it’s time we stop pretending that Bitcoin has what it takes to become a real asset class. In times of uncertainty, it failed to perform as promised.
7 Blockbuster Drugs Expected To Be Launched In 2020
Biotech stocks had a fairly decent run in 2019, thanks to record deal flow, several path-breaking innovation in drug research & development and the positive broader market sentiment. New molecular entity approvals totaled 48 in 2019, less than the 59 NME approvals in 2018.
The new year is expected to be risk fraught, as lawmakers are expected to step up their rhetoric on drug pricing. Even as the outlook for drug companies remains not-so-promising, some key drug approvals could still impart some momentum to the sector.
The FDA could expedite the review of some drugs, Evaluate Pharma said, citing some approvals in 2019 that came about well ahead of the scheduled PDUFA date such as Vertex Pharmaceuticals Incorporated’s (NASDAQ: VRTX) Trikafta. Trikafta, a treatment option for cystic fibrosis, was approved five months ahead of the PDUFA date.
The following are the drugs with blockbuster potential that could make their way from lab to the shelves, according to Evaluate Pharma.
- Sponsor: Daiichi Sankyo Company, Limited (OTC: DSNKY) & AstraZeneca plc (NYSE: AZN)
- Indication: Her2 positive breast cancer
- Status: BLA accepted with priority review status in October and the PDUFA date has been fixed for second quarter of 2020
- Sponsor: Aimmune Therapeutics Inc (NASDAQ: AIMT)
- Indication: Peanut allergy
- Status: PDUFA date of January; A FDA panel, which met in September, voted 7 to 2 that the efficacy data and 8 to 1 that the safety data in conjunction with additional safeguards are adequate to support the use of Palforzia
- Sponsor: Bristol-Myers Squibb Co (NYSE: BMY) (came into the company’s stable through its Celgene buy)
- Indication: relapsing form of multiple sclerosis
- Status: The FDA accepted for review the BLA in June and has set a PDUFA date of March 25
- Sponsor: Novartis AG (NYSE: NVS)(came into the company’s stable through its Medicines Company buy)
- Indication: LDL-cholesterol lowering therapy
- Status: NDA submitted in December for use in secondary prevention patients with atherosclerotic cardiovascular disease and familial hypercholesterolemia
- Sponsor: AstraZeneca/FibroGen Inc (NASDAQ: FGEN)
- Indication: treating anemia associated with chronic kidney disease
- Status: FibroGen, AstraZeneca’s partner in developing roxadustat, said it has submitted the NDA to the FDA in late December
- Sponsor: Immunomedics, Inc. (NASDAQ: IMMU)
- Indication: treating metastatic triple-negative breast cancer
- Status: After an initial snub, the company resubmitted the BLA and the FDA accepted the application for review Dec. 26, 2019, fixing a PDUFA action date of June 2
Fed Bank Predicts 53 Million Americans Out of Work, 32% Unemployment Rate
Stocks Continue to Rally on Mixed News, Hopes For A Coronavirus Vaccine
Federal CARES Act Provides Relief to Businesses Hurt by COVID-19
How To Invest In Drones
The Federal Reserve Is A Ticking Time Bomb
How to Invest in Graphene
Investing7 months ago
How To Invest In Drones
News6 years ago
The Federal Reserve Is A Ticking Time Bomb
News5 years ago
How to Invest in Graphene
News5 years ago
How To Invest Money in Oil and Gas Today
News6 years ago
3 Reasons to Invest in the Russian Stock Market Right Now
Dividend Stocks6 months ago
Mcdonalds the Worst Slump in a Decade
Commodities7 months ago
Latest Update On Oil – Expected to Settle Between $45 and…
Business8 months ago
Why is Small Business in America Dying?