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What Is the CAPE Ratio?

The CAPE ratio averages out the P/E ratio over a ten year period. This acts like important moving averages to reduce the influence of fluctuations in the economy and the market. CAPE is an acronym for cyclically-adjusted P/E ratio and was made popular by Robert Shiller, an economics professor at Yale University. We recently wrote about the dangers of a high P/E ratio. Using the CAPE instead of the standard P/E ratio reduces this risk. While the P/E ratio shows stock price divided by earnings per share the CAPE averages out the stock price and earnings over a decade. This measure is more commonly applied to market indices like the S&P 500, NASDAQ, or Dow Jones industrial average than to individual stocks. As such it is a useful indicator or an over-priced or underpriced market.

CAPE Ratio Formula and What It Tells You

Here is how to calculate the CAPE ratio.

CAPE Ratio = (Share price ten year average adjusted for inflation)
divided by ten-year inflation-adjusted earnings

This approach is useful for long term investors who use intrinsic stock value as a guide. The CAPE ratio for individual stocks gives you a better picture than the immediate P/E ratio of how good an investment will be over time.

Although Professor Shiller has popularized the CAPE in recent years, it was first suggested by Benjamin Graham and David Dodd in the 1930s in their book, Security Analysis. Shiller and John Campbell used the approach in the run up to the dot com crash and accurately predicted how badly the market would fall due to its being overpriced in the late 1990s.

The limitation of the CAPE, like the P/E ratio is that it is backward-looking and does not take into account new technology or trends.

CAPE Ratio 2021

Will the CAPE ratio be useful as we move into 2021 with the pandemic peaking and the economy tanking? The value of the CAPE ratio is that its value at any given time is closely correlated with the prospects of a security over the following 20 years. Thus, it may not give a lot of insight into if and when there will be a market crash in 2021 or a raging bull market. But, it does tell us what to expect from any given sector, stock, or market over the coming years. Since long term investing depends on holding stocks for seven to ten years or more, the CAPE is useful for long term planning. If you believe that stocks are hugely overpriced in relation to the current CAPE ratio you may be able to predict a correction or crash but not the exact timing.

NASDAQ Cape Ratio

Over the last few years the CAPE ratio for the NASDAQ 100 has consistently come in higher than the P/E ratio. P/E ratios the tech giants in NASDAQ have been high over the last few years. This indicates the potential for corrections. The higher-still CAPE ratios indicate the potential for long-term corrections. This would most-likely happen as interest rates rise, society comes out of the Covid-19 pandemic, and work-from-home becomes an option instead of a necessity.


Biden Bull Market Investments

The new president takes charge on January 20, 2021. We expect to see the stock market respond with a rally for value stocks and those connected to infrastructure investments. A split Congress will likely delay any tax increases and interest rates are likely to remain low for a long time. The pandemic will subside with multiple vaccines available and the economy will improve which will drive value stocks higher, perhaps at the expense of tech stocks that have benefited from stay-at-home work.

Low Interest Rates

Low interest rates have been a major driver for the stock market. Bonds and bank CDs offer little return on investment capital making stocks the only investments that offer decent returns. Until the economy has recovered, which may take years, interest rates are likely to remain low and keep driving money into the stock market. Negative interest rates would only do so more rapidly.

Infrastructure Investing

The sorry state of American infrastructure needs to be addressed and likely will be by the upcoming administration. This is likely to be largely a “Buy American” effort that will stimulate the economy, provide needed jobs, and spread prosperity throughout the country. Although roads, bridges, airports, and ports are commonly noted to need uplifts, advanced technical efforts like upgrading to 5G will also benefit.

No Tax Increases

The disparity between the rates normal people pay in taxes and what the super-wealthy pay has been in public discussion for some time. However, to raise corporate taxes and plug loopholes for the super-rich, the Democrats need to control both houses of congress. Right now they are two short of a 50-50 tie. Because Vice President Harris can vote to break a tie, the Democrats need to take both senate seats that are in run-off elections in Georgia. Although they may flip one of them, taking both seems like a long shot. As such we expect the Republicans to keep control of the Senate and block any efforts at increased taxes on your investments.

Biden Bull Market Investments- Charging Bulls
Running of the Bulls, Pamploma

The Pandemic Will Subside

As painful as the Covid-19 pandemic has been and as burdensome it has been on the economy, it will subside. There are three vaccines (and counting) ready for review and possible initiation of vaccinations by the end of December 2020. Producing workable vaccines in less than a year has been barely short of magic considering that the process typically takes a decade or more. Everyone does not need to get vaccinated. If the number of folks who get vaccines plus the folks who have been ill and have recovered gets to the 70% range, the pandemic will begin to subside. This will allow life to start returning to normal. That won’t require any laws to be passed to political arm-twisting. Money will start to flow and value stocks, especially, will benefit.

Democrats Tend to be Better for the Stock Market

The stock market has tended to do better when a Democrat is in the White House and so does the economy. This is generally because there is more money being spent and spread around. We don’t expect the Biden administration to be any different. For some thoughts about potential Biden bull market investments, take a look at what The Motley Fool writes about stocks to look at for a Biden bull market.


Cryptocurrency Investment Regulation

Those who purchased cryptocurrencies like bitcoin when they were a few dollars each have become rich. And, those who purchased bitcoin at the end of the 2019 pump and dump lost their shirts as the cryptocurrency fell from nearly $2000 each to the $600 range. Now that the pandemic has raised havoc in the economies of the world, bitcoin and other cryptocurrencies are soaring again. Cryptocurrencies are a concern to governments around the world because one can buy and sell, transfer assets, and never been seen. Terrorists and the drug trade are believed to benefit from the hidden nature of cryptocurrency trading. While many would like Bitcoin and other cryptocurrencies to move into the mainstream, regulation will be necessary to protect investors and reduce the attractiveness of cryptocurrencies to those who want to hide money.

Cryptocurrency Investment Regulation

A major issue for cryptocurrency investment regulation is how to trade bitcoin and others. Are they securities, commodities, or currencies? The Library of Congress Law site provides insight into how cryptocurrencies are treated, avoided, regulated, or ignored around the world.

One of the most common actions identified across the surveyed jurisdictions is government-issued notices about the pitfalls of investing in the cryptocurrency markets.  Such warnings, mostly issued by central banks, are largely designed to educate the citizenry about the difference between actual currencies, which are issued and guaranteed by the state, and cryptocurrencies, which are not.  Most government warnings note the added risk resulting from the high volatility associated with cryptocurrencies and the fact that many of the organizations that facilitate such transactions are unregulated.  Most also note that citizens who invest in cryptocurrencies do so at their own personal risk and that no legal recourse is available to them in the event of loss.

Before cryptocurrencies are accepted into the financial mainstream, they need to be regulated. The report summarizes how this has been done in 130 nations across the world.

Cryptocurrency Investment Regulation

Cryptocurrencies as Securities, Commodities, or Currency

Who regulates a cryptocurrency and how they do so depends on what you consider this type of asset to be. Lexology.com looks at this issue. In the EU central banks have noted that cryptocurrencies do not fit the legal definition of a currency as they are digital representations of value and not issued by central banks or other like institutions. However, the European Court of Justice said that for tax purposes they should be treated as currencies.

Because securities are tangible proof of ownership of debt, the Chairman of the US SEC said that cryptocurrencies do not qualify as they don’t represent ownership.

In regard to cryptocurrencies as commodities, regulators have noted that cryptocurrencies do not represent anything of underlying value such as with coffee, gold, or natural gas. Nevertheless, the US Commodity Futures Trading Commission said in 2018 that in certain instances cryptocurrencies are commodities. In fact, you can trade Bitcoin futures on the Chicago Mercantile Exchange.

Because this issue is still up in the air, two nations have moved to qualify cryptocurrencies as Digital Ledger Assets (DLTs). They have both enacted laws regulating cryptocurrencies within their jurisdictions using this definition.

Cryptocurrency Sales and Taxation

Although the USA does not yet have a strict definition of what a cryptocurrency is for regulatory purposes, the IRS has made it clear that profits from selling bitcoin and other cryptocurrencies are taxable either as short term or long term profits, depending on how long you have held them before selling.

Regulation and the Future of Cryptocurrencies

The general consensus of experts is that regulation will have a dampening effect on the wide swings in monetary value of cryptocurrencies. It will probably have a beneficial effect on the safety of holding cryptocurrencies as exchanges will likely need to open their books to regulators and have better guarantees that assets to not disappear overnight with a couple of computer keystrokes!

Cryptocurrency Investment Regulation – Slideshare Version

Cryptocurrency Investment Regulation – DOC
Cryptocurrency Investment Regulation – PDF


US Isolationism and Your Investments

The South China Morning Post reported the signing of the Regional Comprehensive Economic Partnership that includes China and most of its Asian neighbors. This deal includes Japan, Australia, New Zealand, and South Korea but not the USA. The new trade deal will lower tariffs and aims to increase regional trade with less red tape. Post-pandemic growth is expected to benefit in the region. Not only is the USA not part of this deal but it is also not part of the Transpacific Partnership which the Obama administration helped develop and Trump pulled out of. Here are some thoughts about US isolationism and your investments.

Protectionism and Your Investments

Protectionism, according to Investopedia, is when a government restricts international trade. The goal of protectionism is typically to stimulate economic activity in the county. However, it can also be instituted for reasons of safety, quality, and geopolitical concerns. As with the trade war started by Donald Trump, tariffs and import quotas are common tools. The infamous Smoot-Hawley Tariff Act in the 1930s was meant to protect US industry but initiated a trade war that was partly responsible for the depth and length of the Great Depression. Protectionism is often driven by a desire for isolationism. A country and its people feel threatened by foreign competition. The Trump trade war played on a belief that foreigners were taking advantage of the USA and that the USA had to close its borders to trade or hike up tariffs to protect itself. The result so far appears to be an exclusion of the USA from two important markets at a time when China and other Asian markets are expanding. How should you invest when US companies will find it more difficult to compete in a third of the economies of the world?

Investing from an Isolated Country

If you want to invest where there is more economic activity, you may need to invest abroad instead of in the USA. This means investing in foreign stocks. But, if laws like the Kennedy Act take hold, investing in China will be more and more difficult. The targeted decoupling from China will become a greater and greater issue going forward. However, you can invest in companies that do business in other nations in the Asian Pacific. These companies will likely benefit from trade deals from which the USA is currently excluded. ETF Trends writes about investments from abroad. As they note, the USA is about 25% of the world market and that percentage may well decline as other economies advance and the US stagnates in isolationism. Luckily, you do not need to speak a foreign language or deal with a stock broker in a foreign country in order to invest in foreign markets. You can choose investment funds that track offshore investments and you can purchase ADRs (American Depositary Receipts) of foreign stocks listed in US stock exchanges.

A good resource for checking out ADRs is the website TopForeignStocks.com. The ADR listings are grouped according to economic region and then by country. US News has a nice listing of ETFs with an international focus, low costs, diversified, and meant for safe long term investing.

US Isolationism and Your Investments – Slideshare Version

US Isolationism and Your Investments – DOC

US Isolationism and Your Investments – PDF

Covid-19 Pandemic and Surge in ESG Investing

Many expected ESG investing to take a dive due to the economic stresses of the Covid-19 pandemic but there has been a surge of ESG investing instead. It appears that long term investors realized that the best-run companies were the most likely to endure and prosper during these difficult times. And, the stresses of the pandemic have also reinforced concerns about how we deal with our planet and each other.

Covid-19 Pandemic and Surge in ESG Investing

Financial News published an insightful piece in regard to the Covid-19 pandemic and surge in ESG investing. As they note, the strongest focus has been on the “S” in ESG in that human capital management and labor standards. Well-run companies with a focus on sustainability are the most likely to survive and prosper.

The trend of Environmental, Social and Governance investing, or ESG, has been gaining momentum for years as climate change and other social ills threaten to alter the capitalist landscape. Then the virus struck. Many assumed the ESG focus would fade. But early on in the crisis, major shareholders urged company bosses to focus on employee well-being and on ensuring that suppliers were paid during global lockdowns, even if this meant cutting or suspending dividend payments.

This attention to how a company acts going forward is likely to continue to focus on governance and sustainability as well as environmental concerns according to JPMorgan Asset Management. They state, according to Financial News, that nearly three-fourths of their investors believed that the Covid-19 crisis will lead to more concerns about issues like biodiversity losses and climate change. It would seem that the pandemic has made us realize that the natural world has a huge say in how human life and investments play out!

The number of investment funds focusing on ESG investing has multiplied and these funds are making it clear to companies that they will put their investments with those who emphasize an ESG focus more than a focus on short term profits.

Covid-19 Pandemic and Surge in ESG Investing
Courtesy Lixoretf

Demand for ESG Investments Increases Due to the Covid-19 Pandemic

Morningstar also notes that investors are demanding ESG investments during the pandemic and for afterward. Investment trusts and ETFs are maintaining an active focus on the companies they are invested in and active stewardship as well. Thus they meet with corporate boards to review ESG issues. The first issues right now have to do with employee health, safety, and retention. But, supply chain issues are of great concern both for company viability but also concerns about forced labor, employee mistreatment, and dealings with military and spy services as with China. While the US government is moving toward decoupling from China for national security reasons, ESG investors are concerned about company viability and the effects of the work force.

With the increasing focus on the safety of our natural world, ESG investing is looking to the long term with investments in socially and environmentally responsible projects that will help us avoid Covid-19-like disasters in the future.

Covid-19 Pandemic and Surge in ESG Investing – Slideshare Version 

Covid-19 Pandemic and Surge in ESG Investing – DOC

Covid-19 Pandemic and Surge in ESG Investing – PDF

Decoupling of Investment in China

As the Covid-19 pandemic began, the USA had to go begging China to send protective masks made in China (by 3M). American had become dependent on a global supply chain to the extent that it had become a risk to national security. This situation had been decades in the making and the USA and other nations are taking actions. Decoupling of investment in China is a major part of this movement.

Decoupling of Investment in China

Although the decoupling of investment in China hit the general news as the pandemic was playing out, it has been on the minds of many for quite some time. In January of 2020 The Harvard Business Review wrote about how the USA and China will decouple.

While Covid-19 has dominated news for much of the year – and understandably so, as people and businesses fight for their survival – a larger, longer-lasting problem has been unfolding in the background, which many businesses will soon need to contend with: As de-globalization accelerates, two hostile economic blocs are emerging, one centered around China and the other around the United States.

Arguably, we’ve been headed towards this moment for a long while. De-globalization has been under way for more than a decade: At best, international trade was stagnating before the pandemic hit, and foreign direct investment had fallen by 70 percent in 2018 from its peak in 2007. Never easy, Sino-U.S. relations have taken a more confrontational turn under Xi Jinping. By 2018 we were already witnessing the opening skirmishes of a new Cold War.

We wrote about the Kennedy Act and investing in China a few months ago. In that article we noted how China has been using US investment capital to build up its high tech sector and how that sector often works hand in hand with Chinese intelligence operations and its military. The USA and other nations have been helping fund the rise of a nation bent on dominating Asia and then the world. We cannot stop them from having such ambitions but the USA, Europe, and others do not have to fund those efforts.

How Will Decoupling from China Affect Your Investments?

In the Harvard Business Review article they suggest several measures for international companies to take.

Reduce Business Presence in Hong Kong
Relocate Supply Chains to Politically Safer Countries
Reassess relationships with Chinese businesses and universities
Consider the geopolitical risks and reposition accordingly

As a US investor, you may be barred from certain investments in China and the number of prohibited investments may increase over time. Your decoupling of investment in China should be led by the degree of involvement of that investment with Chinese military or intelligence operations.

Direct US Actions to Decouple from China

The New York Times reports that investment in companies with military ties has now been barred by presidential action in the waning days of the Trump administration. Specifically, this means investments in Huawei, China Mobile and China Telecom. The list includes 31 companies including China Mobile Communications Group, China Telecommunications Corporation, Huawei, Sinochem Group, Hangzhou Hikvision Digital Technology, China Railway Construction Corporation, Inspur Group and Aviation Industry Corporation of China.

The order takes effect on January 11, 2021 and if you have investments in any of these companies or funds that invest in them, you have until November 11, 2021 to divest yourself of those assets. It is of note that China Telecom fell $4 a share from $36 to $32 on the news. However, the stock is now selling for what it has been worth for most of the year during the Covid-19 pandemic and resulting economic slump. This was a long time coming and is not likely to be reversed by the Biden administration. As such, investors need to get out of the specific investments on the list and consider what else might be pulled into the decoupling of the USA and China as a new cold war begins.

Decoupling of Investment in China – Slideshare Version

Decoupling of Investment in China – DOC

Decoupling of Investment in China – PDF

Renewable Energy Investments

The election of Joe Biden bodes well for renewable energy investments as the President-Elect calls climate change the greatest threat facing the human race. How can investors position themselves to take advantage of the coming emphasis on green energy? Is a focus on ESG investing sufficient or should you drill down and find specific investment opportunities? Here are a few thoughts on renewable energy investment in the Joe Biden presidency.

Alternative Energy Investments

Investopedia published a useful article about alternative energy stocks for late 2020.

The alternative energy sector is comprised of companies that engage in the generation, distribution, and sale of renewable and clean energy, as well as related products and services. Examples of alternative energy sources include solar, wind, hydroelectric, and geothermal.

They cite a few examples of promising renewable energy investments.

The growing list of names in the sector includes companies like Israel-based SolarEdge Technologies Inc. (SEDG), Brazil-based Companhia Energetica de Minas Gerais CEMIG (CIG), and First Solar Inc. (FSLR).

And, they note that you can buy shares of ETFs that track renewable energy investments as well.

Alternative energy stocks, as represented by the iShares Global Clean Energy ETF (ICLN), have dramatically outperformed the broader market, posting a total return of 47.4% compared to the Russell 1000’s total return of 12.6% over the past 12 months.

Even before Biden won the 2020 presidential election, this sector has done well. We expect that with a green energy-friendly president in the White House that the sector will do even better in the coming years.

Renewable Energy Investment Opportunities

US News provides us with their list of the seven best renewable energy stocks and ETFs. Their list includes the following:

Invesco Solar ETF
iShares Global Clean Energy ETF
NextEra Energy (NEE)
Vestas Wind Systems (VWDRY)
Brookfield Renewable Partners (BEP)
Iberdrola (IBDRY)
ALPS Clean Energy ETF (ACES)

This list of investment opportunities in the renewable energy sector gives investors the opportunity to invest in green energy and make money. The sector did well this last year during the Trump administration but is likely to thrive under Biden.

Mixing and Matching Energy Investments

As the climate warms up, the world will transition to renewable energy, reduced carbon emissions, and energy conservation. However, oil and natural gas are not going away in a hurry. We wrote recently about Exxon as an investment. The smartest energy investors may well be the ones who hedge their bets by maintaining positions in the traditional oil and natural gas sector while adding targeted renewable energy investments for the future.

The geopolitical benefit of US energy independence is huge. As such, even a green Biden administration is unlikely to undercut the ability of the nation to extract petroleum products and avoid going back to dependence on oil from the Middle East. And, as the Covid-19 pandemic is brought under control, the world economy will improve. Energy requirements will go up. And, all well-managed energy companies are likely to see the benefit, not just renewable energy investments.

Renewable Energy Investments – Slideshare Version

Renewable Energy Investments – DOC

Renewable Energy Investments – PDF

Covid-19 Vaccine Market Rally

Pfizer’s vaccine for Covid-19 is more than 90% effective in preventing the disease and markets everywhere have rallied. So far the Dow has out-performed the tech-heavy NASDAQ. Travel-related companies and airlines especially have rallied. Aircraft maker Boeing and industrial powerhouses like General Electric have also jumped up in price. How can you best profit from the Covid-19 market rally?

Best Ways to Profit from a Covid-19 Vaccine Market Rally

As we have previously noted, a Covid-19 vaccine will not necessarily be a profitable investment for the long term. For example, Pfizer’s stock jumped up $2 a share from $37 to $39 on the news of their successful vaccine. However, the company has a market cap of $219 billion and a huge list of pharmaceuticals that they produce. If the Covid-19 vaccine turns into a yearly need, Pfizer may add a dollar or two a share to its stock price but much more.

However, the stocks that have been hit the worst by the pandemic are travel-related air travel which has virtually shut down and running a hospitality business is not very profitable when social distancing is a necessity. These are the stocks that are rallying now and likely to continue to rally as widespread vaccination brings the pandemic under control.

While tech stocks have done well with the move to working at home and forced isolation, stocks connected to the general economy have suffered. The increase in stock prices for companies like GE indicates how a general economic recovery coupled with a reduction in Covid-19 cases will fuel general economic growth.

Covid-19 Vaccine Market Rally - Pfizer Vaccine
Pfizer’s Covid-19 Vaccine is 90% Effective

Market Timing of a Covid-19 Market Rally

Shares everywhere rose on the news of a successful vaccine for Covid-19. However, they also fell back partials just as fast. The CEO of Pfizer has said that the company may be able to produce as many as 150,000,000 doses of the vaccine before the end of the year. They anticipate turning out 1,300,000,000 doses in 2021. This is a two-shot vaccination so they should be able to vaccinate 75,000,000 people this year and 650,000,000 next year. While this is good news, the goal is herd immunity. That will require the vaccination of about 200,000,000 people (400,000,000 doses) in the USA and the vaccination of about 5,000,000,000 worldwide with 10,000,000,000 doses world-wide.

What we can expect is a rally on the news of this and other vaccines followed by a fall back. This will be followed, again, by a slow market recovery as the effects of vaccination are felt across the economy.

What about Vaccination Hesitancy?

As many as half of the people in the USA have said they may not want to get a vaccination for Covid-19 as they distrust vaccines. This does not bode well for a long term Covid-19 market rally as the point is to reduce Covid-19 cases and get the economy back to work. With a successful vaccination campaign by Pfizer and others, the best case scenario is herd immunity and a recovering economy by the end of 2021. If half of the population foregoes vaccination, we may be looking at a couple of years more before things return to normal.

As such, the news about Pfizer’s vaccine is excellent but hopes for economic recovery may be a bit premature. Successful investing in a Covid-19 vaccine market rally and recovery may take a bit of patience.

Covid-19 Vaccine Market Rally – Slideshare Version

Covid 19 Vaccine Market Rally – DOC

Covid 19 Vaccine Market Rally – PDF

Is an Alzheimer’s Drug a Good Investment?

The Alzheimer’s drug, aducanumab, has been given a new lease on life after a phase III trial was previously halted. Unlike other treatments for Alzheimer’s disease, aducanumab has the potential to halt the progression of the disease instead of just treating symptoms. The drug was discovered by Neurimmune and is licensed by Biogen Inc.  The medical significance if this drug passes all trials and becomes available for treatment is great. But, is an Alzheimer’s drug a good investment?

Aducanumab

Aducanumab is a human monoclonal antibody. Unlike antibodies that the body produces to fight infections, aducanumab targets beta-amyloid which is the material that is found in the brains of patients with Alzheimer’s disease. The plaques are toxic to nerve cells in the brain. The rationale for aducanumab is that it can stop the buildup of beta-amyloid and therefore the progression of Alzheimer’s. The drug had progressed to a stage III FDA trial. This means that it had been demonstrated not to cause any bad side effects and that it helped in animal studies. In stage III the goal is to prove that it has a statistically significant effect on the progression of Alzheimer’s disease.

Likely FDA Aducanumab Approval

Stage III testing of this drug was halted in March of 2019 when it was believed that it would not meet expectations and fail testing. However, re-evaluation of the study results showed that it might work after all. Thus phase III trials have been resumed. So far studies show that patients taking a high dose of this drug have a 23% reduction in their rate of decline from Alzheimer’s disease. Now the FDA has indicated that the drug is safe and effective which will clear the way for its FDA approval as a treatment for Alzheimer’s.

Is an Alzheimers Drug a Good Investment - Brain in Alzheimers
Courtesy Medicine.net

Current Alzheimer’s Drug Treatments

The Mayo Clinic website lists four drugs currently available to manage symptoms of Alzheimer’s. Three cholinesterase inhibitors that help symptoms in mild to moderate disease are Donepezil (Aricept), Galantamine (Razadyne) and Rivastigmine (Exelon). These drugs help until the reduction in viable brain tissue reduces the amount of cholinesterase to inhibit. The other drug which is used on more severe stages of the disease is Memantine (Namenda). This drug also helps symptoms but does nothing to slow the progression of or cure the disease.

Increasing Incidence of Alzheimer’s Disease

The number of Americans currently with Alzheimer’s is 5.8 million.

Millions of Americans have Alzheimer’s or other dementias. As the size and proportion of the U.S. population age 65 and older continue to increase, the number of Americans with Alzheimer’s or other dementias will grow. This number will escalate rapidly in coming years, as the population of Americans age 65 and older is projected to grow from 55 million in 2019 to 88 million by 2050.

The current incidence of Alzheimer’s in people aged 65 and older is 10%. As the number of people in the older age group increases so will the number of people suffering from Alzheimer’s.  Treatment of Alzheimer’s will be for the rest of the person’s life and so long as the medication helps. Thus treatment with aducanumab could be for decades. This would be a significant income stream for a company like Biogen.

Is an Alzheimers Drug a Good Investment - Biogen Stock
Biogen Stock

Biogen

Biogen is an American multinational biotech company that currently trades for $324 a share on NASDAQ.  Its primary focus is treatments for neurological diseases but the company has many other types of drugs. Their current list of drugs includes treatments for multiple sclerosis, chronic lymphocytic leukemia, spinal muscular atrophy, psoriasis, hemophilia A, and hemophilia B. Drugs in development by Biogen include treatments for acute optic neurites, lupus nephritis, idiopathic pulmonary fibrosis, neuropathic pain,  and amyotrophic lateral sclerosis (Lou Gehrig’s Disease) along with aducanumab.

Biogen stock has had a very bumpy ride over the last seven years as investors have alternately loved and hated the stock due to the success or failure of its drugs in clinical trials. While it currently sells for $330 a share the price has been as high as $380 a share in 2015 and as low as $234 a share in 2019. Investors who got in by 2000 saw the stock go from $40 a share to its current price. The stock has a P/E ratio of 10.98, does not pay a dividend, and would see a nice addition to its income stream if aducanumab becomes a mainstay for Alzheimer’s treatment.

However, their Alzheimer’s drug will only be part of their product line, albeit a profitable one for a long, long time.

Is an Alzheimer’s Drug a Good Investment? – Slideshare Version

Is an Alzheimer’s Drug a Good Investment? – DOC

Is an Alzheimer’s Drug a Good Investment? – PDF

Post-election Stock Market Rally

What are the chances of a significant post-election stock market rally? A Biden victory coupled with Democratic control of the senate will stimulate the economy but will it stimulate the market? The stock market has gone up 650 points to start Election Day and futures indicate a likely rally post-election according to Investor’s Business Daily.

Dow Jones futures and S&P 500 futures jumped early Tuesday, while Nasdaq futures rose modestly. With a market correction in force, a new stock market rally attempt is underway with Election 2020 finally here, with the latest IBD/TIPP Trump vs. Biden poll showing a tighter race.

There are two pieces to the issue of who will be governing the country over the next years. Biden appears to have the edge over Trump but that will not be certain until all votes are counted and all court challenges have been dealt with. A more likely case is that Democrats will probably gain control of the US Senate by a few votes. This by itself could lead to stimulus payments before the start of the next year and would be a boost for both the economy and the markets.

Investing Government Spending on Infrastructure

We have written about the sorry state of US infrastructure and how infrastructure spending on everything from roads and bridges to 5 G will drive the US economy. Interest rates are extremely low and likely to remain so for years. Thus, any government borrowing will be subject to low interest rates. A Democratic Congress along with a Democratic President will likely invest in a Made in America program focusing on infrastructure, green energy, bringing more manufacturing back to the USA, and driving consumer spending higher.

Post-election Stock Market Rally - Infrastructure Spending
Courtesy Wired

The shape of the economic recovery has been starting to look like an “L” or really wide “U” instead of the hoped for “V”. We could be looking at a recession that lasts for years, like the Great Depression, if a stimulus does not happen. A new administration with the same party in control of Congress will likely spend without concern for the budget until they get the economy moving and healthy again. This would provide a stimulus similar to WWII spending that forklifted the US economy out of the Great Depression.

Investing in a Post-election Stock Market Rally

If there is a strong post-election stock market rally, which sectors will benefit the most? If stimulus checks resume it will put money in consumers’ hands at the base of the economy and the result will a surge of spending on consumer goods. When infrastructure spending starts it will benefit construction and materials suppliers as well as the general economy because there will be more jobs. For many years the big tech stocks have been the best bet but that will no longer be the case. As such, the FAANG stocks may not fall but they may cool off. If we see a positive economic result from infrastructure spending, it will be repeated. That bodes well for long term investors in the sectors that will benefit.

Post-election Stock Market Rally – Slideshare Version

Post-election Stock Market Rally – DOC

Post-election Stock Market Rally – PDF


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