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About Jim Walker

Jim Walker has been a member since November 8th 2010, and has created 854 posts from scratch.

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Safe Investments for a Ten Year Recession

As the coronavirus continues to spread and claim lives across the world, the markets have plummeted and people in the “informal economies” of the world are without work or food. As we wrote in our article, How Far Could Stocks Fall, we reminded our readers that the stock market crash that started in 1929 did not end until 90% of market value was gone three years later. The economy was further damaged by an ill-advised trade war (Smoot Hawley Tariff) and the evaporation of credit. Historians may decide in years to come that the lessons learned in countering the Great Recession were crucial in dealing with the Coronavirus Recession or Depression.

How Long Will the Coronavirus Recession Last?

The New York Times writes that the recession caused by the virus could be much worse and longer lasting that any have so far expected. The problem is not just that world is steeped in debt and equities have been overpriced but that in order to stop the spread and damage of the virus the world simply needs to shut down!

The pandemic is above all a public health emergency. So long as human interaction remains dangerous, business cannot responsibly return to normal. And what was normal before may not be anymore.

People may be less inclined to jam into crowded restaurants and concert halls even after the virus is contained.

The abrupt halt of commercial activity threatens to impose economic pain so profound and enduring in every region of the world at once that recovery could take years. The losses to companies, many already saturated with debt, risk triggering a financial crisis of cataclysmic proportions.

“I feel like the 2008 financial crisis was just a dry run for this,” said Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, “This Time Is Different: Eight Centuries of Financial Folly.

They go on to say that the problems will be worse in the developing world where credit and investments have suffered in the last year.

Investors live with the hope that as the crisis of infections and death recedes, such a huge degree of pent up demand will emerge that economies will recover quickly.

Unfortunately, many businesses will be out of money as will consumers. Bankruptcies will common and many that do not simply go under will not have the resources to ramp up quickly. This crisis will affect buying habits, social activities, and risk tolerance for at least a generation to come.

Safe Investments for a Ten Year Recession

What can an investor do if the recession is going to last a decade or more? We recently wrote about dividend stocks to weather the market slump. But, are these or any other investments sufficient to weather the storm that is here, building, and due to last for a long time?

Secure Investments for a Recession

Investopedia writes about the standard portfolio investment strategy for the recession.

The key to investing before, during, and after a recession is to keep an eye on the big picture, rather than trying to time your way in and out of various market sectors, niches, and individual stocks. Even though there is a lot of historical evidence for the cyclical nature of certain investments during recessions, the fact of the matter is that timing such cycles is beyond the scope of the retail investor.

Investing in companies that sell consumer goods is always a good idea because food, cleaning products, and even beer are the last things that people will quit spending on when times get tough. Companies that support the infrastructure like utilities also have steady income and are likely to be bailed out in hard times.

Investments for a Recovery

Although we believe that the recession will be longer and deeper than many have feared, we also agree that there will be a recovery. Those companies that survive intact and have the assets to ramp up production as well as R&D will do the best. And, companies like Amazon.com with its home delivery system will likely be well positioned to take over more of the retail sector.

Companies with the Most Cash on Hand

24/7 Wall Street lists the American companies with the most cash.

  • Microsoft: $136 billion
  • Berkshire Hathaway: $128 billion
  • Alphabet (Google): $121 billion
  • Apple: $106 billion
  • Facebook: $53 billion
  • Amazon.com: $43 billion
  • Ford: $37 billion
  • Oracle: $35 billion
  • Cisco: $33 billion
  • Bristol-Meyers Squibb: $32 billion

These companies are likely to survive an extended recession intact and be positioned to grow during the eventual recovery.

Mobilize to Save the Economy

Everyone is rightfully scared right now. A deadly virus is spreading across the world, killing people, and devastating whole societies and economies. Despite being slow to react, governments across the globe are enacting social distancing measures to slow the spread and impact of the virus and struggling to get needed medical equipment before current supplies run out. With so many people in the USA living paycheck to paycheck and people across the world living day to day, the necessary shutdown of many businesses threatens to have devastating consequences. We wrote recently about how far stocks could fall and noted that the stock market crash that started in 1929 continued for three years and wiped out 90% of the Dow. The U.S. economy did not recover until mobilization for World War II. What we need to do today as well is mobilize to save the economy.

Mobilize to Save the Economy

The New York Times writes that the expected stimulus bill will not be enough to keep the economy from collapsing.

When the stock market crashed in 1929, the Dow plummeted from its September peak of 381.17 to a low of 41.22 in July 1932. Because so few Americans owned stocks, it took three years for the financial collapse to cycle though the rest of the economy. Unemployment only gradually increased, to a peak of about 25 percent in early 1933. Gross domestic product fell steadily, ultimately declining by about 30 percent.

The economic crash caused by the coronavirus, if anything, will be sharper and steeper. If we set out to deliberately destroy an economy, requesting most people to stay home is a very effective way. The virus itself is disrupting production, but the necessary public health response to the virus is economically catastrophic – and if government doesn’t act massively to offset the damage, the collapse will worsen.

We agree with what they say in that the economy is likely to fall faster and farther now than in the early 1930s. The fact is that all of the jobs programs of the 1930s only provided partial relief. If the government institutes half measures now they will be wasting trillions of dollars and accomplishing less than they could.

USA has outsourced too much of its work, skills, and basic abilities. The American workforce can create masks and ventilators to keep hospitals supplied but they may well need a cash infusion, now, to get started. But, if the government is going to be dumping trillions of dollars into relief efforts, the best place to put the money is into infrastructure projects. Business Insider quotes the American Society of Civil Engineers who say that the USA needs trillions to repair and beef up infrastructure. This sort of investment would put needed money into the economy, create jobs, teach skills, and give people a greater sense of purpose than they have doing things like temp jobs in food service.

The payoff of such an approach would be support for the economy now, a faster recovery, and a more efficient and more competitive America for the future.

Investing in Potential Coronavirus Treatments

When the coronavirus epidemic started to spread we wrote about investing in pharmaceuticals and the coronavirus. We noted that a vaccine is a long way off and that a better short term investment strategy would be invest in companies that make hand sanitizers, general cleaners, masks, and other immediately necessary items. While it will take some time (12-18 months) to devise and produce a vaccine, medicines to treat people with coronavirus could be available sooner. Such medicines would not make the pandemic go away but they would alleviate suffering and reduce the number of deaths from this modern day plague.

What Sorts of Treatments Are Possible?

Modern science has found several possible ways to treat and cure Covid-19. Some are in the research pipeline and others are already-existing drugs that are being tested to see if they help. These include medicines used for years to prevent and treat malaria and a medicine originally developed (but not successful) to treat Ebola but which has been found useful for SARS.

Flu Drugs

Fujifilm Toyama Chemical (Japan) is testing Favipirar (Avigan). This drug has been used to treat mild cases of influenza and was approved in Japan for experimental treatment of Covid-19 cases. News reports from Wuhan, China say it is “safe and effective” although these results are not replicated elsewhere. The drug blocks viruses from replicating and reports indicate that it shortens the course of the disease, especially in those with pulmonary complications. There are no results available in studies in peer-reviewed journals.

Old Drugs for Malaria

For decades doctors have prescribed chloroquine or hydroxychloroquine for prophylaxis when people visit malaria-infested parts of the world. The drugs are also used in higher doses to treat active cases. Additional uses of these drugs include treatment for rheumatoid arthritis and lupus. Lab evidence from cells of humans and other primates suggests the drugs could help treat Covid-19. The evidence is based on a 2005 study of SARS in which the drugs impeded replication of the virus. Dr. Fauci of the National Institute of Allergy and Infectious Disease stated on a CNN interview that the drugs are being tested on Covid-19 cases at the Nebraska Medical Center. He noted that there have to be controlled studies of safety, effectiveness, and useable dosage in order to advise doctors to start using these drugs in all Covid-19 cases.

Additionally, the University of Minnesota is looking at the use of hydroxychloroquine for individuals who are living with infected people to see if (as with the use of the drug for malaria) it helps keep folks from catching the disease when exposed.

Years ago in France, doctors looked at using hydroxychloroquine with and without the antibiotic azithromycin for SARS patients. They reported that levels of the SARS coronavirus fell faster when hydroxychloroquine was used and even faster when azithromycin was added. Unfortunately, the doctors did not include in their report whether or not people recovered faster (or at all). A concern with this drug combination is that it can be lethal for people with kidney failure and can interact with other drugs and cause heart rhythm problems.

Remdesvir, the Drug That Did Not Work for Ebola

Gilead Sciences developed a drug during the Ebola outbreak. It did not help Ebola but did slow the growth of SARS and the similar MERS viruses. In the lab this drug prevents the viruses from infecting human cells. (Published in a February 2020 issue of Nature)

The FDA has approved its use for “compassionate use” in severe cases of Covid-19. It is under study both in the USA and China in five separate clinical trials to see if it can shorten the course of the disease and cut down on complications.

The World Health Organization has stated that this is the only drug that currently shows tangible promise. Anecdotal evidence of rapid recoveries is promising but the true picture will only emerge once controlled studies are done.

Side effects of this drug can include nausea, vomiting, rectal bleeding, and liver enzyme elevation.

HIV Drugs Don’t Seem to Help

There was hope that an antiviral combination used to treat HIV (lopinavir and ritonavir = kaleta) would help. However, the New England Journal of Medicine just published (March 18, 2020) a study from China showing no benefit.

More studies are underway.

Medication to Reduce Inflammation

Death from Covid-19 is often the result of a so-called “cytokine storm.” Cytokines are part of your immune system and help fight infections. Unfortunately, in severe cases of Covid-19 the body produces too many and they cause damage to the lungs.

Doctors have used an immunosuppressant drug (tocilzumag=Actemra) in trying to block this effect. The drug is normally used for both adult and juvenile forms of rheumatoid arthritis. It works by binding to a cytokine called IL-6 or interleukin 6. Trials have just stared sponsored by Roche to see if treatment outcomes are improved when adding this drug to standard treatments.

In a similar approach, Regeneron is working with and testing the IL-6 inhibitor sarilumab or kevzara.

Blood Pressure Drugs to Treat (or worsen) Covid-19

The blood pressure drug, Losartan, is being studied at the University of Minnesota to see if 1) it can prevent multi-organ failure in Covid-19 and even the need to be hospitalized.

The drug blocks receptors in a manner that prevents blood pressure from going up. Because SARS binds to the same receptors the thinking is that the drug may help.

The downside the blood pressure idea is that use of these drugs could end up causing the body to produce more receptors and make it easier for Covid-19 to get into human cells. Of 355 Italian patients who died of Covid-19, three-fourths had hypertension. The authors of the study in this case were concerned that the use of this sort of drug could be dangerous in cases of Covid-19!

(Live Science)

Other Possible Treatments

Almost a century ago doctors took the serum of patients who had recovered from infectious diseases and used the antibodies they had produced to treat other patients. This approach is possible today using monoclonal antibodies. Today it is not necessary to collect serum for every bit of antibody as antibodies can be produced in the lab.

There is a long but informative article in Wired about the use of this approach.

While drugs to treat this disease (except perhaps hydroxychloroquine) will not prevent the disease, they will make people better faster and reduce the fatality rate.

Dividend Stocks to Weather the Market Slump

The stock market continues its downward course as many fear just how far stocks could fall. Interest rates could possibly fall below zero. Meanwhile, there are dividend stocks to weather the market slump.

Dividend Stocks to Weather the Market Slump

An article on The Motley Fool caught our eye. They note that well-managed, well-placed businesses with solid balance sheets will be an ideal refuge during the prolonged market slump. They, in fact, recommend three high-yield dividend stocks.

COVID-19 cases are steadily increasing in the U.S., and states are taking drastic action. California recently placed its nearly 40 million residents under orders to stay home. This is going to have immense repercussions on the economy, and many businesses will struggle to stay afloat.

But not every business is going to be in trouble. There are a handful of companies that provide critical services we rely on across any environment, and others that continue to be in demand, even when consumer demand falls off a cliff.

If you’re looking for a source of security during the 2020 coronavirus recession, here are three stocks that pay high dividend yields that should prove safe and dependable even if things deteriorate in the months to come: Brookfield Infrastructure Partners (NYSE:BIP), NextEra Energy Partners (NYSE:NEP), and Verizon Communications (NYSE:VZ).

Their argument is that each of these companies has businesses that provide critical services and will continue to make money even in a deteriorating economy.

Brookfield has diversified holdings across the world in water, telecommunications, energy, and transportation. NextEra owns and operates facilities that produce renewable energy which they sell to power companies. Verizon has excellent cash reserves and has recently paid down their debt. Stock prices for each of these companies have fallen making their dividends increasingly attractive in the 4.5% to 6% range.

Dividends versus Interest-bearing Investments

If you already hold US Treasuries or corporate bonds with decent interest rates you can continue to collect your interest or sell at a premium if you need the cash. When interest rates go down, dividend stocks usually go up in price. Today rates are down and so are many dividend stocks. You may choose to stick with US Treasuries and accept a near-zero return or you can buy well-chosen dividend stocks to weather the market slump. But, rather than jumping to buy the first stock tip that you see online, make certain when investing in stocks to do your own homework.

The advantage of buying stocks like the ones that The Motley Fool suggests is that you can hold them for the long term as they have strong business models and are well-placed for the future. As the market continues to fall, many stocks will be pulled down with it but not all of them will suffer all that much as the recession and perhaps depression sets in. And, despite current fears, the virus will run its course as all infections do. “Herd immunity” will take place in that the majority of the population will have mild cases and will have immunity. This will slow and then stop the spread of the disease. Choose your investments wisely today and enjoy the profits for a long, long time.

How Will Negative Interest Rates Affect Your Investing?

The U.S. Federal Reserve has slashed already-low interest rates to zero. They are taking other measures to preserve credit and pump money back into the system. But, the steady spread of the coronavirus and predictions of 20% unemployment and worse are unsettling markets as investors wonder how far stocks will fall. As the economy contracts we will see the possibility of interest rates going below zero. How will negative interest rates affect your investing?

How Will Negative Interest Rates Affect Your Investing?

Forbes wrote a useful article a year ago about the damage negative interest rates would do to money market investments. The bottom line of their long discussion is that safe investments will no longer be safe. In our article about how to invest without losing any money, we looked at bonds, CDs, and money in the bank. The usual rationale is that you accept a moderate to low interest rate and forego the opportunity to make a lot of money.

But, your capital is always safe.

But, if interest rates go negative, you will be paying the bank for the privilege of parking your money with them. Either you will have to keep paying monthly for your deposits or they will simply deduct from the balance until your investment is gone!

Stock Investments When Rates Are Negative

Investopedia has an informative piece about the stock market and interest rates.

When the Fed changes interest rates, it affects markets in both direct and indirect ways as borrowing becomes more or less costly for individuals and businesses.
The stock market’s reaction to interest rate changes is generally immediate, however the real economy takes about a year to see any widespread effect.
Higher rates tend to negatively affect earnings and stock prices, with the exception of the financial sector – and vice-versa.

While the effects of interest rates have a delayed effect on things like the housing market, the stock market reacts immediately because the stock market predicts the future and adjusts.

In general, lower interest rates are good for business because companies can borrow money at lower rates and pay back more comfortably. The prospect of negative rates means that a company could get a low and also get routine “reverse” interest rate payments.

But, since banks will have to pay you money in order to loan you money, they may be resistant to lending, especially to the sort of “zombie companies” we mentioned in our article about whether debt will destroy your investment portfolio.

What Should You Do?

The folks at Yahoo Finance interviewed Warren Buffett in regard to negative interest rates.

First, Buffett conceded that in general the bond market with its super low rates, and wildly swinging yield curve, “is really crazy.” But then he made it clear that neither he nor his partner Charlie Munger have any expertise or any interest in predicting where interest rates are headed.

“Charlie and I focus on what’s knowable and important,” he said. “Now, interest rates are important, but we don’t think they’re knowable.”

This gets us to our usual starting point, intrinsic stock value. This is all happening because the economy and corporate earnings are being hit hard by the coronavirus and the prospect of a depression and financial collapse. For an investing perspective, what companies will weather the storm? It will be those with a combination of continued earnings and low debt. The point is that companies that already owe money will still need to pay off their debts with lower income. The beer companies, folks like Coca Cola, and Clorox will likely do just fine. Tesla might be in trouble with its huge debt but Amazon’s large debt burden may shrink as the company gets even busier making home deliveries during the ongoing crisis.


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