(THE OPIOID CRISIS AND ITS EFFECT ON THE ECONOMY)

November 10, 2023

Hello everyone,

While the market is dancing along nicely to year-end, I’m going to focus on an issue that can affect anyone at any time in their life.

Drugs.

Am I worried about my son, Alex, ever taking drugs?  No. He crosses the road when he sees a person walking toward him, who is smoking a cigarette because he can’t stand the smell of the smoke. 

Alex’s first semester at college has been unremarkable.  He has done the work, received good grades, and has joined the Chess Club.  He sometimes even tells me he is bored.  But I never think that is a bad thing.  After all, boredom can stimulate and inspire us to get lost in new ventures and hobbies that might otherwise have never been explored. 

I had an interesting conversation with him the other day.  His major is tech, while his roommate’s major is business.  Alex is quiet and conservative, while his roommate is a party boy and often stays out until 4 a.m.   Furthermore, sometimes, he just never comes back to the room at all over the weekend.  But that is not surprising behaviour for a young adult teenager.  What is a bit concerning is his roommate’s pill-popping, which Alex tells me has an impact on the way he behaves.   

Alex did not tell me what he was taking, only that they were illegal.

The opioid crisis is a scourge on our society.  Is life so confronting that some people have to get a buzz from a pill to make it to the end of the day?

The statistics are alarming!

Worldwide, about 296 million people (or 5.8% of the global population aged 15-64 years) used drugs at least once in 2021.   Among them, about 60 million people used opioids.  About 39.5 million people lived with drug use disorders in 2021.  Most people dependent on opioids use illicitly cultivated and manufactured heroin, but the proportion of those using prescription opioids is growing.

More than 100 people die every day from opioid overdoses.

Overall life expectancy in the U.S. has declined for three years in a row due in large part to the opioid epidemic, reversing a half-century trend.

Overdoses kill more Americans than car crashes or gun violence.

Addiction contributes to incarceration.  In 2010, 85% of the U.S. population was incarcerated for substance-related reasons, with over half of all inmates diagnosed with substance use disorder.

In economic costs

Reduced labor force participation

Decreased employment

Productively loss.

Extra health costs.

Permanent injury & chronic health conditions.

Reported opioid overdose deaths: 

2010 – 21,089

2017 – 47,600

2020 – 68, 630

2021 – 80, 411

Opioids have analgesic and sedative effects, and such medicines as morphine, codeine, and fentanyl are commonly used for the management of pain.  Opioid medicines methadone and buprenorphine are used for maintenance treatment of opioid dependence.  After intake, opioids can cause euphoria, which is one of the main reasons why they are taken for non-medical reasons.  Opioids include heroin, morphine, codeine, fentanyl, methadone, tramadol, and other similar substances.  Due to their pharmacological effects, they can cause difficulties with breathing, and opioid overdose can lead to death.

In the 1980s and 1990s, I worked in the Drug and Alcohol Unit and the Psychiatric Unit of the Toowoomba Hospital.   I was the Administration Manager for those units.  I learned a lot about the effects of drugs and alcohol on individuals, and the impact on families and the wider community.    White-collar workers,  blue-collar workers, male and female, young and old – all are at risk of being a statistic in the opioid epidemic.  Those people who took drugs for non-medical reasons were in emotional pain, except the panacea turned into an additional crisis which exacerbated the person’s despair and feelings of hopelessness.  A truly sad situation.

We can point to the pharmaceutical industry and its aggressive promotion of prescription drugs as one of the main elements contributing to the opioid epidemic in the U.S.  Advertising of drugs is at saturation point on free-to-air T.V. in the U.S.  Conversely, in Australia, promotion of drugs in television or print media is at a minimum.  There are restrictions on the direct advertising of pharmaceuticals to patients, as well as regulatory and professional actions, which have resulted in different patterns of prescribing and outcomes in Australia.

Nonetheless, opioid prescribing has increased gradually in Australia over the last three decades.  Each time a new opioid formulation becomes available, it is enthusiastically prescribed.  That brings us to look at the relationship between the drug representative and the G.P.   The payoffs for the G.P. when s/he promotes the drug are usually quite attractive.  Surely, lack of remuneration would lessen the likelihood of G.P.’s being so eager to prescribe these drugs, knowing the tendency for some patients with non-medical conditions to abuse these drugs.

Take care.

Cheers,

Jacquie

(CAN WE NOW TURN THE PAGE ON THE FED’S INTEREST-RAISING CYCLE?)

November 6, 2023

Hello everyone,

The year has dashed by. 

Only about eight weeks until Christmas. 

The question on everyone’s lips is:  Will the market rally continue into year-end?

In crystal ball gazing, it is entirely possible.  As long as we don’t keep getting battered by events out of left field.  But you know what the market is like.  It can climb a wall of worry very well as it is forward-looking.

It has been a mixed bag with earnings results.  Some good, some not so good, and didn’t the market let those companies know when they missed the mark.  An overreaction in some cases.

Earnings season is winding down.  However, there are still some important reports out this week.

Nov. 6, 2023, Monday

Australia Interest Rate Decision

Previous:  4.1%

Time: 10:30 pm ET

Nov. 7, 2023, Tuesday

8:30 a.m. D.R. Horton

Switzerland Unemployment Rate

Previous: 2%

Time: 1:45am ET

Nov. 8, 2023, Wednesday

8:00 a.m. Biogen

8:00 a.m. Warner Bros.

4:30 p.m. Disney

5:00 p.m. MGM Resorts

China Inflation Rate

Previous: 0%

Time: 8:30 pm ET

Nov. 9, 2023, Thursday

US Initial Jobless Claims

Previous:  210K

Time: 8:30am ET

Nov. 10, 2023, Friday

US Consumer Sentiment

Previous: 63.8

Time: 10:00am ET

The market is working against a backdrop of conflict in different parts of the world. It seems the world is never entirely free of conflict at any one time.  Religion, race, and land are at the basis of many wars/conflicts, but these explanations simplify complex underlying issues, and we mostly have to delve into history to highlight important points to gain a thorough understanding of where we are today.   Though I do not have the luxury of time or space here to give a history lesson, I will draw your attention to two giants of Wall Street, who believe the world is at its “most precarious since 1938.”  Jamie Dimon (JPMorgan) and Larry Fink (BlackRock) are both expressing concern about the nature of the world we live in.  “Scary and unpredictable” – this is the language these giants of Wall Street are using to describe our times.  At stake is the future of our world as we know it: freedom, democracy, food, energy, and immigration.

The Middle East accounts for 48% of global energy reserves and produced 33% of the world’s oil last year. 

Geopolitical risk is arguably shaping all our lives.  Rising fear impacts consumers.  It can create a withdrawal from consumption, or it can sometimes see consumers spend more.  In the long term, fear is a drag on the consumer and can ultimately lead to recessions.

Last week the Fed left rates on hold for the second time in a row after 11 hikes since March last year.   Powell was unsure whether the Fed had done enough to bring inflation down to its 2% target but highlighted that it would proceed carefully.  The knock-on effect of the Fed’s language was enough to bring the yield down on the 10-year U.S. Treasury bills down to less than 4.7%.

Both Dimon and Fink believe there may be long-term forces that are still inflationary at play and are conscious of the fact that rates could possibly go up from these levels.   Dimon points out that there is interest rate exposure in a lot of things.  And these current rates are stressing certain assets, which the market, up until now, has mostly taken in its stride.  But if rates go up another 100 basis points, it will stress a wider variety of things including real estate and even some banks.  Both Fink and Dimon aren’t ruling out 6% or 7% rates. 

The U.S. government’s ability to finance itself in the medium term is also causing concern.  After the financial crisis in 2008, the market for government debt was underpinned by huge waves of quantitative easing (QE) as the Federal Reserve bought assets including Treasuries to boost the economy.  The programme was revisited during Covid but came to an end in March 2022.  The withdrawal of QE together with a flat appetite for Treasuries among US banks and international investors such as China, could force the government to pay higher prices at a time of near-record borrowing.   The US has issued $1.8 trillion of debt this year, the second-highest amount ever other than in the early stages of Covid. Stanley Druckenmiller and Ray Dalio have also sounded the alarm recently over the deficit. Going forward, there may be considerable headwinds the US government may have to face.

The US economy has been showing strong growth, but recent data – jobs report & manufacturing data - may now suggest that the economy is finally slowing.  The Biden administration has been pumping stimulus into the system via big pieces of legislation – Inflation Reduction Act, the Chips Act, and the Infrastructure Act – which are about $970 billion of stimulus.  These are designed to accelerate America’s adoption of renewables, rebuild its semiconductor industry, and increase its spending on roads, bridges, and broadband.  Fink and Dimon argue that this stimulus coupled with unions negotiating 25% labour increases are inflationary.  High growth, government stimulus and two wars, which are threatening to become a broader crisis – all are inflationary.  So, Fink and Dimon caution us not to turn the page on the rate-rising cycle just yet – it may prove premature.

Inflation, interest rates, and the economy

Cheers,

Jacquie

(THIS AI STOCK IS GAINING ATTENTION)

November 1, 2023

Hello everyone,

Welcome to November.

Wall Street is upbeat about an AI stock called Arista.

On Monday, the company earnings exceeded Wall Street expectations on both the top and bottom lines. 

Earnings:  $1.83/share

Revenue:  $1.51

Analysts forecast: 

Earnings:  $1.58/share

Revenue:  $1.48 billion

Arista also issued high-than-expected forward guidance, calling for fourth-quarter revenue in the range of $1.5 billion to $1.55 billion.

Arista’s focus is low-latency networks between clients and the cloud for large-scale data centres, exposing the company to growing investor interest in AI.

The stock is up 63% in 2023.

Analysts believe the company could be the top player in the Ethernet application of AI.  Morgan Stanley and Wells Fargo, among others applauded the company report and highlighted the company’s potential AI catalyst for growth heading into 2024.

Morgan Stanley’s Meta Marshall believes growth will accelerate from the adoption of 800G Ethernet transceivers for data centres.  Marshall upgraded Arista to overweight and gave the stock a price target of $220 which is more than 25% upside from Monday’s $175.72 close.

Market Update

U.S. 10-year Yields

We have been consolidating since reaching 5.0210% on October 23^rd.  But we may have another leg up before exhaustion.

Possible targets:  5.25/5.33%

Support lies in the low/mid 4.80%’s.

Happy Wednesday to you all.

Cheers

Jacquie

(AN AUSTRALIAN VET MAKES A DIFFERENCE IN UKRAINE)

October 27, 2023

Hello everyone,

There is something that nearly always gets left behind during hard times or in wartime.

Animals.

Thousands of animals have been brought back to Animal Shelters in Australia because owners can no longer afford to keep them.  Most people don’t seem to think about the long-term costs of keeping an animal, and just assume it will all work out in the end.   The animal seemed like a good idea during the pandemic, but now is an expense that many Australians can no longer carry.

In wartime, animals are thought of last or not at all.  That’s why in war-torn areas, like Ukraine, animals have been abandoned and are now just roaming the streets or are left chained to a post.  Some have terrible injuries:  gunshot wounds, broken bones, and are malnourished. 

One Australian vet is now making a difference to those animals’ lives.

Dr. Lachlan Campbell, a Sunshine Coast vet has flown to Ukraine on two occasions to assist the animals there.  Early in October, on his second visit, he travelled to Kramatorsk – less than an hour drive from Bakhmut.   Whilst there, he has treated animals and built shelters for pets displaced by the war in preparation for winter. 

He teamed up with the British animal charity, Nowzad, and worked with a team of four (from dawn to dusk) to build animal shelters.  He commented that the “shelters we built are enough to house 80 dogs in warmth and more comfort – and off chains – which some have been on for up to four years”.  He and his team provided quality food, parasite preventatives, and toys for the animals.  Dr. Campbell pointed out the building materials for the shelters were transported all the way from the UK by semi-trailer.

He reported that air raid sirens sounded as frequently as six to eight times a day.  He said he also wore body armour and helmets if they were required.  He had some near misses with a missile hitting within metres of the shelter Dr Campbell had been building.

During his most recent trip, Dr Campbell vaccinated, microchipped, and treated around 100 cats and dogs for diseases.

In Australia, Dr. Campbell works as a veterinarian at Vets Central on the Sunshine Coast in Queensland.

Nowzad opened its first animal clinic in Kabul, Afghanistan, in 2007, and have since opened an additional donkey/horse sanctuary in Afghanistan.

Market Update

We are in correction mode.

If we get a very good break of 4100 on the S&P, we could fall to 3800.

There is still a chance we could rally in November/December. 

In other news

The Australian Prime Minister, Anthony Albanese, is in the U.S. on a State visit to the White House.    Australia’s relationship with China was one of the talking points.  Albanese’s State visit is intended to deepen an alliance that’s increasingly viewed as a critical counterweight to China’s influence in the Pacific.  It’s the ninth and most high-profile meeting between the two leaders, which is intended to facilitate closer ties on climate change, technology, and national security.    The United States also plans to provide nuclear-powered submarines to Australia in the coming years, part of a collaboration with the United Kingdom. 

The Australian government is sending military aircraft and defence personnel to the Middle East to be on standby in the event the situation “gets worse”.

Australian fighter jets and defense personnel arrive in The Middle East.

Happy weekend to you all.

Cheers,

Jacquie

(THE BATTLE BETWEEN THE BULLS AND THE BEARS WILL BE COMING TO A STAGE NEAR YOU IN THE 4^TH QUARTER)

October 23, 2023

Hello everyone,

Welcome to the final full week in October.  We have Halloween, Thanksgiving, and Christmas/New Year ahead of us.

And we have a packed economic calendar and earnings.  Here’s what’s on our plate this week.

Monday, Oct. 23

8:30 a.m. Chicago Fed National Activity Index (September)

10:00 a.m. ET   Euro Area Consumer Confidence Flash

Previous: -17.8

Tuesday, Oct, 24

9:45 a.m S&P Global PMI Composite preliminary (October)

9:45a.m S&P Global PMI Manufacturing (October)

9:45a.m S&P Global PMI Services (October)

10 a.m. Richmond Fed Index (October)

8:30 p.m. ET Australia Inflation Rate

Previous: 6%

Earnings:  Alphabet, Microsoft, F5, Visa, Texas Instruments, General Electric, NextEra Energy, Raytheon Technologies, Sherwin-Williams, Dow. Inc, General Motors, 3M, PulteGroup, Halliburton, Coca Cola, Kimberly-Clark, Corning.

Wednesday Oct, 25

8 a.m. Building permits final (September)

10 a.m. New Home sales (September)

10:00 a.m. ET Canada Interest Rate decision

Previous:  5.0%

Earnings:  Hilton Worldwide, General Dynamics, Old Dominion Freightline, T-Mobile US, Boeing, Hess, Meta Platforms, Raymond James Financial, Align Technology, Whirlpool, International Business Machines, O’Reilly Automotive.

Thursday Oct, 26

8:30 am Durable goods orders (September)

8:30 am GDP (Q3)

8:30 am Initial claims (week ended Oct. 21)

8:30 am Wholesale inventories preliminary

8:15 am ET ECB Interest Rate Decision

Previous:  4.5%

Earnings:  Honeywell International, Keurig Dr Pepper, Northrop Grumman, PG&E, Mastercard, Amazon, Royal Caribbean Group, Tractor Supply, United Parcel Service, Willis Towers Watson, Hasbro, Southwest Airlines, Comcast, Hershey, Intel, L3Harris Technologies, Ford Motor, Dexcom, Capital One, Chipotle Mexican Grill, Emphase Energy.

Friday, Oct, 27

8:30 am Personal consumption expenditure (September)

8:30 am Personal income (September)

8:30 am ET US Core PCE Price Index

Previous:  3.9%

Earnings:  Phillips 66, Chevron, AbbVie, Stanley Black & Decker, Exxon Mobile, Colgate-Palmolive, T. Rowe Price Group.

We have all seen how Bonds have been shoving stocks down the hillside.  They are down but not out and could possibly rally well in the Q4.   Stocks are a great hedge against inflation.   Many portfolio managers and analysts are arguing that the high for the year is not in and that we could see a 4-6% gain by the end of the year. 

Analysts are starting to see green shoots.  Some argue that banks are bottoming just as they did in March of 2020, which ended in a year-end rally that commenced in Q4.  Furthermore, they see expanding breadth for stocks.  In other words, we should see more stocks rising than falling.  And analysts argue that is a buy signal for the Russell 2000, retail via the SPDR S&P Retail ETF XRT and regional banks via the SPDR S&P Regional Banking KRE.  Portfolio managers are also expressing interest in transports as they are deeply oversold.  Included here are airlines and railroads.  (That doesn’t mean you go out and buy all these stocks straight away.  The bulls and bears will likely be squabbling for a while yet, so just be patient.)

On the other side of the coin are those that see the stock market moving lower.  Several analysts see investor emotions taking over when they see the stock market falling and then realize something is very wrong.   As this realisation becomes apparent a washout becomes inevitable as many investors decide to get out, either because they can’t take it anymore or because they expect a terrible event is close at hand – a climatic stock market drop and/or an economic depression.  Cash is the best protection here. Cash reserves soften the performance drawdown, and you are well-positioned when the selling gets heated.

The high in Bond Yields is expected to peak around 5.25%.  And we may not even get to that number. 

The Middle Eastern conflict has created another layer of uncertainty over the market.  The threat of the war escalating and drawing in allies and other neutral countries should be recognized and taken seriously.   All countries need to work together to de-escalate the Middle Eastern conflict.

S&P 500

From a technical standpoint the S&P has broken weekly trendline support, so we could see more downside to around the mid 4,100’s.  If you look at the S&P through an Elliott Wave lens, particularly over the last couple of years, since peaking at 4,819 in January 2022, you could interpret that it is undergoing a very complex correction structure, which is still developing and risks testing the 3,800 level over coming weeks/months.

Earnings and economic data will certainly have a strong influence over the markets this week.

Gold

The uptrend in Gold should continue and extend onto the next key chart resistance at $2,072. The next key target after that is $2,244.   Support should hold around mid $1,900, but a push lower to $1900/$1880 cannot be ruled out.

Brent Crude Oil

Brent Crude displays a developing 14-month Inverse Head and Shoulders reversal formation with a potential upside target of around $126.50.  A sustained break above neckline resistance at $97.85 will confirm this reversal target.

In other news: 

Aid trucks have entered Gaza from Egypt, but the real challenge will be in distributing this aid where it is needed.

Israeli attacks on Gaza have increased. 

The U.S. has pledged to provide Israel and Ukraine with billions of dollars in aid.

Still no Speaker in the House.

David Attenborough, 97, is back at work.

He will present the third series of the BBC’s award-winning natural history programme, Planet Earth.  It will air later this year on BBC One.

My son, Alex, grew up watching Attenborough’s natural history documentaries.  When Alex was aged three I started buying him Attenborough documentary DVDs and books.  These included Our Planet, The Blue Planet, Life, The Life of Birds, The Life of Mammals, Life in the Undergrowth, Tiny Creatures, Life in the Freezer, Plants behaving Badly, The Private Life of Plants, and Planet Earth.  It gave him a wonderful appreciation of the wonders of nature – something that he still holds today.  Thomas the Tank Engine and Bob the Builder were quickly cast aside when David Attenborough became an alternative.

Global warming and the Aedes Aegypti mosquito

Around half the world’s population could be at risk from dengue due to global warming.

Where once this disease was confined to the small pockets of Asia, researchers now confirm that dengue can be found across several continents.  In fact, the incidence of dengue has increased by at least 30-fold over the past 50 years.

Half a million cases were reported to the WHO in 2000, rising to 5.2 million in 2019, with the true number of annual infections now estimated to be up to 96 million.

The disease is now considered endemic in more than 100 countries globally.  Global warming is driving increasingly hotter and wetter climates in which mosquitos, the main transmitter of dengue, can survive, breed, and further spread.

Dengue is already on the rise in Europe.   Its spread has increased across France over the past 12 years; it was identified in more than 70 regions in 2022, compared to just six in 2010.

Analysis from Airfinity, a science data analyst company, showed that locally acquired infections in France could reach 3,000 annually by 2030.  Cases of the virus have also been reported in Spain and Italy in recent years, and British experts believe it’s only a matter of time before it takes off in the UK.

It seems that the mosquito that carries dengue, the Aedes albopictus, is often transported into Europe via shipping containers or people’s cars.

In response, funding is being invested into mosquito trapping and monitoring systems at UK ports that aim to detect the insects. 

Many dengue infections are asymptomatic, but the virus can occasionally cause fever, body aches, and a rash.  Although most cases recover in one to two weeks, some can require hospital care and result in death.  In total, 36,000 people die from the infection every year.

The mosquito that transports the dengue virus can be found in Central and Far North Queensland, so if you are ever thinking of travelling to that area of Australia taking precautions is crucial.  Wear long sleeves and use insect repellent regularly.  There is currently no vaccine to prevent dengue fever in Australia. (There are four different variations of the virus that cause dengue fever, which essentially means that dengue fever behaves like four different viruses, and is why scientists and researchers have struggled to make progress on dengue prevention and treatment methods.)

Wishing you all a wonderful week.

Cheers

Jacquie