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The ‘Policy Pivot’ May Not Be Bullish

The ‘Policy Pivot’ May Not Be Bullish

Authored by Lance Roberts via RealInvestmentAdvice.com,

Since June, the market rallied on hopes of…

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The 'Policy Pivot' May Not Be Bullish

Authored by Lance Roberts via RealInvestmentAdvice.com,

Since June, the market rallied on hopes of a “policy pivot” by the Federal Reserve. However, those hopes got dashed each time as Jerome Powell clarified that the “inflation fight” remained the primary focus. Mr. Powell made that point very clear following the latest FOMC announcement.

“The question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive.”

Before the pandemic, the Fed’s storyline was to let inflation run hot rather than allow inflation to stay too low for too long. Such makes sense as inflation is easy to deal with by hiking rates and slowing the economy. Deflation is a far different story, as it becomes an entrenched psychological impact that becomes difficult to dislodge.

Today, Powell says the Fed’s concern is entrenched inflation which causes pain to the economy.

The reality is that inflation is not the problem.

If the Fed did nothing, “high prices will cure high prices.” The real risk remains a “deflationary” spiral that depresses economic activity and prosperity. Deflation is a far more insidious problem than inflation longer term.

Such is why, over the past decade, the Fed flooded the economy with liquidity and zero interest rates to boost economic activity. The chart below shows the periods inflation ran above or below the average inflation rate from 1982. Since the “Great Financial Crisis,” inflation has run consistently well below that average and even the Fed’s 2% target rate.

While monetary interventions and zero interest rates failed to generate organic growth above 2% annually, they increased asset prices, inflated asset bubbles, and expanded wealth inequality.

What is important to note is that since the turn of the century, the outcomes have not been positive each time the Federal Reserve has started an aggressive rate hiking campaign. Notably, the Fed is well aware of this but no longer fears creating economic havoc. As Powell recently stated,

“If we overtighten, we can support economic activity.”

In other words, for the bulls hoping for a “pivot,” Powell made it clear that a “policy pivot” is coming. It is only the function of time until it is evident that something breaks in the economy and bailouts are required.

The Policy Pivot Is Coming

One of the interesting comments by Jerome Powell was the “window for a soft landing in the economy was narrowing.” Such confirms what we already know that the Fed is starting to realize the risk of a “hard landing” is becoming increasingly elevated.

Such leaves only two trajectories for monetary policy. The first option is for central banks to pause rates and allow inflation to run its course. Such would potentially lead to a softer landing in the economy but theoretically anchor inflation at higher levels. The second option, and the one chosen, is to hike rates until the economy slips into a deeper recession. Both trajectories are bad for equities. The latter is substantially riskier as it creates an economic or financial “event” with more severe outcomes.

While the U.S. economy has absorbed tighter financial conditions so far, it doesn’t mean it will continue to do so. History is pretty clear about the outcomes of higher rates, combined with a surging dollar and inflationary pressures.

Naturally, once the Fed’s aggressive rate hike campaign “breaks” something, the “policy pivot” will occur. Such will occur as the realization that inflation has now become a “disinflationary” wave in the economy. As Michael Wilson recently noted:

M2 is now growing at just 2.5%Y and falling fast. Given the leading properties of M2 for inflation, the seeds have been sown for a sharp fall next year. The implied fall in CPI outlined would be highly out of consensus, and while it won’t necessarily play out exactly, we believe it’s directionally correctWe’re closer today [to a ‘policy pivot’] because M2 growth is fast approaching zero, and the 3-month-10-year yield curve finally inverted last week, something Chair Powell has noted is important in determining if the Fed has done enough.

Given the surge in inflation was caused by increased demand due to “stimmy checks” against a drastic drop in supply as the Government shuttered the economy, the reversal of those dynamics is disinflationary. Notably, inflation will fall in 2023 much faster than the Fed expects, leading to the rapid “policy pivot” the bulls continue to hope for.

However, the bulls may not like what they get.

The Bulls May Not Like The “Pivot”

The bullish expectation is that when the Fed finally makes a “policy pivot,” such will end the bear market. While that expectation is not wrong, it may not occur as quickly as the bulls expect.

Historically, when the Fed cuts interest rates, such is not the end of equity “bear markets,” but rather the beginning. Such is shown in the chart below of previous “Fed pivots.”

Notably, the majority of “bear markets” occur AFTER the Fed’s “policy pivot.”

The reason is that the policy pivot comes with the recognition that something has broken either economically (aka “recession”) or financially (aka “credit event”). When that event occurs, and the Fed initially takes action, the market reprices for lower economic and earnings growth rates.

Currently, forward estimates for earnings and profit margins remain elevated. The spread between the Producer Price and Consumer Price Indices remains problematic. Historically, this suggests that producers will absorb inflation, thereby eroding profit margins as consumer demand deteriorates from inflationary pressures.

Such is what Michael Wilson also concluded:

Bottom line, inflation has peaked and is likely to fall faster than most expect, based on M2 growth. This could temporarily relieve stocks in the short term as rates fall in anticipation of the change. Combining this with the compelling technicals, we think the current rally in the S&P 500 has legs to 4000-4150 before reality sets in on how far 2023 EPS estimates need to come down.”

Once the reversion sets in, the Fed cuts rates to zero and restarts the next “Quantitative Easing” program, such will start the next bull market cycle.

We will certainly want to buy that opportunity when it comes.

Our warning is that bulls may be early trying to “buy” the initial “policy pivot.”

Tyler Durden Fri, 11/11/2022 - 12:05

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FDA advisory committee votes unanimously in favor of a one-shot COVID-19 vaccine approach – 5 questions answered

Many questions remain about next steps for US vaccine policy. But the FDA advisory panel’s hearty endorsement of a single-composition COVID-19 vaccine…

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The FDA advisory committee discussed vaccine safety, effectiveness of the current shots, potential seasonality of COVID-19 and more. wildpixel/iStock via Getty Images Plus

The U.S. Food and Drug Administration’s key science advisory panel, the Vaccines and Related Biological Products Advisory Committee, met on Jan. 26, 2023, to chart a path forward for COVID-19 vaccine policy. During the all-day meeting, the 21-member committee discussed an array of weighty issues including the efficacy of existing vaccines, the composition of future vaccine strains and the need to match them to the circulating variants of SARS-CoV-2, the possibility of moving to an annual-shot model, the potential seasonality of the virus and much more.

But the key question at hand, and the only formal question that was voted on, following a proposal from the FDA earlier in the week, had to do with how to simplify the path to getting people vaccinated.

The Conversation asked immunologist Matthew Woodruff, who has been on the front lines of studying immune responses to COVID-19 since the early days of the pandemic, to walk us through the big questions of the day and what they mean for future COVID-19 vaccine strategies.

What exactly did the advisory committee vote on?

The question put before the committee for a vote was whether to move to one COVID-19 vaccine consisting of a single composition for all people – whether currently vaccinated or not – and away from the current model that includes one formulation given as a primary series and a separate formulation administered as a booster. Importantly, approved formulations could come from any number of vaccine manufacturers, not just those that have currently authorized vaccines.

The U.S. Centers for Disease Control and Prevention currently requires that the primary series of shots, or the first two doses of the vaccine that a patient receives, consist of the first generation of vaccine against the original strain of SARS-CoV-2, known as the “Wuhan” strain of the virus. These shots are given weeks apart, followed months later by a booster shot that was updated in August 2022 to contain a bivalent formulation of vaccine that targets both the original viral strain and newer subvariants of omicron.

The committee’s endorsement simplifies those recommendations. In a 21-to-0 vote, the advisory board recommended fully replacing, or “harmonizing,” the original formulation of the vaccine with a single shot that would consist of – at least for now – the current bivalent vaccine.

In doing so, it has signaled its belief that these new second-generation vaccines are an upgrade over their predecessors in protecting from infection and severe illness at this point in the pandemic.

If the FDA panel’s recommendation is endorsed by the CDC, only a single composition of vaccine – in this case, the updated bivalent shot – will be used for both vaccinated and unvaccinated people.

Will the single shot remain a mixed-strain, or bivalent, vaccine?

For now, the single shot will be bivalent. But this may not always be the case.

There was a general agreement that the current bivalent shot is preferable to the original vaccine targeted at the Wuhan strain of the virus by itself. But committee members debated whether that original Wuhan vaccine strain should continue to be a part of updated vaccine formulations.

There is no current data comparing a monovalent, or single-strain, vaccine that targets omicron and its subvariants against the current bivalent shot. As a result, it’s unclear how a monovalent shot against recent omicron subvariants would perform in comparison to the bivalent version.

What is immune imprinting, and how does it apply here?

A main reason for the debate over monovalent versus bivalent – or, for that matter, trivalent or tetravalent – vaccines is a lack of understanding around how best to sharpen an immune response to a slightly altered threat. This has long been a debate surrounding annual influenza vaccination strategies, where studies have shown that the immune “memory” that forms in response to a prior vaccine can actively repress a robust immune response to the next.

This phenomenon of immune imprinting, originally coined in 1960 as “original antigenic sin,” has been a topic of debate both within the advisory committee and within the broader immunological community.

Although innovative strategies are being developed to overcome potential problems with routinely updated vaccines, they are not yet ready to be tested in humans. In the meantime, it is unclear how bivalent versus monovalent vaccine choices might alter this phenomenon, and it is very clear that more study is needed.

Is the committee considering only mRNA vaccines?

While a significant portion of the discussion focused on the mRNA vaccine platform used by both Pfizer and Moderna, several committee members emphasized the need for new technologies that could provide broader immunological protection. Dr. Pamela McInnes, a now-retired longtime deputy director of the National Center for Advancing Translational Sciences, highlighted this point, saying, “I would make a plea for ongoing research on broader protection, maybe different platforms, maybe a different approach.”

A good deal of attention was also directed toward Novavax, a protein-based formulation that relies on a more traditional approach to vaccination than the mRNA-based vaccines. Although the Novavax vaccine has been authorized by the FDA for use since July 2022, it has received much less national attention – largely because of its latecomer status. Nonetheless, Novavax has boasted efficacy rates on par with its mRNA cousins, with good safety profiles and less demanding long-term storage requirements than the mRNA shots.

By simplifying the vaccine schedule to include only a single vaccine formulation, the committee reasoned, it might be easier for competing vaccination platforms to break into the market. In other words, newer vaccine contenders would not have to rely on patients’ having already received their primary series before using their products. Companies seemed ready to take advantage of that future flexibility, with researchers from Pfizer, Moderna and Novavax all revealing their companies’ exploration of a hybrid COVID-19 and flu shot at various stages of clinical trials and testing.

Would the single shot resemble flu vaccine development?

Not necessarily. Currently, the influenza vaccine is decided by committee through the World Health Organization. Because of its seasonal nature, the strains to be included in each season’s flu vaccine strain for the Southern and Northern hemispheres, with their opposing winters, are selected independently. The Northern Hemisphere’s selection is made in February for the following winter based on a vast network of flu monitoring stations around the globe.

Although there was broad consensus among panelists that the shots against SARS-CoV-2 should be updated regularly to more closely match the most current circulating viral strain, there was less agreement on how frequent that would be.

For instance, rapidly mutating strains of the virus in both summer and winter surges might necessitate two updated shots a year instead of just one. As Dr. Eric Rubin, an infectious disease expert from the Harvard T.H. Chan School of Public Health, noted, “It’s hard to say that it’s going to be annual at this point.”

Matthew Woodruff receives funding from the National Institute of Health and the US Department of Defense to support his academic research.

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Measles virus ‘cooperates’ with itself to cause fatal encephalitis

Fukuoka, Japan—Researchers in Japan have uncovered the mechanism for how the measles virus can cause subacute sclerosing panencephalitis, or SSPE, a…

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Fukuoka, Japan—Researchers in Japan have uncovered the mechanism for how the measles virus can cause subacute sclerosing panencephalitis, or SSPE, a rare but fatal neurological disorder that can occur several years after a measles infection.

Credit: Kyushu University/Hidetaka Harada/Yuta Shirogane

Fukuoka, Japan—Researchers in Japan have uncovered the mechanism for how the measles virus can cause subacute sclerosing panencephalitis, or SSPE, a rare but fatal neurological disorder that can occur several years after a measles infection.

Although the normal form of the measles virus cannot infect the nervous system, the team found that viruses that persist in the body can develop mutations in a key protein that controls how they infect cells. The mutated proteins can interact with its normal form, making it capable of infecting the brain. Their findings were reported in the journal Science Advances.

If you are of a certain age, you may have gotten the measles as a child. Many born after the 1970s have never gotten it thanks to vaccines. The condition is caused by the virus of the same name, which is one of the most contagious pathogens to this day. The World Health Organization estimates that nearly nine million people worldwide were infected with measles in 2021, with the number of deaths reaching 128,000.

“Despite its availability, the recent COVID-19 pandemic has set back vaccinations, especially in the Global South,” explains Yuta Shirogane, Assistant Professor at Kyushu University’s Faculty of Medical Sciences. “SSPE is a rare but fatal condition caused by the measles virus. However, the normal measles virus does not have the ability to propagate in the brain, and thus it is unclear how it causes encephalitis.”

A virus infects cells through a series of proteins that protrude from its surface. Usually, one protein will first facilitate the virus to attach to a cell’s surface, then another surface protein will cause a reaction that lets the virus into the cell, leading to an infection. Therefore, what a virus can or cannot infect can depend heavily on the type of cell.

“Usually, the measles virus only infects your immune and epithelial cells, causing the fever and rash,” continues Shirogane. “Therefore, in patients with SSPE, the measles virus must have remained in their body and mutated, then gained the ability to infect nerve cells. RNA viruses like measles mutate and evolve at very high rates, but the mechanism of how it evolved to infect neurons has been a mystery.”

The key player in allowing the measles virus to infect a cell is a protein called fusion protein, or F protein. In the team’s previous studies, they showed that certain mutations in the F protein puts it in a ‘hyperfusongenic’ state, allowing it to fuse onto neural synapses and infect the brain.

In their latest study, the team analyzed the genome of the measles virus from SSPE patients and found that various mutations had accumulated in their F protein. Interestingly, certain mutations would increase infection activity while others actually decreased it.

“This was surprising to see, but we found an explanation. When the virus infects a neuron, it infects it through ‘en bloc transmission,’ where multiple copies of the viral genome enter the cell,” continues Shirogane. “In this case, the genome encoding the mutant F protein is transmitted simultaneously with the genome of the normal F protein, and both proteins are likely to coexist in the infected cell.”

Based on this hypothesis, the team analyzed the fusion activity of mutant F proteins when normal F proteins were present. Their results showed that fusion activity of a mutant F protein is suppressed due to interference from the normal F proteins, but that interference is overcome by the accumulation of mutations in the F protein.

In another case, the team found that a different set of mutations in the F protein results in a completely opposite result: a reduction in fusion activity. However, to their surprise, this mutation can actually cooperate with normal F proteins to increase fusion activity. Thus, even mutant F proteins that appear to be unable to infect neurons can still infect the brain.

“It is almost counter to the ‘survival of the fittest’ model for viral propagation. In fact, this phenomenon where mutations interfere and/or cooperate with each other is called ‘Sociovirology.’ It’s still a new concept, but viruses have been observed to interact with each other like a group. It’s an exciting prospect” explains Shirogane.

The team hopes that their results will help develop therapeutics for SSPE, as well as elucidate the evolutionary mechanisms common to viruses that have similar infection mechanisms to measles such as novel coronaviruses and herpesviruses.

“There are many mysteries in the mechanisms by which viruses cause diseases. Since I was a medical student, I was interested in how the measles virus caused SSPE. I am happy that we were able to elucidate the mechanism of this disease,” concludes Shirogane.

###

For more information about this research, see “Collective fusion activity determines neurotropism of an en bloc transmitted enveloped virus” Yuta Shirogane, Hidetaka Harada, Yuichi Hirai, Ryuichi Takemoto, Tateki Suzuki, Takao Hashiguchi, Yusuke Yanagi, https://doi.org/10.1126/sciadv.adf3731

About Kyushu University
Kyushu University is one of Japan’s leading research-oriented institutes of higher education since its founding in 1911. Home to around 19,000 students and 8,000 faculty and staff, Kyushu U’s world-class research centers cover a wide range of study areas and research fields, from the humanities and arts to engineering and medical sciences. Its multiple campuses—including the largest in Japan—are located around Fukuoka City, a coastal metropolis on the southwestern Japanese island of Kyushu that is frequently ranked among the world’s most livable cities and historically known as a gateway to Asia.


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Beloved Royal Caribbean Adult Event Still Missing; Another Returns

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn’t been brought back.

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The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn't been brought back.

In the early days of Royal Caribbean Group's (RCL) - Get Free Report return from its 15-month covid pandemic shutdown, cruising looked a lot different. Ships sailed with limited capacities, masks were required in most indoor areas, and social distancing was a thing.

Keeping people six feet apart made certain aspects of taking a cruise impossible. Some were made easier by the lower passenger counts. For example, all Royal Caribbean Windjammer buffets required reservations to keep the crowds down, but in practice that system was generally not needed because capacities were never reached.

Dance parties and nightclub-style events had to be held on the pool decks or in larger spaces, and shows in the big theaters left open seats between parties traveling together. In most cases, accommodations were made and events more or less happened in a sort of normal fashion.

A few very popular events were not possible, however, in an environment where keeping six feet between passengers was a goal. Two of those events -- the first night balloon drop and the adult "Crazy Quest" game show -- simply did not work with social-distancing requirements.

One of those popular events has now made its comeback while the second appears to still be missing (aside from a few one-off appearances).

TheStreet

Crazy Quest Is Still Mostly Missing

In late November, Royal Caribbean's adult scavenger hunt, "The Quest," (sometimes known as "Crazy Quest") began appearing on select sailings. And at the time it appeared like it was coming back across the fleet: A number of people posted about the return of the interactive adult game show in an unofficial Royal Caribbean Facebook group.

It first appeared during a Wonder of the Seas transatlantic sailing.

Since, then it's appearances continue to be spotty and it has not returned on a fleetwide basis. This might not be due to any covid-related issues directly, but covid may play a role.

On some ships, Studio B, which hosts "The Quest," has been used for show rehearsals. That has been more of an issue with the trouble Royal Caribbean has had in getting new crew members onboard. And while that staffing issue has been improving, some shows may not have had full complements of performers, so using the space for rehearsal has been a continuing need.

In addition, while covid rules have gone away, covid has not, and ill cast members may force the need for more rehearsals.

Royal Caribbean has not publicly commented on when (or whether) "The Quest" will make a full comeback

Royal Caribbean Balloon Drops Are Back   

Before the pandemic, Royal Caribbean kicked off many of its cruises with a balloon drop on the Royal Promenade. That went away because it forced people to cluster as music was performed and, at midnight, balloons fell from the ceiling.

Now, the cruise line has brought back the balloon drop, albeit with a twist. The drop itself is appearing on activity schedules for upcoming Royal Caribbean cruises. Immediately after it, however, the cruise line has added something new: "The Big Recycle Balloon Pickup."

Most of the dropped balloons get popped during the drop. Previously, crewmembers picked up the used balloons. Now, the cruise line has made it a "fun" passenger activity.

"Get environmentally friendly as you help us gather our 100% biodegradable balloons in recycle baskets," the cruise line shared in its app. 

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