Connect with us

Try to Remember…

Try to Remember…

Published

on

Expected Future Cash Flows

Try to remember the kind of September when life was slow and oh so mellow

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q1 2020 hedge fund letters, conferences and more

With the Covid crisis upon us, life last September seemed slow and oh so mellow.  But memory can be deceiving, so from an investment standpoint it is worth digging deeper to jog memory.  Last Friday, before the long Memorial Day weekend, the S&P 500 closed at 2,955.54.  This is almost exactly equals the level of the index following the close on September 4, 2019.  On that day, just after the Labor Day weekend, the S&P 500 stood a whisker less at 2,937.78.  This suggests a comparison of now versus then.  In that respect, the exhibit below provides historical perspective.

Expected Future Cash Flows

The Disaster Wrought By Covid-19

On a macroeconomic basis, the exhibit shows the disaster wrought by Covid-19.  Back in September 2019, the economy was humming along, growing at a respectable rate of 2.3% in real terms.  The unemployment rate was a spectacular 3.5%, nearly an all-time record low.  In addition, stock prices had been rising, with the S&P 500 up 12.7% from the start of the year.  It was all very mellow.  By May 22, 2020 macroeconomic conditions were anything but mellow.

The economy was contracting at an annualized rate of 40%, worse than the rate of decline during the financial crisis, and matching levels unseen since the great depression.  Similarly, the unemployment rate spiked from record lows to in excess of 15% - again a level matched only during the great depression.  But somehow the stock was not concerned.  The S&P 500 was at the same point it had been in the halcyon days of September.

The consistency of the S&P 500 hides turbulence underneath.  As the exhibit shows, traditional “value” stocks such as Bank of America, Berkshire Hathaway, and General Motors all fell significantly from September to May, while United Airlines which saw 95% year over year drop in passengers, not unexpectedly cratered.  Such declines were pretty much true across the board, with one huge exception – technology stocks.

The big five, Amazon, Apple, Facebook, Google, and Microsoft were all up with the group averaging over 25%.  However, this gain was small in comparison to the jump in other large, high profile tech stocks such as Nvidia, Shopify and Tesla which were all up over 100% from September to May.  It was this rise in technology stocks, which constituted a large fraction of the total market value, that allowed the overall market to avoid falling as the economy unwound.

But does this make sense?  Taken as a whole, the American economy was producing goods and services at a much slower rate in May than September.  Furthermore, predictions of future economic growth that were taken for granted in September were replaced by forecasts of a period of decline followed by a slow recovery.  Even if certain technology stocks were expected to thrive in this new world, how could stock as a whole fail to reflect the changed conditions?

The Value Of Expected Future Cash Flows

To answer the question, it is important to remember that stock prices reflected the present value of expected future cash flows to equity owners.  That present value is calculated by discounting the cash flows at a rate that reflects the expected return on equity.  Given this framework, it is possible that a drop in expected future cash flows can be offset by a decline in the discount rate.  That appears to be the best explanation of what has happened.  The slowing of the economy and the massive infusion of liquidity by the Federal Reserve has driven the interest rates on Treasury securities to record lows dragging down the expected returns on stocks with them.  This drop in discount rates increases stock valuations, particularly valuations of growth stocks with large cash flows in the more distant future.

While this all sounds good, there is a dark side for investors.  If stock prices have been supported, or enhanced in the case of technology stocks, by a drop in the discount rate, it means that returns going forward are going to be less, on average.  Unlike bonds, however, the lower expected future returns on stock cannot be observed directly.  They leave their tracks in high stock prices.  For instance, Amazon, despite its massive size, is currently trading at a stratospheric P/E multiple 116!  If that multiple were to start returning to Earth, the stock price could remain stagnant for years even in the face of rising earnings.

As an example, in July of 1998, Coca-Cola was a growth stock darling trading at price of $44 with P/E ratio of 50.  During the ensuing 22 years, virtually all the increases in Coke’s earnings were offset by declines in the P/E ratio.  The stocks closed at $45.03 on Friday, May 22.  Given the multiples at which tech darlings are trading today, many are likely to have a Coke in their future.  The remarkable rise in the prices of leading tech stocks does not imply more of the same in the future – just the reverse.  That rise has caused these stocks to become more expensive and the more expensive a stock becomes the lower the future expected returns.

The post Try to Remember… appeared first on ValueWalk.

Read More

Continue Reading

Uncategorized

Simple blood test could predict risk of long-term COVID-19 lung problems

UVA Health researchers have discovered a potential way to predict which patients with severe COVID-19 are likely to recover well and which are likely to…

Published

on

UVA Health researchers have discovered a potential way to predict which patients with severe COVID-19 are likely to recover well and which are likely to suffer “long-haul” lung problems. That finding could help doctors better personalize treatments for individual patients.

Credit: UVA Health

UVA Health researchers have discovered a potential way to predict which patients with severe COVID-19 are likely to recover well and which are likely to suffer “long-haul” lung problems. That finding could help doctors better personalize treatments for individual patients.

UVA’s new research also alleviates concerns that severe COVID-19 could trigger relentless, ongoing lung scarring akin to the chronic lung disease known as idiopathic pulmonary fibrosis, the researchers report. That type of continuing lung damage would mean that patients’ ability to breathe would continue to worsen over time.

“We are excited to find that people with long-haul COVID have an immune system that is totally different from people who have lung scarring that doesn’t stop,” said researcher Catherine A. Bonham, MD, a pulmonary and critical care expert who serves as scientific director of UVA Health’s Interstitial Lung Disease Program. “This offers hope that even patients with the worst COVID do not have progressive scarring of the lung that leads to death.”

Long-Haul COVID-19

Up to 30% of patients hospitalized with severe COVID-19 continue to suffer persistent symptoms months after recovering from the virus. Many of these patients develop lung scarring – some early on in their hospitalization, and others within six months of their initial illness, prior research has found. Bonham and her collaborators wanted to better understand why this scarring occurs, to determine if it is similar to progressive pulmonary fibrosis and to see if there is a way to identify patients at risk.

To do this, the researchers followed 16 UVA Health patients who had survived severe COVID-19. Fourteen had been hospitalized and placed on a ventilator. All continued to have trouble breathing and suffered fatigue and abnormal lung function at their first outpatient checkup.

After six months, the researchers found that the patients could be divided into two groups: One group’s lung health improved, prompting the researchers to label them “early resolvers,” while the other group, dubbed “late resolvers,” continued to suffer lung problems and pulmonary fibrosis. 

Looking at blood samples taken before the patients’ recovery began to diverge, the UVA team found that the late resolvers had significantly fewer immune cells known as monocytes circulating in their blood. These white blood cells play a critical role in our ability to fend off disease, and the cells were abnormally depleted in patients who continued to suffer lung problems compared both to those who recovered and healthy control subjects. 

Further, the decrease in monocytes correlated with the severity of the patients’ ongoing symptoms. That suggests that doctors may be able to use a simple blood test to identify patients likely to become long-haulers — and to improve their care.

“About half of the patients we examined still had lingering, bothersome symptoms and abnormal tests after six months,” Bonham said. “We were able to detect differences in their blood from the first visit, with fewer blood monocytes mapping to lower lung function.”

The researchers also wanted to determine if severe COVID-19 could cause progressive lung scarring as in idiopathic pulmonary fibrosis. They found that the two conditions had very different effects on immune cells, suggesting that even when the symptoms were similar, the underlying causes were very different. This held true even in patients with the most persistent long-haul COVID-19 symptoms. “Idiopathic pulmonary fibrosis is progressive and kills patients within three to five years,” Bonham said. “It was a relief to see that all our COVID patients, even those with long-haul symptoms, were not similar.”

Because of the small numbers of participants in UVA’s study, and because they were mostly male (for easier comparison with IPF, a disease that strikes mostly men), the researchers say larger, multi-center studies are needed to bear out the findings. But they are hopeful that their new discovery will provide doctors a useful tool to identify COVID-19 patients at risk for long-haul lung problems and help guide them to recovery.

“We are only beginning to understand the biology of how the immune system impacts pulmonary fibrosis,” Bonham said. “My team and I were humbled and grateful to work with the outstanding patients who made this study possible.” 

Findings Published

The researchers have published their findings in the scientific journal Frontiers in Immunology. The research team consisted of Grace C. Bingham, Lyndsey M. Muehling, Chaofan Li, Yong Huang, Shwu-Fan Ma, Daniel Abebayehu, Imre Noth, Jie Sun, Judith A. Woodfolk, Thomas H. Barker and Bonham. Noth disclosed that he has received personal fees from Boehringer Ingelheim, Genentech and Confo unrelated to the research project. In addition, he has a patent pending related to idiopathic pulmonary fibrosis. Bonham and all other members of the research team had no financial conflicts to disclose.

The UVA research was supported by the National Institutes of Health, grants R21 AI160334 and U01 AI125056; NIH’s National Heart, Lung and Blood Institute, grants 5K23HL143135-04 and UG3HL145266; UVA’s Engineering in Medicine Seed Fund; the UVA Global Infectious Diseases Institute’s COVID-19 Rapid Response; a UVA Robert R. Wagner Fellowship; and a Sture G. Olsson Fellowship in Engineering.

  

To keep up with the latest medical research news from UVA, subscribe to the Making of Medicine blog at http://makingofmedicine.virginia.edu.


Read More

Continue Reading

Government

Looking Back At COVID’s Authoritarian Regimes

After having moved from Canada to the United States, partly to be wealthier and partly to be freer (those two are connected, by the way), I was shocked,…

Published

on

After having moved from Canada to the United States, partly to be wealthier and partly to be freer (those two are connected, by the way), I was shocked, in March 2020, when President Trump and most US governors imposed heavy restrictions on people’s freedom. The purpose, said Trump and his COVID-19 advisers, was to “flatten the curve”: shut down people’s mobility for two weeks so that hospitals could catch up with the expected demand from COVID patients. In her book Silent Invasion, Dr. Deborah Birx, the coordinator of the White House Coronavirus Task Force, admitted that she was scrambling during those two weeks to come up with a reason to extend the lockdowns for much longer. As she put it, “I didn’t have the numbers in front of me yet to make the case for extending it longer, but I had two weeks to get them.” In short, she chose the goal and then tried to find the data to justify the goal. This, by the way, was from someone who, along with her task force colleague Dr. Anthony Fauci, kept talking about the importance of the scientific method. By the end of April 2020, the term “flatten the curve” had all but disappeared from public discussion.

Now that we are four years past that awful time, it makes sense to look back and see whether those heavy restrictions on the lives of people of all ages made sense. I’ll save you the suspense. They didn’t. The damage to the economy was huge. Remember that “the economy” is not a term used to describe a big machine; it’s a shorthand for the trillions of interactions among hundreds of millions of people. The lockdowns and the subsequent federal spending ballooned the budget deficit and consequent federal debt. The effect on children’s learning, not just in school but outside of school, was huge. These effects will be with us for a long time. It’s not as if there wasn’t another way to go. The people who came up with the idea of lockdowns did so on the basis of abstract models that had not been tested. They ignored a model of human behavior, which I’ll call Hayekian, that is tested every day.

These are the opening two paragraphs of my latest Defining Ideas article, “Looking Back at COVID’s Authoritarian Regimes,” Defining Ideas, March 14, 2024.

Another excerpt:

That wasn’t the only uncertainty. My daughter Karen lived in San Francisco and made her living teaching Pilates. San Francisco mayor London Breed shut down all the gyms, and so there went my daughter’s business. (The good news was that she quickly got online and shifted many of her clients to virtual Pilates. But that’s another story.) We tried to see her every six weeks or so, whether that meant our driving up to San Fran or her driving down to Monterey. But were we allowed to drive to see her? In that first month and a half, we simply didn’t know.

Read the whole thing, which is longer than usual.

(0 COMMENTS)

Read More

Continue Reading

Uncategorized

The hostility Black women face in higher education carries dire consequences

9 Black women who were working on or recently earned their PhDs told a researcher they felt isolated and shut out.

Published

on

By

Isolation can make opportunities elusive. fotostorm via Getty Images

Isolated. Abused. Overworked.

These are the themes that emerged when I invited nine Black women to chronicle their professional experiences and relationships with colleagues as they earned their Ph.D.s at a public university in the Midwest. I featured their writings in the dissertation I wrote to get my Ph.D. in curriculum and instruction.

The women spoke of being silenced.

“It’s not just the beating me down that is hard,” one participant told me about constantly having her intelligence questioned. “It is the fact that it feels like I’m villainized and made out to be the problem for trying to advocate for myself.”

The women told me they did not feel like they belonged. They spoke of routinely being isolated by peers and potential mentors.

One participant told me she felt that peer community, faculty mentorship and cultural affinity spaces were lacking.

Because of the isolation, participants often felt that they were missing out on various opportunities, such as funding and opportunities to get their work published.

Participants also discussed the ways they felt they were duped into taking on more than their fair share of work.

“I realized I had been tricked into handling a two- to four-person job entirely by myself,” one participant said of her paid graduate position. “This happened just about a month before the pandemic occurred so it very quickly got swept under the rug.”

Why it matters

The hostility that Black women face in higher education can be hazardous to their health. The women in my study told me they were struggling with depression, had thought about suicide and felt physically ill when they had to go to campus.

Other studies have found similar outcomes. For instance, a 2020 study of 220 U.S. Black college women ages 18-48 found that even though being seen as a strong Black woman came with its benefits – such as being thought of as resilient, hardworking, independent and nurturing – it also came at a cost to their mental and physical health.

These kinds of experiences can take a toll on women’s bodies and can result in poor maternal health, cancer, shorter life expectancy and other symptoms that impair their ability to be well.

I believe my research takes on greater urgency in light of the recent death of Antoinette “Bonnie” Candia-Bailey, who was vice president of student affairs at Lincoln University. Before she died by suicide, she reportedly wrote that she felt she was suffering abuse and that the university wasn’t taking her mental health concerns seriously.

What other research is being done

Several anthologies examine the negative experiences that Black women experience in academia. They include education scholars Venus Evans-Winters and Bettina Love’s edited volume, “Black Feminism in Education,” which examines how Black women navigate what it means to be a scholar in a “white supremacist patriarchal society.” Gender and sexuality studies scholar Stephanie Evans analyzes the barriers that Black women faced in accessing higher education from 1850 to 1954. In “Black Women, Ivory Tower,” African American studies professor Jasmine Harris recounts her own traumatic experiences in the world of higher education.

What’s next

In addition to publishing the findings of my research study, I plan to continue exploring the depths of Black women’s experiences in academia, expanding my research to include undergraduate students, as well as faculty and staff.

I believe this research will strengthen this field of study and enable people who work in higher education to develop and implement more comprehensive solutions.

The Research Brief is a short take on interesting academic work.

Ebony Aya received funding from the Black Collective Foundation in 2022 to support the work of the Aya Collective.

Read More

Continue Reading

Trending