The Trouble With 'Virus Crisis' Speculation
The 'Wuhan virus' spreads... The market pulls back... Airlines and casinos take a tumble... A few biotech stocks shoot higher... The trouble with 'virus crisis' speculation... It's just like 1999... The top health care idea for 2020...
Today, we'll start with the latest news from the 'coronavirus crisis'...
When the elevator doors opened at the office this morning, we instantly noticed the message on the TV mounted on the wall. Although the TV was muted, the graphic at the bottom of the screen in scary, bright red styling said it all...
"Virus Fears Grip Market."
As much as you want to pretend these types of headlines don't exist, you can't avoid them.
It's true that the "Wuhan virus" – the previously unknown and deadly strain of "coronavirus" that also produces flu- and cold-like symptoms – is spreading... As we write, at least 81 people have died in China from the virus. And more than 2,700 others have reportedly been infected in more than a dozen countries – including five confirmed cases in the U.S.
Officials believe the virus was transmitted to humans from snakes sold at a food market in Wuhan, a central Chinese city of roughly 11 million people. Wuhan and 15 other cities in China were on lockdown today, as the government sought to stop the spread of the virus.
In all, more than 50 million people in China are under travel restrictions.
No doubt, more and more people are starting to worry about the Wuhan virus...
Here in Baltimore, a passenger who had recently traveled to Beijing arrived over the weekend on a flight from Las Vegas. Showing flu-like symptoms, the passenger was escorted off the plane upon landing.
But it proved to be a false alarm... After undergoing a medical evaluation, the passenger was released.
We're not blaming anyone for being concerned or taking precautions when it comes to their health.
As for the markets, though, they've seen this sort of public health crisis before...
For instance, we noted last Wednesday how the markets reacted to the severe acute respiratory syndrome ("SARS") outbreak in 2002 and 2003. In short, the short-term panic and volatility often gave way to a brighter long-term picture...
Earlier today, our colleague and Stansberry NewsWire editor C. Scott Garliss put together a chart showing what happened back then – and important announcements from the World Health Organization ("WHO") – compared to this latest scare, which began with the first reported case of the Wuhan virus on December 8, 2019. Take a look...
Diving deeper, as we also explained last week, certain assets associated with new public health crises tend to take a tumble in the short term (or shoot higher, when it comes to "safe haven" or speculation plays).
Last week, we noted that Scott said he "believes the negative headlines and travel restrictions could cause temporary problems for some stocks"... specifically airlines and gaming (casino) companies with operations in China.
As the market pulled back today, that's exactly what happened...
Names like Wynn Resorts (WYNN), Las Vegas Sands (LVS), and MGM Resorts (MGM) were all down... falling by as much as 8% in Wynn's case. Meanwhile, American Airlines (AAL) was down almost 6% and United Airlines (UAL) was down 5%.
Today, Scott told us that any airlines with long-haul flights into or out of China might suffer the most, along with companies like luxury retailers with large footprints in China and basically any company that does a lot of business in the world's second-largest economy.
This afternoon, for instance, companies with significant connections to China – like Disney (DIS), McDonald's (MCD), and Starbucks (SBUX) – said they're suspending operations in the country, or enacting travel restrictions.
The benchmark S&P 500 Index, the Nasdaq Composite Index, and the Dow Jones Industrial Average all finished the day down at least 1.6%. It was the Dow's worst day since October.
At the same time, certain stocks and assets are shooting higher...
Traditional safe-haven assets like gold predictably pushed to new highs today. Gold gained about 0.6% today... moving to nearly $1,580 per ounce.
Less expected was the rise of drugmaker AbbVie (ABBV)...
The stock popped as much as 2% this morning based off news that China is testing a pair of its human immunodeficiency virus ("HIV") drugs as a treatment for the pneumonia symptoms of the Wuhan virus.
As it turns out, Wang Guangfa, a doctor who was infected with the coronavirus after visiting Wuhan to inspect patients, tried AbbVie's HIV drugs on himself... and they worked. So he passed along the information to the Chinese government.
Meanwhile, other investors are throwing money into much more speculative plays related to the virus...
Stansberry Innovations Report editor John Engel alerted us to this trend on Friday, and he reiterated it to us again today...
We're talking about developmental biotech companies and diagnostic firms like Co-Diagnostics (CODX), which was up more than 80% today, and NanoViricides (NNVC), which is up 400% since January 15... These two companies have issued press releases promising to develop tests and a treatment, respectively, for the coronavirus.
But if you're thinking of joining this speculative wave, you might want to reconsider. John urges investors to be extremely careful. He told us in an e-mail today...
Over the past five years, we've seen two similar public health crises take front-page news. I'm referring to Zika and Ebola, of course.
What I remember most about those previous events are the drugmakers and developmental firms that announced ambitious plans to address the threats. In most cases, the firms never quite deliver. Instead, they build false promises to drive share prices higher.
Tekmira (now known as Arbutus Biopharma) is the perfect example. Its share price took wild swings as Ebola spread in 2013 and 2014. You might have got into the stock and seen it shoot through the roof. But timing an entry and exit was incredibly hard...
It's hard to predict when a crisis will be resolved...
The spread of Ebola eventually subsided in 2015... but in hindsight, if investors didn't get out at the right time, they "could've booked losses greater than 90% if they continued to hold out for more Ebola outbreak news," John wrote.
Anyway, as John said, any company promising it is working on a detector or a "cure" for a new virus is likely overstating its potential. More from John...
The fact is, developing new therapeutics often takes years of development and clinical testing. And even then, it's a gamble that it'll prove effective and safe for use in people.
Please, I can't stress this enough... if you can't stand the thought of not being a part of the frenzy... if you just have to buy into one of these small speculative companies... please don't put more money in it than you're willing to lose. And just remember that what you're doing more closely resembles gambling than actual investing.
Coronavirus fears might not be the only reason to be concerned about the frothy markets today...
In his weekly outlook published early Monday morning, Ten Stock Trader editor Greg Diamond pointed out the similarities between the current market environment and that of the major advance of 1999... right before the eventual dot-com bubble burst in early 2000.
Legendary investor Paul Tudor Jones issued the warning last week to a wide audience on CNBC... "It reminds me of early 1999," Jones said. "It's so explosive. It defies imagination."
A lot of people paid close attention to Jones' warning... including Greg. His first boss in this business was someone who worked directly for Jones, and Greg uses many of the lessons he learned back then with his subscribers today – like the value of price action, controlling your emotions, and having no bias.
This morning, Greg laid out in detail why Jones made the statement he did, and how today looks so much like two decades ago. In fairness to Greg's Ten Stock Trader subscribers, we won't include all the details in today's Digest, but these two charts should make the point loud and clear...
Here's the tech-heavy Nasdaq 100 Index from 1998 to early 1999...
And today...
"Without question," Greg wrote, "there's a very tight correlation between these two market cycles."
What does this mean for investors right now?
In the short term, it indicates there's more room for this bull market to run. As Greg pointed out, before the dot-com bubble top, the Nasdaq 100 recorded an incredible 100% advance in 1999. In 1998, it was up more than 80%.
Last year, the Nasdaq 100 gained 40%. "So if Jones is correct once again in comparing two market cycles, can we see a similar double-digit advance in 2020?" Greg said. "Absolutely."
But that doesn't mean things will keep moving swimmingly...
Regular Digest readers know the "easy money" policies of the Federal Reserve – which is again expanding its balance sheet (expect more headlines around that out of the central bank's meeting this week) – are fueling this bull market. Here's a final thought from Greg...
Similar to the tech-bubble bursting in 2000, the Fed is creating a monster with the current expansion of the balance sheet and low interest rates.
Staying with our "history rhymes" theme, there's no doubt this bull market will end quite violently.
Moving on to the health care debate...
As the Democratic presidential candidates argue about the future of health care... President Donald Trump wants in on the debate. As the chief executive tweeted last week...
Mini Mike Bloomberg is spending a lot of money on False Advertising. I was the person who saved Pre-Existing Conditions in your Healthcare, you have it now, while at the same time winning the fight to rid you of the expensive, unfair and very unpopular Individual Mandate...
Leaving aside how axing the Affordable Care Act ("ACA") would "save" its rules requiring coverage of pre-existing conditions... clearly Trump is eager to get credit for improving the health care system.
Trump apparently berated Health and Human Services Secretary Alex Azar for not doing enough to lower drug prices. According to a Washington Post report, the president became angry after seeing polls that suggested voters trust Democrats more than Republicans on health care issues. He demanded Azar speed up efforts to increase price transparency and to approve drug imports from Canada.
But Trump may have caught a break from the Supreme Court...
Last week, the high court declined to expedite consideration of a challenge to the ACA. Action on this case could have opened the door to changes in the existing provisions of one of the Trump administration's campaign promises.
If nothing else, it extends the timeline for more tweets like...
[If] Republicans win in court and take back the House of Represenatives [sic], your healthcare, that I have now brought to the best place in many years, will become the best ever, by far. I will always protect your Pre-Existing Conditions, the Dems will not!
With all the Democratic presidential hopefuls running around the country competing to see who can give away the most free health care... the question of radical changes to the current system is going to be a mainstay of media coverage.
As Stansberry Research analyst Thomas Carroll noted in the January 15 Digest, the debate is likely to center on underlying costs that feed into the level of premiums... drug prices, hospital care, equipment, and nursing homes. Most of the plans for "universal health care" promoted by the Democrats would mean bad things for big insurance companies and large hospital networks.
But there will be some winners, too. You can't lump all health care stocks together...
The face of health care is changing...
For roughly a decade, our resident medical doctor, Dr. David "Doc" Eifrig, has described the changing face of health care.
As far back as the June 2011 issue of his Retirement Millionaire newsletter, Doc wrote about the influence that the aging Baby Boomer generation would have on the industry...
The fastest-growing segment in the U.S. is the Baby Boomer crowd, the generation born between 1945 and 1964. For them, health care becomes increasingly important... [The] growth rate of 65-year-olds in the population will explode in the next 20 years.
Companies that provide quality health care goods and services at fair prices to this aging U.S. population should make a fortune, no matter what happens in Washington...
More elderly people means more money spent on health care. Unless everyone starts following my recommendations for walking, yoga, meditation, and diet, these demographic patterns mean an explosion in the use of pharmaceutical drugs for the elderly.
At the time, Doc pointed to CVS Health (CVS) as one business poised to take advantage. The business best known for its ubiquitous drug stores had been busy expanding into more areas of the health care sector. It acquired the MinuteClinic urgent-care business in 2006 and the pharmaceutical middleman Caremark in 2007.
Fast-forward to 2018, and Doc's team was heralding CVS's just-announced merger with insurance firm Aetna as the next huge step forward...
CVS will be a one-stop shop for providing health care. The more parts of the health care value chain a company handles, the more it controls costs and quality of care.
A merged CVS-Aetna can make a little money filling prescriptions, negotiating drug prices, providing patient care, and as an insurance provider. It would be able to cut costs by helping patients find the best route for getting their care or by swapping in generic drugs. It'll be able to earn a little profit by operating as a health insurer.
It can also cut costs by eliminating costly administrative overhead and streamlining communication up and down the chain.
Of course, big mergers – like the one between CVS and Aetna – are never easy. Management warned last year would be a "transition" year... And indeed, shares struggled through much of the first half of 2019.
But lately, CVS shares have been trending higher... and all that potential remains ahead of the company. That's why...
Our Director of Research Austin Root just named CVS as his top idea for 2020...
If you watched our big event earlier this month, where our "Big Three" gurus – our founder Porter Stansberry, Dr. Steve Sjuggerud, and Doc – looked ahead to the rest of 2020, you heard Austin name CVS as his big stock idea for this year... "I think it has virtually no downside," Austin said during the live event.
When we asked Austin late last week about why he's so bullish on the stock, he said the fundamental picture is strong. It's a healthy, cash-gushing blue chip.
But the integration of Aetna had sapped a lot of enthusiasm from the stock. It's cheap and unlikely to fall much more. And with the recent run-up in its share price, Austin viewed it as a classic example of Steve's favorite setup... It's cheap, hated, and in an uptrend.
When we pressed Austin about the implications of health care reform on CVS... he first noted that from a practical standpoint, any changes to the industry were likely to be incremental... not revolutionary. So many of the familiar names in the sector will still have roles to play.
More important, he observed that the whole point of CVS's efforts to integrate businesses from across the industry is to reduce costs throughout the process. CVS's model is ideal for an environment focused on reining in health care costs.
Austin's CVS idea was just one of the investible ideas discussed during the live event...
Steve, Porter, and Doc also gave their top ideas for the year.
The group also covered topics like Porter's opinions on gold... an update on Steve's "Melt Up" thesis... and what to do with bitcoin. If you didn't tune in, it isn't too late to catch all the action... You can watch a free replay right here. We're sure you'll find it worth your time.
New 52-week highs (as of 1/24/20): American Express (AXP), Franco-Nevada (FNV), SPDR Gold Shares (GLD), Lockheed Martin (LMT), NovaGold Resources (NG), Sea Limited (SE), ProShares Ultra Utilities Fund (UPW), and ProShares Ultra Semiconductors Fund (USD).
In today's mailbag, a paid-up subscriber writes in with a question for our international editor Kim Iskyan about the store signs in Singapore from Friday's Digest. What are your thoughts on the market today? Let us know with an e-mail to feedback@stansberryresearch.com.
"If the pictures are from a pharmacy in Singapore, why is everything in English?" – Paid-up subscriber Ernie H.
Kim Iskyan comment: Singapore has four official languages – Malay, Tamil, Chinese (Mandarin), and English. In school, everyone learns English plus one other language... Around three-quarters of the population is of Chinese descent, so most people learn Chinese as their second language.
Street signs in Singapore are sometimes in all four languages, but pretty much all store signage is in English... since that's the one language everyone speaks. In nearly five years of living in Singapore, I can count on one hand the number of times that I haven't been able to communicate in English with someone.
All the best,
Corey McLaughlin and Carli Flippen
Baltimore, Maryland
January 27, 2020