“the first stage, when just a few thoughtful investors recognize that, despite the prevailing bullishness, things won’t always be rosy, the second stage, when most investors recognize that things are deteriorating, and the third stage, when everyone’s convinced things can only get worse.”
― Howard Marks

1. States Announce $26 Billion Settlement to Resolve Opioid Lawsuits — the nation’s three largest drug distributors— McKesson Corp. , AmerisourceBergen Corp. , and Cardinal Health Inc.—and drugmaker Johnson & Johnson have been negotiating the deal for more than two years, but recent s announcement signifies an important milestone that could clear the way for money to be received by states as soon as early next year. An opioid crisis that has claimed half a million lives in the U.S. has triggered more than 3,000 lawsuits filed by states, local governments, Native American tribes, hospital groups and others against players in the pharmaceutical industry. The lawsuits allege drugmakers pushed their painkillers for uses far beyond what was medically necessary and that distributors and pharmacies didn’t do enough to halt masses of pills from flowing into communities.
2. Senate Republicans Block Infrastructure Bill but Talks to Continue — Senate Republicans blocked an effort to begin debate on a bipartisan infrastructure deal still under negotiation Wednesday, but lawmakers said they expected to close in on a final agreement by early next week. The infrastructure bill has been mired in disagreements over how to find sources of revenue to offset its cost. The bill is expected to spend roughly $600 billion over projected federal spending on roads, bridges and broadband access, among others. Over the weekend, lawmakers agreed to drop a provision disliked by Republicans to raise money by beefing up the Internal Revenue Service’s collection of unpaid taxes.
3. U.S. Vaccine Panel Signals Preliminary Support for Covid-19 Booster Shots — a work group of the Advisory Committee on Immunization Practices panel also endorsed the continued use of J&J’s vaccine, despite a recent warning about a low risk of a rare neurological disorder among people taking the shot. About 2.7% of adults in the U.S. are considered immunocompromised, according to the CDC, including transplant recipients, some cancer survivors and people living with HIV. That makes them less responsive to vaccines, which require stimulation of the immune system to provide protection.
4. Intel CEO Says Chip Shortage Could Stretch Into 2023 — The world-wide shortage has fueled rising prices for some consumer gadgets. Meanwhile, the auto industry has been particularly hard-hit as the lack of a key component causes production delays. German car maker Volkswagen AG VOW -1.89% this month warned the global shortage could worsen over the next six months. Others have said they were bracing for problems through next year. Supply shortages should start showing signs of easing later this year, Mr. Gelsinger said, echoing comments from Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker. TSMC last week said the chip shortage that has hampered car makers could start to ease in the next few months after it ramped up its production of auto chips. TSMC and Intel are adding new chip-production plants, though some of that capacity won’t be ready for about two more years.

The week ahead — Economic data from Econoday.com:

“But most investors do capitulate eventually. They simply run out of the resolve needed to hold out. Once the asset has doubled or tripled in price on the way up — or halved on the way down — many people feel so stupid and wrong, and are so envious of those who’ve profited from the fad or side-stepped the decline, that they lose the will to resist further. My favorite quote on this subject is from Charles Kindleberger: “There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich” (Manias, Panics, and Crashes: A History of Financial Crises, 1989). Market participants are pained by the money that others have made and they’ve missed out on, and they’re afraid the trend (and the pain) will continue further. They conclude that joining the herd will stop the pain, so they surrender. Eventually they buy the asset well into its rise or sell after it has fallen a great deal. In other words, after failing to do the right thing in stage one, they compound the error by taking that action in stage three, when it has become the wrong thing to do. That’s capitulation. It’s a highly destructive aspect of investor behavior during cycles, and a great example of psychology-induced error at its worst.” ― Howard Marks

1. U.S. Consumer Prices Jump Most Since 2008 — the consumer price index jumped 0.9% in June and 5.4% from the same month last year, according to Labor Department data released Tuesday. Excluding the volatile food and energy components, the so-called core CPI rose 4.5% from June 2020, the largest advance since November 1991. Used vehicles accounted for more than a third of the gain in the CPI, the agency said. The outsize increase was also driven in large part by the pricing rebound in categories associated with a broader reopening of the economy including hotel stays, car rentals, apparel and airfares.
2. Senate Democrats Agree on $3.5 Trillion Infrastructure Bill — Senate Majority Leader Chuck Schumer announced that Democrats on the Senate Budget Committee and White House officials had clinched a deal on a $3.5 trillion investment plan. The proposal notably includes a significant expansion of the Medicare healthcare program for the elderly as well as major spending on education, child care, and the fight against climate change. The deal would come on top of a separate bipartisan infrastructure bill currently being discussed that would add some $600 billion of new spending to invest in roads, bridges, and broadband connections.
3. CDC says deaths on the rise again after weeks of decline — “After weeks of declines, seven-day average daily deaths have increased by 26% to 211 per day,” Dr. Rochelle Walensky said during a press briefing. New cases are also on the rise, with a current seven-day average of 26,300 cases, according to the CDC. That is an increase of roughly 70% from the seven day average last week. The seven-day average for hospitalizations is now at 2,790, up about 36% from a week ago after weeks of decline. Reflecting on the new numbers, Walensky said the pandemic has now become a “pandemic of the unvaccinated.” The five states with the highest case rates, Arkansas, Florida, Louisiana, Missouri and Nevada, all had a higher rate of new vaccinations compared to the national average.
4. Biden’s Hong Kong Warning Sends Message to Companies, China — The Biden administration warned investors about the risks of doing business in Hong Kong, issuing an advisory saying China’s push to exert more control over the financial hub threatens the rule of law and endangers employees and data. The U.S. warning singles out the Hong Kong’s National Security Law, imposed on the territory by Beijing last year, as a key concern. It said the vaguely-worded legislation has been used to justify the arrest of foreign nationals, including a U.S. citizen, to undermine data security, and to allow warrantless electronic surveillance.

The week ahead — Economic data from Econoday.com:

“In business, financial and market cycles, most excesses on the upside — and the inevitable reactions to the downside, which also tend to overshoot — are the result of exaggerated swings of the pendulum of psychology. Thus understanding and being alert to excessive swings is an entry-level requirement for avoiding harm from cyclical extremes, and hopefully for profiting from them.”
― Howard Marks

1. Fed Officials See Earlier End for Bond Buying — Fed officials discussing the matter at their June 15-16 policy meeting weren’t ready to reduce their $120 billion in monthly purchases of Treasury and mortgage securities, according to minutes of the gathering released Wednesday. The minutes offer a strong sign officials will ramp up more formal deliberations at their next meeting, July 27-28, over when and how to reduce the bond buying. Officials generally judged that, “as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-than-anticipated progress” toward the Fed’s inflation and employment goals or risks of too much inflation.
2. Tokyo Olympics to Ban Spectators in City as Virus Resurges — the Tokyo Olympics will ban domestic spectators in events held in Japan’s capital, revising an earlier decision to allow some fans, as the resurgence of virus cases pushed the government to declare a state of emergency in the city. The decision, announced by Olympic Minister Tamayo Marukawa, comes after Japanese Prime Minister Yoshihide Suga declared a fourth state of emergency for Tokyo, running from July 12 through Aug. 22. It’s a reversal from a decision last month to limit the number of spectators at either 10,000 or 50% of venue capacity, whichever is smaller.
More than half of the 43 Olympic and Paralympic venues, including the 68,000-capacity National Stadium that’s set to host the opening ceremony on July 23, are located in Tokyo. Organizers had said that a no-spectator scenario was possible, depending on the virus situation. A decision to bar fans from overseas was announced in March.
3. Biden to Target Railroads, Ocean Shipping in Executive Order — the Biden administration will push regulators to confront consolidation and perceived anticompetitive pricing in the ocean shipping and railroad industries as part of a broad effort to blunt the power of big business to dominate industries, according to a person familiar with the situation. The administration says the relatively small number of major players in the ocean-shipping trade and in the U.S. freight rail business has enabled companies to charge unreasonable fees. The STB proposed a competitive switching rule in 2016 but hasn’t yet acted on it. “The consolidation brought about much-needed rationalization in the system 25 years ago, but the net result is a lot of shippers who are subject to a market-dominant railroad,” said a government official briefed on the White House’s proposal for the STB.
4. Biogen Faces FDA Probe of Alzheimer’s Drug Approval — the head of the U.S. Food and Drug Administration said she is seeking a federal investigation of the approval of the Biogen Inc. Alzheimer’s disease drug Aduhelm, a highly unusual step that will increase scrutiny of a heavily criticized clearance. Aduhelm was granted approval by the FDA last month over the objection of outside scientific advisers who had voted against the drug last November. The agency ordered Biogen to do an additional trial to confirm that the therapy benefits patients, and given nine years to produce data.

The week ahead — Economic data from Econoday.com:

“Skepticism and pessimism aren’t synonymous. Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.”
― Howard Marks

1. Costly New Alzheimer’s Drug Could Force Medicare to Restrict Access — Biogen Inc. priced the drug Aduhelm at $56,000 a year. Wall Street analysts estimate it could eventually surpass $5 billion in yearly sales, mostly paid by Medicare, while some health economists warn the bill would be multiples higher.
Medicare normally pays unconditionally for approved medicines. To limit the financial hit from Aduhelm, however, Medicare could restrict access, former U.S. health officials and health-policy experts said. Aside from the medicine itself, there is the cost of infusing the drug, brain-imaging tests and doctor visits, said Scott A. Small, director of Columbia University’s Alzheimer’s Disease Research Center. The total cost will approximate $100,000 annually per patient, he said. Paying for the treatment will largely fall on Medicare, which provides health insurance to people 65 years and older and covers most of the six million Americans with Alzheimer’s.
2. United Airlines Bets on Post-Pandemic Growth With Its Biggest Ever Jet Order — the Chicago-based airline said last week that it will purchase 200 of Boeing Co. BA +0.40% ’s 737 MAX jets and 70 larger Airbus EADSY -1.53% SE A321neos, a deal valued at more than $30 billion at list prices before customary discounts. United is looking to replace most of its 50-seat jets and other smaller, older aircraft with these larger planes that can carry more passengers and allow it to sell more premium seats. United’s move follows recent jet orders from carriers including Southwest Airlines Co. and Alaska Air Group Inc. The recovery has helped Boeing clear most of its inventory of unclaimed MAX jets. United had previously unveiled plans to buy an additional 25 MAX jets and to accelerate delivery of dozens more to meet near-term demand, but the carrier said the orders unveiled Tuesday are part of a more detailed post-pandemic strategy. United said the new planes would help it add almost 30% more seats per domestic flight and 75% more premium seats in first class or with extra legroom.
3. Robinhood’s Luster Stained Again With a Record $70 Million Fine — Financial Industry Regulatory Authority fines almost $70 million from the brokerage in a record settlement Wednesday, including a $57 million fine and about $12.6 million in payments to aggrieved customers. It follows Robinhood’s meteoric rise against the backdrop of the Covid-19 pandemic and the frenzy over hot stocks such as GameStop Corp. that warped the realm of retail trading. The agency accused Robinhood of misleading customers, having weak technology oversight and allowing thousands of users to trade options even though they may not have been suitable candidates, among other infractions.
4. Fed’s Harker Supports Start of Bond Buying Pullback Later This Year — Federal Reserve Bank of Philadelphia President Patrick Harker said Thursday that while an interest rate rise lies some ways in the distance, he is ready for the U.S. central bank to begin slowing the pace of its asset buying stimulus this year. Officials have been focused on what to do with their $80 billion a month in Treasury bond buying and $40 billion a month in mortgage bond purchases. At the FOMC meeting last month, Fed Chairman Jerome Powell acknowledged officials are discussing pulling back on the support but offered no details for when, or how, that might play out.

The week ahead — Economic data from Econoday.com: