The enemy of my enemy

Happy Friday!

I have been adamant that although the opportunity ahead looks incredibly promising for patient investors, the ride probably isn’t going to be fun. 

It’s sort of like when parents say that the days are long but the years go fast. When you’re in it, you’d occasionally rather be anywhere else, but when you look back all you see is happiness (this analogy may be a bit of a stretch but it’s all I’ve got on a Friday afternoon).

Here’s what I think happened. The 10-year Treasury Yield spiked on Thursday presumably due to a weak Treasury auction and convexity hedging (don’t ask). Just know that the 10-year yield is important and when it spikes like this it freaks people out because bond prices go down when yields go up. Meaning, a lot of people sold 10-year Treasuries yesterday.

This started a week or two ago when yields began creeping up, presumably because investors are getting more bullish on the economy and selling treasuries to buy stocks. This could also explain some of the run up in equities through mid-February. But as rates crept higher, it caused some technical problems for traders in the bond market, so many started selling yesterday at the same time.

Anytime you see the 10-year rise like that, it’s going to spook other investors because it’s viewed as a sign that the economy is improving and could inspire the Fed to raise rates sooner than expected (even though two days prior Jay Powell at the Fed said to Congress via Zoom that they have zero interest in doing that). 

We’ve seen this before. Remember the taper tantrum back in 2013? That was when Bernanke barely hinted at raising rates, and the stock market took a massive beating. This is what happens when short-term rates are at zero. It causes extreme reactions to insignificant events, and we’re likely to see more of these over the next few years.

I really don’t know if this is true or not because nobody really knows what drives the market on a daily basis. But what I’m far more certain about is that most likely nothing that happened yesterday is going to alter the fundamentals of the economy or companies that operate within. 

Now on to more interesting news…

This has to be one of the more subtly amusing stories in a while. The WSJ reported on Wednesday about the collaboration amongst big pharma for COVID vaccines. Basically, they’ve decided the enemy of my enemy is my friend (sort of like that episode in GI Joe). Team up to kill COVID for a few months and then go back to fierce competition. 

I don’t mean to downplay the current situation, but why start to collaborate now? I know it’s a problem and I’m glad they are working together, but why COVID and not also cancer? Or maybe throw in heart disease while they are at it? These kill a lot of people every year too.

Let me be clear. I don’t have an anti-capitalistic bone in my body, but neither do big pharma CEOs. So, it makes me wonder if this has anything to do with the fact that these executives collectively sold $500 million in stock since November. Here’s an excerpt from this very interesting WSJ article:

“In November, Pfizer CEO Albert Bourla sold about $5.6 million in company shares—about 60% of his holdings at the time—on the same day the company announced positive results from its Covid-19 vaccine”

For those new to the regulatory landscape of publicly traded companies, this is a world that is more heavily regulated than nuclear submarines. Allowing a CEO to sell stock on the exact day that his company announces the first vaccine for a virus that has shut down the global economy for the last 8 months is like seeing a plutonium rod on the floor of the mess hall during an inspection and giving the captain a hall pass. 

Ok so here’s my conspiracy theory… Maybe, just maybe the CEOs talked to the SEC and FDA and agreed to collaborate on the condition that they could all ring the register and not go to jail.

Have a great weekend…