Weekly Dividends: July 26th

The United States cleared the 4 million Covid case mark this past week, unemployment benefits put in place during the pandemic expire Friday, and 2020 has been anything but magical for Disney.

Covid Simply Isn’t “Going Away”

At least 4,038,756 coronavirus cases and 144,304 deaths have been recorded within the United States, according to data from John Hopkins University. With the numbers climbing, more than 150 prominent US medical experts, scientists, teachers, and nurses signed a letter to political leaders urging them to shut down the country.

If that news seemed bad, the CDC said coronavirus is set to become a leading cause of death in the US. Although cases have plateaued in Texas, California, Arizona, and Florida, local outbreaks have sprouted up locally in states across the country.

Even President Trump has started to take the virus more seriously, as he’s recently publicly supported mask wearing and canceled part of the Republican National Convention that was supposed to take place in Jacksonville.

Yet some promising good news came this week, as the US government completed a $1.95 Billion deal with Pfizer to produce 100 million doses of a Covid-19 vaccine in the States. The deal also allows the US government to purchase an additional 500 million doses. The vaccine developers, Pfizer and BioNTech, are attempting to complete a large Phase 3 clinical trial to show the vaccine’s effectiveness.

Nationwide delivery of the virus, which would begin in this years fourth quarter, would be free to American citizens. US Department of Health and Human Services Secretary Alex Azar said “For any vaccine that we have bought — so for instance, the Pfizer vaccine — those hundred million doses would actually be acquired by the US government, then given for free to Americans.

Optimism Remains To Keep Markets Afloat

The U.S. is in the middle of a recession when you look at unemployment, debt, and GDP. However, the stock market continues to surge. Financial analysts are starting to believe the stock market may be rallying itself into a bubble.

Investors are crowding into shares of tech companies believed to have escaped the risks of the pandemic. To buy into the U.S.stock market right now means paying about $23 for every dollar of earnings from companies in the S&P 500, highest in a decade. At 34 times earnings, the Nasdaq 100 index is its highest in 15 years. Those numbers reflect the five biggest names that traders have piled into- Apple, Microsoft, Amazon, Alphabet, and Facebook- who now account for almost 25% of the total market value in the S&P 500.

Outside of the big 5, other stocks like Tesla -who’s trading at 10,000 times earnings- have played a part in the recent boom.

A lot of this is based on investors believing future earnings will be better. But when it comes to the market as a whole, future earnings are anybody’s guess. Not to mention, a record number of companies have pulled their earnings guidance because of the uniqueness of this financial crisis.

As prices continue to climb, it’s important to look at a business’s fundamentals and think critically about why the price is going up. And for many puzzled analysts, your guess is as good as their’s.

Disney Fights For Happily Ever After

Disney’s corporation as a whole has been largely threatened by the pandemic. Disney stock has fallen more than 18% in the past six months, as shares opened Friday at $115.70.
For a company that has spent billions of dollars on creating an entertainment empire, it’s been able to succeed in profiting off every point of its customers’ experience. Disney is built on moving products from screen, to toys, to theme ride, to spin-off show, to apparel, to video games, and so much more.

Yet with everything being shut down, Disney’s stock price has yet to recover fully like the tech companies who also expanded to more than just a singular brand. That is because Disney (outside of Disney+) is not a tech company. There’s so much more to it that is bleeding money.

Disney Theme parks have been suffering, especially domestically. After rumblings from local governments, residents and employees, the July opening Disneyland was postponed. Walt Disney World in Florida has opened its four theme parks, yet most of the attractions remained closed and attendance has plummeted such that newly opened parks fail to reach profitability.

The surges in U.S. Cases is also keeping movie theaters closed, which is leading some industry executives to predict that all major studio offerings will be bumped to 2021. Movies that operate within the Disney franchise machine such as“Black Widow” and “Mulan” have been postponed to later release dates, yet their toys have been on shelves since January.

Disney has started the process of changing their CEOs. Operating with a “Two Bobs” approach, Robert Iger is helping new CEO Bob Chapek navigate the crisis. Mr. Chapek has handled strategy and business operations and kept a close eye on the parks, the division he used to run. Mr. Iger has used his connections to put together large deals such as the NBA using the Disney World campus, talking to Beyonce to produce a Disney+ special, and signing Colin Kapernick to an overall deal to develop content at Disney.

The shining light in all of this, is Disney+. The company’s new streaming service has a subscriber base of over 50 million. Despite production shutdowns limiting new programming, it’s rolled out content earlier than anticipated to keep viewers and its audience engaged. Most notably was moving it’s release of Hamilton up a year to July 4th, to keep their audience engaged.

Disney has more than enough to withstand this pandemic, but it’s financials will not be great for the upcoming quarter. As long as theme parks and productions studios are shut down, the entertainment giant might have to explore more lay-offs.

Gold Rush

Gold reached an all-time high Thursday, surging as high as $1,897.70 per ounce, topping it’s former peak of $1,891.90 from August 2011. The momentum didn’t stop there, as the commodity went on to eclipse $1,905 during Friday’s intraday session, coming close to the 2011 high of $1,923.

So why in the age of tech stocks outperforming their profits by nearly 3,000%, is an old metal like Gold surging? Investors are betting on near-zero interest rates, alarming economic risks, and inflation to boost the metal’s value against the dollar.

As more investors move away from stocks and bonds, Gold provides a safer alternative when compared to cryptocurrency, futures, and real estate.

Ed Moy, chief strategist at gold seller Valaurum and former director of the US Mint, said “When people are scared, they want to take chips off the table, and gold is typically one of the places where people put their chips in times of crisis.”

The metal is up roughly 25% year-to-date, and as long as case rates continue to climb and a vaccine is yet to be found, Moy suggests the gold trade can keep its impressive run going.

Term Of The Week:

Political Risk

Political risk is the risk an investment’s returns could suffer as a result of political changes or instability in a country. Also known as “geopolitical risk,” it becomes more of a factor as the time horizon of investment gets longer.

There are a variety of decisions governments make that could impact individual businesses, industries, and overall markets. These happen everyday with taxes, trade tariffs, labor laws such as minimum wage, and environmental regulations. Even if just proposed, they could change expectations and prices.

A few examples are available in today’s times. President Trump’s trade war with China is an example of political risk, as he continues to put tariffs on billions of Chinese goods. Long time investor Jim Chanos is currently shorting gig economy companies such as Uber, Lyft, and Grubhub. He believes there is going to be a greater political focus on low-wage workers, which poses an existential threat to their business models, especially if a Democrat were to win the Presidential seat.