Chinese Coronavirus Vaccine

I can’t find anything in the news media about this yet, but it seems that China may be distributing a vaccine. I take this news with a big pinch of salt, because the information is 4th-hand to me. My source is the colleague of someone I know, whose family living in Wuhan (the Chinese province from which Covid19 is said to have originated) tell him that they have been given a vaccine.

Unfortunately that is all I know – it could be that grandma doesn’t know the difference between a check up and a Covid19 vaccine, or perhaps it’s a wind-up, or perhaps it’s a general (non-Covid19) Coronavirus vaccine for other strains, or something completely different.

Nontheless, it’s interesting to hear stories of how people in China are coping with Covid19 via personal contacts as these often differ from what is in the media. For example, the stats from China suggest that they are quite on top of the outbreak, but personal accounts strongly suggest otherwise.

If this is true, this could negatively effect the performance of companies such as Fisher Paykel Healthcare who (as macabre as it sounds) benefit from the Coronavirus outbreak.


Investing In A Cure For Covid19

There are a bunch of listed companies with prospective Covid19 vaccines that are quite popular investments at the moment. I just wanted to take the opportunity to warn investors of the risks of such an investment.

Pharmaceutical investment is a curious business. Costs are massively high in this industry and companies often run for many, many years with no results. Once (if) the company successfully researches a cure for something (and it gets past all the necessary hurdles), there’s big money to be made. Especially so if it’s a vaccine for something that everybody in the world needs to buy.

Because of the nature of this industry and the way Capital Raising (CR) works, this can create traps for investors.

As the cost of research is high, pharmaceuticals often need to raise money. In order to entice people to invest, they need to sell the story. This means taking every little positive thing and singing about it as loudly as possible. As the subject is highly technical, investors are usually in the dark about the significance of such announcements and are often led to believe that things are further along than they really are.

For example, a company researching covid19 might announce that they have found a substance that successfully attaches to the virus and not human cells. This might be a significant discovery but not necessarily get the company any closer to a vaccine.

The other problem with such CRs is that they dilute existing shareholders and directors. Therefore a company would want to increase the value of the shares before they announce a CR. They might time CRs after small (but not necessarily significant) technical wins or be deceptive about timelines (without lying) to investors.

For example they might say things like “we are now moving to human testing”. This could mean that they are on the brink of a cure, or it could be part of the normal process of testing multiple candidate drugs as part of normal research, or it could be referring to the testing of the efficacy of a delivery system to be used when they discover a cure.

Of course the above examples are bad, but my point is that they can truthfully and correctly use words that make it seem like they’re on the edge of greatness, but actually miles from success. This typically happens through scientific (or industry) jargon or process that is presented in a way to deliberately mislead potential investors in order to pump up the share price prior to a CR and get investor interest.

Of course I’m not saying that you shouldn’t invest in companies searching for a covid19 vaccine, but just warning that there are pitfalls to consider when investing in, or basing your investment decisions on a covid19 cure.

For this investor, I find this sort of investing too much like gambling. That said, I think that such an investment would be great for a trader or an ethical investor who doesn’t mind a gamble.


US Unemployment Down

Good news for investors: Unemployment stats in America show that unemployment is down in May after 2.5 million jobs were added to the job market. This bodes well better for the global economy and will undoubtedly cause an increase in the value of the share markets as people look for indicators rates of recovery and the potential size of any recession.

Locally I am still struggling to find any employment data for NZ, post COVID19 (May 2020). Perhaps this will be delayed for some time due to reduced resources during the lockdown causing a backlog of work for Stats NZ?

Personally, I’m willing to forgo any (significant) gains this year in favour of waiting for more stability and information with which I can form better analysis to do my valuations. The prospect of losing half my money is worse than the prospect of doubling it, and I’m not interested in gambling. Obviously everybody’s situation and strategy is different.


Thoughts On Forex Trading

Today I’ve been thinking about Forex trading, and thought I’d share some of my research and opinions on the matter.

What spurred all this off was an infographic that I received in an email this morning. It showed the countries that rely on tourism the most, which got me thinking – I’ve always seen Forex trading as a bit of a scam / gamble, but if I had started Forex trading the moment that I heard the news of the Lockdown, I figure that I would have been making easy money. This would no longer be gambling, it would be smart investing based on economic events. So I started investigating.

My first port of call was to look at the NZD vs USD price to confirm my idea and see how the market reacted to the news. Upon doing so, I immediately I saw a problem: the market had reacted to the news prior to the event occurring. This was either luck (unlikely), insider trading, or lockdowns were happening elsewhere prior to the NZ lockdown.

Looking into this, the NZD seems to have started going down against the USD 2 days after the first lockdown, which was announced in Italy and occurred a couple of weeks before NZ’s lockdown. Prior to the decline in the value of the NZD, Italy, Saudi Arabia and Mongolia had gone into lockdown. This is an indication of how well informed a trader should be, and also how quick to react / paranoid one must be. Though it does highlight that there are opportunities for someone who is keeping abreast of world news and is willing to have a punt.

The Downsides Of Forex Trading

Considering the above, you might think that Forex trading is worthwhile because you can just wait for such an event, then if you can act quickly enough you can make a quick buck. However there are some downsides to Forex trading that make it not so simple.

First of all, these events occur very infrequently, and previous events haven’t been so easy to time, like the GFC. Secondly, it’s hard to know for sure how each country will react – while global investors’ finances typically retreat back to the USD, causing increased demand (and therefore price) for the USD, it’s impossible to know which country will take the hardest stance on currency policy (not to mention guesses as to the magnitude of effect).

For example, you may think that currency X is worth investing in because they are experiencing inflation and are offering massive interest rates on holding accounts in that country; but the question is, how successful are that country’s monetary policies are subduing that inflation? If the inflation isn’t kept under wraps, the value of the currency is eroded away and it doesn’t matter that you’ve doubled the amount of money you have due to interest rates. You simultaneously have the same problem with the currency pair that you’re trading currency X against.

The fact of the matter is, that you have to know things that are absolutely impossible to know.

Speaking of trading in things that you can’t possibly know about, there are people in the market who absolutely do know – because they’re in control of currencies – such as countries with authoritarian leaders who will no doubt have worked out that they can place bets on the value of their currency changing, then manually change it.

Another problem is that (ironically) you’re not trading anything that has an intrinsic value against it. For example, it’s not like trading shares, where someone buys some shares, the company grows and the shares are worth more. The shares are then sold to the next person for more money, who then holds onto them for a while and benefits from the same growth. Currency doesn’t have an eternally growing value (actually in most [if not, all] countries, it’s value depreciates over time). This means that if things don’t go your way, you have to either accept the loss on the trade or hold, with years of opportunity cost and depreciation.

And how about those losses? Because currency doesn’t move by much, Forex traders use leverage when trading – meaning that they borrow a large amount of money relative to their own investment. This leads to either big gains or big losses, essentially magnifying the result of any trade.

Another concern I had when researching Forex trading was that there was only one company I could find in NZ that was registered as a Licensed Provider with the FMA. Perhaps more concerning was that on the Financial Markets Authority (FMA) website, the article about Forex trading basically advised people not to do it, and stated that they regularly receive complaints and enquiries from consumers who have lost money in online forex trading, and that was on the second line of their page about Forex trading.

To support this, according to Stuff, the FMA receives more complaints about foreign exchange schemes than any other type of financial service provider. That’s actually quite a good article on Forex trading and covers a bunch of points that I wanted to cover, but won’t because I’m realizing that this list is getting long. There’s also another good article on the NZ Herald if you want to read more about the negative aspects of Forex trading.

The Upsides Of Forex Trading

After a lengthy lambasting of Forex trading, if you’ve managed to get this far, firstly well done! You have the stamina of an octagenarian sugar addict who has confused his Tic Tacs with his Viagra medicine. Secondly, I do believe that Forex trading plays an essential role in international trade; hence should not be ruled out completely.

Forex trading (or rather hedging) is entirely appropriate for companies who are trading internationally and need to be able to ensure that the prices they charge their customers in one currency, can cover the Cost Of Goods Sold (COGS) accrued in another country. In fact, I would say that it is essential for such a company.

That said, it should not be used by such a company as a form of gambling on profitability from international trade.