RESPECT

     Aretha Franklin recorded the song "RESPECT" in 1967. It soon became her signature song. Anyone with a pulse can't help from grooving to this tune when it comes on the radio. Originally recorded by Otis Redding in 1965, the song lyrics demand respect from the singer's lover. Somebody else who made a fortune complaining that "I don't get no respect" was my favorite comic, Rodney Dangerfield. Just like Rodney, I have a stock in my portfolio that just can't seem to get any respect from the investment community. That company is Gilead Sciences (GILD). Even though GILD pays a 3.5% dividend yield, sports a reasonable valuation of 18.7X earnings, has a lower than market beta at .7, has developed a drug that cured Hepatitis C, and now has proven to have an effective therapy against covid 19, the stock just can't seem to get traction. I first wrote about Gilead in a post called "Handyman Investing" on April 27, 2017.  In that blog, I complained about how Gilead had cured Hep C but the stock was not rewarded because of the loss of revenue from cured patients. Today, the stock market is in rally mode largely due to the good news that Gilead has a drug called Remdesivir that has shown to be effective against corona virus. At the time of this writing, the Dow is up about 500 points or about 2% mainly on news of the positive clinical trials. Remdesivir is not a new drug, it was developed to treat the Ebola virus but was not proven effective. Remdesivir has been used to treat coronaviris since the outbreak began in China through goverment regulated clinical trials with anecdotal positive results. When the pandemic reached the US, sick patients needed to be enrolled in FDA trials to be treated. It takes time for the trials to produce reliable results and that is why the good news has been delayed. People who contracted corona virus and live in smaller communities were not eligible to receive the drug because they were not part of the study which typically is performed in major medical centers.  I believe that people all over the world are desperate for good news after 2 months of isolation and depressing news. That is why the news from Gilead Sciences has lifted spirits and markets. It also doesn't hurt that interest rates are virtually zero or lower in real terms. Anyone looking for a return on their money MUST be in stocks. That being said I expect investors will experience additional pain this year when stock markets test their recent lows. As for Gilead, even though they are riding high on todays news, don't look for huge gains for them because sales of Remdesivir are nonexistent-they are currently giving the drug away for free. Aretha and Rodney, who both have passed are surely smiling on the company knowing that R-E-S-P-E-C-T is more valuable than anything.

Route A138

     About 55 years ago, at the age of 12, I owned my first business. I bought the local newspaper, The Evansville Press, wholesale and sold the papers to my retail customers. This involved picking-up the papers at a gas station about 3 miles from my house every day after school and folding, packing and delivering them to each house on my route. I had 100 customers during the week and about 65 on Sunday. Some days the papers were so heavy that I couldn't get off my Huffy bike because the bike would flip over. At the time (about 1964) every bank would pay 5 1/4% interest on your money. Inflation was running about 1 1/4% so your real rate of return on safe money was about 4%. Back then, people expected to get a decent return on their money. So what happened?  It all started with gold. In 1933 FDR effectively took the US off the gold standard by ordering all gold coin and bullion to be turned in to the US Treasury for $20.67 per oz. Then he raised the price of his hoard to $35 per oz, effectively inflating the dollar. Then in 1971 Richard Nixon totally removed the US from the gold standard. Now our government was free to print money without any constraints. At the same time our Federal Reserve was free to manipulate short term interest rates to promote full employment and control inflation. So here we are with a fiat currency and nearly full employment and very little inflation but interest rates are nearly zero. Treasury bonds are in such high demand from investors across the  world that they have pushed the yields to historic lows. So what should I do to get a decent yield today? In a word: stocks. It's about the only place where you can find dividend yields approaching that 5 1/4% of yesteryear. With a wild and volatile market like this, a little more due diligence is required. Buy large US companies with lots of cash and little debt. Avoid sectors that have been heavily damaged by the Corona virus such as travel, cruise lines, energy, and retailers. Above all do not panic and sell stocks for distressed prices. Like many crises before, this too shall pass. Long term holders of quality stocks that pay dividends almost always win in the end.