Raphael Stevens

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    in Business

    Alaska Airlines agrees to buy Hawaiian Airlines in $1.9 billion deal

    Alaska Airlines has agreed to acquire its rival Hawaiian Airlines in a deal valued at about $1.9 billion.
    The deal must pass muster with federal regulators, who have taken a hard stance about mergers they view as anticompetitive.
    The airlines said they will keep their respective brands, and the new carrier would be based in Seattle, where Alaska is headquartered.

    Alaska Air Group has agreed to buy rival Hawaiian Airlines in a $1.9 billion deal, setting up another potential regulatory battle in the second proposed airline merger in less than two years.
    Alaska would pay $18 a share for Hawaiian and would take on $900 million of its debt, the companies said Sunday. Shares of Hawaiian Airlines closed on Friday at $4.86, giving the company a market capitalization of about $250 million. They’re down nearly 53% this year.

    The airline has struggled with challenges including the Maui wildfires, increased competition from Southwest Airlines, which has ramped up service in Hawaii in recent years, and a lagging recovery of travel to and from Asia after the pandemic. Hawaiian has posted net losses in all but one quarter since the start of 2020, while Alaska and other carriers have returned to more solid financial footing as the pandemic waned.
    “What we saw here was a unique opportunity in time at the valuation that we saw Hawaiian at,” said Shane Tackett, Alaska Airlines’ CFO, in an interview. He said the deal would also enable the combined companies to become a “market leader” in the premium-travel Hawaii market.
    Hawaiian’s stock nearly tripled on Monday to $14.22 a share, though still below the proposed purchase price. Alaska’s shares lost 14.2% to end the day at $34.08.

    Regulatory hurdles

    Carriers have faced strong opposition from President Joe Biden’s Justice Department when they have argued that they need to pair up to better compete with larger rivals. Earlier this year, the Justice Department won a lawsuit to break up a regional partnership in the Northeast between JetBlue Airways and American Airlines.
    The Justice Departments also sued to block JetBlue Airways’ proposed acquisition of discount carrier Spirit Airlines. A trial is expected to wrap up in the coming days.

    Four airlines — American, United, Delta and Southwest — control about 80% of the U.S. market, consolidation that resulted from years of mergers.
    Hawaiian and Alaska said they expect the transaction to close in 12 to 18 months, subject to approval by regulators and Hawaiian’s shareholders.
    On a call with analysts on Sunday evening, Alaska CEO Ben Minicucci expressed confidence that the deal will get approved, citing 12 overlapping markets, a combined 1,400 daily flights and a larger network that he said would allow the airline to compete with the four largest carriers.
    “We are hopeful that it will be seen in a positive light,” he said.
    The Association of Flight Attendants-CWA, which represents cabin crews at both airlines said it would evaluate the deal.
    “Our first priority is to determine whether this merger will improve conditions for Flight Attendants just like the benefits the companies have described for shareholders and consumers,” the AFA said in a statement. “Our support of the merger will depend on this.”
    The combined company will be based in Seattle, where Alaska Airlines is headquartered, and be led by Minicucci.
    “Given the transaction dollars we paid we feel this is strategically a step-change for us to accelerate not only our financial performance but the growth of our network,” he said said on the call.

    Shift for Alaska

    The two airlines said they will keep each carrier’s brand but operate under a single platform, combining into a 365-airplane fleet covering 138 destinations.
    Prior to pursuing Hawaiian, Alaska Airlines acquired Virgin America for $2.6 billion in 2016.
    The Hawaiian deal is a major shift for Alaska. It operates Boeing 737s and it spent years whittling down Virgin’s fleet of Airbus planes to streamline its fleet. Purchasing Hawaiian would bring a complex mix of Boeing and Airbus jets, both narrow-body and wide-body planes, under Alaska’s roof.
    “The Hawaiian brand will remain an important part of our home state with Honolulu becoming a strategic hub for the combined company and expanded service for Hawaii residents,” Hawaiian CEO Peter Ingram said on the call Sunday.
    The combination will allow Alaska Airlines to triple nonstop or one-stop flights from the Hawaiian islands to destinations throughout North America. It will also bring Hawaiian’s long-haul flying to and from Asia under Alaska’s umbrella. Hawaiian last year struck a deal to fly converted-cargo planes for Amazon.
    “We will be closely assessing whether further dedicated freighter flying for ourselves or an asset-light model for others could make sense for the combined company over time,” CFO Tackett said on the call Sunday.
    Alaska Airlines said the deal should bolster earnings within the next two years with at least $235 million of “run-rate synergies.”
    WATCH: Maui tourism still not back to full strength since wildfires More

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    in Finance

    Is the world’s most important asset market broken?

    In 1790 America’s finances were in a precarious state: debt-servicing costs were higher than revenues and government bonds traded at 20 cents on the dollar. Alexander Hamilton, the country’s first treasury secretary, wanted a deep and liquid market for safe government debt. He understood the importance of investor confidence, so proposed honouring all debts, including those of states, and offering to swap old debt, at par, for new bonds with a lower interest rate. This was controversial. Shouldn’t speculators who picked up cheap debt in secondary markets be paid less? Yet Hamilton could not be swayed: “When the credit of a country is in any degree questionable, it never fails to give an extravagant premium, in one shape or another, upon all the loans it has occasion to make.”More than two centuries later American politicians are busy undermining Hamilton’s principles. Debt-ceiling brinkmanship has pushed America towards a technical default. Rising interest rates and incontinent spending have seen debt balloon: the country’s total stock of it now amounts to $26.6trn (96% of gdp), up from $12.2trn (71% gdp) in 2013. Servicing costs come to a fifth of government spending. As the Federal Reserve reduces its holdings of Treasuries under quantitative tightening and issuance grows, investors must swallow ever greater quantities of the bonds.All this is straining a market that has malfunctioned frighteningly in the past. American government bonds are the bedrock of global finance: their yields are the “risk-free” rates upon which all asset pricing is based. Yet such yields have become extremely volatile, and measures of market liquidity look thin. Against this backdrop, regulators worry about the increasing activity in the Treasury market carried out by leveraged hedge funds, rather than less risky players, such as foreign central banks. A “flash crash” in 2014 and a spike in rates in the “repo” market, where Treasuries can be swapped for cash, in 2019, first raised alarms. The Treasury market was then overwhelmed by fire sales in 2020, as long-term holders dashed for cash, before the Fed stepped in. In November a cyberattack on ICBC, a Chinese bank, disrupted settlement in Treasuries for days.Regulators and politicians want to find a way to minimise the potential for further mishaps. New facilities for repo markets, through which the Fed can transact directly with the private sector, were put in place in 2021. Weekly reports for market participants on secondary trading have been replaced with more detailed daily updates, and the Treasury is mulling releasing more data to the public. But these fiddles pale in comparison to reforms proposed by the Securities and Exchange Commission (SEC), America’s main financial regulator, which were outlined in late 2022. The SEC has invited comment on these plans; it may begin to implement them from early next year.The result has been fierce disputes about the extent and causes of problems in the Treasury market—and the lengths regulators should go to repair them. A radical overhaul of Treasury trading comes with its own risks. Critics say that the proposed changes will needlessly push up costs for the Treasury. Do they have a point?
    Repo repairThe modern Treasury market is a network of mind-bending complexity. It touches almost every financial institution. Short-term bills and long-term bonds, some of which pay coupons or are linked to inflation, are issued by the Treasury. They are sold to “primary dealers” (banks and broker dealers) in auctions. Dealers then sell them to customers: foreign investors, hedge funds, pension funds, firms and purveyors of money-market funds. Many buyers raise money to buy Treasuries using the overnight repo market, where bonds can be swapped for cash. In secondary markets high-frequency traders often match buyers and sellers using algorithms. Participants, in particular large asset managers, often prefer to buy Treasury futures—contracts that pay the holder the value of a specific Treasury on an agreed date—since it requires less cash up front than buying a bond outright. Each link in the chain is a potential vulnerability.
    The most important of the SEC’s proposals is to mandate central clearing, under which trading in the Treasury and repo markets would pass through a central counterparty, rather than occur on a bilateral basis. The counterparty would be a buyer to every seller and a seller to every buyer. This would make market positions more transparent, eliminate bilateral counterparty risk and usher in an “all to all” market structure, easing pressure on dealers to intermediate trades. Nate Wuerffel of BNY Mellon, an investment bank, has written that central-clearing rules will be put in place relatively soon.Yet the SEC’s most controversial proposal concerns the so-called basis trade that links the market for Treasuries to the futures market. When buying a futures contract investors need only post “initial margin”, which represents a fraction of the face value of the Treasury. This is often easier for asset managers than financing a bond purchase through the repo market, which is more tightly regulated. As such, there can be an arbitrage between cash and futures markets for Treasuries. Hedge funds will go short, selling a contract to deliver a Treasury, in the futures market and then buy that Treasury in the cash market. They often then repo the Treasury for cash, which they use as capital to put on more and more basis trades. In some cases funds apparently rinse and repeat this to the extent that they end up levered 50 to one against their initial capital.At most times, this trade is pretty low risk. But in times of market stress, such as in 2020, when Treasury prices swung wildly, futures exchanges will send out calls to hedge funds for more margin. If funds cannot access cash quickly they sometimes must close their positions, prompting fire sales. The unwinding of basis trades in 2020 may have exacerbated market volatility. Therefore the SEC has proposed that hedge funds which are particularly active in the Treasury market should be designated as broker-dealers and forced to comply with stricter regulations, instead of the simple disclosure requirements that they currently face. It is also considering new rules that would limit the total leverage hedge funds can access from banks.This has infuriated those who make money from the manoeuvre. In October Ken Griffin, boss of Citadel, the world’s most profitable hedge fund, argued that the regulator was simply “searching for a problem”. He pointed out that the basis trade reduces financing costs for the Treasury by enabling demand in the futures market to drive down prices in the cash market.
    Will policymakers hold firm? In a sign of diverging opinions between the SEC and the Treasury, Nellie Liang, an undersecretary at the finance ministry, recently suggested that the market may not be functioning as badly as is commonly believed, and that its flaws may reflect difficult circumstances rather than structural problems. After all, market liquidity and rate volatility feed into each other. Thin liquidity often fosters greater rate volatility, because even a small trade can move prices—and high volatility also causes liquidity to drop, as it becomes riskier to make markets.Moreover, high volatility can be caused by wider events, as has been the case in recent years, which have been unusually lively. It is far from certain that periods of extreme stress, like March 2020 or the chaos caused in the British gilt market when derivative bets made by pension funds blew up, could be avoided with an alternative market structure.
    In addition to the proposals from the SEC, the Treasury is working on its own measures to improve how the market functions. These include data gathering and transparency, and beginning buybacks. Buybacks would involve the Treasury buying up older, less liquid issuance—say, ten-year bonds issued six months ago—in exchange for new and more liquid ten-years, which it is expected to start doing from 2024. The Treasury has acknowledged that leverage practices, which make the basis trade possible, warrant investigation, but Ms Liang has also said that there are upsides to the basis trade, such as increased liquidity.Hamilton, the father of the Treasury market, could not have envisaged the vast network of institutions that make up its modern version. Yet he did have a keen appreciation for the role of speculators, who stepped in to buy Treasuries when bondholders lost faith or needed cash. He would have been far more concerned with politicians rolling the dice on defaulting and the growing debt stock than he would have been by enthusiastic intermediators. Although plenty of his successors’ suggestions have widespread support—such as buybacks and central clearing—they would do well to remember his aversion to snubbing those keen to trade. ■ More

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    ‘The Psychology of Money’ author Morgan Housel gives advice to investors afraid of market downturns

    The author behind the best-selling book “The Psychology of Money” is trying to relieve investor anxiety over market downturns.
    “Realizing how inevitable it is makes it more palatable to deal with when you go through it,” author and behavioral finance expert Morgan Housel told CNBC’s “ETF Edge” recently.

    It’s one of the major themes in his new book: “Same as Ever,” which was published in November.
    Housel, a partner at the venture capital firm the Collaborative Fund, contends a recession is not an “if” but a “when,” and that knowing this can make it easier to manage expectations. 
    “The bear market plants the seeds for the recovery because people get scared into action,” he said. “All the new technologies come about because people are motivated by fear.”
    He also advises investors to always have a plan for surprise events because they can catch the market off guard.
    “[The financial system is] very good at predicting what the economy and the stock market are going to do next — except for the surprises,” Housel said.

    Housel added these surprise events, such as natural disasters and pandemics, tend to be all that matter in market shakeups. But just as the market eventually stabilizes, even times of calm can also “plant the seeds for crazy.”
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    Three reasons a strong Black Friday weekend may not mean a blowout holiday season for retailers

    Black Friday weekend got a boost this year from more online shopping, deep discounts and cooler temperatures in many parts of the U.S.
    Yet that doesn’t mean that the rest of the season will blow away expectations.
    About half of holiday shoppers’ spending is done as of the end of Cyber Monday, Adobe and the National Retail Federation said.

    Shoppers walk around Twelve Oaks Mall on November 24, 2023 in Novi, Michigan. 
    Emily Elconin | Getty Images

    Retailers are cheering after shoppers spent big on gifts and decor in the days after they gobbled up turkey and stuffing.
    But the strong showing does not necessarily mean those companies will have blowout success in their all-important holiday quarter.

    Online spending shot up by nearly 8% year over year to $38 billion during the five-day period from Thanksgiving Day to Cyber Monday, according to Adobe Analytics. A record high of 200.4 million shoppers went to retailers’ stores and websites over the same period, according to a survey by the National Retail Federation. And Ulta Beauty and Foot Locker’s shares rose this week, after the companies reported better-than-expected earnings and a strong start to holiday spending on sneakers, makeup and more.
    But some unique factors may have driven those early sales, including wider adoption of online shopping, deeper discounting levels and cooler temperatures in many parts of the U.S. That’s raised questions about whether consumers’ appetite to spend will continue throughout the critical retail season — or taper off into a more pronounced lull between Black Friday and the final rush before Christmas.
    Ulta is in one of the hottest categories for retail, as beauty continues to defy weaker discretionary spending trends. Yet even Ulta CEO Dave Kimbell was quick to point out this week on the company’s earnings call that retail’s biggest weeks are ahead.
    He said Ulta and its beauty competitors will have higher promotional levels than a year ago, as they cater to budget-minded customers.

    Read more CNBC retail news

    The NRF has tempered expectations, too, relative to recent years. The industry’s major trade group predicts 3% to 4% year-over-year growth in holiday-related spending from Nov. 1 to Dec. 31. That’s roughly in line with the average annual growth before the boom of the pandemic years.

    On a call this week, NRF CEO Matt Shay said the season is on track to meet that estimate — even after shoppers blew past the trade group’s turnout expectations for the five-day Thanksgiving weekend.
    Here’s a look at three key factors that contributed to Black Friday weekend:

    Anastasiia Krivenok | Moment | Getty Images

    Shoppers flock online

    Instead of dashing to the mall after Thanksgiving dinner or lining up outside stores for doorbuster deals on Black Friday morning, more Americans are filling up shopping carts from their couches.
    Online shopping still drives just a fraction of overall holiday spending, even after the cooped-up years of the pandemic — giving it plenty of room to grow. About 1 in 5 retail dollars are spent online, according to Adobe Analytics. Only about 30% of overall holiday sales last year took place online, through apps or in other locations that aren’t physical stores, according to the NRF.
    Consumers spent $109.3 billion online from Nov. 1 through Cyber Monday this year, according to Adobe Analytics. That’s a 7.3% jump compared with the same period last year.
    It’s an even sharper jump from pre-pandemic in 2019. Consumers spent $81.5 billion online during the stretch from Nov. 1 through Cyber Monday that year. The period this year had a few extra days since Thanksgiving was later in 2019 than in 2023, but illustrates the bigger embrace of e-commerce.
    Adobe’s data covers more than 1 trillion visits to U.S. retail websites, 100 million unique items and 18 total product categories.
    One reason for the shift? Some major retailers that used to draw shoppers on the evening of Thanksgiving are now shut. The closures of Walmart, Target, Best Buy and other retailers on Thanksgiving is one of the pandemic’s legacies.
    Plus, in a year when Americans are more budget-minded, online can be the better way to shop, said Vivek Pandya, a lead analyst at Adobe Digital Insights. Comparing prices is easier to do by opening multiple web browsers and apps rather than driving from store to store, he said.
    “The focus is on price and value and the consumer has been very strategic,” he said.
    It’s too soon to say if the higher online shopping total so far this season means holiday shoppers will spend more overall year over year — or if more of their purchases are just moving to websites and apps. Adobe does not track in-store purchases, Pandya said.
    Adobe predicts that full holiday season online spending from Nov. 1 to Dec. 31 will hit $221.8 billion, which would be a nearly 5% year-over-year jump. If the estimate ends up being correct, that means shoppers still have a little more than half of their online holiday spending to go.
    The NRF said this week that its survey found about half of consumers’ online and in-store holiday shopping remains.

    A customer visits the store during early morning Black Friday sales at Macy’s Herald Square on November 24, 2023 in New York, New York.
    Kena Betancur | Getty Images

    A hunger for deals

    The desire for deals is an early and clear theme of the season.
    After more than a year of paying higher prices for nearly everything including milk, gas and housing, U.S. shoppers have shown that a compelling price cut is one of the best motivators.
    Black Friday and Cyber Monday have become synonymous with deep discounts, which may explain the outsized shopper turnout and online spending.
    On Cyber Monday, for instance, consumers saw discounts peak at 31% for electronics, 27% for toys, 23% on apparel and 21% on furniture, according to Adobe.
    Those price cuts in electronics, apparel and furniture were higher than Cyber Monday a year ago. Toys, on the other hand, had lower discounting levels than the last Cyber Monday.
    Scott Wren, senior global market strategist at Wells Fargo, said it’s a mistake for investors to extrapolate that heightened Black Friday weekend spending means that the American consumer is healthy. Instead, he described it as the “last hurrah” before a recession that Wells Fargo predicts will take place in the first half of 2024.
    He said higher credit card balances, increased costs of borrowing and the risk that the U.S. Federal Reserve may keep raising interest rates to fight inflation could spur a downturn.
    “People are just about tapped out, but [with] the holiday season, people are willing to even further extend themselves,” he said.
    Reality may also hit as consumers must pay off those holiday purchases.
    Americans are financing purchases in new ways, along with swiping credit and debit cards. Use of buy now, pay later hit an all-time high on Cyber Monday, according to Adobe. It contributed $940 million in online spend, a nearly 43% jump year over year. Shoppers who used the payment option also put more items in their carts, as the number of items purchased rose 11% year over year.
    Taking on credit card debt this holiday season will come at a steeper price, too, if consumers carry a balance from month to month because of higher interest rates.

    Shoppers look at clothes during Black Friday deals at Macy’s department store at the Roosevelt Field mall in Garden City, New York, U.S., November 24, 2023. 
    Shannon Stapleton | Reuters

    A well-timed cold snap

    In many parts of the country, shoppers got away with postponing purchases of sweaters, hats, jackets and other cold-weather gear thanks to an unseasonably warm fall.
    Yet Black Friday weekend brought chillier temperatures in major cities such as New York City — the kind of cold snap that retailers root for.
    Over the past two months, companies including Levi Strauss and Macy’s spoke about the challenge of milder weather.
    Macy’s CEO-elect Tony Spring told investors on an earnings call in mid-November that “the weather was a little warmer than we would have liked,” but stores adapted with merchandise that could transition from season to season.
    Levi CEO Chip Bergh said unseasonably warm weather hurt sales of its denim at stores such as Walmart, J.C. Penney and Macy’s.
    “It’s hard to sell blue jeans when it’s 110 degrees outside,” he said on a call with CNBC in October.
    Colder weather over Black Friday weekend laid the groundwork for bigger sales, said Scott Bernhardt, president at Planalytics, a predictive demand and analytics company that tracks the influence of weather on retail spending. A cold snap typically motivates spending, since it puts shoppers into a holiday mood and helps their shopping list better match the seasonal merchandise that retailers have displayed in stores, he said.
    Retailers may not get as lucky in the weeks ahead, Bernhardt said. More

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    Case for gold fever: NewEdge Wealth sees record rush intensifying

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    The record gold rush may intensify into year-end.
    According to NewEdge Wealth’s Ben Emons, the final month of the year typically creates a bigger appetite for the yellow metal.

    “It’s been very consistent every December. It’s been a pretty strong performance for gold — especially when there is a rally in the stock market in November,” the firm’s head of fixed income told CNBC’s “Fast Money” on Tuesday.
    Gold settled at a new record high Friday. It closed the day up almost 2%, at $2,089.70 an ounce.
    Emons listed the economic backdrop and geopolitical backdrop as additional positive catalysts for gold.
    “There’s uncertainty next year. We have an election. We don’t know what’s going to happen. We get a recession maybe, maybe not,” said Emons. “At the same time, gold rallies when there’s this risk-on feel in the markets, and that’s really when real rates and interest rates are declining. This gives the gold a really good push for the breakout.”
    In a note to clients this week, Emons wrote that months for both gold and stocks are a “rare combo.” Gold gained 3% while the Dow and S&P 500 were both up almost 9% in November.

    “[It] tends to occur when markets price in major easing cycles,” he wrote. “Currently, that is going on in a mild manner, which puts the spotlight on the seasonals of gold.”
    Emons suggests the strength will continue into next year.
    “Central banks are again outbidding gold against dwindling supply, likely setting up the metal for a major breakthrough towards 2100 … lifting boats for laggards like utilities have a shot to claim market leadership by early 2024,” Emons also wrote.
    “Fast Money” trader Guy Adami also sees gold shining due to the dollar’s recent performance.
    “If rates continue to go lower, the dollar will go lower. That will be a tailwind for gold,” he said. “Gold is within a whisper of having a huge breakout to the upside.”
    As of Friday’s close, gold is up more than 14% so far this year.

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    Charlie Munger’s acumen, wisdom and irreverence: Investors mourn the loss of one-of-a-kind legend

    Charlie Munger at Berkshire Hathaway’s annual meeting in Los Angeles California. May 1, 2021.
    Gerard Miller

    As Charlie Munger’s admirers around the globe mourn the loss of one of the most influential investors ever, a deep sense of gratitude and appreciation has spread — for his unparalleled business acumen as well as his uniquely sharp tongue.
    Munger, Berkshire Hathaway’s vice chairman who died Tuesday one month shy of his 100th birthday, left a mark on generations of investors in a host of ways thanks to a long and fruitful life.

    First and foremost, Munger’s investment philosophy rubbed off on none other than Warren Buffett, giving rise to the sprawling conglomerate worth almost $800 billion that Berkshire is today.
    Early in their careers, Munger broadened Buffett’s investing approach, eventually turning away the younger Buffett from buying dirt cheap, “cigar-butt” companies that might still have a little smoke left in them, to instead focus on quality companies selling at fair prices.
    “Certainly as Berkshire shareholders, we owe them a debt of gratitude because the earlier you get to a good decision, the better,” Bill Stone, chief investment officer at Glenview Trust, said in an interview. Such timing gives rise to “a compound” effect, he said.
    Recognizing a good business
    Matt McLennan, co-head of the global value team and portfolio manager at First Eagle Investments, a longtime investor in Berkshire, recalled a meeting with Munger more than 15 years ago, where he asked how he and Buffett spent their time, given their claim that they made investment decisions in only minutes.
    “Charlie responded ‘reading,’ which struck me as quite apt given his uncanny ability to build mental models of how the world works and use these models as the advance groundwork for efficient decision-making,” McLennan told CNBC.

    Munger long emphasized the importance of recognizing a good business before it’s widely seen as such, and he did so many times in his storied career.
    He made a shrewd bet on Chinese electric automaker BYD that proved a big winner. Berkshire first bought BYD in 2008, and the stake has since grown into a multibillion-dollar position in the world’s largest electric vehicle manufacturer.
    Munger was also a loyal supporter of Costco Wholesale Corp., calling it one of the best investments of his life. He invested in the retailer before it merged with Price Club in 1993.

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    Never following the crowd
    Unlike Buffett, who often wraps a piece of criticism in a folksy story, Munger tended to speak bluntly, sprinkling his remarks with unforgettable quips.
    As a longtime cryptocurrency skeptic, he never minced words when it came to his critique, saying digital currencies are a malicious combination of fraud and delusion. He also called bitcoin a “turd,” “worthless, artificial gold” and that trading digital tokens is “just dementia.”
    When SPACs — special purpose acquisition companies — enjoyed a short-lived boom in 2021, Munger said “it’s just the investment banking profession will sell s— as long as s— can be sold.”
    “The thing I really appreciated was that he was so blunt,” Stone of Glenview Trust said. “It’s pretty refreshing because most people in the world are forced to be a little bit cautious in what they say or just want to be liked. He had a special something and I never took it as malicious.”
    John Rogers, co-chief executive at Ariel Investments, respected Munger’s no nonsense “irreverence” to the end.
    “He was a true contrarian. He didn’t care what others thought,” Rogers said this week at the CNBC CFO Council Summit. “I think to be a successful investor, that’s critical, that you don’t follow the crowd. You think independently, and he was someone who truly did that.” More

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    Pfizer’s twice-daily weight loss pill joins a long list of obesity drug flops

    Pfizer’s twice-daily version of its experimental weight loss pill has now joined a long list of other scrapped obesity drugs. 
    Pfizer’s move to drop two obesity drug candidates in the last year demonstrates how difficult it is to develop an effective, safe and tolerable treatment for losing weight.
    Before successful weight loss treatments such as Wegovy and Ozempic, the path to treating obesity was strewn with failures dating back decades.

    Sopa Images | Lightrocket | Getty Images

    Pfizer’s twice-daily version of its experimental weight loss pill has now joined a long list of other scrapped drugs that aimed to treat obesity but came with unintended consequences. 
    The drugmaker on Friday said it will stop developing the twice-daily treatment, danuglipron, after obese patients taking the drug lost significant weight but experienced high rates of adverse side effects in a midstage clinical trial. Pfizer noted that it will release data on a once-daily version of the pill next year, which will “inform the path forward.” 

    The announcement came six months after Pfizer scrapped a different once-daily pill in June, citing elevated liver enzymes. Pfizer’s move to drop two obesity drug candidates in just a few months demonstrates how difficult it is to develop an effective, safe and tolerable treatment for losing weight, even after recent breakthrough medications entered the space. 
    That includes Novo Nordisk’s Wegovy and diabetes treatment Ozempic as well as Eli Lilly’s diabetes drug Mounjaro. They have all skyrocketed in popularity — and slipped into shortages — over the last year for safely and successfully causing significant weight loss. An estimated 40% of U.S. adults are obese, making those drugs the pharmaceutical industry’s newest cash cow. 
    But before the current weight loss industry gold rush, the path to treating obesity was strewn with failures dating back decades.
    The main reason many experimental treatments were scrapped by drugmakers, rejected by U.S. regulators or eventually pulled from the market were unintended side effects, including elevated liver enzymes, cancer risks, cardiovascular risks and serious psychiatric problems, such as suicide. 

    Eisai’s lorcaserin

    One of the most recent casualties among experimental obesity drugs is Japanese drugmaker Eisai’s lorcaserin, which was removed from the market in 2020 due to causing an increased risk of cancer in patients. 

    The Food and Drug Administration greenlit lorcaserin in 2012 based on several clinical trials but required Eisai to conduct a larger and longer study on the drug after the approval.
    That study on about 12,000 patients over five years found that more people taking lorcaserin were diagnosed with cancer compared with those taking a placebo, which led the FDA to pull the drug from the market.  
    Lorcaserin, marketed under the brand name Belviq, didn’t appear to gain much traction while it was commercially available. In its full-year 2019 earnings, Eisai reported that Lorcaserin had sales of $28.1 million in the U.S. for the year. Global sales of the drug were about $42 million. Eisai’s total sales for the year were roughly $4.42 billion.

    Sanofi’s rimonabant

    An obesity drug called rimonabant from Sanofi and Aventis was withdrawn from all markets in 2008 due to the risk of serious psychiatric problems, including suicide. 
    Notably, the treatment never won approval in the U.S. because a panel of experts to the FDA rejected the drug amid fears that it may cause suicidal thoughts. But European regulators approved rimonabant, marketed under the name Acomplia, in 2006 based on extensive clinical trials. 
    Two years later, European regulators recommended the suspension of rimonabant after one of its committees determined that the risks of the treatment — particularly psychiatric issues — outweighed its benefits. 
    The treatment suppressed appetite by blocking the receptor of cannabinoid substances in the brain, which plays an important role in regulating the body’s food intake and metabolism. 
    Due to rimonabant’s limited time on the market and failure to win U.S. approval, the drug never reached Sanofi’s lofty projection that it would eventually generate $3 billion a year or more. 

    Abbott Laboratories’ sibutramine

    Several obesity drugs have also been discontinued, rejected or pulled from the market due to unintended cardiovascular risks. 
    That includes sibutramine from Abbott Laboratories, which was once widely used as a treatment for obesity along with diet and exercise.
    The drug was first approved in 1997, but carried warnings about high blood pressure and a risk of heart attack and stroke in cardiovascular patients. 
    A large, long-term trial on nearly 10,000 adults confirmed that sibutramine was associated with a significant increase in cardiovascular events, which prompted regulators in the U.S. and Europe to pull the drug from those markets in 2010.
    Sales of sibutramine had been dwindling ahead of its removal from the market. The drug raked in only $80 million globally, including $20 million from the U.S., in the first nine months of 2010.
    Recent evidence suggests that the newest slate of approved weight loss drugs may have the opposite effect on heart health: Weekly injections of Wegovy slashed the overall risk of heart attack, stroke and death from cardiovascular causes by 20%, according to a recent clinical trial.  More

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    Zero-day commodity options have now entered the ETF space

    Investors can now trade commodities and a Treasury with a popular short-term options strategy.
    The Nasdaq recently launched five zero-day options-based exchange-traded funds: United States Oil Fund (USO), United States Natural Gas Fund (UNG), SPDR Gold Shares (GLD), iShares Silver Trust (SLV) and iShares 20+ year Treasury Bond ETF (TLT).

    “Zero-day to expiration” or “0DTE” refers to a trade which expires in less than a day. It has taken the options market by storm. The volume of S&P 500 zero-day contracts has increased at least 40%, versus 5% in 2016, according to data from the CBOE.
    Not everyone is excited about the new ETF offerings, due to the complexity of the trade.
    “I’m cautious about these products because I agree they’re problematic for undereducated retail investors that don’t know how to trade the options market,” Dave Nadig, VettaFi’s financial futurist, told CNBC’s “ETF Edge” on Monday.
    The surge in activity surrounding zero-day options has some analysts worried about a negative impact on the market.
    “I don’t think the tools themselves are inherently breaking the market,” Nadig said. “Like most market structure things, it’s not a problem until it is.”

    Nadig also said he believes that most of the contracts are coming from hedge funds, not retail investors.
    “This is largely institutions, hedge funds and day traders, using these as short-term leverage speculative vehicles with the extra added bonus that they never have to settle,” Nadig said. “I think most individual investors probably don’t have any business in here at all. They’re naturally very speculative because of the inherent leverage.” More