The Data Is Broken. Here’s What You Need To Know…
As I read through economic data each week, I’ve come to a realization.
All of the models are broken.
Statistical models rely on data that has a degree of predictability. Right now, economists are looking at unpredictable data. The chart I’m about to share with you shows just exactly what I mean.
Below is a chart of continuing claims for employment insurance, which is a measure of unemployed people who are receiving weekly unemployment benefits. This is the number whose claims were approved and remain unemployed. Because it is actually lower than the number who filed for unemployment, it might be the most conservative measure of unemployment.
Source: Federal Reserve
This week, the four-week moving average (MA) stands at 20.4 million. I used the MA to reduce volatility and remain conservative. The previous record was about 6.5 million in September 2009.
Realistically, all 20.4 million currently receiving benefits will not go back to work as the economy reopens. Many restaurants are closing permanently, for example. And there seems to be a resurgence of the coronavirus. That threatens the survival of thousands of businesses.
There is no model to forecast this number in three months. I expect to see it decline and spike again, and the second spike is going to affect how business owners and consumers see the economy. Many will grow pessimistic, and they may pull back spending. That threatens a possible third wave of business closings. And this could go on for some time.
I wish I could be optimistic, but there is no model supporting optimism on the economy. I admit the models are broken, but there is no scenario where 20 million jobs are created in the next six months.
How I’m Trading Right Now
Here’s the good news, though…
This uncertainty and volatility will create trading opportunities in the stock market. In fact, I recently spotted a trade opportunity in Teva Pharmaceutical Industries (NYSE: TEVA), a generic drug maker.
Like other companies, TEVA should see earnings drop. The chart below shows historic earnings per share (EPS) along with estimates through next year.
EPS is expected to be about $2.50 in each of the next three years. The stock is priced at 5 times that level. This means investors have priced in the worst-case scenario.
The next chart shows that there is significant support near $11, which limits downside risk.
TEVA’s earnings are at the same level they were in 2008. The stock traded in the $30s at that time. Prices are shown as the red line in the next chart.
I don’t expect TEVA to reach that level with earnings where they are now. In 2008, EPS was rising, and the stock deserved a higher price-to-earnings (P/E) ratio than it does now when EPS is dropping from its highs.
A below-market average P/E ratio of just 8 provides a price target of $20. That is a long-term target.
In the short run, I believe there is significant income available in TEVA. That’s why I recently recommended a “bonus dividend” trade that will allow my Maximum Income subscribers to earn 3.1% in just 51 days. And since we can repeat trades like this, we could earn a 22% return on our capital in 12 months.
Now, I can’t reveal the exact details of this trade out of fairness to my subscribers. But what I can say is that if you’re looking for safe, easy ways to earn extra income in this market, you owe it to yourself to give it a shot. Check out this report to learn more.