On the January Barometer; Is Precision Medicine the Holy Grail?!

From: aditya rana
Date: Sat, Feb 7, 2015 at 2:17 PM
Subject: On the January Barometer; Is Precision Medicine the Holy Grail?!

Hi!,

Global financial markets have had a rough start to the year, with the S&P 500 index marginally down for the year (after being down 3% in January), while Germany put in the best performance amongst major global stock markets (+10.6%, France +10%, Russia +5%, India +4.5%, China -5%). What does this bode for the rest of the year? Jeffrey Saut, Chief Investment Strategist at the money manager Raymond James (and a 40-year market veteran), provides an interesting analysis of the “January effect”. To summarise:

-The much talked about January Barometer states: “As goes the month of January, so goes the year”.

-As per the respected Stock Trader’s Almanac, the above January Barometer has registered 8 major errors since 1950, implying an accuracy ratio of 87.7%, and including the years where the market was flat the ratio dips to a still respectable 75.4%.

-Of these eight errors: Vietnam affected ’66 and ’68, ’82 heralded the start of a major bull market in August, ’01 was affected by two rate cuts and 9/11, ’03 was weighed down by the Gulf War, the second worst bear market since 1900 ended in ’09, and the Fed intervened in ’11 and ’14.

-With January ’15 posting a loss, the stock index has been down in the first month for the second year in a row, and for five out of the last 15 years (when the secular bear market commenced).

-While the January Barometer seems have a good predictive record, there is another indicator to consider – the December Low indicator (originated by Lucien Hooper, a Wall Street analyst from the ‘70s). This indicator suggests that if the December low for the market is broken during the first quarter of the following year, then the market is likely to be down for the year. When this indicator is combined with the January Barometer it produces an even more accurate track-record.

-The Dec ’14 lows for the Dow and the S&P 500 were 17068.87 and 1972.74 respectively. The S&P has been trapped in a 1990-2080 range since late October of last year, and a break on the downside would portend a more significant fall.

-There are myriad other indicators one can choose from which are supportive for the market – since WW II, the stock market has never had a down year during the third-year of the presidential cycle; since its inception, there have been since seven instances when the dollar index has rallied by more than 10% (like it did in ’14) and the S&P has been up each time during the subsequent year; and since ’62, there have been only four times when the yield on the S&P has been greater than the yield on the 10-year treasury in the month of the January, and the previous three times had the S&P rally significantly during the ensuing months.

-Furthermore, corporate earnings for 4Q’14 are also supportive, with 63.5% of companies beating estimates while 57% bettering revenues. However, 8% more companies are leaning towards lowering earnings guidance than increasing them.

-From a technical perspective, the S&P seems to forming a classic Double Top pattern (see chart below) or even a “Head and Shoulders” topping pattern, with the 1990 being the key support level which if broken could lead to a fall to the 1900-1920 level. Another point to note, is that the S&P has breached its 150-day moving average of 1996.94 which has provided support over the last several months. “We remain cautious”.


Click here to enlarge

The above analysis does point to caution in the short-term , particularly with regards to the U.S. stock market. A Fed rate hike in June is an increasing likelihood, which would cause markets to continue to be volatile as we get closer to that date. However, as noted in earlier newsletters, a significant market decline (over 10% for the S&P?) is unlikely due to the liquidity support provide to global financial markets by the major central banks – as Cumberland Advisors note – the combined balance sheets of the Fed, ECB and the BOJ will reach $11 trillion by next year, about four times the size since the start of the financial crisis, with duration about two to three times longer (which has forced investors to replace the lost duration with other long duration assets like equities). So the strategy of buying the sharp falls and lightening on rallies remains.

Is Precision Medicine the Holy Grail?:

A thoughtful piece by Dr. David Katz, Director of the Preventive Research Centre at Yale University, on the hype surrounding precision medicine (i.e. the use of genetic and other data to developed personalized treatment).

-Modern medicine has some things in common with football. Both, it seems to me, tend to foster our occasionally-overinflated hopes, leaving us at times to contend with a relatively, well, deflated reality.

-Both are team sports, advancing courtesy of collective effort. And by and large, progress in each is predicated on prior progress. There is, in football, the occasional kickoff return for a touchdown – and in biomedicine, the occasional "Eureka!" although most of those tales prove apocryphal on close inspection, Newton’s apple included. But in both, advance is generally achieved one arduous set of downs at a time.

-There is value, to be sure, in advancing a "precision medicine" agenda, a priority affirmed in the president’s recent State of the Union address, and one garnering unusual bipartisan support. The proposition seems closely related to recent press highlighting new efforts to find genes that protect us from prevailing maladies.

-But I confess I had some misgivings just the same. I’m sure that every other species has substantial inter-individual genetic variation, yet we seem to bank on the biological commonality of a species in how we care for them. Dogs, for instance, get dog food; cats get cat food; and horses get oats and hay. Biological commonality at times extends well beyond the bounds of just one species. Tropical fish, for instance, are many different species; yet it’s tropical fish food for the whole lot, if you happen to have them in an aquarium.

-I am by no means suggesting that our inter-individual variations are unimportant; their importance is self evident in innumerable ways. Nor am I suggesting reliance on standard-issue sacks of "Homo sapien" food, perish the thought.

-But I am saying that we, too, as members of a common species are biologically more alike than different. And the pursuit of knowing what we can do about what differentiates among our metabolisms should not be at the expense of putting what we know about what we have in common to good use.

-That was pretty much the sentiment expressed in the New York Times, written as a precautionary rejoinder to the fast-track enthusiasm for the promise of precision medicine. The author, a physician at the Mayo Clinic, suggests this enthusiasm is misplaced and apt to leave us disappointed. Certainly that proved true in the early days of the genomic era, recently subject to an about face accordingly.

-This also recalls another recent column, by Dr. Ezekiel Emanuel, suggesting abandoning the annual physical exam. While the traditional version of the physical exam is certainly obsolete, there is a real risk in this suggestion of tossing out the baby with the bathwater — because that encounter may be the only time for doctor and patient to meet other than at a time of crisis. Imagine, then, a world in which at such times of crisis, we have ever more perfect knowledge of a person’s genome, and ever less knowledge of that genome’s person. Call me a humanist, but that seems fraught with peril to me.

-Precision medicine seems to call for a considerable allocation of money to learn things we don’t yet know. I support that in principle; it’s a classic example of investment and the promise of return.

-But a case was made just this week in the New York Times that the return on investment for confronting the scourge of childhood poverty in the U.S. would be nothing short of dazzling — and that’s just in monetary terms. Poverty is a potent driver of diverse miseries, including much increased likelihood of the very diseases we would need precision medicine to treat more effectively.

-Similarly, we have a robust body of knowledge about lifestyle practices consistently shown to slash rates of chronic disease and premature death by 80 percent. This reliable knowledge in no way obviates the need to ask new questions and generate new answers. But the pursuit of what we don’t yet know does not preclude effective use of what we do, either.

-And yet, it does seem to be playing out that way. Even as we contemplate major new financial allocations to precision medicine, childhood poverty is left to languish. As research has recently pointed out that preventive medicine, despite its formidable and accessible promise, garners only a tiny, non-corresponding fraction of NIH biomedical research dollars. A preferential focus on learning what we don’t know does, indeed, seem to hinder action based on what we do. Call that precision if so inclined, but it seems a lot like procrastination to me.

-And yet there are signs that’s the playbook of modern medicine. For instance, I conducted the following exercise for purposes of this column. I searched Pubmed, the vast, online library of peer-reviewed biomedical publications, for papers with "chronic disease" in the title. I simply wanted to see the publication trend over recent years. I used five-year increments, ending with the most recent full year, and here is what I retrieved for the percentage increase for each entry relative to the one before:

1999: 45 percent

2004: 72 percent

2009: 86 percent

2014: 58 percent

-So, in general, not only is the fund of published knowledge about chronic disease growing dramatically, it is apparently growing, for the most part, at an accelerating rate. And yet, we have a global epidemiology study, overseen by the Lancet, and representing much the same period, showing an increasing burden of chronic disease. This isn’t exactly proof of a failure to use what we know, but at the very least it makes that concern an urgent one, deserving of scrutiny.

-Whatever the potential benefits of "precision" medicine — whether we will hit the moon when shooting for it, or miss completely — how can it make sense to hope for a possible boon in the bush while squandering the one already in hand? Precision is good, but procrastination is not. We should learn what we don’t know, but not at the expense of using what we do. Otherwise, it’s a disappointing game with lots of movement, but little progress.

Here’s to not blindly replacing what we know with what we don’t know!

I will be travelling over the next two weekends for the Chinese New Year break and will recommence the newsletters on February 28. Wishing my readers a very happy and prosperous Year of the Sheep!

Regards,

Aditya

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