The zero-sum game investors are betting on
With global economies stuck in low growth, profit margins cannot rise forever and political risks may increase
Political turmoil seems to be everywhere these days. Not just in the Middle East but in nations such as France and Germany. In other countries like the US, political polarisation is intensifying. The proximate causes may differ but the underlying problem seems clear; it is hard to keep voters in a democracy happy when their standard of living is not improving.
In the midst of all this popular discontent, the equity markets couldn’t be happier. US equity indices are regularly hitting all-time highs and the S&P 500 index is up nearly a quarter this year. The FTSE 100 index rose above 8,000 in April and has not dropped below that level since, holding on to a gain of about 5 per cent for 2024. Even Germany’s Dax 40 is about 18 per cent higher than at the start of 2024 despite the country’s economic and corporate problems.
What explains the disconnect? It is certainly not the growth outlook. The latest OECD report shows that European countries, as well as Japan, will only manage GDP growth in the 1-1.5 per cent range over the next two years. In the US, growth is expected to slow in 2025 and 2026 from the near-3 per cent rates achieved over the past two years. These are hardly the “roaring Twenties” that some hoped for at the start of the decade.
A key reason is that the experience of the ordinary voters and the experience of the corporate sector are quite different. The profit margins of US large companies are close to an all-time high, according to Jefferies research. Although some of the plans of president-elect Donald Trump, such as widespread tariffs and mass deportations, seem quite alarming, investors are not too concerned. They think Trump will retreat from the most extreme measures and focus on a market-friendly programme of deregulation and tax cuts. They are betting the house on US exceptionalism. The US stock market is a global behemoth, comprising 73 per cent of the MSCI World Index at the end of 2023, compared with the US’s 26 per cent share of global GDP.
Nevertheless, the US, like Europe, suffers from voter discontent. Even America’s superior growth record was insufficient to re-elect the Democrats since inflation had eroded voters’ standard of living. The long-term problem is that voters are happy to demand public services but less content to pay the taxes that fund them. In the past, this circle was squared through economic growth. Without growth, economic policy becomes a zero-sum game, in which gains for one group can only come at the expense of losses for another. And the losers are always more angry than the winners are grateful.
In the fallout, developed economies seem to be heading for one of two outcomes: plutocracy or gridlock. Plutocracy has clearly won in the US where Elon Musk, the richest man in the world, helped finance the campaign of Donald Trump and has been given the brief of cutting government spending.
In Europe, gridlock has the upper hand. Proportional representation leads to a fragmentation of parties, making it harder to create a stable governing coalition. Gridlock makes it difficult for governments to pass budgets (as demonstrated by France) or to deliver the kind of reforms that might boost economic growth (as in Germany).
And it is difficult to see how growth can significantly accelerate. Europe’s working age population is expected to decline 15 per cent by 2070. The EU has a birth rate of 1.46 per female which means that immigration will be needed to boost the population. But the need for immigration has led to a politically toxic debate in which anti-immigration parties are steadily increasing their vote, something that makes the formation of a stable government even more difficult. Nor is the US entirely immune from this problem. At 1.8, its birth rate is better than the EU’s but below replacement rate. Since mid-2023, the growth in the US labour force has stemmed entirely from immigration (legal and illegal) according to Dhaval Joshi of BCA Research.
As this column takes the long view, it is very hard to be optimistic about the outlook for democracy. As noted above, plutocracy can be self-sustaining and may spread outside the US. Gridlock may also degenerate into one-party rule when nationalist parties take charge. As has been seen in Hungary, governments can maintain their own rule by undermining such bulwarks of a liberal democracy as a free press or an independent judiciary.
Eventually, all this may rebound on investors. Profit margins cannot go up forever and eventually populist parties may turn their firepower on to the corporate sector. Furthermore, a world in which governments are ruled by nationalists is a world where the free movement of goods and capital, as well as people, will eventually be restricted.
Investors got a very good deal out of the post-1945 international order in which by and large, national governments played by the rules. But now the rule book is being torn up. It may turn out that stock markets are like the first-class passengers on the Titanic; toasting each other with champagne as the boat bears down on the iceberg.
Nonprofit group joins Elon Musk’s effort to block OpenAI’s for-profit transition
Encode, the nonprofit organization that co-sponsored California’s ill-fated SB 1047 AI safety legislation, has requested permission to file an amicus brief in support of Elon Musk’s injunction to halt OpenAI’s transition to a for-profit company.
In a proposed brief submitted to the U.S. District Court for the Northern District of California Friday afternoon, counsel for Encode said that OpenAI’s conversion to a for-profit would “undermine” the firm’s mission to “develop and deploy … transformative technology in a way that is safe and beneficial to the public.”
“OpenAI and its CEO, Sam Altman, claim to be developing society-transforming technology, and those claims should be taken seriously,” the brief read. “If the world truly is at the cusp of a new age of artificial general intelligence (AGI), then the public has a profound interest in having that technology controlled by a public charity legally bound to prioritize safety and the public benefit rather than an organization focused on generating financial returns for a few privileged investors.”
OpenAI was founded in 2015 as a nonprofit research lab. But as its experiments became increasingly capital-intensive, it created its current structure, taking on outside investments from VCs and companies, including Microsoft.
Today, OpenAI has a hybrid structure: a for-profit side controlled by a nonprofit with a “capped profit” share for investors and employees. But in a blog post this morning, the company said it plans to begin transitioning its existing for-profit into a Delaware Public Benefit Corporation (PBC), with ordinary shares of stock and the OpenAI mission as its public benefit interest.
OpenAI’s nonprofit will remain but will cede control in exchange for shares in the PBC.
Musk, an early contributor to the original nonprofit entity, filed suit in November requesting an injunction to halt the proposed change, which has long been in the works. He accused OpenAI of abandoning its original philanthropic mission of making the fruits of its AI research available to all, and of depriving rivals of capital — including his AI startup, xAI — through anticompetitive means.
OpenAI has called Musk’s complaints “baseless” and simply a case of sour grapes.
Facebook’s parent company and AI rival, Meta, is also supporting efforts to block OpenAI’s conversion. In December, Meta sent a letter to California attorney general Rob Bonta, arguing that allowing the shift would have “seismic implications for Silicon Valley.”
Lawyers for Encode said that OpenAI’s plans to transfer control of its operations to a PBC would “convert an organization bound by law to ensure the safety of advanced AI into one bound by law to ‘balance’ its consideration of any public benefit against ‘the pecuniary interests of [its] stockholders.’”
Encode’s counsel notes in the brief, for example, that OpenAI’s nonprofit has committed to stop competing with any “value-aligned, safety-conscious project” that comes close to building AGI before it does, but that OpenAI as a for-profit would have less (if any) incentive to do so. The brief also points out that the nonprofit OpenAI’s board will no longer be able to cancel investors’ equity if needed for safety once the company’s restructuring is completed.
OpenAI continues to experience an outflow of high-level talent due in part to concerns that the company is prioritizing commercial products at the expense of safety. One former employee, Miles Brundage, a longtime policy researcher who left OpenAI in October, said in a series of posts on X that he worries about OpenAI’s nonprofit becoming a “side thing” that gives license to the PBC to operate as a “normal company” without addressing potentially problematic areas.
“OpenAI’s touted fiduciary duty to humanity would evaporate, as Delaware law is clear that the directors of a PBC owe no duty to the public at all,” Encode’s brief continued. “The public interest would be harmed by a safety-focused, mission-constrained nonprofit relinquishing control over something so transformative at any price to a for-profit enterprise with no enforceable commitment to safety.”
Encode, founded in July 2020 by high school student Sneha Revanur, describes itself as a network of volunteers focused on ensuring voices of younger generations are heard in conversations about AI’s impacts. Encode has contributed to various pieces of AI state and federal legislation in addition to SB 1047, including the White House’s AI Bill of Rights and President Joe Biden’s executive order on AI.
Boeing and 6 More Contrarian Stocks for 2025
The meek may inherit the earth, but in the stock market, winners usually keep on winning. Still, there’s money to be made betting on some of 2024’s biggest losers.
As much as we like to be contrarians, we know that markets are generally a momentum game. Look no further than the Invesco S&P 500 Momentum exchange-traded fund, which has gained 47.2% this year, compared with the S&P 500 index’s 25.2% rise. The fund’s biggest positions include Amazon.com, Nvidia, Broadcom, Meta Platforms, and Berkshire Hathaway. When markets are trending higher, buying stocks with strong momentum on the dips is generally the way to go.
But we are contrarians. We like thinking about what could go wrong for the stock market’s biggest winners, and we really love figuring out what could go right for its biggest losers. Sometimes that leads us to make mistakes—recommending Albemarle this year wasn’t one of our finest moments —but it can really pay off when we get it right. PayPal Holdings, for instance, has gained 41% since we recommended it in March.
And there look to be plenty of contrarian picks to make as the year comes to a close. About a third of the companies in the S&P 500 were in the red as of the close of Dec. 23, and just 142 had topped the index. Many of them underperformed for a reason— Walgreens Boots Alliance, which is in talks to go private; potato product maker Lamb Weston, which recently ousted its CEO after reporting a surprise loss; and Paramount Global, which is merging with Skydance Media, among them—but it still leaves plenty of stocks to sort through.
Where to begin? JC O’Hara, chief market technician at Roth MKM, recommends looking for stocks that are “massively oversold” and approaching levels that could serve as “zones of support” for a rebound. He found 28, including household names like Nike, Ulta Beauty, Merck, and Boeing. Others are less well known, but intriguing: payments company Global Payments, medical-device company Zimmer Biomet Holdings, and analog semiconductor manufacturer Skyworks Solutions.
Ulta looks particularly interesting. It started off the year with a bang, reaching $567.18 a share by the middle of March. From there, it was a long ride down, starting with a March earnings report that featured lackluster guidance. From March 13 through Aug. 12, the stock dropped 43%. Then a Berkshire Hathaway filing revealed that the company had bought shares, and the stock has bounced 36% since then.
Things do seem to be looking up. Placer.ai notes that it was among the big winners of Super Saturday, the last shopping day before Christmas, with traffic up 50% from 2019, while Deutsche Bank notes that the company’s Dec. 6 earnings report revealed growth at stores open at least 13 months—so-called same-store sales—something that “refuted the bear case that it is a share donor in the beauty space.”
Betting on a Boeing bounce sure feels contrarian. Yes, about 55% of analysts still rate the stock a Buy, but that’s the fewest since June 2021. And the company has a new CEO in Kelly Ortberg, who will try to do what Dave Calhoun couldn’t. Early results are looking good. The machinists strike ended, while the company resumed making the 737 Max earlier this month.
A lot still needs to go right from here: The company has to accelerate production; quality control needs to improve; and Boeing is still trying to acquire Spirit AeroSystems, which makes its fuselages. It’s all very complicated and loaded with risk, but the upside potential if the company can avoid the potential pitfalls is undeniable.
Sure, none of these stocks look like slam dunks, and even O’Hara says some “are not ‘quite there’ yet” and could require patience. That’s what makes being a contrarian fun. If it were easy, it would be called momentum investing.
Against the Odds: How Argentina and Turkey Delivered Superior Stock Returns
U.S. exceptionalism is all the rage, but U.S. stocks weren’t the only big winner in 2024—or even the biggest.
With all the talk of the Magnificent Seven, stock bubbles, and the Trump Trade, it’s easy to believe that the U.S. markets crushed every country in the world this year. Not quite. The champion by a long way was Argentina, whose Merval stock index nearly tripled in value. The S&P 500
rose a mere 25%. Three other emerging markets outperformed the S&P: Turkey, Hungary, and Taiwan. So did Israel, which graduated to developed-market status in 2010.
These aren’t necessarily the countries casual news readers would pick to be this year’s big winners. They aren’t necessarily the best bets longer term. They also come with a considerable asterisk: Local indexes reflect local-currency gains, which can be offset for dollar investors by devaluation. The iShares MSCI Turkey exchange-traded fund advanced a modest 9%, compared with 31% for the local-currency index.
Still, there’s a lesson here for a financial world increasingly driven by passive funds and quantitative formulas. Correct bets on which way the wind is blowing can still earn outsize profits. Argentina and Turkey were those bets in 2024. Argentine President Javier Milei took over a basket case in December 2023. His budget-slashing shock therapy tamed hyperinflation and built up currency reserves, without the widely feared rioting in the streets.
In Turkey, veteran leader Recep Erdogan changed course himself after winning another presidential term in May 2023. His new economic team has jacked up interest rates to 50% and clamped down on subsidized credit to wring out inflation, which he had stoked with ultra-loose money.
Neither country is close to stable prosperity. But both have pulled themselves out of tailspins. “I make my money when a situation goes from hopeless to a little less terrible,” comments Edward Al-Hussainy, senior currency analyst at Columbia Threadneedle Investments.
Taiwan had a bumper year for a different reason: super-concentration of the semiconductor and artificial-intelligence-adjacent stocks that outperformed globally. Information technology companies make up nearly two-thirds of its stock market, according to iShares, with foundry king Taiwan Semiconductor Manufacturing accounting for more than 20% all by itself.
Israel had tech and geopolitics on its side. IT accounts for about 35% of market cap, led by companies like Check Point Software Technologies and CyberArk Software. Stocks also benefited from investors’ perception that the war in Gaza could be winding down and the civilian economy normalizing, enabling those tech stars to catch up with global peers. Israel’s TA-125 Index jumped 20% in the second half of 2024.
Another 2024 takeaway: Cheap valuation can still drive returns. Germany is Exhibit A. The economy remained mired near recession. Industrial icon Volkswagen signaled the first domestic factory closures in its history. Chancellor Olaf Scholz’s fractious coalition government collapsed. Yet German stocks were cheap enough to advance 18% anyway. Investors snapped up perceived bargains in nonautomotive icons from Siemens Energy to Deutsche Bank and business software giant SAP. Hungary and the Czech Republic, Germany’s effective economic suburbs, did even better on an index basis.
There are lessons from the losers as well. Mexico was the world’s worst-performing major market this year in local-currency terms, with a 17% decline. Outgoing President Andres Manuel Lopez Obrador was largely to blame: He rammed through a crippling judicial “reform” during his last month in office and busted the budget on dubious infrastructure projects like the $30 billion-ish “Maya Train” in southern Mexico. Donald Trump’s election north of the border, with renewed threats to free trade with the U.S., didn’t help either.
Brazil was nearly as bad as Mexico in local-currency and much worse in dollar terms. Investors bailed as President Luiz Inácio Lula da Silva turned to smoke and mirrors on fiscal policy, and the central bank hiked interest rates again to ward off inflation.
Many investors have lost interest in international stocks after years of U.S. outperformance. That has made sense in a world of U.S. exceptionalism, especially if all international markets are lumped together. As Mexico and Brazil demonstrate, bad performers can always drag down the good ones. But with care, diligence, and a little bit of luck, there’s still good money to be made beyond U.S. borders.
You can bet on that.
AI Is Reshuffling the Ranks of Utilities Stocks. Here Are the Likely Winners.
Once known as safety plays, shares of electricity suppliers are getting a jolt from AI data centers.
Utility stocks have had a strong year, rising 20% after a difficult 2023. Now the industry is dividing—between names that can profit from the explosive demand from artificial intelligence, and those likely to grow more slowly. Some probable winners include Louisiana-based Entergy, Indiana’s NiSource, Idaho’s Idacorp, Pennsylvania’s PPL, Arizona’s Pinnacle West, and Minnesota’s Xcel Energy.
Utility stocks have had a strong year, rising 20% after a difficult 2023. Now the industry is dividing—between names that can profit from the explosive demand from artificial intelligence, and those likely to grow more slowly. Some probable winners include Louisiana-based Entergy, Indiana’s NiSource, Idaho’s Idacorp, Pennsylvania’s PPL, Arizona’s Pinnacle West, and Minnesota’s Xcel Energy.
Historically, utility stocks have offered havens for investors seeking steady quarterly dividends and protection from economic downturns. Even when consumers are hurting, they tend to pay their electric bills. Those attributes still matter, but they’re not the main reason to buy utility stocks today.
That’s because the utility industry has hitched a ride on one of the biggest investing themes of 2024—artificial intelligence. Utilities provide electricity for giant AI data centers going up around the U.S. For most of the past year, the trend was a boon for a very small and specific subset of the electricity-generating industry. Stocks of a handful of so-called independent power producers, such as Constellation Energy, Vistra, and Talen Energy, have doubled or tripled. Those companies own natural-gas and nuclear plants and sell power into competitive markets. They can make direct deals with big tech firms and aren’t hamstrung by a regulated rate structure that limits earnings for most utilities.
By comparison, regulated utilities are overseen by public commissions tasked with keeping electricity prices low for consumers and making sure service is reliable. They limit utilities’ earnings potential. But some utilities are starting to figure out ways to profit from the AI craze, too, by inking special deals with big tech companies to power their data centers.
New Orleans–based Entergy, for instance, just announced an agreement with Facebook owner Meta Platforms to build three natural-gas plants that will serve a $10 billion data center in rural Louisiana, which will be almost twice the size of the Superdome. This is no average electricity deal. In utility commission filings, Entergy said Meta has already paid upfront to reserve gas turbines and transmission lines for the project, and has agreed to bear the cost if the project falls apart. In addition, the tech giant will pay a minimum monthly charge to cover “the full annual revenue requirement for the planned generators” for 15 years.
With Meta carrying so much of the financial load, Entergy can grow its “rate base”—the value of assets and operations that sets the baseline for the company’s legal rate of return—without burdening existing customers. The Meta transaction will allow Entergy to boost its earnings growth rate from 6% to 8% this year to 8% to 9% starting in 2026.
Not every utility can sign deals like this. In much of the country, utilities control wires, transformers, and poles that make up the grid, but not the assets that generate the power such as nuclear or natural-gas power plants. And some states have barriers to getting power on the grid quickly. In New York and Massachusetts, stringent environmental goals make it difficult to add new natural-gas plants. Companies that face restrictions on how they can provide power have trailed this year; Massachusetts-based Eversource is down 12% in 2024, New York’s Consolidated Edison has dropped 4%, and Illinois’ Exelon is flat.
Entergy doesn’t face those same restrictions. The company has environmental goals and may eventually add renewable power and carbon-capture technology to serve the Meta project. But its goals aren’t as ambitious as they are for other utilities. And it’s working in states that welcome new data-center investment—and even give out tax breaks to attract it. Louisiana recently started offering rebates for sales and use taxes on data-center equipment. And Mississippi put together a lucrative package for Amazon.com to build a similarly enormous data-center complex there, exempting the company from corporate income taxes for 10 years and waiving sales and use taxes on equipment.
“In other parts of the country, this wouldn’t happen,” says Rodney Rebello, an analyst covering power stocks at Reaves Asset Management.
Reaves invested in this trend early, tilting its portfolio toward utility stocks most likely to benefit from data-center trends. That’s why its Virtus Reaves Utilities exchange-traded fund is up over 40% this year, trouncing the return of the average utility. Rebello thinks there’s more momentum ahead, with several utilities disclosing that they’re in conversations with major tech names. He’s focusing on companies with the right regulatory structure that are small enough that a few data-center deals will change their earnings trajectory. Entergy is still one of his favorites, despite already rising 44% this year. Other names that can benefit include Idacorp, NiSource, Pinnacle West, and Xcel Energy, he says. For some of those, access to clean-energy sources are a big draw for data-center customers; Idacorp, for instance, benefits from Idaho’s abundant and cheap hydroelectric power.
Other analysts are also warming to the trend. J.P. Morgan and Morgan Stanley both like PPL, a utility serving Pennsylvania, Kentucky, and Rhode Island, for its potential to profit off data-center deals.
Regulated utilities have been considered play-it-safe stocks for years, and many still offer that downside protection. J.P. Morgan thinks “utilities have the best risk-reward of all the defensive bond proxies” heading into 2025. But several are on offense now, too. Morgan Stanley likes utilities because of their “underappreciated growth upside.”
It’s rare for one sector to offer both risk protection and growth potential. This looks like one of those opportunities.
UnitedHealth and CVS Received Millions in Opioid Rebates Through Medicare
As the U.S. opioid crisis deepened, Medicare plans administered by UnitedHealth and CVS Health were a top source of OxyContin sales, a Barron’s investigation found.
By the time the maker of OxyContin pleaded guilty to a federal charge of misbranding the drug in 2007, Purdue Pharma had spent a decade selling opioid prescriptions through commercial health plans.
Five years later, with restrictions tied to the plea deal expiring, Purdue saw a new sales opportunity in an “aging population with painful conditions,” according to internal company documents. As the U.S. opioid crisis deepened, records show, Purdue sharpened its focus on the federal government’s Medicare prescription program for seniors.
Between 2012 and 2013, Purdue deployed an email marketing campaign to healthcare providers, launched new advertising in a long-term-care medical journal, and armed its sales force with patient vignettes to share with doctors. Each effort emphasized OxyContin’s insurance coverage through what’s known as Medicare Part D.
“Medicare Part D is the only significant and growing book of business for OxyContin,” a McKinsey analysis for Purdue found in 2013.
Telling doctors the opioid was covered by Medicare was only one part of the equation. To secure that coverage, Purdue had to negotiate terms with two corporate giants in the Medicare business, UnitedHealth Group and CVS Health.
A Barron’s investigation—the second in a series on pharmacy-benefit managers, or PBMs—found that Medicare coverage administered by arms of UnitedHealth and CVS Health was a top source of OxyContin sales, at a time when government watchdogs were raising alarms about opioid use and spending in the program.
UnitedHealth and CVS wear multiple hats in Medicare Part D. They serve as so-called sponsors of drug plans that seniors can purchase each year. They also operate PBMs, the middlemen that negotiate between drugmakers and insurance companies.
PBMs are under intense scrutiny in Washington. The secretive nature of deals between the firms and drugmakers is a particular focus as U.S. drug prices soar. The FTC has accused the companies of inflating insulin prices by demanding rebates and fees—a suit the companies are fighting fiercely. A bipartisan congressional bill proposed this month seeks to split up PBMs and their affiliated pharmacy businesses. Meanwhile, U.S. representatives recently asked the DOJ to investigate PBMs’ role in opioid sales following Barron’s coverage of the industry.
The PBMs say they save money for clients and point to years of efforts to combat the opioid crisis.
Barron’s found that Medicare plans using CVS’ PBM comprised the largest source of OxyContin sales in 2016, according to internal Purdue documents listing health plan accounts. The PBM, CVS Caremark, collected $132.6 million in rebates and fees on the sales.
Another set of Medicare plans, those using UnitedHealth’s Optum Rx PBM, were the third-largest source of sales in 2016, the documents show. Optum Rx took in $126.9 million in rebates.
UnitedHealth and CVS prescription plans for Medicare also authorized higher amounts of OxyContin compared with plans from some other insurers, Barron’s found.
Neither company had a direct comment when asked about the rebate figures or why their Medicare Part D plans differed from other insurers. The Centers for Medicare and Medicaid Services told Barron’s that it doesn’t review rebate agreements, due to prohibitions in the law that established Part D plans.
Prescription rebates are negotiated between PBMs and drugmakers and are set as a percentage of a drug’s list price. The rebate numbers are confidential and aren’t typically available to the public.
Barron’s reporting uses records produced in opioid litigation and probes that are now held by the Opioid Industry Documents Archive managed by University of California, San Francisco, and Johns Hopkins University.
While insurers share some Medicare rebate money with the government, they retained the bulk of it in 2021—about two-thirds of drug rebates and certain pharmacy fees—according to an analysis by the Medicare Payment Advisory Commission, or MedPAC, an independent congressional agency.
The companies can use those rebate funds to offset business costs and offer lower premiums, a fierce point of competition to win Medicare customers. Insurance plans “have had incentives to try to maximize rebates and keep premiums low,” MedPAC said in a 2023 report. The problem for some patients, according to the Government Accountability Office and others, is that rebates don’t directly lower the cost of drugs at pharmacy counters.
The PBMs say they are an important counterweight to the power of the pharmaceutical industry. CVS told Barron’s: “Rebate agreements help us lower the cost of drugs, including opioids. The rebates that our PBM, CVS Caremark, negotiates with drug manufacturers are a key tool for how we deliver lower net prices on prescription drugs for the employers, unions, and government programs that hire us.”
CVS and UnitedHealth have also told Barron’s that they worked to stem opioid abuse. A spokesperson for UnitedHealth’s Optum Rx PBM said: “We have taken a comprehensive approach to combat the crisis, even before the CDC introduced its opioids guidelines in 2016. Optum Rx has implemented a robust Opioid Risk Management program to actively manage the safe and appropriate use of opioids for both acute and chronic pain.”
Purdue, which pleaded guilty to fraud and kickback conspiracy charges related to the marketing and sales of OxyContin in 2020, declined to comment for this article.
McKinsey apologized this month for its work with Purdue on OxyContin sales after reaching a deferred prosecution agreement with the Department of Justice. The consulting firm declined to comment further to Barron’s.
OxyContin was first approved by the Food and Drug Administration in late 1995. By 2008, poisonings, which include overdoses, surpassed motor vehicle deaths as the No. 1 cause of injury fatalities in the U.S., a statistic fueled by the increase in deaths involving opioids, according to the CDC.
In 2012, 29% of OxyContin prescriptions were from Medicare Part D, up from 23% two years prior, McKinsey found.
Insurers, for their part, took varied approaches to how they covered opioids and specifically OxyContin, with its history of links to abuse and heftier price tag than generics.
Aetna stopped covering OxyContin in Medicare plans around 2010, according to Purdue internal records. In a 2013 report, McKinsey told Purdue that Aetna “desires to move away from perceived OxyContin patients.” However, the insurer, later acquired by CVS Health, continued to cover OxyContin in commercial insurance plans.
Blue Cross Blue Shield of Massachusetts, a private insurer, placed new limits on opioid prescriptions starting in the summer of 2012, after analyzing trends in claims data. The effort was later studied and written about by CDC researchers.
Medicare warned insurers in 2012 about troubling opioid use in the Part D program, prompted by a Government Accountability Office report on “doctor shopping” for drugs including OxyContin. Officials outlined safety measures insurers were allowed to implement, such as setting quantity limits and reviewing individual cases. The next year, Medicare enacted a policy for monitoring high-risk users with prescriptions from multiple doctors and pharmacies.
Still, in 2015, 30% of Medicare Part D enrollees received an opioid, and the program’s expenditures on opioids had reached $4.1 billion, according to a 2016 Office of Inspector General report. Spending was highest on OxyContin, the report said.
At Purdue Pharma’s Connecticut headquarters, the connection between rebates and sales was clear.
Rebates helped ensure access to customers, according to a 2012 presentation for the company’s board. The payments were “necessary to gain or to maintain” preferred placement on an insurer’s formulary—its list of covered drugs—meaning a cheaper copay for patients. A successful rebate negotiation could “deliver a positive return and competitive advantage,” the presentation said.
UnitedHealth’s negotiations with Purdue in 2013 showed how the insurer’s financial considerations in the Medicare market were evolving.
Seniors choose Medicare drug benefits through two avenues. Stand-alone plans only cover prescriptions, while Medicare Advantage plans bundle medical coverage for prescriptions, doctor appointments, and hospital stays.
UnitedHealth sold both types of plans and made different decisions on OxyContin for each, documents show.
The insurer dropped OxyContin from its Medicare Advantage plans in 2013. UnitedHealth, however, remained willing to cover OxyContin on stand-alone Medicare prescription plans—if Purdue would increase its rebate payments from 23.5% to nearly 60%, according to Purdue documents.
A senior Purdue executive balked at the figure. “United, as a whole, has become much more aggressive in their approach, since developing their own PBM (OptumRx),” he wrote to Purdue’s CEO at the time.
The executive said he was ready to walk away from the deal despite his projections that Purdue could lose $900 million in sales over the following five years without UnitedHealth’s Medicare coverage.
It didn’t come to that. By early May, the two sides reached agreement on a 50% rebate.
The next month, Purdue ran new advertising on OxyContin’s availability with insurance. The “journal ad reinforces the brand’s excellent Medicare Part D coverage and leverages images of older patients,” Purdue management said in a report to the company’s board of directors.
Many of those patients ended up with 80-milligram OxyContin tablets—the most expensive, and highest strength, dose. For Purdue, it was also the most lucrative.
In 2016, CVS Caremark and UnitedHealth’s Optum Rx collected more rebate money from Medicare plans on 80-milligram OxyContin than any other strength—28% of Caremark’s rebate total, and 31% for Optum.
Barron’s found that Medicare plans offered by CVS Health and UnitedHealth allowed four tablets a day of the highest strength, at a time when other health plans placed stricter limits.
In Florida’s Miami-Dade County, for instance, several plans limited OxyContin quantities to either two or three tablets a day, and the same was true in Queens, N.Y., according to drug coverage detailed by Q1Medicare.com, a plan-finder website.
Medicare Advantage plans in Allegheny County, Pa., home to Pittsburgh, limited the 80-milligram tablets to two a day and required prior authorization, according to Q1Medicare. Similar restrictions were evident in El Paso County, Texas.
“I wish that this lever had been pulled harder,” says Sanket Dhruva, an associate professor of medicine at University of California, San Francisco, who studied variations in how Medicare prescription drug plan formularies restricted opioids between 2006 and 2015. “It would have led to some frustration by some clinicians for some patients. But it would have been worth it.”
Christmas week trade was mostly muted with the focus remaining on rising interest rates and what that portends for 2025. US Treasury yields held just below the highs of April 2024 while the US dollar index stayed at or near 2-year highs. The Japanese 10-year yield rose above 1% for the first time in more than a decade following Japanese inflation readings. US data releases were sparse but the November durable goods continued to paint a resilient picture for the US economy underpinning the upward bias on rates. Core capital goods orders were substantially stronger than anticipated with the +0.7% jump the strongest monthly performance since the summer of 2023, while shipments were up 0.5% for the biggest monthly gain since January. Also, December Richmond Fed data remained in contractionary territory, but encouragingly included improving new orders and backlogs. Strength in select mega-cap technology shares continued to mask lackluster breadth amid expectedly thin trading conditions. Apple was the posterchild, continuing its ascent towards a $4.0T market cap on no significant news before profit taking resulted in a pullback of Mag-7 names on Friday. For the week, the S&P gained 0.7%, the DJIA was up 0.4%, and the Nasdaq added 0.8%.
MON 12-23
(AU) RESERVE BANK OF AUSTRALIA (RBA) DEC MINUTES: if the future flow of data continued to evolve in line with, or weaker than, their expectations, it would further increase their confidence that inflation was declining sustainably towards target
(UK) Q3 FINAL GDP Q/Q: 0.0% V 0.1%E; Y/Y: 0.9% V 1.0%E
(US) NOV NEW HOME SALES: 664K V 670KE
(US) NOV PRELIMINARY DURABLE GOODS ORDERS: -1.1% V -0.3%E; DURABLES (EX-TRANSPORTATION): -0.1% V +0.3%E
TUES 12-24
(CN) Further press speculation that China may have been buying more gold in recent months than its official reserve figures suggest - financial press
(US) NOV PRELIMINARY DURABLE GOODS ORDERS: -1.1% V -0.3%E; DURABLES (EX-TRANSPORTATION): -0.1% V +0.3%E
(US) DEC RICHMOND FED MANUFACTURING INDEX: -10 V -10E
(US) TREASURY $70B 5-YEAR NOTE AUCTION DRAWS 4.478% V 4.197% PRIOR, BTC 2.40 V 2.43 PRIOR AND 2.39 OVER THE LAST 12
AAL FAA grounds all American Airline flights nationwide after experiencing technical issues
WEDS 12-25
Christmas Day
THRS 12-26
(JP) BANK OF JAPAN (BOJ) SUMMARY OF OPINIONS FOR DEC: Reiterates if outlook for economic activity and prices will be realized, the Bank will adjust the degree of monetary accommodation accordingly.
(JP) JAPAN DEC TOKYO CPI Y/Y: 3.0% V 2.9%E; CPI (EX-FRESH FOOD) Y/Y: 2.4% V 2.5%E (highest Headline since Oct 2023 of 3.3% and highest Core since Aug of 2.4%)
(US) INITIAL JOBLESS CLAIMS: 219K V 223KE; CONTINUING CLAIMS: 1.91M V 1.89ME
(US) TREASURY $44B 7-YEAR NOTE AUCTION RESULTS: DRAWS 4.532% V 4.183% PRIOR, BID-TO-COVER RATIO: 2.76 V 2.71 PRIOR AND 2.56 OVER THE LAST 12
FRI 12-27
(US) DOE CRUDE: -4.2M V -1ME; GASOLINE: +1.6M V -1ME; DISTILLATE: -1.7M V +0.5ME
(US) WEEKLY EIA NATURAL GAS INVENTORIES: -93BCF VS. -97 BCF TO -99 BCF INDICATED RANGE
(US) Cleveland Fed’s Inflation Nowcast forecasting Dec US CPI Y/Y to accelerate again to 2.9% from 2.7% and Dec US CPI M/M to come at 0.4%; Truflation proxy of US aggregated Inflation Index at 2.9% v 3.0% w/w, which was near highest since early autumn 2023
(US) Tier1 week-to-Dec 26th US Truckload Demand Indicator at 59.1 v 56.5 prior (highest level since April 2022; above 54 avg freight recession level); Undisclosed Consumer Products Shipper expects a possible East Coast Port strike (Jan 15 contract expiration) to raise spot rates and constrain trucking capacity.
(US) Redfin: Active listings climbed 12% y/y during the four weeks ending December 22 (the smallest increase since March)
CDC says H5N1 bird flu sample shows mutations that may help the virus bind to cells in the upper respiratory tracts of people; The mutations likely developed post-infection - StatNews
6857.JP CEO: Watching for any sign of slower spending on AI by big US tech groups; Any slowdown in the data centre buildout is going to have big reverberations in the supply chain; Demand for AI smartphones was “kind of slow” but could take off rapidly; Everyone is holding their breath, waiting for the killer app with the AI handsets - FT
HLAG.DE Announces two surcharges ahead of a potential strike by unionized longshore workers at U.S. East and Gulf Coast ports; effective Jan 20th [**Note: in Oct 2024, ILA and USMX reached a tentative agreement on wages, and extended the Master Contract until Jan 15, 2025]
Barclays fires over a dozen bankers, traders before Christmas — without giving them bonuses: sources
More than a dozen New York-based Barclays bankers and traders were fired just before the holidays — and they received coal in their stocking by being denied bonuses, The Post has learned.
The scrooges at Barclays, the UK-based lending giant, canned 15 Wall Street workers out of the roughly 50 it pink-slipped last month, two sources with close knowledge of the situation said.
None were given a bonus, the sources added, depriving them of a windfall since the majority of their compensation comes from the year-end bump.
For example, an investment banker might make a $200,000 salary and an expected $1 million bonus, one of the sources said.
One employment lawyer told The Post that while it is not unheard of for banks to fire workers late in the year, the fact that they were not giving a bonus is pretty heartless.
“A good employer will pay the bonus pro-rata for the amount of time worked during the year, but some don’t,” said Tanvir Rahman, an attorney for law firm Filippatos.
Rival Wall Street firms, including Goldman Sachs and Bank of America, award bonuses — perhaps half — when firing bankers and traders toward the end of the year, one of the sources said.
A spokesperson for Barclays stood by its decision.
“We regularly review our talent pool to ensure that we are investing in talent, delivering for clients and best positioned for long-term success as we execute against our strategy,” the rep told The Post.
Some of the fired bankers are considering filing $10 million-plus lawsuits, a source said.
They will likely contend that the bonus is earned throughout the year and is not discretionary, sources said.
Rahman said they may have a tough time winning their cases, though they often end up in arbitration with the Financial Industry Regulatory Authority (FINRA).
“The banks often in their labor agreements say you have to be employed at the time of the bonus to get your bonus,” Rahman said.
Barclays, which has more than 13,000 workers in the US, didn’t pay bonuses to dozens of bankers last year as revenue declined and cut bonuses by 43% across the bank in 2023, according to Financial News.
The lender was expected to increase bonuses by as much as 20% to some departments this year as dealmaking rebounded, the outlet added.
Earlier this year, Barclays announced a three-year plan to become a simpler and more efficient bank, in which it doesn’t rely on a large percentage of its revenue from investment banking.
Closing Stock Market Summary
The stock market struggled under broad selling interest on the final session of this holiday-shortened week. The Dow Jones Industrial Average, down more than 500 points at its low, settled 333 points below yesterday's close. The S&P 500 registered a 1.1% decline and the Nasdaq Composite closed 1.5% lower than yesterday.
The major indices still logged gains this week despite today's sell-off. The S&P 500 was 0.7% higher than last Friday and the Nasdaq Composite was 0.8% higher than last week.
Stocks from all areas of the market participated in the retreat, which was driven by some profit-taking activity as 2025 approaches. 28 of the 30 Dow components fell and all 11 S&P 500 sectors settled in the red. The energy sector was the top performer, closing fractionally lower, followed by utilities, which declined 0.3%.
Outsized declines in many mega caps were influential in overall performance, leading the heavily-weighted consumer discretionary (-1.9%), information technology (-1.5%), and communication services (-1.1%) sectors to close at the bottom of the pack. NVIDIA (NVDA 137.09, -2.84, -2.0%), Apple (AAPL 255.65, -3.37, -1.3%),
Amazon.com (AMZN 223.79, -3.26, -1.4%), and Alphabet (GOOG 194.07, -3.03, -1.5%) were among the standouts in that regard.
The only other sector that declined 1.0% was real estate, clipped by rising rates. The 10-yr yield settled four basis points higher at 4.62% and the 2-yr yield settled unchanged at 4.33%.
Today's retreat coincided with a jump in the CBOE Volatility Index (16.10, +1.37, +9.3%) as investors have turned to the options market to hedge portfolios for increased volatility over the next 30 days, which some think could be accented with more concerted efforts to take capital gains.
- Nasdaq Composite: +31.4% YTD
- S&P 500: +22.7% YTD
- Dow Jones Industrial Average: +14.1% YTD
- S&P Midcap 400: +12.8% YTD
- Russell 2000: +10.7% YTD
Reviewing today's economic data:
- November Adv. Intl. Trade in Goods -$102.9 bln; Prior was revised to -$98.3 bln from -$99.1 bln
- November Adv. Retail Inventories 0.3%; Prior was revised to 0.2% from 0.1%
- November Adv. Wholesale Inventories -0.2%; Prior was revised to 0.1% from 0.2%
Looking ahead to Monday, market participants will receive the following economic data: December Chicago PMI (prior 40.2) at 9:45 a.m. ET; November Pending Home Sales (prior 2.0%) at 10:00 a.m. ET.