Government Shutdown Poised to Become Longest in U.S. History

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Sabrina Siddiqui (0:34)

The government shutdown nears a record as the longest in US history. Plus, what an ominous milestone for a famous method of valuing stocks tells us about what's next for markets.

Spencer Jakab (0:45)

It's proven to be an extremely reliable indicator of what to expect in the several years ahead of us.

Sabrina Siddiqui (0:51)

And former Vice President Dick Cheney, an architect of the US war on terror, has died at 84 It's Tuesday, November 4th. I'm Sabrina Siddiqui for the Wall Street Journal, sitting in for Alex Osla. This is the PM Edition of What's News, the top headlines and business stories that move the world today.

The Trump administration is negotiating with Eli Lilly and Novo Nordis to offer their blockbuster weight loss drugs at lower prices, as low as $149 for a month's supply, through a Trump-branded government website for buying medications. People familiar with the matter say the proposed agreements would also mean Medicare and Medicaid coverage of expensive obesity drugs like Wigovia and Zetbound. Medicare drug benefit plans today can cover the weight loss drugs just not only for losing weight. For example, they are available for reducing risk of heart attacks or sleep apnea. And few states offer Medicaid coverage for the drugs for weight loss. And that's not the only news today about the weight loss drug market. There is a new twist in the high-stakes bidding war for the obesity drug developer Metzera, as Novo Nordisk and Pfizer have both raised their offers for the company. Metzera said today that Novo Nordisk's proposal values the company at approximately $10 billion, up from its previous bid of $9 billion. Pfizer, which had struck a deal to buy Metzera for up to $7.3 billion in September, is now offering about $8.1 billion. Novo Nordisk's effort to buy Metzera has touched off a legal battle with Pfizer. The fight over the three-year-old company, which has no approved drugs, highlights how valuable the weight loss drug business has become. A famous measure for valuing US stocks has crossed a big milestone that points to some trouble ahead. That measure is a calculation of stocks' price-to-earnings ratio by Nobel Prize-winning economist Robert Shiller. It takes a decade's worth of corporate earnings and adjusts them for inflation, and it topped 40 last month for the second time ever. The only other time it reached this level was in 1999, the peak of the tech stock bubble. Spencer Jakab, who writes the Wall Street Journal's Markets AM newsletter, joins us now to discuss. Spencer, explain this measure to us. Why is it important to investors?

Spencer Jakab (3:16)

So there are dozens of ways to slice and dice the market and to value it, but this is really the gold standard. It was first proposed actually way before Robert Shiller made it popular by Benjamin Graham, who was the mentor of Warren Buffett, who said, I think you should just look back and you should look through an entire business cycle and adjust for inflation because that will really fairly tell you what companies have earned and then it tells you where you are. Whereas what you commonly hear is the market's P ratio is X, which is just looking at what analysts are forecasting for the next year, which A is frequently too optimistic and B is just looking at a single year. Profit margins rise and fall, recessions happen, inflation happens, and so this normalizes for all that and it's proven to be an extremely reliable indicator of what to expect in the several years ahead of us.

Sabrina Siddiqui (4:08)

You're right, this is only the second time it broke above 40 How significant is that?

Spencer Jakab (4:13)

One of the criticisms of this measure is that people will look back at the entire history of it and we have a history going back to 1881 and say, okay, yeah, the long run average of this measure is 17, we're at 40, oh my god. And you have to recognize that that's not fair because in 1881, the US was like an emerging market. Now go back to 1990, you had CNBC, you had computers and the average is a much higher 27 We're way above that. There's definitely a very, very clear relationship between how high the Schiller P is and how low your expected returns are. And the market is extremely expensive. It's in about the one or 2% range of being most expensive in history, as far back as we have numbers.