Topley’s Top Ten – August 20th, 2019

Author

Matt Topley
August 20, 2019

1.Investors Forget that 1 Year…The Stock Market is Only Up 2-4%…And the Nasdaq is Trailing S&P

Tech Bubble?

Investors are waiting and investing for a stock market crash but bonds have clobbered stocks 1 year.

2.Looking at 10 Year Rate Drop in Stand Alone Chart.

Unreal this is a 10 year treasury bond yield 35 years + into a bond bull market.

3.Using Dot-Com Crash 2000 Date….Long-Term Bonds Have Crushed Stocks.

Ben Carlson

Bond prices andinterest rates are inversely related so this drop in rates has meant excellentreturns for long-term bonds. In fact, since the start of 2000, long-term bondshave crushed U.S. stocks:

This is me having a little fun with numbers since the end of the dot-com bubble wasbasically the worst long-term entry point ever for the S&P 500.Since the inception of the Vanguard Long-Term Bond Index Fund in the mid-1990sstocks have handily outpaced long bonds:

Still, a nearly 550% return in 25-ish yearsis something else for long-term bonds.

AnAppreciation for the Bull Market in Long-Term Bondsby Ben Carlson

4.Rates Plummet and Utilities/REITS Hit All-Time Highs.

Utilities Leading Sector 12 Months

REITs 2nd Leading Sector 12 Months

5.Stock Dividend Growth Is Slowing Down Across the World

Second-quarter global dividends hit a new record,according to a new report, but the rate of growth slowed to 1.1%. Dividendswere hurt by a strong U.S. dollar, as many currencies fell against thegreenback during the quarter.

Thosewere the findings of the latest installment of the quarterly Janus HendersonGlobal Dividend Index.

Globaldividends totaled $513.8 billion, compared with $508.1 billion in last year’ssecond quarter. That growth rate is down from a 14.1% increase a year ago.

Underlyinggrowth, which includes currency translations and other adjustments, rose 4.6%,in line with the firm’s forecast. Japan, Canada, France, and Indonesia setrecords for dividends paid out, but they were the only countries to do that inthe quarter. In last year’s second quarter, underlying growth climbed 9.1% yearover year.

JanusHenderson Investors is keeping its 2019 dividend growth forecast on a dollarbasis unchanged, at 4.2%. Janus Henderson noted that “the deceleration in theworld economy has begun to make an impact on dividends.”

Thefastest dividend growth in the quarter occurred in emerging markets, up 12.6%on a dollar-denominated basis. Japan saw the highest increase among developedregions at 10.1%, thanks to rising profitability and payout ratios.

Meanwhile,U.S. dividend growth came in at 3.9%, the smallest increase in two years.Still, Janus said, “despite a slowdown in growth in the U.S., more thanfour-fifths of U.S. companies raised payouts, a higher proportion than in manyother large countries.”

U.S.companies tracked by Janus Henderson paid out $121.7 billion during the secondquarter.

Thefirm observed that “the pace of dividend growth in the U.S. slowed across arange of sectors with most seeing single-digit increases.”

Some companies, Janus said,“continue to prioritize share buybacks as a way of returningcash to shareholders when compared to other major reasons.”

However,there are signs of slowing growth among the U.S. companies Janus Hendersonfollows for the quarterly survey. It notes that one in seven U.S. firms heldtheir year-over-year payout ratios steady on a per-share basis, “a largerproportion than in recent quarters.”

That hasn’t stopped the Dow JonesIndustrial Average from gaining 12% in 2019. The S&P 500 hasrisen 17%.

Thefirm analyzes dividends paid by the 1,200 largest global firms by marketcapitalization as of Dec. 31 before the start of each year. Those companiesrepresent about 90% of the total dividends paid, according to Janus Henderson.

In2018, global dividends totaled almost $1.4 trillion, up 9.4% from the previousyear. In 2017, dividends increased by 8%, to about $1.25 trillion.

Write to LawrenceC. Strauss at [email protected]

6.Another Look at the Yield Curve Not Being a Timing Mechanism.

Yield Curve great indicatorbut not a time the market indicator.

Yield Inversions Are Hardly a Death Knell for U.S. Stocks

Source: Dave Wilson

From Barry Ritholtz The Big Picture Blog

7.The 5th Largest Economy in the World Just Hit a Record 113 Months of Job Growth.

California’s 113-month job growth ties record set in 1960s

ByADAM BEAMAugust 16, 2019

SACRAMENTO, Calif. (AP) — California’s job growth is now in its113th month, tying the expansion of the 1960s as the longest on record as theworld’s fifth largest economy continues its recovery from the Great Recession,officials announced Friday.

The country’s most populous state needs between 8,000 and 9,000new jobs each month to keep up with its growing workforce. But for the pastnine years, California has averaged 29,200 new jobs each month, accordingnumbers released Friday by the state Employment Development Department.

The more than 3.2 million jobs California has added since 2010account for more than 15% of the country’s job gains over that time. Friday,the state’s unemployment rate dipped to 4.1% for July, tying a record low firstset in 2018.

“In every way the American economy is substantially impacted byhow California is doing,” Democratic Gov. Gavin Newsom said Friday at anunrelated news conference. “We continue to be optimistic, but not naive.”

The United States’ trade war with China could put California’sjob gains in peril, according to Michael Bernick, a former director of theCalifornia Employment Development Department who is now special counsel withthe Philadelphia-based law firm Duane Morris.

Analysts have been warning for a year that tariffs on Chineseimports could threaten U.S. job growth. So far, that hasn’t happened, but theTrump administration recently intensified the conflict by imposing 10% tariffson $300 billion in Chinese imports, raising fears China would respond withtariffs on U.S. exports.

Earlier this month, federal trade officials announced they woulddelay tariffson about 60% of those imports until December.

“There is no reason we can’t expect continued strong employmentthroughout 2019 in the absence of some external event. And the tariffs are thatpotential event,” Bernick said.

California’s booming economy was felt earlier this year whenNewsom signed a state spending plan that included an estimated $21.5 billionsurplus, the largest in at least 20 years. But Newsom and others have beencautious about spending it, warning the country is due for a recession giventhe unusual length of the recovery.

“It is what keeps me up at night,” California Treasurer Fiona Masaid Thursday about a possible recession. “Our president moves the market everyday through his Twitters, and that is very unnerving for us.”

California’s unemployment rate was lowest in the San FranciscoBay Area, where the country’s tech industry is headquartered. Bernick saidwhile Silicon Valley itself does not account for many jobs in the state, themoney it produces has fueled a surge in accompanying industries includingfinance, real estate and retail.

The unemployment rate was highest in the Central Valley,reflecting the seasonal demands of the state’s $20 billion agricultureindustry. Imperial County in Southern California had an unemployment rate ofmore than 20% as surveys reported more than 14,000 people were out of work.

Associated Press reporter Don Thompson contributed.

8.China’s Massive Demographic Problems in One Chart.

Finally, here is an illustration of China’s massive demographicchallenge.

9.A group of states may launch investigations into big tech companies like Facebook and Google possibly next month

Facebook’sCEO Mark Zuckerberg Associated Press/Francois Mori

States including NorthCarolina, Mississippi, Texas and others have met with top Justice Departmentofficials in Washington last month to discuss a multi-state effort toinvestigate big tech companies for anti-trust violations, the Wall StreetJournal reports, citing unnamed sources.

The multi-state effort maybe announced as soon as next month, the Journal reports, and would representthe third major government investigation underway into some of the largestAmerican tech companies.

The states involved arerun by Attorney’s General who are members of both political parties, Democratsand Republicans. Their investigations into companies like Alphabet’s Google andFacebook would likely be done in coordination with investigations by the U.S.Justice Department.

Representatives from abouta dozen states attended the meetings. Enlisting the help of the states in abipartisan probe could help GOP officials defend against accusations thatfederal investigations into tech companies are politically motivated.

Last month, The Departmentof Justice said it had launched a broad probe into top “onlineplatforms” for search, social media, and e-commerce. It didn’t name, namesbut the wording left no doubt that the subjects included Alphabet,Facebook, Amazon, and Apple.

The Federal TradeCommission, which recently fined Facebook $5 billion for privacy violations, iscarrying out an antitrust probe into Facebook. On Monday, FTC Chairman JosephSimons, discussed the potential of breaking up Facebook’s past acquisitions ofcompanies like Instagram and WhatsApp, according to theFinancial Times.

Simons told the FT thatreversing those mergers could be more difficult because of Facebook’s recentefforts to integrate the backend technology of the various products. But henoted that there might be “additional evidence” that Facebook usedthe acquisitions to “snuff out” competition.

Beyond investigations intobig tech by the Trump Administration, Democratic candidates have also beencalling for investigations and other regulation of big tech companies and newtechnologies. Elizabeth Warren has called for breaking up Amazon, Google, andFacebook. On Monday, Bernie Sanders also called for banning sales of facialrecognition technology to law enforcement agencies.

10.You Know Less Than You Think

Realizinghow little we know may improve our political conversations.

Many ofus care deeply about our political beliefs, and we’re often veryconfident about the beliefs that we hold. But, we usually do not understand thedetails of the political issues we care about so strongly. Instead, we arefed simple explanations of these issues from partisan media sources.

However,we tend to think that we know a lot more about the world than we actually do.This phenomenon is called the “Illusion of Explanatory Depth,” a term coined byYale psychologists Leonid Rozenblit and Frank Keil. In a series of experiments, Rozenblit and Keil foundthat people frequently overestimate the extent to which they know about howbasic things in the world work – like how a zipper operates or how arefrigerator works. But, when pressed to explain how these thingswork, they struggle to come up with explanations and discover how little theyknow.

Thissense of overconfidence can fuel political polarization. In one study, Philip Fernbach andcolleagues found that people think they know much more about complex policypositions than they actually do. But, when asked to generate explanations forhow these policies work – describing, for instance, the details of institutinga national flat tax or transitioning to a single-payer healthcare system,people recognized the gaps in their knowledge. Moreover, trying to generateexplanations also caused them to express less extreme opinions about theseissues, presumably because they realized their opinions were rooted inoverconfidence.

Lettinggo of this overconfidence and approaching political conversations with a senseof humility can help us overcome polarization. One study by psychologistsTenelle Porter and Karina Schumann found that intellectual humility isassociated with a greater willingness to listen to opposing viewpoints aboutcontentious political issues.

Appreciatingthe complexity of political issues can also improve our politicalconversations. Psychologist Peter T. Coleman runs the difficult conversationslab, where he studies how political opponents can have better conversations aboutcontentious issues like abortion or immigration. For one of his experiments, Colemanpresented a group of conversations partners with a short, simple summary ofboth sides of an issue. Another group was presented with a morecomplicated analysis of the issue that showed a range of opinions. Participantsin the group that read the more complex analysis tended to have more nuancedand satisfying conversations. We often do not understand our political opponents, which can make them mucheasier to dismiss. Research suggests that Republicans and Democrats both do aterrible job of estimating the demographic make-up oftheir political opponents. For instance, Republicans think that 36% ofDemocrats are atheists (when only 9% are), and Democrats think that 44% ofRepublicans are earning more than 250K per year (when only 2% do). Furthermore,both Democrats and Republicans think that their own side is motivated by lovefor their party, but their political opponents are motivated by hate, a cognitive bias called motive attribution asymmetry.

Conversationswith our political opponents often seem futile. To make them more effective,try to complicate things. Recognize the limits of your own knowledge, andtry asking people to explain the details of certain policy positionsthey cling to so they can see the holes in their own knowledge, too. Realizinghow little we know might be the first step to improving politicaldivisions —but, who am I to think I know anything?