Topley’s Top Ten – December 16, 2019

Author

Matt Topley
December 16, 2019

1.Volatility of Equities 40% Lower When Bond Yields Below 3%

Barrons…That’skey, since continued low rates provide the ideal environment for equityinvestors, writes James Paulsen, chief investment strategist at the LeutholdGroup, in a client note: “At least for the last 93 years, the opportunity toinvest in stocks when the 10-year Treasury yield is below 3% has proved to be a‘gift’.” (The benchmark note ended the week at 1.82%, down 0.02 of a percentagepoint.)

Addingequities to a portfolio when yields are under 3% sharply boosts returns withoutsignificantly increasing overall risk, Paulsen finds, based on the record from1926 to 2019. The volatility of an all-equities portfolio is 40% lower whenbond yields are below 3%, he further found, while future 12-month returns werenegative only 18% of the time. When bond yields rise to 3% to 4%, however,the risk-reward trade-off for adding stocks is much less attractive, he says.

We Have a Trade Deal and BrexitClarity. That’s Good News for Stocks.

2.Natural Gas Breaks to New Lows

Record hedge-fund shorts in natural gas futures …-55% 12 months

3.Tech P/E 25.5 Highest Since Nov. 2007

BespokeInvestment Group

Rich Valuation for Tech..In fact, with yesterday’s rally further elevating price, the P/E ratio is now in the 100th percentile of all readings of the past ten years. In other words, the 25.5 P/E yesterday was the highest of the past ten years. The last time the ratio was this high or higher was back on November 7th of 2007. Although the valuation is undoubtedly elevated now, the P/E ratio is actually still well off of its highs and only in the 68th percentile of all readings of the past 25 years.  As shown below in the chart of the sector’s P/E ratio over the past quarter-century, the current level has rarely been observed since the end of the Dot-Com Bubble.  But the ratio is also still well below levels seen during the bubble in the late 1990s.  Additionally, the build-up to current levels has been much more gradual than around that time. Simply put, while the sector’s valuation has run hot, it’s not even close to what we saw during the 90s heyday for Tech.  Click here to learn more about Bespoke and its research offering.

4.Global Investors Piling Into the Chinese Bond Market.

The DailyShot

5. 2010 Decade Had Highest Earnings Growth on Record.

So what do the numbers revealabout the last decade? Of the S&P 500’s 13.3% annual return since 2010,2.3% came from dividends, 10.2% from earnings growth and 0.8% from the changein the market’s valuation, as measured by the 12-month trailingprice-to-earnings ratio. In other words, the vast majority of the gains can beattributed to a spike in earnings rather than investors’ willingness to paymore for stocks. In fact, the decade’s earnings growth was the highest onrecord.

Don’t Expect the Roaring ’10s for Stocks to Repeat in the ’20s

The rally hasbeen based on record growth in earnings, which have historically beenincredibly volatile.    

6. 50% of America Has Zero in Retirement Savings.

With almost half of allworking-age families having ZERO in retirement savings, the fact that themedian family had only $7,800 in these accounts shouldn’t come as a surprise.At the same time, the 90th percentile family had $320,000 and the top 1% offamilies (which isn’t shown on the chart) had $1,663,000 or more.

7.Voting Demographics Going Forward.

Stef W. KightDec 14, 2019

Data: Census Bureau 2017 Population projections. Note: Dataincludes non-citizens, who would not be eligible to vote; Chart: DanielleAlberti/Axios

First-time 2020 voters willusher in a wave of demographic transformation — a remaking of the Americanidentity that’s projected to crest in the 2040s.

What’shappening: Millions of Generation Z Americans— those born after 1996 —willbe able to vote for the first time next year. The 2020 census, redistrictingand elections will begin to reveal population changes that will empower newvoices and reshuffle the swing-state map and both parties’ bases.

In November, forthe first time:

  • Americans born after the 9/11 attacks will be voting for a president.

  • Gen Z will surpass the Silent Generation’s share of the electorate.

  • Hispanic Americans will surpass black Americans as the largest racial or ethnic minority voting group.

By thenumbers: Gen Z is projected to make up one-tenth of the 2020electorate, according to Pew Research Center. Put themtogether with millennials and these youngest generations will be 37% ofeligible voters next year. Those who will be old enough to vote for the firsttime next year will be:

  • Less white: Just 53% of potential first-time voters are non-Hispanic white people — down 11 percentage points from the rest of the voter-aged population, according to U.S. Census projection data. (Data includes non-citizens.)

  • More Hispanic: Nearly a quarter of 18-21 year olds in 2020 are projected to be Hispanic, compared to 16% of the rest of American adults, according to census data.

  • More educated: First-time voters are more likely to be pursuing college and have parents with college degrees.

  • Urban-dwellers: 54% will have been living in or near a central city rather than a rural area, according to IPUMS Census data from 2017. That’s up from 44% of millennials when they were that age.

Politically, Gen Zersappear to be “similar to millennials,” with “their liberalattitudes and their openness to societal changes,” Pew’s social trendsdirector Kim Parker told Axios.

  • Getting the 24 million eligible Gen Z voters to the polls in 2020 could be critical for Democrats. But young people are much less likely to show up on election day than older voters.

  • While Gen Z is civically active, candidates will have to overcome the generation’s lack of faith in politics as a driver for change, said Jonah Stillman, co-founder of the consulting firm Gen Z Guru.

  • His generation has never seen “an example of any political initiative that is not operating under complete and total polarization.”

8. 46,000 Satellites May Launch in the Next Few Years

If ahandful of space companies succeed, the next decade will see more satellitesput into orbit around the Earth than all the satellites launched since Sputnik1 in 1957.

WhileSpaceX makes up the lion’s share of these plans, together with OneWeb, Telesatand Amazon’s Project Kuiper, the fourcompanies have announced the intention to launch as many as 46,100 satellitesin the next few years. That’s more than five times the amount of objects sentto space in the past 60 years, which numbers just shy of 9,000 according to theUnited Nations Office for Outer Space Affairs.

Why in the next decade companieswill launch thousands more satellites than in all of history

9.What Deepak Chopra, Bill Gates, and Malcolm Gladwell Do at Night to Reduce Stress and Sleep Better

December 11, 2019(Thrive Global) People love to talk about their morning routines, but thetruth is, what you do before your head hits the pillow at night can also havean important impact on your mood, the quality of your sleep, and even howhappy or stressed you feel the next day. Thrive Global founder and CEO, AriannaHuffington, says she swears by a warm bath to reset and relax before bed. “Itreat my transition to sleep as a sacrosanct ritual,” she has said. “My bath is the centerpiece.”

Whether it’s a bath ritual, an evening meditationpractice, or a commitment to calling one person who always leaves you feelingnourished, nightly habits can seriously improve your well-being.Looking to approach your evening hours a bit differently? Here are a few nighttimerituals of some of our favorite celebrities — use them as inspirationto tweak your own P.M. routine.

Hoda Kotb reads an uplifting book

Getting lost in a gripping or inspiring read can be agreat way to calm the mind and signal to your brain that it’s bedtime. And forTODAY co-anchor Hoda Kotb, it’s the go-to trick that helps her unwind eachnight. “I try to fill the last couple of minutes before I close my eyes withsomething nourishing, whether it’s a book I keep on my bedside table, orsomething that I read that’s uplifting,” Kotb told Thrive. “When I open my eyes, everysingle morning, I’m happy.”

Jessica Alba has a family cuddle sesh

As an actress, full-time entrepreneur, and a mom, JessicaAlba admits that it’s not always easy to carveout time for herself — but in the evenings, she makes time to do what fills herwith the most joy: cuddling with her kids. “For my mental health, I need thesleep, and I need the exercise… and then I also just need cuddles with my kids,and that, to me, it just fills me up,” she told Thrive. “It allows me, when Ido work, to be able to be there, and be present, and be 100%.”

Deepak Chopra powers down

We all have those days when work demands follow us homeafter hours, invading our “down time” through our inboxes. But accordingto Deepak Chopra, setting limits is key to hisstress-free evening routine. “I stop working around 5:00,” he told Thrive. “[I]ideally go to bed before 10:00 in a totally dark room, with total silence andno technology.” When it comes to tech, it’s all about boundaries: “You usetechnology; don’t allow it to use you,” he adds. “It’s that simple.”

Alex Rodriguez writes a nightly checklist 

Research tells us that writing down ourthoughts before bed can help set us up for a better night’s sleep — it’sliterally getting the worries and anxious thoughts out of your mind. FormerMajor League Baseball star Alex Rodriguez says he’s been incorporating thisritual into his bedtime routine for years — even in training. “I had a list ofmy 10 things I had to do, and I would check it every night before I went tobed,” he told the The New York Times Magazine in aninterview. “I’m old school.” For Rodriguez, writing isn’t just about recordingto-dos; joy triggers also make it onto the list. “The other day, Jennifer saidsomething brilliant at, like, 2 in the morning,” he added, “I reached over toget my notebook.”

Bill and Melinda Gates connect over dinner

No matter how busy their schedules are, Bill and Melinda Gates have a nightlyfamily dinner. The couple says it helps them de-stress and connect with oneanother, and it also helps them separate from the workday. “I try not to workafter dinner — that was kind of a mantra I made for myself about four yearsago,” Melinda told the The Cut. “I’ll often read, talk with Bill, andthen, generally, I’ll watch something relaxing before bedtime.”’

Malcolm Gladwell does a “24-hour email sweep”

Writer Malcolm Gladwell swears by a trick that allows himto focus on creative work during the day, and then catch up on his messages atnight. He calls it his “24-hour email rule,” which means he reserves hisevenings for catching up on messages from the past 24 hours, instead of refreshinghis inbox all day long. “I answer email in the evening,” he told AriannaHuffington on the Thrive Global Podcast. “If everyone observedthe 24-hour rule for responding to emails, the world would be a much betterplace.”

10.The Greatest Shortcut for Leaders Is Reading Books

Author of The Obstacle is The Way — Portfolio/Penguin Random House

Notevery reader is a leader, Harry Truman once observed, but every leader is a reader.You have to be.

Beinga leader means you’re going to bump into all kinds of situations you’ve neverexperienced before. You’re going to face problems for which there are no easysolutions. The good news is that no matter what challenge you’re facing, nomatter how unique or how modern, you’re far from the first to encounter it. Forroughly 5,000 years, human beings have been experiencing, solving, and, mostimportantly, writing books aboutthese exact struggles.

Thinkabout Truman, who ascended to the presidency after the shocking death of hispredecessor in April 1945. Within months, he would be facing the dawn of theatomic age and a new Cold War. These were all very new problems, but Truman,who had begun his lifelong reading habit as a young boy, tapped into thelessons of history that he’d gleaned along the way.

“Ourpublic library in Independence had about three or four thousand volumes,including the encyclopedias,” he once wrote. “Believe it or not I read ’em all… Maybe I was a damnfool, but it served me well when my terrible trial came.”

GeneralJames Mattis — an avid reader who often brought books with him to his far-flungcommands in the Marines — recently wrote how unconscionable it is for amilitary leader to be “filling body bags” while they learn by trial and error. Theyowe it to their soldiers, he said, to learn as much as humanly possible fromthe experiences of history before trying to learn on their own. To not pick upa book is a dereliction of duty.

Thankfully,most of us will never face stakes as high as those encountered by Truman orMattis, but the point stands. How can we possibly justify — to our employees,to our investors, to our spouses, to our friends, to our fellow citizens, or toourselves — learning slowly, by experience or trial and error, what we caneasily pick up in a book?

Whereverwe are, we can read. In the corner of a quiet room. Standing in a subway carwith headphones in and an audiobook on. In the evening while winding the kidsdown for bed. While we lay in our own beds before turning out the light.

Thesemoments should not be seen as competing with or conflicting with work. Instead,they should be seen as moments that facilitate our most important andmeaningful work. Reading makes you better as a professional, as a person, as aparent. Being busy at work or at home isn’t a good reason not to read—it’s anargument for why you should.

Anothergood reason to pick up a book: There are meditative, spiritual benefits to theact of reading itself. A study in the American Psychological Association’sjournal Psychologyof Aesthetics, Creativity, and the Arts found that the mental process ofimagining scenes while reading can help you develop greaterempathy.

Butnot all reading is created equal. Good leaders have a ceaseless appetite forlearning, for self-improvement, for wisdom, for books that improve you as ahuman being. The Roman Emperor Marcus Aurelius prized the ability to “readattentively” — mostly philosophy texts — and used what he learned to reignmasterfully over his domain. Malcolm X was transformed into a Civil Rights leaderby the books he read during his time in prison, making his way through Uncle Tom’s Cabin, The Essays of Schopenhauer, and Basic Writings of Kant, among others. When he was askedwhere he graduated from college, he would simply answer, “Books.”

OprahWinfrey has called books her “pass to personal freedom,” showing her from anearly age that there was a world beyond her family’s home in Mississippi. As anadult, she has said, reading The Seat of the Soul by Gary Zukav “saved and changed the trajectoryof my living.”

Andfinally, how you read matters.Are you taking notes? Are you integrating what you read? You’re not justfilling shelves on the wall. You’re trying to learn so that you can lead.

Knowingthat I will only read a finite amount of books in my life helped motivate aquestion I have asked many times now: “What books have changed your life?” It would be a shame to go through lifethinking that Ayn Rand is the world’s greatest author or thinking all novelswere as bad as 50Shades of Grey, all because I neverbothered to inquire about anything better. By asking people I admire for theirrecommendations, I have discovered countless books worthy of the “focus of myenergy,’” as the Greek philosopher Epictetus putit. (In fact, that’s exactly how I found Epictetus in the first place!)

Weshould all direct the focus of our energy on books that will stay with us afterwe put them down. For example, we can read, in Tetsuko Kuroyanagi’s Totto-Chan, the memoirof a precious young child’s untraditional early education, the power of a goodteacher and understanding parents, and then encourage our own kids in the sameway.

Wecan read, in Ben Franklin’s autobiography and in Walter Isaacson’s biography of him, the story of Franklinpridefully walking down a hall and bumping his head. “Stoop, young man,” hismentor tells him, “and don’t be distracted by pride in this life, and you willsave yourself many such bumps on the head.” And then we can try to saveourselves similar bumps.

Wecan read the story Seneca tellsin On Tranquility of the Mind about Julius Canus, aphilosopher who was unfairly sentenced to death, casually playing a board gameas he awaited his execution. When the time came, he stood up, counted thepieces left on the board, turned to the executioner and said, “You will testifythat I was one piece ahead,” and then went off to his death. We, the reader,might write “badass last words” in the margins, and then remind ourselves inthe future to try to find humor in even the darkest and worst of situations.

Noone, H.L. Mencken said, “gets anywhere in this world in any really andendurable manner without some recourse to books.” That’s right. It’s a longroad.

Butreading is also a shortcut. A way to get where you want to get without havingto learn by painful trial and error. As leaders, what we’re reading is leadingus — and saving us.

–

Overthe last couple years, people have asked me about my reading practiceand how I manage to get so much of it done. I am very deliberate andstrategic when it comes to reading. If you’re looking to improveyour reading practice and be much more intentional about what youread, I put together a really cool reading challenge for Daily Stoic that outlines a lot ofmy reading strategies. Check it out.

RyanHoliday