Topley’s Top Ten – December 3, 2019

Author

Matt Topley
December 03, 2019

1.Speculative Short VIX Positions at Extreme Levels ….Going Back to 2011 Well Below End of 2018 Anomaly.

2.$370 Trillion in Global Financial Products Based on Libor….Huge One Year Drop in Rate.

One Year Libor

5 Year Libor Chart

3.Size Comparison of Major Government Bond Markets.

Wells Fargo

4.Is the Stock Market Expensive?  Depends on What Metric Your Using.

Low interest rates, low inflation and the Federal Reserve on hold are supporting prices for now.

Any Weather: Valuations Say Stocks are Cheap and Expensive–By Liz Ann Sonders

5.U.S. Shifts to Oil Exporter.

6.Small Cap Stocks Two Standard Deviations Cheaper Than S&P

Chart of the Week: WhileU.S. small cap stocks (Russell 2000) have underperformed large caps (S&P500) by almost five percentage points year-to-date, small caps haveoutperformed by almost one percentage point since the end of the third quarter.There is significant evidence that the outperformance in small stocks couldcontinue. Valuations are attractive and currently stand at over two standarddeviations cheaper relative to the S&P 500 (see chart). Since valuation isa poor timing tool, it is worth noting that the Russell 2000 hit its first52-week high in more than a year last week. According to Strategas ResearchPartners, the Russell 2000 was higher in the following twelve months in ten outof eleven similar instances since 1982 with an average gain of 15.2%. Smallcaps should also benefit if investors continue to exhibit a growing riskappetite with biotech, its second largest sector at 8.3%. The largest sector,diversified banks, at 9.9%, should benefit from improved economic growth and asteeper yield curve.

BILL STONE AVALON ADVISORS–http://avalonadvisors.com/wmg-12.2.2019.html

7.Momentum Performance 2019…Huge Spike of Alpha in Summer Disappeared in Fall.

WisdomTree

What’s Love Got to Dowith This Stock Market? Ask TINA — Jeff Weniger, CFA

Director, AssetAllocation

8.Gundlach Latest Comments.

Influentialbond investor Jeffrey Gundlach, the CEO of $150 billion DoubleLine Capital,sees a scenario where U.S. stocks get crushed in the next recession — andlikely won’t recover for quite some time to come.

Even withWall Street benchmarks just days removed from new record highs, thebearish investor declared that “the pattern of the United States outperformingthe rest the world has already come to an end.”

In anexclusive interview with Yahoo Finance, Gundlach noted that 2019 was one of the“easiest” years ever for investors in “just aboutanything…Just throw a dart, and you’re up 15-20%, not just the United States,but global stocks as well.”

He added thatinvestors should consider a pattern he highlights in his “chart of the year,”which divides the world into four regions — the United States, Japan, Europe,and Emerging Markets — and looks at the major stock market indices.

And what thatshows is a pattern where the Nikkei 225 (^N225), the Euro Stoxx 50 Index, and the MSCIEmerging Markets index all peaked before a recession — but never recovered topre-recession levels. The same fate might befall the S&P 500 Index (^GSPC) in the U.S., according to Gundlach.

DoubleLine Capital CEO Jeffrey Gundlach says this is the “chart of the year.”

“So, where are we today? Today, we have the S&P 500 is killing everybody else over the last ten years, almost 100% outperformance versus most other stock markets,” he explained to Yahoo Finance.

“My belief isthat pattern will repeat itself,” said Gundlach, who has spent much of 2019 warning of a downturn aheadof the 2020 elections.

“In otherwords, when the next recession comes, the United States will get crushed, andit will not make it back to the highs that we’ve seen, that we’re floatingaround right now, probably for the rest of my career, is what I think is goingto happen,” he added — suggesting that a recovery won’t be seen for years.

While the60-year old bond king expects a rotation into non-U.S. stocks, he also believesthat the U.S. dollar, which has been “remarkably stable” in 2019,will eventually weaken as investors start to worry about the massive federaldebt spending.

“I thinkin the next recession the dollar will fall because of the deficit problemUnited States, and that investors will be better served to own foreign stockmarkets instead of the U.S. stock market in dealing with the next recession,” Gundlachadded.

JeffreyGundlach: The US stock market ‘will get crushed’ in the next recession–JuliaLa Roche

9.U.S. Household Incomes: A 50+ Year Perspective

by Jill Mislinski, 11/26/19

InSeptember, the Census Bureau released its annual report onhousehold income data for 2018. Last year the median (middle) average householdincome rose to $61,179, a slight increase over 2017. Let’s take a closer lookat the quintile averages, which dates from 1967, along with the statistics forthe top 5%.

The chartbelow adjusts for inflation in chained 2018 dollars using a research variant ofthe Consumer Price Index, the CPI-U-RS, which is theCB’s preferred deflator for inflation adjustment. In other words, the incomesin earlier years have been adjusted upward to the purchasing power of the mostrecent year in the series. We’ve included a table to document the impressiveyear-over-year growth in 2018 for all six cohorts.

Most peoplethink in nominal terms, so the chart below illustrates the current dollarvalues for the six cohorts across the 50+ year period (in other words, thevalue of a dollar at the time received — not adjusted for inflation). What wesee are the nominal growth patterns over the complete data series. In additionto the five quintiles, the Census Bureau publishes the income for the top fivepercent of households.

As for thecumulative household income growth by segment over the past 50+ years, theadjacent table shows the real, inflation-adjusted, difference between 1967 and2018.

To give us a better idea of the underlying trends in household incomes, we’ve also prepared a chart of the real percentage growth since 1967. Note in particular the growing spread between the top quintile (and especially the top 5%) and the other four quintiles. The growth spread began in the mid-1980s during the Reagan administration, the era of Supply Side Economics (aka “Reaganomics” and Trickle-Down Economics). As this chart illustrates, tax and other policy changes to benefit the wealthier households didn’t have the heavily promoted trickle-down effect. We’ve also highlighted recessions to show the correlation of household incomes to the business cycle.

None of thecohorts in this analysis saw significant increases in 2018, and the top andbottom quintiles saw decreases. The table below documents the percent changefrom the peak year. The list shows the two lower quintiles peak year: 2017 forthe top quintile and 1999 for the bottom quintile.

It’simportant to understand that the data in the charts above is for the mean(average) income for each of these segments. For US households quintiles, themean (average) income is higher than the median (middle of the range). We’llhave more to say about this negative skew in a follow-up article onhousehold incomes by age bracket.

10.Ask Yourself These 4 Questions to Make This Your Best Year Yet

By PattiJohnson | December 1, 2019 | 2 

The new year is packedwith possibilities, including a fresh, new start. Still, many people scrapmaking resolutions all together, thinking they never work. Thisyear, set aside time to figure out what you want to do and how you are going todo it.

Ask yourself these fourquestions to get started on your best year yet:

1. Look in the mirror: Wheream I today?

Which parts of your lifeare strong and vibrant? Which areas are often neglected? Think about all facetsof your life today:

Rather than going straightto your list of 2018 goals, first consider the areas that most need renewedattention or that have been unintentionally neglected. For example,relationships can have a powerful impact on happiness. If you are swamped withwork or school, making time for relationships may feel like a luxury, but a recent study from Harvard concludedthat those who kept close relationships lived longer and happier lives.

If you aren’t sure aboutwhere you are today, ask those who know you best. Look at how you spent yourtime in 2017 for clues. Did you hear subtle signals about an area that needsyour attention? A doctor’s warning, lack of growth at your job or a best friendclaiming they never see you anymore can all be important input for you toconsider in 2018.

2. Repeat the past: Whathas helped me change before?

Of course you want tostart anew in 2018! But consider exploring what has helped you change in thepast and try it again.

How were you successful ina college course that challenged but energized you? How did you recover from apersonal setback at your lowest point? What helped you make progress and reachyour goals? Be very specific and use the strategies that have worked for youbefore.

The only way I can get comfortable with big decisions isthrough information. The bigger the decision, the more I need to know. I doplenty of online research, but I place a very high value on conversations withexperts who can adapt knowledge to my situation. When I started my business, Ispent quality time talking to those who had gone down this path to inform bothmy decision and my plan. All this information gave me the confidence I neededto get started.

3. Mind games: How can Iget out of my way?

The mind is a powerful thing. We can dobig things when our mind is convinced we can do it.

Know your go-to fears andhow you can unknowingly sabotage yourself. I often ask my clients, “If anythinggets in your way, what will it be?” Do you know the answer for yourself?

A recent client’s answerwas, “I’m impatient and want immediate results, and this goal will take sometime.” The obvious next question was, “What happens when you don’t get resultsquickly enough?” You guessed it: “I move on to something else.” If immediategratification is your kryptonite, break your dream into tiny pieces to feedyour desire to see faster progress.

Research says 80 percent of New Year’sresolutions are over by mid-February. When the goal seems toobig, too hard or too long, we go back to our old ways. Rather than be astatistic, break your goal into one-month resolutions. Focus on January oneweek at a time.

I was scared to start myconsulting business over 10 years ago. I had been in big industry jobs, andthis decision was a leap of faith. My brain hack was telling myself it was justa yearlong experiment. No big thing. I felt confident that at theend of one year, I’d know if this was the path for me.

4. Purpose: What is my why?

Most New Year’sresolutions are pretty predictable. The most common resolutions are usuallythings like get healthy and get organized. The keyis understanding why these goals and others really matter in your life.

Commit to specific goalsthat fit the areas that need your time and attention, and have a biggerpurpose. Know why making this change matters, rather than just wanting to loseweight or organize your office. Knowing your why will increasethe likelihood that you will stick with it when it gets hard.

If your why isbuilding in more time for relationships and fun to enrich your life, then keepthat why on a note and stick it to your mirror. Start small.Downsize your expectation of what is required for having people over. Callfriends to check in on your commute home. Be an asker andinvite people to get together rather than communicating only through text.Twelve months of even small changes will have an impact.

Find what works for you. Find what matters in your life, and getstarted. All it takes is starting with January, and you can go from there.