Topley’s Top Ten – February 12, 2020

Author

Matt Topley
February 12, 2020

1.Mega Caps Continue to Rule

S&P Equal Weighted Relative Strength Roll Over.

2.Chinese Stocks Holding Up Better Than Expected But Also Large Cap Based.

Chinese Stocks Diverge Based on Market Cap-Bespoke

Just like in the US where large caps have been outperforming their smaller-cap peers recently, we’re seeing signs of the same trend playing out in the Chinese equity market as well; especially since the recent highs in January.  For starters, though, it’s pretty amazing to think that China’s Shanghai Composite Index is down just 7% from its recent highs. With a large percentage of the country’s citizens virtually under house arrest and many businesses and factories across the country closed, a 7% decline seems like a walk in the park.  Admittedly, those declines were a lot steeper at this time last week, but the magnitude of the bounce, even if it was aided by government stimulus, is impressive.  While the Shanghai Composite is down just 7%, the average stock in the index is down a full percentage point more at 8.13%.  Looking at how stocks have performed based on market cap shows that there has been a clear relationship between size and performance.  The chart below shows the average performance of the approximately 1,500 stocks in the Shanghai Composite Index since the close on 1/17 grouped by decile according to market cap.  While the decile of the largest stocks in the Shanghai Composite is down less than 5%, the three deciles with the smallest components are all down 11% or more.

3.Average Net Fund Flows by Presidential Term….Year 4 Sees Defensive Flows into Cash.

4.Investors Holding Bonds To Offset Stock Volatility.

Blackrock Blog –Conversely,and the real reason for holding bonds, if stock volatility returns Treasuriesare likely to rise and yields will drop even lower. Despite all the anxietyabout low bond yields, stock bond correlations remain very negative. In otherwords, bond prices still tend to rise, and yields fall, when stock prices drop(see Chart 1).

5.Share of Debt Becoming Seriously Delinquent

6.U.S. Workers Retirement Age.

7.Alzheimers Disease Update

The Morning Brew

8. 9 Things to Know about the Effects of Scarcity

Howscarcity can change the way you feel and act.

Economicsis the study of how we use our scarce resources — like time and money — toachieve our goals. At the core of economics is the idea that “thereis no free lunch” because we “can’t have it all.” To obtain more of one thing,we give up the opportunity of getting the next best thing. Scarcity is not justa physical limitation. Scarcity alsoaffects our thinking and feeling.

1.Setting priorities. Scarcity prioritizes our choices and it can make us moreeffective. For example, the time pressure of a deadline focuses our attention on using what we have most effectively.Distractions are less tempting. When we have little time left, we try to getmore out of every moment.

2.Trade-off thinking. Scarcity forces trade-off thinking. We recognize thathaving one thing means not having something else. Doing one thing meansneglecting other things. This explains why we overvalue free stuff (e.g.,free pencils, key chains, and FREE shipping). These transactions have nodownside.

3.Unfulfilled desires. Restriction on desirable things orients the mindautomatically and powerfully toward unfulfilled needs. For example, food grabsthe focus of the hungry. We will enjoy our lunch more for being deprived ofbreakfast. Literally, hunger is the best sauce.

4.Mentally depleted. Poverty taxes cognitive resources and causes self-control failures. When you can afford solittle, so many things need to be resisted. And resisting more temptationsdepletes willpower. This explains why poor people sometimes strugglewith self-control. They are short not just on cash but also onwillpower.

5. Mentalmyopia. The context of scarcity makes us myopic (a bias toward here and now). The mind is focused onpresent scarcity. We overvalue immediate benefits at the expense of futureones. We procrastinate important things, such as medicalcheckups or exercising. We only attend to urgent things and fail to makesmall investments, even when the future benefits can be substantial.

6.Scarcity marketing. Scarcity is the feature that increasesthe perceived value of a product. Many stores strategically create a perceptionof scarcity to motivate impulse buying. For example, the pricing practice oflimiting the number of items per person (e.g., two cans of soup per person)can lead to increased sales. The sign implies that the items are in shortsupply and shoppers should feel some urgency about stocking up. The fear of missing out can have a powerful effect onshoppers.

7.Forbidden fruit. People desire more of what they can’t have. Scarcityfunctions like an obstacle to goal pursuit, which intensifies the value of thegoal. For instance, warning labels on violent television programs, designed todecrease interest, often backfire and increase the number of people who watchthe program. Sometimes people want things precisely because they cannot havethem: “The grass is always greener on the other side.”

8.Playing it cool. The scarcity effect explains why coyness often isconsidered an attractive attribute. Playing hard to get is a most effectivestrategy for attracting a partner, especially in the context of long-term love(or the marital) in which a person wishes to be sure of their partner’scommitment. A “hard to get” player likes to appear busy, create intrigue, andkeep suitors guessing. As Proust noted, “The best way to make oneself soughtafter is to be hard to find.”

9. Focuson more meaningful activities. Scarcity can also liberate us. Scarcitycontributes to an interesting and meaningful life. When time is limited, goalsrelated to deriving emotional meaning from life are prioritized. Midlife often intensifies the feeling that there isnot enough time left in life to waste. We overcome the illusion that we can beanything, do anything, and experience everything. We restructure our livesaround the needs that are essential. This means that we accept that there willbe many things we won’t do in our lives.