Topley’s Top Ten – February 4, 2020

Author

Matt Topley
February 04, 2020

1.XES Oil and Gas Equipment ETF -20% Correction….EXXON Hits 10 Year Low.

XES ETF

XOM breaks 2018 levels…hits 10 year lows.

2.Oil Demand Facing 15% Drop in Next 2-3 Months.

According to S&P Global Platts Analytics, oildemand could drop by 200,000 bpd over the next two to three months. This demanderosion would represent around 15 percent of the expected oil demand growththis year. But if the coronavirus turns out to be as deadly as the Sudden AcuteRespiratory Syndrome (SARS) was in 2003, then crude oil demand losscould be in the region of 700,000-800,000 bpd

CFTC’s “Commitment of Traders” –CFTC data showedthe buy-side (Managed Money + other reportables) sold $8.5Bn notional acrossWTI, Brent, Heating Oil, RBOB Gasoline, and Gas Oil futures over the weekending 1/28 showed, driven primarily by longs being liquidated. As a % of totalopen interest, this was the largest weekly selling from the buy-side since the weekending 2/13/18 (and 11/8/16 before that).

The S&P 500 energy sector entered a bear market Friday,registering its worst January on record as oil prices dropped on concerns aboutglobal growth – The group has fallen 11% this month, by far the weakestperformance of the 11 sectors in the S&P 500, which is down 0.2% for theyear after a selloff Friday – Energy shares have declined 20% since a recenthigh on April 23, 2019, when the price of Brent crude, the global oilbenchmark, was above $74 a barrel, WSJ notes.  XOP down aamazing 20% in January

From Dave Lutz at JonesTrading

3.High Yield Energy Bonds Saw Rally Right Before Coronavirus Hit.

The economicthreat posed by the coronavirus is helping erode demand for energy-company debtjust weeks after bond issuance in the sector surged, highlighting the virus’sfar-reaching effects on companies and financial markets.

Early lastmonth, a surprise rally in the debt of energy companies allowed oil and gasbusinesses to issue the largest amount of speculative-grade bonds inone week since just before oil prices crashed in the fall of 2014.

No soonerhad companies issued the bonds, however, than fears that the coronavirus will slow global growth sappedappetite for riskier debt—underscoring the good timing of the businesses thatwere able to push out looming debt payments but heightening the challenges forthose that still need financing.

On Jan. 10,shale company Laredo Petroleum Inc. sold $400million of 2028 unsecured bonds at par with a 10.125% interest rate, at thehigh end of what typically makes economic sense for companies. On Monday, thosebonds were trading at around 89 cents on the dollar, implying Laredo would havehad to pay an interest rate of more than 12% if it had waited to issue thedebt, according to MarketAxess.

Overall, theaverage price of speculative-grade energy-company bonds has fallen to 89.67cents on the dollar as of Friday, from a recent high of 92.54 cents on Jan. 16,pushing yields on the bonds to 8.96% from 7.99%, according to BloombergBarclays data. That comes after the yield had dropped from 9.71% in earlyDecember. Bond prices and yields move in opposite directions.

The NewThreat to Energy-Company Bonds: Virus Fears

Several newly issued energy bonds have sunk in the wake of ashort-lived oil rally  BySam Goldfarb and Alexander Gladstone

4.Global Investors Have Never Had This Much Gold Stashed in ETFs

—RanjeethaPakiam

Global Investors Have Never HadThis Much Gold Stashed in ETFs

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(Bloomberg)— Want the lowdown on European markets? In your inbox before the open, everyday. Sign up here.

Theglobal stash of gold in exchange-traded funds has risen to a record after a longrun of accumulation that’s been given added impetus in recent weeks by thefall-out from the widening coronavirus crisis.

Worldwideholdings in bullion-backed ETFs climbed to 2,573.9 tons on Monday, topping theprevious peak set in 2012, according to an initial Bloomberg tally. The latestadditions follow four straight years of inflows, and come as prices of thetraditional haven trade near the highest level since 2013.

5.Money Flows…Equities Trailing Bonds and Money Markets.

Tracy Alloway Twitter

6.Tesla Market Cap Now Bigger Than Ford and GM Combined.

7..U.S. Economy More and More Dominated by Big Firms.

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Let us know if you would liketo add a colleague to this distribution list.

Torsten Sløk, Ph.D.Chief EconomistManaging Director

8.Housing Market Update

The Daily Shot WSJ

Next, we have some updates on the housing market.

• Housingvacancies remain near multi-decade lows.

• Accordingto Black Knight, the 90+ day delinquency rate on first-lien mortgagesdeclined in December and is now near lows last seen in the mid-2000s.

Source:Black Knight; Read full article

The payment-to-income ratio has been declining along withmortgage rates. This is a key factor for housing affordability amid risingprices.

The Daily Shot

9.HSAs are the best deal going if you’re careful and organized

These triple tax-favored health savings accounts can also bolster your retirement plan

You need a well-organized, easy-to-use systemto maximize a HSA.

ByRICHARDCONNOR

I’m a big fan of healthsavings accounts, or HSAs. They’re becoming more popular as a way to pay formedical costs—and, in the right circumstances, they can also be a valuableaddition to your retirement plan.

What’s so great about HSAs? If used properly,they’re triple tax-favored.You get a tax deduction when you deposit funds. The growth thereafter istax-deferred. And if you use distributions to pay for qualified medical expenses,withdrawals are tax-free. Result? There’s a saying that HSA funds “go in like atraditional 401(k) and come out like a Roth.”

An important feature of HSAs: The money isyours forever. You can accumulate it year after year, unlike a flexible spending account for healthcare expenses, which has to be largely or entirely emptied each year. There’salso no time limit for using the funds to pay for qualified medical expenses.As long as you have proper documentation, you can get distributions at any timein the future—and those distributions will be tax-free, even if the medicalexpenses were incurred years earlier.

The upshot: You can use an HSA asanother retirement savings vehicle.Think of the strategy as having two phases: an accumulation phase and adecumulation phase. In the accumulation phase, you’re not only amassing fundsin the account, but also accumulating medical expenses for later reimbursement.In the decumulation phase, you submit prior expenses and get reimbursedtax-free from your HSA.

Let’s say you have 10years to retirement, and you have enough income to both fund an HSA and paymedical expenses out of pocket. Each year, you fund the account up to the IRSmaximum and invest for long-run growth. You also save your medical receiptseach year. You do this for the 10 years leading up to retirement, building upboth a nice sum and a pile of medical receipts.

At retirement, you start the decumulationphase. You take the saved medical receipts and “cash them in” against your HSAaccount balance. As long as the expenses were for qualified medical expenses,the distribution is tax-free. Note there are no required minimum distributionsfor an HSA, unlike most retirement accounts.A key caveat: Although you can wait years to be reimbursed for a medicalexpense, the expense must have been incurred after the account was established.

Sounds easy? Don’t underestimate therecord-keeping that’s involved. IRS Publication 969 says you mustkeep records sufficient to show that:

• The distributionswere exclusively to cover qualified medical expenses

• The qualified medicalexpenses hadn’t been previously covered by the HSA or another source, such asyour health insurance company; and

• The medical expenseshadn’t been claimed as an itemized deduction in any year on your federal taxreturn.

What if you’re everaudited? Each account holder is responsible for maintaining all recordsassociated with their HSA for tax purposes. Experts recommend keeping receiptsfor three-to-seven years after you’re reimbursed by the account.

I’ve found that tomaintain multiple years of receipts, you need a well-organized, easy-to-usesystem. You can do this yourself with folders for each year. Alternatively, youmight scan receipts and save them on digital media for future uploading to yourHSA account. This is how I started. Luckily, the technology and sophisticationof HSA accounts are making this easier. Some HSA providers have the capabilityto maintain a digital paper trail of your HSA spending by capturing anduploading images, even allowing users to add notes and organize receipts intofolders.

Once you have yourreceipts saved, you can cash them in as desired. I’m aiming to hold off untilmy wife retires and we need the income. I am, however, worried that the amountof data will get too great and become hard to manage. I also worry that, if I’mnot around, it would be a burden for my wife. Given these concerns, I’m consideringsome “harvesting” strategies, such as withdrawing a past year’s medicalexpenses each year in retirement or perhaps two years of expenses every otheryear.

What if you don’t have enough medical expensesto use up your HSA balance? You might use the funds to pay for a long-term-care policy.After age 65, HSA funds can be used to pay Medicare Part B, Part D andMedicare Advantage premiums(but not, alas, for a Medigap policy). You can also use thefunds to pay for COBRA benefits.

After age 65, HSAdistributions can be made from an HSA for nonmedical expenses. Thesedistributions will be taxed as ordinary income, just like withdrawals from atraditional IRA. What if you make withdrawals for nonmedical expenses beforeage 65? You’ll get hit not only with income taxes, but also a 20% tax penalty.

Richard Connor is a semiretired aerospaceengineer with a keen interest in finance. His previous articles include Read the Fine Print, Return on Investment and Decision Time. Follow Rick onTwitter @RConnor609.

This article first appeared on HumbleDollar. It was republished with permission.

10.Why We AllNeed to Recharge and Recover Like Pro Athletes

Thesecret to optimizing our health and vitality lies in recharging our batteries —in bed.By Shelly Ibach, President and CEO of SleepNumber; Sleep Editor-at-Large, Thrive Global

Brocreative/ Shutterstock

At this time of year, many of us arefull of good intentions related to everything from exercise and nutrition to what it takes tolead a good, productive life. Along those lines, in my view, there is no bettertime than the start of a new year for a conversation about one of my favoritesubjects: the value of recharging and recovering.

This month, millions of peoplearound America and across the globe — myself included — are intently focused onfootball, with the NFL Super Bowl in full swing. I believe everyone can learnabout the value of consistent, quality sleep from the way athletes are nowpaying attention to it. At Sleep Number, we are proud partnersof the NFL, and it’s no secret that on the road to the Super Bowl, harnessingthe benefits of quality shut-eye ensures that players are performing at theirpeak.

For one thing, sacrificing sleep leadsto loss of aerobic endurance,according to recent science. And that, in turn, canresult in higher levels of cortisol,(a stress hormone), whichcan lead to worry and anxiety, affecting mood and, subsequently, performance.Sleep deprivation also results in a decrease of human growth hormone, which isimportant for tissue repair and crucial for muscles to recover after physicalactivity. In addition, you need good sleep to stimulate your immune system andreduce inflammation.

The importance of quality sleep forprofessional athletes is compounded by the specific challenges they face, for example jet lag-induced fatigue, as teamsfly across the country for games. Caused by the disruption of our circadiansystem, otherwise known as our internal body clock, jet lag can lead togrogginess and a loss of productivity. All in all, it’s easy to understand whyresting and recharging is vital for athletes who need stamina andoften sustain injuries — and that it’s equally important for the rest of us.

For more on the science, I spoke to Dr.Chris Winter, M.D., director of the Charlottesville Neurology and SleepMedicine Center and author of TheSleep Solution. “Athletic recovery depends upon gettingconsistent, quality sleep, (eight to 10 hours of shut-eye is recommended forfootball players). “Particularly critical is deep sleep, which generallyhappens in the first two to three hours of your night, because for adults, it’sabout the only time we make growth hormone,” says Dr. Winter. He explains thatto get deep sleep, it is important to go to bed around the same time eachnight. “If you typically fall asleep around 11p.m. and get up around 6 a.m.,that deep sleep’s going to happen from about 11 p.m. to 1 a.m. Therefore, ifyou suddenly go to bed at 4 o’clock in the morning, you don’t get your deepsleep that night.” After just one night of poor sleep or no sleep, your bodyfeels different and your motivation wanes.   

Dr. Winter has often given this sageadvice to professional athletes who insist that they can get away with a fewhours a night, without any adverse impact on their game or their health. He says:“I’ve told football players I work with, ‘You’ve got to make some betterchoices, because that kind of lifestyle is not conducive to being a pro athletefor a long period of time.’” Dr Winter adds that getting restricted sleep forjust three to five nights will have a serious negative impact on performance — whetherthat’s in the office or on the field. “Athletes and investment bankers come tosee me and say: ‘Hey, Doc, as long as I get my four hours I’m fine,’” says Dr.Winter. “I tell them: ‘No, you’re not. Your ability to perform is completelyimpaired, even if you don’t feel it. You may be doing triathlons, but make nomistake, if you are only getting four hours of sleep, your health will sufferseriously as you get older. Just be aware of that.’” 

I asked Dr. Nathaniel F. Watson, M.D.M.Sc., professor of neurology at the University of Washington and director ofthe Harborview Medical Center Sleep Clinic, to add his expertise. He pointedout that “sleep is the time when what’s called the lymphatic system in thebrain takes out the trash, so to speak. When you go to sleep,” he says, “thebrain contracts a little and opens up channels for cerebrospinal fluid to flowaround, collecting and taking out all the byproducts of a day’s worth ofcognitive use.” In other words, the brain is completing and clearing thecellular “gunk” that accumulates during wakefulness, so we can be refreshed and revitalized whenwe wake up.

When we get a good night’s sleep, wewake up mentally alert, prepared to perform at our best. Our cognitiveperformance will improve, and we can think more quickly and make the correctdecisions at a faster rate, says Dr. Watson, who treats college athletes andprofessional teams  for sleep issues and disorders. Sleep is absolutelycrucial to both the mind and the body. “There’s no substitute for sleep, sodon’t fight it,” says Dr. Watson, who recommends listening to and respectingyour body’s natural signs and signals. “When it’s dark out in the evening andyou are ready for bed, go to sleep as soon as you feel drowsy, if possible,” hesays, “and wake up spontaneously without setting an alarm clock.”

Quality shut-eye is a key to highperformance and longevity. Basketball players shoot better free throws.Swimmers swim faster. Tennis players hit their balls 50% more accurately andhave fewer mental lapses. As a general rule, you’ll find that athletes who havehad long careers take sleeping and recharging seriously, because they’vediscovered the value for themselves. I encourage everyone to take the sameapproach. And on that note, with 20/20 vision, I intuitively feel it’s going tobe a great year. 

Sleep well, Dream Big, Shelly