Topley’s Top Ten – January 16, 2020

Author

Matt Topley
January 16, 2020

1.Buybacks Dry Up Heading Into Earnings Season.

DB shows the collapse of buybacks intoearnings, despite the equity rally

From Dave Lutz at JonesTrading.

2.Historical Chart to PKW Buyback ETF.

Buyback ETF Hit $11 in 2008 when companies were at generational low.  Companies horded cash instead of buying back cheap shares.

3.Growth of Fixed Income Electronic Trading Following Growth of Fixed Income ETFs.

4.Global Semiconductor Sales Hook Higher and Stocks Make New Highs.

GLOBAL SEMICONDUCTOR SALES (M/M)

SMH-Semiconductor ETF—Global “Risk On” Trade Measure

5.Largest Gas Driller in United States Takes Massive Write-Down

EQT, Largest US Natural Gas Producer, Takes $1.8 Billion Write-Down, Admits it Can’t Succeed in Low-Price Shale-Gas Environment

byWolf Richter • Jan 14, 2020 • 79 Comments

Shares have collapsed 75% since 2017.

The largest natural gas driller in the United States justannounced a massive write-down for its assets, offering more evidence that theshale sector faces fundamental problems with profitability.

In a regulatory filing on Monday, Pittsburgh-based EQT took a $1.8billion impairment for the fourth quarter, as the natural gas market continuesto sour. EQT said that the write down comes as a result of the “changes to ourdevelopment strategy and renewed focus on a refined core operating footprint,”which is a jargon-y way of saying that some of its assets are now worth muchless.

6.U.S. Pension Plans Sticking With Hedge Funds.

Pension Plans Will Boost Hedge Fund Investments in 2020, Study Says

Dismay over low-yielding fixedincome will cause shift, industry research group Agecroft Partners predicts.

Pensionfunds will increase their allocations to hedge funds in 2020, due to lowerinterest rates and credit spreads, according to Don Steinbrugge, CEO of hedgefund consulting firm Agecroft Partners and a renowned expert in theindustry.Part of Agecroft’s trend predictions for the new year, the pension projectionrests on the entirely reasonable notion that fund chiefs will want to lowertheir exposure to fixed income.

Publicfunds, which various research findings say invest about 5% of their assets orless into hedge funds, have an actuarial rate of return assumption of 7.5%.With 10-year Treasury notes yielding less than 2% and all but the riskiest junkbonds exceeding 7.5%, the large amount devoted to bonds (around 40%, by State Street Global Advisors’count) looks increasingly ill-advised.

“Withthe yield on the aggregate bond index in the mid- 2% range, the bar islow forhedgefunds to add value on a risk adjusted returnbasis,” Steinbrugge wrote in the report. He suggested that pension plans mightchoose among a range of different hedge strategies to place their reroutedmoney, including distressed debit, specialty financing, structured credit, andrelative value fixed income.In performance terms, the hedge fund industry has faced rough going in recentyears. But at least 2019 was decent, albeit not overwhelming. Hedge Fund Research’s AssetWeighted Composite index rose 7.7% in the 12 months ended December 31, versus a0.7% dip in 2018. Note that investing in an S&P 500 index fund, which costsa lot less than a hedge fund, would have gained nearly 30% last year. To besure, hedge fund fans point out that the purpose of this asset class is not tobeat the market, but to provide diversification and downside protection duringbearish times.

Despitemoves by giants like California Public Employees’ Retirement System and NewJersey’s State Investment Council to trim their hedge fundexposure, there has been a growing movement to adopt this asset class,especially among institutional investors. Steinbrugge predicted that thismovement will continue. “Hedgefund industry assets undermanagement will grow for the 11th time in 12 years in 2020,” he stated.

Other trends Agecroft’s report highlighted include a slightdecline in revenue owing to lower fees. The traditional arrangement—of a 2%yearly management fee and 20% of any profit—has come under fire. Meanwhile, henoted, the number of hedge funds will continue to drop, which means the top 5%of the industry, in investors’ estimations, will benefit the most from thisshrinkage. Steinbrugge has long complained that marginal players are draggingdown the overall industry performance.

7.Future Projected Growth of Wealth.

8.More Good News for Economy….FICO Scores Rising.

Key findings

  • The average FICO score in the U.S. hit a record high of 703 in2019

  • Millennials’ average FICO score has increased 25 points since2012

  • Generally, the older you are, the higher your credit score

  • The silent generation (74+) continues to have the highest FICOscore, on average 756

  • Generation Z (18-22) has the lowest credit score, on average 677

Millennials’ averageFICO score increased 25 points since 2012—here’s the average credit score bygeneration–Alexandria White

9.Porsche Defies Car Industry Gloom With Record Sales

JANUARY 13, 2020 • CHRISTOPH RAUWALD

PorscheAG shrugged off widespread industry malaise, reporting record deliveries forlast year and predicting that its first all-electric model, the Taycan,will generate further growth in 2020.

Globaldeliveries rose 10% to 280,800 cars in 2019, driven mainly by strong consumerappetite for the Macan and Cayenne sport-utility vehicles, Porsche said Mondayin a statement.

“We’reoptimistic that we can sustain the high demand in 2020,” sales chief Detlev vonPlaten said in the statement. Sales momentum should benefit from “theintroduction of some new models and full order books for the Taycan,” he said.

Themost profitable division of Volkswagen AG, the world’s largest automaker, isentering a new era with this year’s rollout of the Taycan four-door sedan,which challenges Tesla Inc.’s Model S electric car. Porsche’s cachet has beenshaped for decades by fast sports cars with roaring combustion engines, andsuccess of the costly expansion into electric vehicles is mission-critical forthe German manufacturer amid stricter emission regulations in key markets.

Salesrose 8% last year in both China and the U.S., Porsche’s two largest markets. Itsold 86,752 cars in China, where luxury rides have been less affected by thewaning demand hurting the overall market, and 61,568 cars in the U.S. InGermany, sales advanced 15% to 31,618 vehicles.

Porsche’sdeliveries picked up toward the end of 2019 after sales in the first half ofthe year were held back by more complex emission tests in Europe and thedecision to phase out diesel-engine offerings. Following the roll out of theTaycan, Porsche plans to add a more spacious version of the vehicledubbed Cross Turismo at the end of 2020.

Porscheembarked on a far-reaching overhaul to mitigate surging developmentcosts for electric cars and new software features, which is aimed at liftingearnings by about 6 billion euros ($6.7 billion). The steps are needed to keepPorsche’s operating margin above a long-standing target of 15% return on salesas electric cars are still less profitable than combustion-engine vehicles likethe 911 sportscar.

Thisarticle was provided by Bloomberg News.

10.4 Psychological Tricks to Reach Your Goals

Thesefour hacks that will help you reach your goals instead of abandoning them.

The startof a new year is invigorating—something about turning the page always feels sofresh and motivating. In 2020, we’re not only entering a new year but a wholenew decade. What a great opportunity to reflect, refresh, and turn a new leaf!

Many ofus use the new year as an opportunity to set new goals, but as the year goeson, we often find that achieving those goals is surprisingly hard to pull off.How many times have you started a new year feeling gung-ho about exercisingonly to have your enthusiasm fizzle by February?

Motivation is a tricky thing. But just becauseyou’ve struggled in the past doesn’t mean you can’t find success in the future.Motivation is like an engine you can tune. As long as you tinker with it theright way, it’ll perform better.

Let’slook at four psychological tricks for puttering with your particular motivationengine as you set your goals for 2020.

1. Set alearning goal instead of a performance goal.

Usually,when we set goals, we think of what we want to achieve, what thresholds we wantto be able to say we crossed.

  • Lose 20 pounds

  • Run a marathon

  • Get a promotion at work

Thesegoals are specific and concrete. That’s good, but research shows that settinglong-term performance goals based on achievement outcomes may not be aseffective as setting goals for new skills you wantto learn.

EnteringMBA students who set goals for the skills and knowledge they wanted togain—like learning to network effectively—felt more satisfied bythe end of their program and earned higher GPAs compared to their peers who setachievement-based goals like earning good grades.

So, let’slook at an alternative to the weight loss goal I just mentioned. Instead ofsetting a goal to lose 20 pounds, a better one might be improving your nutrition knowledge bylearning five new healthy lunch recipes. Not only does this offer a morespecific target, it feels a lot more attainable.

2. Makesure the goal is attached to a life value.

How doyou decide on your goals? Are they inspired by what your peers are doing? Arethey set by authority figures in your life? Where your goals come from has abig impact on whether you’ll achieve them. One place they could come from isyour own life values.

Valuesare not the same as goals. Imagine you’re sailing a boat on the ocean. Goalsare like the islands on the horizon that you’re traveling towards. Values arelike the North Star that points you in the right direction. Not everyone’sNorth Star is the same when it comes to values. It’s important to know whatbig-picture things matter to you overall so they can help you navigate.

For some,social connection is a major life value. Perhaps for them, a good goal would beto explore new activities they can do with their friends that help thecommunity. One example might be volunteering at a local animal shelter withthem, helping them support the community and just sharing an experience. Forsome, achieving influence and power is a life value, in which case their goalcan be to create (or learn how to create) a more visible public platform forinfluencing political policy. For some, being engaged with nature is a value,so a value-based goal could be to start a garden or save money for camping equipment.

Askyourself whether your goals are based on your larger life values. If not,make some adjustments. If your goal reflects a value you hold deeply, you’remore likely to be successful than if your goal is just another “should” tocheck off on your to-do list.

Source: Courtesy of Shutterstock

3. Make the goal about a challenge, not a threat.

If yourgoal is based on intimidation, you’re less likely to achieve it than ifit’s based on a challenge. Hereare some examples:

Threat:If I don’t decrease my blood pressure, I’ll likely have a heart attack.

Challenge:I want to decrease my blood pressure so I can improve my quality of life.

Threat: Ineed to step up with my studying because I’ll fail the semester if I don’t.

Challenge:I need to create a new study routine for myself so I can become the type ofstudent I want to be.

Threat: Ihave to figure out how not to push my new boss’s buttons so I don’t continue tohave a rocky relationship with her.

Challenge:I want to reset my relationship with my new boss by learning new communicationskills.

Noticethe difference? The threat versions of the goals sound scary and definite. Ifyou’re not making progress toward your threat-based goal, you might findyourself avoiding dealing with the situation altogether. But thechallenge-based versions are more hopeful and forward-looking. They give youmore of a direction to strive toward. 

4. Sign acontract with someone.

Who haveyou told about your goals? How much detail did you share?

When itcomes to motivation, we humans are very much social animals. Sometimes a littlesocial pressure can help us achieve what we want. There’s something about committinga goal to someone else that makes it easier to stick with it, or perhaps harderto give up.

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If you’vealready announced your 2020 goals at brunch (or on Twitter!), good for you. Nowyou’ve got people to keep you accountable. That’s especially true if you’veasked friends to hold you to your goals. 

But youcan even take it a step further by signing a social contract with someone. Yes,I do mean a literal contract that lays out on paper what specifically you’recommitting to and how you’ll measure your progress. What timelines have youset? What rewards will you get for achieving the goals? Both you and yourwitness should sign this document and agree to review it together to ensurethat you stay on track. 

Thismight sound like overkill, but it works! When it comes to increasing theirexercise level, people who sign social contracts with their healthcare providershave a high success rate. Thecontract works on each person for different reasons. Maybe it served as a memory-jogger, provided more social support, or helpedthem to problem-solve. The key takeaway is that singing the contracthelped. 

So, goahead and look forward to a 2020 challenge, but be sure to base it around yourvalues for a higher chance of success. 

A version of this piece originally appeared on Quick and Dirty Tips.