Topley’s Top Ten – January 6, 2020

Author

Matt Topley
January 06, 2020

1.Summary of Valuation Metrics.

JP Morgan-2 charts Valuation Metrics and Drop in Capital Spending.

From JP Morgan 2020 Review.

2.The P/E 10 Ratio

Is the Stock Market Cheap?by Jill Mislinski,1/3/20

Read explanation of P/E 10

3.Reaction to Last 20 Middle East Crisis Events

4.Am I Diversified? Sector ETF Concentration.

Mon, Dec 30, 2019

One of the primary drivers of the boom in ETFs over the last decade is that they provide efficient diversification to the market and various sectors/groups.  While that’s the theory, the reality is that a number of the biggest sector ETF’s aren’t all that diversified at all.  The chart below shows the weight of the top two holdings in each of the 11 S&P 500 sector ETFs.  Would you believe that the two largest holdings in two ETFs account for more than 40% of the entire ETF, while in the ETFs for another two sectors the largest two components account for more than a third of the entire ETF?  That’s right, in the Energy sector, the top two holdings (Exxon and Chevron) account for just under 43% of the entire ETF, while Alphabet (GOOGL) and Facebook (FB) account for 41.8% of the new Communications Services sector ETF (XLC).  In the Tech sector, Apple (AAPL) and Microsoft (MSFT) account for just under 40% of the XLK ETF.  The table below lists each of the eleven sector ETFs along with their top two holdings.  As noted, in the case of companies with dual-listed share classes in the ETF, we include both share classes as one.  In the case of three sectors (Communication Services, Consumer Discretionary, and Energy), the top holding accounts for over 20% of the entire ETF.  Normally, when you think about diversification, you would picture spreading out your bets across a variety of different companies so that you aren’t too exposed to any one name.  However, when one out of every five dollars invested goes to one stock, we aren’t sure how diversified that really is.  Now, the purpose of highlighting these top-heavy ETFs is in no way meant to imply that these ETFs are faulty in their construction.  In fact, these ETFs do a very good job of tracking the sectors they are intended to track.  Instead, it is an illustration of just how top-heavy the major indices have become.  Investing in “the market” or a specific sector is increasingly becoming a concentrated bet on a number of large names.  Start a two-week free trial to Bespoke Institutional to access our Trend Analyzer tool and track key trends in individual stocks and major ETFs.  

©2020 BespokeInvestment Group

5.Vacancy Rates and Rent Increases Industrial and Warehouse.

6.Commercial Real Estate Returns.

THE U.S. WAREHOUSE BOOM-TimWang, Julia Laumont, and PedroNiño             

7.And the final Retail Number is….9300

More than 9,300 stores are closing in 2019 as the retail apocalypse drags on — here’s the full listHayley Peterson

Dec 23,2019, 1:25 PM

Retailersare closing thousands of stores. Seph Lawless

  • The staggering rate of store closures that rocked the retail industry over the past couple of years continued in 2019, with retailers setting a new record for store closings over the last 12 months. 

  • Retailers announced plans to close more than 9,300 stores in 2019, smashing the previous record of roughly 8,000 store closures in 2017, according to an analysis by Business Insider.

  • Here’s a list of all the stores closing this year:

8. Cost of Healthcare and Education vs. Wages.   The Paradox is the 2 Industries Create a Massive Amount of Jobs.

Americansare increasingly anxious about the costs of services such as health care andeducation. But these are the very same industries that increasingly sustain themiddle class. Resolving this paradox is the key to creating the economy of thefuture.

It’s notmuch of a surprise to note that prices for most physical goods have dropped, but the cost of big-ticket services have becomemuch higher:

The Middle Class Risks Consuming Itself

Health care andeducation employ a lot of people and sell services they increasingly can’tafford.By Noah Smith

9.The Best 50 Wines Under $50

Light and Rich Reds2017 Veramonte Pinot Noir ($11)It’s hard to find any wine worth drinking for this price, much less a pinotnoir. This scented, fruity example from Chile’s cool Casablanca Valley is agreat party pour.

NV Bedrock Shebang Red  ($15)Bold and bright, this California blend of zinfandel and more than seven othervarieties from old vineyards is consistently satisfying.

2015 Quinta Do Chocapalha ($19)Star winemaker Sandra Tavares makes this violet-scented, softly plush blendfrom four Portuguese varieties at her family’s property outside Lisbon.

2019 Louis Antoine Luyt Pipeno Pais Portezuelo($20)This casual, fresh Chilean red in a liter bottle is a chuggable vin de soif(thirst quencher). Made from the pais grape, it’s resembles a smoky Beaujolais.Serve slightly chilled.

2010 Sotheby’s Haut Medoc ($25)A classic cabernet from a great vintage, this red is rich, suave, and verysmooth, with notes of tobacco and deep fruit. 

2016 Aslina Cabernet Sauvignon ($26)Launched in 2016, this is the new label of South Africa’s first female blackwinemaker. Her minty cabernet is like a mid-point between Bordeaux and Napa.

2017 Decibel Gimblett Gravels Malbec ($26)Hawke’s Bay, New Zealand is a source of fine cabernets, and turns out to begreat for malbec, too. This one is brighter and more floral than Argentineanexamples.

2018 Wilde Farm Wines Fox Hill Dolcetto ($28)This gulpable red from cool Mendocino is like a deliciously soft, fruity-freshBeaujolais, and made with no added sulfur.

2018 Loveblock Pinot Noir ($30)After selling his eponymous winery, New Zealand legend Kim Crawford and hiswife launched Loveblock. Their pinot, from Central Otago, is darkly fruity withsweet berry flavors.

2016 Petrolo Torrione ($30)This Tuscan cult winery makes a killer entry-level red blend of mostlysangiovese, with some cabernet sauvignon and merlot.

2017 La Marchigiana Criolla Chica ($39)The Argentinean Catena family just launched a new line of natural wines, agedin clay pots. My favorite is this juicy red from criolla chica grapes.

2017 Lingua Franca Avni Pinot Noir ($39)Oregon is a hotbed of new producers. The third vintage of this silky-texturedred is filled with vibrant, fragrant fruit.

2017 Domaine Nico Histoire d’A ($47)This new Mendoza estate debuted its first single vineyard pinot noirs lastmonth. The best one has a spicy, earthy sexiness and mineral edge.

2016 Silverado Vineyards Cabernet Sauvignon($50)A plummy, balanced Napa cab that doesn’t break the bank is hard to find. Thisis it.

Private Wealth Magazine-Read Rest of List.

10. 2020: What a Time To Be Alive

Jan2, 2020 by Morgan Housel

Acommontheme in history is that progress happens too slowly to notice while setbackshappen too quickly to overlook. There are many overnight tragedies. There areno overnight miracles.

It’sa shame, because the amount of progress we’ve made during most of our lifetimesis both astounding and overlooked.

Anew year brings dozens of articles analyzing what the past brought and what thefuture may hold. The problem with most these pieces is not their analysis; it’stheir time frame. Analyzing 2020’s improvement over 2019 – or even a decade ofprogress – leaves you gasping for goofy things like “OLED screens will becomemore common this year” and “self-driving cars will see marginal improvements.”

Whenmeasuring progress we have to remember that it took 15 years from the timepenicillin was discovered until it was widely used, and 20 years from theinvention of the car until the time Henry Ford figured out mass production.These things take time.

Themedian American is 38 years old. If we use their birth year of 1981 as astarting point to measure progress during their lives, some astounding figuresarise.

In1981 the auto fatality rate was 21.49 per 100,000 people. In 2018 it was 11.18. The declinemeans every hour of every day in 2019 almost four Americans who would have diedin 1981 did not die. Over the last decade, improved auto safety has saved thelives of a group of Americans equal to the population of Cincinnati.

Cumulativeinflation in the five years before 1981 was more than cumulativeinflation in the 25 years before 2020. It’s hard to overstate the calmingeffect this has on society, and we barely discuss it.

Thehomicide rate was just over 10 per 100,000 Americans in 1981, and 5.0 in 2018. That decline means 16,000 fewerAmericans were murdered last year than would have been had the rate notimproved during most of our lifetimes.

Infantmortality has fallen by 54%, from 12.1 per 1,000 births in 1981 to 5.6in 2018.In 2019, 24,700 fewer parents buried an infant than would have if the rate notdeclined since 1981. Over the last decade there have been something like210,000 fewer infant deaths relative to the rates seen in 1981, which is equalto the population of Rochester, New York.

Averagemiles per gallon among all vehicles has increased from 14.9 in 1981 to 22.3 in 2017. That alone cutseffective gasoline prices by a third.

Adjustedfor inflation, median personal income has increased from$22,682 in 1981 to $33,706 in 2018. On an annual basis that growth is barelynoticeable. But in most of our lifetimes the median worker has become almost50% richer.

Inthe ten years before 1981, 25,995 people died in commercial aviation accidents.From 2009 to 2019 that number was 9,197. And passenger miles flown increased 4.7-fold from 1981 to 2019. So fatalities perpassenger mile flown have declined more than 90%. A passenger who flies once amonth today is safer than one who flew once a year in 1981.

Thenumber of cigarettes smoked in the United States peaked in 1981 at 640 billion. By 2017 it was 249 billion and falling. That equates to11,574 fewer cigarettes smoked every second.

Heart-diseasedeaths have declined from over 400 per 100,000 Americans in 1981to 168 per 100,000 by 2015. That decline means 754,000 fewer Americans die eachyear than would have had there been no improvement since 1981. That’s equal tothe number of Americans killed in World War II, saved every seven months.

In1981 IBM sold its 5150 PC for $1,556, or $4,402 adjusted for inflation. It waseffectively useless. Today the same amount of money can buy a Chromebook forevery student in an average middle-school class.

Age-and sex-adjusted dementia rates have declined 44% since the early 1980s. The declinemeans 5.2 million fewer Americans have dementia today relative to the ratesseen 38 years ago – about the size of Los Angeles and Dallas combined. No oneknows quite why this is, but better blood pressure control is a leading theory.

Apessimist will have no problem pointing out the world’s problems in 2020. Badnews is real and it is everywhere. Throw a rock, hit a problem.

Thedifference between an optimist and a pessimist isn’t usually over substance.It’s the time frame they’re looking at. Problems are easier to spot today, butprogress is almost always more powerful over time.