Topley’s Top Ten – July 10th, 2019

Author

Matt Topley
July 10, 2019

1.Tech Funds Second Largest Weekly  Inflows Ever.

From Dave Lutz at JonesTrading.

2.Warren Buffett 60% Stocks Despite His Favorite Indicator Being at High Level….34% Cash.

Warren Buffett’s Market Indicator Exceeds 145%

Oracle of Omaha’s conglomerate,Berkshire Hathaway, remains invested in stocks despite markets nearing all-timehighs

On July 9, the Tuesday following the IndependenceDay holiday weekend, Warren Buffett (Trades, Portfolio)’smarket indicator reached 146.1%. Based on this market valuation level, theimplied annual market return is -2.2%.

Dow falls from July 3’s all-time high

While the Dow Jones Industrial Average languishedat an intraday low of 26,675.55, pressured by 3M Co. (NYSE:MMM), the 30-stock index closed at26,783.83, approximately 22 points lower than Monday’s close of 26,806.14 and160 points lower than July 3’s all-time high of 26,943.41. Top BerkshireHathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) holding Apple Inc.(NASDAQ:AAPL) closed at $201.24, upapproximately 0.61% from the previous close of $200.02.

CNBC columnist Fred Imbert said investors areawaiting Federal Reserve Chairman Jerome Powell’s next monetary policy movefollowing last Friday’s stronger-than expected job report, which “raisedquestions” regarding the current rate policy.

Buffett’s Berkshire remains investedin stocks despite significantly overvalued market

Buffett said the ratio between the Wilshire 5000 full-cap index tothe gross domestic product is“probably the best single measure of where valuations stand at any givenmoment.” As of Tuesday, the full-cap index stands at $30.763 trillion,approximately 1.46 times greater than the last-reported U.S. gross domesticproduct of $20.16 trillion.

Despite the significantly overvalued market,Buffett increased his conglomerate’s exposure in stocks to 60% during the Marchquarter, up 3% from the December 2018 quarter. Berkshire’s top six holdings as of thelatest portfolio report are Apple, Bank of America Corp. (NYSE:BAC), Wells Fargo & Co. (NYSE:WFC), Coca-Cola Co. (NYSE:KO), American Express Co. (NYSE:AXP) and The Kraft Heinz Co. (NASDAQ:KHC). The conglomerate’s top 10holdings represent 79.56% of the total equity portfolio.

3.Has long-term unemployment bottomed?

THE DAILY SHOT

h/t Deutsche Bank Research

Interesting with Manufacturing Numbers Falling ….Job Openings Robust.

4. 23% of all trading volume on the NYSE happens in the final half hour of the day.

5.Stock Trading Makes Up the Largest Share of Assets Deutsche Will Exit.

Deutsche Bank Tells Fixed Income Traders They’ll Keep Jobs

(Bloomberg) — Deutsche Bank AGfixed-income head Ram Nayak assured staff they will keep their jobs at hisbusiness even as the lender cuts 18,000 positions in a sweeping overhaul,according to people familiar with the matter.The bank’s move to “resize” debttrading operations won’t lead to dismissals, Nayak told colleagues on aconference call on Monday, the people said, asking not to be identified as thematter isn’t public. A day earlier, Deutsche Bank had announced plans to exitequity sales and trading and huge job-reduction plans.Fixed income has been atraditional strength of Deutsche Bank’s investment banking activities. Thelender has earmarked more than 20% of its balance sheet to be wound down orsold to free up capital to invest in more profitable businesses. While theequities unit accounts for the majority of assets to be moved to the newcapital release unit, the lender is also hiving off long-dated assets in itsinterest rates business as well as securitized bonds.Deutsche Bank doesn’tdisclose how many people work for its equity and fixed income businesses. Thewider corporate and investment bank division employed 38,305 people at the endof March, of which 17,117 were in front-office positions such as traders andsalespeople.Deutsche Bank generated 5.36 billion euros ($6.01 billion) ofrevenue from dealing in bonds and currencies last year, making the business itssecond-largest source of earnings. Stock trading supplied less than half thatamount.Deutsche Bank shares were on course to break a losing streak after theannouncement, rising 2.4% to 6.66 euros as of 12:58 p.m. in Frankfurt. Thestock declined 4% on Tuesday after a 5.4% on Monday.Nayak is taking over thefixed income and currency business, reporting directly into Chief ExecutiveOfficer Christian Sewing. For Nayak, the move marks something of a comeback: hewas replaced by John Pipilis last year as head of fixed-income trading. Pipilisis set to leave. Nayak previously worked at Credit Suisse Group AG beforejoining Deutsche Bank in 2009 as head of global markets structuring.DeutscheBank says it has a top five market position in 75% of the investment bankingbusinesses that it’s keeping. The bank will “refocus on clients where we have acompetitive edge” and invest to stabilize its business and then grow, accordingto slides it published on its website on Monday.“We will continue to be aleader in the debt financing markets across investment grade, leveragedfinance, asset-backed securities and commercial real estate,” Sewing said on acall with reporters on Monday. “We will continue to have one of the top FXbusinesses in the world and continue to be a trusted adviser to our corporateand financial sponsor clients.”(Adds shares in sixth paragraph.)To contact thereporters on this story: Harry Wilson in London at [email protected];NicholasComfort in Frankfurt at [email protected];EykHenning in Frankfurt at [email protected]contact the editors responsible for this story: Dale Crofts at [email protected], Sree VidyaBhaktavatsalamFor more articles like this, please visit us atbloomberg.com©2019 Bloomberg L.P.

6. Coffee Prices – 45 Year Historical Chart…Back to 1975 Prices.

Coffee Backto 1975 Prices….

Interactivechart of historical daily coffee prices back to 1969. The price shown is inU.S. Dollars per pound. The current price of coffee as of July 09, 2019is $1.0745 per pound.

7.Meanwhile Starbucks is Almost a Double from Mid 2018

8. 18 Months Ago The U.S. Hit the Lowest Inventory of Homes for Sale in History.

  • -The housing shortage that fueled competition and resulted insky-high price gains throughout 2017 and the first half of 2018 is on thehorizon yet again, and supply could potentially hit a new low.

  • -The number of for-sale listings was up 2.8% annually in June,but that was down from May’s 2.9% gain. Inventory gains began to slow this yearfrom 6.4% growth in January to 5.8% in February.

  • -Gains continued to slow throughout the spring and supply is nowexpected to flatten over the next three months and could hit its first declinein October of this year, according to realtor.com

Competition inthe housing market finally began to cool this year, as listings multiplied andprice gains moderated. Bidding wars became less frequent and spring salesperked up a bit. Well, forget that. The heat is on yet again.

The housingshortage that fueled competition and resulted in sky-high price gainsthroughout 2017 and the first half of 2018 is on the horizon yet again. Supplyis soon expected to drop and potentially hit a new low, according torealtor.com, after increasing in the second half of last year.

The number offor-sale listings was up 2.8% annually in June, but that was down from May’s2.9% gain. Inventory gains began to slow this year from 6.4% growth in Januaryto 5.8% in February. Gains continued to slow throughout the spring and supplyis now expected to flatten over the next three months and could hit its firstdecline in October of this year, according to realtor.com

“It was only18 months ago that the number of homes for sale hit its lowest level inrecorded history and sparked the fiercest competition among buyers we’ve everseen. If the trend we’re seeing continues, overall inventory could near recordlows by early next year,” said Danielle Hale, chief economist at realtor.com. “Sofar there’s been a lackluster response to low mortgage rates, but if they dospark fresh buyer interest later in the year, U.S. inventory could set newrecord lows this winter.”

Part of theissue is that fewer owners are now listing their homes for sale, and there areseveral reasons why.

“It’s likely acombination of rate-lock, recently decreased consumer confidence and oldergenerations choosing to age in place,” added Hale.

The housing market is about to shift in a bad way for buyers- Diana Olick

Small Inventory Creep in 2018 Rolling Back Over.

Housing inventory-to-sales ratio continues to trend lower.

Source: Danske Bank

9.Sam Zell: Try to Avoid Competition

It’s difficult to win when everyoneis doing the same thing

July 08, 2019

Billionaire real estate investor Sam Zell madehis fortune by anticipating shifts in the market and moving in the oppositedirection to what everyone else was doing. Being a contrarian is an importantpart of value investing, but to Zell, it’s not just about being right whenothers are wrong – it’s about avoiding competition as much as possible in orderto make the easy money. He explained this position in a November 2018 interview at the Prime QuadrantConference.

It’s hard to stand out in the herd

Zell said that while he is in favor ofcompetition on a large scale, when it comes to the businesses and assets thathe invests in, he prefers monopolies (or at least oligopolies). The reason forthis is that investing in areas where there are a lot of people trying to dothe exact same thing is always going to result in margin compression. Going inthe same direction as everybody else makes it difficult to stand out:

“My secret sauce is that I didn’tknow how I was going to excel if I went in the same direction as everybodyelse. If you look at the Forbes 400 and you take out [the] 25-30% of the peoplethat inherited their money, the rest of the people went left when conventionalwisdom went right. And that obviously is directly related to the fact that youcan’t produce high margins if you and everybody else are doing the samething…You have to create capital by identifying areas and methodologies whereyou can achieve exponential growth.”

Zell believes in moving away from areas of highcompetition toward those where it is limited. This is particularly applicableto capital-intensive areas like real estate, as well as things like shippingand rail cars, or anywhere where there is a limited supply.

“When we became buyers of distressedproperty, the major thesis was that we were buying properties at materialdiscounts to replacement cost. That really comes down to if I own an officebuilding and I buy it for 50 cents on the dollar, then in order for somebody tobuild an office building to compete with me, it costs them 100. And thedifference between 50 and 100 is my competitive advantage. That’s my edge.That’s my barrier to entry.”

Avoiding competition brings two major benefits.First, investing in a business that has few competitors, or one that hasrecently consolidated many competitors, is a surer bet than getting involved inan industry with many similarly-sized companies. Second, if you are investingin an area that is out of favor (and, therefore, has less competition amonginvestors), you likely will be able to purchase assets at a discount to theirintrinsic value.

10.Ryan Holiday..What Ego Edges Out.

Exciting news, my book Ego is the Enemy is just$.99 as an ebook for avery limited time. Check it out!And here is my latest post onMedium…

Everyone is trying to dosomething.Try start a company or write a book.To be a good dad or a goodemployee. To get in better shape, or help a friend. To pick up the pieces after a divorce, or to get picked for a new project. Whatever it is, whatever we’re doing, ego is the enemy. It has to be. Because what is ego? It’s not confidence—which isproperly defined as evidence of our strengths and abilities. Ego is somethingdifferent, something less earned, a kind of unhealthy belief in our ownimportance. The idea that we have unlimited strengths and no weaknesses. It’sthe voice whispering in our ear that we’re better than other people, that ourneeds matter more, that the rules don’t apply to someone as exceptional as weare. It’s the sense that we are special and therefore need this successor that piece of recognition to prove it (or rather, we deserve itbecause well, because). It’s the belief that everyone else is watching us, thatwe’re destined for greatness. I’m talking about ego in the colloquial sense,of course. Freud was fond of explaining the ego by way of analogy—our ego wasthe rider on a horse, with our unconscious drives representing the animal whilethe ego tried to direct them. Modern psychologists, on the other hand, use theword “egotist” to refer to someone pathologically focused on themselves andwith disregard for anyone else. All these definitions are true enough but there is a more common form of ego.The one I was just talking about. It’s that petulant child inside every person,the one that must get their way. The need to be better than, more than,recognized for, far past any reasonable utility—that’s ego. It’s thesense of superiority and certainty that exceeds the bounds of confidence andtalent. It’s when the notion of ourselves and the world grows so inflated thatit begins to distort the reality that surrounds us. When, as the football coachBill Walsh explained, “self-confidence becomes arrogance, assertiveness becomesobstinacy, and self-assurance becomes reckless abandon.”We all have that. We’ve all been guilty of it at one time or another. The thing about ego is not just thatit’s unattractive. It’s that it is much less effective as a lifestyleand professional strategy than humility and confidence are. Look at Donald Trump. Sure, he’s president and it was partly ego that got himthere (a confident person looking at his skills and his chances of winningprobably wouldn’t have run). But even his supporters concede that his ego has made a very difficult jobeven harder. It dragged out the Mueller investigation (indeed, itbrought it on in the first place). It’s prevented compromises andcollaboration. It shut down the federal government. It’s led to a number of badhires and unnecessary stumbles. It’s prevented him from achieving an equallylarge number of easy policy wins that would have made him exceedingly popularwith more than just his base. The same was true for Richard Nixon. Ego has been a nightmarefor Elon Musk. For Kayne West. AskHillary Clinton about ego. Or what, just look at the title of the book shewrote after losing, What Happened.(Um, your ego cost you the election?) It should not be controversial then, tosay that ego is the enemy. 

Check out our Ego is the Enemy coinand use the code “EGOCOIN” for $6 off 

In the recoverycommunity, they like to say the E.G.O stands for “Edging God Out.” That makessense. There’s no room for God in your life if you believe you’re the center ofthe universe. But I would argue that ego edges out a lot more than justa higher power… Ego pushes away feedback.Ego pushes away realism.Ego pushes away potential friends and allies.Ego pushes away an accurate picture of risk or failure. Ego pushes away opportunities that don’t come gift wrapped. Ego pushes away understand and self-reflection.Ego pushes away the desire to improve–the essence of mastery. How can we make things for other people if all we’re thinking about isourselves? How can we motivate or lead other people if we have no ability tocare or see what is happening inside them? As the performance artist MarinaAbramović put it, “If you start believing in your greatness, it is the death of your creativity.”It might very well be the death of you…asmany generals on the battlefield and athletes and addicts who plunged aheaddespite all the warnings soon found out. So what keeps ego around then?If it is so dangerous and deleterious to our self-interest? It’s simple:Comfort. Pursuing great work—whether it is in sports or art orbusiness—is often terrifying. Ego soothes that fear. It’s a salve tothat insecurity. Replacing the rational and aware parts of our psyche withbluster and self-absorption, ego tells us what we want to hear, when we want tohear it.But it is a short-term fix with a long-term consequence.So whatever you’re doing. Whether you’re young and brimming with ambition oryou’ve made that first couple million, signed your first deal, been selected tosome elite group, or you’re already accomplished enough to last a lifetime.Whether you’re stunned to find out how empty it is at the top or you’re chargedwith leading others through a crisis. Whether you just got fired or hit rockbottom, beware. Wherever you are, whatever you’re doing, your worst enemy already livesinside you: your ego. “Not me,” you think. “No one would ever callme an egomaniac.” Ah, but there it is. That’s ego already! Like the devil, it’strick is to convince you it doesn’t exist—that you don’t have one. We must be on guard. We must be constantly pushing it away beforeit pushes our more cherished assets and insights away. Ego is the enemy.