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- Topley’s Top Ten – July 24th, 2019
Topley’s Top Ten – July 24th, 2019
Matt Topley
July 24, 2019
1.What Asset Class is More Expensive? Stocks or Bonds?
A Case for Stocks from Bond Valuations
Postedby lplresearch
U.S.stocks have powered back to record highs, and they could benefit more from arelatively expensive fixed income market.
As shown in the LPLChart of the Day, Stocks AppearHistorically Cheap Relative to Bonds, S&P 500 Index stocksare at their most attractive valuations relative to Treasuries in nearly threeyears. This data is based on a metric we track called the equity riskpremium (ERP), which compares the earnings yield on equities (or companyprofitability as a percent of share price) to the 10-year Treasury yield.
Thereare several different ways to view stock and bond valuations, so the ERP isonly one piece of the puzzle. However, the ERP’s recent ascent shows how muchglobal buying pressure has crimped U.S. yields this year.
There are several different ways to viewstock and bond valuations, so the ERP is only one piece of the puzzle. However,the ERP’s recent ascent shows how much global buying pressure has crimped U.S.yields this year.
2.The Biggest Residential Real Estate Company in the World is Down 80%
RLGY–Owner of Caldwell Banker and Century 21
For real estate brokers, it’shard to find prospective homebuyers who won’t waste their time.
For prospective homebuyers, it’shard to find a house that wasn’t the scene of a murder.
Amazon (+0.45%) and real estatebrokerage Realogy (+19.54%) are aiming to streamline the process by launching TurnKey, aservice that helps you find a real estate agent.
How it works:
You answer a few questions on Amazon’s TurnKey website and get a ring from a Realogy rep, who vets you and potentially sends you to an agent.
If you close on a house, you’ll get up to $5,000 to use on Amazon Home Services like furniture assembly and smart home products like Echo.
The Realogy angle: It’s thecountry’s largest residential realestate brokerage, owning Century 21, Coldwell Banker, and other brands. But arefresh is in order after it lost nearly 80% ofits stock price over the past year.
The Amazon angle is prettystraightforward: It’s focusing on generating more ad revenue through search andgetting its internet-connected gadgets into people’s homes.
3.Deutsche Bank just posted its biggest loss since 2008 after taking a $3.8 billion charge to overhaul the bank (DB)
Yusuf Khan
DeutscheBank announced a lossthat was bigger than the bank previously indicated, sending the shares plungingin Wednesday trading.
Credit Suisse analysts said the loss was wider than the €2.8 billion loss the bank previously flagged to the market, and in a note to clients called the results “disappointing.”
DeutscheBank on Wednesday morning announced aloss that was bigger than the bank previously indicated, sending the sharesplunging.
TheGerman bank’s loss in the second quarter was €3.1 billion ($3.5 billion) after“strategic transformation charges” of €3.4 billion — the FinancialTimes said theloss was the worst quarterly result for Deutsche since the 2008 financialcrash.
CreditSuisse analysts said the loss was wider than the €2.8 billion loss the bank previouslyflagged to the market, and in a note to clients called the results“disappointing.” The analysts said adjusted pretax profit was a bigmiss — €588 million euros versus consensus of €806 million.
OnJuly 7, Deutsche Bank announced a radical overhaul of the business. It entaileda cut of 18,000 jobs by 2022 and dropping the stock sales and tradingunit. At the time Deutsche said the cost of restructuring would be €6billion.
DeutscheBank’s shares fell as much as 5.2% and were hovering down about 3% lower onWednesday. The bank said 900 jobs have already been cut or eliminated since theoverhaul announcement.
“Excludingtransformation charges, the bank would be profitable, and in our more stablebusinesses revenues were flat or growing,” CEO Christian Sewing said inthe statement.“This, combined with our solid capital and liquidity position, gives us afirm foundation for growth.”
CreditSuisse analysts said that they “expect further downgrades to earningsestimates to weigh on the shares.”
Sewingalso in a letter to employees saidthat: “by and large our strategy is no longer being called into question,either by our investors or by the media or – most importantly – by ourclients.”
New Lows for Stock….$49 to $6
4.Will ECB Need to Add More Liquidity?
Will ECB Central Bank Need More Plans?
ZeroHedge
5.Fed Balance Sheet As Percentage of GDP Well Off 2014 Highs.
FedBalance Sheet: Thischart shows the Fed’s total assets expressed as a percentage of GDP. After peaking at just over 25% in 2014, the number has dropped to now about18%. In March the Fed announced a reduction in QT (QuantitativeTightening aka balance sheet normalization), and that it planned to stop QT atthe end of September. After that time it will begin reinvesting MBSprincipal repayments into treasuries (i.e. rotation into treasuries). Soin efffect the Fed will begin a form of QE later this year. There are a fewmoving parts here, and I think it’s fair to say we are either at or close tothe “neutral balance sheet level”. So maybe, just maybe, therecould be room for them to end QT quicker or tweak some of their existing planstoward outright balance sheet easing. That is, maybe we get rate cuts andsomething (even if small/symbolic) on the balance sheet side. Somethingto ponder…Key point: As a % of GDP the Fed’s balance sheet has shrunk materially.
6.How Are Stock Prices Reacting to Earnings?
Tue, Jul 23,2019
In our view, how a stock reacts to its earningsreport is the ultimate arbiter of how good or bad the report actuallywas. To get a read on the overall market, we keep track of the medianone-day price change for all stocks that have reported earnings on a rollingthree-month basis. Over the last three months, the median one-day pricereaction to earnings has been nearly flat at -0.03%, so we’d say earnings havebeen “market neutral” over the last quarter.Below is a chart showing the rolling 3-month trend for earnings reactions overthe last five years. As you can see, the trend swings from positive tonegative and back to positive quite a bit, so we’d categorize this as a meanreverting indicator. Earlier this year in Q1 when the market was bouncingback from a horrific Q4 2018, stocks were trading extremely positive inreaction to earnings. In fact, we saw the highest reading over the lastfive years towards the end of Q1 when stocks were experiencing a median one-dayprice change of roughly 0.75% in reaction to their earnings reports. Sincethat peak, however, we’ve seen price reactions to earnings drift lower. Atthe end of June, the reading had dipped negative, meaning companies wereexperiencing declines more often than gains in reaction to earnings, but overthe last few weeks, we’ve started to see price reactions improve.Now that we’re entering the thick of the Q2 reporting period, a continued movehigher for stocks reporting earnings would go a long way in causing an overallmarket breakokut. Stay on top of the most recent earnings trendsby starting a two-week freetrial to Bespoke Institutional.
7.60% of Job Growth by 2030 Could Be Concentrated in 25 Metro Areas
Source: McKinsey
From Barry Ritholtz The Big Picture Blog https://ritholtz.com/
8.Study: HIIT Can Increase Cerebral Blood Flow
Intervalexercise may offset cognitive decline by boosting cerebral blood flow.
High-intensityinterval training (HIIT) increases cerebral blood flow, improvescerebrovascular health, and may offset cognitive decline, according to a newstudy (Klein et al., 2019) fromresearchers at the University of Queensland in Australia.
Source: LANBO/Shutterstock
Agingbrains tend to have less cerebral blood flow and are at an increased risk ofcerebrovascular disease. Notably, the researchers found that HIIT may be moreeffective than continuous aerobic exercise in terms of increasing blood flow tothe brain in older adults. These findings were recently published in thejournal Medicine & Science in Sports & Exercise.
“Aswe age, the flow of blood to the brain and arterial function decreases. Thesefactors have been linked to a risk of cognitive decline and cardiovascularevents, such as stroke,” co-author Tom Baileyfrom UQ’s School of Human Movementand Nutrition Sciences said in a statement.“Finding ways to increase brain blood flow and function in older adults isvital. This study aimed to identify the type or format of exercise that causesthe greatest increases in brain blood flow, so we could help to optimizeexercise programs to enhance brain function.”
For thisstudy, Bailey and an international team of researchers focused on changesin cerebral blood flow during 10 minutes of interval training versus work-matchedperiods of continuous cardiovascular exercise on a stationary bicycle.High-intensity interval training is characterized by short bouts of vigorousphysical activity that are separated by periods of rest; thisexertion-followed-by-recovery cycle is repeated several times duringeach HIIT workout.
“Oneof the key takeaways from the study was that both the exercise and the restperiod were important for increasing brain blood flow in older adults,”Bailey said. “This study shows that interval-based exercise was aseffective as continuous exercise for increasing brain blood flow in olderadults during the periods of activity, and more effective than continuousexercise when we measured the overall blood flow increases during both theexercise and the rest periods.”
Thisstudy has some limitations: The cohort was small, and the researchers onlyfocused on short-term increases of cerebral blood flow during interval andcontinuous exercise in older and younger men. The next step for Bailey andcolleagues is to investigate the potential long-term benefits of HIIT andincreased cerebral blood flow on brain health in men and women of all ages in amore extensive study.
Thelatest findings on the brain benefits of HIIT for older adults dovetailwith another recent study, “Association of Lifestyle and GeneticRisk with Incidence of Dementia,” which found that regularexercise is one of four lifestyle choices that may offset the risk of cognitivedecline.
If youneed some motivation to kickstart an exercise routine thatincludes intervals, listening to a personalized playlist of songs that inspireyou is an evidence-based way to make HIIT more enjoyable. A recent study,“Let’s Go: Psychological,Psychophysical, and Physiological Effects of Music During Sprint IntervalExercise,” led by Matthew Stork of UBC Okanagan found that“The application of music during [intervals] has the potential to enhancefeelings of pleasure, improve enjoyment, and elevate the performance of[HIIT].” For more see, “Reluctant to Try HIIT? Music Could Be a Game-Changer.”
DISCLAIMER: Pleaseuse common sense and consult with your primary care physician before engagingin any new type of physical activity such as HIIT—especially if youhaven’t participated in any high-intensity physical activity rhttps://www.psychologytoday.com/us/blog/the-athletes-way/201907/study-hiit-can-increase-cerebral-blood-flowecently.
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