Topley’s Top Ten – November 19, 2019

Author

Matt Topley
November 19, 2019

1.The S&P 500 is up nearly 25% in 2019 and history shows the momentum could carry over to next year

KEY POINTS

  • Going back to 1928, there have been 17 occasions when the S&P500 has scored an annual gain bigger or equal to 25%.

  • And 71% of the time, the S&P 500 is positive inthe following year with an average gain of 7%, a CNBC analysis usingFactSet data found.

  • The S&P 500 has only had five negative years following a 25%annual return since 1928.

Therecord-breaking rally has brought the S&P500′s return this year to nearly 25%, and if the gains hold up forthe rest of the year, the market could have more room to run in 2020 if historyis any guide.

Going backto 1928, there have been 17 occasions when the S&P 500 has scored an annualgain bigger or equal to 25%. And 71% of the time, the S&P 500 is positivein the following year with an average gain of 7%, a CNBC analysis using FactSetdata found.

The S&P500 was up 24.5% for the year through Friday’s close. Futures were pointing tosome more gains on Monday.

The averageis skewed by a 36% loss in 1936 around the Great Depression. Looking at theaverage performance in the “modern” era from 1950 forward, the average annualperformance is a gain of 11.25% for the S&P 500 after a banner year.

The S&P500 has only had five negative years following a 25% annual return since 1928.

Wall Streetstrategists and investors have said it’s all coming down to President Donald Trump andthe China trade war if the market can close out the year with solid gains. Themarket has been moving on any development in the U.S.-China trade war fornearly two years.

Optimism ona trade resolution has risen recently after the two countries reached a truceand started working up a so-called phase one deal. White House economic advisorLarry Kudlow said the two countries were “getting close” to reaching a trade deal,sending stocks to new all-time highs.

To be sure,next year could be unpredictable due to the upcoming presidentialelection. Wall Street is already worried about theascent of Massachusetts senator Elizabeth Warren and her wealth tax proposals.Notable investors including billionaire Paul Tudor Jones and longtimeinvestor Leon Cooperman have warned of a market correction, should Warren takethe White House.

2.Stocks Making New Lows By Sector…Energy Huge Laggard.

From NasdaqDorsey Wright.

3.U.S. Rig Count The Number of Active Drilling Rigs in U.S. -26% in 6 Months

US Rig Count, displays thenumber of active drilling rigs throughout the United States. The indicator isclosely watched as a precursor to oil production in the US oil and gasproduction industry. Throughout the mid 2010s, US rig counts reached a low of404 active drilling rigs in May 2016 following significant decreases in oilprices from previous years, then started to rebound as oil prices started torise again and improvements in drilling technology made previously uneconomicaloil deposits viable.

US Rig Count is at a current level of 806.00, down from 817.00last week and down from 1081.00 one year ago. This is a change of -1.35% fromlast week and -25.44% from one year ago.

4.Hedge Funds Have Cut Short Bets on Crude Oil by 41%

COVER BID– Hedge-fund managers unwound bets thatcrude will fall at the fastest pace in 16 months as the prospects for a trade war truce and a slowdown in shale drillinghelped futures rebound – Oil short-sellers slashed their bearish positions onWest Texas Intermediate crude by 41% in the week ended Nov. 12. 

WhileU.S. explorers are still pumping crude at a record clip, drilling has plungedto the lowest level in more than two years as companies come under increasingpressure to cut spending, with many strapped for cash. That means an eventualslowdown in output.

From Dave Lutz at Jones Trading

5.Investors Portfolio Construction Goals Are Defensive.

SPDR BLOG

6.Demand for Airplanes

Airplanes Aren’t Selling Like They UsedTo

Soft demand at the Dubai Air Show suggests the aerospace cycle may haverun its course, especially for the biggest planes.

7.U.S. Population Growth Falling to New Lows.

The decline inpopulation growth in the United States continues, see chart below. This is atthe core of the secular stagnation hypothesis put forward by Larry Summers.

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Letus know if you would like to add a colleague to this distribution list.

Torsten Sløk, Ph.D.Chief EconomistManaging DirectorDeutsche Bank Securities

8.Quantum Computing.

  • Spin qubits have potential for reduced thermal constraints, greater stability, and smaller physical size.

What is Quantum Computing

Binary encoding of data isfundamental to computing, with bits comprising zeroes or ones representedelectrically as “on” or “off” states. Quantum computing reimagines thatapproach, replacing bits with qubits that can simultaneously manifest multiplestates as they are generally defined in classical physics. Quantum systems thatrepresent data using qubits and quantum phenomena such as superposition andentanglement potentially enable computing at unprecedented levels of massiveparallelism.

Work by Intel Labs on quantumcomputing draws on ongoing internal research, paired with collaborativerelationships and investment across global academia and industry, as well asIntel’s leadership in silicon fabrication techniques. Research has been ongoingfor decades, growing from a theoretical level with thought experimentsthroughout much of the 20th century, with the first functional hardwarecomponents for quantum computing developed only in the past several years.

9.Patent Applications in the U.S. Flat Lining.

10.6 Stoic Tips to Being a Great Friend

Whenwe think of great Stoic figures like Marcus Aurelius, Cato and Epictetus, we tend to focus solely on the individual. Their perspective, their observations.But how did these brilliant thinkers treat those around them? We know fromhistorical accounts that Marcus ruled the people of Rome with reason, and Catoearned the respect of his troops by sleeping in the trenches with them. Evenso, out of all the Stoics that we read today, there’s only one who gave us suchcomprehensive insight into how they spoke and acted towards their dearestfriends.

Seneca’s Letters from aStoic are nothing more than a series of deepconversations he had with a close friend, each letter covering a differenttopic or merely expanding upon what was said in earlier letters. The collectionof correspondence certainly gives us more insight into Seneca himself, but it also raises as manyquestions as it answers. What does it mean to be a good friend? How does one goabout maintaining meaningful friendships, and discarding the ones that aren’tin our best interest to keep?

Luckyfor us, philosophers like the Stoics mentioned above have already wrestled withthese ideas. Here are several tips from our Stoic forefathers on how to havemore genuine, meaningful, and timeless friendships.

THE IMPORTANCE OF JUDGMENT 

“If you consider any man a friend whom you do nottrust as you trust yourself, you are mightily mistaken and you do notsufficiently understand what true friendship means… When friendship is settled,you must trust; before friendship is formed, you must pass judgment…Ponder fora long time whether you shall admit a given person to your friendship; but whenyou have decided to admit him, welcome him with all your heart and soul.”

 — Seneca, Letters from a Stoic 

Theability to judge situations and people is an evolutionary gift. It wouldn’t bebeneficial for us to immediately trust every person we meet, as this wouldsurely lead to being taken advantage of. 

Choosinga friend should, in many ways, be similar to the way you answer your door. Whenyou hear a knock, you don’t open for just anyone. For some, you leave itclosed. For others, you may open the door, but guard it nonetheless. Finally,there are those you let in. Only those who have consistently demonstrated theirtrustworthiness should be allowed to enter. Whether it’s your home or yourheart, the same rules apply.

It’simportant to note that we get better at making accurate judgments with time.Stoics called this oikeiōsis, which can be translated as “appropriation” or “familiarization.”We all begin life with an untainted understanding of what is good and bad. Weseek what is pleasurable and avoid what is painful. The Stoics believed thatwith time, we could learn to refine our sense of good and make more accurateassessments about the natural world. Of course it will take time and we won’talways judge correctly. The friends that we properly judge, though, will remainin our lives forever.

DON’T BE OR BEFRIEND THE FAIR-WEATHER FRIEND

“He who regards himself only, and enters uponfriendships for this reason, reckons wrongly. The end will be like thebeginning: he has made friends with one who might assist him out of bondage; atthe first rattle of the chain such a friend will desert him. These are theso-called ‘fair-weather’ friendships; one who is chosen for the sake of utilitywill be satisfactory only so long as he is useful…He who begins to be yourfriend because it pays will also cease because it pays. A man will be attractedby some reward offered in exchange for his friendship, if he be attracted byaught in friendship other than friendship itself.”

 — Seneca, Letters from a Stoic

Weall know what the fair-weather friend looks like. You share a common interestthat you engage in together. You communicate here and there. It looks likefriendship, it feels like friendship, but when the hardships of life comestorming about, these same friends are nowhere to be found. 

Weneed people we can rely on in times of crisis. It’s why trust is such animportant prerequisite to friendship. Not to mention, if we use someone for thesake of their utility or merely as a means to some end, we aren’t living up toour guiding principle of Summum Bonum. Meaning, we aren’t living up to the values that are supposed tobe imbedded in everything we do. 

TheStoics would undoubtedly be in favor of seeking friendship because it isinherently good, not because it’s useful. A good friend is always there whensomeone needs them. They don’t shy away from tragedy or think themselves betterthan the person who needs their comfort. A good friend is there, period.Not only should we look for this quality in our current group of friends, butalso in ourselves. 

PROGRESS COMES FIRST

“Above all, keep a close watch on this— that youare never so tied to your former acquaintances and friends that you are pulleddown to their level. If you don’t, you’ll be ruined. . . . You must choosewhether to be loved by these friends and remain the same person, or to become abetter person at the cost of those friends . . . if you try to have it bothways you will neither make progress nor keep what you once had.” 

— Epictetus, Discourses

Oneof the hardest aspects of friendship is recognizing when it’s time to let go.Sometimes a dear friend may still be trustworthy and loyal, but their actionstowards others and the world around them no longer align with yourmorals. 

Insuch a case, we’re faced with two choices. Either we maintain the friendship atthe cost of our personal growth, or we end it at the cost of our friendshipwith that person. In the former scenario, we choose to keep ourselves fromprogressing. In the latter scenario, we make a difficult choice in support ofour values.

TheStoic response to this situation would utilize the idea of preferred indifference, which in the context of friendship would look something likethis: you should be neither overly upset or overly joyous at the loss of afriend. Instead, you should be indifferent; fine either way. Forthe friends we keep, we get to enjoy what is hopefully a lifetime ofcompanionship. For those we decide to let go, we are doing so in support of ourvalues and personal growth. 

Whatdoes this mean? That we are free to embrace and cultivate any friendship welike, so long as it doesn’t compromise our morals.

EMBRACE THE BEAUTY OF SHARING

“Nothing will ever please me, no matter howexcellent or beneficial, if I must retain the knowledge of it to myself. And ifwisdom were given to me under the express condition that it must be kept hiddenand not uttered, I should refuse it. No good thing is pleasant to possess,without friends to share it.” 

— Seneca, Letters from a Stoic

Ifyou think about some of the happiest moments in your life, chances are thosememories involve people you care about. Maybe it’s the night you asked the loveof your life to marry you, or the day you secured your dream job and celebratedwith friends and family. No matter the occasion, one thing is for certain: thebest things in life are meant to be shared.

Nexttime you’re about to do something (or anything really) try bringing a friend.It doesn’t matter if it’s going on a big vacation, or simply binge-watching anew show Netflix. Listen to the joy in their voice as you invite them and fullyembrace the experience that you’re about to share. You’ll find that Seneca, asper usual, was right about this as well.

THOU ART MORTAL, AND SO ARE THEY

“Whenever you kiss your child, sibling, or friend,don’t layer on top of the experience all the things you might wish, but holdthem back and stop them, just as those who ride behind triumphant generalsremind them they are mortal. In the same way, remind yourself that yourprecious one isn’t one of your possessions, but something given for now, notforever…” 

— Epictetus, Discourses 

Theconcept of Memento Mori is well-known to the Stoic community. We wear necklaces thatbear the saying, and keep skull-shaped coins in our pockets, and for whatpurpose? To remind us that our time is limited—that what we do matters. Whilethe mantra is designed to remind us of our own mortality, we often forget thatthis also applies to everyone we know. 

Askyourself, would you treat your friends the same way you do now if you knew thatthey wouldn’t be here tomorrow? It’s not that we don’t treat our friends wellbecause we’re mean-spirited. But we certainly lose sight of the shortness oflife; we overestimate how much time we have left with the people we care about.The way we treat others in each moment could be the last thing we ever do.

We’reall good at applying memento mori to ourselves and our ownlife, but it’s in our best interest to keep this in mind during interactionswith friends as well. If we can remember to treat our companions as if theycould be gone at any moment, we’ll be far less inclined to take them forgranted. 

SEEK BALANCE, NOT CONTROL

“Love the discipline you know, and let it supportyou. Entrust everything willingly to the gods, and then make your way throughlife – no one’s master and no one’s slave” — Marcus Aurelius, Meditations, 4.31

Atthe center of Stoic thought is the idea that we have to understand what we canand cannot control. Perhaps the most difficult thing to accept is that we can’tcontrol other people. We’ve all had those friends who always want to be incharge and boss people around. They’re the ones who make the plans and changethem as they please. In group settings and competitive environments, they’realmost unbearable to be around—almost. 

Beingin pursuit of balance, we should never play this game. We should never seek tocontrol other people, nor should we allow ourselves to be controlled. Instead,we should be mindful of the way we conduct ourselves and accepting of the waythat others are. Some of the greatest pain we feel comes from our desire tochange things about a person we can’t possibly change. What should we be doing?Leading by example and allowing our character to serve as a guide for ourfriends who don’t always act with our same level of self-control. 

Whowe choose to spend our time with is a reflection of our character and ourability to judge others. As you begin to assess those around you and thefriends you spend time with, reflect on who helps you grow and who holds youback. Who can you call at three in the morning on a weekday and they’ll be at yourdoor in a moment’s notice? Who can you depend on to lift your spirits when youfeel like there’s no way up? 

Whateveryour answer may be, friendship is one of life’s greatest gifts. To have peopleto depend on in times of crisis and share wonderful memories with is valuablein and of itself. Whether we realize there are friends we need to let go, orfriends we need to work harder to keep, one thing is for certain:

Thereis work to be done.