Topley’s Top Ten – October 2, 2019

Author

Matt Topley
October 02, 2019

1.You Call This A Bull Market?-Bespoke Investment Group

By just about all accounts, investors have been spoiled over the last ten years as the S&P 500 has rallied more than 13% on an annualized basis.  However, when you compare returns for the market over the last one, two, five, ten, and twenty years, current returns are hardly at any sort of historical extreme.  The chart below compares the S&P 500’s annualized performance on a total return basis to the average annualized return for all similar time frames.  Looking just at the last year (through 9/30), the S&P 500’s total return is 4.3%, which is less than half of the historical average one year total return of 11.7%.  Looking at two and five-year annualized performance figures, current returns are just modestly above their historical average.  While the ten-year annualized return is almost three percentage points above the historical average, the current 20-year annualized gain of 6.3% is well below the S&P 500’s historical average of 11.0%.

2.Muni Defaults Are Rare.

3.Schwab Cuts Trading Costs to Zero…Amertrade Matches Them Today

Ameritrade and Etrade Traded Straight Down to 2017 Lows on Schwab News.

AMTD-Amertrade

EFTC-Etrade

4.New Export Numbers Bad

Torston Slok

ISM at 47.8 is bad but newexport orders at 41 is even worse, see chart below. There is no end in sight tothis slowdown, the recession risk is real. For more see also here.

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Let us know if you would liketo add a colleague to this distribution list.

Torsten Sløk, Ph.D. Chief Economist Managing Director

5.Here Are Some of The Underlying Components That Make Up ISM Index

Here are some of the components of the ISM index.

• Production:

• Employment:

• New orders:

• Export orders (declining atthe fastest pace since the recession).

6.Offshoring Gains Experienced By Manufacturing Are Under Pressure.

FIS GROUP

BatteningDown The Hatches Part Two

7.New Homes Hit Historic Low Level of Total Market

JohnBurns Real Estate

8-9.The Top 20 Business Transformations of the Last Decade.

  1. New growth: How successful has the company been at creating new products, services, new markets, and new business models? This includes our primary metric: the percentage of revenue outside the core that can be attributed to new growth areas.

  2. Repositioning the core: How effectively has the company adapted its traditional core business to changes or disruptions in its markets, giving its legacy business new life?

  3. Financials: Has the company posted strong financial and stock market performance, or has it turned around its business from losses or slow growth to get back on track? We looked at revenue CAGR (combined annual growth rate), profitability, and stock price CAGR during the transformation period, which was different for each firm.

10.Things That Matter: Three Useful Principles for Life

The bestlife advice is: Be wary of life advice.

Life,observed the writer Amos Oz, evades every formula. If that’s the case (and itis), then so-called guides for life—those lists of rules, owner’s manuals, andhow-to books—are bound to be found wanting. In other words, the best lifeadvice is to be wary of life advice.

Thatbeing said, those of us who toil in the teaching profession are charged withpreparing our students for life. Such preparation requires that we equip themwith some useful tools for navigating the terrain. What should those be?

Source: ShonEjai (pixabay)

I oftenbegin my introductory classes by talking about three general principles thatcan, in my judgment, be quite helpful on the journey of learning and living. Ispeak of ‘principles’ rather than ‘rules’ because rules, by definition, arespecific and rigid prescriptions, often imposed from the outside under threatof punishment. Trying to capture, anticipate, and addressthe infinite complexity of life and its manifestations with specific and rigidrules is unwise. Life advice is more palatable, and useful, when it articulatesguiding principles, since principles are broader, more flexible, and tend totake the form of internal convictions rather than external impositions. ‘Finishall the food on your plate’ is a rule. ‘Be mindful of wastefulness’ is aprinciple. The latter is better life advice. With that in mind, here goes:

1.Knowledge Matters:

Theassumption that knowledge has value is quite uncontroversial, and fundamentalto the work of teaching. Yet the point deserves emphasis, for several reasons.First, American culture is big on opinions. Speech, after all, is free. Andfree things tend to get used much, often wastefully. Many of my students aretold throughout their early years that they always have a right to an opinion,that their opinions matter a lot, and that all opinions are created equal. Thisof course is untrue. Indeed, everyone is entitled to their opinions, yet thatdoes not mean that all opinions matter, or that they matter equally. To wit: Ihave an opinion about how Amazon should be run. So does Jeff Bezos. His opinionmatters more. In a well-run life (be it individual or social), a knowledgeableopinion matters more than an ignorant one. 

Second,American society is also big on feelings. Many of my young students are taughtthat how they feel is of prime importance in terms of discerning what’s goingon and how they should respond. This is problematic. Now granted, feelings areimportant. Our emotions provide useful information in our effort to navigatethe world. Everyone is entitled to feel what they feel, and there’s often benefitin reflecting on and communicating our feelings honestly. At the same time,feelings are mind events, not world events. The fact that you feel scared doesnot necessarily mean you are in danger. Recognizing the difference isimportant, and will require knowledge of the situation, not merely an awarenessof your feelings. The fact that you hurt does not necessarily mean that you’vebeen wronged. The fact that you feel good does not necessarily mean you aredoing good. If you feel like a great driver, you have a feeling, notnecessarily driving skill. In a well-run life, your driving skill–that is,your actual knowledge–is more important than your feeling. Knowledge matters.

Ofcourse, this principle is violated often—as when people who have acquiredpower, wealth, or fame in one area get a pass on spouting ignorant nonsenseabout another (a phenomenon known as the ‘halo effect’). This seems to havebecome more common in recent years, as the current cultural conversationappears to devalue knowledge in favor of other currencies that photographbetter, such as celebrity, wealth, outrageous opinions, and outraging feelings.Yet violating the principle comes at a cost. A process that devalues expertisebegets inferior quality product. Failing to gather—or ignoring—the evidencebegets error and injustice.

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Anotherreason why knowledge matters is because what you know defines the parameters ofyour world. Thought experiment: You come home from work to find your wife inbed with your brother. Now, this is a situation in which you’ve just acquired anew bit of knowledge. At this point, you face some choices; you have many waysin which to react to these new data–you may storm out, start a fight, faint,or join in on the fun. Whatever. It’s a free country. Yet one thing you cannotdo is go back to being who you were before that moment. The knowledge haschanged you; it has changed your understanding of yourself, and of your wife,and of your brother, and of relationships, and of the world. And the change isirreversible. You may mend things with both your brother and your wife, but youcannot un-see what you saw. You cannot un-know what you know. Even if yourecover completely and become whole again, you are not whole in the same wayyou were before. This is why, as hinted well in the biblical story of Adam andEve, knowledge is dangerous. It is consequential. It matters.

2.Context Matters:

This isperhaps the most important and most often overlooked guiding principle forsound thinking and judgment: Nothing has meaning independent of context. Humanaffairs in particular cannot be meaningfully reduced to the study (ordescription) of the individual alone. Granted, we may speak of an object sanscontext heuristically, in the abstract, for the didactic purposes ofsimplification or illustration. But to arrive at a practical understanding thatcan inform successful movement in the world, speaking of anything sans contextis unhelpful. For example, pregnancy happens inside the womb. But the womb isnested inside a body that contains a brain–that is to say, a person. And theperson is involved in certain specific relationships, in a certain community,inside a culture, at a certain historical time. You can’t understand themeaning and implications of pregnancy without knowing something about all ofthose layers.

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As theabove example shows, a complicating factor here is that human phenomena existwithin multiple contexts at once. Which of those we choose to emphasize willmatter to our understanding. Three types of context that tend to mattergreatly to our understanding of human events are the sociocultural, historical,and situational contexts. The sociocultural context refers to the culturaltraditions, social expectations, and group processes in which one’s individuallife is embedded. Similar gestures, words, or decisions have different meaningsin different cultures. Two adult males walking hand in hand means verydifferent things depending on whether it happens in Uganda (where it signalsmale friendship) or the US (where it signals homosexuality).

Moreover,just as public behavior is given meaning by the culture, so does private,individual behavior. There is no ‘I’ in ‘Alone.’ But there is ‘I’ in ‘Tribe.’This is to say that selves are built out of cultural materials, using culturaltools. Sociocultural influences are internalized in the socialization processand become parts of our integrated sense of self. The very concepts you use todefine yourself—or, for that matter, your very idea of self—have been providedto you by society. Take language, for example. Your culture gave you the giftof language, and now, you consider that language your own. In other words, youhave internalized and integrated culture.

This iswhy even your most private intimate moments carry a cultural stamp. Forexample, when you make love to your partner in the privacy of your bedroom,your society is right there with you. After all, your understanding of whatlovemaking means and how to go about it were taught to you by your culture.Everything about your love making session: the expectations you and your loverhave of each other, the scripted dance of dating and mating that brought you here, the things you havecome to consider attractive, acceptable, or necessary for arousal, the sex toys and contraceptives you use—these are notof you. They were gifted to you by the sociocultural milieu. Contextmatters.

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Anothertype of context is historical. Clearly, similar behaviors have differentmeanings at different historical times. Ideas that were once taken for grantedtruths are now considered folly. And vice versa. The wealthiest, most powerfulperson in the world five hundred years ago did not have access to thetechnology our poorest citizens take for granted today. This is one reason whyevaluating the past in terms of the present devolves quickly intomeaninglessness. Our ancestors look like backward barbarians to us. But theydid not think of themselves as such, and were not such compared to theirancestors. People 500 years from now will look at us as backward barbarians.

Judginghuman phenomena without regard to the times in which it took place is seductivesince hindsight is 20/20, and comparisons to the past often reflect well on thepresent. But such comparisons often muddy our analysis. To wit: I’m quitecertain that Bill Gates abhors the idea of slavery. Thomas Jefferson, on theother hand, embraced it. That does not mean that Gates is good and thatJefferson was evil. Both of them are, in fact, normative in the context oftheir historical time and particular culture. Thus, they are more alikethan different. In other words, if Gates lived in Jefferson’s time he’d bea slave master, too. Person-(or event or object)-in-context is the lowestmeaningful unit of analysis. Thus, it is fairer to compare our ancestors intheir context to us in ours.

The thirdimportant context is situational. Clearly, different situations call fordifferent behaviors. And the same behavior acquires different meaningsdepending on the situational context in which it is emitted. Indeed, one of theways we judge mental health and illness is by noting a mismatch betweenbehavior and situation, as when someone laughs at the funeral, or takes hispants off in public.

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Even themeaning of things we assume to be absolute, universal, or self-evident are infact tethered to situational context. Telling the truth, for example, isbroadly seen as a good thing. Yet in some contexts—for example, if you’rehiding Jews in your basement in Europe during WWII, and the SS soldiers are atyour door asking you if you’re hiding any Jews—truth-telling would be immoral.This is why we say that in psychology, the correct answer to most everyquestion is ‘it depends.’ On what? On context.

3. ThingsAre Not What They Seem:

This ideais neither new nor original. An essence of humanity is embodied in our tendencyto want to look under the hood or to peek behind the curtain; our curiosityabout how, and to what ends, the myriad appearances around us are produced.Many grand historical ideas involve upending the obvious:

Freud’s notion of the unconscious is one example. Per Freud, the truemeaning of the things we do is hidden from others and also from ourselves. Thewoman doting incessantly over her baby is motivated not by love, but byresentment.

Darwin’sgreat insight involved the realization that nature, which many Victorians sawas beautiful, harmonious and graceful in its various manifestations—is actuallya brutal, ceaseless war for survival.

Marx’sgrand theory was premised on the notion that capitalism, the seemingly winingeconomic system, was in fact doomed by its very own structure, as theproletariat, upon whose labor the wealth of the bourgeoisie depends, were boundto eventually revolt against their exploiters.

And soon.

Thereason that things are not what they seem has to do with the structure of ourevolved brain. We all must rely on our senses when taking in the world. We haveno other means by which to commerce with the ‘there’ that’s out there. Oursenses are systems. All systems have boundaries, that is to say limitations,that is to say, certain things they cannot do (for example, we can’t breathe underwater). Allsystems also have a character, that is to say specifications, that is to saycertain things they do better than other things they do (for example, we seebetter in daylight than at night).

Evolutionhas shaped our senses to include certain useful tendencies. We learn certaintasks (e.g.: to fear a snake) more easily than others (to fear atable). We are drawn to and prefer certain things over others (babiestrack a moving object at birth; they prefer symmetry, and the smell of vanillaover ammonia). These sensory adaptations serve a survival purpose, but they arein essence biases, and thus, by definition, distortive.

Moreover,it is by now common knowledge that our senses do not passively transmit,record, and store information from the outside world but rather activelyparticipate in shaping the form and meaning of these data. We act on the worldas it acts upon us.

Your memory, thus, is not a recording of your life events,even though it seems so. Rather, it is a story constructed about those eventsin retrospect. You don’t remember all of what happened to you. You remember aversion you’ve constructed. That version omits certain parts, emphasizesothers, and makes up some others for good measure. In other words, what youremember will depend not just on what actually happened, but also on factorssuch as your mood at the time of the event, your level of arousal at the time,your mood at the time of recall, and on how you are asked to remember,when, by whom, and how often.

Anotheraspect of this principle refers to the role of expectations. Everyone has heardthat seeing is believing. And this is in part true. Humans rely on vision to agreat extent, and so we use this sense to verify things for ourselves. Fewerpeople though realize that the opposite of this equation is also true:Believing is seeing. That is to say, what you expect to see, hope to see, andbelieve you will see, you tend to see, independently of what’s actually there.People who believe in God see his good works everywhere. People who don’t failto find him anywhere.

Thoughtexperiment: Imagine two equally matched teams. One anticipates a loss. Theother believes it is going to win. At some point in the game, eitherteam may fall behind. Yet the team that expects to lose will see that asprophecy fulfilled, an inevitability, a signal, while the team that expects towin will see falling behind as a temporary setback, an error, random noise.Now, which team is more likely to win? The one that expected to. This resultwill seem right to both teams. But it isn’t, insomuch as it reflects not theirtrue (evenly matched) abilities, but their (distorted) expectations.

In sum,while neither comprehensive nor exhaustive, the three principles describedabove are useful to consider as one labors to survive intact the typhoon ofexistence. How may these principles be translated into action? Well,knowledge matters, so try to learn something. Context matters, so in beholdingthings, consider too the environment in whichthey’re embedded. And things are not what they seem, so don’t trust yourvision blindly. Examine things again.https://www.psychologytoday.com/us/blog/insight-therapy/201910/things-matter-three-useful-principles-life