Topley’s Top Ten – October 25, 2019

Author

Matt Topley
October 25, 2019

1. Amazon Stock..Cost of Shipping Jumps 46% Year Over Year….Stock Never Made New Highs From 2018

Amazon earnings fall for first time in morethan two years, stock drops in late trading

Amazon’s spending onone-day delivery and other initiatives sends profit down year-over-year forfirst time since 2017, forecast calls for even more spending in holiday quarter

Johannes Eisele/AFP/Getty Images

Amazon.com Inc. hasspent more than $1 billion this year to reduce the amount of time it takes todeliver packages to Prime customers, and expects a $1.5 billion hit in theholiday season.

Amazon prepped investors and analysts for the spendingincrease and resulting profit decline, projecting an $800million charge in the second quarter for the one-day delivery change. Amazonended up spending more than that in the second quarter, however, and ChiefFinancial Officer Brian Olsavsky said in July that Amazon would spend even more in thethird quarter.

Olsavskysaid in the call that the fourth quarter will see even larger costs fromone-day delivery efforts.

“So, aswe head into Q4 we’ve added what’s just nearly $1.5 billion penalty in Q4year-over-year for the cost of shipping, which essentially is transportationcosts, the cost of expanding our transportation capacity, things like addingadditional roles and shifts in our warehouses,” the Amazon CFO said.

Amazon’s worldwidespending on shipping jumped 46% year-over-year in the third quarter to a record$9.6 billion, more than a half-billion dollars over what Amazon spent in thebusier holiday season a year ago. The company, which cut back on hiring a yearago after absorbing the Whole Foods workforce and hiring quickly in 2017, alsoincreased its total employee count by 22% to 750,000 people. Amazon addednearly 100,000 employees just in the third quarter, according to Thursday’srelease, which Baird analyst Sebastian deemed the “most surprising metric” inthe report.

2. Amazon Historical 2010-2018 Shipping Cost Growth.

Amazon shipping costshit record $9B in latest quarter, total nearly $28B for 2018 BY NAT LEVY on February1, 2019 at 10:33 am

3. The Yield Curve Un-Inverts.

WisdomTree

Head of Fixed IncomeStrategy

Withoutmuch fanfare, an interesting development has occurred in the bond market inOctober: the Treasury yield curve “un-inverted.” I can’t help but tothink back to May of this year when the U.S. Treasury(UST) 3-month/10-year note spread fell into negative territory for thefirst time since 2007 and the news took center stage. Arguably, the heightenednews coverage was warranted, given the inverted yield curve’s priorhistory of forewarning of potential recessions. This raises thequestion—does the un-inverted curve now flash the all-clear signal for theU.S. economy?

Technically, an un-inverted yield curve simply means the spread between the two aforementioned Treasury securities has moved back into positive area. As of writing, the UST 3mo/10yr spread was registering at +8 basis points (bps), and it has been in plus territory now for the last week or so. This is in stark contrast to just a couple of months ago, when this differential plunged to a low of -51 bps in late August. U.S. Treasury 3-Mo/10-Year Spread

So,what has happened within the last two months to create such a turnaround? Thissteepening of the curve has been a function of the yields of boththe 3-month t-bill and the 10-year note moving in almost equal, butmore importantly, opposite directions. Specifically, since the peak inversionwas printed on August 27, the 3-month t-bill yield has fallen about 30 bps,while the 10-year note has seen a roughly 30-bps increase in its yield level.

Let’s takethe 10-year first. The yield increase here has been the result of improvedU.S.-China trade news as well as economic data that continues to suggest thatthe labor market setting and consumer spending patterns are more thanoffsetting weaker readings for manufacturing and investment. For the 3-montht-bill, the current yield reflects that the market is pricing in anadditional rate cut at next week’s FOMC meeting and therecent news that the Fed will be buying $60 billion in Treasury Bills toprovide sufficient reserves for the funding markets.

Conclusion

Back to thequestion I posed earlier: is the U.S. economy out of harm’s way? Our base caseis for a slowdown in growth, not an outright contraction. The N.Y. Fed’sindicator of a probable recession in the next 12 months stood at 34.8% as ofSeptember, a slight decline from the prior month. This latest development fromthe yield curve will more than likely reduce those odds a bit more for theOctober reading if the un-inverted status is maintained (the UST 3mo/10yrspread is the key leading indicator for this series). I think a good rule ofthumb going forward is a two-thirds chance of avoiding a recession and aone-third chance for one occurring.

4. Yield Curve Uninverts – Now What?

Lessthan six months ago, the market was buzzing with the information that the yieldcurve inverted. As we all know, when the curve inverts there will be arecession. The time between inversions and recession is variable, but it willhappen. It is a lock. Unfortunately, there can be false positives or moreprecisely, changes in the likelihood of a recession.

So,what do we do now? The curve has moved from inverted to being positive. Thispositive yield curve however is slight. The 3-month Treasury bill versus10-year treasury bond yield is now positive 12 bps. The combination of Fedrates cuts and the announcement of Treasury bill buying to increase the Fedbalance sheet is pushing rates lower. The Fed seems to be successfullyoffsetting fu twnd tightness on thefront-end of the curve, and some positive tariff news has pushed up yields onthe long-end of the curve.

We cansay is that the threat of a recession has been lowered. Most of the work onyield curve inversion and recessions has used logistic regressions to measurethe probability of a recession event. The last reading from the New York Fedwas slightly above 30 percent for September 2020, but that was with data fromJuly. This likelihood measured while the curve was still inverted. That numberwill go down.

We areleft with a measured response. The probability of a recession has declined. TheFed action and forward guidance has been enough to reduced the threat.Recession fears have diminished so holding a riskier portfolio is appropriate.

5. Twitter Did Not Make It Above 2018 Highs

This compilation of the most popular social networks worldwide by active users (October 2018) prepared by Statistausing data from the Global Web Index panel gives a clear picture of the numberof active users (in millions) with Facebook ruling supreme. This won’t be ashock to anyone! With over 2 billion active users it holds the majority marketshare. Google’s YouTube is second with Facebook-owned, WhatsApp and Messengernot far behind. Facebook’s Instagram platform has fewer than half of the visitsof Facebook…

Globalsocial media research summary 2019 By Dave Chaffey 

6. Big Name Shorts Get Slammed in Tesla.

Short sellers slammed as Tesla shares surge the most in 6 years By Kevin Dugan  October 24, 2019 | 5:25pm | Updated 

Tesla’sElon Musk (bottom right) got a charge on Thursday as shares of his e-carcompany surged 18% after it reported an unexpected quarterly profit. Shortsellers Jim Chanos (right) and David Einhorn (left).Alamyphotos; NY Post photo composite

Teslashares are surging — and short sellers are hurting.

WallStreet investors betting against Tesla’s stock got clobbered to the tune ofnearly $1.5 billion on Thursday after Elon Musk’s electric-car maker reported asurprise profit, giving the company’s shares their biggest boost in six years.

Teslabears — which include big-name money managers like Jim Chanos and David Einhorn— got caught after Tesla reported a third-quarter profit of $1.86 a share on improved efficiencies at its factory. Teslaalso said it expects deliver as many as 400,000 cars this year and that it wasahead of schedule on a new car plant in China.

Thenews lifted Tesla shares nearly 18% to $299.68, giving the company a marketcapitalization of $53 billion — edging past General Motors to become thenation’s most valuable car company.

Itwas a miserable day for short sellers, who lately had been booking healthygains on bets that the stock would fall, according to S3 Analytics.

Theresearch firm calculated that short sellers’ collective, year-to-date gains gotslashed on Thursday to $525 million, or about 6%, from a high of $2 billionearlier this year.

“Thiswas the worst loss that we’ve seen” for Tesla’s short sellers, S3’s managingdirector, Ihor Dusaniwsky, told The Post.

Investorsthat have placed short bets against Tesla more recently were the ones who hadthe most to lose, he noted, while long-term bears were more likely to still bein the black.

Chanosand Einhorn, who haven’t disclosed the size of their Tesla short bets, didn’trespond to requests for comment. But on Thursday Chanos struck a defiant toneon Twitter, claiming that Tesla was “fundamentally unprofitable.”

Previously,Einhorn had bashed Tesla cars for being less safe than the company claims as arationale for his short bet. “The wheels are falling off — literally,” he saidearlier this year in an investor letter, according to CNBC.

WhileEinhorn got pummeled Thursday, critics note that Musk also has a spotty trackrecord when it comes to delivering on his bold promises. Analysts at JPMorgansaid they are “unsure that this is really the breakout quarter that is likelyto be claimed by the bulls,” according to a Thursday analyst note.

Tobe sure, Tesla still has plenty of lost ground to recover. Even afterThursday’s surge, its shares are 22% lower than its all-time high of $383.45reached in June 2017. Since then, the shares have gotten battered on a slew offlubs by Musk, including his misleading tweet in August 2018 that he had“funding secured” to take the company private.

AfterApple, Tesla is the second-most shorted stock in the US, with about $8.3billion — or 20% — of its shares shorted by investors, according to S3.

Nevertheless,that percentage is down from 24 percent in June and a whopping 60% in 2012.

7. Three Largest Crypto Currencies Charts.

The Three Largest Cryptocurrencies

8. Households making over $50k/year:

9. World Series Game 2 Falls to All-Time Low TV Audience

After narrowly avoiding rockbottom in Game 1, Fox wasn’t as lucky with Wednesday blowout

Tim Baysinger | October 24, 2019 @ 1:31 PM Last Updated: October 24, 2019 @ 1:57 PM

Elsa/Getty Images

Foxnarrowly avoided setting the wrong kind of record for Game 1 of the 2019 WorldSeries between the Washington Nationals and Houston Astros. The network wasn’tas lucky for Game 2.

Wednesday night’s game, in whichthe Nationals soundly won 12-3 to take a 2-0 lead, drew 11.93 million viewers,the smallest audience ever for a Game 2. That was down 3% from the previousrecord set in 2012 (12.34 million), when the San Francisco Giants swept awaythe Detroit Tigers to win their second title in three years. Fox avoided thesame distinction for Game 1 on Tuesday by just 3,000viewers.

In theadults 18-49 demo, Game 2 drew a 2.9 rating, which was down 6% from Tuesday’sGame 1. In total viewers, Fox shed 2% of its Game 1 audience.

Factoringin streaming platforms, Fox added another 480,000 viewers to bring that totalto 12.41 million. In the Washington, D.C. market, Game 2 was the highest-ratedMLB telecast since the 2001 World Series.

Wednesday’sgame looked like it would come down to the wire, being knotted at 2-2 throughthe first six innings. Then the Nationals’ bats exploded against the Astros’bullpen, scoring 10 runs in the last three innings. But now Fox is looking atthe ratings-unfriendly possibility of an upset sweep by the Nats.

The series takes a break Thursday— Fox has the “Thursday Night Football” game between the Washington Redskinsand the Minnesota Vikings tonight — before picking up back Friday, when thenation’s capital will play host to its first World Series game since 1933. Thatwill also push “Friday Night SmackDown” to cable network Fox Sports 1.

10. The Hidden Costs of Stress on Your Memory

New research shows how the experience of stress can erode your memory.

Whenyou’re stressed, it can be difficult to focus on the task athand. All you can think about is how far behind you are in your work, howpoorly your relationship is going, or whether you’ll be able to pay yourutility bill or not. You spend your days preoccupied with the feeling of beingoverwhelmed by the challenges that face you. Stress begets stress as yourinability to concentrate means that you’re more likely to make mistakes,further worsening the actual situation in which you find yourself. 

Theoriesof stress and coping emphasize the cognitive components of the negativeemotions that can stymie you in overcoming the challenges you face. Stress, inthis view, is in the mind of the beholder. It’s that belief in your inability to conquer challenges thatleads to the negative emotions of anxiety and worry. If you can perceive thethreatening situation as a challenge (“I’ll be able to pay that bill by cutting expenses elsewhere”) then the stress willdissipate and positive emotions will replace it.

All ofthis takes a great deal of mental effort, which theoretically can detract fromyour ability to perform cognitively challenging tasks. However, according toUniversity of Greifswald (Germany) psychologist Janine Wirker and colleagues(2019), there may be ways in which your memory can actually be enhanced intasks that tap your ability to recall emotionally-arousing stimuli.Frightening events trigger a rise in the activity of the amygdala,the fear-sensing part of the brain. The amygdala, Wirker andco-authors note, is “the center of a widespread salience network”—meaning thatonce fired up, it promotes “hypervigilance towards potentially threateningstimuli” (p. 93). Your increased attention to these emotionally arousing eventsleads to enhanced memory in the all-important encoding stage that registers newinformation.

If,perhaps, acute stress helps your memory for emotionally arousing stimuli, whathappens when the stress is constant? You might notice, and therefore remember,emotionally jolting events, but can your preoccupation with the problems inyour life drain your mental resources for the ordinary details required forperforming more mundane everyday tasks?

Wirker etal. note that the findings are not clear-cut with regard to the effects ofchronic stress on memory in humans. Lab studies with rats clearly show thatthere are detrimental long-term effects of being placed underexperimentally-induced chronic stress. These effects include actualdegeneration of neurons in the brain region responsible for memory and a slowerrate of recovery from that damage. Researchers who study stress and long-term memory in humans assume thatthere are similar effects, but as Wirker et al. note, the results are less consistent.

Ratherthan induce chronic stress in their human participants, the German researchersmeasured levels of existing stress by examining the amount of cortisol inthe hair, a hormone that lodges in your follicles,registering exposure to stress over the past six months. Wirker andher colleagues then exposed their participants to photographs found in previousresearch to evoke strong emotional reactions. The positively arousing picturesincluded erotic couples and adventure; negatively arousing photos showed scenesinvolving attack and mutilation. As control, other photos of a neutralemotional quality included images of nature and objects.

The authorspredicted that participants with high levels of cortisol in their hair would bemore likely to attend to the emotionally-laden pictures due to their heightenedstate of alertness to any potential threats. The sample consisted of 20 healthywomen with an average age of 21, screened for history of psychologicaldisorders, current or chronic medical conditions, and familiarity with theactual stimulus materials. In addition to testing their memory for thepictures, the research team also took electrophysiological measurementsconsisting of what is called a “late positive potential (LPP),” which providesan indication of attentiveness and is tied to functioning of thatfear-sensing amygdala.

Inevaluating memory, the authors used a measure of recognition memory, in whichparticipants stated whether they had seen the photograph or not (i.e.“Yes-No”). Recognition memory tests offer the distinct advantage for this typeof study by providing researchers with an indication of whetherparticipants are trying to improve their scores with “false alarm” responses inwhich they hedge their bets on getting the answer right by saying “yes” evenwhen a stimulus was not actually shown to them. This rate, when compared withthe “hit” rate (a “yes” response to an actual stimulus) allows researchers totest memory accuracy, or ability to discriminate the photos in the actualstimulus set. You can imagine that people primed to over-react toemotion-arousing pictures would probably have a high false alarm rate becausethey are just not that good at attending to details when their internal stresssignals become triggered.

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As theauthors expected, those with high cortisol levels were especially likely toshow greater LPP’s, hence brain activation, when confronted with emotionalstimuli compared to neutral controls. Thus, people under chronic stress becomehypervigilant to any new stimulus that has emotional significance.

You canprobably relate to this experience if you’ve ever felt particularly stressedfor a period of time and have become chronically edgy. You’re sitting outsidein the fresh air trying to relax and get your mind off of work. All of asudden, you catch sight of a car going down the street at what you think is anexcessive rate of speed. You feel your blood pressure rise as you worry thatthe car is going to hit a pedestrian. As it turns out, the car just goes by,but you remain quite rattled.

Turningnow to memory, you might think that the heightened attention the stressedparticipants paid to emotional stimuli would actually help them solidifytheir memory for the stimuli they saw in the lab. However, supporting animalmodels of stress and memory, the participants with higher stress levelsperformed less accurately when tested on emotional stimuli. They also hadhigher false alarm rates.

Thus,people under chronic stress may pay undue attention to new stimuli but thenbecome primed to believe they saw images that were never presented to them. Theanxiety that can accompany these constant shocks to the system couldcontribute, as the authors suggest, to the development of thestress-related psychological disorders involving alterations in mood andanxiety as well as to poorer memory overall.

To sumup, the German study shows the value of recognizing the potential forconstantly high stress levels to impair not only your mental health but alsoyour ability to function cognitively in the world. Working that cortisol out ofyour hair as well as your body’s inner functioning can help you retain bothyour memory and your peace of mind.