Topley’s Top Ten – October 8, 2019

Author

Matt Topley
October 08, 2019

1. For What It’s Worth – These 2 will Not Cause the End of the Bull Market-Quarterly Letter

The U.S. Political Landscapeis Leading Concern Among Investors – SCHWAB

THE U.S POLITICAL LANDSCAPE ISOVERWHELMINGLY THE LEADING CONCERN ABOUT INVESTING AMONG CLIENTS.

The paranoia aroundpresidential elections is hitting record levels, we better stop and listen towhat’s going down.  We spend a big portion of our life listening tostorytelling.  As kids, parents and teachers tell us stories.  Asadults the news media is about storytelling, investing is about storytelling,and nothing paints a better story than politics.  I may be early with thisletter as the presidential election is more than a year away but it’s possiblyshaping up to be the ultimate scary story for investors.

As I write this letter, it isincreasingly looking like a Trump vs. Warren election and a Trump impeachmentinvestigation, which may be the ultimate binary event for Americanvoters.  Never in history has an election been so important except forevery other election in history.  Most of my conservative friends thoughtthe world would end if Obama got elected and most of my liberal friends thoughtthe world would end if Trump got elected.

If you made either of thoseinvesting bets based on politics, your wallet is probably lighter.  Thechart below shows that Obama obviously did a better job with the economy. Actually this would be a false assumption, as Obama took office when theS&P was trading at generational low valuations.  The single bestpredictor of future returns is where valuations are today, the next President willnot have the luxury of beginning his or her term with low valuations.

CLICKBELOW TO READ FULL QUARTERLY LETTER

2.Another Way to View Growth Vs. Value Spreads in Valuations….Valuation Discount to Mean.

Callum Thomas Top Dow Charts

3.Comparing U.S. Sector Returns to Europe.

Capital Group Data

4.Wage Growth Slips.

Labor Market ChugsAlong

Postedby lplresearch

Economic BlogOctober 04, 2019

TheU.S. labor market keeps chugging along, despite signs of weakness in otherpockets of the U.S. economy.

Nonfarmpayrolls rose 136,000 in September, and July and August payrolls growth wererevised up by 45,000. The 12-month average payrolls change climbed to 179,000including Friday’s data, still slightly higher than the expansion average.

Overall,the September jobs report showed hiring has been steady, defying recent worriesof economic weakness after surprisingly weak manufacturing and services surveyswere released earlier this week. Other labor-market measures also look healthy.The unemployment rate fell to 3.5% in September, a new cycle low, and initialjobless claims are still subdued.

Wagegrowth slowed notably last month, though, hinting that inflationary pressurescould be moderating. As shown in the LPL Chart of the Day, average hourlyearnings growth fell to 2.9% year over year, the slowest pace since July 2018.

5.First Sign of Peak Jobs?  Job Openings Rolling Over.

There was no movement in average hourlyearnings (AHE) relative to the prior month; while the year-over-year growthrate slowed from 3.2% to 2.9%. The weakness was concentrated in managers’ pay;while production/non-supervisory wages, although softer for the month, are up3.5% year-over-year. Wages historically follow corporate earnings, with about aone-year lag; so the significant deterioration in profits growth this yearsuggests further downward pressure on wages. Indeed, although still high inabsolute terms, job openings have rolled over.

In sum

Employmentreleases are generally the most influential economic indicators foreconomists—and the stock market—as they guide expectations for consumerspending, consumer confidence, inflation, and income growth. But they havetaken on even greater importance lately for two reasons: 

  1. To gauge whether the weakness in manufacturing is beginning to bleed into the services/consumer segments of the economy.

  2. The Fed has moved from a predetermined path for interest rates to a data dependent path, with “full employment” representing half of the Fed’s dual mandate (the other being “price stability”).

Welcome to the Working Week: A Look at the State(s) of Employment

6.Hong Kong Citizens Turn to Bitcoin Amid Political Turmoil

Originally posted October 7, 2019 on Early Investing

Hong Kongis in the middle of a political crisis. Millions of citizens have beenprotesting since June, sparked by an extradition bill that would have allowedfor criminal suspects in Hong Kong to be extradited to mainland China.Opponents argued that the bill would put Hong Kong citizens at risk of unfairand violent treatment by Chinese officials. And they worried the bill wouldgive China greater control over Hong Kong, which China has wanted for a long time.

7. Vanguard is looking to break banks’ stronghold on the $6 trillion currency market with a new blockchain platform

20hours ago

Vanguard Group, the investment advisor with assets undermanagement (AUM) in excess of $5 trillion and the largest provider of mutualfunds in the world, is testing a new currency trading platform, reports Bloombergciting a person familiar with the matter. Based on blockchain technology, thepeer-to-peer (P2P) platform will enable asset managers to trade currencies withone another directly, bypassing the need for investment banks.

Business Insider Intelligence

  • -The FX platform would mark one of the most significantdeployments of blockchain in financial services. Amid considerable hype aroundblockchain’s potential to upend existing processes across the financialservices value chain, major players have invested billions on the technology.Yet, despite those investments, firms have struggled by and large to move theirearly experiments to large-scale enterprise operations. If Vanguard cansuccessfully navigate some of the challenges that have stymied this promise —from scalability to interoperability — it would act as a litmus test for thewider industry’s stumbling blockchain ambitions.

  • -And while success isn’t guaranteed, Vanguard’s pioneeringlegacy gives it a considerable advantage. The company has been a majordriver of change within the investment space since it launched in 1975. Andit’s continued this streak in recent years: For instance, while a number ofbanks have struggled to takeadvantage of the hype around robo advisors, Vanguard’s bucked that trendsignificantly. As of this year, the $115 billion AUM it’s amassed via its roboplatform makes it the largest robo advisor, per Robo-Advisorpro. This ability to leverage emerging technology and trends within theindustry to increase its share of the market makes Vanguard’s efforts to upendcurrency trading markets a serious threat to incumbent banks.

8.Blackstone CEO Stephen Schwarzman: Even billionaires have problems

The chief executive of the world’s largest private equitycompany on Trump, bubbles and whether he is on a farewell tour

 Danilo Agutoli

ByChris Newlands and  Selin Bucak

Even billionaires have problems that money cannot solve. Today,Stephen Schwarzman’s is traffic.

The chairman, chiefexecutive and co-founder of Blackstone arrives 15 minutes late for our meetingat the private equity giant’s London headquarters in Mayfair.

“So many cars on the road,” saysthe 72-year-old, whose personal wealth is north of $18bn, according to Forbes.“It’s a real problem, sorry.”

Schwarzman, who set up Blackstone with Peter Peterson, theformer chairman of now-defunct US bank Lehman Brothers, is in town to promotehis new book What It Takes: Lessons in the Pursuit of Excellence.

One of the lessons cited inthe book — essentially a how-to guide to being rich and successful — ispunctuality. Page 55 reads: “Be on time. Punctuality is the first indicator ofhow much thought and preparation you have put into an interview.”

Schwarzman apologises again,adding: “Have you read the book?”

Lots of people have.The great and the good have lined up to provide endorsements,including Jack Welch, the former chief executive of General Electric; RayDalio, the co-chairman of investment company Bridgewater Associates; andHenry Kissinger, the former US secretary of state.

Even Mark Carney, thegovernor of the Bank of England, has taken the time to provide a quote for thefront cover (“This story literally has what it takes”) — a striking movefor the head of an independent British institution, which further illustratesSchwarzman’s pull.

“Mark told me he has neverever endorsed a book in his career,” says the American businessman, who hailsfrom Philadelphia. “I have known him for some time. I sent him the book and hesaid: ‘This is terrific, I’m very happy to say what I think.’ You saw what hewrote. I was very happy about that.”

Schwarzman is used torubbing shoulders with the most influential people in politics and finance.After Donald Trump was elected president in 2016, Schwarzman became head of hisshort-lived advisory council, which included Larry Fink, the chiefexecutive of BlackRock, and Jamie Dimon, the chairman of JPMorgan. The groupwas disbanded in 2017 in the wake of the president’s controversial remarksabout a white supremacist rally in Charlottesville, Virginia.

Reports suggest Schwarzman’srelationship with Trump, who he has known for more than 40 years, has becomefrayed. Schwarzman had to distance himself last week from comments made bythe president about the son of former vice-president Joe Biden. Trump is facingan impeachment inquiry after urging Ukraine to investigate a family member ofthe veteran Democrat, who is running for president.

Would Schwarzman like to seeTrump get another term in the White House? “It isn’t relevant what Ithink,” he says, sidestepping the question. “We have now, much like you in theUK, real divided politics. It looks today, on the Democratic side, that we haveJoe Biden and then Elizabeth Warren and Bernie Sanders. And on the Republicanside, there is really only Donald Trump.

“Like any election outcome,it all depends on who somebody is running against. The Democrats will be runningagainst Trump, but they as a group are going further and further left. Thefurther they go left, the more difficult it will be for the Democrats to win.”

We return to safer ground:the nuts and bolts of the private equity market. Schwarzman and Petersonlaunched Blackstone in 1985 following daily breakfasts at New York’s MayfairHotel, where he and the former Lehman Brothers chief executive hashed outtheir plan to create a business that would eventually become the biggest andmost influential private equity firm in the world.

In 1987 they raised theirfirst fund at $800m. Today, Blackstone has $545bn in assets, with itsbiggest vehicle, Blackstone Capital Partners VIII, raising an eye-watering$26bn, making it the largest buyout fund ever.

“When we started the firm wehad $400,000 — $200,000 from me, $200,000 from my partner, Pete, and lastweek the company was [valued at] $60bn,” he says.

It raises the question ofwhether there is too much money sloshing around the market and whether thatcash can be put to good use. “I’ve been asked that since 1992,” he says. “Thereturns have stayed pretty good over the last 25-30 years regardless of peaksof markets and real collapses.

“When you are managing moremoney, the way historically we’ve always dealt with that is you just do biggerdeals. We have never found, despite that question over the decades, that theamount of capital per se is the issue.

“The nice thing about ourindustry is that you don’t have to invest the money for six years. If you thinkthings are high, you don’t have to play, you can wait. For those of us who havebeen doing this for most of our careers, we are used to cycles, it doesn’tbother us.”

This is not a bubblecompared with 2006/07, he adds. “That was a bubble. I said it was a bubblethen, and it was. Prices now are relatively high, but there is not that frenzythat happens, because the people who manage the capital have been through theglobal financial crisis, and once you’ve lived through that you are not anxiousfor a repeat.”

In the book Schwarzmanwrites that he does not “feel a day over 38”, the age he was when he launchedBlackstone. It is true that sitting across the table, Schwarzman has a youthfulenergy about him for a man born in 1947 but the book, which was two years inthe making, certainly has the feel of a farewell tour.

“No, not at all,” he saysflatly, and we are ushered out of the room ahead of his next meeting.

CV: Stephen Schwarzman

9.Jud Bergman and Envestnet were Way Ahead of RIA Boom.

Always one move ahead, Envestnet CEO Bergman revolutionized fintech

October 04,2019, 9:51 a.m. EDT

EnvestnetCEO Jud Bergman could hold court on any of the technological disruptionsaffecting financial planners, having co-founded the technological servicesgiant for the wealth management industry.

But few things could animate himmore than the mere mention of chess.

“I recently had the privilege ofmoderating an event panel that included Jud, and I’ll never forget someonepulling me aside and saying, ‘I’ll bet you anything Jud finds a way to talkabout the game of chess no matter what question you ask him,’” said RiskalyzeCEO Aaron Klein.

“Sure enough, it wasn’t more thanan answer or two into the panel that he started talking about how chessstrategy could teach us something about where financial services washeaded.”

Bergman, 62, and his wife, MaryMiller-Bergman, 57, were killed in a car collision in San Francisco on Oct. 3,the company said in a statement. The couple were in a taxi that was hit head-onby a Volkswagen Cabrio going the wrong way on northbound Highway 101, accordingto The Associated Press. The woman driving the other vehicle was intoxicated,the AP said.

“Today, our entire industrymourns this devastating loss. Jud’s vision and innovation forever changed theface of the financial services industry, and will continue to do so for yearsto come,” Klein said.

“Looking back, I’m not surethere’s anyone who has made quite as many chess moves in financial technologyas Jud has, and each move has driven the industry forward and elevated theprofession of financial advice.”

Envestnet’s board appointed BillCrager, president of Envestnet and chief executive of Envestnet WealthSolutions, as interim chief executive officer. It also appointed Ross Chapin,the lead independent director of Envestnet’s board, as interim chairman ofEnvestnet’s board.

“On behalf of our board ofdirectors, management team and employees, we extend our deepest sympathies toJud and Mary’s family. As Envestnet’s founder, Jud was a remarkable leader whosevision, brilliance and drive built the foundation for Envestnet’s success.”

Miller was the founder of HanoverHill Wealth Advisors in Chicago.

Under Bergman, Envestnetunderwent a remarkable trajectory of growth, from startup in 1999 to a techprovider able to repeatedly execute multimillion-dollar acquisitions, manyleading brands themselves. The stack of technology Bergman assembled has becomeso formidable some predict the company will become a custodian.

Financial planning software firmMoneyGuidePro was among the latest. Envestnet purchased the Silicon Valley dataaggregator Yodlee in 2015 for $660 million.

At the time, industry leadersquestioned the strategy behind the acquisition, says Joe Duran, CEO of UnitedCapital. Envestnet stock fell after the announcement, but Bergman was willingto endure short-term pain to improve his company and the advisors it supports,Duran says.

“He knew what advisorsneeded and was determined to shift the company to support a really completesuite of services,” he said.

Duran too recalled Bergman’s lovefor the game of strategy.

“We both play chess, but nevergot the chance to play together,” Duran says. “I suspect he would have beatenme.”

Industry leaders were stunned bythe news and many sought to convey just how much Bergman did for them on apersonal and professional level.

“I have watched him growEnvestnet from a startup to one of the leading firms in the industry,” saidJoel Bruckenstein, founder of the Technology Tools for Today conference series.

“Despite his many achievements,he always had time for others. He was extremely kind to me. He was an industryvisionary and leader. His intellect was impressive as was the breadth of his knowledge.I will miss him as an industry leader, but more importantly as a friend.”

Orion CEO Eric Clarke expressed asimilar sentiment. “Jud and I had dinner on several occasions and I always hadgreat respect for the business he built and the way that he built it,” Clarkesays. “Jud had an unprecedented ability to see things that others just didn’t.

“Envestnet is in great hands withBill [Crager], but the entire industry will miss Jud terribly,” Clarke says.

Bergman was leaving behind alegacy of leadership in technology, says Craig Iskowitz, founder and CEO offintech consultancy Ezra Group.

“How many different ways canyou say innovator or visionary? How can you explain how one person changed ourindustry in ways that we’re just coming to understand? How can you talk aboutone CEO who changed how every wealthtech firm approaches the market? There areno words.”

Many took to Twitter to sharetheir thoughts.

“This quaint, intimate communityin which we work is never more evident than times like this; when we suffer theunfortunate loss of one of our own, and this one is profound,” wrote BrianHamburger, founder of the Hamburger Law Firm and consulting firm MarketCounsel.

Earlier this year, Bergmanacknowledged in an interview with Financial Planning thathis chess analogies probably needed an update, reflecting on the challenge thatchess champion Gary Kasparov undertook when he played against IBM’s supercomputerDeep Blue.

With the technological changeshappening on multiple fronts, the best advisors were now engaging in a game of3-D chess, Bergman said.

“Experts plus machines deliverbetter outcomes than experts or machines alone,” he said. “This is a frameworkfrom which advisors, we think, ought to look at how they render advice, howthey manage portfolios and manage client relationships going forward.

“What arethe areas that computer software can do better and what are the areas that thehuman expert can do better? This is what Gary Kasparov understood and what thebest advisors understand. There are some things that humans do better thancomputers and vice versa.”

TechnologyEditor , American Banker and Financial Planning 

10.6 Things You Must Quit Doing Now If You Want to Be More Successful

Persistence pays off,but so does knowing when to quit. These habits are holding you back.

By Travis BradberryAuthor,Emotional Intelligence 2.0@talentsmarteq

GETTYIMAGES

Mostof us grew up hearing the mantra “Don’t be a quitter,” and we’veinternalized it to the point where we feel guilty if we don’t finish a bookthat’s boring us to death. Our parents weren’t entirely wrong in sayingthat persistence is necessary for success, butsometimes quitting is the most effective course of action. Whether it’s afailed project, a thankless job, or a doomed relationship, quitting can be a virtue.

“Quitting is leading too.” –Nelson Mandela

Asit turns out, some of us are really good at knowing when to quit, while othershave a hard time getting “unstuck.” Research from the University ofRochester found that people are motivated by either “approach goals” or“avoidance goals.”

Thosewho fall into the approach camp are motivated by challenges and don’t wastetime trying to solve problems that simply don’t have a feasible solution. Inother words, they know when to quit.

Peoplemotivated by avoidance goals, however, worry a lot more about failing. Theywant to avoid failure at all costs, so they keep plugging away at things, longafter logic suggests it’s time to move on. This is typically a much lessproductive way to work.

Knowingwhen to quit is a skill that can be learned. If you tend to be stuck on thingslong after it’s obvious that what you’re doing isn’t working, you can trainyourself to do better. You just need to practice quitting. Thankfully, lifeprovides plenty of opportunities to do this. Here are some things we should allquit doing.

1. Quit doubting yourself. Confidence plays a huge role insuccess. Hewlett-Packard conducted an interesting study of the process throughwhich people applied for promotions at the company. Women, it turned out, onlyapplied when they met 100 percent of the criteria for the job they wanted,while men applied when they met 60 percent of the criteria. The researcherspostulated that one of the (many) reasons men dominated the upper echelons ofthe company is that they were willing to try for more positions than femaleswere. Sometimes confidence is all it takes to reach that next level. The trickis, you have to believe you can. If you doubt yourself, it won’t work. Fakingconfidence just doesn’t produce the same results.

2. Quit putting things off. Change is hard. Self-improvementis hard. Scrounging up the guts to go for what you want is hard, and so is thework to make it happen. When things are hard, it’s always easier to decide totackle them tomorrow. The problem is that tomorrow never comes. Saying you’lldo it tomorrow is just an excuse, and it means that either you don’t reallywant to do it or you want the results without the hard work that comes alongwith it.

3. Quit thinking you have no choice. There’s alwaysa choice. Sure, sometimes it’s a choice between two things that seem equallybad, but there’s still a choice. Pretending that there isn’t one makes you avictim who is voluntarily taking on a mantle of helplessness. To play thevictim, you have to give up your power, and you can’t put a price on that. Tosucceed at the highest level, you have to quit giving your power away.

4. Quit doing the same thing over and over again and expecting adifferent result. Albert Einstein said that insanity is doing the same thingand expecting a different result. Despite his popularity and cutting insight,there are a lot of people who seem determined that two plus two will eventuallyequal five. The fact is simple: If you keep the same approach, you’ll keepgetting the same results, no matter how much you hope for the opposite. If youwant different results, you need to change your approach, even when it’spainful to do so.

5. Quit thinking everything is going to work out on its own. It’s temptingto think that it’s all going to work out in the end, but the truth is that youhave to make it work. This has many implications. Don’t expect your boss tonotice when you’re ready for a promotion, don’t expect your colleague to stopsloughing work off on you if you’re always willing to do it, and don’t thinkthat anyone is going to stop walking all over you as long as you allow it.Everything is not going to magically work out on its own; youhave to be proactive and take responsibility for yourself.

6. Quit saying yes. Every yes you utter is a tradeoff. Bysaying yes to one thing, you’re saying no to something else. Saying yes tostaying late at work, for example, might mean saying no to the gym or to timespent with your family. Research conducted at the University of California, SanFrancisco, showed that the more difficulty you have saying no, the more likelyyou are to experience stress, burnout, and even depression. Saying no is indeeda major challenge for many people. No is a powerful word thatyou should not be afraid to wield. When it’s time to say no, avoid phrases suchas I don’t think I can or I’m not certain. Sayingno to a new commitment honors your existing commitments and gives you theopportunity to successfully fulfill them. When you learn to say no, you freeyourself from unnecessary constraints and free up your time and energy for theimportant things in life.

Bringing It All Together

Thereare dozens of ways we get in the way of achieving our full potential. We doubtourselves, we decide that something is just too hard, or we tell ourselves thatwe’ll worry about it tomorrow. If you really want to succeed–and I mean reallysucceed–stop focusing so much on what you should be doing and, instead,take a really good look at the things you should quit doing.

What other things should people quit doing? Please share yourthoughts in the comments section, as I learn just as much from you as you dofrom me.