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- Topley’s Top Ten – September 23, 2019
Topley’s Top Ten – September 23, 2019
Matt Topley
September 23, 2019
1.Bespoke’s S&P 500 Sector Weightings—
Energy 2019 Less Than 5%
Fri, Sep 20, 2019
S&P 500 sector weightings are important tomonitor. Over the years when weightings have gotten extremely lopsidedfor one or two sectors, it hasn’t ended well. Below is a table showingS&P 500 sector weightings from the mid-1990s through 2016. In theearly 1990s before the Dot Com bubble, the US economy was much more evenlyweighted between manufacturing sectors and service sectors. Sectorweightings were bunched together between 6% and 14% across the board. In1990, Tech was tied for the smallest sector of the market at 6.3%, whileIndustrials was the largest at 14.7%. The spread between the largest andsmallest sectors back then was just over 8 percentage points.The Dot Com bubble completely blew up the balanced economy, and looking backyou can clearly see how lopsided things had become. Once the Tech bubbleburst, it was the Financial sector that began its charge towardsdominance. The Financial sector’s sole purpose is to service the economy,so in our view you never want to see the Financial sector make up the largestportion of the economy. That was the case from 2002 to 2007, though, andwe all know how that ended.Unfortunately we’ve begun to see sector weightings get extremely out ofwhack once again.
2.Total Global Oil Production-Millions of Barrels Per Day
Energy makes up less than 5% of the S&P 500 index’s market cap, the lowest level in at least 40 years.
What the Saudi Attacks Mean forEnergy Investors By Avi Salzman
3.Why the Saudi Attack Did Not Put Markets in Chaos?
Netted out across the US, imports and exports of crude oil andpetroleum products are now nearly in balance. Net imports (imports minusexports) of crude oil and petroleum products in June were down to merely506,000 bpd. The US is on track to become a net exporter in 2020:
Drama in the Oil Markets, But This Isn’t 2007 Anymore
by Wolf Richter • Sep 16,2019 • 167 Comments • Email to a friend
How the US shale boom changed the equation. If the attack onSaudi oil facilities had occurred in 2007, it would have caused chaos in the USeconomy.
Full Read
4.Low Carbon Target ETFs.
LOWC-MSCI Low Carbon Target ETF
Seeks to offer reduced exposure to carbon emissions andfossil fuel reserves and full market participation for investors conscious ofcarbon as a risk premia
LOWC’s Index reweights the securities in the MSCI ACWIIndex to favor companies with lower carbon emissions and fossil fuel reserveswithin a tracking error target constraint of 30 basis points relative to theMSCI ACWI Index
This index includes large and mid-cap stocks acrossdeveloped and emerging market countries
1500 Holdings
CRBN-MSCI Low Carbon Target ETF
1200 holdings
5.Biotech Huge Underperformer for 5 Years.
IBB Biotech ETF +14.5% VS. S&P 50% -5 year chart
6.Update Two Interest Rate Sensitive Sectors.
Ed Yardeni in Barrons
Two interest-rate-sensitive and defensive sectors have seentheir forward P/Es increase sharply. The S&P 500 Real Estate sector’sP/E, at 43.9, is 5.1 points higher than it was this time last year, and theS&P 500’s Utilities sector’s forward P/E is almost 3.0 points higher at19.6—a record high dating back nearly 25 years.
REITS 44x forward earnings
Utilities forward P/E 25 year high
7.Structural Bull Market History for Dow.
Nasdaq Dorsey Wright.
A long-term perspective ofthe Dow Jones Industrial Average DJIA since 1896 reveals the realitythat there are extended periods of time in which the US equity market willtrend generally upwards and also long periods of time where the marketwill instead stagnate or move generally lower. There have been nine such alternatingcycles completed since 1896, with each averaging 14 years.
8.Six in 10 Americans expect a recession and higher prices
Source: Washington Post
Found at Barry Ritholtz Blog
9.Will America’s massive debt really doom us?
Ken Fisher, Special to USA TODAYPublished7:03 a.m. ET Sept. 22, 2019
The U.S.national debt and deficit have become buzzwords for the 2020 election. Butwhat’s the difference? Just the FAQs, USA TODAY
America’s massive debt will doomus. That’s common wisdom, but wrong.
In Manhattan, a giant clockdisplays not only the total — almost $23 trillion for now — but yourshare, ticking up every second. Pundits say it’s trouble. But U.S. debt fearshave lurked forever and those troubles are no closer now than decades ago. Insome ways, they’re further off.
Here’s how to seethat, using tools that show when debt truly becomes problematic.
The $23 trillion total seemsjaw-dropping, but says little about what really matters: How readily UncleSam can pay the piper.
Pundits cite our debt-to-GDPratio as evidence of a debt addiction. With $21 trillion of GDP, that ratio is103% — lower than Italy’s and Japan’s, but higher than Germany’s and Britain’s.Debt topping GDP sounds dire. But that’s misleading. The federal governmentitself owns more than a quarter of U.S. debt, money the government essentiallyowes itself. It’s an accounting entry. As an asset and a liability, iteffectively cancels out. Otherwise, net outstanding public debt is $16.7trillion— 76% of GDP. That’s still unimportant.
America’smassive debt will doom us. That’s common wisdom, but wrong. (Photo:Mike Rosiana / Getty Images)
Why? Because debt-to-GDP isapples-to-nonsense. Debt piles up year after year. GDP is an estimate ofeconomic activity in a single year, ignoring long-term assets that back acountry’s liabilities. America’s hard assets via Federal Reserve data —business equity, real estate, fixed income holdings, cash — amount to $175.3trillion, 10 times public debt. But again, that’s irrelevant.
Government solvency isn’t aboutpaying off debt. It’s about affording interest payments and rolling overmaturing bonds. Currently, annual U.S. interest payments represent just 9.8% oftax revenues, lower than any time in the 1980s and 1990s, when they peaked at18.4%. If debt didn’t doom us then, why would it now?
Naysayers often rebut thatby saying it’s all thanks to low-interest rates, which may reverse. Fairpoint. A 30-year Treasury bought 30 years ago carried 8.15% interest.Today, we can refinance at about 2%, a heckuva deal. Plus,10-year debt ischeaper too. But rates only matter to the government’s finances at issuance.Since America’s debt averages about six years in maturity, short-term ratewiggles don’t create danger.
\For debt to become a problem,Uncle Sam must spend like a drunken sailor for decades (which he may). Orinterest rates must skyrocket and stay there, with the country’s interestpayments ballooning and investors demanding more return for more risk. Do yousee any signs of that now? Maybe someday. But not any time soon.
Pockets of debt trouble do existaround the world. To see them, look to markets. Compare low-default-riskTreasury rates to similar-maturity rates from other issuers — it’s called acredit spread. For example, South Africa and Turkey are both sufferingsignificant debt pressure. How do you know? America can borrow for 10years at 1.62%. Investors demand 8.82% to lend to South Africa. Turkish ratesare 15.18%.
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Use that same approach to assesscorporate debt. Corporate America doesn’t have a debt problem, despite frequentfears that hinge on its debt total alone. Overall corporate spreads havedeclined this year. To be sure, oil price pressures have squeezed thetiniest U.S. shale-oil drillers. Bonds of less-creditworthy drillers now yield10.3%, up from 7.4% a year ago. That rise — while rates overall plunged —signals trouble. No shock: Driller defaults are climbing.
But while problems with debtdarken isolated patches, debt doom doesn’t loom over America.
Ken Fisher is founder and executivechairman of Fisher Investments, author of 11 books, four of which were New YorkTimes bestsellers, and is No. 200 on the Forbes 400 list of richest Americans.Follow him on Twitter: @KennethLFisher
The viewsand opinions expressed in thiscolumn are the author’s and do not necessarily reflect those of USA TODAY.
10.Why Asking for Advice Is More Effective Than Asking for Feedback
JORG GREUEL/GETTY IMAGES
You just gave a great first pitch to a major client and landedan invitation to pitch to their senior leaders. Now you want a second opinionon your presentation to see if there’s anything you can improve. What do youdo?
Conventional wisdom says you should ask your colleagues forfeedback. However, research suggests that feedback often hasno (or even a negative) impact on our performance. This is because the feedbackwe receive is often too vague — it fails to highlight what we can improve on or how to improve.
Our latest research suggests a better approach.Across four experiments — including a field experiment conducted in anexecutive education classroom — we found that people received more effectiveinput when they asked for advice rather than feedback.
In one study, we asked 200 people to offer input on a jobapplication letter for a tutoring position, written by one of their peers. Somepeople were asked to provide this input in the form of “feedback,” while otherswere asked to provide “advice.” Those who provided feedback tended to givevague, generally praising comments. For example, one reviewer who was asked togive feedback made the following comment: “This person seems to meet quite afew of the requirements. They have experience with kids, and the proper skillsto teach someone else. Overall, they seem like a reasonable applicant.”
However, when asked to give advice on the same applicationletter, people offered more critical and actionable input. One reviewer notedmore specific action items: “I would add in your previous experience tutoring orsimilar interactions with children. Describe your tutoring style and why youchose it. Add what your ultimate end goal would be for an average 7 year old.”
In fact, compared to those asked to give feedback, those askedto provide “advice” suggested 34% more areas of improvement and 56% more waysto improve.
In another study, we asked 194 full-time employees in the U.S.to describe a colleague’s performance on a recent work task. These tasks rangedfrom “putting labels on items” to “creating new marketing strategies.” Then, weasked employees to give feedback or advice on the work performance they justdescribed. Once again, those who were asked to provide feedback gave lesscritical and actionable input (e.g. one wrote, “They gave a very goodperformance without any complaints related to his work”) than those asked toprovide advice (e.g. one wrote, “In the future, I suggest checking in with ourexecutive officers more frequently. During the event, please walk around, andbe present to make sure people see you”).
We further replicated these findings in a field experiment usinginstructor evaluations. In an end-of-course evaluation, we asked 70+ executiveeducation students from around the world to provide either feedback or adviceto their instructors. Again, advice more frequently contained detailedexplanations of what worked and what didn’t, such as: “I loved the cases. But Iwould have preferred concentrating more time on learning specific tools thatwould help improve the negotiation skills of the participants.” Feedback, incontrast, often included generalities, such as “This faculty’s content andstyle of teaching was very good.”
Why is asking for advice more effective than asking forfeedback? As it turns out, feedback is often associated with evaluation. Atschool, we receive feedback with letter grades. When we enter the workforce, wereceive feedback with our performance evaluations. Because of this link betweenfeedback and evaluation, when people are asked to provide feedback, they oftenfocus on judging others’ performance; they think more about how othersperformed in the past. This makes it harder to imagine someone’s future andpossibly better performance. As a result, feedback givers end up providing lesscritical and actionable input.
In contrast, when asked to provide advice, people focus less onevaluation and more on possible future actions. Whereas the past isunchangeable, the future is full of possibilities. So, if you ask someone foradvice, they will be more likely to think forward to future opportunities toimprove rather than backwards to the things you have done, which you can nolonger change.
To document this effect, we ran another study that was verysimilar to our first. In this experiment, we again asked hundreds of people toprovide feedback or advice on a peer’s job application. But this time, we alsoasked feedback providers to shift their focus toward “developing the writer.” Whenremoved from an evaluation mindset, by focusing more on developing therecipient, feedback providers were just as critical and actionable in theirinput as advice providers.
Is asking for feedback always a worse strategy than asking foradvice? Not necessarily.
Sometimes soliciting feedback may be more beneficial. People who are novices in their field typically findcritical and specific input less motivating — in part becausethey don’t feel like they have the basic skills necessary to improve. So fornovices, it might be better to ask for feedback, rather than advice, to receiveless demotivating criticism and more high-level encouragement.
Organizations are full of opportunities to learn from peers,colleagues, and clients. Despite its prevalence, asking for feedback is oftenan ineffective strategy for promoting growth and learning. Our work suggeststhis is because when givers focus too much on evaluating past actions, theyfail to provide tangible recommendations for future ones. How can we overcomethis barrier? By asking our peers, clients, colleagues, and bosses for advice instead.
Jaewon Yoon is a PhD student in theorganization behavior program at Harvard Business School. Her research focuseson time communication and feedback exch
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