Topley’s Top 10 – November 4, 2021

1.Shiller P/E Ratio Update.

Irrational exuberance

Answering that question is a bit like answering how long is a piece of string. Just limiting the question to US stock markets helps to narrow the focus, as does getting some help from Nobel laureate Robert Shiller.

Shiller is the creator of the Cyclically-Adjusted Price-to-Earnings Ratio (CAPE).

A simple price-to-earnings ratio compares how much one share costs with how much it earns. A share that costs $100, and earns $5 a year, has a P/E of 20x. It’s a rough but simple way to compare valuations between different companies, or history.

Shiller took that simple metric and… made it more complicated (but also probably better). Instead of just looking at one year of earnings, Shiller compares the price with the average from the last 10 years (adjusted for inflation). Doing that helps to smooth things out, as any company can have one good or bad year.

Lucky for us, Shiller has been calculating this CAPE ratio for the US stock market as a whole, for decades and decades.

So where are we now?

The latest CAPE ratio for the S&P 500 Index is 38x. That’s pretty close to the all-time record, which was 44x back in 2000. For those with a short memory, that was just before the dotcom bubble burst and markets (particularly tech) crashed hard.

www.chartr.com

2.ARKK ETF Update…Still $30 Below Highs.

ARKK had a +10% week but still well below highs.

www.stockcharts.com

3.Apple’s 8 Years of Buybacks=Greater than Market Cap of 490 S&P Companies

Charlie Bilello

Apple has bought back $435 billion in stock over the past 8 years, which is greater than the market cap of 490 companies in the S&P 500.

4.DeFi — the ‘Wild West’ of crypto — is next on regulators’ hit list

Ryan Browne@RYAN_BROWNE_

KEY POINTS

  • After a crackdown on Binance and other cryptocurrency firms, regulators are now turning attention to the world of decentralized finance.
  • Decentralized finance, or “DeFi,” lets users take part in traditional financial activities like lending but with no middle men involved.
  • Regulators are concerned about DeFi services marketing themselves as decentralized when that may not be the case.

The fast-growing decentralized finance industry could be about to get a rude awakening.

Decentralized finance, or “DeFi” as it’s commonly referred to, is a trend in cryptocurrencies that first started gaining traction in 2020.

It’s been called the “Wild West” of crypto — hoards of computer programmers trying to bring traditional financial products such as loans to the blockchain.

The idea sounds promising. In theory, anyone could lend and borrow digital money at competitive interest rates, with no middle men involved. Investors are lured by the promise of earning up to double-digit percentage yields on savings in certain digital tokens.

But with major hacks and scams plaguing the space this year, regulators are becoming increasingly worried about the risk of crime as well as harm to consumers.

“I think they’re going to pay more attention to the space,” Sid Powell, co-founder of DeFi lending platform Maple Finance, told CNBC.

Almost $90 billion has been deposited into Ethereum-based DeFi protocols so far, according to data from The Block.

“It’s probably inconceivable that you have meaningful growth of DeFi which does not need to complement existing regulation in future,” Powell said.

https://www.cnbc.com/2021/11/04/defi-the-wild-west-of-crypto-is-set-to-face-regulatory-crackdown.html

5.Where the Dow Would Be Without Change in Components Since 1997

Fascinating look at where Dow would be if the components hadn’t changed since 1997. (-65%) Chart:

@EconguyRosie

https://twitter.com/cullenroche

6.Update on Mortgage Rates.

30 Year Fixed Rates

15 Year Mortgage Rates

7.History of American Home Equity Loans….No Big Spike with Drop in Rates

Mark Riepe

8.We are Short Units in All Housing

There is not enough housing for sale or rent in communities across the country

From Barry Ritholtz The Big Picture Blog https://ritholtz.com/2021/11/10-tuesday-am-reads-355/

9.Government Debt 1965-2021

Ben Carlson A Wealth of Common Sense…It’s also interesting to see how government debt has evolved over time. Brian Riedl put together a bunch of charts that show the main reason for higher government debt and it may surprise you.

Mandatory vs. discretionary spending is vastly different than it was back in the 1960s:

There’s a reason for this.

The baby boomers are the biggest generation of all-time to live as long as they are. When Social Security and Medicare were first introduced no one really planned on those programs taking care of 70+ million people for multiple decades.

Now look at how these programs are taking up a bigger piece of the pie over time:

The United States Has Been Going Broke For Decadesby Ben Carlson

https://awealthofcommonsense.com/2021/10/the-united-states-has-been-going-broke-for-decades/

10.Dark Personality Factors

Arash Emamzadeh-Psychology Today

What’s at the Root of Narcissism and Other Dark Traits

The Dark Factor of Personality (D) seems to be at the heart of dark personalities and socially offensive psychopathology.

What these unpleasant traits and dark personalities appear to have in common include the following:

  1. Overvaluing oneself.
  2. Devaluing others.
  3. Subjective justifications for the above.

https://www.psychologytoday.com/us/blog/finding-new-home/202106/whats-the-root-narcissism-and-other-dark-traits?collection=1168095

 

Topley’s Top 10 – November 2, 2021

1.Rates Move Higher Globally.

Two Year Government Bond Charts-from Dave Lutz at Jones Trading

2.Short-Term Technicals

3.But Next 2 Months Favor Bulls

Ryan Detrick LPL-When the S&P 500 is up >20% for the yr heading in November did you know that stocks have never been lower in Nov or the final two months? 8 for 8 higher in Nov, up 3.7% vs. avg Nov up 1.7%. Final 2 months up 6.2% on avg vs. avg year up 3.2%.

https://twitter.com/RyanDetrick

4.Capitalism vs. Communism Part II –Stoxx 600 Europe Trailing S&P 500 by a Whopping 1300 Percentage Points Since Launch

Holger Zschaepitz-Just to put things into perspective: The Stoxx 600 may have marked a record today. But Europe’s benchmark index has lagged the US’s S&P 500 index by a whopping 1300 percentage points since the Stoxx 600 was launched in 1987.

https://twitter.com/Schuldensuehner

5.Wage Inflation Not Transitory

Reuters-Aspects of the job market, particularly the labor force participation rate, are unlikely to have recovered to pre-pandemic levels, and would seemingly still be short of the “maximum employment” the Fed has promised to restore before raising interest rates. But at that point, the Goldman team wrote, Fed officials would “conclude that most if not all of the remaining weakness in labor force participation is structural or voluntary,” and proceed with rate hikes to be sure inflation remains controlled.

Inflation, wage data, challenge Fed ‘transitory’ narrativeBy Howard Schneider

https://www.reuters.com/business/inflation-wage-data-challenge-fed-transitory-narrative-2021-11-01/

6.Price Index for Trucking Transportation into the Holidays.

7.Old Fashion Ha Freight Delivery Beating Space Travel 2021..S&P Kensho Space Index vs. S&P 500® Air Freight & Logistics Index

Richard Bernstein-Just as investors ignored the opportunities in the energy sector during the Technology Bubble, today’s investors continue to flood space-related companies with capital regardless of the significant need for capital in boring earth-bound logistical infrastructure. As the basic rules of investment suggest, too much capital is indeed hindering returns. Despite all the hoopla about Star Trek-like ventures into space, earth-bound logistics companies have been significantly outperforming space stocks during the recovery from the pandemic (See Chart 4).

Source: Bloomberg Finance L.P. For Index descriptors, see “Index Descriptions” at end of document.

https://www.advisorperspectives.com/commentaries/2021/10/30/a-world-of-opportunity-1

8. 80% of Venture Marked Up or Exited Last Quarter….Another Record

The State of Venture Capital-by Michael Batnick
The U.S. public stock market closed at an all-time high in October. Private markets are enjoying the same up only type of activity.

In a new report from AngelList, they shared that:

In 4Q20, 80% of startups that changed valuations were marked up or had a positive exit—a new record for startups on AngelList at the time. That record was broken in 1Q21 (85%) and then again in 2Q21 (90%).3Q21 fell just short of setting a new record for positive activity. Instead, it’ll be the second-best quarter ever for early-stage venture (Series A or prior): roughly 87% of events that happened to startups in the AngelList portfolio in 3Q21 were positive ones (i.e., markups and positive exits)

Private companies are growing bigger, faster, and stronger. The median pre-seed round is $8 million. Series B valuations are up 31% to $375 million. For context, and I know this a million years ago, but when Amazon went public in 1997, they were valued at $438 million.

The fastest-growing area in private markets are crypto and blockchain companies. Interestingly, one of the biggest players in the space is not a traditional venture capital fund. It’s a corporation, Coinbase. In Q3, they made a record 49 investments, averaging a new deal every 1.8 days.

On AngelList, blockchain/crypto investments made up 5% of all deals but garnered 16.6% of all deployed capital.

https://theirrelevantinvestor.com/2021/10/30/the-state-of-venture-capital/

9.Fortress Technologies Buys 4,500 Bitcoin Mining Machines From Bitmain

The purchase will more than triple Fortress’ hashrate.

By Jamie Crawley

Crypto mining machines (Shutterstock)

Bitcoin mining company Fortress Technologies has ordered 4,500 Bitmain Antminer S19j Pro machines as it seeks to capture a greater share of mining revenue.

  • The purchase will more than triple Fortress’ hashrate from 195 petahash per second to 645 PH/s, the company announced Monday. A petahash is a measure of computational power.
  • The machines are scheduled for delivery in monthly instalments from April to September 2022.
  • Financial terms weren’t disclosed, and Fortress didn’t immediately respond to CoinDesk’s request for details.
  • The purchase follows two weeks after Fortress bought 180 Whatsminers M30S machines, which are expected to be installed by the middle of this month.
  • Fortress, which is listed on the Toronto Venture Exchange (TSX-V: FORT), underwent a shake-up of its leadership team in September following the departure of CEO Aydin Kilic, who joined publicly traded crypto mining firm Hive Blockchain as president and chief operations officer.
  • At the time, Fortress named Antonin Scalia CEO and Drew Armstrong chief operating officer. Both executives came from Galaxy Digital.

Read more: Hive Blockchain Orders Another 6,500 Bitcoin Mining Machines From Canaan

https://www.coindesk.com/business/2021/11/01/fortress-purchases-4500-bitcoin-mining-machines-from-bitmain/

10.Carli Lloyd 5 Rules