Jim Reid Deutsche Bank-So 2024 will be a big change from 2023. Clearly many elections will be relatively routine affairs, but as we saw from the Dutch election last week, there can be surprises.
The mains ones to watch are:
The US Presidential Election in November. A Trump victory, assuming he is the Republican nominee, plus a Republican sweep in Congress, could bring substantive policy changes.
The Taiwanese election in January 2024 could help shape US-China relations over the next few years.
European Parliamentary elections in June. Given the relatively high polling numbers for the far right across parts of Europe and the recent Dutch result, this election could test the capacity of the traditional mainstream parties to maintain a majority and the Commission’s ability to push further EU integration, such as with the “open strategic autonomy” agenda.
Indian elections in April/May. Political stability is behind our view that their economy will double in size out to 2030.
So stand by for the busiest political year ever.
9. Median U.S. Family Home Prices Fell a Record Amount in October
1. Goldman Sachs Financial Conditions Index Loosening.
The Goldman Sachs Financial Conditions Index is a weighted average of short-term interest rates, long-term interest rates, the trade-weighted dollar, an index of credit spreads, and the ratio of equity prices to the 10-year average of earnings per share.
@Callum Thomas (Weekly S&P500 #ChartStorm)Untightening: A big driver of the gains from the October lows has been the substantial easing of financial conditions (thanks to lower bond yields, lower oil prices, weaker USD, tighter credit spreads). In this respect there is a fundamental aspect to it, but how much further can things ease on this front?
Dave Lutz Jones Trading Amazon has grabbed the crown of biggest delivery business in the U.S., surpassing both UPS and FedEx in parcel volumes. The Seattle e-commerce giant delivered more packages to U.S. homes in 2022 than UPS, after eclipsing FedEx in 2020, and it is on track to widen the gap this year, according to internal Amazon data and people familiar with the matter, WSJ reports.
AMZN vs. UPS Chart
4. The United States is Producing the Most Crude Oil Ever…..and We are the World’s Biggest Producer by a Long-Shot
Stat: The US is now producing more crude oil than ever—13.2 million barrels per day, per the Energy Information Administration, topping the pre-Covid peak of 13.1 million. That copious amount is nearly double the volume from a decade ago and up from the ~5 million produced when Obama entered the White House, Bloomberg’s Steven Dennis points out. The US is the world’s largest oil producer by a country mile, accounting for 21% of global oil production in 2022. Saudi Arabia is in second place, at 13%. Morningbrew https://www.morningbrew.com/daily
6. Russell 3000 Biggest 2023 Winners are Still in Multi-Year Downturns
Bespoke Investment Group-The problem with some of this year’s big winners is that they’re still down significantly from highs made a couple years ago. For example, below is a list of stocks that are up more than 100% this year but still down at least 25% over the last two years. If you managed to buy these names in early 2023, congrats. If you bought them towards the end of 2021, however, you’re still not even close to getting back to even.
When it comes at the expense of being respected. According to scientist Cameron Anderson of the Haas School of Business at the University of California, Berkeley, overall happiness in life is related to how much you are respected by those around you. Nevertheless, when we sacrifice what it takes to be respected for the quicker, and often easier, win of feeling liked, we lose out on the benefits that respect yields.
Like what? Like greater enjoyment and satisfaction with their jobs, more focus and prioritization, increased sense of meaning and significance, better health and well-being, and more feelings of trust and safety, and increased engagement.
Professionals who want (and often need) to feel liked tend to:
Use information as leverage, withholding or giving it away
Give people tasks they enjoy rather than assignments that stretch and challenge them
Focus more on how people feel (in general, and about them personally) than about achieving outcomes
Professionals who recognize the importance of being respected — with or without being liked — are more inclined to:
Tell the truth, even if it’s unpopular
Explain their thinking behind the difficult decisions they make
Acknowledge the elephant in the room, even if they can’t fix it
Say no when they need to
Be open-minded and decisive
Give credit when it’s due to others and also take it when it’s due themselves
Tolerate feelings of disappointment, frustration, sadness and anger in themselves and others
Hold people accountable for their results
Be consistent and fair in setting rules and expectations
Set and honor boundaries for themselves and others
Deliver negative feedback directly and in a timely manner
Ask for feedback regularly and then act on it
Apologize when they make mistakes and then move on
Model the behavior they expect from others
For professionals who want to grow in their roles and careers, being liked is good, but being respected is a requirement. As Margaret Thatcher once remarked, “If you just set out to be liked, you would be prepared to compromise on anything at any time, and you would achieve nothing.”
Cresset Jack Ablin Of the S&P ‘s 503 companies, 308 are trading more than 20 per cent below their peak: they represent 38 per cent of the blue-chip Index’s market cap. Nearly half of Index constituents are off more than 30 per cent from their peak. While deteriorating growth is not a bullish catalyst, most stocks appear to have already priced in a recession.
Do you have an uncle who believes vaccines cause autism but refuses to study the reams of research showing them to be safe? What about a friend who avoids information about factory animal farming so they can eat cheap meat guilt-free? Or how about that CEO who claims their business is ethically minded, yet doesn’t investigate its supply chain for exploitation of the environment or the impoverished?
Each is an example of what psychologists call willful ignorance — the intentional act of avoiding information that reveals the negative consequences of one’s actions. Not to judge: We all have a place in our lives where we look the other way and pretend everything is fine. It may be personal, political, or professional in nature, but just below the conscious surface, we know our actions don’t align with our stated values.
“Examples [of] willful ignorance abound in everyday life,” Linh Vu, a doctoral candidate at the University of Amsterdam, said. “We wanted to know just how prevalent and how harmful willful ignorance is, as well as why people engage in it.”
To find out, Vu and a team of researchers performed the first meta-analysis on the current empirical evidence of willful ignorance, and it was published in the Psychological Bulletin, a peer-reviewed journal published by the American Psychological Association. They compared the results of 22 studies with a total of more than 6,000 participants. Here’s what they found.
Moral wiggle room
The classic experiment for studying willful ignorance is known as the moral wiggle room task. It was designed by Jason Dana, an associate professor of marketing and management at Yale. Participants are randomly assigned the role of decision-maker or recipient. The decision-maker is given a choice: They can take either a $5 or $6 payout. If they take the $5 payout, the recipient will receive $5 as well. If they take the $6 payout, the recipient will receive $1.
When provided with this information by a researcher, the majority of decision-makers act altruistically. They sacrifice the slightly larger payout for themselves to give the recipient more money. On average, only about a quarter of decision-makers act selfishly. But this full-information condition is simply the control. The experiment really begins when the researchers become less forthcoming.
In the experimental condition, the decision-makers can still choose between the $5 or $6 payouts, but this time they are not told what the recipient will receive. There’s a 50-50 chance the recipient will receive $5 or $1. Importantly, the decision-makers can ask the researchers what payout the recipient will receive, and they can do so at no cost to themselves. In other words, while the decision-makers start out blind to the consequences of their actions, they don’t have to stay that way if they don’t want to.
In Dana’s original 2007 study, 44% of decision-makers in the experimental condition chose to remain willfully ignorant and took the selfish option.
Some studies in the meta-analysis were variations on this original design. For instance, one version of the game included ultimatum bargaining where the recipient could accept or reject the decision-maker’s offer. If they reject it, both participants walk away empty-handed. Another version had group members vote on payouts for the group and an unknown recipient.
But across all the studies, the researchers found Dana’s original split to be fairly consistent. On average, 40% of people chose not to learn about the consequences of their actions, and such ignorance was associated with less altruism compared to those who became informed.
Ignorance as an excuse
The researchers hypothesized two potential motivations for willful ignorance. First, they thought willful ignorance may offer a built-in excuse for not acting generously. If a person doesn’t know the consequences of their actions, the internal logic goes, then they still can consider themselves a morally upstanding individual even if they decide to act selfishly. Willful ignorance serves to protect their self-image.
The second potential motivation is known as “cognitive inattentiveness.” That is, people dislike thinking more than they have to. It may stem from laziness, not paying attention, or not wanting to take the time to learn more. Whatever the case, they favor the quick-and-easy decision — even if they would have acted altruistically had they been informed upfront.
To test this, the researchers compared the choices of participants who chose to inform themselves with those who learned about the consequences by default. The researchers reasoned that if the driver was cognitive inattentiveness, then the percentage of altruism would be roughly the same between the two.
On the other hand, if those who chose to learn about the consequences acted more generously, this would suggest that those informed by default would have “self-selected” to remain ignorant if given the option. And that’s what they found. Across the studies, participants who chose to be informed of the consequences were 7% more likely to make the altruistic choice.
Being righteous is often costly, demanding people to give up their time, money, and effort. Ignorance offers an easy way out.
“The findings are fascinating as they suggest a lot of the altruistic behaviors we observe are driven by a desire to behave as others expect us to,” Shaul Shalvi, co-author and a professor of behavioral ethics at the University of Amsterdam, said in a statement.
He added: “A part of the reasons why people act altruistically is due to societal pressures as well as their desire to view themselves in a good light. Since being righteous is often costly, demanding people to give up their time, money, and effort. Ignorance offers an easy way out.”
With that said, the analysis couldn’t eliminate cognitive inattentiveness as a potential motivation. In fact, willful ignorance could be the cumulative effect of many motivations, including those not considered in the meta-analysis, such as reputation. The data simply suggest that maintaining a positive self-image is one of those motivations.
The Enron Complex as seen at night. After the Enron scandal came to light in 2001, CEO Jeffrey Skilling mounted a legal defense of willful ignorance. He claimed he remained unaware of the corporation’s fraudulent practices. It didn’t work, and he was found guilty of conspiracy, securities fraud, and other charges in 2006. (Credit: eflon / Flickr)
A little less ignorant about willful ignorance
The meta-analysis does have limitations that should be mentioned. To start, participants overwhelmingly came from Europe and the U.S., meaning the results may not be replicated in other cultures. The studies also looked at willful ignorance in the lab versus actual decisions in the real world. Finally, they focused on discrete tasks, meaning they were only performed once. It’s possible that continuous rounds of give-and-take between decision-maker and recipient would yield different results (like in many game theory games).
Still, the authors conclude that “taken together, the aggregate evidence suggests ignorance is indeed in part ‘willful’ and driven by excuse-seeking and self-image maintenance motives.” Thanks to them, we are all a little less ignorant about ignorance.
Alpha Architect Blog Larry Swedroe on Stock Market Concentration
Consider that as of October 6, 2023, while the iShares Russell 1000 Growth ETF (IWF) had a P/E of 24.2 and Vanguard’s S&P 500 ETF (VOO) had a P/E of 20, the P/E of the Vanguard Russell 1000 Value ETF (VONV) was 15, the P/E of the Vanguard Russell 2000 ETF (VTWO) was 13.3, and the P/E of the Vanguard Russell 2000 Value ETF (VTWV) was just 10.5. Now consider the P/Es of the magnificent seven: Apple, 29.8; Amazon, 100.7; Microsoft, 33.8; Nvidia, 110.5; Alphabet, 29.4; Tesla, 73.8; and Meta Platforms, 36.8. That’s an average P/E of 59.3.
One of my favorite expressions is that what you don’t know about investing is the investment history you don’t know. With that in mind, let’s review the list of the 10 largest stocks by market cap in the S&P 500 Index at the turn of the century. They were Microsoft, Cisco Systems, Exxon Mobil, Intel, Citigroup, IBM, General Electric, Oracle, and Home Depot. From January 2000 through September 2023, Vanguard’s 500 Index Fund (VFINX) returned 6.5% per annum. How did the top 10 perform?
Cisco Systems: 1.6%
Exxon Mobil: 7.9%
General Electric: -1.8%
Home Depot: 8.6%
The average return to the 10 largest stocks in the S&P 500 Index from January 2000 through September 2023 was just 3.2%, underperforming the index itself by 3.3 percentage points. Because these were the largest stocks, the underperformance relative to the remaining 490 stocks was even worse. Investors in the top 10 stocks took a much greater degree of idiosyncratic risk and earned lower returns. Forewarned is forearmed.
3. U.S. Bank Stocks at Record Low Valuation vs. S&P
4. Banks Ongoing Headwinds.
Torsten Slok, Ph.D. Chief Economist, Partner-Eight months after the SVB collapse, large banks continue to enjoy significantly lower funding costs and, hence, higher profit margins than regional banks, see the first chart below.
With ongoing headwinds from CRE holdings, the held-to-maturity book, and regulatory uncertainty, it is going to take some time for regional banks to repair their balance sheets. This continues to be a macro problem, because banks number 5 to 4000 by assets make up 60% of all assets in the banking sector see also the second chart showing the ongoing sharp slowdown in bank lending.
5. Interest Rate on U.S. Debt Up $924 billion in 12 Months.
When Debt Matters
When interest rates were at record lows in 2020, many said that the exploding National Debt “didn’t matter” because servicing that debt was costing us very little.
Fast forward to today and few are making that same argument, as National Debt has continued to increase (now at $33.7 trillion) and the average interest rate on that debt has moved substantially higher.
The result: the Interest Expense on US Public Debt has now moved up to $924 billion over the last 12 months, another record high. If it continues to increase at the current pace it will soon be the largest line item in the Federal budget, surpassing Social Security.
6. Argentina About to Make New Highs on Milei Presidential Victory
10. The False Picture on How Success Happens-The Daily Stoic Blog
We have a false picture about how success happens. We often only see the results and almost never the process of things, so we tend to think that the finished product—a book, being in shape, being wise—is impressive, and therefore the process by which that event was created must have been equally brilliant.
In fact, it’s not.
All success happens the same way: “action by action,” as Marcus said. Just after the release of Metallica’s eleventh album, Metallica’s Lars Ulrich explained the simple secret to their high output:
“I wish I could romanticize it, and tell you that we’re sitting down and there’s a destination, but it’s basically just work. You write one song, then you write another song and eventually you’ve got an album.”
This is what the Stoics believe too. That the little things add up to make the big things. This is what Zeno meant when he said, “Well-being is realized by small steps but is truly no small thing.” And what Seneca meant when he wrote, “Each day, acquire something that will fortify you against poverty, against death, indeed against other misfortunes, as well and after you have run over many thoughts, select one to be thoroughly digested that day.”
One gain per day. That’s it. It’s not romantic. It’s basically just work.
2. Another New Record in U.S. Equity Concentration….5 Stocks 70% of Nasdaq Gains.
3. Quant Traders Covered Shorts Tuesday.
Marketwatch..Who were the big buyers of Tuesday’s stock rally? Vanda Research says institutional buyers stepped in for fatigued retail traders, specifically “systematic strategies being forced to cover their short positions.” Vanda Research Systematic traders make use of factors such as quantitative models, historical data and technical indicators to figure out when to get in and out of trades. The Vanda team also says discretionary hedge funds have also been buying up some excess tech stock supply out there, and that may also help draw in retail investors ahead of seasonal tailwinds.
4 . Last Week I Showed Office Transactions -84% ….Real Estate Sector vs. S&P All-Time Low…..REITS Now Only 5% of S&P
REIT Sector Rallies to 200-Day Moving Average
5. U.S. Dollar Fails at Previous Highs.
6. What is an AI Fund? What are the Holdings?
7. Tesla is down since it joined S&P 500
Barrons Tesla’s (ticker: TSLA) truly terrible performance since being added to the index is something that deserves much more attention. I hadn’t realized how wild Tesla’s ride has been for long-term S&P 500 fund investors—including me—until a recent conversation I had with Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. During our talk in early November, Silverblatt mentioned that Tesla’s share price was below what it had been when it first joined the S&P 500 in late 2020. I found that hard to believe—but when I hunted up some numbers, I saw that Silverblatt was right. According to Silverblatt’s numbers, the S&P 500 had a total return—price gains plus reinvested dividends—of 27.02% from the time Tesla joined the index through Nov. 15. Because Tesla doesn’t pay a dividend, its return during that period was a mere 4.82%—the increase in its share price over that period. (After a bad day on Nov. 16, its return had fallen to 0.08%.) By Allan Sloan