Category Archives: Quarterly

Topley’s Top 10 – September 8, 2020

1.Softbank’s $4B Tech Stock Option Bet Weighing on Market?

SoftBank Group shares dropped over 7% on Monday after The Wall Street Journal reported the Japanese investment group bought $4 billion worth of options tied to around $50 billion worth of individual tech stocks.“There is a palatable maleficence level lingering about SoftBank’s large derivative position amid the recent tech selloff,” said Stephen Innes, chief global market strategist at AxiCorp. “And while there is not a great deal going on due to fast money risk neutrality after last week’s ‘wipeout,’ the supposed heft of ‘one man’s call position’ is still not sitting well with many bulls at the moment.”

https://www.barrons.com/

 Bloomberg

The Financial Times, Wall Street Journal and Zero Hedge reported that SoftBank was making massive bets on technology stocks using equity derivatives. The FT labeled SoftBank the “Nasdaq whale” that “stoked the fevered rally in big tech stocks,” though it didn’t include details of any trading.

The reports touched off concerns that billionaire founder Masayoshi Son is embarking on a risky endeavor in unfamiliar territory, which could lead to losses like those SoftBank suffered after its enormous bet on office-sharing startup WeWork. The stock decline came despite an FT report that SoftBank now has gains of about $4 billion from the derivative bets.

“SoftBank was riding the Nasdaq wave like a mutual fund,” said Mitsushige Akino, senior executive officer at Ichiyoshi Asset Management Co. “The market is falling now and investors have zero visibility, so they are selling SoftBank stocks.”

“In a world where volumes are distorted by the frantic trading of algos, any real order flows may have surprisingly large impact on prices,” Peter Tchir, head of macro strategy at Academy Securities, wrote in a note Tuesday. “By trading options, they leverage their position.”

SoftBank Stock Tumbles With Son’s Foray Into Options TradingBy Pavel Alpeyevand Takahiko Hyuga  https://www.bloomberg.com/news/articles/2020-09-06/softbank-s-4-billion-trading-gains-on-u-s-stock-option-bet-ft?sref=GGda9y2L

2. Speculative Demand for Call Options Has Been “Staggering”

The Daily Shot

Equities: Let’s begin with the options market where the speculative fervor is on full display. Speculative demand for call options (mostly deep out-of-the-money contracts) has been staggering (2 charts).

Short-term call options are notoriously difficult to hedge, and dealers who sold them rapidly become short the market as shares rise (and the probability that these options will get exercised increases). Dealers are forced to buy stocks to cover their exposure (delta-hedging), pushing the market higher. That, in turn, makes the dealers short again, creating a melt-up.

Source: @sentimentraderSource: @TheTerminal, Bloomberg Finance L.P.

Source: @markets Read full article

 https://dailyshotbrief.com/the-daily-shot-brief-september-3rd-2020-2/

3.  U.S. Election Priced as Worst Event Risk in VIX Futures History

Michael P. Regan

U.S. Election Priced as Worst Event Risk in VIX Futures History

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(Bloomberg) — As the U.S. stock market continues to rally to record highs, the attention of many investors is turning toward November’s elections as a source of risk.

However, hedging against that potential volatility doesn’t come cheap. In fact, it’s currently the most-expensive event risk on record based on a common way to bet on volatility known as a “butterfly trade.”

Futures tied to the Cboe Volatility Index expiring in late October closed on Tuesday at 33.5, compared with a spot VIX that closed at 26.1. Those October contracts, which are currently the second-month futures and reflect expected volatility in the month after they expire on Oct. 21, are also higher than the first-month futures expiring in September and the third month expiring in November.

One “butterfly” trade would be to buy one unit each of the first- and third-month contracts while selling two units of the second. Currently, that trade prices with a reading of -6.9, the difference in costs between the butterfly’s “wings” in September and November and the “belly” in October. That pricing reflects the premium that investors are giving to own volatility over the election. Trading of VIX futures started in 2004.

“In the history of the VIX futures contracts, we’ve never had an event risk command this sort of premium into forward-dated vol at a specific tenor,” Bloomberg macro strategist Cameron Crise wrote in a blog post. “That obviously suggests that markets anticipate some pretty incredible fireworks.” He excluded a higher premium on March 18 of this year since front-month futures expired that day, when the S&P 500 fell 5.2%.

The spread between October and November VIX futures is also wide at about -1.7 instead of about 0.2, which history suggests it should be based on the level of the spot VIX, according to Crise.

“If it starts trading above where it ‘ought’ to be, particularly given the risk premium lavished on the election, that could be a sign that punters are worried about 2000-style uncertainty,” Crise wrote, referring to the presidential contest between George W. Bush and Al Gore, which ultimately was decided by the U.S. Supreme Court. “You don’t need a particularly vivid imagination to think that that could get pretty ugly this time around.”

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

https://finance.yahoo.com/news/u-election-priced-worst-event-210637365.html

4. Non-Correlation to U.S. Stocks=Treasuries.

Long-term Treasuries tend to be less correlated with U.S. stocks than short-term Treasuries

https://www.advisorperspectives.com/commentaries/2020/09/02/why-own-bonds-when-yields-are-so-low

5. Valuations of Resource Based Equities at All-Time Lows.

Resource Equities as a Value Opportunity and Inflation Hedge

Resource-based equities14 provide an interesting mix between a significant opportunity within Value equities today (thus lowering overall duration) and a hedge against future inflation. From a Value perspective, Resource equities, particularly Energy and Metals stocks, appear to be trading at the cheapest levels they have ever been relative to the S&P 500 (see Exhibit 5).


EXHIBIT 5: VALUATIONS ARE AT HISTORIC LOWS

As of 6/30/2020 | Source: S&P, MSCI, Moody’s, GMO
Valuation metric is a combination of P/E (Normalized Historical Earnings), Price to Book Value, and Dividend Yield.


Metal producers are also an interesting subset because they are in a secular growth mode as the world transitions to more clean energy. This cannot be done without metals such as copper, lithium, nickel, vanadium, etc.15

Resource stocks have also been a very useful tool in inflationary times. Exhibit 6 shows the return of Energy and Metals stocks during the more significant (CPI greater than 5% for a year or more) bouts of inflation we have seen in the U.S.


EXHIBIT 6: DURING INFLATIONARY PERIODS, RESOURCE EQUITIES HAVE PROTECTED PURCHASING POWER BETTER THAN THE BROAD EQUITY MARKET

Source: S&P, CRSP, Global Financial Data, MSCI, GMO
Annualized data. Inflationary periods have been identified as periods where inflation, as measured by CPI, was greater than 5% per annum for a period longer than one year.


During these inflationary periods, Energy and Metals stocks kept up with or beat inflation in six of the eight periods and outperformed the broad market in all eight periods.

2Q 2020 GMO Quarterly Letter

by Ben Inker, Matt Kadnar of GMO, 8/31/20

https://www.advisorperspectives.com/commentaries/2020/08/31/2q-2020-gmo-quarterly-letter 

6. Naz 100 Trading 35% Over 200 Day Moving Average.

What we do know is that Big Tech was expensive, with the S&P 500 Information Technology index  trading at 27.5 times forward earnings; extended, with the Nasdaq 100 trading more than 30% above its 200-day moving average; and way too popular. Citigroup’s Panic/Euphoria model was nearly three times the level that signifies euphoria, and the percentage of bulls in the Investors Intelligence Survey was more the 40 percentage points higher than bears.

Tech Stocks Finally Got Crushed. Why the Stock Market Is on Shaky Ground.By  Ben Levisohn  https://www.barrons.com/articles/the-stock-markets-august-gains-turned-to-september-pain-what-happens-next-51599266176?mod=past_editions

www.stockcharts.com

7. Container Ships…All Available Capacity Deployed.

WSJ–Container volumes at the ports of Los Angeles and Long Beach rose by 24% and 21%, respectively, in July from June. Business at both ports had fallen by more than 6% in the first half of the year from the comparable period of 2019.

“The biggest pressure is on the West Coast, being the fastest way to get goods from Asia and get them onto the U.S. shop shelves,” said Nils Haupt, a spokesman for German shipping line Hapag-Lloyd AG . “All available capacity has now been deployed as retailers scramble to restock and this is driving the strong freight rates.”

Container Volumes Shipped to the U.S. Surge After Coronavirus Downturn–By Costas Paris

https://www.wsj.com/articles/container-volumes-shipped-to-the-u-s-surge-after-coronavirus-downturn-11599240926?mod=itp_wsj&ru=yahoo

8. A slowdown in U.S. business formation poses a risk to economy

Josh Boak

AP Economics Writer

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Washington – Despite a decade-plus of economic growth, Americans have slowed the pace at which they’re forming new companies, a trend that risks further widening the gap between the most affluent and everyone else.

The longest expansion on record, which began in mid-2009, has failed to restore entrepreneurship to its pre-recession level, according to a Census Bureau report based on tax filings.

FILE - In this July 1, 2019, file photo the sunlight flares around the buildings in lower Manhattan as the sun rises in New York. Despite a decade-plus of economic growth, Americans have slowed the pace at which they're forming new companies, a trend that risks further widening the gap between the most affluent and everyone else.

Between 2007 and the first half of 2019, applications to form businesses that would likely hire workers fell 16%. Though the pace of applications picked up somewhat after 2012, it dipped again this year despite President Donald Trump’s assertion that his tax cuts and deregulatory drive would benefit smaller companies and their workers. Applications are down 2.6% so far this year compared with the same period last year.

Business formation has long been one of the primary ways in which Americans have built wealth. When fewer new companies are established, fewer Americans tend to prosper over time.

In addition, smaller companies account for roughly 85% of all hiring, making them an entry point for most workers into the workforce. Even with the unemployment rate at a near-record-low of 3.7%, a decline in the creation of new companies means there are fewer companies competing for workers, a trend that generally slows pay growth. The pace of pay growth has stalled for the past five months even as hiring has remained healthy.

“What you see is reduced social and economic mobility,” said Steve Strongin, head of global investment research at Goldman Sachs. “It means that most of the growth is occurring in the corporate sphere, which keeps wage growth down and improves profits.”

Smaller companies and startups were generally cautious about expanding as they emerged from the Great Recession, in many cases choosing not to hire. The 2008 financial crisis delivered a warning to many would-be entrepreneurs that scaling back their ambitions might help them survive another recession.

“People became a lot more risk-averse after the Great Recession because so many people were hurt,” said Nicholas Johnson who founded Su Casa, a chain of four furniture stores based in Baltimore that employs 30 workers.

Johnson, 45, started Su Casa about 20 years ago. Emerging from the recession, he kept his staffing levels low to reduce his costs. Still, that meant having to pay well above the minimum wage to attract and retain workers who were specialized in home decor.

“I am super-concerned about an upcoming recession because we got so lean that I can’t get lean again,” Johnson said. “There is no more fat to trim.”

Goldman Sachs on Thursday is releasing a survey of business owners who took part in its “10,000 Small Businesses” program, which has provided management training to several thousand small companies since 2010. The survey concluded that entrepreneurs typically struggle to find qualified workers and to navigate complex regulations. Both factors tend to slow the formation of new companies.

Among the business owners who were surveyed, nearly eight in 10 said they favor a higher local minimum wage well above the federal baseline of $7.25 an hour. Focus groups conducted as part of Goldman’s survey indicate that smaller companies believe wages have failed to keep pace with the costs of living and the retention of employees.

Just 20% of the surveyed business owners said they felt that Trump’s 2017 tax cut would increase their companies’ growth, according to the online survey of 2,285 alumni of the Goldman program.

Social and demographic forces are also thought to be limiting opportunities for entrepreneurs and smaller companies. America is aging, many young adults are weighed down by student debt and larger retailers have used their scale to offer lower prices than smaller companies can afford to do so.

Roughly two-thirds of the decline in startups between the late 1970s and 2007 resulted from a slowdown in the growth of the U.S. workforce, according to research by Fatih Karahan of the Federal Reserve Bank of New York, Benjamin Pugsley of the University of Notre Dame and Aysegul Sahin of the University of Texas-Austin.

But the recovery from the Great Recession, which was induced by the housing bust, also reordered the economy in ways that complicated the creation of smaller businesses. Several sectors of the economy enjoyed no rebound at all in company formations compared with the number of business closures.

The economy now includes 116,459 fewer construction companies than it did in 2007, a roughly 15% decline, according to the Census Bureau. There are 54,045 fewer retailers that employ fewer than 20 people, a consequence in part of a shift to online shopping and the rise of national chain stores. More than 26,000 small manufacturers have shuttered.

The spillover effects have had damaging consequences in many cases. Downtowns in the industrial Midwest have empty storefronts. Home construction has been relatively weak, causing prices to accelerate. This has limited affordability and made it harder for people to join the middle class through home ownership.

Construction jobs often pay solidly middle wages. And home ownership is down 8 percentage points for people under 35 when compared to previous generations.

“If you’re thinking about the American Dream, trying to get into the middle class, homebuilding represents both of those objectives,” said Robert Dietz, chief economist at the National Association of Home Builders. “The unmet potential for homebuilding has been one of the frustrations” of this recovery.

Despite a decade-plus of economic growth, Americans have slowed the pace at which they're forming new companies.

John Dearie, founder of the Center for American Entrepreneurship, who holds roundtables around the country with small business owners, said he hears frequently about problems for younger companies caused by a shortage of skilled workers, immigration policies that thwart access to talent and difficulties in obtaining bank loans.

The number of tech startups – from software to computer systems design companies – has grown about 20% since 2007. But that sector represents just 2% of the roughly 6 million companies in the United States.

Dearie said he worries that the United States is losing its competitive edge because the obstacles for would-be startups are slowing the formation of innovative businesses.

He ran off a list of innovations that were derived from entrepreneurs: The cotton gin, the steam engine, railroads, the telegraph and telephone, electrification, the automobile, the airplane, air conditioning and refrigeration, the computer, internet applications and wireless communication.

“Declining startup rates,” Dearie said, “amount to nothing less than a national emergency.”

https://www.barrons.com/articles/the-stock-markets-august-gains-turned-to-september-pain-what-happens-next-51599266176?mod=past_editions

9. Winners and Losers By State in Covid Relocation Boom

New Yorkers Flee for Florida and Texas as Mobility SurgesBy Steve Matthews and Alexandre Tanzi  https://www.bloomberg.com/news/articles/2020-08-31/new-yorkers-flee-for-florida-and-texas-as-mobility-surges?sref=GGda9y2L

10. Finding a Business Idea

Some less obvious, lower-risk suggestions

No author listed, NeedPix, Public Domain

Source: No author listed, NeedPix, Public Domain

A number of my clients are tempted to start a business, often because they’ve been laid off because of COVID and are having a tough time landing a decent job.

I tell them that the idea is the least important part; success is mainly about execution. Nevertheless, many of them remain eager to hear some ideas. Here’s a buffet of the kinds of things I often suggest.

Don’t innovate; replicate. The leading edge too often bleeds, guinea pigs often die. It’s less risky to take an successful business concept and execute well. My favorite example is Noah Alper, who founded Noah’s Bagels. There already were a number bagel shops in the area but Noah came up with a better recipe and opened a store in a neighborhood with lots of bagel lovers. Little by little, he expanded to 38 stores whereupon he was bought out for $100 million.

So, think of stores that are doing well, visit (subject to COVID restrictions) and see what you can learn. Could you do it better, less expensively, or in a different location, or online?

Passion may not be required. Some people need to be passionate about the product or service,  but other people realize that as long as the product is worthy, they’ll derive plenty of satisfaction just from seeing those sales and satisfied customers. To broaden your options, you might want to  consider a wide range of ethical businesses, not just those selling products you’re passionate about.

Use inside knowledge. In your line of work, have you observed pain points, something that’s frustrating, especially to people in power? If not, might you query your friends? That resulted in a client learning that a railroad that operated on both sides of a major river spent a fortune on cab fares transporting employees from one side of the river to the other. The client offered to run a shuttle service, saving the company lots of money while making my client a good living. Another example: A client worked in the wine industry, where he learned that wineries find shipping a pain, so he opened a business that ships for a number of wineries in the Napa Valley.

Source an undervalued product?  I’ll change irrelevant specifics to avoid breaching client confidentiality, but a client, whom I’ll say is an electrical engineer, contacted manufacturers of I’ll say commercial lab equipment, bought, as-is, returned or obsolete. He repaired them and sold them to countries in which such equipment would be welcomed.

Serve less competitive markets. The just-mentioned client used that principle: He sold in locales where the latest-and-greatest would be too expensive. Another example: I had a client who bought used brand-name jeans for a couple bucks a piece by driving around to lots of Salvation Army and Goodwill stores. When he accumulated a shipping container full, he sent it to a developing nation where a local sold them for $8 a piece to eager customers.

Conversely, I had a client who, once a year, flew to central Europe where he placed ads in local newspapers for used vintage or antique violins. They’re in greater supply there than in the US and so could sell them at a tidy profit. When he had a shipping container full, he had it shipped to his home, where he stores the violins for sale—Picture a garage full of fiddle

Choose a dull-normal product. Few people graduate from a prestigious college wanting to start a business in mobile home park maintenance, used truck part brokerage, or a commercial printing machine service. Yet, according to the book, The Millionaire Next Door, which summarized interviews of 750 millionaires, the most common route to wealth was owning such a  “dull-normal” business. I had a client who decide to own a hot dog cart, and sold his franks on a busy downtown street. After learning the business hands-on, he hired someone to run that cart, expanded to six carts, and retired before he was 40.

Go further up the supply chain.  Say you’re passionate about beer. The obvious and thus too crowded choices are to start a craft brewery or brewpub. A less risky option is to start a beer business that’s further up the supply chain, for example, purveying spices for beer making. (One concoction is called Grains of Paradise.)  Of course, that may not be as sexy as welcoming people to your brewpub but getting in further up the supply chain may be a safer route to good income while still enabling you to be part of the beer community.

Search for new laws and policies, As you read the local or national news, keep your antennae out for business opportunities. For example, North Carolina mandated that henceforth, all students must take earth science. Well, a burned-out science teacher read that, whipped up a workshop for teachers and pitched every school district in the state: “I’ve developed a workshop that will prepare your teachers to teach earth science.” She was busy immediately.

The takeaway

I want to reiterate that what I’ve done in this post is the easy part: suggesting ideas. Thomas Edison was not wrong: Success is 5% inspiration, 95% perspiration. I’d add, “smart perspiration.”

I read this aloud on YouTube.

Marty Nemko Ph.D.

https://www.psychologytoday.com/us/blog/how-do-life/202009/finding-business-idea

Disclosure

Lansing Street Advisors is a registered investment adviser with the State of Pennsylvania..
To the extent that content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security as information is provided for educational purposes only. Articles should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any securities or asset classes mentioned. Articles have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Securities discussed may not be suitable for all investors. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results.
Material compiled by Lansing Street Advisors is based on publicly available data at the time of compilation. Lansing Street Advisors makes no warranties or representation of any kind relating to the accuracy, completeness or timeliness of the data and shall not have liability for any damages of any kind relating to the use such data.
Material for market review represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.
Indices that may be included herein are unmanaged indices and one cannot directly invest in an index. Index returns do not reflect the impact of any management fees, transaction costs or expenses. The index information included herein is for illustrative purposes only.

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Topley’s Top 10 – September 3, 2020

1. It’s Official…Growth Stock Outperformance Over Value Stocks Exceeds Internet Bubble.

https://dailyshotbrief.com/the-daily-shot-brief-august-31st-2020-2-2/

2. But Two Giant Growth Funds Suffer Biggest Selling Stampede on Record

Two Giant Growth Funds Suffer Biggest Selling Stampede on Record

Claire Ballentine

Two Giant Growth Funds Suffer Biggest Selling Stampede on Record

(Bloomberg) — After this year’s surge in high-growth stocks, two big exchange-traded funds tracking those companies are losing steam.

Both the $65 billion Vanguard Growth ETF (VUG) and the $10 billion iShares Core S&P U.S. Growth ETF (IUSG) posted their largest outflows on record last month, according to data compiled by Bloomberg. Funds focused on growth lost more than $2.4 billion in August, the most since 2016. Meanwhile, value ETFs attracted $1.9 billion — their best month since March.

High-growth companies such as megacap technology names with solid balance sheets have been among this year’s hottest trades. But their historic rally has fueled some skepticism about further gains amid concern that they may be too expensive relative to so-called value stocks.

“There’s hesitation that the significant outperformance led by a handful of megacap names like Amazon.com and Apple can continue to climb much higher,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research.

Yet signs of a slow economic recovery from the pandemic-induced recession and a spike in global coronavirus cases may still make a compelling case for growth shares. Those companies beat expectations by a stronger margin and more frequently than their value counterparts in the second-quarter earnings season.

Despite the monthly outflows for the sector, the performance ratio of the iShares Russell 1000 Growth ETF (IWF) hit new highs relative to its value counterpart (IWD), according to a recent report from Bloomberg Intelligence.

To Athanasios Psarofagis, an ETF analyst at Bloomberg Intelligence, there’s reason to believe that investors could still be favoring growth, but through more targeted approaches.

“For sure, growth ETFs will be heavy on tech, but there is also a lot of other stuff, and I just think people only want tech,” said Psarofagis.

Technology ETFs lured $2.1 billion in August, while thematic sector products received $3.2 billion — their best month since 2018. The $143 billion Invesco QQQ Trust Series 1 (QQQ), which tracks the Nasdaq 100 Index, added $2.1 billion last month. Meanwhile, the Ark Innovation ETF (ARKK), whose biggest holding is Tesla Inc., recently had its largest inflow on record.

For more articles like this, please visit us at bloomberg.com

3. Robinhood faces SEC investigation over deals with high-speed trading firms, report says

Ben Winck

Summary List Placement

  • Robinhood is under investigation by the Securities and Exchange Commission over its deals with high-speed trading firms, The Wall Street Journal reported on Wednesday.
  • The investigation is focused on Robinhood’s failure to fully disclose its practice of selling customers’ orders to market-makers, sources told The Journal.
  • A settlement fine could exceed $10 million, but a deal is unlikely to be announced this month, the sources told the newspaper.
  • Visit the Business Insider homepage for more stories.
  • The Securities and Exchange Commission is investigating Robinhood over its deals with high-speed trading businesses, The Wall Street Journal reported on Wednesday.
  • The investigation is in advanced stages and focuses on Robinhood’s failure to fully disclose its practice of selling customers’ orders to market-makers, sources familiar with the matter told The Journal. The brokerage could be forced to pay a fine of more than $10 million if it settles with the SEC, a source told the newspaper.
  • A fine hasn’t been negotiated between the two sides, one source said. A deal is unlikely to be announced this month, sources told The Journal.

https://www.forbes.com/sites/jeffkauflin/2020/08/03/robinhood-doubles-its-second-quarter-trading-revenue-reaching-180-million/#3c5e0c20768c

4. Stock Options with Less Than 2 Weeks Maturity Now Compromise 75% of Option Volume

a close up of text and logo on a white background

From Nick Lampone Dalzell Trading https://www.linkedin.com/in/nicholas-lampone-9277986/

5. Asset Class Returns Rising Vs. Falling Dollar.

www.dorseywright.com

6. Art Cashin (legendary Trader) on the short-term effects of stock splits

Posted August 31, 2020 byJoshua M Brown

The legendary floor trader Art Cashin weighs in on the Tesla and Apple stock splits, which became effective today, in an emailed note. Excerpting a piece of it below…

Let’s begin with stock splits.  I watched as several self-styled pundits on the financial media were beside themselves trying to explain how stocks were actually gaining ground after split.  There were all the standard logical rationalizations.  You have not increased the company’s worth by the action of splitting up as people buy yet the capitalization goes up, etc., etc.  I give you five singles for a five-dollar bill, yet we haven’t really changed the value in any form.

The real point I can’t believe all of them have missed has to do with shorting the stock, particularly stocks like Tesla, Amazon and Apple where there are large short positions due to skeptics.  When someone sells a stock that he doesn’t own (short), he then has to borrow it from someone who owns it so he can make delivery.  He promises then to re-deliver an identical type of stock from whom he borrowed.   When the stock splits, it complicates life for short sellers and often they have to go into various negotiations that are the equivalent of a short squeeze to buy back the stock, rechanging it for stock that will be due after the split is effective.

So, it was perfectly natural to watch Apple split and then have people begin to buy it and Tesla split and people begin to buy it and, while as I say, the self-styled experts amazed me I guess by their apparent lack of experience.  So anyway, I wanted to make the point that stock splits can have a serious upward push on stocks, particularly heavily shorted.  I guess that’s what comes with over 60 years’ experience on the Street.

This is a piece of the story that I myself had not considered. As I type, Tesla, now having split, is up another (another!) ten percent on the day while the just-split Apple tacks on another five percent in market value. I don’t how you can calculate the exact amount of these audacious moves in price are directly related to short-seller buy-ins and other related mechanics, but it’s probably a bigger factor than many (myself included) have considered.

Art is the best. Love that guy.

Photo comes from my own collection – Barry and Art did a fireside chat at a conference we threw back in 2013. Our camera phones weren’t so great back then. 

For disclosure information please visit: https://ritholtzwealth.com/blog-disclosures/

7. 10 Year Treasury Rate Hooks Back Down

10 Year Yield Rolls Back Over

www.stockcharts.com

30 Year Yields

www.stockcharts.com

8. Commodities: This chart shows rising EU demand for materials used in electric cars and renewable energy.

Commodity Demand around electric cars growing at 25x

Source: @financialtimes Read full article

https://dailyshotbrief.com/the-daily-shot-brief-september-1st-2020/

9. VisualCapatalist World Population

Global Population Estimates 2100

10. Great Leaders Focus on the Why and the What – not the How.

Guest post by Steve Coughran:

my two decades of business experience, I have encountered many different flavors of leadership. Some leaders are strong-willed and autocratic, some are open-minded and democratic, some employ laissez-faire, employee-centric leadership styles, and most fall somewhere in the middle. While leadership style varies, in my experience, leaders across the board provide employees with a sincere depiction of the Why, an explicit description of the What, and freedom on the How.

Many of you reading are likely familiar with Simon Sinek’s Start with Why. His premise suggests that great leaders motivate with the “Why”, a deep-rooted purpose, before defining the “What”, the product or service, or the “How”, the process.  Expanding on Sinek’s thoughts, I believe that not only do great leaders deprioritize the “how,” but the most influential bosses leave the “how” to their employees to figure out.

Have you ever been in a work situation where your boss or manager is explaining in specific detail how to do your job? It’s frustrating when managers live in the weeds. Poor leaders provide specificity around how to complete a task but fail to share the big picture, the why, behind the request.  No one likes to be micromanaged. Unfortunately, many leaders result to meddling with the process in attempts to maintain a false sense of power. Micromanagers focus explicitly on the how, which often results in short-term success at the expense of the long-term strategy, overall scalability, and employee satisfaction.

Great leaders give little input on the how. Of course, this approach first requires leaders to equip employees with the tools and skills to solve for the how. They must invest heavily in training to ensure employees are prepared to think through the processes.

Training alone, however, isn’t enough to produce the desired results. After reinforcing the why and enabling employees, they get specific about the what. Great leaders share explicit expectations. When I first launched a high-end design build firm, I learned the hard way the importance of clearly communicating expectations. I was feeling on top of the world as my company flourished; customers were lining up for projects, and I had a diverse and talented staff to uphold my brand. To maintain this status, I was also working like a dog, putting in eighty-hour workweeks to keep up with demand. I jumped at my first opportunity to take a two-week vacation, leaving the company reins in the hands of one of my top managers. We were working on a high-end project, but I trusted my employees. I gave little instruction—my manager knew the business as well as I did—and was off to relax on a beach in Mexico and forget about work for a while.

I returned frustrated with the lack of progress. While I was away, the high-end project suffered from operational issues that led to cost overruns and schedule delays resulting in an upset client and some delayed payments. While I was upset with my team, I too was responsible for the situation. What did I count on my managers and employees to do while I was away? More importantly, how would I ensure they held up their end of the bargain? I failed to create an accountability structure. Through this experience, I learned a critical lesson: strong leaders follow up.

Great leaders build accountability structures that clearly define the desired results. Results are laid out specifically and comprehensively, often incorporating qualitative and quantitative data. By leaving little room for confusion, leaders establish fair expectations, which provide a foundation for equitable evaluation and constructive feedback. They create a “return and report” culture where employees are sent off with an understanding of the overarching strategy and the goals of the assignment. They present their findings after independently problem solving.

Giving employees freedom shows that you trust them (which according to research is critical for workplace engagement and productivity). Additionally, by encouraging employees to think, leaders boost their team’s development. Seeing how the employee problem solves allows his or her manager to clearly examine their comprehension of the task, the big picture, and detect any gaps in understanding or skills. They can then address these knowledge gaps with training and coaching, bringing the employees’ development full circle.

As we all continue along the journey to become the best leaders we can be, keep in mind Simon Sinek’s words of wisdom, “There is a difference between giving direction and giving directions.” Emphasize your purpose, explain your product or service, and leave the rest to your well-equipped team. 

About the author:  Author, CFO of an international billion-dollar company, and management consultant, Steve Coughran has over two decades of experience driving business excellence. His newest book is Outsizing: Strategies to Grow your Business, Profits, and Potential.  For more information visit www.SteveCoughran.com.

https://www.greatleadershipbydan.com/2019/10/great-leaders-focus-on-why-and-whatnot.html

Disclosure

Lansing Street Advisors is a registered investment adviser with the State of Pennsylvania..
To the extent that content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security as information is provided for educational purposes only. Articles should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any securities or asset classes mentioned. Articles have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Securities discussed may not be suitable for all investors. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results.
Material compiled by Lansing Street Advisors is based on publicly available data at the time of compilation. Lansing Street Advisors makes no warranties or representation of any kind relating to the accuracy, completeness or timeliness of the data and shall not have liability for any damages of any kind relating to the use such data.
Material for market review represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.
Indices that may be included herein are unmanaged indices and one cannot directly invest in an index. Index returns do not reflect the impact of any management fees, transaction costs or expenses. The index information included herein is for illustrative purposes only.

Topley’s Top 10 – September 1, 2020

1. What Did Stock Splits Look Like During the Internet Bubble vs. Today?

From Dave Lutz at Jones Trading

2. Get Ready for a Crazy Wave of IPOs. Here Are the Ones to Watch.

BYEric J. Savitz

Sandy Miller, general partner at Institutional Venture Partners, notes that the number of public companies has fallen in half over the last 20 years, as M&A has outstripped new issues. “There’s a real hunger for new names,” he says. 

Coming Attractions:

A few of the tech companies that filed for IPOs this past week.

CompanyLatest Fiscal Year SalesDescription
Corsair Gaming$1.1 billionVideo game accessories
Palantir743 millionData analytics
Bentley Systems608 millionConstruction engineering SW
Unity Software542 millionVideo game developer tools
Snowflake265 millionCloud data management
Sumo Logic155 millionData analytics
Asana143 millionWork management software
JFrog105 millionSoftware release management

Source: company reports

The supply is deep. Venture-backed unicorns—pre-IPO companies with valuations above $1 billion—are piling up like kindling. According to CB Insights, there are 490 unicorns. By contrast, there are just shy of 2,000 companies trading on the Nasdaq or the New York Stock Exchange with valuations above $1 billion. In other words, if all the unicorns magically listed at once, the number of large cap U.S.-listed companies would increase by 25%. Most but not all unicorns are tech businesses, so consider this: Over the past three years, there have been a total of 100 tech IPOs. The current supply of unicorns is equal to 14 years of tech stock debuts.

https://www.barrons.com/articles/the-ipo-market-is-about-to-go-crazy-here-are-the-ipos-to-watch-51598658370?mod=past_editions

 https://www.cbinsights.com/research/best-venture-capital-unicorn-spotters-2/Unicorn Hunters: These Investors Have Backed The Most Billion-Dollar  Companies

3. The Urge to Reverse Merge

SPACs are just getting started

The “blank check” acquisition funds known as special purpose acquisition companies, or SPACs, have raised more than $30 billionso far this year, versus $13 billion in all of last year. Can they keep it up? DealBook spoke with some of the most plugged-in SPAC bankers and lawyers on Wall Street, and they cited three factors driving the boom

1. Valuations are soaring for popular SPAC targets

“The pipeline is heavily weighted to technology and growth companies,” said Niron Stabinsky, who leads SPAC deals at Credit Suisse. He said that he speaks to big venture firms “weekly” about their portfolios. Many have taken notice of recent success stories, like Virgin Galactic’s merger with a SPAC led by the former Facebook executive Chamath Palihapitiya. SPAC offerings will be “incredibly active post Labor Day,” said Paul Tropp, the co-head of Ropes & Gray’s capital markets group. That’s part of a “significant uptick” in listings expected to hit the market before election-related uncertainty sets in: Yesterday, the tech firms Asana, JFrog, Snowflake and Unity all filed to go public.

2. SPACs aren’t just an alternative to traditional I.P.O.s

“SPACs have become a new way of doing an M.&A. deal,” said Jeff Mortara, the head of equity capital markets origination at UBS. A merger with a SPAC allows the target company’s investors to retain a stake while gaining liquidity, and deal negotiations can be done directly, secretly and quickly. SPACs typically have two years from their I.P.O. date to complete a merger.

3. The flood of money to SPACs means better terms for targets

“Everything is negotiable,” the venture capitalist Bill Gurley wrote in a detailed case for SPACs on his blog this weekend. As competition between SPACs intensifies, “sponsors are continuing to negotiate deals that look better for the companies they buy,” he said in the essay, which quickly became the talk of Wall Street and Silicon Valley.

Why? Some SPAC sponsors are open to a smaller “promote” — the stake the sponsor gets essentially free after a merger. (Traditionally, a sponsor takes 20 percent.) SPACs also award warrants to the vehicle’s investors, which give them the right to buy larger stakes in the merged company at a discount; these are becoming less dilutive as sponsors shift their terms to be more favorable to the target company. In the life-sciences industry, where SPACs have “nearly replaced late-stage financing and I.P.O.s,” warrants have come down to zero in some deals, said Christian Nagler, a partner in the capital markets practice at the law firm Kirkland & Ellis.

The standard-bearer of a new approach for SPACs is the $4 billion fund sponsored by Bill Ackman’s Pershing Square, the largest to date. The fund’s warrants are structured in a way that encourages investors to stay invested longer in the merged company, and Pershing will take its “promote” only if the company it buys meets certain performance goals. Sponsors without Mr. Ackman’s reputation may find those terms hard to imitate, but some are adopting similar elements all the same, experts say.

What’s next? Mr. Gurley predicted that SPAC fund-raising this year could be four times higher than the previous record, set in 2019, implying another $20 billion or so to come. The buoyant markets are attracting figures not known for deal making to the space, like the former Congressman Paul Ryan and the baseball executive Billy Beane, which sows doubts among some about the durability of the boom. Just SPAC mergers involving electric car companies and auto technology firms — “deals on wheels,” as one analyst put it to The Times’s Neal E. Boudette and Kate Kelly — are already worth more than $10 billion.

____________________________

Today’s DealBook Briefing was written by Andrew Ross Sorkin in Connecticut, Lauren Hirsch in New York, and Michael J. de la Merced and Jason Karaian in London.

Editors’ Picks

4. Investors Dump ‘Dead Weight’ Cash-Like ETFs at Record Pace

Katherine Greifeld

Investors Dump ‘Dead Weight’ Cash-Like ETFs at Record Pace

(Bloomberg) — Investors are abandoning cash holdings at a record clip as momentum continues to build behind 2020’s risk rally.

Roughly $5.4 billion has exited from the $20 billion iShares Short Treasury Bond exchange-traded fund — the biggest ultra-short duration ETF — over 14 consecutive weeks of outflows. That was the longest streak on record for the product, whose ticker is SHV. Meanwhile, investors have pulled $2.4 billion from the $14 billion SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) over 10 weeks, according to Bloomberg Intelligence data.

Investors accumulated record amounts of cash earlier this year amid concern over the impacts of the coronavirus pandemic on the global economy, with assets in money-market mutual funds soaring to a record $4.8 trillion in late May. Now, that cash is coming off the sidelines as stocks surge and corporate bonds look increasingly appealing. Additionally, the Federal Reserve’s commitment to keep interest rates at near-zero levels for the foreseeable future is further curbing appetite for short-duration Treasury ETFs.

“It’s recognition that ‘ZIRP’ will be around for a long time, combined with a rising risk appetite,” said Kathy Jones, Charles Schwab Corp.’s chief fixed-income strategist, referring to the concept of a zero interest-rate policy. “Short-term Treasury ETFs are looking less attractive than alternatives. Equities are benefiting. We also see interest in foreign equities and high-yield and emerging-market bonds.”

The S&P 500 has surged more than 55% from March’s bottom, notching a fifth straight month of gains in August. The Fed’s credit market backstop has boosted both investment-grade and junk bonds, with the largest high-yield debt ETF climbing nearly 24% since late March. The emerging-market outlook is also considerably brighter amid the dollar’s continued weakness and the Fed’s new average-inflation targeting regime.

The exodus from ultra-short duration ETFs is also likely due to investors trying to eliminate the “cash drag” in their portfolios by reinvesting in higher-yielding assets, according to Dan Suzuki at Richard Bernstein Advisors.

“Because they’re not generating any yield, they are acting as huge dead weight in many people’s portfolios,” said Suzuki, the firm’s deputy chief investment officer. “Investors are probably chasing higher returns, which means moving up the risk spectrum.”

(Updates prices in 5th paragraph.)

For more articles like this, please visit us at bloomberg.com

https://finance.yahoo.com/news/relentless-risk-rally-spurs-record-155206736.html

5. Warren Buffett’s Berkshire Hathaway reveals $6 billion investment in 5 Japanese giants

Theron Mohamed

  • Warren Buffett’s Berkshire Hathaway disclosed a $6 billion bet on five of Japan’s biggest trading companies in a press release on Sunday night.
  • The billionaire investor’s company revealed that it owns just over 5% of Mitsubishi, Mitsui, Itochu, Marubeni, and Sumitomo.
  • “I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment,” Buffett said in the statement.
  • Visit Business Insider’s homepage for more stories.

Warren Buffett marked his 90th birthday on Sunday by revealing a $6 billion investment in five of Japan’s largest trading companies.

The famed investor’s Berkshire Hathaway conglomerate has built passive stakes of just over 5% in each of Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo over the past 12 months, it said in a press release. Its National Indemnity subsidiary made the investments and will officially notify Japanese regulators of the positions when trading begins on Monday.

“I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment,” Buffett said in the press release.

“The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships,” he continued. “I hope that in the future there may be opportunities of mutual benefit.”

Shares in Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo all rose between 4% and 10% on Monday.

Buffett’s company highlighted its longstanding positions in Coca-Cola, American Express, and Moody’s in the statement, underscoring its intention to maintain the Japanese investments for the long term. 

Berkshire has the option to boost its stakes as high as 9.9% in any of the five companies. Buffett pledged to seek approval from the relevant board of directors to raise it beyond that point.

Investing in Japanese companies is a departure from the norm for Berkshire, as it has historically favored American businesses such as Apple and Bank of America. However, it has made a few foreign bets on companies such as Brazilian payments group StoneCo.

https://markets.businessinsider.com/news/stocks/warren-buffett-reveals-6-billion-investment-5-japanese-companies-2020-8-1029546397#

6. QQQ vs. EFA (developed Europe) 5 Year Chart….U.S. Tech Sector Now Worth More Than Entire European Stock Market.

QQQ +179% vs. EFA +8%

www.yahoofinance.com

The US tech sector is now worth more than the entire European stock market, Bank of America says

Ben Winck

Henny Ray Abrams/AP Photo

  • US tech stocks have overtaken the entire European stock market in market value as investors crowd into mega-caps to ride out the coronavirus pandemic.
  • The tech sector is now worth $9.1 trillion, Bank of America said Thursday, while European stocks — including those in the UK and Switzerland — are worth a collective $8.9 trillion.
  • The five largest US tech stocks — AppleMicrosoftAlphabetAmazon, and Facebook — are worth a collective $7.5 trillion and make up nearly 24% of the S&P 500.
  • Amazon has jumped the most in 2020 so far, while Alphabet’s Class A shares have gained the least.
  • Visit the Business Insider homepage for more stories.

US tech stocks surpassed the entire European stock market in market value after surging through the summer on outsize investor interest, Bank of America said in a note to clients.

The sector has notched several extraordinary superlatives through the coronavirus pandemic. Tech names fueled the US market’s rapid leap out of bearish territory and now host historically high investor crowding. Most recently, the group drove the S&P 500 to a record high, while the US remains deep in an economic slump and economists fear a double-dip recession.

Tech stocks’ market cap totaled $9.1 trillion as of Thursday, Bank of America said. That, for the first time, dwarfed the total value of all European stocks — including those listed in the UK and Switzerland — which stood at $8.9 trillion.

To emphasize the speed at which tech stocks have grown, the bank noted that Europe’s market cap in 2007 was roughly four times the size of the sector.

Much of that value is concentrated in the top five tech giants: AppleMicrosoftAlphabetAmazon, and Facebook. Together the companies make up nearly 24% of the S&P 500 and are worth roughly $7.5 trillion. Apple alone is valued at over $2 trillion.

Investors largely shifted capital into tech giants at the start of the pandemic, betting that the mega-caps’ cash piles and insulation from widespread lockdowns would outperform the market. Some strategists have deemed the names overcrowded, and others say they fear that antitrust measures could erode the companies’ success. But that hasn’t stopped the sector from continuing its run-up through the summer.

Of the five giants, Amazon has surged the most through the year. The stock is up roughly 85% in 2020, thriving on a surge of online retail activity as Americans stayed at home.

Alphabet’s Class A shares are up the least year-to-date compared with its mega-cap peers. Still, the shares have gained roughly 22% in 2020 and more than 7% over just the past month.

https://markets.businessinsider.com/news/stocks/us-tech-stocks-worth-more-european-stock-market-apple-microsoft-2020-8-1029545001#

7. Dollar Breaking 200 Day Moving Average

www.stockcharts.com

A weak dollar is impacting an uneven global market recovery

Dion Rabouin, author of Markets

After sinking on Friday, the dollar is teetering near its lowest in more than two years, and threatening to decline even further after Fed chair Jerome Powell confirmed plans to let inflation run hot in the future, likely meaning 0% U.S. interest rates for quite some time.

Why it matters: For the U.S. currency to fall in value, other currencies must rise and that can be especially harmful to export-oriented economies like the eurozone and Japan, whose central banks may be forced to take action in the coming months.

What it means: A strong currency makes a country’s exports more expensive and therefore less attractive, denting a needed source of income, especially as the world tries to recover from the coronavirus pandemic.

  • But with the European Central Bank and Bank of Japan both already holding negative interest rates and having significantly expanded their respective quantitative easing programs, weakening their currencies may require extreme measures.

The big picture: The U.S. has done a far worse job handling the coronavirus pandemic than most of Europe and Japan, but that has led to a weaker currency and a much stronger bounce in stock prices. The benchmark S&P 500 has gained 8.6% this year, with the Nasdaq up 30%.

  • The currency appreciation is weighing on stock indexes in the eurozone and Japan, which have recovered much more slowly than U.S. equities this year.
  • Germany’s DAX is up 5% for the year in dollar terms, but in euros the index remains 1.6% lower than where it began 2020, with similar outcomes for the Italian benchmark FTSE MiB (-10.5% YTD in dollars, -15.6% in euros) and France’s CAC 40 (-11.3% YTD in dollars, -16.3% in euros), per FactSet data.
  • Japan’s Nikkei index is flat on the year in dollar terms, but about 3% lower in yen.

Where it stands: The euro has risen to $1.19 and is trading just below the two-year high it touched earlier in August, threatening to break back toward its early 2018 levels around $1.25, while the dollar has fallen to 105.30 yen, eyeing 100 yen per dollar.

  • The Swiss franc, Swedish krona and Danish krone all have gained at least 6.5% versus the dollar this year.

Worth noting: Commodities, which are largely priced in dollars, also look poised to further benefit from the greenback’s slide. Gold and silver have had breakout years, each up more than 30% for the year, and other commodities are picking up — copper has risen 12% since July 1, and cocoa is up 23.6%.

https://www.axios.com/weak-dollar-global-recovery-central-bank-policy-f8c9fc0a-5c98-427c-a7c7-6b951773c700.html

8. Update on Restaurant Reservations

In the US, about 75% of the restaurants that took reservations before the pandemic are now taking reservations again, up from zero in April, according to data from OpenTable which provides online reservation services for 60,000 restaurants. Back on July 1, already 65% of the restaurants were taking reservations again, but then new outbreaks spreading across the country, particularly in the South, triggered some retrenching (chart via OpenTable):

The State of the American Restaurant, City by City–by Wolf Richter • Aug 29, 2020 • 108 Comments https://wolfstreet.com/2020/08/29/the-state-of-the-american-restaurants-city-by-city/

9. Follow Up From My Link Yesterday to Most Under 40’s Ever in U.S…..Population in U.S. Median Age is Trending Higher.

Thanks to Joe D at Philly Inquirer for Passing Along.

https://www.statista.com/statistics/241494/median-age-of-the-us-population/

10. Why Misinformation Goes Viral

Psychological factors affect the spread of misinformation during crises.

H. Colleen Sinclair Ph.D.

Unpacking Social Relations

In the continued war on misinformation, LinkedIn and Facebook just removed millions of posts containing misinformation about the coronavirus.  And it is believed that is but a fraction of the posts.  When John Oliver tackled the flood of misinformation surrounding the COVID-19 pandemic, he mentioned the “proportionality bias” — that big events beg big explanations — to explain why misinformation, particularly conspiracy theories, have had a heyday with the current crisis.  However, the science suggests that it is more than just the proportionality effect at play making this crisis exceptionally fertile grounds for seeds of misinformation.

Negativity Bias. For starters, our evolutionary heritage leads us generally to pay more attention to negative information than to positive information.  This negativity bias was important to the survival of our species, as attending to the tiger prowling the encampment was more imperative than celebrating the latest birth.  We see this reflected in our news which disproportionately features headlines about the latest travesty while feel-good stories are relegated to the back pages.  And recent research has shown that this attention to negative news is evident at the physiological (and neurological) level across samples in 17 different countries.

Ultimately, this means that if something bad is happening, it’s got our attention.  A once-a-century pandemic killing hundreds of thousands certainly qualifies.  Thus, already, we are on the outlook for information.  Further, evidence suggests that negative information is viewed as more credible than positive information.  So not only are we paying attention but we are also primed to believe it.

Social Risk Amplification. This negativity bias gets a boost when information is shared.  In a recent interview, it was said that the spread of misinformation is like a “screwed up game of telephone.” In fact, using these “diffusion chain experiments” is a common choice in experimental studies examining the transmission of information.  In a 2015 study researchers had strings of 10 participants pass along information about the risks and benefits of a controversial drug (i.e., triclosan).  Overall, all messages became shorter and increasingly inaccurate.  However, by the end of the “diffusion chain” information about the benefits had been relatively lost whereas information about the risks continued to spread.  Further, individual biases about risks led to the amplification of risks down the chain.  A follow-up 2020 study showed that this amplification effect is even stronger when people are feeling stressed and unfortunately, new research shows that Americans are even more stressed about the coronavirus than other nations.

 Reginald D. Williams II et al., Do Americans Face Greater Mental Health and Economic Consequences from COVID-19? Comparing the U.S. with Other High-Income Countries (Commonwealth Fund, August 2020).

American Stress Levels Compared

Source: Reginald D. Williams II et al., Do Americans Face Greater Mental Health and Economic Consequences from COVID-19? Comparing the U.S. with Other High-Income Countries (Commonwealth Fund, August 2020).

Dread Risks. As if that weren’t enough to provide a megaphone for misinformation during stressful times, social risk amplification is even more likely when people are experiencing what are called dread risks, i.e., life-altering, disastrous, random, events that present a threat to mortality.  In a 2018 study, researchers using an 8-person diffusion chain experiment paradigm randomly assigned groups to transmit low- or high-dread risk messages. As the message passed from person to person the high-dread chains became more and more negative in their transmission of the message relative to the low-dread chains, and those messages became more and more distorted. We saw a real-life example of this with the transmission of information about the Ebola outbreak in 2015 via Twitter and Facebook where the diffusion chains are no longer just 8 or 10 people long but spread across millions of users each with their own megaphones of various wattage.

Frustration with the Scientific Method. To further complicate matters, the current pandemic features a novel coronavirus.  Meaning there wasn’t a wealth of accurate information from science at the outset of the outbreak because how could there be? It was new. Scientists are racing to find answers. Science, however, is constrained by the scientific method which is much slower than the pace at which fearful stressed citizens want information. It takes considerable time, customarily, to build a scientific consensus. Thus, in this race for information, science often lags behind misinformation because the Twitter user recommending alcohol to combat COVID-19 is not similarly constrained.

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This scientific method can further be frustrating to individuals when the process of replication and peer review kicks in and leads to the modification or retraction of findings. These updates are more likely to occur when there is a race for answers and thus usually meticulous methods are viewed as less important than expediency. When recommendations are altered based on new evidence, this is a sign that science is working.  However, when sources who are supposed to “have the facts” change course, it can result in a tainted truth effect damaging trust in those sources.  Meanwhile, our Facebook friends are not held to the same standard.

Fear and Shallow Processing. Consequently, the wrong information, if repeated and said with certainty, can be more persuasive than the latest science, especially when we don’t take the time to process messages (e.g., read beyond the headline). Shallow processing is even more likely on the internet, where information flies by at the speed of a scroll and among people who are afraid such that they are looking for any type of action to protect themselves.  

Due to this perfect storm of contributing factors we are seeing the spread of misinformation take on pandemic proportions (now available in 25 languages). Scientists often feel like they are combating two viruses. As citizens wishing to avoid infection, we need to practice good information hygiene in addition to good personal hygiene—starting with recognizing some of the signs that something you encounter might be misinformation, just as you would be on high alert when you hear someone cough or sneeze. Further, engage in basic fact-checking. Be the investigator, find the source of the information, and weigh the evidence supporting their claims. If you don’t have the time to do the investigation, do not share. You could save a life by stopping the spread of misinformation.

https://www.psychologytoday.com/us/blog/unpacking-social-relations/202008/why-misinformation-goes-viral?collection=1148634

Disclosure

Lansing Street Advisors is a registered investment adviser with the State of Pennsylvania..
To the extent that content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security as information is provided for educational purposes only. Articles should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any securities or asset classes mentioned. Articles have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Securities discussed may not be suitable for all investors. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results.
Material compiled by Lansing Street Advisors is based on publicly available data at the time of compilation. Lansing Street Advisors makes no warranties or representation of any kind relating to the accuracy, completeness or timeliness of the data and shall not have liability for any damages of any kind relating to the use such data.
Material for market review represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.
Indices that may be included herein are unmanaged indices and one cannot directly invest in an index. Index returns do not reflect the impact of any management fees, transaction costs or expenses. The index information included herein is for illustrative purposes only.