Topley’s Top 10 – August 28, 2020

1. 1995-2016 Hedge Fund Managers Kept 64% of Profits.

Opinion: Hedge fund fees — whether or not you make money — are truly shocking

Mark Hulbert

Hedge funds keep two-thirds of profits; investors get the rest

The professors analyzed a comprehensive hedge fund database containing nearly 6,000 funds over the 22 years from 1995 through 2016. Over that period these hedge funds collectively produced total gross profits of $316.8 billion. Of this total, fund managers kept $202 billion ($88.7 billion in management fees and $113.3 billion in performance incentive fees). The remainder—$113.3 billion, or 35.8% of total gross profits — went to investors. (See the chart below.)

The source of this skewed profit sharing is the asymmetry of hedge funds’ performance incentive fees. While the hedge fund industry receives a portion of investors’ gains, it does not to the same extent share in their losses.

It’s easy to overlook this asymmetry because it becomes evident only when focusing on the industry as a whole. At the individual fund level, incentive fees are only levied on performance that exceeds prior performance — exceeds previous high-water marks, in other words.

To illustrate how this performance incentive fee arrangement looks in practice, imagine the following two otherwise identical scenarios (setting aside management fees):

•        You invest in a single hedge fund that in the first year gains 20%, gives up all that gain in the second year (a loss of 16.67%), and then gains 30% in the third year. You’d pay a performance incentive of 4% in the first year (20% of the 20% gain), nothing in the second year, and only 2% in the third year (2% of the amount by which that year’s gain exceeds that fund’s previous high-water mark). Glossing over several details, your total performance incentive fee for all three years would be 6% of assets under management.

•        In the second scenario, imagine that you instead invest in three separate hedge funds with the same gains: The first gains 20%, the second loses 16.67%, and the third gains 30%. Because the losing hedge fund’s losses can’t be used to offset the other two funds’ gains, you will pay a performance incentive fee of 10% — four percentage points higher.

An extreme example of this occurred in 2008, during the Great Financial Crisis. Cumulatively that year, the professors report, the hedge funds in their database lost $147.1 billion before fees. Yet investors in those funds collectively paid $4.4 billion in performance incentive fees.

https://www.marketwatch.com/story/hedge-fund-fees-whether-or-not-you-make-money-are-truly-shocking-2020-08-21

2. Call Options Betting on Higher Market Hit 1999 Levels

Options bets that the stock market will continue to soar have exploded to dot-com bubble levels

Mark DeCambre

Even as the stock market trades in record-setting territory despite the economy being in the throes of a viral pandemic, Wall Street bets for further gains are around their highest levels since the dot-com bubble, according to research from Bespoke Investment Group.

Options bets that the S&P 500 SPX, +0.16% will extend its run-up in months to come have roughly doubled, far exceeding trading in securities that would be used to bet that a decline in stock values was imminent.

Call options give holders the right but not the obligation to buy a certain number of shares (100 per option contract) at a certain price (strike price) by a certain date (expiration date).

Calls are viewed as bullish bets on an asset, as opposed to put options, and Bespoke indicates that appetite for calls, particularly among individual investors, has boomed.

“Retail enthusiasm for the market via commission-free trading apps plus the huge volatility earlier this year have led to a massive boom in options volumes,” the analysts at BIG wrote. “Most of the increase in trading activity in these derivatives has gone to calls,” they wrote (see chart below).

BESPOKE INVESTMENT GROUP

https://www.marketwatch.com/story/options-bets-that-the-stock-market-will-continue-to-soar-have-exploded-to-dot-com-bubble-levels-11598558379?mod=home-page

3. Yield Spreads Vs. Treasury..Energy Sector Highest.

From Dave Lutz at Jones Trading

David Rosenberg: Why it’s time to buy energy stocks now that Exxon Mobil has been booted out of the Dow – “It’s a classic contrary signpost for the downtrodden oil and gas equity sector” – as we re-enter a period of ‘ZIRP’ (zero interest rate policy) from the U.S. Federal Reserve — with no intentions of raising rates, or thinking about thinking about raising rates (as Fed chairman Jerome Powell put it) — investors are yet again forced to identify where they can get an income stream. In the period following the Great Financial Crisis, the answer has been in the stock market with the dividend yield exceeding the yield on the 10-year Treasury note on multiple occasions.

From Dave Lutz at Jones Trading

4. Never Invest Based On GDP…

One of the Strongest Aug Ever in Stock Market…On Back of Worst Quarterly Global GDP in History

The Worst Quarter in Modern History

We have 2Q GDP from almost every major country around the world now officially in the books. Bank of America Merrill Lynch says it’s “the worst quarter in modern history” and there’s no reason not to agree with that assessment.

Here’s my Chart o’ the Day:

GDP is down a GDP-weighted average of 8.1% yoy, easily the worst quarter in modern history…The US is right in the middle of the pack—down 9.5% yoy—but this is because the US has offset its ineffective COVID containment strategy with massive fiscal and monetary stimulus.

Source:

“Its official: the worst quarter ever”
Bank of America Merrill Lynch – August 18th, 2020

From Josh Brown Blog

https://thereformedbroker.com/2020/08/20/the-worst-quarter-in-modern-history/

5. S&P 500 heads for best August since 1986 as stunning summer rally continues

PUBLISHED FRI, AUG 28 20206:19 AM EDT

Bob Pisani@BOBPISANI  CNBC

A child wearing a face mask sits on the Charging Bull statue, also known as the Wall Street Bull, following the outbreak of the coronavirus disease (COVID-19) in New York, August 19, 2020.

A child wearing a face mask sits on the Charging Bull statue, also known as the Wall Street Bull, following the outbreak of the coronavirus disease (COVID-19) in New York, August 19, 2020.

Carlo Allegri | Reuters

It’s been a great August, up 6% for the S&P 500, the best August since 1986.

But then again, it was a great July.  And a great June. May was pretty good, too, and April was downright eye-popping.

The Summer Rally (S&P 500 Monthly Returns)

·         April: up 12.7%

·         May: up 4.5%

·         June: up 1.8%

·         July: up 5.5%

·         August (so far): up 6.6%

Five straight up months. What’s going on?

“August is going to come out looking like capital markets are endorsing a US cyclical recovery,” Nicholas Colas from DataTrek told clients in a recent note.

Colas freely admits that August’s outside return has a big asterisk: Apple’s 18% run-up. 

“This meaningfully skews everything from Tech sector returns to Growth/Value performance spreads and even the S&P 500′s August return,” he said, noting that without Apple, the S&P would only be up 4.1% on the month, not 6.8%.

Still, it sure looks like the market is endorsing an economic rebound. The small-cap Russell 2000 is also up about 6% for the month.  High-yield corporate funds are outperforming all other bond market classes. If the trading community was worried about an imminent economic downturn, neither of those two sectors would be leading.

The market has held up on a combination of optimism on a treatment/vaccine, along with massive Fed stimulus.

There’s still optimism on the vaccine front, but now that the Fed has announced its program to keep rates lower for longer and tolerate higher inflation levels ahead of its much-anticipated September 16th meeting, many are arguing the rally based on a Fed “put” (a floor below the market) has gone about as far as it can go.

“The Fed easy money story now priced into the market,” Alec Young, Chief Investment Officer at Tactical Alpha LLC, told me. “It’s buy the rumor, sell the news.”

But even Young admits that may only suffice to pause, but not derail the rally. He also argues the market needs a pause in the relentless digital/work from home story: “It is not healthy to have the index dominated by a few technology stocks,” he said.

None of this means the market will drop, and there are still plenty of bulls who insist the market is going higher.

Jim Paulsen at Leuthold is one of them: he has been bullish and remains bullish, though he freely admits the market could see a 10% correction.

He also freely admits that tech stocks are extended, but insists the fundamentals for tech are rock solid and nothing like 2000.  Extended, he insists, does not mean they are waiting for a crash.

And he strongly disagrees with the popular notion that Wall Street has become disconnected from Main Street.

“It’s not just about the Fed put. People think there is no legitimacy to the rally, and they’re wrong.  Look at retail sales, or the ISM, or housing, or auto sales. Look at the improvement in unemployment claims. They’re all bouncing,” he said.

As for the narrow rally centered on tech, Paulsen believes the broader market is about to play catch-up.

How much? He said he would not be surprised if S&P corporate profits were $200 in 2021.  The current consensus is $165.

Profits 25% higher than consensus for 2021? That would go a long way toward justifying the rally.

“We’ve had a 12% reduction in GDP, an all-time record,” he told me.  “But we may have an 18% improvement in GDP in the next 12 months, and that also would be an all-time high. That is going to bring in the broader market along with it.  You are going to have a major league shift in profitability into those cyclical names. When you thrust all those companies into a depression, and then you force them to get the most efficient they have ever been in their existence, and after all that, you give them a wartime boom?  Profitability is going to be maximized.”

Leuthold has told his clients to stay long: “I am going to own new-era tech, but I am going to own less of it going forward, and I am going to own more of the broader market–cyclicals, international, and small caps.”

Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.

https://www.cnbc.com/2020/08/28/sp-500-heads-for-best-august-since-1986-as-stunning-summer-rally-continues.html

6. Why The Fed Comments Yesterday?

Found at Nasdaq Dorsey Wright www.dorseywright.com

7. Ultraviolet Light Can Kill the Virus—and Help These Stocks Rebound

By  Al Root

Text size

 Barrons

Daniel Slim/AFP via Getty Images

Ultraviolet light is getting its moment in the sun. Companies are adopting the technology to take out the coronavirus and make travel and work safer, and shares of some businesses active in the area are getting a lift.

For starters, Boeing (ticker: BA) announced Monday it is testing UV disinfecting technology inside a 787 jet. The goal is to make aviation “safer and more sustainable,” according to the company’s news release.

“It’s literally a UV wand designed to clean the flight deck,” Kevin Callahan, associate technical fellow at Boeing Commercial Airplanes, explained to Barron’s. On the flight deck, where pilots control the plane, harsh cleaning chemicals aren’t a great idea given the electronics in the area.

Boeing’s wand is designed to clean the cockpit in about 15 minutes. “This [wand] is an industrial strength version of what people see in stores,” Callahan said. Investors—and U.S. consumers—might be familiar with the blue light wands sold at places such as CVS Health (CVS) stores as tools for smartphones or the like.

·         iams-Sonoma Profit Doubled. The Stock Fell Anyway.UV light kills up to 99.9% of seasonal coronaviruses present in airborne droplets, according to a study by Columbia University. (For consumers looking for UV wands, the wavelength of light studied by Columbia is 222 nanometers long. It’s something to look for on UV wand packaging.)

The effectiveness of UV light makes some intuitive sense. UV light gives people sunburn, and in extreme cases, cancer. It can disrupt viruses’ DNA, rendering them effectively dead.

Carrier (CARR) is also expanding its air-quality game. Tuesday, the HVAC—short for heating, ventilation, and air conditioning—company said is selling 1,500 Carrier OptiClean air machines to California schools.

OptiClean are free-standing units that can be plugged into electrical outlets. “The ease-of-use and portability allows them to quickly and efficiently be deployed in a number of spatial configurations as the needs arise,” said Tyler Girtman, a regional manager at the building-solutions company Climatec, said in the Carrier news release.

Climatec worked with the schools buying the units on ways to ensure the health of students and staff as the academic year begins.

Top 5 uses for a UV lamp and ultraviolet light

Top 5 uses for a UV lamp

The ultraviolet light is very useful. It has many applications in the commercial, industrial and healthcare sectors. Ultraviolet light is a kind of electromagnetic radiation. Its wavelength is close to that of X-rays and light.The LED technology is improving and so the UV LED lights are becoming more available in the market. The UV light has higher energy compared to the visible light and so it is more useful. Here we are going to discuss the various uses of UV lamps.

Tanning and skin treatment

UV light is used for tanning. It can be used to imitate the impact of sunlight on the skin. For indoor tanning, use of UV light is very common. In fact, many people prefer indoor tanning to sun tanning. The rays of the sun are not uniform, so it may cause sunburn at times. You also need to be under the sun for a longer period of time to get the tan. The indoor tanning, on the other hand, requires only about 20 minutes. Another disadvantage of sun tanning is that the sun contains both UVA and UVB beams. The UVA beams are responsible for the tanning, but the UVB beams are harmful as it might affect your DNA. The UV lamps used in salons for indoor tanning doesn’t contain any UVB beams. So, it is safer. Ultraviolet light is effective in treating smallpox lesions. UV phototherapy is effective in treating vitiligo and psoriasis. It can also prevent the growth of certain type of skin cancer.

Fluorescent inspection

UV lamps can be used to inspect various materials and surfaces. Materials react in different ways when they are exposed to the UV light. Some substances absorb the UV light’s energy and change it into visible light. It is called fluorescence. For example, the ink of a highlighter pen has fluorescent dye. So, the dye glows in the dark. UV lamps can provide efficient lighting in homes and offices. These lights are used to decorate nightclubs.The UV beams emit a black light. This black light is useful in many ways. It can be used to inspect splits, breaks, and various defects. You can view certain things using the UV light that are not visible to the naked eye. So, it is also used as an analytic tool. This light is used by the detectives and other companies for inspection of documents, forged bank notes, etc.

Disinfection and germ control

The ultraviolet light can inactivate the small creatures in the water. So, it is used for disinfecting drinking water. This process is absolutely chemical free and can effectively destroy bacteria that have a wavelength of 240 to 280 nanometers. The light destroys the bacteria’s capacity to reproduce. So, no more bacteria grows in the water. UV light is widely used in water treatment facilities. This method of treating water is a lot more efficient than boiling water. The UV light can also get rid of chlorine and chloramine from water. Another use of the UV lamp is that it used in killing germs that are found in equipment, utensils, worktops, etc. This technique of germ control is used in the commercial businesses as well. It helps to avoid cross contamination or food poisoning. The UV light can also be used to increase the shelf life of vegetables and fruits.

Air Cleaning and bug eradication

Mold growth inside the house can affect the indoor air quality. If you can install UV air purification unit in your air conditioner duct then the quality of air can be improved. The UV-C light, which is in the 280 to 100 nm range, is used for air purification. This UV light can kill mold, mildew, germs, viruses, and bacteria that float in the air. You can use an air purifier that has the UV-C light technology. In this type of air filter, air passes through a HEPA filter. Then it passes through a small chamber and gets exposed to the UV-C light. Sometimes, the air goes through another filter before getting inside the room. You should use 36-watt bulbs for this purpose. UV lamps are used for killing bugs in the house as well. It is used in the modern bug zappers and has proved to be very effective in killing bugs. The UV-A light, in the range 380 to 315 nm, attracts many bugs and insects like houseflies, wasps, mosquitoes, etc. Unlike the humans, these insects can actually see the ultraviolet light. When the bug zapper is on, the insects get attracted to UV light and go towards the mesh. They become electrocuted once they come into contact with the electric grids and gets vaporized. The bug zapper is a very popular means of killing bugs and insects today.

Indoor Gardening

UV lights are used in the production of polyphenols. It is a very beneficial plant and is said to prevent cancer. It can also make you look young. It can help in raisin production as well. It can also help in the production of medical cannabis. In fact, the UV light helps in improving the medicinal properties of cannabis.

The UV light is found in the sunlight. It has a shorter wavelength than the natural light. Due to research and innovation, the UV lamp can now be used in a number of different ways that are beneficial to people. It can help users in our daily lives. It has many commercial and industrial applications as well. It is used for treating water, purifying air, tanning, treating skin diseases, indoor gardening, eradicating bugs, identifying things, etc. In future, the scientists will be able to come up with more uses of UV lamps.

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https://www.urbancartography.com/top-5-uses-uv-lamp/

8. Three Smart Investments for Today

By John Maxwell | July 30, 2020 | 11 

Photo by Waldemar Brandt on Unsplash

Earlier this week, a name from the past made headlines.

Eastman Kodak saw their stock price surge by 1,200% after it was announced that they would receive a $765 million loan under the Defense Production Act. The loan to Kodak is the first from the new U.S. International Development Finance Corporation, a government agency that’s been assigned the task of rebuilding America’s medical supply stockpile.

As a result of this first step, the company once known for producing the chemicals necessary for developing film will now be known for producing the chemicals necessary for developing needed medical drugs that are in short supply (including drugs for treating Covid-19).

I share this story with you because Kodak has been a go-to story within the business community for years. If you needed an example of a company that missed its window for innovation and growth, Kodak was one of the first to come to mind.

And now, thanks to this new investment, Kodak has a second life.

Kodak isn’t the only investment opportunity worth talking about during this Covid season. It’s going to sound familiar to anyone who’s listened to me over the past few months, but this is a perfect time for you to reassess and reinvest in yourself to ensure your future growth.

Just as Kodak will get new life from their cash infusion, you can get new life by investing in yourself during this time.

If you’re not sure where to start, let me give you three places you should invest:

Your Mind

It should come as no surprise that a lot of people have spent their time settled in front of a screen during this Covid season. TV watching is up, streaming hours are up, and there’s a good chance the screen time monitoring apps on most phones are exhausted from calculating the number of hours people are staring at their pocket screens.

While I’m not opposed to taking a mental break to watch something entertaining every now and then, staring at a screen all day isn’t ideal for your mind.

Last week, I wrote about the tools in your leadership toolbox, and most of the tools I wrote about were tools that build your mind; tools that help you improve and innovate your thinking. Spending time with a good book, a smart podcast, or even an online video course will help you sharpen your mind more than binge-watching “Friends” again ever will.

If you’re going to consume content, focus on content that makes you smarter.

Your Heart

There’s a piece of wisdom from the Bible that says, “Keep vigilant watch over your heart; that’s where life starts.” It’s easy for a heart to be discouraged during times like these; most of the news we see, hear, and read does little to offer us hope for the future. Social media is full of personal attacks and disagreement. And even the closest of families are experiencing struggles after months of being together at home with little outside social contact.

That’s why you need to invest in your heart. Take breaks to spend time alone with your thoughts so you can examine them. If they’re overly negative, you need to change them because negative thinking will turn your heart in a negative direction. I spend time in prayer and reading my Bible as a way of investing in my heart, but you need to find a practice that works for you. Maybe you can start a gratitude journal, or spend time daily repeating your personal values to yourself as a reminder of what you stand for.

Regardless of the practice, make time for feeding your heart because that’s the essence of who you really are.

Your Relationships

I’ve already mentioned the strain that Covid has put on some family dynamics, so it shouldn’t surprise you that the last place you should invest is in your relationships. True, you may not see as many people as you’re accustomed to seeing, but that doesn’t mean you can’t invest in those relationships.

Set aside time to handwrite notes to people you’ve not seen in a while and let them know that you’re thinking about them. Use your phone to send a co-worker a text of encouragement—or better yet, actually call someone and talk to them! Set up a Zoom call with your grandkids or your softball team just to see what they’re up to.

Here’s what I know: while it may take until 2021 for things like work, the economy, and community life to return to a state of normal, relationships can’t wait that long. The people you know and love need your investment today, and it’s well worth your time and energy.

You’ll have to invest in those relationships once things get back to normal anyway; might as well get a jump start on the process so you can move further faster when the opportunity is right.

The past few months have been difficult, and the months ahead may prove to be just as challenging, if not more so. Investing wisely in your mind, heart and relationships will ensure a smoother journey for you and the people you care about.

Your brilliant future begins today—lead the way for others by investing well in the areas that matter most.

https://www.johnmaxwell.com/blog/three-smart-investments-for-today/

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