TOPLEY’S TOP 10 June 05 2024

1. MCHI China IShares Chart

MCHI breaks above red downtrend line going back to 2021

2. KWEB China Internet ETF

50day thru 200day to upside in early May

3. Energy Sell Off

OIH Oil Service ETF closes below 200-day

4. Another Look at Concentration in S&P…Top 3 Companies 20% of Market

5. Buffett Indicator

Doug Short Advisor Perspectives

6. Criticisms of The Buffett Indicator

From Current Market Valuation Blog 
No single metric is illustrative of the health or relative valuation entire market. Common criticisms of the Buffett Indicator are:

Interest Rates-The Buffett Indicator only considers the value of the stock market, but does not consider how stocks are valued relative to alternative investments, such as bonds.
When interest rates are high, bonds pay a high return to investors, which lowers demand (and prices) of stocks.

Additionally, higher interest rates means it’s more expensive for businesses to borrow money, making it harder to borrow cash as a way to finance growth. Any business that takes on debt will face relatively higher interest payments, and therefore fewer profits. Less corporate profits means lower corporate stock values. The corollary to this is also true. Low interest rates means bonds pay less to investors, which lowers demand for them, which raises stock prices in relation to bonds. Low interest rates make it easy for corporations to borrow cash to finance growth. Corporate interest payments will be low, making profits higher.

This is all to say that all else equal if interest rates are high, stock prices go down. If interest rates are low, stock prices go up.

Over the last 50 years the interest rate on 10 Year US Treasury bonds has averaged 5.86%. During the peak of the .com bubble when the Buffett Indicator was very high, the 10Y Treasury rate was a bit higher than average, around 6.5%, showing that low interest rates weren’t juicing the stock market. Today the Buffett Indicator is still quite high relative to its historical trend line, but interest rates are still relatively low, currently at 4.20%.

This can be interpreted to mean that during the .com bubble, equity investors had other good options for their money – but they still piled recklessly into stocks. Whereas today, investing in bonds returns relatively little. Today‘s investors need to seek a return from somewhere, and low interest rates are forcing them to seek that return from riskier assets, effectively pumping up the stock market. While this doesn’t justify the high Buffett Indicator on any fundamental basis, it does suggest that the market today is less likely to quickly collapse like it did in 2000, and that it may have reason to stay abnormally high for as long as interest rates are abnormally low.

For additional detail on the effect interest rates have on stock prices, view our Interest Rate Model.

International Sales
A second fair criticism of the Buffett Indicator is that the stock market valuation reflects international activity while GDP does not. Though GDP does include national exports, it would not include something like the sales Amazon makes in India (sourced from Indian fulfillment centers and sellers). However, Amazon’s India business is definitely priced into its overall stock price, which is listed in the USA. Imagine if the Indian government banned Amazon from the country and shut down all its operations/subsidiaries there. This would lower Amazon’s stock price, which would lower overall US stock market value, but have no impact on US GDP. That is, the Buffett Indicator would fall.
Globalization has expanded steadily over the last 50 years and has been a key driver in the growth of the Buffett Indicator over time, since US stocks have risen in value due to overseas activities not included in US GDP.

This is a very fair criticism of the Buffett Indicator itself — though not necessarily for the valuation model presented here, which looks at the Buffett Indicator relative to it’s own exponentially growing trend line. Our model expects exponential growth of the indicator over time, such that we have a “fair” Buffett Indicator value of 50% in 1960, growing to ~120% in 2020. Part of that natural increase is due to technological advances that lead to higher profits for existing firms, or from the creation of new industries entirely. Another part of that natural increase is because US market value is growing faster than GDP due to the rise of international sales of US-based firms. The key point here is that the model is looking at relative performance against the indicator’s own trend rate, and not just saying “the Buffett Indicator is high”.


7. Bitcoin Second Biggest Net Inflow Day Ever

After a period of flat to negative flows, the spot ETFs have added $3.7 billion in assets over the past month, to make the aggregate net inflows since inception almost $15 billion. Yesterday completed the sixteenth straight day of net inflows with a second-best-ever $887 million flood of money into the crypto assets.

8. Number of Job Openings Normalizing

9. Devastation in Ukraine-NYT

By Jeffrey Gettleman 

Measuring every town, street and building blown apart since the Russian invasion. A map of Ukraine showing damaged areas since the invasion of Russia in 2022 

Sources: Analysis by Jamon Van Den Hoek, Corey Scher and The New York Times

You’re reading The Morning newsletter.  Make sense of the day’s news and ideas. David Leonhardt and Times journalists guide you through what’s happening — and why it matters.
Imagine your hometown being wiped off the map.
Imagine a city where no one lives.
Imagine the landmarks in your life — where you went to school, where you were married, where you worked and played and loved and prayed — erased.
This is what happened to Marinka, a small town in Ukraine’s east with nearly 200 years of history. Photos of it look like those of Hiroshima. Its destruction has become a symbol of Ukraine’s war.
A map of Ukraine showing damaged areas since the invasion of Russia in 2022

Photo by Finbarr O’Reilly for The New York Times
It’s hardly the only Ukrainian town like this. The Times worked with researchers to measure every town, street and building in Ukraine blown apart since the Russians invaded in 2022. In today’s newsletter, we’ll explain how we did it — and what we found.

10. 5 Ways to Emotionally Recover From a Frustrating Mistake

Practical strategies to bounce back and restore your peace of mind. Alice Boyes Ph.D.
We all make frustrating mistakes from time to time. Examples:

  • You drop and crack your phone.
  • You miss a deadline and have to pay a late fee.
  • You ding your car.
  • You lock yourself out of your house.
  • You forget to take your debit card to a store that only accepts debit cards, so you have to go home to get it, wasting 30 minutes.

These errors can be emotionally stinging, especially if you’re already feeling down on yourself or your emotional reserves are low. Here are five tips for recovering after this type of incident.

1. Give it an hour or two.
Rather than rushing in with strategies to repair your mood, wait an hour or two after the incident to see how much you recover in a small amount of time without doing anything. This will prevent unnecessary work and angst if your emotions substantially repair themselves. You can then deal strategically with whatever remains.

2. Do something smart and purposeful, even if it’s unrelated.
We can’t always fix a specific mistake, but we can take smart and purposeful action to remind ourselves that we’re not hopelessly inept at adulting. Do something, virtually anything, that makes you feel like you’re doing a good job managing your life.

3. Reflect on the pathways that led to the mistake.
Pointlessly dwelling on the causes of mistakes is a form of rumination. Don’t do that, but you can try fruitful reflection. For example, perhaps you had several warning signs of the potential for the mistake (e.g., near misses), and you ignored them. Or, perhaps you made other silly mistakes recently due to feeling scattered or overwhelmed. You’re aware that those states lead to being disorganized or making mistakes due to rushing, but you didn’t do anything to prevent that.

4. Implement a routine that will disrupt the pathway you identified.
If you make silly mistakes when you’re scattered, you probably need a consistent routine to help prevent them. For example, you always check your bag for your debit card before heading to a particular store, and you stick to going to that store on a specific day of the week to make it even more of a strong habit.
If you consistently use a habit, not just when you feel scattered, that will help that sequence of behavior carry over to times you’re rushing, etc.

5. Engage in “at least it wasn’t something worse” thinking.
Forced positive thinking can backfire, but there likely will be a point when it feels beneficial to engage in thoughts like, “At least no one was injured in the accident” or “This was minor in the grand scheme of things.” Most things that go wrong are minor rather than major. Try this thinking style when it feels beneficial to you. If it doesn’t come naturally to you, you can try techniques like describing the situation via ChatGPT and asking what a supportive but realistic friend might say in the situation. This can help you learn compassionate self-talk if it’s not currently in your repertoire.
Small mistakes are annoying, especially if they incur wasted time or money, embarrassment, or rumination. Don’t make the pain of an objective consequence (like wasted time or money) worse by loading up optional consequences (like excessive rumination). Instead, use these tips to analyze and react to the mistake in a smart and productive way.