Topley’s Top Ten – December 3, 2019

1.Speculative Short VIX Positions at Extreme Levels ….Going Back to 2011 Well Below End of 2018 Anomaly.!/article/54825/week-ahead-where-did-all-the-vol-love-go

2.$370 Trillion in Global Financial Products Based on Libor….Huge One Year Drop in Rate.

One Year Libor

5 Year Libor Chart

3.Size Comparison of Major Government Bond Markets.

Wells Fargo

4.Is the Stock Market Expensive?  Depends on What Metric Your Using.

Low interest rates, low inflation and the Federal Reserve on hold are supporting prices for now.

Any Weather: Valuations Say Stocks are Cheap and Expensive–By Liz Ann Sonders

5.U.S. Shifts to Oil Exporter.

ENERGY The U.S. Makes Oil History
Financial Times
The U.S. became a net exporter of crude oil and refined petroleum products in September, the first full month it’s done so since the
1940s, according to the Energy Information Administration.  As a net exporter, the U.S. shipped out more of those products than it imported—89,000 more barrels to be exact.
Why it matters: The U.S. has sprinted to the top of the oil food chain thanks to a boom in shale drilling. Just one decade ago, imports topped exports by 12 million barrels. 
Looking ahead…oil prices will be in focus as the top producers meet in Vienna for the OPEC meeting on Thursday and Friday. 

6.Small Cap Stocks Two Standard Deviations Cheaper Than S&P

Chart of the Week: While U.S. small cap stocks (Russell 2000) have underperformed large caps (S&P 500) by almost five percentage points year-to-date, small caps have outperformed by almost one percentage point since the end of the third quarter. There is significant evidence that the outperformance in small stocks could continue. Valuations are attractive and currently stand at over two standard deviations cheaper relative to the S&P 500 (see chart). Since valuation is a poor timing tool, it is worth noting that the Russell 2000 hit its first 52-week high in more than a year last week. According to Strategas Research Partners, the Russell 2000 was higher in the following twelve months in ten out of eleven similar instances since 1982 with an average gain of 15.2%. Small caps should also benefit if investors continue to exhibit a growing risk appetite with biotech, its second largest sector at 8.3%. The largest sector, diversified banks, at 9.9%, should benefit from improved economic growth and a steeper yield curve.


7.Momentum Performance 2019…Huge Spike of Alpha in Summer Disappeared in Fall.


What’s Love Got to Do with This Stock Market? Ask TINA — Jeff Weniger, CFA

Director, Asset Allocation

8.Gundlach Latest Comments.

Influential bond investor Jeffrey Gundlach, the CEO of $150 billion DoubleLine Capital, sees a scenario where U.S. stocks get crushed in the next recession — and likely won’t recover for quite some time to come.

Even with Wall Street benchmarks just days removed from new record highs, the bearish investor declared that “the pattern of the United States outperforming the rest the world has already come to an end.”

In an exclusive interview with Yahoo Finance, Gundlach noted that 2019 was one of the “easiest” years ever for investors in “just about anything…Just throw a dart, and you’re up 15-20%, not just the United States, but global stocks as well.”

He added that investors should consider a pattern he highlights in his “chart of the year,” which divides the world into four regions — the United States, Japan, Europe, and Emerging Markets — and looks at the major stock market indices.

And what that shows is a pattern where the Nikkei 225 (^N225), the Euro Stoxx 50 Index, and the MSCI Emerging Markets index all peaked before a recession — but never recovered to pre-recession levels. The same fate might befall the S&P 500 Index (^GSPC) in the U.S., according to Gundlach.

DoubleLine Capital CEO Jeffrey Gundlach says this is the “chart of the year.”

“So, where are we today? Today, we have the S&P 500 is killing everybody else over the last ten years, almost 100% outperformance versus most other stock markets,” he explained to Yahoo Finance.

“My belief is that pattern will repeat itself,” said Gundlach, who has spent much of 2019 warning of a downturn ahead of the 2020 elections.

“In other words, when the next recession comes, the United States will get crushed, and it will not make it back to the highs that we’ve seen, that we’re floating around right now, probably for the rest of my career, is what I think is going to happen,” he added — suggesting that a recovery won’t be seen for years.

While the 60-year old bond king expects a rotation into non-U.S. stocks, he also believes that the U.S. dollar, which has been “remarkably stable” in 2019, will eventually weaken as investors start to worry about the massive federal debt spending.

“I think in the next recession the dollar will fall because of the deficit problem United States, and that investors will be better served to own foreign stock markets instead of the U.S. stock market in dealing with the next recession,” Gundlach added.

Jeffrey Gundlach: The US stock market ‘will get crushed’ in the next recession–Julia La Roche

9.U.S. Household Incomes: A 50+ Year Perspective

by Jill Mislinski, 11/26/19

In September, the Census Bureau released its annual report on household income data for 2018. Last year the median (middle) average household income rose to $61,179, a slight increase over 2017. Let’s take a closer look at the quintile averages, which dates from 1967, along with the statistics for the top 5%.

The chart below adjusts for inflation in chained 2018 dollars using a research variant of the Consumer Price Index, the CPI-U-RS, which is the CB’s preferred deflator for inflation adjustment. In other words, the incomes in earlier years have been adjusted upward to the purchasing power of the most recent year in the series. We’ve included a table to document the impressive year-over-year growth in 2018 for all six cohorts.

Most people think in nominal terms, so the chart below illustrates the current dollar values for the six cohorts across the 50+ year period (in other words, the value of a dollar at the time received — not adjusted for inflation). What we see are the nominal growth patterns over the complete data series. In addition to the five quintiles, the Census Bureau publishes the income for the top five percent of households.

As for the cumulative household income growth by segment over the past 50+ years, the adjacent table shows the real, inflation-adjusted, difference between 1967 and 2018.

To give us a better idea of the underlying trends in household incomes, we’ve also prepared a chart of the real percentage growth since 1967. Note in particular the growing spread between the top quintile (and especially the top 5%) and the other four quintiles. The growth spread began in the mid-1980s during the Reagan administration, the era of Supply Side Economics (aka “Reaganomics” and Trickle-Down Economics). As this chart illustrates, tax and other policy changes to benefit the wealthier households didn’t have the heavily promoted trickle-down effect. We’ve also highlighted recessions to show the correlation of household incomes to the business cycle.

None of the cohorts in this analysis saw significant increases in 2018, and the top and bottom quintiles saw decreases. The table below documents the percent change from the peak year. The list shows the two lower quintiles peak year: 2017 for the top quintile and 1999 for the bottom quintile.

It’s important to understand that the data in the charts above is for the mean (average) income for each of these segments. For US households quintiles, the mean (average) income is higher than the median (middle of the range). We’ll have more to say about this negative skew in a follow-up article on household incomes by age bracket.

10.Ask Yourself These 4 Questions to Make This Your Best Year Yet

By Patti Johnson | December 1, 2019 | 

The new year is packed with possibilities, including a fresh, new start. Still, many people scrap making resolutions all together, thinking they never work. This year, set aside time to figure out what you want to do and how you are going to do it.

Related: The SUCCESS Guide to Crushing Your New Year’s Resolutions

Ask yourself these four questions to get started on your best year yet:

1. Look in the mirror: Where am I today?

Which parts of your life are strong and vibrant? Which areas are often neglected? Think about all facets of your life today:

Rather than going straight to your list of 2018 goals, first consider the areas that most need renewed attention or that have been unintentionally neglected. For example, relationships can have a powerful impact on happiness. If you are swamped with work or school, making time for relationships may feel like a luxury, but a recent study from Harvard concluded that those who kept close relationships lived longer and happier lives.

If you aren’t sure about where you are today, ask those who know you best. Look at how you spent your time in 2017 for clues. Did you hear subtle signals about an area that needs your attention? A doctor’s warning, lack of growth at your job or a best friend claiming they never see you anymore can all be important input for you to consider in 2018.

2. Repeat the past: What has helped me change before?

Of course you want to start anew in 2018! But consider exploring what has helped you change in the past and try it again.

How were you successful in a college course that challenged but energized you? How did you recover from a personal setback at your lowest point? What helped you make progress and reach your goals? Be very specific and use the strategies that have worked for you before.

The only way I can get comfortable with big decisions is through information. The bigger the decision, the more I need to know. I do plenty of online research, but I place a very high value on conversations with experts who can adapt knowledge to my situation. When I started my business, I spent quality time talking to those who had gone down this path to inform both my decision and my plan. All this information gave me the confidence I needed to get started.

3. Mind games: How can I get out of my way?

The mind is a powerful thing. We can do big things when our mind is convinced we can do it.

Know your go-to fears and how you can unknowingly sabotage yourself. I often ask my clients, “If anything gets in your way, what will it be?” Do you know the answer for yourself?

A recent client’s answer was, “I’m impatient and want immediate results, and this goal will take some time.” The obvious next question was, “What happens when you don’t get results quickly enough?” You guessed it: “I move on to something else.” If immediate gratification is your kryptonite, break your dream into tiny pieces to feed your desire to see faster progress.

Research says 80 percent of New Year’s resolutions are over by mid-February. When the goal seems too big, too hard or too long, we go back to our old ways. Rather than be a statistic, break your goal into one-month resolutions. Focus on January one week at a time.

I was scared to start my consulting business over 10 years ago. I had been in big industry jobs, and this decision was a leap of faith. My brain hack was telling myself it was just a yearlong experiment. No big thing. I felt confident that at the end of one year, I’d know if this was the path for me.

4. Purpose: What is my why?

Most New Year’s resolutions are pretty predictable. The most common resolutions are usually things like get healthy and get organized. The key is understanding why these goals and others really matter in your life.

Commit to specific goals that fit the areas that need your time and attention, and have a bigger purpose. Know why making this change matters, rather than just wanting to lose weight or organize your office. Knowing your why will increase the likelihood that you will stick with it when it gets hard.

If your why is building in more time for relationships and fun to enrich your life, then keep that why on a note and stick it to your mirror. Start small. Downsize your expectation of what is required for having people over. Call friends to check in on your commute home. Be an asker and invite people to get together rather than communicating only through text. Twelve months of even small changes will have an impact.

Find what works for you. Find what matters in your life, and get started. All it takes is starting with January, and you can go from there.