Topley’s Top Ten – January 30th, 2019

1.Bloomberg notes The S&P 500 Equal Weight Index is trouncing the cap-weighted version YTD, putting up a total return of about 7.5% against 5.2%. That ~230 basis point gap is the largest in 27 years.

From Dave Lutz at Jones Trading.

2.Global CAPE Ratio Comparison

Meb Faber took a look at the CAPE ratios of the United States, the global stock market ex-US and the cheapest 25% of all country markets. He notes a huge disparity that’s been growing for years now…

Today marks one of widest valuation spreads in history, with foreign markets trading at much cheaper levels than that of the U.S.

This spread only intensifies if we zero in on the cheapest quartile of countries around the globe. They’re trading at a CAPE ratio of about 11 – that’s a whopping 62% lower than the U.S.!

JoshBrown here – going back to 1980, almost 40 years ago, this is the biggest valuation spread ever recorded (on this measure of cyclically adjusted price earnings ratios, which I have all sorts of issues with, but that’s a story for another day.


Blue Magic

Posted January 28, 2019 by Joshua M Brown

3.Average Cash Balance High for Institutional Managers

B of A Global Fund Manager Survey

BoA: The Worst Outlook For Earnings Since 2008
by Rupert Hargreaves

4.Retail Continues to Exit….Mutual Fund and ETF Flows Thru 1/11/19

5.Stock-Market Margin Debt Plummets Most Since Q4 2008

by Wolf Richter • Jan 18, 2019 • 69 Comments

Wow, that was fast. Margin calls.

During the ugly stock-market December, whose ugliness bottomed out on Christmas Eve, a nasty November, and the ugliest October anyone can remember, margin debt plunged by a combined $93.8 billion, the most since Q4 2008, after Lehman Brothers filed for bankruptcy.

In December alone, margin debt plunged by $38.3 billion, to $554.3 billion, FINRA (Financial Industry Regulatory Authority) reported this morning. This was just a hair less than October’s plunge of $40.5 billion, and both had been the steepest drops since late 2008:

The only form of stock market leverage that is reported monthly is “margin debt” – the amount individual and institutional investors borrow from their brokers against their portfolios. But no one knows the amount of total stock-market leverage from all forms of leverage, but we know it’s a lot higher than margin debt by itself.

6.Treasury Implied Inflation Forecasts Rollover Again

Treasury Inflation Forecasts Resume Slide Ahead Of Fed Meeting

A worrisome decline in the Treasury market’s implied inflation forecasts that began last October appeared to stabilize in the new year. But over the last week the downside bias has returned, raising questions about monetary policy ahead of tomorrow’s Federal Reserve’s policy meeting (Jan. 30), which will unveil new forecasts, a possible but unlikely change in interest rates and a press conference by Fed Chairman Jerome Powell.

The latest dip in Treasury inflation estimates is slight, but the so-far mild downturn of late follows several months of persistently lower projections and so it’s fair to say that the market’s outlook for pricing pressure remains substantially discounted compared with prevailing conditions as recently as three months ago. For example, the implied inflation forecast via the yield on the nominal 5-year Note less its inflation-indexed counterpart fell from nearly 2.1% in early October to just below 1.5% at the start of 2019.

The Capital Spectator
Found at Abnormal Returns


FedEx Stock Is So Cheap That Now Amazon Really Should Buy the Company, Analyst Says

By David Marino-Nachison

FedEx stock (ticker: FDX), well off the S&P 500’s pace over the last year, might be a bargain—for (AMZN), according to new research.

Loop Capital Markets analyst Anthony Chukumba, who has a Buy rating and a $2,200 price target on Amazon stock, on Tuesday wrote that if the tech and retail giant wants to become a shipping giant too, buying into the business could be a cost-effective way to do so.

It’s an argument Chukumba has made before—and Barron’s has covered. His latest take, however, puts things in the context of current valuations.

“FedEx is inexpensive at 10.6x and 6.5x forward price-to-earnings and enterprise value to earnings before interest, taxes, depreciation and amortization multiples, respectively,” Chukumba wrote. “Amazon could make an accretive acquisition of the best global network for a fraction of the cost of building it themselves.”

FedEx Chart

8.Recent History of Iphone Revenue.

9.Jobs Hard to Get Falls to Recession Levels…..First Time I Looked at This Indicator.

Holger Zschaepitz‏ @Schuldensuehner

US consumers’ outlook on labor mkt has inverted, generating another recession signal, Quill’s @DiMartinoBooth says. Jobs hard to get-fewer jobs 6 mth spread dropped to -3.6%, lowest since Oct2008. Since 1960s, recessions have followed 6 of 7 times labor mkt inversion sank to -3.

10.Great Leadership is about Influence not Authority

Mike Kaeding
President at Norhart

A naive leader might think that they know best. They might think that they have all the right answers, and that everyone should just follow what they say.

I know, because when I first was in a leadership position that’s how I thought.

But that is so wrong. And it’s wrong for one simple reason that I can illustrate in a game.

The Game

Imagine your favorite sports game. Maybe that’s football, basketball, tennis, or something else. Now think of the very best player of that sport you know. That person may be the best player in the entire world. They may be absolutely fantastic with millions of fans. But how well would they do on their own without the team?

The reality is that they would lose every single game as a lone player. They may be the best, but a team of average players is always going to beat the best player if he or she is alone. Why do we think it’s any different for business?

It isn’t.

The Team

A well-functioning team is always going to do better than a lone genius dictating orders. It’s important for leaders to recognize this. Some leaders think too highly of themselves. They may be a genius. But it takes so much more than a genius to build an incredible company. As a leader, it’s important to be humble and learn from your employees. Listen to them. Listen so well that you are molded by them. When you are wrong, admit it! Be open. Leaders often say that it’s lonely at the top. But it really isn’t if you are doing it right.

Being a great leader is about building mutual respect with your team. It’s never about barking orders out of a position of authority. If you can build that mutual respect, then you can lead from a place of influence. Below are three ways to help build the trust and respect with your team.

Listen to your Employees

Every leader will likely say that they listen to their employees. But are they really? When I say listen I mean something deeper than simply hearing others. Leaders should listen to truly understand their employees. Then they should be willing to be molded by what those employees tell them.

As humans we can only directly see about 70% of our body. If we have something embarrassing in our teeth we either need a mirror or other people to tell us about it. The same goes for our personality. There are flaws in our personality that we can’t see.  We need other people to share it with us. It isn’t easy to truly listen to people when they are sharing our flaws. But that’s when we need to listen more than ever because that is the first step to improving the problems.

Find Great Mentors

To be a great leader, you need great mentors. You need wise people who have already gone down this journey in life. And the more wise mentors you have the better leader you can become. The reason is because humans have a wonderful ability to learn lessons from each other. We don’t need to make all the same mistakes that others have before us. Instead let them share with you what those mistakes were and learn how to avoid them. Great leaders stand on the shoulders of the giants who came before them.

Be Humble

There is something about the role of a leader that sometimes makes the leader think they are better than everyone else. First off, that is not true at all. But secondly, it’s a recipe for failure. Pride comes before the fall. It takes a great team to succeed at business. Great employees don’t want to work for a prideful boss. So eventually that boss will lose their good team and their company will fall into chaos. Great leaders avoid this by being humble. They take the blame for failure and give away the credit for success.

Lead with Influence not Authority

Great leaders recognize that it takes a great team to be successful. So, they lead from a place of influence instead of authority. And by doing that they can start to make a positive impact in their company and the world.