Topley’s Top Ten – June 24, 2019

1.Two Charts on Investor’s Expectations.

Stock Market Investors are not Bulled Up.

AAII Surveys show Investors still quite cautious on the market (WSJ), which is clearly bullish

Overwhelming Belief that Rates Will Be Lower.

The percentage of investors expecting lower long-term bond yields is the highest since late 2008, according to
the latest BofAML fund managers’ survey.

2.Market History of Rate Cuts When No Recession was Underway.

Liz Ann Sonders

As you can see in the chart below, initial rate cuts when no recession was underway or imminent were historically accompanied by stronger stock market performance over the subsequent year relative to recession periods. For those of you surprised that the path for stocks around recession periods was lower but still up, notice there was typically weakness leading into the initial rate cut (in keeping with the leading nature of the stock market).

Recessions Matter

Source: Charles Schwab, Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2019(c) Ned Davis Research, Inc. All rights reserved.). May 5, 1920-September 18, 2008. DJIA=Dow Jones Industrial Average. Recession cases: 1921, 1924, 1926, 1927, 1929, 1932, 1954, 1957, 1960, 1970, 1974, 1980, 1981, 2001, 2007. No recession cases: 1933, 1967, 1968, 1971, 1984, 1989, 1995, 1998.

Unless there is a noticeable deterioration in economic data between now and the end of July, when the FOMC next meets, a rate cut would likely be characterized as an “insurance cut,” to combat prospective economic weakness from the trade war (assuming a comprehensive trade deal isn’t reached in/around the G20 meeting). Still-low inflation would also likely be pointed to as a rationale for lower rates.

3.Historically Most Recessions Caused by FED Raising Rates or Spikes in Oil Prices.

Are Spikes in Oil Prices Big Enough to Cause Recessions a Thing of the Past?….U.S. Crude Oil Production Chart.

Ed Yardeni.

Ed Yardeni

4.S&P Profit Margins Hit All-Time Highs.

S&P500 profit margins… some say they mean-revert, others say they’re now structurally higher… h/t @justvalue2 $SPX $SPY

Callum Thomas@Callum_Thomas  Yesterday

5.Interesting Torsten Slok Chart….Consumer Delinquency Rates Vs. Unemployment Rate

The economic data has started to soften with employment growth, capex, and manufacturing ISM slowing down. One important source of the weaker data is the trade war, and I’m getting a lot of client questions about potential scenarios for the G20 meeting and implications for markets and the economy.

But there are other downside risks to the outlook than an escalation of the trade war:

  1. Even if we get some agreement at the G20 meeting we may underestimate the damage already done to capex planning and corporate sentiment by the trade war because the global supply chain is much more integrated than we think, see also here
  2. The 2018 corporate tax cut is running out of steam and the positive effects on growth are getting smaller and smaller
  3. The rise in delinquency rates on consumer loans and associated increase in interest rates on credit cards and auto loans will begin to weigh on consumer spending, see the first chart below
  4. We are late cycle when looking at current consumer sentiment compared to consumer sentiment expectations, see the second chart below.

In sum, escalating the trade war at a time when we are late cycle and fiscal policy is running out of steam and consumer balance sheets are more vulnerable is a risk to growth. The bottom line is that we continue to see downside risks to the outlook above and beyond the trade war. As a result, we expect the Fed to cut rates in July, September, and December. For more see also our write-up here, and for our Week Ahead write-up see here.

6.Gold Breaking Out…Above $1400 for first time since 2014


Six Years of Sideways Action

7.Foreign Investors Own $18 Trillion in U.S. Assets

We frequently show foreign holdings of US. treasuries but here is the bigger picture.


The Daily Shot

8.The Drop in Chinese Car Sales.

U.S. Demand

Business Insider.

Consumers are buying, just not cars. HSBC

“Car demand is in decline due to a greater focus on environmental policies, increased urbanization and investment in alternatives — be it on- demand cars or public transport,” according to the HSBC economists Janet Henry and James Pomeroy. Their chart shows registrations of cars on the road. If someone writes-off a car and replaces it, the number stays flat, the analysts say. Car registrations in total are down as new sales have not kept up with cars being “taken out.”

9.Get More Sleep

The Social Thinker

3 Reasons Why Men Really Ought to Get More Sleep

Facts that should convince men to get more rest.

Many famous men have bragged about getting by on just 4 to 6 hours of sleep a night, including President Trump, Elon Musk, and Richard Branson. You probably already know that experts say that closer to eight hours of sleep is necessary for good mental and physical health. But did you know it’s also a requirement of good sperm health?

Here are three facts about sleep and male virility that are sure to convince any man he needs a solid eight hours.

  1. Sleep Deprivation Is Associated with Poor Sperm Quality and Quantity.

Humanity is in the middle of a sleep crisis. Over the past few decades, people are getting less and less sleep. But here’s a fact you may not know: During that same time, men’s sperm count (at least in Western countries) has also been on a steady decline.

Are the two trends related? There’s a good chance they are.

In a recent study published in Fertility and Sterility, researchers tracked nearly 700 heterosexual couples who were trying to get pregnant including recording the men’s sleeping patterns. They found that men who got fewer than six hours of sleep a night were 31 percent less likely to impregnate their partner by the end of the study, compared to men who got eight hours.

This study didn’t actually measure sperm health, so we can’t say for sure that impaired sperm quality or quantity was the reason sleep-deprived men were less likely to impregnate a partner. But a study conducted in Denmark did. That study examined the sleep habits of nearly 1,000 men in their late teens and early twenties—and also measured their sperm health. Here’s what they found:

  • Men with the poorest quality sleep had a 29 percent reduction in sperm compared to those with the highest quality sleep.
  • Men with the poorest quality sleep had a 1.6 percent reduction in normal, genetically healthy sperm, meaning they had a higher prevalence of deformed and immobile sperm, compared to those with the highest quality sleep.
  1. Sleep Deprivation Is Associated with Smaller Testicles

Maybe you’re a man who’s not currently interested in having children, so you think you can get by with skimping on sleep. Here’s another interesting result to come out of the Denmark study: Men with the poorest quality sleep had testes that were significantly smaller than men with the highest quality sleep. So, the next time you hear some guy brag about getting by on a few hours of sleep, think about that little factoid.

  1. Sleep Deprivation Reduces Testosterone

So far, these studies have been correlational—and you probably know that “correlation does not equal causation.” This means that we can’t say for sure if lack of sleep causes a reduction in sperm health and testicle size (although the studies strongly suggest they do). If we really want to get at causality, we’d need to conduct an experiment on sleep and male fertility. Lucky for us, someone already did that. Researchers from the University of Chicago took a group of young, healthy men and forced them to only get five hours of sleep for a week. During the duration of the study, researchers regularly tested these men’s testosterone levels. In the end, these sleep-deprived men showed a 10 percent reduction in testosterone.

You may be thinking that 10 percent doesn’t sound like a big drop. It is. A 10 percent decrease means these men had testosterone levels equivalent to men 10 years their senior. So, in terms of virility, sleep deprivation aged these young men by a decade.

Why does sleep impact testosterone in this way? The answer is that the majority of a man’s testosterone is released while he is asleep. So less sleep means less time for the body to release this vital chemical. And testosterone plays a vital role not only in fertility, but in men’s health more generally. It boosts a man’s energy, sex drive, mood, bone density, physical energy, and muscle mass.

So, even if babies aren’t in your near future, you should still make sure you are getting a solid eight hours of rest each night to ensure your own continued good health.

10.6 Ways to Find Solitude, and Why It Matters

By Michael Pietrzak | June 18, 2019 | 

On a wet Saturday morning in 2011, I dragged myself into the election office to pick up my list of voters. I had volunteered to go door-to-door campaigning but was having trouble remembering why. I was hungover and in no mood to bother strangers at home all day. As soon as the voter list hit my hands, I decided to blow off the task. The office manager looked at me sideways, like he knew.

I left the drab, gray office rented in the Polish Veteran’s Association, out into the soggy morning. A light rain started again, but the warm sun pierced the autumn clouds. Normally I’d seek shelter, but my feet led me into the open air of a nearby park. As I meandered along the asphalt path, my mind went silent. I settled into a bench and sat in the rain, alone. I saw the trees and sky as if for the first time.

In that solitude, I felt peace and witnessed my life from a great distance. I realized that the political party I worked for was spending most of its energy on re-election and little on good policy. I had to leave my career. And I felt immense love for my partner of four years but finally admitted we were impossibly mismatched, and a breakup was only a matter of timing. My schedule had been packed for months, and until that park bench, I couldn’t see any of this.

It was only in this moment of solitude that my path forward became clear.

Why Type A’s Struggle

“So many people are plugged in all the time and it’s just killin’ ‘em.” —Rob Bell

SUCCESS reader, you’re probably like me: a Type A achiever bent on maximizing results. Own that and be proud! But you’re also probably not aware of how your constant activity is hurting your productivity.

Related: Work Less, Do More

It’s in solitude that we reconnect with our deepest desires and purpose in order to do great work. A lack of solitude leads to:

  • Anxiety, depression and neediness: No time to mentally process situations and emotions? Your mental health will suffer, and you’ll seek an outlet in destructive behaviors.
  • Conformity: If you never take time to discover your wants and beliefs, you’ll automatically adopt them from other people.
  • Heart attacks and other health problems: Constant activity keeps your body full of the stress hormone cortisol, and it’s what kills people at 40.
  • Lack of creativityStudies show that those who can’t bear to be alone stop enhancing their creative talents. In an economy of increasing automation, creativity will be one of the only things to set us apart from the robots.
  • Regret: Waking up after 40 years to realize all your constant activity was untied to your highest purpose is a huuuge bummer. Take time to discover what you want before you spring into action.

Only the quiet reflection of solitude allows our heart’s desires to be heard, and our heart is the true source of wisdom and joy. Letting it lead is the path to great results. I’ll help you find solitude. Let’s go.

How to Build the Solitude Habit

“…the only way to do great work is to love what you do. If you haven’t found it yet, keep looking, and don’t settle. As with all matters of the heart, you’ll know when you find it.” —Steve Jobs

First, realize that finding solitude will be difficult. Every part of our society is structured to discourage quiet alone time. Advertisers, apps, TV, friends and family—they all want our attention. This environment has made all of us deeply uncomfortable with being alone in silence. Our neural pathways have been strengthened by years of external stimulation to crave more of it.

Our lives and our species’ future depends on breaking this cycle. Discovering our highest purpose—and the best way for us to serve the world—comes only through turning inward, not in forcing one more item onto your to-do list.

Here are the best tools I’ve discovered to find solitude in the chaos of 2019. They’re simple, but the best solutions often are.

  1. Get up early.

“Solitude is a catalyst for innovation.” —Mahatma Gandhi

I’ve been standing on my early rising soapbox for a while, but don’t expect me to come down soon. You can’t imagine the beauty found in the early morning hours until you’ve locked it in as a habit. It takes weeks of consistent trial and error to make it routine, but when it sticks, you get to enjoy the world each day before phones and emails, before other humans are up and making noise, and before your mind starts a-chatterin’.

The first hour of my day is my favorite. In this solitude, I can think clearly and hear messages from my deepest core.

Who gets up early?

Richard Branson (Virgin), Oprah, Tim Cook (Apple), Indra Nooyi (PepsiCo), and Jack Dorsey (Twitter, Square) all get up before 6 a.m.

  1. Run, walk or bike.

“My imagination functions much better when I don’t have to speak to people.” —Patricia Highsmith

Physical exercise is solitude’s best buddy. When you strap on your shoes or climb onto your bike and leave the house to explore the world, your mind quiets and you get a new perspective on your life and all of its complications. You can’t get this sitting at a desk.

To ensure your exercise generates the solitude we’re seeking:

  • Go alone.
  • Don’t listen to music or audiobooks.
  • Leave your phone at home.
  • Get into nature if possible, away from others.
  • Skip the treadmill or stationary bike—it’s a chore compared to exploring the outside world.

Who runs, walks and bikes?

Mark Zuckerberg (Facebook) and Jay-Z run, Dennis Muilenburg (Boeing) and Brent Bellm (BigCommerce) bike, and Dennis Woodside (Impossible Foods) takes it a step further by doing Ironman triathlons.

  1. Daydream.

“Imagination is more important than knowledge.” —Albert Einstein

It’s not just for kids anymore! Scientists now agree that daydreaming is a normal and positive brain function.  When our mind wanders, “it’s really doing a tremendous amount,” says Marcus Raichle, a neurologist at Washington University.

Daydreaming will take us away from the task at hand, but while we’re in this state, our brain is working on other goals. It allows our subconscious, the seat of much of our wisdom, hopes, dreams and drives to be heard. On the other hand, hyperfocus can prevent us from “generating fresh solutions and ideas,” says researcher Jeffrey Davis.

Our subconscious mind is the source of much of our creativity, and tapping into this inborn talent is really the only way to do great work. Not convinced? A 2012 studyshowed that people who took a break from hyperfocus were better at solving demanding problems—41% better, in fact.

+1 point to the daydreamers.

Who daydreams?

Albert Einstein was legendary for his prodigious use of his wandering mind. At age 16, he imagined scenarios that led him to create his special theory of relativity: what he would see if he could travel at the same speed as a beam of light.

  1. Drive alone.

“The more powerful and original a mind, the more it will incline towards the religion of solitude.” —Aldous Huxley

If you’re a competent driver, you’ve experienced getting into your car and ending up at your destination with no memory of the journey. In that solitude, your mind went elsewhere.

Complicated driving requires the higher executive functions of your brain (i.e. your attention), but on monotonous routes the task is punted away from your brain’s frontal lobe. Always drive with care, but know that on long drives you can do some great thinking.

Highway driving is especially monotonous—and a perfect place to find solitude. In university, I would drive two hours every second week to visit my long-distance girlfriend. That time alone with my thoughts still constitutes some of my favorite memories. I was able to solve a lot of problems through those quiet reflections.

Who Drives?

Pulitzer Prize-winning author John Steinbeck, at 58 years old, took a road trip of 10,000 miles. The book he wrote about that time alone with his dog went on to be a best-seller.

  1. Make a reservation for one.

“Only in quiet waters do things mirror themselves undistorted.” —Hans Margolius

My mom loved telling the story about how she once walked into a restaurant, asked for a table for one, and the host told her with a frown, “Oh I’m so sorry.”

Oh, how we still laugh about that one.

For unknown reasons, having dinner alone carries stigma. But when I was building a renewable energy company in Zambia, my favorite thing to do after weeks in the villages was to go to a movie by myself, then splurge on a steak dinner and glass of wine. I still do the same when I know my wife will be out for the night.

It may be unusual, but taking the person who you love most in the world (hopefully yourself) on a date is a great act of self-care. The next day you’ll feel refreshed and ready to do your best work.

Who eats alone?

Daniel Radcliffe (yes, the Harry Potter), Renée Zellweger, Tom Hanks and even Bill Clinton have been spotted by the paparazzi eating alone. Their whole lives were built on their popularity, but even they need a solo date once in a while. You have permission to do the same.

  1. Go camping by yourself.

“I never found the companion that was so companionable as solitude.” —Henry David Thoreau

Several years ago, I was stuck. My business was barely breaking even and I was trying to sell credit card processing machines part time, door to door to make ends meet. No matter how hard I worked, I couldn’t make progress.

On a whim, I rented a car, drove into Algonquin Provincial Park and spent two nights in the wilderness alone, miles from people. I watched the steam rising from the lakes, stared into the campfire for hours and listened to bullfrogs as I drifted to sleep.

Without the city’s distractions, my mind cleared. I saw exactly what I had to do. When I returned home, I dropped the sales job, which made me thoroughly miserable, and liquidated my company assets, saying goodbye to a business that was not bringing me toward my highest purpose.

Now I take solo camping trips each summer and have epiphanies about my life every single time.

You’re not the outdoors type? Change that. We evolve by stepping out of our comfort zone. Your first time doesn’t need to be a hardcore 35 km, 3-day hike. Start by finding a quiet campsite you can park on for a night. Or just go for the day. Nature is too important to miss out on. Don’t have wheels? Many cities have shuttle bus service into parks.

Who solo camps?

Henry David Thoreau, a most celebrated philosopher and writer of the 19th century, spent two years, two months and two days living in the woods. The book he wrote about his experience, Walden, is an all-time classic work that I return to year after year to remind myself of the empowering effects of nature’s solitude.

We’re all too damn busy, plain and simple. We fill up our lives and brag about it, but how many of us are curing cancer or working for world peace? Most of our activity is fruitless because we haven’t taken the time to think about what it is we really desire in our short lives.

Solitude has the answer. Carve out quiet time for yourself and your heart will tell you the same.