Sniffed Links - Walking

Kudos to all the kids who walked out of school this week. Regardless of your opinion on guns the fact these kids peacefully protested across the nation (with many facing detention for doing so) is a testament to their generation.

I’ve heard this generation of kids called Generation Z but who knows if that name will stick. One thing is for sure, they are deciding to do things differently from their elder Millennials. These are the kids born to the “forgotten generation” termed Generation X who grew up in the 80s. Though they are sandwiched between the larger Boomer and Millennial generations they are raising what may end up being the most important generation since WWII.

For Two Months, I Got My News From Print Newspapers. Here’s What I Learned. - The New York Times

The Times tech columnist ‘unplugged’ from the internet. Except he didn’t. - Columbia Journalism Review

Who Decided 20% Makes a Bull or Bear Market?

‘Blockchain’ is meaningless

I Got a Story to Tell | By Steve Francis

Ichiro Suzuki's return to the Seattle Mariners won't resolve his internal battle

Sniffed Links - Movies

Oscar ratings were their worst ever on Sunday. There seems to be a great debate as to why. Personally, I saw very few of the movies nominated. This wasn’t without trying. We went to binge them iTunes only to find they either weren’t out yet or you could only buy them. If your movies aren’t accessible leading up to the Oscars then don’t be surprised when no one watches. And don’t be surprised when no one remembers your movies a week later when we all get back to whatever TV show we are currently binging.

The (Long) List of Financial Documents You Should Keep

BlackRock says it's time to take action on guns, may use voting power to influence

Rational Irrational Exuberance?

Sniffed Links - Sharks

You may have seen the $1B acquisition of Ring by Amazon. You may have also seen the story of how in 2013 Ring was on Shark Tank and failed to acquire a deal. Most of the “Sharks” would likely tell you this isn’t their only miss. They would also likely tell you they don’t beat themselves up about missing out on companies or investments. They made the best decision for them at the time. With the rise (and subsequent fall) of Bitcoin and other crypto currencies the feeling of “missing out” popped into many peoples minds. Worse, the fear of missing out drove many to invest at the top and subsequently see their money cut in half.

Warren Buffet’s annual letter is a must read in our industry and I linked it below but the last link is a very quick summation also.

Unless something changes, Beijing will be the only city that wants to host Olympics

Warren Buffet’s Annual Letter

Buffett’s Annual Letter - Some Key Takeaways

Market Commentary - March 2018

In our January Market Commentary we mentioned that the low levels of volatility experienced in 2017 were not likely to continue. Sure enough, volatility spiked from late January into February with the S&P 500 experiencing several 3-4% single day declines and as much as 5-6% intraday moves! February is going to end up as one of the most volatile months in the last decade while 2017 was one of the lowest in the last 60 years.

Rising interest rates is one of the reasons given by many as the culprit of the recent sell off. Historically, however, stocks tend to increase during periods of rising interest rates. Of course it is important to point out this time could be different since we are experiencing rising rates coming out of a period of unprecedented levels of quantitive easing and low rates. But, it is also possible higher rates may simply reflect the rising pace of economic activity. Economic expansion is typcially identified as a catalyst of long-term stock returns. 

I feel interest rates are not the place to look for blame right now.

The area that should be receiving more attention is inflation. Inflation is currently a little over 2% which is still relatively low (at at the targeted number for the Federal Reserve) but has been on the rise since 2015. With the U.S. economy being near full employment along with increased wages (all seemingly "good" things) the added tax "stimulus" could overheat the economy leading to a large spike in inflation which would provide markets a major reason to pull back. Rising inflation tends to lead to an increase in wages and production costs, which typically has a negative impact on corporate earnings and economic output. Too much inflation (hyper inflation) can cripple an economy. The U.S. experienced 14% inflation in the 80's, although I'm not suggesting the U.S. faces nearly the same threat today, I am merely pointing out that rising inflation poses a bigger threat to stocks than rising rates, although admittedly often these things do go hand in hand.

There have been inflation worries in the past that never came to fruition. This could be another one of those cases or it could just be the next thing to deal with. Central banks will once again be playing a crucial role.

Sniffed Links - Futile

One of the problems with market volatility is I never know what may happen with the market between the time I write this little blurb and the time it posts. I usually write it on Thursday and it posts on Friday. Lately I have been waiting until Friday just in case the markets provide something I should address. Timing the writing is as futile as timing the markets. In both cases we have to be right twice. When writing the markets could change before posting. When posting the markets could change before the close on Friday. Same for investing. For market timers they have to get lucky on the timing of getting out of the market and then luck again on the timing of getting back in. We still don’t know if this market is headed back toward its previous upward trend or if we could be seeing the seeds of a bear market. Run from anyone who says they do know.

Tulip mania: the classic story of a Dutch financial bubble is mostly wrong

'Wait and see' before using 529s for private school tuition

Budget Proposes Trimming G Fund Rate

Sniffed Links - Face It

You are probably expecting this to be commentary on the markets but there is not much to say about the markets other than what a bounce back. This has been very reminiscent of 2016 when markets were off 15% to start they year and then recovered in less than a month. We could have witnessed the 4th correction during this bull market or maybe we are seeing the start of the next bear market. There is no way of knowing right now.

Tough times continue for Facebook. The first two links explain a lot of what everyone has been saying for a while now. They continue to claim they are not a media. They are and Europe is cracking down. This is neither a recommendation to buy or sell a stock.

Inside Facebooks Hellish Two Years

Facebook Turned Its Two-Factor Security Feature Into the Worst Kind of Spam

How Real Is The Inflation Scare?

Theres No Gravity in the Stock Market

Megan McArdle's '12 Rules for Life'

Sniffed Links - Regarding Volatility

We sent out a couple of notes to clients this week addressing the current market volatility. Here was the latest one…

Ralph Wanger, who used to run the Acorn Fund, used the following analogy to describe the stock market…

The market is like an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the market players, big and small, seem to have their eye on the dog, and not the owner.

We expect major volatility to continue for the foreseeable future. The markets are searching for something to cling to and until it finds it we could see strong movements up and down. There are a number of things that can be pointed to as the “cause” but the good news is as of now all of these causes are fairly normal. Interest rate fears. Margin calls. Algorithms. The list goes on but the list consists of what we would call cyclical issues.

We are not going to inundate your inboxes during this period of volatility unless something fundamentally changes. Instead we encourage you to keep up with our thoughts on our [blog], [Twitter] or [Facebook ]. If the volatility continues we will post to these places more often so you can follow our thoughts.

We urge you, however, to let us know if anything changes on your end. If you are anxious or your personal situation changes then please let us know so we can evaluate your strategy.

Here are a couple articles for you this weekend…

The Stock Market Didn’t Get Tested

This is the Normal Part

Market Commentary - February 2018

So much for a market hangover. Equity markets have roared out of the gate. Historically, January has been a fairly accurate "indicator" as only 27% of the time since 1929 have the market and January parted ways. Of course this doesn't always hold up.

In the past 11 years, the S&P 500 has fallen six times in January and the market only ended down in two of those years. The most recent example was the brutal start to 2016, where markets had there worst start to a year since 1896 and saw the S&P 500 drop nearly 5% in January yet we still ended the year up nearly 10%. Even more eye opening was January of 2009 (global financial crisis). We experienced the worst January in history (-8.5%) but the S&P 500 finished the year up over 26%! There have also been some instances of a strong January that saw the market end the year in the negative. 

Many active fund managers look to sell stocks with losses in December for tax purposes and then rebuy in January, which helps create momentum. While this may hold some weight, there has been a massive shift from active management to passive over the last decade and this could be part of the reason why the "January effect" has become less reliable lately. Also, since 2008, easy monetary policy prescribed by the Federal Reserve has helped push asset prices higher as witnessed by the S&P 500 posting positive returns nine straight years. 

While U.S. equity markets seem to be grabbing all the headlines, foreign markets, specifically emerging markets, continue to outperform which is an encouraging sign for the global economy. The true test comes as the Federal Reserve starts to aggressively raise rates this year and next. This is when we will find out what shape the global economy is truly in.


Sniffed Links - Research

It is always interesting to talk with clients and hear their takeaways from recent market news. Some clients don’t pay any attention to news while others are aware of the common themes we are seeing in the media. Sometimes I try to think how I would be as a client. Would I read financial news? Would I watch CNBC? Research investments? It is hard to say. Knowing what I know about markets I’d like to think I wouldn’t pay much attention. Its part of the reason to hire an advisor. Have a plan and trust and let it do its thing. Of course, some clients just enjoy it. Others probably feel like its a duty to know what’s going on. One thing I know I wouldn’t do is research stocks. Very smart people who spend 8+ hours a day researching stocks are wrong often. Why would I think I could do better?

China domestic economy slows as exports pick up in Q4

S&P 500 Must Drop 50% For Permabears To Break Even

Winemakers Turn to MIT to Save Pinot Noir in Warming Temperatures

Sniffed Links - Confidence

I still maintain the Fed should have started unwinding their balance sheet and raising rates earlier than they did but so far its hard to argue with the results. Rates are rising and the market is not collapsing. Consumer balance sheets appear to be as health as ever. Consumer confidence is also up. Finally, the economy is growing healthily. The evidence supports the current market….until it doesn’t at which time the market could already be on a correction path. This is how it works and why timing markets does’t.

SEC Seen on Verge of Proposing a Fiduciary Rule

The Strange Brands in Your Instagram Feed

No One Wants Your Used Clothes Anymore

Critical Meltdown and Spectre Flaws Break Basic Security for Intel, AMD, ARM Computers

Sniffed Links - Melt

Unless you follow financial news you may have missed Jeremy Grantham’s latest viewpoint white paper. Grantham is highly respected in the financial world and his latest “warning” certainly caught the eyes of financial media. His warning is two fold. He things a “melt up” in the market may occur followed by a large “melt down”. He backs up his thesis very well. One of the things we have harped on when discussing bubbles with clients is there typically needs to be a period of euphoria before even considering something a bubble (see crypto currencies for example). Since this bull market has been met with so much skepticism the euphoric period has remained elusive. I have mentioned some anecdotal evidence of euphoric tendencies so maybe Grantham has a point. Could the “melt up” be 30%? 50% Who knows. One of the keys to making it through the next downturn, however, is to enjoy the gains leading up to it.

Bracing Yourself for a Possible Near-Term Melt-Up

10 Things Investors Can Expect in 2018

Some good news, for once

This Is the Data Snapchat Doesn’t Want You to See

TSP Missed Out on Emerging Market Boom in 2017

Sniffed Links - Pot

A few articles this week to start off the new year. Of note is the marijuana article. I share this as a reminder that a “sure thing” doesn’t exist. Is the legal weed market huge? Yes. Is it easy to make money in it? No and it may get harder. Investing in a “sure thing” doesn’t always mean money will be made. Economics of an industry plays a big role in investor success and an industry, sector or business can thrive without investors seeing large returns.

2017 Was a Technically Unusual Year

Legal Weed Isn’t The Boon Small Businesses Thought It Would Be

Why You Need a Classified Email Address

Market Commentary - January 2018

While bitcoin and cryptocurrencies are dominating the headlines lately, the S&P 500 is doing things it has never done in its history. In my 15 years in the industry I can't recall a run like we have had where every day is a repeat of the prior with new daily record highs in conjunction with record low volatility. Baring an enormous sell off the last week of December (I'm writing this On December 20th), the S&P 500 is going to set and break many records. Here are just some...

  • The S&P 500 is on pace to finish 2017 without a single down month. You may be asking when was the last time that happened? NEVER. Even further, one has to go back to October of 2016 to find the last negative monthly return.
  • The worst peak-to-trough drawdown in 2017 has been 2.8% while the average intra-year drawdown is ~16%. Even more stunning, the S&P 500 hasn't experienced one 2% move up or down close in all of 2017!

The Federal Reserve increased interest by .25% in December and projected three hikes in 2018 and the markets rallied even harder.  In years past, a mere mention of the words "rate hike" lead to panic and heightened volatility but today it's interpreted positively as it equates to a healthy and growing global economy. The markets seem to find the "good" in every piece of news. 

Geopolitical tensions continue to rise but even this risk is being brushed off.  It's interesting to watch how quickly sentiment changes as going into 2017 there was a cautious tone and analysts were anticipating extreme volatility. Even the most bullish analysts were calling for the S&P 500 to end 2017 in the 2,300 to 2,450 range. This goes to further solidify our opinion that trying to time markets should be avoided.

So what does all this mean for 2018? Well, in short, nothing. While these records are impressive, they are in the past and don't mean much going forward. While the global economy is growing and "major" tax reform is here, the question is how much of this have markets already factored in? It goes without saying that steady gains with low volatility are optimal for any investor, but not realistic long term. While the last fourteen months have defied the odds, I would not expect this going forward. If history is any guide, stock market volatility tends to accelerate after a one to two year dormant period and quite often market corrections start when it's least expected and when the economy seems to be humming along. 

Have a safe and happy New Year!


Sniffed Links - Reactions

Not much to share in the way of links this week. We’ve been reading stuff on the new tax code and getting our thoughts organized around it. Also I may not send anything out next week. Christmas Break.

I do however want to share something I have been ruminating on. I don’t want to leave the possible last post of the year on a negative note but I do want to briefly describe some thoughts on the markets as a whole. We have started to see investors starting to get bored with great returns. This scares us. Whether it is crypto currency, individual stocks or some other “investment” it seems people are now looking beyond the double digit market returns in search of something with more pizzaz. It is scary how much this reminds me of 2004-2007. Is this the spark of what could be the next market downturn? Possibly. It also could be the spark but the fire could be a year or so away. We don’t have to have a reaction to this feeling. We just have to acknowledge it. In the meantime we keep taking the great market returns and watch what happens with everything else.

The Great College Loan Swindle

Why you can’t cash out pt 1: Why Bitcoins price is largely fictional

Sniff Links - The Force

I have my Star Wars tickets. It has become a holiday tradition I quite enjoy. When I opened my writing app this week I was shocked I had only saved one link so I added some Star Wars related links I read.

6 Ways Uniform Dressing Changed My Life

How the women of 'The Last Jedi' make 'Star Wars' a Force

The Last Jedi: The Best Star Wars Movie Since 1980?

ISS astronauts won’t miss out on ‘Star Wars: The Last Jedi’

Sniffed Links - Mania

Bitcoin has gone full mania level and may continue its meteoric rise. It could go to 40k. Or it could crash to 1k. No one knows. On a scale from 1-10 my knowledge about crypto currency, smart contracts and blockchains is probably a 5 and that’s probably better than the average Bitcoin “investor” (speculator is a better term here). And I don’t know nearly as much as I would like and not quite enough to invest. Most money going into Bitcoin is not for investment. It’s for speculation and that’s fine. The trouble is many speculators of late probably don’t realize the difference. Either way, the technology behind all of this very intriguing and something I am learning more about. I think the future investments lie there.

Understand the Blockchain in Two Minutes

Bitcoin, Ignorance, and You

Amazon is so good at keeping prices low, it's changed how economists think about inflation

Beware the Parade of Annual Stock Market Forecasts

Kid’s Sports Leagues Have Turned Into a $15 Billion Industry

Market Commentary - December 2017

I attended the Evidence based investing conference last week and was able to listen to some of the best and brightest in our industry. 

They keynote presentation was given by Scott Galloway, Professor of Marketing at NYU and he spoke about digital advertising/marketing. One of the most startling takeaways was just how powerful the FOUR are (Google, Apple, Facebook & Amazon). In 2012, these four companies had market capitalization of $751 billion, equal to the size of Turkey's GDP. While today their market capitalization is $2,371 billion, equal to the size of India's GDP! Remember, India's population is approximately 1.324 billion. The way the world consumes has changed and by 2020 over 30% of searches will no longer involve a screen! They will come in the form of Alexa, Siri and Google Voice.

  • The rest of the conference was focused on evidence based investing. Below are just some of my notes. I left the more analytical stuff out.
  • There is a big misunderstanding between economic and stock market fundamentals. The stock market rarely follows economic fundamentals in the short term and can persist for years. In short, stop trying to time the market based on the fundamentals of the global economy.
  • Volatility has come to a screeching halt as more people control a larger share (%) of the equity market vs. 10 years ago and the push to indexing and passive investing has largely replaced individual stock selection/day-trading which tend to be more volatile. 
  • Bitcoin was mentioned several times. The common theme was if you invest in it be prepared to lose it all. Introduction of government regulation or taxes could potentially cut the value by a third overnight. Until daily price fluctuations slow down, it is not a viable replacement for any currency. 
  • There are now over 110 hedge funds focused on cryptocurrency investing vs. 26 at the end of 2016. Too much speculation and this is fueling a massive bubble.
  • Commodities are the most "hated" investment (comparable to Emerging Markets from mid 2011 to end of 2015). Given central bank involvement in manipulating interest rates trying to time when to invest in commodities is extremely difficult as they tend to outperform in period of high inflation.
  • Emerging Markets are still "cheap" on a valuation basis compared to the United States and Europe with lower P/E and lower debt to GDP ratios. Emerging markets are becoming less reliant on commodities after the 2015 crash and placing higher emphasis on technology and manufacturing.
  • Tensions between China and United States are beginning to flair up and come 2018-2019 could lead to a major trade war.
  • Machine Learning/AI Investing has many worried. While it creates more options and variables with big data sets, initially it will be dealing with a very small sample size which can't be back-tested with much accuracy.
  • Internal investment fees will continue to decline over the next decade 


Here are some other facts I found interesting…

  • Women now control more than half of US personal wealth!
  • 1/6 queries entered into Google have never been asked before. 
  • Google and Facebook own 103% share of future digital advertising growth 
  • In 2016, Google advertising revenue compared to ad spend is larger than any single country in the world minus the United States.
  • More American households (58%) are Amazon prime members than voted in 2016 election (55%)
  • Apple's profit in 2016 ($45B) was nearly equal to Microsoft, Intel, IBM and Oracle combined! ($48B)
  • Since 2008, Walmart has paid $64B in corporate income taxes while Amazon has paid $1B.
  • Commodity Index has an annualized return of 2% the last 20 years with volatility of 14% while S&P500 has an annualized return of 10% last 20 years with the same level of volatility.

Sniffed Links - Cornucopia

I hope everyone had a great Turkey Day and indulged in a lot of food. I sure did. A couple extra links this week but some really good reads. Non of the links are related to this weeks biggest news stories which are spread amongst many genres. North Korea tests another missile, Matt Lauer fired for sexual harassment, Tiger Woods returns to golf for his 4th post-back surgery comeback attempt, and Bitcoin gets volatile. The market seems to not be worried about the North Korea news. The Bitcoin story is something to watch as after Thanksgiving there was a dramatic increase in the number of accounts opened on some of the crypto exchanges and now a decline is occurring so a lot of new owners may be getting pummeled.

The Year of Living Dangerously

Saudi Arabia’s Arab Spring, at Last

Filial laws put kids on the hook for parents' health-care costs

Mail-Order CRISPR Kits Allow Absolutely Anyone to Hack DNA

12 Secrets of FedEx Delivery Drivers