Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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Oversight Needed

The Border Patrol Hits a Breaking Point by Garrett M. Graff (Politico)

Many of the problems faced by CBP are not caused by current political assignments but are the inevitable consequence of years without consistent management, expansion too rapid to handle masses of new recruits, and the theory that money will solve all problems. [Link]

Pentagon fails its first-ever audit, official says by Idrees Ali and Mike Stone (Reuters)

The Department of Defense was given a comprehensive audit by an army of accountants since December. This was the first-ever audit for the Pentagon, despite a 1990 law requiring an audit of all federal agencies. [Link]

Kids These Days

American kids would much rather be YouTubers than astronauts by Eric Berger (Ars Technica)

The latest moral panic over the state of American youths is apparently related to career choice, with a five-choice survey across three countries showing American kids would rather be a “vlogger/YouTuber” than astronaut, the least favored choice. [Link]

Some thoughts on youth sports by Myles Udland (Tumblr)

Myles considers his own struggles and positive experiences with youth sports and the larger incentives that drive children to specialize and hyper-focus on sports at a young age. [Link]

Economics

Measuring Labor-Force Participation and the Incidence and Duration of Unemployment by Hie Joo Ahn and James D. Hamilton (NBER Working Papers)

Statistical biases – that are artefacts of consistent survey methodology, not some sort of political pressure – are responsible for presenting a skewed picture of the US labor market. [Link; 51 page PDF]

Infrastructure Costs by Leah Brooks and Zachary Liscow (Brookings)

A new paper seeks to identify the increased construction costs for basic infrastructure like roads. Contrary to popular perception, materials and even labor inflation aren’t the key drivers, but instead that rising “citizens voice” decision-making processes, higher incomes, and higher home prices explain the results. [Link; 88 page PDF]

Not What You Paid For

Safe Deposit Boxes Aren’t Safe by Stacy Cowley (NYT)

Storing valuables is hard even when you outsource it to a location that should be secure: a bank. Cautionary stories on why your safe deposit box isn’t as safe as you think it ought to be. [Link; soft paywall]

Searches for ‘Canceling Amazon Prime’ Spike on Prime Day by Spencer Soper (Bloomberg)

Advertising doesn’t always work the way it’s intended to, and in the case of Amazon Prime paying customers sometimes forget that they’re paying until Prime Day reminds them. [Link; soft paywall, auto-playing video]

The women who win hundreds of sweepstakes per year by Zachary Crockett (The Hustle)

A unique online culture features a hunt for the ubiquitous sweepstakes, which can yield tens of thousands of dollars per year in winnings for the most dedicated prize hunters. [Link]

Europe

Swedes are getting implants in their hands to replace cash, credit cards by Lee Brown (New York Post)

Small RFID chips are being implanted in Swedes who use them to pay at the store, unlock doors, and monitor health metrics. [Link]

Older Employees Breathe New Life Into Europe’s Labor Market by Tom Fairless (WSJ)

Almost 90% of employment growth in the Eurozone between 2012 and 2018 came from workers aged 55 to 74, a function of both an aging society and rigid labor markets. [Link; paywall]

Tinseltown

‘The Town Hall of Hollywood.’ Welcome to the Netflix Lobby. by Brooks Barnes (NYT)

Where can you see Dolly Parton, Leo DiCaprio, John Kerry, Cindy Crawford, David Letterman, Beyoncé, President Obama, Alfonso Cuarón, Jay Leno, or studio heads? Waiting to pitch or be pitched by the biggest content budget in LA. [Link; soft paywall]

IPO Flops

Why Budweiser and Bankers Failed to Sell the King of IPOs by Thomas Buckley, Vinicy Chan, Crystal Tse and Bruce Einhorn (Yahoo!/Bloomberg)

Global brewing behemoth AB-InBev was all set to list its APAC businesses in a massive Hong Kong IPO, but the $10bn listing had to be pulled due to lack of investor interest. [Link]

Laugh More, Live Longer

You’re Not Laughing Enough, and That’s No Joke by Pamela Gerloff (Psychology Today)

Toddlers burst out laughing hundreds of times a day, but adults – especially those later in life – are much less frequent to giggle. But laughter reduces stress hormones and releases endorphins which can improve quality of life. [Link]

Long Reads

Apollo 11 Had a Hidden Hero: Software by Robert Lee Hotz (WSJ)

The story of the code behind the moon landing, and how it helped jump-start the role of computers across industries and applications more broadly. [Link; paywall]

A Carolina Dog by Cy Brown (Bitter Southerner)

The fascinating story of a dog breed which has been wandering around North America with and without human companions for the past 14,000+ years, and has rooted itself in the swamps of the rural south. [Link]

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Have a great weekend!

Earlier this week the Investment Company Institute (ICI) released weekly mutual fund flows for the week ending July 10th. Every single category of equity fund flows had outflows this week, which is relatively rare; of the 654 weeks with data since 2007, only 70 have seen that kind of consistency across all equity categories…and four of those have been in the past four weeks! Total equity fund outflows were $46bn this week, versus $6.8bn for the week and $85.4bn over the past three months. On a cumulative basis, $1.2trn has left equity mutual funds since January of 2007. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

With equity fund flows in the bottom quintile of all periods in recent weeks, bond funds have been the complete opposite story. As shown in the table below, bond fund inflows were in the 97th percentile overall this week and in the 94th percentile or higher in four different categories. The only areas that were at all weak were taxable global bonds and high yield bonds. On a cumulative basis, bond fund inflows total $1.7trn since the start of 2007, an interesting mirror image of the $1.7trn in domestic equity fund outflows since 2007.

The bottom line is that equity fund flows have been very large over the past year. As shown in the chart below, more than $320bn has flowed out of equity funds over the past year, more than any other 52-week period in the history of the day. Even at the height of the crisis, investors were pulling substantially less from funds.

The Dow (DIA) has distanced itself from the other major index ETFs in the past week.  While other large-cap ETFs like the S&P 100 (OEF) have dropped 0.23% and the Nasdaq (QQQ) is flat, DIA has managed to rise 0.5%.  DIA is also the most overbought of all the major index ETFs, although like other large caps, it is less overbought than it was one week ago.  On the other hand, mid-caps like the S&P MidCap 400 (MDY) and the Russell Mid-Cap (IJR) have actually moved higher within their trading ranges on small gains.  At their current levels, the S&P MidCap 400 (MDY) and the Core S&P Mid-Cap (IJH)  both have good timing scores in our Trend Analyzer.

Equity indices have not managed to see any sort of large move in the past week as each of the fourteen has gained or lost less than 1%. Meanwhile, the commodities space has been much more volatile.  In particular, oil (USO) and energy in turn as seen through the DB Energy Fund (DBE) have gotten smashed over the past week. USO is down 7.89%, falling below the 50-DMA and moving towards oversold levels.  Similarly, Nat. Gas (UNG) continues this year’s pain falling 4.79% further.

Contrary to the moves in energy markets, precious metals like silver (SLV) have been soaring.  After lagging behind gold recently, the Silver Trust (SLV) has finally caught up with the yellow metal.  SLV has risen 7.9% over the past week, the best gain of any commodity. Ironically, earlier in the week it was actually negative YTD but these gains over the past five days have brought it to a 5.3% YTD gain.  But also with this surge, SLV is now extremely overbought sitting over 2 standard deviations above the 50-DMA. Gold ETFs on the other hand, while not seeing as large of a move, has also done well rising around 2.75%. Precious metals in general as seen through DB Precious Metals (DBP) have become extremely overbought.

Looking at the charts, yesterday’s strong session for precious metals led to a further breakout to 52-week highs across the board.  While the DB Precious Metal Fund (DBP) and gold’s break out is above more recent resistance, silver’s 52-week high took out resistance from much earlier in the year. In reaching this new high, SLV’s chart makes it pretty evident as to just how rapid the move has been and the degree to which it is extended to the upside.

Yesterday was another one of those days that makes you scratch your head.  In a relatively busy day for economic data, Initial Jobless Claims came in within 25K of a 50-year low, and the Philly Fed Manufacturing report saw its largest m/m increase in a decade.  That follows other data last week where Retail Sales were very strong and CPI and PPI both came in ahead of consensus forecasts.  The trend of better than expected data since the June employment report on July 5^th is reflected in recent moves of the Citi Economic Surprise Index which has rallied from -68.3 up to -41.5. Granted, it’s still negative, but what was looking like a real dismal backdrop for the economy just three weeks ago seems to be showing signs of improvement.

On top of the economic data, two notable interviews from FOMC officials Williams from New York and Vice Chair Clarida moved markets.  Given the strong tone of economic data, one would expect both officials to try and tone down rising market expectations regarding any aggressive policy moves at the July meeting.  Well, markets don’t always make sense.

In their respective interviews, both Williams and Clarida not only didn’t tone down expectations, but they added fuel to the fire.  Williams noted that “it pays to act quickly to lower rates” and “vaccinate” the economy “against further ills.”  Clarida was even more direct when he said that “Research shows you act preemptively when you can.”  In other words, the data-dependent Fed is casting the data aside and ready to move anyway.  In his interview on Fox Business, Clarida almost got a chuckle when asked whether there was any chance the Fed wouldn’t cut rates in July.

The dovish turn from the Fed was immediately reflected in market expectations for rate policy at the July meeting.  Back in June, market expectations for a 50 basis points (bps) cut at the next meeting peaked out at under 50%.  Then, in the days following the June employment report, expectations dropped all the way down to 3%.  In the last ten days, though, the trend has completely reversed, and as of yesterday’s close topped out at 71% versus just a 29% chance for a 25 bps cut. Probabilities for a 50 bps cut came in a bit overnight but are still at about 50/50.  Yesterday alone, though, expectations for a 25 bps cut and a 50 bps cut more than completely reversed from the prior day, and remember, that’s after what was a good day of economic data!  Can you imagine what expectations would be like if the data was actually bad? Become a Bespoke Premium member today with a two-week free trial.