Bespoke co-founder Paul Hickey appeared on CNBC’s Squawk Box today (4/24) to discuss markets and their reaction to the French election and potential tax reform proposals. To view the segment, please click on the image below.

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We’re happy to announce that the newest episode of Bespokecast is now available to the general public both here and via the various podcast platforms.  Be sure to subscribe to Bespokecast on your preferred podcast app to gain access to our full collection of episodes.  We’d also love for you to provide a review as well!

In our newest conversation on Bespokecast, we spoke to Josh Brown, the CEO of Ritholtz Wealth Management.  Josh is a contributor on CNBC’s daily show Fast Money Halftime Report, has written two books about the financial markets, regularly writes on his blog The Reformed Broker, and has a huge following on Twitter.  Our conversation was wide-ranging, covering the start of Josh’s career at traditional brokerages on Wall Street, his epiphany about how the financial industry works, the evolution of the Ritholtz platform, and the best way to handle social media.  A life-long resident of the Tri-City Area, we also talked about New York City and the beleaguered Knicks franchise.  This was a fantastic conversation, and we had a great time talking to Josh.  We hope you enjoy listening!

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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.

Labor Markets

Northern New England’s Good Jobless Numbers? They’re Bad by Jon Kamp and Jennifer Levitz (WSJ)

While the current popular obsession is insufficient employment, at least one region is feeling the pinch from the opposite side of the equation and it’s not all roses when there’s nobody to hire. [Link; paywall]

Estimates of potential employment growth by Guillermo Roditi Dominguez (NRI/Medium)

The raw math behind how fast employment can rise on a structural basis. Don’t expect 6-figure monthly NFP prints to disappear any time soon. [Link]

Demographics

Census: More Americans 18-to-34 Now Live With Parents Than With Spouse by Terence P. Jeffrey (CNS News)

Later marriages, more education (and with it, student loans), more expensive home prices, lower employment…there are myriad reasons for the surprising statistics found in the most recent Census data. [Link]

Boom Boom Boom Boom(ers), Gonna shoot you right down by Samuel Gruen (Lightfield Capital)

We don’t necessarily agree with all of the analysis in this piece, but it takes an interesting angle in arguing that demographics are about to make the equity markets a much less rewarding investment than they have been the last few decades. [Link]

Swings

Doomsday isn’t coming — here’s why the world is only getting better by Michael Shermer (BI)

Peeling back the onion of the world’s problems, there’s plenty of evidence that the world is becoming a much better place despite the focus on negative headlines. [Link]

The Blood of the Crab by Caren Chesler (Popular Mechanics)

Half a million horseshoe crabs are bled dry every year providing their blue blood, which is invaluable in detecting infections. [Link]

Saudi Arabia, a kingdom built on oil, plans a future beyond it by Steven Mufson (WaPo)

An overview of Vision 2030, the House of Saud’s plan to remake its economy by ending its singular dependence on oil revenues. [Link; soft paywall]

Misses

GM says Venezuela has seized its car plant by Alanna Petroff (CNN)

Amidst ongoing economic chaos in socialist Venezuela, GM’s factory has been seized by the Maduro government. [Link]

United Airlines boots bride and groom traveling to their wedding from half-empty plane by Brandi Smith and Hannah Lawson (USA Today)

Another “re-accommodation” from UAL, this time a couple headed to their wedding and at the hands of a U.S. Marshall despite the couple complying with crew’s requests. [Link]

Tech Boondoggles

Silicon Valley’s $400 Juicer May Be Feeling the Squeeze by Ellen Huet and Olivia Zaleski (Bloomberg)

What if your $400 juice machine was easily replaced with Mark 1 human hands? And what if the company making it had already received 9 figures worth of funding for its efforts? [Link]

Torching the Modern-Day Library of Alexandria by James Somers (The Atlantic)

One of the largest collections of books ever assembled is sitting on servers at Google, barred from public access by the combined (and sometimes cross-purpose) efforts of publishers, authors, and the DoJ. [Link]

Parenting

No Regrets by cavandy (the C is for Caroline)

A personal essay that answers the question “was having kids worth it?” [Link]

Scare Reads

Bill Gates: Terrorists could wipe out 30 million people by weaponising a disease such as smallpox by Sarah Knapton (The Telegraph)

The dark side of Crispr and gene editing kits is the hypothetical risks they create of bioweapons becoming cheap to make, readily available, and a huge threat to human life. [Link]

The Air Force is preparing to test a laser cannon on its ‘Ultimate Battle Plane’ by Jared Keller (Task & Purpose/BI)

Okay, this one isn’t that scary unless you’re on the receiving end of an Air Force C-130 loaded with machine guns, incendiary rounds, a 105mm cannon normally reserved for tanks, and a literal laser beam. [Link]

Personal Finance

Grab Your Pitchforks, America, Your 401(K) May Need Defending from Congress by Jason Zweig (WSJ)

One potential angle for tax reform includes removing the tax shielding provided by retirement savings deductions that have become a mainstay of the US investing landscape. [Link]

Forget Apple Pay. Mastercard’s got a fingerprint reader by Ben Fox Rubin (CNET)

Mastercard is in the process of testing a credit card that uses fingerprint scans to confirm purchases, built right in to the card. [Link; auto-playing video]

Wall Street

Quants Fire Back at Paul Tudor Jones After His Attack on Risk Parity by Dani Burger (Bloomberg)

Macro investing legend Tudor Jones thinks selling of equities on an uptick in volatility will be enormous from the risk parity community; the counter-argument is that similar strategies are still relatively small compared to the market as a whole. [Link]

Monument to Wall Street Glory Becomes Just Another Mortgage Loss by Matt Scully and David M. Levitt (Bloomberg)

Mortgage bonds backed by UBS Americas HQ in Stamford, once one of the largest trading floors in the world, are in default. [Link]

Off-Bore Economics

Accounting for global liquidity: reloading the matrix by Hyun Song Shin (BIS)

Shin argues that dollar appreciation leads to a retreat in bank lending, ultimately leading to lower investment and economic activity despite the benefit to export competitiveness from weaker local currency. [Link; 7 page PDF]

Taxes for Revenue Are Obsolete by Beardsley Ruml (American Affairs/Constitution.org)

A clear argument dating back over 50 years (and from the then-Chair of the NY Fed) that governments with a fiat currency do not fund expenditure via taxation, instead using taxes to sterilize the monetary supply and prevent rapid inflation. [Link; 7 page PDF]

Pop Culture

Best. Episodes. Ever. by Alan Siegel (The Ringer)

A definitive list and watching guide for the 100 best episodes in the history of The Simpsons, complete with summaries and explainers for each. [Link]

Binge on Binging with Babish by Andrew Rea (YouTube)

Granted, this is not a “read” but we loved this list of videos which are part cooking show, part pop culture review. The videos are also loaded with excellent cooking techniques and tips for aspiring chefs. A few favorites: the prison sauce from Goodfellas, Il Timpano from Big Night, and Eggs Woodhouse from Archer. [Link]

Happy Birthday to GIF, a Tech Term That’s Aged Well by Ben Zimmer (WSJ)

Fewer things bring more hilarity than a well-timed reference in moving picture form; from instant messenger clients to social media, the gif is now ubiquitous 30 years after its invention. [Link; paywall]

Bespoke In The News

Another Year of Double-Digit Gains by Leslie P. Norton (Barron’s)

A conversation with Bespoke’s co-founders: Paull Hickey and Justin Walters. [Link; paywall]

Have a great Sunday!

The commentary and charts below have been pulled from our daily post-market macro note — The Closer — which is part of our Bespoke Institutional research offering.  If you’d like to see more research like this plus actionable individual stock and ETF ideas, please start a 14-day no obligation free trial to Bespoke Institutional.

Over the last couple of decades, the International Center for Finance at Yale University has regularly surveyed both individual and institutional investors and asked them about their views of the market.  There are four major questions: one year confidence, buy-on-dips confidence, crash confidence, and valuation confidence.  We’re going to focus on two of those today: “one-year confidence” and “valuation confidence”.  One-year confidence is the percent of investors expecting a positive return for the Dow Jones Industrial Average over the next year.  Valuation confidence is the percentage of investors who are confident in the valuation of the market, meaning they think the market is valued either too low or about right.  The confidence indices are shown for both individual investors and institutional investors, and we highlight charts of the two readings below.

As you can see in the “One-Year Confidence” chart, according to Yale’s survey, investors have gotten crazy bullish on stocks over the last few months.  Institutional investors are extremely bullish: less than 2% don’t expect gains for the Dow over the next year!  Individual investors are the most bullish since February 2004, when 93.4% expected gains.  Currently, over 90.9% expect further gains.

While investors are crazy bullish on the market over the next year, they aren’t attracted to the market’s valuation.  As shown in the second chart below, a historically low share of investors think the market is cheap; Valuation Confidence from both individual and institutional investors is near the lowest levels on record.

So what do you call high confidence that the market will be higher a year from now while at the same time not liking the valuation of the market?  Some would say “irrational exuberance.”  We decided to create an “irrational exuberance” indicator from this survey data which is simply Valuation Confidence subtracted from One Year Confidence.  As shown below, this reading has exploded higher recently for both institutional and individual investors.

The chart below only shows the combined “irrational exuberance” indicator based on the average of the institutional and individual investor readings.  When the reading is positive, it means confidence that the market will be higher one year from now is higher than confidence in the valuation of the market.  The opposite is the case when the reading is in negative territory.

The key takeaway from our combined “irrational exuberance” indicator is that investors think simultaneously that the market is over-valued but likely to keep climbing: that’s the exact phenomenon famously described by former Fed Chair Alan Greenspan in a December 1996 speech.  Robert J. Shiller, the originator of the Yale Investor Confidence series, is rumored to have first invented the term; he later wrote a book with the same title.

While the Yale Confidence series aren’t a very good short-term market-timing tool, we can say that lower readings on our “irrational exuberance” indicator generally come at lower levels of the market.  As shown above, the low of the reading came just after the lows for the market during the Financial Crisis.  We also think that as a general proposition, if a huge share of investors think that the market is expensive but are still optimistic, the market’s psychology is fragile.

Equity valuations are not as extended now as they’ve been in true bubble territory (the tech bubble). That said, we do think this reading should make investors a bit cautious given that so many expect gains despite having little conviction in valuations.

The commentary and charts above were pulled from our daily post-market macro note — The Closer — which is part of our Bespoke Institutional research offering.  If you’d like to see more research like this plus actionable individual stock and ETF ideas, please start a 14-day no obligation free trial to Bespoke Institutional.

We’re now right smack dab in the middle of earnings season, so today we wanted to highlight a couple of interesting sector trends we’ve recently identified.  Thanks to our Interactive Earnings Report Database, we have a list of every single quarterly earnings report for US stocks going back to 2001.  For each report, we know whether the stock beat or missed consensus earnings and revenue estimates and how the stocks performed.

Using our database, we track the rolling 3-month earnings beat rate for all US stocks.  This shows the percentage of companies that are beating consensus analyst earnings per share estimates over time.  We also track the rolling 3-month earnings beat rate by sector.

Below is a chart showing the rolling 3-month earnings beat rate for all US stocks compared to just Technology stocks.  As you can see, from 2002 through 2009, the earnings beat rate for Tech stocks generally tracked the beat rate for all stocks.  But during the current bull market that began in early 2009, we’ve seen Tech stocks separate from the pack when it comes to beating analyst earnings estimates.  Since 2014, the divergence has gotten even more prominent.  As of now, the rolling 3-month earnings beat rate for Tech stocks stands at 75%, while the beat rate for all stocks is just 60%.

You can see the spread between the beat rate for Tech and the beat rate for all stocks in the chart below.  Over the years, Tech stocks have gotten better and better than the rest of the market at beating analyst earnings estimates.  Whether that’s the result of legitimate strength for the sector (it has outperformed) or Tech accounting departments getting better and better at “beating the number” is a different story.  We honestly don’t know the answer, but it’s probably a little bit of both.

A counter example is the Industrials sector.  Below is the rolling 3-month earnings beat rate for Industrials stocks versus the 3-month beat rate for all stocks.  Unlike Tech, these two data series have been tracking each other very closely for the last 15 years.  If anything (as shown in the second chart), Industrials stocks have gotten worse at beating estimates.

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