Bespoke Brunch Reads: 1/20/19

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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Lives Lived

John C. Bogle, Founder of Vanguard Group, Dies at 89 by Jason Zweig and Sarah Krouse (WSJ)

Near-zero cost access to index investing was a revolutionary idea in the 1970s when Vanguard’s first products were launched. Today, the ability to access equity markets and gain exposure to the market with no active selection is virtually free, mostly thanks to Bogle’s vision. [Link; paywall]

Weird News

Why every ski trail map looks the same by Katharine Schwab (Fast Company)

More than 250 trail maps for 175 mountains around the world have all been painted by the steady hands of James Neihues, the subject of a new coffee table book funded on Kickstarter. [Link]

100 years ago in Boston: The day molasses was deadly fast by William J. Kole (AP)

A century ago a giant storage tank in the bustling heart of New England burst, with more than 2.3mm gallons of molasses flowing through the streets at 35mph, killing more than 20. [Link]

Friends Don’t Let Friends Become Chinese Billionaires by Ray Kwong (Forbes)

In 2011 there were 115 billionaires in China. Since, 72 have died, with 15 murders, 17 suicides, 7 accidental deaths, and 19 from illness. Another 14 were executed. [Link]

Canadian air traffic controllers send pizzas to U.S. counterparts working without pay by Sarah Smellie (CBC)

Since 9/11, there’s been a special link between air traffic controllers monitoring the eastern approaches to North America from Europe and the busiest airport hub in the country (New York’s three airports). Amidst the US government shutdown, controllers in Atlantic Canada sent their counterparts a batch of pizzas to alleviate some of the pain of furloughs. [Link]

Attention Economy

Is having the most popular photo on Instagram worth anything? We’re about to find out. by Kurt Wagner (recode)

This week a single picture of a brown egg on Instagram became the service’s most-liked picture. While the effort to make the egg the most-liked picture is interesting, is it worth anything? [Link]

Investors Are Singing Along to ‘Baby Shark’ by Jacky Wong (WSJ)

For those not familiar, Baby Shark is an earworm nursery rhyme originating in Korea (link in case you’re not familiar) that has gotten a huge amount of play and the accompanying merchandising attention as well. [Link; paywall]

Tech Hardware

Taking the smarts out of smart TVs would make them more expensive by Nilay Patel (The Verge)

While it may sound counter-intuitive, smart TVs allow their manufacturers to also run content, advertising, and data businesses which lower the sticker price of their hardware. [Link]

As Carmakers Change Business Models, This Chip Firm Is Perfectly Positioned by Jon Markman (The Street)

Hyundai has introduced a new walking car, just one example of rapidly proliferating vehicle form factors with a range of attributes that Monolithic Power Systems (MPWR) can help enable, fueling the chipmakers’ business. [Link]

Recession Chatter

Yellen Warns Anecdotal Signs Show Businesses Putting a Pause on Spending by Anne Riley Moffat (Bloomberg)

In a somewhat unusual move for a recent Fed Chair, Yellen worried publicly about the path of Fed policy under Chair Powell, citing less synchronized global growth as a major risk. [Link; soft paywall]

Markets Take the Lead When It Comes to Factoring in Recession by Liz McCormick, Sarah Ponczek, and Molly Smith (Bloomberg)

Market moves into the end of last year (falling yields, flattening curve, falling equities, widening credit spreads) suggest a roughly 50% chance of a recession in the next year, though of course much of that rise in risk premiums have since reversed. [Link; soft paywall]

Shady Dealings

WeWork’s CEO Makes Millions as Landlord to WeWork by Eliot Brown (WSJ)

In what can’t be described as anything approaching arms’ length transactions, a series of building leases by WeWork came on buildings the CEO had an ownership stake in. [Link; paywall]

Sacklers Directed Efforts to Mislead Public About OxyContin, New Documents Indicate by Barry Meier (NYT)

New details in a court filing against the maker of OxyContin show that the Sackler family directed efforts to mislead the public about dangers of opiods. [Link; soft paywall]


A Must-See Gymnast, and the Meaning of Joy by Jason Gay (WSJ)

The floor routine of UCLA gymnast Katelyn Ohashi inspired, thrilled, and delighted the internet this week; the reason may be as simple as the pure joy of the routine. [Link; paywall]

ESPN’s Ex-President Wants to Build the Netflix of Sports by Ira Boudway (Bloomberg)

After resigning in the wake of a scandal involving substance abuse and the possibility of a sexual harassment allegation, John Skipper wants to bring on-demand streaming sports to the masses. [Link; soft paywall]


Four former Fed chairs call for US carbon tax by Leslie Hook (FT)

27 Novel Laureates, 15 former CEA chairs, and 4 different former Fed Chairs have signed a letter urging the implementation of a carbon tax. Just as remarkable, the broad agreement across the economics profession has the support of companies like Shell, BP, and ConocoPhillips. [Link; paywall]

Middle-Class Growth Sparks Latest Surge in CT Tax Receipts by Keith M. Phaneuf (WestportNow)

Connecticut’s fiscal picture has improved rapidly of late as income tax receipts (typically driven by middle class households) have surged much more than estimated. [Link]

South Florida Mansion Sales Surge as Tax Exiles Seek Savings by Prashant Gopal & Jonathan Levin (Bloomberg Quint)

In response to state and local tax deduction caps in 2017’s tax reform bill, high income households are moving to Florida and bidding up real estate. [Link; soft paywall]

Policy Lab

Microsoft pledges $500 million to tackle housing crisis in Seattle, Eastside by Vernal Coleman and Mike Rosenberg (Seattle Times)

In an effort to combat the collapsing affordability of Seattle housing that Amazon and Microsoft have themselves contributed to, Microsoft unveiled a huge chunk of funding for new projects to ensure access to affordable housing. [Link]

A Failure to Adjust by Scott Lincicome (The Bulwark)

The argument against a so-called “China shock” being responsible for manufacturing job losses in the United States. [Link]


The Super-Secure Quantum Cable Hiding in the Holland Tunnel by Jeremy Kahn (Bloomberg Quint)

Light’s combined wave and particle properties are used in a technology that insures taps on fiber optic cables can’t be run. [Link; soft paywall]


BNP Loses $80 Million on S&P 500-Linked Derivative Trades by Donal Griffin, Harry Wilson, and Alastair Marsh (Bloomberg)

The US equity market plunge in Q4 led to an $80mm loss in index derivatives for BNP Paribas’s New York-based trading unit. [Link; soft paywall, auto-playing video]


Is a Serial-Killer Gang Murdering Young Men Across the U.S.? by Nicole Weisensee Egan (The Daily Beast)

A group of retired detectives claims evidence exists linking 100-350 deaths. Per their investigations, they are murders conducted by an organized group of serial killers with cells in dozens of US cities. [Link]

Personal Data

The 773 Million Record “Collection #1” Data Breach (Troy Hunt)

A trove of email addresses and passwords with more than 2.6bn rows has hit the internet, assembled from a range of sources and posted for download on a file sharing site. [Link]

Judge unseals trove of internal Facebook documents following our legal action by Nathan Halverson (Reveal)

Children make for easy targets, and while in Facebook’s case the harm caused is only monetary, the social media company’s conduct resulted in huge credit card bills. New documents detailing the company’s policies are being unsealed. [Link]

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Have a happy New Year!

The Bespoke Report — Call It A Comeback

2019 continues to track the complete opposite of what we saw in Q4 2018, with the hardest hit areas during Q4 bouncing the most off of their lows this year.  Smallcaps are leading the way with gains of nearly 10% on the year, while Energy (XLE) leads all sectors at +11.32% on the back of oil’s (USO) 17% surge.  Brazil (EWZ) leads all countries in our ETF matrix with a YTD gain of 13%, which is a rare continuation of what we saw for Brazil to end 2018.  Canada (EWC) is also posting a solid showing in 2019 with a double-digit percentage gain already.  The only areas of weakness are India (PIN), precious metals, and Treasuries.

For in-depth analysis of recent price action, sector technicals, earnings season, the economy, and more, start a two-week free trial to one of our three membership levels and read this week’s Bespoke Report newsletter.  You won’t be disappointed!

The Closer: End of Week Charts — 1/18/19

Looking for deeper insight on global markets and economics?  In tonight’s Closer sent to Bespoke clients, we recap weekly price action in major asset classes, update economic surprise index data for major economies, chart the weekly Commitment of Traders report from the CFTC, and provide our normal nightly update on ETF performance, volume and price movers, and the Bespoke Market Timing Model.  We also take a look at the trend in various developed market FX markets.


The Closer is one of our most popular reports, and you can sign up for a free trial below to see it!

See tonight’s Closer by starting a two-week free trial to Bespoke Institutional now!

High Yield Spreads: When Crashing is a Good Thing

After screaming higher towards the end of 2018 right up through the first couple of days of 2019, high yield spreads have come crashing back down to earth in the last two weeks, falling from a high of 544 basis points (bps) on 1/3 to 440 bps through Thursday.  At their highs two weeks ago, spreads were the widest they have been since the Summer of 2016 and the highest while moving higher since the middle of 2015 when oil prices were crashing.

In the lower chart, we show the 10-day rate of change of high yield spreads over time.  At their peak back on 1/3, spreads had seen the largest 10-day move wider since early 2018 (98 bps).  Ten trading days later, we are now looking at the largest narrowing move in spreads since July 2016.  Unlike the current period, the narrowing of spreads in July 2016 did not immediately follow a 10-day move where spreads widened significantly.  To find a period where this large of a move immediately followed a ten-day period where investors couldn’t exit high yield fast enough (wider spreads), you have to go back to that period in February 2016 that was marked by the ‘Dimon Bottom.”  Now, if only the market follows a similar path moving forward!

Bespokecast Episode 28 — Kevin Muir — Now Available on iTunes, GooglePlay, Stitcher and More

Our newest episode of Bespokecast is now available!  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 this episode of Bespokecast, we sit down with Kevin Muir, the Market Strategist for Canadian investment management firm East West Management. In addition to a long experience in cash equities and derivatives working at Canadian banks, Kevin traded a personal portfolio for almost two decades, gaining wide experience across global markets. In his current role, he helps set strategy for East West’s portfolios and hedge funds. He also writes a free newsletter called The Macro Tourist, which serves as both a trading journal and exploration of issues facing global markets. In our conversation today, we talk about Kevin’s fascinating career path, the recent history and outlook for federal reserve policy, and modern monetary theory (MMT). Kevin offers some great perspectives that we hope investors of all types can learn from. You can follow Kevin on Twitter here.

To listen to our newest episode or subscribe to the podcast via iTunes, GooglePlay, OvercastFM, or Stitcher, please click the button or links below. Please note that third-party podcast feeds may update at a lag of a few hours to this blog post.


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Morning Lineup – Rally Keeps Rolling

Despite denials from the Administration, US (and global) equities continue to rally this morning on optimism regarding a lifting of tariffs on Chinese imports.  Read today’s Bespoke Morning Lineup below for major macro and stock-specific news events, updated market internals, and commentary.

Bespoke Morning Lineup – 1/18/19

While the S&P 500 is only just barely above its 50-day moving average, breadth, as measured by the 10-day A/D line, is near historic highs.  As of yesterday’s close, the 10-day A/D line crossed above +2000 for just the fourth time since at least 1990 (there were no prior occurrences before 2005).  Normally, we consider a reading of +1,000 to be strong, but +2,000 is really strong breadth.  The fact that this historically strong reading came so soon after a historically weak reading suggests more than a hint on indecision on the part of investors.

Start a two-week free trial to Bespoke Premium to see today’s full Morning Lineup report. You’ll receive it in your inbox each morning an hour before the open to get your trading day started.


Resistance Causes Hesitation in Sentiment

Since its recent low on December 24th, the S&P 500 has seen a significant rally that, while slowing in its momentum as it closes in on resistance, has held up in the past week.  But optimism, as seen through the AAII individual investor survey, has cooled as these resistance levels are reached. Bullish sentiment fell this week to 33.5% after hitting the highest level since early November last week (38.5%).  The decline this week brings bullish sentiment back below the historic average but still well above lows hit in mid-December.

As optimism has declined, pessimism has picked up. Bearish sentiment has moved within a wide range in the past couple of months with it settling on the lower end this week at 36.3%.  That is up from last week’s level of 29.4%, Even with the increase, though, it still has a ways to go before getting back to the 50% peak from only a few weeks ago.  The increase in bearish sentiment could be a result of investors not trusting in the market’s ability to surge past the technical points of resistance we have recently highlighted that have been hit this week.

Like bullish sentiment, neutral sentiment also took a minor hit this week, falling from 32.7% down to 30.2%. This comes only a few weeks after investors became increasingly polarized when neutral sentiment collapsed all the way down to 18.2%.

Claims Continue to Decline

The labor market keeps humming along just fine as seen through this week’s Initial Jobless Claims report. Claims printed below expectations of 220K and lower than last week’s 216K.  At 213K on a seasonally adjusted basis, claims are at their lowest since the beginning of December and back within the range that we saw for most of the late summer/early fall of 2018.  With further strength this week, the impressive streaks we have noted in the past continue unthreatened.  The seasonally adjusted reading has now stayed below 250K for 67 straight weeks.  Claims have also come in below 300K for 202 consecutive weeks.  Any major shocks to initial claims aside, these streaks look likely to stay healthy for some time.

Whereas the seasonally adjusted number has more or less returned to where it was in the latter half of 2018, the 4-week moving average has hovered off of, but somewhat near, recent highs.  This week’s release for the moving average came in at 220.75 which is only 1K lower than last week.  Since the beginning of December claims by this measure has firmly held within a range of 219K to 222K.

Taking a look at the non-seasonally adjusted numbers, claims fell to 344.9K from revised lower 348.1K last week. As seasonal factors, which typically cause large upticks around this time of year, begin to wear off, non-adjusted claims will also continue to decline.  This week’s data also comes in at the lowest level for the current week of all years since 2000 and over 200K below the average for the same time frame.

Philly Fed Rebounds

After two straight months of weaker than expected readings and three straight months of declines, the Philadelphia Fed Manufacturing Survey for January came in stronger than expected and increased on a month/month basis. While economists were collectively expecting the headline report to come in at 9.5, the actual reading was 17.0.  While the headline index is well off its highs from early/mid-2017, it has now been above zero for 32 months, which is tied for the second longest streak on record.  One thing to note about the prior streaks of above zero readings is that in the four prior periods where the Philly Fed dropped below zero after at least 24 straight months of positive readings, it was not a warning of an imminent recession.  In fact, the soonest a recession arrived after one of these streaks ended was 15 months.  So while the Philly Fed continues to indicate a slowdown in the pace of economic growth, it is not flashing warnings of an imminent recession.

Looking at the internals of this month’s report, more components showed m/m declines than gains.  Of the nine categories listed below, just three were up m/m (New Orders, Delivery Time, and Average Workweek), while the remaining six were down.

On the upside, the biggest gainer this month was New Orders which rebounded by eight points after hitting its lowest level since September 2016 last month.

While the drop in Shipments was clearly not the sharpest of the six components that declined, it was notable in that it took that reading down to its lowest level since September 2016.

Morning Lineup – Rally Drivers

After a nice rally in reaction to earnings reports from the major banks, the Financials sector is taking a breather today after Morgan Stanley earnings disappointed the street.  In economic news, both Jobless Claims (213K vs 220K) and Philly Fed (17.0 vs 10.0) came in better than expected.  Read today’s Bespoke Morning Lineup below for major macro and stock-specific news events, updated market internals, and commentary.

Bespoke Morning Lineup – 1/17/19

In last night’s Closer report, we dissected the factors driving the market during the rally off the Christmas Eve lows using our decile analysis.  While some factors seemed to play little or no role in terms of performance, two that did were valuation and performance during the decline.

The first chart below shows the performance of S&P 500 stocks based on their valuations as of 12/24 with the most attractively valued (lowest P/E ratios) stocks to the left and the most expensive (highest P/E ratios) on the right.  The best performing decile by far was the one containing the stocks with the highest P/E ratios, and for the most part, performance steadily declined as you moved left towards the more attractively valued stocks.  The second chart shows performance since the lows based on stocks grouped according to how they performed during the market decline.  Here, the best-performing stocks were the ones that were originally down the most, while the worst performing stocks were the ones that held up the best during the decline.

In both cases, these performance results make perfect sense.  During market sell-offs, as investors become more risk averse it is typical to see stocks with the most aggressive valuations sell-off the hardest while more reasonably priced stocks hold up better.  However, when the market turns around and investors become less risk-averse, they flock to the more aggressive high growth/high valuation stocks.  Likewise, when the market shifts its tone from a defensive posture (during a sell-off) to a more offensive tone (rally) it is only natural that the stocks that held up the best during the defensive phase (like Utilities) underperform during the next more aggressive phase.  Anything else would be contrary to the norm.

Start a two-week free trial to Bespoke Premium to see today’s full Morning Lineup report. You’ll receive it in your inbox each morning an hour before the open to get your trading day started.


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