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.
A rare and expensive investment book tearing up the Amazon Kindle charts is actually an illegal copy by Tae Kim (CNBC)
“Margin of Safety”, Baupost manager Seth Klarman’s tome on investing is rare and carries extreme secondary market prices. So its appearance on Amazon Kindle for $9.99 seemed a bit out of step. [Link]
Buffett Starts to Say Goodbye to a Pile of Equity-Index Options by Katherine Chiglinsky (Bloomberg)
A series of extremely long-term equity options written between 2004 and 2008 are starting to expire, having added billions in income to Berkshire over the past decade and a half. [Link; soft paywall, auto-playing video]
Out of Prison & Out of Work: Unemployment among formerly incarcerated people by Lucius Couloute and Daniel Kopf (Prison Policy Initiative)
In addition to the specific penalty paid by spending time in prison, the formerly incarcerated pay extreme labor market penalties, with significantly higher burdens in terms of unemployment for black or Hispanic/Latino former prisoners. [Link]
Manhattan District Attorney Demands Access to Police Records by James C. McKinley Jr. (NYT)
The NYPD is refusing to give the Manhattan DA access to disciplinary records which the office wants in order to weed out potentially bad arrests. [Link; soft paywall]
The Story Behind Why Soccer Players Sit In Race Car Seats by David Tracy (Jalopnik)
Why do soccer players have benches made out of racing bucket seats? The answer is found in an obscure sponsorship of a German team in the mid-90s. [Link]
We’ve Exhausted America’s Supply of Retro-Fitness Fads. Maybe It’s Time to Try Communism by Oliver Lee Bateman (MEL Magazine)
An investigation of the athletic sorting and training techniques deployed by Soviet Union, with possible application to our own techniques in the gym. [Link]
Don’t blame Ed O’Bannon for the death of the video games. Blame the NCAA. by Alex Kirshner (SBNation)
A 2014 class action law suit against the NCAA found that video games based on NCAA football and basketball used players’ likenesses. As a result, NCAA sports video games are no more, but it didn’t have to be that way. [Link]
Something I Changed My Mind About Recently by Ben Carlson (A Wealth of Common Sense)
Making the case that e-sports (competitive video games) are not only here to stay, but likely to get even bigger than they are today. [Link]
Historic blunders: 50 worst product flops of all time by Michael B. Sauter, Evan Comen, Thomas C. Frohlich and Samuel Stebbins (USA Today)
A review of the most intense product failures ever, including tech hardware, video games, TV shows, and so forth. New Coke, Cheetos lip balm, and Coors sparkling water are all interesting examples we enjoyed. [Link]
Hunting the Con Queen of Hollywood: Who’s the “Crazy Evil Genius” Behind a Global Racket? by Scott Johnson (Hollywood Reporter)
A racket has bilked hundreds of thousands of dollars from freelancers who fly to Indonesia and provide upfront funds for projects which never pan out. [Link]
States launch investigation targeting fast-food hiring practices by Jeff Stein (WaPo)
So-called “no poach” agreements can hold down wages for the lowest-credentialed workers. State attorney generals are starting to investigate the practice. [Link; soft paywall]
Russia Is Building $320 Million Icebreakers to Carve New Arctic Routes by Eric Roston (Bloomberg)
Icebreakers designed to haul liquid natural gas out of the high Arctic are under construction, each one capable of hauling 1mm barrels of oil equivalents. [Link; soft paywall]
China Has Arsenal of Non-Tariff Weapons to Hit Back at Trump by Enda Curran (Bloomberg)
The large trade imbalance between the US and China means direct Chinese tariffs on US goods can’t keep up with new US tariffs. But there are many, many alternative means that can be used to interdict US activity in China: increasing regulatory oversights of US subsidiaries onshore, slowing down regulatory approvals, cancelling orders, or encouraging consumer boycotts. [Link; soft paywall, auto-playing video]
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Have a great Sunday!
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.
Below is a snapshot from today’s Closer highlighting weekly intraday price charts for major equity indices and other asset classes. If you’d like to see more, start a free trial below.
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Along with our monthly Consumer Pulse Report, Bespoke’s Pulse subscription service includes access to a model Pulse Growth portfolio and a model Pulse Conservative portfolio. Both portfolios have significantly outperformed the S&P 500 since inception.
Since inception in February 2016, the Pulse Growth portfolio has gained 135.4% versus the S&P 500’s total return of 53.4%. Over the same time frame, the Pulse Conservative portfolio has gained 73.8% — 20.4 percentage points ahead of the S&P 500. In 2017, the Pulse Growth portfolio gained 45.83% vs. the S&P 500’s total return of 21.82%. So far in 2018, the Pulse Growth portfolio is up 35.7% vs. the S&P 500’s gain of 5.9%.
In 2017, the Pulse Conservative portfolio gained 29.79% vs. the S&P 500’s total return of 21.82%. So far in 2018, the Pulse Conservative portfolio is up 12.1% vs. the S&P’s gain of 5.9%.
Since our last update, the Pulse Growth portfolio gained 4.47% vs. the S&P 500’s gain of 0.90%. The Pulse Conservative portfolio fell 2.32% since our last update. (As always, past performance is not a guarantee of future returns.)
To see the full Pulse Growth and Conservative portfolios, sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. We provide more details on our monthly Consumer Pulse Report that’s also included with the service in the next paragraph.
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. With a 30-day free trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more.
Bespoke’s Morning Lineup is the top pre-market report on Wall Street. We cover everything you need to know to get your trading day started, including international market moves and events, post-market and pre-market earnings news, upgrades and downgrades, dividends and splits, economic indicators and estimates, big stock movers, market internals and much more. It’s all presented in the original and concise format that Bespoke is known for so you can digest lots of information quickly and efficiently.
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Looking for deeper insight on markets? In tonight’s Closer sent to Bespoke Institutional clients, we review monthly CPI data from the BLS. Leading indicators suggest further inflation ahead. We also review Canadian home prices and the widening budget deficit.
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We’ve just released our weekly Sector Snapshot report (see a sample here) for Bespoke Premium and Bespoke Institutional members. Please log-in here to view the report if you’re already a member. If you’re not yet a subscriber and would like to see the report, please start a two-week free trial to Bespoke Premium now.
Below is one of the many charts included in this week’s Sector Snapshot, which shows the S&P 500’s 10-day advance/decline line. This reading is a short-term measure of underlying market internals, and when it moves into the red area, it means things are getting extended.
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Our recently launched Chart Scanner has become an incredibly popular and useful tool for clients as it gives a user the ability to quickly scan through hundreds of charts in order to find the most attractive (or unattractive) patterns. Included with the tool are a number of pre-defined screens that allow users to see stocks that hit 52-week highs or lows in the previous session, experienced “death” or “golden” crosses, as well as charts which we view as having bullish or bearish patterns. Each of these screens can be found using the drop-down box at the top of the page (as illustrated in the image below). To unlock our Chart Scanner tool, simply sign up for a two-week free trial to Bespoke Premium. You won’t be disappointed!
In a follow-up to yesterday’s post regarding Exxon Mobil’s (XOM) historical performance following Golden Crosses, today we wanted to highlight another example that showed up in our Chart Scanner. Yesterday, Vertex Pharmaceuticals (VRTX) had its fifth Golden Cross in the last ten years with the most recent occurring back in July 2014. A Golden Cross occurs when a stock’s upwardly sloping 50-day moving average (DMA) crosses above its 200-DMA, which also has to be rising. Conversely, a Death Cross occurs when a downwardly sloping 50-DMA crosses below the 200-DMA, which also has to be moving lower. Technicians consider Golden Cross formations to be a positive signal, while a Death Cross is considered to be negative.
Unlike XOM, which has historically seen modestly positive returns following these patterns, Golden Crosses for VRTX have been outright bearish. The table below lists the one week, one month, and three month returns for the stock following each prior Golden Cross. After just one week, VRTX had positive returns only half the time, yet still managed to average a gain of 2.48% (median: 0.29%). However, one month later in all four prior occurrences, the stock saw big declines, averaging a drop of 10.68% (median: -12.06%). The three-month return did not do much better, averaging a decline of 6.35% (median: -11.62%) with losses three out of four times. It just goes to show that even something that technicians consider to be a positive signal is not always a guarantee.
Below we reproduce one section of our Fixed Income Weekly — a report we update every Wednesday to Bespoke Institutional subscribers covering domestic and international interest rate, credit, and other fixed income-related subjects. Each week we include commentary on a variety of yield curves, including USTs, German bunds, Eurodollars, inflation, and the Bespoke Global Yield Curve, a composite nominal interest rate measure of the 15 largest global economies.
Curve flattening continues, with swaps curve starting to invert in some cases. We discussed that phenomenon in The Closer on Tuesday (link). 10s30s is the most likely to invert, but 5s10s is also very close to inverting as well. The front end of the curve is relatively stable (15 bps range since the start of June).
The persistent decline in German yields over the past 5 months (from over 75 bps at the start of February to sub-30 bps earlier this week) has helped dramatically flatten the Euro curve, which hit 52-week lows this week in lock-step with the US yield curve. Sovereign bonds have been better behaved of late.
As discussed in The Closer last night (link), the Eurodollar curve has flattened. That said, it’s a kink in the curve as opposed to an overall flattening with lower yields in out years. Still, that inversion is not a good sign as a reflection of market expectations for the future of the Fed hiking cycle or the economic expansion.
Yesterday’s PPI report came in pretty hot, with PPI Final Demand, Ex Food & Energy, and Ex Food, Energy, & Trade Services all beating expectations. Ex Food & Energy hit the highest level since 2011 on a YoY basis. That bodes well for the overall trend in inflation, and is also a reflection of both tightening labor markets and the impacts of tariffs on intermediate and final goods.
With both US and Euro curves flattening dramatically, the Bespoke Global Yield Curve has made new flats over the last few weeks. That’s despite a topping out of the short end of the curve, which had been rising inexorably thanks to the combination of Fed tightening and emerging market central bank hikes in response to currency weakness across the space.
For more analysis like this on a weekly basis, start a two-week free trial to Bespoke Institutional and gain access to our Fixed Income Weekly.
Every Thursday, Bespoke publishes its “Bespoke 50” list of top growth stocks in the Russell 3,000. Our “Bespoke 50” portfolio is made up of the 50 stocks that fit a proprietary growth screen that we created a number of years ago. Since inception in early 2012, the “Bespoke 50” has beaten the S&P 500 by 97.9 percentage points. Through today, the “Bespoke 50” is up 201.0% since inception versus the S&P 500’s gain of 103.1%. Always remember, though, that past performance is no guarantee of future returns.
To view our “Bespoke 50” list of top growth stocks, click the button below and start a trial to either Bespoke Premium or Bespoke Institutional.
With tomorrow being Friday the 13th, we looked at how the S&P 500 has performed on this day over time. Historically, the “cursed” day has not had much of an impact on the market. In fact, going all the way back to 1928, the S&P has actually performed slightly better when the 13th falls on a Friday (+0.01%) than it has when the 13th falls on all other weekdays (-0.02%). Relative to all other Fridays, though, market returns on Friday the 13th are weaker as the S&P 500’s average Friday performance over time has been a gain of 0.05% (table below).
The chart below shows the S&P 500’s return on all Friday the 13ths since 2009. Judging by the results, it would appear as though investors have become more superstitious as the S&P 500 has averaged a decline of 0.14% with gains just 44% if the time. The worst Friday the 13th during this period came in April 2012 when the S&P 500 declined 1.25%, while the biggest gain was exactly three months later on 7/13/2012 (1.65%). While the overall returns of the S&P 500 on Friday the 13th since 2009 have been a bit weaker than average, we would be more concerned with seeing a black cat or walking under a ladder than seeing any catastrophic market change on this historically unlucky day.