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 The "WHAT'S UP?" Newsletter

The Friday Newsletter, Specials, Saturday Night Rants and Monthly Book Summaries

What's up Consumer America? Debt is Cheaper Than Equity

4/26/2019

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Dear Reader,

​I have this unquestionable desire to disappear. Dissolve all trace and presence. Cut connections and relationships. Be born into a new environment in a new time. Why does it seem like a paradise? I’m getting away from all of the noise and responsibility. I’m going at my own pace, doing what I want to do, with nobody controlling me besides my own ambitions, goals, and work ethic. What would you do if you had no responsibilities? Nothing holding you back besides the limits of your potential. I would vanish without explanation or warning- go off the grid. A big part of living a fulfilling life is doing so in a way that is true. Living a fortunate life is not hard, but when it’s not your life that you’re living, what are you living for? Everybody talks about life and how to live it correctly, but only a few actually live what they preach. It’s better to have a short life that is full of what you like doing than a long life spent in a miserable way.

The Market. America’s elderly are twice as likely to work now than in 1985. 20% of those age 65 and up haven't retired yet because they do not have enough money to retire. Researchers say climate change makes poor countries poorer and widens the global inequality gap. Half of 16-year-olds in the US had a driver’s license in 1983. Only 25% of 16-year-olds do now. The US tightens the ban on Iranian oil. Junk bonds act similarly to stocks. If junk bonds continue to decline, that can be an indicator that large-cap stocks decline as well. Fed policy is guided by the theory that high unemployment equals low inflation and vice versa. The most valued skills for an employer: problem-solving, collaboration, customer service, adaptability, culture fit, growth potential, in-demand technical skills, being curious and communication. 

Behavioral Finance. “The human mind is fundamentally not a logic engine, but an analogy engine, a learning engine, a guessing engine…” The study of behavioral economics allows us to understand the decisions we make. Behavioral finance aims to influence and improve our financial decisions. We are more sensitive to losses than gains and overly influenced by short-term considerations. We seek to conform to group behavior and prevailing norms. We overweight the importance of recent events. We are poor at assessing risks and gauging probabilities. We over-estimate our own abilities. We focus on outcomes. We are often persuaded by captivating stories. Have a long-term investment plan. Automate your savings. Rebalance your portfolio. Don’t check your portfolio too frequently. Don’t make emotional decisions. Don’t trade, invest. Save more tomorrow. Individuals should build reserves that can provide an acceptable standard for living in retirement. To achieve this, they should start saving early. What’s hurting us is our tendency to think that the present is more important than the future, and limits to our self-control. Ask yourself these questions: What is the problem or issue? What is the rational or optimal decision? How do you actually behave? What is causing this difference between what you should do and what you actually do? How can we alter behavior to deliver better outcomes?

A Never-Ending Work Life. In 2017, 32% of people ages 65 to 69 were working and 19% of people ages 70 to 74 were employed. In 2024, it is projected that 36% of people ages 65 to 69 will be in the labor force. There are two reasons why a 75-year-old would still be working: they love their job; they are active, healthy and want to work due to longevity OR they need to work; they cannot pay off their current debt and expenses, and they do not have enough saved to be able to retire and survive. The first reason is not the issue, but there is a debate between living longer and not working and living longer and continuing to work. If your job is stressful, physically demanding, and lacks meaning, then it will have a negative effect on longevity and your health. But staying mentally, socially, and physically active is good for long-term health. The real problem is people working past the “retirement age” due to them not having enough money. You cannot rely on the government to fund your retirement. Starting to save earlier in life, being frugal and disciplined with your money, and enforcing saving by auto-enrollment or forced/auto contributions will help ensure your ability to have the choice of retirement in the future.

Orange and LA Real Estate. Home sales volume in Orange remains weak. The low turnover rate will continue until 2022 when renters of Millennials start buying and Baby Boomers start retiring. Homeownership remains low with the state average being 55% and Orange being 57%. Home sales volume in Los Angeles remains low. The homeownership rate in Q4 2018 was 50%. With the increase of interest rates (that increase mortgage rates), which caused the prices of houses to fall because people are having a harder time affording real estate.

Debt and Equity. What is the cheapest financing option, a company selling debt or a company selling equity? The answer is debt financing. Reasons: you get an income tax benefit on the interest component that is paid to the lender. If the firm goes bankrupt, equity investors lose everything, but the debt holder has the first claim on company assets. You do not give away ownership or a stake in the company. The cost of equity is more expensive due to its riskiness (cost of debt is lower than the cost of equity). Generally, companies in stable industries with consistent cash flows use debt financing (taking out a loan or selling bonds) more than equity financing (selling shares of the company).

Tesla. On Earth Day, Tesla invited representatives from their largest investment partners to check on the progress the company has made and their plan for a fully self-driving car. Tesla has just begun to manufacture its first in-house self-driving computer which boasts an impressive 142 trillion operations a second. The new FSD computer is said to be the last piece of hardware Tesla needed to achieve full self-driving by the end of the year through over the air updates. Once FSD is accomplished, Tesla plans to launch a ride share network similar to Lyft and Uber, but driverless. The idea is while you are at work you can activate your Tesla and allow it to give rides to people and earn you some extra cash. Tesla plans to launch their RoboTaxi service next year and if so, Uber and Lyft stand to lose big. Tesla has a massive competitive advantage over Uber and Lyft because they are closer to reaching FSD capability, already make the cars and self-driving hardware in-house, plan to offer their own insurance, will not have to employ human drivers, and will run on a completely electric fleet who's cost per mile are less than half of current costs. Tesla owners stand to make upwards of $10,000 a year while Lyft and Uber stand to lose billions. It's a race to the future of self-driving cars.


Keep Climbing,


The Alchanati Campbell and Associates Team
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What's up Life After College?

4/19/2019

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Dear Reader,

There this voice in my head that tells me what to do and what not to do. It dictates my actions and the words that come out of my mouth. Sometimes it tells me not to do something, even though I should have. And other times it tells me to say something, even though those words weren’t the correct ones to say. A strong, genuine self finds its foundation in the destruction of his initial character. You fail to succeed. You get hurt to grow stronger. You experience pain to build a tolerance. You fear to become fearless. The impulse to “good” should judge what you do or not do. But not only what’s good and socially sound. What’s right for you and your life should judge every action you set forth and every word you project. Man is blind to his shortcomings. Observers trying to decide what a man is like look closely at his actions. But when our inner voice tells us to strive to become better than we are, everything around us becomes better too.

The “j” in jobs is for “joy”. Do you like what you do? Which parts of your job make you happy? Which parts are a dreadful waste of time?  If you see your life more fluidly as a commitment of playful responsibilities, there is no reason work has to be a source of dissatisfaction.

The Market. Pinterest and Zoom went public. Both are trying to price at “the higher end of their price range” just like Lyft and most likely Uber when it goes public as well. The US trade deficit on trade in goods and services narrowed 3.4% in February. With Disney’s new streaming service, Netflix says, “we don’t anticipate that these new entrants will materially affect our growth because the transition from linear to on-demand entertainment is so massive and because of the differing nature of our content offerings.” Netflix is investing over $12 billion to create new content this year. Most Financial stocks recently released earnings and beat estimates. The Federal government collected $1.6 trillion in income taxes this year and paid out $2.19 trillion in outlays (social security, national defense, Medicare, income security, health, education…). Slow things drive us crazy because the fast pace of society has warped our sense of timing. US Retail Sales for March increased by 1.6%. 3 unconventional tools the government can use during a recession: buy both corporate bonds and equities to own a percentage of the country’s entire stock market, tolerate more inflation, and the Fed distributing money directly to citizens in the hope that they would spend it.

Mueller Report. Robert Mueller is an American lawyer and government official. He was asked to be the special counsel in the Russian investigations to see if there was collusion between President Trump and Russia. Mueller found at least 10 cases of possible obstruction of justice. Trump tried to remove Mueller, curtail Russian investigations and prevent public disclosure of evidence. “Our investigation found multiple acts by the president that were capable of exerting undue influence over law enforcement investigations…” Mueller couldn’t establish Trump committed crime.

Life After College. What job you have and where you work are likely to impact most aspects of your life for decades to come, so it is important you get the best job that you can get. Before you even begin applying there are a few things you need to do. First, make sure you update and clear all of your social media profiles. Recent studies show that 70% of employers check the applicant's social media accounts. Next, you want to research the company to ensure that the company is a good fit for you and to better market yourself to your future employer. Look into the job description, their corporate values, or the company’s mission statement to find what they look for in employees. Use this information to update your resume and tailor your cover letter for the specific position you are applying for. Lastly, try to find the hiring manager and contact them directly so you are not just another faceless piece of paper in an otherwise indifferent stack of applications.

Marketing Yourself. When drafting your resume make sure to focus on having a functional design and including only relevant content. Keep the colors and font simple so the hiring manager can easily find what they are looking for. As a vernal layout, you want to have your name and contact information at the top, an executive summary, employment history in reverse chronological order, an education section, and a technical skills section. Under your name, be sure to include the URL for your LinkedIn or other professional inline profile to ensure the hiring manager can easily find you. Instead of including the generic objective statement include an executive summary that explains who you are and what you are looking for. Treat it like a “30-second elevator pitch”. When listing your previous jobs be sure to include company descriptions, what your role was, and any projects you may have pioneered or worked on. When writing your accomplishments to be sure to use the “result by action format”, write what you achieved followed by how you achieved it. Don’t forget that during the initial hiring process your resume is all that your employer will have to go off of, be sure to put in the time to better market yourself and ensure you stand out. Be yourself and be honest. The recruiters are skilled in knowing if you are faking your skills and personalities. 

For those of you in school, trying to break into the world of finance, and everything in between. The key to doing well lays in preparation. The first step is knowing yourself. This includes, but also goes beyond your resume. You need to be able to extensively discuss everything you've included on your resume. If you can't talk about it for a substantial amount of time, don’t include it. You need to know your strengths, your weaknesses, and how those align with what the company needs for the proper position. The next step is to truly prepare for any and all technical questions. This isn't really something that you can cram for. This is the type of preparation that takes months. You need to know information about finance in general, and possibly specific information regarding the role.For example, if this is a position regarding investing, you better know, roughly, where the DOW, S&P, and NASDAQ are. Know what the Fed has been up to. Have a prediction based on where you think the market and/or economy is going to head in a given timeframe.
Sites such as Glassdoor allow you to read information about specific interviews from candidates that have already gone through the process. They can give you information regarding the types of behavioral, the specifics of the technical questions, and a general feel of the interview. Below are some questions that I have personally been asked during interviews?
-        Tell me about a time in which you had to deal with conflict within a team? How did you approach it and what was the outcome?
-        What is your greatest accomplishment and why?
-        What is the federal funds rate right now? Where do you think it’s going?


Keep Climbing,

The Alchanati Campbell and Associates Team
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What's up World Elections? Why are Countries so Divided?

4/12/2019

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Dear Reader,

Identity. What makes you, you. The masks we wear — or don’t wear — shape the way that we interact with the world around us, and they determine the space in front of us. That inner person (your inner voice) is who you are. What you tell yourself and what you express to others is what you are. And your reflections on life and your reactions to life will determine where you are. Your identity is only as valuable as its ability to help you create a sense of order in your mind about what is going on in the world. Live what you preach and accept your reality as best as you can. In a world dominated by distractions, we are increasingly getting out of touch with our ability to direct ourselves to where it matters most. We don’t become who we are by staying as we are now. There’s a constant fight between who I want to be versus who I should be. Should I always be nice and genuine? Positive and soft-spoken? Or can I benefit from being ruthless and emotionless? With a thick face and a black heart.

Thick Face, Black Heart. Key takeaways from a great book: When you conceal your will from others, that is thick. When you impose your will on others, that is black. A successful life is one that is lived through understanding and pursuing one's own path, not chasing after the dreams or fulfilling the expectations of others. The thick-faced person has the ability to put self-doubt aside. He refuses to accept the limitations that others have tried to impose on him and he does not accept any of the limitations that we commonly impose on ourselves. Black heart is the ability to take action without regard to how the consequences will affect others. No price is too high to pay for victory, as long it is achieved at someone else's expense. To conquer others through ruthless means is not difficult: all you must do is agree to sell your soul to the devil. There is no one out there you have to conquer. When you have successfully conquered yourself, the world will be at your feet. Extraordinary people don't care what others think of them. Keep your misfortune private and only share it with those who can truly support you. One who is skilled in defeat shall never see destruction.

The Market. The US monthly international trade deficit decreased in January 2019 from $59.9 billion in December to $51.1 billion in January. Trump is threatening $11 billion tariffs on the EU (on wine, cheese, ski suits, helicopters, and motorcycles). The world economy will grow only 3.3% this year, the weakest growth since 2009. The Consumer Price Index rose 0.4% in March. A bad diet kills more people globally than tobacco. This is expected to be the first quarter of negative year-over-year earnings growth since the 2015-16 earnings recession. Investors are betting on the future earnings or profitability of a particular company or industry when they buy a stock. Making ourselves inaccessible from time to time is essential to boosting our focus.Americans borrowed $88 billion in the past year to pay for health care. About 45% of Americans said they are concerned that a major health event will leave them bankrupt. Americans spend $3.5 trillion on healthcare, 1/5 of the economy. Spending is expected to rise to $5.6 trillion in 2026. Sources of return for investors: earnings growth and dividends. The value of any company should theoretically be the combined value of its existing business persisting into the future and a speculative component that represents the market’s guesstimate of the present value of future growth. Why do markets appreciate over time? Because earnings have grown over the very long term and reinvested dividends additionally contribute to the growth. The International Monetary Fund cites a slowdown in 70% of the world’s economies in 2019. 

2019 Q1 Earnings. Over this next month, we will see a large portion of the financial industry reporting earnings, with JPM, PNC, FRC, and WFC leading the charge. Out of these 4 companies, we saw 3 beat, and 1 miss. JPMorgan beat expectations by 9.9%, PNC beat by 3.3%, First Republic beat by 2.9%, leaving Wells Fargo to miss by 7.7%. Next week will be another massive week for financial earnings reports, with Charles Schwab, Goldman, Citi, BOA, Blackrock, and Morgan Stanley releasing earnings. Currently, it seems optimistic for the financial industry, with these three massive companies posting surprises, showing that we might just have a bit more fuel for this late stage expansion. We saw the market rise to 6-month highs after these banks posted earnings, which brings hope for next week after more financial institutions start postings.

Elections. Back in 2016, the US presidential elections showed a country divided almost completely in two. Since then elections all across the world have followed a similar trend. Israel recently held parliamentary elections where the results were so close that seats were divided 35-35 between the two major parties before a recount gave the current prime minister’s party 36 seats. In India, a similar theme can be seen as the world’s largest democracy begins its elections. India has nearly 900 million registered voters and several high profile candidates running this election. A central issue for India has been religion, almost 80% of the voting population is Hindi and religious differences have been driving the country apart. Lynching is becoming more common as some radical citizens have targeted members of India’s Muslim population. Whatever the outcome may be there is no doubt that these elections show a world that is starkly divided.

Big news for SpaceX this week.
 In February of last year, Elon Musk launched his car into space on the first ever flight of the Falcon Heavy. On Thursday, a new iteration of the rocket launched its first payload, delivering a 13,000-pound satellite to orbit and successfully landing the 2 side boosters and the center core; a feat that other companies and space agencies are nowhere near being able to achieve. The company is now preparing to launch the rocket a third time in June to deploy some of the first operational satellites for their Starlink satellite constellation. The company has also begun to test a prototype of their Starship rocket which will likely be the first rocket to bring humans to Mars. Following their streak of success, SpaceX signed a contract with NASA to intercept and try to move an asteroid. These recent developments show that the aerospace industry has plenty of room to grow.



Keep Climbing,


The Alchanati Campbell and Associates Team
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What's up IPOs and Financial Literacy?

4/5/2019

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Dear Reader,Emotions. The thoughts that turn into an overbearing exaggeration that alters our sense of reality. Emotions do not tell us what’s true. About half of our emotional judgments are fully in conflict with our understanding of reality and lead us astray. Leads us far from the truth to a bad place where mistakes are made, and regret is forged. The other half are gut instincts; insights that are far sturdier than anything we can reason. The effective mind is one that has learned to distinguish the two. Rule over oneself and never be “carried away” by anything. The struggle not to be overthrown by our emotions. Conduct oneself in a gentle and dignified way. The accomplishment of necessary duties without complaint. Nor can I be angry with my fellow man or hate him, for we have been made for cooperation. Perform every action in your life as if it were your last, putting aside all aimlessness and emotional resistance to the choices of reason. People are ignorant of what is good and what is bad, which is no less a disability than the inability to distinguish white from black. Our lives are but a series of choices. If something noble is to be done or said, do not judge yourself unworthy of doing or saying it. It is not the actions of others that trouble us but rather it is our own judgments.

How to control your emotions. I can control my emotions because what I feel is always an outcome of what I think. Your whole experience of existence is really what’s going on in your mind. Don’t involve emotions with rational decision making. All of our emotions are created by our thoughts. Change your thoughts to change your emotions. Your whole life is your attitude towards life, and your whole experience of existence is really what’s going on in your mind. Your brain naturally rules over your heart. You might not be able to control your urges, but with your will-power, you can prevent the urges from ever affecting your behavior. Don’t look back unless you plan on going back and remember: everything in your life is there to test you and make you better and stronger.

The Market. New York will become the second state after California to ban single-use plastic bags starting in March 2020. Boeing cuts output of its 737 jetliners to 42 airplanes a month from 52. Each jet is assembled with 600,000 parts. The USD is becoming more valuable. The EURO-USD rate dropped 2.19% year to date. The dollar is a drag on average earnings because it reduces the value of profits made overseas and makes US exporters less competitive. Prices of avocados imported from Mexico spiked 34% on Tuesday. The US economy created 196,000 new jobs in March and the unemployment rate is unchanged at 3.8%. The US, UK, and China all released better than expected manufacturing data. Generation Z becomes the biggest consumer cohort globally.

Credit cards/debt. Americans owe a record $1.04 trillion in credit card debt- up from $854 billion 5 years ago. Only 60% of borrowers pay their balance in full every month. The average APR is 17.67% and on average Americans owe $6,354 on bank-issued credit cards. What caused this? Lack of education and how easy it is to obtain a credit card.

Financial illiteracy. 40% of US adults don’t have enough savings to cover a $400 emergency. The median retirement savings for Americans between ages 55 and 64 is $104,000, $310 per month if it was invested in an annuity. Average household credit card debt rose to $8,284, 25% higher than in 2011. The average student loan is $6,600 per student, annually. Students with loans leave college with an average debt of $22,000.

Leadership. For any leader, it’s important to know how your risk tolerance can bias your decisions. Surround yourself with a leadership team of people with different dispositions who can serve as a sounding board. Controlling emotion is essential to handling risk. Anger makes men more willing to gamble. For many CEOs, one of the most important aspects of personality is narcissism. Risk-taking can be inappropriate and so can risk aversion. Strive for somewhere in the middle. Adaptability to new cultures and ways of doing things are some of the keys to success. Listen to the concerns and ideas of employees first and focus early on in areas in which they need help. Communicate openly about your goals and reasons for them.

What led this latest 24% increase in BTC? The short answer, someone market bought around 100m worth of BTC across three different exchanges. Over the last 4 months, we have been ranging from 3,200 to 4,000, with this last push breaking 5,000. It seems that this current price is holding, with momentary dips below 5,000. Is this an outbreak to new recent highs? Flip a coin and that will give you a better answer than I could give.

The current state of the market, Bull or Bear? I believe the consensus currently lies that we are still in a bull market, although opinions differ in what stage of the business cycle we currently are in, and how much longer this 10-year run will last. Although many people believe we are in the late stages of the business cycle, and will most likely see an economic downturn, new data came out today supporting the contrast, with new job additions to the US economy increasing to 196,000, from the previous month of 33,000. It also seems that a China trade deal is priced into the current market, with a majority of Chinese ADR’s being up 10% YTD, and the major ones being up over 20%. The question we could ask is, how much more good news will keep this rally going, and what will be the major event that eventually leads to the downturn. Past bull runs have seen 226%, and 87% gains, while this run has toppled both of these at 262% over the past 10 years.

IPOs. An IPO is an Initial Public Offering, and it is the first time that company issues shares of stock on the public market, allowing investors like you and me to buy ownership within the company. Prior to an IPO, a company is private. It still has investors, but it is immensely more difficult to invest. Going public allows the company to raise tremendous amounts of capital by selling shares and bonds. This capital allows the company to invest more in its own operations, which theoretically should lead to increased growth. Furthermore, public companies are much more liquid in the eyes of the shareholder, as a shareholder can sell their share in the company virtually whenever they want. This ability to increase or decrease your stake in the company on a whim is hugely important.
So, you might be wondering, why doesn’t every company go public? Well, going public also requires disclosing financial information and details. Public companies also face tighter regulations from governing bodies (SEC). Also, by the nature of stock, going public reduces ownership of the company, from the firm's perspective. By allowing investors to buy shares, they are also buying ownership in the company.


We have Lyft Off! Lyft, the ridesharing service company, went public just over a week ago. Their initial IPO price was $72. However, you and I could not purchase at this price. This is for institutional investors (Hedge Funds, banks, etc.). Once they bought, retail investors (you and me) could then buy from them. On the first day, Lyft stock jumped nearly 9%. This was particularly interesting because Lyft ended up pricing their IPO higher than they expected due to interest levels. (IPOs tend to be underpriced roughly 15% so that the first week experiences an increase in price) However, after that, the price kept dropping below the IPO price, and people were calling it an example of what not to do in an IPO. Some people blamed Lyft’s financials, which reported tremendous losses. Some people blamed the fact that Lyft just isn't a household name like Uber, its prime competitor that is going public later this year. Some people are blaming the investment bank, saying they screwed up gauging interest. Some people are blaming the fact that the ridesharing business has very low barriers to entry, meaning new companies can come in easily and take away some of Lyft's market share. Truth is, nobody truly knows.


Keep Climbing,


The Alchanati Campbell and Associates Team
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