Familiarity is a feeling of comfort. Your hometown, the local grocery store, the schoolyard you grew up playing in, the subtle voices of your loved ones. Familiarity keeps our knowing in check. It balances our emotions and reassures our thoughts that there is no reason to worry. But it exacerbates the trueness of reality and culture, and it diminishes the excitement of exploration and adventure. Familiarity is an HQ for temporary rest and recuperation. It grants us the pleasures of belonging, love, and clarity. But, it prevents us from finding a new path or a lost love or a better motivation or an inspiration to further enhance our reasons to live... Inspiration has two faces: the first is a product of action, when you actually sit down to produce something; the second, the one that fuels the first, born out of a will to freedom and exploration in a nonlinear way. Life is not suppose to be lived inside of a bubble or in between four walls that constitute a residential dwelling. It’s better not to lead a life that’s too comfortable in one go. You’ll treasure more if you gain things step-by-step.
The Market. “The current environment is the market is asleep at all-time-highs,”(Dave Roberts, an independent trader). Short interest is a statistically and economically significant predictor of future market excess returns (the lower the value, the better the expectations). The unemployment rate is also a good indicator to predict an upcoming recession (the unemployment rate is currently 3.7%, the lowest value since 1969). Boris Johnson was elected the leader of Britain’s governing Conservative Party. Positive earning results, anticipation of lower interest rates, and trade talks between US and China resuming drove the market up. People make decisions all the time; some are risky, and others are riskless. Risky choices are made without advance knowledge of their consequences. Riskless decisions is a transaction for a good or service in exchange for money or labor. Hedge fund managers who own powerful sports cars take on more investment risk but do not deliver higher returns (hedge fund managers motivated by sensation seeking).
Computerization versus the job’s market. About 47% of total US employment is at risk. Wages and educational attainment show a strong negative relationship with the probability of a job becoming computerized. Computerization has greatly impacted employment in routine intensive occupations (jobs that consist of tasks following well-defined procedures that can be performed by an algorithm). Algorithms for big data are now rapidly entering domains and can substitute for labor in a wide range of tasks. Service occupations are less susceptible to computerization because they require a higher degree of flexibility and physical adaptability. “Unless all individuals accept the verdict of the market outcome, the decision whether to adopt an innovation is likely to be resisted by losers through non-market mechanism and political activism, “(Mokyr, 1998). The price decline in the cost of computing has created economic incentives for employers to substitute human labor for computers. The most probable jobs that will be affected or that are currently affected by computerization are: transportation and material moving, production, office and administrative support, farming, fishing, forestry, and sales. The key: acquire creative and social skills so you can’t be replaced.
The goodness of spending money on others. The more money people spent on others, the lower their blood pressure was 2 years later. Spending money on others shapes cardiovascular health, proving that prosocial behavior improves health. With heart disease being the leading cause of death worldwide, the happiness benefits of spending on others will lower your blood pressure and decrease your chances of dying from heart disease. Spending money on others causes neurohormones to release that directly affects blood pressure. Furthermore, volunteering leads to the greatest benefits for at-risk groups. Spending time helping others may have potent effects on the health of at-risk older adults.
EBITDA over net income. Why do some investors like EBITDA over net income? EBITDA is the earnings before interest, taxes, depreciation, and amortization. It is calculated by adding operating income, depreciation, and amortization together. EBITDA is a much stronger indicator of ongoing, operational strength for a firm. Taxes, interest expense, depreciation, and amortization have no bearing on the ongoing operational strength of a firm.
Improving consumer well-being. Much of consumer research assumes that the primary motivation in consumer choice is the pursuit of happiness. Meaning-oriented consumption is consumption motivated by a desire for self-growth, social connectedness, and the pursuit of personal fulfillment. Pleasure-oriented consumption is motivated by a desire to maximize positive affect and minimize negative affect requiring more affective evaluations. Individuals who spend money on time-saving services report greater life satisfaction. Time and money are interchangeable in today’s economy, and people are able to spend money to buy “free time”. One way to prolong happiness is through meaning. More meaningful memories show less happiness decay, making individuals happier for longer. Benefits of meaningful experiences would last longer than the benefits of pleasurable experiences. Taking a vacation has a significant positive effect on meaning at work.
Active versus passive. There are 2 types of equity investors, those who plan on holding for the long term, and those who actively trade. In the next 10 years, I believe one of these types of investors will be almost completely phased out through the advancements of AI in conjunction with HFT (high-frequency trading). Active traders currently speculate on mispriced equities and use technical analysis to find potential opportunities to earn a profit. With the rise of AI and current developments in HFT, we are going to start seeing a more efficient market, which makes it harder to earn profit from an active management strategy, when accounting for excess time spent on trading and fees. Even in the current market, many important figures in the investing community believe a passive strategy beats actively managed portfolios.
Don’t agree? Warren Buffet just won $2.2 million betting on passive versus active on a 10-year basis.
The Alchanati Campbell and Associates Team
Dear Reader,Dominance. Some say it’s cruel and inhumane. Some say it creates inequality and supports greed. But I say it’s necessary for success. “Only weak people get upset, complain and give up”, “survival of the fittest”, “don’t be afraid of confrontation, people are more afraid of you”, “be hard to get”, “always be an alpha male”, “nobody will ever tell me no again, I am going to make sure of that”, “do not dwell on anything. When something bad or unpleasant happens, move on right away”, “never give a fuck”, and “don’t express weakness to others”. These are the principles you live by; created from mistakes and forged from the reflections of those mistakes. You’re a creator and an innovator. You work for yourself and you don’t take shit from others. You know that what’s yours is yours and you accept everything that happens outside of your control.You’ve built and strengthened a mindset that you live by. But sometimes, you take it too far. You lose your sense of humanity and your touch to love and be loved. The taste of greatness causes you to prioritize work and business over everything else. You can no longer smell the roses and beauty is only green with dollar signs. There needs to be a balance: work and play, give and take, want and be wanted, respect and be respected. You might be an asshole to others, but to yourself, you’re just pulling strings and playing with puppets.
The Market. China’s economy grew 6.2% between April and June, the slowest growth since the early 1990s. The bond market is driven by the state of the economy and the sentiment of bond traders. The Feds now believe that there is a disconnection between inflation, unemployment, and economic growth. In 2018, the number of people suffering from hunger soared to an eight-year high to a total of 822 million. Manufacturers of car parts are starting to innovate the wheels, tires, headlights, and glass to prepare for autonomous driving. Humans generated 2.01 billion tons of solid waste in 2016 and by 2050, that could rise to 3.4 billion tons (12% of all municipal waste in 2016 was plastic). Uncertainty from trade conflicts, weakening economic growth, expectations of a bad earnings season, and increasing tension between the US and Iran are making investors nervous. Professionals are suggesting investment interest in: global telecommunication stocks, diversifying into international stocks like European equity, and infrastructure funds. The Feds signaled that they would act as appropriate to sustain the expansion of the economy. Investors need to start preparing for a world with lower interest rates.
Why Amazon is NOT a monopoly. Amazon is a big e-commerce company, and it’s getting bigger every day. But Amazon is not huge. Last quarter, they took in $34.2 billion in sales, but only profited a mere $3.5 billion. Total annual retail revenue in the US in 2016 was $3.7 trillion dollars… Amazon accounted for only 3.6% of that. Now you can defend by saying that Amazon commanded 43% of all online sales in 2016 and 1 in 4 US adults are Amazon Prime members, so obviously that defines them as a monopoly. Then I would rebuttal by saying: Webster defines a monopoly as “exclusive ownership through legal privilege, command of supply, or concerted action”. In terms of retail sales, Amazon represents much less than 10%. That’s about 20% shy of the amount needed to demonstrate monopoly power. Furthermore, they don’t have a control on supply. This is where their business plan comes into play. Yes, they generate billions in sales, but they lose billions in discounts. They do this to hook more people into prime, and their other services. Granted, many prime subscribers use Amazon for the vast majority of their online purposes, but that is a consumer choice simply because of what Amazon offers. Countless stores have an online presence. The only real “barrier to entry” that stops another online mega-retailer like Amazon from popping up is demand. There are thousands of online stores that customers can choose from. This is a perfect demonstration of competition. In a monopoly, there is no real competition. It only seems like Amazon is above the competition because they have expanded their business into other industries to attract customers. Think about it. If you as a consumer can have a one-stop-shop, wouldn’t you go there as often as possible?
Happiness and well-being. Happiness is simply the balance of pleasure over pain. Happiness is achieved by finding a balance in life between what you can achieve and accepting what you cannot. Happiness is influenced by factors such as health, status, employment, and family. Well-being is a balance in the domains of life; health, work, and social relationships. Psychological well-being consists of self-acceptance, positive relations with others, autonomy, environmental mastery, purpose in life, and personal growth. Family, health, and friends are the highest-ranked social values.
Attitudes towards taxation. Society depends on the revenues from taxes to provide essential public services like education and healthcare. But many people hate to pay taxes, and some do not pay taxes. Tax evaders fail to pay 17% of tax dollars owed to the US, costing the US hundreds of billions of dollars each year. People would be more inclined to pay taxes if they believed that wealth incurs a responsibility to give back to society. Reframing the meaning of wealth can shape people’s attitudes about paying their taxes. Wealth-as-responsibility is the idea that wealth confers a responsibility to give back to society.People might feel better about paying taxes after recognizing that their financial success is due in part to societal factors. And when individuals receive messages and notices conveying the idea that wealth confers a responsibility to give back to society, it can enhance their satisfaction with taxation.
Time over money. Prioritizing time over money encourages greater investment in daily social interactions. Valuing time over money facilitates social connection. Busyness comes at a social cost: not having enough time to spend with friends and family. People who valued time over money made decisions that enabled them to have more free time. Those who value time over money spend less time working versus socializing with new peers as compared to students who valued money more than time. People who valued money more than time were less interested in social interactions that could come at a cost to their ability to study or work. People who valued money versus time were less interested in workplace interactions that could potentially have an immediate cost to their productivity. The tradeoffs you make between time and money will directly impact your social connectedness.
What is Libra? Libra is Facebook’s ‘failing’ attempt at redefining the financial institution and the central reserve currency as we know it. They have ambitious goals to launch a faux cryptocurrency which shares few aspects with the general industry, through a centralized attempt at taking over the traditional payment processing system, through reducing fees and cutting down transaction times to seconds. Libra is a digital currency and it will have a slight backing to a basket of currencies and government securities, although the user can never directly turn in their Libra for a share of this pool. Government entities are cautious regarding allowing Facebook, one of the largest tech companies in the world, to delve into the finance industry. If they were able to capture a small portion of current financial transactions, cross-country flows using western union, and from their current user-base, they would be one of the largest financial institutions in the world. This poses the question, do you trust Facebook all that much to allow that to happen?
The Alchanati Campbell and Associates Team
We are a very particular and stubborn species. We hate and we love. We’re high-maintenance, needy, different, and approval-seeking. We want recognition and external-acknowledgment. But... we all still miss the small moments in life that create the memories we carry. The short-lived relationships are still worthy enough where they become a sketch within our life story. We complain and expect others to listen. We struggle and assume others understand our pain. But... we all believe we’re one of a kind; unique in experience and expression. Why is that? Education teaches us to “try our best”. Our parents tell us to “follow our hearts”. Religion tells us to “believe we’re the chosen people”. Society tells us to “follow trends and other influences; playing us to be the consumers that we are”. We learn from books and mentors. Our principles come from history and legacy. And all we can do is be as “individual” as we can... dreaming in fantasy land.
The Market. The top 25 metro areas accounted for more than half of the US $19.5 trillion GDP in 2017. (New York, Los Angeles, Dallas, Washington, and San Francisco are the top 5). The new and best-paying jobs are clustered in cities like San Francisco, New York, and Seattle. Economic opportunity for most Americans increasingly hinges on one factor: where you live. There is a rate cut expected in late July. The Feds have made this decision due to the inflation increasing. Lowering rates is supposed to increase spending and investing. The US budget deficit widened by 23% to $747 billion in the last 9 months.
How mobile devices are affecting families. Half of teens felt “addicted” to their mobile devices. 89% of teens had their own smartphones. US teenagers who spend three hours a day or more on electronic devices are 35% likely to have a risk factor for suicide than those who spend less than one hour. Poor sleep has been linked to a number of mental and physical health problems, as well as diminished academic and cognitive performance. Mobile device use affects sleep by encroaching on sleeping hours through the effects of bright lights (blue light) disturbing sleep rhythms. Parents and teens keep their mobile devices close by at night, including a third of teens who keep their mobile devices in bed with them. Many teens and parents are having their sleep interrupted by notifications. Doctors and researchers say not to use screens in the hour before bed.
What makes a good trader. The two main drivers of trader performance are cognitive reflection and theory of mind. Cognitive reflection helps traders use market signals to update their beliefs. Theory of mind offers traders crucial hints on the quality of those signals. Most traders tend to rely on simple heuristics instead of performing the requisite calculations. Trades of high-IQ males outperformed those of low-IQ males. Financial literacy, personality traits, and risk attitudes play a lesser role in understanding trader performance.
Fixed Income, Gold, and Equities are all near their local highs, and the USD is showing strength against its highest volume pair, the Euro. In the past, we have seen fixed income, gold, and equities all compete for capital inflows, shown by their reputable indices increasing/decreasing in value. In the last 3 months, we have seen all three of these asset classes increasing in value, while the USD at first depreciated, then appreciated in value. Usually when we see Gold increase, we see equity and the majority of the fixed income market decreasing, which represents fear in the markets, as people hedge with gold. The fact that we see all three nearing their local high’s, with a correlation between these 3 asset classes increasing, shows something weird is happening in our market. This could explain partially why the fed is seriously contemplating cutting the fed funds rate by 25-75 bp’s, while the market is already experiencing irrational exuberance.
The Economics of Healthcare. About one out of every six dollars spent in the US economy goes to some form of healthcare. The healthcare market has consumers like patients, and producers, like doctors and nurses. There are also third parties like insurers and governments. Patients often don’t know what they need and cannot evaluate the treatment they are getting. Healthcare providers are often paid not by the patients but by private or government health insurance. People are living longer. Healthcare spending is a growing share of the economy.
Monetary and Fiscal Policy. Fiscal policies are decisions to change spending and taxation levels by the federal government. Increasing federal spending and/or reducing taxes can promote more employment and output, but these policies also put upward pressure on the price level and interest rates. Decreased federal spending and/or increased taxes tend to lower prices and interest rates, but they reduce employment and output levels in the short run. Monetary policies are decisions by the federal reserve system that lead to changes in the supply of money, short term interest rates, and the availability of credit. Open market purchases or sales of government securities affect the money supply and short-term interest rates. The federal reserve tends to increase interest rate targets when it feels the economy is growing too rapidly and/or the inflation rate is accelerating. It tends to lower rate targets when it wants to stimulate the short-term growth of the economy.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.