... use a variation of Modern Portfolio Theory. MPT argues that you should diversify among noncorrelated asset classes to reduce overall portfolio volatility. That strategy is wonderful when asset classes are truly noncorrelated – but we found out in 2009 that noncorrelation isn’t a reality anymore. Going forward, I think it will be more useful to diversify among noncorrelated trading strategies...MPT 2.0...
...Harry patiently explained yet again that the key to MPT is in the words diversification and noncorrelation. The asset classes are just tools. They are interchangeable ....diversifying trading strategies is just another variant use of MPT....
...the answer lies in diversifying among noncorrelated trading strategies with managers who have a mandate to invest in any asset class their models tell them to....
...quickly review the investing challenges as I see them. First, there is the massive imbalance between the debts governments owe and the promises governments have made, sure to cause enormous market turmoil, the timing of which will be somewhat unpredictable.
Second, ... Premature optimization is a major portfolio problem...
Third, we must understand that the underlying core investments in most portfolios are undergoing radical changes, which makes any backward-looking portfolio model essentially worthless. ...
...The only way we can grow our portfolios and income, other than by being involved in our own businesses, is by saving and investing our earnings....
The Great Reset
We are coming to a period I call the Great Reset. As it hits, we will have to deal, one way or another, with the largest twin bubbles in the history of the world: global debt, especially government debt, and the even larger bubble of government promises...
...We are also going to have to restructure our economies and in particular how we approach employment because of the massive technological transformation that is taking place. ...
...within the next 5–10 years we have to confront the ending of the debt and government promises supercycle that has been developing since the late 1930s. This is a global problem, but it will be felt most acutely in the developed world and China....
...The Congressional Budget Office estimates that every percentage point hike in rates will cost $1.6 trillion over the next ten years!...1% rate hike will take roughly an additional 3% of our current tax revenues every year....
...How long will younger generations tolerate carrying older generations when the government is taking two thirds of their paychecks? ...
...These obligations simply cannot be paid. ...Will voters decide to tax “the rich” more? Will they increase their VAT rates and further slow growth? Will they reduce benefits? No matter what they decide, hard choices will bring political turmoil, which will mean market turmoil....
... The Great Reset will bring an increase in volatility, and the correlation among asset classes will once again approach 1.0, as it did during 2008–2009...
... I can think of at least three or four ways that politicians and central bankers could react during the Great Reset, and each will bring a different type of volatility and effects on valuations. Flexibility will be critical...
...I think the answer lies in diversifying among noncorrelated trading strategies that can invest in any asset class...
...a combination of several managers is much better than just one. I have assembled a portfolio of four active ETF asset managers/traders with radically different styles.
Mauldin Smart Core is now available on a growing number of platforms where we trade directly for larger investors and brokers and advisers. We also have a mutual fund that I will tell you about in the free white paper that is available now on most of the popular platforms.
I have assembled a professional team to help you get your questions answered. We are especially looking for investment advisors and brokers. While we are just in the US at this moment, we will soon be available in most parts of the world. I am amazed at how technology allows us to do that today.
...Last February, Gates also told Quartz that robots should free up labor “and give graduates an opportunity to focus on jobs that only let us do a better job of reaching out to the elderly, having smaller class sizes, helping kids with special needs. You know, all of those are things where human empathy and understanding are still very, very unique.” Gates said there is a counter-intuitive way of approaching the rise of robots. “So if you can take the labor that used to do the thing automation replaces ...then you’re net ahead.”...
...Then we had our “global macro” panel featuring Lacy Hunt, Raoul Pal, Louis Gave, David Rosenberg, and Martin Barnes.
When asked what they thought the endgame was for the massive build-up of debt in the global economy, the panel concluded that some type of default on pension obligations is likely to occur....
...Bremmer thinks populism will continue to flourish as people in developing countries have stopped believing in their leadership.
We finished yesterday's program with a geopolitical panel during which George Friedman confirmed his claim yesterday about North Korea by predicting that "there's a 70% chance the US will attack...”
To be sure, the wider use of lithium-ion batteries is still in its early days and there are potentially competing technologies. It remains an open question whether storage can ever be profitable for consumers or utilities at a big scale.
A report from Cowen & Co. shows most customers still prefer to shop in physical stores 75 percent of the time...
...At 4.2 percent, the retail unemployment rate is below the nation’s 4.4 percent, and the industry’s job openings and quits -- a measure of confidence in being able to find another job -- each posted the second-best March in more than 15 years.
...Out of our hypothetical 1,000 startups that successfully close a Pre-Series A round (e.g. a Seed or Angel round, a convertible note, or equity crowdfunding round), we’d expect to see a little over 400 of them make it to Series A. In other words, our dataset suggests that around 60% of companies that raise Pre-Series A funding fail to make it to Series A or beyond....
If the firm reaches that target, it would continue a trend of gradual upticks in size with each successive fund in its flagship series. Here’s a full accounting of the firm’s past buyout vehicles, with returns data taken from the PitchBook Platform (fund multiples current as of 3Q 2016):
While that 13.5% figure for GI Partners Fund IV may not be jaw-dropping in a vacuum, it ranks in the top quartile of GI’s IRR benchmark, representing the second-best figure among 16 peer funds, according to PitchBook data. And it’s a number that’s still very much developing. GI’s fourth fund still has more than $1 billion in dry powder, meaning less than half of the LP capital committed has been called.
...China’s two largest corporations have gained more than 35 percent this year to become the best performers among the world’s 10 most valuable technology companies.l...expected to report revenue growth in excess of 40 percent for the March quarter.
...Starbucks...The very handy smartphone app will guide you to the nearest store and hold your gift card balances. At the register, they just scan your phone and you’re done.
Better yet, the app now has mobile ordering. Before you even get there, you can order your drink—customized however you like—and it will be waiting on the counter for you. You just walk in and grab it. Magic.
This is where it gets interesting: The Starbucks loyalty program ties into the app too, using points to incentivize behavior, much like online merchants do.
It does this by sending personalized promotion offers.
This new approach to retail marketing isn’t the old shotgun advertising (pull the trigger and hope you hit something). It’s a sniper rifle aimed right at my weak spot....
...What if the store could offer each customer precisely what it takes to make them buy, and not a penny more? That’s kind of what Starbucks is doing.
Every month or so, they send me an offer that says, “Buy these three products in the next week and get 100 Bonus Stars.” Normally, you would have to spend $50 to earn 100 stars. So this isn’t a negligible amount of money.
There’s a pattern to the three products too. Two are always items I bought recently. The third one will be something I’ve never bought before. They offer me a reward for trying it… and it usually works...
... “Star Dash.” It awards escalating bonus stars for making multiple visits in a defined period.
...Frequency of visit and average ticket size are key metrics for any retailer. The Starbucks app tracks those by customer...
...Walmart (WMT) offers store pickup for online orders. Last month, it launched a “Pickup Discount” ...
...another element to this: supply chain efficiency...
...A meme I’ve seen going aroundon Twitter put it this way: Health-care expenditures are about 1/6 of GDP, but no American wants to spend 1/6 of income on health care.
Unfortunately, we cannot avoid these costs, so we have taken refuge in the traditional American pastime of trying to hide them as much as possible....
....Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014.
That’s bad news for OPEC and its partners in a global campaign to crimp supplies and elevate prices. Wood Mackenzie Ltd. estimates that new spending will add800,000 barrels of North American crude this year, equivalent to 44 percent of the reductions announced by the Saudi- and Russia-led group....
...Some recently finished wells in the Permian region yielded 70 percent returns at first-quarter prices, ...
...most of the biggest U.S. and European explorers -- an elite caucus of five companies known as the supermajors -- are pursuing a contrary path and cutting expenditures this year. ...
...Shale drillers can afford to be sanguine despite oil’s recent tumble because they’ve cushioned themselves with hedges,...
noting that a handful of bank mergers have involved targets with heavy concentrations of deposits purchased from brokers or acquired through listing services such as QwickRate
Are the Millennials turning into the new serfs? With the massive amount of debt they have accumulated, not just in student loans (which are horrendous), but also in auto loans and other types of debt as well. With their income-generating potential down from that of previous generations, this generation may be in trouble ...
...“President Barack Obama has said that a college degree ‘has never been more valuable.’ But if you borrow to finance your degree, the immediate returns are the lowest they’ve been in at least a generation, new data show....
...We used to suffer from the Nimby syndrome – ‘not in my backyard’. Now we have graduated to Banana – ‘build absolutely nothing anywhere near anything’, says Cowen. Public life is stymied by Cave (‘citizens against virtually everything’) in which politicians fall back on Nimey (‘not in my election year’). Politics has reduced itself to a theatre of symbolic gestures in which pressing issues are left unaddressed. Behind all the electoral volatility lies stasis. Perhaps that is just as well. During the heyday of non-conformism in the 1960s, almost two-thirds of America’s federal budget was discretionary. Now almost 80 per cent of it is locked up. Donald Trump is unlikely to change that....
...The government lies about its true fiscal position and about the “true” rate of cost of living increases while the FED plays its part by communicating to the public that any economic problem can be overcome by money printing and more money printing.
... Chapwood Index ... It is published every quarter by monitoring 500 items which households most frequently use across 50 cities. According to the Chapwood Index the real cost of living rose by a startling 9.6% in 2016 – very close to John William’s rate and has averaged 10% a year over the last five years. At the same time, the academic economic charlatans do not exactly encourage “thrift” by advocating negative interest rates and even more negative rates still if the first set of negative rates fails to revive the economy...
....of the 7.5 billion square feet of retail real estate in the U.S., only 1.2 billion is currently occupied by stores that are considered high quality, ...
...Mathrani said today’s ideal mall includes one department store, a supermarket, an Apple store, a Tesla store, and businesses that started out online, such as Warby Parker. Clothing stores, which used to take up about 70 percent of the average shopping center, now represent closer to 50 percent, he said. Meanwhile, food is roughly 15 percent, up from around 6 percent.
“Food is the new fashion, and fitness is the new food,”
The weakness has been concentrated in middle-wage industries, such as durable goods manufacturing, construction, health care and education. During the past three months, hourly earnings in this wage group 1 have increased at an annualized pace of about 1.8 percent. That compares with 2 percent for low-wage occupations (such as retail, leisure and hospitality) and 4 percent for high-wage occupations (such as professional services, finance and information technology). The picture is similar during the past year, albeit a bit better for the low-wage group. Here's a chart:
Pay Gains by Wage Group
Source: Bureau of Labor Statistics, author's calculations
... In the portfolio program, when a cash-strapped customer wants to buy a car, Credit Acceptance will advance the dealer about 40 percent of the total value of the loan. That is typically enough to cover the cost of the car to the dealer plus a small profit. Once that part has been repaid, Credit Acceptance shares any remaining payments with the dealer. The company is shielded from much of the credit risk, because its advance is secured by the car. It can repossess the vehicle while pursuing the defaulting customer in court....
...it makes no sense for Apple to jump at President Donald Trump's proposed one-time tax of 10 percent on profits -- it's cheaper to pay the foreign tax and the 3 percent interest on the bonds it issues to move the money to the U.S.
... Most medicines, up to this point, have been delivered into the body via simple pills or needles. But now, new drug delivery systems enabled by genetic engineering will make these old systems obsolete.
Our genomes are the chemical factories of our bodies. They produce everything that we are. This means that genetically engineered cells can use our genomic machinery to make valuable bioactive molecules. There are two major ways to do this.
One uses stem cells that are designed to become certain types of adult cells. For example, hemophiliacs could have cells that make Factor XI implanted into their bodies. This would enable normal coagulation. This approach could also be used to treat those who are deficient in other compounds. This includes diabetes, atherosclerosis, age-related muscle loss, and obesity.
The second cell-engineering strategy uses engineered gene plasmids. Plasmids are microscopic circular rings of DNA like those found in our mitochondria and bacteria. Almost any gene can be inserted by genetic engineers into these rings. Once activated, the transcriptional process runs nonstop to make the needed molecules… just like a model train on a circular track.
While this may seem like science fiction, this approach is already widely used in agricultural animals. FDA approval for human use is a little way off, but that might change due to the Zika virus threat...
...plasmids as DNA-manufacturing plants...Inovio’s secret sauce, by the way, is electroporation. Tiny openings in cell membranes are temporarily opened to allow plasmid entry using precise electrical signals....
... an injection of plasmids every year or two could replace routine pills and injections...
The Senate approved President Donald Trump's choice to lead the Securities and Exchange Commission, elevating a Wall Street lawyer who hopes to turn around the decline in the number of public companies over the past 20 years.
Jay Clayton's agenda could be aided by an unusual alignment of political forces that escaped the SEC's most recent leaders. He will enter office without a checklist of regulations mandated by Congress, which passed sweeping legislation in 2010 that pinned down the SEC with an abundance of directives both audacious and picayune.
For now, his most pressing commitment will be finding ways to reverse a two-decade trend of the government layering new regulations on public companies.
...he middle class is a fairly new development in economics. Up until the last century or two, most societies had a tiny wealthy elite and great masses of common laborers. We now regard having this group in the middle, not wealthy but with their own assets and spending power,...
...There is, however, some research – and it’s controversial – which indicates that relative income is important.A majority of respondents would rather have more relative income than more absolute income, especially if they are relatively lower-income than everybody else. ...we’re dealing with human emotions ...
..angst – no matter your current circumstances – makes it more difficult to make decisions now than it is in more confident times. ... in times of high anxiety ... is the most difficult to get our clients and readers to actually respond. The best time to elicit a response is in a boom period, and the next best time is, ironically, just after a bust, when people are ready to figure out what to do...
... approaching that moment when the two greatest bubbles in human history – sovereign debt and government promises (which are conflated in many people’s minds) – will burst, and politicians and central banks will be forced to take actions that are unthinkable today....
good news
...on a global basis the number of people trapped in extreme poverty has plummeted this century. That trend doesn’t mean everyone everywhere is living comfortably. ...
The reason for the improvement, I believe, is that technology and free trade brought economic growth to formerly stagnant economies.
wide variation within Europe. In 2010, median income for a three-person household ranged from $31,885 in Spain to $65,466 in Luxembourg....
...median income in the US is actually down over the last 17 years and is only 3% higher now than it was 30 years ago. Those are inflation-adjusted numbers. But the reality is that, for the average person, inflation has been much higher than the average of 2% per year over that time, because the things that the average person actually buys, like housing and education and healthcare and all the other necessities of life, are rising at a much faster rate than 2%. So this chart reflects the fact that life has gotten much more difficult for average Americans....
[the problem - sliding down]
...“I’ve had to rethink my whole life to make ends meet on what I’m now making.”...
Summary
....The challenge that we have today is to recognize that the political, economic, and investment forces that we have become used to dealing with over the last 70 years, through all their ups and downs, are getting ready to shift more radically than we have yet seen or can even imagine. We will have to think more deeply and creatively than ever about how to prepare for the changes – the transformation – coming to our lives.
...the key is to diversify trading strategies, not just asset classes. Technology has allowed us to do some marvelous new things, and portfolio diversification that smoothes out the ride is one of them....the storms that we all know are coming as the world struggles to figure out how to deal with the massive amounts of debt and government obligations that are building up.
To be sure, the wider use of lithium-ion batteries is still in its early days and there are potentially competing technologies. It remains an open question whether storage can ever be profitable for consumers or utilities at a big scale.
While that 13.5% figure for GI Partners Fund IV may not be jaw-dropping in a vacuum, it ranks in the top quartile of GI’s IRR benchmark, representing the second-best figure among 16 peer funds, according to PitchBook data. And it’s a number that’s still very much developing. GI’s fourth fund still has more than $1 billion in dry powder, meaning less than half of the LP capital committed has been called.
