natalialklanvaldear asked:

do you have a favorite hxh arc?? a favorite phantom troupe member? and a favorite chimera ant?

my fav arc is prob yorkshin or greed island !!! or the exam arc was rly good too aaaahhaha

my fav troupe member UhHHH is me …..??? im the best….?? but if i canr choose me then … shsdkdndm its hard too choose bc i love the whole troupe. i lvoe boss a lot obviously but uhh i spent a lot of timr talking w/ paku and kortopi and shizu so i lvoe them a lot!!! and fei and phinks are goog bc we are the trouble trio and we Re great,, and uvo was important 2 me so hes a fav too but like i love everyone so i cant rly choose hdjfnf

my fav ant is cheetu i hate his jorts and hes fast like sonic and hes a jerk and i love him. pitou is my second fav i lvoe them theyre pretty and fun to draw !!

Adversity Creates Opportunity

If you don’t have a global perspective and understand the inter-relationship between all the economic, financial and political variables, then you will continue to trade recklessly, lose at every turn, and miss a great opportunity to profit when others are caught on the wrong foot and panicking.

By almost any standards, this was an amazing week with a Fed meeting, fourth quarter GNP being reported; the BOJ going negative on rates and several trial balloons about cutting back oil production.

I stated repeatedly during December that the Fed should hold off on raising rates as fourth quarter economic activity was disappointing, corporations and individuals were playing close to the vest, and there was no inflation. While I recognized that the jobs data continued strong, Fed credibility was at risk and there was a need to make that first step towards normalization, December was NOT the time to hike rates. The domestic economy was just not strong enough; psychology was negative and the dollar too strong.

January has ended, and you don’t need me to list what has transpired. Unfortunately, the Fed is stuck right now between a rock and a hard place as they will appear foolish doing an about face so soon after they moved on rates but, that is what they should do, and let the economy get on stronger footing before starting to hike once again. The Fed did not change rates at this meeting and stated that it is “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation.” What else could they say at this juncture? Bottom line, the Fed is on hold and fears of several additional hikes this year are out the window. Yay!

Economic data for 4th quarter GNP came out after the Fed meeting, and it was no surprise to us that GNP rose only 0.7% over the prior quarter. In fact, the numbers reinforced several of our core beliefs. We stated last week that the benefit of lower energy prices could be seen in higher consumer spending, a higher savings rate and improved corporate margins, excluding energy and materials. Well, consumer spending rose 2.2% in the quarter including lower gasoline sales and an unusually mild fall; disposable household income rose 3.25% in the quarter after taxes and inflation and saving rose to nearly $749 billion, up almost $40 billion in just one quarter. Don’t forget that over 800,000 jobs were created in the quarter, too. On the other hand, businesses cut back on inventory building and capital investment but operating margins improved if you strip out the energy and materials sectors. And finally the strong dollar penalized exports. By the way, excluding inventories and trade, the economy grew by 1.6% in the fourth quarter. Most economists have revised their forecast for growth this year between 2-2.5%. We have been there for quite some time and see no reason to adjust it. Inflation will remain below 1.5%, the 10-year bond will remain below 2.5%, S&P earnings can still exceed $120 per share. And fair value for the market is still above 2,000. But not all stocks are equal!

The Bank of Japan took the markets by surprise Friday morning and introduced negative interest rates for the first time; clearly in an effort to boost the economy and head off deflationary forces. The yen immediately fell by over 2% vs. the dollar and the Japanese stock market shot up. The ripple effect could be seen throughout all global financial markets led by a strengthening dollar, one of our core beliefs. By the way, the BOJ move makes a Fed decision to hold or even reduce rates easier to make to stem the rise in the dollar boosted by the huge capital flows from abroad into the states. Clearly global interest rates were pushed down by the BOJ move. We now have negative rates in Japan and in Europe, something that I never thought that I would see short of a major recession or worse. Negative rates are meant to encourage banks to lend. My concern here is competitive devaluation as that is a zero sum game.

Before I go on, I want to make a comment about the dollar. I continue to hear from economists and pundits that a strong dollar is bad. I totally disagree for a host of reasons beginning with it meaning that our economy is stronger than others; it also means that our financial house is sounder than others; and while it means less exports, it also means less inflation and huge capital flows from abroad, suppressing our interest rates which helps everyone.

Finally, rumors of oil production cuts took place near the end of last week, which supported an increase in price at one point to over $35 per barrel. Clearly, the oil producing nations need higher prices to support their spending plans as their foreign currency reserves are rapidly depleting. It’s equally clear that no one wants to take the first step but all will join in if, and when, someone takes the lead and means it. Personally, I doubt that any agreement, if reached, will last as cheating is in their DNA. But, I would not want to be short energy at this point as the risks now are 50/50 that something may be announced and there will be a tremendous short squeeze. Do you know anyone long oil beside the producers? Are higher or lower oil prices better for the global economies and inflationary expectations? The answer is a crystal clear…lower prices but in an orderly way.

So why did the global markets spike on Friday? There are many parts to the answer, but I feel the most important one is the BOJ moves put the Fed on hold maybe for the year. Secondly, it appears that there is finally a move afoot by the oil producers to stem the rapid fall in prices. Finally, the global economy is not as bad as many are saying. The U.S. will grow 2-2.5%, the Eurozone by 1-1.5%; China by 6-6.5% although the government numbers are slightly higher; Japan by 1-1.5% and India by 7%. All we need is some optimism for these numbers to improve.

Pessimism and conservatism unfortunately are everywhere. Corporations are running a tight ship as we discussed last week. I would suggest you read the transcript from Honeywell’s fourth quarter conference call as I consider Chief Executive Dave Cote one of the best leaders in corporate America. He is planning for a tough operating environment with slow global growth, so he is planning conservatively. He added that volume, margins, earnings, cash flow and free cash flow would all increase in 2016 despite all of these headwinds. Earnings have grown double digit for the last several years and the stock still sells at a market discount. Yes, we own Honeywell! Most every management has a similar outlook for 2016 and is budgeting/spending accordingly! Market tops don’t occur when negativity is so high and reality is so far from perception. Things just aren’t so bad out there; and yes, we can do better.

Before I wrap up, I want to make one comment on industrial commodity prices. The “doomsday scenario” feared for by many executives in the field has occurred as prices have dropped to multi-year lows and are now well beneath cash costs of production. But unlike oil producers, mining and material companies have drastically cut production, cut spending and are reducing costs. The big change has occurred this past week that even China is finally cutting back production. State-sanctioned cuts in steel could lead to 400,000 job losses; yes, that is right, and a further 150-million-ton reduction in capacity. China will cut back aluminum production, too. The bottom line is that we have reached the tipping point and I increased my exposure to industrial commodity companies who are financially strong and low cost producers. Read Potash’s fourth quarter earnings transcript.

If you haven’t already, read the last few blogs I have written as each one remains on the mark. Unless you have strong core beliefs and understand global inter-relationships and the dynamics of the vast economic, financial and political variables, it is impossible to manage money today. We have nearly 40 years experience successfully managing money in all sorts of environment as we combine that top-down global perspective with bottoms-up in-depth research. We have a truly systematic approach that includes risk controls. We have those core beliefs that guide us to profitably invest during periods of confusion and panic by others.

So, remember to gather and review the facts, step back and take a long pause, consider your asset allocation and risk controls, maintain excess liquidity at all times, do independent fundamental research and…

Invest Accordingly!
Another Banner Year for Hindsight Capital

If you managed to own the relatively few major winners among large cap stocks and didn’t bother with anything else, you’re pretty happy with your portfolio’s concentration this year. Most people do not invest this way because the dangers of picking the wrong stocks to concentrate on far outweighs the slim chance you’ll nail it.

If you were an indexer and owned the cap-weighted indices, you’re just okay this year. Within a few percentage points of record highs, enduring lots of volatility, and without much to show for international or smaller cap diversification. Oh well, we’ve all seen worse (much worse).

For everyone else, it will be a pleasure to kiss 2015 goodbye. There are far more individual stock losers this year compared to previous years of the current bull.

The Financial Times wrote about the “narrowness” of 2015 that everyone’s been carrying on about (emphasis mine):

Some talk about the Fang stocks — Facebook, Amazon, Netflix and Google — while Ned Davis Research refers to the Nifty Nine, which adds Priceline, Ebay, Starbucks, Microsoft and Salesforce. (Note that Apple appears on neither list.) If made into indices, research by the FT statistics group shows that either of these groupings would have gained about 60 per cent for this year, while the S&P 500 is up about 1 per cent.

Meanwhile, the equal-weighted version of the S&P, where each stock is given a weighting of 0.2 per cent, has fallen slightly for the year, even as the main cap-weighted index has risen. So, unusually, the average stock has failed to beat the index. Most US stocks are down for the year, even if the Fangs’ exploits have kept the main benchmark in the black.

Now, if you owned only the FANG stocks or only the Nifty Nine and that was your entire portfolio, it is undeniable that you crushed it this year. Unfortunately, you also took a major risk – one that would not likely benefit you should you attempt to repeat this exploit in future years.Lucking into the nine best holdings in a universe of thousands of stocks only seems possible with the benefit of a rearview mirror. “Of course those were the best stocks to be in, anyone could have foreseen that in January!” Nope. We have a pet name for this kind of thinking on Twitter – an imaginary hedge fund we like to refer to as “Hindsight Capital Partners LP”. Don’t try to send them any of your money to manage, there’s a waiting list ten miles long.And as for avoiding the many, many losing stocks…every bit as impossible an endeavor as only owning the champions.My friend Jon Krinsky’s new technical analysis note at MKM Partners paints the picture of this year’s bumper crop of losing stocks perfectly in a single chart:

Says Jon:

The S&P 500 is less than 2% away from its recent all-time highs, yet the median stock is down over 12% from its 52-week high, and nearly a third of stocks are down 20% or more. Further, just 53% of components are above their 200 DMA. In other words, the turkey looks good on the surface, but where’s the stuffing? In the last 20 years, the only other times we have seen less than 55% of components above their 200 DMA while the SPX was within 2% of a 52-week high have been ’98-’00, October 2007, and July/August of this year.

Josh here – This week marks the first week of the last month of this year. Lots of investors are saying “good riddance” despite our proximity to new all time highs in the S&P 500 and Nasdaq. It’s easy to see why.


Fangs and Nifty Nine power US equities (FT)

The Turkey Looks Good, But Where’s The Stuffing?
MKM Partners – November 29th 2015

Image by Steven Lilley

What Value Investing Is And Isn’t

By VintageValueinvesting

What is value investing?

It’s a simple question and it has a very simple answer. But before I get to what value investing is, let me first clear up some confusion and explain what value investing isn’t.



Speculation is the act of purchasing an asset without regard to its actual intrinsic value, with the hope that its price will go up and that you’ll be able to sell it in the future for more than you originally paid.

Speculation is the absolute antithesis of value investing.

In fact, speculation is the very thing that drove Ben Graham to galvanize the concepts that would eventually become know as value investing: Graham started teaching at Columbia Business School in 1928, a year before the Wall Street Crash of 1929 that ushered in the 10-year Great Depression that we all know about it. The Great Crash, as it’s known, was caused to a large extent by speculators, who assumed that the stock market would continue to rise at a steady breakneck pace forever. Ben Graham and his colleague David Dodd published Security Analysis in 1934 – the first financial textbook to actually teach how to calculate the intrinsic value of a business, regardless of its price.

Graham also wrote extensively about the dangers and stupidity of speculation in The Intelligent Investor.

Technical analysis

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

A core teaching of value investing is that an asset’s price and its intrinsic value are two completely distinct things. Value investors employ fundamental analysis, which is the opposite of technical analysis. Fundamental analysis is a method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial, and other qualitative and quantitative factors.

Investing in low P/E , low P/B, or high dividend yield stocks

This is one of the biggest myths when it comes to value investing, and it continues to be perpetuated because it’s an easy, simple, and lazy way to classify value investors.

Take, for example, the style box that Morningstar has popularized. The style box helps characterize mutual funds by their focus on large-cap, medium-cap, and small-cap stocks, and by their “value” or “growth” orientation. A value stock, according to Morningstar, has a low price/earnings ratio, low price/book ratio, low price/cash flow ratio, and a high dividend yield. A growth stock, on the other hand, has high long-term projected earnings growth, high historical earnings growth, and high sales, cash flow, and book value growth.

Or, take this explanation of value investing and growth investing by Fidelity:

  • Value Investing: Focus on companies with lower-than-average sales and earnings growth rates. Holdings generally feature stocks with lower price-to-earnings and price-to-book ratios. Stocks generally have higher dividend yields. Fund can potentially capitalize on turnaround situations.
  • Growth Investing: Focus on companies with above average rates of growth in earnings and sales. These stocks tend to have above-market price-to-earnings and price-to-sales ratios, as the rapidly growing sales and earnings justifies a higher-than-average valuation.

While many value investors often do seek out stocks that fit the above criteria, the qualities of low valuation, low growth, and high dividend yields are not required for value investing.

The problem with these classifications and definitions is that they imply that a value investor cannot invest in a stock that has a high P/E ratio or in a business that has experienced higher than average sales growth. For example, a stock’s intrinsic value could warrant a high P/E, or the company may have low or negative earnings yet positive free cash flow – which would result in a negative P/E ratio. And dividend yields should have little to do with intrinsic value, as that cash could be better used by being plowed back into the company.

As I wrote in my very first post, What’s Better: Value Investing or Growth Investing?, there should be no difference between value investing and growth investing. The difference is between fundamental analysis / intelligent investing and technical analysis / speculation.

In this sense, value investing is synonymous with intelligent investing.

Investing in low growth, mature, or unpopular companies

This is the biggest misconception I see when it comes to value investing. and it’s very much related to the above point on value versus growth investing and low P/E, high dividend yield stocks.

The common thinking goes:

  • If growth investors look for stocks that are experiencing high growth, then value investors must look for stocks with low growth.
  • If value investors look for stocks with low P/E valuations, then these companies must be unpopular.
  • If value investors look for companies that are paying high dividends, then these companies must be in a “mature” stage of life.

I’ve already shown why the common thinking about growth, P/E ratios, and dividends are wrong. Consequently, the conclusions about low growth, popularity, and maturity are wrong as well.

Here’s an example: I invested heavily in Microsoft stock and Google stock at various points in 2010-2012. Microsoft’s dividend yield was a meager 2% and Google doesn’t even pay a dividend. And while Microsoft wasn’t necessarily considered a “hot” company around that time, Google certainly was.

So why would I, a value investor, invest in Microsoft and Google? Because their stock prices were well below my calculations of their intrinsic value. As it turns out (and without much surprise) these two stocks are among the best performers in my portfolio.

Value investors can absolutely invest in growing companies while adhering to Graham’s original principles.


In Value Investing: From Graham to Buffett and Beyond, Bruce Greenwald points out that value investing in the manner initially defined by Benjamin Graham and David Dodd rests on three key characteristics of financial markets:

  1. The prices of financial securities are subject to significant and capricious movements. Mr. Market, Graham’s famous personification of the impersonal forces that determine the price of securities at any moment, show up every day to buy or sell any financial asset. He is a strange fellow, subject to all sorts of unpredictable mood swings that affect the price at which he is willing to do business.
  2. Despite these gyrations in the market prices of financial assets, many of them do have underlying or fundamental economic values that are relatively stable and that can be measured with reasonable accuracy by a diligent and disciplined investor. In other words, the intrinsic value of the security is one thing; the current price at which it is trading is something else. Though value and price may, on any given day, be identical, they often diverge.
  3. A strategy of buying securities only when their market prices are significantly below the calculated intrinsic value will produce superior returns in the long run. Graham referred to this gap between value and price as “the margin of safety”… he wanted to buy a dollar for 50 cents.

These 3 points are core to Graham’s teachings, and are core to the definition of value investing.

But I think value investing can be defined even more succinctly than that. In summary:

Value investing is nothing more than knowing the difference between price and intrinsic value and paying less than the value you receive in return.

This is so important, it bears repeating. Value investing is nothing more than knowing the difference between price and intrinsic value and paying less than the value you receive in return.

Everything else is simply a corollary of that one key fact.

  • To know the intrinsic value of a stock, you must perform bottoms-up fundamental analysis.
  • By paying less than the value you receive in return, you automatically have a margin of safety. Sometimes the margin of safety is large (if there is great risk or a great opportunity). Sometimes the margin of safety is relatively small.
  • By knowing the difference between price and intrinsic value, then you must know about the unpredictable mood swings of Mr. Market and you should be able to control your own emotions.
  • As long as he or she is paying less than the value received in return, a value investor is free to invest in any stock (or financial asset) imaginable, regardless of whether it is a low P/E stock, high P/E stock, mature business, growing business, unpopular company, etc.


Of course, there are many similarities among value investors that lead to common themes that often reappear in the subject of value investing (how to calculate intrinsic value, finding a margin of safety, contrarianism, behavioral finance). But in the simplest, rawest form, very value investor knows the difference between price and intrinsic value and seeks to pay less than the value they receive in return.

When looked at it this way, can good investing really be anything other than value investing?

ValueWalk’s Under The radar Hedge Fund Ideas is only $49.99 (LIMITED TIME OFFER) - the inaugural issue features an emerging value smid cap manager who does not short but if gun to head said (before the crash) he would have shorted USO due to its problematic structure

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My Interview with Mark Cuban: What I Learned

I interviewed Mark Cuban for my podcast (found on itunes or stitcher) but I’m embedding it here in this post. 

Mark was very interesting, not only because he described things I never heard his say before before about his sale to Yahoo, what he was doing the second he made his first billion, how he values the Dallas Mavericks, but also his thoughts on how we should reduce our Digital Footprints and what he’s doing about it. 

I first encountered Mark 17 years ago, before the Broadcast IPO, when we were working together on the first live streaming of a TV show: the People’s Court with Judge Ed Koch. Since then we’ve kept in touch through the years. I like to think I paid a small part in him making his first billion but I’m basically just kidding around when I say that. 

I’m always amazed at the “outrage porn” he tends to get from every corner and we discuss that a bit. 

If he had not sold Broadcast.com I always wonder if it would’ve gotten bigger than Google’s YouTube. 

Also, for more fun facts on Cuban: Ten Lessons I Learned from Shark Tank

Where is Ronald Reagan When You Need Him?

Can you imagine a coach before the game telling his team that we are in trouble, we have too many weaknesses and we need to a different game plan to win? Essentially he is telling his team that they are going to lose the game! Talk about a self-fulfilling prophecy.

Well we have politicians, media, and market pundits doing the same thing: talking down the economy, telling us Wall Street is the root of our economic problems and our system needs a major overhaul in order to survive, let alone, thrive. If you were an investor or thinking about investing how would hearing Wall Street is rigged, corrupt and at the root of our economic problems affect your decision to invest? No wonder why investors are reducing risk assets including stocks.

I am so tired of this doom and gloom rhetoric as we are the greatest nation and economy in the world with some problems that need to be addressed for sure to better compete and remain on top of the heap. If, like me, you travel a lot, you know firsthand that we have much more than others, our economic and financial system is better than others and we enjoy many more freedoms than others. Unfortunately, many lose perspective on this as we have both Republican and Democratic Presidential candidates telling us how bleak things are and we need to vote for them to make America great again. Does that mean more government or less? We are a centrist nation and should not swing far left nor far right. My problem is that I don’t really like any of the candidates.

It’s time for a mindset shift or it will become a self-fulfilling prophesy that our economy will stay stuck in the mud and not get traction to reach its true potential. Where is Ronald Reagan when you need him? And Trump is not Reagan! Nor are Ted Cruz, Bernie Sanders and Hillary Clinton. We need a leader who can lead both domestically and internationally, instill confidence and optimism, and most of all, knows how to bring opposing sides together and negotiate a deal that is better than maintaining the status quo. Positive change is needed! I am not talking about pouring pink paint on our problems. Rather it is focusing on the opportunity instead of dwelling in the drama. There is really “nothing to fear, but fear itself.”

One of my core beliefs is that the financial problems of 2008 changed the psyche of governments, corporations and, most of all, individuals to a conservative bias. Another core belief is that this change will translate into lower highs and higher lows in economic activity and an extended cycle with low inflation. Economists and the Fed have really missed this change in psychology and have not factored it in to the degree needed to come to the right financial and economic policies. Stop talking down the economy and exude some optimism and confidence! Really, we are in pretty decent shape especially with oil prices so low, employment up, inflation down and capital ratios including the savings rate so high.

We need a pep talk, and not from Obama, who keeps talking about wealth redistribution and the ills of Wall Street. Time to bring the bottom and middle classes up rather than the top classes down. Who creates the jobs anyway?

What bothers me most is that both parties really know what needs to be done on a regulatory, tax and financial side to generate higher and longer lasting growth, create jobs and enhance the global competitive position of this country but politics on both sides keep them from meeting in the middle. Something is better than nothing. That is the art of deal making. Reagan was a genius at compromise.

All of this reminds me of an answer that I gave on Bloomberg news two years ago when asked why I was returning to manage money after a couple of years hiatus, and I said “to show that investing was the way to create wealth, not trading.” My interviewer followed up with “What is wrong with the investing environment today? "And I responded, "there is too much news.” That is why my ending tag line is “review all the facts, take a long pause and reflect, control risk and maintain ample liquidity, do in-depth independent research and. …Invest Accordingly!” You have to take emotion out of the decision, which is not easy for anyone. But it’s what I do and look at my results.

Lack of growth or even fears of a global recession continue to dominant the financial scene and have led to volatility in all markets last week.

Let’s see if the events last week shifted any of our core beliefs, resulting in a change in capital allocation and whether our investment themes have changed. Specific recommendations are withheld and given only to those who invest with me, as I am sure you can understand and appreciate. It was an exceptionally good week for our funds as the industrial commodity stocks, discussed and recommended last week, advanced by over 15%.

Reported economic data in the United States remained on the weak side last week: productivity declined 3.0% in the 4th quarter reflecting a slowdown in the quarter and an acceleration in hiring; productivity rose by only 0.6% in 2015, the slowest rate of gain in 3 years; the U.S. trade deficit widened to $43.4 billion in December; the ISM manufacturing index rose to 48.2 in January as factory exports and employment fell while new orders index rose to 56.0, the employment index stood at 52.1 and business activity was at 53.9 with production increasing for the first time since October; new orders for durable goods fell 5.1% and nonmilitary capital goods fell a surprising 4.3% in December; the Markit U.S. services index fell to 53.2 while the Markit U.S. composite PMI output index also fell to 53.2 in January; the auto sales run rate for January was at 16.8 million units, up slightly from the year before and the highest rate since 2006; consumer spending was essentially unchanged in December from a revised upward gain of 0.5% in November and was up 3.4% for the year vs. a gain of 4.2% the prior year and finally consumer income rose 4.5% for the year vs. a gain of 4.2% in 2014. Clearly the savings rate rose in 2015.

The all important jobs data was reported on Friday and it was a mixed bag as non-farm payrolls increased by a seasonally adjusted 151,000 in January, the unemployment rate fell to 4.9%, revisions added 2,000 jobs to November and December, monthly job gains averaged 231,000 in the fourth quarter vs. an average monthly gain of 228,000 for all of 2015; the labor participation rate increased slightly to 62.7 and finally wage gains accelerated to a 2.5% gain year over year, up 12 cents to $25.39 per hour. Strong job growth for 2015, the improvement in hourly earnings and a boost to consumer disposable income aided by a drop in energy prices and a higher savings rate should all support continued healthy gains in consumer spending (67% of GNP) in 2016.

Finally, it appears that several of the Fed governors are backing off prior comments concerning the pace of future Fed rate hikes. I have mentioned before that Fed Vice Chairman Stanley Fischer is a pivotal member of the Fed and he clearly changed his tune in a speech given last Monday to the Council on Foreign Relations in New York. He is now concerned about a slowing in growth in the global economy that could affect growth and inflation in the United States. He was far more hawkish just 5 weeks ago. Other members of the Fed, including St. Louis Fed Reserve President James Bullard, voiced similar concerns last week. The Fed is clearly on hold for now and any future rate hikes may be postponed until the global economic and financial environment stabilizes and re-accelerates.

Relatively weak economic data combined with Fed comments led to a sharp rally in U.S. bond rates, a narrowing interest rate differential with foreign rates and a sharp rally in the Euro, yen and industrial commodity prices. Interestingly, the Chinese Yuan rallied significantly last week.

The European Union slightly reduced its growth forecast for 2016 to 1.7%, a slight improvement over the prior year but down 0.1% from its forecast two months ago. The commission also lowered its inflation forecast to 0.5% in 2016 down from a prior estimate of 1.0% and unemployment should tick down to 9.0%. While retail sales picked up in the last four months of 2015, it appears that business had a slow start in 2016 with the purchasers’ managers index at 53.6 in January down from 54.3 in December and the output price index at 48.9, a 10-month low. It’s worth mentioning that the prospect of additional stimulus from the ECB has increased the business expectations index to 65.1 from 63.3 in December. A sharp rise in the Euro last week negatively impacted the European bourses, as exports are the driving force for growth, especially in Germany.

The ECB will obviously increase its amount of monetary stimulus at its March 10th meeting. A strong dollar remains one of my core beliefs.

China formally set its target for growth in 2016 at 6.5-7.0% as widely anticipated. While Chinese service activity rose to a 6-month high in January at 52.4 and job creation was also at six-month high, Chinese manufacturing gauges continue to struggle as the manufacturers purchasing managers index fell to 49.4 in January from 49.7 in December. It should be noted that the private Caxin manufacturing PMI increased slightly in December.

The Chinese Central Bank injected a record $67 billion cash infusion into the banking system ahead of the Lunar New Year as banks will close for a week starting February 8th. In addition, China’s foreign reserves have fallen to the $3.23 billion at the end of January, the lowest level in 3 years as the country has bolstered the Yuan and offset capital outflows. It should be pointed out that foreign investment in China has slowed dramatically too for obvious reasons. And finally, it is important to highlight that China has now stated as a goal “to take steps to curb excess industrial capacity and deal with unprofitable zombie companies.” These comments support my contention that China is also reducing unprofitable industrial commodity production and future capital spending which will lead to higher prices as supply/demand goes into balances then shortages.

It was another wild week for oil prices as rumors persist of a production deal. Let’s state some of the relevant current facts: global output is up for the year and may have been reduced by only 100,000 per day due to lower prices which is 0.1% of global production; U.S. crude imports are averaging around 8.3 million barrels per day, up nearly 8% from a year ago while crude inventories have risen to over 503 million barrels, an 80 year high; and Iran just made a deal to begin selling 200,000 barrels per day into Europe which could increase to over 500,000 barrels/day over the next few months. The bottom line is supply continues to exceed demand and the prospects for an agreed upon cut in production is miniscule so prices will remain under pressure, one of our core beliefs. Again, lower prices hurt the producers of oil but certainly is a big boost to the consumers of oil, a big positive for global growth, low inflation and low interest rates.

So let’s get back to the main problem, which is a lack of confidence in the economy and the inability or unwillingness of political leadership and factions to join together for the good of the country. This problem does not just exist here as I have mentioned in earlier pieces. Change is everywhere and unless the leaders of the world are willing to compromise and make the needed regulatory, financial, tax and social changes to promote growth, then no one will ever reach their true potential. We need to stop bashing each other and come out with positive ways to stimulate growth and raise the standard of living.

While many are pessimistic on the future of China, I am not as this is one country united with a five-year plan to grow shifting its emphasis to consumer spending away from production, reduce pollution, raise the standard of living for its people, reduce excesses of the past while building a more solid foundation for the future. Can we say the same about our leadership? We are about to choose a new President in the United States. We better choose someone in the image of Reagan who not only has a vision but also has the capacity to bring diverse groups together for a common goal of bettering ourselves and making America the best country it can be for its citizens and for the world. Globalization has many ramifications and we need someone willing to think outside of the box with new ideas incorporating the best minds in the country. We are all Americans. Time to vote that way too.

The bottom line is that its time to change the psychology of investing as the fundamentals are really pretty good: growth here and abroad will continue in 2016 although well below potential; inflation is under control; the supply of capital exceeds the demand for capital and interest rates will stay surprisingly low; consumer disposable income, savings and spending will continue to benefit from lower energy prices and corporate profits will continue to grow excluding energy related and commodity stocks.

As you know I listen to many corporate earnings conference calls. If you were management, wouldn’t you present a very conservative outlook for this year knowing that your stock would be pummeled if you did not reach your own announced targets? I referred to Honeywell last week and how conservative their Chairman was in discussing 2016. I believe that the market often over-reacts to these conservative forecasts driving stocks down by 30%+ in one day. While I don’t follow LinkedIn or own it, I doubt that the value of the company fell by 40% in one day as the stock did on Friday! Think as an investor rather than a trader. Adversity creates opportunity!

So, as always, remember to review all the facts, step back and reflect hard and long, control risk and maintain excess liquidity at all times, consider the proper asset allocation do in-depth research on each investment idea and…

Invest Accordingly!
My Chart of the Year, Hands Down

Lots of people talking about what the Chart of the Year might be that best personifies 2015 from an investor’s perspective. I could show you the fact that the yield on the 10-year Treasury is flat from January 1st despite all the interest rate hike obsession, but that would be no fun. I could also show you the dollar vs commodities, but you’ve seen that quite a bit, I’m sure.

Instead, I’ve put together what I think is an even more meaningful chart to depict what it was like investing during 2015.

The median stock in the Russell 3000 is down 5% and there are some industry groups of stocks in which a full-blown bear market is now underway. The averages illustrating flat returns for US stocks this year are lying if you own a portfolio of individual names. If you own the S&P 500, you were bailed out by a handful of giant companies that masked the pain beneath the surface.

Below, I’m showing you the percentage of NYSE stocks above their 200-day moving average (representing an intermediate-term uptrend) in black. You can see that the amount of stocks above this uptrend gauge has been cut in half from the start of the year. At present, just 28% of all NYSE names are in uptrends, or less than 1 in 3 stocks. That’s not a bull market.

For contrast, I’ve plotted the year-to-date percentage gains of the FANG stocks that have served as the shiny baubles distracting everyone from the new sub rosa bear that’s taken hold of the market. It’s a fairly remarkable dichotomy by historical standards.

Narrowing bull market leadership is not great for sentiment and it sends all the wrong messages to investors and corporate leaders about how they should be allocating for the future. What usually follows next is the growing hordes of laggard stocks continues to grow as, one by one, the leaders succumb and fall. I’ve heard it remarked that this cycle is very different from those in the past (it’s elongated thanks to extraordinary monetary policy) so things could easily go the other way.

Anything’s possible.

Read also:

Investment Fads and Themes, 1996-2015 (TRB)

Image by Kyle Mortara

7 Key Themes Surrounding Investments in Fintech

Original post on Convergex.com.

Financial services will dramatically evolve over the next ten years as millennials age and use more banking services compared to the last fifty, enabled by advancements in technology. No doubt traditional banks remain entrenched and there’s a plethora of regulatory hurtles standing in the way of this industry and new entrants. Numerous startups, however, have created more efficient, cost effective, and tech savvy versions of the verticals currently on offer. We tracked the “smart money” – Google Ventures, Andreessen Horowitz, Accel Partners, Index Ventures, Sequoia Capital and Kleiner Perkins Caufield & Byers, for example – and identified seven key themessurrounding their investments in Fintech with some examples of each, included below. (All data was derived from CrunchBase).

  1. Money Transfer: Two dominant players include TransferWise and WorldRemit. The former – founded in London during 2010 – is “a peer-to-peer money transfer service allowing foreign students and businesses to transact money globally”. This firm has raised $90.4 million in 5 rounds thus far, most recently in a $58 million in Series C funding round in January 2015. Investors include Andreessen Horowitz, Richard Branson, Index Ventures, and IA Ventures, etc. Likewise, WorldRemit, headquartered in London and founded in 2010, is an “online money transfer business enabling migrants and expats to send money using a variety of payment options”. This startup received $147.7 million in seven rounds from three investors: Accel Partners, Technology Crossover Ventures, and Project A Ventures. It most recently garnered $100 million in Series B funding in February of this year.

  2. Mobile Payments: Stripe is the success story in this space: “a set of unified APIs and tools that instantly enable businesses to accept and manage online payments.” The company has two acquisitions under its belt and partnerships with Apple Pay, Alibaba, Facebook, and Twitter. It has raised $190 million in 7 rounds – the latest taken place last month – from 18 investors including American Express, Kleiner Perkins Caufield & Byers, Sequoia Capital, Founders Fund, and Visa. Boku (founded in 2009) is another heavy hitter in mobile online payments and based in San Francisco. This startup has completed 4 acquisitions and earned $73 million in 5 rounds from 10 investors: New Enterprise Associates, Andreessen Horowitz, Benchmark, Index Ventures, for example.

    Lastly, another opportunity in this arena presents itself across the Atlantic: Azimo is a “payment processing company providing internet and mobile based inter-country consumer money transfer services”. Headquartered in London and founded in 2012, the company most recently secured $20 million in Series B funding this past June, contributing to a total of $21.6 million from 4 rounds and eleven investors: Greycroft Partners, Frog Capital, Anthemis Group, and TA Ventures, for example.

  3. Peer to Peer Lending: Public market investors know Lending Club and OnDeck, both of which IPO’ed in December 2014. But there are other opportunities in the pipeline attracting big VC players. For example, Index Ventures, Accel Partners, DST Global and BlackRock among others have invested an aggregate $273.2 million in Funding Circle (founded in 2009, London): “an online marketplace allowing individuals to lend money directly to small and medium-sized businesses in the UK”. Earnest (2013, San Francisco), “a merit based lender” received $32 million in two rounds – most recently $17 million in Series A funding in January 2015 – from Maveron, Andreessen Horowitz, and Atlas Venture, etc.

    Lastly, Prosper (2006, San Francisco) – another peer to peer lending marketplace already acquired a company and received a whopping $354.9 million in 12 rounds from 26 investors.These investors include venture capital funds like Accel Partners, Benchmark, Dag Ventures, Sequoia Capital and financial services companies, such as BlackRock, Credit Suisse, BBVA Ventures, Neuberger Berman Group, SunTrust Bank, and USAA.  This startup’s most recent funding round occurred in April of this year.

  4. Personal Finance: Startups under this category range from helping people save money to accessing credit scores more cheaply. Expensify, founded in 2008 based in San Francisco, offers “an online expense management service for customers worldwide”. VC funds, including Redpoint Ventures, SV Angel, and OpenView Venture Partners have invested $27.2 million thus far, including $17 million in July 2015. Credit Karma (founded in 2007, San Francisco) provides “free access to credit reports and scores, personalized financial recommendations and educational resources”. This firm just raised $175 million in Series D funding in June, adding to its grand total of $368 million in 6 rounds from 12 investors: Tiger Global Management, Google Capital, Ribbit Capital, and 500 Startups, for example.

  5. Cryptocurrency: There are a slew of fintech startups involved in cryptocurrency, or bitcoin in particular, but we’ll just highlight a couple. Payment processor for Bitcoin, BitPay (founded in 2011, Atlanta) raised $32.5 million in 3 rounds and 16 investors thus far, including Index Ventures, Founders Fund, and Richard Branson. Another example, Coinbase (2012, San Francisco), enables “any consumer to create a Bitcoin wallet and start buying/selling Bitcoin instantly by connecting their bank account”. This startup has completed two acquisitions and raised $106.7 million in total from 4 rounds and 21 investors; it received $75 million during its most recent round in January 2015. Investors include Andreessen Horowitz, BBVA Ventures, Ribbit Capital, and Y Combinator.

  6. Trading & Robo Advisers: The advent of automated financial advisers is nothing new, but still serves as a notable example of startups encroaching on an industry by scooping up business at the low-end – straight out of Harvard Professor Clayton Christensen’s “Innovator’s Dilemma”. Wealthfront, for example, received $129.5 million in 5 rounds from 33 investors since it was founded in 2011 (headquartered in Palo Alto). Some investors include Index Ventures, DAG Ventures, Spark Capital, and Greylock Partners. Another interesting take on disrupting this space is the startup Robinhood: “a commission-free, mobile-first stock brokerage.” This online brokerage recently raised $50 million in Series B funding in May 2015, adding to a total of $66 million from 3 rounds and 20 investors since it was founded in 2013 (Palo Alto). Investors span from VC funds like New Enterprise Associates, Google Ventures, Andreessen Horowitz, and Index Ventures to celebrities, such as Snoop Dogg, Jared Leto, and Nasir Jones.

  7. Student Loans: Huge amounts of money are flowing into startups addressing arguably the largest headwind for millennials: student loans. Sofi (founded in April 2011, San Francisco) has already originated +$2 billion in loans that “help early-stage professionals get ahead including student loan refinancing, low down-payment mortgages, mortgage refinancing, and personal loans.” This firm amassed $766.2 million in 10 rounds from 17 investors, including $200 million in Series D funding this past January. Investors include: Third Point Ventures, Institutional Venture Funds, Discovery Capital, Peter Thiel, and Baseline Ventures. A similar startup, Upstart (2012, Palo Alto), just took in $35 million in Series C Funding last month, adding to a total of $53.2 million from investors including Third Point Ventures, Google Ventures, Kleiner Perkins Caufield & Byers, Mark Cuban, and New Enterprise Associates.

So how are banks responding? Some are partnering or investing in their own fintech startups. For example, Goldman Sachs and JP Morgan are working with online broker Motif Investing. Others, including Barclays, UBS, Citi, Santander, Wells Fargo, Deutsche Bank, and BBVA Compass either support or have launched their own “accelerator programs”, or innovation labs in tech hubs around the world to improve their technological capabilities. How can fintech startups and banks really get along? One such synergy is the partnership between OnDeck and BBVA Compass, in which the subsidiary of Banco Bilbao Vizcaya Argentaria earns a referral fee by sending small-business customers who don’t fit their loan requirements to the online lender.

JPMorgan Chase CEO Jamie Dimon understands the crossroads that banks face. He addressed the challenge of competing with startups in areas, such as lending and payments, given their efficiency in his latest annual letter to shareholders. His takeaway: partner where it makes sense and learn from competitors to develop their own strategies. Either way, in Mr. Dimon’s own words to Wall Street: “Silicon Valley is coming”.

Read full post on Convergex.com

Google's Project Jacquard gets it right

At last a technology company has grasped the essential difference between wearable and portable, between clothing and accessories, between artifice that seems like second nature and artifice that seems like a clunky cyborg upgrade. Surprisingly, that company is the same behemoth (though a different team) that peddled the aggressively unnatural Google Glass.

At last week’s developers’ conference, Google Inc.’s Advanced Technology and Projects group announced what it calls Project Jacquard, named for the early 19th-century looms that first used digital punchcards to program complex patterns. The project’s central innovation is a conductive yarn tough enough for industrial weaving and mass-market apparel and upholstery production. The threads can connect to chips that react to gestures, monitor heart rate or body temperature, or do whatever else a designer might come up with. Google hasn’t talked publicly about pricing, but it’s definitely going for scale. Its first design partner is Levi Strauss & Co.

Unlike existing conductive threads, Project Jacquard’s yarn works with many different fibers – wool, silk, polyester, cotton – and comes in a full range of colors. The regular fibers braid around a conductive metal alloy core. “It looks like just normal yarn,” said Shiho Fukuhara, the project’s textile development and partnership lead, in a video. “The only thing that’s different is it’s conductive.”

The goal is to allow electronics to disappear into the fabric of daily life, “getting the technology out of the way and making interactions more natural and more seamless,” explained João Wilbert, the creative technologist for Google Creative Lab in London, in the video.

Metaphors like “fabric of daily life” and “seamless” demonstrate why this approach is so promising. Textile references are woven into our language because cloth is integral to human life. It’s our second skin. Not everyone wears jewelry, but in many climates human beings can’t survive without clothes. So if you want to develop wearable electronics, threads and buttons are a much more powerful way to go than bracelets, watches, or weirdly asymmetrical eyewear. 

(Read Virginia Postrel’s full analysis at BloombergView.com.)

GOOG entries

According to the weekly, this stock has yet to confirm a breakout. Given the gap up and underperformance relative to the SPY, buying after a break of the $550 range seems to be a safer bet than jumping in beneath resistance.

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The daily chart suggests that a retest of $520 marks solid support, and also confirms the resistance at $550. A break of $550 would be even stronger if accompanied by an expansion in volume and relative strength compared to the SPY.

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The 60 min chart also confirms support at $520, but given the strength of this market, $GOOG may not fall that far before climbing higher.

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Here is the real reason why investors should love Google’s latest move. Watch.

Google is getting a new name. I’s called Alphabet and Google will be one of Alphabet’s many subsidiaries. 

Why did Google do this? 

So they can ditch assets that never worked and rev up ones that are working.

Investors love transparency. Did you know Google has a business called Calico that is trying to make your life longer? Probably not.

With the new structure, the fate of Google’s “side hustles” (now Alphabet’s side hustles) like Calico won’t be buried in the depths of Google’s ad revenue business, and investors love this. 

In other words, Alphabet will be the new parent and will have several subsidiaries below it, including Google, so investors can clearly see which business lines are working, or not working.

Google will start hemorrhaging business lines (sell them or bury them) once it’s clear(er) to investors which ones “aren’t” working, and that’s good for you if you’re a Google investor. Who wants dead weight. eBay is doing that as we speak. Watch. 


Originally appeared on The MSB Cheat Sheet

image via flickr

Draghi and a Counter Trend Rally in Oil Rescue the Markets

Listening to the pundits, media and some of the interviews out of Davos early last week probably had all of us heading for the bomb shelter as the global economy, along with the financial markets, appeared headed for the dumpster. Did any of you hear and read Cramer’s nightly comments? He is always one step behind and a dollar short.

However, something happened along the way. Mario Draghi talked about further ECB easing in March and energy prices rallied above $30 per barrel, and lo and behold, the global stock markets turned on a dime ending up a few percent for the week, the first weekly gain this year. Was this a counter trend rally in a bear market or was the market discerning between “perception vs. reality; emotion vs. reason,” last week’s topic? Let me again state that I am aghast how everyone looks in the rear view mirror rather than anticipating change and, moreover, how everyone has now become a trader rather than an investor. Even Larry Fink, head of BlackRock, who was so bearish short term looking for a 10% correction turned more positive, so he said, after only a 2.5% move down. Remember that he also had stated that the market would recover and hit new highs later in the year. How does his firm trade multi-trillions of AUM anyway?

I know a lot more wealthy investors than I do traders! Most of them go against the grain as times of adversity create opportunities. They have done their homework and maintain excess liquidity to take advantage of panics in the marketplace.

One theme was crystal clear out of Davos, which happens to be one of our core beliefs, which is that conservatism exists at all levels from governments to corporations and down to the consumer. No one is really that optimistic and therefore is operating close to the vest, which means no excesses, no speculation and extremely tight budgets. That is why I continue to believe that there will be lower highs and higher lows in economic activity without inflationary pressures for several more years excluding an external event. Is that all that bad? I don’t think so. As the cycle is extended, there are clear winners and losers, and there will be great opportunities to profitably invest in those companies changing to thrive in this new world economic environment. Remember, too, that banks here and abroad continue to increase their capital ratios and liquidity thereby reducing financial systematic risk, which exacerbated the 2008 downturn.

I am not saying that there are no problems in the world that need to be addressed, but I am saying that the environment is not nearly as bleak as many are painting and there is value everywhere for the investor who has the liquidity and patience to take advantage of panic selling by traders who are more focused on the next quarter rather than the next few years.

I look forward to and take advantage during periods of stress, like when the U.S. market was down 500 points last Wednesday, to utilize some of my excess liquidity to pick up some new stocks and even average down on some of my holdings at extremely good values. I also did expect Mario Draghi to discuss further monetary easing the next day. To be honest, I did not see such a big rally in energy prices that occurred almost simultaneously to Draghi’s comments. I still remain bearish on energy prices as long as supply growth outstrips demand growth and politics overrides economic reality.

The biggest fear in the marketplace is that global economic growth has stalled out and the risks are to the downside. I continue to try to comprehend where the $3 plus trillion in energy savings has gone over the last year as it appears that the boost to consumer spending has been muted, corporate operating margins have not been helped nearly as much as expected (I will address this point later) and the savings rate has not risen as much as one would have expected based on the relatively small increase in consumer spending. The truth is that there really has been some benefit in each area. On the other hand, the energy producing countries have had a huge drop in income and have had to eat into their foreign reserves by selling assets to sustain their budgets. But this is a really NOT a zero sum game as the number of winners is far larger than the number of losers. Net net, lower energy prices supports global growth with low inflation and is helping us through this period. Don’t forget that monetary policy is easy virtually everywhere, too, and don’t think for a moment that the Fed does not have their fingers on the pulse and will act also, if needed, to stimulate domestic growth. After all, inflationary pressures are really nonexistent. Last week I mentioned that I see two or less fed rate hikes this year, far less than anyone else expects, the Fed included.

Listening to corporate conference calls last week supports my view of the global economy, the financial markets and, most of all, that change is everywhere. Every company is “cautiously optimistic” for 2016 - running very tight ships while not expecting tailwinds to growth but most all have plans to succeed in furthering their strategic plans to enhance their global competitive position, increase volume and average price realization, increase operating margins, operating earnings and returns on capital while maintaining tight capital budgets so as to increase free cash flow for the benefit of shareholders one way or another. Expectations are low and zero budgeting is being utilized meaning that downside risks are minimized and the potential for upside surprises exist. Clearly low energy prices have helped boost operating margins somewhat. Is any of this the precondition for market tops? Don’t tops occur when there is rampant optimism, overvaluation and even speculation and bottoms occur when pessimism is everywhere and price/valuation doesn’t matter regardless of how low?

Let’s look at what happened last week beginning with the United States, the engine of global growth today: retail sales as reported by Master Card grew 7.9% during the holiday season, excluding cars and gas; existing home sales rose 14.9% in December to an adjusted 5.46 million annual rate and hit 5.26 million for the year, a 10-year high; the median price of home sales rose 7.6% in December to 224,100; home-builder sentiment remains at 60 in January; the consumer price index fell 0.1% in December and rose 0.7% over the last twelve months and increased only 0.1% in December and 2.1% over the last year excluding food and energy; and the budget deficit will climb to $544 billion or 2.9% of GNP for the year ending September 30th, the first increase since 2009 partially due to lower economic growth. The budget deficit is $130 billion higher than initially estimated also due to the recent tax and budget deals. A rising deficit adds to growth as long as the treasury doesn’t crowd out other borrowers causing higher rates.

I found listening to several railroad management conference calls most interesting last week as freight volumes have been unusually weak which normally parallels growth in industrial production. Needless to say, fourth-quarter tonnage was dismal and the only two areas of growth out of 9 categories were cars and lumber. Weakening exports, a huge drop in coal volume and a significant decline in movement of oil all sharply penalized volume. Railroad management acted quickly by downsizing trains, crews and other costs such that earnings ranged from up a few percent year over year to down 10% in the fourth quarter. Rails, as a group, are well managed and are cash machines. Operating results will improve as the year unfolds and many of the stocks will be outstanding value plays. Remember Berkshire Hathaway owns Burlington Northern, the second largest rail.

Weakness in rail tonnage supports my view that the production side of the U.S. economy remains weak and higher retail sales, higher auto sales and higher housing sales support that the consumer side (over 67% of GNP) remains relatively strong such that overall economic growth will be around 2-2.5% for this year.

Mario Draghi and the ECB took center stage last week. The ECB President confirmed Thursday that officials will review their program in March and that there were “no limits” on how far they are willing to deploy measures within their mandate. He also mentioned that “we are adapting our instruments to the changing conditions and that the credibility of the ECB would be harmed if we weren’t ready to revise the monetary policy stance.” His comments set off the expected chain reaction in various markets; stocks rallied, the Euro fell dramatically and commodity prices rose. Clearly his remarks reflect concern that global and Eurozone growth this year will be less than earlier anticipated and inflation will remain non-existent.

China’s officials set out at Davos to affirm their optimism for the Chinese economy and their support of the Yuan. Heretofore, the Yuan was pegged to the dollar but now the Yuan will be considered part of an international basket of currencies, something that world economic leaders have wanted for a long time. The Yuan stabilized last week. Chinese growth came in at 6.9% for all of 2015 and 6.8% for the fourth quarter, the slowest rate of gain in 25 years. Industrial production rose around 6% for the year while retail sales increased by over 11% year over year. The transition from a production-led economy to a consumption led economy is progressing according to plan - unfortunately with bumps and all along the way. I still am looking for growth this year between 6-6.5%, which is nothing to sneeze at for sure. Again, I compliment China for actually having a five-year plan to establish better footing for more sustainable growth for the future while reducing systematic risk. Something other nations, including the United States, are lacking!

China Central Bank injected 600 billion Yuan or approximately $91billion to ease liquidity squeezes that normally occur before the Lunar New Year in early February.

It was ironic that oil had a huge rally last week right after Iran’s nuclear agreement was approved permitting oil exports and the IEA said that oil could “drown in oversupply.” Clearly traders got caught short and ran for cover to minimize trading losses and exposure. It is one thing to invest in a fundamental trend while maintaining ample excess liquidity at all times, and quite another to trade one. I still believe that oil has more downside until supply and demand come into better balance. Global inventories have risen by over 1 billion barrels over the past two years and are estimated to increase by another 285 million barrels this year, testing storage capacity.

Davos was again a newsworthy event where both political and business leaders meet to discuss virtually all issues pondered in the world. Clearly, immigration in Europe, the Middle East turmoil, terrorism, Britain having a referendum to stay in the Eurozone, the global economies, China, monetary policy, business and politics took center stage. Change is in the air everywhere, so it was quite a freewheeling event. The IMF cut its global forecast right before the event began now looking for growth in 2016 at 3.4% up from 3.1% in 2015. There is a need for regulatory and financial reform universally to stimulate job creation, investment, higher growth and inflation. We concur!

So where does all this leave us? Our core beliefs remain basically in tact although we acknowledge that economic activity in the United States has hit a soft patch after such strong second and third quarters. We continue to believe that the underlying fundamentals will support 2-2.5% growth for the year with inflation remaining below 1.5%. In addition, corporate earnings and cash flow will accelerate as the year progresses versus 2015 results and the 10-year bond will remain beneath 2.5%. Net, net the market has upside and specific stocks going through positive change will significantly outperform the averages. Remember that this is a market of stocks, rather than a stock market. Our investments are stock specific rather than emphasizing any one sector and we remain less than 95% net long maintaining fire-power to take advantage of panic in the marketplace and the lack of professionalism by investment managers. Take the emotion out of your decision and base it on facts.

So remember to do in-depth independent research on each investment, step back, reflect, maintain ample liquidity at all times and control risk in your portfolio and then…

Invest Accordingly!

20 Things I’ve Learned From Larry Page

I visited Google a few weeks ago and, after almost getting arrested, my mind was blown.

First, Claudia wandered into the garage where they were actually making or fixing the driverless cars. When they finally realized she was wandering around, security had to escort her out.

We got scared and we thought we were going to get in trouble or thrown out.

Then we met with a friend high up at Google and learned some of the things Google was working on.

Nothing was related to search. Everything was related to curing cancer (a bracelet that can make all the cancer cells in your body move towards the bracelet), automating everything (cars just one of those things), Wi-Fi everywhere (Project Loon) and solving other “billion person problems”.

A problem wasn’t considered worthy unless it could solve a problem for a billion people.

So now Alphabet is aligning itself towards this strategy: a holding company that owns and invests in other companies that can solve billion person problems.

It’s not divided up by money. It’s divided up by mission.

I want to do this in my personal life also.

Just analyzing Larry Page’s quotes from the past ten years is a guidebook for “billion person success” and for personal success.

Here are some of his quotes (in bold):

“If you’re changing the world, you’re working on important things. You’re excited to get up in the morning.”

To have well-being in life you need three things: A) a feeling of competence or growth. B) good emotional relationships. C) freedom of choice.

Being able to wake up excited in the morning is an outcome of well-being.

Feeling like every day you are working on a billion-person problem will give you those three aspects of well-being.

At the very least, when I wake up I try to remember to ask: Who can I help today?

Because I’m a superhero and this is my secret identity.

“Especially in technology, we need revolutionary change, not incremental change.”

Too often we get stuck in “good enough”. If you build a business that supports your family and maybe provides for retirement then that is “good enough”.

If you write a book that sells 1000 copies then that is “good enough.”

You ever wonder why planes have gotten slower since 1965? The Dreamliner 787 is actually slower than the 747.

That’s ok. It’s good enough to get people across the world and save on fuel costs.

It’s only the people who push past the “good enough syndrome” that we hear about: Elon Musk building a space ship. Larry Page indexing all knowledge. Elizabeth Holmes potentially diagnosing all diseases with a pin prick.

Isaac Asimov wrote classic science fiction like “The Foundation Series” but it wasn’t good enough for him. He ended up writing 500 more books, writing more books than anyone in history.

Larry Page keeps pushing so that every day he wakes up knowing he’s going to go past “good enough” that day.

What does your “good enough” day look like. What’s one thing that moves you past that?

“My job as a leader is to make sure everybody in the company has great opportunities, and that they feel they’re having a meaningful impact and are contributing to the good of society.”

Whenever I’ve managed companies and have had the small opportunity to be a leader I’ve judged my success on only one thing:

Does the employee at night go home and call his or her parents and say, “guess what I did today!”

I’m not sure this always worked. But I do think Larry Page lifts all his employees to try to be better versions of themselves, to try to surpass him, to try and change the world.

If each employee can say, “who did I help today” and have an answer, then that is a good leader.

Empowering others, empowers you.

“Lots of companies don’t succeed over time. What do they fundamentally do wrong? They usually miss the future.”

The stock market is near all time highs. And yet every company in the original Dow Jones market index (except for GE) has gone out of business.

Even US Steel, which built every building in the country for an entire century, has gone bankrupt.

Never let the practical get in the way of the possible.

It’s practical to focus on what you can do right now.

But give yourself time in your life to wonder what is possible and to make even the slightest moves in that direction.

We’re at maybe 1% of what is possible. Despite the faster change, we’re still moving slow relative to the opportunities we have. I think a lot of that is because of the negativity… Every story I read is Google vs someone else. That’s boring. We should be focusing on building the things that don’t exist.

Sometimes I want to give up on whatever I’m working on. I’m not working on major billion person problems.

And sometimes I think I write too much about the same thing. Every day I try to think, “What new thing can I write today” and I actually get depressed when I can’t think of something totally new.

But I am working on things that I think can help people. And if you are out side of people’s comfort zones, if you are breaking the normal rules of society, people will try to pull you down.

Larry Page didn’t want to be defined by Google for his entire life. He wants to be defined by what he hasn’t yet done. What he might even be afraid to do.

I wonder what my life would be like if I started doing all the things I was afraid to do. If I started defining my life by all the things I have yet to do.

“Many leaders of big organizations, I think, don’t believe that change is possible. But if you look at history, things do change, and if your business is static, you’re likely to have issues.”

Guess which company had the original patent that ultimately Larry Page derived his own patent (that created google) from?

Go ahead. Think a second. Guess.

An employee of this company created the patent and tried to get them to use it to catalog information on the web.

They refused.

So Robin Li, an employee of The Wall Street Journal, quit the newspaper of capitalism (who owned his patent), moved to China (a communist country), and created Baidu.

And Larry Page modified the patent, filed his own, and created Google.

And the Wall Street Journal got swallowed up by Rupert Murdoch and is dying a slow death.

“I think as technologists we should have some safe places where we can try out new things and figure out the effect on society.”

A friend of mine is writing a novel but is afraid to publish it. “Maybe it will be bad,” he told me.

Fortunately we live in a world where experimentation is easy. You can make a 30 page novel, publish it on Amazon for nothing, use an assumed name, and test to see if people like it.

Heck, I’ve done it. And it was fun.

Mac Lethal is a rapper who has gotten over 200 million views on his YouTube videos. Even Ellen had him on her show to demonstrate his skills.

I asked him, “do you get nervous if one of your videos gets less views than others?”

He told me valuable advice: “Nobody remembers your bad stuff. They only remember your good stuff.”

I live by that.

“If we were motivated by money, we would have sold the company a long time ago and ended up on a beach.”

Larry Page and Sergey Brin wanted to be academics. When they first patented Google, they tried to sell to Yahoo for $1 million (ONE MILLION DOLLARS).

When Yahoo laughed them out the door, they tried to sell to Excite for $750,000.

Excite laughed them out the door. Now an ex-employee of Google is the CEO of Yahoo. And the founder of Excite works at Google. Google dominates.

Money is a side effect of trying to help others. Trying to solve problems. Trying to move beyond the “good enough”.

So many people ask: “how do I get traffic?” That’s the wrong question.

If you ask every day, “How did I help people today?” then you will have more traffic and money than you could have imagined.

“Invention is not enough. Tesla invented the electric power we use, but he struggled to get it out to people. You have to combine both things: invention and innovation focus, plus the company that can commercialize things and get them to people.”

Everyone quotes the iconic story of Thomas Edison “failing” 10,000 times to get the electric lightbulb working.

I put failing in quotes because he was doing what any scientist does. He does many experiments until one works.

But what he did that was truly remarkable was convince New York City a few weeks later to light up their downtown using his lights.

The first time ever a city was lit up at night with electricity.

That’s innovation. That’s how the entire world got lit up.

“If you say you want to automate cars and save people’s lives, the skills you need for that aren’t taught in any particular discipline. I know - I was interested in working on automating cars when I was a Ph.D. student in 1995.”

Too often we get labeled by our degree and our job titles. Larry Page and Elon Musk were computer science majors. Now they build cars and space ships.

David Chang was a competitive golfer as a kid, majored in religious studies in college, and then had random gopher jobs in his 20s.

The gopher jobs all happened to be in restaurants so he became familiar with how the business was run.

Then he started probably the most popular restaurant in NYC, momofoku. A dozen or so restaurants later, he is one of the most successful restauranteurs in history.

Peter Thiel worked as a lawyer in one of the top law firms in NY. When he quit in order to become an entrepreneur, he told me that many of his colleagues came up to him and said, “I can’t believe you are escaping”.

Escaping the labels and titles and hopes that everyone else has for us is one of the first steps in Choosing Ourselves for the success we are meant to have.

We define our lives from our imagination and the things we create with our hands.

“It really matters whether people are working on generating clean energy or improving transportation or making the Internet work better and all those things. And small groups of people can have a really huge impact.”

What I love about this quote is that he combines big problems with small groups.

A small group of people created Google. Not Procter & Gamble. Or AT&T.

Even at Apple, when Steve Jobs wanted to create the Macintosh, he moved his small group to a separate building so they wouldn’t get bogged down in the big corporate bureaucracy that Apple was becoming.

Ultimately, they fired him for being too far from the corporate message.

Years later, when Apple was failing, they brought him back. What did he do? He cut most of the products and put people into small groups to solve big problems.

Before his death he revolutionized the movie industry, the computer industry, the music industry, TVs, and now even watches (watch sales have plummeted after the release of the Apple Watch).

All of this from a guy who finished one semester of studying calligraphy in college before dropping out.

Studying the history of Apple is like studying a microcosm of the history of how to create big ideas. Larry Page is recreating this with his new corporate structure.

“We don’t have as many managers as we should, but we would rather have too few than too many.”

The 20th century was the century of middle-class corporatism. It even became a “law” called “The Peter Principle” - everyone rises to their level of incompetence.

One of the problems society is having now is that the entire middle layer of management is being demoted, outsourced, replaced by technology, and fired.

This is not a bad or a good thing (although it’s scary). But it’s a return to the role of masters and apprentices without bureaucracy and paperwork in the middle.

It’s how things get done. When ideas go from the head into action with few barriers in the middle.

To be a successful employee, you have to align your interests with those of the company, come up with ideas that further help the customers, and have the mandate to act on those ideas, whether they work or not.

That’s why the employee who wrote much of the code inside the Google search engine, Craig Silverstein, is now a billionaire.

Where is he now? He’s an employee at online education company, The Khan Academy.

“If you ask an economist what’s driven economic growth, it’s been major advances in things that mattered - the mechanization of farming, mass manufacturing, things like that. The problem is, our society is not organized around doing that.”

Google is now making advances in driverless cars, delivery drones, and other methods of automation.

Everyone gets worried that this will cost jobs. But just look at history. Cars didn’t ruin the horse industry. Everyone simply adjusted.

TV didn’t replace books. Everything adjusted. The VCR didn’t shut down movies.

The Internet didn’t replace face to face communication (well, the jury is still out).

“What is the one sentence summary of how you change the world? Always work hard on something uncomfortably exciting!”

Not everyone wants to create a driverless car. Or clean energy. Or solve a billion person problem.

But I have a list of things that are uncomfortably exciting to me.

They are small, stupid things. Like I’d like to write a novel. Or perform standup comedy. Or maybe start another business based on my ideas for helping people.

Every day I wake up a tiny bit afraid. But I also try to push myself a little closer in those directions. I know then that’s how I learn and grow.

Sometimes I push forward. Sometimes I don’t. I want to get more comfortable with being uncomfortable.

“I do think there is an important artistic component in what we do. As a technology company I’ve tried to really stress that.”

Nobody knows what the definition of Art is.

How about: something that doesn’t exist except in the imagination, that you then bring out into the real world that has some mix of entertainment, enlightenment, and betterment.

I don’t know. Something like that.

Certainly the iPad is a work of art. And the iPad has created works of art. And when I first saw a driverless car I thought, “that’s beautiful”.

I’m going to try and put my fingerprint on something today. And maybe it will be art.

“The idea that everyone should slavishly work so they do something inefficiently so they keep their job – that just doesn’t make any sense to me. That can’t be the right answer.”

We’ve been hypnotized into thinking that the “normal life” is a “working life”.

If you don’t “go to work” then you must be sick or on the tiny bit of vacation allotted to you each year.

What if everything you did you can inject a little bit of leisure, a little bit of fun into it.

I have fun writing, except when I think I have to meet a deadline (work). I have fun making a business that people actually use except when I think about money too much (work).

When you are at the crossroads and your heart loves one path and doesn’t love the other, forget about which path has the money and the work, take the path you love.

“We want to build technology that everybody loves using, and that affects everyone. We want to create beautiful, intuitive services and technologies that are so incredibly useful that people use them twice a day. Like they use a toothbrush. There aren’t that many things people use twice a day.”

What a great idea for a list of the day!

What are ten things that can be invented that people would use twice a day?

“You need to invent things and you need to get them to people. You need to commercialize those inventions. Obviously, the best way we’ve come up with doing that is through companies.”

I was speaking to Naveen Jain, who made his billions on an early search engine, InfoSpace.

He just started a company to mine rare earth minerals on the Moon.

But his real goal is extra-planetary colonization.

Somehow we got around to the question of why have a company in the middle of that. He has billions. He can just go straight for the colonization part.

He said, “Every idea has to be sustainable. Profitability is proof that an idea is sustainable.”

“You may think using Google’s great, but I still think it’s terrible.”

K. Anders Ericsson made famous the “10,000 hour rule” popularized later by Malcom Gladwell.

The rule is: if you practice WITH INTENT for 10,000 hours then you will be world-class.

He then wondered why typists would often reach a certain speed level and then never improve no matter how many hours.

After doing  research, its because they forgot the “With intent” part. They were satisfied with “good enough”.

You have to constantly come up with new metrics to measure yourself, to compete against yourself, to better the last plateau you reached.

Google is great. But it can be better. Having this mindset always forces you to push beyond the comfort zone.

Once they changed the way typists viewed their skills (by recreating the feeling of “beginner’s mind”) the typists continued to get faster.

“We have a mantra: don’t be evil, which is to do the best things we know how for our users, for our customers, for everyone. So I think if we were known for that, it would be a wonderful thing.”

Many people argue whether or not Google has succeeded at this. That’s not the point.

The point is: Values before Money.

A business is a group of people with a goal to solve a problem. Values might be: we want to solve a problem, we want the customer to be happy, we want employees to feel like they have upward mobility, etc.

Once you lose your values, you’ll lost the money as well. This why family-run businesses often die by the third generation (“Shirt sleeves to shirt sleeves in three generations).

The values of the founder got diluted through his descendants until the company failed.

I spoke to Dick Yuengling about this (CEO of the largest independent beer maker and a fifth generation business).

His family found an interesting way to solve the problem. The business is not inherited. Each generation has to BUY the business from the generation before it.

To do that, each generation needs its own values, its new way of doing things that keeps the brand fresh and ongoing.

"I think it is often easier to make progress on mega-ambitious dreams. Since no one else is crazy enough to do it, you have little competition. In fact, there are so few people this crazy that I feel like I know them all by first name.”

Our parents have our best interests at heart and tell us how to be good adults.

Our schools have our best interests.

Our friends, colleagues, sometimes our bosses, sometimes government, think they have our best interests.

But it’s only when everyone thinks you are crazy that you know you are going to create something that surprises everyone and really makes your own unique handprint on the world.

And because you went out of the comfort zone, you’re only competing against the few other people as crazy as you are.

“You know what it’s like to wake up in the middle of the night with a vivid dream? And you know that if you don’t have a pencil and pad by the bed, it will be completely gone by the next morning. Sometimes it’s important to wake up and stop dreaming. When a really great dream shows up, grab it.”

For every article I’ve ever written, there’s at least ten more I left behind in the middle of the night thinking I would remember in the morning.

I have to beat myself in the head. I . Will. Not. Remember….Must. Write. Down.

It’s hard to wake up. And that’s the only thing worth remembering. It’s hard to wake up.

“I have always believed that technology should do the hard work - discovery, organization, communication - so users can do what makes them happiest: living and loving, not messing with annoying computers! That means making our products work together seamlessly.”

This is a deep question - who are you? If you have a mechanical hand, is that “you”?

Conversely, if you lose a hand, did you lose a part of you. Are you no longer a complete person? The complete you?

If an implant is put into your brain to access Google, does that effect who you view your self to be?

When books were invented, memory suffered. We no longer had to remember as much, because we can look things up.

Does that make our brains less human?

I bet memory has suffered with the rise of Google. Does this mean our consciousness has suffered?

When we created fire, we outsourced part of our digestion to this new invention. Did this make our stomachs less human?

With technology taking care of the basic tasks of our brain and body, it allows us to achieve things we couldn’t previously dream possible.

It allows us to learn and explore and to create past the current comfort zone.  It allows us to find the happiness, freedom, and well-being we deserve.

“Over time, our emerging high-usage products will likely generate significant new revenue streams for Google as well as for our partners, just as search does today.”

This is it. This is why Larry Page has re-oriented Google into Alphabet.

Don’t waste your most productive energies solving a problem that now only has incremental improvements.

Re-focus the best energies on solving harder and harder problems.

Always keeping the value of “how can I help a billion people” will keep Google from becoming a Borders bookstore (which went out of business after outsourcing all of their sales to Amazon).

How does this apply to the personal?

Instead of being a cog in the machine for some corporation, come up with ways to automate greater abundance.

Always understand that coming up with multiple ways to help people is ultimately the way to create the biggest impact.

Impact then creates health, friendship, competence, abundance, and freedom.

Oh my god, this answer is too long. And believe it or not, I cut it in half.

If I can just wake up every day and remind myself of these quotes by Larry Page I know I will have a better life.

But this is also why he created Alphabet and put Google underneath it.

To save the world. To save me.

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Dear Google, I sort of want to have sex with you. Or I want you to be my father. Or my best friend. I don’t know, I feel so nervous writing this letter.

Is Venture Capital Rigged?

Chris Sacca is on one of the greatest streaks ever for a venture capital investor. He’s been an early-stage investor in companies such as Uber, Instagram, Twitter and Kickstarter. He’s come out of nowhere to become one of the most well-known VCs on the planet because of both his investing prowess and his brash style (he’s the guy that’s always wearing the gaudy cowboy shirts).

He recently sat down for a podcast with Tim Ferriss to discuss his career and the state of the venture industry. One of the most interesting aspects of this interview has to do with Sacca’s views on the current 2&20 fee structure that so many VC funds employ (2% management fee and 20% of profits). This was Sacca’s very honest assessment of the risk-reward trade-off for both investors and those running the funds (emphasis mine):

This is a rigged game, right? And I’m just looking to make it even more rigged. For those who don’t know, venture capital is totally unfair. I mean, people give me their money; I draw a management fee off it, so they pay me to take their money and invest it for them. If I make money, then I pay them back the management fee and then after that we split the profits and I get a really big chunk of the profits.

And if I lose money, that’s fine. It doesn’t come out of my pocket. I keep my fee and my investors lose money. That’s how this industry works. That’s bananas. And at some point, it’s gonna break. It’s just an unforgivably unfair, rigged game that’s in favor of the venture capitalist. You’re cash flow positive from day one when you start a venture fund and your downside is incredibly limited by the structure of the fund.

Sacca is known for being a very outspoken guy, but this is a refreshingly honest admission from an investor who’s so well-known in the industry. The majority of general partners would never admit this in public, even though they all understand the truth behind it. The standard company line from most who participate in the 2&20 fee structure is that, “we’re aligning our incentives with our investors.” They fail to mention that the reason things are done this way is pretty much because it’s the way things have always been done.

What Sacca is really talking about here is the power of incentives on people’s actions, something that most people fail to appreciate. It’s obvious that people don’t always act in the most rational manner, but if you’re looking for the main reason why things are the way they are in the world of business you should always start with the incentive structure. This is especially relevant within the finance industry where incentives shape the way nearly every business and individual functions to some extent.

Sacca goes on to say that this type of fund structure allows him to take some risks that he likely would be unable to take if the deck wasn’t so stacked in his favor. He states that he can take more binary, all or nothing, bets on certain companies with the hopes of hitting it big, but the possibility of crashing and burning (although this is generally the premise of venture capital investing — many failures and a few home runs).

Essentially Sacca is saying that he is incentivized to swing for the fences because he doesn’t participate in any of the downside. Luckily, for him and his investors, this strategy has paid off handsomely for his funds. By his own admission, his current fund is probably the most successful venture capital fund in history from a return standpoint because of the early stage investments mentioned above.

It makes you wonder what’s going to have to happen to see changes in this incentive structure and make it break, as Sacca forecasts. I imagine it will probably involve the downside of swinging for the fences as many of these funds will strike out the further along we get in the cycle.

Listen to the entire podcast here:
Chris Sacca on being different and making billions (Four Hour Workweek)

Further Reading:
How super angel Chris Sacca made billions, burned bridges and crafted the best seed portfolio ever (Forbes)
Is Technology Speeding Up Market Cycles?


This post from Ben Carlson (@awealthofcs) originally appeared on A Wealth of Common Sense.

Picture: HBO