Good Morning,

U.S. equities closed higher on Friday as Deutsche Bank shares rebounded amid a report that the German banking giant was near a settlement with the Justice Department.

Deutsche's U.S.-listed shares hit an all-time low on Thursday after Bloomberg reported that approximately 10 hedge funds were reducing their exposure to the bank. The bank's German-listed shares hit an all-time low overnight. The selloff was caused by worries surrounding the bank’s possible collapse posing a systemic risk to the global financial system. Could a 2016 Lehman Brothers be back on the cards…..? For more details on these worries see Bloomberg.

The Dow Jones industrial average jumped 226.17 points at session highs before closing about 165 points higher, with Goldman Sachs contributing the most gains. The S&P 500 gained 0.8 percent, with financials rising more than 1 percent to lead advancers. The SPDR S&P Bank ETF (KBE) rose nearly 1.5 percent.

With the 3rd quarter officially coming to a close today, where do we stand with the S&P up about 6% YTD? What can we expect in the 4th quarter?

Our Take: As I’ve pointed out previously, analysts are still quite gloomy. Based on the average estimate of forecasters surveyed by Bloomberg, they expect the Standard & Poor's 500 Index to finish the year 1 percent lower than yesterday’s close.

Barry Ritholtz points out that this is noteworthy because it's so out of character. Most of the time -- 82 percent during the past decade, to be precise -- analysts are bullish. To be fair, this outlook has usually been rewarded; markets rise about three-quarters of the time.

The unusually bearish demeanor from the normally cheerful analysts on the street of optimism might be the most useful piece of news about equity markets moving forward.

What has them spooked?

-Rising interest rates
-A flat market
-High valuations
-Declining corporate profits
-Aging business cycle
-Presidential elections

I won’t address all of these in great detail but instead will make a few observations. The first is regarding the US Presidential election. I’ve had a few of you contact me asking how the stock market will react to either a Trump or Clinton Presidency. My answer is that although the market abhors uncertainty, once elected neither candidate will cause a significant impact on the stock market.

The President alone simply is not powerful enough to change the course of business. Any major change either candidate may make will need the support of Congress. Unless you think both houses of Congress are going to go Democratic (unlikely given Republican advantage in the house) not much radical change will occur.

Remember that big business hated the early Obama administration and look at the returns on the S&P since he took office. Stay relaxed and maintain calm.

As for the other concerns, interest rates (even if they rise) will rise very little and will stay lower for longer, as I’ve written a flat market is nothing to be afraid of. As for declining earnings, people have been crying wolf on this for years, as for valuations, they have been at the high end of the spectrum for the last few years given historically low interest rates. As for forecasters they are typically useless and finally it would be naïve to believe that the market hasn’t already priced in all these old saws…

So looking forward to Q4, keep your emotions in check and consider the facts….Since 1970, the fourth quarter usually has been the best for equity markets. Bloomberg News noted that since 2009, the fourth quarter has seen gains in the S&P 500 that average 6.7 percent. That's more than “twice the average gains of the next-best quarter…” One other interesting fact: hedge funds and mutual funds are suffering…People’s actions can be understood based on incentives and keeping one’s employment in a high-paid job is the mother or all incentives, after, let’s say, life and sex….So friends as Josh Brown puts it, the career risk trade is on.

Thought of the Week

"Most men would rather die than think. Many Do." -Bertrand Russell

Stories and Ideas of Interest

Scientists and the accuracy of their research are in doubt. The Economist takes a deep dive into the sad state of science. The idea that the same experiments always get the same results, no matter who performs them, is one of the cornerstones of science’s claim to objective truth. If a systematic campaign of replication does not lead to the same results, then either the original research is flawed (as the replicators claim) or the replications are (as many of the original researchers on priming contend). Either way, something is awry…

A bond bubble? Jim Cielinski looks at persistent buying despite valuations. He identifies four elements and produces this interesting graphic.

The next Big Short? High yield bonds have done well this year. But someone -- or more than just one -- out there is really bearish on this debt. Take a look at the short interest in BlackRock's $16.4 billion iShares iBoxx High Yield Corporate Bond ETF, the biggest junk-debt exchange-traded fund. It's never been higher.

Goldman Sachs: OPEC oil deal doesn't change our price outlook. The OPEC deal to cut oil production may provide a short-term support for prices, but chances are it won't change the supply outlook much, Goldman Sachs said. FactSet does a nice piece on oil prices and energy earnings showing that both are expected to rise into 2017.

Millennials can’t afford startups. Young Americans aged 18 to 34 (also known as millennials) seem to love the idea of being entrepreneurs. Since many are burdened with massive student debt, they can’t afford to launch startups. So a new survey shows they’ll grudgingly join America’s corporate workforce…

How much of the financial industry will soon be obsolete? It’s a cliché by now to ask whether this explosion of finance represents an enduring greater need for financial services, or an unsustainable boom. Instinct says that it’s some of both. But to the degree that it’s the latter, that leads to the next question: Which areas of finance will shrink? Where will the job and wage cuts come?

These shoes offer buyers an immediate 500% profit. An opportunity to turn a profit of as much as 500 percent awaited Yeezy buyers on the global sneaker resale market, said Josh Luber, CEO of StockX. What Kanye West touches in fashion still turns to gold. Alternative assets anyone?

Blaming foreign buyers for inflated Toronto real estate prices may be mislead. Interesting research presented in the Globe and Mail suggesting that the persistent price increases are a supply side issue. Meanwhile….Vancouver in Canada has been identified by Swiss bank UBS as the global financial center with the riskiest housing bubble.

Getting older is the cruelest blow to global growth. Older workforces mean slower GDP growth and interest rates around the world. Canada is the case and point.

All the best for a productive week,

Logos LP