Good Morning,

Could the “trump trade” have hit a major turning point this week?

U.S. stocks fell the most since the week leading up to the U.S. election as President Donald Trump suffered a major setback when he was forced to pull his health-care bill from a vote amid dissent among congressional Republicans.

Both conservatives and moderates opposed the bill even after Trump met personally with many lawmakers and traveled to Capitol Hill on Tuesday to address House Republicans. The setback also cast doubt on the president’s ability to shepherd other parts of his agenda, including promised tax cuts and regulatory reform, through Congress.

Tuesday saw the biggest drop in stocks since October and financial stocks were the biggest laggards this week, as the group lost 3.8 percent as investors turned to bonds as U.S. Treasuries rallied for the second week.

Our Take

Largely lost in the headlines about stocks at records before the selloff is the fact that the advance has been led by just a handful of large, mostly technology companies (think Apple, Amazon, Google and Facebook), while the shares of smaller companies are actually down for the year. This is simply “bad breadth”.

The divergence should be watched as smaller companies generally get a greater portion of their revenue from domestic sales and ideally would benefit the most from the Donald Trump administration's policies. Yes, small companies' shares did outperform last year, but their recent performance may be a sign that this year's rally wasn't built on a solid foundation.

As for the political fiasco, Barry Ritholtz reminds us that whether you support Trump or not, his combination of a corporate tax overhaul, repatriation of overseas profits and individual tax breaks could be a powerful cocktail.

The problem is that this week’s bumbling suggests an inability to govern. As we approach the 100-day mark, the promised pivot toward becoming “presidential” has yet to be seen. Instead, we see the entire economic agenda -- much of which was supported by those on both sides of the aisle -- now in danger.

It doesn’t help that Trump is now beginning to suffer from a credibility crisis as his near pathological and cavalier disregard for truth is catching up with him...In an exclusive interview with TIME magazine on Thursday Trump explained that it is okay to say something false as long as it later turns out that something vaguely similar is true. To end the interview he stated his rationale for anything he does: “I can’t be doing so badly, because I’m president, and you’re not. You know.”

Musings

I didn’t write last week as I felt that some silence was needed. A conscious effort to seek calm and relaxation. An opportunity to get beyond the noise.

I think as we age we come to realize the benefits of tuning in to the needs of our minds and bodies. I’m not talking about what we we believe we need from our external worlds. I’m talking about what we need from our internal worlds. The worlds that hold us together. That keep us whole. That keep us grounded and compose the fabric of our very existence.

It is this world that has been a special focus of mine over the last 2 weeks. This is about cultivating a disciplined practice for managing information flow and creating periods of deep silence.

Why?

Recent studies are showing that taking time for silence restores the nervous system, helps sustain energy, and conditions our minds to be more adaptive and responsive to the complex environments in which so many of us now live, work, and lead.

Duke Medical School’s Imke Kirste recently found that silence is associated with the development of new cells in the hippocampus, the key brain region associated with learning and memory. Physician Luciano Bernardi found that two-minutes of silence inserted between musical pieces proved more stabilizing to cardiovascular and respiratory systems than even the music categorized as “relaxing.” And a 2013 study in the Journal of Environmental Psychology, based on a survey of 43,000 workers, concluded that the disadvantages of noise and distraction associated with open office plans outweighed anticipated, but still unproven, benefits like increasing morale and productivity boosts from unplanned interactions.

But purposeful silence isn’t just about blocking out others. It is about quieting inner noise. It is about taking a break from life’s most basic yet often most burdensome responsibility: having to decide or think of what to say.

Hal Gregersen writes in a recent HBR article, that silence “increase[s] your chances of encountering novel ideas and information and discerning weak signals.” When we’re constantly fixated on the verbal agenda—what to say next, what to write next, what to tweet next—it’s tough to make room for truly different perspectives or radically new ideas. It’s hard to drop into deeper modes of listening and attention. And it’s in those deeper modes of attention that truly novel ideas are found.

I didn’t have any ground breaking ideas over the last 2 weeks during my focus on silence yet that isn’t the point. The point is to allow yourself some mental and spiritual space that is agenda free. That is boundless. So perhaps this week you may want to ask yourself what you are doing to cultivate periods of sustained quiet time? Believe me, the email, the meeting, the media and the rebuttal can wait….

Logos LP News

This week, at a private event we presented some of our research entitled: "A top indicator for investing in growth or turnaround stocks"

Please contact us if you would like a copy of the presentation which included several stock specific case studies and picks.

Thought of the Week

"Silence is a source of great strength.”-Lao Tzu

Stories and Ideas of Interest

The biggest threat facing middle aged men isn’t smoking or obesity. It’s loneliness. Interesting piece suggesting that those who fall into the categories of loneliness, isolation, or even simply living on their own see their risk of premature death rise 26 to 32 percent. No wonder that “deaths of despair” are surging among the white working class. Perhaps not a coincidence that hedge fund king Ray Dalio published a long winded piece this week describing the phenomenon he sees as shaping economic conditions: populism.
Waking up from the American dream. The US’s wealth, high standards of living, and world-class services make it one of the best countries to live in—for some. But on UN sustainability goals in areas like healthcare, education, and violence, it scores dismally, Annalisa Merelli finds. Not a pretty picture. In addition, this week more disturbing data came out of the US suggesting that things are not as solid as they may seem: Car loans on the US have hit record levels and delinquencies are rising fast and private label mortgage bonds are rising from the grave...

Many are afraid of automation eliminating jobs but so far only one us occupation has been eliminated. Though almost all of today’s jobs have some aspect that can be automated by current technology, very few jobs can be entirely automated, according to a recent McKinsey analysis. “This distinction is important because it implies very different economic outcomes,” Bessen wrote in a column last year. “If a job is completely automated, then automation necessarily reduces employment. But if a job is only partially automated, employment might actually increase.” Anyway, Google’s chief futurist Ray Kurzweil thinks we could start living forever by 2029.

Why are employees at Google, Apple, Netflix and Dell more productive? According to research from the leadership consulting firm Bain & Company, you might think that it’s because these companies attract top-tier employees–high performers who are naturally gifted at productivity–but that’s not the case, says Bain & Company partner Michael Mankins. How? Grouping A players together instead of spreading them out, cutting down bureaucracy and ensuring that leaders are inspirational.

Start-ups shouldn’t be unicorns they should be zebras. Quartz suggests developing alternative business models to the startup status quo has become a central moral challenge of our time. These alternative models will balance profit and purpose, champion democracy, and put a premium on sharing power and resources. Companies that create a more just and responsible society will hear, help, and heal the customers and communities they serve. Interesting outline of what a zebra company looks like and the barriers facing founders who focus on sustainable prosperity.

Can’t tax won’t tax. The hole in western finances. There is a persistent shortfall between revenues and spending and it may get worse. This is a timely piece from the Economist as Trump eyes a tax cut and Trudeau released his “placeholder” budget this week which did not include any significant tax increases. This does not surprise me. The average voter has no understanding of the bind western governments find themselves in. “The fundamental problem is that OECD populations are getting older, which implies a steadyincrease in spending on health and pensions. That will make it very hard to bring overall spending down. Meanwhile the proportion of the population that is of working age is set to decline—not good for tax revenues. Governments could raise taxes but we live in an era of mobile people and companies. Governments are competing to reduce corporation tax rates to attract multinationals and highly skilled workers. And as we have seen, there is no political will to raise taxes. This suggests there is a structural problem. At the moment, the problem is not hitting home because of low rates. But imagine if today's debt levels were accompanied by 2000's yield levels; then interest payments would be 4.5% of GDP, more than double today's levels. And that of course would only make the financing problems even harder.”

All the best for a productive week,

Logos LP