Everything Has Been Done Before


Good Morning,

U.S. stocks rocketed higher on Friday, seeing the Nasdaq composite hit a new record, after February jobs growth far exceeded expectations.


The Dow Jones industrial average rose 440.53 points to close at 25,335.74, with Goldman Sachs among the biggest contributors of gains to the index. The 30-stock index also closed above its 50-day moving average, a key technical level.


The S&P 500 gained 1.7 percent to end at 2,786.57, with financials as the best-performing sector. It also closed above its 50-day moving average.


The jobs report which came out Friday was nothing short of extraordinary. The U.S. economy added 313,000 jobs in February, according to the Bureau of Labor Statistics. Economists polled by Reuters expected a gain of 200,000.


Wages, meanwhile, grew less than expected, rising 2.6 percent on an annualized basis. Stronger-than-expected wage growth helped spark a market correction in the previous month.


Our Take

The jobs report was impressive. For all that can be said about Trump’s unconventional decision making (his big deficits may actually make sense by spurring productivity and his “tariffs” may in fact be good for free trade) this report confirmed the underlying strength of the economy, and also diminished some of those inflationary concerns and the potential that there could be more than three rate hikes this year.


Many question how you can create this many jobs and not have wages go up more but we maintain that this phenomenon is due to a unique interplay of several factors: demographics, labour force participation and technology.


The basic formula is as follows: as labor becomes more scarce based on demographics, it constrains supply, triggering inflation. But labor scarcity, in turn, should speed the adoption of automation and trigger an investment boom. Automation investments are likely to generate supply growth just as demographics and investment both spur demand growth, creating a reasonable balance (despite rising inequality). Once the investment boom ends, however, the negative effects of automation will become more visible—namely, high levels of unemployment, wage suppression and slowing demand.

We may have progressed further along this matrix than some may think. Regardless, we are a long ways from the sort of wage inflation of the 1990s . . .

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I shared an interesting chart in the Economist with some friends this week which sparked a spirited discussion:

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The debate focused on whether or not such historical data offers the investor anything of value. Certain friends suggested that the world in 1900 was vastly different than the world today and thus such data was of limited use.


What struck me most about the discussion wasn’t the comparison between what the world looks like today vs. what it looked like over 100 years ago, it was the ease with which we are able to overlook history in an effort to justify the perceived novelty and uniqueness of whatever appears to be relevant in the moment.


Think cannabis, blockchain, bitcoin, AI, cryptocurrency and whatever else is hot right now. This isn’t to say that these “new” things aren’t relevant.


But it is to say that broadly speaking everything has been done before as human nature hasn’t changed all that much. As Morgan Housel reminds us: The scenes change but the behaviours and outcomes don’t.


"Historian Niall Ferguson’s plug for his profession is that “The dead outnumber the living 14 to 1, and we ignore the accumulated experience of such a huge majority of mankind at our peril.”


The biggest lesson from the 100 billion people who are no longer alive is that they tried everything we’re trying today. The details were different, but they tried to outwit entrenched competition. They swung from optimism to pessimism at the worst times. They battled unsuccessfully against reversion to the mean.


They learned that popular things seem safe because so many people are involved, but they’re most dangerous because they’re most competitive.


Same stuff that guides today, and will guide tomorrow. History is abused when specific events are used as a guide to the future. It’s way more useful as a benchmark for how people react to risk and incentives, which is pretty stable over time.”


Logos LP February 2018 Performance

February 2018 Return: -3.75%

2018 YTD (February) Return: -2.24%

Trailing Twelve Month Return: +21.02%

CAGR since inception March 26, 2014: +19.72%


Thought of the Month


"The way to outperform over the long haul typically isn’t done by being the top performer in your category every single year. That’s an unrealistic goal. A better approach is to simply avoid making any huge errors and trying to be more consistent. The top performers garner the headlines in the short-term but those headlines work both ways. The top performers over the long-term understand that’s not how you stay in the game over the long haul.” -Ben Carlson

Articles and Ideas of Interest

  • When value goes global. Interesting piece in Research Affiliates magazine suggesting that the value premium that is traditionally associated with stock selection and market timing works just as well when applied globally across major asset classes. The alternative value portfolios studied are typically uncorrelated with their underlying asset classes, traditional value approaches, and each other, thereby offering meaningful diversification benefits alongside attractive excess return potential. The success of global value portfolios hinges on their design, which allows investors to gain better exposure to desired risk premia not easily available when investing in a single market.


  • Rational Irrational Exuberance. We tend to be uncomfortable with the notion that an economy’s fundamentals do not determine its asset prices, so we look for causal links between the two. But needing or wanting those links does not make them valid or true.


  • If you’re so smart, why aren’t you rich? Turns out it’s just chance. The most successful people are not the most talented, just the luckiest, a new computer model of wealth creation confirms. Taking that into account can maximize return on many kinds of investment.


  • Why doesn’t more money make us happy? Dan Gilbert, social psychologist and author of Stumbling on Happiness showed that people who recently became paraplegics are just as happy one year later as people who won the lottery. Relative to where we thought our happiness would be after winning the lottery, we adjust downward, and relative to where we thought our happiness would be after losing our legs, we adjust upward….Interesting piece from Michael Batnick that suggests that this concept makes sense in theory, but not in practice. Like many things in life, it’s an idea that is hard to truly believe until we experience it for ourselves.


  • The town that has found a potent cure for illness- community. What a new study appears to show is that when isolated people who have health problems are supported by community groups and volunteers, the number of emergency admissions to hospital falls spectacularly. While across the whole of Somerset emergency hospital admissions rose by 29% during the three years of the study, in Frome they fell by 17%. Julian Abel, a consultant physician in palliative care and lead author of the draft paper, remarks: “No other interventions on record have reduced emergency admissions across a population.” No wonder what causes depression most of all is a lack of what we need to be happy, including the need to belong in a group, the need to be valued by other people, the need to feel like we’re good at something, and the need to feel like our future is secure.


  • Could capitalism without growth build a more stable economy?New research that suggests – that a post-growth economy could actually be more stable and even bring higher wages. It begins with an acceptance that capitalism is unstable and prone to crisis even during a period of strong and stable growth – as the great financial crash of 2007-08 demonstrated.


  • Is it time to say it? That retirement is dead? What will take its place? The numbers are startling: Thirty-four percent of workers have no savings whatsoever; another 35 percent have less than $1,000; of the remaining 31 percent, less than half have more than $10,000. Among older workers between 50 and 55, the median savings is $8,000. And this is total savings, including retirement accounts. Contrast that with the fact that experts say you should have eight times your preretirement annual salary saved in order to retire by 65 and continue a reasonable quality of life, commensurate with what you have become accustomed to.  


  • Blockchain is meaningless. People keep saying that word but does it really mean?


Our best wishes for a fulfilling month, 

Logos LP