Our Inner Scorecard

Good Morning,
 

The S&P 500 closed at a record Friday, helped by gains in technology stocks on the last trading day of the quarter. The tech-heavy Nasdaq composite rose more than half a percent to post its 50th record close for this year. The Dow transports and small-cap Russell 2000 also hit record highs.

The Dow posted quarterly gains of 4.9 percent its eighth straight quarter of gains for the first time since 1997. The S&P 500 rose nearly 4 percent in the quarter, also its eighth straight quarter of gains. The Nasdaq composite gained almost 5.8 percent for the quarter, its fifth straight positive quarter since 2015.

Our Take
 

Strength begets strength. Virtually every asset class is moving up. New record highs are being made in virtually every corner of the market. We suggest remaining cautious as positive sentiment is building.

Of note this week this week was the announcement surrounding Trump’s tax reform. As expected it was thin on details and appeared to favor the rich. On a first read it is likely to increase the U.S. budget deficit but beyond that, its impact is still unclear. Excellent piece in the Washington Post from Bruce Bartlett who was a domestic policy advisor to President Ronald Reagan (Mr. Tax cut) questioning whether tax cuts stimulate growth. Tax cuts are still the GOP’s go-to solution for nearly every economic problem and extravagant claims are made for any proposed tax cut. Bruce looks into whether they hold water.

Musings
 

Over the last few weeks I’ve been busy setting up a new venture yet I finally found some time to get to a staple in the value investor’s library: The Education of A Value Investor by Guy Spier. What a breath of fresh air in my increasingly busy world.

What was so refreshing about the book was that it wasn’t what I’d been expecting. As the esteemed manager of Aquamarine Fund I figured Guy would spend a considerable amount of time on his stock selection approach yet the book offers something much more valuable.

This is a book about life. About Guy’s life. Guy’s education. Guy’s path and Guy’s alone. This point teases out its key piece of wisdom. We spend so much time trying to compete with others. Looking for their acceptance and adoration failing to realize that true success in life, true fulfillment can only occur through the acceptance of self.

Once we shift from orienting ourselves towards an outer scorecard towards an inner scorecard we can become aligned with ourselves. Authenticity is a powerful force. Guy’s story is the story of this shift. It is the story of the magical success one can have when one becomes aware of one’s own values and perspectives.

This message really spoke to me at this particular point in time as I’m starting to realize that the outer journey we start at birth; going to school, learning how to build friendships, learning how to navigate relationships, deciding what to take in school, getting our first jobs, navigating heart aches and let downs is only the starting point. The real growth occurs when we are able to drive ourselves toward the inner journey of spiritual development and self-awareness.

In our early years we are often driven by the outer scorecard - that need for public approval and recognition, which can easily lead us in the wrong direction. Come to think of it, many of the mistakes (perhaps all of them) I’ve made in my life have occurred because of my pursuit of this outer scorecard.

What I’ve realized and what Guy so eloquently posits is that the inner journey is not only more fulfilling but is also a key to becoming a better investor. If we don’t understand our inner landscapes - including our fears, insecurities, desires, biases, and attitude to money- we’re likely to get run over by reality. As such it is important to look within:

Are we the same people on the outside as we are on the inside? Are we pretending to be something we aren’t? Are we building a rock-solid understanding of who we are and how we want to live? Are we building environments in which we can operate rationally and calmly? Do our friends support and stimulate the authentic version of ourselves? Why are we building wealth?

The outer journey may bring us to money, professional advancement or social cachet yet the inner journey, the one we also start at birth is the one that puts us on a path toward something less tangible yet more valuable. The inner journey is the path to becoming the best version of ourselves that we can be, and this appears to me to be the only true path in life. It leads us closer to finding the answers to the real questions that matter: What is my wealth for? What gives my life meaning? And how can I use my gifts to help others?

Logos LP in the Media

Forbes has done a special feature on Canadian Investment Opportunities and we offer one of our ideas.

Thought of the Week

"This became my own goal: not to be Warren Buffett, but to become a more authentic version of myself. As he had taught me, the path to true success is through authenticity.”-Guy Spier

Articles and Ideas of Interest

• Successful investing isn’t easy. They say a picture is worth a thousand words, but in investing it is worth so much more. Check out this great collection of extreme charts as a helpful reminder that there is no such thing as "can't", "won't," or "has to" in markets. The market doesn't have to do anything, and certainly not what you think it "should" do. The market doesn't abide by any hard and fast rules; it does what it wants to do and when it wants to do it. That's what makes it so hard and at the same time so interesting.

• The plastic fantasy that’s propping up the oil markets. Kenya's mountains of plastic bags might not seem central to oil's grand narrative, but they are. Last week, the East African country banned almost everything about them: making them, importing them, selling them, using them, with penalties of up to four years in jail or fines up to $38,000. This type of prohibition carries a warning for an oil business that's depending on petrochemicals -- and the plastics made from them -- to pick up the slack when we all switch from gas guzzlers to electric cars. Petrochemicals are seen as the strongest source of global oil demand growth in 2015-2040. On the current track, by 2050 our oceans could contain more plastics than fish (by weight), according to a 2016 report by the World Economic Forum and the Ellen MacArthur Foundation. But, as Kenya shows, the days of single-use plastic packaging may already be numbered. And with this stuff making up about a quarter of all the plastic used, that will have a profound impact on the petrochemicals industry. Let’s not forget that there is now a Great Pacific Garbage Patch that is estimated to be about the size of Texas while a new report (dug into by National Geographic) has shown that extreme weather, made worse by climate change, along with the health impacts of burning fossil fuels, has cost the U.S. economy at least $240 billion a year over the past ten years...Can the oil industry really avoid disruption?

• Brace yourself: the most disruptive phase of globalization is just beginning. Great piece in Quartz covering Richard Baldwin’s new book The Great Convergence: Information Technology and the New Globalization. Baldwin argues that globalization takes shape in three distinct stages: the ability to move goods, then ideas, and finally people. Since the early 19th century, the cost of the first two has fallen dramatically, spurring the surge in international trade that is now a feature of the modern global economy. A better understanding of globalization is more urgent than ever, Baldwin says, because the third and most disruptive phrase is still to come. Technology will bring globalization to the people-centric service sector, upending far more jobs in rich countries than the decline in manufacturing has in recent decades. Baldwin argues that we shouldn’t try and protect jobs; we should protect workers. It’s really a fool’s errand to struggle with “protecting jobs” because after a year or two those jobs will still go. Governments should instead focus on comprehensive retraining, help with housing, help with relocation.

• Some market myths hurt investors. Nice piece by Ben Carlson looking over some of the rules of thumb and aphorisms that investors accept without investigating their merits based on the historical evidence: Low volume rallies spell trouble for stocks, There is tons of cash on the sidelines, Margin debt at all-time highs mean euphoria in the markets, Something’s gotta give between stocks and bonds, Bonds always lose money when interest rates rise.

• Do tax cuts really equal growth? Excellent piece in the Washington Post from Bruce Bartlett who was a domestic policy advisor to President Ronald Reagan (Mr. Tax cut). Tax are still the GOP’s go-to solution for nearly every economic problem. Extravagant claims are made for any proposed tax cut. Do they hold water?

• The shorter your sleep, the shorter your life: the new sleep science. Leading neuroscientist Matthew Walker on why sleep deprivation is increasing our risk of cancer, heart attack and Alzheimer’s and what you can do about it. We are in the midst of a “catastrophic sleep-loss epidemic”, the consequences of which are far graver than any of us could imagine. More than 20 large scale epidemiological studies all report the same clear relationship: the shorter your sleep, the shorter your life. To take just one example, adults aged 45 years or older who sleep less than six hours a night are 200% more likely to have a heart attack or stroke in their lifetime, as compared with those sleeping seven or eight hours a night (part of the reason for this has to do with blood pressure: even just one night of modest sleep reduction will speed the rate of a person’s heart, hour upon hour, and significantly increase their blood pressure).

• Education isn’t the key to a good income. The Atlantic presents a growing body of research which debunks the idea that school quality is the main determinant of economic mobility.

• The secret to Germany’s happiness and success: Its values are the opposite of Silicon Valley’s. To Germans, caution and frugality are signifiers of great moral character. Moreover, for Germans, a good work-life balance does not involve unlimited massages and free meals on the corporate campus to encourage 90-hour weeks. Germans not only work 35 hours a week on average—they’re the kind of people who might decide to commute by swimming, simply because it brings them joy.

• Take some time to enjoy the scenery. Check out The Atlantic’s coverage of the 2017 National Geographic Nature Photographer of the Year Contest.

Our best wishes for a fulfilling week, 

Logos LP

• Asset Management 4
• Ideas 19
• Macro 9
• Newsletter 87
• Psychology 4
• Strategy 7

Our Institutions Are Breaking

Good Morning,
 

Last week the S&P 500 Index pushed past 2,500 for the first time, notching its third round-number milestone of the year as the bull market in U.S. equities rages on. With a gain of 10.4% through the end of August, this year ranks as the fourth best start to a year in the last ten years, behind 2013 (+14.5%), 2009 (+13.0%) and 2012 (+11.8%).

The benchmark gained 0.2 percent to 2,500.23 last Friday, capping its biggest weekly advance since January, as technology shares rebounded and banks climbed with Treasury yields. Up 12 percent since January, the S&P 500 is on course for its best annual gain in four years.

Equities broke out of a month long trading range after the worst-case scenarios from Hurricane Irma and North Korea failed to materialize. As geopolitical fears subsided, investors shifted focus back to fundamentals, where economic growth remains stable and corporate earnings are expected to increase every year through at least 2019.

Another piece of good news last week: America's middle class had its highest earning year ever in 2016, the U.S. Census Bureau reported Tuesday. Median household income in America was $59,039 last year, surpassing the previous high of $58,655 set in 1999, the Census Bureau said.

Our Take
 

Strength is appearing to beget strength. In each of those three years above (2013, 2009, 2012) where the S&P was up significantly in the first eight months of the year, the remainder of the year saw further upside with a median gain of 9.3%.

In addition to those three years, the last four months of each calendar year has been strong throughout the entire bull market. The S&P 500 has been up every time for a median gain of 3.4%.

On a total return basis, the the index was up an impressive 16.2% over last year through the end of August. The historical average is 11.7% going back to 1928. Can things continue?

The trend may be up but either way we subscribe to a more reserved view well described in a note entitled “Yet Again?” released last week by Howard Marks. In this memo, which served as a follow up to his other recent memo entitled “There They Go Again” released on July 26, Marks suggests that investors are no longer being offered value in the market at cheap prices and thus should pull back and be less aggressive. Marks suggested that the market is not currently a “nonsensical bubble” but rather is simply high and therefore risky.

Risk may have increased as prices have risen yet the interesting question then is: “So what should we do?” At our 2017 high this year our fund was up roughly 25%. We have since come off this high and are in the process of re-calibrating our expectations in what we believe to be a more “low-return” environment. What does this mean?

As Marks reminds us in his memo the options are limited:

1. Invest as you always have and expect your historic returns.

2. Invest as you always have and settle for today’s low returns.

3. Reduce risk to prepare for a correction and accept still-lower returns.

4. Go to cash at a near-zero return and wait for a better environment.

5. Increase risk in pursuit of higher returns.

6. Put more into special niches and special investment managers.

#1 would make no sense.

#2 is difficult.

#3 makes sense if you think a correction is coming but could cost you.

#4 is tough as zero-returns are rarely ever acceptable.

#5 is deceptive as high risk does not assure higher returns. It means accepting greater uncertainty with the goal of higher returns and the possibility of substantially lower (or negative) returns.

#6 is good as they can offer higher returns without proportionally more risk. That is if they can be identified.  

Like Marks, we believe that none of these options is perfect but that there are no others. Thus, as we re-set expectations in an environment promising lower returns we will do the things we have always done remaining largely fully invested and accept that returns will be lower than they traditionally have been (#2). While we do what we have always done we will employ more caution than usual especially with regards to price (#3) and we will work diligently to find special opportunities that lie “off the beaten track” (#6).

Musings
 

I attended a conference this week in Toronto called Elevate TO. The purpose of the conference was to showcase the City as a growing hotbed of innovation. The presenters ranged from local politicians, to start-up founders to Canadian technology luminaries. One talk by Salim Ismail the technology entrepreneur and best-selling author of Exponential Organizations really stood out. (for a youtube video see here)

The crux of his talk is that society needs to shift from linear thinking to exponential thinking in order to adapt to a world which is changing faster than our institutions and minds can keep pace with.

But what is linear bias? We’ve seen consumers and companies fall victim to linear bias in numerous real-world scenarios. Although there are many such examples, a nice one relates to intangibles like consumer attitudes.

In a recent HBR article the author suggests looks at consumers and sustainability. We frequently hear executives complain that while people say they care about the environment, they are not willing to pay extra for ecofriendly products. Quantitative analyses bear this out. A survey by the National Geographic Society and GlobeScan finds that, across 18 countries, concerns about environmental problems have increased markedly over time, but consumer behavior has changed much more slowly. While nearly all consumers surveyed agree that food production and consumption should be more sustainable, few of them alter their habits to support that goal.

What’s going on? It turns out that the relationship between what consumers say they care about and their actions is often highly nonlinear. But managers often believe that classic quantitative tools, like surveys using 1-to-5 scales of importance, will predict behavior in a linear fashion. In reality, research shows little or no behavioral difference between consumers who, on a five-point scale, give their environmental concern the lowest rating, 1, and consumers who rate it a 4. But the difference between 4s and 5s is huge. Behavior maps to attitudes on a curve, not a straight line.

Companies typically fail to account for this pattern—in part because they focus on averages. Averages mask nonlinearity and lead to prediction errors. For example, suppose a firm did a sustainability survey among two of its target segments. All consumers in one segment rate their concern about the environment a 4, while 50% of consumers in the other segment rate it a 3 and 50% rate it a 5. The average level of concern is the same for the two segments, but people in the second segment are overall much more likely to buy green products. That’s because a customer scoring 5 is much more likely to make environmental choices than a customer scoring 4, whereas a customer scoring 4 is not more likely to than a customer scoring 3.

This illustration does a great job to outline the problem. The current climate of rapid technological development and change is rooted in exponential thinking. If you look at the biggest problems in the word such as the climate change, economic growth, pandemics and sociopolitical upheaval etc. they are rooted in exponential accelerators and factors. The problem is that many of us (including our leaders) don’t understand this phenomenon and this is the fundamental cognitive gap that we are facing. This gap is causing immense stress as evidenced by the increasing failure of our institutions (Occupy Wallstreet, the Arab Spring, the election of Donald Trump, the surge in nationalism, racism and authoritarianism) which were created in a fundamentally linear world.

When you have an information based environment it goes into an exponential growth path and it starts doubling in price performance every 1 to 2 years. Now we have whole industries and livelihoods like music, newspapers, retail, manufacturing etc. caught up in this vortex of exponential creative destruction as our world is not set up for this.

When you think about all the mechanisms we use to run the world: our social structure, our civics, our politics, our legal systems, our patent systems, our monetary policy systems, our financial systems, our healthcare systems, our education systems they are all geared for the linear world of 100 or 200 years ago when information was scarce. Lets remember that marriage was invented about 15 000 years ago when lifespans were about 25. You grew up, had kids and you died. Was it really designed to last 50-60 years? What happens when lifespans hit 120-150 years?

These mechanisms are all breaking or are already broken. We simply aren’t set up for the exponential world of today and certainly not for the world of tomorrow.

Most of the changes that set this exponential world in motion happened about 25 years ago with the advent of the internet yet now we have moved into the world of 3D printing, AR/VR, synthetic biology, blockchain technologies, advanced robotics and artificial intelligence.

We have a forcing problem with technology. Moore’s law has been doubling computing power for over 60 years and now we have over 12 technologies operating at that same pace: neuroscience, drones, biotech, and even solar cells are doubling in their price performance every 22 months and have been for over 40 years. At this pace we will hit 100% world energy supply that can be delivered by solar in less than 2 decades...Energy that has been scarce for most of human history is about to become abundant...

These exponential and thus highly disruptive technologies will only increase the stress that currently characterizes our world absent the ability of our leaders and I would argue ourselves to learn how to navigate these technologies and update the mechanisms which run our world grounding them in exponential thinking.

The problem is that if you attempt disruptive innovation in any organization or perhaps mind, its immune system will attack you. All of our organizations and mechanisms we use to run the world are built to resist change and withstand risk. Try and change education: teachers unions attack, try to update transportation:  taxi drivers attack, try and marry/date someone outside of your accepted circle: your parents or friends attack, try and actually reform the French economy: the unions attack and your approval ratings tank etc.

We’ve got to solve our immune system problem and the future will belong to those people, those leaders, those businesses and those countries that can do so. Can we scale as fast as technology?

Logos LP August Performance

August 2017 Return: -4.55%

2017 YTD (July) Return: +13.27%

Trailing Twelve Month Return: +13.01%

CAGR since inception: +17.84%

Logos LP in the Media

ValueWalk has done a special feature on us and some of our best ideas that will be released this month. For a teaser please click here.

Thought of the Week

"I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.” -Jimmy Dean

Articles and Ideas of Interest

• Robots and AI may not take our jobs after all. Liz Ann Sonders posted the graphic below showing how e commerce has created more jobs that it has taken away.

• Furthermore, automation commonly creates more, and better-paying, jobs than it destroys. Greg Ip for the WSJ explains. Stop pretending you really know what AI is and read this instead.

• What goes up must come down for cryptocurrencies. The summer of bitcoin looks to be ending badly. The biggest cryptocurrency dropped as much as 40 percent since reaching a record high of $4,921 on Sept. 1, cutting about $20 billion in market value. The collapse extended to as much as 30 percent this week since China began sending stronger signals of a clampdown on Sept. 8, making this the biggest five-day decline since January 2015, when it traded at around $200. JPMorgan Chase CEO Jamie Dimon took a shot at bitcoin, saying the cryptocurrency "is a fraud" but can you really blame him given Bitcoin’s status as “the most crowded investment in the world”? Don’t believe the hype about the tremendous returns on “initial coin offerings”. Great piece on ICOs and the promise and perils of global capital markets for everyone. Canada also poured cold water on ICOs in a notice last week, in which regulators there warned that the "coins" in "Initial Coin Offerings"—a popular new way for companies to raise money using cryptocurrency—are likely to be securities. What’s interesting is that with the changing of the tides it hasn’t just been bitcoin tanking. Virtually all cryptocurrencies have taken a beating. Nevertheless, the coins already appear to be recovering...

• In world of supposed bubbles here’s what investors fear most. From Alan Greenspan and the current Federal Reserve staff to fund managers hoarding cash, people feel queasy about asset prices. Euro high-yield debt is trading in line with U.S. Treasuries for the first time ever. Tajikistan is selling Eurobonds as yields on the junkiest emerging markets drop below 6 percent. An exchange-traded fund for betting on low volatility has more than doubled in size this year. And let’s not get started on the bitcoin rally.

• Making money during the apocalypse. Bryan Menegus reports for Gizmodo from a conference whose attendees envisage a future where capitalism is under siege. “The machinery of freedom” apparently will include floating sea colonies, special economic zones, and stateless cryptocurrencies. And it’s up to these elite techno-libertarian attendees to ensure that future happens—whether it benefits the rest of the world or not.

• How Warren Buffett broke American Capitalism. Provocative piece in the FT time suggesting that the investment style of Warren Buffett may have had disastrous effects on the economy. Are “high moats” not simply “monopolies”? Can an investment philosophy have negative effects on an economy?

• Mind control isn’t sci-fi anymore. 2017 has been a coming-out year for the Brain-Machine Interface (BMI), a technology that attempts to channel the mysterious contents of the two-and-a-half-pound glop inside our skulls to the machines that are increasingly central to our existence. The idea has been popped out of science fiction and into venture capital circles faster than the speed of a signal moving through a neuron. Facebook, Elon Musk, and other richly funded contenders, such as former Braintree founder Bryan Johnson, have talked seriously about silicon implants that would not only merge us with our computers, but also supercharge our intelligence.

• The healing power of nature. The idea that immersing yourself in forests and nature has a healing effect is far more than just folk wisdom. Blood tests revealed a host of protective physiological factors released at a higher level after forest, but not urban, walks. Among those hormones and molecules, a research team at Japan’s Nippon Medical School ticks off dehydroepiandrosterone which helps to protect against heart disease, obesity and diabetes, as well as adiponectin, which helps to guard against atherosclerosis. In other research, the team found elevated levels of the immune system’s natural killer cells, known to have anti-cancer and anti-viral effects. Meanwhile, research from China found that those walking in nature had reduced blood levels of inflammatory cytokines, a risk factor for immune illness, and research from Japan’s Hokkaido University School of Medicine found that shinrin-yoku lowered blood glucose levels associated with obesity and diabetes. GET OUT THERE.

Our best wishes for a fulfilling week, 
 

Logos LP

• Asset Management 4
• Ideas 19
• Macro 9
• Newsletter 87
• Psychology 4
• Strategy 7

Be Boring Not Bored

Good Morning,
 

U.S. stocks closed higher on Friday as Wall Street assessed the likelihood of tighter monetary policy following a weaker-than-expected jobs report.

The Dow Jones industrial average rose 39.46 points, to close at 21,987.56. The index also rose above 22,000 earlier in the session for the first time since mid-August.

The S&P 500 gained 0.17 percent to end at 2,475.77, with energy leading seven sectors higher. The Nasdaq composite rose 0.1 percent to 6,435.33, a record close.   

The U.S. economy added 156,000 jobs in August, according to the Bureau of Labor Statistics. Economists polled by Reuters expected 180,000 jobs to have been added last month.

The BLS also said, however, that wages grew at an annualized rate of 2.5 percent, less than expected.

On the Canadian side, the economy unexpectedly accelerated at a 4.5 percent pace in the second quarter -- tops among Group of Seven countries -- led by the biggest binge in household spending since before the 2008-2009 global recession.

Annualized growth was the fastest in six years and topped the 3.7 percent average forecast from economists. This isn't just a win for Canada. This print is further evidence of a strong global recovery.

Our Take
 

August's nonfarm data in the US was disappointing but should be viewed the context of solid U.S. and global economic growth, strong earnings, low inflation and still-ample global liquidity which will likely allow the US rally to continue.

The disconnect between modest economic growth and low inflation continues to support equities here. Not to hot. Not to cold. Perhaps central banks search for inflation has turned Sisyphean and should be abandoned...

A good way to think about the present equity market is as follows:

1. Valuation compared to alternatives – positive

2. Valuation compared to inflation – positive

3. Risk of recession – extremely low

4. Financial stress – extremely low

5. Market skepticism – high

Musings

This week, throughout my conversations and observations about the market I couldn’t help but notice a common theme: boredom. The last 2 weeks have been relatively quiet in the markets as investors return from vacation while others gear up for the long weekend.

Nevertheless, the punditry and financial media have soldiered on doing their best to whip up stories suggesting that danger is lurking around every corner: The Fed, North Korea, Trump, China’s CDS market etc.

What these times of “boredom” acutely remind me of is a principle eloquently presented by Christoper Mayer: “Boredom can explain a lot. It can explain all kinds financial behavior. And there is definitely a “boredom arbitrage” to take advantage of in the markets.”

People get bored. Most of life for most people is “boring”. Most jobs require just enough concentration to prevent one from drifting off into a dream but not enough to really occupy the mind. As a result, we have boredom on a massive scale. As such, people will do all kinds of strange things to alleviate that boredom.

They will act like fools. Dress like idiots and make all kinds of decisions to sabotage their lives. Anything to kill the boredom.

The financial markets are still primarily composed of the results of people’s decision making and thus are influenced by boredom. People get bored and just want to make something happen.

In the financial markets, people wind up sabotaging their own portfolios out of sheer boredom.

Why else throw money at fly by night unregulated Initial Coin Offerings (ICOs)? Or put money in “pre-revenue” tech startups with unproven founders? Or chase hyped up tech companies that trade at absurd levels with questionable prospects? Or go to cash or gold because Donald Trump is in the White House or “the market” looks overvalued?

They are bored!

It seems exciting to churn your money in this way. People buy and sell stocks so frequently because they are bored. They feel they have to do something.

This is the fundamental lesson to remind oneself of during these “boring” times. When asked in an interview this week why he hasn’t spoken out about Donald Trump, Warren Buffett reminded us that:

"Forty-five presidents of the United States and I lived under a third of them," he said. "I bought stocks under 14 of the 15. The first one was [President Herbert] Hoover. I was only 2 when he left so I hadn't gotten active at that point. But [ Franklin Delano] Roosevelt was next. And I bought stocks under him, even though my dad thought it was the end of the world when he got elected."

My goodness how boring. Yet how profitable. Furthermore, at a time when most investors are bored with anything that isn’t tech, artificial intelligence, blockchain or Alibaba, Warren Buffett's Berkshire Hathaway has invested more money in financial stocks. Berkshire Hathaway reported a 17.5 million share stake in Synchrony Financial, in its June quarter 13F filing as well as converting warrants into 700 million shares of Bank of America (BAC) common stock.

This is a prime example of “boredom arbitrage”. Often what is out of favor is priced as such and thus offers the best prospects for outsized returns over the long-term.

Furthermore, people get bored of holding the same stock for long periods of time. They want action. But consider the classic 100 bagger Monster Beverage.

This company became a 100 bagger in 10 years and yet during that period there were over 10 occasions that the stock fell more than 25%. In three separate months, it lost more than 40% of its value. Yet if you focused on the business and not the stock price, putting $10,000 in, you would have ended up with $1 million at the end of ten years.

Be a reluctant seller. Hold for the long-term. Be boring not bored.

Hundredfold returns are unlikely to induce boredom...

Thought of the Week
 

"All men’s miseries derive from not being able to sit in a quiet room alone.” -Pascal

Articles and Ideas of Interest

• The free economy comes at a cost. Facebook, whose users visit for an average of 50 minutes a day, promises members: “It’s free and always will be.” It certainly sounds like a steal. But it is only one of the bargains that apparently litter the internet: YouTube watchers devour 1bn hours of videos every day, for instance. These free lunches do come at a cost; the problem is calculating how much it is. Because consumers do not pay for many digital services in cash, beyond the cost of an internet connection, economists cannot treat these exchanges like normal transactions. The economics of free are different.

• Too much power lies in tech companies’ hands. A libertarian case for caution after the Daily Stormer is booted off the public internet. Libertarians tend to worry about concentrations of power in the hands of the state. There is no consensus about the danger of concentrations of power in private hands. But when the private hands in question control access to the principal media of communication in the world, one has to hesitate when they decide that not everyone should be granted entree. For the power they are exercising is almost state-like. 

• Silicon Valley isn’t special. Tech has plenty of reasons to believe that it is an industry of upstarts but the facade is crumbling.

• Contrarian view of Amazon. Moody’s contrarian view is especially notable because it makes the intriguing argument that Amazon, while it may be an online juggernaut, is actually the weakest of the large U.S. retailers. Although the Seattle-based company does capture about half of all online retail sales, that’s a tiny share of all retail sales; about 90 percent of all sales are made offline.

• How the next quant fund crisis will unfold and why quant strategies are underperforming. Almost everyone knows that this month marks the 10th anniversary of the start of the biggest financial crisis since the Great Depression. There was another significant event back then that gets overlooked but was still very significant. I’m referring to the quant equity crash of August 2007. Institutional quant hedge funds have addressed the risk issues that caused 2007 losses, but the newer retail products cannot. Another interesting piece looking at the recent underperformance of quant funds. The space is getting crowded.

• Finding the root cause of recessions. Two things bear most of the blame: external shocks and economic volatility.

• Robots will not take your job. Wired magazine paints a compelling picture as to why the fear and hype is overblown.

• Millennial Americans are moving to the ‘burbs, buying big SUVs. Wait I thought it was the gig economy and consumption was dead? Millennials are finally starting their own baby boom and heading for the suburbs in big sport utility vehicles, much like their parents did. Americans aged about 18 to 34 have become the largest group of homebuyers, and almost half live in the suburbs, according to Zillow Group data. As they shop for bigger homes to accommodate growing families, they’re upsizing their vehicles to match. U.S. industry sales of large SUVs have jumped 11 percent in the first half of the year, Ford Motor Co. estimates, compared with increases of 9 percent for midsize and 4 percent for small SUVs. Guess they just want to be like their parents after all.

• To come up with a good idea. First try and come up with the worst idea possible. There are many creative tools a designer uses to think differently, but none is more counter-intuitive than “wrong thinking,” also called reverse thinking. Wrong thinking is when you intentionally think of the worst idea possible — the exact opposite of the accepted or logical solution, ideas that can get you laughed at or even fired — and work back from those to find new ways of solving old problems. Nice piece in HBR looking at innovation and discovery.

• The cryptocurrency phenomenon is gaining further traction. The world’s biggest banks aren’t immune from cryptocurrency euphoria, with a range of projects underway to explore how traditional financial firms can benefit from the innovation. Swiss banking giant UBS and 10 other companies say that they plan to use the technical idea behind bitcoin—a distributed ledger called a blockchain—for their own digital currency (paywall). This could show the way for the world’s biggest central banks to do the same.

Our best wishes for a fulfilling week, 
 

Logos LP

• Asset Management 4
• Ideas 19
• Macro 9
• Newsletter 87
• Psychology 4
• Strategy 7

Stealth Bear Markets

Good Morning,
 

U.S. equities managed to stage a comeback from their session lows on Friday after Steve Bannon, one of President Donald Trump's top advisors, left the administration. Traders at the New York Stock Exchange literally cheered the news that Bannon was out of the administration.

The Dow and the S&P fell 0.8 percent and 0.7 percent for the week, respectively, marking their first two-week losing streak since May. The Nasdaq, meanwhile, posted a four-week losing streak, its longest of the year.

In Europe, stocks extended their declines after a horrific terrorist attack in Barcelona added to unease about U.S. policy paralysis and lingering tensions over North Korea.

Tension between Bannon and other top advisors to Trump, including Chief Economic Advisor Gary Cohn and National Security Advisor H.R. McMaster, had been intensifying inside the White House. On Wednesday, Reuters reported that disagreement between Bannon and McMaster is destabilizing Trump's team.

As volatility picked up this week with the VIX rallying roughly 44% from its lows only a month ago, investors grew worried that Trump's economic agenda, which includes tax reform and fiscal stimulus, will not get through Congress. These concerns only grew as backlash multiplied from Trump's remarks following the violent protests in Charlottesville, VA.

This led to Trump dissolving two CEO advisory forums, one of which included JPMorgan Chase's Jamie Dimon. Rumors also started circulating Thursday that Cohn, Trump's top economic advisor, could resign amid the fallout.

Investors pulled $1.3 billion from equity funds in the week ending Aug. 16 as tensions over the Korean peninsula escalated, according to EPFR Global data. Outflows from U.S. stock funds were triple that, suggesting a growing risk off attitude.

Our Take
 

Largely lost in the debate over how much credit President Donald Trump should or should not get for the performance of U.S. stocks this year is that perhaps the biggest reason for the rally is strong earnings. With more than 90 percent of the S&P 500 members having reported second-quarter results, earnings growth is tracking at a 12.2 percent pace year-over-year, much better than the 8.4 percent expected, according to Bloomberg Intelligence.

All sectors of the benchmark are on pace to beat projections, except energy, where less than 40 percent of companies topped earnings forecasts. Technology and healthcare continue to lead upside surprises, with more than 85 percent of tech companies and 75 percent of health companies posting better-than-expected earnings per share.

This is all great news yet markets are forward looking, so it stands to reason that what happens next in earnings should have a big influence on the direction of stocks.

That’s where things may be looking a bit less tremendous. Despite the positive earnings surprises in second-quarter results, S&P 500 profit estimates for the next four quarters continue to edge lower. Earnings per share forecasts for the index through mid-2018 have been reduced by 0.7 percent since the end of June, with the fourth-quarter bearing the brunt of downward revisions, according to Bloomberg Intelligence. But should this worry the prudent long-term investor?

FactSet this week presented a nice overview of the charts/data that tell the story of 2017 so far. A few interesting trends which we believe are likely to continue through Q3 and Q4 were:

1) Consumer spending is not keeping up with consumer sentiment (not a good thing)

2) Consumer price inflation is slowing even as the Fed is planning to tighten (also not good)

3) Companies in the S&P 500 with more global revenue exposure are projected to report higher earnings and revenue growth in 2017 relative to companies in the index with less global revenue exposure. (perhaps a source of opportunity)
 

At the sector level, the Information Technology sector is expected to be the largest contributor to earnings and revenue growth in 2017. No wonder the Russel 2000 is up a measly 0.05% YTD while the Dow is up 9.67% and the S&P 500 is up 8.33%.

Absent any significant changes in foreign exchange rates and global GDP growth in the second half of 2017 which could alter these expected earnings and revenue growth rates for the full year, it is unlikely that David Tepper’s bold call that technology stocks "look cheaper than any other part of the market even though they moved” will prove foolish.  

So what are the opportunities? Well, we have spotted one such opportunity that recently took a dive after an earnings miss: Priceline Group Inc. (NASDAQ: PCLN).

This online travel reservation business has been growing pre-tax earnings over the last decade at a compound annual rate of 42% per year. That is faster than Apple, Amazon, Netflix, Alphabet and Expedia (Expedia has been growing EBITDA over the last decade at around 7%).

Average ROE is about 28.4% and long-term prospects also look favorable. Last year travel accounted for roughly 10% of global GDP or $7.6 trillion and only about ⅓ of it is booked online. This share is expected to grow by a few percentage points per year and thus although rivals such as AirBnB, Tripadvisor, Expedia, Ctrip and perhaps Google are circling, the future looks bright indeed.

Sitting roughly 12% off its 52 week high Priceline is getting attractive. A move under 1600 or another 12% down from current levels and we would look to initiate a position.

Musings

Came across a pretty interesting chart this week from Michael Batnick which painted a nice picture of how the market has scaled the “wall of worry” in defiance of a plethora of doomsday predictions of an imminent selloff.

As the graph shows, since stocks bottomed in March 2009, the S&P 500 index has soared 271% to multiple records, meandering higher through the European debt crisis, Brexit, and the U.S. presidential election.

Political upheaval certainly does not necessarily translate to market volatility. But more importantly, the chart got me thinking about a common refrain these days: “things can’t keep going up like this”. Is that true? Are “things” bound to collapse? What may be more relevant to consider is what we mean by “things”?

Looking at this current market as a "market of stocks" rather than as a "stock market" it is clear that “things” most certainly cannot keep going up and in fact “things” most certainly are not continuously going up: The average Russell 2000 stock is already in a bear market, falling 22.42% from its 52-week high. The median Russell 2000 stock is 17.38% from its 52-week high. Likewise, the average and median S&P 500 stock are 8.04% and 11.77% from their 52-week highs.

What of this record bull market then? Well it may be that we have experienced several “stealth” bear markets within the current long-term uptrend.

It should be remembered that market crashes of over 30% are incredibly rare events. Could the bear market that so many people are predicting these days have already happened?

I think this an argument worth considering given the fact that research has shown that in 189 years of stock returns only 3 times since 1825 did the market finish a calendar year down 30% or worse. That’s about once every 63 years...recency bias is a hell of a drug...
 

Logos LP July Performance

 

July 2017 Return: -1.16%

2017 YTD (July) Return: +18.67%

Trailing Twelve Month Return: +21.59%

3-Year Annualized Return: +22.55%

Thought of the Week

"After seeing a movie that dramatizes nuclear war, they worried more about nuclear war; indeed, they felt that it was more likely to happen. The sheer volatility of people's judgement of the odds--their sense of the odds could be changed by two hours in a movie theater--told you something about the reliability of the mechanism that judged those odds.” -Michael Lewis

Articles and Ideas of Interest

• Ten years ago from August 9, people weren’t that worried about impending financial doom. Ten years ago August 9, all was not well with the global financial system. On Aug. 9, 2007 BNP Paribas froze more than $2 billion in funds, barring investors from withdrawing their money due to a “complete evaporation of liquidity in certain market segments.” This marked the beginning of a dangerous new phase in what eventually developed into the worst economic downturn since the Great Depression. What did we learn? Reuters puts together a decade in charts. Financial Times suggests that there were clear warnings that Wall Street ignored.

• Time to focus on return of capital strategies? Is there anybody left recommending risk assets? It sure seems like if there are, they are few and far between. The number of influential pundits warning about the risk of investing in assets such as corporate bonds and equities is growing exponentially. Recently it was Oaktree Capital Group co-Chairman Howard Marks and former Federal Reserve Chairman Alan Greenspan. Last week, it was the likes of DoubleLine Capital Chief Executive Officer Jeffrey Gundlach, HSBC Holdings’ head of fixed-income research Steven Major and Pantheon Macroeconomics Chief Economist Ian Shepherdson. Have we reached the point in the investment cycle where you’ve got to start thinking the return on capital is rather less important than the return of capital…Luckily for doomsday preppers, the end of the world is good for business.

• Is passive investing “devouring capitalism”? Billionaire Paul Singer is warning of a growing and menacing threat: passive investing.“Passive investing is in danger of devouring capitalism,” Singer wrote in his firm’s second-quarter letter dated July 27. “What may have been a clever idea in its infancy has grown into a blob which is destructive to the growth-creating and consensus-building prospects of free market capitalism.” Almost $500 billion flowed from active to passive funds in the first half of 2017. The founder of Elliott Management Corp. contends that passive strategies, which buy a variety of securities to match the overall performance of an index, aren’t truly "investing" and that index fund providers don’t have incentive to push companies to change for the better and create shareholder value. Cranky underperforming manager (Singer’s Elliott Associates fund rose 0.4 percent in the second quarter, bringing gains for the first half to 3.5 percent) or luminary? The Atlantic explores the growing chorus of experts that argue that index funds are strangling the economy. I would agree. Diversification has brought undeniable benefits to large numbers of Americans. If recent scholarship is right, it has brought hidden costs to many more. For the opposing view see Gadfly.

• Forget robots — “super-workers” may be coming for your job. According to a report from PwC, one outcome of technology and automation could be the rise of the medically-enhanced “super-worker” by 2030. These workers will combine man, machine, and medical enhancements (like pharmaceuticals to boost cognition) to secure employment and guarantee performance in an increasingly competitive labor market. 70% of those surveyed by PwC said they’d undergo treatments to improve their bodies and minds if it would help their job chances. On a small scale, some of this is already happening: A Wisconsin firm recently made headlines for microchipping employees.

• Lego-Like brain balls could build a living replica of your brain. The human brain is routinely described as the most complex object in the known universe. It might therefore seem unlikely that pea-size blobs of brain cells growing in laboratory dishes could be more than fleetingly useful to neuroscientists. Nevertheless, many investigators are now excitedly cultivating these curious biological systems, formally called cerebral organoids and less formally known as mini-brains. With organoids, researchers can run experiments on how living human brains develop—experiments that would be impossible (or unthinkable) with the real thing.

• Digging for digital gold in Inner Mongolia. The crypto currency mania shows no sign of abating. Consider the case for $5000 bitcoin (why not $10000?). Yet also consider that at the heart of bitcoin are miners running massive computing operations to earn the $7 million up for grabs each day for solving complex mathematical equations. Zheping Huang and Joon Ian Wong got access to one of the world’s largest bitcoin mines, Bitmain, and offer a rare look at the lives of its workers, as does a photo essay for Quartz by Aurelien Foucault. I see bitcoin as here to stay. Perhaps grandpa had a pension and this generation has cryptocurrency. Great piece in the New York Times suggesting that “as traditional paths to upper-middle-class stability are being blocked by debt, exorbitant housing costs and a shaky job market, these investors view cryptocurrency not only as a hedge against another Dow Jones crash, but also as the most rational — and even utopian — means of investing their money."

Our best wishes for a fulfilling week, 
 

Logos LP

Where Is "The Crowd"?

Good Morning,
 

U.S. equities rose on Friday on better-than-expected employment data. The Dow Jones industrial average hit a record high and closed 66.71 points at 22,092.81. Goldman Sachs contributed the most gains. The index also posted its eighth straight record close.

Banks, including Goldman Sachs, outperformed the market, with the SPDR S&P Bank exchange-traded fund (KBE) advancing 0.81 percent. The space received a boost from a jump in interest rates, which followed strong U.S. employment data. The U.S. economy added 209,000 jobs last month, according to the Labor Department, well above the expected gain of 183,000.

On the Canadian side, Canada’s labor market continued its stellar performance in July, with the jobless rate falling to the lowest since before the financial crisis. The unemployment rate fell to 6.3 percent, the lowest since October 2008, as the labor market added another 10,900 jobs during the month, Statistics Canada reported from Ottawa. The total increase over the past year of 387,600 is the biggest 12-month gain since 2007. These jobs figures will likely bolster confidence that the country is quickly running out of economic slack and higher Bank of Canada interest rates may be needed to cool off growth...

Our Take
 

The US report was very strong. Timing couldn’t be better as we are moving into the tail end of Q2 earnings as well as into August and September which are typically weak months for the market. This was a beat and raise guidance jobs number and the second month in a row the U.S. has come in above 200,000 and above expectations.

Furthermore, although lower wage Americans are still reeling from the great recession, they are finally getting some relief in the jobs market. Underneath a 209,000 gain in July payrolls, significant shares of job growth were in lower-wage industries such as restaurants and home health-care services. As the overall labor-force participation rate ticked up 0.1 percentage point, the level for people age 25 or older without a high school degree surged to the highest since 2011. In leisure and hospitality, which typically carries lower pay, annual wage gains of 3.8 percent outpaced the average. (For a breakdown of who is hiring see here)

Other indicators suggest that even with the tightening job market, some slack still remains. That leaves room for additional gains that would back up President Donald Trump’s drive to bring people back into the workforce as well as support the Federal Reserve’s go-slow approach to tightening credit. This is good news and suggests that perhaps we haven’t yet reached the peak of this economic cycle.

U.S. equity indexes have been on a roll lately with the Dow notching eight straight record closes.

Nevertheless, all is not rosy. Amid the talk of new highs and record levels, one section of the equity market is having trouble keeping up. Small-cap stocks, on track for their second weekly decline with a loss of 1.7 percent, are falling further behind benchmark equity gauges.

In addition, underneath what was another up week for the S&P 500 Index, things were a little more complicated. An equal weight version of the S&P 500 that strips out market value biases just posted its biggest weekly drop since May, and its worst week versus the regular S&P 500 all year. The reason: while enough megacap stocks rose to keep the S&P 500 afloat, single-stock blowups were far more common than single-stock rallies.

Perhaps we haven’t quite reached euphoria just yet…
 

Musings
 

During these summer months I’ve gotten the opportunity to reconnect with old friends and learn a few new things whilst doing so. Of great interest have been several conversations with those in the corporate sector.

Among many other enlightening insights, I was startled to hear of a new phenomenon in current deal making circles: deal quality has been decreasing. Deals are getting done that just 1-3 years ago would have been laughed at for their overvaluation, shoddiness, and/or high risk. Interesting data tending to support that risk-taking may be on the rise...

If not by coincidence one of our favorite investors Howard Marks put out a cautionary memo last week entitled “There they go again...Again” suggesting that “they” are “engaging in willing risk-taking, funding risky deals and creating risky market conditions.

Marks suggests 4 attributes of today’s investment environment: 1) uncertainties are unusual in number and scale 2) prospective returns for the vast majority of asset classes are about the lowest they have ever been 3) asset prices are high across the board 4) pro-risk behaviour is commonplace

These attributes support his overall suggestion that in this environment one should move forward with caution. As always, the memo is worth a close read.

Marks supports his 4 overarching attributes of the current market environment with several fascinating vignettes each showcasing “willy nilly risk taking” in a variety of asset classes.

1. U.S. equities: Many metrics such as average p/e, Shiller p/e and the “Buffett yardstick” and record low interest rates suggest stock prices are at lofty levels.

2. The VIX: The VIX is at record lows and this suggests that investor sentiment is largely positive.

3. Super-stocks: Bull-markets are marked by a single group of stocks that are “the greatest” and the FAANGs are having their moment. When the mood is positive multiples rise as one “can’t lose” in these names.

4. Passive investing/ETFs: These approaches are on the rise and in the current up-cycle, over-weighted, liquid, large-cap stocks have benefitted from forced buying on the part of passive vehicles, which don’t have the option to refrain from buying a stock just because its overpriced. Investors are thus turning capital over to a process in which neither individual holdings nor portfolio construction is the subject of thoughtful analysis and decision-making, and in which buying takes place regardless of price…

5. Credit: Low grade credit instruments are proliferating. Junk bond offerings are over subscribed and offer weak investor protections.

6. Emerging market debt: For only the third time in history, emerging market debt is selling at yields below those on U.S. high yield bonds.  

7. Private equity: PE firms will probably add more than a trillion dollars to their buying power this year.  Where will it be invested at a time when few assets can be bought at bargain prices? Too much money is chasing too few good deals. Standards are relaxing.

8. Venture capital: SoftBank’s recent raising of $93 billion for its Vision Fund for technology investments – presumably on the way to $100 billion. Can one wisely invest $100 billion in technology?

9. Digital currencies: digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.  The same description can be applied to the Tulip mania that peaked in 1637, the South Sea Bubble (1720) and the Internet Bubble (1999-2000).

This is a fascinating selection of examples yet perhaps the most interesting thing in the memo was his acknowledgement that many market participants are aware of these issues and agree that things can’t go well forever – that the cycle is extended, prices are elevated and uncertainty is high.

These cautious beliefs are what makes calling a top in this market so hard. Just this week CNBC ran a poll which asked readers “Is the stock market about to suffer an epic crash?”

11,736 readers voted and 44% of them said yes, 33% said no and 26% said not sure.

Think about that.

The poll didn't ask, "Is the stock market overvalued?" or "Will the stock market decline for the rest of the year?" (or in the next year, or anything like that). It asked about "an epic crash," and not just any time, but specifically about whether the market is about to crash. "About to" means that it's going to happen very soon.

It is rather incredible that such a large proportion of people say they expect such an extreme and rare event to happen within such a narrow time frame.

Not to mention, as Josh Brown reminded us in response to the Marks memo, that we’ve got an entirely lost generation of investors, the millennials, who prefer to hold cash and even bonds than own stocks.

Could the behaviour of the crowd (as Brown defines it) be telling a different story than the anecdotes in the Marks memo? A story of caution and bearishness?

Without a doubt, as Josh Brown points out, it is as good a time as any to be cautious as caution should be the default orientation for any serious investor.

But I believe this debate highlights something else of great importance that has plagued the pundit, the asset manager and the individual investor throughout this epic bull run: the consensus or “crowd” has been incredibly hard to pin down. Each of these groups seems unable to agree upon what the “consensus view” is.

Timeless investment wisdom suggests that avoiding the crowd is a good bet for beating the stock market but this is difficult for most as there is ample evidence to support one’s own definition of “the crowd”.

The crypto currency trader believes his asset class is misunderstood and unloved. He sees himself as ahead of the curve and thus ahead of the crowd while the value investor looks upon him with disdain. “Just another herd follower chasing returns with the crowd…”

As such, rather than expending excessive energy on the identification of “the crowd” it may be best to humbly return to first principles: What do I understand and what is my sphere of investment competence? What do I reasonably believe is valuable and can be acquired for less than it should be? Am I being skeptical enough? Do I accept that there is no free lunch?


Logos LP in the Media

 

Commentary from Logos LP on investment opportunities in the defense sector in Forbes Magazine.
 

Thought of the Week

"Anyone can hold the helm when the sea is calm.” -Publilius Syrus

Articles and Ideas of Interest

• How bond markets can predict moves in stocks. Interesting research suggesting that high-yield bonds moving with the ebbs and flows of U.S. earnings announcements tend to predict stock returns for a slew of issuers -- particularly firms with a modest level of institutional equity ownership. So perhaps stock investors seeking an informational edge should keep their eyes on junk-bond prices on the heels of earnings reports.

• Commodities are a losing bet. Over the past 10 years, the Bloomberg Commodities Index is down 6.5 percent per year for a total loss of almost 50 percent. Over that same time frame, the S&P 500 is up a total of close to 100 percent, or a 7 percent annual return. This difference in performance has led to a huge divergence in the ratio of commodities to stocks, which has compelled some investors to ask whether there is a buying opportunity in commodities. There is also no financial reason that dictates that commodities must exhibit mean reversion. They provide no dividends or income. They don’t have earnings. Commodities are more of an input than a financial asset. In many ways, a bet for commodities is a bet against technology and innovation. Commodities have shown lower returns than cash equivalents with higher volatility than stocks. This is a poor risk-return relationship.

• There is no U.S. wage growth mystery. Economists are puzzled over U.S. wage growth, wondering why it has been so slow despite a labor market that is allegedly back to or close to full employment. Nice piece in Moody’s suggesting that if you look at the right wage growth and the right measure of employment slack there is no mystery: Wage gains are right where they should be. And it indicates the labor market has room to improve.

• Is productivity growth becoming irrelevant? As we get richer, measured productivity may inevitably slow, and measured GDP per capita may tell us ever less about trends in human welfare. Measured GDP and gains in human welfare eventually may become entirely divorced. Imagine in 2100 a world in which solar-powered robots, manufactured by robots and controlled by artificial intelligence systems, deliver most of the goods and services that support human welfare. All that activity would account for a trivial proportion of measured GDP, simply because it would be so cheap. Conversely, almost all measured GDP would reflect zero-sum and/or impossible-to-automate activities – housing rents, sports prizes, artistic performance fees, brand royalties, and administrative, legal, and political system costs. Measured productivity growth would be close to nil, but also irrelevant to improvement in human welfare.

• Why aren’t Americans moving anymore? In the 1990s, 3% of Americans moved out of state each year. Now the rate is half that, with US mobility hitting the lowest level since World War II. “The lack of mobility in the American workforce is a huge blocker of our economic growth,” says Ryan Sager, editorial director for Ladders. It's "definitely hurting Main Street,” writes business analyst Thanh Pham, who says there’s a mismatch between cities with abundant jobs and areas with potential workers. There are myriad reasons for the slowdown in mobility, from lack of job stability to the prohibitive expense of actually moving. Aeon suggests we are living in the quitting economy where employees are treated as short-term goods and thus market themselves as goods, always ready to quit.

• A highly successful attempt at genetic editing of human embryos has opened the door to eradicating inherited diseases. This is huge and ushers in a new era. Shoukhrat Mitalipov has performed the first highly successful use of the gene-editing technique called Crispr to improve human health: his team was able correct a genetic mutation that causes a life-threatening cardiac disease. None of the embryos were allowed to come to term. But if Mitalipov has his way, future projects could eradicate a disease that affects millions—one in 500 people carry the mutation—and even kills unsuspecting, seemingly fit adults.          

• Best summer reads 2017. Great list out of The Guardian. My favorite I revisit each summer: Herman Hess - Sidhartha.

Our best wishes for a fulfilling week, 
 

Logos LP