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On Writing

https://onefpablog.org/2019/06/13/how-to-write-like-someone-might-actually-read-your-work/?utm_source=smartbrief&utm_medium=email&utm_campaign=blog&utm_content=061819

The above is from Dan Martin via FPA blog.

1.) Write Like You Speak

2.) Read It Out Loud

  • First, it can help you practice and ultimately, master Tip #1 (writing like you speak).
  • Second, it can help you identify the areas where you need to add some qualifiers to simplify and clarify certain thoughts.
  • Third, it’s the best way I’ve found to ensure that content is conversational enough for your audience, and for the objective of the piece. Reading aloud will help you identify the areas of your work that really lend themselves to a conversational style (i.e., something that you, or at least some human being, might actually say), and those that need some adjusting.

3.) Edit, Don’t Sterilize

My last piece of advice on engaging writing is to remember that the small imperfections and quirks in your writing style are not necessarily bad things. I think some of these quirks make up an important part of anyone’s writing style, and not all of them should be eradicated through the editing process.

 

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Time to diversify?

Following the pullback at the end of 2018 and subsequent recovery, most analysts agree that we are likely near the end of the bull market. The 10 year – 2 year yield curve nearly inverted in December, and the 10 year – 3 month yield curve inverted in March. Other leading indicators have been mixed, as well.

Over the last several years, the best performing asset, by a lot, has been US large cap stocks. For those investing with a home bias, this has been a winning strategy. For those investing with global diversification, it’s been a long hard road.

Looking at valuations, it appears that emerging markets have the best opportunity for higher forward-looking returns, followed by international developed, with US equities coming in last (see https://mebfaber.com/2019/01/25/the-biggest-valuation-spread-in-40-years/). P/B, CAPE, and cyclically-adjusted CAPE values all suggest that the S&P 500 is due for a rough 10 years ahead.  However, this has been true for at least the last 3 years. John Hussman has been predicting low returns for far longer. If you examine his analyses (at http://www.hussmanfunds.com), they are clearly well researched and make sense. But they haven’t worked.

One unaccounted-for variable has been central bank interventions. This includes not only our Federal Reserve, but actions of the central banks of Europe and Japan as well.  You can find a monthly update showing the close correlation of the S&P 500 to the total of these balance sheets at yardeni.com. Since October 2017, the Fed has been reducing its balance sheet. Will this cause the US markets to decline? It appears that instead, the other central banks will increase their holdings to make up for at least part of it. The correction in December 2018 has been variously credited oil prices, revisions to 2019 earnings estimates and/or Fed balance sheet reduction. Of those three options, we have many years experience with two of them, and zero experience with the third.

One way to determine a sensible action plan is to think through possible outcomes and consider their likelihoods. Start with some assumptions:  Economic conditions are likely to either stay stable for the foreseeable future or weaken. Although it is possible for conditions to further improve, it seems unlikely based on most forecasts.  Central bank interventions will likely be contingent on economic conditions, which may include market conditions.

What are the possible outcomes of stable conditions vs. weakening conditions? We know that economic recessions are nearly always accompanied by market corrections. We also know that the US market is more richly valued than other markets, which may result in a larger over-correction in the next bear market. OR NOT! In Meb Faber’s article referenced above, notice that the US has been over-valued now for about 7 years. How long can this continue? Is it related to the Fed or to something else?

Many market observers, myself included, believed that this massive Fed balance sheet would cause sustained inflation above the Fed’s target 2%. We have been wrong. Before responding with, “CPI is measuring inflation wrong,” take a look at this article from Cullen Roche:  https://seekingalpha.com/article/4255137-hard-truths-inflation-truthers. His arguments debunking the idea are compelling. We have not experienced excessive inflation so far, but that doesn’t mean we can’t. Moderate inflation is possible, although hyperinflation in the global reserve currency remains unlikely. How to protect clients from inflation? The traditional answer has been real assets and commodities, with a newer option being TIPS.

Will the US dollar remain the primary global reserve currency through the next recession? Despite the ongoing buzz about how China and the yuan are taking over the world, the answer is almost certainly yes. This article explains why: https://www.thebalance.com/world-currency-3305931. What does that mean for our analysis? It means the dollar, and US Treasuries, are special compared to any other currency and any other security.

Conclusions for asset allocation:

  1. If you hold US government securities for diversification and stability, there appears to be a strong argument that they will continue to function well in this role.
  2. If you hold most of your equity allocation in US securities, this might be a good time to consider some diversification to a more global allocation, international developed and/or emerging markets. Please note, this involves home-bias risk, because clients will certainly see the underperformance of their portfolios if the current outperformance of the US market continues.
  3. If you have concern about possible inflation, consider a position in one of the traditional hedges, keeping in mind that while these positions have provided effective diversification over the past 10 years, this mainly means that they have been performing poorly compared to US equities and other investments.

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when to put down your pet

From NYT:

To help pet owners make decisions about end-of-life care, Dr. Villalobos developed a decision tool based on seven indicators. The scale is often called the HHHHHMM scale, based on the first letter of each indicator. On a scale of zero to 10, with zero being very poor and 10 being best, a pet owner is asked to rate the following:

  • Hurt: Is the pet’s pain successfully managed? Is it breathing with ease or distress?

  • Hunger: Is the pet eating enough? Does hand-feeding help?

  • Hydration: Is the patient dehydrated?

  • Hygiene: Is the pet able to stay clean? Is it suffering from bed sores?

  • Happiness: Does the pet express joy and interest?

  • Mobility: Can the patient get up without assistance? Is it stumbling?

  • More: Does your pet have more good days than bad? Is a healthy human-animal bond still possible?

Dr. Villalobos says pet owners should talk to their vet about the ways they can improve a pet’s life in each category. When pet owners approach end of life this way, they often are surprised at how much they can do to improve a pet’s quality of life, she said.

[Try Dr. Villalobos’s scale: Assess Your Pet: Is It Time to Say Goodbye?]

By revisiting the scale frequently, pet owners can better assess the quality of the pet’s hospice care and gauge an animal’s decline. The goal should be to keep the total at 35 or higher. And as the numbers begin to decline below 35, the scale can be used to help a pet owner make a final decision about euthanasia.

 

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On saturated fats

Here’s a great podcast from Dr. Mike Roizen of the Cleveland Clinic, and the transcript is there too:

https://www.healthandwealthresearch.com/fab-9-supplements-call

It is focused on supplements, but includes this important detail about diet:

…food with carnitine, that is red meat and, yes, pork is a red meat, and lecithin, and choline such as egg yolks and cheese, in specific configurations seems to, and does, change the bacteria inside you over a period of as short as one week. And the good news is if you get rid of those foods totally, within one week, your bacteria changes back to healthy bacteria inside you. But when you have, for example, two six ounce steaks in a week, the bacteria that love that steak predominate, and those bacteria produce as their waste product from the carnitine—so it doesn’t matter whether it’s grass fed or not—but they produce from the carnitine an inflammatory substance that is called butyl butane and trimethylamine. The trimethylamine goes to the liver and creates trimethylamine oxide, which ends up causing inflammation and is a more powerful inflammatory agent and cause of heart disease, stroke, and memory loss than is in fact the LDL cholesterol 260. So there isn’t a physician who wouldn’t treat that. You probably should avoid more than four ounces of red meat or an egg yolk or cheese a week.

 

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Yield Curve Inversion

Michael Lebowitz has written an interesting piece on yield curve inversion, posted at RealInvestmentAdvice.com

His thesis is that although the 2-10 has not inverted, it’s close enough, and maybe won’t, and if you look at all the comparisons, maybe you’re missing an even better signal.

2 charts tell the story:
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Shutdown impact on air safety

On 1/23/19, National Air Traffic Controllers Association (NATCA), Air Line Pilots Association (ALPA), and Association of Flight Attendants-CWA (AFA) released a joint statement, which includes this shocker (highlighting mine):

Due to the shutdown, air traffic controllers… and many other critical workers have been working without pay for over a month. Staffing in our air traffic control facilities is already at a 30-year low and controllers are only able to maintain the system’s efficiency and capacity by working overtime, including 10-hour days and 6-day workweeks at many of our nation’s busiest facilities. Due to the shutdown, the FAA has frozen hiring and shuttered its training academy, so there is no plan in effect to fill the FAA’s critical staffing need. Even if the FAA were hiring, it takes two to four years to become fully facility certified and achieve Certified Professional Controller (CPC) status. Almost 20% of CPCs are eligible to retire today. There are no options to keep these professionals at work without a paycheck when they can no longer afford to support their families. When they elect to retire, the National Airspace System (NAS) will be crippled.

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Making Mistakes

From Shane Parrish at Farnam Street Blog:

When it comes to overloading our cognitive brains, the seven factors are: being outside of your circle of competence, stress, rushing or urgency, fixation on an outcome, information overload, being in a group where social cohesion comes into play, and being in the presence of an “authority.” Acting alone any of these are powerful enough, but together they dramatically increase the odds you are unaware that you’ve been cognitively compromised.

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