Is It A Bubble Or Not? Happy Thanksgiving!

Good Morning,

U.S. equities closed lower in choppy trade on Friday as Wall Street digested a weaker-than-expected employment report and kept an eye on falling oil prices. The September jobs report came in yesterday and the U.S. economy added 156,000 jobs last month and the unemployment rate ticked up to 5.0 percent. Economists surveyed by Reuters had expected 176,000 new jobs and the jobless rate to hold at 4.9 percent. The total was a decline from the upwardly revised 167,000 jobs in August (compared to the original number of 151,000).
If you drill down below the headline, did wages go up? Yes. Did hours go up? Yes. Did participation go up? Yes. That's what makes it fine. What would've made it great? A number above 200,000.
Our Take: A blah September jobs report lends no urgency for anything on the economy's to do list: There's no sign of an overheating economy that would justify a rate hike; no acceleration of construction hiring that would finally hint at a return to a normal pace of housing starts; no big wage gains that would give hope for renewed productivity gains. Just a stubbornly average report at a time when the economy is looking for a jolt of the exceptional
Nevertheless, despite the mediocre report, market expectations for a December rate hike stand above 60 percent following its release, according to the CME Group's FedWatch tool. Markets mirrored this rate hike expectation all week with yields rising, gold selling off and rate sensitive stocks getting hammered. We maintain that a small rate hike will occur in December. Consider your portfolio’s sensitivity to a hike but continue to think long term.
This week I’ve been thinking a lot about bubbles. It’s as if everyone I talk to has identified their bubble of choice that “no one” is paying enough attention to. I’ve talked a lot in the past about taking the temperature of the market but also of great importance is the distinction between a bubble and a cycle.  Where do we stand? Well according to various media sources we now have at least 16 bubbles on our hands:
A new real estate bubble
A bond bubble
A tech bubble
A VC bubble
A startup bubble
A stock bubble
A shale oil bubble
A healthcare bubble
A dollar bubble
A college tuition bubble
A social media bubble
A China bubble
A residential real estate bubble (Vancouver or Toronto Canada)
A "find happiness" bubble (See below)
One Economist recently gave up and just said “Everything’s a bubble.”
But before throwing in the towel slow down…Morgen Housel offers a very useful discussion about the difference between a bubble and a cycle which is one of the most fundamental and normal parts of how markets work.
Bubbles should be avoided, as you risk widespread permanent loss of capital. Cycles, by and large, shouldn’t, because all they imply is that you have to be patient and humble to earn long-term returns, which is by and large the path to successful investing.
Could a bubble simply exist if return prospects don’t improve after prices fall? Only when the asset class offers you no hope of return ever?
As Housel suggests: “If you find an asset whose price looks expensive and is probably going to fall, you likely haven’t found a bubble. You’ve found capitalism. Excesses will correct, recover, and life will go on.”
So over Thanksgiving weekend take some time to consider which one you are looking at: A bubble or cycle? And/Or reflect on all that has contributed to the person you are today. The things you have accomplished, the fears you have overcome, the laughter, joy and love you've felt. Focus on gratitude and enjoy the present moment finding contentment in the people and places that surround you.

Thank you all again deeply for your support and trust. We will continue to try our best to add value.


Thought of the Week

  "Gratitude is not only the greatest of virtues, but the parent of all others." -Marcus Tullius Cicero


Stories and Ideas of Interest


  • New housing rules in Canada Released by Ottawa are a big deal. They will likely raise funding costs for lendersand borrowing rates for consumers. Lenders will have to run stress tests on all new insured mortgages to ensure that borrowers can meet their debt obligations even if interest rates rise. But the biggest change is one that is still in the works: Finance Minister Bill Morneau said Ottawa will take a closer look at what is known as “lender risk-sharing” – which is the idea that the banks could have to pay a deductible on mortgage insurance provided by Canada Mortgage and Housing Corp. (CMHC) and its private sector competitors. Such a change would likely force banks to hold additional capital against mortgages, raising their funding costs. The banks would likely pass the new costs to consumers in the form of higher mortgage rates. Looks like our friend the millennial home buyer is getting priced out even further. Perhaps his best bet is to rent for life....Toronto Life Magazine explores...


  • Bloomberg thinks Canadian Assets are expensive. I must say it was easier for us to find value in Canada earlier this year than at present. Bloomberg runs through assets classes and argues Canadians didn’t get the memo about weak global growth. Coming into 2016, many global asset managers highlighted Canada as an attractive place to invest; and combined with the rally in resources, you have a market that’s outperforming S&P TSX up around 15% YTD. If you think Oil is still cheap today (questionable) and gold may continue to rally (very questionable), then I see no reason why Canadian stocks should begin underperforming in the short-term…but this year’s broad market performance may be an outlier…Not that this is anything new but some high profile short sellers are betting heavily against Canadian financials, pharmaceuticals and gaming companies…


  • It’s still possible to build a high growth technology business the old fashioned way. The NYT explores how under the radar, slowly and steadily, and without ever taking a dime in outside funding or spending more than it earned, MailChimp has been building a behemoth


  • How long can a human live? People who play golf could live five years longer than those who don’t according to new research from Scotland. Furthermore, according to new research in the journal Nature presented in the NYT, the longest humans can live is 115…Luckily other heavyweights in the field rejected the study’s findings calling it a “travesty”. Is the best hope for our species not to extend our life spans but instead to lengthen our years of healthy living?


  • Americans are obsessed with happiness. And it is making them miserable. Interesting piece written in VOX from the perspective of a Brit living in America: “It seems as though happiness in America has become the overachiever’s ultimate trophy. A modern trump card, it outranks professional achievement and social success, family, friendship, and even love. Its invocation deftly minimizes others’ achievements (“Well, I suppose she has the perfect job and a gorgeous husband, but is she really happy?”) and takes the shine off our own.” Is it working? As I’ve written before: the more people see happiness as a goal, the less happy they are. Excesses will correct, recover, and life will go on...


All the best for a productive week,

Logos LP