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

The 1% Rule

Good Morning,

Stocks closed flat Friday as investors parsed through a mixed employment report, a U.S. airstrike in Syria and comments from a top Federal Reserve official.

The 10-year Treasury yield topped 2.35 percent after falling as low as 2.28 percent amid a weaker than expected jobs report and the first military strike undertaken by President Donald Trump’s administration.

On the data front, the U.S. economy added 98,000 jobs last month, well below the expected gain of 180,000. The unemployment rate fell to 4.5 percent from 4.7 percent. Wage growth was not as strong either, with average hourly earnings up by 2.7 percent on an annualized basis. Nevertheless, the report masked a key problem: The number of open jobs hit a record 5.8 million last April and hasn't dipped below 5.4 million ever since. Sure job creation is important but it appears Americans are not equipped to perform the jobs that exist in a rapidly changing economy.

Also of note was the retreat in the auto sector reported Monday which mirrored lackluster broader consumer spending data released last Friday. Both readings fly in the face of the two most-followed gauges of consumer sentiment, now at 17- and 11-year highs. It also contrasts with an index of optimism among small businesses -- local car dealers among them -- holding near levels unseen since the mid-2000s.

On the Canadian front,
the two-faced nature of Canada’s labor market was on full display this week as employers continued to hire but resisted raising wages.

Canada added 19,400 jobs in March, for an employment gain of 276,400 over the past 12 months, Statistics Canada said Friday from Ottawa. Yet, the pace of annual wage rate increases fell to 1.1 percent, the lowest since the 1990s.

The weakness in wage gains seems to be an Ontario phenomenon. The province, which has led employment increases over the past year, recorded an annual 0.1 percent increase in wages in March, also the lowest on record.

Our Take

Investors may be getting ahead of themselves on their confidence in the economy, with the chance of a short-term sell-off increasing as such hard data measures are contrasting with the more positive soft data but one must remember that short-term sell offs aren’t unusual. The VIX tallied its 103rd session Friday below 15, the longest streak since February 2007, according to Bloomberg data. Thus, a 10-15% correction is looking more and more likely. Nevertheless, we maintain (as outlined in previous letters) that while it may be a struggle to find reasons to get enter this market, the reasons to sell are limited and uncompelling

Do bull markets die of old age?

LPL Research compares the best bull markets in history for us:

At the same stage of the 1990s bull market, the S&P 500 was up 255%, before powering to a 417% gain at its peak about 18 months later.

This bull market is up about 250%. Of course there are no guarantees, but given the fact that after six consecutive monthly gains, the U.S. Leading Economic Index (LEI) is at its highest level in over a decade, the haters need to come forth with some pretty solid evidence of a deteriorating economic picture to convince that the bull market ends here….


Came across a wonderful article this week by James Clear entitled “The 1 Percent Rule: Why a Few People Get Most of the Rewards” which reminds us of Vilfredo Pareto’s 80/20 rule. The majority of output or rewards tend to flow to a minority of producers or people.

Inequality is everywhere. It is perhaps the “natural” state of the world.

Clear states that: “For example, through the 2015-2016 season in the National Basketball Association, 20 percent of franchises have won 75.3 percent of the championships. Furthermore, just two franchises—the Boston Celtics and the Los Angeles Lakers—have won nearly half of all the championships in NBA history. Like Pareto's pea pods, a few teams account for the majority of the rewards.

The numbers are even more extreme in soccer. While 77 different nations have competed in the World Cup, just three countries—Brazil, Germany, and Italy—have won 13 of the first 20 World Cup tournaments.

Examples of the Pareto Principle exist in everything from real estate to income inequality to tech startups. In the 1950s, three percent of Guatemalans owned 70 percent of the land in Guatemala. In 2013, 8.4 percent of the world population controlled 83.3 percent of the world's wealth. In 2015, one search engine, Google, received 64 percent of search queries.”

But why?

Accumulative advantage: What begins as a small advantage gets bigger over time. One plant only needs a slight edge in the beginning to crowd out the competition and take over the entire forest.

This principle applies to our lives. We compete for a variety of things: a job, a resource, a distinction, another human’s affection or love etc.

The difference between these options can be razor thin, but the winners enjoy massively outsized rewards.

Clear reminds us that “Not everything is winner take all but nearly every area of life is at least partially affected by limited resources.” Anytime resources are limited a winner take all situation will emerge.

Winner-Take-All Effects in individual competitions can lead to Winner-Take-Most Effects in the larger game of life.

From this advantageous position—with the gold medal in hand or with cash in the bank or from the chair of the Oval Office—the winner begins the process of accumulating advantages that make it easier for them to win the next time around. What began as a small margin is starting to trend toward the 80/20 Rule.”

Should we be so surprised that we were so close to having 2 US Presidents with the same Clinton last name? 2 Presidents with the last name Bush? Or 2 Prime Ministers with the last name Trudeau?

Winning one reward increases your chances of winning the next one. Each additional win cements the position of those at the top. Over time they end up with the majority of the rewards. 

What does this mean for us?

The key takeaway here is that small differences in performance (even 1% better: The 1% Rule) that are consistent can lead to VERY unequal distributions when repeated over time. Think compound interest.

Thus, to pull away you need only to focus on being “slightly” better than your competition. But doing so once isn’t enough. You need to develop a process which enables you to maintain this slight edge over and over again. Simple but never easy...

Thought of the Week

"There's a certain consistency to who I am and what I do, and I think people have finally said, "well you know I kinda get her now." I've actually had people say that to me." - Hilary Clinton

Articles and Ideas of Interest


  • Did Trump’s Syria air strikes accomplish anything? Piece in the Guardian
    suggesting that the US bombing of a Syrian airfield is a flip-floppery at its worst. And it signals to America’s foes that Trump can be easily dragged into military quagmires.


  • Europe in crisis? Despite everything, its citizens have never had it so good. Contrarian piece in the Guardian suggesting that despite the media’s constant coverage of populist sentiment, the EU’s achievements are huge. As Brexit begins, don’t forget that hundreds of millions still want to be part of it. “It is easy to take what we have for granted. It has become easy to criticise the European project for its many insufficiencies and its repeated unpreparedness when crises arise. But it is perhaps harder to step back and take stock of what the EU has accomplished and what many, outside the region, continue to admire and yearn for.”


  • The myth of shrinking asset managers. It's easy to assume that the recent upheaval among asset managers would result in a much smaller industry. But that's far from certain. Some big investment firms have certainly shrunk, but many have remained roughly the same size over the past few years. Going forward, the amount of net job reductions will depend in large part how well firms adapt to changing technology and trends. The number of employees in asset management has stayed surprisingly stable in many corners.


  • How moats make a difference. An important element of our investment approach is focusing on companies that that have or more ideally that appear to be building a wide competitive moat. Usually when people talk about different kinds of moats, they are referring to the elements of the business model that give rise to the company’s competitive advantages. Fun piece here from intrinsic investing on identifying different types of moats.


  • Which tech CEO would make the best supervillain? Funny piece in the Ringer considering tech’s greatest minds gone bad. Jeff Bezos’s doomsday device: “On next year’s Prime Day, he will offer all products for 50 percent off. After customers irrationally empty their bank accounts in the pursuit of deals, he will fulfill zero orders as he makes off with the entirety of the United States GDP.”


  • Luxury is an addictive drug. Great piece from a man who was a multi-millionaire at age 27. Few of his lessons: 1) Money doesn’t make you happy 2) You can only help people to help themselves 3) There will always be someone richer than you 4) Luxury is an addictive drug 5) Some people are very shallow 6) Everyone respects wealth 7) Most financial advisors know nothing 8) Banks rip wealthy people off too More zeros are just more zeros 9) The biggest issue people have with money is limiting beliefs 10) F--- you money is overrated 11) Being wealthy is a full time job.


  • America’s unhealthy obsession with productivity is driving its biggest new reading trend. Audiobooks are the latest trend in book publishing. But why? Audiobook listening is growing rapidly specifically with 25- to 34-year-olds, thanks to a pernicious “sleep when you’re dead” mindset reflective of the young, aspirational, educated American: We are fearful of mono-tasking, find downtime distasteful, and feel anxious around idleness. Even when picking socks from a drawer, young workers feel better if information’s somehow flowing into their brains. And this is exactly the restless market that book publishers need. They’re a cure to widespread restless mind syndrome, with its daily self-imposed nagging to make progress: Be more effective, says your productivity tracker. Do and learn more, says your to-do list. Optimize your to-do list, says your faddish new notebook. Yawn…...The Buddha is surely turning in his grave...


  • The nine to five is barbaric. Generation X author on the future of work and how we’ve all turned into millennials. Are there smart and creative young people out there that are better than their bosses, but unable to thrive in the corporate world? “The nine to five is barbaric. I really believe that. I think one day we will look back at nine-to-five employment in a similar way to how we see child labour in the 19th century,” he says. “The future will not have the nine till five. Instead, the whole day will be interspersed with other parts of your life. Scheduling will become freeform.”


  • What are the 50 best restaurants in the world? On Wednesday this week the list was released and Eleven Madison park in NYC became the first U.S. establishment to win the top spot since 2004.

Our best wishes for a fulfilling week, 

Logos LP

The Greatest Wealth Transfer In History Has Begun

Good Morning,

U.S. equities closed higher on Friday, posting weekly gains, as investors monitored retailers during Black Friday as the post-election rally moved forward. The three major indexes were up more than 1 percent for the week ripping to new record highs on optimism that President-elect Donald Trump's proposed policies will stimulate economic growth.

U.S. Treasury yields and the dollar have also risen sharply since the election, with the benchmark 10-year note yield skyrocketing above 2 percent and the greenback trading around levels not seen since 2003, putting euro/dollar parity within reach. Gold prices, in turn, have turned sharply lower, hitting nine-and-a-half month lows.

Also of interest this week was consumer confidence, which rose more than previously reported to a six-month high in November, showing Americans became more optimistic about their finances and the economy after Donald Trump won the presidential election.

Despite this encouraging news, the U.S. is still home to a working class suffering from stagnant incomes and declining job prospects—widespread struggles that helped elect Republican Donald Trump. The relative wealth of Americans in all age groups keeps falling, compared with previous decades.

Nevertheless, 1700 millionaires are minted every day in the US of A…

In fact, today, more than 8 million households have financial assets of $1 million or more, not including homes or luxury goods, according to Boston Consulting Group. Yet before your faith in upward mobility is renewed, consider this: The very oldest Americans hold a disproportionate chunk of all those trillions, and they’re handing it off to their already well-off kids in what is the largest generational transfer of wealth in history.

Fundamentally inheritance is an increasingly significant driver of wealth in America. Be sure to check out this very interesting read in Bloomberg this week exploring the wealth picture in America.

Interestingly, the top 3 factors cited by the richest investors are encouraging:

1)     Hard Work

2)     Education

3)     Smart investing (Does Index Investing Really Count?)

Thought of the Week


"All life demands struggle. Those who have everything given to them become lazy, selfish, and insensitive to the real values of life. The very striving and hard work that we so constantly try to avoid is the major building block in the person we are today.” –Pope Paul VI

Stories and Ideas of Interest


  • Self-control is a myth.  "There’s a strong assumption still that exerting self-control is beneficial…and we’re showing in the long term, it’s not.” Interesting piece here in Vox suggesting that willpower can’t be strengthened, so we should try to avoid situations that call for it…


  • The buybacks aren’t working. Here's a sign it's time for CEOs to stop spending on buybacks and start reinvesting in their business: an index tracking European share buybacks is underperforming the broader market. Time to think seriously about R&D…


  • Working for a big company is the new chic. When he started thinking about leaving Apple Inc. this year, Darren Haas briefly contemplated Uber Technologies Inc., where many friends worked. Instead, the cloud-computing engineer pursued an opportunity he considered more exciting: General Electric Co. Workers are now flocking to older and larger tech firms…Go figure.


  • Don’t just lower corporate tax rates. Abolish them. Enlightening piece in Bloomberg View arguing that corporate tax rates should be done away with altogether.



All the best for a productive week,

Logos LP

Will Inequality Bring The Economy To Its Knees?

Good Morning,

It is getting dicey out there for investors, although stocks eked out a modest rise on Friday.
U.S. equities have been bouncing around lately. And the trend has been predominantly lower. Although it hasn’t been the sort of dizzying tumble for equities that would elicit an instant spike in fear, it has been, however, the kind of plodding descent that has the Dow Jones Industrial Average down nearly 300 points since the end of July.
In fact, the Dow and the S&P 500 index are on the verge of tallying three straight months of declines, with October shaping up to be the ugliest monthly fall since January—the month after the Federal Reserve raised rates for the first time in a decade. (Friday’s jump on better bank earnings will have to be factored after the close.)
Our Take: Nothing new this week as economic data was neither great nor poor. Lack of consensus at the Fed about what to do with rates continued. More than 80 S&P components are scheduled to report next week, including Bank of America, streaming giant Netflix, BlackRock, Goldman Sachs and United Continental and so the direction of fourth-quarter estimates will need to be observed. Look for strength in banking and technology.
This week, I found myself thinking about ethnic nationalism’s link to global economic weakness and the rise in inequality.
What got me thinking about this was the response an audience member got from Trump at the Presidential debate last Sunday when she essentially asked what it meant to be Muslim in America. Trump’s campaign has suggested that there is something wrong with Islam in America. Although fighting labeling with labeling isn’t ideal (“basket of deplorables”) we must ask: What is causing many among us in the developed world to retreat into hate and fear?
I’ve touched on this in other newsletters but this week I came across an excellent piece by Yale Professor Robert Shiller which goes a long way in addressing this issue.
Across the world economic growth (GDP) has been inching along at a reduced pace since the recession began in 2007. Combined with another factor: rising inequality, along with considerable fear about future inequality we get ethnic nationalism.
Looking at the data earnings for workers have been basically static since 1979 with the TOTAL INCREASE since then standing at 1.2 percent or 0.03 percent a year. The issue is that most of these miniscule gains have been going to the very top earners not the median wage earner. So we have a situation in which roughly half of full-time wage earners are doing less well in real terns than their parents.
Shiller draws on work from Ben Friedman from Harvard to say that although most people aren’t familiar with such data they are aware of what they personally are being paid.
If they realize that they are doing less well than their forebears, they become anxious. If they can’t see themselves or others in their cohort, especially their children as progressing over a lifetime, their social interactions often become angry, resentful and even conspiratorial.
Ethnic nationalism creates an ego-preserving excuse for self-perceived personal failure: Other groups are blamed for bad behavior and conspiracies.
There is a major shift going on moving economic power away from the working class. (Perhaps the “working class” is also expanding in size) and even those who have not lost out yet in terms of economic power are fearful that they might.
Why? The forces resulting in greater inequality: technological advances and low interest rates are not slowing down.
Interestingly, Shiller cites a 2015 study published in The American Economic Review by Michael Kumhof of the Bank of England, Romain Rancière of the International Monetary Fund and Pablo Winant of the Bank of England who found that both the Great Depression of the 1930s and the Great Recession of 2007-9 had their origins, in part, in rising inequality.
Before both these difficult periods low to middle income people borrowed more to maintain their standards of living. There was a shame that developed as the borrowing intensified. Are we seeing the same today? The ethnic nationalism we are witnessing may simply be a symptom of a powerful shame, mixed with fear and disillusion that is percolating in certain hearts and minds.
What can be done? Does the system have to go through a major shock to find another way? Will disaster be necessary to pave the way to change? Could fiscal stimulus be enough? A hand-out? In any event the next President (Repub. Or Democrat) will face a daunting problem that doesn't appear to be improving. For investors, we should be mindful of what credit markets are telling us (subprime borrowers are falling behind on their car loan payments at the highest rate in more than six years) and what history has (*we hope) taught us.


Thought of the Week


"A man willing to work, and unable to find work, is perhaps the saddest sign that fortune's inequality exhibits under this sun." - Thomas Carlyle


Stories and Ideas of Interest


  • Millennials don’t care about money. Oh wait they are just like everyone else and do. Interesting study done by American Advisors Group demonstrating that millennials have some things in common with boomers after all.
  • Reading novels teaches us humanity. Literary fiction improves our ability to comprehend that our beliefs and desires might not be the same as those of others. Interesting piece chronicling how literature has changed attitudes throughout history. Furthermore, what you spend your time reading changes your brain. Seriously, our sound bite culture is destroying our brains


  • Where is tech headed? Reading a startup’s bio doesn’t usually make for interesting reading yet in aggregate, company descriptions reveal important trends shaping technology and innovation. CB Insights mines the data and identifies which technologies are trending up and which are falling out of favor. Finally….. “social” and “apps” are on the decline (bye bye Twitter) as well as “solar” and “Microsoft”. “VR” and “AI” are hot….


  • Silicon Valley isn’t visionary. ReCode on why today’s tech entrepreneurs are too busing trying to fix things that aren’t broken. How about more of a focus on things that are broken: Health care, education, homelessness and poverty, food waste, climate change....


  • Slow down on the happiness juice. The Economist puts forward the argument that companies that try to turn happiness into a management tool are overstepping their mark. Zappos is so happy with its work on joy that it has spun off a consultancy called Delivering Happiness. It has a chief happiness officer (CHO), a global happiness navigator, a happiness hustler, a happiness alchemist and, for philosophically minded customers, a happiness owl. Seriously? Great article here in Quartz suggesting that we weren’t meant to be happy all the time anyway. In fact, perpetual bliss may completely undermine our will to accomplish anything at all….

All the best for a productive week,

Logos LP