Investment—Profiting from Tax-Loss Selling

One style of investment approach for a hedge fund manager is to find and profit from tax-loss losers during November and December and riding them through January.

Tax Loss Selling

Tax loss selling takes many poorly performing stocks to even more extreme lows nearly every year during the late fall:

• Mutual funds  
• must realize such losses by October 31^st 
• Others 
• have until December 31^st

However, in many cases these stocks represent business under significant duress. Aside from a moderate January bump as selling pressure is alleviated and as stockholders once again buy into these stocks, one would not expect such despised stocks to truly reflect, in short-run, any realization of longer-term or hidden value.

Figure 1.  After tax-loss selling in December, S&P500 recovered a bit in January. But, it fell even deeper in March (Source: Yahoo Finance)

Caveats

During bear markets, sometimes stocks bought amidst the vicious sell-off of mid-December were no match for the vicious sell-off of later (e.g., March 2001; see Figure 1).

References

1. Scion Capital Letters (2000 - 2002)

Investment—Recession Watch

Figure 1.  Percent of 10-Yield Curve Inverted (Courtesy: Real Investment Advice)

The inversion of the yield curve is typically seen to herald a recession, as investors switch money to longer-term bonds due to pessimism over the economic outlook. Those fears are growing as policy makers around the world pledge further monetary tightening to tame rising consumer prices.

When the number of inverted yield curves exceeds 60%, as it is today (i.e., Nov 2022), a recession in the US is coming soon (see Figure 1).

History shows us that the Fed hasn’t been able to conclude its hiking cycle any time before inflation-adjusted policy rates reached a full 200 basis points. For the record, that rate is now (i.e., on 11/25/2022) -90 basis points.^[48]

Video 1.  Possibility of a Soft Landing (YouTube link)

Recession Watch

Over the weekend of 12/03/2022, Bloomberg commented that:

Fed staff have put chances of a recession at almost 50-50. The global yield curve gave a different view of such risks though, inverting for the first time in two decades. 

Previously (i.e., on 11/28/2022) Bloomberg also reported that:^[50]

Global bonds joined US peers in signaling a recession, with a gauge measuring the worldwide yield curve inverting for the first time in at least two decades.

Germany may already be in recession, while the US is likely to enter one by the middle of next year, according to Deutsche Bank AG strategists led by group chief economist David Folkerts-Landau in London.

Finally, Eric Basmajian’s blog provided the below analysis on 12/11/2022:

The money-price-wage spiral is well underway in the negative direction. The Federal Reserve shouldn’t ease monetary policy before the money-price-wage spiral is fully complete, but additional rate hikes will likely soon come to an end in the Q1 area as recessionary conditions intensify.

Figure 2.  Fed funds rate: timeframe between last rate hike and 1st rate cute (Courtesy: @SoberLook)

Figure 3.  Maximum EPS Drawdowns during Recessions (Courtesy: Real Investment Advice)

Figure 4.  S&P 500 12-Month Forward EPS Drawdowns & US Fed Tightening Phases (Source: Refinitiv Datastream)

Figure 5.  S&P 500 12m forward P/E and US 10y real yield (RHS, Inverted; Source [47])

Figure 6.  Bear Markets Only End After the Fed Has Cut Rates Aggressively

Figure 7.  After the Fed pivots, the market is already topping (or topped) and about to drop much lower (Courtesy: Elliott Wave International)

What Investors Normally Do during a Recession?

• Some investors hold cash and buy the world's best blue-chips only at reasonable or attractive valuations^[52]
• Some investors rely on good dividend income which can grow in all economic and market conditions^[52]
• Investors are exiting hard-to-trade assets ahead of the possible recession next year^[51]

References

1. Cleveland Financial Stress Index
2. Fed "Workhorse" Model Says Odds of Recession in Next Year Only 3.56%; What are the Real Odds?
• The report failed to mention the most practical of practical issues: It's damn hard for the 3-month to invert with 10-year treasuries when the Fed has artificially held short-term yields closet to zero.
3. The Yield Curve as a Leading Indicator: Some Practical Issues (New York Fed)
4. The Yield Curve as a Leading Indicator (New York Fed)
5. Looking Beyond Circular Feedback Loops In The Market
6. On The Dispersion, Or Lack Thereof, of Economic Weakness (Tim Duy's Fed Watch)
7. So You Think A Recession Is Imminent, Yield Curve Edition  (Tim Duy's Fed Watch)
8. So You Think A Recession Is Imminent, Employment Edition (Tim Duy's Fed Watch)
9. 3 Charts All Investors Should See
• US credits
• Global sector earnings momentum 
• Global manufacturing activity
10. VIX Outside of `Red Zone' Indicates No Recession, Goldman Says
1. The “Red Zone” happens when the VIX is above 25 and climbing, which historically coincides with flat or negative U.S. gross domestic product.
11. A hedge fund manager shares the 10 things that could surprise the market this year (good)
12. A Recession Is On My Mind (Steven Hansen)
13. The Yield Curve Says No Recession
14. Labor Indicators: Some of Today's Trends Pre-Date the Great Recession (Fed Reserve Bank of St. Louis)
15. Why Is Economic Growth So Slow?
16. Portion of US Treasury Yield Curve Inverts
17. Altitude Adjustment: Investing During a Period of Lower Returns and Higher Volatility (PIMCO)
• We expect less consistency in the negative correlation between stocks and bonds relative to the past decade.
• We believe currency movements will play a much larger role in determining portfolio outcomes. 
• We suggest investors not ignore the reduction in market liquidity and its potential consequences.
• Our outlook for the global economy is for sideways growth with an uptick in inflation.
• Are we nearing the threshold of the next global recession? At PIMCO, we don’t think so.
18. Currency Wars and a Job Gain Recession?
19. The yield curve still works and 5s10s is one measure that is less influenced by the Fed. 
20. Worthy Of Investor Attention: The Long-Term Debt Cycle
21. 22 Signs That The Global Economic Turmoil We Have Seen So Far In 2016 Is Just The Beginning
22. Smelling the Recession
23. Voluntary Job-Quitting Hits Highest Level in Nine Years
24. 13 Charts On The Likelihood Of A Recession
25. Inflation And GDP Growth Rise; Bond Yields Must Follow
26. The 10 Largest “Relative” Trade Networks (EAST ASIA, EUROPE, INDIA, NORTH AMERICA )
27. Singapore's export slump is a worrying sign for the global economy
• As a global barometer for the health of the global economy, Singapore continues to paint a bleak picture at present.
28. Dual Risk Out Of China (04/24/2016)
29. Weak Eurozone Manufacturing Data Reinforces ECB's Impotence
30. These 9 charts explain the global slowdown and why central banks are powerless
31. An Arbiter of Recessions Sees ‘Clouds on the Horizon’ for the U.S. Economy
32. One of the biggest warning signs of the financial crisis is flashing again — but this time is different
• An increase in the Libor, the typical thinking goes, means that banks see lending to their fellow financial institutions as more risky and signals the possibility of financial instability.
33. Surge in Global Economic Surprises, Business Confidence Continues
34. Hard-Boiled vs Soft-Boiled Economic Egg Debate: Cracking the Shells
35. Closing In On ZERO Growth
36. Sotheby's As Economic Indicator
• While Sotheby's caters mostly to people who have too much money lying around that they feel the need to spend it on paintings and pricey tchotchkes, in the past the stock's performance has been cited as a relatively good predictor of the business cycle. 
37. Taking Stock (Tim Duy)
38. Here's The Biggest Threat To The Economy And The Bull Market (good)
39. Are Recession Risks Increasing In The U.S.?
40. Why The Stock Market Will Peak On May 10, 2019 At 4:00 PM EST
41. Investment Basics: Yield Curve (Pimco)
42. Why Does the Yield Curve Typically Invert before Recessions?
• St. Louis Fed Director of Research Chris Waller discusses two reasons why: if people expect real interest rates to fall (which is usually viewed as a pessimistic outlook for the economy) and/or if they expect inflation to fall.
43. Prepare For A Deep Recession And Bear Market
44. Leading Indicators Suggest Recovery in 2020
45. The World's Top Experts On Money & The Markets
• Jim Grant, Lacy Hunt, Luke Gromen, James Rickards, Danielle DiMartino Booth, Brent Johnson, Lance Roberts, Tavi Costa, Rick Rule
46. What Will Break First As The Fed Continues To Tighten: Financial Giants Duke It Out
47. A few observations on rates
48. Treasury Curve Inversion Has Even More To Come Than Feared
49. The Next Secular Bear Market May Be Upon Us
50. Global Yield Curve Inverts in Signal a Recession Is Brewing
51. SEC Begins To Ask Questions As Blackstone's Flagship Funds Hit Redemption Limits
52. Dividend Sensei: When To Back Up The Truck On Apple Stock In 2023

Free Cash Flow—Knowing the Basics

Figure 1. 3 Parts of a Cash Flow (CF) statement

Based on @MnkeDaniel, a Cash Flow (CF) Statement is divided into three parts:^[3]

1. CF from Operating Activities
2. CF from Investing Activities
3. CF from Financing Activities

Figure 2. Free cashflow to equity vs. free cashflow to the firm

Free Cash Flow (FCF)

Professor Aswath Damodaran believes that Free Cash Flow (FCF) is one of the most dangerous terms in finance. In [1], he tries to clarify what free cash flows are trying to measure, how they get used in investing and valuation, and the measurement questions that can cause measurement divergences.

Professor believes that any measurement of free cash flow has to begin with a definition of to whom those cash flows accrue:^[1]

Since a business can raise capital from owners (equity) and lenders (debt), the free cash flows that you compute can be to just the equity investors in the business, in which case it is free cash flow to equity, or to all capital providers in the business, as free cash flow to the firm.

In short,

• FCFE (Free Cash Flow to Equity)
• Is the cash flow that a business generates after taxes, reinvestment and debt payments (interest and principal).
• FCFF (Free Cash Flow to the Firm)
• Is a pre-debt cash flow, before interest payments and debt repayments or issuances, but still after taxes and reinvestment.
• Alternatively, is that it measures the cash flows that would have been available for equity investors, if there were no debt in the firm, and it is for this reason that some call it an unlevered cash flow.

Using Free Cash Flow

Computing free cash flows for a past period, they can used in 3 contexts:^[1]

1. Can help in explaining what happened at a business during that period, in operating, investing and financing terms
2. Can be used as the basis for forecasting expected free cash flows in the future, a key ingredient if you are doing intrinsic valuation
3. Can be used to compare pricing across companies, where the market price is scaled to free cash flow, rather than to earnings

Figure 3. Cash Flow Statement of TSM (Courtesy of schwab.com)

Importance of a Balance Sheet

A balance sheet can tell you whether your business is stable and financially healthy or not:^[4]

• Is there cash
• Can you pay your bills
• How much debt do you have
• What is the book value of the business

@IAmClintMurphy in [4] had listed top to bottom in order of liquidity, which is how fast they can be converted to cash in a firm:

1. Cash
2. Inventory—goods available for sale
3. Accounts receivable—what people owe you
4. Fixed assets—land, machinery, equipment, and buildings

Clint Murphy also covers the topic of liquidity ratios which show a firm's ability to turn assets into cash and include:

• Cash ratio
• Measures your total cash and cash equivalents against your total liabilities
• Is an indicator of your value under a worst case scenario, such as a bankruptcy or business shutdown
• Quick ratio
• Measures a firm's ability to meet its short-term obligations with its most liquid assets - also called the acid test ratio
• A higher ratio = better liquidity and financial health
• Current ratio
• Measures a firm's ability to pay short-term obligations or those due within one year, sometimes called the working capital ratio
• A ratio less than one indicates any debts due within one year are greater than your current assets

References

1. Earnings and Cash Flows: A Primer on Free Cash Flow
2. The investor's bible
3. How a Cash Flow Statement works
4. How to Read a Balance Sheet

Is There Enough Metal for Energy Transition?

Metals needed by green technology to replace fossil fuels

On Twitter, @BrianGitt had shared the below comments:^[1]

The world doesn’t have enough mines operating or planned to replace fossil fuels with wind turbines, solar panels, & battery tech. Opening a new mine takes 16 years on average according to @IEA.

Based on a study from S&P Global, it also concludes that:^[3]

Copper demand will double by 2035 and continue to grow thereafter. On the supply side, it finds how challenging that will be, whether on the basis of current trends or with an unprecedented acceleration of supply from mining and recycling.

Finally, according to researcher Benchmark Mineral Intelligence, the world will need:^[5]

Nearly 60 new lithium mines and plants to feed the growing demand for the shift away from fossil fuels.

References

1. Is There Enough Metal to Replace Oil?
2. The problem with lithium is that it’s extremely difficult to recover, American Lithium CEO says
3. The Future of Copper Will the looming supply gap short-circuit the energy transition? (S&P Global)
4. World Oil Supply Set To Decline In Coming Decade?
5. Exxon in Talks With Tesla, Ford, VW on Supplying Lithium

Stock Market—Parallel between 2023 and 2001

Video 1. What to Expect in 2023 - Stanley Druckenmiller's Market Prediction (YouTube link) 

What Stock Market Happened in 2000?

During June 2022 interview at Sohn Investment Conference, Stan Druckenmiller describes how after FOMOing into equities near March 2000 peak, he quickly lost ~$2-3 billion and went on multi-month vacation.  

Figure 1.  S&P 500 price from 1996 to 2009 (Courtesy: Yahoo Finance)

Upon his Sep 2000 return, in Druckenmiller's words: "I open newspaper and can't believe it. NASDAQ has recovered like 70-80% of losses and S&P 500 is almost back to its highs. 

But oil, interest rates, & dollar are up...this has always been terrible for earnings looking forward."

In the interview, Druckenmiller proceeds to describe how he bought Treasuries and made 40% in Q4 2000 betting that the US would go into a recession.

After the above history shared by @MessinaLadder, he had commented that:

My bet is that while the periods are not completely analogous, the current setup for $SPX has more in common with what Druckenmiller was looking at in late 2000.

Figure 2.  ARKK price from 2020 to 2022 (Courtesy: stockcharts.com)

Figure 3.  NASDAQ price from 1998 to 2002 (Courtesy: Bloomberg)

Parallel between 2023 and 2001

Based on @MacroAlf, he had also commented on 11/13/2022 that:

The evidence is pretty compelling: 2023 might well resemble 2001. There are 4 main parallels between now and then, and they relate: 

1. Excessive animal spirits
• Tech bubble in 2000 (Fig. 2) vs ARKK MEME ETF in 2020 (Fig. 3)
• This is the first clear similarity between 2001 and 2023: they both follow periods of excessive risk taking and the subsequent rapid unwinding which leaves important scars amongst investors.
2. Inflation
3. A ''tight for long'' Fed stance^[3]
4. Macro indicators pointing south
   

Closing Remarks

Finally, as Ayesha Tariq has pointed out the market of the past week is completely in “risk-on” mode. And most major technical momentum indicators are now bullish.^[2]

But under the surface, not much has changed.

• We still have mortgage rates at over 7% and next week’s housing data probably won’t come in with great numbers. We also had DR Horton report earlier this week confirming that the housing market isn’t doing well. The guided to an additional 20-25% order cancellations in the next quarter.
• The YoY inflation numbers came down but, the MoM numbers are still increasing. This is not particularly encouraging where you want to see prices actually reversing.
• Even if the Fed decides to reduce the size of the hike to 50bps, it’s still a hike! Not a cut, and QT doesn’t stop.
• If history is any guide, the Dollar peaks and begins to weaken once activity has bottomed, the Fed is easing and global growth starts recovering. None of this is true, right now.
• Finally, we have the ominous yield curve which is still -0.51% (10Y-2Y inverted). The Yield Curve starts to correct in a recession.

 

References

1. Stock Investment: Risk-On vs Risk-Off
2. The Weekend Edition # 64 (Banking on the market)
3. A ''tight for long'' Fed stance (@MacroAlf)
• The bond market is getting around this idea that the Fed won't massively pivot, but it will instead apply a very long pause.
• Market-implied Fed Funds are now seen peaking at 4.9% in 6 months and than to stay in the 4-4.5% range between Q2-23 and Q1-24.

The Worst States For Retirement

Methodology 

Moneywise.com combined each state's retirement rankings from WalletHub, MoneyRates and The Motley Fool to create scores out of a possible 150 and make sure you know not to end up in the rotisserie-level heat of Nevada.

Factors like cost of living, availability of health care and the local lifestyle can make or break the place where you choose to settle down.

Every year, new data is released on which states are best for retirees that take these factors into consideration.

The Worst States for Retirement

The higher the score, the lower the state ranks as a retirement destination.

1. Washington (Score: 136)
2. Alaska (133)
3. Nevada (123)
4. Texas (121)
5. Louisiana (118)
6. New York (115)
7. California (113)
8. Illinois (111)
9. Hawaii (110)
10. New Mexico (110)
11. Tennessee (108)
12. Georgia (108)
13. Maryland (100)
14. New Jersey (99)
15. Oklahoma (96)
16. Oregon (94)
17. Colorado (93)
18. Massachusetts (90)
19. Arizona (80)
20. Arkansas (78)
21. North Carolina (77)
22. Michigan (76)
23. South Dakota (75)
24. Mississippi (69)
25. Minnesota (68)
26. Alabama (65)
27. Indiana (65)
28. Kansas (64)
29. Wisconsin (63)
30. Rhode Island (62)
31. Utah (61)
32. Montana (60)
33. South Carolina (59)
34. Maine (57)
35. Idaho (56)
36. Kentucky (56)
37. Wyoming (56)
38. Connecticut (55)
39. Missouri (55)
40. Nebraska (55)
41. Ohio (52)
42. Pennsylvania (48)
43. West Virginia (48)
44. Vermont (46)
45. North Dakota (45)
46. New Hampshire (41)
47. Delaware (40)
48. Virginia (40)
49. Florida (33)
50. Iowa (27)

Stock Market Bottom and NBER Recession

A yield curve inverts when long-term interest rates drop below short-term rates, indicating that investors are moving money away from short-term bonds and into long-term ones. This suggests that the market as a whole is becoming more pessimistic about the economic prospects for the near future.

When looking at inverted yield curve, it can be any pair of long-term interest rates and short-term interest rates. In this article, we will look at the inverted yield curve between 10-year and 2-year treasury bond yields.

Figure 1.  SPY Monthly Chart (Courtesy: stockcharts.com)

Inverted Yield Curve Precedes the Recession

The Fed's ongoing rate hiking will eventually trigger the next recession. Historically, an inverted yield curve - the difference between 10-year and 2-year bond yields - has been one of the single-best leading indicators of an impending downturn.

Figure 2. Inverted Yield Curve Precedes the Recession

The Slope of the Yield Curve

Conceptually, the slope of the yield curve is a rough approximation of the stance of U.S. monetary policy. The Federal Reserve controls the level of short-term interest rates. Markets determine the level of long-term interest rates based on underlying macro fundamentals.

Therefore, the slope of the yield curve can tell us a lot about the market's expectations for economic growth and inflation. There are three basic shapes the yield curve can take:

• Normal, upward sloping yield curve
• Economy is growing and investors are confident
• Steep yield curve
• A sharply upward sloping, or steep yield curve, has often preceded an economic upturn
• Steep yield curve that is so beneficial to banks and levered bond investments.
• Flat yield curve
• Warning sign that an economy is under duress
• Inverted yield Curve
• The economic outlook is very bleak

Figure 3. Yield curve between 10Y and 2Y Treasury Yield (Courtesy: stockcharts.com)

Inverted Yield Curve between $UST10Y and $UST2Y

The 2-year and 10-year Treasury yields inverted since July 2022, sending a possible warning signal that a recession could be on the horizon.

This part of the yield curve is the most closely watched and typically given the most credence by investors that the economy could be heading for a downturn when it inverts.

On Aug. 28, 2019, the 10-year/two-year spread briefly went negative. The U.S. economy suffered a two-month recession in February and March 2020 amid the outbreak of the COVID-19 pandemic, which could not have been a consideration embedded in bond prices six months earlier.

Figure 4. Average number of days market bottom after the start of NBER recession (Courtesy: @MrBlonde_macro)

S&P 500 around NBER Recession

Inverted yield curve normally precedes the recession—note that 2y10y inversion happened since July 2022. However, as said by Simon White at Variant Perception in [44]:

The lead time between an inversion and the onset of an actual recession is highly variable, White stated, anywhere from 4 to 6 months to 2 years before a recession takes hold.

NBER doesn’t declare, let alone date a recession until well into the recovery. Otherwise Figure 4 would be a great tool for timing market bottom. However, we can still use Figure 2 as guideposts—recessions won't start until negative yield curve climbs back up again.

On 10/22/2022, here are some of analysts' comments on the current market:^[46]

First, it was Morgan Stanley's uber-bear Michael Wilson, who started off the week by flipping (tactically) bullish and calling for 4,150. Then, BofA's permabear Michael Hartnett pointed to " macro capitulation, investor capitulation, and start of policy capitulation" and predicted that a near-term bottom is here, as stocks rise then fall, before fully bottoming some time in H1 2023 when the next bull market begins.

References

1. Cleveland Financial Stress Index
2. Fed "Workhorse" Model Says Odds of Recession in Next Year Only 3.56%; What are the Real Odds?
• The report failed to mention the most practical of practical issues: It's damn hard for the 3-month to invert with 10-year treasuries when the Fed has artificially held short-term yields closet to zero.
3. The Yield Curve as a Leading Indicator: Some Practical Issues (New York Fed)
4. The Yield Curve as a Leading Indicator (New York Fed)
5. Looking Beyond Circular Feedback Loops In The Market
6. On The Dispersion, Or Lack Thereof, of Economic Weakness (Tim Duy's Fed Watch)
7. So You Think A Recession Is Imminent, Yield Curve Edition (Tim Duy's Fed Watch)
8. So You Think A Recession Is Imminent, Employment Edition (Tim Duy's Fed Watch)
9. 3 Charts All Investors Should See
• US credits
• Global sector earnings momentum
• Global manufacturing activity
10. VIX Outside of `Red Zone' Indicates No Recession, Goldman Says
1. The “Red Zone” happens when the VIX is above 25 and climbing, which historically coincides with flat or negative U.S. gross domestic product.
11. A hedge fund manager shares the 10 things that could surprise the market this year (good)
12. A Recession Is On My Mind (Steven Hansen)
13. The Yield Curve Says No Recession
14. Labor Indicators: Some of Today's Trends Pre-Date the Great Recession (Fed Reserve Bank of St. Louis)
15. Why Is Economic Growth So Slow?
16. Portion of US Treasury Yield Curve Inverts
17. Altitude Adjustment: Investing During a Period of Lower Returns and Higher Volatility (PIMCO)
• We expect less consistency in the negative correlation between stocks and bonds relative to the past decade.
• We believe currency movements will play a much larger role in determining portfolio outcomes.
• We suggest investors not ignore the reduction in market liquidity and its potential consequences.
• Our outlook for the global economy is for sideways growth with an uptick in inflation.
• Are we nearing the threshold of the next global recession? At PIMCO, we don’t think so.
18. Currency Wars and a Job Gain Recession?
19. The yield curve still works and 5s10s is one measure that is less influenced by the Fed.
20. Worthy Of Investor Attention: The Long-Term Debt Cycle
21. 22 Signs That The Global Economic Turmoil We Have Seen So Far In 2016 Is Just The Beginning
22. Smelling the Recession
23. Voluntary Job-Quitting Hits Highest Level in Nine Years
24. 13 Charts On The Likelihood Of A Recession
25. Inflation And GDP Growth Rise; Bond Yields Must Follow
26. The 10 Largest “Relative” Trade Networks (EAST ASIA, EUROPE, INDIA, NORTH AMERICA )
27. Singapore's export slump is a worrying sign for the global economy
• As a global barometer for the health of the global economy, Singapore continues to paint a bleak picture at present.
28. Dual Risk Out Of China (04/24/2016)
29. Weak Eurozone Manufacturing Data Reinforces ECB's Impotence
30. These 9 charts explain the global slowdown and why central banks are powerless
31. An Arbiter of Recessions Sees ‘Clouds on the Horizon’ for the U.S. Economy
32. One of the biggest warning signs of the financial crisis is flashing again — but this time is different
• An increase in the Libor, the typical thinking goes, means that banks see lending to their fellow financial institutions as more risky and signals the possibility of financial instability.
33. Surge in Global Economic Surprises, Business Confidence Continues
34. Hard-Boiled vs Soft-Boiled Economic Egg Debate: Cracking the Shells
35. Closing In On ZERO Growth
36. Sotheby's As Economic Indicator
• While Sotheby's caters mostly to people who have too much money lying around that they feel the need to spend it on paintings and pricey tchotchkes, in the past the stock's performance has been cited as a relatively good predictor of the business cycle.
37. Taking Stock (Tim Duy)
38. Here's The Biggest Threat To The Economy And The Bull Market (good)
39. Are Recession Risks Increasing In The U.S.?
40. Why The Stock Market Will Peak On May 10, 2019 At 4:00 PM EST
41. Investment Basics: Yield Curve (Pimco)
42. Why Does the Yield Curve Typically Invert before Recessions?
• St. Louis Fed Director of Research Chris Waller discusses two reasons why: if people expect real interest rates to fall (which is usually viewed as a pessimistic outlook for the economy) and/or if they expect inflation to fall.
43. Prepare For A Deep Recession And Bear Market
44. Leading Indicators Suggest Recovery in 2020
45. The World's Top Experts On Money & The Markets
• Jim Grant, Lacy Hunt, Luke Gromen, James Rickards, Danielle DiMartino Booth, Brent Johnson, Lance Roberts, Tavi Costa, Rick Rule
46. "The Pain Trade Is To The Upside": 10 Reasons From Goldman's Trading Desk For A November Meltup
47. 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity
• The strongest indicator of an upcoming recession just hit. The 10 year / 3 month yield curve just inverted. This has led to a recession 100% of the time within 6 to 18 months - but no earlier than 6 months out. Get ready for a major #recession next year.

Investment—20 Quality Stocks

Figure 1.  Danaher ($DHR)

On Twitter, @QCompounding had shared the below 20 quality stocks for your investment consideration.

Company Name	Business Description
S&P Global	S&P Global provides clients with financial information services (credit ratings, benchmarks, ...) in the capital and commodity markets.
ASML	ASML is a monopolistic player in semiconductor chip machines through lithography. Over the next years, demand for semiconductors will explode.
Novo Nordisk	Novo Nordisk is active in diabetes treatment. More and more people will suffer from diabetes due to our aging population and obesity.
Mastercard	Together with Visa, Mastercard dominates the attractive market of financial transaction processing.
Microsoft	Everyone knows Microsoft and you will probably use it daily. Microsoft has a very wide moat in software applications and cloud storage.
Blackrock	Do you own an ETF from iShares? That’s a Blackrock product. BlackRock provides investment management services to investors.
Thermo Fisher	Thermo Fisher manufactures scientific instruments, consumables, and chemicals. The company has a wide moat with attractive margins.
Automatic Data Processing	ADP s a global provider of business outsourcing solutions. ADP’s services include human resource, payroll and tax solutions.
Zoetis	More people are treating their pets as a full family member, and Zoetis fully benefits from this with animal health medicines and vaccines.
Union Pacific	Union Pacific is a rail transportation company. The company operates in an oligopoly together with BNSF (part of Berkshire Hathaway).
Moody’s	Just like S&P Global, Moody’s is a credit rating company. Both companies are dominating the credit rating market and still will in 20 years.
Sonova	Sonova is a market leader in premium hearing aids. More and more people are suffering from hearing problems and this is beneficial for Sonova.
Visa	Visa is a great quality business with a wide moat and incredible profit margins. When you invest in Visa, you invest in a strong secular trend.
Danaher	Danaher is a great acquirer active in medical instruments and life sciences. Furthermore, they also provide COVID tests.
TransUnion	TransUnion operates as a credit reporting agency offering consumer reports, risk scores, analytical services, and decision capabilities.
Stryker	Stryker is active in specialty surgical and medical products. Hospitals are very loyal which is beneficial for Stryker.
IDEXX	Together with Zoetis, IDEXX dominates the American market for animal health medicines and vaccines.
Rightmove	Rightmove is the clear number 1 in the market for selling listed properties in the United Kingdom.
Adobe	Adobe is a true compounding stock active in computer software products and technologies allowing users to express information across all media.
Copart	Copart provides vehicle suppliers with services to sell vehicles . The company dominates the market for online car auctions.

Company Symbol	FCF margin	ROCE	FCF yield	Exp. FCF growth (3 yr)	CAGR since IPO
$SPGI	42.90%	126.30%	4.40%	16.90%	13.70%
$ASML	53.40%	41.50%	2.50%	18.30%	25.30%
$NOVO-B	34.60%	101.90%	3.20%	15.60%	19.90%
$MA	48.00%	188.50%	3.20%	15.80%	31.00%
$MSFT	32.90%	45.40%	3.60%	15.30%	23.00%
$BLK	23.80%	11.70%	5.90%	12.30%	19.80%
$TMO	17.30%	46.10%	3.30%	10.10%	13.50%
$ADP	17.70%	132.60%	3.30%	12.50%	14.90%
$ZTS	22.30%	32.90%	2.90%	10.60%	20.90%
$UNP	28.00%	14.20%	5.10%	8.50%	13.30%
$MCO	30.00%	72.80%	3.00%	10.00%	14.80%
$SOON	24.30%	50.70%	4.40%	13.30%	15.50%
$V	60.20%	105.30%	4.50%	15.50%	22.30%
$DHR	24.00%	60.90%	4.00%	9.50%	19.60%
$TRU	19.70%	151.70%	4.10%	25.90%	15.10%
$SYK	16.00%	9.10%	3.00%	12.80%	17.90%
$IDXX	19.80%	86.50%	2.00%	13.00%	20.70%
$RMV	63.70%	287.40%	5.12%	7.40%	19.10%
$ADBE	43.60%	125.20%	5.10%	20.00%	17.60%
$CPRT	24.00%	27.40%	3.20%	8.20%	20.00%

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1. 15 Quality stocks you should know (Compounding Quality)
• Apple ($AAPL), Microsoft ($MSFT), Monster Beverage ($MNST), Alphabet ($GOOGL), Visa ($V), Evolution AB ($EVO), Nvidia ($NVDA), Accenture ($ACN), Old Dominion Freight Line ($ODFL), Adobe ($ADBE), Synopsys ($SNPS), InMode ($INMD), O’Reilly Automotive ($ORLY), Novo Nordisk ($NOVO-B), Mastercard ($MA)