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Monthly Recap

September was a particularly “noisy” month and was dominated by 2 main stories: 1. impeachment of President Trump and 2. WeWork’s IPO and alleged abuses by it’s founder Adam Neumann.

Starting with impeachment, Nancy Pelosi launched a formal impeachment inquiry after Trump withheld military aid for Ukraine days before telling President Volodymyr Zelenskiy he should investigate Biden and his son Hunter, who was on the board of a Ukrainian gas company. There are now several whistle blowers who’ve stepped forward who were present or part of an effort to lock down the call records. Then days later President Trump requested China should also start an investigation into the Biden’s. It’s hard to believe anything will harm President Trump and he’s trained us to expect this type of rhetoric without any real consequences. While the impeachment process has begun, I’m not sure anything will actually happen and could just be a big distraction.

WeWork officially shelved it’s IPO plans after a rocky IPO roadshow led the CEO/founder Adam Neumann to resign after seeing it’s potential valuation collapse from $65 Billion to $10-15 Billion in just a week. A man by the name of Henry Hawksberry posted a blog on Medium (now deleted) titled “Is WeWork A Fraud” where he laid out 24 reasons for why he believes this to be the case. The post has now been re-posted on Zero Hedge here for those interested in reading it. If these are all true (some have already been proven), it looks like a lot of self dealing and questionable practices for years. Most people I talk to in the startup world and real estate circles never thought WeWork’s valuation made any sense. And while I’ve enjoyed having office space at a WeWork, the valuation was one I never understood. Does WeWork’s fall from grace signal a canary in the coal mine? It’s possible the days of lofty valuations of companies that lose considerable amounts of money with no path to profitability are over…for now.

Besides an impeachment inquiry and WeWork’s fall from grace, below are some other noteworthy stories from September:

  • A key U.S. factory gauge unexpectedly contracted for the first time since 2016, sending stocks and bond yields lower and boosting expectations for interest-rate cuts as global manufacturing woes deepen. The Institute for Supply Management’s purchasing managers index fell to 49.1 in August signaling contraction
  • Oil surged the most on record after a devastating attack on Saudi Arabia intensified concerns about growing instability in the world’s most important crude-producing region.
  • Federal Reserve policy makers lowered their main interest rate for a second time this year to a range of 1.75% to 2%. Chairman Jerome Powell said that “moderate” policy moves should be sufficient to sustain the U.S. expansion. “We took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks,” Powell told reporters.
  • Intensifying trade conflicts have sent global growth momentum tumbling toward lows last seen during the financial crisis, and governments are not doing enough to prevent long-term damage, the OECD said in its latest outlook. The Paris-based organization cut almost all economic forecasts it made just four months ago, as protectionist policies take an increasing toll on confidence and investment, and risks continue to mount on financial markets. It sees world growth at a mere 2.9% this year.
  • The U.K.’s top judges inflicted an unprecedented legal defeat on Prime Minister Boris Johnson, branding his controversial decision to suspend Parliament unlawful and calling on lawmakers to return to Parliament as soon as possible.

Charts & Commentary

(In no particular order)

The topic of hard and soft data divergences has once again cropped up. In case you forgot, Hard data comes from government statistical agencies while soft data comes from surveys.
While industrial production (hard data) is holding up, the US Purchasing Managers Index (soft data) is showing signs of real weakness.
The possibility of a third US rate cate still remains elevated.
The Bank of Japan has been investing heavily into the Japanese equities markets in recent years. If you remove their equity purchases, investors have been net sellers.
I learned about this phenomena many years ago and this shows just how rosy the lenses analysts glasses are when they make profit expectations for the S&P. If you look at 3Q19E column, you’ll see how EPS estimates change over time. Another reason why looking at forward price to earnings ratios can be problematic.
Japan, France and Germany are the true pioneers when it comes to the amount of negatively yielding debt in the world.
A lot of people ask themselves who would be buying negatively yielding debt? The answer is predominantly central banks and to a lesser extent pension and insurance funds. This still seems like an experiment that won’t end well.
I felt like a pioneer by cutting the proverbial cord about 5-6 years ago and using only Netflix and Hulu. However, since then, the amount of services I can add has grown and grown and I’m not sure we’re in a better place today than where I used to be. Actors have changed slightly but the same problems remain.

I hope you enjoyed this months financial markets update.  If you have any questions please contact us directly.  If you’re interested in a topic that you’d like us to address, please email us so we can include them in future updates.

If you’re interested in starting a dialogue and learning how we can help, please contact us.

Best Regards,

Jared Toren
CEO & Founder

Sources: Edges & Odds, WSJ Daily Shot, 361 CapitalSteve Blumenthal’s On My Radar

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Author: Jared Toren

Jared Toren is CEO and Founder at Proper Wealth Management. Proper was born out of frustration with the inherent conflicts of interest at big brokerage firms influencing advisors to sell products that were not suitable for clients but profitable to the firm along with a consistently mixed message of who’s interest was supposed to be put first; the clients’, the firms’, shareholders or advisors. At Proper, our clients interests come first. We are compensated the same regardless of which investments we utilize so there’s no incentive for us to sell high commission products. Since we focus on a small number of clients, we are able to truly tailor our advice to each person’s unique circumstances.
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