Rising Debt Costs
Corporations in the US have taken on a meaningful amount of debt in recent years. Today, the amount outstanding as a percent of GDP is back to levels last seen during the previous two recessions (2001-2002 and 2007-2009). Although debt servicing costs are materially lower, rising interest rates are quickly changing that dynamic. We believe interest costs represent an underappreciated headwind to earnings growth going forward. A similar dynamic applies to the amount of debt individuals have taken on – a particularly relevant issue in the housing market.
#DeleteFacebook was one of the most popular hashtags on Twitter during the month of March. There have been numerous articles scrutinizing Facebook for the Cambridge Analytica debacle, but we found the deception tactics affiliates are using to take advantage of users to be the most interesting:
“Affiliates once had to guess what kind of person might fall for their unsophisticated cons, targeting ads by age, geography, or interests. Now Facebook does that work for them. The social network tracks who clicks on the ad and who buys the pills, then starts targeting others whom its algorithm thinks are likely to buy. Affiliates describe watching their ad campaigns lose money for a few days as Facebook gathers data through trial and error, then seeing the sales take off exponentially. “They go out and find the morons for me,” I was told by an affiliate who sells deceptively priced skin-care creams with fake endorsements from Chelsea Clinton.”
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The Kids Are Alright, so said The Who on their debut album My Generation in 1965. How much trouble are today’s youth getting into? Surprisingly, not that much at all according to the Youth Risk Behavior Surveillance Survey. If you were born in 1972, this is how you would compare:
- In 1991, 27.5 percent of teenagers smoked. Now, 10.8 percent do. That’s a 61 percent decline.
- Teenagers today are 43 percent less likely to binge drink than you and your classmates were. In fact, they’re 23 percent less likely to have ever tried alcohol at all.
- 63 percent fewer teen girls have babies now compared to you and your high school classmates. Teens today are also 62 percent less likely to have had sex before they turned 13.
Whether we’re looking at drinking, drug use, fighting, or factors related to heightened violence, the trends are directionally-positive. In a world consumed by negative media, it is important to keep these long-term, directionally-positive, trends in mind.
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As everyone knows, it is better to work smart than to work hard. How many of us find ourselves spending time on insignificant tasks that won’t truly move the needle? Pausing every now and again to see how we can be more productive has clear benefits – so do it!
“A small productivity gain, compounded over 50 years, is worth a lot. So it’s worth figuring out how to optimize productivity. If you get 10% more done and 1% better every day compared to someone else, the compounded difference is massive."
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This article is slightly dated, but the trend has continued over the last few months. The volatility in stocks has led to significant flows into the bond market. The issue is retail investors don’t seem to have a full understanding of the current dynamic in bonds. The 30-year trend of falling rates (which means rising bond prices) is almost surely a thing of the past. For the most part, every single one of Morningstar’s benchmark bond funds is down year-to-date, with the long-term government bond index coming in at -4.07%. This is not what you would typically expect during a flight to “safety” in bonds.
In our view, it is important for investors to be allocated to alternative strategies that properly manage interest rate risk. So long as the Bank of Canada and the U.S. Federal Reserve continue to raise interest rates, fixed income will be challenged to produce meaningful returns. Despite the weakness in markets year-to-date, our alternative allocations continue to produce positive results and serve as a good avenue for investors looking to earn non-traditional forms of return.
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