Hackers Can Use Your Household Appliances to Trigger Large-Scale Power Outages

As more people start to buy appliances that are connected via the Internet of Things (IoT), home appliances are more susceptible to attacks and breaches by hackers.

A new Princeton University study found that hackers can take control of washing machines, refrigerators, air conditioners, and other connected appliances, to “manipulate the power demand in the grid.” These coordinated attacks can cause local power outages and large-scale blackouts, the study found.

The U.K.-based software company Arm, owned by SoftBank Group, announced on Wednesday a partnership with the Boston-based cybersecurity firm Cybereason to canvass devices connected on a network and offer services to manage their data, the Wall Street Journal reported. Their goal is to scan for vulnerabilities in the IoT network connection to detect malware and other attacks.

“If you look, you will find vulnerability in every device out there,” Lior Div, the CEO of Cybereason told WSJ. “Hackers will use whatever they can.”

A MadIoT attack, or manipulation of demand via IoT, can allow a hacker to take control of 90,000 air conditioners or 18,000 electric water heaters, allowing them to shut down all generators in a specific area, the Financial Times reported based on information from the study.

“It’s the equivalent of a cyber army of controlled devices attacking some of the core services that form the internet,” Justin Lowe, a cyber security expert at PA Consulting told FT. “Anybody producing IoT-type devices needs to think about what they’re doing and understand the wider risk of how their systems could be misused,” said Lowe.

Attacks on internet-connected devices are on the rise, as the technology becomes more available, with a 600% increase in attacks in 2017 from 2016, WSJ reported.

Netflix subscriber growth beats estimates, shares surge

(Reuters) – Netflix Inc added more subscribers than expected in the third quarter, as new seasons of original shows such as “Orange is The New Black” and “BoJack Horseman” pulled in users.

FILE PHOTO: The Netflix logo is pictured on a television in this illustration photograph taken in Encinitas, California, U.S., January 18, 2017. REUTERS/Mike Blake/File Photo

The company’s shares were up 13.5 percent in after-market trading on Tuesday. The shares had a strong run until last week’s sharp slump, but remain about 80 percent up for the year, outperforming the other members of the high-flying FAANG group.

Netflix has been pouring money – the company plans to spend $8 billion this year – to bolster its original content to fend off intensifying competition from players such as Amazon.com’s Prime Video service and Hulu.

The competition is only expected to rise. AT&T is set to launch a new direct-to-consumer streaming service in late-2019, while Walt Disney is preparing to launch a family-oriented streaming service streaming service.

Netflix added a record number of original programming hours in the third quarter, up over 135 percent year-over-year, according to Cowen & Co analysts.

The company said on Tuesday it signed up 1.09 million subscribers in the United States, above analysts’ estimate of about 674,000, according to I/B/E/S data from Refinitiv. (bit.ly/2NJbjth)

Netflix added 5.87 million subscribers internationally, compared with the average analyst estimate of 4.48 million.

Chief Executive Officer Reed Hastings has been pushing deeper into international markets as growth stagnates in its home market of United States.

The company’s net income rose to $402.8 million, or 89 cents per share, in the third quarter ended Sept. 30 from $129.6 million, or 29 cents per share, a year earlier.

Total revenue rose to $4 billion, in line with analysts’ expectations of $4 billion.

Reporting by Vibhuti Sharma in Bengaluru; Editing by Sriraj Kalluvila

Apple Design Chief Jony Ive Talks Smartphone Addiction with Vogue’s Anna Wintour

Apple chief designer Jony Ive acknowledged that some of the most popular tech products can have consequences that their creators failed to foresee.

“I think the nature of innovating is that you cannot predict all the consequences,” Ive said Monday during a conference hosted by Wired magazine in San Francisco.

Ive’s comments came in response to a question by moderator Anna Wintour, editor-in-chief of fashion magazine Vogue and artistic director for publisher Condé Nast. Wintour asked Ive if he felt guilty that some people are addicted to their iPhones and are overly connected.

Ive did not directly respond, but said that “it’s good to be connected” and that “the real issue is what you do with that connection.” In his view, some technology breakthroughs have been “fabulous” while other have been less so.

Designing is “an organic process” that doesn’t end when the product is finally publicly released. He cited Apple introducing new iPhone features like one that tells people how much time they spend on certain apps, as an example of some of Apple’s work to help people limit the time they stare at their smartphones.

Citing his days when he attended art school, Ive recounted learning how “context affects the way we relate with each other,” and how “people’s behavior deteriorated when behind the wheels of a car.” Although people may be kind and cordial to one another when talking face to face, their attitudes can shift to being rude and angry when driving, Ive said. Presumably, the same basic idea of people altering their behaviors when driving can be applied to when they surf the web or send each other messages on their smartphone.

Apple is “doing work” to make communicating on iPhones less “transactional,” Ive said, mentioning the company’s work on its messaging service that uses digital stickers like emoji “to try and restore the humanity in the way we interact.”

When asked who he believes is the next rising start in the tech industry, Ive said he has “tremendous admiration” for Evan Sharp, the founder and chief product officer of visual search app Pinterest.

Ive didn’t cite any specifics about Sharp, but he said, “I think at one level I hold him with a regard that I do is just the way he looks at the world.”

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As for the latest profound design lesson Ive has learned, he said it’s “probably something unbelievably mundane” that’s “just a detail about how we connect glass to a structural frame.”

He conceded it was a “real boring answer,” but added “we are still surprised and learning so much” about attaching display screens to devices like smartphones and watches.

Airbnb bill may limit short-term rentals in U.S. capital

WASHINGTON (Reuters) – Short-term rentals of Jackie Howard’s two-bedroom home near major tourist attractions in Washington, D.C. have helped her family pay for everything from plumbing emergencies to braces for her daughter.

FILE PHOTO: The logo of Airbnb is displayed at an Airbnb event in Tokyo, Japan, June 14, 2018. REUTERS/Issei Kato/File Photo

After Tuesday, when the district council is expected to vote on whether rentals on platforms like Airbnb and HomeAway can continue in the U.S. capital, Howard’s listing and thousands of others may become illegal.

The legislation would bar people from short-term rentals of secondary homes and limit rentals of primary residences to a maximum of 90 days a year if the owner is not physically present. There would be no restriction on short-term rentals if the owner is there.

Passing the legislation would make Washington the latest city to try to regulate the skyrocketing use of platforms like Airbnb, following other cities facing housing crises, like New York and San Francisco.

AirDNA, a website that tracks Airbnb rentals, says there are nearly 7,000 Airbnb listings in Washington, and annual growth is 39 percent. Data on the total number of short-term rentals in Washington were not immediately available.

The legislation passed unanimously in a preliminary vote earlier this month. If the council votes in favor of the legislation in a second vote on Tuesday, it would then need approval from Mayor Muriel Bowser and congressional review.

Bowser has said she is concerned the bill is too restrictive but her office did not respond immediately to a request for comment.


Supporters of the legislation say short-term rentals take housing off the market and risk making it more expensive.

In one high-profile case, the district’s attorney general sued companies for illegally operating rent-controlled apartments as hotel rooms.

Critics argue there is little evidence that short-term rentals affect housing prices. The rentals can help hosts afford the cost of living in Washington, they say.

Several council members have called for less stringent limits and may push for amendments to the legislation to allow for rental periods of 120 days a year, rather than the 90 currently specified.

“We have a large number of people who are either active military, they work for the Foreign Service, they work for different federal agencies or places where they get dispatched out for a couple of months at a time,” said Charles Allen, who introduced an amendment to allow for 120 days of rentals.

The amendment failed but the council chairman Phil Mendelson said he would not be surprised to see similar provisions up for a vote again.

“Undoubtedly there will be some people who fall in between the cracks, where they don’t feel like they’re away long enough to rent it out, they’d like to do short-term rentals,” said Ed Lazere, the executive director of D.C. Fiscal Policy Institute, a group that supports the legislation.

But, Lazere added: “There has to be some balance and that’s what the law is intended to do.”

Owners like Howard, who said she was unable to maintain a 9-to-5 job due to health reasons, say the legislation will cut off an important income stream.

“I would have to rethink everything and figure out another way to do it,” she said.

Reporting by Makini Brice; editing by Jessica Resnick-Ault and Rosalba O’Brien

Weighing The Week Ahead: Can Earnings Season Spark A Rebound In Stocks?

We have a normal economic calendar with a focus on housing data. Earnings season will be in full swing. The background for this news will, of course, be the stock market volatility and decline of the past week. That story will command the early-week attention, especially if aggressive selling resumes. Recent earnings seasons have buoyed stocks, leaving the punditry with this question: Can earnings season spark a rebound in stocks?

Last Week Recap

In my last edition of WTWA I took note of rising interest rates asking whether they signaled the beginning of the end for the stock rally. That was a good call. The question dominated financial news on Monday and Tuesday, even though stocks barely moved. It was almost as if the news coverage was pre-planned, and events did not matter. That changed on Wednesday, when the major market decline gave legs to the story. The last edition of WTWA provided a good preview of this, but certainly no prediction of the sharp selling.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. I especially like the version updated each week by Jill Mislinski. She includes a lot of valuable information in a single visual. The full post has even more charts and analysis, including commentary on volume. Check it out.

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The market declined 4.1% on the week. Wednesday saw the largest single-day loss since February. The weekly trading range was about 6.4%. Volatility spike higher, exceeding the long-term averages. The VIX implied volatility measure remained higher than the actual results. I summarize actual and implied volatility each week in our Indicator Snapshot section below.


Have you already purchased your last car? Justin Rowlatt (BBC News) raises the provocative question and provides plenty of evidence. Internal combustion engines have 2000 parts, compared to about 20 for electric cars, which may have life spans of 500,000 miles.

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The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

When relevant, I include expectations (E) and the prior reading (P).

The Good

  • Inflation data remained benign. PPI registered a gain of 0.2% up from P of -0.1% but in line with expectations. CPI gained only 0.1% P 0.2% headline and 0.1% core. E 0.2%.
  • High Frequency Indicators have turned positive, including the long-leading cluster. New Deal Democrat’s helpful weekly update breaks the data into two groups, providing both detail and a summary on each. The long-leading group has shifted back and for recently, and he continues to monitor it closely. For now, it is positive.
  • Economic growthfor Q3 and forward remains strong. Calculated Risk summarizes the key sources, “It looks like GDP will be in the 3s in Q3”.
  • Market sentiment has turned negative – very negative. David Templeton (HORAN) updates the Fear and Greed picture, a positive contrarian factor.

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The Bad

As has been the recent case, most of the “bad” news consists of indicators slightly off the best levels.

  • NFIB Small Business optimism was slightly off the high from last month – 107.9 vs. 108.8. Bespoke also looks at the reasons behind the headline number.

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  • Initial jobless claims rose to 214K E 208K P 207K
  • Michigan sentiment declined to 99.0 E 100 P 100.1. Bespoke notes that sentiment remains near the recent highs and highlights the move in inflation expectations. Expectations for income growth were also lower. The survey period captured only part of last week’s decline, and probably none of it for most respondents.

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The Ugly

Hurricane Florence led to 51 deaths and estimated damages of $30 billion to $50 billion. The events have also exposed other problems. The Bipartisan Policy Center provides a good analysis, with this comment on some needed reforms:

Hurricane Florence has, like many other recent disasters, exposed a variety of flaws in the pre-disaster and post-disaster policies of the United States. These gaps undermine the nation’s resilience, endanger residents, and further jeopardize the soundness of already aging infrastructure. For immediate recovery needs, Congress has repeatedly turned to supplemental funding as short-term fixes, but to prevent this level of destruction from reoccurring in the wake of the next disaster, there needs to be a dramatic overhaul of the national infrastructure investments and disaster framework. Spending more upfront, with a focus on increased resiliency and mitigation, saves money when a disaster hits. For every $1 spent on mitigation, an estimated $6 is saved that otherwise would have been spent in recovery costs.

The Week Ahead

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.

The Calendar

The calendar is a big one, with a strong emphasis on housing. Also featured will be retail sales, the Fed minutes, and leading indicators. The Philly Fed has its fans, and it has had some market-moving moments. A favorite of mine is the JOLTS report, which has special significance as our best read on the tightening labor market.

It is also a big week for Q3 earnings reports, where we had our first taste last week. Many large companies will report. Expectations are for continuing increases in the 20% range on a year-over-year basis. (Barron’s).

Briefing.com has a good U.S. economic calendar for the week (and many other good features which I monitor each day). Here are the main U.S. releases.

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Next Week’s Theme

Once again, I expect last week’s news to linger into the week ahead. My hope is that the story will turn to earnings season and substantive stock news. For the moment everyone is preoccupied with last week’s big stock declines. Mrs. OldProf and I were watching an interview with a European notable who described the stock decline as either a healthy correction or the start of a new trend. She astutely observed that he certainly had all the bases covered! By week’s end I expect pundits to be asking: Can earnings season generate a rebound in stocks?

But for the moment, we need to review the week behind. Sometimes an understanding of that is necessary to plan for the week ahead.

As is my custom, I will cite a range of viewpoints and include some links. I will organize these into two sections: Alleged causes and Recommended strategies.


  • Valuation – Always cited when stocks move a bit lower.
  • Profit Taking – A tried and true reason when a rising market changes course. (Barron’s, which also mentions some of the other potential causes listed here).
  • The Fed – Now apparently less data dependent, planning to keep raising rates above neutral regardless of the strength of the economy. Leading Fed guru Tim Duy notes the increased importance of the “dot plots,” the report of individual Fed participants expectations for future rates.

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  • Tariffs – Dr. Ed Yardeni analyzes the impact of various tariff announcements and muses on the possibility that a trade war with China is now the “base case” as JP Morgan suggests. Dr. Ed believes:

…the US economy will be strong enough to boost S&P 500 earnings by 6.8% to $173 per share, which has been our number for next year for a while. I don’t think that the escalating trade war with China will be the event that ends the bull market in the US (Fig. 3). However, it may already be marking the beginning of a severe and prolonged bear market in China (Fig. 4).

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  • Interest rates – The standard shorthand explanation from major news sources.
  • Technical signals – Eddy Elfenbein notes that Thursday’s trading took the S&P 500 below its 200-day moving average, a widely-followed technical indicator. Eddy also observes that panic is not indicated. The two-day loss is not that unusual, and not even the worst for 2018. The chart below illustrates both points.

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  • Algorithms — blamed for anything and everything.
  • Emotion — Just another panic attack writes Scott Grannis. He concludes, “It wouldn’t be surprising to see prices decline further, but it would be surprising if this proved to be the beginning of a major rout or recession”. In his summary of key indicators, he includes an interesting chart of VIX peaks. He creates a ratio with the ten-year note yield. It is a coincident measure.

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What to do now?

  • Buy bonds, say bond fund managers and bond research houses. Flirting with Models offers some alternatives for diversification.
  • Buy gold (or silver) say the fear-inspiring commercials.
  • Sell everything – the verdict of many investment newsletters
  • Don’t panic? Cullen Roche explains why this admonition is not helpful.
  • Buy the dip – David Templeton (HORAN) takes a good look at the data, concluding:

Some might say the decline has caused damage to the market, but a better phrase might be created opportunity. As the below chart shows only 11% of S&P 500 stocks are trading above their 50 day moving average. The last time this occurred was in February earlier this year. That turns out to be a low point in the market so far in 2018. In regards to the 200 day moving average, 41% of stocks are trading above that level, again similar to the early 2018 market low.

  • Buy with both hands – Ralph Vince sees the current opportunity as “juicy.”
  • Get perspective by considering data – then figure out how it applies to you. Brett Steenbarger explains both.

In today’s Final Thought, I’ll add a few of my own observations.

Quant Corner

We follow some regular featured sources and the best other quant news from the week.

Risk Analysis

I have a rule for my investment clients. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update.

The Indicator Snapshot

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Short-term trading conditions remain favorable, despite some deterioration. The overall health indicator for our models remains positive, although some of the individual models stopped out specific positions. Super-high volatility is not attractive for most trading systems. If these high levels continue, I expect further deterioration next week. The VIX spiked much higher than actual volatility, indicating sentiment worse than the reality.

Fundamentals indicators are all solid, with stocks much more attractive than recently. The earnings yield advantage over the S&P 500 has improved significantly.

The Featured Sources:

Bob Dieli: Business cycle analysis via the “C Score.

Brian Gilmartin: All things earnings, for the overall market as well as many individual companies.

RecessionAlert: Strong quantitative indicators for both economic and market analysis.

Doug Short and Jill Mislinski: Regular updating of an array of indicators. Great charts and analysis.

Georg Vrba: Business cycle indicator and market timing tools. None of Georg’s indicators signal recession. Here is the latest chart on the Business Cycle Index.

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Insight for Traders

Check out our weekly Stock Exchange post. We combine links to important posts about trading, themes of current interest, and ideas from our trading models. This week we asked whether traders thought they could actually understand the stock market. Or perhaps they were just pretending. In many ways, it is a companion to today’s post, but with a trader orientation. We shared advice by top trading experts and discussed some recent picks from our trading models. Our ringleader and editor, Blue Harbinger, provided fundamental counterpoint for the models, all of which are technically-based.

Insight for Investors

Investors should have a long-term horizon. They can often exploit trading volatility.

Best of the Week

If I had to pick a single most important source for investors to read this week, it would be Ashby Daniels’ (Retirement Field Guide) discussion of emotions and retirement planning. He illustrates his ideas with the story of an actual investor who made a knee-jerk market call that turned out well – at least for a few percentage points. Now what?

He writes:

Many people are quick to say that they aren’t market timers (nobody likes to be labeled as such), but then in the next sentence proceed to ask what I think of the market and whether now is a good time to invest more or to take some chips off the table.

In fact, the question, “What do you think of the market?” is by far the most popular question that I get asked. I just want to be on the record in saying that, “Anything other than establishing a portfolio built specifically for you and sticking with that portfolio is an attempt at market timing.” With the exception of life changes, how could it be anything else?

Read the full article for some good ideas about how to plan and stick to the plan. [Jeff – I suppose I like his approach since it is so close to my own, but there is nothing wrong with that].

Stock Ideas

Chuck Carnevale provides his usual comprehensive analysis combined with a lesson in using data. He sees Whirlpool [WHR] as a cheap stock with little downside. Be sure to watch the video to see why he calls this a “fire sale valuation.”

Blue Harbinger also surveys beaten-down names and finds one from his watch list, Ship Finance International (SFL).

Alphabet? (GOOG) Stone Fox Capital likes the opportunity, IF the company dodges or resolves regulatory issues.

They also like Advanced Micro Devices (AMD), calling market fears about competition with Intel (INTC) unwarranted.

Eddy Elfenbein does not make a specific recommendation, but he takes note of the current weakness in semiconductors, after years of strength.

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Personal Finance

Seeking Alpha Senior Editor Gil Weinreich’s Asset Allocation Daily is consistently both interesting and informative. His upbeat analysis,4 Ways to Prevail Over Automation, is factual, pragmatic, and inspirational. Later in the week, his thoughts were more sobering. He challenged investors to consider how they would consider a prolonged decline. That is a topic that everyone should think about in advance.

Abnormal Returns is an important daily source for all of us following investment news. His Wednesday Personal Finance Post is especially helpful for individual investors. This week had several good posts on retirement. I especially liked Mike Piper’s warning that you might not be able to pick your retirement age. He combines data with some good examples. And, today’s Best of the Week (above).

Watch out for…

Bonds. The Mad Hedge Fund Trader says The Fat Lady is Singing for the Bond Market.

Final Thought

What caused the sharp market decline? Interest rates are a poor explanation, since the entire yield curve was the same on Wednesday morning as it was on Friday. Astute traders scoffed at the explanations offered (Avi Gilburt).

I covered the possible pattern in last week’s edition, which was an accurate preview. Briefly put, a smidgen of news sparks some trading from both human traders and algorithms. This is directionally correct, but without analysis of the overall significance. The selling often spreads to an ETF that has concentrations in the affected stocks. Sometimes prices that are viewed by some as important “technical” levels are violated. This sparks selling by a different group of traders. Despite the lack of overall logic or a cohesive explanation, the financial news must satisfy demand for an explanation. I wrote last week:

Every time the market makes a small move we are bombarded by observers predicting the worst. It is important to remember that declines of 15-20% happen regularly and without any particular reason. No one can predict these accurately, so the average investor should learn to take advantage of the movement rather than falling for the persistent pseudo-warnings. Alan Steel calls it the Fear Economy, and reviews the history of predictions by one prominent uber-bear.

Alan Steel has another great post. Starting with a bearish call from one economist from a big institution, he traces the consequences:

Let’s face it they’d seen articles written by “proper experts” reminding readers that October was a dangerous month to invest in shares.

Mark Twain used to say that yonks ago. Although he also reckoned that February, December, August, May, January, July, September, March, November April and June were, too. Say no more.

No matter what we said this couple of perpetual worriers cashed out and stuck their significant life savings in bank deposit, assuring us they’d reinvest when it felt better. So when would that be? “When the market’s higher of course”. No, they didn’t spot the irony. So three years later how have they done? Not good I’m afraid . Earned literally sod all in interest, and lost money in real terms thanks to inflation.

And also this…

In August 2010 an analysis was made of ten renowned economic experts and their predictions related to an imminent “double-dip recession” in the wake of the 2007/8 Great Financial Crisis. They included well –known revered figures including Robert Shiller (Prof at Yale University), Bill Gross (Former managing partner at PIMCO), Nouriel Roubini (Prof at New York University) as well as those economists representing Goldman Sachs, The Institute of Directors and the National Institute for Economic and Social Research.

They all saw the probabilities of a double-dip recession as higher than normal. One or two saw the probability as high as 50% to over 60%. And they were wrong. Unless you count the fall in demand for Hummus and Taramasalata in Greece.

[A few months earlier, in May of 2010, I challenged these ideas with my Dow 20K call – the market doubling rather than being cut in half. There were plenty of skeptics, especially on Seeking Alpha. Or this halfway update. And finally, the 2016 CNBC coverage. The important takeaway is that the key indicators I am using have not changed, nor has the avalanche of negativity. The time to worry will come – probably when recession odds move higher.]

Barry Ritholtz offers a challenge on the same concept. He notes that the factors alleged to underly the decline were well known in advance. So many offered great explanations with the benefit of hindsight. But not on Tuesday.

What now? Your best course of action depends upon your personal circumstances and time frame.

If you are a trader, follow your system. Use your stops to exit positions. Get ready for another day.

If you are a passive investor with an “all-weather” portfolio, you should not do anything. This sort of move comes with the territory. If you find it disturbing, then your stock position may be too large. Or you need to spend less time watching the news!

If you are an active investor who determines values of the companies you hold and price targets for the stocks, you should ignore the opinion of the emotional Mr. Market. Take advantage of price disparities to buy or sell as indicated. Volatility provides opportunity.

[Note: If you find these recommendations difficult, you may be using the wrong method. We combine these perspectives to right-size risk. My two papers on investor pitfalls and understanding risk are available at no charge.]

I’m more worried about:

  • China trade. Any mention of progress or lack thereof generates an immediate market reaction. This issue is important and could provide the catalyst for major gains.
  • The LIBOR transition. This reference rate for many contracts has proven to be both unfair and unstable. Improvements are coming, but Richard Berner (Bipartisan Policy Center) warns that we should not be complacent during the transition.

I’m less worried about:

  • Earnings growth. Can it be a catalyst again this month? The reaction to conference calls will give us a sense of the market mood.

Disclosure: I am/we are long WHR, INTC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Short calls versus both WHR and INTC.

Jeff Weiner on How Technology Accentuates Tribalism

This weekend is WIRED’s 25th Anniversary festival. We started it off with three conversations with brilliant CEOs about the future of work: Patrick Collison of Stripe, Stacy Brown-Philpot of TaskRabbit, and Jeff Weiner of LinkedIn. Here is the transcript of my talk with Weiner.

Nicholas Thompson: One thing that I love about you is that your career dates to 1994 and an essay that you read in WIRED magazine. So, explain how a review of a Nicholas Negroponte book led you to become who you are.

Jeff Weiner: It’s all true. I’m not sure I’d be sitting in this seat today if it weren’t for WIRED. I was first introduced to the internet prior to its commercialization while I was still in school as a senior at Wharton undergrad. I was on a consulting project with a buddy of mine and three DuPont engineers who were interested in leveraging this thing called the Internet for desktop teleconferencing. So I was exposed to the technology and became really fascinated by the implications and kind of developed this thesis that it was going to change everything, there would be this concept of convergence, and I had always been interesting in education reform. And so I really started to roll up my sleeves to better understand the opportunities and how it would impact society.

Fast forward, I ended up joining the corporate development group of Warner Brothers. I’d been in Boston in a consulting group for a little while. And shortly after joining, I read my copy of WIRED that month. It is probably close to 24 years to the day. And I would read WIRED cover to cover. Everything about it was fascinating to me—the look, the feel, the narration, the voice, how unique it was. And of course, it was covering something I was so fascinated by. I would even read the book reviews, including one in this particular edition about Nicholas Negroponte and his vision for the digital future. I ended up buying the book. And essentially what I picked up from it was everything that could be converted from an atom to a bit would be.

I had just joined Warner Brothers and I knew that everything about the place was going to be transformed. And within a month or two of that revelation the guy who was running corporate development at the time said Warner Brothers needed an interactive division. They would have a CD-ROM component, which was all the rage back then. They would have an online component, which most people in the group didn’t really understand or have experience with. I had just joined AOL about nine months prior. And it was going to have an out-of-home interactive entertainment component, a kiosk. That fell by the wayside. The CD-ROM component never got approved. But I volunteered to write the online business plan, and 24 years later, here we are.

NT: That is extraordinary. And that is, of course, one of the most important ideas of last 25 years, right. Everything that is an atom will become a bit. So let me ask you a very simple follow up question: What is the equivalent idea today?

JW: Let’s get Nicholas Negroponte on the phone and find out!

Jeff Weiner

Amy Lombard

For me, it’s far less about the technology today and it’s far more about the implications of technology on society. And I think increasingly, we need to proactively ask ourselves far more difficult, challenging questions—provocative questions—about the potential unintended consequences of these technologies. And to the best of our ability, try to understand the implications for society. I think it’s safe to say, certainly for those founders and CEOs that I know and work with in the Valley, people have the best of intentions when they are innovating, when they’re creating these breakthroughs, their visions for their companies. But you can see, it feels like every week there’s another headline that is talking about how some of this stuff is going in the wrong direction. And technology certainly didn’t create tribalism, tribalism is a part of human nature, it protects us. The whole idea of ingroups keeps us safe and secure.

But technology is dramatically accelerating and reinforcing tribalism at a time when increasingly we need to be coming together as a society—and you can talk about society in a town, a city, a state, a country, the world—when we increasingly need to be coming together to solve some pretty big challenges. So to me it would be about understanding the impact of technology as proactively as possible. And trying to create as much value, and trying to bring people together to the best of our ability.

NT: Alright. So, you set up an easy question in your answer, which is: You worry about the worst possible unintended consequences of technology. What is the worst possible unintended consequence of LinkedIn?

JW: So, you know, our vision is to create economic opportunity for every member of the global workforce. There’s over 3 billion people in the global workforce. And that vision was originally put into place to inspire our employees. It was true north. It was the dream, it wasn’t necessarily something we were going to measure ourselves against. That was our mission. That was the role of the mission, which is to connect the world’s professionals to make them more productive and successful. There’s roughly 780 million knowledge workers, or professionals, pre-professionals, students that aspire to become white-collar professionals in the world. Three billion people in the global workforce. The unintended consequence of too closely focusing on our mission without truly thinking through how we’re going to operationalize the vision is to reinforce unconscious bias, to reinforce these growing socioeconomic chasms on a global basis, especially here in the United States, by providing more and more opportunity for those that went to the right schools, worked at the right companies, and already have the right networks.

NT: Oh, I see. Your network could possibly reinforce all of the biases.

JW: Oh, not quite possibly—it does. And it does for all of us. And despite, again, the best of intentions, people have a tendency to want to work with and recruit those that look like them, that sound like them. And it’s not through, more often than not, it’s not through explicit bias. These are unconscious biases, and so I’ll give you a perfect anecdote here. We recently rolled out an Ask For a Referral capability on LinkedIn. And this makes all the sense in the world when you consider how many people find their jobs by virtue of who they know. So just a quick show of hands, How many people here have ever gotten a job by virtue of their network? Someone they knew at the company. So it’s about 90 plus percent. So we rolled out this functionality, made all the sense in the world. And it took off. And the results were incredible. We found that people asking for a referral within an organization they were interested in working for, by virtue of a job post on LinkedIn and tapping the power of their LinkedIn network, were eight times more likely to get the job. Eight times more likely to be hired. And it creates a more effective, efficient process for the prospect, for the company themselves, etcetera. So, our head of social impact, a woman named Meg Garlinghouse, who I’ve been working with for a really long time— we first met at Yahoo, and she’s one of, if not the, best in the business—she pulled me aside shortly after we launched this thing and she said, “I understand everyone’s celebrating the success of this product but have we considered the unintended consequences?” I said, “What do you mean?” She said, “What about the people that don’t have the networks?” Just stopped me cold in my tracks. I mean we have the wonderful privilege of working with some extraordinary organizations both here in the community locally and more broadly. Boys and Girls Club of the Peninsula, Gear Up, organizations like this where you’ve got extraordinary talent that just doesn’t necessarily have access to the right four-year diploma, or the right people. But we work with these people, we hire them, we’re thrilled to have them join the company because they are so capable, they have all the raw materials, all the aptitude, the resiliency, the grit, the learning curves, the compassion by virtue of the experiences they’ve had in their life. But they don’t have the networks. And so with questions like that raised, we are able to ask ourselves these tough questions and then answer them hopefully in the right way. And what we ended up doing with that kind of ethos in mind, to broaden this aperture, to create economic opportunity for every member of the global workforce, we created something called the Career Advice Hub. And the Career Advice Hub enables any member of LinkedIn to raise their hand and ask for help, and for any member of LinkedIn to volunteer to help them, to mentor them. And within a few short months after launching that, we’ve already had two million people ask for help. And we’ve had over a million people volunteer to mentor folks, ideally outside of their network. So that would be an example of how we’re addressing them.

NT: When I get LinkedIn connection requests, I usually sort them by “has mutual connections” to “has no mutual connections,” so I will commit to reversing, flipping from lowest the highest now.

JW: So it’s wonderful to hear that. And in all seriousness, we want to potentially try to productize this to raise greater awareness for how people can begin to diversify their networks, because again there’s this almost self-fulfilling prophecy, this self-reinforcing dynamic, just sticking with the people you know. So it’s wonderful to hear you’re doing that. We’re going to try to facilitate that for everyone.

NT: And you’ve also, I noticed a couple of weeks ago, I don’t know the timing, you rolled out an AI system to help hirers find more diverse candidates. Is that an initiative that came out of the same realization in the same conversation? And how does it work?

JW: To some extent. We started to think about the concept of diversity and really extending diversity to include inclusion and belonging. We don’t think diversity is enough. Oftentimes with regard to diversity initiatives, people will look to hire folks into their organization that are more reflective of the customers that they serve, which is wonderful. But all too often that becomes a numbers exercise. And it needs to be much more than that, because you can bring a more diverse group of people into your company, but if they’re not included in the right discussions where decisions are being made, then it’s not going to achieve the objective that you were looking for. So there’s got to be diversity, there has to be inclusion, and inclusion is not enough. Oftentimes now you’ll hear people talking about diversity and inclusion—D&I. At LinkedIn, we also feel like it’s really important to focus on belonging. So if you use the meeting as the metaphor and diversity is making sure you have the right people within your organization, then inclusion is making sure they’re invited to the right meetings, belonging is ensuring that once those people are in the meetings, when they look up at the people around the table, they actually feel like they belong there. And if you don’t go that last mile, you may have the right people around the table, but they look up and they don’t see people that look like them, or sound like them, or have the right or similar backgrounds or experiences. And when they don’t feel like they belong, they’re not operating at their best.

NT: But do you mean that LinkedIn…LinkedIn can solve that problem at LinkedIn. You as the CEO can change the way your corporate culture works, and you can solve the problem of recruiting at WIRED or at any other company. But do you actually think that LinkedIn can solve culture problems within outside organizations? Or is it just LinkedIn can solve pipeline of people coming in?

JW: So when you say “solve,” solve cultural or societal issues…

NT: Yeah, can you solve diversity in America, Jeff?

JW: I would love to think that we can help!

NT: No, but do you view LinkedIn’s mission as, working on this problem as on the outside, working on this problem as it relates to people come into the organizations, or do you view it as going higher up in a stack of how organizations are managed and run?

JW: The beauty of the vision is it’s all of it. So when we talk about every member of the global workforce, we mean it. So every employee of LinkedIn at this point, we are—it’s not just the vision, we’re operationalizing the vision. We are going to try to create economic opportunity for all three billion members of the global workforce. And there’s really two components of this “every” which is by far away the most important word in that vision statement. One is going beyond our core, the white collar worker the knowledge professional, to include frontline workers, middle skilled workers, and blue collar workers. And we have some really exciting initiatives underway along those lines.

And then it goes to the point we were talking about earlier. There are also professional aspirants. There are folks that want to become knowledge workers, folks that are working towards that end, that would fall more within our core addressable opportunity in terms of knowledge workers, who to the point we were just discussing, don’t necessarily have the right networks or don’t necessarily have the right degrees. And so we are very focused on that as well. And it comes from the kinds of products I was talking about earlier, the kinds of AI efforts, talent pooling searching capabilities that we’re developing to facilitate the way in which companies can go out and create a more diverse workforce, and create a greater sense of inclusion. It also includes the way we do business. So it’s on both fronts. And one example of that would be within our engineering ranks, for example. We’ve recently taken a page out of the German playbook, the vocational training playbook, and we’ve created an apprenticeship program for people that don’t have a traditional four-year CS background. And as long as they have completed coding bootcamp, we will train them and apprentice them, and hopefully be in a position where we can hire them as software engineers. And it’s not just on the R&D front. Our head of recruiting just recently created an apprenticeship program we call Ramp, which seeks to tap folks from underserved segments of our member population, underrepresented minorities, opportunity youth, veterans, people in the later stages of their career who are in midstream of making a huge change and may have trouble getting work, and we’re training them to be recruiters, because they have the networks that enable us to become more diverse. And with success, we want to open source that. This is not going to be proprietary. As much as we believe that could create a competitive advantage, it’s too important. It’s too aligned with our vision statement. So in the success, Brendan Browne, the head of recruiting, wants to graduate a thousand apprentices a thousand recruiters over the next ten years just within LinkedIn. And then we want to open that up, and share best practices with other companies to take that to the next level.

NT: I will say that as someone who worked in Silicon Valley for a Linux company in 1997, the fact that everybody at Microsoft is now talking about open source is the most extraordinary evolution I’ve seen! Let me ask you a little bit about the data you have. You probably have the best data set on the world’s workforce, probably better than any government. If not now, it will be soon. What are you seeing in the way jobs are changing, and the way churn is happening? I’ve seen lots of people are worried about the way AI will change jobs, that robotics will change jobs. What have you seen in the data set, and where are we headed? What do you know about how jobs will change that most of us don’t know?

JW: So in terms of forecasting the crystal ball, the data is a reflection of what’s happening now or what was happening. And we can certainly use that to try to connect dots and see some patterns, but we also partner with third parties, some incredibly bright folks—think tanks, consulting firms—to better understand these trends given what we’re trying to accomplish. McKinsey Global Institute would be a perfect example. They’re estimating currently roughly half of all work activities are susceptible, will be impacted by AI. So that’s current. This isn’t science fiction. And they more recently came out a study that suggested that between 400 and 800 million jobs could be displaced on a global basis by virtue of AI. That’s not a net number, and jobs will be created. But clearly this is going to have massive impact on society.

So how can folks begin to get ahead of those trends? And that’s where our data can become I think really valuable for companies who are trying to answer these questions and develop the right workforce strategies so they can create work for their employees, for the jobs that are and will be, and not just the jobs that once were. Because we have a tendency to be looking in the rearview mirror too often here. And our workforce strategies could be a bit antiquated if we’re not looking proactively into the future. So we’ve developed one methodology in particular that enables us to look at the state in a really unique and hopefully valuable way, which we call skills gap analytics. So for any given locality anywhere in the world we can better understand the fastest growing jobs within that locality, the skills required to obtain those jobs, the aggregate skills of the workforce within that locality, measure the size of the gap, and then make that data accessible to people who are trying to fix it. And so that could be working with local governments, it could be working with local schools, in could be in cooperation with public and private sector. And then last year we rolled out a product called LinkedIn talent insights that was opened up as a beta pilot program. We just rolled it out generally available to all of our customers, and that enables them to do the same workforce planning within their organizations that we can do for governments around the world. Two really interesting trends we’re seeing here in the US: When I talk about a skills gap here on stage, what’s the first thing that comes to mind? what’s the first skill you think there would be a gap on?

Audience: Coding.

JW: Coding. That’s what everyone says. So software development, software engineering, cloud computing, data storage, web development, mobile development, and, of course, AI. Very top of mind, and when I meet with and talk to customers all over the world, I’m feeling a far greater sense of urgency on that front. But it turns out, that’s not the biggest skills gap in the United States. The biggest skills gap the United States is soft skills. Written communication, oral communication, team building, people leadership, collaboration. For jobs like sales, sales development, business development, customer service. This is the biggest gap, and it’s counter-intuitive. Everyone’s so keenly focused on technology and AI. It’s related though.

The good news comes on two fronts with regard to this particular gap. The first is that for as powerful as AI will ultimately become and is becoming, we’re still a ways away from computers being able to replicate and replace human interaction and human touch. So there’s wonderful incentive for people to develop these skills because those jobs are going to be more stable for a longer period of time. We’re also capable of closing these gaps now, today. Companies have the expertise within their organizations to train and re-skill their current workforce and future prospects. So that’s the good news on that front. With regard to technology this is also a bit counterintuitive because rather than try to just train everyone to become a software engineer, one of the things that’s going to be most important in terms of preparing the workforce to re-skill for that trend we were talking about earlier, is that people just have basic digital fluency skills. Before you start thinking about becoming an AI scientist, you need to know how to send email, how to work a spreadsheet, how to do word processing, and believe it or not, there are broad swaths of the population and the workforce that don’t have those skills. And it turns out if you don’t have these foundational skills, if you’re in a position where you need to re-skill for a more advanced technology, if you don’t have that foundation in place, it becomes almost prohibitively complex to learn multiple skills at the same time. So that’s an area we want to help people focus on as well.

NT: Alright. So, do not tell your children to be engineers but do tell them to go on the streams and to like and to comment and to share, because that is a very important soft skill! Thank you very much Jeff! That was fantastic.

More Great WIRED Stories

Forget Banning Phones and Laptops at Meetings. Here's What We Should Ban Instead

Imagine you just walked into a meeting with your banker.

The main goal: To figure out how to pay for a new house.

You’re a little nervous, and you know this meeting will determine your future. You sit down and listen intently to what the banker is saying as he or she covers all of the financial details. Obviously, you are clued in to the discussion, but at one point the banker mentions something a bit odd. It’s a minor point about capital gains tax, and the year the rule changed. So, you scratch your head and pull out your phone.

A quick Google search reveals that he’s wrong about that specific tax law.

You argue the point, and resolve the issue.

The wonders of technology, right?

Sadly, a new school of thought has emerged, likely propagated by people who did not grow up with phones or tend to stick with a desktop computer during work hours.

A few years ago, an expert on this topic suggested to me that no one would ever bring a phone to a meeting with a banker. You need to stay focused and intent.

I’ve pondered that discussion a few times over the years.

Initially, I agreed and it made sense. In fact, I’ve repeated the story several times. I’ve also repeated the word “phubbing” (e.g., to phone snub) and explained how it’s a bad, terrible, no good thing. A more technical phrase is “continuous partial attention” which is one of the scariest concepts of our age. It means people are always in a state of partial attention because they are either on a phone or thinking about being on a phone.

Here’s my problem with all of this.

I don’t think phones and laptops should be banned from meetings.

I think boring topics should be banned from meetings.

I once heard a phrase, attributed to the musician David Crowder, that you should do something so cool that you don’t need to look at your phone. The same concept should apply to meetings. As someone who frequently mentors college students, I know that the minute a meeting becomes boring and routine, people tend to pull out phones or mindlessly surf on a laptop–suddenly, Fortnite is more interesting. Who can blame them? It’s not the laptop’s fault. It’s the meeting topic and the meeting presenter.

My view is that gadgets can help us verify information, they can help us add to the conversation, to look up interesting facts. Distraction is a bad thing, but there are other ways to solve that problem instead of banning our devices altogether.

In my example of the mortgage meeting, of course you would never mindlessly surf Instagram during the chat. Should you ban phones? Not at all, because they can serve a purpose, especially if you stop someone in mid-sentence and ask politely if you can check on some details. In my meetings with college students, I rarely see people surfing or looking at cat videos because we tend to keep meetings short and lively. And, every meeting is a “working” meeting. Laptops help at meetings, they don’t hinder. No one ever focuses on a laptop or phone during a meeting that is lively and engaging.

If someone does start phubbing, it reveals a much deeper problem. If the meeting is important and the discussion is good, and someone still phone surfs, it’s a sign that maybe there’s a problem with engagement on a project. Sometimes, it’s a sign of depression or some other difficulty in life. Or, it’s a sign of an unruly employee revealing many other issues for you to worry about other than using a gadget instead of paying attention.

My view is simple: Let the devices stay, but figure out how to make them part of the meeting and not a distraction. Don’t use rules and dictums. Make the meeting incredibly worthwhile, engaging, and valuable. Gadgets won’t distract people for long.

S&P 500 Weekly Update: Irrationality Isn't Always Associated With 'Exuberance' And 'Euphoria'

Corrections only are considered “natural, normal, and healthy” until they actually happen. Tony Dwyer, Canaccord Genuity

Many like to take past economic and market environments and use them to forecast what will happen next. While I do employ past market seasonality and statistics to form an opinion, I also try to keep in mind that each economic cycle will have its own nuances and challenges.

The past can afford us an idea of the risks involved when investing in the markets, but it doesn’t tell you where and when those risks will come from going forward. Trying to predict the future is impossible. What is then left forces every investor to analyze the present, while understanding the past. You have to make high probability decisions in the face of uncertainty, but those probabilities aren’t etched in stone.

That sounds like a maddening challenge for market participants. Hence the wide spectrum of opinions that are handed out daily. This bull market cycle has perplexed many experienced investors. That is confirmed by the continued skepticism being shown for the better part of this cycle, and it continues today.

It is my conclusion that too many analysts have been trying to use their historical notes and theories for how they assumed the markets should react. Their signals and patterns haven’t worked as well as they once did in markets that have evolved in the past. Many are calling that this is the end of the bull market. In their view, it will coincide with the end of the business cycle.

What they have failed to see for years now is that there are no time limits imposed by these cycles. Ahh, but now they believe they have the Fed in their corner to deliver the knockout punch to the equity market. A rising rate environment. Maybe they do. The typical U.S. business cycle is ended by the Fed, which hikes rates to levels that are too high in response to inflation. Then again maybe these analysts are wrong again.

Seems to me the Fed is raising rates in response to an improving economy. While inflation may be lurking, it isn’t here to the point of concern just yet. Of course, those that have their minds set on the Fed spoiling the party will always tell us the Fed is already behind the curve. Problem is it was supposedly behind the curve in 2014!

The ability to remain flexible and evolve with the environment is key. I have concluded that the best way to do that is to follow what THIS market is telling you. Those who have been the most wrong seem to be the people or firms who are the most entrenched in their own views.

It might be better to take the view of how you would handle the market in the future than speaking to how you would have handled it in the past. Any issue that one wants to bring up and debate surely does matter, but only to the extent of what the stock market is telling us.

A PhD can write four pages on the negative aspects that can be seen now with the Fed, economy, interest rates and inflation, and if I see an uptrend that is firmly in place, I’ll put that article aside.

No matter how certain you are in your market views, no one really knows how things will play out. It is all about probabilities. In my experience, I can draw a profile and rate the probability of how a particular situation may or may not play out based on price action.

Now before any reader believes I have lost touch with reality and buried my head in the sand dismissing what is happening around me during the recent selling stampede, think again. In times of stress and irrationality, the place to look is the LONG-TERM trend. Otherwise you will be whipsawed just like many others who then let emotion rule the day.

Chart courtesy of FreeStockCharts.com

At the close of trading on Friday, the S&P closed 5% below its all-time high. I’m not sure what some pundits use to define a bear market, but that isn’t it. All we hear now is that it is the start of something more serious. There is ZERO evidence to support that claim. Drawing conclusions from any SHORT-TERM chart or any of the negative rhetoric is a fatal mistake.

Didn’t we just witness that at the beginning of this year? It’s easier to embrace that idea because it is based on fear. For most of this week, our fears were heightened because we are seeing the values of portfolios decline. When we are afraid, we act irrationally.

Remaining in control coincides nicely with the other important factor in forming my investment strategy. Keep it simple. Complex strategies may be fine for some, but the average Joe and Mary investor will have a hard time keeping it all together when the situation gets tumultuous.

After that is accomplished, you have to be willing to accept the old adage that it’s better to be roughly right than precisely wrong. Following the “fear” rhetoric has been a recipe for disaster.

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The economy clearly is performing at a higher level with the recent positive economic reports. In my view, that is the catalyst for the recent run-up in 10-year Treasury yields. With inflation stable, the bond market seems to be focused on re-rating U.S. economic growth higher. There is little credit risk present as high-yield spreads are making new cycle lows vs. Treasuries. Lower tax and regulatory burdens are also contributing to economic strength.

It’s all about what trade will do to everything we touch. It seems that many have already lost sight of the fact that a pro-growth business environment is very much in place here in the U.S.

The headline PPI decelerated again last month down to 2.73% year over year from 2.83% the month before. This continues a trend over the past few months of the headline measure surprising lower.

Core PPI which removes food and energy accelerated slightly to 2.48% year over year from 2.4%. A more refined measure of PPI excluding foods, energy, and trade services increased the most, up 3.02% year over year compared to 2.84% in August. This is the first time this measure of core PPI has been higher than the headline number since June 2017.

CPI rose 0.1% in September with the core rate up 0.1% too. CPI rose 0.059% and the core increased 0.116%. There were no revisions to August’s respective gains of 0.2% and 0.1%. The 12-month pace on the headline slowed to 2.3% y/y versus 2.7% y/y, and the core was steady at 2.2% y/y.

Michigan sentiment fell to 99 from 100.1 in September, but left the measure still above its 7-month low of 96.2 in August, and at an historically high level that lies below the 14-year high of 101.4 last March and the 100.7 peak in October of 2017, but above the peak before that of 98.5 in January of 2017.

A solid employment picture is removing a huge thorn on the side of the taxpayers.

Other programs like food stamps and welfare are also on the decline. These were issues that were not sustainable, and the reduction that we are seeing is a plus for the government, the average taxpayer and the economy. Funny how that doesn’t make the headlines.

Earnings Observations

The banks started off this earnings season, and as expected, there were positive reports. Consumer banking was solid at JPMorgan (JPM) as it beat on both the top and bottom line.

Citigroup (C) also reported a positive quarter as well. If investors want “value,” the banking sector represents the best value in the stock market today.

FactSet Research Weekly Earnings insight for Q3 2018:

  • Earnings Scorecard: With 6% of the companies in the S&P 500 reporting actual results for the quarter, 86% of S&P 500 companies have reported a positive EPS surprise and 68% have reported a positive sales surprise.

  • Earnings Growth: The blended earnings growth rate for the S&P 500 is 19.1%. If 19.1% is the actual growth rate for the quarter, it will mark the third highest earnings growth since Q1 2011 (19.5%).

  • Valuation: With the rout in stock prices this week, the forward 12-month P/E ratio for the S&P 500 is 15.7. This P/E ratio is below the 5-year average (16.3) but above the 10-year average (14.5).

Unless the earnings forecasts coming into this earnings season are totally wrong, corporations are making a lot of money because of the pro-growth backdrop that suddenly is being forgotten.

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The Political Scene

You wouldn’t know it with all of the focus on China these days, but in reality the tensions in the geopolitical environment have eased amid a reconfigured NAFTA. The EU negotiations are ongoing on the trade front with positives being reported. Analysts remain focused on the negatives, while dismissing the positives.

It fits nicely with the other negative commentary that is concerning investors.

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The Fed and Interest Rates

For those that think bond yields are “telling you something,” the same was said a month ago, when the UST 10-yr yield was declining to 2.8% and people were calling for disappointing data that could be a harbinger of economic weakness.

I have been adamant during this entre bull run that the bond market isn’t telling me anything at all. These comments are simply rolled out to fit the interest rate story of the day.

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From the AAII survey of individual investors, bullish sentiment had its largest one week drop since mid-November 2017, falling 15.05 percentage points. Bullish sentiment is now down to 30.6% from 45.66% last week. This is the lowest level for bullish sentiment since the first week of August, but it’s still pretty far from the lowest level on the year that we saw in April when it fell to 26.09%. Bull markets don’t end with this type of pessimism.


Crude Oil

The EIA weekly inventory report posted a larger-than-expected build in inventories of 6 million barrels for the week. Two large increases in a row totaling 14 million barrels. At 410.0 million barrels, U.S. crude oil inventories are at the five-year average for this time of year. Total motor gasoline inventories also showed an increase. Rising by 1 million barrels last week and remaining about 7% above the five-year average for this time of year.

The five straight weeks of gains came to an end as WTI closed the week at $71.51, down $2.83. Profit taking, bearish inventory numbers, or the fear of a global slowdown are all reasons for the selling, take your pick. Then again, perhaps it is just normal trading activity after five weeks of gains.

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The Technical Picture

October has not started out like many had envisioned. Initially we saw plenty of carnage under the hood as the indices were holding their own. That is not the case anymore. The market has narrowed. Since late August, even the strongest of the market breadth measures, the NYSE Daily Advance/Decline Line, has failed to confirm highs, while the weakest, 52-week highs and lows, has continued to erode.

Meanwhile, all of the cumulative Advance/Decline (A/D) lines were negative on a short-term trading basis. As we have seen in other major selling events, key support levels were taken out as if they weren’t really there at all. There remains a lot of negative energy out there, and it still could be released on the downside.

However, we are at an oversold level that usually indicates the selling is about to abate. Of interest is that the NASDAQ’s A/D line closed last week below its 200-DMA, which historically has signaled a short-term trading bottom.

The DAILY chart shows just how much short-term damage has been done. It also reveals how scary the price action looks compared to the S&P WEEKLY chart displayed earlier.

Just look over to the left of this chart. We have been here before, a wicked selling stampede, and the 200-day moving average is once again in play. This one is more of a surprise to me because the market was NOT wildly overbought like it was in January. I added another point on the chart indicating a severely oversold condition. These are points in time where we have seen rebounds.

Friday’s close was a small victory for the Bulls, a retake of the 200-day moving average (2,866) right at the close. I suspect that will now be the battleground in the next few days. The low that the Bulls will be defending is S&P 2,710.

So depending on your time horizon and station in life, this is as good a time as any to dig out the watchlists and the lists of stocks that were tossed away in the wild selling. Companies that were showing solid earnings growth and raising guidance are the babies that were tossed out with the bathwater in the last few days.

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Individual Stocks and Sectors

One of the best places to start looking for that baby that has been tossed out with the bathwater is to look at those companies that just reported solid earnings results. Take note of any company that raised their guidance last quarter.

Good fundamentals and good earnings will trump all of the issues that the market faces when it runs into one of these emotional selling stampedes.

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We’re now close to one half of the way through October, which has historically been a good month for equities. Not so this year. After watching what developed during the summer, I did have a sense that many pundits had it backwards this year. Far too many were telling investors to get out of stocks for the summer, based on historical patterns. The idea was to sit out the summer and come back on board in October.

That didn’t work. June, July, and August saw the S&P gain 7.7% and the Dow 30 post a 9+% gain. So while October isn’t over, all that believed October HAD to be bullish are getting a nasty surprise.

This bull market has been in force for years, yet some continue to highlight that ONE issue calling it the Achilles’ heel for stocks. Not so today, this time around they have a slew of issues that point to the end of the bull market story.

Each time any or all of these issues surfaced, they presented OPPORTUNITIES. Remember, this is exactly what happens during a bull market. As long as that primary backdrop remains, it will continue to play out that way. Those that abandon the trend before it changes are ALWAYS left in a quandary.

Anyone remember something called Brexit? This isn’t a one trick pony market, no matter what the skeptics try to sell. There are far too many positives, and no need for panic just yet. Remember, just a few short weeks ago, ALL indices were making new highs in sync. A Dow Theory buy signal was just generated. In the past, these signs led to much higher stock prices down the road. It would be unprecedented to have that across the board strength just disappear. So for those telling me that is THE top, I ask where is the evidence when no primary, intermediate- or long-term trend has been broken. While its prudent to remain vigilant and proceed with an open mind, this appears to be just a pause in the primary trend.

There is no playbook for stock market corrections. Every correction doesn’t have to turn into a crash. However, that’s a tough sell to investors watching the violent swings we have seen in the equity markets lately. You could make the case that we are in a different market environment now where the bears have control. Every single trading day seems like we see extreme selling going on in the final hours of trading that takes the major indices out at the lows for the day.

Bouncing off the lows and remaining in a trading range isn’t the worst thing now. Earnings season is on tap, and the economic data is still positive. The earnings picture is the brightest we have seen in a few years.

Of course, it is best to keep all options on the table. No one can predict the future, believe it or not, that includes the naysayers. The game to play is simple. Ask yourself WHAT is the PROBABILITY of an event, or issue that is troubling you, actually occurring? Hanging your hat on pure speculation, supposition, or a hypothetical isn’t the way to manage money.

What I also hear are the retorts from analysts indicating that they are searching for reasons why the stock market can’t go higher. Trust me when they do find them, the market will be higher and may be headed down. Failure to look at ALL of the data, issues, and the investing environment that exists is a recipe for disaster.

The long-term underlying trend is still in control. When that isn’t the case, changes will be made. Strong corporate earnings, and at the moment, low investor expectations, add to the positive outlook. Despite all the turmoil around me, I see no reason to abandon the trend and the Bull market. Therefore I remain invested and adding stocks when I see an opportunity.

I would also like to take a moment and remind all of the readers of an important issue. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation. Please keep that in mind when forming your investment strategy.

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to all of the readers that contribute to this forum to make these articles a better experience for all.

Best of Luck to All!

Disclosure: I am/we are long JPM,C.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My portfolios are ALL positioned to take advantage of the bull market with NO hedges in place.

This article contains my views of the equity market and what strategy and positioning is comfortable for me. Of course, it is not suited for everyone, as there are far too many variables. Hopefully it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel more calm, putting them in control.

The opinions rendered here, are just that – opinions – and along with positions can change at any time.

As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die. Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time.

Five Years after Their Founding, These Automotive Innovators are Working with the Rolling Stones

In the modern economy it’s easy to get the impression that entrepreneurship is synonymous with apps, platforms, and mobile devices. Sometimes that’s the case–but sometimes it isn’t.

In the suburbs of Phoenix, Tyler Copenhaver-Heath and his team at Apex Customs have built one of the most innovative custom car shops in the country. The company began with a single bay, four-hundred-square-foot shop in 2013. The bay wasn’t the only solitary aspect of Apex. As the owner and founder, Copenhaver-Heath was also the company’s sole employee.

Things are much different today. Apex has grown to multiple locations with a combined 45,000 square feet and several buildings. The company has sixteen employees, and has built custom projects for the Rolling Stones, the NFL, CNN, WWE, and Facebook, among others–though celebrity builds do not comprise the majority of Apex’s work.

Apex Customs also has plans to grow, with more buildings and additional square footage coming soon.

The business and entrepreneurship focused media often gets caught up covering the moonshot unicorn companies that have aspirations of changing the world. Sometimes those companies are worth the attention they get.

And sometimes they aren’t.

(See Elizabeth Holmes and Theranos–and pretty much every dot.com, with the exception of Amazon, from the late 1990s.)

But smaller companies like Apex Customs are the backbone of thriving local and national economies. Businesses that can weather fifteen years of economic ups and downs–while steadily growing and creating jobs along the way–are what build resilient and successful communities.

Building a company that can support one person is extraordinarily difficult. Building a company that can support sixteen people is an incredible achievement–especially when that company is earning its way, rather than surviving on venture capital.

The momentum behind entrepreneurship and homegrown economic development happening is a real thing. Supporting local entrepreneurs is the best economic development strategy for any community. I’ve been fortunate enough to travel to cities as big as Denver and as small as Helena, Montana, to see that momentum and that sort of sustainable economic development strategy in person.  

It’s awesome.

However, it’s important for civic and business leadership in cities outside of Silicon Valley to remember that entrepreneurship isn’t just about the next Instagram/Facebook/Snapchat/fill-in-the-blank unicorn. Successful job creators are usually subject-matter experts who see an opportunity to innovate by doing a better job than the competition.

Which is exactly what Tyler Copenhaver-Heath and his team at Apex Customs have done.

The Secretary of the Army Has a Simple 2-Step Formula to Achieve Peak Creativity

Secretary Mark Esper is the leader of the United States Army, which commands over 1 million uniformed personnel and over 300,000 civilians. His responsibilities span across personnel, manpower, reserve affairs, installations, environmental issues, weapons systems and equipment acquisition, communications, and financial management–no big deal.

On July 1st 2018, the Army also established the Army Futures Command (AFC), which is aimed to modernize the Army and is focused on six priorities: long-range precision fires, next-generation combat vehicle, future vertical lift platforms, a mobile & expeditionary Army network, air & missile defense capabilities, and soldier lethality.

Needless to say, to effectively drive the modernization agenda, innovation and creativity are always at the forefront for the Secretary.

I recently had the opportunity to sit down with Secretary Esper, where he shared a powerful formula that enables peak creativity:

The formula? He wakes up no later than 4:15a and then immediately works out. Secretary Esper shared,

“That’s probably where I do my best thinking–working out at the gym or running. You get these ‘ah’ha’ moments. The key is making sure you can write it down somewhere to remember it, but that’s my routine.”

When you let your mind wander while working out, you’re enabling a layer of creative clarity that is only available when you exercise. Studies prove that exercise increases the size of the prefrontal cortex and also facilitates interaction between it and the amygdala. Why is this important? The prefrontal cortex is the part of the brain that can help tamp your fear and anxiety. So with a clear mind while exercising, can be harnessed into creative fuel.

If waking up at 4:15a isn’t your cup of tea, try embracing the formulaic approach of an earlier rise coupled with a workout. Commit to doing it for 2 weeks (that’s how habits are formed, everyone) and see if a little creative amplification comes your way. Oh, and if that creativity gives life to a solution that can help Army tackle their largest modernization challenges, they want to hear from you.