Welcome to 2020!
If your inbox is anything like mine you have been bombarded with reviews of 2019 and outlooks for 2020. To recap 2019 I wrote 22 issues of MacroCrunch, with a focus on global markets and technology. I started with 99 subscribers and finished the year with just under 700, so thank you to all of you who have shared my blog posts with friends and family as that has been a great source of growing readership!
MARKET REVIEW:
2019 was a very good year with Risk On dominating globally across equity, fixed income and commodity markets. Russia and Greece lead the way both in local currency and US Dollar terms. Definitely Risk On!
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However, looking back at the decade just passed, it was all about US equities and to a much lesser extent Japan and Europe. If you had exposure to the United States equity markets, your numbers look pretty good. If you were underweight, you are probably disappointed in how your portfolio performed.
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F00693f83-ee2c-4a7c-8c59-bbf61572096f_1025x483.png)
THE PIVOT:
Looking back at 2019 I think the central driver to market returns was the Federal Reserve’s Pivot from tighter monetary policy to looser monetary policy.
In December of 2018 the Federal Reserve increased the federal funds target range to 2.25% - 2.50% and announced that three more rate hikes would be necessary in 2019. This was a significant tightening bias and markets repriced lower accordingly.
Peak to valley the S&P 500 dropped 18% in Q4 2018!
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President Trump immediately began bashing Fed Chairman Jerome Powell and called for him to be fired for “cause”. The President launched into a relentless effort to jawbone the Fed to cut rates, he referred the the Fed as a bunch of "boneheads" and and demanded a zero interest rate policy….. why should Europe and Japan have lower rates than the United States?
The Fed eventually relented and pivoted to an easier monetary policy, cutting rates at the August, September and October 2019 FOMC meetings. This lowered the Fed Funds target range to 1.50% - 1.75% and in my opinion this was the primary catalyst responsible for generating a 31% return in the S&P 500 in 2019.
If you made the right call on the Central Banks you made a lot of money, if you didn’t get that right you missed out and should go back and read the Third Time is a Charm and Negative Yields and Inverted Curves.
REPURCHASE PROGRAMS:
The chart below breaks down net purchases of US equities. The red line represent corporate share buyback programs. A picture is worth a thousand words….
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Share buybacks are a very efficient way of returning capital to shareholders.
Apple Insider reported that “since 2012, Apple has funded a total of $271.3 billion in stock buybacks [$288.2 billion after the latest quarter's addition of $17 billion in share repurchases]. Most of these shares were repurchased at what would today be an incredible discount. While analysts have occasionally picked out a given trough in Apple's stock price and declared that its buybacks were a huge mistake, it's hard to imagine in hindsight how Apple could have better invested nearly $300 billion of its past iPhone profits.”
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ffdc6af87-8d13-4626-913b-99fad3e485b2_824x569.png)
There is a lot more that we could say about this. For example, Apple’s net earnings have declined on an absolute basis, but they are increasing on a per share basis due to the share repurchase program. I’ll dig into this more in a future issue of MacroCrunch.
AMAZON GO:
Over the holidays both of my brother in-laws and I went to the Amazon Go store located at 575 Market Street in San Francisco. We went with the intention of trying to screw up the system. So we took things off the shelf, passed them around to each other and put some stuff back on the shelf and kept some stuff. We even hid a Slim Jim stick in my fleece vest for a bit and then put it back in the wrong spot!
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Much to my surprise, Amazon got each of our bills exactly correct (see below). No one was over or under charged. Although, it did take about 20 minutes to get our receipts, which made us think that perhaps someone had to review our shopping spree!
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fd13cd5a0-e678-4f64-a981-b853aa8b27cd_294x640.png)
My take away is that this is the way we will shop in the future. The technology does not work well in all environments, for example, it has a hard time with clothing. But, the other day my daughter and I waited in line at the supermarket for 15 minutes to check out, I immediately thought it would be a much better customer experience if we could just walk out the door like I did at the Amazon Go store.
A super cool company that I am looking at in this space is Standard Cognition. My buddy Gabe Turner at the Draper Venture Network introduced me to Michael Suswal the co-founder and COO. I was blown away, download the App and check out the Standard Store located at 1071 Market Street in San Francisco if you get a chance.
I think that this is what the future will look like, it won’t be just Amazon!
PODCAST:
One of my favorite podcast is Kent Lindstrom’s Something Ventured. Kent is a master interviewer who dives deep into what makes founders and investors successful. I particularly enjoyed Episode 121 with Mike Maples Jr., Episode 117 with Josh Felser and Episode 50 with Jonathan Abrams.
Kent also interviewed Esther Wojcicki in Episode 112. Esther wrote a book I read over the summer titled How to Raise Successful People. I highly recommend the book and that you check out the podcast if you have children.
My wife Jennifer asked me to read Esther’s book and I am glad that I did, there are lots of great tips on how to raise healthy, happy and successful children. And by the way….. Esther’s daughters are the CEO of YouTube, the founder and CEO of 23andMe and a Professor and Pediatrician at UCSF. There must be something in the water!
CONFERENCES:
I’ll be at the following conferences, if you are too, let me know and we’ll circle up!
February 3-5 - Tempe Arizona for the NEPC Public Funds Summit.
February 24 - Houston Texas to meet with Family Offices
February 25-26 - Austin Texas for II’s Global Real Assets Investment Forum
It has been a busy start to the new year and it took me a while to get this one out, but I hope you enjoyed it and as always feel free to share it with friends and colleagues.
And if you are interested in startups you can join over 700 other backers that follow my syndicate here at Angel List Syndicate, this gives you a front row seat on which private companies I am investing in directly.
Have a great weekend!
- Sean Bill / MacroCrunch