🗞️The Wrap: R²

Whacky correlations, a whole economics degree in one video and Musk’s biggest hater. To make sense of it all, and for a lesson in class, keep reading.

Recent 52 week highs

• Rite Aid Corp. (RAD) +12.2% in the last week
• ITT Corporation (ITT) +8.1%
• Orion Group (ORN) +7.21%
• Compass Diversified Holdings (CODI) +6.8%
• NetEase (NTES) +6.3%

R²

Everyday there seems to be a new indicator “flashing red” in the news warning us of impending crisis. Whether it be a certain yield curve inverting, or an Advance-Decline ratio rising above a certain figure, a lot of the time it’s just a correlation…and a weak one at best.

Well, here are some cracking correlations some traders have come across that probably aren’t cause for any rebalancing of your portfolio.

The Lipstick Indicator. Quite simply, in times of economic uncertainty, people improve their mood through inexpensive vanities like lipstick. Instead of a Parisian holiday, a Chanel perfume will do. In fact, during the trough of 2001, Estée Lauder’s (EL) lipstick sales rose 40%.

This one caught our eye, not for the sport reference, but it’s percentage of certainty! The Super Bowl Indicator dictates that if an AFC conference team wins the Super Bowl, the market will be negative but if an NFC conference team reigns supreme, there are gains to be made. It has been right about 80% of the time in 50 years of NFL.

Greenlight

We took a light peruse through investment manager Greenlight Capital (GLRE) and David Einhorn’s Quarterly Letter to Investors. With a full swing (not just a little dig) at Elon Musk and Tesla, it made for interesting reading. What really caught our attention was the stocks that he is buying or offloading; it just gave us some ideas on what may be worth keeping a closer eye on. If you’re interested in what he’s investing in or what he really thinks of E. Musk, it’s well worth a read.

4 stocks Greenlight is Long

• Brighthouse Financial (BHF)
• General Motors (GM)
• AerCap Holdings N.V. (AER) (recent 52 week highs also)
• Altice USA (ATUS)

Getting Classy

With the launch of BRK.A on Stake, we’ve gotten a few questions about the difference between Berkshire Hathaway Class A and Class B shares. After all, BRK.B is just a fraction of BRK.A, right? Not exactly.

The biggest advantage BRK.A has is the increased voting power. BRK.B holders have 0.01% as much voting power per share as BRK.A, while the difference in stock price is nowhere near that big.

On top of that, BRK.A will never be subject to a stock split. A stock split in its simplest form involves increasing the number of shares while decreasing the price. This makes the stock more accessible to a greater number of investors and with it increases the volatility.

In fact, BRK.A tends to outperform BRK.B by a razor thin amount historically (we’re talking a fraction of a percent) but you are giving up liquidity. As you can guess there aren’t as many traders exchanging a US$320,000 share.

While these factors might not matter to all investors, it’s all about setting up the best practices to succeed for when your portfolio does grow to 2 or 3 commas long.

Top 5 Gainers

• Arbutus Biopharma (ABUS) +60.7% in the last week
• Zovio (ZVO) +48.3%
• PG&E Corp. (PCG) +44.5%
• Wright Medical Group (WMGI) +39.8%
• Bloom Energy (BE) +38.5%

Top 5 Fallers

• Quad/Graphics (QUAD) -59.0% in the last week
• Hexindai (HX) -40.9%
• Tupperware Brands (TUP) -35.7%
• Ceragon Networks (CRNT) -35.5%
• Community Health Services (CYH) -32.1%

Let me know!

Just a quick little call for feedback from you guys! I’ve been doing The Wrap for a year now and it’s definitely changed a lot since the beginning. We try to include news and market tidbits you won’t find in the news; there are already a million headlines telling you about tariffs, Trump and Tesla, but not many stories talk about the Lipstick Indicator.

So, what do you like or dislike? Want more of or less of? Anything new you think would fit in well? Let me know!

What we’re watching | How the Economic Machine Works

I’ve watched this video at least 6 times now. Ray Dalio breaks down how world economies function through animation in 30 minutes. It should be what every ECON101 course is based on…and quite frankly teaches things a whole degree doesn’t!

I’ve professed my respect for Ray Dalio plenty of times before and this is a reason why. Dalio explains the 3 turbines of global economies: productivity growth, the short term debt cycle and long term debt cycle. Knowing the world’s position in each of these factors has allowed Dalio to “anticipate and sidestep global financial crises”. Essentially, credit is the major drive of all growth but with credit comes debt which can have serious yet inevitable consequences.

He explains it incredibly well and it’s well worth the half hour it takes to watch.

Best Buy | Pinduoduo (PDD) +87%

Another longer term buy and hold here. Pinduoduo (PDD) returns to the Best Buy section again this week. After getting in several months ago, this trader from Perth saw their position almost double.