The Steep Takeoff of the S-Curve

Posted on by David Merkel

Photo Credit: Dawn Beattie || A sharp s-curve can jolt us

The only thing more steep than the twist in the s-curve of the progress of COVID-19, was the twist in the s-curve of human action and talk as people tried to catch up with the projected implications of the virus, and likely overshot the mark.

That second s-curve not only affected what human institutions would close, what & how testing would or wouldn’t be done, quarantining, social distancing, and so called economic stimulus that will do little, but it also drove the market. It created the fastest transition from a market high on February 19th to a new bear market on March 12th. That’s 22 calendar days, or 16 market sessions.

It usually takes a lot to move a market from the bravado of the bull market, which takes time to create, but seems inevitable once it gets going, to raw fear. It typically does not spin on a dime, as signs of weakness meet resistance, even if new highs are not being made.

I could make the comment that when valuations are so high, it doesn’t take that much to create a bear market, and in the Great Depression, that was true (42 days, or 30 trading sessions). But in the dot-com bubble it was not so, and valuations were at their highest then. The transition to a bear market there was 353 days, or 242 trading sessions. That’s almost a year.

But what if there is an interruption in credit conditions? Weak entities that require access to the credit markets get knocked for a loop. That was certainly happening in energy names and various companies with junk credit ratings. It not only matters that a company has enough flexibility for an average disruption, but enough for something that can’t happen. As Buffett sits on a big pile of cash, he may still say, “We’re paid to think about the things that can’t happen.” Hopefully he’s deploying some cash now.

I like the companies I own to have low debt levels as a result. Nonetheless, I was knocked around last week by companies that had low debts, but had some economic cyclicality. Personally, I’m not worried about a deep recession, at least not yet. The economy will slow down. Real GDP may even shrink for two or more quarters in a row.

I think that the national and global fears from COVID-19 will relent, and be replaced by modest local outbreaks that may not go away for a while. I also think that the Saudis will eventually return to restricting oil production. The Saudis play games like this, then realize that they don’t work, and so they stop. The Russians may be a little more serious, but they will realize within a year that they are losing as well. A decent number of firms that frack in the US may go broke in that time, but that is a minor effect on the economy.

In other words, I don’t think the two scares are really that scary in the intermediate-term.

I do think there might be some similarities of last week to what happened in October 1987. My only question is where forced selling was going on? Risk-parity funds? Hedging gone awry? Difficult to tell, and I haven’t seen anything definite, but the implied volatility of last week rivaled that of October 2008.

Throughout the week I added to stock positions for my clients and me, slowly, but enough to raise equity levels a few percent. That doesn’t sound like much, but when your equity percentage is falling in a bear market it takes thought to decide where to go when buying amid carnage.

I had fairly high cash positions for the strategies that I run. Though many thought differently, I thought there was an alternative to stocks — cash and high-quality bonds. In the bear phase, they definitely don’t lose as much as stocks.

But at present, stocks are offering more competition versus bonds. My stock model forecasts 5.25%/year returns for stocks over the next 10 years. That’s a lot different than a month ago, when that figure was 2.2%, and the Barclays’ Aggregate had a higher yield.

I’m not going nuts here. I have schedules for stock exposure for my two main strategies, and I will adjust as the markets go up and down. 5.25%/year still isn’t that great, but it was worth adding a little more to stocks, especially as cash yields decline further.

One final note, always worth remembering: the nature of rallies in a bear market is that they are sharp and short, as hope gets overwhelmed by the crisis du jour. When the rallies become longer and flatter, and credit risks seem modest, that is what a bull market is like.

One final note, maybe not worth remembering: when will the marginal buyers of Treasury notes and bills get tired? Now that’s a risk that would really shake things up.

SImilarities of the Coronavirus to 9-11

Posted on by David Merkel

Photo Credit: Gene Han || This picture was taken four years after the attack.

I am going to reprint here the beginning of the article The Education of a Corporate Bond Manager, Part VI. I am doing this because it describes how our investment department dealt with 9-11. Here it is:

After 9/11, and and before the merger was complete on 9/30/2001, our investment team got together and came to an unusual conclusion ? 9/11 would have little independent impact on the credit markets, so be willing to take credit risk where it is not well-understood by the market.? We bought bonds in hotels, airplane EETCs (A-tranches), anything having to do with confidence in the system at that time.? I consciously downgraded our portfolio two full notches from September to November.

I went to a Chief Investment Officers’ conference for insurance investors in October 2001.? What I remember most is that we were the only company being so aggressive.? In a closed-door meeting, the representative from Conseco told me I was irresponsible.? To hear that from a company near bankruptcy rang the bell.? I was convinced we were on the right track.

By mid-November, we had almost completed our purchases of yieldy assets, when I received a phone call from the chief actuary of our client expressing concern over the credit risks we were taking; the rating agencies were threatening a downgrade.

Well, what do you know?!? The company that did not understand the meaning of the word risk finally gets it , and happily, at the right time.? We were done with our trade.

We looked like doofuses for three months before the market began to turn, and I began a humongous ?up in credit? trade as we began to make a lot of money.? By the time I was done in early June, I had upgraded the whole portfolio three full notches.? A great trade?? You bet, and more.? What?s worse, it was what the client wanted, but not what it should have wanted.

The Education of a Corporate Bond Manager, Part VI

9-11 was a shock to the system, but one where our investment team concluded that everything would return to normal, and relatively soon. We thought that the terrorists had gotten lucky, and that there was no persistent threat. Thus, prosperity would return, well, as long as the economy would hold up, which was in question at that time. The second-order effects of the deflation of the dot-com bubble were more severe than 9-11 would ever be.

From October 2001 through October 2002, our department bravely soldiered on, and during that time I played the speculation cycle relatively well, as noted in other episodes of “Education of a Corporate Bond Manager.”

The main challenge was trying to separate the transitory from the medium-term from the permanent. 9-11 was transitory. Deflation of the dot-com bubble was medium-term, and general prosperity was the long term — and definitely so at the valuations experienced in October 2002.

The same is true today. The coronavirus, no matter how ugly it will be, is transitory, as are the effects on the supply chain, travel, etc. But if you can believe it, valuations are still absolutely high (5.5%/year over the next 10 years), though not high relative compared to bonds and cash.

So, if you have courage, buy the damaged industries. People will still travel, and not a lot of people will die. Buy the strongest companies that you know will survive.

My main point to you is this: the coronavirus is transitory. Act as if it is so, and think about what the economy will be like 3-5 years from now. Do that, and you will likely prosper, unless the effects of too much debt finally comes to bear on the market. We can’t tell when the day of reckoning will come on that topic.

There Is Always Enough Time To Panic, Redux

Posted on by David Merkel

Photo Credit: Gopal Vijayaraghavan || A stampede of wildebeest! Panic! Panic! MIndless panic!

Before I get started, dare I mention that Aleph Blog is a teenager now? 13 years old. Who knew it would last this long? Maybe it will outlast TheStreet.com where I got my start in business and investment writing.

Looking back at some of the posts from February and March of 2007, I find it interesting to see at least two posts about panicking. I think there were more.

The market was not as highly valued as it is now, but had structural deficiencies in the finance sector, which we don’t have now. Debt levels at nonfinancial firms were lower than what we have now, but for the most part, investment grade corporations have laddered their debt, and interest rates are indeed low, leaving ratios like EBITDA/Interest usually in good condition.

The main event at that point in 2007 was a sharp move down in the Shanghai stock market that gave many the jitters. Like the coronavirus, the effects on the markets are indirect, and not likely to be long lasting.

But what other similarities and differences are there? In early 2007, the Fed was tightening, en route to overtightening. Today, they are probably more likely to loosen than to stand pat, but they won’t tell you that openly now.

Areas of debt that are troublesome — margin debt, student loans, low end consumer credit, nonfinancial junk-rated corporate bonds and loans, and sovereign debts. Each of these have grown rapidly, while credit related to the housing markets is in decent shape.

Six business days ago, my estimate of future stock returns over the next ten years was 2.21%/year, the lowest I have ever seen it (and a new all-time high for the stock market). Today it is 4.40%/year. Quite a move. Also in the quite a move department is the 10-year Treasury note, whose yield went from 1.56% to 1.23%, a new all-time low.

Six business days ago, I would rather have owned investment grade corporates versus stocks. That has flipped. For some of my clients, near the end of the day, I did some small buying, moving from 79% stock to 81%. Nothing major, just some rebalancing trades.

I said two weeks ago: “As such, lighten up on risk assets, and prepare for the next drop in the stock market.” Now I don’t deserve any credit for that statement… I’ve been saying it for too long.

That said, the second-best strategy that you have the courage to follow is better than the best strategy that you are too scared to follow. As for me, if the market keeps falling, I will be buying *very slowly.* But if the current drop has you scared, well, maybe sell down to a level where you sleep well at night. I think mixes of risky assets to safe assets of between 80/20 and 50/50 are suitable for almost everyone, unless you are saving for a short-term need.

Best to do risk control when the market is not jumpy, slumpy, lumpy, or bumpy. Tell you what, if you are worried now, if the market retraces half the loss, take something off the table, and sleep well at night.

That said, there are no guarantees. Now is the only time you can act. Act wisely.

The Tail Can’t Wag the Dog

Posted on by David Merkel

Photo Credit: theilr || Cute dog, huh?

There are a pair of articles regarding the efforts of a few people posting at Reddit to make money in stocks as part of a perpetual motion machine. The articles are here: Businessweek, Matt Levine.

The idea is for a bunch of people to buy calls in the morning, which forces market makers to hedge by buying the underlying stock, which pushes the price up, giving automatic gains. Now, real hedgers hedge options using options, but the net effect should be the same regardless.

What the speculators mentioned in these articles don’t get is that they are violating rule XXXII:

Dynamic hedging only has the potential of working on deep markets.

Arbitrage pricing can reveal proper prices in smaller less liquid markets if there are larger, more liquid markets to compare against.? The process cannot work in reverse, except by accident.

The Rules, Part XXXII

The quick summary of this is that the tail can’t wag the dog. The amount of money in the options market is far smaller than the money in the stock market. As such, if speculators try to overwhelm the market for a given stock with call purchases, real money sellers will happily oblige them and provide them with stock. They will not win on average.

There are no simple magical money machines in the market. Those that think they have one have deceived themselves.

The Effect of Democratic Delegate Allocation Rules

Posted on by David Merkel

Photo Credit: Gage Skidmore || Unless things change, Democratic Party Elites should get comfortable with Sanders being their nominee for President

This is a rare post on politics at Aleph Blog. I am not taking a position on any candidate here, nor their effect on the economy. As an applied mathematician, I want to point out the implications of three factors:

  • Bernie Sanders is getting roughly 30% of votes in the primaries/caucuses, and the next five split the rest in an uneven way.
  • These Democratic contests typically award delegates based on the vote in each area as defined by a state, and the state as a whole. The delegates get split pro-rata to a candidate’s share of the vote in each area if the candidate gets over 15%. It’s a little more complex than that if no one gets more than 15% of the vote, but that’s not likely to happen in 2020.
  • If Sanders gets over 35% of all the pledged delegates, it will get increasingly ugly to not give him the nomination the nearer his delegate total gets to 50% of pledged delegates. No one wants a convention where over 1/3 of the delegates feel cheated. If you need examples where there wasn’t cheating, but there were sure a lot of hard feelings, you can think of Ford/Reagan in 1976, Carter/Kennedy in 1980, and Clinton/Sanders last election.

Add in one more bit of data — in an internet age, it is easy to keep a campaign on life support. Candidates with low funds can nominally hold on for a long time subsisting off of what free media and a skeleton staff can give them.

I ran a few simple simulations yesterday. With six main candidates altogether, if Sanders gets 30% of the vote on average, and the other five split the rest in a lopsided way, on average Sanders will end up with roughly 45% of all of the delegates. But suppose one of Sanders’ opponents drops out, and the other assumptions remain similar — Sanders would get 36% of the delegates. If one more opponent drops out, the effect is a lot smaller — Sanders would get 33% of the delegates.

The most unlikely assumption not to change is that Sanders doesn’t pick up support from voters when opponents of his drop out, particularly if the ones dropping out would be Warren or Buttigieg. I would expect that Sanders might pick up more support if one of them dropped out, as opposed to Biden, Bloomberg or Klobuchar.

But the main effect going on here is with so many opponents to Sanders splitting the remaining votes, few of them get above the 15% threshold, and Sanders gets a decidedly higher allocation of delegates than what he got in the popular vote — not as big of a difference as in the GOP’s winner-take-all primaries, but this is still a considerable advantage unless one of his challengers breaks out of the pack.

Thus, when I read an article like No,?You?Drop Out: Why Bernie?s Rivals Are All Stubbornly Staying in the Race I realize that most of Sanders’ opponents would like others to drop out of the race, but no one sees a decent reason to do so. Everybody thinks it’s nice to get more cars off the crowded highway, as long as it is not them.

Thinking back to 2012 when I wrote Searching for the Not-Romney, I noted how virtually every GOP candidate had had a surge and fall versus Romney. After each surge, there wasn’t a second surge. Voters had given them a limited window of time when they reviewed them — they weighed them in the balance, and found them wanting. No second chances.

I don’t think that’s a perfect paradigm. Second chances ARE possible for the opponents of Sanders, but I think they are unlikely. The candidate would have to give voters a reason to think, “Huh, I guess I didn’t understand him right the first time.” Getting a lot of people to change their minds is difficult after a first impression is made. Thus in the present state of matters, I assume that Sanders will be the nominee of the Democrats.

And, since I can’t resist making at least one comment regarding the economic implications of that, yesterday the market went down hard because of the coronavirus, something that I think is transitory, and should have little effect. Perhaps the drop was due to Sanders’ convincing win in Nevada. That would certainly have more effect on the economy, particularly profits, for a longer period of time.

It might be wise to check your risk position, and ask yourself whether you feel comfortable given an increased likelihood of Sanders being the next President of the USA.

All for now.

What Makes An Asset Safe?

Posted on by David Merkel

Photo Credit: acciarini ||Sometimes a good conversation elucidates a matter…

Q: What defines a safe asset?

A: My, but that is a broad question. Do you have something more specific that you are trying to answer?

Q: Well, I’ve heard that the wealthy often invest their excess assets in real estate. It seems perfect. As Twain said, “Buy land, they aren’t making any more of it.” It provides income, and protects against inflation.

A: Do you own the land free and clear, or did you have to borrow to own it?

Q: I don’t own any land, aside from my house, and yes, I have a mortgage there. Why are you asking this?

A: Do you remember the financial crisis 2008-2011?

Q: Yes, but why does that matter?

A: Many people had paid a lot for their homes, and were stretched in making mortgage payments. Then one of the Ds hit.

Q: Ds?

A: As written by one wordy blogger:

3) As housing prices fall, which they should because housing is in oversupply, more homeowners find themselves in trouble.  Remember, defaults occur because a property is underwater, and one of the five Ds hits:

  • Divorce
  • Disability
  • Death
  • Disaster
  • Dismissed from employment

Q: My, but he is a piece of work. So, houses aren’t a safe asset?

A: Well, most of the time they are, particularly if don’t have any debt on them. But there are situations where housing prices have been bid up to where the prices don’t justify the cash flows if you are borrowing to own it and are renting it out.

Q: What do you mean?

A: No asset’s price can survive if the implicit net rent is negative. I.e., if you have to feed the property to hold it.

Q: Huh?

A: Imagine that instead of living in your home, you borrowed money to buy the house, and have rented it out. What I am saying is that when those that do this are losing money, the price of the house is too high. They are relying on price appreciation to bail them out, and no one can control that.

Q: Is there a simpler way to say this?

A: When you have to give up money to hold onto an asset, you are in a weak position, and it means you should sell, particularly if many people are having to do the same thing. Properly priced assets produce cash; they don’t consume cash. If on net it is cheaper to rent than borrow and own, then it is probably better to rent.

Q: Are you just saying that risk is a function of the price of the asset? An overpriced asset is risky, and an underpriced asset is not?

A: I am saying that, but there is more to say as well. An asset could be priced below its fair market value, and it could still be risky if it is misfinanced. Take for example the insurance company General American back in August 1999.

Q: Huh?

A: Old news, I know, and most people don’t follow insurers. But they had written a lot of floating rate GICs terminable at par in 7 days if they got a ratings downgrade. What was safe if it had only been 5% of their assets became toxic at 25% of their assets. The amount they were selling ballooned because money market funds could treat the assets as short-term paper.

Once the downgrade came, there was no way to raise that much money so fast. They ended up selling out to MetLife for 50% of their net worth. MetLife picked up control of one of their subsidiaries, RGA, in the process. They made exceptionally good money on that purchase.

It’s like crossing a stream that is 3 feet deep on average, but there is a spot in the middle that is 20 feet deep. If you can’t swim, don’t cross it.

Q: I heard you wrote to Cramer about General American at the time.

A: Yes, that was my first email to him, and I explained the situation in such detail that he republished the email for readers. That was my introduction to Cramer.

Q: So, you are saying there are two things to safety — price and financing?

A: That’s all I’ve said so far, but there are a few other things. The character of management matters. Remember my piece, Dead as a Severed Horse?s Head?

Q: Oh, the zinc miner that sided with the bondholders against the shareholders?

A: Exactly. With better management, they could have skated through the troubles, and perhaps sold the company to a larger base metals miner like BHP.

Q: Is any of this similar to the losses you took on Scottish Re or National Atlantic?

A: Yes. I thought you were my friend, though.

Q: Well, I read your confession pieces on both of them.

A: It still hurts, but faithful are the wounds of a friend.

Q: Proverbs 27:6, I like it.

A: I still remember the stress and the losses.

Q: Then is that all? Price, leverage, and management?

A: Pretty much. There are some secondary matters to those who do not want to do the hard work. Companies that pay dividends and buy back stock are shareholder friendly, and that is good so long as they don’t borrow too much to do that.

Also, there are the issues of operating leverage — companies with low fixed costs are safer. But that’s about it, unless you want to talk about investments other than stocks.

Q: Can we take this up later?

A: Sure, let’s take this up in part 2.

Focus on the Long-term

Posted on by David Merkel

Photo Credit: Sacha Chua || Planning is a good thing.

In any investment decisions, one must look at the long term. Don’t pay any attention to news that does not permanently change business conditions.

The thing that drew my attention here is the rather weak coronavirus. Stalin supposedly said, “A single death is a tragedy; a million deaths is a statistic.” My sympathies to the families of those who have died from the coronavirus. But to society as a whole, the coronavirus has done less damage than influenza does every year.

As such, I don’t pay attention to the coronavirus. Stocks are long-term assets, and if the coronavirus will have no impact on the economy past 2025, I don’t see why I need to pay attention to it.

The same applies to politics. Is there someone coming like Chavez or Maduro who will radically reshape business/industry? No? Well, don’t worry so much. Money votes for itself. Few genuinely want to slay the processes that make society well-off in aggregate, even if they are getting a lesser portion of the increase.

In healthy societies, there is a tendency to protect property rights. Property rights are an aspect of human rights, let the liberals note this. We can argue about the edges of the rights, but fundamentally property rights must be protected, or society falls apart.

Now, at present, I am not a bull on the stock markets, but it is not because of any event risk, but rather high valuations. We aren’t at the same valuations that we experienced at the top of the dot-com bubble, but we are in the range of valuations that only existed from 1998-2000. At present the S&P 500 is expecting gains of just 2.24%/year over the next ten years.

Even this is not the long term. Okay, bad returns for ten years, and after that, back to historic norms. Fine, that’s right. But how many will panic in the process of a crash, and not hang on for the long-term?

I think it is worth edging asset allocations toward caution as valuations are so high. We can’t predict when the disaster will happen, but when it does, there will be better opportunities to deploy free cash.

As such, lighten up on risk assets, and prepare for the next drop in the stock market.

Avoid Short Volatility Products

Posted on by David Merkel

Photo Credit: Niccol? Ubalducci || Tornados are similar to financial events where volatility erupts. You can predict them in aggregate, but not in specific

Remember when I wrote Where Money Goes to Die? Well, short volatility products cratered, but cryptocurrencies treaded water, with a lot of volatility.

I am telling you today to avoid short volatility products again. This seems to be a case where people don’t learn. Why? Because there is seemingly free yield from shorting volatility in the bull phase of the equity market. The opposite side of the trade is a disaster as well…. indicating that timing has to be precise if you are trying to earn money off of rising volatility.

Here is an additional reason to avoid short volatility products: the stock market is priced to produce a return of 2.5%/year over the next 10 years. The only time that has been lower than that is during the dot-com bubble.

In this situation, with valuations so high, it would not take much of a scare to make the market drop sharply, which would make volatility jump. Many short volatility products would be wiped out.

So, if you own short volatility products, sell them now. I am not saying “buy long volatility products” because that is a gambler’s game. It is a time to protect principal, not a time to seek speculative gains.

Ways to Love with Money

Posted on by David Merkel

Photo Credit: -Curly- || Really, it’s easy to be happy when you have just enough. All the money you need and not enough to fight over 🙂

Two things I request of You (Deprive me not before I die): Remove falsehood and lies far from me; Give me neither poverty nor riches? Feed me with the food allotted to me; Lest I be full and deny You, And say, “Who is the LORD?” Or lest I be poor and steal, And profane the name of my God.

New King James Version — Proverbs 30:7-9

Most of us want to be loved. It’s a deep need, and people crave it, often seeking good and bad ways to satisfy the need.

I counsel some people regarding their lives, who are not well off. It is not a rewarding pursuit in a pecuniary sense, but I do it out of love for them. Many have failed marriages. Some have marriages in danger of failing. Most have some habitual problem that is keeping them from succeeding. They sabotage themselves because they don’t want to admit that they are the main cause of their problems.

(This is not what intended to write about when I started.) Those who don’t have deep problems in their relationships still need to “weed and feed” in order to keep their relationships healthy. Weed — apologize when needed. Feed — show love regularly.

Love takes time, so the song by Orleans goes. I spend a minimum of 15 minutes every night with my wife talking to her, hearing her needs, doing the business of our marriage. The closer the relationship, the more tending it needs.

Spending time definitely affects love. What about money? How does it affect love? I will give a few ways that money can aid love.

  • Work hard to support those that you love.
  • Save money so that unexpected troubles don’t knock you off your feet.
  • Help your friends in their times of need.
  • Help your children go to college, or help fund their initial business efforts.
  • Buy a home that will allow you to take care of your family. Pay off the mortgage so that it is no longer a burden.
  • Buy a life insurance policy so that your loved ones are supported after your demise.
  • Give money to your favorite charity.
  • Take breaks from your work to spend time with your family. It can be a vacation, if that is what you like.
  • Analyze what risks your family faces, and find ways to neutralize them.
  • Invest wisely, so that you have more to help others, and enjoy your life.
  • Give gifts to your spouse and children such that they get something that they desire.
  • And more… give ideas in the comments.

Sergio Mendez had a song called “Put a Little Love Away.” Part of the lyrics were:

Better put a little love away
Everybody needs a penny for a rainy day
Put a little love away
Keep a loving thought in mind
Someone’s gotta leave
Somebody’s gotta stay behind
Put a little love away

Universal, Inc.

For those of us who take care of others, rather than just living for ourselves, showing love is important. But it requires a complex balancing act of labor, saving, investing and giving.

In this sense, the money is distilled effort used to aid others. I have often said that love is giving others what they desire. Find ways to give those you love what they desire, whether it requires time, money, or whatever. Be a giver, and you will likely be happy.

Cash on the Sidelines

Posted on by David Merkel

Photo Credit: theblackdog2071 || Remember, if some from the sidelines come onto the field, an equal number of others have to leave.

Anytime you hear a bull or bear argument about cash on the sidelines, understand that it is bogus. Ordinary trading does not add or subtract cash on the sidelines, excluding commissions.

If bulls are more motivated to buy, then stock prices go up as they buy, and cash moves into the hands of those they bought from, who were less bullish. If bears are more motivated to sell, then stock prices go down as they sell, and they receive cash from those they bought from, who were less bearish.

In both cases, the amount of cash on the sidelines does not change. Cash moves the opposite direction of shares.

So, when does cash enter the market?

  • IPOs
  • Rights offerings
  • Employee stock options plans are tricky as shares are potentially created, and sometimes some cash comes back to the corporation.
  • Employee stock purchase plans or grants are also tricky. Shares are issued, and sometimes cash come back to the corporation.

With the employee benefits, note that the employees may get slightly lower wages than if the benefit was not there.

When does cash exit the market?

  • Buybacks
  • Acquisitions of companies where cash is a component of the transaction

When cash enters the market, shares are created and cash goes into corporate coffers. When cash exits the market. shares are bought into corporate coffers, and cash exits the corporations.

As such, don’t listen to cash on the sidelines arguments. There is always cash on the sidelines. The question is whether new companies are being created, and whether companies are being consumed, and what the relative profitability levels are.

Note to readers: after the initial publication, I modified the lists to take out dividends, as no stock gets issued. I added in employee benefits, as the stock share count often rises as a result.

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