Notes, thoughts and observations - Compiled weekly
Inflation feels good at first but the endgame is grim - Jens O. Parsson
Observation :: Theories abound, but no one really knows what is going on
THOUGHTS :: Commodities ran up with speculation, corn prices are through the roof because of Ukraine. End of the day this fuels inflation, but didn’t start it.
- Cramer :: Commodity collapse: falling prices on corn, soy, copper, lumber. Morgan Stanley says much more to come zinc, aluminum, nickel, iron, copper, coal.
THOUGHTS :: 70s much? Old timers warn us about the bad old days. Bottom line is inflation was low for a long time and we need to readjust to a more realistic level
- New Items :: Leading economies are close to “tipping” into a high-inflation world where rapid price rises are normal, dominate daily life and are difficult to quell, the Bank for International Settlements warned on Sunday.
THOUGHTS :: No two ways, this is bad. Supply chain can and probably will extend inflation long after the economy corrects
- Clips That Matter :: Shipping Time
- Port snarls in 2021 helped launch the current inflation.
- The crunch eased considerably last fall and winter, falling from over 12 days to only three days as 2022 arrived.
- Unfortunately, that improvement now looks temporary. Delays escalated again starting in February 2022 and are now near last year’s peak level.
- As every investor knows, time is money. Higher prices are one result, so this is a sign inflation may not recede soon.
THOUGHTS :: Ritholtz nailed it, not one cause but many compounding
- Barry Ritholtz :: Who Is to Blame for Inflation?
- President Biden CARES Act 3
- President Trump CARES Acts 1+2
- Consumers (overspent without regard to cost)
- Consumers (shift to Goods)
- Russian Invasion of Ukraine
- Just in Time Delivery (supply chains)
- Fed/Monetary Policy
- Wages/Unemployment Insurance
- Home Shortages
- Corporate Profit Seeking
- Tax Cuts (2017) / Infrastructure (2022)
Take-away :: Many things “caused” inflation, and we should adjust our outlook to rising prices for the foreseeable future
It’s a recession when your neighbor loses his job; it’s a depression when you lose yours. - Harry S Truman
OPINION :: We can play games and pretend like it’s not happening, but that won’t change the fact that it’s happening
OBSERVATION :: This seems different.. typically capitulation AFTER the decline, are we there yet?
- Liz Ann Sonders :: Historically-elevated percentage of companies trading below cash and short-term investments
THOUGHTS :: Layoffs spread, seems like the start of a recession
- Seeking Alpha:: Unity Software cuts hundreds of staffers
- Unity Software (NYSE:U) has laid off hundreds of staffers in broad-ranging cuts, according to media reports.
- An all-hands meeting two weeks ago brought assurances from CEO John Riccitiello that the company wasn’t in financial trouble and no layoffs were imminent - but the cuts have hit
- Laid-off workers are being given a month of pay and another month of severance and health coverage, but Unity has reportedly enacted a hiring freeze across all departments.
THOUGHT :: Cathie Wood capitulates?
- Seeking Alpha :: Cathie Wood, CEO of ARK Invest “We think we are in a recession…”
- Can’t believe it’s taking more than two years [to resolve the supply chain] and Russia’s invasion of Ukraine of course we couldn’t have seen that. We think a big problem out there is inventories - the increase of which I’ve never seen this large in my career… and I’ve been around for 45 years.
THOUGHT :: Predicting it could get worse based on past performance, are we overcorrecting based on the brutality of early 2000 and 2008?
- Yahoo :: The S&P 500 Index may have another 24% to fall by year-end, if the past 150 years of financial-market history are any guide.
- Société Générale, which calculates the benchmark gauge may need to tumble as much as 40% from its January peak in the next six months to hit bottom.
- Earnings are the most important driver of stock prices in the long run.
- Analysts estimated S&P 500 earnings to grow 10.4% year-over-year to $230.52 per share in 2022
- “The dynamics of post-crisis fair value still call for a deeper correction to bring current prices in line with the reset anchor fundamental fair value.”
- “The current market valuation clearly stands as a bubble vis a vis the valuation reset of March 2020 and its trajectory,
Takeaway :: Stocks might get cheaper, but not a sure bet. At this point many trading at 52-week lows, hard to make strategic buys
Location, location, location
Observation :: Houses aren’t selling as quickly in my neighborhood, it’s probably rising rates
THOUGHT :: You have to wonder why folks can’t service a fixed rate mortgage and are already behind enough, facing eviction
- Liz Ann Sonders :: About 15%, or 8.4 million Americans, are behind on rent per early June @uscensusbureau survey … ~3.5 million households say they are very or somewhat likely to leave their house in next 2 months because of eviction
THOUGHT :: I don’t think you can read too much into this data. Housing completions are way behind which means fewer finalized sales
- (Liz Ann Sonders :: Except for Midwest, most regions saw peak in pending home sales in August 2020; since then, sales are down by 20% in south, 18% in Midwest, 23% in northeast, and 29% in west