Category: Business

2024 Week 23

Notes, thoughts and observations - Compiled weekly

Growth is slowing around the globe and central banks in Canada, Australia and the Eurozone are signaling rate increases. At some point that will bleed over into the US.

Union pressure ramps up at Amazon as ALU partners with the Teamsters. Hands on labor is still in demand even though office work has been in recession for over a year.

EVs continue to drag down automotive sales and a used car price correction is underway.

The real estate market is still hot, but inventories are starting to recover to pre-pandemic levels. This will create downward pressure on prices but don’t expect a major correction. The real relief will come from more starter homes being built.

A different kind of M&A with Dollar Tree looking to divest some Family Dollar stores. In truth there is likely a lot of footprints overlap between the two and consolidation by shutting down underperforming stores is in order.

Finally, folks are starting to question the massive spend on AI related tech. Chamath Palihapitiya has been very vocal about the value proposition of AI chatbots. He further speculates that eventually shareholders will demand a return on their investment from massive spend.

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Category: Business

2024 Week 21

Notes, thoughts and observations - Compiled weekly

Global pressure once again calls into question the possibility of a Fed rate cut. Either way the world is seeing the demographic decline play out in Japan and need to take heed of their own issues.

Canceling student debt might have mixed popularity, but it’s hard to ignore the economic impact of freeing prime age consumers from the shackles of debt payments. Will it have an impact, hard to say? Again, either way the real reform needs to focus on the cost of college.

Companies are still trying to figure out how to goose results to please Wall Street. Disney, once again under Bob Iger, is reducing head count and refocusing on major box office releases rather than streaming platform releases. Seems like a solid strategy, short term, but long-term Disney faces a lot of challenges.

Meanwhile DuPont is following in the footsteps of GE and others by planning to break up its business units into multiple stand-alone businesses. While it’s easy to imagine that DuPont wants to divest from slower growing business, the reality is likely that each business will focus on the metrics that Wall Street cares about to maximize stock prices.

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Category: Business

2024 Week 20

Notes, thoughts and observations - Compiled weekly

Long term thinking is the only low stress way to invest in the market, and not worry about what the Fed will do. Don’t worry about meme stonks.

Digital media remains in a state of consolidation. Comcast will partner with Peacock, Netflix, and Apple TV to offer bundles. Meanwhile Disney and Warner Bros announced a joint streaming service combining Disney+, Hulu, and Max. Either way the consolidation is starting to make streaming look more like linear TV.

Red Lobster is rumored to be going bankrupt and Under Armour is on the ropes. Corporate debt is less of a concern as businesses adjust to higher interest rates. Consumers, on the other hand, are taking out more debt. But looking beneath the numbers and debt has less to do with consumer spending. Income and wages are far more important.

Labor market may be getting less tight

Labor market may be getting less tight

The labor market continues to struggle and we’re seeing layoffs outside of tech. We are also seeing an increase in unionization efforts which will make the southern US more expensive for manufacturing. Demand is high and with or without unions wages are likely to go up, and that will drive inflation.

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2024 Week 17

Notes, thoughts and observations - Compiled weekly

I think we all learned an important lesson about stories from journalists who seek to sensationalize topics to generate clicks. The predicted Baltimore supply chain issues never materialized after shipping was shut down by the collapse of the Francis Scott Key Bridge.

Young workers have the lowest unemployment rate since the 60s and weekly wages are higher than in the past. Again, this contradicts the prevailing narrative that Gen Z is doing worse than previous generations. Look past the commentary at the data.

Median weekly earnings, inflation-adjusted, for young people are the highest they have ever been

Median weekly earnings, inflation-adjusted, for young people are the highest they have ever been

Wall Street wasn’t happy with META’s spending on AI. They’d rather the money be returned to the shareholders. We heard a very similar critique with Amazon as Bezos directed online retail profits into building what would become Amazon Web Services. The future of consumer AI will be through service providers, and companies like Meta and Microsoft will play a part.

The idea of natural gas as a bridge fuel is gaining mainstream support with the likes of Jim Cramer admitting as much. I’m still cautious that it will quickly bridge us to nuclear power which is the only reliable base load source that is carbon friendly.

Finally, the economy seems to be roaring ahead despite predictions of current or pending recession. GPD grew steadily but inflation also. Shelter costs and pending trade tariffs will only make inflation stickier. I see daily commentary on how indicators point toward future recession, but I’m mindful that while these indicators have a high correlation the timing is never consistent.

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Category: Business

2024 Week 16

Notes, thoughts and observations - Compiled weekly

Every one that has eye can see that the Fed isn’t cutting interest rates. Apparently the stock market just realized? Bottom line inflation isn’t over and adding tarrifs to steel imports will only add fuel to the fire. Property and insurance is also piliing on inflation pressure

But it isn’t all gloom and doom. Long term energy production will ensure that the US economy remains top dog in the world. We produced a staggering 12.9 million barrels per day in 2023. There is also a broad consensus that natural gas is the right bridge energy to remove the last of the coal fired plants. All of this will remain a tailwind for the US, especially energy intensive industries.

US energy security will fuel future economic growth

US energy security will fuel future economic growth

The labor market is robust but wage growth has cooled. Long term worker pay needs to stabilize with long term inflation. Inflation is squeezing margins but businesses should expect increasing worker demand for raises. Demographics, increased union support and reshoring will all drive wages.

Elon Musk creates a lot of buzz, but if you look at two of his companies his actual impact is pretty visible. SpaceX has spurred an entire industry of providing cheaper commercial access to space. While success if obvious, the associated cost have not fully worked out. A recent impact of space debris on a home in Florida could become more common and the insurance industry is taking notice. Ultimately who is responsible when a Star Link microsatellite deorbits into someone’s property?

Likewise Tesla has long been the leader in electric cars it he US. Musk’s stated goal was to accelerate the EV technology, and he suceeded. With increasing competition from domestic and foreign manufacturers the company has doubled down on self-driving software side of the business. Again the insurance industry is taking notice. In my opinion, the biggest threat to Musk’s vision is not the technology or the consumers but the regulatory and risk mitigation aspects.

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Category: Business

2024 Week 15

Notes, thoughts and observations - Compiled weekly

Speculation continues on when the next Fed rate move will be, personally I don’t guess. But it’s possible that the source of an interest rate move may come from global forces rather than internal pressure. This hasn’t stopped top CEOs from sharing their opinion. Predict calamity long enough eventually it might become true

Work from home is still to blame for office vacancies, but I’m increasingly thinking that weak business fundamentals are a contributing factor. We are now higher than in 1986 and 1991. Global oil prices are also seeing weakness, though $80 per barrel is priced into the model and seasonal gasoline demand in the US is within historical trends.

It’s either a stock market bubble or a recession depending on which article you read. Someone pointed out the necessary recovery time for the NASDAQ 100 bought at the peak of the dot com bubble. Sure it took 16 years to recover, but if you held it until today, you’d still be up 276%. Also worth noting that the more diversified S&P 500 only took 7 years to recover.

Fear is ruling the day with folks buying gold from Costco and everyone penning articles about whether we are in a bubble and if it will pop. Sure semiconductors and tech may be VERY overpriced, fundamentals in other sectors could indicate we are on the cusp of a huge expansion in other market areas. Point being diversify and plan for the long-term are a better strategy.

Speaking of semiconductors, it looks like we might be on the verge of a second chip war around purpose-built AI processors. To date Nvidia has leveraged GPU designs but recent announcements by Intel, Meta and Alphabet may create a race to reduce training and inference processing costs. One thing is for certain: current AI processing costs are too high to be sustainable.

Another consideration for AI, EVs and chips is the impact of government incentives, tax breaks and spending programs. These act as fuel for expansion but when they expire it can often cause a rash of business failures. Look no further than the solar industry of the 2000s.

NOTE: Week 15 is a two week combination due to some well deserved time off.

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Category: Business

2024 Week 12

Notes, thoughts and observations - Compiled weekly

I’m not sure why I note this every week, but the projected Fed rate cuts aren’t coming. By the Feds on definition, we have neither seen a decline in employment nor a decline in inflation. The latest PPI numbers support this. Yet somehow Wall Street is betting on rate cuts. At this point I’m just speculating on what type of tantrum the market will throw when reality is accepted. 

Environmental concerns continue to top business headlines and new Federal emission regulations have everyone banking on a future sales benefit from more strict emission requirements. But sales data shows that consumers don’t want EVs. EV manufacturer Fisker is halting production and could be on the verge of bankruptcy. Meanwhile climate alarmism is once again pointing to ‘chartbusting’ extremes due to a 1.5-degree Celsius temperature increase. Bottom line is that climate alarmism didn’t work, and future efforts need to focus on mitigation strategies. 

The world of semiconductors and machine learning continues to move at a brisk pace. Further investment in domestic semiconductors by the US will probably fuel an expansion and speculation similar to the solar industry under a similar Obama program. The trend around AI mergers and acquisitions continues with Apple acquiring DarwinAI and Microsoft scooping up Inflection AI. The overall trend is that Big Tech will be the big winners of AI.

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Category: Business

2024 Week 11

Notes, thoughts and observations - Compiled weekly

The inflation figures weren’t great, but not shocking if you expect a long-term 3-4%.

US gasoline consumption is down but EVs aren’t the reason; Average fuel economy is up 42% since 2003. The US produces more oil than any country, ever. Crude oil production in the United States averaged a staggering 12.9 million barrels per day last year.

The Japanese economy appears on the mend after 25 years. Meanwhile strikes paralyze Germany as workers demand higher wages. While employment numbers for white collar workers are weak, blue collar and service workers are still in demand. I’d expect much more union activity everywhere.

3M is looking to follow GE’s lead and spin its health care business. And geopolitical risks are funneling money into the Indo-Pacific region.

Average fuel economy is up 42% since 2003

Average fuel economy is up 42% since 2003

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Category: Business

2024 Week 10

Notes, thoughts and observations - Compiled weekly

Job growth in the US continues to be strong, even if it slightly missed expectations. The trades, transportation, construction and utilities all continue to see growth. White collar job losses in professional and business services might make headlines, but otherwise the employment picture is good.

Abroad we are seeing weakness and recession, but the prevailing opinion is that the US will nail a soft landing and avoid outright recession.

Globally energy prices, supply chain disruptions and civil unrest all pull economies in a negative direction. Eygpt is the latest nation to hike interest rates to combat inflation.

Residential real estate continues to be strong, but a recent survey confirmed that rental rates are either flat or declining slightly. This after skyrocketing prices in 2021 and 2022.

One key to the US economic strength is domestic energy production, which stands at an all-time high. In fact, the price is so cheap that production cuts seem likely. Long term this is good as the US will dictate its own energy supply for decades to come.

The stock market tests new highs and that’s not a bad thing. It’s easy to wring your hands about stocks being too expensive but as several articles point out: long term discipline can mitigate the impact of buying at the wrong time.

Not wrong

Not wrong

Finally, the cyber-attack that hit Change Healthcare might have been one of the worst in recent memory. While the victim reportedly paid the ransom, it’s likely that the recovery effort will take a long time. It’s bad, but keep in mind that Change’s parent unit, Optum Insight, only accounts for 12% of parent UnitedHealth’s overall earnings.

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Category: Business

2024 Week 9

Notes, thoughts and observations - Compiled weekly

Rough times for gaming as budgets are slashed and employees let go. Both Sony and Electronic Arts announced major changes. Given the strength of PC and mobile gaming, you must wonder about the future of consoles. 

Apple throws in the towel on self-driving cars. Does this signal capitulation that the technology is nowhere close to road ready? Another interesting point is why Apple is reassigning employees from the car division to AI. Is this a FOMO move or was Apple already working on its own AI for vehicles? 

Regarding a US recession the data doesn’t indicate that. In fact, many believe there is no imminent danger despite some conflicting metrics. What is a risk is further bankruptcies, like for Macy’s who is closing 150 stores nationwide. The move is due to decadelong underperformance and investors looking for ROI. Things look dark for the retailer if the company can’t pull out of the dive. 

The US economy’s statistical vital signs are, if not healthy, at least stable.

The US economy’s statistical vital signs are, if not healthy, at least stable.

The guys on the All-In Podcast had a great discussion about the structure of Nvidia’s business and a breakdown of recent results (worth a watch/listen). A couple of big questions: Are these results based on a sustainable revenue model or are they simply due to a one time build out?  Second who spends $22 billion? Big tech companies with lots of cash and not a lot of investment options. But at some point, investors will look for ROI and that could be bad for everyone involved. 

Real estate and energy continue to hum along. Home sales are slightly down, but prices are not. It should be noted that long-term inflation accounts for most of the rise in home prices. Meanwhile energy prices remain low in the US because of the shale gas revolution. To quote: “We’ve found almost three Saudi Arabia between oil and natural gas.” 

Finally, an interesting tertiary observation about the expansion of AI chips and data centers which generate a lot of heat. Folks are beginning to pay attention to the water usage, for cooling, that these data centers demand. It brings into question the location of data centers in drought-stricken areas, but it also opens the door for alternative cooling technology that Intel and other startups are working on.

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Category: Business

2024 Week 8

Notes, thoughts and observations - Compiled weekly

This week I note that, as Blake Millard illustrates in his newsletter, a massive shift in resources will result from record numbers of retirees. Blake cites several reasons for a 2.7 million uptick but stops short of speculating the impact. Personally, I agree with the notion that an increase in retirees will lead to more conservative investment strategies that could take some wind out of the stock market’s sales. Then again, everyone Gen X and younger continue to plow money into the stock market via 401(k)s, so who knows?

Gavekal, via Mauldin Econ’s “Over My Shoulder” provides confirmation that CRE is a real risk for regional banking, but not for the broader economy. We don’t really know how big the problem is because of lack of price transparency. Either way the CRE crisis could be bad for borrowers who rely on loans from regional banks.

Nvidia reported earnings this week, but it couldn’t stop the obsession or comparisons between the stock and Cisco during the dot com bubble. The trend line is eerily similar, but the chip maker is different than the network hardware manufacturer. For starters Nvidia’s GPU chips are dominant in the market, though they could eventually be challenged in the next few years. There is truly no equivalent to Nvidia, and it would require a massive collapse in the AI industry to trigger the same sort of quick downfall.

Eerily similar, personally don’t think NVDA crashes unless massive bankruptcies by AI startups

Eerily similar, personally don’t think NVDA crashes unless massive bankruptcies by AI startups

Regarding globalization, China has two problems: rising labor costs and a shrinking workforce. But as Mauldin Econ notes productivity can bridge the gap, at least for a while. Compound this with financial troubles in the real estate sector and I think China will lose a lot of ground to other Asian nations, but still retain the lead. Long term the success of home-grown solutions will dictate China’s position in the global supply chain.

Finally, Walmart is at it again. After a failed attempt at creating its own streaming service, the retailer is trying to buy Vizio. If you recall Walmart abandoned its service in 2019 to focus on Vudu (purchased in 2010), only to sell it in 2020. So why does Walmart want to buy a TV company? Advertising, or at least that is the bet. I think this initiative is outside of Walmart’s core competencies.

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Category: Business

2024 Week 7

Notes, thoughts and observations - Compiled weekly

Interesting employment trend as the remote work trend (WFH) creates economic benefits in the labor market as we see a 1% increase in the labor participation of mothers. A couple of reasons why I think this is significant. First it creates a way for parents and caregivers to efficiently work part time as they balance other responsibilities.  

Second, and more critically, it allows full-time workers to provide part-time childcare for school-age children. By eliminating the commute, parents can drop kids off at school, attend events and generally support their children WITHOUT the need to take time off. This is a huge productivity boost and allows parents to stay fully in the workforce. 

WFH is benificial to the participation rate of parents and caregivers

WFH is benificial to the participation rate of parents and caregivers

Meanwhile inflation remains sticky as the Shelter category continues to drive CPI. Despite interest rates, a shortage of available residential real estate still exists. All of this led me to think that the prospect of a Federal Reserve interest rate cut is wishful thinking

Speaking of interest rates, there are a lot of hullabaloo about the so called “wall of maturity”, but if you look at the maturities, you’ll notice more of a ramp from 2025 through 2028. Still a risk, but also not everything at once. I would expect a protracted period of pain. This along with ongoing CRE risks will hang a heavy cloud over debt markets for quite some time. 

Wrapping up with Artificial Intelligence we are seeing two important trends. First a repatriation of high-end chips due to global supply concerns (Taiwan) and technological advances (Extreme ultraviolet lithography) which are expected to leapfrog domestic chip production by Intel. Second Nvidia chip supply issues are causing companies like OpenAI to spend an enormous amount ($7-9B) on GPUs per year. Long term this will influence companies (Apple, Tesla, Samsung) to design their own purpose-built chips.

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2024 Week 6

Notes, thoughts and observations - Compiled weekly

When it comes to the labor market it’s tough out there. It hasn’t stopped unionization efforts and reshoring and worker shortages have tipped the negotiation scales in the favor of labor. 

The broader global trend of domestic onshoring continues as Sony and Toyota work to bring a second TSMC factory to Japan. Having learned from the pandemic supply chain issues and looming stand-off with China, industry is rightly trying to reduce the risk of future chip supply interruptions. 

The stock market continues to befuddle, and it recently drew the comparison of the Magnificent 7 to the Tech Bubble 5. While conditions aren’t the same, questions arise about the future performance of these household names held by every 401k and mutual fund. The answer always lies in: watch what people do, not what they say. It may, indeed, be the economy stupid. 

Finally, another doomer prediction from former fed DiMartino Booth who recently took to YouTube to talk about why spending, debt and interest rates are a problem. I don’t disagree with the sentiment, but phrases like “wall of maturity” and predictions of “big layoffs ahead” are intended to get clicks and views. 

If you follow folks like DiMartino Booth and Peter Zeihan you are familiar with the somewhat hyperbolic delivery. It sells books and newsletters, but it is showmanship at best. Most of the predictions and conclusions are directionally accurate, and if someone weren’t shouting you probably would never pay attention.

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2024 Week 5

Notes, thoughts and observations - Compiled weekly

Fall out from Biogen’s failed Alzheimer’s drug Aduhelm will hurt more than the company. The big loser is the reputation of the FDA.

Strategic thinkers are considering a potential collapse in global maritime shipping. To date shipping has remained operational, but mostly due to ‘ghost fleets’ via China, Russia and India. The great unknown is what happens to insured ships that are inevitably attacked.

Residential housing is not very affordable, but a recent trend in kids moving back in with parents possibly has multiple underlying reasons.

Meanwhile GM dealers are begging the manufacturer for hybrid vehicles instead of full EVs. Dealers claim that buyer are looking for a middle ground between ICE and EVs. Despite the feedback, GM CEO Mary Barra is doubling down on EV.

Evergrande finally goes out of business, or not. The Chinese company was ordered to liquidate by a Hong Kong court. What comes next will be either a bad situation for Chinese savings or for Hong Kong’s authority.

Consumers are running out of steam with nearly 30% of Americans behind on payments. “Buy now pay later” is soaring as wages fail to keep up with inflation for lower wage earners.

Layoffs continue with fresh announcements from Deutsche Bank and Zoom and job losses continue to bleed over from tech into other sectors. Despite a large number of layoffs, unemployment continues to remain at record low as the labor market is still in imbalance.

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Category: Business

2024 Week 4

Notes, thoughts and observations - Compiled weekly

Companies are still cutting the fat, but it begs the question of whether this is all due to pandemic over hiring or does it indicate retail bracing for declining consumer spending?

Bankruptcies continue to occur, but companies are also closing money losing stores. Walmart closed 24 last year and retail pharmacies plan to close hundreds this year.

The national debt continues to grow, but the real concern is the increasing budget deficit which will exacerbate the issue.

Globalization continues to contract over security concerns leading to a short-term spike in shipping rates. Long term this will be a threat to global supply chains and particularly bad for European countries that heavily depend on contested shipping lanes.

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2024 Week 3

Notes, thoughts and observations - Compiled weekly

Populist political consequences and bipartisan, systemic big government spending are to blame. 77% of debt since 2000s attributed to legislation that passed with strong bipartisan support

Understatement of the year: Commercial real estate is in trouble. Empty office buildings are setting cities in a doom loop. Even CBS 60 minutes has picked up on the trend. 

Global shipping is under pressure.  reducing container transport by over 50%. Shipping rates will impact the supply chain for Europe, which is already weak or in recession. 

EVs don’t make a lot of economic sense right now and car buyers don’t want them. Only 6 Percent in the US want an EV for their Next Vehicle. Adoption rate is likely due to massive government subsidy programs.

CRFB finds 77 percentage points of the current 98% (122%) debt/GDP ratio

CRFB finds 77 percentage points of the current 98% (122%) debt/GDP ratio

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Category: Business

2024 Week 2

Notes, thoughts and observations - Compiled weekly

Tech layoffs have taken the front page as three years of layoffs have far exceeded cuts demanded by simply over hiring. AI is often to blame, but the most likely candidate is the end of zero interest rate policy (ZIRP). Easy money will take time to unwind. 

The stock market has already priced in rate cuts, but it is pure fantasy unless the domestic (US) economy takes a dive. Inflation has proven sticky, and analysts warn of a bumpy ride in the short term. However, an economic downturn might be near as coincident indicators point toward recession and consumer credit contracts. Nearly 30% Americans are behind on debt payments. 

Meanwhile declining demand for oil indicate a global recession and slowing demand from China, and Middle East tensions. Likewise global shipping is under pressure and as it grows more difficult and dangerous, it also grows more expensive. Companies are looking to de-risk, and near shore nations like Mexico offer cheap manufacturing labor. 

Red Sea Shipping Update, Maersk Pauses Transit Until Further Notice

Red Sea Shipping Update, Maersk Pauses Transit Until Further Notice

Less surprising is the headline that America’s corporate offices are emptier than at any point in at least 4 decades. Remote work, accelerated by the pandemic, has led to a staggering 19.6% of office space in major U.S. cities wasn’t leased. Companies are increasingly interested in smaller, more flexible spaces. 

Finally, Gartner recently identified an interesting disruption that you may not have considered. Analysts are predicting a Golden Age of “Silver Workers” due to the talent crunch. The increased experience and productivity of seasoned workers coupled with the democratizes skills via AI could maximize elder workers’ value. The combination of retirement shortfalls and declining worker demographics could make this prediction a reality.

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2023 Week 50

Notes, thoughts and observations - Compiled weekly

Last update for the year. The labor market remains resilient but areas such as physical entertainment are struggling against an expanding landscape of digital entertainment. JOLTS data indicates employment decline in several sectors, but information remains unscathed.  

A reminder that a lifetime guarantee is only as good as the company. Even though the classic indicator of recession remains in place many are starting to believe in economic soft landing. Call it a mild recession or not, the FED has signaled rate cuts are ahead. 

Finally commercial real estate is still on everyone’s mind. In my local market of Charlotte, NC many uptown towers remain partially empty. Some predict it could be years before occupancy rates recover. Meanwhile many new businesses are increasingly likely to start remote which will impact everything from small offices to office supply and equipment purchases. 

With that here are my last business notes of the year. Have a happy season and we will see you in 2024.

Classic recession indicator remains in place

Classic recession indicator remains in place

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Category: Business

2023 Week 46

Notes, thoughts and observations - Compiled weekly

Wages are still going up for some and inflation continues to cool effects are sticky. Companies continue to cut costs and shut down money losing projects 

Commercial real estate delinquencies are up but residential still looks OK. 

Moody’s cuts United States credit outlook and precious metal are being pitched as a remedy to a calamity that may never materialize. 

In the stock market retailers are seeing major drops in market value while shorts pile up on highflyers like TSLA and XOM. Meanwhile private equity that didn’t flee China is now stuck.  

Finally, OpenAI is asking Microsoft for more money, Sam Altman stating “Training expenses are just huge.” Simultaneous Disney’s content well is running dry with consumers as “The Marvels” lowest opening for a Disney film in the MCU.'

Delinquencies accelerating

Delinquencies accelerating

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2023 Week 44

Notes, thoughts and observations - Compiled weekly

This week we saw continued concern about the resiliency of consumer spend and the impact of growing debt on households. Credit card debt hit a record $1.08T and the largest increase since the NY Fed began tracking in 1999. Likewise household ability to cover a $400 emergency expense continues to decline.

Labor and recession talk still circulates but opinions are mixed on the implications. On the one hand “quits” are down to pre-COVID levels but we’re seeing a weird trend line in jobs due to shifting demographics. October numbers would have been 262,000 if the birth/death wasn’t negative. Likewise, where some see strength in the economy others are reporting slowdowns that will cause a future recession.

I guess it depends on whether you think we are in a recession, just came out of a recession, or are headed for the next recession. We are seeing layoffs and manufacturing is on the cusp of contraction. It may not be clear the casual observer as companies like Citigroup are disguising layoffs as special projects and others like BoFA have instituted hiring freezes to control labor costs.

Not all gloom and doom as several companies have announced that they will build their own proprietary large language models. Amazon announced Olympus and Titan despite also partnering with Anthropic. It’s clear that major companies are placing LOTS of bets with AI to leapfrog competition.

The percentage of loans in serious delinquency, 90+ days, is virtually flat across all categories save credit cards

The percentage of loans in serious delinquency, 90+ days, is virtually flat across all categories save credit cards

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2023 Week 42

Notes, thoughts and observations - Compiled weekly

A mixed bag of news this week. Inflation remains on the radar, as do future fed hikes. The labor market remains strong but finance continues to shed jobs.

Services remain higher likely to due to higher wages

Services remain higher likely to due to higher wages

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2023 Week 38

Notes, thoughts and observations - Compiled weekly

Labor market continues to be tight, in places. Recent wage reports paint a picture of an oversupply of people with college degrees and undersupply of people without.

Inflation remains sticky with everything from drought driving water transport prices to gas prices at $4. It’s also obvious, to everyone except the conference board, that we are IN a recession.

The federal deficit balloons and the solar industry feels the slump of not being proped up by government spending.

Tech IPOs returned with Arm, Instacart and Klaviyo; while the cable industry reaches new lows as CNN has worst ratings weekend on record.

All that’s missing is the official grey bar

All that’s missing is the official grey bar

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2023 Week 37

Notes, thoughts and observations - Compiled weekly

First the bad news: Real Estate continues to trouble everyone, but a couple of things to point out. The number of delinquencies and foreclosures isn’t high which is good. Add to this more loans are locked in below 6%, far better than 2013. Over time this will shift as folks move.

Unfortunately inflation is sticking around. Concern about energy prices driving further inflation as it increases costs throughout the value chain. Likewise job losses are continuing to spill over into non-tech areas specifically finance ,both Citi and Truist.

But again on the brighter side worker shortages will buoy the labor market for years. 47% of Gen Zs were interested in pursuing a career in a trade. It might mean fewer office workers, but more plumbers, electricians, etc.

Finally a bit of good news as McDonald’s announced it was getting rid of self-serve soda machines citing less dining room traffic and more mobile orders. This is probably a godsend for service workers but also a rising trend in order ahead, customer prepayment merchant solutions. We saw this technology blossom during the pandemic and it’s confirmed to be a long term trend

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2023 Week 28

Notes, thoughts and observations - Compiled weekly

Rolling together two weeks of notes and noticing big trends in real estate, the impact of rising rates and the labor force.  Realtor.com reports a record low number of listed homes for sale, which will put upward pressure on prices but also benefits services, home improvement and rental property. 

Inflation numbers came in and continue to trend downward, but the consensus is that the Fed will continue to hike rates until it hurts (or YOY inflation goes negative as history indicates). Higher rates won’t make Wall Street happy for long but will have a real impact on both corporate and private debt. The former will impact the earnings bottom line, and the latter in the form of lower consumer spending. 

The question everyone is asking “Are we having a recession or not?”. It’s less of “if” than “when” as all eyes fix on the still inverted yield curve. The real question is hard landing or soft landing. A lot of conjecture and uncertainty. 

Finally, what does Gen Z want? More precisely, as they enter the workforce, what do they want from the work relationship? Gen X historically wanted to come in, work and go home. Millennials demanded more of their employers. But has Gen Z been in the workforce long enough to know what they truly want?

Credit cards issued by commercial banks have interest rates soaring close to 21% as of May, which is a record in Fed data going back to early 1970s

Credit cards issued by commercial banks have interest rates soaring close to 21% as of May, which is a record in Fed data going back to early 1970s

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2023 Week 26

Notes, thoughts and observations - Compiled weekly

On top of mind this week is the real risk posed by commercial real estate. While single-family delinquencies declined, multi-family increased. Single-family inventory is at the lowest level on record (going back to 2012) based on Redfin. On the commercial side some estimates have only top ~10% of office buildings in NYC are not distressed.

The labor market continues to be strong, and workers confident despite manufacturing layoffs picking up. The wave of tech layoffs has slowed but higher than last year. On the flip side, the US has 2.4 million excess retirees and it’s likely causing labor shortages. No shortage of Hel Wanted signs around my town.

Finally, the stock market continues to prove bears wrong, but something isn’t right. Top winners in the S&P 500 are the largest, most institutionally owned names. Only 27% of companies in the index are beating the benchmark. Meanwhile BRICS countries have a growing share of the world economy but they’re not going to rival the G7 anytime soon.

Tech layoffs have driven nearly 2/3 of the layoffs so far, but that may be changing

Tech layoffs have driven nearly 2/3 of the layoffs so far, but that may be changing

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Category: Business

2023 Week 16

Notes, thoughts and observations - Compiled weekly

The labor market looks weird with tech already well through massive layoffs, and job losses spilling over into other sectors with massive layoffs in already weak retail names.

While the energy industry works on renewables and synthetic fuels, bridge energy sources like natural gas are showing promise. While US based natural gas is beholden to regulation, developing regions in Mexico and South America are starting to pop up on the radar.

Rounding out the field we have somewhat of a pullback in real estate, but not the cataclysmic 2008 scenario some had predicted. Low inventory and higher mortgage rates will work against younger millennials.

Millennial homeownership rates badly trail other generations

Millennial homeownership rates badly trail other generations

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Category: Business

2023 Week 15

Notes, thoughts and observations - Compiled weekly

A couple of takeaways for the week. First, we are seeing signs that the liquidity crisis may not be over, the huge draw down in deposits may still cause problems. Consumer debt is also a concern as it’s more difficult to get credit than one year ago. 

Second, increasing number of economist speculating that we are in, or are entering a recession. Recessions are notoriously hard to identify until after the fact, and a lot of contributing factors that may make this one double difficult to spot. For example, the labor market is looking very peculiar with the prime-age employment recovering in record time. 

Last, the hype cycle continues on both the end of oil and the end of the US dollar. In my opinion both are long term risks but can be mitigated. Beware of snake oil and fear mongering, it takes a long time to systemically change a global economy. Just as COVID was a challenge for the global supply chain, it did not end overnight.

Is long term demographic trend (boomers retiring) a contributing factor?

Is long term demographic trend (boomers retiring) a contributing factor?

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Category: Business

2023 Week 14

Notes, thoughts and observations - Compiled weekly

Are we going to see the first layoffless recession? Similar to stagflation, we could go into a recession while there is a worker shortage because due to an aging labor force due to a lack of immigration

We technically go into a recession but there are plenty of jobs - Kim Khan

We technically go into a recession but there are plenty of jobs - Kim Khan

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Category: Business

2023 Week 11

Notes, thoughts and observations - Compiled weekly

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Why was everyone yelling on Twitter this week!?

Why was everyone yelling on Twitter this week!?

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Category: Business

2023 Week 10

Notes, thoughts and observations - Compiled weekly

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China taking advantage of a steep Russian discount

China taking advantage of a steep Russian discount

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Category: Business

2023 Week 9

Notes, thoughts and observations - Compiled weekly

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Category: Business

2023 Week 6

Notes, thoughts and observations - Compiled weekly

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Job openings are 1.9 times larger than the number of unemployed workers

Job openings are 1.9 times larger than the number of unemployed workers

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Category: Business

Dot-Com Bubble 2.0 - Tech Worker Impact

A brief summary of Dot-Com Bubble 2.0: How Did We Get Here? by Prithvi Raj Chauhan posted on Hacker Noon

Overview

The bubble repeated, for different underlying speculative reasons but effectively the same boom-bust cycle. What happens next to employment and the broad economy is likely a replay of the early 2000s.

@Prcwrites does a great job covering the technical aspects, I’d like to add some perspective from the employment.

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Category: Business

2023 Week 3

Notes, thoughts and observations - Compiled weekly

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Category: Business

2023 Week 1

Notes, thoughts and observations - Compiled weekly

Slight format change, will add my commentary to each line item in addition to calling out any larger points.

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Category: Business

2023 Week 2

Notes, thoughts and observations - Compiled weekly

This week we officially retire the Used Car Bubble, but keep and eye on our money bin.

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Category: Business

2022 Week 51

Notes, thoughts and observations - Compiled weekly

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Category: Business

2022 Week 49

Notes, thoughts and observations - Compiled weekly

Recession fears, the fed funds rate and resetting energy expectations

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Category: Business

2022 Week 47

Notes, thoughts and observations - Compiled weekly

Big gap since the last weekly notes posting, so I’ll attempt to summarize the big movers.

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Category: Business

2022 Week 42

Notes, thoughts and observations - Compiled weekly

THIS WEEK

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Category: Business

2022 Week 40

Notes, thoughts and observations - Compiled weekly

THIS WEEK

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Category: Business

2022 Week 39

Notes, thoughts and observations - Compiled weekly

THIS WEEK

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Category: Business

2022 Week 38

Notes, thoughts and observations - Compiled weekly

THIS WEEK

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Category: Business

2022 Week 34

Notes, thoughts and observations - Compiled weekly

THIS WEEK

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Category: Business

2022 Week 32

Notes, thoughts and observations - Compiled weekly

hugo

THIS WEEK

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Category: Business

2022 Week 29

Notes, thoughts and observations - Compiled weekly

THIS WEEK

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