The future is not just unknown, It's unknowable
-Howard Marks
Predictions are forever wrong. Recently, economists and financial experts predicted the US economy would be in a recession. However, the recession they called for never materialized. Now everyone is predicting the economy will continue to boom for the foreseeable future. They are all saying we have no need to worry about the potential for a recession.
I do not believe a word of it.
People say being a weather man is the only industry you can be wrong and still get paid handsomely. That is incorrect. Economists and Financial analysts are more wrong that a dead clock. I caution everyone against getting too excited or depressed about anything you read in the news. Always approach things with both a pessimistic and optimistic mindset. Knowing the present could be much worse than you think but giving yourself room for a much brighter future. This means we save to protect our downside and invest to be a part of the greater tomorrow.
Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Markets
Seems the market needed a breather. It’s been moving sideways for two consecutive weeks.
This newsletter is 2,012 words a 10 min read
Tale of the Tape
Economy
Although that might seem like a bad thing, it is actually the opposite. The CPI for the month of July was 3.2% higher than 3% in June. However, inflation has cooled off substantially since the beginning of the year
🔍Details: The increase is driven primarily by higher gas prices. the average price of gas is now $3.84 according to AAA.
Core CPI (which excludes foods and energy prices) dropped from 4.8% to 4.7%
💬In Their Words: NerdWallet's Elizabeth Renter said "[A]dd today's CPI numbers to the pile that we've seen over the past several months, and they continue to build the case that the economy is headed in the right direction."
🙂Takeaway: This is the sign the Fed needs to end its war against inflation. Although inflation is not at its target of 2%, there are many signs to show that inflation is no longer sticky and prices will not be going higher as quickly anymore.
😕My Takeaway: these are lagging indicators. There are a lot of warning signs of possible economic pressures ahead. The price for a barrel of oil jumped from $68 in June to now $84. Russia backed out of the grain deal with the UN so there is a considerable possibility we have a food shortage once again. There are some clouds in the sky but let's hope they do not gather and begin a storm.
According to a recent Wall Street Journal analysis of 50 schools' financial statements. College Fees to no one's surprise were not for the actual cost of education
🔍Details: Over the last 20 years, tuition as we all know has increased by over 170%. The money was used to pay for:
Increased construction and renovations (that lazy river in your college gym that you will never use aint cheap)
Increased pay for athletic coaches whose pay increased by over 50%
To handle all these new buildings, you need new administrators
Examples of the ridiculous expenditures colleges are making:
The University of Oklahoma spent $14.3 million on a monastery in Arezzo, Italy. Tuition at Oklahoma has risen over 160%
💬In Their Words: Holden Thorp, former chancellor of the University of North Carolina at Chapel Hill, told the WSJ, ‘These Places Are Just Devouring Money.’
Earnings
Disney reported earnings on Wednesday and things were all over the place.
🔍Details: Disney+ continues to lose subscribers. The company lost 11 million subscribers in Q2. This was mostly from their Indian streaming platform, Hotstar. The massive drop was due to losing the rights to Indian Premier League cricket matches.
Disney announced a 27% increase on Disney+ and a crackdown on password sharing.
🔢By The Numbers: Revenues increased 4% year over year to $22 Billion but the company posted a net profit loss of $400 million.
Parks are the only bright spot for the business right now growing 13% in the quarter
Movies have not been as blowout as in the past:
Elemental cost $200 million to make but only made $423 million
Indiana Jones cost $300 million to make but only made $369 million globally
💬In His Words: Bob Iger (CEO) said on the call, “The performance of some of our recent films has definitely been disappointing, and we don’t take that lightly. As you’d expect we’re focused on improving the quality of the films we’ve got coming up. It’s something I’m working closely with the studio on.”
Takeaway: Disney is struggling to find itself post-pandemic. The streaming business has gone ice cold after coming out of the gates hot (I fell for the hype). Unlike Netflix, which has despite cracking down on passwords continued to grow subscribers. Disney continues to shed subscribers like old skin. It seems the magical flywheel of good movies that can be parlayed into parks and merchandise is not working so well anymore. Or maybe it’s just a short-term issue that will be corrected as time goes on.
Stats of the Week
Credit Card Debt for the first time in all of history has crossed the Trilly mark, according to a new report from the Federal Reserve Bank of New York (Of course it had to come from the overpriced capital of the world).
🤔How?: Inflation and Revenge Spending Post Pandemic.
🔍Details: There have been 24 million new credit cards issued in the last quarter (I am 2 of those new lines. I am trying to play the travel rewards game)
Late payments are on the rise. 7% of credit card accounts are 30 days overdue. The highest level in 11 years
Delinquency (late or overdue payments) increased from 3% to 3.18%
which may seem small but when you consider that there are over 572 million credit card accounts. A small increase in percentages means millions of people are struggling
Takeaway: The Fed says this is not a problem yet. They say delinquency rates are returning to pre-pandemic levels. Also, although the numbers seem bad consumer debt is just 6% of total deposits Americans have in their bank accounts. The lowest percentage in 20 years.
My Takeaway: There are too many signs of the growing pressures on consumers. If people are already struggling to make payments, what happens when they have even more payments to make? Thinking mainly about student loans being re-activated in October. It may not be a problem right at this moment but it does not mean it will never become a problem. More and more it feels like that recession that we have been talking about might be around the corner
This is the new full-time salary of full-time drivers at UPS, after the recent union negotiations to raise pay and add AC to the Brown vans.
According to Google and Indeed, searches for jobs with "UPS", "United Parcel Service", or "UPS driver jobs" have increased over 50% since the news broke of the deal. Who would have thought that people actually want to work for places that will pay them well and provide good benefits? 🤔
Companies take note. This is the ultimate flywheel for a business. You pay workers well, you attract even more workers. You focus on shareholders, you get hate and attract no one.
The number of people who died in a recent wildfire in Maui, Hawaii. It is the worst fire in the history of the island. Adults and children had to drive into the ocean for safety. More than 2,100 people are now homeless
Prayers for the people.
And still, people say Climate Change is not a thing. It is estimated that this year alone, climate disasters have cost insurance companies over $50 billion. Now that it is hurting the pocket books of large corporations. Maybe it will become a factor that companies consider when providing services such as insurance or loans.
Looking Ahead
Retail Retail Retail
After seeing the number of new credit cards consumers have opened this year, we get to see where consumers are using those new lines of credit.
On Tuesday, the Census Bureau releases retail sales data for July. This will give an overall idea of if consumers are pulling back on spending. it will also tell us what parts of the economy consumers are choosing to spend more of their hard earned dollars on. I'm pretty sure entertainment will be a big one because of Taylor Switch just finished her tour in the US and she had a massive impact on inflation. Beyonce just began her tour and you can expect that the spending is on these two individuals is not stopping any time soon. It is expected that retail sales rose from June by 0.4% in July.
According to Investopedia, The National Retail Federation forecasts retail spending to grow between 4-6%. A range of $5.13 to $5.23 trillion
Last Call Kinda
This will be the final busy week of the Q2 earnings season. We are ending the wave of earnings with the stores that are regularly in everyone's wallets. Walmart (Thursday), Target (Wednesday), Home Depot (Tuesday), and Lowe's report their earnings this week. These companies can provide color to the retail sales data by providing insights on what exactly customers are choosing to buy (generic vs name brand).
Other Companies' Reporting
Sports I Love
IT IS FINALLY BACK!!
Man City is still as dominant as ever! 😔
But at least there are a ton of good teams this season that might make it interesting. Arsenal is looking dangerous, Newcastle is looking pretty good, Chelsea is retooled, and Liverpool is okay.
Man U, well you know how I feel about Man U. We trust nothing.
College Football Not so Amateur
Recently a bunch of schools left the PAC-12 to join the Big 12 and Big 10. I initially didn't care because the best conference in the country remains the SEC #iykyk. But then I read about the money these schools are getting paid from TV deals and I GOT PISSED!
Details: The SEC signed a $3 billion deal for 10 years with Disney beginning in 2024
Big Ten has a deal with Fox, CBS, and NBC worth $7.5 billion for 7 years.
The Big Ten sent $58 million to each school for the 2021/22 season and the amount will grow
My Outrage: Colleges keep saying these students that line up every week to play for our entertainment should not be paid because they are amateurs. But the numbers they are commanding are not amateur dollars. The NBA just signed a new TV deal worth $8 Billion/year. If you combine all the various Conference deals it will be very comparable to the NBA's deal.
College football is no longer an amateur sport. It is big business and should be treated as such. Players should be compensated for their time.
Plus I am also pissed at how expensive these schools have become for education. But are bringing in more than enough money to be able to either:
Increase the number of seats in some of these higher-end colleges. Looking at you UCLA, USC, Michigan
Reduce the cost of tuition and provide more scholarships for students.
Extras
On Monday, PayPal unveiled its brand new stablecoin called PayPal USD. Stablecoins are cryptocurrencies pegged to a stable asset. The PYUSD is pegged to the US Dollar. The idea is to make the stablecoin less volatile than regular cryptocurrencies.
Why?: Paypal says using PYUSD will “reduce friction for in-experience payments in virtual environments”
No Really WHY?: PayPal has not been doing well. With competition from Square, Banks, Visa, MasterCard, and a variety of other financial platforms. PayPal's growth has been completely demolished. PayPal saw Tether, another stablecoin, bringing in over $6 Billion in revenue last year and see it as a path to profit.
My Take: I HATE THIS!! PayPal wants to play the role of a bank without being a bank. They want to use the actual dollars that are traded in for PYUSD tokens as an interest-free loan without having to meet the minimum requirements banks have to meet. We already saw this story play out with BlockFi, Gemini, and many other crypto platforms that did the same thing over the last 3 years. So no PayPal, NO ONE WANTS THIS!!
*I am a tiny shareholder in this company.