You Always Have The Option of Not Having An Opinion
-Marcus Aurelius
Social Media drives us to believe we need to say something about everything happening around us. However, that is a trap to keep us glued to our screens and to make money for the platforms. Be passionate about things you are willing to suffer for and ignore all the rest. It drains you of your energy to care or have an opinion on everything and it is never worth it. Regularly say to yourself when you see something on social that stirs you up, "I don't know the full story. I have no control over this, it does not affect me. Why should I care?" Eventually, you will begin saying, "I don't care." This is the most freeing place to be.
Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Markets
Stocks were heading for another terrible week after Papa Powell disappointed investors on Wednesday (more on this below) but Apple saved the day.
This newsletter is 1,407 words a 7 min read
Tale of the Tape
Economy
I assume those were the words of Jerome Powell on Wednesday during the press conference of the bimonthly FOMC Meeting. He announced a 0.25% increase in interest rates bringing rates to 5%-5.25%. The Fed Funds rates have not been this high since I moved to the U.S. circa 2006.
💬In His Words: “Inflation has moderated somewhat since the middle of last year, nonetheless inflation pressures continue to run high and the process of getting inflation back down to 2% has a long way to go.”
📉Market Reaction: Seems investors are finally believing Papa Powell's words. Stocks declined after the press conference and stayed down the rest of the week until Apple came in like Superman and saved the markets on Thursday.
Investors had been expecting Papa Powell to announce a pause on increasing interest rates. Rather he said, “… a decision on a pause was not made today”
This is like Giannis answering questions about resigning with the Bucks and saying, "Ehh we'll see".
Or after dating someone for 2-plus years and being asked if you love the person and you say, “Well, I like her.”
Takeaway: Things are getting much tighter in the economy. This is exactly what the Fed wants, in order to slow down inflation in a credit/consumption-based economy. You have to get people to spend less. The best way to do this is to make lending conditions much harder. Plus a few bank implosions certainly help as well.
My Takeaway: The Fed is done raising rates. This is the first time I no longer believe Jerome Powell. He wants to appear strong but I believe he has accomplished his mission and finally broken the will of investors.
First Republic Bank was seized by FDIC last weekend and sold to JPMorgan Chase to prevent a banking crisis.
🔢By The Number: This is the 3rd Bank Collapse in the last 8 weeks
First Republic Bank had a bank run where depositors withdrew over $100 billion
No bank can survive this amount of withdrawal in such a short period of time
JPMorgan paid $10.6 Billion to buy First Republic Bank which had over $100 billion in assets
This is what we call buying a dollar for 10 cents.
🌊Takeaway: As Buffett says, "When the tide goes out, you will see who has been skinny dipping." As the Fed continues to raise interest rates, there will be a lot of negative effects that we cannot see just yet. A ton of businesses that have not been taking proper risk management into concern will be facing much larger problems in the days to come (commercial real estate looking at you). The bank failures of SVB and First Republic Bank are just early signs of things to come.
😃My Takeaway: I do not believe there is a need to worry about your deposits at any bank. But I do believe there will be a lot more banks that implode as rates return to a historically normal level.
The Job Openings and Turnover Survey for March was released on Tuesday. It showed the job market is slowing down fast.
🔢By The Numbers: Layoffs increased from 248,000 to 1.8 million. Finally reflecting what we’ve all been feeling for the last 4 months
Job Openings dropped to 9.5 million from almost 10 million in February.
White-collar jobs saw the highest decline in job openings
But the Nonfarm Payroll released on Friday is telling a completely different story.
🔢By The Numbers: Unemployment dropped down to 3.4% from 3.7% in March
253,000 jobs were added to the economy last month. More than estimated 180,000 jobs
Wages also increased by 0.5%
Takeaway: Nothing the Fed does affects what they want to affect. The labor market remains strong but the banks are imploding. It'll be interesting to see how this plays out. Which of these two stats do you choose to believe?
Earnings
Apple* Reminded the world why it is the most valuable brand and company ever created with a market cap of over $2.7 trillion. On Thursday evening, Apple reported earnings and smashed expectations. Here are the results:
In their words: “It was quite a good quarter from an iPhone point of view, particularly relative to the market when you look at the market stats." Tim Cook said during the Earnings Call
“The switcher and first-time buyer metrics look very good there for India... People around the world got their first iPhones,” Cook said.
Anytime someone says, "Apple already sells iPhones to everyone. How can they still grow." Just show them these numbers and remind them Apple still has India to dominate and most people actually want iPhones. Whatever number you had as a limitation for Apple, you can throw it out.
🔢By The Numbers: Revenue increased by 3% to $97 billion
Net Income declined from $25 Billion in 2022 to $24 Billion
iPhone sales increased by 2%
This is impressive because 2022 is a hard comp year when iPhones sales grew more than 10% which is insane for a $50 billion/quarter business
iPads and Macs sales declined approximately ~10%
🏦Becoming a Bank: In Less than 1 month since the release of the new Apple High Yield Savings Account. Apple has already attracted over $1 billion in deposits. THIS IS INSANE!!
Takeaway: They also announced a 4% increase in the dividend (which is paltry). But Apple prefers to return earnings to shareholders through share buybacks (I am not a fan of buybacks). The board approved a $90 Billion buyback to be executed as leadership sees fit.
My Takeaway: There is Apple and then there is everyone else. I keep trying to tell myself this company cannot keep growing like this. But they do. I am just blown away at how well they are handling their business. I mean Jerome Powell wishes he could print as much cash as Apple. It is just insane.
Unlike other Tech companies, Apple has no plans for any mass layoffs. Making them stand out and building much more goodwill with employees.
Stats of the Week
IBM announced on Tuesday, it will pause hiring for about 7,800 roles in the company. CEO Arvind Krishna said, "I could easily see 30% of that getting replaced by AI and automation over a five-year period." The roles are in non-customer-facing positions, mainly human resources. So begins the end..
April was the month of Mario. The movie crossed the billion-dollar mark, 26 days after its release. It dominated the box office for four weekends in a row.
But in May competition ramps up with the release of Guardians of the Galaxy, Vol. 3 and Fast X (which still blows my mind they are made ANOTHER ONE).
New York and California lost a combined $92 billion in income during the pandemic. Ultra High and High Earning individuals used the pandemic to flee to Southeastern states for better tax treatment. Florida and Texas benefitted the most, both adding over $11 billion in tax income.
Let me say this on behalf of everyone in Atlanta,
Looking Ahead
Slow Week
After an onslaught of earnings reports, FOMC Meetings, Jobs Data, and the Oracle Speaking. We get a bit of a reprieve this week.
Inflation
April inflation numbers will be released on Wednesday. It is projected to be 4.9% year-over-year. Which would be the lowest rate of inflation in the last two years. However, month-over-month inflation is projected to increase by 0.4% from March.
Earnings
We still get a few big companies reporting earnings this week. None is more important than Disney*, which has had all kinds of upheaval over the last year. From firing their CEO to having a lawsuit against the state of Georgia to firing a ton of workers.
Other companies reporting are Airbnb* (which announced new features to help make travel a bit cheaper by going back to their roots), Paypal, Honda, and Toyota.
Sports I Love
Messi announced he will leave PSG when his contract expires at the end of the season. It was previously rumored he would come to the US to play for the Miami FC but NEIN! He is reportedly getting a $440 million offer to play for one year with Al-Hilal in Saudi Arabia.
😭💢😡My Misery Knows No End
Man U is on track to fall out of the top 4 in the Premier League after losing to West Ham on Sunday. This means no Champions League next season. Liverpool who were at one point 12 points behind Man U are now 1 point back. This is just unbelievable. The only saving grace for Man U is we have two games in hand over Liverpool.
*I am a tiny shareholder in this company.