This newsletter is words a min read
Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Summary of Topics:
US Economy Keeps Hot Streak as GDP grows more than expected (but there some bad news hidden in the numbers)
Earnings Review
Netflix shocks the world
Tesla is no longer a tech company?
Stats of the Week
5 Hours - time teenagers spend on social media. (Pretty sure most of us spend more)
55% of young adults still depend financially on their parents
37% of teenagers have a job
56 Million Views of the Chiefs-Bills Game. Swift Effect
Looking Ahead
Economy
The Federal Reserve’s first meeting of the year. Interest rate cut?
Jobs and Wage Report on Friday
Earnings from all big tech companies.
Markets
Stock Market continued its ascent after hitting all-time highs last week.
Tale of the Tape
Economy
US Economy Can’t Stop Won’t Stop Growing
The US Economy continues to confound economists and investors. Every economic rule that had been accepted as truth was broken by the economy.
🔎Details: As the Federal Reserve raised interest rates throughout 2023, the expectation was for the economy to decline with the best outcome being stagnation. Instead, the economy continues giving a massive middle finger to the Feds. As it continued a hot year of growth.
Q4 GDP was released on Thursday, it was 3.3%. Far higher than the 2% economists expected.
It represents a 0.7% growth from 2022 which is far better than every other advanced economy in the world.
Important to note: these percentages seem small when stated without context. It is important to remember that the US economy is massive. It is worth well over $27 Trillion. It is extremely hard for the economy to grow when it is this large. Any growth above 3% is seen as amazing, 2% is the normal growth expected.
🤔How?: All three parts of the economy (government, business, and consumers) fueled the growth with consumer spending being the primary driver of the growth.
Consumer spending increased by 2.8% (Christmas must have been good for a lot of people). This alone was responsible for 2% of the 3.3% growth of the economy.
American Superpower remains STRONG
Businesses joined the celebration by closing out the year by buying equipment for factories and making other large investments. Their spending grew 1.9%.
💬In Their Words: Beth Ann Bovino, chief economist at US Bank, told Axios, "This report feels like a supersonic Goldilocks: very strong GDP reading with cool inflation. With high productivity levels, we can have strong growth with less inflation. That was the case during the last soft landing in the 90s."
Takeaway: The Fed got exactly what it wanted when it set out to vanquish inflation. PCE Inflation (the Fed's preferred measurement) in December was 2.6% which is exactly where the Fed would love inflation to be. The economy continues to add more jobs, wages keep growing, and we keep spending. It is the exact definition of a soft landing.
Negative Kelechi Enters the Newsletter
👿😡Negative Kelechi: On the surface, everything looks fabulous but when I dig a bit more into the numbers. I found a few concerning things from the GDP report particularly when it comes to consumer spending.
Personal savings have continued declining since hitting an all-time high in 2021. It now sits at 4% far below the historic average of 8%
Consumer debt rose by 6% to $5 Trillion. Typically, this is not a big deal because it has historically been driven by real estate as more people buy homes and prices increase. But as you and I know, people were not exactly rushing out to buy more houses in 2023.
It was driven by a 17% growth in Revolving Credit aka credit card debt.
Consumers took on more debt to spend on non-durable items i.e. shoes, clothes, vacations, eating out, etc.
My Takeaway: I have said it once before, what is good for the economy is not always good for your finances. The economy is driven by us spending more; therefore, it is very important to differentiate the US doing well and you doing well personally. This report tells me that most people are in a terrible place financially and are funding their lifestyle with more debt.
Conclusion: WE ALL BROKE. Some of us just do a great job of hiding it by using debt. Debt has gotten increasingly more expensive with the average interest rate on credit cards now 28%. This is why we have to ignore everything we see either on social media or from others in our local context. We have no idea how they can do the things they are doing. Focus on your personal finance and ensure you are taking care of you.
Earnings
If you are an anime fan, you had absolutely no problem reading the word above. If you are not an anime fan or if you watch the dubbed version, what are you even doing with your life? (Still love y'all)
There are no more doubts. There is Netflix and then there is everyone else. Especially after the massive announcement Netflix made during its earnings call last Tuesday night.
🔎Details: Netflix announced that it will be the exclusive streaming partner for Monday Night Raw in the US, UK, Canada, and Latin America for the next 10 years beginning in January of 2025, in a $5 Billion deal with WWE. But that's not all:
Netflix will also stream all WWE shows, like SmackDown and NXT, outside the US.
Annual live events, including WrestleMania, SummerSlam, and Royal Rumble—in addition to documentaries and other WWE projects—will all be on Netflix. (These are massive pay-per-view events)
After the massive successes of its various sports documentaries like The Last Dance, Drive to Success, Quarterback, and Full Swing. There have been questions about if and how Netflix will enter the world of live sports. Netflix answered all those questions and is doing so masterfully.
You may wonder why WWE over buying other sports. The answer is LOYALTY! WWE has some of the most loyal followings you can have. These are the types of subscribers Netflix wants. These fans will not be as quick to cancel their subscription. Netflix will be adding and more importantly, keeping millions of new subscribers. Speaking of which
🔢By The Numbers: Netflix added over 13 million new subscribers in Q4 of 2023. Completely blowing past expectations of 9 million new subscribers (Must have been those cheesy Christmas movies). Netflix now has 260 million subscribers, and no other streaming platform is close
Revenues increased by 12% for the quarter going from $7.8 Billion to $8.8 Billion
More importantly, Netflix's Free Cash Flow was over $7 Billion for 2023.
Consider that before 2021, Netflix had never had a quarter with positive free cash flow. The growth is amazing.
Explaining Obscure Financial Terms
What is Free Cash Flow?
Free Cash Flow is the money left over after all bills have been paid and investments have been made.
In Personal Finance, Ramit Sethi would call this your "Guilt Free Spending". Money you can do whatever you want with.
This is the most important financial metric for me because this is where dividends and share buybacks can be done without repercussions on a business.
This is why Netflix was able to make the $5 Billion deal with WWE.
New segment: I realize there are a bunch of words I use in this newsletter that most people may not understand, so will do my best to include explanations. Let me know if you like it or not.
📈Stock Move After Earnings: The stock went to the moon after the earnings call. It rose over 9% and continued rising for the rest of the week.
💬In Their Words: Netflix wrote in the earnings letter, “As our competitors adjust to these changes, it’s logical to expect further consolidation, particularly among companies with large and declining linear networks... It’s why continuing to improve our entertainment offering is so important, and as many of our competitors cut back on their content spend, we continue to invest in our slate.”
👀What to Watch: Netflix smells blood in the streets and is capitalizing on it. This acquisition of WWE is another big blow to cable's weak defense. Netflix will continue to partner with cable like a parasite partner's with its host. It will feed on it until it is strong enough to strike out on its own. Sports is the final line of Defense; Netflix may not be able to sign a $100 Billion contract with the NFL, NBA, or college athletics. But you can bet, it is coming in the near future.
Expect tech companies to be an even bigger player in this arena.
Take everything that I said about Netflix and flip it on its head for Tesla. Things are not looking great for the wannabe iPhone of cars.
🔎Details: Tesla reported slower-than-expected revenue growth in Q4. Demand for Electric Vehicles has been declining for the last year and it is hitting Tesla hard because to drum up more demand Tesla cut prices on all its vehicles last year multiple times. Even worse, Tesla expects growth to continue declining for the foreseeable future.
🔢By The Numbers: Revenue increased by only 3% with car revenues increasing by only 1%.
Margins declined from 16% in 2022 to 8% in 2023 reflecting the price reduction.
📉Stock Move After Earnings: The stock dropped 6% after the report and continued declining for the week.
👀What to Watch: Tesla is becoming less a tech company and more a car company. Its margins continue to reflect the perils of the car industry. A few questions I have:
Could it buck the trend with the release of the cybertruck and the possible release of a cheaper EV?
Tesla won the EV charging war, but can it use its infrastructure to continue separating it even as more vehicles adopt its charging standard?
Or will the new income from other EVs charging at its superchargers help it become a toll booth for owning an EV in the US?
Stats of the Week
The average amount of time teenagers spend on social media, according to a survey by Gallup. Nothing is surprising about this number, I mean it is a lot but even adults have a hard time controlling their phone use (me being one of them). However, there are downstream consequences that we could have never imagined.
Exhibit Uno: Sales at Sephora are now dominated by kids ages 10-13. With the popularity of "get ready with me" videos on TikTok and Instagram, there are more tweens buying make-up than adults because tweens are highly susceptible to all the influencers and to a degree predatory marketing. Combined with a desire to fit in, it makes for the perfect storm for companies to take advantage of.
💬In Their Words: A tween interviewed by Axios said, "Honestly? I don't even need makeup. I just love applying it. I love my skincare routine. I don't need my skincare routine. But I feel weird if I go to sleep without doing my skincare. It's so fun to do."
Takeaway: We are in a new world. We continue seeing the effects of social media on the human race. We are using Gen Alpha as the perfect lab experiment to see the full effects of social media on the human brain. Because they grew up when social media was in full force. One thing is for sure, parenting is the final and only defense to protect children.
According to Pew Research, 45% of young adults (18 and above) are financially independent of their parents.
This statistic can be very misleading. Because it combines students just starting college who obviously will still depend on their parents with over 30-year-olds. Pew broke down the percentages by age:
Early 30s is 67% financially independent.
25-29 is 44% financially independent.
18-24 is 16% financially independent.
These numbers make sense. If you see a headline with that stat but without context. Ignore it!! And this is why you have to ignore everything you see on social media. You have no idea who is getting helped by their parents which allows them to the life you see on social media.
To pay for all that makeup teenagers are not just using their parent’s VISA cards. Teen employment is at the highest it has been since 2007, according to the Labor Department. 37% of 16–19-year-olds have a job. A reversal from a 40-year decline in teenagers not working.
Chiefs-Bills playoff game broke the record for the most-watched NFL playoff game in the history of the sport. The Taylor Swift effect is REAL!! Other NFL playoff games also had record numbers:
31.8 million people watched the Ravens smack the Texans on ESPN. It was the most-watched NFL game in ESPN's history.
37.5 million people watched the close game between the 49ers and the Packers.
40.4 million people watched the nailbiter between the Lions and Bucs.
Looking Ahead
Economy
The Federal Reserve hosts their first meeting of the year on Tuesday and Wednesday. It'll be the first time we hear from Jerome Powell since the Fed decided to hold rates steady at the end of the year. It's expected that the Feds will keep rates at 5.25% as the economy has remained strong despite higher rates.
On Friday, the nonfarm jobs report will be released by the Labor Department. 2023 ended with strong labor numbers for November and December. This will show if the economy has remained resilient. A part of the labor report will be the wage report. Has wages continued increasing or has there been a slowdown in alignment with inflation?
Earnings
All your favorite big tech companies will be reporting earnings this week. Expect a lot of use of the word AI from CEOs during the call.
👀What to Watch:
Apple reports on Thursday. Investors will be paying attention to iPhone sales numbers. Over the last few years, there has been a decline in iPhone sales volume.
Microsoft passed Apple as the most valuable company in the world. Microsoft will be reporting on Tuesday, investors will be watching for growth in sales of its various AI products.
Google reports on Tuesday as well. Investors will be looking for interest in its AI products.
Meta reports on Thursday but I don't care about Facebook so meh.
Other companies reporting
Sports I Love
1,203 Career Wins
Stanford's Tara VanDerveer became the winningest basketball coach in the history of NCAA basketball.
Superbowl is Set
Unfortunately, the Ravens will not be in it. I cannot believe how that game went on Sunday. The game was there for the taking but the Ravens just made so many mistakes on offense. The moment I believe got too big for them. The players kept trying to land a knockout punch when jabs would have been more effective.
Then the Lions game was just insane. The 49ers came back from being down 24-7 to win the game 34-31.
But the most important part of the Superbowl is not who is playing on the field, at least now that the Ravens are not in the game. It is who is performing during the halftime show. Usher will be performing and I believe it’s gonna be one for the ages.
*I am a tiny shareholder in this company.