Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Markets
Stay winning. Stock Market is experiencing a run we haven't seen since the pandemic when stimmys were flowing freely and stocks were the only game in town. The S&P 500 and Nasdaq had their longest winning streak since 2021.
This newsletter is 1,964 words a 9 min read
Tale of the Tape
Economy
According to the Congressional Budget Office, if the US continues spending the way it has been spending. The US Debt will grow to be 180% of total GDP. THAT IS NOT GOOD.
💬In Their Words: Former Treasury secretaries Hank Paulson and Tim Geithner write, "Policymakers will need to make difficult spending and tax policy decisions to bring the US fiscal situation into better balance and to maintain our ability to invest in key priorities like national security, health care, and addressing climate change."
🔨🔧The Fix: $2400/Citizen.
That is the amount it would take from each American per year for us to stabilize the National Debt.
It does not take every single tax-paying citizen to stabilize the debt. Companies and ultra-high-worth individuals just have to pay the taxes they owe and that would fix the problem. Eliminate tax loopholes and we would no longer have these issues. However, no government official has the BALLS to do it. Because most of them fall into the category of Ultra High Net Worth and no government official wants to be known as the ones that raised taxes.
Takeaway: Harvard economist and Obama-era Treasury official Karen Dynan writes, "The challenge posed by high and rising federal debt is significant but manageable as a matter of economics. The big problem is political... Voters are dependent on their elected leaders to communicate the facts and tradeoffs the country faces, and our elected leaders have not done this well."
😤🤬My Takeaway: UGHHHH I hate talking about this topic because it should not even be a point of discussion! There is no real problem if we do what needs to be done. This is like someone in debt who makes great income but just refuses to adjust little things in their life like eating out less or going on fewer trips to pay off the debt. It is incredibly frustrating to watch.
Earnings (Stocks)
Disney reported earnings on Wednesday and surprised everyone by beating profit expectations and seeing a major increase in Disney+ subscribers numbers.
🔍Details: Bob Iger showed there is a reason the board wanted him back on the job. He has made major changes in months that I thought would take years to see the benefits of. By continually finding ways to cut costs, he was able to get Disney back on a positive trajectory. On the bright side, Disney+ added 7 million subscribers completely crushing estimates of 2.7 million.
Seems we love ads. Much like Netflix, the ad tier of Disney+ accounted for more than 50% of new US subscribers.
As this continues expect more increases in the price of the ad-free tier to make the ad-supported tier more enticing to subscribers.
🔢By The Numbers: Revenues increased 5% from last year to $21 Billion. However, there are still major challenges on the ad revenue side of the business as linear entertainment (TV Station i.e. Disney Channel) continues to see a decline.
Profit grew 7% to $264 million.
Disney operates a low-profit margin business as Cruises and Parks (hospitability) is a heavy labor business.
Disney Experiences (cruises & parks) continues to be a cash cow for business. It grew 13% from last year.
It remains the only double-digit growing part of the business and remains the largest part of the business. It accounts for 66% of total revenue.
ESPN+ continues growing healthily as College Football season powers an increase in subscriber growth.
This is the most profitable part of Disney's business with a profit margin of 25% or higher.
📈Stock Move After Earnings: The Stock flew 5% after the earnings report
👀What to Watch: This was a great report for a company that is struggling to once again find its magic. Bob Iger said he aims to cut costs by an additional $2 Billion. By doing this, the company will have a Free Cash Flow increase of $8 Billion. I see three main challenges moving forward:
What happens when College Football season ends? ESPN+ is a major part of the profits the company generates. What happens in the football off-season? Can the NBA drive the same amount of sales?
Iger hinted that Disney will be partnering with Big Tech for sports rights, this is a great move. Disney, nor any typical Entertainment Publisher, can compete with the deep pockets of Big Tech (Apple, Google, Amazon).
Disney also acquired the last 1/3rd of Hulu from Comcast for $8 Billion. For a company that has only $14 Billion of cash on hand and over $40 Billion in Debt.
This deal is a very expensive one. However, Disney plans to sell its Indian assets which should raise a substantial sum but its cash position remains a precarious one.
As Peter Lynch says, "It's very hard to go bankrupt when you don't have any debt."
Can Disney+ continue growing in a crowded streaming field? Do people still want the Big Disney IP Movies?
There have been a lot of Big Movie flops especially with the Marvel universe. Can these movies drive streaming growth?
The Marvels released this weekend cost $250 million to make and is estimated to make only $80 million on its opening weekend
So many challenges facing Disney but things seem to be moving in the right direction. I added more to my tiny position (2% of my stock portfolio). I'm liking the story.
Not everyone who reads this newsletter lives in Atlanta but I do. When I say Atlanta is expensive people look at me like I have two heads. Just look at that graph which compares the cost of living in Atlanta to the national average. The cost of living in Atlanta has risen SUBSTANTIALLY in the last two years.
This would not be as bad if we get paid to match that increase in cost of living but nope. We still get paid like we live in the cheap South. UGH!!
My question is how is everyone else seemingly balling out in Atlanta? I mean is it fake? Are they scamming? Or do they have some business venture that gets them paid?
I gotta get a remote job that pays the wages of San Fran, Boston, or New York to make this city worth it.
Stats of the Week
The US Superpower is still going strong. Credit Card balances have reached a new all-time high of $1,080,000,000,000. Credit balances grew by $228 Billion in the third quarter.
Higher prices are causing a strain on consumers' finances and credit cards are being used to help with the strain.
10% of all credit card users are more than 180 days late on payments
The average interest on credit cards is currently 22%
WeWork, which was once the most valuable U.S startup, filled for bankruptcy on Monday night.
Worth $47 Billion by private investors
Went public at a $9 Billion valuation (number moving in the wrong direction)
The final valuation before filing for bankruptcy was $45 million.
If you wanna read about how all this played out read this article from Axios' Felix Salmon, The fall and rise and Fall of WeWork. Story of WeWork was so good that a movie and TV show was made of the chaos that was WeWork. Hulu made "WeWork: Or The Making and Breaking of a $47 Billion Unicorn" and Apple TV+ made, "WeCrashed."
Documentaries or Docudramas are the best forms of reality TV shows.
Going into bankruptcy might be the best thing for WeWork because it can restructure its debt and come back stronger. WE think of bankruptcy as a bad thing but it can be great for a business to be forced to be disciplined.
Hottest October EVER
I felt it too. Seems Fall and Winter are no longer seasons of the year cause its November and it's still 90 degrees in Atlanta. INSANE!!
According to research by Health Affairs, children who survive shootings will see their health costs increase by 2,000%. This is due to a litany of physical, psychiatric, and substance abuse disorders.
Looking Ahead
Economy
On Tuesday, inflation numbers for October will be released. It is expected for prices to have risen just 0.1% from September and 3.3% from last year. Inflation in September was 3.7% year-over-year, this shows a continued decrease in the cost of goods. This is a great sign for the Federal Reserve which has kept interest rates high to bring inflation back to their 2% annual target.
Government
The deadline for the Government to pass a new funding bill is Friday, November 17. If our fearful leaders are unable to pass a solution by Friday, there will be a full shutdown of various government services. Including:
Traffic Controller (travel will be a mess)
CDC
Shutdown of SNAP (Supplemental Nutrition Assistance Program)
Millions of workers will be furloughed or forced to work without pay
The last time the government shutdown was for 35 days (December 2018 to January 2019). A shutdown will be disastrous for the economy, especially during the holiday period. It is estimated that a shutdown will shave off 0.2% of the US GDP every week the shutdown goes on. Because one man’s spending is another man’s paycheck, when that cycle is disrupted, it is always disastrous for everyone.
Earnings (Stocks)
This might be the last big week for earnings for Q3. All your favorite big box retailers are reporting earnings, including Walmart, Target, Home Depot, Macy’s, Ross, and so on.
These stores can offer insight into consumers’ spending habits in the face of higher interest rates. It will also give us more details into the unexpected massive GDP growth we saw in Q3.
Sports I Love
TRAGIC even in victory
Why do I torment myself so? This team, if we can call them a team, is a sad existence of a club. The players’ spirits are completely broken. In both matches they played this week, you could see the players doubting everything they did. At the first sign of difficulty, they fall apart. They have no fight in them at all. On a tactical side, they do not operate as a unit but rather as a group of individuals. Each player just doing their own thing and hoping magic happens.
It is so sad to watch
Extras
OpenAI held its first-ever developer event last week and revealed customizable AI chatbots called GPTs. OpenAI also announced that these GPTS will be for sale on a marketplace it creates. This is pretty massive. Think of this as the beginning of Apple making the App Store a thing. It may seem small but if it takes off, it will be massive. Life is changing right before us.
Fortnite creator Epic Games is suing Google for anticompetitive behavior. Per Morning Brew, Epic Games argument is as follows:
Hinders competitors to its Play Store, which charges developers 15%–30% on in-app purchases.
Has contracts with phone-makers, app developers, and video game companies that prevented them from creating their app stores.
If this feels like deja vu, you are right. Epic sued Apple in 2021 for the same reason. THEY LOST! But like a superhero villain, Epic has no idea when to quit.
*I am a tiny shareholder in this company.