"I'm a believer in the ordinary and the mundane. I don't want quality time - I want the garbage time"
-Jerry Seinfeld
Make the most of the time you have with those you love. Do not wait for special occasions to enjoy their presence. Every minute counts so make it count. There is no such thing as quality time, All Time is QUALITY TIME.
Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Markets
Stocks continued their descent a dizzying rally to start the year. I call this a healthy rotation. But it is a way to make myself feel better as I see my portfolio not moving up and to the right. Good thing short-term movements do not matter for us long-term investors.
Random Question: Would you buy or sell Disney stock?
This newsletter is 1,685 words a 8-min read
Tale of the Tape
Economy
According to UBS, global wealth is set to increase by 38% over the next five years but it will be the middle and low-income countries that will be receiving most of the benefits.
🔍Details: UBS believes global inequality which has been on a steady decline in the 21st century will continue to decline moving into the future. Global inequality hit a 150-year low in 2022. But this is mainly due to the growing wealth in China over the last decade.
Within the US, millennials got richer while boomers and Gen Xers got poorer.
😒😑Takeaway: Someone needs to tell my bank account cause I don't see this wealth they talking about.
Earnings
💰💸Companies Making BANK
This is exactly why people hate corporations. All we heard from companies over the last two years, is the need to become more "efficient". A euphemism for layoffs. Companies pointed to higher labor and input cost to the business and this would be the only way to ensure their businesses continued to thrive. Well, that lasted all of 2 quarters.
🔍Details: Most companies within the S&P 500 have reported earnings for the 2nd Quarter. Surprise Surprise, companies reported record profits. Earnings per share (an easy way to compare various companies’ profits) have returned to the high levels seen in 2022. Nearly 80% of companies within the S&P 500 reported profits that beat Wall Street Expectations
However key drivers of higher profits were not growing revenues but rather input costs falling. This allowed companies to keep their prices high while increasing their profit margins.
Takeaway: The drastic decisions by many corporations to cut costs drastically, helped keep profits high. However, those pressures companies faced have dissipated. It was in turn used as an excuse to raise prices in the short term which helped raise and sustain their margins.
🤔My Takeaway: My initial reaction was companies are greedy. But reading more and seeing some nuance, I can see how there was a need for companies to be more "efficient" to survive. I still believe companies are greedy and far too short-sighted but I understand more of why they do some of what they do. Although I do not agree with it because a lot of the pressures are from a very short-sighted quarter-over-quarter view from Wall Street who do not care for the long-term survival of a business. But sometimes Wall Street is right and last year into this year, Wall Street was right on the focus for business to get efficient. However, I still believe there might have been other ways to be efficient rather than layoffs. But what do I know? Just a random engineer.
Target, the fancy man's Walmart, sent some shocks through the stock market last week when it reported earnings. Target reported its first quarterly sales decline in 6 years. They also cut full-year revenue and profit expectations.
🔍Details: Target reported revenues of $24 billion vs an expected $25 billion. This was less than both analysts’ and internal company estimates.
Revenue is down 5% from the same period a year ago
But on the bright side, profits recovered compared to last year, bringing in $835 million vs $183 million.
💬In Their Words: Target CEO, Brian Cornell said on the earnings call, "As we look at the consumer landscape today, we recognize the consumer is still challenged by the levels of inflation that they’re seeing in food and beverage and household essentials. So that’s absorbing a much bigger portion of their budget.”
Takeaway: What the CEO said speaks volumes. Target is a "nice-to-have" store, not an "I-need-it" store. Meaning we shop at Target when we feel rich and things are going well. Groceries make up only 20% of target revenues vs 50% for Walmart. But the moment things get tight, we take our dollars to get the most bang for our buck. As you will see in Walmart's earnings, people are shifting their shopping to the "I'm-On-A-Budget" Stores.
😤My Takeaway: Regardless of the great news we have been seeing so far this year from the economy. Everything is backward looking. Target is showing up signs of major pressure on the consumer. If people are choosing to forgo the luxury purchases of life and choose the Great Value items, there will be pressure on the economy at large. Then again I have been wrong so far this year, there is no reason for me to be right. This is why I keep investing regardless of what my feelings may be telling me. But I also always have that emergency fund on deck.
Walmart was the saving grace for me in college. It is proving to be the same for millions of Americans trying to make their dollar stretch in the face of inflation and stagnating wages.
🔍Details: Walmart is stealing market share from everyone: Target, Amazon, Whole Foods, etc. As shoppers focus on price above all else, Walmart is easily serving their needs by offering lower prices than anyone else on everything.
More discretionary spending is flowing to necessary spending on groceries. Walmart generates about 50% of its revenue from groceries.
Walmart+ continues to grow rapidly, increasing revenue in Q2 by 24%
Profits increased by 53% in the quarter. Growing from $5.15 billion in 2022 Q2 to $7.89 Billion this year.
Same-store sales grew by 6%
💬In Their Words: Chief Financial Officer John David Rainey said on the earnings call, “While inflation is moderated and employment levels have been steady, credit markets have tightened. Energy prices are higher and some customers face additional expenses from the resumption of student loan payments in October. As such, we continue to be appropriately measured in our outlook.”
Explanation: People ain't got money to go to fancy stores. Things are getting tighter. We will continue to ensure we are the lowest-cost provider and steal market share from our competition during these hard times
🛡Takeaway: Same as above. Things are getting tighter for consumers. Walmart is almost a recession-proof company. Walmart does okay in boom times, but it shines when things get tight for the economy.
Stats of the Week
Streaming ain't cheap anymore. Cumulative prices of streaming sites have risen 25% in the last year. It now costs more to own a bundle of streaming services than it costs to have cable.
🔍Details: Streaming has never been a profitable business but with low rates, these costs were much easier to absorb. However, that changed when Papa Powell changed his tune and raised interest rates faster than Neymar took the money to play in Saudi Arabia.
Now every streaming service is trying to become profitable and the only way is to raise prices. Netflix started the trend and every other service followed. The latest is Disney.
Question: Why does everyone want to go to Disney World or Disney Land?
According to the Wall Street Journal, homelessness in the US has increased by 11% so far this year. The fastest rate since the data began being captured in 2007. The next closest is 2.7% As we all have experienced, housing is incredibly unaffordable right now.
Details: The average interest rate on a 30-year mortgage is 7.16%. This is the highest rate in 22 years.
A mortgage payment of $2,820 will buy you a $417,200 house
In 2021 (just two years ago), the same monthly mortgage payment would buy you a $670,000 house
What have I been doing with my life? Why was I not a nerd about AI?
According to Wall Street Journal, that is the salary for a product manager at Netflix on the Machin Learning Platform team.
At TikTok, an engineering lead (which is my role) can make between $210,000 to $358,000 to develop generative AI models for TikTok content monetization
At HubSpot, a principal engineer can make between $285,000 to $487,000 for their AI platform.
Downside: Goldman Sachs predicts that all this AI technology will displace over 300 million full-time jobs worldwide. So that is amazing 🙃
COVID is unfortunately BACK!
The hospitalization rate nationwide rose 17% between June and July. Be careful out in these streets.
Looking Ahead
Fancy Fishing for Economists
On Thursday, Financial Leaders from all around the world will get together at the annual Jackson Hole Economic Symposium in Kansas City. The theme for this year's symposium is “Structural Shifts in the World Economy”. I have no idea what that means but it sounds way boring.
Political and Economic Event managers need YouTubers to make the title of their events. It would increase their ability to go viral.
It will probably be discussions on interest rates and how the world has quickly changed from a zero-interest environment with no inflation to a high-interest environment fighting inflation.
Expect plenty of quotes around the possibility of a recession in the next year
Sports I Love
New Season SAME EFFING MAN U
MAN U SUCK!!!
Out of nowhere, news was released that Neymar is now with Al Hilal FC in Saudi Arabia. It is estimated that he is earning 160 million euros over 2 seasons. They also paid PSG $98 million to buy Neymar's contract. It is just insane the amount of money Saudi Arabia is spending to get these players into their league.
Extras
Lowe's is already selling Christmas-themed items.
Capitalism is the WORST!!!