Inflation Just Won't DIE - Market Update Feb 12-16, 2024
Who knew going from 3% to 2% would be so hard?
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Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Summary of Topics:
Inflation resurfaces to the surprise of everyone
CBO says Immigration is great for the economy as Congress continues dropping the ball on border bill
Stats of the Week
202 Million Superbowl viewers (all-time record)
$5600 for chocolate. It was an expensive Valentine’s Day
$1 Billion lost to romance scams in 2023
$2,000 for a popcorn bucket?
Looking Ahead
Biden Administration Student Loan Meeting to Discuss Loan Forgiveness
Nvidia reports earnings as the stock continues meteoric rise
Sports I love
Shooting at the Kansas City Chiefs’ victory parade
Man U Tempting Me - 7 Game unbeaten streak
New Queen of the Court
The All-Star Dunk Contest is LAME and it ruined a good All-Star Night
Extras
Would you date by credit score? Cause there’s an app to do that
Markets
The Stock Market for the first time in over 5 weeks ended in the negative. Inflation reared its ugly head and spooked investors everyone when CPI data was released on Tuesday (more below). However; notice the bounce back in the chart below. You can say thank you to Google and OpenAI for releasing some new information on their AI systems that will eventually take our jobs (kinda joking but also not joking). However; more inflation numbers were released on Friday and brought investors back to reality.
It’s been a hell of a run for the Stock Market so far. A little pullback is not the end of the world. It would be nice for the market.
RETURNS
Tale of the Tape
Economy
🔍Details: On Tuesday, inflation numbers were released for January. It went against the trend we had seen the last 6 months or so of last year, of inflation declining every month.
Year-over-year inflation declined from 3.4% in December to 3.1% in January which was higher than the 2.9% expected by economists.
Monthly Prices increased by 0.3% from December to January.
Year-over-year core inflation (which removes volatile food and gas prices and is the preferred measurement for the Fed) remained at 3.9% higher than in January of 2023.
Monthly Core inflation increased 0.4% from December.
Why: Rent and Home prices drove the rise in inflation for the last month. Housing which has been a problem for the last two years, remains a massive headache for everyone. It accounted for 70% of the increase. But it was not alone.
Food prices increased by 0.4%
Dining out also increased by 5% from a year ago.
However, on the bright side, some items point to inflation continuing to recede.
Gas prices have continued declining. Falling another 3% in the last month
Wages continue to outpace inflation. Growing 0.3% in the last month
Used car prices fell 3.4%
Takeaway: Overall, inflation is moving in a positive direction. But as we saw in the reaction from the Stock Market immediately declined more than 2% following the news. Investors expected inflation to have declined at a much faster pace. As Quincy Krosby, chief global strategist at LPL Financial, told CNBC:
The much-anticipated CPI report is a disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later. Across the board numbers were hotter than expected making certain that the Fed will need more data before initiating a rate cutting cycle.
Consumers are also beginning to push back on higher prices. Multiple companies pointed to this in their earnings calls showing a continued decline in sale volumes although revenue might have risen in the month. Per Axios:
Coca-Cola's fourth-quarter organic revenue rose by 12%, three-quarters of which was driven by price/mix. In North America, volume was down by 1%.
For cereal maker WK Kellogg, price/mix was up 7.5% in the fourth quarter, while volume was down 10.1%.
At beer giant Molson Coors, price/mix was up 4.2% in the fourth quarter, while volume rose only 0.8%.
🤔My Takeaway: We need to pay less attention to consumers and more attention to companies. Companies have used the cover of the pandemic as an excuse to raise prices at an incredible rate.
Coca-Cola CEO on the company's earnings call said something very interesting, "U.S. consumer spending power has held up pretty strongly. But there's a section of the population that has come under pressure from ... the real spending power squeeze from the inflationary effect."
It was a two-way message to investors. We can keep raising prices, but inflation is not our fault. If you are raising prices, you are the driver of inflation. Until consumers completely stop buying, companies believe they are pushing prices with no negative pressure on their bottom line.
Immigration Great For the Economy
The CBO, Congressional Budget Office, said what all politicians know but never want to say out loud. "Immigration BOOSTS the US GDP".
🔍Details: The CBO which is the US federal agency responsible for government budget calculations and analyses. Recently released a report last week that showed how having a more welcoming stance to immigration would boost the US GDP by $7 trillion over the next 10 years.
💬In His Words: CBO director Phillip Swagel said, "The labor force in 2033 is larger by 5.2 million people, mostly because of higher net immigration. More workers mean more output and that in turn leads to additional tax revenue. As a result of those changes in the labor force, we estimate that from 2023 to 2034, GDP will be greater by about $7 trillion and revenues will be greater by about $1 trillion than they would have been otherwise."
Most of the immigrant workers are ages 25-54, prime working ages.
An increase in population through immigration, helps the US avoid the so-called "baby bust". Where younger generations are having fewer children leading to a reduction in population which in turn reduces the workforce.
Japan and China are currently facing these issues.
Immigration is the secret trump card the US has to avoid any of those problems.
🤨Takeaway: Politicians use immigration to push a false narrative. Immigration has always been a benefit for the United States. It is the reason the US is the country it is today. Immigrants are typically willing to do jobs that most American citizens refuse to do. I believe Jerome Powell said it best in his 60 minutes interview:
The US economy has benefited from immigration. Immigrants come in and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than Americans do.
Stats of the Week
Confirming what everyone assumed. Everyone watched the Super Bowl last week. According to Nielsen's streaming and live TV numbers, the Superbowl was watched by 202.4 million people. It is the most-watched television event in U.S. history.
It was an expensive Valentine's Day for all those in new relationships or hopeful relations. The cost of chocolate is the highest we have seen since 1977. The price of a metric ton of cocoa is $5,657. The average price of your retail chocolate bar has risen over 17% over the last two years.
The price increase is due to a bad harvest season in West Africa where 60% of the world's cocoa is grown. The bad harvest season was due to Climate Change and El Nino conditions last year.
The amount lost to romance scams in 2023. The FTC said over 64,000 scam cases were reported to the agency. The median cost of each scam was about $2000 per person. Hopefully, none of you fell for any scams last week during Valentine's Day.
A popcorn bucket was listed on eBay for $2,222.22. The crazy part is someone BOUGHT IT! Y'all got too much money.
Movie theaters are seeing this excitement and are jumping on the trend. AMC is selling a popcorn budget in the shape of the Fast and Furious Dodge Charger for $40! $40 FOR POPCORN!!!
Looking Ahead
Economy
The Department of Education will hold meetings on Thursday and Friday, to discuss the various proposals for student loan repayment plans.
🔍Details: Last year, the Department of Education introduced the SAVE Repayment Plan which was designed to make life a bit easier for borrowers. It was the largest overhaul of student loans in years. It helped thousands of people either get their loans forgiven or get on the track to have their loans forgiven.
This plan was passed after the Biden Administration was unable to get direct Forgiveness upheld by the Supreme Court.
👀What to Watch?: The Biden Administration is taking another shot at loan forgiveness. This time a more limited scope. The Administration has been meeting with students, college presidents, student loan borrowers, and other “stakeholders”, to determine who should have their loans forgiven. A suggestion is to forgive anyone who has been paying their loans for over 20 years but has seen their balances increase during that time.
Whatever announcement comes from the meeting, expect heavy legal pushback against forgiveness of any kind.
Earnings
The Third Largest U.S. company is reporting earnings on Wednesday. If you thought, “Didn’t Amazon*, Google*, and Facebook report earnings like two weeks ago?”
🔍Details: You would be correct; however, none of those companies hold the spot for the third largest US company. Nvidia overtook Google and Amazon to become the third-largest US company last week. The company is now worth $1.8 Trillion.
🤨HOW?: As the only pureplay AI company and truly the company that powers every single AI developer. Nvidia’s stock has been on an insane run over the last year. Almost tripling in value.
It is crazy to think that before the pandemic, Nvidia was worth around $80 Billion. Now it is worth more than Nike, Walmart, Netflix, Tesla, and Disney combined.
The Crypto boom combined with AI hype has completely changed everything about this company.
Although they only make about $27 Billion in revenue, the growth rate of the business has been insane. Demand for its chips is so insane that Nvidia can charge whatever they want.
Revenue has continued to double over the last two years.
Profits have more than tripled.
👀What to Watch?: When they report on Wednesday, investors will be paying attention to those demand numbers. If there is even a hint that demand is slowing from “out of space” to “it’s in the sky”, expect a massive sell-off in the stock. It has been priced far beyond perfection.
This is a stock that I will stay very far away from (except in my index funds). The risk far outweighs the possible reward.
I could be wrong though. Things can do on for much longer than anyone expects.
Other companies reporting
Walmart and Home Depot on Wednesday
Expectations for both to report a decline in earnings.
Less people buying homes means fewer home projects which affects Home Depot
Grocery prices falling means less room to make a profit for Walmart
The Rest:
Sports I Love
Kansas City Chiefs Parade Shooting
During the Chiefs Super Bowl Parade, there was a shooting that killed one person and left 22 people injured.
Man U tempting ME
The emotional roller coaster known as being a Man U fan continues. Man U has not lost in 7 games. I am slowly starting to have hope again but the PTSD is real. I do not want to believe in them but they are pulling me back in.
However; this team still sucks. They continue making the same mistakes as always. But over the last two months, they have been just good enough to survive various matches. Which causes hope to arise once again but I refuse. I shall push this hope back into my pit of despair because I cannot do this to my heart anymore.
Queen of the Court
Caitlin Clark, a senior point guard at the University of Iowa, broke the NCAA all-time scoring record. Cementing her status as one of the greatest NCAA basketball players of all time. Not just for women but period. She stands head and shoulders above everyone else. She is also the first NCAA basketball player to have over 3000 points, 900 assists, and 800 rebounds in a college career.
All-Star Dunk Content was TERRIBLE
It was NBA All-Star Weekend. For the most part, it was pretty fun. However; we have got to stop trying to make the Dunk Contest the highlight of Saturday night.
After seeing an awesome 3-Point competition where Dame-Time was activated.
Then watching the first-ever NBA vs WNBA shooting competition as Steph Curry went up against Sabrina Ionescu. Which was AMAZING!!
Then you end the night on the lowlight of a Dunk Contest. It was so sad to watch. The fact is without Superstars in the dunk competition, it is boring and SUCKS! We need to accept that dunks are no longer the thing that amazes us the fans.
Until stars agree to look like garbage when trying to dunk, let’s highlight the main event which is the 3-point Shooing Contest.
Extras
There is a new dating app called Score. The premise is to connect people by their Credit Score. The app will only exist for about 90 days. It is somewhat of a social experiment.
In Their Words: The CEO of Neon Money Club, creators of the app said, "We need to take the conversation to areas where finance isn’t traditionally discussed. Before you can educate people, you need to get their attention. With Score, we’re bringing the conversation to dating.”
Intrigue: The idea of the app is to do more than just be a stunt. It is designed to help people have more open discussions about finances and also aid those who do not have the minimum score receive resources to better their financial situation.
Takeaway: According to the Federal Reserve, people are more likely to have a serious relationship when they have a high credit score. Score tries to get you there just a bit faster.
My Takeaway: You already know the nerd in me loves anything that gets more people to talk about money. Especially in relationships, most divorces are because of finances. If we can get more comfortable having these discussions, I think it will help make money less scary and more approachable. But what are your thoughts would you ever use an app that starts off with asking about your financial life?
*I am a tiny shareholder in this company.