Inflation Keeps Burning - Market Update April 8-12 2024
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Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Summary of Topics:
Economic News
Inflation Still Burning Our Wallets
Biden Tries to Forgive Student Loans Again
Company News
Big Banks are losing money and that is great news for you and I
Stats of the Week
AI writing all the papers
$6 Billion spent to view the eclipse
4,240 books submitted to be banned
Looking Ahead
Netflix and Bank of America report earnings this week
Bitcoin halving is on Saturday
Sports I Love
Man U did the Man U
Arsenal and Liverpool slip
The Caitlyn Clark Effect
Markets
Not a good week for stocks. After CPI (consumer price index aka inflation) numbers were released on Wednesday, investors sold off stocks quickly. Some confidence was restored on Thursday with the release of the PPI (producer price index aka inflation), but it did not last long. Investors are beginning to grapple with a reality where the Fed does not cut rates for a while.
Tale of the Tape
Economy
Inflation is the weed in your yard that JUST WON’T DIE. No matter what product you use, that stupid weed will not disappear.
🔢By The Numbers: Prices rose 3.5% compared to March 2023. Prices rose by 0.4% from February. Economists expected prices to increase by only 3.4% and 0.3%.
Core CPI, which excludes food and energy prices that can be volatile, continued its slow decline. Prices increased 0.4% from last month and 3.8% from last year.
Shelter and energy prices were the largest drivers of inflation in the last month.
Energy prices rose 1.1% (we can all see gas prices going up). Gas is 24 cents more expensive than last month.
Shelter prices rose 5.7% from last year.
Unlike popular narratives, have returned to historical norms increasing by 2.2% from last year.
Auto Insurance prices rose 22% from last year.
Wages remained flat from February.
📉Stock Move: As you would expect, investors did not love this move. The market had one of its worst days in two years, falling 1%.
💬In Their Words: Seema Shah, chief global strategist at Principal Asset Management, told CNBC, This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip. In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the US election will begin to intrude with Fed decision making.”
Layman's Speech: Yeah, the Fed ain't cutting rates anytime soon.
⏸Wait There's More: On Thursday, we received another type of inflation report called the Producer Price Index. This report as the name suggests, is the price manufacturers pay for goods before selling it to you.
It showed prices only rose 0.2% from February.
✂Takeaway: It is very unlikely the Fed will cut rates anytime soon. Investors had expected a rate cut in June but that is completely off the table after 3 consecutive inflation reports that show inflation rising. However, just because inflation is rising does not mean things are horrible. The PPI shows there is not a core issue going on.
This is great news for savers but not so much for anyone trying to buy a house or if you have debt.
After getting absolutely bodied by the Supreme Court two years ago, the Biden Administration is putting on their best Captain America impression and getting right back up for another fight to forgive a large swath of student loan borrowers.
🔎Details: The new plan will forgive approximately 30 million borrowers. according to the Biden Administration. This loan forgiveness plan is a bit more targeted than the original. Here are the various borrowers the administration is targeting:
Borrowers who owe more than they did at the start of repayment due to accrued interest aka everyone with student loans. It would be up to $20,000 being forgiven.
Borrowers who are eligible for loan forgiveness but have not applied for the new SAVE Plan or other forgiveness programs. They will be automatically enrolled in those programs to get their loans forgiven.
Borrowers who have been making payments for 20 years for undergraduate student debt and 25 years for graduate student debt.
Borrowers who enrolled in a school but got no benefit from the degree or if the school was later shut down by the government for failing to meet certain criteria.
Takeaway: The Biden Administration is trying to refocus its effort to give most of the benefit to those who have been unable to move forward due to the weight of student loans. The plan primarily targets older borrowers and borrowers on the lower end of the tax table. Everything in this plan is theoretical, it still has to go through all the legal hurdles the original plans failed to clear.
My Takeaway: It is unlikely this survives all the legal hurdles. This feels like it is all about the election this year. It is one of those campaign promises you make to get folks excited enough to vote for you. Especially because the plan focused on older folks who tend to vote more. I hope I am wrong.
Plus, it still does not solve the problem of college prices today. As long as colleges continue to be treated as a luxury good with a focus on exclusivity. Pricing will continue rising at an astronomical rate.
BUT: Biden ain't waiting. The White House announced last Friday that another 277,000 student loan borrowers will have their loans forgiven. Wiping out about $7.4 Billion in loans. This is all part of the new student loan repayment plan, SAVE.
Companies
Big Bank Lose Money And That is Great NEWS
Last week, three of the US's largest banks (JP Morgan, Wells Fargo, and Citigroup) reported Q1 2024 earnings. Nothing in their earnings report was that interesting. They all posted strong profits for the quarter. However, they each reported one number that brought joy to my heart, a loss in Net Interest Income.
🔎Details: Net Interest Income is the amount a bank earns from lending versus what it pays to depositors.
Fun Fact: Banks are only required by the Federal Reserve to make 10% of all deposits available at all times. Banks are allowed to loan out the remaining 90% of your deposit.
The idea is the profits can be shared with savers who are providing the cash for the loan. This has not been the case.
Banks have been making money hand over fist as interest rates have increased. Savers had not moved their money to higher interest-bearing accounts.
The average savings account interest rate is a paltry 0.57%.
However, many savings accounts pay higher than 4% interest on your deposit.
Large banks have suppressed their rates to ensure they make the most profit possible
Fortunately, savers are finally wising up to the fact that there are better places to keep their money.
🔢By The Numbers: Wells Fargo reported an 8% loss in net interest income.
JP Morgan lost 4%.
Citigroup (the most insidious in changing bank rates in evil ways) saw an increase of 1% even as deposits dropped 2%.
If that sounds weird to you, trust your instincts. I HATE THIS BANK!!
💬In Their Words: JPMorgan CFO Jeremy Barnum said on the earnings call, "Ongoing migration. Even if the current yield curve environment were to change and meaningful cuts were to get reintroduced ... we would still expect to see ongoing migration and yield-seeking behavior."
Layman's words: They don wised up and we ain't getting that money no mo.
📉Stock Move After Earnings: JP Morgan stock dropped 6.5%, Wells Fargo stayed flat, and Citigroup stock dropped 1.7%.
👀What to Watch: As Bank of America reports earnings, more details will come this week. We will get more information on the position of the consumers as well. This will give a good insight into how everyone is handling inflation. Remember, the economy is 2/3rds consumer spending. It will be a bad day for the economy if we start pulling back on spending.
Stats of the Week
According to Turnitin, over the last year 22 million papers submitted by high schoolers and college students were in some way completed by one of the many generative AI chatbots, specifically ChatGPT.
It is estimated that the eclipse boosted local economies by $6 Billion. People flocked from all over the US to be in the perfect location to see the eclipse.
Good News: According to Cloudflare, web traffic declined 40-60% during the eclipse. I love how Morning Brew puts this, "It’s a cruel joke that the only thing that can take you away from your phone also hurts your eyes."
4,240
The number of books that were submitted to be banned in schools and libraries across the US, according to a report from the American Library Association.
Looking Ahead
Companies/Earnings
Netflix, once a part of the vaunted FAANG stocks, will be reporting Q1 2024 earnings on Thursday. While other streaming companies are trying to find ways to cut costs or increase prices enough to become profitable. Netflix has continued to build its lead and use its dominant position to go into new categories. It is expected for subscriber growth to continue rising and churn to remain extremely low.
Do you still consider Netflix Big Tech? I just cannot compare it to the likes of Google, Amazon, Apple, Nvidia, Microsoft, or Facebook anymore.
Also reporting this week are some big banks. Bank of America, Goldman Sachs, American Express, and Charles Schwab all report. The most interesting banks to pay attention to will be Bank of America for their insight on consumer spending. But also Discover. Remember in February, Capital One announced it had reached an agreement to buy Discover. This will be the first time, Discover management will address the sale.
Cryptocurrency
The overhyped Bitcoin halving is on Saturday. Bitcoin halving is when the reward for bitcoin mining is split in half. This means it will take twice as long to get 1 bitcoin. It is a way to control the supply of bitcoin. I honestly do not care but some people do.
Sports I Love
Man U Does the Man U
this game was all Bruno Fernandes. He dragged the team to a draw. Can’t wait for the off-season. This team is just so bad. I can’t even say they need a new coach cause it will just be the same place we have been for the last decade. Guess this is just my time to suffer as a fan.
Liverpool & Arsenal Slip
The Premier League title is a three-team race: Arsenal, Liverpool, and Man City. I don’t care who wins as long as it is not Man City. Arsenal and Liverpool decided my pain seeing Man U suck week in and week out was not enough. They decided this week to give up their lead at the top of the table to Man City by both losing yesterday!
The NCAA Women's Basketball championship game between Iowa and South Carolina was the most-watched basketball game since 2019. According to ESPN, 18.7 million people watched the game on Sunday. I was one of them. Caitlin Clark's record-setting college career was a major viewership driver for women's college basketball. It's been a long time since a college player has had such drawing power to get the entire nation to pay attention. This is all happening at the same time that women's sports are seeing a major increase in viewership and attention.
2023 was the most watched season for the WNBA.
The National Women's Soccer League saw record attendance in 2023.
TV rights for both sports are doubling in value.
WNBA is in negotiations, and it is estimated the new contract will be worth $100 million per year from the current $50 million per year.
NWSL just signed a $275 million TV rights deal with Amazon, CBS, and ESPN.
I love South Carolina's Coach, Dawn Staley. Yes, it is because she is black. Every black person gets the same feeling. She is like the black mom we all have. Congrats to her and her team, for going undefeated for the championship.
*I am a tiny shareholder in this company.