Thanks for joining me for another edition of the Rambling Mind. The S&P 500 and Nasdaq had their best week since June and a major Crypto exchange imploded. Let's talk about why.
This week’s Rambling Mind is 1600 Words and 6 min read.
Stock Market Returns
Tale of the Tape
Economy
Elections
It happened (except in Georgia we have run-offs in December 😫🙄) but I have nothing to add to the discussion so not talking about it.
Unexpectedly, inflation for the month of October came in much lower than expected at 7.7% versus 7.9%. This is the slowest rate of inflation since January
This sent the Stock Market flying to close out the week (See above). This was the best day in the Stock Market since 2020.
Why?: Because investors saw this as a sign Powell and the Fed will have to pivot and stop raising interest rates. However, I believe this was a gross overreaction. Two weeks ago, Powell was very clear that his inflation target is 2% and last I checked 7.7% is way above 2%.
Takeaway: Investors are grabbing at straws. Anything that looks kinda good, investors are rushing toward it. But it never lasts as reality quickly sets right back in.
In 2020-2022, there were no shortages of videos on social about how to job hop and get paid more in tech. That is no longer the case.
Over the last year, we have talked repeatedly about various tech companies either doing hiring freezes or layoffs. However, we had not had any of the Big Tech companies doing massive layoffs. That ended on Tuesday when Facebook announced layoffs of 13% of its workforce which equates to 11,000 employees.
How It Happened: Facebook grew its headcount extremely quickly going from about 40,000 employees in 2019 to 87,000 in 2022. This was not a problem when money was flowing like water for the company, but ever since Apple put its "privacy" protections in place, revenue has slowed. Also, with a push for the metaverse, expenses have risen drastically for Facebook.
Income Down and Expenses Up, Never a good sign for an individual or a business.
The Brightside?: Unlike other industries, if there is an industry that you want to be laid off from. It is tech. The severance packages are always very generous. Facebook will be paying those laid off for 16 weeks plus two additional weeks for every year of service and will cover health insurance for 6 months. So for some people, this will be a good vacation time to decide what to do next. But it still sucks!
Go Deeper: Every Tech Company that has had layoffs so far in 2022.
Crypto
I usually never talk about crypto but after the events of last week, I could not ignore it. FTX, what was thought to be the safest Cryptocurrency exchange is about to go under.
WTF happened?: Basically the same thing that happens with every financial institution ever:
Overleverage
Panic
Illiquidity
Implosion
If you want to understand the entire story, watch this video.
TL;DR: A rumor spread that FTX did not have the liquidity (aka cash/assets) to meet the demands of its customers. FTX said it did. People said Nah we've seen this movie before. People started pulling out their crypto or asking for their money back. FTX did not have the cash or assets to cover it. Turns out they had used their customer’s funds for their own investments or loaned it out as banks do.
Except, Banks are heavily regulated and have to keep a large portion of deposits liquid in case of emergency situations. This was a hard-learned lesson during the Great Depression in 1929. Crypto exchanges still have not learned the lesson.
My Takeaway: Always protect your downside. In life, winners are not those who take the largest risks. It is those who can survive long enough for things to play out in their favor.
Stats of the Week
The Powerball Lottery is now over $2 Billion and a man in Cali won it
He will get a lump sum of $997 million
Amount Billionaires poured into the Mid-term elections
This is a record high
Our political system has become overrun by the 0.00001% of the population
Almost 40% of total Political donations are by the ultra-elite.
I do not like the idea that our elections are basically determined by a select group of people
You can guess what party they are pushing for
The World is making sense again. Used car prices are finally falling
Prices are down 15% from January of this year
They are still over prices at an average price of $20K but cheaper than the $24K it was in January
Average Interest Rate on a 30-Year Fixed Mortgage.
This has basically removed all First Time Homebuyers from the market as prices have remained high
Looking Ahead
Stocks
We get earnings from all your default places to spend money: Walmart, Target, Home Depot, Lowe's, Macy’s, TJ Maxx, Kohl’s, and Ross
Why It Matters: These retailers see a large portion of consumer spending. They can provide great insight into how and what consumers (you and I) are spending money on.
What to Expect: Earnings (profits) for all companies are expected to decline by at least 10% when compared to last year. All companies faced inventory challenges at the beginning of this year. By having too much stuff, expecting consumers to continue their pace of spending on goods from 2021. To clear their inventories and make room for holiday inventories, all companies had major sales. Marking items down by upwards of 50%. Those sales are expected to continue as we head into the heavy Holiday Seasons.
Takeaway: This is a good year to delay Holiday shopping. As the year comes closer to an end, these companies will be desperate to get rid of excess inventory. Which is terrible for their balance sheets but great for our pocketbooks.
Economy
On Wednesday, the U.S Census Bureau releases retail sales data for October. This will tell us just how strong consumer spending continues to be.
What to Expect: Economists expect retail sales to remain strong and increase by 0.8% from September. This might be influenced by early Holiday shopping as businesses have offered earlier sales to get rid of excess inventory.
Takeaway: The Superpower of Americans is our ability to spend money. Doesn't matter if we have the money or not. Continued spending strength is not great for inflation. It allows companies to keep raising prices without consequences.
By the Numbers: Consumers are expected to spend $960 Billion on Holiday Shopping. Needless to say the American Superpower remains STRONG!
Sports I Care About Update
It is almost time for the WORLD CUP!!!
It is very likely that over the next month or so, my productivity level will be the same as a rock. So if I miss posts this is my heads-up to let you know why
Until Next Time Thanks for Rocking With ME
If you enjoy the newsletter SHARE IT.
Remember GENEROSITY > greed
God bless Each and Everyone of y’all
✌🏾
Extras
In a surprise announcement on Monday, the Athletic reported that Liverpool, one of the best teams in the Premier League, is up for sale. The club was bought back in 2010 by Fenway Sports Group, owners of the Boston Red Sox, and reshaped the entire club. Bringing it back from obscurity to FAME! In the 12 years since they own it, Liverpool has won their first Premier League title in 30 years, Multiple FA and Carabao Cups, and the Champions League.
FSG have also poured millions to get the club to be on the level of other Big EPL Clubs like Man City or Man U. They spent £190million on the stadium to modernize it, and built a £50m training facility that is the envy of other clubs. So it is very surprising to see FSG sell the team.
It is expected that the club will sell for around £3 Billion dollar since Chelsea sold for £2.5billion
Elon to fired Twitter employees. After realizing he needs people to make his Twitter fantasy a reality. Then he launched Twitter Blue where anyone could get a Twitter Blue checkmark and as expected impersonation accounts took over and chaos ensued. Right now, I'm not sure if Elon is actively trying to bankrupt Twitter so he isn't on the hook for $44 billion or if he's actually trying to make things better.
The much-hyped Student Loan Forgiveness Program by the Biden Administration is acting like Cardi B and Offset. Sometimes it's on and sometimes it's off. But it's always dysfunctional.
What happened: The Department of Education was forced to take down the application page for loan forgiveness because a federal judge in Texas struck the program down for being "illegal".
What now: The Department of Education appealed the decision and it'll go to the 5th Circuit Court but it could take months before anything happens. Even then it could go all the way to the Supreme Court. Meaning it could take years before this gets resolved.
What to Do: The student Loan Moratorium ends in January. There are no plans to extend it. So start adjusting your budget to make room for those payments to kick back in. As we all thought it's unlikely this ever becomes reality, so as always control what you can control.