Happy Martin Luther King Day.
Take a moment today, to think about all the sacrifices made by those before you. That allows you to enjoy the life you have today. But we still have a long way to go as far as the vision of Martin Luther King Jr.
This newsletter is about 1,950 words and about a 9 min read
Seems the Market has been celebrating and looking forward to the holiday cause it was on a tear all last week. We just need 50 more weeks of this kind of performance and it will make up for all the losses in 2022.
🥳Stock Market Returns:
Tale of the Tape
Economy
As Ke$ha said, "It’s going down, I'm yelling TIMBER"
CPI aka Inflation for the month of December was released Thursday morning and it came in exactly as expected.
🔢By The Numbers: Inflation declined 0.1% month over month.
Year Over Year Inflation declined to 6.5% compared to 7.1% in December 2021
Driven mainly by a drop in gas prices which fell 9.4% in December
But also a decline in used car prices which are down 8.8% year over year
Core Inflation which does not take into account the cost of energy and food actually rose Year Over Year from 5.5% to 5.7%
Driven by the rising cost of shelter
However, rent prices are finally declining
Takeaway: As Mark Zandi, chief economist at Moody's Analytics said, "Inflation is quickly moderating. Obviously, it’s still painfully high, but it’s quickly moving in the right direction. I see nothing but good news in the report except for the top-line number: 6.5% is way too high.”
We are moving in a positive direction but we are nowhere near where the Fed wants the economy to be (2%). However, it might give the Fed a reason to pull back on the rate of an interest rate increase.
🤷🏾♂️My Takeaway: Stock Market makes no sense. All week long, Stocks were going up. We finally get good news and stocks fell but rebounded on Friday. Makes absolutely no sense. Proving no one can predict the markets in the short term. Always play the long game and ignore day-to-day fluctuations.
On Tuesday, the Biden Administration announced the IDR Account Adjustment. It is an initiative to help reduce the burden of student loans on 8 million borrowers by reducing the amount they would have to pay under the Income-Driven Repayment plan. The proposal would help these borrowers pay off their debt much more quickly.
U.S. Secretary of Education Miguel Cardona in a statement on Tuesday said, “These proposed regulations will cut monthly payments for undergraduate borrowers in half and create faster pathways to forgiveness, so borrowers can better manage repayment, avoid delinquency and default, and focus on building brighter futures for themselves and their families."
🔢By The Numbers: With the new revamped Income Repayment Plan, Undergraduate Federal Loan borrowers could see their payments cut in half and the timeframe to receive loan forgiveness cut
A borrower paying $200/month, will pay less than $100/month
Loan Balances of $12,000 or less can receive forgiveness after 10 years
Loans between $12,000 and $20,000 can receive forgiveness between 10-20 years depending on the amount
$20,000 or more can receive forgiveness after 20 years
Graduate Federal Loan borrowers will see their payments cut by bout 25%
A borrower paying $200/month, might pay about $150/month
Big Takeaway: The biggest benefit of the new proposed plan is the removal of interest accruing on the loan balance. This will ensure that you do not see your loan increase even as you are making payments on it. Something that I have wanted on student loans for years, glad someone was listening. However, this new student loan program is not in effect yet and we have no set date for release. There are 30 days for public comment and the plan could be revised after the period.
😓My Takeaway: This is a great step in the right direction to help those who need support right now. But this only treats the symptoms of a much larger problem which is the ballooning cost of education in the US. Unless the issue is addressed at the source which is universities being let off the hook for not overcharging and not having to deal with the consequences. Every solution will always be a band-aid. I fear that even this proposal can be another way for colleges to increase costs.
Earnings
On Friday, we got earnings from all major banks in the US: Bank of America, JP Morgan, Citigroup, and Wells Fargo. These banks are seen as the prophets of the Religion of Macro-Economics.
WHY?: As Morning Brew puts it, "They’re like your one extremely connected friend who chats up everyone at cocktail hour and spills the tea afterward."
Banks are connected to everything in the economy. From you overpaying for those Taylor Swift concert tickets to Elon Musk borrowing billions to buy Twitter, a bank is essential for any of these activities to take place.
This is why we pay so much attention to what they say during their earnings calls.
🧾Prophecies: All four banks see a high likelihood that the US economy will enter into a "mild" recession this year. They expect a slight increase in unemployment but believe strong consumer spending will help ease the pain of the economy.
JPMorgan expects unemployment to go from 3.8% to 4.9%
Bank of America expects unemployment to go to 5.5%
Citi expects it to go to 5%
However, they are preparing for the worst. All the banks increased their loan loss reserves (it's basically an emergency fund) to ensure they are well prepared for a larger-than-expected decline in consumer discretionary spending.
My Takeaway: A mild recession is still a recession. Consumers continue to borrow to sustain their level of spending.
Chase reported that credit card balances have returned to pre-pandemic levels.
Bank of America reported credit card balances are above pre-pandemic levels.
Citigroup reported credit card balances rose 13% in the Quarter.
This is a dangerous trend for individuals. Rather than cutting back on our spending from the pandemic's free money period, we are adding more things to our cart.
My advice is to be like the BANKS. They are cutting costs drastically and increasing their Emergency Savings. While we the consumers are spending more and more. Read the tea leaves and make preparation for the worst.
Stats of the Week
The average interest rate on credit cards
This is the highest average interest rate since 1985
PLEASE! PLEASE! PLEASE! Do not carry a credit balance month over month.
Do everything to pay off your cards in Full EVERY MONTH!
This is how much you can get paid as a Software Engineer for Netflix
A new law went into effect on January 1st in California, where companies have to post salary ranges for open positions
Much like in New York when a similar law went into effect, companies are making a mockery of it. Posting insane ranges
However, it still gives an idea of the insane income you could make working for some of the largest tech companies just by being an individual contributor
If you want to see all the various ranges from companies like Google, Tesla, Apple, or Netflix, go here
The number of jobs Goldman Sachs cut on Wednesday
Tech is not the only industry cutting costs due to overhiring during the pandemic.
Finance companies also overhired to meet the demand of customers during the pandemic. Companies went public almost every other day and mergers and acquisitions were happening all over the place.
With a market downturn, there are no more deals to be made. Leading to many financial institutions cutting down on headcount to reduce costs.
I am not a fan of the Boom and Bust cycles that companies willingly embrace. I like sustainable growth over long periods of time.
Not all profit is good profits. It can come at a very heavy cost later
The amount Microsoft is investing in OpenAI, the creators of ChatGPT and DALL-E
Microsoft is coming for Google's head, who has been seen as being at the forefront of AI technologies
Microsoft plans to integrate OpenAI systems across its suite of products from Outlook to Word
Microsoft had invested $1 Billion when OpenAI was a non-profit organization.
Looking Ahead
Consumer Spending
On Wednesday, the US Census Bureau will release the December report on retail sales. This will give us good insight into how consumer spent their money during the holiday season. Despite record-breaking online sales at the beginning of the holiday shopping season, it is expected for overall retail sales to decline by 0.5% in December. Continuing a trend from November, where retail sales declined 0.6%. Another sign of the pressures of inflation on American consumers.
Earnings
Earnings Season continues with more banks reporting earnings including Morgan Stanley, Goldman Sachs, Ally, Discover, Charles Schwab, and many others.
However, the only company I will be paying attention to is Netflix. Netflix reports earnings on Thursday afternoon. While most people have been down and out on Netflix, the stock has secretly been on a tear. Since May of last year, Netflix stock is up 100%. It is the only streaming company that continues to dominate. This is why I always say ignore the headlines and pay attention to the actual company.
Sports I LOVE
🤯 STILL SHOOK
I cannot believe my eyes. Look at the current standings in the Premier League:
No, your eyes are not deceiving you. Man U is really in 3rd place right now. After beating Man City on Saturday.
And no, Bruno’s goal was not offside, as my coach always told us, “Play to the whistle.”
Man U, like a phoenix, has risen from the ashes. Ten Hag is finally getting the team to play well together. Casemiro has been a complete game-changer for them as well. There are still plenty of games to be played but I will celebrate this resurrection from the grave.
Extras
Amazon Will Rule The World
Amazon just opened up its large logistics service to non-Amazon sellers. It is opening up its network of Prime warehouses and transportation to anyone who wants to use it. It is being dubbed Logistics as a Service or LaaS.
Sellers can store their goods with Amazon and Amazon can fulfill their orders. This will reduce shipping times drastically for businesses that cannot afford to create their own logistic network. It will be great for customers as well, who have grown to expect 2-day delivery for most things.
Amazon is using the playbook of AWS to create a new path of profitability from a cost center for the business. As Anne Mezzenga, co-CEO of Omni Talk, a news platform said, "Amazon’s smartly figuring out what alternative revenue sources are available to them, leveraging the assets that they have really perfected.”
Watch out UPS and FedEx.
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