No Savings - Market Update October 16-20
Good for the economy. Horrible for your Personal Finances
My prayers go out to all the families affected by the war in Gaza. I pray for healing for the families that have lost loved ones or have loved ones still missing. I pray the Lord will comfort each and every single person. I pray the Lord will give leaders wisdom to take the best course of action for all people. I pray that anger shall not cloud their judgment during these difficult times.
Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Markets
Not exactly the best of times in the Stock market. Spooky season is in full force, as the market continues to tumble due to the war in Gaza and the fear of rising oil prices. Jerome Powell spoke at the Economic Club of New York on Thursday and poured ice-cold water on investors. He said things are going “too well” in the economy; therefore, rates may need to be increased soon to continue fighting inflation. This is with rates already at a 20+ year high of 5% and inflation at 3%. But with people spending so much, I can understand his thought process.
This newsletter is 1,589 words an 8-min read
Tale of the Tape
Economy
🤕🩹Health Insurance EVEN More Expensive
Health Insurance has never been synonymous with afford. Now, it has become an antonym after the highest price increases in decades.
🔍Details: The price of health insurance offered through employers is set to rise more than 7% this year (why health insurance is tied to your employer still baffles me). It now costs approximately $24,000 for families and $9,000 for individuals. This is the highest price increase we have seen since 2011.
Insurers say the price increase is due to inflation of wages for healthcare workers. Health Policy experts say hospital mergers play a larger role in increased costs of healthcare services.
My Takeaway: LIFE IS GETTING A HELL OF A LOT MORE EXPENSIVE. Open enrollment just opened for my company and a key talking point from HR was on the various parts of our benefits that are getting more expensive. They pointed out the increases not just to health insurance premiums (amount paid monthly). But also to:
Deductibles (the amount you pay before insurance coverage begins)
Copays (amount paid per hospital visitation).
Consumers’ pockets continue to get squeezed as the effects of high-interest rates kick into high gear. However, it would seem consumers don't care 👀 (see below for more).
Earnings
Netflix has unlocked the code to unlimited money. Crackdown on password sharing and raise prices. Netflix added almost 9 million new subscribers in the last quarter, thanks to its new ad-supported tier. Netflix continues to flex its pricing muscle as it increases prices once again.
Basic plan will now cost $11.99 (up from $9.99)
Premium will be $22.99 a month (up from $19.99).
Stock Move After Earnings: Of course, investors loved the news. The stock rose over 15% after earnings.
What To Watch: These price increases might be the last free price increase Netflix gets. People are spending money (see below) but not on stay-at-home goods and are looking for things to remove from their monthly expenses. Netflix is slowly entering the territory of being too expensive to ignore. The more Netflix increases prices, the more it becomes a pain point for consumers. It will be interesting to see how many more price increases Netflix pushes in the next two years.
Who Am I kidding? AIN’T NOBODY GONNA CANCEL!! We will complain but we won’t cancel. We have grown too reliant on easy entertainment and easy dopamine hits. No way we will cancel Netflix and actually be bored. It is far too easy for us to justify the purchase.
Profit margins are becoming more like a typical car manufacturer. As Tesla continues to drop prices on all new cars, its profit margins have shrunk from a robust 20% to 7%. There are two ways to think about what Tesla is doing:
Tesla is dropping prices to ensure it captures as much of the car market as possible
Tesla is dropping prices because there is now too much competition and it is no different than legacy car makers
Depending on your view of Elon Musk, you can choose either side. I believe it is probably a bit of both. I believed for the longest that Tesla was more in line with Apple but I no longer believe that. Car manufacturing is a difficult business to be in and the reality of the business is hitting Tesla in the face. As interest rates remain high, cars become a hell of a lot more expensive for buyers not paying cash (which is most buyers). However, Tesla is still far outselling every other EV manufacturer in the West. It wants to hold that dominant position as much as possible
Stock Move After Earnings: Investors did not like the sound of less money being made. The Stock dropped 9%.
What to Watch: How the new plant in Mexico will help increase car deliveries. Will the cybertruck actually be delivered this year? How other car markers are doing especially as they face major strikes causing shutdowns to their operations.
Stats of the Week
😖🤔-2%
The rate of United States household savings.
We are choosing to spend all our excess savings from the pandemic, unlike other advanced economies.
Irony: What is good for your personal finances is terrible for the economy. The more we spend the better it is for the economy, at least on aggregate because a third of GDP is consumer spending.
💬In their Words: IMF analysts wrote in their World Economic Outlook: "Among advanced economies, private consumption has been stronger in the United States than in the euro area, with households receiving larger fiscal transfers early in the pandemic and spending the associated savings more quickly."
Takeaway: This is and will always be the Superpower of the United States. We will SPEND even if it requires us to go into debt.
$115,000
This is the salary needed to afford a median-priced home ($416,100) in the US. Here is the problem, the median salary in the US is $75,000 according to the Census Bureau.
Takeaway: Homes are insanely unaffordable. Ignore the social pressures to buy if you are not in a great position. Renting is not throwing away money.
In a surprising case of great news, 58% of American households own stocks. It is the highest level of stock ownership in history! The pandemic really brought the stock market into the mainstream with apps like Robinhood which gamified the process of investing.
Tax season is around the corner and the IRS says they want to make your life much easier than Intuit or H&R Block would like. The IRS is launching a free tax filing program called Direct File. It will allow some taxpayers in 13, (states including Arizona, California, Massachusetts, New York, Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming), to file directly with the IRS for free.
Details: With an influx of money to aid the IRS, the IRS is overhauling its systems to make life much easier for regular citizens. IRS wants to provide an alternative to the expensive services of H&R Block and TurboTax.
💬In Their Words: IRS Commissioner Danny Werfel said, “I can’t stress enough that Direct File if pursued further after the pilot, would be just another choice taxpayers have to help them prepare their tax returns." This was in response to pushback from the Senate, House Republicans, H&R, and Intuit who said this would make filing taxes worse for citizens.
Takeaway: Filing for most people should get easier and free. Of course, Intuit and H&R Block hate this. Their business model is predicated on making taxes as complicated as possible for people. It is likely this faces challenges in courts as H&R and Intuit get their various lobbyist to take to various lawmakers to force the IRS's hands.
Looking Ahead
Economy
On Thursday, 3rd Quarter GDP numbers will be released. After the US economy grew 2.2% in the 1st Quarter and 2.1% in the 2nd Quarter, the expectation is for GDP to be in alignment with those numbers. Again this signifies we are not in a recession.
Earnings Barrage
The Companies responsible for most of the returns in the S&P 500 this year will be reporting their 3rd Quarter numbers this week. You know the companies cause there is not a single day that goes by that we do not use one or all of their services. List them with me: Google, Facebook, Microsoft, and Amazon.
We have other important companies such as Visa and Mastercard but ain’t nobody care about these boring stable businesses. We like the drama of BIG TECH!
Sports I Love
The Word is Survived but I will take survival over death.
Extras
LinkedIn laid off 3% of its workforce in an effort to create, wait for it, "efficiencies" in its work processes. It is the company's second round of layoffs in the last year.
Details: Revenue growth has slowed down substantially as advertising revenue across all businesses continues to decline. However, the platform's userbase continues to grow as LinkedIn has become the Facebook replacement for people's random life updates. Now the platform has over 950 million users.
Takeaway: As rates remain high and consumer spending declines over time. I expect more of these announcements as companies battle higher debt costs while pushing for higher revenue.