Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Markets Weekly Performance
The Dow Jones Index finally joined in the fun and had a pretty decent week. Stocks had a nice rally because inflation hit its lowest point in over 2 years (more below). Will the rally continue? We shall see.
It is earnings season once again and how companies forecast their future will determine that. For now, we celebrate more gains in our portfolios. At least for those who continued buying stocks despite blood in the streets.
This newsletter is 1,487 words a 7 min read
Tale of the Tape
Economy
⌛💵Instant Payment
Details: The US Banking system is launching FedNow, an instant payment service sometime this month. The system will enable banks to send cash instantly-24/7. Unlike the current system, which allows transfers only from Monday to Friday (minus holidays) during bank working hours (Typically 9 am-4 pm). This has never made sense seeing most transfers are not done in person but online and the internet has no working hours.
🤔Wait Didn't This Already Exist?: Nope. The current instant payment system is a private system created by the big banks. As an alternative to FinTech companies like CashApp or Venmo.
Which is why it is faster to send money from a Wells Fargo account to a Chase account. Than it is to send money from CashApp to Wells Fargo. By having a government-backed system all banks will be able to join in the fun.
🥳Benefit: All transactions are sped up
No waiting when moving money between your accounts
Immediate bill payment rather than planning to pay bills days in advance
Instant direct deposit; this is especially important for 1099 employers and employees.
💀Danger: Silicon Valley Style Bank runs might become more normal as banks will have less time to react to customer panic. However, there are safeguards in place. FedNow will have a transaction limit of $500,000 and each bank can set its own limit on instant transfers
🔚Takeaway: This might be the end of CashApp and Venmo. The two biggest reasons we use these services are the speed of transactions and ease of use. Banks solved the ease of use challenge by creating Zelle. Now with FedNow, it solves the speed of transactions challenge across banks.
Unfortunately, the Fed is not requiring every bank to use the platform. Right now, only about 57 banks are signed up with the system. There are over 2,000 banks in the US. Unless every bank uses this system, it will not be as effective. However, when the Fed asks banks to do something. Banks may be slow but they usually implement it. Who wants to anger the one person that can bail you out in bad situations?
My Takeaway: I am excited for me. I have a few (okay maybe a lot) of bank accounts and I am regularly transferring money between those accounts. Being able to have the money arrive instantly will save me a lot of headaches. No more having to set up complicated transfer schedules. I can complete every task right when it is needed. No more excuses of
Seems the system might already be working for some banks. I sent money from my Discover Bank to Ally Bank on Thursday morning. By 1 o’clock the same day, the money was in the account.
If I were Papa Powell, I would be taking a massive victory lap on every single news network. Just screaming into the camera and microphone
📉Details: Inflation for the month of June rose only 0.2% from May and 3% from last year. This is the lowest level since March 2021.
🔢By The Numbers: It was expected for the inflation to be 3.6%. Inflation being 3% was nowhere in the picture.
Core CPI which removes food and energy prices remains elevated at 4.8%
Shelter continues to be a pain point for everyone with prices rising 0.4% month over month and 7.8% when compared to last year
Lisa Sturtevant, the chief economist at Bright MLS, explained the housing issue very well, “Housing costs, which account for a large share of the inflation picture, are not coming down meaningfully. Because rates had been pushed so low by the Fed during the pandemic and then increased so quickly, the Federal Reserve’s rate increases not only reduced housing demand — as intended — but also severely limited supply by locking homeowners into homes they would have otherwise listed for sale.”
Gas prices have proven to be a huge deflationary force.
Last year gas prices were $5/gallon
Today those prices are $3.54/gallon
Takeaway: The efforts of the Federal Reserve to bring down inflation seem to have worked wonders. Inflation is no longer in daily conversation. This might be the final sign the Fed needed in order to stop raising rates as they evaluate the position of the economy. But the last time I checked, 3% is still more than 2% which is the Fed's inflation target. So the Fed might raise rates some more to keep the pressure up.
Also, can we all agree that inflation was transitory? It just took a bit longer than anticipated but it definitely went away just as quickly as it entered the picture.
My Takeaway: Inflation may no longer be a consistent discourse but I wish it were. Inflation may have slowed but prices are still going higher. They are certainly not coming down. Things are still too expensive in my heavily biased opinion (Bias: I am cheap). And we, the consumers, willingly accept these prices. We can complain as much as we want but unless we speak with our dollars, businesses will keep raising prices and keeping prices high. Exhibit A of consumers accepting insane prices:
We can complain all we want about prices being high but we are the reason for the higher prices. Stop spending money!! Help MY POCKETS!!
Earnings
JP Morgan, Wells Fargo, and Citigroup reported Earnings on Friday and things are going very well for them.
Details: With the Fed continually raising interest rates, it has helped banks weather the storm of reduced investment activity and increased the profitability from loans.
Loan profits from each of the banks grew by at least 31% compared to Q2 2023
JP Morgan after acquiring First Republic saw its profits grow by 61%. The highest profit growth ever for the company.
Not So Gold: Fewer loans are being made overall as consumers have been more skittish with the idea of taking on loans with interests of at least 7%.
Credit Card and Auto Loan defaults are slowly creeping up as more every spend down their excess savings from the pandemic.
Continued pressure from declining investment activity is keeping pressure high on banks’ bottom lines.
Takeaway: Pat yourself on the back. Cause you made this happen for the banks. Banks are very much tied to consumers. If we don't spend they don't make money. So good job spending money in the last quarter. But seems that the gravy train coming to an end.
Stats of the Week
Another Reason to abandon big banks. Bank of America was fined $250 Million for junk fees and other violations including but not limited to:
Opening Credit Card accounts without consent
Charging Overdraft fees TWICE
Withholding credit card rewards
This feels like Deja Vu... Oh, that's right Wells Fargo did the same thing and got fined $3.7 Billion. All these banks SUCK!! Get your money out of there ASAP and use someone like Ally or SoFi or a Credit Union.
We (You & I) spent $12.7 Billion on Prime Day. Setting a new record for Amazon. Prime Day sales increased 6% over last year. July 11th was the largest sales day in the company’s history. Over 375 million items were sold across the two-day sales event.
But not only did Amazon benefit from its Prime Day other retailers got a boost in sales as well. According to Adobe Digital Insights lead analyst, Vivek Pandya;':
“Prime Day has become of one the biggest e-commerce moments of the year, as consumers latch onto major discounts from a number of different retailers. The record spending so far shows us that consumers are tapping into their inner bargain hunters.”
As they say, a rising tide lifts all boats
2023 has been the deadliest 6 months in the US in over 2 decades. There have been 28 mass killings (4 or more people killed) from January 1st to June 30th.
James Alan Fox, a criminology professor at Northeastern who has been tracking crime data for 45+ years, said: "We used to say there were two to three dozen a year. The fact that there's 28 in half a year is a staggering statistic."
27 of the 28 killings have involved guns. But yet we keep defending the need to have guns. With the ultimate excuse of “It's not guns that kill people it's people who kill people.” Give me a break 😒
Looking Ahead
This week begins the heavy onslaught of companies reporting earnings for Q2.
Bank of America will be interested to get more details on consumer spending. Specifically around credit card balances and default rates. So far the consumers look healthy but is it a sustainable level of spending?
Also, what are those savings balances looking like?
Netflix reports on Wednesday. With a writer's and actor's strike in full force, I would like to hear Netflix's take on the situation. Unlike other media companies, Netflix is probably the best positioned to weather the storm as they have an unbelievable amount of content. Other things to watch:
Subscriber growth with the end of password sharing
Free cash flow growth
Tesla also reports this week. Tesla has done the impossible and brought the US automatic market to its knees. Every car manufacturer in the states is using their charging standard. This is like every phone manufacturer choosing to use the lightning port from iPhones rather than USB-C.
Sports I Love
You know you the GOAT when you don’t even have to play a single second of a game to get everything named after you. Messi just landed in Miami and will play his first game for Inter Miami on Friday but he already has:
A signature meal at Hard Rock Cafe: Messi Chicken Sandwich
Murals: see above
Prediction: In his first match, Messi will score 2 goals and have an assist.
Extras
He may not have been able to provide full student loan forgiveness. But Biden much like a defeated superhero has found a way to help some student loan holders.
With a slight tweak to loan forgiveness rules, Biden will be forgiving $39 billion of student loans help by 804,000 people. The rule change counts more payments toward the forgiveness available to them after 20 or 25 years worth of payments are made.
I hate cruises. Never ever plan on being on one.