Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Summary of Topics:
Inflation has cooled off
No more Interest rate increases, rate cuts in 2024 maybe
Christmas Layoffs
Netflix is KING
Stats of the Week
115 million people will travel for Christmas
40% of homes are mortgage-free in the US
653,100 people are homeless in the US, an all-time high
$100 million gold bar
Looking Ahead: One Word, Two Syllables
Sports I Love
Man U did not win but did not lose
Largest and Weirdest baseball contract ever
Markets
The Santa Claus Rally is in full effect. The stock market is up for 7 weeks in a row. Something that hasn't happened since 2017. The Dow Jones Industrial Average hit a new all-time high for the first time since 2021, but no one cares because it's the Dow. It kinda sucks! The Nasdaq also hit an all-time high as tech continues its magnificent rally this year, shout out to Nvidia and OpenAi. The S&P 500 is 2% away from hitting all-time highs as well. If things continue as they are it's gonna be a wonderful Christmas for all investors. Let's hope nothing slows it down.
This newsletter is 1,617 words an 8-min read
Tale of the Tape
Economy
But it revealed a harsh reality that we have been running from. Getting inflation under control any further will be a painful ride.
🔢By The Numbers: Overall inflation dropped from 3.2% in October to 3.1%.
Oil prices continue to be a key driver of lower inflation. The average gas price in the country is $3.14, which is the lowest it has been all year in August gas was $3.87
Prices increased just 0.1% from October
Core inflation which excludes volatile food and gas prices:
Remained 4% year over year
Increased 0.3% from October
💬What They Said: Lisa Sturtevant, chief economist at Bright MLS made an excellent point when asked about prices. She said, “Falling inflation does not mean that prices are falling. In fact, prices for just about everything are still higher than they were before the pandemic. Housing costs, in particular, are weighing on many individuals and families.”
🔎Details: Although overall inflation is going down there were many parts of the inflation report that saw a major rise in prices:
Used car prices are starting to increase after months of decreasing
Shelter costs have increased rising 0.4% from October and 6.5% year over year
Takeaway: Although inflation has fallen fast over the last year, it has remained stubbornly above the Fed's 2% target. This report was positive all around but it could give the Fed reasons to hold back from cutting interest rates at the beginning of next year to see if inflation can go back to the standard 2% range.
As Olu Sonola, head of US regional economics at Fitch said, "The trend is still undoubtedly encouraging, but the fine details here will sow some doubts."
On Tuesday, the Federal Reserve held its monthly Federal Open Market Committee (FOMC) meeting. From the press conference, it sounded like Papa Powell and his pals are loving what they are seeing from the economy so far. Despite inflation not being in their preferred range of 2%
🔎Details: As we all expected, the Fed left interest rates unchanged to end the year. However; Powell in his press conference signaled that there will be no more rate increases and the possibility of rates decreasing next year. The market loved hearing that and raced to close on Wednesday, the Dow hit a new all-time high.
💬In His Words: Jerome Powell said, "Inflation has eased from its highs, and this has come without a significant increase in unemployment. That's very good news. While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters. are not the base case anymore as it was 60, 90 days ago."
Takeaway: It all sounds good but if history is anything to learn from. The Fed has never been good at forecasting its interest rate moves. Do not make a financial decision with the hopes of the Fed bailing you out.
Companies are doing what they do best, destroying the Holiday Spirit for financial benefit.
🔎Details: Many companies are doing major layoffs to close out the year as a way to balance their books and look better to shareholders in 2024. A few big companies that have announced layoffs:
GM laying off 1300 workers
Cruise (GM's autonomous car unit) announced a 24% reduction in its workforce, which is about 900 employees
Etsy announced an 11% reduction, this is after a layoff of about 600 workers earlier in the year.
Hasbro laid off 20% of its workforce, about 1100 workers. Earlier in the year, they laid off 800 workers.
Spotify announced another layoff of 1500 workers. This is it's 3rd round of layoffs.
Takeaway: We look at the end of the year as a time for celebration and joy. Companies see the end of the year as a time to balance the books and make sure they can sell a good story to Wall Street. By having layoffs at the end of the year, companies can trim off that last bit of fat to have a good end-of-year report. However, it comes at a cost to the long-term development of the business. If employee morale is destroyed or they feel they will be next, they will always be ready to jump at the next best option.
I'm sure everyone has noticed the various shows that are popping up on Netflix. Shows from HBO like Insecure or USA Network's Suits that was previously on Peacock. Or movies like Warner Bros (owner of HBO) Super Mario Bros. Well, Netflix has shown that it's the only platform that can retain subscribers and generate cash flow.
🔎Details: With every other streaming platform bleeding money, investors are getting impatient with production companies. According to Axios:
Disney, Comcast, and Paramount have promised investors profitability by 2024 or 2025.
Warner Bros. Discovery said Max was "slightly profitable" during its most recent quarter but not enough to make up for losses elsewhere.
The easiest way for these companies to begin generating cash is to return to Netflix partnerships of old and license their content. According to Axios, Disney is in talks to bring 14 older series, including "This Is Us," "Lost" and "Home Improvement" to Netflix.
🗡Takeaway: These new agreements are a double-edged sword for every streamer that signs on. Although, it provides cash flow for the streamers in the short term. In the long run, it cements Netflix’s position as the default streaming platform in the minds of every potential customer.
😏My Takeaway: As I have said for the last year, it's Netflix and everyone else. Netflix is the one streaming service people do not cancel. They might downgrade their subscription level but they'll never give up Netflix completely. Netflix is King and every other platform is playing for a very distant second place.
Stats of the Week
According to AAA, 115 million people will be traveling either by air or road for this Christmas and New Year holiday season. That's almost a third of the United States population. Prepare yourself for all kinds of craziness.
The percentage of homes in the US that are mortgage-free. This is a record. If you are wondering who owns these homes, it is your grandparents and parents. Baby Boomers have benefitted mightily from the low-interest rate environment we experienced over the last 10+ years.
Almost a third of all homes in the US are owned by those 55 or older. In the past, these folks would be selling their homes but we are living much longer and healthier today. So most older folks still live by themselves.
The number of people suffering from homelessness according to the Department of Housing and Urban Development. It is a 12% increase from 2022 and it is an all-time high in the United States.
Costco's CFO said during their earnings call that they sold over $100 million worth of 1-ounce gold bars. Seems the precious metal is having a time right now—1 ounce of gold costs almost $2100. You could buy it from Costco for $2,069.99.
Looking Ahead
One Word Two Syllables
CHRIST. MASS.
Sports I Love
At Least they Did not lose
Legend in the Making
This young man is going to be a legend. This is not news for football fans around the world. I want to introduce a name that will be known in every household in the future, Jude Bellingham. The things he is doing for Real Madrid are amazing! He has easily become the most important player for the team. And he is only 20 years old. He will be known in line with players like Messi and Ronaldo. He may not score as many goals but he has all the signs of greatness. This is your notice to get on the band wagon.
Shohei Ohtani, the baseball phenom, formerly of the Los Angeles Angels is moving 30 miles to his new team, the Los Angeles Dodgers. His new contract is the largest in sports history. His contract alone is more than the payroll of two teams in 2023.
However, he will only receive $20 million over the 10 years of the contract. The remaining $680 million will be paid after 2034. This will allow the Dodgers to continue building the team.