The Pit of Despair - Market Update Oct. 3-7
Ian landed in Florida on Wednesday and he wanted EVERYONE to know he had arrived. The hurricane was so bad that Waffle House known for never closing, closed 21 stores in the South Florida area, according to the Waffle House Index (yes this is a thing). It caused damage estimated to cost upwards of $40 billion.
Then Ian turned his sight on South Carolina. Packed up his things and smashed through South Carolina.
Keep Florida, Puerto Rico, and South Carolina in your prayers.
Stock Market remembered things were bad in the world and continued its downward march after a one-day brief relief rally. There is no safe place in this market. You know things are really bad when Apple (the most held stock on the planet) is getting a downgrade from analysts. Apple unlike every other stock in the market had been able to resist the downturn for the longest but that is no longer the case (more on this below). It has finally fallen 20% this year.
YTD RETURNS:
We are now in what I believe to be The Investing PIT of DESPAIR! Where everywhere you look, investors only believe things will get worse. Hope has been lost and for good reason (we will talk about those below). However, for those of us who are in for the long haul, this poses a great opportunity for us to use these situations to set ourselves up for success in the future. But first, take care of your defensives, have an emergency fund, and get rid of any bad debt. This will enable you to take more risks. Good luck fellow investors. I am beaming with EXCITEMENT!
Tale of the Tape
Economy
Pain and More Pain
We ain't been in this place in a long time. Since 2008, we have not experienced anything close to looking like a recession. However, it looks like we are stumbling into one now.
As interest rates keep rising, companies are borrowing less and taking on fewer risks.
This typically means less hiring (Facebook for the first time in its history announced a hiring freeze).
If people are not getting hired, it means less spending in the economy
Less spending in the economy means companies don't make as much money
Leading to less investment and more cost-cutting for companies
Which typically means layoffs
This means even less spending on services and goods and the cycle goes on and on ending in a recession
However, the labor market has remained strong. The weekly jobless claims, which tells us how many people are filing for unemployment, fell to a five-month low with 193,000 people filing for unemployment last week. This is a good thing because it means people can basically get any job they want for the most part. It also shows that the current labor market is so tight that the only way companies can get employees is by breaking out the checkbook and poaching employees of competitors. This leads to wage growth, great for employees not great for the Fed. They want to see inflation calm down and if wages are growing it puts pressure on inflation. So the Fed's response is as follows:
More interest rate hikes
This intensifies the cycle above again and increases the risk of plunging the US into a full frontal recession.
My Takeaway: It seems almost inevitable that we will have a recession at this point. But if the labor market remains strong then that might be the glue that holds the whole economy together. But more companies are announcing layoffs and hiring freezes so the unfortunate likelihood is we go into a recession. WHICH SUCKS!!
More Bad Signs
Apple reduced production for the new iPhone 14 because demand was much lower than expected. This does not surprise me because the iPhone 14 is no different from the 13. Like any tech-head would tell you, this was all part of Apple's plan to create some distinction between the 14 Pro and the 14.
However, the stock market did not see it that way at all and the stock fell more than 4% on the news. It even got downgraded by Bank of America's analysts. Apple is not a stock that gets this kind of treatment regularly or at all. The last time this happened was in 2016 when everyone thought no one would buy more iPhones. The story was the exact same, iPhone demand has peaked and there is no more room for growth. Warren Buffett used that chance to make his greatest investment of all time, his $36 billion investment in 2018 has turned into over $160 Billion. I am not saying we will see another 4X on Apple Stock. But I am saying when life gives you an Apple, you eat!
Remember the Stock Market is a place where money is transferred from the impatient to the patient.
Nike announced an inventory glut and price cuts coming in order to get rid of the inventory. Great for our holiday shopping. Horrible for their bottom line, lead to a sharp sell-off of the stock on Friday, down 12% in one day. This is an excellent sign of disinflation. However, it seems the effects of inflations have settled in.
The latest report from the Commerce Department showed the average savings rate in the US right now is 3.5%, a record low. Also, US Credit Card debt hit an all-time high of $930 Billion. This is more than it was during the peak of the financial crisis. More households are using credit cards to balance their spending. With interest rates going up, the default rate on credit cards has been steadily increasing as inflation got crazy.
My Takeaway: I'll just hand it off to Kyla for this one:
The economy is starting to slow - but in a weird way. In a way that is worrying, not only for global stability, but domestically too. The Fed looks at lagging indicators, but the present situation is showing quite a bit of pressure. Lots of inventory + lower demand = huge price cuts coming soon. All of this highlights how difficult a job the Fed really has - they are doing what they can, but man.
Stats of the Week
Amount lost by American households as the Stock Market has had its worst start to a year in history
Yeah its that bad
In early 2022, with an interest rate at 3% if you could afford $2500/month on a mortgage that would get you a $750,000 house
Now that same amount will only get you $450,000
That is literally twice the house
The number of borrowers that the Education Department is removing from the student debt relief program that Biden announced earlier this year
These loans are privately held and managed but were guaranteed by the government
The Biden Administration is trying to have as few legal challenges as possible to get this program through the door
That might not happen though because six Republican states sued to overturn the Student Loan forgiveness
My take is if the Biden Administration cannot forgive those loans owned by Private companies then the Biden Administration should remove the loan guarantee.
Looking Ahead
Labor Market gonna try and pull a Marshawn Lynch Beast Mode run this week.
The likelihood of this actually helping is very limited. Actually, it is rather impossible. Even if employment data is good this week, it will just reiterate to the Fed that they can raise interest rates.
So right now, good news is bad news. At least for investors.
It is expected that the labor market will add 250,000 jobs in September, down from 315,000 jobs in August. However, the unemployment rate is expected to remain at 3.7%.
We have also ended the third quarter of the year, which means it’s time for another Earnings season. I expect a bunch of companies to report meager gains which will put more pressure on the Stock Market. But hoping I am completely wrong.
Sports I Care About Update
Well Man U returned to the pitch on Sunday and played against their arch-rivals Man City. Who just happens to be literally the best team in the league and possibly the world. With an unstoppable man as their striker, Haaland. I was hoping to take a moral victory from the match. Hoping we would not get absolutely destroyed. But life hardly ever gives us what we want. 😭
Also on Sunday, Ravens faced off against the Bills. Lamar did Lamar things and the Ravens pulled it off. Ravens are gonna have to back up the Brinks truck and pay this man.
Thank you for Rocking With ME
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Remember GENEROSITY > greed
God bless Each and Everyone of y’all
✌🏾
Extras
YouTube remains dominant as the top brand for Gen-Z even with TikTok nipping at its heel, according to a new survey from Morning Consult. Google, Netflix, Amazon, and M&Ms rounded out the top 5 Brands.
The most surprising part of the survey was seeing Walmart at #6 and Apple at #20. Gen-Z is so weird to me.
NASA was successful in smashing a spacecraft into an asteroid 7 million miles from Earth. This was called the DART, Double Asteroid Redirection Test. It was designed to see if we could defend earth in a situation where an asteroid comes towards earth. Over the next few weeks we will see how far we were able to divert the path of the asteroid.
Car manufacturers are delivering an ultimatum with their dealer networks. Invest in the future of EVs or DIE (never receive new cars again). Ford told its network of dealers that they have until October 31st to decide if they will spend about $1.2 million to upgrade their dealership to support EVs. By adding things like charging stations. GM and Hyundai have sent similar demands to their network of dealers. This is a move for manufacturers to be more like Tesla and do things differently.
Post Pandemic, dealers and car manufacturers have been butting heads more often. During the pandemic, dealers raised prices on vehicles to astronomical levels as inventory was low. Manufacturers did not like the look on their brand and demanded prices be brought back around the MSRP. Dealers laughed them out the door because MSRP stands for Manufacturer's SUGGESTED Retail Price. Meaning manufacturers have no power in how much their vehicles are sold for. Plus with Tesla disrupting the typical car buying model and going direct to consumers. Manufacturers are trying to do the same thing and remove the middle man.