A subtle problem with money is that assets are easy to measure but liabilities can be hidden.
-Morgan Housel
Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Markets Year To Date
We begin a new and the story remains the same. The Market keeps going higher and higher. I love it so much
This newsletter is 2,032 words a 10 min read
Tale of the Tape
Economy
Papa Powell and his Fed buddies decided to raise interest rates last Wednesday by 0.25%. Great for my savings accounts, not so much for the economy at large especially if you are in the market to buy a home.
🔢By The Numbers: This brings interest rates to 5.5%
The highest interest rate in 22 years.
This is the 11th interest rate increase since March 2022. Which is very high for a one-year period.
💬In His Words: Jerome Powell said in the press conference on Wednesday that the most important thing to the Federal Reserve remains to bring inflation down to the 2% target.
“The worst outcome for everyone, of course, would be not to deal with inflation now [and] not get it done. Whatever the short term social costs of getting inflation under control, the longer term social costs of failing to do so are greater and the historical record is very, very clear on that.”
Powell also said there is a possibility for more hikes this year:
“We’re going to be going meeting by meeting and as we go into each meeting, we’re going to be asking ourselves the same questions. So we haven’t made any decisions about any future meetings, including the pace at which we consider hiking, but we’re going to be assessing the need for further tightening that may be appropriate … to return inflation to 2% over time.”
Takeaway: It is 2% inflation or bust for the Fed. Papa Powell and the Fed are willing to drive unemployment higher to ensure he reaches his goal. He believes the labor market is still too hot and needs to be cooled down. An excellent point as to why we haven't seen a recession from the continued rate increases is from Axios' Felix chief financial correspondent:
Because we spernt the 15 years before the rate hikes steadily deleveraging and ensuring that debtors couldn't easily fall victim to a credit crunch
🤦🏾♂️My Takeaway: Jerome take your ball and go home. YOU WON! Don't be a toxic winner who needs to shove it in everyone's face. There is no need to keep raising rates to drive down inflation. You have won back faith in the Fed, don't go too far and cause the economy to enter a recession.
From my conversations with family and friends and social, I do not see this hot labor market Jerome keeps talking about. What I have been seeing is a lot of people getting laid off and people searching hard for jobs. Raising rates more and more does nothing to help the situation.
Then there is housing. The more the Fed raises, the more expensive it becomes for people to buy a house. There is already a limited number of houses on the market because people are too scared to let go of their low mortgages. You keep raising rates and no one will be able to afford anything.
So please Jerome
PAY ATTENTION JEROME! The US economy is firing on all cylinders. According to the US Bureau of Economic Analysis aka the Commerce Department, the US GDP grew at 2.4% in Q2. Much faster than the estimated 1.5% growth rate.
Soft Landing?: Seems the scenario we all wanted might actually play out. Although the Fed raised interest rates and is continuing to raise rates to fight inflation. The economy has not gone into a recession and inflation has declined from a high of 9% to a three-year low of 3%. Parts of the economy that were held down during the pandemic have helped keep the economy growing.
💬In Their Words: Steve Rick, chief economist at TruStage said, "It’s great to have another quarter of positive GDP growth in tandem with a consistently slowing inflation rate. After yesterday’s resumption of interest rate hikes, it’s encouraging to see the aggressive hike cycle working as inflation continues to decline. Consumers are getting a reprieve from the rising costs of core goods, and the U.S. economy is off to a stronger start to the first half of the year.”
Takeaway: See above. Jerome GO HOME!
My Takeaway: Overall the economy is doing great but this is an average. Averages tend to be misleading to paint a detailed picture. There are signs of possible recessionary forces. Consumer spending has been the Atlas, holding up the entire economy. A few questions I am pondering like an old man with a pipe on my porch:
When loans kick back in what will happen to those dollars no longer being spent?
What happens when consumers run out of excess savings over the last two years?
What happens as rates continue pushing higher and the cost of carrying loans becomes much more expensive?
Is GDP the best measurement of the common welfare of a nation?
Should growth be the primary target for the economy and its citizens?
Is there a better measurement to see how well a nation is doing?
The Summer Blockbuster truly busted the Box Office. Barbie and Oppenheimer were exactly what the theaters needed. This was the biggest movie release weekend since Spiderman: No Way Home back in early 2022.
By The Numbers: Barbie made $155 million
Oppenheimer made $80 million. It was expected to make $50 million. It was also remarkable because this is an R-Rated movie. R-Rated movies do not typically make this much money.
Takeaway: Good marketing always wins. For weeks, it felt like everything I watched listened to, or read had something about these two movies. The number of memes about these movies was insane. The marketing teams for these movies did an unbelievable job of promoting them in every single way that took hold of all our imaginations. But also it proved that people may genuinely be tired of sequels.
The seventh Mission Impossible was released a couple of weeks ago and it completely flopped in theaters
The fifth Indiana Jones movie was released a week before that one and absolutely no one remembers it even came out.
This has prompted Disney to pump the break on releasing any more Star Wars or Marvel movies.
Lesson: Too much of a good thing quickly becomes an annoyance and a burden. Enjoy things in small doses and you will forever live in luxury. As someone once said, "If you're always on vacation, you are never on vacation."
Earnings
Regardless of all the AI Hype, Microsoft's core business is doing really well. Revenues grew 8% year-over-year to $56 Billion. However, for the first time since 2017 revenue growth has come in under 10% for three consecutive quarters. Not exactly the sign that investors want to see. Also, Microsoft is estimating lower revenue moving into the future.
However, Microsoft made an announcement of a $30 increase in subscriptions to all Microsoft Office products with the Copilot built in. This will be a massive boost to revenues moving into the future. But for now, Microsoft is beginning to hit the cap on growth.
Stock Result: the stock fell 4% after earnings.
Earlier this year, Google declared a "code-red" for Google Search when Microsoft announced BingAI. It seems their all-hands-on-deck reaction paid dividends. Google Search revenue increased to $42 billion after declining over the last year. YouTube ad revenue also increased to $7.7 billion after slightly decreasing over the last year despite increased competition from TikTok (side note: seems YouTube is still king cause most TikTokers are trying to get on YouTube). Google Cloud which will power Google's AI ambition turned profitable in the first quarter and is beginning to bring in money bags. After a profit of $395 million in Q1, profits almost doubled to $590 million in Q2.
Stock Result: the stock rose 7% shortly after earnings. Google stock is up 47% year to date.
The Year of Efficiency worked wonders for Facebook. The company that everyone loves to hate but can't live without, made $32 billion in revenue an 11% increase from last year. The company finally found workarounds to Apple's iOS privacy changes which have helped grow ad revenue
However, the bigger news from the Q2 Earnings results was with profits. Over the last year, Facebook has cut over 21,000 employees in a major cost-saving measure. This helped boost the profits of the company to $8 billion. The highest level since 2021.
Stock Result: The stock surged 10% after earnings were released. Over the last year, the Facebook stock is up nearly 159% as it climbed back from the jaws of death.
Stats of the Week
According to a Bankrate survey, 74% of US adults have financial regrets. The other 26% of people were probably lying. You can guess the top three regrets. It's the same ones we all have:
21% regretted not saving enough for retirement
15% regretted taking on too much credit card debt
14% regretted not saving for emergency expenses.
The good news is we all have the chance today to go from regret to celebration. But it will require we get to work today.
GM, Stallantis (Chrysler), Hyundai, Kia, Honda, BMW, and Mercedes-Benz are combining like Power Rangers Zord to fight against the Lord Zedd aka Tesla.
Each company has agreed to invest $1 billion in a new venture to build a new network of electric chargers across America. In the last few months, we have seen more and more companies acquiesce to the pressure of Tesla. Switching to Tesla's charging standards that is very available across America.
Looking Ahead
Jobs Update
This week is all about the Labor Market. Are companies hiring or firing? Are people quitting jobs or holding onto their jobs?
On Tuesday: we get the Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics. This tracks the number of openings, hires, quits, and separations in the economy. Last month job openings fell from a high of 9.8 million to 9.5 million. Companies are tightening their belts.
Wednesday: we get the ADP National Employment Report that tracks the private sector payrolls. It is expected to show a gain of 210,000 jobs in July.
Thursday: we get the most important jobs report, the nonfarm payrolls. It is expected to show the economy added 184,000 jobs much less than the 209,000 in June.
What to Watch For: Although unemployment is at a 50-year low of 3.6%. As the Feds continue raising rates and companies look for ways to remain profitable, are cracks beginning to show in the economy?
Big Tech Round-Up
Apple and Amazon report their earnings for Q2 on Thursday. They are the final two big tech companies left. It is expected for both to report stellar results for the quarter.
Apple*: expect questions about the new VR headset that was launched in June that most of us already forgot exists. There might be questions about the rumored AI platform from the company. But generally, there should be nothing too surprising from this earnings call.
Amazon*: expect questions about AWS continued slowed growth and how Microsoft and Google are challenging Amazon's dominance in the cloud space. Amazon recently launched Bedrock, Amazon's generative AI foundational model. It is for developers to build applications on. It also launches similar tools to Microsoft's Co-Pilot.
Other Earnings
Sports I Love
T-11 Days
My favorite sport in the WORLD returns to screens in 11 Days. The pre-season matches have been fun but now we get REAL GAMES!! It is gonna be a great season, the only thing I care about is WE MUST STOP MAN CITY!!
I am not sure exactly how to feel about this season. We brought on Andre Onana and Mason Mount which look like good additions. But then we added Jonny Evans and have these disgusting away jerseys. So I am not sure what to feel about the season.
*I am a tiny shareholder in this company.