Markets are closed today
THANKFULLY!
The sell-off over the last two weeks has been worse than my body post-eating Peppered Asun (Spicy Goat Meat). For my non-Africans, think about what Taco Bell does to you.
The sell-off has mainly been focused on tech stocks. Everything from world-beating companies like Microsoft, Apple, Google to small companies like Snap and Spotify are all getting crushed. As the Fed continues to discuss a faster taper and more rate hikes in 2022.
The pain is being felt more acutely in highly unprofitable tech stocks. Some of these companies like Peleton, Zoom, Teledoc, Zillow are down 50% or more from their all-time highs, and it does not seem to be stopping any time soon. All the stocks that were exploding for the past two years are now finding their way back to reality. Here are the returns for last week:
Tale of the Tape
INFLATION STILL GOING HOT
Inflation much like all the fireworks on New Year's Eve, began 2022 with a nice BANG. Consumer prices came in 7% higher in December of 2021 than in December of 2020. This is the highest level of inflation we have seen in 40 years.
The things causing the largest rise in prices are still the same things that have been driving inflation up:
Shelter: rent prices are now matching home prices. The cost for homes or renting jumped 4.1% last year the fastest annual growth since February of 2007
Used cars continue to act as an appreciating asset. They are up over 37% in the last year
Gas and Energy continue to stay stubbornly high as OPEC and OPEC+ have decided they want to make their money. Gas prices are up over 50% in the last year
The pseudo good news is inflation is slowing down. Month over Month increases is declining. September inflation was 5.2%, October 6.2%, November 6.8%, but in December it increased by just 0.2% to 7%.
Unfortunately, individual wages have only seen a rise of about 4% which is the highest in a long time but is not keeping up with inflation. Real wages (which are wages adjusted for inflation) are -2.4%.
To put the icing on this ugly-looking and tasting cake. The bottlenecks that are driving inflation might get worse. Unlike the US, China still has not gone through its Omicron wave. Unlike the US, China has a zero Covid policy meaning they shut cities down if there is even one case of Covid. We depend on China for a lot of the manufacturing of parts, if China has to shut down again expect supply chains to return to 2020 levels of disruptions.
Q4 2021 Earnings Update
Earnings Season returned with a few Big Banks reporting earnings on Friday last week, including Wells Fargo, JP Morgan, and Citigroup. Hoping these Bank earnings were not a sign of things to come for other companies. But I already know it is.
2021 was a perfect year for banks. We had a record number of mergers and acquisitions, which means fees for banks to carry out the transaction. A record number of IPOs, more fees for banks. Housing prices were hitting all-time highs, more money for banks. Basically, Banks were rolling in that DOUGH all of last year.
However, seems all of that is starting to slow down. Along with the overall market:
JP Morgan announced a slowed Q4 growth in revenue and expects the decline to continue as we go deeper into 2022 and potentially 2023. JPMorgan’s finance chief Jeremy Barnum commented
“We are in for a couple of years of sub-target returns”
Citigroup announced pretty much the same thing as net income fell off a cliff in Q4. It was down 26%.
Wells Fargo was the only bank to report a substantial revenue beat. Bringing in $20.85 billion in revenue.
Remember, unlike the other two banks, Wells Fargo is much more consumer-facing.
Seems people are back to their old ways of spending money. Consumer outstanding loan balance increased in the quarter.
Will be interesting to see what Bank of America reports this week.
My favorite Economic Indicator: Consumer Sentiment Index
Was released on Friday and once again, everyone is in really bad spirits.
This time it is all because of Omarion…. I mean Omicron.
Consumer Sentiment for the beginning of January dropped to 68.8%. This is the second-lowest we have seen in more than a decade. We have to go back to the Financial Crisis of ‘08 for consumer sentiment to be this low. Inflation is the other reason why everyone feels horrible about the economy right now. Also, looks like everyone is finally running out of money so the effects of inflation is really hitting home. The savings rate is now back to pre-pandemic levels of about 6% versus the 30% we had during the pandemic.
Looking Ahead
Monday is a holiday so take some time to recover from the holiday season. I know I will be doing a whole lot of content creating cause I am WAY BEHIND!
But after MLK day, earnings season goes into full gear.
More Banks will be reporting earnings next week. Giving us a good picture of where we are in the economy. Banks can be a great leading indicator of what people are doing with their money. Which determines what happens in the economy.
Netflix also reports earnings this week. On Friday, they announced increases in subscription prices.
The basic plan is going up by $1 to $9.99/month.
The standard plan (the company’s most popular) is being raised by $1.50 to $15.49.
The premium plan is increasing by $2 to $19.99.
They say the reasoning for the price increase is to continue delivering the high-level content we love. More like they can’t the price increases are because they are hitting a wall in subscriber growth and need to make their profit in another way. The question is How long before consumers begin to not just complain but also cancel their subscriptions as well?
Railroad Companies are reporting this week as well. They can give us an idea of how the supply chain is doing. As of 2019, about 30% of all goods were transported by rail. That number is likely much higher now. So
The REST
Totally Unnecessary Man U Update
We HAD THIS GAME IN THE BAG!
Up 2-0 with 20 mins left! What does Man U do?
What we always DO!
POOP THE BED!
At least, I can distract myself from the atrociousness of Man U with Nigeria winning in the African Cup of Nations
Thank you for reading
I hope you all have A WONDERFUL WEEK. I will see you back here on Wednesday for another post. In the meantime, Go subscribe to Rambling Mind Podcast for mid-week stock market updates. You can also catch me on TikTok, Instagram, and YouTube every day.
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Remember GENEROSITY > greed
God bless Each and Everyone of y’all
✌🏾