October 31, 2023

US Cuts Quarterly Borrowing Target to $776 Billion

📰 News Organizations

  • US Cuts Quarterly Borrowing Target to $776 Billion, Still Record. This is below the $1.01 trillion in privately held marketable debt the department borrowed in the July-through-September period. Officials attributed the lower borrowing needs to higher receipts.

  • Biden Signs Sweeping Executive Order Regulating AI. The executive order mandates companies like Microsoft, Amazon, and Google to conduct safety tests on powerful AI models and submit results to the government before public release.

  • McDonald’s Stock Climbs After Earnings. The company’s U.S. same-store sales increased 8.1%, fueled by strategic price increases. The company’s global same-store sales grew 8.8% in the quarter, beating StreetAccount estimates of 7.8%.

  • GM and UAW Reach Tentative Agreement To End Labor Strike. The four-and-a-half-year tentative agreements must still be ratified by members at each of the automakers. GM is the final Detroit automaker to reach a deal with the union.

  • Canadian Auto Workers Reach Deal With Stellantis After Brief Strike. The agreement includes nearly 20% base hourly wage increases for production workers and 25% increases for skilled-trade workers over the lifetime of the three-year agreement.

  • Stocks Climb as Oil Wipes Out War-Fueled Surge. Stocks rose, Treasuries fell and oil sank 3.8% as Israel’s ground incursion into Gaza appeared less extensive than investors had feared. Meanwhile, Equities are still on track for their third monthly slump.

🐦 Twitter

  • "If the SPX closes below 4288 on Tuesday, it will be its third consecutive monthly decline. It hasn’t been down four straight months since 2011 and hasn’t been down four straight months ending in November since 1946:" BTIG's Jonathan Krinsky. Source.

  • Of 18 regional banks w/assets by the way $50B-$250B, 15 reported jumps in nonperforming loans YoY. The average rise was >80% v Q3 2022 & up 8% when compared to the second quarter of this year. Charge-offs also rose at 15/18 banks YoY. Source.

  • There are still a lot of institutional homebuyers on the sideline. At the height of the Pandemic Housing Boom, they were 1 in every 42 home purchases. Now, institutional buyers (those owning at least 1,000 homes) make up just 1 in 250 purchases. Source.

  • Real disposable personal income growth was down in September for the fourth consecutive month. Not a significant decline like late 2021 into early 2022, but worth watching given the recent surge in spending. Source.

  • The US and EUR are starting to experience meaningfully divergent inflation paths, which adds further support to EUR duration relative to the US. Today's prints continue a trend of inflation coming in below expectations. Source.

  • Microsoft Cloud now has run rate revenues of $127 billion. To put that figure into context, note that Microsoft - the entire company - generated $126 billion in revenues in FY19. Source.

A relative value bet in the bond market is also desirable since it helps contain the risks of exogenous shocks (oil, geopolitical, growth) from influencing the outcome.

Bob Elliott

📓 Online Publications

  • Gene Therapy Could Be On the Cusp of a Major Breakthrough. The FDA will hold an advisory committee meeting for the first CRISPR/Cas9 gene-edited product candidate this week. If approved, CRISPR and Vertex could generate blockbuster sales figures.

  • Uber Eats Will Begin Accepting SNAP Benefits in 2024. Uber Eats plans to start accepting Supplemental Nutrition Assistance Program (SNAP) benefits in 2024. The benefits can be used for grocery delivery.

  • Goldman: 2024 Inflation Outlook. The Goldman Sachs projection is 2.4% by December 2024. Two of the key reasons that YoY inflation will likely continue to decline are wage growth has slowed, and shelter inflation is expected to decline sharply in 2024.

  • “Real estate Armageddon.” Owners, investors and developers across commercial real estate markets are feeling the effects of higher capital costs, tightened lending and the looming $1.5 trillion U.S. debt that is to mature by the end of 2025.

  • Moody’s Analytics: Home Prices Will Fall by 10% ‘Peak-to-trough’. Economist Mark Zandi expects a nearly 10% decline in national house prices from the 2022 peak to trough, taking a couple of years due to sellers' reluctance.

🎧 Podcasts

  • ‘Magnificent Seven’ Drive US Equity Domination to New Highs. One of the big drivers of the Magnificent Seven’s strength this year has been excitement about artificial intelligence, which all seven have a link to in various degrees. Source(3:06)

  • The Return of the Rice Crisis. The biggest catalyst of this is India, which is the world’s largest exporter of rice, which has put a ban on exports of certain types of rice and tariffs on other types. Price increases also reflect worries about supplies. Source(5:47)

  • Automakers are Abandoning EVs. GM, Honda, Ford, and even Hertz have abandoned their large-scale EV production plans, due to excessive maintenance costs and are now claiming that they are overinflated with EVs. Source(2:10)

  • Population Shift. A recent report shows that over 800k and 500k moved out of California and New York in 2022, respectively. Meanwhile, Texas and Florida had the largest influx of people moving in. Source(17:32)