September 24, 2023

Government Shutdown and UAW Strike Threaten Soft Landing

📰 News Organizations

  • Government Shutdown and Strike Threaten Soft Landing. Three different events are converging that could knock the US economy off its glide path: a historic autoworkers strike, an expected government shutdown and the resumption of student loan repayments.

  • UAW Targets 38 Facilities at GM and Stellantis for Expanded Strikes, Skips Ford. The strikes at the GM and Stellantis parts suppliers will add roughly 5,600 autoworkers, including roughly 3,500 employees at GM, to the UAW’s ongoing strikes.

  • Microsoft’s Activision Deal Clears Main Hurdle. The U.K. Competition and Markets Authority said Friday that a new deal submitted by Microsoft should lessen any harm to competition in cloud gaming and had resolved most of its antitrust concerns.

  • Intel Hit by $400 Million Fine as Clash With EU Rumbles On. The European Commission on Friday said it reimposed the smaller fine for a previously established abuse of dominant position in the market for computer chips called x86 central processing units.

  • Apple’s iPhone 15 Launches Successfully in China. As of Beijing time on Friday, iPhone 15 sales via JD’s Dada one-hour delivery app surged by 253% versus that of the iPhone 14 last year. Outlook for Apple in China predicts only a 4% year-on-year decline in Q4.

  • HSBC-Backed Startup to Use AI To Help Banks Fight Financial Crime. Silent Eight wants to be “IPO ready” by the end of 2025 with a view to listing on Nasdaq in the U.S. Silent Eight uses AI to help financial institutions fight money laundering and other financial crimes.

  • Amazon to Run Ads in Prime Video Shows and Movies. Amazon has announced that it will begin running ads on its Prime Video streaming service, joining a growing list of streaming services that are turning to advertising to offset mounting losses.

🐦 Twitter

  • Investors are selling equities at the fastest pace since December, with global equity funds reporting outflows of $16.9 billion in the week through Sept 20. Maybe we're now at a place where higher rates are going to be bad for risk assets. Source.

  • Global monetary stalemate: While both the Fed and European Central Bank tightened in a big way, the Bank of Japan and People's Bank of China remain more dovish. The euro and USD continue to cancel each other out, even as they both gain on the RMB and Yen. Source.

  • The US is trapped in a vicious circle of debt for which there is no way out other than a currency destroying return to more artificial, QE “stimulus” and significant inflationary waves. Yields, twin deficits, inflation, and yes, GDP too, but debt-driven GDP growth is not growth, but just debt. Source.

  • Rising interest rates and the global bear market which must follow could cause the dollar to crash suddenly. Foreign ownership both recorded onshore and in offshore euros is simply massive and will be liquidated. US interests have very little foreign currency in exchange. Source.

  • The 10-Year Treasury Yield moved up to 4.49% today, highest since October 2007. The Real 10-Year Yield (adjusted for expected inflation) of 2.11% is now at the highest level since March 2009. Source.

In terms of global asset allocation, the only rule to remember is that relative performance follows relative earnings, and the US continues to lead on that front. Relative earnings trump relative valuation.

Jurrien Timmer

📓 Online Publications

  • ExxonMobil Plans to Invest in an Array of Lower-Carbon Businesses. The energy giant is taking a diversified approach to building out lower-carbon businesses. Its primary focus is developing large-scale carbon capture and storage, biofuels, and hydrogen projects.

  • High Interest Rates Usher In New Normal For Young People. The pain will continue for young people. Their investment decisions now have to account for 5% interest rates. Their car and mortgage payments are going to be higher than they anticipated.

  • The Median Home Price in San Francisco is Nearly $1.4 Million. If you put 20% down that’s $280,000. With a 7.3% fixed rate mortgage over 30 years, that’s a monthly payment of nearly $7,700. And that’s before property taxes, insurance, HOA fees, maintenance and such.

  • Dim Prospects for Rival Automakers Amid Detroit 3 Issues. Other automakers are unlikely to benefit from buyers defecting from the Detroit 3 brands in September. The vehicles currently impacted by shutdowns have high brand loyalty or plenty of inventory.

  • Home Prices Continue to Rise Despite Sales Slowdown. Low housing supply continues to push up home prices, and eager buyers are showing willingness to pay more. The median existing-home price for all housing types in August reached $407,100 nationwide.

🎧 Podcasts

  • Russia Instituted Another Energy Export Ban. Moscow is only sending diesel and gas out in rare exceptions like to its military bases overseas. Crude prices are getting close to $100 a barrel and the ban will squeeze supply even more. Source(3:21)

  • IPOs Face Early Challenges in Market Debut. Instacart, Klaviyo, and Arm's IPOs exhibited a pattern with limited supply, allocation dispersion, and no lockup periods. This led to initial gains followed by quick declines, causing all three IPOs to fall below their issue prices. Source(25:57)

  • Rate Cut Delay Spurs Market Repercussions. The delay in expected Fed rate cuts is causing market reverberations. While oil and commodity prices are rising, inflation impact may be limited, but could affect unprofitable companies and risk asset repricing. Source(1:15:11)

  • Global Real Estate Bubble Signals Correction. Global real estate is in a bubble with unsustainable price-to-income ratios in major cities, driven by a shift to seven times mortgages. This has led to bidding wars and a likely market correction. Source(1:05:30)

  • OpenAI Has Unveiled DALL-E 3. With its ChatGPT controller, the upgrade provides top quality images in response to natural-language prompts—and launches with ethical controls in place. DALL-E 3 accurately depicts detailed textual descriptions. Source(19:00)

  • Shifting 60-40 Portfolio Dynamics. Many investors hold portfolios with 60-40 allocation, which typically performs well in disinflationary strong growth scenarios. However, the current landscape with rising inflation and weak growth in various regions contradicts this approach. Source(20:14)