The main takeaway from this week's data dump is that gasoline prices are renewing inflationary pressures by driving up headline CPI and PPI, as well as consumer spending.
Year-over-year headline CPI and PPI both rose more than expected in August while core prices fell. Likewise, headline retail sales were triple the rate that strips out vehicles and gasoline. Bulls believe recent data is proof the economy and inflation are continuing to move closer to "normal" levels, in turn justifying an end to Fed rate hikes. Bulls are also hopeful that a more rapid slowdown in core prices will put Fed rate cuts on the table in the first half of 2024.
Bears, however, continue to warn that stocks are "priced for perfection," meaning an economy where inflation slows back to normal levels while recession is avoided and earnings keep rising. Bears think that "goldilocks" economy is unlikely to be realized for any extended period of time, if at all, as they remind of the lagged effects of central bank monetary policy, depleted consumer excess savings, the return of student loan payments, deteriorating credit quality, and tighter bank lending. Even if recession is avoided, bears expect these headwinds will work to keep a lid on corporate earnings in the quarters ahead. Bears are also pointing to companies' own warnings about eroding profits, particularly from airlines, as they face higher costs for fuel and labor. UPS is in a similar boat. The big three US automakers are also likely going to see labor costs increase substantially once they finalize a contract with UAW members.
These big union wins could also have an inflationary impact by driving up average US wage gains again and keeping fears of a "wage spiral" alive. A wage spiral is a vicious cycle of workers pressing for higher wages to meet higher living expenses, which leads companies to raise prices, which leads workers to ask for another raise...etc, etc.
Next week, the main event is the Fed's two day policy meeting on Tuesday-Wednesday with Wall Street expecting officials will leave the central bank's benchmark rate on hold between 5.25% to 5.50%.
The policy announcement is on Wednesday and will be accompanied by the Fed's updated economic projections, including the closely watched "dot plot" that shows where central bankers expect interest rates will be in the future.
Investors are highly anxious to see how the previous estimate for a 2024 end rate of 4.6% might change. Economic data next week is pretty light with just Housing Starts and Building Permits on Tuesday; the Philadelphia Fed Index and Existing Home Sales on Thursday; and preliminary reads on the S&P Global Manufacturing and Services PMIs on Friday. Earnings are also light next week with AutoZone on Tuesday; Fed Ex and General Mills on Wednesday; and Darden Restaurants on Thursday.
NASA Taking More Serious Approach Towards UFO's - Nasa is expected to call on companies, citizen scientists, pilots and air traffic managers to track UFO sightings as part of its efforts to gather more robust data on unidentified flying objects. The US space agency on Thursday unveiled the results of a nearly year-long study of unclassified UFO sightings, now more commonly known as unexplained anomalous phenomena (UAP). You can read the full report HERE . Bill Nelson, Nasa’s administrator, said the study marked “the first time Nasa has taken concrete action to seriously look into UAP”. The initiative should help to end decades of suspicion that the US government has been hiding information about UFOs, with Nelson pledging that any findings on UAP would be made public. Nasa’s decision to make UAP research a priority comes as the government grows increasingly concerned by the rising number of sightings of unexplained objects in the air, space and ocean. According to a report for the Office of National Intelligence last year, 247 UAPs were reported since 2021, a huge increase from 263 for 2004-2021. The majority of new sightings have come from US Navy and US Air Force personnel while on duty, the report found. The findings come just days after Nasa hinted that the James Webb space telescope launched at the end of 2021 had found chemical signs that could indicate life on an exoplanet about 120 light years from Earth. Source Financial Times
Ford Ups the Ante in the Tailgate Wars: Ford's new swinging Pro Access tailgate represents the latest innovation in the ever-escalating pickup truck wars. By swinging out instead of down, users can more easily reach tools and other items stored in the bed. Flashback to 2019 models, General Motors introduced the flexible MultiPro tailgate, with six configurations to make everyday tasks easier and more efficient but in its lowest position, GM's fancy tailgate could be damaged from interference with the tow hitch. Ford's solution is a swinging tailgate that has three built-in stops, allowing users to access the bed even when a trailer is still attached to the truck and also works as a conventional tailgate. It's available on the refreshed 2024 F-150, unveiled Tuesday at a preview event ahead of the Detroit auto show. Source Axios
Executives Say Disney, Charter Deal Will Reshape Media Landscape: The agreement on Monday to settle an epic battle between Walt Disney and Charter Communications over distribution rights is ushering the end of the lucrative, decades-old pay-television bundle and creating a template for future deals that includes streaming services, nine current and former senior media executives who have worked on these agreements told Reuters this week. The Disney/Charter pact gave the nation’s second-largest cable company by subscribers the rights to distribute streaming video services that were formed as a hedge against the end of the traditional cable TV business. Disney also agreed to drop eight of its less-viewed networks, signaling the end of bloated cable TV bundles. Analysts say this will save customers money so they do not have to separately pay for the same content on cable and streaming services. A 1992 U.S. law requiring cable TV distributors carry local broadcast signals supercharged the television industry. Broadcasters could negotiate fees that included adding new cable TV channels. But pay TV households dropped from 95.9 million in 2012 to 72 million today, according to Leichtman Research Group. That precipitous decline has set the stage for contentious re-negotiations of these deals. Source Reuters
Dartmouth College Men’s Basketball Team Is Trying to Unionize: Players of Dartmouth College’s Men’s Basketball team have petitioned to unionize in a move that, if successful, could be a first in Division One college athletics. Organizers are petitioning to represent what they say is a group of 15 employees, a number that matches the entire team according to the Dartmouth College roster. A spokesperson for the National Labor Relations Board confirmed the filing. Football players at Northwestern University previously sought to unionize in 2014, but their effort was ultimately dismissed by the NLRB after the university said they were not employees. Under US law, if the majority of a group of employees sign up to unionize, their employer has the choice to either voluntarily recognize and collectively bargain with them, or hold out for a government-run secret ballot election. But US universities have insisted for decades that their athletes are not employees. However, the current NLRB general counsel appointee Jennifer Abruzzo, has said that at least some college athletes are in fact employees with organizing rights. Source Bloomberg
Who is Feeling the Pinch of Soaring Fuel Prices? Diesel, jet and marine fuel prices are soaring, pressuring the construction companies, transportation businesses and farmers that are the biggest users. Behind the rise: production cuts made by the Organization of the Petroleum Exporting Countries and its allies, which have propelled crude prices to 10-month highs and boosted the premiums refiners can charge for making the heavy fuels that power trucks, planes and ships. The prices of heavy fuels, which are more easily made from more-dense Russian and Middle Eastern crudes than U.S. shale oil, have risen even more than those of crude and gasoline. Energy prices charged by suppliers rose about 11% in August, the Labor Department said Thursday. That included jumps in prices for gasoline, up 20%; jet fuel, which rose 24%; and diesel fuel, up 41%. Jet fuel has risen the most, its price soaring more than 50% on the Gulf Coast since early May. Chinese demand has ballooned as Beijing has relaxed pandemic-era travel restrictions. Jet fuel prices might have further to run. Chinese international flight-fuel use is still 40% below its prepandemic level. A tight jet fuel market is buoying diesel and marine fuel prices, said Mukesh Sahdev, an analyst at the consulting firm Rystad Energy. Since all three fuels derive from the same fraction of the oil barrel, making a gallon more of one means a gallon less of another. Source WSJ
More Companies Warn of Eroding Profits Due to Fuel and Wage Hikes: More companies are warning that a surge in the cost of fuel and employee pay hikes will eat into profits this quarter. Companies from aerospace manufacturers to package delivery giant UPS are digesting big new labor deals. Meanwhile, unions from the auto industry to Hollywood are pushing for better compensation. Airlines, whose biggest expenses are jet fuel and labor, are getting hit particularly hard. Delta Air Lines on Thursday cut its adjusted earnings forecast for the third quarter to between $1.85 and $2.05 a share, down from an earlier forecast of $2.20 to $2.50. Delta said it is paying more for fuel than it expected but said maintenance costs were also more than it anticipated. U.S. jet fuel at major airports averaged $3.42 a gallon as of Tuesday, up 38% from two months ago, according to Airlines for America, an industry group. On Wednesday, American Airlines trimmed its earnings forecast, following revisions at Alaska Airlines and Southwest Airlines. Elsewhere, labor unions from Detroit to Hollywood have pushed hard for raises, better benefits and schedules in new contracts. Source CNBC
IRS Halts Processing ERC Tax Break Amid Surge of Questionable Claims: IRS Commissioner Danny Werfel on Thursday ordered the agency to immediately stop processing new claims for a pandemic-era small business tax break to protect filers from a “surge of questionable claims.” The employee retention credit, or ERC, was created to support small businesses during the Covid-19 pandemic. It can be worth thousands of dollars per employee and has sparked a flood of specialist firms falsely promising businesses they qualify for the complicated tax break. “This great program to help small businesses has been overtaken by aggressive promoters,” Werfel told reporters on a press call. “It was not designed to be a gravy train for promoters, flooding the IRS with eligible applications that slow down work on ERC and other important matters for taxpayers.” The processing pause on new ERC claims will be in effect through at least the end of 2023. Normal processing times for existing claims could stretch from the standard goal of 90 days to 180 days or longer. Source CNBC
Billboard Launches New Chart Just For TikTok: Billboard announced a new partnership with popular social media app TikTok on Thursday, creating a new top 50 weekly chart to track the most popular songs on the app. The most popular songs on TikTok will be determined using the number of videos made with the track, their views and the amount of user engagement with those videos, Billboard said. TikTok’s popularity has caused numerous new artists and their music to take off. The song “Supalonley” blew up in 2020 after TikTok users posted dance videos to the song. That catapulted Benee, who sings the song, to perform sold-out arena shows and be nominated for new artist of 2020 at the People’s Choice Awards. The app’s popularity has also brought some older songs back into the mainstream. Kate Bush’s “Running Up That Hill (A Deal With God)” made it to Billboard’s Hot 100 in 2022 some 37 years after the song was released after it went viral on TikTok last year. In addition to tracking songs used on TikTok, Billboard also ranks the most-discussed tracks on X, formerly known as Twitter, on a chart called the Hot Trending Songs chart. Source Forbes
Power Centers Shift as Americans Migrate: Americans' incomes are falling, they're getting older, and they're decamping to states like Florida, Idaho and South Carolina. That's one big takeaway from the U.S. Census Bureau's 2022 American Community Survey (ACS) one-year estimates, released this week. The ACS is one of the best resources available for a regularly published quantified look at myriad facets of American life, down to a remarkably local level. Some key findings include - Nationwide median household income fell -0.8% between 2021-2022, to $74,755, adjusted for inflation; Americans' median age hit 39 years old, up from 38.8 in 2021 and 37.4 in 2012. (It's 40.1 for women, compared with 37.9 for men.); Florida (+2.1%), Idaho (+2%) and South Carolina (+1.8%) saw the highest rates of population growth between 2021-2022, while New York (-0.8%), Louisiana (-0.7%) and Illinois (-0.7%) saw the biggest decreases. (Population is affected by in- and out-migration, but also births and deaths.) The pandemic "changed the geography of where money is made in the United States," Axios Macro's Neil Irwin reports, as many higher-income Americans left cities like New York and San Francisco. Because this release is based on 2022 data, it's capturing what some call the "late pandemic era," when many elements of normality returned but the pandemic still loomed in the background, affecting many aspects of life. Whether — and how much of — 2022's population change data was a pandemic-era blip remains to be seen. Source Axios
It's Always About Perspective.. And Our Willingness to Change
Below is a poem that was written by a high schooler in NY named Chanie Gorkin. She posted it at PoetryNation.com and somehow it found its way into a bar in North London, where a man took a picture of it and posted it to Twitter. From there it went viral!
It's certainly not what I had expected... Make sure after you read it the first time, top to bottom, then read it again, but this time from bottom to top.
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