- When the truth is found to be lies And all the joy within you dies...
- "Somebody To Love" Jefferson Airplane
Meaning?
Grace is saying that life will disappoint and the best thing that you can do for yourself is to find love. The stock market will not give you love unless your only pursuit is riches. Of course, you must be a successful investor or in management who lives for money. This goes without saying that you do not believe or fear the Lord's words, "What good is it if you possess the world and lose your soul?"
Back to the Market
When the inflation report came out last week at 3.1% and higher than anticipated, the market fell. It disappointed on many levels. The most serious one looks to the next Federal Reserve meeting. Prior to the inflation report, the market put its faith in the belief that the Fed might begin the first drop in interest rates. The Fed cycle would peak and easy money would be forthcoming. Now, the outlook for a rate drop is uncertain. For the Bulls, all the joy is dying. Of course, they will circle the wagons. They will push forth the meme of the "plot points" laid out by the Fed chairman, Jerome Powell. He stated cuts should come this year unless new data changes the plan. We, at Evolution put no faith in the corrupt cabal at the Federal Reserve. Their existence is a disappointment. We use our own data and we always tell you, our Dear Readers, what we see.
Score card
We remind you that inflation moves from one segment to another with its price destruction. This is why we called our economy to be under a "stealth recession." What we now see is the completion of the inflation wave throughout all segments of the economy. It is reaching insurance, home and auto, medical costs in prescriptions, insurance and hospital costs. It is showing up in car repair costs, tires, batteries and related items. Now, the question is will the whole cycle repeat itself or the lie of deflation take center stage?
Remember we predicted workers in unions would strike in 2023. We were correct. One result of the inflation wave is worker unrest due to wages. With that said, we read that Boeing workers will be seeking a 40% raise. That company is run by the worst people. They have taken a great firm to a crisis point. Management's want of riches has the company seeking the cheapest bid for outsourced parts. Then, we see plug doors flying off the plane's body. In the last contract talks with the Seattle union, the company lied to the workers. They said new work is coming. They moved it South to a non-union state. I could go on and on like the Max Dreamliner? We also feel that government unions will seek higher wages in contract talks.
Banking
We told you before it happened that the Fed's quick and continuous hike cycle would cause banks to have unrealized losses on their books. Now, we see regional banks in the crosshairs of commercial real estate. New York Community Bank is just the start.
COVID-19 killed attendence at the office. High rates caused tenets to seek cheaper locations. The construction loans on skyscrapers is due. Today's higher rates will make projects unprofitable. The combination spells trouble. This problem will take center stage as loans go bust. This will be another disappointment. When they do, regional banks will feel the pain. The Fed will seek to let the "big boys" gobble them up. At the moment banks are closing branch banks to cut costs. This could cushion their coming losses in commercial real estate. Nevertheless, banking failures will happen in 2024.
Global Economy
We read that Japan and the UK are in recession. China is under their own real estate crisis with high unemployment among young workers. The two wars are not helping supply issues and the fears of trouble spreading is always on everyone's mind. The news motto is, "When it bleeds, it leads." They add to disappointment.
Layoffs and More
We mention in our Odds and Ends pieces of recent layoffs. We feel this latest news adds to the picture. Blackrock is shedding 3% of its labor force. EBay is dropping 1,000. Unit Software is showing the door to 1,800. UPS is laying off 12,000. Flexport announced 2,600 is no longer needed. Pay Pal is dropping 9% or 2,500. Estee Lauder's fragrance is no longer misting 3,100 employees. Docu Sign is laying off 6% of staff and Zoom is shrinking 2% or 150 workers. One more. Paramount Global is giving pink slips to 800 even though the Super Bowl gave it record ratings. The list grows each week. This is not a sign of a strong economy. It adds to disappointment.
Bankruptcy is happening big time in fast food retail. Burger King and Popeye's, two segements of QSR have entered into Chapter 11. A small chain, Izzy's claims rising costs, labor costs and labor shortages for its bankruptcy. This list of disappointment grows each month.
Earnings?
Firms beat by 75%, however, pre-annoucements laid the framework and one can never really trust all these reports. Of the losers, Hasbro reports a 20% drop in revenues with a poor outlook. Bayer is slashing its dividend by 95% to pay down debt. We see more of this with higher interest rates.
Last Word
The complete data on inflation from January 2021 to January 2024 is this:
Overall = 17.9% up. Energy = 32.3% up. Electricity = 27.8% up. Food = 20.8% up. Shelter = 19.4% up.
The stock market does not reflect the pain of inflation to the citizens of the nation. Wage increases cannot keep up with the overall effects of inflation. The Federal Reserve by printing easy money is the root cause for inflation. This is why we say, "End the Fed!" Peace.
