Competition, Jobs and Oil

By Jeff Kelly on September 2, 2022

It’s quietest in the early morning. I can think and reflect. I like that time the best. Fred, the rescue pug sits with me. Sometimes he jumps onto my lap. I like when he does that but as he’s gotten out of puppyhood, he does it less. Soon he’ll will be off to school, teenage years, and all that. He’s become a personality all his own. It’s amazing what regular meals, some security, a place to sleep and bit of love will do for one’s disposition.

Imagine if we treated each other like we’ve treated Fred. A bit of food for those that are hungry, some form of a roof over ones head and heathcare for those who are not yet 65 years of age. We can’t do the love part but maybe humanity will suffice. Of course we’d need to do this even with those who have views opposite of our own.

Capitalism is the greatest form of society ever invented. To have it function as it should a few things need to be in place. One basic tenant of capitalism is competition. A recent merger was completed between Canadian Pacific and Kansas City Southern. Its now the only railroad servicing the U.S., Canada and Mexico. Competition? How about big tech buying and killing smaller, better competitors? Its happened multiple times over the past 30 years. Microsoft was the originator of this strategy in the 1990’s. How about media? Sinclair Broadcasting owns 294 local televisions in the U.S. across 89 markets.

Two large tech companies, Apple and Amazon currently represent 12% of the S&P 500. What happens if they are successful with their entries into the healthcare business? It’s not competition when your only choices are the iPhone 14 or 15.

Another anti competition measure is the ESG movement. We all want to invest in companies doing good. However, we are seeing companies do silly transactions to improve there ESG score. A very large internet retailer has the largest carbon footprint of any company in the world. It’s included in all the large ESG portfolios because it’s considered a tech company.

No one should be forced to invest in companies they see as irresponsible. There are many ways to construct a portfolio fitting someone’s views without the ESG imprint. Let’s face it, things do change. The investment business is always looking for a sales tool. One of the biggest sales tools used over the past few years has been the ESG concept. Is the world having any change for the good? Well, the California State Assembly just voted to keep a nuclear plant OPEN!!! Maybe next we can start to build Nuclear Plants again. The new kind, much safer and more efficient. Things happens slowly…then all at once.

The markets have seen a tough week. The only real strength shown is in the U.S. Dollar. Many commodities are breaking down. This should be a positive for inflation. The situation in Europe is the most concerning. We see lots of issues with inflation, fuel prices and sentiment. The United Kingdom is also showing stress from the high cost of energy. The reversal in today’s action is likely  the reluctance of participants to hold positions over the long weekend. What could go right for give us better 4^th quarter:

• U.S. Dollar peaks and begins to decline.
• Commodities continue to decline.
• Inflation declines as commodity and owner equitant rents start to fall.
• We continue to see a willingness to add new sources of energy such as nuclear power.
• War in the Ukraine ends or contracts.
• Putin loses power in Russia.
• China relaxes zero Covid policy.
• Natural Gas Storage in Germany continues to grow and winter is less severe than expected.
• Confidence returns to Consumers to support a good holiday season.

CHARTS FROM THE WEEK PAST

As August draws to a close, we’re reminded that seasonality doesn’t exist in a vacuum and is heavily influenced by the existing trend of the market.

September performance has historically been skewed to the downside when beginning the month in a downtrend (as is the case today) vs. skewed to the upside when starting the month in an uptrend. It’s not easy hitting behind in the count. Source: Strategas

A strong July performance is often followed by gains through year end, even with a weak August.

Notably, Full-Time employment fell -242K while Multiple Job Holders made another record high as did Multiple Job holders describing both jobs as Full-time. 

A reasonable interpretation in the context of negative real wage growth, accelerating credit card usage, 13Y lows in savings/savings rate, a step function increase in those reporting difficulty paying typical household expenses is that the consumer squeeze is real and intensify despite the superficial sanguinity of the Headline NFP reading. Source: Christian Drake

Jobs are the latest of late cycle indicators.

August job cut announcements from Challenger Gray up 30% year over year.

Tech leading the way.

The chart below overlays 2008 and 2022.

Most of these don’t work out. However, history doesn’t repeat but it does rhyme.

The white line is New Homes for sale that have not been started.

The orange line is total New Home Sales. These normally trade closely together. You can see the gap today. Lower price for new homes is coming.

The Conference Board’s consumer confidence measure saw a welcome increase in August to 103.2 from 95.3 in July – up more than expected and following 3 months of consecutive declines.

Both present situation and expectations rose, with expectations recovering from July’s 9-year low.

There have been few years in which global oil demand has fallen.

Maybe 2023?

New Zealand business outlook survey shows residential construction intentions crashed in NZ (n.b. can’t see it in this chart, but there has been a massive building boom).

If we don’t do something about tuition costs, we will be forgiving more loans in future years.

South Korean Trade Balance.

What a change. Multi decade lows.

German 1y ahead Power Price has almost halved within 2 days from €1,050 per MWh to €545 today.

This raises the question of who is operating in the electricity market. Is it pure speculation? Are these meaningful prices that reflect real scarcities?

China Manufacturing PMI moves lower.

Lithium shortages could limit electric car production.

It’s used in manufacturing batteries.

China’s consumer confidence not looking great. 

Housing Affordability falling off a cliff.

The 2-year annualized change of U.S. New Single-Family Homes Sales moving lower.

New home supply has already surged.

Existing homes supply for sale is about to surge as well.

The payment needed for principal and interest has moved up about 50% in one year.

Dallas Fed Manufacturing Delivery Time breaking lower.

The Fed wants to see jobs contracting (yes, that’s stupid and they will soon).

But they aren’t yet. Gold line is unemployed, blue line total job openings.

Jobs plentiful reading in the Conference Board Index has taken a hit, but up slightly in August.

Within August Consumer Confidence Index present situations index rose to 145.5 while expectations rose to 75.1.

Spread now at -70.3.

CEO confidence on the decline, by a lot!

A perfect cartoon.

Truth and a laugh all in one!

S&P 500 Component Correlation is moving toward 1.

This means all components are trading together. Up and down. Correlation usually rises in poor markets.

European Data is heading lower.

Stock prices will follow.

There’s a lot fewer Nuclear Warheads than there used to be but ever more powerful.

For the doctors out there!

Magazine Covers traditionally happen at the end of runs.

Is this one signaling something? Oil trading at 87.31 Thursday evening. Down from a high close to 130.00 when Russia attacked the Ukraine.

WEEKEND HOMEWORK

More Reshoring!

Honda, LG Energy Plan $4.4 Billion EV Battery Factory in U.S.

Trust has gone, and so with it has trade stability. Zoltan Pozsar’s geopolitical breakdown and thoughts on what comes next for supply chains, inflation, and financial markets.

War and Industrial Policy Aconversation with Marko Papic on a multi-polar world.

A Great Book.

Cameron Hanes discovered his true passion for bowhunting when he was twenty. Inspired by the physical challenges of stalking elk in the Oregon wilderness―traversing mountainous terrain, braving erratic weather, and evading his quarry’s even more dangerous predators―he began an ever-evolving journey of self-improvement. To become the best bowhunter of wild elk, to the caliber he believed he could be, Cam realized he would need more than archery skills. He would need the stamina and strength that could only come from an athletic training regimen of long-distance running and heavy-weight lifting. And every day for more than thirty years, Cam has put in the work, building miles and muscles, pushing through pain with a single-minded focus on the only goal worth having―besting himself time and again.

Part memoir, part motivational manifesto, Endure reveals how Cam―a self-professed average guy―put himself through the paces to live the life of an expert bowhunter, respected writer, and family man. With discipline, sacrifice, resilience, a hard work ethic, and a belief in his own capabilities, Cam not only accomplished his dreams but continues to surpass them. There is no secret to his success except relentless determination and loyal dedication to his own self-worth.

If Cam can do it, we all can. Everyone has what it takes to endure adversity so we can rise above average, be the best we can be, and enjoy living life to the fullest.

I hope your long weekend it great. Enjoy the last pieces of summer. It’s the only labor day weekend of 2022 we’ll ever get! Make it count.