Words, Robots, and Chocolate

By Jeff Kelly on February 23, 2024

“Welcome to the end of democracy. We are here to overthrow it completely. We didn’t get all the way there on Jan. 6, but we will endeavor to get rid of it.”

– Jack Posobiec at CPAC

We think words matter. If you tell me your plan is to overthrow Democracy, that doesn’t fit with my view of our country. If you harass Jewish kids at colleges or on the street or in a demonstration but then try to say you aren’t anti-Semitic, that doesn’t fit either. If you verbalize abandoning the organization that’s helped keep the peace over the last 80 years, with no other plan, this too seems ill-conceived. It’s also ill-conceived to decide one form of debt is worse than others. If you want to forgive debt, why are we forgiving the debt of those that attended college. Surely, they aren’t more deserving than others of similar economic circumstances who were unable to attend college.

So many words with so little substance except to excite tribal followers. Maybe we can have some words to discuss plans for healthcare, infrastructure, or fentanyl. Maybe if you signed up to pay a debt, you pay it. Crazy I know. But worth considering.

We sit at a point in time where the only thing holding us back is us. We have an economy that’s humming along. That data continues to improve. Jobs are plentiful. Wages are higher. Inflation, while still higher than we’d like, is moving lower.  Markets are performing well. Our ability to create a better future is limitless.

Leadership, with worlds of substance, convection and a view of a democratic future is all we are missing. I hope it appears before it’s too late.

Let’s talk about some real issues that affect us all. Cocoa prices are surging. This means chocolate prices will soon be heading higher. I can deal with all the other inflation issues but let’s get this fixed ASAP. Perhaps a congressional hearing, impeachment or subsidy should be considered.

The markets had the biggest advance in over 250 trading days on Thursday. Good earnings and forward outlook from one of the AI darlings, Nvidia, was the cause. It also helped with the market coming off three consecutive days of losses. What’s interesting, at least to me, is the sector performance. With the S&P 500 up over 2%, only one sector was up 2% or more. Guess which one! Three guesses and the first two don’t count. Technology led the way up 3.27% on the day. It may surprise some communications leads the way year-to-date up 9.99%.

Imagine what technology would represent as a percentage of the index if S&P hadn’t moved Alphabet, Meta, and Netflix to the “Communications” Sector. They did this about 18 months ago. A sneaky way to make the technology sector look smaller without making it smaller.

We are largely through the earnings season. In the S&P 500 449 of 500 companies have reported. Sales grew 3.85%. If you take out the effects of inflation this is close to zero growth. Earnings were up 6.82%. This is a good number and reflected the leadership of the Communications sector, up 48.99%.

Looking forward we are seeing record issuance in debt from highly rated corporate borrowers. If this continues it’s unlikely, we will see significant declines. Buying any corrections looks to be the best plan. Data is slowly beginning to improve. The outlook for the 3^rd and 4^th quarters continues be very good. Imagine we see other sectors begin to perform. It could be a very nice fall.

I was walking at the park in Del Mar yesterday. I went to UCSD. We didn’t have any robots when I was there. This is amazing to me because the kids built it as a project. Heck, they don’t even have a startup. I wonder if they ever go on dates or drink beer in La Jolla like we did when I was at UCSD.  It’s a whole new world out there!

CHARTS FROM THE WEEK PAST

All signs point to a freight market recovery.

Here is what the data tells us: Tender rejections are above 5%. Tender rejections measure the percentage of truckloads rejected. Carriers reject loads if they have better options. Capacity is coming back in balance.

Intermodal rail traffic up 7.9% for the week and 6.7% YTD over 2023.

The chart below shows the S&P 500 and the High Yield CDS Inverted.

Lower cost to insureHigh Yield debt is good for the S&P 500.

The Japanese Nikkei 225 Index took out the previous all-time high from 12/29/1989.

35 years without a new high.

Private Equity Firms have reduced PE distributions to a decade low.

The average price of used Teslas continuing to fall.

Small businesses plan to raise prices lead core CPI by 12 months.

They are planning to raise prices.

Productivity now accelerating at levels not seen since 2021.

We look for the acceleration to continue.

Global Activity indicators continue to improve.

Comps into the balance of the year are low.

Purchasing power, sentiment and credit availability moving higher from low levels.

There is a lot of room to grow.

According to Bank of America, earnings growth of the “magnificent 7” will trail that of the other 493 stocks in the S&P 500.

New home listings fell by 1.2% month/month in January (first decline since June) … active listings fell by 0.3% (first decline in six months) per Redfin.

Data from Redfin show that median U.S. home sale price increased in January by 5.2% year/year (to $402,343) … biggest jump since September 2022.

China’s 4Q23 inbound FDI turns positive again…. it went negative for the first time in the history of the data in 3Q23… at least not getting any worse….

Credit Card debt is still a source of concern.

Buying back shares is the best indicator of stock performance.

Chicago Purchasing Managers National Activity Index -0.3 vs. the prior.

-0.21 est. & +0.2 in the prior month (rev up from -0.15); only 26 out of 85 monthly individual indicators made positive contributions.

Manufacturing cost in China much higher than peers.

Car prices falling in China at a faster rate than any time since 2002.

Despite inflation moving higher in January, inflation expectations are still expected to decline.

Gasoline has begun to move higher.

We are a long way from the driving season.

Maybe why some economic data is so poor.

A meaningful decline in response rates to surveys.

The world needs more empathy.

Deodorant and lotion with girl scout cookie fragrance.

I can’t imagine anyone buying these but that’s just me.

WEEKEND HOMEWORK

Gang of alleged armed robbers in their 60s and 70s arrested in Italy.

Everything gets harder when you’re older, even getting your gang together for a robbery!

“According to La Repubblica, another planned robbery was scrubbed because the 66-year-old gang member was having incontinence issues and needed an operation on his prostate.”

What a story. From homeless to seed investor in Uber. Inspiring.

Cyan’s life story is remarkable. She was homeless at a young age, dropped out of high school, and five years ago she suffered an extremely rare stroke. Yet, despite everything, she is one of the most optimistic and curious people you can hope to meet. Cyan is also one of the great angel investors of this era, having invested early in SpaceX, Uber, Postmates, and Deepmind to name a few winners. She became the first female investing partner at Peter Thiel’s Founders Fund and now invests at Long Journey Ventures.

Our conversation is as much about investing as it is about the essence of life and how connecting with that will help us in our professional pursuits. It is also full of awesome stories about people and companies like SpaceX and Bill Murray. Please enjoy this great conversation with Cyan Banister.

Invest Like the Best with Patrick O’Shaughnessy | Cyan Banister – Investing for a Higher Purpose

Almost 2 months into 2024. Time is flying. No regrets! Get out there and make it happen. For those who have asked Max is doing a bit better. We are very grateful. Have a terrific weekend.