Inflation Reality Check, Media Share Prices on Strike, and Much More
StreetSmarts Morning Note
Go as far as you can see; when you get there, you’ll be able to see farther.
-J.P. Morgan
If You're Going Through Hell, Keep Going
-Winston Churchill
Table of Contents
A.M. Allocations: Summaries of important news and investing events
Inflation Reality Check
Greenback Back in the Green
Take 5! Media Stocks Tank On Stalled Actors Strike Negotiations
The Lost ‘Pension’ Generation: Gen-X's Financial Woes
Unspeakerble: Scalise's Pulls Plug on Speaker’s Race
Hot Headlines: Links to some of the top financial stories of the day
A.M. Allocations
Inflation Reality Check
The Consumer Price Index (CPI), one of the key measures of inflation, showed a +3.7% increase in price levels for September in the report released yesterday, slightly ahead of economists estimates for a +3.6% figure. This is the same Year-Over-Year increase seen in August.
Housing - which makes up about one-third of CPI - increased +0.6% for the month, which continues the trend of MoM drops this year. However, the metric is still up a sizable +7.2% from a year ago. In fact, Housing is responsible for 70% of the total increase in ‘Core CPI’ (excludes Food and Energy - like gasoline). Housing inflation is projected to decline through to next summer, significantly contributing to the overall rate of disinflation in 2024. This is where I better mention that Shelter is a lagging indicator (as you can see above) before I get an email from my economist buddy, Dave.
Take-Aways: The market reacted a bit negative to this, with the S&P and Nasdaq both closing down 0.6%. The logic is, because inflation came in a titch higher than expected (+3.7% vs. +3.6% consensus estimate) this increases the likelihood of the US Federal Reserve adding another interest hike into the mix (which may cool down the economy and hurt businesses). Honestly though, it’s not too much of a big deal.
The way Housing (‘Shelter’) is used in CPI is a bit of a head-scratcher, and I think it might be a bit misunderstood in its role in inflation (and therefore leads to exaggerated reactions by the stock market). For example, CPI doesn’t use housing prices - it has a proxy (“Owners’ Equivalent Rent of Primary Residence”) based on rental prices. Why do rental prices go up? Well, there are a number of reasons, such as housing prices, sure, but mortgage rates are also a primary driver. If the mortgage on your rental property is 7.8% - the current US mortgage rate - you probably want/need to charge more rent than when mortgage rates were, say, 4% a few years ago. What I’m getting at:
Shelter is 1/3rd of CPI and has contributed to 70% of the CPI increase this year
The increase in Shelter has been influenced by mortgage rates
Mortgage rates, in turn, are influenced by Fed interest rates
Claiming the Fed will raise rates because its rate increases have influenced inflation is kinda silly
Greenback Back in the Green
The US dollar is experiencing its biggest rally in five weeks, halting a six-day decline, after yesterday’s slightly-higher-than-expected inflation report increased the likelihood of another Federal Reserve interest rate hike this year.
Swap contracts linked to future Fed decisions show the odds of another quarter-point hike have risen to about 50%, up from nearly 30% the previous day, boosted by surging yields on government bonds.
Take-Away: The dollar's continued strength is contingent upon ongoing rate hikes by the Fed, with expectations that it will weaken once traders believe the Fed has finished raising rates.
Take 5! Media Stocks Tank on Stalled Actors Strike Negotiations
Today marks the 92nd day of the SAG-AFTRA strike, and it doesn’t look like a resolution is on the horizon. Media stocks declined yesterday as negotiations between the Alliance of Motion Picture and Television Producers (AMPTP) - the trade association representing the media companies - and SAG-AFTRA stalled, raising concerns on Wall Street.
The talks were suspended after AMPTP found SAG-AFTRA’s proposal, which included an expensive viewership bonus, to be economically unfeasible, leading to a fall in major entertainment companies' stocks.
Take-Aways: Not to be rude but this could go on for a while, since there are 150,000 actors on strike and…well, most of them are already full-time waiters, or whatever. Like, if you normally are an extra in two commercials a year, are you really ‘on strike’?
The Lost ‘Pension’ Generation: Gen-X's Financial Woes
Financial pressures due to the rising costs of higher education, health care, and large student loan balances are impacting Gen Xers' retirement savings, as highlighted in a recent Vanguard report.
The majority of Gen X individuals, born between 1965 and 1980, have inadequate retirement savings, with a typical household having only $40,000 in private retirement accounts; 57% believe they won’t save enough for a comfortable retirement.
Despite these challenges, there is a positive trend of growing 401(k) balances among Gen Xers, with the average balance reaching $153,300, marking a nearly 15% increase from the previous year.
Unspeakerble: Scalise's Pulls Plug on Speaker’s Race
Rep. Steve Scalise is withdrawing from the speaker’s race due to a lack of support from House Republicans, following Kevin McCarthy’s ouster.
Opposition to Scalise grew, with about 20 Republicans publicly opposing him; he requires a House majority to be elected speaker but is far from securing the requisite votes to get there.
The House GOP is experiencing frustration and deadlock, unable to unite behind a speaker candidate, with even former House Speaker Kevin McCarthy expressing doubt about Scalise’s chances.
Joke Of The Day
Why is ink an unwise investment? Because it’s a dyeing industry.
Why did everyone fall asleep at the Japanese bond convention? There was little or no interest.
Hot Headlines
(Reuters) Ford says it is 'at the limit' with UAW contract offer - about 34,000 Detroit Three workers are currently on the picket line.
(CNBC) Lawmakers take aim at credit card interest rates, fees as cardholder debt tops $1 trillion - this could end up really hurting when recession time comes around.
(Barron’s) How Global Conflict Led to a Surprising Plan to Make Apple Chips in a Desert - Taiwan Semiconductor Manufacturing putting $40 billion into ‘Phoenix Fab’.
(Barron’s) OQ Gas Networks Draws $10 Billion in Orders for Record Oman IPO
(Bloomberg) Atlassian to Buy Loom for $975 Million in Bet on Remote Work - it’s…a screen recording tool. I downloaded one for free once. I’m in the wrong business.
(Reuters) Walgreens maps out $1 billion in cost cuts as profit forecast underwhelms - shares are down 35% this year, they need to do something. Anything.
(SF Gate) Tech giant Qualcomm lays off 1,250 employees, almost 200 in Bay Area
(Semafor) U.S., Qatar agree not to release $6 billion to Iran - funds were reserved for ‘humanitarian assistance’. Right.
Trivia
I just finished the new Michael Lewis (Big Short, Moneyball) book, Going Infinite, about FTX and Sam Bankman-Fried, so here’s some Crypto ones:
The current market value of all Bitcoin is:
$520 billion
$1.2 trillion
$85 billion
$780 billion
After Bitcoin and Ethereum, what is the next biggest Crypto by market value?
Doge
Trust Wallet Token
HarryPotterObamaSonicInu
Tether USDt
(answers at bottom)
Market Update
Trivia Answers
$520 billion. At its peak, Bitcoin had a market value above $1.1 trillion.
Tether USDt. It currently has a market value of $83 billion, while Doge’s is only $8.2 billion in 9th place. ‘HarryPotterObamaSonic10Inu’ sounds like I made it up, but it’s real and has a market value of $301 million dollars.
Thank you for reading StreetSmarts. We’re just starting out so it would be great if you could Share and give us a ‘Like’ below.