📉😳 It Can't Get Much Worse Right?
Happy Hump Day everyone,
Last week we saw FedEx and Target boost their dividends, Apple and MLS struck a 10-year streaming deal, Biden announced he would visit Saudi Arabia, Charles Schwab was ordered to pay $187M to settle SEC charges, a Google engineer claimed their AI was sentient, and the Bank of England came out to say that UK banks are no longer too big to fail.
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
In the Markets
Featured Story
“Families’ budgets are being cut. It’s like they’re being taxed, and there’s no end in sight.” - Mark Wolfe, executive director of NEADA
Those with a little bit of optimism must have thought that preceding last Friday’s release of May’s CPI data, the peak of inflation would finally be behind us. Many were shocked to see that we were still not over the peak yet and we’re not sure when we will be following May’s 8.6% year-over-year increase.
Further straining the average American household is the fact that the primary consumer expenses (fuel, power, and grocery-store food) have all been rising at double-digit annual rates for two months straight; the first time this has happened since 1981.
Economists like to strip out the cost of food and energy from their inflation calculations for being too volatile, but for many Americans coping with exploding prices from everywhere they shop, those items are the only thing they care about.
Last month’s inflation numbers got a lot of people really nervous and raised questions such as: how much more can the Fed do? How much more aggressive do they need to be?
In a revaluation of historical inflation numbers due to methodological changes made to the CPI in the 1980, current inflation levels are closer to historical peaks than the official data would suggest. Some analysts believe that the Fed will be able to achieve a “soft landing” where they bring down inflation without harming growth (something the Fed has only done three times since 1945). Larry Summers (former treasury secretary) on the other hand believes that the Fed’s current tightening cycle will be much more painful, one that will tame the beast but only by pushing the economy into a deep recession akin to the times of the Great Inflation of the 1970s when Paul Volcker was the Fed chairman.
Not everyone is certain that a recession will occur this year, but many analysts anticipate it by later 2023. No one knows what’s going to happen and that may scare a lot of people. The best thing we can do is to stay informed and stay frugal because the hard times may still be ahead of us.
Weekly News Roundup
S&P 500 Closes in Bear Territory as Global Stock Selloff Gains Steam Amid Inflation (ABC News)
After the disappointing CPI news last Friday that inflation is continuing to move in the wrong direction led by higher prices for energy, food and housing, the S&P 500 closed in bear market territory on Monday. The worse-than-expected inflation report has investors raising their bets on more aggressive interest rate increases from the Fed.
RH: Fed came out with a 75 bps hike earlier today in the FOMC meeting; the biggest increase since 1994. Another increase is possible in July.
Gas Hits $5 a Gallon for the First Time. Here’s How and What’s Ahead (NPR)
Gas prices hit $5 a gallon in the U.S. for the first time, and there is no light at the end of the tunnel just yet. The news does not come as a surprise to those in California and Nevada who have already seen gas surge beyond the $5 level. Analysts warn gas prices are likely to go even higher given that the global factors pushing up crude prices are unlikely to ease anytime soon.
HY: This is frustrating, I think the only thing that will allow them to come down anytime this summer is if the war in Ukraine/Russia ends, but as the summer demand picks up we will see elevated prices till Fall.
Binance CEO Zhao Says Now Is a Great Time to Hire and Acquire (Bloomberg)
Changpeng Zhao, CEO of Binance, thinks crypto winter is a great time to increase investment in talent and acquisitions. After crypto firms like Coinbase, Gemini Trust and Rain Financial froze hiring and slashed headcount (by as much as 10%), Binance is looking to swoop in on the newly unemployed talent. Zhao said Binance has been frugal and avoided big promotional spending like Super Bowl ads or naming rights to sports venues.
RH: Binance will choose from the cream of the crop in terms of free agent engineers. Smart move on them to stay frugal knowing something like this would be coming.
Charts of the Week: More Doom and Gloom…
In Bank of America’s most recent Fund Manager Survey, the miserable sentiment on Wall Street continues… When will it end? :(