Morning News: September 13, 2023
Posted by Eddy Elfenbein on September 13th, 2023 at 7:05 am

Modi Wants to Make India a Chip-Making Superpower. Can He?

European Countries Differ Over Windfall Taxes on Banks

Bankers’ 40% Pay Cuts Show the China Dream Fading in Its Richest Cities

EU Escalates China Tensions With Probe to Ward Off Cheap EVs

As OPEC’s Energy Influence Wanes, China’s Minerals Clout Rises

Oil Trader Gunvor Re-Enters Metals in Bet on Energy Transition

Big Oil’s Climate Fix Is Running Out of Time to Prove Itself

BP CEO’s Sudden Fall Puts Oil Major’s Strategy Back in Play

Biden’s Climate Law Is Reshaping Private Investment in the United States

Soft Core Inflation to Bolster Case Against More Fed Tightening

Corporate Defaults Jump, Highest August Monthly Tally Since 2009

A Who’s Who of Silicon Valley Will Convene With Lawmakers on A.I.

Arm Is Set for US IPO Pricing in Test to AI Hype, China Risk

iPhone 15 and 15 Pro First Look: Why a Tiny USB-C Port Is a Huge Deal

Apple’s iPhone Price Bump Is Part of Subtle Revenue-Boosting Strategy

Goodbye, California. Driverless Trucks Are Headed to Texas

Watch Boutiques Blossom in the Digital Age

Birkenstock Files for IPO in Further Boost to US Market

From $1 Billion to Almost Worthless: FaZe Clan Runs Out of Hype

McDonald’s to Eliminate Self-Serve Soda Machines at U.S. Locations

America’s Largest Newspaper Chain Is Hiring a Taylor Swift Reporter

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CWS Market Review – September 12, 2023
Posted by Eddy Elfenbein on September 12th, 2023 at 8:52 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

My Appearance on Bloomberg ETF IQ

Yesterday, I was invited on Bloomberg’s ETF show, ETF IQ, to discuss our ETF, the AdvisorShares Focused Equity ETF (CWS). I want to thank Eric Balchunas and the team at Bloomberg for having me on. It was a lot of fun.

Here’s the video. My segment starts at 15 minutes in:

Here’s the transcript:

Sonali Basak: We’re going to drill down into the equities market with Edward Elfenbein of AdvisorShares, up next. This is ETF IQ on Bloomberg.

Matt Miller: This is Bloomberg ETF IQ. I’m Matt Miller alongside Sonali Basak today.

Sonali Basak: And with us is Eric Balchunas from Bloomberg Intelligence. He’s back with today’s Drill Down where we focus on just one ETF. Eric?

Eric Balchunas: Sonali, today we look at CWS. It stands for Crossing Wall Street, which is a stock-picking blog that was converted. It still exists but now there’s an ETF based on it. As you can see, it’s actively managed. It’s a very concentrated portfolio of 25 stocks which tends to look at quality and value. It uses fundamentals so it tilts a little more toward mid-cap or smaller large-caps. It has $73 million in assets which is pretty good for an active fund. It has an expense ratio of 0.75%, but that’s a fulcrum fee. If they outperform, they take a little bonus. If they underperform, you get a little bit less of a fee.

Let’s look at the holdings here. You can see that this isn’t your typical active fund that’s loaded with Amazon and Apple. You can see just by looking at these stocks that you’re going to know some of these names, but as you can see, these are going to be a little less.

So, this has an average market cap that’s much less than the S&P and a slightly lower price/earnings ratio. Let’s look at the performance of this versus the S&P which is the benchmark. I threw in mid-caps because, again, this thing does tilt down a little bit.

You can see that it’s up 123% since its inception. It’s slightly underperforming the S&P but it’s blowing away mid-caps. It’s going to outperform when the Super Seven or these mega-caps take a break.

So, if you see that coming, this ETF is probably is in a good position to have some outperformance which, again, should draw more looks.

Sonali Basak: Thank you, Eric. And joining us to talk about this ETF is Edward Elfenbein. He’s the portfolio manager at AdvisorShares Investments. What are you looking at when you’re thinking about the direction of this market and what can outperform in the world that you’re in?

Edward Elfenbein: Right now, it looks like the Fed is going to pause next week. Maybe – it’s about 50/50 – we’ll get a rate hike coming in November. But I think right now, there’s been a concern that if we’re going to cut rates right now, the Federal Reserve is going to bring us right back to the playbook of 2020/2021.

Back then we saw Zoom and Moderna. Now that’s being replaced by the Super Seven and the Artificial Intelligence-kind of stocks. That’s just going to replace that. We’re going right back to that. I think the market is assuming too much. I’m looking at a lot of these high-quality, low-beta names that I think look very good right now.

Matt Miller: So, I guess I could say that Trex Co. is your favorite, but what do I take as your favorite considering all the names that we just saw there?

Edward Elfenbein: I’ll tell you one that you might like, and that’s Miller Industries. This is a wonderful company, and it’s not followed by a single Wall Street analyst. I love this – it’s a tow truck company based in Chattanooga, Tennessee.

Matt Miller: Nice!

Edward Elfenbein: It’s a wonderful little company and they just had a blowout earnings report. I can’t say if it beat expectations or not because no one follows it.

Matt Miller: So, there were no expectations?

Edward Elfenbein: There were no expectations.

Matt Miller: That we know of…

Eric Balchunas: I was looking through your holdings historically just to see what you’re buying and selling, and I did see the move to Industrials. One stock you sold out of – I mean this is like a perfect trade – you had Disney for many years. You crushed it. You sold it exactly two years ago. Since then, it’s down 56%. What alarmed you? What got you to get out of that company at that time?

Edward Elfenbein: I’ve got to tell you – that was a really difficult one because it was a company that I had a strong conviction in. But I really didn’t like the culture that I saw forming at Disney. I don’t like when companies treat their customers, particularly their core customers, like an ATM. And I got that feeling that this is how Disney was behaving with very high prices across the board. Of course, there was a leadership change, so that made me make the decision to pull the plug on Disney.

Matt Miller: That’s the furthest thing from an orphan stock that there is.

Edward Elfenbein: That is true.

Matt Miller: Miller Industries and Disney are like two ends of the spectrum. Everybody on the Street follows Disney and no one follows Miller. Does that matter to you?

Edward Elfenbein: Not at all. I go wherever there is a bargain.

Sonali Basak: Now, if you’re taking a look and you think that there’s either a soft landing or a harder recession, what would you trade out of today that you’re still in if you think that things are going to get worse than the market currently thinks they are?

Edward Elfenbein: The obvious choice is a lot of these Super Seven stocks. They really have run so far. Even if you don’t have to exit your position, it’s a good time to take profits on those. That’s the number one concern I would have.

Eric Balchunas: Just a little bit about positioning this fund in a portfolio, we do a lot of work on how actives should move forward. You’re concentrated, which I think is a viable lane because you can complement cheap beta rather than competing with it.

How do you position this to advisors? Are they looking for performance, mainly, or does that active share – which is 96% in your case – does that matter to them because it can be used as a satellite position?

Edward Elfenbein: I think they really do like the concept of it, the idea that we don’t do any trading. No trades are made during the entire year. We focus on just the high-quality names and we stick with them. We have a 20% turnover each year. Five new ones of the 25 stocks come in, and five go out.

Matt Miller: You have this fulcrum fee that Eric was talking about. I’d never heard of it before now, and I don’t think it’s widely used in the industry. How has that worked out for you and for your investors?

Edward Elfenbein: I think it’s been great, personally, because I’ve been getting a nice bonus. So that’s good. We believe we were the first ones in the ETF space to use that. It does exist in the open-end community. I don’t know of any others that have used it, but I think it’s a great way to say to investors, “we are aligning with your interests; we have skin in the game.” I think it’s a way that Wall Street will be moving toward those sorts of qualities.

Sonali Basak: Double down on that, because on one hand, the ETFs have brought down the fee structure for the investing universe to begin with, but with all of these new actively-managed ETFs, that is getting a little more expensive. Do you think that this fulcrum idea might take more steam with those higher fees that we are starting to see?

Edward Elfenbein: I certainly hope so, because one of the problems is that a lot of these smaller ETF shops, I’m afraid, are getting pushed out. We turn seven years old next week. I don’t know if our kind of fund could launch in this type of atmosphere. Maybe we got in at the right time. But I think that things like the fulcrum fee and the tax-efficiency are going to gain steam and become larger as the years go on.

Matt Miller: All right. Fascinating story. Really glad to get you in here. Eddy, thanks so much for joining us. Eddy Elfenbein of AdvisorShares – his ETF turns seven.

That’s CWS, as he said. If you just can’t get enough of ETFs, a reminder that you can listen to Eric with Joel Webber, our editor of BusinessWeek, on Trillions. That’s their bi-weekly podcast that covers the industry and fascinating stories like CWS and Eddy as well.

Also, I recommend following Eddy on Twitter because he says some stuff that just sticks with you for a while. I think about you in bed a lot because you once tweeted that it’s too hot when both legs are under the covers and it’s too cold when both legs are out of the covers and that you need one under and one over in order to be ok. To me, that makes a lot of sense.

Eric Balchunas: That’s insightful!

Matt Miller: That does it for Bloomberg ETF IQ. I’m Matt Miller along with Eric Balchunas and Sonali Basak. This is Bloomberg.

The Golden Rule of Financial Markets

Also this week, I wanted to discuss the Golden Rule of Financial Markets which states that as interest rates go up, investors become more conservative. The corollary to the Golden Rule is that as interest rates fall, investors become open to shouldering more risk.

The Golden Rule makes perfect sense. When interest rates are at 0%, who cares what a P/E Ratio is? That certainly didn’t matter three years ago when the Fed snapped into action to fight the economic effects of the Covid lockdowns. But as interest rates creep higher, suddenly valuations are important.

We saw the Golden Rule in effect in 2021 and 2022 as the Fed started hiking and the market reversed course from the risk-happy Covid rally.

During the Covid rally, it seems that everyone just bought stocks and they didn’t care much what ones they were. I recall shares of ZOOM doing well even though that wasn’t the ticker of the video call service which is ZM.

Lately, however, investors have shied away from conservative stocks, and I think that’s a big mistake. My hunch is that investors think that if the economy hits a rough spot, the Federal Reserve will jump in, quickly lower rates to the floor and we’ll go back to the 2020 playbook. Traders currently think the Fed will start cutting rates by June of next year. Hmmm…I’m not too sure about that.

To gauge the market’s sentiment for risk, I like to track how Low Volatility stocks (meaning the conservative stocks) perform relative to High Beta stocks (riskier stocks). This is a simple, quick way of telling you the market’s mood. Since the start of this year, High Beta (black) has performed considerably better than Low Vol (blue).

If someone told me to guess the market return for a stock like Hershey (HSY), a perfect example of a defensive conservative stock, when the S&P 500 is up in the low teens and the Fed has been hiking rates, I would probably guess HSY would be something like to 10% to 15%. Instead, Hershey is down 10% this year.

No one wants steady and conservative. Instead, the market appears to be obsessed with the Super Seven stocks: Apple, Amazon, Alphabet, Meta, Tesla, Microsoft and Nvidia. What Zoom and Moderna were three years ago, artificial intelligence is today.

Tomorrow’s CPI Report Could Tip the Balance

Tomorrow we’re going to get the inflation report for August. Wall Street expects headline inflation of 0.6% and core inflation of 0.2%. If that’s right, it will bring the 12-month headline rate to 3.6% and the 12-month core rate to 4.3%.

The reason why there’s a big gap between the headline rate and the core rate is due to gasoline prices. Last month, gasoline prices probably rose by 6% to 8%.

Even though gasoline gets a lot of attention, the major focus at the Fed is on core services inflation. In fact, this is what the Fed has said is most important. We’re also running into simple base effects. That simply means that the 12-month may appear high because inflation was cooling off one year ago.

The Fed prefers to look at personal consumption expenditure prices (or PCE). The one advantage of the CPI report is that it’s earlier and tomorrow’s report will be ahead of next week’s Fed meeting.

It’s widely expected that the Fed will pause on any rate hikes next week, but the outlook for the November meeting is still up in the air. If tomorrow’s inflation report comes in high, that could tip the balance to a November hike. I don’t think the market will like that.

At next week’s meeting, the Fed will update its (usually very wrong) economic forecasts. Most Fed members still see another rate hike this year. I suspect that one more hike will still be predicted.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. If you want more info on our ETF, you can check out the ETF’s website.

Morning News: September 12, 2023
Posted by Eddy Elfenbein on September 12th, 2023 at 7:05 am

Country Garden Rebounds as Yuan Bond-Extension Votes Tallied

A Rush to Build Defenses in Europe, but Little Consensus on How

Morgan Stanley Says Italy Bond Rally Is Over

The Biggest US Trading Partner Is No Longer China, It’s Mexico

Central Banks Set for Higher for Longer to Fight Inflation

How the Bank of Japan’s Shift Could Play Out in U.S. Markets

Hedge Fund Boss Calls Hydrogen Bets ‘Complete Waste of Time’

Alibaba CEO Warns of Being ‘Displaced’ If the Chinese Tech Giant Doesn’t Keep Up In AI

Why Google Is On Trial

Elon Musk’s Lessons From Hell: Five Commandments for Business

Arm CEO Pitches IPO Investors on Shift to High-Margin Chips

UPS Chief Says Year One of Pricey New Labor Deal Will Hurt Most

For Auto Workers, It Isn’t Just About Pay

Smurfit Kappa to Buy WestRock in $11 Billion Packaging Deal

Private Equity Is No Longer a Reliable Last Resort for Troubled Hospitals

Pandemic Population Boom in Rural Hotspots Sparks Resentment

Twinkies and Jam to Mix as Smucker Buys Hostess for $5.6 Billion

Pet Owners Resort to Cheaper Food as Inflation Weighs on Wallets

A Mall Owner’s About-Face: Bet on America’s High-End Malls

TikTok Popularizes Products. Can It Sell Them, Too?

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Morning News: September 11, 2023
Posted by Eddy Elfenbein on September 11th, 2023 at 7:02 am

Fear of Being Made Obsolete Grips College-Educated US Workers

Unions Flex Power When Workers Are in Short Supply

Stop or Go? Five Questions for the ECB

Yen Rises With Yields After BOJ’s Ueda Fuels Hike Speculation

An Important Shift in Fed Officials’ Rate Stance Is Under Way

The Mighty American Consumer Is About to Hit a Wall, Investors Say

Instacart Sets Price at $26-$28 a Share as IPO Market Heats Up

Xi’s Tight Control Hampers Stronger Response to China’s Slowdown

Chinese Warnings on iPhones Tap Deep Strain of Security Concerns

As Smartphone Industry Sputters, the iPhone Expands Its Dominance

Apple Renews Qualcomm Deal in Sign Its Own Modem Chip Isn’t Ready

Google’s Ties With Apple Under Spotlight in Antitrust Trial

Microsoft, Google and Antitrust: Similar Legal Theories in a Different Era

Tesla and China Risk Leaving Volkswagen on a Road to Nowhere

China May Ban Clothes That Hurt People’s Feelings. People Are Outraged

Alibaba’s Former Chairman Daniel Zhang Steps Down From Last Executive Role at Company

Private Jets and Pop-Up Workspaces: Boeing Eases Return to Office for Top Brass

Walmart Goes All In on Africa

J.M Smucker Nears Deal to Buy Hostess

Popeyes Overhauls Its Kitchens to Win the Chicken Sandwich Wars

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Morning News: September 8, 2023
Posted by Eddy Elfenbein on September 8th, 2023 at 7:02 am

Economic Data Lead Markets and Governments Astray

G-20 Sees Risks to Long-Term Growth From ‘Cascading Crises’

US Probes Made-in-China Chip as Alarm Over Huawei Grows

Apple Becomes the Biggest U.S.-China Pawn Yet

As War Grinds On, HSBC Halts Russia Payments

Yellen Confident on Ukraine-Aid Support, Upbeat on World Growth

Fed’s Williams Says Policy in Good Place, Must Be Data Dependent

Potential US Government Shutdown Could Dent Investor Confidence

JPMorgan Is Exploring Blockchain-Based Deposit Token for Payments, Settlements

‘Dumb Money’ Lampoons Wall Street Titans With a Knowing Eye

Hundreds Halt Work at Energy Plants in Australia

The Fall in Home Prices May Already Be Over

It’s Not Your Imagination—Shopping in Person Is Getting Worse

US Retail Workers Are Fed Up and Quitting at Record Rates

A Workers’ Refrain: #ActYourWage

Google’s Former CEO Is Leveraging His $27 Billion Fortune to Shape AI Policy

Venture Investors Bet AI Can Improve Supply-Chain Management

Coca-Cola’s CMO on Sidestepping the Culture Wars, Navigating AI and Boosting Events Over Ads

Mattel’s Windfall From ‘Barbie’

Why Disney Could Cave First in Its Cable Standoff With Charter

Here’s Something Past Its Expiration Date: The Expiration Date Itself

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Morning News: September 7, 2023
Posted by Eddy Elfenbein on September 7th, 2023 at 7:05 am

Feeble German Economy Faces Fresh Contraction as Factories Falter

China Exports Fall for Fourth Month as Once-Reliable Growth Engine Sputters

China Property Crisis Exposes Corporate Governance Failure to the World

China Seeks to Broaden iPhone Ban to State Firms, Agencies

Apple’s ‘Symbiotic’ Relationship in China Faces New Questions

Huawei Is Letting Its Controversial New Phone Speak for Itself

China Is Flooding the World With Cars

US, EU Plan New Chinese Steel Tariffs in Bid to End Trump-Era Trade Conflict

New Corporate Minimum Tax Ushers In Confusion and a Lobbying Blitz

US SEC Approves New Fee Rules on Market Data Surveillance System

Here’s Why You Shouldn’t Be Surprised Auto Workers Are Asking for a 46% Pay Raise

Whose Rail Line Is It Anyway? Freight Carriers Could Be Forced to Share Tracks With Competitors

SoftBank Backs Autonomous Trucking Firm Started by Ex-Ford Self-Driving Executives

America’s Wind-Farm Revolution Is Broken

Texas Teeters on Edge of Blackouts as Demand Squeezes Grid

Disney’s $218 Billion Rout Not Enough For Dip Buyers

Philanthropies Pledge $500 Million to Address Crisis in Local News

FanDuel, DraftKings Blitz for New Customers as NFL Season Starts

Smurfit Kappa in Talks with WestRock to Create Paper and Packaging Giant

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Morning News: September 6, 2023
Posted by Eddy Elfenbein on September 6th, 2023 at 7:06 am

Speeding Up Green Transition Would Make It Cheaper Too – ECB

Saudi Cuts Send World Diesel Prices Soaring

$100 Oil? What a Price Spike Could Mean for Markets and Geopolitics

Thieves Target ‘Liquid Gold’ as Olive Oil Prices Soar

Pork Industry Grapples With Whiplash of Shifting Regulations

India’s Moment Has Arrived, and Modi Wants a New Global Order

Bank of Canada Poised to Hold Rates at 5% But Threaten More Hikes

Fed Set to Double Its Economic Growth Forecast After Strong US Data

KKR’s McVey Boosts Economic Outlook, Recommends Investors Buy Real Assets

Rising Rents Are Hitting American Suburbs Hardest

China Bans iPhone Use for Government Officials at Work

In Its First Monopoly Trial of Modern Internet Era, U.S. Sets Sights on Google

Google Turns to a Steady Old Hand to Fight Antitrust Charges

Roku Cutting 10% of Staff to Rein In Rising Expenses

Elon Musk Borrowed $1 Billion From SpaceX in Same Month of Twitter Acquisition

Disney’s Wildest Ride: Iger, Chapek and the Making of an Epic Succession Mess

Disney Lures Sports Fans to Hulu+ With ESPN Pulled From Charter

ESPN Bets Big on Pat McAfee, an F-Bomb-Throwing YouTube Star

Warner Bros. Cuts Profit Outlook as Hollywood Strikes Drag On

Powered by A.I., Company Aims to Make Selling Easier for Retailers

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CWS Market Review – September 5, 2023
Posted by Eddy Elfenbein on September 5th, 2023 at 8:09 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

This Is the Tough Time of Year for Stocks

I hope you had a relaxing weekend. Traditionally, Labor Day Weekend marks a big change for stock returns.

A few years ago, I took the entire 127-year history of the Dow Jones Industrial Average and broke down how the index performs for each day of the year. That’s about 35,000 daily figures.

This is what the average year has looked like for the Dow. The index starts at 100 on January 1.

What I found is that historically, the Dow has reached a peak on September 6, shortly after Labor Day, and it’s fallen an average of 2.21% by October 29.

A drop of 2.21% may not sound like much, but it’s an unusually large drop when combining 127 years’ worth of data. That’s more than one-quarter of the Dow’s average annual gain.

Historically, the summer has been a very good time for stocks. From June 27 to September 6, the Dow has gained an average of 3.76%. That means that nearly half of the Dow’s annual gain has come over just 71 calendar days.

I want to stress that I don’t put a great deal of faith in these type of calendar effects. I would never make an investing decision based on one, but I do find them interesting. It seems very reasonable that summer has traditionally been good for stocks and that once the first hint of autumn comes, traders walk back some of those easy gains. This year, Wall Street had a good run from mid-March until late July, but investors may be growing more cautious. Speaking of growing caution, let’s look at last week’s job report.

The Economy Created 187,000 Jobs Last Month

On Friday, the government reported that the U.S. economy created 187,000 net new jobs last month. While that’s higher than Wall Street’s consensus for 170,000 jobs, it did mark the third month in a row of sub-200,000 jobs. On top of that, the jobs numbers for June and July were revised lower. June was lowered by 30,000 and July was lowered by 80,000.

Before reading too much into this, I should caution you that the jobs numbers for August can be tricky. It’s a difficult month to track new jobs. As a result, the revisions to the August numbers can be unusually high. For example, two years ago, the August jobs number was eventually doubled from the initial report. With econ data, it’s more important to look at the overall trends.

For August, the unemployment rate rose to 3.8% which is the highest in 18 months. I also like to look at the “U-6” rate which is a broader measure of joblessness. For August, the U-6 rate rose by 0.4% to 7.1%. It’s now at its highest level since May 2022.

One good sign is that the labor force participation rate rose to 62.8%. That’s the highest in more than three years. In plain English, it means that more people are out there looking for jobs. Once you stop looking, the government stops counting you as unemployed.

Perhaps the most important figure is wages. For August, average hourly earnings increased by 0.2%. That was below expectations of 0.3%. Over the last year, average hourly earnings are up by 4.3%. Wall Street had been expecting 4.4%. Hours worked rose slightly to 34.4. This is important because higher earnings generally means more revenue for business.

Here are some details:

“The U.S. labor market continues to come back to earth but from a very high peak,” said Nick Bunker, head of economic research at the Indeed Hiring Lab. “The labor market was sprinting last year and now it’s getting closer to a marathon pace. A slowdown is welcome; it’s the only way to go the distance.”

Healthcare showed the biggest gain by sector, adding 71,000. Other leaders were leisure and hospitality (40,000), social assistance (26,000), and construction (22,000).

Transportation and warehousing lost 34,000, likely due to the Yellow trucking bankruptcy, and information declined by 15,000.

There could be some cracks showing in the labor market. Last week’s job openings report showed a decline of nearly nine million job openings in July. There are still 1.5 jobs for every unemployed person.

Last week, the Q2 GDP report was revised a bit lower to 2.1%. The day after the GDP report, we also got the personal income and spending data. For July, personal income increased by 0.2%. That was 0.1% below expectations. Personal spending increased by 0.8%. That beat expectations by 0.1%.

The PCE Price Index, which is the Fed’s preferred measure of inflation, rose by 0.2% in July. Over the last 12 months, the PCE has increased by 3.3%. The core PCE is up by 4.2%.

The Federal Reserve meets again in two weeks. I expect the Fed to pause again at this coming meeting, but the following meeting, in early November, is a different story. There’s a chance that the Fed will raise rates again, but it’s far from certain. In fact, it’s not out of bounds for the Fed to be finished with its rate hikes for this cycle. Goldman Sachs thinks so.

Traders currently place the odds of a pause in November at 59%. One week ago, the odds were at 65%.

I’m not ready to say that the Fed is done with its hikes just yet, but we’ll soon get more data. The next important date is Wednesday, September 13 when the next inflation report is due out. If we’re not at the end of the Fed’s rate cycle, then we’re getting very close. That’s good news for investors.

Looking at the Sahm Rule

The economist Claudia Sahm is known as the inventor of the “Sahm Rule” which tells us if we’re in a recession or not.

The rule is simple but the reasoning behind it is very clever. The idea is that if the unemployment rate rises by a little, then it’s likely to rise by a lot.

This is a smart insight because it recognizes that economic cycles tend to reinforce each other. For example, a recession may lead to corporate layoffs. Those layoffs lead to decreased consumer spending. In turn, that leads to lower profits, and so on. In other words, a recession leads to a recession and a recovery builds on a recovery.

This is also why it’s been very hard for the Fed to engineer soft landings.

Best of all, the Sahm Rule is easy to calculate. It says we’re in a recession when the rolling three-month average for unemployment is 0.5% or more higher than the rolling three-month low over the last 12 months.

The rolling three-month average for unemployment reached 3.5% four months in a row (January through April). This means that the Sahm Rule would be triggered if the unemployment rate averages 4.0% for over a three-month period. This is why I took notice when last week’s report said that unemployment increased from 3.5% to 3.8%.

The math is easy. If we have an unemployment rate of 4.2% in September and October, then the Sahm Rule says we’re in a recession. Currently, the Sahm Rule is at 0.13%. Goldman Sachs just lowered its odds of a recession sometime in the next 12 months to 15%. This is the third time in three months that Goldman has lowered its recession odds.

To be clear, I agree that a recession right now is very unlikely. Also, this economy has proven to be far more resilient than a lot of experts thought.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. If you want more info on our ETF, you can check out the ETF’s website.

Morning News: September 5, 2023
Posted by Eddy Elfenbein on September 5th, 2023 at 7:07 am

Gulf Royal’s $1.5 Trillion Empire Draws Bankers and Billionaires

China’s Country Garden Narrowly Avoids Default

Argentina, in Dollar Love Affair, Agonizes Over Divorcing the Peso

European Asset Managers Reject Plans for Tighter Liquidity Rules

US Banks Hold $3.3 Trillion Cash Amid Banking Crisis, Slowdown Worries

Rising Demand for Fed Bank Lending Program Not a Sign of Stress

Goldman Cuts US Recession Chances to 15% on Improved Inflation

How Slowing Inflation Can Hit Corporate Profits

Crypto Market-Making Profit Margins Sink 30%

A $700 Million Bonanza for the Winners of Crypto’s Collapse: Lawyers

SoftBank’s Arm Seeks to Raise Up to $4.87 Billion in Anticipated IPO

What Huawei’s Comeback Says About US-China Tech War

Mercedes CEO Changes Tune on China as ‘Economic Wonder’ Stalls

In EV Transition, German Carmakers Lag Behind Tesla and China

Housing Market Inventory Is So Scarce That Builders Will Be in the Driver’s Seat for Years to Come, Says KB Home’s CEO

Why the U.S. Labor Movement Is So Popular But Union Membership Is Dwindling

Return-to-Office Is a $1.3 Trillion Problem Few Have Figured Out

OpenAI CEO Sam Altman First Person to Get Indonesian Golden Visa

Messi Drives Jump in Apple TV+ and MLS Subscriptions

Tyson Foods Couldn’t Produce Enough Chicken. Now It Has Too Much

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Morning News: September 4, 2023
Posted by Eddy Elfenbein on September 4th, 2023 at 7:08 am

Money and Politics Put World’s Biggest Climate Deal at Risk

Russia Says It Will Not Let Foreign Banks Exit the Market Easily — Unless They Unfreeze Russian Assets

Xi’s Unexplained G-20 Snub Erodes Image as Global Statesman

Huawei Teardown Shows Chip Breakthrough in Blow to US Sanctions

China’s Biggest Homebuilder Reels as Economy Slows

Faced With Evolving Threats, U.S. Navy Struggles to Change

US Stock Investors’ Complacency is Worrying, JPMorgan Strategists Warn

The Discredited Phillips Curve Cannot Be Discredited Enough

Inside a Sales Army Turning a Tax Break Into a Modern-Day Gold Rush

Arm IPO Expectations Tempered by Reality as Roadshow Kicks Off

Diamond Prices Are in Free Fall in One Key Corner of the Market

India Steps Up Coal Use to Stop Outages Triggered by Unusually Dry Weather

Warren Buffett’s Green Cash Washes Over Coal Country

J&J’s $40 Billion Split-Off Sets Stage for Pharma, Medical Tech Expansion

The Ground-Floor Window Into What’s Ailing Downtowns

Where in the World Are People Back in the Office?

A Summer of Strikes

Labor Could Be Detroit’s Next Big Disruption

Electric Cars Power China’s Economic Hopes as Internet Titans Take a Back Seat

Mercedes Bets on Range Boost in Swipe at Tesla’s EV Lead

Apple Is Set to Embrace an iPhone Charger Change It Didn’t Want

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