CWS Market Review – July 11, 2023
Posted by Eddy Elfenbein on July 11th, 2023 at 6:53 pm

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The U.S. Economy Added 209,000 Jobs in June

On Friday, the government released the big June jobs report. According to the Labor Department, the U.S. economy created 209,000 net new jobs last month. That was a little below Wall Street’s estimate for a gain of 240,000. June was the slowest month for job creation since December 2020.

The figure for May was revised downward by 33,000. April’s was reduced by 77,000.

The unemployment rate dropped by 0.1% to 3.6% but that’s still close to a multi-decade low. The broader U-6 rate fell to 6.9%. Importantly, the labor force participation rate for prime working age people (ages 25 to 54) increased to 83.5%. That’s a 21-year high. This suggests that people have largely returned to the workforce, undoing the mass exodus we saw during Covid.

The weak spot continues to be wage growth, although that’s improved a little. Last month, average hourly earnings increased by 0.4%. Over the last year, average hourly earnings are up by 4.4%, but there are some key details in the jobs report.

Job growth would have been even lighter without a boost in government jobs, which increased by 60,000, almost all of which came from the state and local levels.

Other sectors showing strong gains were health care (41,000), social assistance (24,000) and construction (23,000).

Leisure and hospitality, which had been the strongest job growth engine over the past three years, added just 21,000 jobs for the month. The sector has cooled off considerably, showing only muted gains for the past three months.

The retail sector lost 11,000 jobs in June, while transportation and warehousing saw a decline of 7,000.

Friday’s report was a mild disappointment especially after the very strong ADP payroll report from last Wednesday. Still, the overall signs look quite good.

The next test for the economy and markets comes tomorrow when the government releases the CPI data for June. Inflation has consistently trended lower for the last year. We’ll find out if that trend continued.

The consensus for Wednesday’s report is that inflation increased by 0.3% in June and prices are up by 5% over the last year. This could be the first report in several months where inflation accelerated.

Fed officials think that getting inflation below the current rate could prove to be a very difficult job. Chairman Powell has consistently stated his intention to get inflation down to the Fed’s goal of 2% per share.

So far, the Fed’s hawkish stance seems to be justified. The central bank won’t meet for another two more weeks, but it appears that another 0.25% is virtually a certainty. As of Tuesday, traders said there’s a 92% chance that the Fed will hike. This would bring the target range for the Fed funds rate up to 5.25% to 5.50%. After that, traders think the Fed will be on pause for the next eight months. The CPI might change that outlook.

The fact is that the forecast for the economy has improved. Not that long ago, Wall Street fully expected the economy to be off the rails by now. That hasn’t happened. Actually, the stock market has been signaling a stronger economy for a few weeks, for those willing to pay attention. For example, the S&P 500 Industrials Index has rallied quite nicely since early June.

It’s interesting to bring this up because Industrials are a key component in the cyclical sector. In our issue from June 6, I told you about the then-recent downturn in cyclicals. I even said that cyclicals would regain their leadership before the end of the year.

Apparently, I was too pessimistic because cyclicals have been acting much better, basically since the day I mentioned it to you. It’s not just Industrials, but Energy and Materials stocks have also rebounded quite well.

The chart below shows that Industrials, Materials and Energy stocks have all been leading the S&P 500 (black line) since early June. Financials have as well.

Take this as a signal that Wall Street is growing skeptical of the recession hypothesis. If pricing pressures remain in the economy, the Fed’s job may not be done. It’s as if everyone was prepared for a recession except the economy.

The Nasdaq 100 Is Due for a Rebalance

The Nasdaq 100 is a stock index of the 100 largest nonfinancial companies on the Nasdaq. It’s basically become a good proxy index for the large-cap tech sector. The ETF for the Nasdaq 100 (QQQ) became one of the first breakout stars in the ETF universe. It now has $200 billion in assets under management.

The problem the index has is that it’s grown too far too fast. The three largest stocks now make up 30% of the index. The index has largely become an index of Amazon, Apple, Nvidia, Microsoft and Tesla.

Earlier this month, Nasdaq said it will do a special rebalance to address this. They already rebalance the index once a quarter just for mechanics, but this will be a special rebalance. In other words, they’re actively tinkering with a passive strategy.

The top five stocks make up more than 40% of the index, and the top 10 make up 59% of the index. QQQ has been crushing it lately.

This brings up an important issue that I think many investors don’t realize which is how distorted by size Wall Street is. A small group of stocks comprises a very large part of the market while many hundreds of stocks barely make a peep.

To be sure, I’m not advocating for a different kind of distribution. After all, we have to deal with the market we have, not the one we wish to have. But there are a few important lessons to be drawn.

For example, it’s fairly easy to build a “good enough” index fund by yourself. I’ve run the numbers and you can track the S&P 500 reasonably well with as few as 10 stocks. You’ll need to rebalance every six months or so to be close.

Conversely, you can build a large portfolio of stocks that have little to no correlation with the rest of the market. On the Nasdaq in particular, there are hundreds of little banks that are barely noticed. If these banks theoretically all merged together, they still wouldn’t be as powerful as JPM.

Stock Focus: Farmer Mac

This week, we’re going to look at a stock known officially as the Federal Agricultural Mortgage Corporation (AGM) but it is better known as Farmer Mac. Farmer Mac was chartered by Congress in 1988, and five of the 15 members of the Board of Directors are appointed by the President.

The idea of Farmer Mac was to create a secondary market for agricultural loans like mortgages in rural areas. The company has a close working relationship with the Department of Agriculture. AGM was founded after the farm bust of the 1980s. The idea was to build an alternative source of credit for farmers, and it would be in the mold of Fannie Mae.

While Farmer Mac’s debts are not guaranteed by the federal government, much of the farm sector is protected by the government. In fact, farming may be one of the most state-protected industries in America.

Fannie Mae, of course, was thrashed by the big Financial Crisis of 2007-08. Farmer Mac got hit hard as well. The company owned a lot of shares of Fannie Mae before Fannie was taken over by the Feds.

In a 15-month span, shares of AGM fell from $37 to $2.28. Since then, AGM has been a huge winner. Last month, the stock reached a new high of $153 per share.

One side note: I don’t like to cherry-pick numbers, which is easy to do in finance, but I’ll note that AGM has grown at a steady clip since its low. The chart above begins after AGM plunged in 2007. I didn’t think including it added much. A steady chart often a good sign of a strong underlying business. Thanks to its close relationship to the government, Farmer Mac is able to have far lower interest-rate-risk than many major banks.

Farmer Mac’s quarterly dividend has steadily increased from a nickel per share in 2011 to $1.10 per share in 2023. The stock currently yields 3.1%.

This is a cool little stock to watch. Only two Wall Street analysts follow AGM and it has a market cap of just $1.5 billion. That’s tiny in Wall Street’s eyes. JPM is about 300 times the size of AGM. Still, you can’t argue with success.

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: July 11, 2023
Posted by Eddy Elfenbein on July 11th, 2023 at 7:08 am

China Signals More Economic Aid After Property Debt Relief

UK Mortgage Rates Surge to 15-Year High After Surpassing ‘Mini-Budget’ Peak

Italian Banks See Deposits Plunge, Credit to Firms at 8-Yr Low

America’s Biggest Banks Are Going to Need More Capital

Gensler Asserts SEC Authority Over Crypto as Opponents Waver

CLO Market Set for $20 Billion Reset Spree in Sign of Thawing

Short Seller Andrew Left Is Living in Fear of the Feds

Americans Prepare for Tighter Budgets as Student Loan Payments Resume

No, ‘Socialism’ Isn’t Making Americans Lazy

Berkshire Buys Bigger Stake in LNG Facility. It Doesn’t Fear Fossil Fuels

Jeff Bezos and Bob Iger Top Sun Valley List, With AI and Streaming in Focus

The Next Challengers Joining Nvidia in the AI Chip Revolution

China Gallium Curbs Raise Chip Questions for Future EV Models

Foxconn Pulls Out of $19 Billion Chipmaking Project in India

The Rapid Rise of Threads Appears to Be Hurting Twitter

iQuit: My Hellish Attempt to Leave Apple’s Walled Garden

A Tiny Fish That Fuels an Atlantic Ecosystem Now Fuels Industry Debates

Facing a Battle for Armored Steel, This Tank Maker Bought the Factory

At Auction, American Cars Are Often Not Valued as Highly as their European Counterparts

PGA Tour Will Tout Minimal Saudi Influence in Golf Merger at Congressional Hearing

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Morning News: July 10, 2023
Posted by Eddy Elfenbein on July 10th, 2023 at 7:07 am

How a Distant War Is Threatening Livelihoods in the Arctic Circle

China and the U.S., Still Adversaries, Are Talking. That’s a Start

China Slides to Brink of Deflation, Adding Stimulus Urgency

Jack Ma’s Clash With Beijing Costs $850 Billion

Why China’s Young People Are Not Getting Married

Deutsche Bank’s DWS and Allegations of ‘Greenwashing’

Why Are Free-Market Thinkers So Fearful of CBDCs?

Powell Haunted by Repo Crisis as Fed Aims to Cut Balance Sheet

Banks’ Newest Fed Headache: Nonstop Instant Payments

Last Mile of the Inflation Fight Will Be the Hardest

Wave of Rental Resets to Further Deplete Affordable Housing

Morningstar Makes a Bold Call That Housing Market Affordability Will Be Restored by 2025. Here’s How

There’s More Pain Ahead for S&P 500 as Profit Warnings Loom, Investors Say

A Soft Corporate-Earnings Season Poses Next Test for Stock Market Rally

The Math Problem Stymieing Small Businesses in Rural America

Will Threads Kill Twitter?

Carl Icahn Gets Breathing Room From Lenders Following Short-Seller Attack

Move Over Dubai. This Tiny Emirate Wants to Be the Next Haven for Billionaires

The Super Rich Are Snapping Up Tokyo’s New Ultra-Luxury Homes

A PGA Tour Director’s Exit Casts a Pall Over Proposed Saudi Deal

Disney World Hasn’t Felt This Empty in Years

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Morning News: July 7, 2023
Posted by Eddy Elfenbein on July 7th, 2023 at 7:04 am

The Contentious U.S.-China Relationship, by the Numbers

U.S. Oil Boom Blunts OPEC’s Pricing Power

Oil is Hard to Quit, Even in Norway Where Electric Cars Rule the Road

Why a Strong Jobs Report Could Rattle the Markets

Traders Brace for US Payrolls With Global Yields at 15-Year High

Blackstone Sees Openings for Private Credit as Tech Growth Slows

Everyone Wants Interest on Their Deposits. That’s Bad for Main Street Banks

Binance Executives Exit as the Regulatory Heat on the Largest Crypto Exchange Intensifies

Alibaba Surges on Report China to Unshackle Ant With Fine

Character.AI Is Ridiculous. Its Founders Are Not

The AI Boom Isn’t Breaking the Memory-Chip Slump—Yet

Google, Meta Take on Trudeau in Proxy Fight Over Digital News Content

Meta’s New Threads App Is Terrible. It Just Might Bury Twitter

Apple Plans a Slow, Appointment-Only Rollout of Its $3,500 Vision Pro

Elon Musk’s SpaceX Now Has a ‘De Facto’ Monopoly on Rocket Launches

New York State Built Elon Musk a $1 Billion Factory. ‘It Was a Bad Deal.’

The ‘Whisper Listing’ Gets Louder

Gen X Is in Charge. Don’t Make a Big Deal About It.

Barbie Movie Is About More Than Selling Dolls for Mattel

Ex-Amazon Manager Sentenced to 16 Years in Prison in $9 Million Theft Scheme

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Morning News: July 6, 2023
Posted by Eddy Elfenbein on July 6th, 2023 at 7:03 am

Indian State-Run Banks to Be Cautious Buyers of Government Bonds as Yields Rise, Treasurers Say

Yellen Faces a Diplomatic Test in Her High-Stakes Visit to China

African Governments Step Up Demands for Share of Carbon Profits

Oil Below $80 a Barrel ‘Not a Problem’ for Oman, Minister Says

Jefferies Sees Turnaround in Deals After Prolonged Drought

America Is Living on Borrowed Money

As Greedflation Starts to Fade, Wageflation Creeps In

The US Is Building Factories Again, But Who Will Work There?

Americans Are Working Fewer Hours and That Holds Clues for Job Market

Americans Have Quit Quitting Their Jobs

The Average American Feels They’d Need Over $200K a Year to be Financially Comfortable

FTX Lawyer Who Made Problems Disappear Is Caught Up in Crypto Firm’s Fallout

How Tom Brady’s Crypto Ambitions Collided With Reality

From Banks to BBQ, Brands Targeting Conservatives Fuel a Parallel Economy

JetBlue, Turning Focus to Spirit Deal, Won’t Try to Save American Partnership

New Car Sales Jumped in the Second Quarter

Tesla and Chinese Rivals Signal Truce in Brutal EV Price War

Instagram Snags 10 Million Users Within Hours for Threads App, a Threat to Twitter

As Businesses Clamor for Workplace A.I., Tech Companies Rush to Provide It

In the Age of A.I., Tech’s Little Guys Need Big Friends

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Morning News: July 5, 2023
Posted by Eddy Elfenbein on July 5th, 2023 at 7:09 am

What’s Behind the Firmer-Than-Expected Yuan Fixings?

ECB’s Nagel ‘Wary’ of Calling New Era of High Rates

It’s a World of Inflation

The US Middle Class’s Economic Anxiety Will Decide the 2024 Election

How to Deal With Financial Trauma

Bulls Still Bet on Year of the Bond Even as Fed Eyes Rate Hikes

Hedge Fund King Street Raising Funds for ‘Slow-Motion Car Crash’ in Credit

Exxon’s Meager Bonuses Make Attracting More Traders Difficult

China’s Export Curb on Chip-Making Metals Prompt Countries to Explore Supply-Chain Diversification

Auto Sales Defy Gloomy Forecasts

How China Came to Dominate the World’s Largest Nickel Source for Electric Cars

Tesla Tests the Limits of Elon Musk’s Minimal Model Strategy

Judge Orders Biden Officials to Limit Contact With Social-Media Companies

In Business, ‘Flat’ Structures Rarely Work. Is There a Solution?

UPS Drivers Head Toward Possible Strike as Labor Talks Stall

Is This All-You-Can-Fly Deal Ridiculous, or Ridiculously Great?

Monster Energy Makes Big Move to Challenge Coke and Pepsi

No One Can Stop Rupert Murdoch. That’s Increasingly a Problem

Amazon CEO Asks His Hollywood Studio to Explain Its Big Spending

TV’s Golden Era Proved Costly to Streamers

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Morning News: July 4, 2023
Posted by Eddy Elfenbein on July 4th, 2023 at 7:15 am

Italy Has Frozen Russian Oligarchs’ Assets Worth $2.5 Billion

Spain May Be Moving Too Fast in Its Green Energy Push

China Takes the Trade Fight to Europe, Targeting the Green Transition

Yellen’s China Visit Aims to Ease Tensions Amid Deep Divisions

U.S. Looks to Restrict China’s Access to Cloud Computing to Protect Advanced Technology

Mackenzie Equity Chief Says It’s Time to Buy Bonds After Tech-Fueled Rally

Credit Suisse Wealth Staff Told to Prep for Management Roles

The Surprising Striver in the World’s Space Business

A Flying Car Prototype Just Got an Airworthiness Certificate from the FAA

Samsung’s A.I. Moment Is Here, but Is It Ready?

Tesla’s June Shipments in China Soar as Global Sales Hit Record

Twitter to Make TweetDeck Available Only to Paid, Verified Users

Instagram Launch of Twitter Rival ‘Threads’ Expected on Thursday

Meta Loses Appeal on How It Harvests Data in Germany

Billionaire Winklevoss Outlines ‘Final Offer’ in Genesis Crypto Bankruptcy

Crispin Odey’s Hedge Fund Empire Is Disintegrating Bit by Bit

SPAC Tied to Trump’s Media Business Says It Has a Deal With Regulators

Migrant Workers Flee Florida as New Immigration Law Takes Effect

Remote Work Sticks for All Kinds of Jobs

Spider-Man’s Pavitr Prabhakar, Based on Peter Parker, Drives India Wild

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Morning News: July 3, 2023
Posted by Eddy Elfenbein on July 3rd, 2023 at 7:06 am

A $30 Billion Disaster Is Just the Tip of a Deadly Climate Cycle

Widespread Drought Creates Winners and Losers in U.S. Agriculture

Saudis and Russia Extend Oil Supply Cuts, Bolstering Prices

Utility Companies Sell Wind, Solar Farms to Shore Up U.S. Power Grid

Cracking Down on Dissent, Russia Seeds a Surveillance Supply Chain

Yellen Heads to China This Week Advancing US Bid to Fix Ties

An 800% Stock Market Rally Puts Zimbabweans on Edge

Bridgewater’s Greg Jensen Sees a ‘Bad’ Outlook for Bonds and Stocks

Hedge Funds on the Brink of Abandoning Bullish Dollar Bets

Lithium Scarcity Pushes Carmakers Into the Mining Business

Tesla and BYD Post Record Sales on Surge in Electric-Car Demand

What Apple Did to Hit $3 Trillion

Zuckerberg’s Quest to Re-Enter China Faces Challenge: His Own Words

He Spent $140 Billion on AI With Little to Show. Now He Is Trying Again

Labor Market Headfake? Key Report Could Be Overestimating Job Growth

Industries Reliant on Thriving Downtowns Suffer From Remote Work

How to Succeed in Business Like Taylor Swift

More Chicken, Lighter Beer, Pink Drinks: Companies Craft New Products for Gen Z Tastes

Tyson Foods to Drop ‘No Antibiotics Ever’ Label on Some Chicken Products

Fireworks Have a New Competitor: Drones

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Morning News: June 30, 2023
Posted by Eddy Elfenbein on June 30th, 2023 at 6:15 am

China’s Economic Woes Are Multiplying — and Xi Jinping Has No Easy Fix

What Wagner’s Russian Mutiny Means for Putin and the World

Billionaire in Erdogan’s Shadow Thrives From Turkey’s Gold Trade

Eurozone Inflation Slows, but Underlying Price Pressures Persist

The End of LIBOR Is (Finally) Here

Jerome Powell Says Next Phase of Rate Rises Will Be Harder to Predict

SEC Chair Gensler Must Recuse Himself From Crypto Enforcement Decisions

American States Once Awash In Cash See Their Fortunes Suddenly Reversed

Wall St. Foresees a Rosy 6 Months. Corporate America Isn’t So Sure

Allianz Says Pimco Flows ‘Shaky’ as Investors Assess Rates

Scaramucci Says AI Stocks Are a Bubble But Buy Them Anyway

Apple Eyes Historic $3 Trillion Valuation Amid Big Tech Surge

TikTok Dangles Zero Seller Fees Ahead of US Marketplace Debut

You Should Be Getting Paid to Prevent Heat Wave Power Outages

New Mexico Regulators Fine Oil Producer $40 Million for Burning Off Vast Amounts of Natural Gas

Elite US Colleges Lose Diversity ‘Shortcut’ After Affirmative Action Ruling

Nike Increased Prices Along With Everyone Else and Now Discounts Are Mounting

Shein Flew Influencers to China to Help Its Image. A Backlash Ensued

The Summer of ‘Barbie’ Has Only Just Begun

Grimace Shake Trend Mixes Horror with McDonald’s Mascot on TikTok

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Morning News: June 29, 2023
Posted by Eddy Elfenbein on June 29th, 2023 at 7:05 am

Where Did All That Russian Gas Go?

Wind Turbines That Shake and Break Cost Their Maker Billions

China Regulators Step Up Yuan Surveys as Currency Slump Worsens

Top Central Bankers Expect More Rate Increases Amid Stubborn Inflation

Powell Says Likely Need Two or More Hikes to Cool Inflation

Why a US Recession Might Happen in Time for 2024 Election

Biden in a Race to Reverse Voters’ Pessimism About Economy

‘Hot Money’ Is Piling Up at Banks and It’s Starting to Take a Toll

US Bank Stocks Rise as Lenders Sail Through Fed’s Stress Tests

A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South

Dealmakers Adrift as $1 Trillion Vanishes in First Half

Jefferies Signals Green Shoots in Wall Street’s Investment Banking Lull

Popularity of Apps for Early Paydays Masks Added Risks

Lina Khan Is Coming for Amazon, Armed With an FTC Antitrust Suit

Beyond Musk vs. Zuck: How the Big Tech Rivalries Are Shifting

Nvidia Warns of Lost Opportunities if U.S. Bans AI Chip Exports to China

The Air Jordan Drop So Hot It Blew Up an Alleged $85 Million Ponzi Scheme

Cheaper Than Water? Retailers Try to Unload Bud Light

How America’s New Favorite Beer Hammered the Competition

Overstock.com Buys Bed Bath & Beyond Intellectual Property for $21.5 Million

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