October 5
The Straights of Hormuz are critical to the global oil market. Pay attention.
https://www.eia.gov/todayinenergy/detail.php?id=61002
Tariffs are generally bad policy. The exception is tariffs against China, Russia, Iran and North Korea.
Economists at the Federal Reserve explain: This paper estimates the relationship between the U.S. tariff increases of 2018-2019 and outcomes in domestic manufacturing.
Despite being intended to boost manu- facturing activity, we find U.S. industries more exposed to tariff increases experience relative reductions in employment, as a small positive effect from import protection is offset by larger negative effects from rising input costs and retaliatory tariffs.
Higher tariffs are also associated with relative increases in producer prices due to rising input costs.
Lastly, we document broader labor market impacts, as counties more exposed to rising tariffs exhibit relative increases in unemployment and declines in labor force participation.
http://www.justinrpierce.com/index_files/flaaen_pierce_tariffs_manufacturing.pdf
Most famously, Whirlpool predicted that tariffs on washing machines would be great for Whirlpool profits, but their pleasure turned to dismay when they realized that steel and aluminum tariffs would raise their input prices. See Marginal Revolution.
Joe Biden should step down NOW. The New York Times reports:
With the Middle East on the brink of all-out war on Thursday, people around the world were wondering when Israel might retaliate against Iran and what the targets might be.
So President Biden told them.
Well, not entirely. But with two offhand responses to questions from reporters, the American president offered an unusual glimpse into the targeting and timing of a military attack being prepared by an ally.
First, Mr. Biden said that the United States was “in discussion” about the possibility that Israel might strike Iran’s vast oil fields, a move that would dramatically escalate the conflict. He seemed to indicate some concern about that military option, saying that “I think that would be a little — ” but quickly stopped himself midsentence and said, “Anyway.”
Responding to another question about possible Israeli attacks on Iran, he said: “There’s nothing going to happen today. We’ll talk about that later.”
https://www.nytimes.com/2024/10/03/us/politics/biden-oil-markets-middle-east.html
Biden should not be discussing highly sensitive national security matters with the media. Biden is a walking talking CF.
How can a nation of 330 million produce third rate political leaders such as Biden, Harris and Trump. Do we rummage in the garbage to find our presidents ?
Markets and Stocks
Momentum is positive. My 4 month target on the S&P 500 is 6,000, up about 5% from current levels.
The economy is in great shape. The September employment report was much stronger than expected with a jobs number of 254,000, against estimates of 150,000. The August report was revised higher. Wages ran a little hot, but the average workweek ticked lower, so the wage inflation trend continues to slope downward.
Earlier in the session, equities briefly erased losses after a readout showed the US services sector in September expanded at the fastest pace since February 2023. The Institute for Supply Management’s index of services jumped to 54.9, beating estimates. Readings above 50 indicate expansion. See Bloomberg.
The ISM services survey is consistent with a strong economy.
New orders were very strong indicating positive momentum.
The so called Magnificent 7 have fantastic fundamentals. Excluding Amazon and Tesla, the Mag 7 have extremely high net profit margins. Their premium valuations are more than justified.
Oil prices could shoot up $20 per barrel if Iranian production sees a hit, says Goldman Sachs.
Iran, which is a member of OPEC, is a key player in the global oil market. It produces almost four million barrels of oil per day, an estimated 4% of the world’s supply. See CNBC.
I disagree. The world economy is well supplied with oil. The global economy has between 5-6 million barrels of excess capacity. Iran exports about 1.5-2 million barrels a day. U.S. shale producers can ramp production in a matter of months if prices are high enough. Of course, the Strategic Petroleum Reserve moderates any sharp increase in prices.
A risk is that Iran tries to close the Straits of Hormuz. About 20 million barrels a day transits the straits. That is just under 20% of daily global demand.
https://www.eia.gov/todayinenergy/detail.php?id=61002
Nvidia
Nvidia shares will remain in the spotlight after CEO Jensen Huang said late yesterday during an interview on CNBC that demand for the company’s next generation Blackwell AI chips is “insane.”
The stock has oscillated within a symmetrical triangle, a chart pattern that indicates a period of consolidation, typically followed by a new trending move in the direction of a breakout and longer-term trend, which in Nvidia’s case, signals further bullish price momentum.
The measuring principle and bars pattern technique forecasts upside targets on Nvidia's chart at $180 and $210, respectively. A breakdown below the symmetrical triangle would likely see the shares find support around $97, near a trendline linking the twin March peaks with the upward sloping 200-day moving average.
https://stocks.apple.com/Aq4Vl4edlR5WvTRTO8GB9pA
Taiwan Semi will report Q3 sales next week and Q3 earnings the following week. I like TSMC.
Meta is at all time highs. Shares are up nearly 14% over the past month and nearly 65% this year.
Tesla - The Oct. 10 robotaxi event and Q3 earnings on Oct. 23 will likely have a big impact on the share price. Tesla is a great long term investment.
LLY is also a terrific long term investment. Eli Lilly will invest $4.5 billion to build a medicine research and manufacturing center following the success of two obesity and weight loss drugs. The facility will be called the Lilly Medicine Foundry and will be the site of new and more efficient drug manufacturing methods, the company said. The investment is meant to build off of the success of Mounjaro and Zepbound, which are expected to bring in $50 billion by 2028. The company said the foundry will be the first of its kind to bring together research and production, and will help develop more drugs for Alzheimer’s disease and other neurodegenerative conditions like amyotrophic lateral sclerosis, or ALS. See CNBC.
John Deere should give improved guidance when it reports its October quarter on November 21. Grain, cattle and hog prices are rising.
Falling quits rates are a precursor to falling wage inflation.
Next week marks the start of Q3 earnings season with Delta Air Lines, PepsiCo and several big banks on the calendar.
Pepsi reports Tuesday before the bell. Shares are up 3.7% in the last three months.
Delta reports Thursday before the bell. Shares are up 0.2% over the past three months.
JPMorgan Chase and Wells Fargo come out Friday morning. JPM is down 1.7% and WFC down 9.4% in the past three months. I like PEP and JPM.
Science
Accelerated biological age of a person's retina, as determined by #AI of its photo, is associated with increased risk of all-cause, cardiovascular, and cancer mortality along with cancer events. Stronger association than telomeres, physical activity or hand grip strength for these key outcomes https://thelancet.com/journals/lanhl/article/PIIS2666-7568(24)00089-8/fulltext