Sept 12
The federal budget deficit was $1.9 trillion in the first 11 months of fiscal year 2024, the Congressional Budget Office estimates—$373 billion more than the deficit recorded during the same period last fiscal year. Revenues were $420 billion (or 11 percent) higher and outlays were $793 billion (or 14 percent) higher from October through August than they were during the same period in fiscal year 2023.
https://www.cbo.gov/publication/60592
Revenues were up double digits. Spending was even higher. Spending was up 14%. Spending is the problem.
The Western media is generally not interested in reporting the news. The media tries to brainwash the people into believing far left BS. To be truthful, there are right wing media outlets that shovel propaganda but they are in the clear minority. See The Free Press.
If you want to read far left neo Marxist nonsense, here is an opinion by the editors of the New York Times:
https://www.nytimes.com/2024/09/09/opinion/harris-trump-debate-issues.html
The left wing media is largely responsible for fracturing the country, first with its illegitimate push for equality as the purpose of the nation, and second for actively trying to subvert Trump’s campaign in 2016.
But the Constitution and U.S. institutions are strong and the U.S. military owes its ultimate duty to the Constitution not to the President.
So, I am not worried about the future of the nation.
Markets and Stocks
I like the market. My end of year target is 6,000 on the S&P 500, up around 9% from current levels.
Core CPI for August came in hot at 0.3%. I shrug my shoulders. The Fed will cut by 25 basis points next Wednesday. The labor market is slowing. Fed policy is very tight. The Fed will cut by 75 bps between now and year end.
Lower Treasury yields support higher equity valuations.
Watch the weekly jobless claims. If claims stay around 230-240 thousand then the labor market is okay. Households are enjoying real income growth.
Wages are the highest cost for most businesses. With productivity growth running at 2% and wages growing at 4%, wages will not be source of inflation. Importantly, unit labor costs are running below 1%. I am not worried about inflation.
Online grocery prices are in free fall.
The yield on the 10 year Treasury is trading around 3.66%. That is a 12 month low. The residential housing market should respond to lower mortgage rates.
The average price of gasoline is around $3.25 a gallon. In yesterday’s note I wrote:
The U.S. consumes almost 400 million gallons of gasoline a day. The average price of gasoline is down 30 cents a gallon since mid July. That means that at current price levels households and businesses are saving about $12 billion a day.
That is wrong by a factor of 100. Each day business and households save $120 million.
@AlecStapp The US now produces 50% more oil than Saudi Arabia
On Tuesday, Walmart hit an all time high. WMT is a great long term investment.
Apple is a terrific investment.
@swyx wow. Apple might just have fixed Siri. and beat OpenAI to the first AI phone.
and commoditized OpenAI with Google. and casually dropped a video understanding model. incredibly well executed.
I think both JPM and GS are terrific investments. The selling on Tuesday was silly.
Banks do well in a falling interest rate environment.
I want to reemphasize that I also really like AXP and LLY. You can buy both and sleep well for the next decade.
Just to repeat old news: Bloomberg reports: TSMC’s revenue rose 33% last month, in a positive signal to investors betting on a smartphone market recovery and sustained demand for AI chips.
Sales reached NT$250.9 billion ($7.8 billion) in August, slowing from the previous month’s 45% growth pace. For the third quarter, analysts expect TSMC’s revenue to grow 37%, extending a recovery from the post-Covid depths of 2023.
That puts TSMC on track to beat average projections for third quarter revenue by a slight margin, Bernstein analysts led by Mark Li wrote. “If September follows the average seasonality of the past 8 years, 3Q24 revenue would come 5 to 6% above both the guidance mid-point & consensus,” he said.
On JPM CNBC reported:
JPMorgan Chase shares fell 7% Tuesday after the bank’s president told analysts that expectations for net interest income were too optimistic.
The current estimate for NII -- one of the main ways that banks earn money -- of $89.5 billion is too high given expectations for interest rates, JPMorgan president Daniel Pinto told an audience at a financial conference.
The move was the New York-based bank’s worst drop since June 2020, according to FactSet. See CNBC.
I am not worried about JP Morgan. It is a great investment. It is the global economy’s preeminent large bank.
CNBC also said:
New rules and regulations regarding global banking weren’t as impactful as feared. However, the industry was hit by a few factors on Tuesday, including JPMorgan’s lowered expectations for net interest income for next year and Ally Financial’s statement the consumer was showing signs of struggle.
Ally dropped 17.6% Tuesday. Shares are 28% from the 52-week high hit July 31.
JPMorgan dropped 5%. It is 8% from the Aug. 30 high.
Goldman Sachs fell 4.4% Tuesday. The stock is 9.7% from the July 31 high.
Citigroup fell 2.7%. The stock is 14.5% from the 52-week high.
Morgan Stanley fell 1.6%. It’s down 11.5% from the July 16 high.
Wells Fargo fell 1.17% Tuesday. The stock is 13.75% from the mid-May high.
Bank of America fell 0.5%. The stock is 11.6% from the mid-July high. CEO Brian Moynihan told CNBC TV’s Sara Eisen on Tuesdaythat he had more confidence in the American consumer and didn’t see anything to worry about. “The consumer is not getting worse right now, they’re very stable” he said.
The SPDR S&P Regional Banking ETF (KRE) fell 0.87% Tuesday. It is 8% from the July 31 high.
West Texas Intermediate futures fell 4.3% to settle at $65.75 on Tuesday. That’s the lowest settle since December 2021.
Brent futures fell 3.7% Tuesday and settled at $69.19, the lowest settle since December 2021.
Economics
NBER working paper 32923 focuses on political speech.
We study the distribution of political speech across U.S. firms.
We develop a measure of political engagement based on firms’ communications (earnings calls, regulatory filings, and social media), by training a large language model to identify statements that contain political opinions.
Using these data, we document five facts about firms’ political engagement. (1) Political engagement is rare among firms. (2) Political engagement is concentrated among large firms. (3) Firms tend to specialize in specific topics and outlets. (4) Large firms tend to engage in a wider set of topics and outlets. (5) The 2020 surge in firms’ political engagement was associated with an increase in the engagement of medium-sized firms and a change in the mix of political topics.
https://www.nber.org/papers/w32923
My words: the board of directors and management of corporations should stay out of politics. The board’s purpose is to maximize shareholder returns through higher profits. Corporations should obey the law, shut up about social matters and try to maximize profits.
Politics
@TheRabbitHole84 : Unmarried women are the primary voting demographic of the Democratic Party.
Sociology
Now this made me laugh: The Economist magazine of Great Britain believes that American cars are too big and lead to unnecessary deaths when accidents inevitably occur. I agree but if The Economist thinks Americans are going to stop driving big cars, The Economist is completely ignorant about the American psyche.