Michael’s CIO (Check-It-Out) Report on the week just past — events, sarcasm, and global macro reflections
November 29, 2022
THEME: Ch-Ch-Ch-Ch-Changes, turn and face the strange
In an ever shifting world, it helps to distinguish mere aberrations from about-faces and extreme directional changes.
GL🌍BAL
Xi-Xi-Xi-Xi-Changes: Will Xi Jinping or China “turn and face the strange” of their COVID-zero policy? The nation is 3 years into an economically crippling COVID plan of rolling lockdowns yet the Chinese people just saw World Cup stadium fans unmasked and in close proximity (and others witnessed a deadly building fire where rescues were hampered by COVID lockdown measures). What gives?!? Protests erupt in Urumqi, Wuhan, Shanghai, and Beijing! ➜ The government won’t change but policy will. However it won’t change overnight for multiple reasons: The elderly are under vaccinated; The Chinese vaccine is not as effective as western vaccines; No herd immunity has been created; And the healthcare system has not been reinforced with the equipment it needs to handle a case surge😷🤒💉
Stimulus changes: China’s central bank (the People’s Bank of China) cut their bank deposit ratio again which should release $70 billion into the economy. Additionally, some state owned banks are providing interest free loans to troubled real estate developers as the country pulls itself out of a real estate crisis🏦🏢🏨🏗—In many ways, such moves are reminiscent of the U.S. Troubled Asset Relief Program (TARP) program during the great financial crisis of 2008/09 that stabilized the financial system here
GermanYields: Germany’s yield curve hit its deepest inversion since 1992; precursor to recession, maybe, but their economy grew slightly last quarter—If Europe has a warm winter, Germany’s economy could beat low expectations
Japan’s inflation is +3.6%, the fastest since 1982; that would be a welcome number in the U.S. but is shocking for an aging society that has been in a deflationary slump
WinterSoldier: 10 months into Russia’s war and terror campaign in Ukraine, as winter descends, sadly so do more Russian missiles aimed at water and power utilities and other infrastructure, using the onslaught of hunger and winter cold as weapons that infiltrate people homes ➜ Although recent headlines mention this becoming a forever-war, the war is changing and may transition into a period of rough equilibrium in 2023
EVietnam: VinFast shipped its first batch of electric vehicles to the U.S.; they should reach retail customers and subscription service Autonomy by year end. The company is also building an auto factory in North Carolina—Those EVs would qualify for Inflation Reduction Act incentives⚡🚘
BIZNOMIC$
DJ Fed, mixing it up: The Federal Reserve hinted (across 16 member speeches last week) that its next interest rate increase in December will only be ½% rather than ¾% (stocks like this news), but the Fed is also hinting that rates will go higher than their previous estimates and for a longer time (stocks don’t like this news)—The Fed also made their first mention of the possibility of recession
YieldCurves: The 3-month T-Bill / 10-year Treasury yield curve inversion (where the 10-year yields less than the 3-month) reached a new low in the current cycle—Historically this has been a strong indicator of oncoming recession ➜ Recession can still be narrowly avoided, but economically something would have to change to evade a downturn in 2023😐
Losses expanding: The headlines I read are that U.S. corporate earnings will contract in 2023 ➜ That also translates to, losses will expand😕
Ch-Ch-Ch-Ch-Ch-Ch: A pending railroad workers strike on December 9 would snarl supply lines of fuel, commodities, food, and goods, send negative shockwaves throughout the economy, and cost over a billion dollars a day in lost productivity🚅—Workers want predictive employee scheduling and more than one sick day
Store Wars: According to Google Trends, online searches for Walmart Black Friday (sales) far outpaced those for Amazon—Consumers are more willing to shop in store and Amazon garnered earlier attention last month with their second Prime Day of the year🛍—You can read more detail here
PERSONAL
Holiday Sales: We were quoted on Monday by International Business Times regarding Walmart outpacing Amazon in online searches for “Black Friday Sales”🛍—CH-ch-ch-ch-changes
Reactions: We were quoted last week by Reuters regarding how and why equity and bond markets were reacting ahead of Federal Reserve commentary and the Thanksgiving holiday
Art Basel: If you are in Miami, enjoy Art Basel—I hope to be there next year🎨
Make it a great week😊
Michael
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Michael Ashley Schulman, CFA
Partner & Chief Investment Officer
Running Point Capital Advisors, your family office
“We deliver custom investment solutions, innovations, and unique perspectives to you and your family.”
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