Michael’s CIO (Check-It-Out) Report on the week just past — events, sarcasm, and global macro reflections
October 31, 2022
THEME: Ups & Downs: 👍🏽👎🏽 Europe, duisseCREDITed, CaliFOURnia, Burps, Musk, and Rent
Recently we have seen ups, downs, and boomerang reversals in people, companies, elections, and socioeconomic patterns. Keeps everyone on their toes😏
GL🌍BAL
Yippee😐: The U.S. economy grew +2.6% last quarter mostly because of rising exports. Looming recession or not, it feels like a strange economic situation. Rising consumer prices are pressuring household spending, mortgage rates above 7% are cooling home sales, unemployment is at multidecade lows which allows the Fed to keep raising interest rates in its Don Quixote quest to skewer inflation, and companies are sending conflicting earnings messages—At this point, we are not keen to fight the Fed as they tighten monetary policy, especially if the Democrats lose the House during midterm elections and the loose fiscal spending that the Administration has pushed through dries up ➜ Opportunistic private credit, venture capital, hedge funds, and secondary private equity investments could provide a good entryway to take advantage of potentially nauseating economic ups and downs over the next 12 to 18 months
EurUp: The European Central Bank (ECB) raised interest rates 0.75% to 1.5% to fight +10% inflation and a declining euro currency. They were at -0.5% four months ago! The ECB will also make loans to banks more expensive in order to reduce credit (i.e., quantitative tightening (QT)
Japan: On the opposite end of the spectrum, Japan indicated a hefty economic stimulus of $490B to counter the blow to household budgets from inflation; policymakers are more concerned about economic stagnation than overheating—Such stimulus could further weaken the Yen💴📉➜Time to plan that Tokyo vacation
duisseCREDITed: Credit Suisse, the discredited Swiss bank, plans to restructure—raise billions of dollars, fire thousands of personnel, spin out its investment bank—to restore credibility after a succession of losses and management chaos shattered its prestige➜When banks have problems, it’s like a can of worms—20 banks are helping their international rival raise capital! Hardly anyone wants to risk a major collapse or financial contagion event😬
Aissur is Russia spelled backwards and that may be a euphemism for the possible impending implosion as Putin loses revenue, exports, and a devastating war—wishful thinking
Turn Left: Brazil’s former president Luiz Inácio Lula da Silva (who had been jailed for 580 days before his bribe taking conviction was annulled) beat far-right incumbent Jair Bolsonaro in Sunday’s very close presidential election➜Should be a net positive for the rainforest🌳
CaliFOURnia: Founded in 1849, California is poised to surpass Germany and become the 4th largest economy in the world🐻
Burp: Excuse me, but that was just some “natural gas” which has been the talk of town lately as prices have plunged in Europe—It is not that there won’t be winter demand for gas, but rather that storage facilities are full, and if you can’t store the gas, you can’t buy the gas—Someone has lost their shirt on this trade😵
BIZNOMIC$
Muska-Twit-teer: Elon Musk finally bought Twitter🐤for $44B—This may be positive for Tesla stock! Now that the transaction has been consummated, the Twitter overhang that weighed on Tesla shares (as shareholders worried that Elon would have to sell shares to fund his purchase) has been lifted and the stock should be freer to move up on positive corporate news—On another note, Musk may have buyer’s remorse; hope that regret does not “sink in” and psychologically distract him from managing Tesla, SpaceX, and the Boring Company
MixFlation: Consumer goods inflation (which represents 20% of the U.S. economy) is declining: used car and energy prices are down from their peaks; clothing, furniture, and other retail inventories are up; freight and logistic prices are easing; and the decline in home building will further ease commodity demand—However, consumer services are 50% of the economy and services inflation remains hot🔥—Our overall StayFlation call of inflation leveling at +3% or +4% remains in place
Boomerang: Because of government largesse (stimulus), many American families became wealthier during the pandemic; many analysts and indicators point to that effect now being unwound by inflation, declining investment accounts, and higher borrowing rates—But despite signs of U.S. economic weakness, the labor market is still quite strong
RENT: Apartment rents surged in 2021 and through much of 2022, but recently, rent increases are rapidly slowing—it will take several months for the slower pace to temper year-over-year inflation numbers—On another note, national home prices fell -2.4% between June and August🏡and declining residential demand (because of affordability issues) could severely constrain the economy—I don’t see home prices collapsing [see Game of Homes] but new home sales could remain low➜We continue to like some selective and opportunistic private real estate deals
Amazon drop: The big stock news was that Amazon’s stock fell -7% Friday on weak earnings ➜ But the big economic news out of Amazon is already months old—that they will close four U.S. call centers and switch employees to work from home, halt construction on office towers in Bellevue, Washington, and Nashville, Tennessee, reduce office space leasing plans in Manhattan, and close or cancel 44 warehouse facilities and delay the opening of 25 more—Imagine how other companies must be adjusting🙈
CONTENT
MidSeat: Virgin Australia airlines launched a $145K lottery for those who sit in the middle seat to entice passengers to sit in the snug seat—Probably cheaper than offering free drinks✈🍸
Expanding: Running Point is hiring a Portfolio Operations Associate—please send recommendations
PERSONAL
Green’ish: Find Running Point at the Grades of Green “Verte” event Saturday, November 5🌱please stop by our table and say hi🌿Grades of Green educates and empowers students around the world to take positive environmental action and make meaningful and sustainable change in their local communities💚
Money Animals: Find me Sunday, 13 November at Money Animals’ Financial Health Day in Santa Monica—Discover why your money personality matters!🐿🐘🦁🐻🐎—“live by design and not default”
Female led VC: Thank you Bridge Funding Global for inviting us to their Los Angeles Women GP/LP Matching Dinner🌉 ➜The Bridge “bridges the gender gap” by connecting curated female led venture capital firms with investors (institutions, family offices, advisory firms)—I a honored to be on their Selection Committee/Board
Make it a great week and Happy Halloween👻😊
Michael
~~~
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.”
Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-22-60
