2021_09_27 — THEME: Informal Growth and Much ado About…
September 27, 2021
Michael’s CIO (Check It Out) Report on the week just past — events, sarcasm, and global macro reflections
THEME: Informal Growth and Much ado About…
- Informal Growth: The “new normal” was a post-great financial crisis period of low growth and low inflation (both under 2%); the rest of this decade may be characterized by +2% growth and +2% inflation — an inflated-normal growth — call it “Informal Growth”
- Pumpkin Spice EverVenti: Cascade of concern regarding Chinese property developer Evergrande at the beginning of the week ensnared stocks with very little link to China as general de-risking took place; interestingly, Chinese markets were closed Monday & Tuesday for the mid-autumn festival. Evergrande faces a severe liquidity crunch — they don’t have enough cash flow coming in to cover expenses — as mentioned previously, expect this problem to mostly be contained within China and Beijing to placate affected comrades — but Evergrande may still be the canary🐦in the coal mine signaling more to come
- Bitpain: China bans all crypto transactions (yet still plans to roll out its digital yuan which would allow extreme financial control); and Biden taps crypto critic Saule Omarova to run the Office of the Comptroller of the Currency (OCC) — coincidence😏
- Plyth, a data network, showed a brief and false 90% Bitcoin plunge that may have led to real automatic selling — ouch!
- U.K. may join the USMCA free-trade agreement between the U.S., Mexico, and Canada — new acronym anyone?
- Trudge on: Canadian PM Trudeau’s early election which no one else wanted, didn’t change the balance of power 🤷🏽♂️ his Liberal party didn’t win a majority — waste of time and money
- Earnings: Nick Raich of The Earnings Scout says, “low growth expectations are a positive because it paves the way for more positive upwards earnings per share (EPS) estimate revisions in 3Q21 earnings season. I’d be more worried if 2022 growth expectations were too high” — me too!
- Upside drone: Boeing’s first ever foreign production plant (in Toowoomba, Australia) will assemble military drones — timing of this defense company deal and the US’s recent nuclear submarine deal with Australia may be more than coincidental
- Office space isn’t dead: Google pays $2.1B for 1.3MM square foot 12-story Manhattan West Side waterfront office building🏢Tech giants own a lot of real estate
- Delivery: FedEx cuts forecast as rising costs overtake price hikes, but Uber expects its first profitable quarter
- Centralized: Biden administration considers a Cold War-era national security law to force companies in the semiconductor supply chain to provide data on inventory and sales of chips— do shortages = threat🤷🏽♂️
- Trilling: U.S. household wealth has surged by $32 trillion since its low in March 2020 on the back of record stock and home values — that’s more than the combined U.S., European, Chinese, and Japanese central banks’ balance sheets
- Taper: The U.S. central bank revealed a stronger inclination to raise interest rates next year and announced it could scale back bond purchases in November and complete the process by mid-2022 — I’m okay with this, but relatively surprised at how okay the market was with this😬
- Gasoline, $3.195 per gallon, was last this high in October 2014 ⛽️
- NatGas: Record-high European natural gas prices are pressuring the supply chains of truckers, gas suppliers, fertilizer producers (natgas is key to ammonia production), and carbonated beverage companies (CO2 is a byproduct of ammonia production)🧩
- Transport(N)ation: Once the automobile chip supply problem has been solved, expect a flood of new electric car models, brands, and companies; because scale will be crucial, expect competitive pricing — Lucid, Rivian, NIO, VinFast (Vietnam) to name a few
- Slim: Angela Merkel’s conservative party narrowly lost and Germany’s Social Democrats (SDP) narrowly won Sunday’s national election — a coalition government will need to be formed
- Debt Ceiling: As mentioned two weeks ago, Congress’s mandated national debt cap will soon be reached (as happens every so often); if so, the U.S. could default on its payments (which would be bad) until the limit is raised — a game of chicken has begun
Best wishes for the week ahead😃,
Michael
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Michael Ashley Schulman, CFA
Partner / Chief Investment Officer
“We deliver bespoke investment solutions, innovations, and unique perspectives to you and your family.”
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