While the USA recorded its largest GDP gain since Q4 2021, CEOs across the financial, logistics, technology & consumer discretionary industries have turned cautious of an impending economic slowdown.
I think the unrelenting focus on increasing profit-margins by cutting costs leaves out an important consideration-offering a satisfactory product that customers are ok paying for. The last time I went to my local Apple Store with a relatively simple request, I thought, I was told, after a 45 minute wait, that my issue could only be resolve by on-line tech support-the real live employee in front of me was no longer allowed to do the thing. Back home, I waited well over an hour to talk to a real live voice who sent me to a robot which eventually messed up other things and so a real live voice spent a long time undoing what the robot had helpfully messed up, etc., etc. There are half as many checkers at any time at the grocery store than there used to be, which means standing in line waiting to pay often takes longer than collecting the groceries. Wait times to see someone on my physician’s “team” is 6-8 weeks...The value of my time clearly does not figure in the calculations of value offered of the corporations that offer the three services I mentioned. How much more money do these CEO need to have squirreled away before they will feel comfortable participating in the world around them, I wonder?
I have also observed that customer support experience has gotten severely worse across companies in all industries since the pandemic started and it has not materially improved since.
GDP and other government statistics seem more and more disconnected from the reality of most people. Something is really off. I see few people living it up on consumer spending. Most restaurants around me are mostly empty and no one buys anything unless it is on sale, so perhaps more to Walmart online and Amazon but that is hardly reason to celebrate. Yes I feel the CEOs are telling the truth. Commercial real estate is still a big problem. When loans come due companies need to refinance at much higher rates. Housing is unaffordable. There has been so much government stimulus in various areas such as in green tech but this is causing bubbles that are already popping as inflation and supply chain issues are big issues (as well as other realities in integrating new technology to our current infrastructure). More GDP because of illness and war is not terribly inspiring. GDP as a model for global economic prosperity needs a major rethink. AI has propped things up this year. When you take the top AI companies out you see more of the reality which you are hi lighting very well in your article. Excellent job! Still confusing to sort out admittedly. Thanks for your hard work and sharing so freely.
Thanks Lynn for such an insightful comment. You have touched on a lot of very relevant areas that I all fully agree with. Especially, the part where real GDP needs a rethink. There are pockets of bubbles, especially green tech which rode on optimism for the longest time since the beginning of the pandemic. Even AI for the matter of fact. Though I do strongly believe that there are companies that are solidly positioned to benefit from the acceleration in AI, green tech for me was always a very fuzzy idea and the fact that the largest money managers jumped on the bandwagon with a highly political and half baked idea was always baffling.
On the consumer side of things, the housing market is in a gridlock and it won't get solved until interest rates decline.
I would also add that with the projected level of government spending, it is leaving very little for the private sector to allocate money to more income producing long term productive investments, and as long as that dynamic doesn't change, the government just becomes a larger and larger entity sucking up all the liquidity from the system and strangling real growth.
Thanks Amrita. Excellent point about the government and disincentives for more resourceful private industry. New investors seem to think it is normal that the government partner with them forever, seemingly de-risking everything and deciding what technologies should be developed and which ones not. This is not a left vs right issue. This is just common sense. Yes there is a need for government in these new areas but things are going way too far. It is also discouraging creative business investments in these areas that have merit but are not following the in crowd. It used to take years for bubbles to pop but in today’s chaotic world, it is happening much faster. I hope there are pockets of AI that solve real problems moving through the hype. Also it depends on evolving regulations. If what the government is doing in green tech is any indication it is not confidence inspiring.
Absolutely, I believe that we are possibly at one of the inflection points in the innovation cycle (and these inflection points are happening in closer spans of time, than they used to before, before technology is generally exponential, if there is funding for R&D) with AI and we need well-informed, knowledgable people in the government who can partner with technologists and entrepreneurs instead of meaninglessly policing and creating unnecessary roadblocks.
The American consumer is being FORCED to keep spending more because inflation is rampant on living essentials. The net effect is a loss of wealth the past few years...
Fully agree with you Frank. It is the middle and lower income groups that are getting hurt the most from the effects of higher inflation and interest rates. The only way to resolve this situation is for inflation to come down. Unfortunately for inflation to come down in the traditional sense often accompanies weakness in the labor market, which in this case will inflict even more pain.
I think the Military Industrial Complex is about tol have its best growth ever. GDP growth in this arena does not benefit world citizens. Perhaps it should count as negative growth to GDP.
You are 100% right, that military spending is going to grow substantially over the coming years, especially as geopolitical tensions worsen. Could be a great opportunity for military related companies such as Lockheed Martin, Raytheon and others to shine. As for the calculation side of things, military spending drives employment and income to people who are employed in this industry, so therefore it is part of overall GDP. While wars never benefit the world citizens in any shape or form, a nation needs to invest in military for its citizens to feel a sense of security. But investing in military spending to fight unnecessary wars that could be avoided through diplomatic relationships would simply inflate the nominal government spending portion of the GDP without adding real growth.
The longer interest rates remains high or raised higher from current levels, banks will raise their deposit interest rate, though an inverted yield curve complicates the situation. But so far, an inverted yield curve has not materially hurt banks as they are still earning more on their loans (interest income), vs. paying out on deposits (interest payment). One of the other things to keep in mind is that money market funds (MMFs) are offering much more attractive yield on cash than interest paid by banks on deposit, as a result, we have seen a sizable portion of deposits leaving the banks into MMFs. This may spell trouble if it takes place in higher volumes (I don't know what the tipping point is), as this would lead to bank runs and other issues. Should banks see a mass exodus of deposits into MMFs, they would likely raise their interest rate on deposits a little higher, so that the deposits stay with the bank. Does this answer you question?
I’m still in the bear camp. Some valuations don’t make sense with the current rates and with the yield curve as inverted as it is now. It’s not that we’re at the heights of a bull market, but investors are slowly realising that markets can’t be this overpriced for too long. In my eyes, we’re about to plunge into a bear market.
I would agree with you. My logical brain says bear market. However, the market is often short sighted and irrational, and given the fact government spending is strong and the new issuance of Treasury debt are taking place on the shorter end of the yield curve is helping overall liquidity stay flat, I am careful of a sudden rally that may take the market close to its all time high. But for now, like you, I am extremely cautious.
Exactly, the market can stay overpriced for months and even years, that’s how bubbles form. I don’t discard another rally before EOY, but that’s what everyone’s expecting, so I expect the opposite.
Should a rally indeed happen, I don't even think I would participate, right now, until things become clearer, I am mostly favoring short term bonds, gold and bitcoin.
I think the unrelenting focus on increasing profit-margins by cutting costs leaves out an important consideration-offering a satisfactory product that customers are ok paying for. The last time I went to my local Apple Store with a relatively simple request, I thought, I was told, after a 45 minute wait, that my issue could only be resolve by on-line tech support-the real live employee in front of me was no longer allowed to do the thing. Back home, I waited well over an hour to talk to a real live voice who sent me to a robot which eventually messed up other things and so a real live voice spent a long time undoing what the robot had helpfully messed up, etc., etc. There are half as many checkers at any time at the grocery store than there used to be, which means standing in line waiting to pay often takes longer than collecting the groceries. Wait times to see someone on my physician’s “team” is 6-8 weeks...The value of my time clearly does not figure in the calculations of value offered of the corporations that offer the three services I mentioned. How much more money do these CEO need to have squirreled away before they will feel comfortable participating in the world around them, I wonder?
I have also observed that customer support experience has gotten severely worse across companies in all industries since the pandemic started and it has not materially improved since.
GDP and other government statistics seem more and more disconnected from the reality of most people. Something is really off. I see few people living it up on consumer spending. Most restaurants around me are mostly empty and no one buys anything unless it is on sale, so perhaps more to Walmart online and Amazon but that is hardly reason to celebrate. Yes I feel the CEOs are telling the truth. Commercial real estate is still a big problem. When loans come due companies need to refinance at much higher rates. Housing is unaffordable. There has been so much government stimulus in various areas such as in green tech but this is causing bubbles that are already popping as inflation and supply chain issues are big issues (as well as other realities in integrating new technology to our current infrastructure). More GDP because of illness and war is not terribly inspiring. GDP as a model for global economic prosperity needs a major rethink. AI has propped things up this year. When you take the top AI companies out you see more of the reality which you are hi lighting very well in your article. Excellent job! Still confusing to sort out admittedly. Thanks for your hard work and sharing so freely.
Thanks Lynn for such an insightful comment. You have touched on a lot of very relevant areas that I all fully agree with. Especially, the part where real GDP needs a rethink. There are pockets of bubbles, especially green tech which rode on optimism for the longest time since the beginning of the pandemic. Even AI for the matter of fact. Though I do strongly believe that there are companies that are solidly positioned to benefit from the acceleration in AI, green tech for me was always a very fuzzy idea and the fact that the largest money managers jumped on the bandwagon with a highly political and half baked idea was always baffling.
On the consumer side of things, the housing market is in a gridlock and it won't get solved until interest rates decline.
I would also add that with the projected level of government spending, it is leaving very little for the private sector to allocate money to more income producing long term productive investments, and as long as that dynamic doesn't change, the government just becomes a larger and larger entity sucking up all the liquidity from the system and strangling real growth.
Thanks Amrita. Excellent point about the government and disincentives for more resourceful private industry. New investors seem to think it is normal that the government partner with them forever, seemingly de-risking everything and deciding what technologies should be developed and which ones not. This is not a left vs right issue. This is just common sense. Yes there is a need for government in these new areas but things are going way too far. It is also discouraging creative business investments in these areas that have merit but are not following the in crowd. It used to take years for bubbles to pop but in today’s chaotic world, it is happening much faster. I hope there are pockets of AI that solve real problems moving through the hype. Also it depends on evolving regulations. If what the government is doing in green tech is any indication it is not confidence inspiring.
Absolutely, I believe that we are possibly at one of the inflection points in the innovation cycle (and these inflection points are happening in closer spans of time, than they used to before, before technology is generally exponential, if there is funding for R&D) with AI and we need well-informed, knowledgable people in the government who can partner with technologists and entrepreneurs instead of meaninglessly policing and creating unnecessary roadblocks.
The American consumer is being FORCED to keep spending more because inflation is rampant on living essentials. The net effect is a loss of wealth the past few years...
Fully agree with you Frank. It is the middle and lower income groups that are getting hurt the most from the effects of higher inflation and interest rates. The only way to resolve this situation is for inflation to come down. Unfortunately for inflation to come down in the traditional sense often accompanies weakness in the labor market, which in this case will inflict even more pain.
Very insightful. Thank you!
Thank you Diego, I am glad you enjoyed it.
I think the Military Industrial Complex is about tol have its best growth ever. GDP growth in this arena does not benefit world citizens. Perhaps it should count as negative growth to GDP.
You are 100% right, that military spending is going to grow substantially over the coming years, especially as geopolitical tensions worsen. Could be a great opportunity for military related companies such as Lockheed Martin, Raytheon and others to shine. As for the calculation side of things, military spending drives employment and income to people who are employed in this industry, so therefore it is part of overall GDP. While wars never benefit the world citizens in any shape or form, a nation needs to invest in military for its citizens to feel a sense of security. But investing in military spending to fight unnecessary wars that could be avoided through diplomatic relationships would simply inflate the nominal government spending portion of the GDP without adding real growth.
What's the ultimate factor that push higher payouts on deposits?
The longer interest rates remains high or raised higher from current levels, banks will raise their deposit interest rate, though an inverted yield curve complicates the situation. But so far, an inverted yield curve has not materially hurt banks as they are still earning more on their loans (interest income), vs. paying out on deposits (interest payment). One of the other things to keep in mind is that money market funds (MMFs) are offering much more attractive yield on cash than interest paid by banks on deposit, as a result, we have seen a sizable portion of deposits leaving the banks into MMFs. This may spell trouble if it takes place in higher volumes (I don't know what the tipping point is), as this would lead to bank runs and other issues. Should banks see a mass exodus of deposits into MMFs, they would likely raise their interest rate on deposits a little higher, so that the deposits stay with the bank. Does this answer you question?
Very clear, Thank you very much!
You are welcome.
I’m still in the bear camp. Some valuations don’t make sense with the current rates and with the yield curve as inverted as it is now. It’s not that we’re at the heights of a bull market, but investors are slowly realising that markets can’t be this overpriced for too long. In my eyes, we’re about to plunge into a bear market.
I would agree with you. My logical brain says bear market. However, the market is often short sighted and irrational, and given the fact government spending is strong and the new issuance of Treasury debt are taking place on the shorter end of the yield curve is helping overall liquidity stay flat, I am careful of a sudden rally that may take the market close to its all time high. But for now, like you, I am extremely cautious.
Exactly, the market can stay overpriced for months and even years, that’s how bubbles form. I don’t discard another rally before EOY, but that’s what everyone’s expecting, so I expect the opposite.
Should a rally indeed happen, I don't even think I would participate, right now, until things become clearer, I am mostly favoring short term bonds, gold and bitcoin.
It seems like they are doing a fine balancing act managing economy! 🤹♀️
So far, yes. But cracks are starting to form.
🙏
Glad you liked it Carlos. How is your writing coming along?