Monday Sep 12, 2022
Monday Sep 12, 2022
There are a few fund managers that I follow and respect their opinions. One of them is Dan Niles who is a Stanford University graduate in electrical engineering. He has focused on tech stocks for over 30 years, and I always enjoy his commentaries and analysis. I have continued to warn that I still believe Apple stock is too pricey. Dan runs a hedge fund so unlike my portfolio he can short stocks and take a bet on the downside. In a Barron’s article recently, Dan stated he owns Apple stock but after the iPhone 14 launches on September 7 he not only plans to sell the stock but short it as well. That is quite the commitment. If you hold Apple in your portfolio, you definitely need to reconsider your position.
Shipment of smart phones around the world in the second quarter experienced a decline of 9% to 286 million units. If this continues in the third quarter, it could put downward pressure on the stocks of Apple and Samsung.
Good news on the inflation front. Retailers like Walmart, Nordstrom and Macy's are saying their inventories are building and they need to clean out their inventory to make room for holiday items. What that means is they’ll be cutting prices dramatically which will help ease inflation in certain areas and overall. We are no longer hearing about supply chain issues which means there is plenty of product and demand has eased so prices should decline. This will take a couple of months to pass through to the numbers, but they should start seeing good numbers just in time for the holiday season which will hopefully make consumers feel more positive and deliver a good holiday shopping season. The one wild card is still the price of oil and gas.
One of the big culprits that helped cause inflation was the huge increase in shipping costs. Remember all the disruptions and port backlogs? Last September it cost around $20,000 to ship a 40-foot container from China to the US. That cost has now been cut by nearly 3/4 with the cost for shipping the same 40-foot container from China to the US dropping to $5400. It is also projected new ships coming into service for the next two years will increase growth and capacity by 9% in 2023 and 2024. This will be another factor that will help keep shipping costs under control and in the end, retailers will be paying less in shipping costs so they can reduce their prices, which will help ease inflation.
Middle East Oil
You may complain about US oil companies and their huge profits, but at Saudi Arabia’s Saudi Aramco they saw a 90% increase in quarterly profits to $48.4 billion. Compared to Exxon Mobil's quarterly profit it is nearly 3 times as much. Such a shame we are sending all that money to the Middle East as opposed to producing more oil here.
We may be complaining about the increases in our CPI and PPI, which is the producer price index. However, Germany would love to have a producer price index at 10%. In July Germany’s PPI hit a record increase of 37.2%. That is a staggering number!
It is now September and before you know it, we will be singing Christmas carols and hanging Christmas decorations, quickly followed by the beginning of 2023. I have been wondering could our current Fed Chairman, Jerome Powell changes his tune next year and increase the inflation target from 2% to 4%? Here are a couple reasons why I think that could happen. First, over the last 50 years inflation has averaged 3.8%, perhaps he will realize the 2% target is too low. We have also seen him change his mind in the past, who could forget how long he stood behind the idea not too long ago that inflation was transitory. Just put this in the back of your mind and let’s see how things develop over the next six months.
MongoDB (MDB) is a cloud-based database software provider and last week they said they have seen demand from customers falling as their own business is beginning to slow. Who would be their customers? AWS which are owned by Amazon, Azure which is owned by Microsoft and Google cloud which is owned by Alphabet. It could mean when they report the third-quarter earnings in October we could see larger declines in their stocks. These companies still have a large weighting in the indexes which means they could pull the indexes down as well.
FAST Recovery ACT
Unfortunately, Governor Newsom did sign the FAST Recovery Act which will create a 10-person council to set fast food workers minimum wage as high as $22 an hour. There is a push from restaurant owners and business groups to get this on the ballot to have voters decide if this is right. Thanks to Governor Newsom this will be a waste of time and money for many people over such a silly thing to do to our economy.
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