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Job Cuts, Weak Earnings, Debt Ceiling Debate Leading to Perfect Storm of Economic Crisis Friday, January 20, 2023, 9:04 am ET Wall Street version of the current economy:
Santa Claus, lollipops, kitty cats, and yes, maybe even some unicorns... However, this is how most people view Wall Street:
A Bugs Bunny reality with an Ethel Merman narrative is the quite correct and snarky condition. So, you've made it to Friday. In calendar terms, a short week, but, for investors, a long and maybe tortuous one. Through Thursday's close, the Dow Jones Industrial Average has dropped 1258.05 (-3.67%) for the week, a somewhat stunning accomplishment, being that those 1200+ points came off in just three days. The NASDAQ did a little better, actually eeking out a small gain on Tuesday. Still, the tech-heavy index is down 226.89 (-2.05%). Shedding 100.24 points (-2.51%), the S&P is staring down - with its peers - the first losing week of 2023. The NYSE Composite fared the best, down just 79.50 (-0.51%). It pays to be diversified away from large caps. While the cheerleading horde on CNBC, Fox Business, and Bloomberg TV continue looking for bright spots, economic data is telling another story, one of inflation, layoffs, and a stagnant economy that has all indications of rolling over into a recession. There are still deniers who believe the US can survive with only minor scars from the proceeding downturn, though they routinely ignore the obvious. Stocks don't have any impetus to make gains from current levels. Earnings reports for the 2022 fourth quarter and full year have been mixed, if not outright disappointing. Banks and credit card issuers (Discover (DFS), CapitalOne (COF)) have all added to loan loss reserves, denting their balance sheets in anticipation of what many believe to be a reckoning between exhausted consumers and record-high interest rates. Tech companies are laying off thousands, the latest coming from Microsoft (10,000) and Google parent, Alphabet (12,000). After a while, these numbers begin to add up. Independent website, dailyjobcuts.com, offers an up-close perspective of the workforce spectacle with links to the news behind the numbers. This is a site that can be trusted more than the usual massaged numbers that come out of the BLS or weekly government unemployment roundup because it cites real sources, not some goal-seeked number spawned by a computer algorithm. See for yourself the business closings and worker furloughs. What continues to evolve in real time is a growing distrust of government, media and their propagation of lies and misinformation. It's a safe bet these days that whenever ABC, NBC, CBS, PBS, the US government cites some message as dis-or-misinformation, it can be regarded as truth, their objections overruled. Ukies are winning, safe and effective, yada, yada, yada. Americans, for all their gullibility and good-nature, aren't so easily fooled. They can tell with their own ears and eyes that the current situation isn't very positive. They'll put up with quite a bit, but when food and fuel become unaffordable and then they lose their livelihoods on top of that, there's going to be blowback, already having taken form in the quiet quitting that's been an ongoing phenomenon since the early days of the pandemic. Now, with companies simply casting workers aside, people are becoming a little less tolerant of government and media bluster, telling them the economy is strong, fine, or otherwise healthy. It's not, and it's becoming obvious to everybody, everywhere. Next up for the people who think they can run the show from the halls of congress and White House podiums is the debt ceiling, reduced tax receipts (can't get blood from a stone, after all), and about as much noncompliance as laid off, pissed off people can muster. In terms of stocks, that means the bottom is not in. Not even close. And that's even without consideration of the currency collapse already well underway.
At the Close, Thursday, January 19, 2023:
Thursday, January 19, 2023, 9:45 am ET In Wednesday's market post-mortem, there was no shortage of explanation for the stock meltdown that ended a seven-day rally on the NASDAQ and extended the Dow's decline to over 1000 points in just the last two sessions. Some blamed James Bullard, president of the St. Louis Fed, for his comments on Fed policy, expressing a view that he and his colleagues on the FOMC should get the policy rate of interest above 5% "as quickly as we can," pushing back on market players seeking dovishness on the Fed's part and a pause or slowdown on the interest rate front. Economic data played a role according to others, as industrial production, capacity utilization, retail sales and the Empire State manufacturing index all showed signs of a deteriorating economy. Still others pointed to the lingering effects of Goldman Sachs (GS) horrible fourth quarter results announced Tuesday, Microsoft's (MSFT) fingering 10,000 employees for pink slips, or the natural culmination of the NASDAQ short squeeze which sent the worst-beaten-stocks of 2022 up sharply in the first two weeks of 2023. Some people were even concerned that the upstart Republicans in the US House of Representatives might force the federal government into a debt default in a protracted debt-ceiling duel. The government of the United States will likely hit its mandated $31.4 trillion borrowing limit on Thursday, forcing Janet Yellen's Treasury to launch extraordinary cash management measures that may delay default until early June. Perish the thought. These were just some of the reasons attributed to stocks taking a turn south, and there were others, especially in terms of the housing market, sending tanks to Ukraine, and Russia and Iran pondering the use of a gold-backed crypto token to settle international trade. Statements by Saudi Minister of Finance Mohammed al-Jadaan at the WEF conference in Davos, Switzerland that the kingdom was open to trading in currencies other than the US dollar stunned some not keeping up with developments in the Middle East. OPEC+'s largest oil producer has been steadily moving away from the petrodollar and towards a petroyuan, favoring China as a trading partner over the United States. The rationale for selling stocks has been apparent for some time and all of the aforementioned issues are merely manifestations of the decline of the United States in general and the deterioration of the dollar as the global reserve currency due to inappropriate and sometimes insane government policies causing reluctance on the part of many non-aligned nations to trade with the US and caution holding US dollars in reserve. Wall Street's cronyism, combined with easy conning of Washington, DC politicians to do their bidding has created a toxic environment in international business culture. Recent and past revelations about the dealings of Joe Biden, his son, Hunter, and others in his circle haven't made matters any more appealing. Wednesday's stock selloff cannot be attributed to a single issue. It's more likely that the weight of all matters combined contributed to an environment unconducive to profit-seeking. In an economy as robust and dynamic as the US, no single issue can cause flight from investments. It takes more, and there's plenty out there from which to choose. As indications of a protracted global recession amid an environment of de-dollarization continue to proliferate, opportunity risk is elevated. Flight into fixed-income or other alternative asset classes become more appealing, especially in hard goods, commodities, and precious metals. Gold and silver are especially attractive as stores of value in a sea of uncertainty overlaid with currency concerns. As paper assets are liquidate, what has been money for thousands of years emerges as the ultimate safe haven. Most recently, there's been a rush to gold, which is up more than four percent this year, leaving silver - flat for the year - in its impressive wake. While gold is certainly the standard for central banks and sovereign funds, silver carries with it a dual role as industrial and monetary metal. By any account, it is undervalued on a comparative basis. With the gold:silver ratio a leading indicator at 81:1, purchases of silver bars or coins should be a no-brainer, while anybody buying up gold cannot be faulted. World economies are changing at a pace unseen by anybody alive. Some security in precious metals, commodities, and real estate will allow for fewer sleepless nights.
At the Close, Wednesday, January 18, 2023:
Wednesday, January 18, 2023, 9:05 am ET Wednesday kicks off with the December PPI release, showing producer prices declining 0.5% month-over-month while increasing 6.2% on a year-over-year basis. Less than a half hour until the US open futures have responded by remaining somewhat muted, indicating a marginally higher or flat open. After that, the guessing game is that market participants will view this development as somewhat bearish, as more than half of the monthly decline was attributed to a 13.4% decline in the price of gasoline, which has reversed course and is rising in January. Also on investor radar was the Bank of Japan (BoJ), which kept its key 10-year target rate in a range of -0.50 to 0.50%. The central bank is running out of time, soon to own all of Japan's bond issuance unless they step back from their yield curve control policy to keep interest rates in check. The issue of Japan remaining steadfast on rates in the face of tightening worldwide will be a major factor for investors to consider in coming weeks, the general understanding being that the BoJ cannot maintain their current position much longer. US retail sales declined 1.1% last month following a downwardly revised drop of 1% in November, according to the latest data from the US Commerce Department. Turns out, holiday shoppers were not in much of a gift-buying mood. Retailers like Macy's (M) and Target (TGT), reporting next month, will be hard-pressed to even make good on lowered expectations for the fourth quarter of 2022. On Tuesday, Goldman Sachs (GS) reported dismal Q4 earnings, missing EPS by a huge margin on consumer banking and other losses, taking the Dow Jones Industrial Average down with it on Tuesday.
Expected to return $5.48 to investors in the quarter ended December 31, the company best known for screwing Other lowlights include:
Additionally, the company announced layoffs of 3,200 employees last week. Here's the full presentation [PDF] with all the sordid details.
Speculating moon-pie morons were quick to exit, sending shares of the vampire squid (h/t Matt Taibi) down the vortex, off by more than 27 points in early trading (7.25%). Goldman Sachs ended the day at $349.92, down 6.44% (-24.08). Here's an excerpt from Taibi's monumental 2010 Rolling Stone article about Goldman Sachs, "The Great American Bubble Machine"
By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup ‹ which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multi-billion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York ‹ which, incidentally, is now in charge of overseeing Goldman ‹ not to mention Š These people - and by these people the meaning is clearly bankers in general - contribute nothing to society. Their sole purpose in life is to move money around, mostly from the hands of working folks into their own. These people are the purveyors of 20%+ interest rates on credit cards, IPOs of worthless companies which net them fees in the millions and billions, credit default swaps, CDOs squared and every other financial "innovation" that's been thrust upon the unsuspecting public for generations. Goldman has now set aside nearly $1 billion in credit loss reserves, its 4Q 2022 provision for credit losses surging 183% to $972 million. Serves them right. As some may recall, Goldman Sachs was granted a consumer banking license in the midst of the sub-prime crisis back in 2008, enabling them to receive some of the benefits (free moolah) of the $800 billion TARP, engineered by their very own Hank Paulson, with a huge assist from then-Fed Chairman, Ben Bernanke. Now that same consumer banking license has come back to bite the squid repeatedly on the backside. Previously known as Marcus, the Goldman Sachs banking operation specialized in consumer loans, credit cards (issuer of the Apple CC), and banking. The division is now known as "Platform Solutions", a moniker that puts them in the same league as Facebook's name-change to "Meta Platforms." Note to the wise: stay off "platforms." If it isn't apparent by now to anybody paying at least a little attention, Wall Street, in collusion with the US federal government, is a total screw job. What would serve both esteemed institutions right would be for every American to pull all funds out of stocks, bonds, retirement funds, et. al, and default on every mortgage, auto, student, and personal loans and credit cards. Stocks would crash and what would they do? Foreclose on everybody? Sell all the houses to Blackrock? Probably. Maybe better to not tempt them. No matter how one sees it, the banks are clearly spooked. Any of them with exposure to consumer credit - Bank of America, Citi, Wells Fargo, JP Morgan Chase, and now, Goldman Sachs - have set aside huge sums in loan loss reserves. This comes at a time at which credit defaults are at historic lows, after credit issuance had been beefed up throughout and after the bogus pandemic. Consumer credit is at an all-time high. Interest rates on credit cards are already averaging 20% and going higher. That used to be known as usury and a crime. That was until the banks meticulously went state-by-state buying off (bribing) politicians with campaign contributions to repeal those laws and enslave Americans with debt, coast to coast, in the 1980s. It's all fun and game until somebody gets an eye poked out and it seems the giant vampire squid just had its good eye junked. You can't have a good grift without good graft. Goldman Sachs leads the world in both departments.
At the Close, Tuesday, January 17, 2023:
Sunday, January 15, 2023, 10:44 am ET Trading the first full week of the new year had the greasy fingerprints of the PPT, NY Fed trading desk and insiders at Vanguard, Blackrock, and their cohorts all over them. Just because the calendar page has been turned, all the bad things that sent stocks into deep declines the prior year are suddenly all put to rest. Stocks rallied sharply, with all the major averages higher for the week and the year to date. Due diligence is not something Wall Street wants retail investors to perform. Stocks All the major indices were higher for a second straight week. Editors Note: These snapshots of bank earnings reports were originally to be part of a separate posting on Friday, but time didn't allow, so they've been included here. Prior to the opening bell Friday, Bank of America (BAC), JP Morgan Chase (JPM), Citigroup (C), Wells Fargo (WFC). BlackRock (BLK), and Bank of New York Mellon (BK) released fourth quarter earnings reports. Following is a quick rundown of each company, so as to get a better understanding of where these financial giants are positioned. Bank of America (BAC) The company reported earnings of 85 cents a share, as opposed to 82 cents a share a year ago and 81 cents in Q3 2022. Revenue for the quarter was $24.5 billion, an 11% jump compared to a year ago. Net interest income was $14.7 billion. Higher interest rates also drove the boost, the bank said. Investment banking fees dropped 54% to $1.1 billion. Full year 2022 net income was $27.5 billion, or $3.19 per share, a nearly 14% decrease compared to net income of $32 billion, or $3.57 per diluted share, in 2021. The bank also set aside a $1.1 billion provision for credit losses during the quarter. Earnings Release (PDF) | Earnings Presentation (PDF)
JP Morgan Chase (JPM) JP Morgan Chase announced solid results for the quarter and year with net income of $11.0 billion ($3.57 per share) on reported revenue of $34.5 billion in the fourth quarter and full-year net income of $37.7 billion ($12.09 per share). Earnings per share of $3.57 were ahead of analyst extimates and better than third quarter ($3.12) and year ago ($3.33). Net interest income (NII) for the quarter was significant, at $20.3 billion, up 48% Credit costs of $2.3 billion included a $1.4 billion net reserve build and $887 million of net charge-offs. Press Release (PDF) | Presentation (PDF)
Citigroup (C) On an adjusted basis, Citi earned $1.10 per share for the fourth quarter ended December 31, below estimates of $1.14 a share, according to Refinitiv. Fed tightening helped Citi post a 61% surge in net interest income by charging higher interest on loans to customers without increasing rates for savers in any significant fashion. Citi's investment banking revenue plunged 58% and share repurchases remain on hold. The company added $640 million to its loan loss reserves in the fourth quarter, compared with a release of $1.37 billion from its reserves in 2021.
Wells Fargo (WFC) Wells Fargo & Co (WFC) reported a Q4 net income of $2.85 billion, down 53% Y/Y and 20% sequentially, driven partly by lower mortgage banking and nearly $1 billion added to loan loss reserves. The company posted EPS of $0.67, compared with $1.38 a year ago, just slightly ahead of consensus of $0.66. Revenue declined 5.7% to $19.66 billion, missing expectations of $19.98 billion. The bank set aside $957 million for credit losses in the latest period after reducing its provisions by $452 million a year ago, adding that the provision included a $397 million increase in the allowance for credit losses reflecting loan growth and a less favorable economic environment.
Blackrock (BLK) Here's the headline on the company's 4Q report: BlackRock Reports Full Year 2022 Diluted EPS of $33.97, or $35.36 as adjusted Fourth Quarter 2022 Diluted EPS of $8.29, or $8.93 as adjusted.
Here are details (with snarky commentary) Record full year net new sales of Aladdin and continued growth in technology services revenue despite the negative impact of foreign exchange movements (we're global, so shut up) Restructuring charge of $91 million from initiative to modify the size and shape of the workforce to align more closely with strategic priorities, excluded from as adjusted results (we fired 500 losers) 14% decrease in full year operating income (13% as adjusted) (-22% in real terms) 11% decrease in full year diluted EPS (13% as adjusted) also reflects a lower effective tax rate and lower non-operating income in the current year (seriously?) Blackrock is the sinkhole of investment portfolios. They are the largest hedge fund in the world. They are being supported by the same people keeping Joe Brandon out of jail. They produce nothing other than accounting gimmicks. Earnings Release (PDF)
Bank of NY Mellon (BK) This stock is up 5.80% this year. Here are 2022 full year results:
Sure, everybody should own some of this bank's stock, which peaked at $63.66 in January, 2022, bottomed out at $37.29 in October, but has been a darling of the upper crust, gaining 31% since then.
As is their usual practice, Yahoo! Finance offers the unsubstantiated bullish view of why bank stocks - which on Friday cumulatively reported over $4 billion added to loan loss reserves - tanked in the pre-market, opened to the downside, but reversed in the first few minutes of the cash session and sent the entire market higher. Just like with housing during the sub-prime crunch, the braying from the sheepish herd is "stocks always go up." With Monday a holiday (MLK), the coming week will be another shorty, four days. But, there are a slew of companies reporting full year and 4Q 2022 earnings, which are more than likely to beat lowered expectations, heralded as good news, but upon inspection will almost universally show slowing top and bottom lines. Wall Street likes the term "growth." Realists use the word "contraction." Here's a sampling of the companies reporting in the coming week: The week kicks off Tuesday with a bang before the bell. Morgan Stanley (MS) and Goldman Sachs (GS), the two largest investment banks, report. After the close Tuesday, United Airlines (UAL). Wednesday's names include Charles Schwab (SCHW), PNC Bank (PNC), and JB Hunt (JBHT) before the open, Alcoa (AA) and Discover Financial (DFS) after closing. Thursday, the earnings menu includes Dow component Proctor & Gamble (PG), Truist (TFC), and Northern Trust (NTRS) before the bell; Netflix (NFLX) after the close. Friday, all before the bell, Slumberger (SLG), Ally (ALLY), and State Street (STT) Make note that the Volatility Index (^VIX) slumped to 18.01 on Friday, the lowest since December 31, 2021 (17.22). The heaviest hands in the market are trying to wring out any sense of foreboding. Talk of a recession has been greatly diminished through the first two weeks of the year. Soon they'll be speaking in tongues. Nobody will understand a word of it; stocks will be higher every day. Fans of the Fed fondly used to call Alan Greenspan the "Maestro." Jerome Powell might well go down in the history books as "Houdini."
The shortest maturities ripped higher, a massive selloff, with one-month bills dropping yield by 26 basis points as sellers fled to the perceived safety of longer notes and bonds. Moving further out the curve, the selling was less intense, the six-month and one-year bid, actually losing 0.02% on the week. Yields on notes and bonds were all lower, the best a nine basis point dip on the five-year; the least, five basis points down on the 20-year. The 30-year yield was down 0.06; the 10-year note, dropping 0.06 to 3.55%. Consensus is leaning toward a 0.25% rate hike at the 1/31-2/1 FOMC meeting and a pause after that. Wall Street continues trying to "unhear" Fed-speak, which routinely reminds people that they're not quite finished with their inflation fight. There may end up being many wrong-footed investors in both equities and fixed incomes, or, the money managers believe they can fight the Fed and win. There's a little more than two weeks to see who's playing ball and who's going to be benched. It's likely not going to be the dribblers on the Eccles Building roster. The fully-inverted curve from one month out to 30-years is wildly inverted at -103 basis points. 2s-10s spread is -73. The worst of it is 6-months out to 10-years, -128. These are numbers more associated with a depression than a rebound. Oil/Gas
Prices at the pump were up marginally in the first week of the new year, with the national average for a gallon of regular 87 octane at $3.28. Week two of 2023 saw similar, with prices pretty much stable, at $3.27, according to gasbuddy.com Californians continue to beat a path to the poorhouse, remaining the only state over the $4.00 mark, at $4.34. Mississippi get the award for lowest prices this week, checking in at $2.86. Southern states are all a bit higher this week than last, with Alabama ($3.00) and Georgia ($3.02) the highest in the region. The recent rise in oil bodes ill for gas prices. A second round of price hikes could be just taking flight.
Bitcoin soared to over $21,000 late Saturday and Sunday morning checks in at an elevated $20,804.53. Just a week ago it was $16,982.80. How far the current rally takes it is all about speculation, momentum, and geo-politics. There's growing concern at the margins that the fiat currency regime is on its last legs, but, whether bitcoin serves the purpose of replacement or even safe haven is still in doubt and bears watching. Holding off on any concrete rationale, those with mad money may take the plunge in what looks to be setting up as one of the more volatile asset plays of the year.
Gold/Silver Ratio: 78.74; last week: 78.00
Gold price 12/16: $1,803.00
Silver price 12/16: $23.41 Gold has been a huge favorite the first two weeks of the year, adding $93 so far, pushing the price to levels last seen in April, 2022. There doesn't seem to be any cause for a pullback other than a possible short-term overbought condition, but buyers are on the bid with gusto as the US dollar declines against other fiat currencies. Silver has taken a bit of a pause in the $23.80-24.45 range, up less than one percent on the year, but still the best, like gold, since April, 2022. With the gold:silver ratio steadying around 78-80, both metals can be purchased with a good degree of confidence. In the minds of most gold and silver hoarders, price is still not a primary consideration. It's amount that matters most as investors small and large are adding to stockpiles. One of the catalysts for the recent gains in PMs has been the relentless buying by central banks, especially China, along with Russia's Sberbank tokenizing gold as a digital asset. Here's the gloves-off statement which speaks in loud, global overtones:
"The deal demonstrates the interest of the market and the real world economy in a new instrument that can become a good alternative to investments in the framework of de-dollarization of the economy." Change is good. Change denominated in pre-1965 dines, quarters and half-dollars is even better. (LOL) Here are the most recent prices for common one ounce gold and silver items sold on eBay (numismatics excluded, free shipping included):
The Single Ounce Silver Market Price Benchmark (SOSMPB) was down this week, dipping to $36.78, a loss of 40 cents from the January 8 level of $37.18.
Stocks that were beaten down in 2022 got a wake-up call this past week as shorts were handed their walking papers. Big money was not about to allow a furtherance of the decimation from 2022 to seep into their plans for 2023, which apparently include a stoppage to the Fed's interest rate hiking policy, leading to more inflation, first on display on the NYSE, NASDAQ, Dow, and S&P indices, all of which are up sharply for the year. How this new normal of rising stocks will play out over the coming months is going to make the Fed look like they're being played at first, but, if they do a 25 basis point hike at their next policy gathering instead of 50, and possibly pause in May, stocks will run higher, but inflation may return with a vengeance in the second half of 2023. This is the mistake the Fed has repeatedly warned about, of taking their foot off the brake too soon, re-igniting inflation, much as Paul Volker did in his day. While most of Wall Street appears to be anticipating a slowing of Fed rate hikes, they have been warned before, and every time, the Fed has corrected them. Even though December CPI was a mild 6.5%, that's still a long way from the stated objective of two percent. Somebody's going to be wrong and it's probably not the Fed.
At the Close, Friday, January 13, 2023:
For the week:
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IdleGuy.com April/May 2024, Vol. 1 #4