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Happy Columbus Day!

In fourteen hundred and ninety two

Columbus sailed the ocean blue – and got totally lost, missed India by 6,000 miles but called the Native American Islanders Indians anyway, slaughtered them and stole their gold and, lacking any real wealth to go back to Spain with, instituted a slave trade that lasted 250 years and ruined the lives of tens millions of people.  Yay!  

That was essentially my daughter's 7th grade (2012) report on Columbus and, though I was called in to the Principal's office at the time for giving my children heretical opinions, it's no longer shocking for people to hear the truth about the colonization of America.  We want Russians to question Marx and Lennin and we want the Chinese to question Mao so why shouldn't our own children question Columbus and Jefferson?  Either you want to raise critical thinkers or you don't, right?

There aren't many critical thinkers playing the markets these days.  On Wednesday we get our second to last FOMC decision for the year but Friday's poor jobs report has given them cover to hold off on raising rates or even tapering yet again.  Oil is back at $81.50 on Goldman Sach's call of a strong rebound in demand but, just this weekend, GS has dropped their Q3 GDP Forecast to 3.25% and Q4 is now down to 4.5% and next year is down around 3% – HALF of what it was! 

The Atlanta Fed agrees with Goldman and their forecast has come all the way down to 1.25% for Q3 – and they are the ones who get the reports while the Leading Economorons they consult for the "consensus" forecast are still raising their expections – now up to 6.5% for Q3.  Q3 ended on September 30th – how can there be this much dispute as to what actually happened?  

Those rising expectations come from the same people you are subscribing to in market newsletters and following in newspapers and magazines and listening to on the radio and on TV so of course you are forgiven for thinking that we are better off economically than we actually are – just as it was excusable when you grew up that you thought Columbus discovered America and was a great man – you didn't have all the facts…

My daughters learned at an early age that it's uncomfortable to go against the prevailing opinion – even if the prevailing opinion is clearly wrong.  There are consequences to being a free thinker and, more often than not, they tend to involve nails and crosses for those who are not willing to go along with the current doctrines.  Rather than fight the tide, we simply cashed out at the end of August and we've spent September pretty much on the sidelines but now we've gained our first disciple – and it's Goldman Sachs!

What's behind the latest downgrade? Well, in addition to the continued lack of consumers' service spending, Goldman is now pointing to the sharp drop in fiscal support as the tailwind from trillions in Biden stimuli ends. As Briggs explains, he sees two main challenges to medium-term growth.

First, fiscal support is set to step down significantly through the end of the year. Although we maintain a positive outlook for household income because a recovering labor market and firm wage growth—particularly among low-wage workers—should keep income above its pre-pandemic trend through end-2022, the decline in transfer income will likely cause a pullback in spending for some households.

Second, consumers’ service spending will need to recover quickly to offset a decline in goods spending as the latter normalizes from its current elevated level. This will likely prove challenging while COVID cases remain elevated, since many people still feel at least somewhat uncomfortable engaging in many activities that were routine prior to the pandemic (left chart, Exhibit 1). Furthermore, for activities like going to a movie theater, many individuals don’t anticipate resuming normal spending patterns for at least another 6 months, suggesting a full normalization in economic activity may take some time (right chart, Exhibit 1).

I went to the movies for the first time in almost two years yesterday and it was downright sad.  We saw the new James Bond movie, which is #1 at the box office this week but the theater was 75% empty and #1 at the box office was a very sad $59M for the weekend.  I wasn't worried about Covid as there was no one else within 6 feet of us and no one in the lobby and hardly any concession workers (who were wearing masks) – it was just sad….

As noted on the chart, the restaurant we ate at afterwards (CAKE) was better-attended but still had seen better days.  Broadway is back in New York and, so far, playing to packed houses after being closed for 18 months but tourism is still down 70% from pre-pandemic leves so what will happen when NYC's local theater fans have all cycled through their favorite shows?  Buses full of tourists are usually Broadway's main audience.

Baseball is wrapping up a summer where parks had 30% less attendance than they did in 2019.  Tampa Bay, Oakland and Miami had less than 10,000 people per game on average and Pittsburgh, Baltimore and Toronto were all between 10,000 and 11,000 on average with half the teams averaging less than 20,000 people per game.  Sad….

We see these things, they are happening every week, right in front of us yet we still buy into the narrative that the economy is back on track?  As noted by Zero Hedge:

While it remains to be seen just how positive the impact from reopenings will be – especially if the winter brings a new round of Fauci-driven restrictions to coincide with the coming flu season – one area where we disagree profoundly with Goldman is the bank's generous modeling of an upside boost to growth from "pent-up savings" which the bank expects to offset a substantial portion of the fiscal hit. As we will show in a subsequent post, the excess savings – in as much as they still exist – mostly benefit the top 1%, with the bulk of the population benefiting from only 30% of the total accumulated amount.

As such the contribution to consumption from excess savings will end up being far smaller than most Wall Street strategists predict (since the propensity of the top 1% to spend their savings which are instead invested in the market, is far less than the broader population). The result: expect even more aggressive cuts to GDP growth in coming quarters – from both Goldman and its peers – even as inflation continues to rise, cementing a painful period of non-transitory stagflation for the US as the mid-term elections approach.

Yikes!  Well, that's why we moved to the sidelines and, so far, we haven't missed much.  Just a lot of gyrations that have left us about 5% below the August highs we cashed out at.  The idea was to wait for earnings reports to be safe and those begin coming in this week and ratchet up very quickly:


But today is a holiday so let's celebrate that time Columbus discovered Haiti (and he never went North from there).  It's kind of a holiday and it's going to be a pretty slow week but things will pick up nicely next week – so enjoy the rest while you can.


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  1. Good Morning.

  2. Vaccination rates need to move up before those who are vaccinated will start to go back to the baseball game and theatres.


    The 'unvaccinated' could conceivably crash the economy. :(

  3. Thanks for nothing.

  4. Good morning!

    Indexes popping so all must be well.   A lot of gains in the energy sector, of course.

    The extended climb in oil prices is leaving some other industrial commodities behind, a divergence that reflects bets that energy supply shortages will offset any slowdown in the global economy.272 5 min read

    Beyond Evergrande, China’s Property Market Faces a $5 Trillion Reckoning

    As China enters what many economists say is the final stage of one of the largest real-estate booms in history, it is confronting a staggering bill: More than $5 trillion in debt that developers took on when times were good, according to economists at Nomura Holdings Inc.

    That debt is nearly double what it was at the end of 2016 and is more than the entire economic output of Japan, the world’s third-largest economy, last year.

    Global markets are braced for a possible wave of defaults, with warning signs flashing over the debt of about two-fifths of development companies that have borrowed from international bond investors.


  5. This weekend, I was at my local Costco pharmacy to receive my booster shot. Looking in, I was struck by all the shelves of medications and at that moment, I felt frustrated by the thought that many of the same anti-vaxxers are showing up to pick up their meds. Some frequently, no doubt.


    We have all had better lives, due in part, to modern medicine. Every. One, of. Us.


    "Take the shot"

  6. Skyfall is still the best Bond ever….

  7. Phil, 

    Given the current demand pressure for goods transport, what are your thoughts/recs in ocean shipping (MATX, GOGL,CMRE,) trucking (R,SAIA,JBHT) railroad (CSX,NSC,CNI) and other freights carriers (EXPD, HUBG besides AAWW) when time permits.


  8. Phil / VZ - what do you think go this down here ind the low 50's?

  9. Transports/8800 – I think it's pretty much baked in at this point so I wouldn't want to be chasing the sector.  CMRE, for example, is a $2Bn company now, up from $1Bn last year and usually they are good for $100M/yr but this year looks closer to $300M – so they look cheap but what if they order a couple of $200M ships and the rates go back to normal and they can't pay their bills and go BK like most shipping companies?   I don't have the expertise to differentiate them at these levels.  R is solid and steady, best of that bunch.    AAWW we just picked for ourselves, so I like them too.  HUBG is interesting but I don't know enough about them.

    VZ/Batman – Sure not I English speak that you.  Telcos are out of favor at the moment, 5G is disappointing people as a revenue growth story and the chip shortages are hurting the upgrade season into the holidays.  Great is you are an accumulating long-term investor but very scary otherwise.  

    And you know I like T better

    John Oliver is not to happy with T.  

  10. T-poor decisions, overwhelming debt, poor service, but as yet not as bad as VZ. Made the mistake of buying the Galaxy for myself and grandson and they never worked and we get no service in the boonies though, of course, they said we did. Bad part was a 2 year contract and they would not do ONE thing to rectify the situation. The final I can't believe this crappy company came when I had a 40 dollar credit coming back from VZ. Guess what they did? After cancelling phone they turned the phone BACK ON and never notified me that they did it!  No refund! Been a T customer for years as we have a tower nearby and no damn contracts! Spouse uses a 5 year old Tracphone for about 20 bucks and change per quarter and that works the best no matter where you are.  I think they are all the pits; Offer something your paying a fortune for  and then never follow through. Short VZ!

  11. Giving thanks in Canada with some tasty turkey .. would like to express my appreciation of Phil, his family and the special service provided by the group here. Enjoy all the links and postings. Helps to keep a good perspective and makes my life work better, with a few chuckles too!  

    PS Loved your daughter's comment about Columbus, Phil. Ran a pgm connecting Native and non-Native students across Canada for many years, – they had lots to say about Columbus and our special Canadian forms of colonization too.

    PPS Fun appearance by Daniel Craig on James Corden Late Late Show the other day – good to see him so casual and having fun with the skits :)

  12. Well, so much for that rally:


    Chinese Developer Modern Land Asks to Delay Bond Repayment

    Xi Jinping Scrutinizes Chinese Financial Institutions’ Ties With Private Firms

    VZ/Pirate – Locking you into contracts when you can't get reception should be illegal.

    Thanks Wing!   I think Craig is relieved that it's over.  You know he's only 53 but he looks tired in that film, maybe purposely so but Connery never looked that old – even in his last one.

    Connery was 60 in that one (died last year at 90).  Sexiest man of the 20th Century, according to people.  

    I'm fed up with the idiots… the ever-widening gap between people who know how to make movies and the people who green-light the movies.  - Sean Connery

  13. Pirate,

    Re T, I concur wholeheartedly. The aspect of this telco nightmare that is so difficult to grasp is why the ATT board went along with Randall S. during the course of his tenure (1.ill-advised merger attempt with D telecom torpedoed by Justice dept @$5 bn breakup fee and then 2. the $50 bn loss on Direct TV) so getting rid of Randy (for $90 mil severance?!!) sure didn't fix the problem. Is there something inherently toxic about telcos that makes them resistant to providing acceptable customer service? Memory of monopoly status that won't fade?

  14. 8800-Because the boards are sitting stooges who just collect bucks for rubber stamping everything these corporate genius's come up with. Could not believe they bought Direct TV with the massive streaming going on. It is unbelievable. When it was a monopoly they actually gave service and it was affordable to millions. I was young and could figure that much out. Probably 5 year olds could.

  15. 1020-I just spent the last 2 hours trying to find the J&J vaccine so I would only have to survive the one shot. No dice. When I tried to find out if I could just get the booster, since I already have the natural immunity, I was told "no." Only Pfizer and Moderna is available. Anyways when everyone rants about the shots maybe this is the reason. No answers, just questions and it is only one way to do everything even though it makes no sense. Where is Snow? Does  the vaccine change the immunity I already have? If I have the antibodies why can't I just get a booster? And since J&J does not have to be refrigerated why can't you find it? Or is it already destroyed? Why is there only a Pfizer booster and not the others? I would really like to just get this over with and it is difficult to say the least. WBA asked for my authorization code? Haven't a clue. So MAYBE  this might be a problem.

  16. CMG correction has begun. NFLX pending.

  17. Pirate/vax – I don't know about the availability of J&J in the States. I do know someone who had that one, but I live in southern California, which is a different place. The vaccine program, like much of US medicine, is being run as a standardized protocol and more strictly than usual. You won't be able to step outside that. I've seen papers that suggest pretty strongly that vax for those who've had the bug does boost immunity, but data is not real strong – you have to look for post-vax illness in people who've previously had the bug, and those people are rare.

    I dunno, Pirate, in all likelihood the vax won't hurt you; media tales of side effects (that are actually effects, not side effects).

  18. CMG/Pman – Very nice for our STP

    MRNA stabilizing

  19. I still like our idea of selling a few MRNA 2024 puts 

  20. Snow- Thank you. The sound of reason in a crazy world. I have heard that there are millions of us, and know some personally who have had the disease, with the antibodies who are not getting the vaccines. Scary stuff. 

  21. With the website overhaul this post isn't automatically popping up on the front page. You have to go under "Phil."

  22. Some kind of error and the programmers took yesterday off, apparently.