2.9%.
That's the new World Bank forecast for Global GDP growth and it's down 1.2% (29%) from their January estimate. Even worse, the World Bank does not expect growth to come back in 2023 – or 2024. We are essentially just one more downgrade away from a World-wide Depression. The World Bank said we are now entering what may be “a protracted period of feeble growth and elevated inflation” (which would be STAGFLATION):
“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” World Bank President David Malpass said.
The World Bank’s June report offers what it calls the “first systematic” comparison between the situation now and that of 50 years ago – a period of intense stagflation which required steep increases in interest rates in advanced economies and triggered a string of financial crises in emerging market and developing economies. Clear parallels exist between then and now, it said. Those include supply side disturbances, prospects for weakening growth, and the vulnerabilities emerging economies face with respect to the monetary policy tightening that will be needed to rein in inflation.
Meanwhile, the Fed has drastically lowered their own GDP outlook for the US, from 1.3% to 0.9% for Q2 (the one we are in) and that too is a 30% reduction – but over just the past two weeks!
As you can see, the forecasts of Leading Economorons (the ones you hear yammering on in the Financial Media) is still at 3%, giving people a 200% WRONG impression of what to expect in Q2 earnings. When there is this much room for downside surprises – it pays to be very, very cautious with our portfolios.
One of the things we are watching for signs of strain is Consumer Credit, which popped $38.1Bn yesterday vs $35Bn expected. That indicates Consumers are still dipping into their savings and borrowing to keep up with inflation and that's not a trend that can go on forever. Credit card debt alone popped $17.8Bn – to an all-time record just at the time when interest rates are on the rise (Fed meeting next Wednesday).
With inflation largely outpacing wage growth, consumers have leaned on both savings and credit cards to pay for everyday essentials and discretionary purchases. The savings rate is at its lowest level since 2008, and a record 537 million credit card accounts were opened in the first quarter, according to the New York Fed. There's only 330M of us so that means the average eligible person got 2 new credit cards in Q1 – in order to pay for rising expenses. How is that going to end well?
Those credit cards are already running out as Card Spending for May was 4.3%, down from 6.8% in April and way below the 8.2% increase in the Consumer Price Index. Affirm (AFRM) Holdings is a big warning sign – the company repackages (bundles) loans made to Gen Z shoppers for clothing and electronics (via store cards) in "buy now, pay later" deals and they lent out $3.9Bn in Q1 but the stock is crashing because, guess what? They can't pay later!
Don't worry though, the Government is on the case: “There’s no question that we have huge inflation pressures, that inflation is really our top economic problem at this point and that it’s critical we address it,” Yellen said to Congress yesterday. “I do expect inflation to remain high although I very much HOPE that it will be coming down.”
As our Members know, hope is not a valid investing strategy and it is not a valid policy strategy either! “Putin’s war in Ukraine is having impacts on energy and food prices globally,” Yellen said. “It’s virtually impossible for us to insulate ourselves from shocks” like that from the war, she said. Someone should tell these people that Russia was at war in Afghanistan for 20 years so, if we're waiting for this to blow over – it might be a while…
THO/Millard – Sounds reasonable to me.
Insanity/Tommy – Oh all my friends are getting this for Christmas!
#1 Best Seller in Children's Action & Adventure Books
That's on AMZN!
Wow, we are truly living in 1984.
CRSP/RN – That's another game-changer for the long-term but, of course, the tech is not unique to them – they are just an early mover.
Phil / MO (ALTRIA) – the Morgan Stanley downgrade sounds like BS to me. The company just reiterated its year outlook. and stated they had pricing powers…. Thoughts?
rn273 / DIDI – You are spot on this one… Saved me from pain ( similar to CHL). Than ks.
MO/Batman – Still cheap but we got them ridiculously cheap so nothing wrong with a bit of a pullback. Our 2024 target was $55, the rest is overkill plus we sold 15 June $50 calls – so I could not be happier! I don't think MO is immune to a pullback with the market and consumers cutting back may be a concern though you would think the people who still smoke these days aren't going to let money stand between them and their fixes. Value-wise, they are still under $100Bn in valuation and they make a solid $9Bn and they haven't even started selling Hemp or MJ yet, which I expect will double revenues at least once they can.
Still just net $44,807 on the $75,000 spread and we already made $29,408! Aren't options fun?
Today STP:
LTP:
Another combo record!
Phil / BABA – At what stock price are you looking to cover your position ? …… I partially covered at 115 but was looking at 120 to 125
I have the 50 X '24 130 ( 25) and partially covering this at 160 ( 15) now 18 ish.
Would like to se what you are looking at …. Thanks
Phil/INTC With the pre-roll, do you mean to pre-sell the '24 $40c, as part of rolling the short (expiring) '23 $55s, as well as selling the short '$50s or instead of the $50s?
Thx.
BABA/Batman – I think they are ridiculously undervalued so I'm not even sure I want to cover at $150. Depends on how the political winds are blowing but this stock was never down on their performance – it was driven down by fear of delisting and regulations in China throwing off their model. Even with the pandemic slowing, they are still pulling down $20Bn in profits and should be back to $24Bn next year and that's still just $158Bn in revenues vs $525Bn for AMZN (who throw about $30Bn to the bottom line). They haven't gone into cloud or streaming like AMZN so they are totally kicking AMZN's ass in retail profits and growing very fast. Also, they just absorbed Hypermarket (groceries), so that's a whole other avenue of growth ahead.
AMZN is still trading at 75x and BABA, at 22x, will have more profits and more sales in a few years.
It's essentially racist that we value them so low – this is why DIDI investors voted to leave US markets – they get no respect on $20Bn in revenues (losing money) and a $10Bn cap vs $50Bn for Uber with $30Bn in revenues losing much more money or $2Bn for YELP with $1.2Bn in sales and a $50M profit.
YELP did something interesting though, they seem to have paid DIS to use Yelp at all the ride-sharing signs – even though they are for Uber too. You see Yelp all over DIS and not a mention of Uber.
YELP isn't great but not bad at $2.2Bn since, unlike Uber, they do manage to make a profit. Still, it's a very thin profit and UBER is quite large but it looks like Lyft is 28% and Uber 72% so it seems to me they must recognize revenues differently. Perhaps Yelp only counts the net from the drive while Uber counts the ride revenues and then pays the driver?
Yelp is also debt-free, with $500M in the bank. DID has over $1Bn in bank and Uber has $5Bn in debt.
Keep in mind that this whole thing though is simply a way to get market share (and mold consumer habits) while they wait for autonomous cars so they can depreciate a $60,000 car over 3 years rather than pay the drivers. Then these things should be real money-machines.
INTC/Wing – I was just talking about the eventual roll of the 10 $45 puts but I just noticed they are not Jans but 2024s so, at $8.75, there's not much to be done with those unless you want to DD to take advantage of the dip.
I kept saying Yelp and I menat LYFT
LYFT has a $6Bn market cap, $4.2Bn in sales and they expect to make $128M and $1.3Bn net cash. Still the good buy.
DIS selling LYFT hard: https://wdwprepschool.com/how-to-use-uber-at-disney-world/
Is there a webinar today?
Do we have LYFT in a portfolio?
No Webinar – I'm in Orlando (and just got back from lunch).
Things are just drifting along – not much to do between now and the Fed.
LYFT/Jeff – There's lots of things I'd LIKE to have but the portfolios are crowded and also we don't fully trust that things aren't going to collapse. We're making new highs with our LTP/STP but it's a delicate balance and I'd hate to upset it.
Yodi – Good trade idea, thx…..Wouldn't you sell multiple short term premium rather than Jan24?
Our Stock of the Century slips into the Stock of the Century + a Quarter:
I think we'll survive…
Meanwhile, every time a Javelin missile is fired at a Russian tank, we gets paid! $250,000 each, in fact…
LUMN/Yodi – Missed that one. Good value play.
rs_trade LUMN Just much less work You just set it up and collect your quarter div. I am getting lasy