Get Smart.

Excuse me, can you turn it down please?

I am an old now. I was born in 1981 - I am no longer hip, or cool, and I do not like it when you are on my lawn. I also tell my kids to ‘turn down the music.’

And honestly, I kind wish everyone could just turn it down…several notches. Media, social, mainstream, and otherwise has gotten a little too loud. Makes it really hard to think about what to do next, especially when it comes to managing money.

I don’t know why, but this random scene from a very random movie lives rent free in my head. It’s a scene in “O Brother Where Art Thou” - a classic Cohen’s brother weirdo story - where a gubernatorial candidate by the name of Pappy O’Daniels saunters in the sweltering Mississippi heat dressed in a linen suit of the era (1930’s).

He’s a grossly rotund man, clearly aging, with a heavy southern drawl. Pappy is sauntering into a radio station where the Soggy Bottom Boys (led by George Clooney, of all people) just dropped their first LP “A Man of Constant Sorrow.” As Pappy, and his toadies make their way to the shack of a radio station, they pass the Soggy Bottom Boys and one of Pappy’s handlers says “Well Pappy, ain’t ya gonna press the flesh!” Encouraging his candidate to woo the electorate.

Pappy immediately takes off his boater hat and starts flagellating his toady with it, yelling “Press the flesh!?! Press the flesh!?! What do you think we’re doing here??? We ain’t one at a timing it - we’re maaaassssss communicating!” As he says that last part he raises his hands - almost in adulation - to the massive radio tower looming overhead. The technological overlord of the day.

Come to think of it, maybe it’s not that strange that this scene plays over and over in my head. It seems to be playing out IRL. Pappy’s words ring true today: we’re not one at a timing it. We’re mass communicating. And how’s that going for us? The more I think about, the more that’s the problem. Unfortunately, the mass we are communicating is of a certain hue with a pungent odor.

I’m old enough to remember when we - all of America - were Time Magazine’s person of the year. Time, unironically, chose YouTube - a platform that relies on free content being created by us, the user - as the person of the year. Through the looking glass, indeed.

To turn yet another phrase: the inmates are running the Asylum. Anyone with an opinion and an internet connection is a journalist. It’s ridiculous. And I’m putting myself in this too - I don’t know everything, but at least I’ll tell you that!

The reason why journalism exists as an institution is to ensure that the information presented is accurate. There must be two, verifiable, sources. But not anymore! Now we have journalists literally reading tweets on the air. The inmates, seriously, they’re running the Asylum.

And so I here I stand, like Sisyphus before me, trying to believe the impossible is achievable. I’ll try to be here weekly to answer a pretty simple question that really isn’t easily accessible: what is going on with the economy and markets next week? I’ve been trying to find a brief way to get ready for next week, and just can’t find what I’m looking for. So I decided to make it myself.

Each week I’ll provide you with my ramblings, maybe a feature on a small business owner, and the most important things to watch for the week ahead. This way we can all be a little smarter with our money. And I’ll try as best as I can to reduce the noise, so we’re just talking about facts - not alternative ones, the actual facts.

Now a word of caution: I’m not a journalist. I’m not a writer. I went to school to study Economics and Law, in that order. I am just a regular guy - I don’t have all the answers, I don’t have a crystal ball.

But, to distribute this newsletter I am using a platform I do not own or have any stake in. It’s the same kind of platform I began this rambling about. You know, the ones that use our content to generate profit, delivering for their shareholders while we all cosplay at journalist. And we somehow all believe what we read is right because someone else wrote it got to hit publish…all the while paying no mind to the man behind the curtain, counting his money that he made off selling our content to Toyota for another 30 second ad spot.

So how do you know anything I write here is correct? You don’t. And that’s my point: if you read something I write, and it interests you, look into the subject! Reach out an talk to me about it - maybe we learn something together. Whatever you do: don’t just take my word for it.

Fact check everything you see here - remember, this is the internet after all…

Now, down the rabbit hole on stories I’m watching this week. Last week, the data on jobs painted a bleaker picture for workers, but that suggests inflationary pressures will continue to ease – which may allow for the fed to cut rates in June, but that’s still a 50/50 proposition. And the exuberance around rate cus will be tested this week. Let’s dive in:

Monday May 13^th

·      Retail Gas prices.  “It’s the economy, stupid” Carville’s pithy invective is still relevant more than thirty years later.  Back then we were in the midst of an supply side shock to the oil industry.  Despite some big wins, H.W. lost to Clinton that year.  On Monday we get a gauge on the trend of gas prices in the US.  As we can see, the trend has been sharply upward up until last month.  Now if we reverse and go higher, the conventional wisdom is that the consumer will have less money to spend on other things since gas is not something most people can afford to do without. 

·      Various REITs report. So far those REITs that have reported earnings results have not fared well. Real estate investment trusts (REITs) are a great way for retail investors to get into real estate. Of course, investing in real estate can be a great way to diversify a portfolio, but the sector has been under pressure in this higher interest rate environment.  And we can see that from the lows of Q4 the industry as a whole has rebounded – we even recently bounced off that support level around the 520 mark.  But what comes next?  Work from home is here to stay, commercial real estate has been underperforming.  While these two players may not be the biggest in the sector, they can give us some view on which way real estate is headed.  And there is a corporate debt/rates story wrapped up in this as well, so we’ll be watching.   

Tuesday May 14^th

·      US PPI.  The Producer Price Index (PPI) a family of indexes that measures the average change over time in selling prices that domestic producers of goods and services have to pay to produce their goods and services.  The last reading hinted at a potential trend reversal, so Tuesday’s report will give us a better sense of whether prices that producers are paying for raw materials are continuing to rise.  The implication is that if producers are paying more to make things, then they will pass that increase off to consumers, which would compound inflationary pressures. 

·  Home Depot and Alibaba report earnings.  Home Depot was a darling during the pandemic when we were all trapped at home with nothing left to do.  With rising home prices and a residential real estate market, what are people spending on? Maybe these two data points will give us a sense of how the consumer is doing.  If we are still burning off that excess cash that was thrown at us four years ago, or if the party is finally slowing down. 

Wednesday May 15^th

·      US CPI.  This is the main event of the week. The consumer price index (CPI) is a measure of the average change in prices paid by consumers (you and me) for a market basket of goods over time.  The CPI is the most popular measure for inflation, so you’ll likely hear fanfare ahead of the announcement.  From its peak in January of 2022, CPI has declined precipitously, but has failed to hit the fed’s target of 2%.  The last reading showed an uptick in CPI, if that trend continues – despite the better-than-expected employment that came out last week – the market will not react well, as has been the trend.  If CPI does come in hotter than expected, it’s likely will have higher interest rates for longer – which isn’t a bad thing.  Higher rates mean it is more expensive for firms to borrow money.  Those firms that are not well managed will struggle, whereas those firms that have managed their balance sheet well will be able to make maneuvers despite higher rates. Anyway, Wednesday, 8:30am – mark it. 

Thursday May 16^th 

·      US initial jobless claims.  This one is self-explanatory: it is a measure of the number of new jobless claims made throughout the US. It’s also a leading indicator of which way the unemployment rate is going.  If we see an uptick, that’s obviously not great for those out of a job – but with more people unemployed it means less spending, which means less money in the economy, which means inflation will continue to ease. Last week this indicator was the highest it has been since August, and the market rallied on the news.  We may get more of the same this week if this trend continues.

·      Building permits/housing starts.  If you’ve tried to buy a house in the last two years, you know first hand how low inventory is.  This indicator is a measure of how much ground has been broken to develop new homes.  As we can see, we’re nearing the three year lows of housing starts, which puts more pressure on the real estate market. 

Friday May 17^th  

· “Sell in May and go away.” Is an old saw, but that’s not always how the market behaves.  Recently, I heard Jeff de Graaf from Renmac explain that if you want to make money in the market, follow the trend. But this phrase doesn’t actually explain any cyclical market trend. At the end of the day, what matters is the trend. And this chart shows us that the S&P is above its 200 day and 50 day moving average. Said in plain English: the market is doing better than average over the last 50 day and 200 day period. The trend then, is up. Generally, it’s a good idea to follow the trend and get in on the action. 

·  The State bank of India reports earnings. Finally, on Friday, the State Bank of India will report earnings.  The Economist recently did a great piece on the Indian banking system and the reforms that have taken place over the last ten years.  With India’s population booming and becoming richer, it’s poised to take the mantle from China as the globes outsourcing partner.  But there is much work to be done.  Let’s see how well the bank did this quarter.  And go check out this article, really interesting points.

That’s all for now – if you enjoyed this, tell your friends!  I’ll see you next Sunday.

Nik