Welcome back to the Drip! Things slowed down a bit this summer so Chandler and I decided to put the Drip on hiatus for the month of August. Now Labor Day has passed, summer is over, the kids are back in school, and the Execs are back from the Hamptons, so let’s all get after it for the remainder of 2022!
Markets
Some firms might prove to be a good buy moving forward. Doximity (Docs) and Margeta (MQ) are at an especially beaten up price. Below are some of their firmographics.
Unsurprisingly dividend stocks are taking up the largest share of the conversation as such, you might want to check out Canadian Banks. While their U.S. counterparts took a big hit during the Great Recession, Canadian banks did surprisingly well.
Toronto-Dominion Bank has paid dividends for 164 consecutive years.
Bank of Montreal is even more impressive, topping the Canadian corporate list with 193 straight years of payouts.
Walmart - A trend alternative data and machine intelligence found back in 2015 (when Chandler was working at Walmart) that was uncovered is Walmart tends to get a bump during periods of high inflation/CPI the stock price has a .26 correlation with. While the retailers are concerned when consumers have less money to spend, in many ways, this drives more consumers to shop at the low-cost retailer versus VS more expensive ones. For example, we know that WMT had less negative growth compared to Amazon in addition to being the dividend king, which makes the stock extra appealing.
Google Search Volume for Dividend Stocks - note the lead time between the Google search level peak (August 4th) and Walmart’s stock price peak - August 12.
Y axis = Inflation, X = Walmart Stock Price
Fed's Powell warns of 'pain' in inflation fight.
In his keynote speech in Jackson Hole, Wyoming, Federal Reserve chairman Jerome Powell warned that the central bank’s mission to tame inflation would result in “some pain” for US households. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” said Powell. “The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched,” Powell said. The stock market received those comments very poorly, resulting in the gains from a robust first half of August being entirely unwound, and the S&P closing out the month down 2.7%. Markets started September on a weak note as hawkish comments from Fed policymakers and data signaling momentum in the U.S. economy raised fears of aggressive interest rate hikes. That trend continued on this morning as a stronger-than-expected reading on the U.S. services sector fed into expectations that the Federal Reserve will keep raising interest rates to tame inflation. However, numbers from S&P Global showed services sector PMI fell short of flash estimates for August.
Meanwhile, French central bank chief François Villeroy de Galhau said the European Central Bank needs another significant interest rate hike in September to reach “neutral” levels before the end of the year. The ECB raised rates by 50 basis points to zero in July to fight inflation, which is now approaching double-digit territory and the price of another such move is now entirely decided by financial markets. Villeroy, considered a centrist on the bank’s rate-setting governing council, said rates should continue to rise until the ECB reaches a neutral level, which is somewhere between 1% and 2%.
Home prices weakened in June, but were still much higher than a year ago, says S&P Case Shiller
Home prices in June were 18% higher than during the same month last year, according to the S&P CoreLogic Case-Shiller Indices. The 20-city composite was 18.6% higher year over year, down from 20.5% in May. Only one of the 20 cities reported higher price increases in the year ended in June 2022 versus the year ended in May 2022. Another report last week showed home prices declined 0.77% from June to July.
Economists are divided on the risk of a U.S. recession - and the jobs data isn’t helping
The continued debate reflects a split over whether to focus on falling GDP in real terms, or strength in personal spending and the job market. So why the discrepancy? It depends what you focus on. When making its decision, the National Bureau of Economic Research looks at real income for households, real spending, industrial production and the labor market and unemployment — and those variables aren't giving clear recession signals, William Foster, senior credit officer at Moody's, said. "The jobs market is still struggling to hire people, particularly in the services sector."
U.S. employers added 315,000 new jobs in August, marking the 20th straight month of job growth, according to the latest employment report from the U.S. Bureau of Labor Statistics. Job gains were largely driven by the service sectors, however, goods-producing industries still added 45,000 jobs with ongoing gains in industries like construction, despite rising interest rates and a cooling housing market. A report released by the Labor Department on Thursday unexpectedly showed a modest pullback in first-time claims for U.S. unemployment benefits in the week ended August 13th. The Labor Department said initial jobless claims edged down to 250,000, a decrease of 2,000 from the previous week's revised level of 252,000. Economists had expected jobless claims to inch up to 265,000 from the 262,000 originally reported for the previous week. The report showed the less volatile four-week moving average also dipped to 246,750, a decrease of 2,750 from the previous week's revised average of 249,500.
Financial services firm Deloitte has conducted a survey of chief financial officers and found that nearly 50% of respondents expect the U.S. economy to be in recession this year. CFOs on Recession and US Economy Deloitte, one of the Big Four accounting firms, published the results of its CFO Signals Survey for the third quarter earlier this week. According to Deloitte: Forty-six percent of surveyed CFOs expect the North American economy to be in a recession by the new year.
Russia cut off gas to Europe, blames the West and threatens to stop supplying oil
Gas prices in Europe rose, stock prices fell and the euro slumped Monday after Russia stopped pumping gas through a major supply route, sending another economic shock wave through the European Union as it struggles to recover from the pandemic. Germany, which is more dependent on Russian gas than most EU countries, has offered a billion-euro bailout to energy company Uniper. In addition to the deadlock over energy, he also said Russia would retaliate if the G7 states imposed a price cap on Russian oil. Russia also sends gas to Europe via pipelines through Ukraine, another major route.
The European Union on Monday signed a deal with war-torn Ukraine to unleash a further 500 million euros in planned aid, this time to support housing, education and agriculture. “These EU grants will help ensure housing and education for IDPs and returnees and support Ukraine’s agricultural sector,” said spokesman Eric Mamer. Monday’s Association Council meeting will be the first since Ukraine, which was invaded by Russia in February, was accepted as a formal candidate for EU membership.
Policymakers in China signal renewed urgency for economic support
Liu Guoqiang, Vice Governor of the People’s Bank of China, said at the same news conference that the central bank had relatively ample room for monetary policy, although it would avoid flood-like stimulus. The central bank last month cut rates to shore up the economy, making it an outlier among major central banks that are mostly raising rates to battle inflation. Liu said the central bank would also guide China’s policy banks and commercial banks to support infrastructure projects, which policymakers typically rely on to spur growth, as domestic demand wanes.
According to the country’s National Bureau of Statistics, the latest news from China has been positive, retail sales of consumer goods in July were up by 2.7 percent year-on-year, following the 3.1-per cent increase in June. However, Nomura believes that China will continue with its zero-tolerance on Covid policy until March 2023, which will hamper the country’s economic growth. Also, last month the International Monetary Fund revised China’s economic growth forecast downwards by 1.1 percent to 3.3 percent for the current and by 1.3 percent to 4.6 percent for the next year.
As western countries stand on the edge of a potentially ruinous recession in the coming year, China is also facing a slump thanks to the “total collapse” of confidence among ordinary people in the once-buoyant housing market, the continued ravages of Beijing’s draconian zero-Covid strategy and an extreme heatwave that is affecting the supply of power and food. Back in global financial crisis of 2008-09, China rode to the rescue of the world economy with a 4tn yuan stimulus. China’s latest pledge to spend big on infrastructure did little to move prices of iron ore and steel — analysts said pumping more money into the economy doesn’t mean people are going to be able to spend it. China’s State Council announced more stimulus policies on Wednesday including an additional 300 billion yuan in quotas for infrastructure spending and investments by banks — on top of the 300 billion yuan already announced at the end of June.
China's slowing economy has left millions of young people fiercely competing for an ever-slimming raft of jobs and facing an increasingly uncertain future. Official data released this month showed one in five young people in Chinese cities was out of work in July -- more than three times the national average and the highest recorded since January 2018. Analysts blame a slowing economy crippled by Covid lockdowns, as well as the large cohort entering the labour force during the graduating season in July and August, for the slim prospects facing China's youth.
Short Bitcoin ETF Inflows Surge Before Ethereum’s Merge, is the “Flippening” Upcoming?
A whopping 73.5% of Ethereum nodes are now marked “Ready to Merge” ahead of the upcoming Bellatrix upgrade to Ethereum on September 6, according to data from Ethernodes. To be Merge ready, Ethereum node operators must comply with the Bellatrix upgrade by updating their consensus layer clients before epoch 144896 on the Beacon Chain, which is scheduled to begin at 11:34:47 UTC on September 6, 2022, according to the Ethereum foundation. Percentage of Ethereum clients ready to merge.
At the same time, short-Bitcoin investment funds increased inflows to a record $18 million over the last week, which is a new $158 million AuM record. Despite the Ethereum’s Merge hype, it also saw a net negative flow, at $2.1 million outflows. If all cryptocurrencies are included, Ethereum’s dominance is at 20.3%, while Bitcoin’s dominance is at 39.5%. This 2x market cap difference tells us that Ethereum flippening, as market cap dominance reversal in favor of ETH, is highly unlikely.
Widely-followed crypto analyst Nicholas Merten says there is another big sell-off on the horizon for Bitcoin. When the NUPL is above zero, there are more investors in profits than in losses. “During periods when we are in bull market highs, the NUPL model reads somewhere around 0.7 to 0.75, really overbought periods, and we start chartering into negative territory where the price is below the average price where most of the Bitcoin was moved. on the chain.