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Pathfinder 1

This marks the second consecutive week of gains in the markets on the back of a dovish Federal Reserve statement and economic data pointing to a trending slowdown.  You might wonder why the markets are doing better in the face of worsening economic data?  Simple.  It means the end of further interest rate hikes and brings us closer to what most assume will be interest rate cuts next year.  Since the market is forward-looking, it is anticipating loosening monetary policy and what it hopes will turn into the next bull market.  We’re not there yet, but the market can sense it coming.

Do you ever wonder what happened to the next “big” thing?  Some years ago, it was gene therapy.  Then it was plant-based meat.  Somewhere along the way, it became electric vehicles.  This week, CRISPR Therapeutics announced a loss in the third quarter of $1.41 per share.  It made me wonder whether the company had ever turned a profit? The answer is no except for a brief quarter in 2019 and another in 2020.  Thanks to easy money, low-interest rates, and a shockingly small revenue stream, the company has been limping along.  The stock is down 58% off its high in July 2021.  I set this information aside until I came across another news report that Burger King has no plans for new plant-based fast food, despite being the first to market back in 2019.  Despite the hype and various claims, it turns out consumers aren’t really all that interested.  Beyond Meat (BYND) peaked two months after going public in May 2019, before falling almost 90% as of today.  The company provided a grim outlook and announced cost cuts including layoffs, potential exit of product lines, inventory reduction, and possible restructuring.

This brings me to electric automobiles.  I can hear you saying, “But wait just one minute!”  Yes, they are popular and the early adopters have us feeling like we’re missing out.  Yet for EVs to really take off it requires mass adoption, which is facing many headwinds, including lack of availability of charging stations, range anxiety, and premium pricing of the cars themselves.  I’ve been keenly watching the lithium miners because it would be natural to assume as EV adoption takes off, the demand for the lithium that goes into batteries should also climb.  Yet in the past year, Albemarle, the world’s largest lithium producer, has fallen 61% on falling lithium prices and lower demand.  GM announced it is delaying plans to expand its electric pickup truck line, while Ford reported it will delay $12 billion of its planned $15 billion in EV-related investments.  Maybe this is just a sign of the times.  Higher interest rates and a debt-burdened consumer may tell us more about where things are now and less about where they will be in the future.  However, I suspect the transition may take longer than expected and will require new technology, new production processes, and more affordable offerings.

While we’re talking about debt-strapped consumers, the Federal Reserve Bank of New York reported credit card debt has hit a new all-time high.  In the third quarter, credit card debt swelled $154B pushing the new total to $1.08T.  This was the largest increase since the NY Fed began tracking household debt in 1999.  Total delinquency rates rose in Q3, with 3% of outstanding debt in some stage of delinquency, and have surpassed pre-pandemic levels.  The rise is particularly pronounced among millennials and those with auto loans or student loans.

As for stocks, market returns remain concentrated among what is being called the Magnificent 7 (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla).  The S&P 500 is up nearly 15% year to date, but without the cap weighting of the seven, an equal weight index of the S&P 500 (RSP) is essentially flat for the year.  One analyst wondered, if just seven stocks (out of 500) sink, is it still considered a market crash?  Over the last fifty years, index investing has had its adherents.  While it may have been an easy way to diversify at the time, that can no longer be said.  When the rise and fall of a major market index is controlled by 1.4% of its constituents, it is no longer what people think it is.  Looking through the end of October, the remaining 493 stocks in the index were collectively underwater.

In closing, do you ever dream about what it might have been like flying aboard a Zeppelin?  You’d have to go all the way back to the late 1800s when they were first introduced in Germany.  This week a new airship rose, named the Pathfinder 1, backed by Google co-founder Sergey Brin.  The new airship is longer than three Boeing 737s and uses stable helium rather than flammable hydrogen.  At 124.5 meters long, Pathfinder 1 dwarfs the current Goodyear airships.  Testing suggests they could eventually carry 200 tons of cargo (albeit slowly I assume), making them a viable alternative to freight planes, ships, and trains. Additionally, Brin wants to use the airships for humanitarian relief missions since the aircraft doesn’t require much infrastructure to take off or land.  Of course, my mind went straight to the problem of it being a big sitting duck in a war-torn region.  But then what do I know?  The plan is to move the operation from California to Akron, Ohio.  So keep your eyes on the sky because you may just see one of these locally sooner rather than later.  Now you know. 

Bruce J. Mason, MBA