Despite it being a shortened holiday week, there was a lot going on. The markets generally look to finish a little lower this week reverting to the downward trend that’s been in place for some months now. A serious tug-o-war is happening between those who believe the Federal Reserve (Fed) is going to go overboard with interest rate hikes potentially causing a recession, and those who desperately want the Fed to announce a slowing of rate hikes or better yet a resumption of quantitative easing. For now, the bears are winning, with statements from several Federal Reserve Governors on record stating 50 basis point rate hikes for the next couple of months are all but certain. We’ll know more on June 15th when the Fed votes on its next rate hike. My money is on a 0.50% hike.
Unfortunately (for us), the pundits are in overdrive trying to predict where the market is going. CNBC has had one guest on after another, all week, prognosticating and often contradicting one another. What’s one to make of this? Citigroup believes we’re at “peak bearishness” suggesting a rally is ahead. JP Morgan’s Jamie Dimon believes the “storm clouds” have turned into a “hurricane.” Elon Musk, in a manner of speech only he can pull off, has a “super bad feeling about the economy.” And Morgan Stanley is on record saying we’ll get a relief rally before things turn worse again. The bottom line is that no one knows what is going to happen in the next few months and this has always been the case. Take what you hear or read with a grain of salt. Even the “experts” don’t really know, with any certainty, what’s going to happen next week, let alone next quarter. However, if they speak with enough authority, they hope you will believe them.
Regarding the economic data, it remains a mixed bag. The Dallas Fed Manufacturing Survey fell more than expected in May and mortgage applications dropped further on the back of higher interest rates. Car sales remain abysmal with major manufacturers like Hyundai, Toyota, Mazda, and Honda sales falling 30%, 27%, 64%, and 57% respectively year-over-year. And perhaps most telling, productivity fell in the first quarter by the most since 1947. The economy is in fact slowing as is the goal of the Federal Reserve. The question is how fast is it slowing and how far will it go. Inflation data remains near all-time highs, although there is at least one indicator which suggest it has peaked. Now we must wait to see how fast inflation falls.
In company news we learned Apple has shifted some production from China to Vietnam. One thing the supply chain issues have taught us, is that concentrating production in one facility (like Abbott Labs baby formula) or in one country, like China, has its risks. I expect the trend of diversifying production will pick up in the years ahead. In other news, Facebook, which changed its name to Meta Platforms some time ago, will finally abandon its FB ticker symbol. The new symbol, META, will begin trading on June 9th. And lastly, Buick is reinventing itself once again with an eye to the future. General Motors announced that the Buick brand will be all-electric in North America by 2030. It also plans on bringing back the iconic Electra name with future EV models. What’s old is new again.
In other news, do you ever wonder why we don’t have high-speed rail in the United States? Well, I don’t have an answer for that, although I could speculate. However, this week Siemens announced it has been awarded the largest order in its history. It received an $8.7B contract to build high-speed rail in Egypt. Egypt plans to create the sixth-largest high-speed rail system in the world, with 2,000 km of track connecting 60 cities across Egypt via trains with a top speed of 230 km/hour (142 mph). Well, at least we have Amtrak and Greyhound. You’ll get there when you get there.
In closing, I turn to an article I came across this week that might help someone out there. If you have the physique of David Hasselhoff and the swimming prowess of Michael Phelps, may I suggest you apply immediately for a job as a lifeguard in Los Angeles. I was shocked to discover the top-paid lifeguard in LA earned $510,000 in 2021. Who knew that working in the sun could be so financially rewarding? Before you say, “well that’s just one lifeguard,” hold up. There are over 98 LA lifeguards who earned at least $200,000, and 20 made between $300,000 and $510,000. One more thing to note, after 30 years of service, LA lifeguards can retire as young as 55 on 79% of their pay. I know, California may be a tough sell for some of you. And with housing prices all but out of reach for most Californians, I might hesitate too. But what better way to earn an executive level salary? Now you know.Bruce J. Mason, MBA