My Investing Muse (06May24)
Layoffs & Closure news
Google lays off staff from Flutter, Dart and Python teams weeks before its developer conference - TechCrunch
Google is laying off at least 200 employees from its “Core” organization, which includes key teams and engineering talent. As part of the unit’s reorganization, the company will hire corresponding roles in Mexico and India. - CNBC
Layoffs in Logistics
From X user Craig Fuller:
Raven shuts over the road and dedicated trucking fleet. In the trucking bloodbath in 2019, the bankruptcies surged starting in Q2.
Seeing people lose their jobs is very unfortunate. But the trucking industry is built on the same economic principles that drive every capital system: supply and demand. We have too much supply. We need to eliminate the excess capacity, or the market will never reset. Bankruptcies are going to increase. This is a part of the bottoming process, as bad as it sucks for the carriers and their employees. We will see an acceleration in bankruptcies in the coming weeks and months. Long term, this is very positive.
Logistics is the blood of the economy. For every value that is created, they come in the form of a product or a service. Everything requires logistics for this good or service to be delivered. In the case of Services, the spending on logistics can be found in areas such as the procurement of materials, ingredients and the hardware required to deliver the various services.
A reduction in the supply chain implies a drop in consumption. While there is an increase in service consumption, there is a drop in the consumption of goods. We can correlate the health of the economy with the health of the supply chain industry. Supply chain volume is a forecast of the goods and services that would be consumed by the economy. The order needs to be placed, manufacturing to be completed and goods need to be delivered before reaching the warehouse or buyers.
This is extracted from the Trading Economics post about the Logistics Manager’s index (LMI).
The Logistics Manager’s Index in the US increased to 58.3 in March 2024, from 56.5 in February, marking the fastest expansion since September 2022. This indicates that the overall logistics industry is experiencing healthy growth, albeit at the lower end. The growth is attributed to long-planned inventory expansions and improved efficiency in warehousing and transportation. Inventory levels saw significant growth (63.8 vs 58.5 in February), reaching their highest level since October 2022, driving the overall expansion. However, this has led to a contraction in warehousing capacity for the first time since January 2023. Despite this, transportation capacity remains higher than transportation prices, indicating that the freight recession is not yet over. Overall, these trends suggest that firms are preparing for continued consumer spending and indicate ongoing economic growth in the near future. source: Logistics Managers' Index
Is there any contradiction about the outlook of logistics with 3 months of growth (when the LMI index is more than 50)?
Yet, both can co-exist at the same time as LMI has contracted for some months. During the freight recession, the LMI can grow. The macro trend is more important.
USA Debts
The US Federal debt is incurring $2.4 billion worth of daily interest and this debt is expected to grow. It is not an issue until people stop buying up the treasury assets needed to fund the spending deficit. News from PGPF.
The economy needs to be funded by value creation and not debt. When people struggle with the cost of living, the burden is placed on the people. When there are no solutions in sight, there could be strikes. When people are desperate, there could be unrest.
Banking Sector
From the X post above, Republic First, which had $5.87 billion in total assets as of year-end 2023, is the sixth-largest failed bank by total assets since 2010.
The small lender had approximately $6 billion in total assets & $4 billion in total deposits by the end of January. The FDIC estimates that the cost to its Deposit Insurance Fund related to Republic First Bank’s failure will be $667 million. - QZ post
My thoughts on investing
We diversify when we have in-depth knowledge of the business that has demonstrated great competitive edges. Yet, the stock should be available with a good margin of safety (discount) . It requires research, patience & willingness to hold. There is no profit or loss till an exit.
News may not represent changes of fundamentals, strategy, operations, or culture. Some changes take a moment and some years to realize. News is info and may have correlation or causation. Let's look at the earnings that follow.
For all new technologies, let us consider the regulations and infrastructure to have a chance of successful implementation and profitability. It is hard to promote electric vehicles when there are insufficient charging networks. Same for hydrogen.
My final thoughts
It is possible for the market to rally with weakening fundamentals. There are a few sectors of weakness that we need to monitor: Commercial Real Estate (CRE), banking (regional banks especially as they have higher exposure to CRE, mortgages and interest rates), oil (SPR), insurance, supply chain and energy (electrical grid especially).
With the extreme weather in the USA, this would complicate the challenges. The country is getting divided over politics, the Israel and Gaza conflicts, AI and even more.
Let us qualify great companies and look for good price discounts for entry points. The market looks volatile due to inflation, unemployment and expectation of interest rate cuts. Let us spend within our means, avoid leverage and invest in great companies with a good margin of safety.
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