Preview of the week starting 25Nov24 - Is Crowdstrike on track for profits?

Public Holidays

There will be no public holidays in Singapore, Hong Kong, or China in the coming week.

America celebrates Thanksgiving from 28 Nov 2024 and here is wishing all a blessed Thanksgiving.

Economic Calendar (25Nov24)

Notable Highlights

• The most watched news in the coming week is the Core PCE Price Index - the main reference used by the Federal Reserve to reference inflation in the US economy. A lower figure can rally a bullish market that is hoping for more rate cuts.

• There will be an update on America’s GDP (Q3) estimated at 2.8%.

• China’s Manufacturing PMI will be announced in the coming week. The last reading was 50.1, which represents growth in the sector. China is one of the global factories and if the manufacture continues to expand, this implies the growing demand of the rest of the world that depend on China for production.

• In a similar vein, Chicago PMI will provide an outlook of the Chicago region's manufacturing and non-manufacturing sectors. The previous PMI of 41.8 implies (much) contraction.

• CB Consumer confidence has a good bearing on consumer outlook. A figure that is above 100 represents a positive outlook. Durable Goods Orders will also lend weight to the economic outlook.

• Initial jobless claims will be announced. The Federal Reserve uses this as one of the key macro data references as it balances inflation and employment in the economy.

• Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, demand erosion can lead to reduced production & weakening consumer spending.

Earnings Calendar (25Nov24)

There are a few earnings of interest in the coming week namely Zoom, Dell, HP and Crowdstrike.

Let us take a look at Crowdstrike

The stock price grew 77.6% from a year ago.

Technical analysis recommends a “Strong Buy” rating.

Analysts Sentiment recommends a “Buy” rating. With a target price of $339.07, there is a 6.92% downside for this stock.

Observations about Crowdstrike:

• Revenue grew from $53M (2017) to $3,056M (2024).

• Gross profit grew from $19M (2017) to $2,300M (2024)

• Operating profit remains at a loss -$2M (2024)

• FCF (10-year Median Margin) is 17.8%

• Gross Profit (10-year Median Margin) is a strong 71.9%

• Thus, the expenses they incurred to operate the business are heavy.

• The P/E ratio stands at a startling 515.0

Crowdstrike may not have seen the economic penalties of their recent system outage.

For the coming earnings, the forecast EPS and revenue are $0.809 and $982.81M respectively.

The company looks to be profitable from the TTM data. This can be good news for the company. I prefer to be an observer and not an investor yet.

Market Outlook of S&P500 - 25Nov24

Observations:

• The MACD indicator is showing a downtrend but there seems to be a chance for a top crossover too.

• Moving Averages (MA). Both the MA50 line and the MA200 line are on an uptrend. Both MA50 and MA200 lines are below the last candle. Thus, it could be read as bullish for both the mid and the long term.

• The 3 Exponential Moving Averages (EMA) lines are on an uptrend.

• Chaikin’s Monetary flow (CMF) shows an uptrend. This implies more selling momentum than buying. The CMF seems to be moving sideways - applying similar momentum by both buyers and sellers.

From the technical analysis (daily interval), 21 indicators point to a “Strong buy” rating.

21 indicators above point to a “Buy” rating and none to a “Sell” rating.

From the candlestick patterns above, the latest seems to point to a bullish run.

From the above, the S&P500 should continue its uptrend.

News and my thoughts from last week (25Nov24)

• Avoid leverage. Let us invest with what we can afford to lose.

• The price does not always reflect the value of the business.

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(Bloomberg) Buffett’s $325 Billion Cash Hoard Is an Early Warning Signal

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Biggest exporters: China is leading the pack. Indonesia has so much potential in Asia. Thankful to see Singapore doing well.

• BlackRock and JPMorgan are backing a $15 billion investor fund to rebuild Ukraine. Follow the money. - X user James Melville

  Ukraine could be hit by massive inflation, debt, a shortage of human resources, and a damaged infrastructure. Some companies can gain with Ukraine available at a discount

• Independence as a company does not necessarily remove the dependence or interdependence of the ecosystem No more waste—just streamlined government. Big government had its shot. Now, it’s DOGE time. Source: Forbes, Wired, CBS News

• Shanghai judge says Bitcoin and crypto are property and that their ownership is legal in China.

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Record numbers of US executives are selling shares in their companies. The ratio of insider sales-to-insider buys has hit a record high for any quarter in two decades - FT

• China's President Xi Jinping just dropped tariffs to ZERO for 45 of the world's poorest nations. This will enable them to more easily export their goods to China, igniting their economic engines. China, under President Xi, is leading the world to a more prosperous shared future for all humanity. (from recent G20 meetings) - X user Jason Smith

• APPLE PROPOSES $100M PLANT IN INDONESIA Apple has submitted a $100 million proposal to build a plant for accessories and components in West Java, Indonesia, according to the country's industry ministry. The move follows Indonesia's ban on iPhone 16 sales for not meeting local rules requiring 40% locally-made parts in smartphones sold domestically. Source: Reuters

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The United States budget deficit exceeded 3 Trillion in 2020 and is ~1.83 Trillion as of 2024. - X user the Rabbit Hole

With the interest rates, the debt will punish the citizens when investment into healthcare, infrastructure, defence, education and other R&D needs to give way to interest repayments. Let's not borrow from our children's future. It is fiscally irresponsible.

• NY FED: REJECTION RATES FOR MORTGAGE REFINANCE AND AUTO LOANS HIGHEST IN SURVEY HISTORY.

• US bankruptcy filings of big companies (see the footnote) reached 570 in 2024 through October, the highest level in 14 years. - X user Global Market Investor

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China is still one of the global manufacturing powerhouse.

• Cost of flights to hit record high next year amid aircraft supply crisis, experts say Airfares are set to hit record highs next year and there will be a surge in flight cancellations as a result of critical shortages of plane engines and spare aviation parts, insiders fear. - The Independent UK

• Japanese investors sold a record $61.9 billion of the securities in the three months ended Sept. 30, data from the U.S. Department of the Treasury showed on Monday. Funds in China offloaded $51.3 billion during the same period, the second-biggest sum on record. - Japan Times

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VLCC rate rise offers a ray of hope amid autumn tanker stock gloom - X User GMJournalist

• Gold is a hedge. When nations hedge, what does this say of their outlook?

• The French government will pay grape growers €109.8m to compensate them for uprooting 27,500 hectares of vineyards in response to an oversupply crisis. - Decanter

From X user The Kobeissi Letter

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Are large banks preparing for widespread layoffs? Odds of layoffs at large US banks by the end of 2024 are surging. Today, prediction market odds of layoffs this year at Citigroup, $C, have jumped by 29 points, to 71%. Bank of America, $BAC, and Deutsche Bank, $DB, have also seen large jumps in odds of layoffs to 60% and 57% respectively, according to X user Kalshi. As rate cuts begin and economic uncertainty rises, prediction markets expect layoffs at banks to follow. Yet another sign of labor market weakness.

Bank layoffs. It can be trimming the fats. It can be meeting the new demand. It can be more automated. Do you see layoffs coming in your local banks?

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US credit rejection rates are spiking: The average rejection rate for credit hit 22.9% in October, the most in at least 11 years according to the Fed credit access survey. Meanwhile, the credit card rejection rate rose to 20%, the highest since 2014. Credit card limit increase rejections skyrocketed to 45%, a new record since the survey began in 2013. Additionally, mortgage and auto loan rejection rates DOUBLED over the last 3 years to 23% and 14%, respectively. It has rarely been tougher to access credit in the US. Is the debt bubble bursting?

Looks like Trump's team is going to inherit a debt crisis. Kamala may have dodged a massive bullet.

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What is happening with European stocks? The Stoxx Europe 600 index has underperformed the S&P 500 by 21% this year, the most on record. This comes as European stocks have returned only 3% year-to-date much below the 24% gain of US stocks. The Stoxx Europe 600 index is now on track for its 8th year of underperformance out of the last 10. Over the last decade, European equities have increased by just 50% much less than the S&P 500 return of 187%. As a consequence, the US stock market is now 4 TIMES larger than Europe. Investors are choosing the US over Europe.

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Serious delinquency rates in US auto loans are surging: As of Q3 2024, 5% of auto loans held by Americans aged 18-29 were seriously delinquent, near the highest level in 15 years. At the same time, 3.5% of people aged 30-39 hold seriously delinquent auto loans, the highest in 14 years. Even 40+ age groups who are considered more financially stable have delinquency levels at 15-year highs. Serious delinquency rates for auto loans are currently rising at their fastest pace since the 2008 Financial Crisis. The car market bubble is popping.

Without cars, Americans will be handicapped due to a lack of public transport outside major cities.

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US serious delinquencies are skyrocketing: The share of US credit card debt that is delinquent 90+ days jumped to 11.1% in Q3 2024, the highest level since 2011. This is the 5th consecutive quarter of increases, the longest streak since the 2008 Financial Crisis. This share even exceeds the 2020 peak and has been rising at a pace only seen during recessions. At the same time, credit card debt hit $1.17 trillion, a new record. This means a whopping ~$130 billion of credit card debt is on the verge of a default. US consumers are drowning in credit card debt.

My Investing Muse (25Nov24)

Layoffs & Closure news

• Northvolt chief warns of faltering green transition after battery maker’s bankruptcy Europe’s best-funded start-up raised $15bn but was left with just $30mn in cash - FT

• Layoffs continue across the freight and logistics industry, with companies announcing 1,277 job reductions and six distribution facility closures across the country. - FreightWaves

• Norway's Equinor is trimming 20% of the staff from its renewable energy division and will compete for a smaller number of new projects as it streamlines the business unit, the company told Reuters on Thursday. - Reuters

• Bay Area tech company AppLovin announces layoffs a week after skyrocketing to $97.7B value - SF Gate

Government Waste & Inefficiency

Here are some posts about Government waste and inefficiency:

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In 2022, the Federal Government Accountability Office found $247,000,000,000 in improper payments made across 82 programs, including $81B from Medicaid & $47B from Medicare. That's $250B. In one year. That they know about. And publicly reported. - X user Data Hazard

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Federal government agencies are using, on average, just 12% of the space in their DC headquarters. The Department of Agriculture, with space for more than 7,400 people, averaged 456 workers each day (6% occupancy). Why are American taxpayer dollars being spent to maintain empty buildings? - X user DOGE

GOVERNMENT WASTE IS OUT OF CONTROL: DOGE SHOWS THE WAY FORWARD The numbers don’t lie, and the government’s track record on waste is staggering: - $824 BILLION: The Pentagon failed its seventh consecutive audit, unable to fully account for its $824 billion budget. - $236 BILLION: In fiscal year 2023, federal agencies reported an estimated $236 billion in improper payments across 71 programs. - $200 BILLION: During the pandemic, approximately $200 billion in relief funds were lost to fraud and abuse, highlighting significant oversight failures. - $1 BILLION: The U.S. failed to track over $1 billion in aid sent to Ukraine, raising concerns about accountability in foreign assistance. Elon Musk plans to cut $2 trillion from the U.S. budget by implementing industrial logic. - X user The Kobeissi Letter

More articles highlight the waste and inefficiency in the government. DOGE is set up to address this and this can help the US to change its current course bound for financial challenges.

Tariffs

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Tariffs can be inflationary. Let us count the costs before applying them. The world can work better with collaboration than with sanctions.

TRUMP TO IMPOSE 40% TARIFFS ON CHINA Trump plans to impose nearly 40% tariffs on Chinese imports by early 2025, potentially reducing China's economic growth by up to 1 percentage point. Economists warn the move could strain China's already fragile economy, impacted by a prolonged property downturn and weak domestic demand. While Trump pledged higher tariffs, experts predict he will avoid a blanket 60% rate to minimize U.S. inflation risks. China is expected to introduce new stimulus measures to offset declining exports and maintain growth targets. Source: Reuters

Tariffs have been mentioned as one of the courses of action. With the USA having a trade deficit with China, any similar response from China would lead to inflationary pressures back to the USA. This is something to be reviewed and measured before execution.

I prefer more collaborations than applying sanctions.

My final thoughts

The PCE price index will be one of the most important announcements. This will be one of the considerations for the Federal Reserve’s interest rate decision. This should bring some volatility to the market.

With an escalation in the Ukraine-Russian front, this could be a black swan affecting the market. Russia has demonstrated its capability with the new hypersonic missiles that could not be intercepted by the current defence system. I hope that sense and tolerance will prevail during this time. I hope that Trump can make good his promises to deliver peace to the different regions.

From the looks, Bitcoin should break the $100K mark soon. I am “amazed” to see the amount of funds flowing into the various asset classes - from stock to crypto.

How much more money do we have? There was a recent Fortune article that raised concerns about the diminishing of savings.

There is room for growth in the short term but let us be mindful that some of the fundamentals (like debt) are at worrisome levels. Let us research before investing. Let us avoid leverage and invest with what we can afford to lose.

@TigerStars

$.SPX(.SPX)$

$CrowdStrike Holdings, Inc.(CRWD)$