To The Moon

Public Holidays

No public holidays in the coming week for Hong Kong, China, Singapore and the USA.

However, Christmas Day (25 Dec 2023, Monday) will be a public holiday for Singapore, Hong Kong and the USA.

Economic Calendar (18 Dec 2023)

Notable Highlights

• Home data - Building Permits, Existing Home Sales and New Home sales will bring an understanding of US real estate. With news of a potential Fed pivot in 2024, will this increase the demand for property?

• Philadelphia Fed Manufacturing Index. This shows the growth or contraction of the manufacturing sector. A decline is expected.

• PCE (Core). This is Fed’s preferred indicator for inflation. This should be the next most closely watched data which has significant implications for the Fed’s coming interest rate decisions.

• CB Consumer Confidence - this is an indication of consumer confidence that ties to consumer’s outlook.

• Initial Jobless Claims - This is a reflection on the impact of unemployment, a data point for the Fed’s interest rate decision.

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

Earnings Calendar (18 Dec 2023)

In the coming week, there are a few earnings of interest namely Accenture, FedEx, FactSet, Micron and Nike.

Let us look at FedEx’s performance.

Observations about FedEx’s performance:

• Revenue has almost doubled in 10 years from $45B (2014) to $90B (2023)

• Note that 2023 revenue is a decline from 2022’s peak at $93B.

• Gross Profit is 21.3% using 10-year median margin

• P/E Ratio is at an attractive 17.0

• EPS has more than doubled from $7.48 (2014) to $15.48 (2023)

FedEx’s stock price has hit a record 52-week high recently and has grown 62.3% from a year ago. From Investing, it has a “Strong Buy” status.

For the coming earnings, the forecast for the EPS and Revenue are 4.19 and $22.37B respectively. Can FedEx continue its stellar performance following the earnings?

Market Outlook - 18 Dec 2023

Technical observations of the S&P500 1D chart:

• The Stochastic indicator has completed a top crossover and could range sideways. The latest crossover is indicating an uptrend.

• The MACD indicator is on an uptrend with a top crossover completed. We should expect a downtrend soon.

• Moving Averages (MA). Both the MA50 line and the MA200 line are on an uptrend. The last candle is above both the MA 50 line and the MA 200 line. Thus, it could be read as bullish for the long-term and mid-term.

• Exponential Moving Averages (EMA). All 3 EMA lines are moving upwards and thus, implying an uptrend.

From the 1D technical indicators above, there are a total of 19 (Buy), 0 (Sell) and 0 (Neutral). Investing recommends the “STRONG BUY” recommendation based on the technical indicators above (1D chart for S&P500).

From the data above, the market should continue to rally into the coming week. Note that more indicators are showing “overbought” status for the S&P500.

News and my thoughts from the last week (18 Dec 2023) - SPX, layoffs, debts

$SPX is expected to report Y/Y earnings growth of 2.7% for Q4 2023, which is below the estimate of 8.1% earnings growth on September 30. - FactSet

• Are we trending in the right direction? It should be ok as we are hoping for a soft landing? Or is it not?

• When we could not spend within our means, it is the first step to financial ruins. When one borrows money without intention or means to repay, it is ponzi. Should we be borrowing from our goodwill?

• Investors have been looking at low hanging fruits. It is their money and their choice. Yet, we may be missing out on great innovations and solutions when we brush them off as hard money. The due diligence in place should help.

• UK regulators who took 15 months to come to this decision are letting UK and investors down. Is there a chance to work together and shorten the time needed?

• Success comes from the avoidance of folly. How many families, businesses & governments are heading for default?

  Is margin calling? Avoid leverage. Let us spend within our means and invest with what we have. Charlie Munger - the grand Master of stupidity reduction.

• CHINA DISINFLATION WORSENS IN NOVEMBER AS CPI HITS 3-YEAR LOW; STOCKS TUMBLE - investing

• Being ethical is a competitive advantage.

• In business, trust first before contract.

• My ecosystem of partners must do well, not on minimal margins and all for the long haul. This is the advantage of ethics.

• Should there be a surge in the demand of the current treasury products as this could be carrying the highest interest rates?

• Household debt increased 1.3% to $17.29 trillion in the third quarter. - CNN

• SF City budget officials have projected a deficit of $800 million over the next two fiscal years. The shortfall reflects increased spending alongside high office vacancies, stagnating tax revenue, increasing disputes over business taxes and dwindling federal aid tied to the pandemic. - SF Standard

• The Federal deficit for November of 2023 came in at a sizeable $314 Billion for the month. - Reuters

• “Given the widening gap between global supply and demand, owing to the delivery of a large orderbook, it is expected that carriers at some point will begin to idle vessels by closing-down entire loops.” - Baltic Exchange by GSCaptain

• Supply chain visibility platform FourKites confirmed it has reduced its workforce across offices in the United States and Europe by 15% this week. - FreightWaves

My investing muse

The market and economy are in some contradiction. The market is going up & yet the economy is breaking under the weight of debt. Some people are living in different realities. Our world is shaped by different perspectives. We are all biased & speak from where we stand.

Credit Card Debt

Is the market’s growth financed by debt and leverage? With household credit card debt over $1 trillion and an average of 21% credit card interest rate, the average household has an average debt of over $10,000. For those under the weight of debt, the Fed pivot does not come early enough. Add the recent student loan payment resumption, there should be more reduction in disposable income for the families.

With the recent record sales over the Black Friday and Cyber Monday weekend, US consumers seemed to defy the odds by tanking the market with strong consumption. My consideration would be the amount of spending via credit, debt or Buy Now Pay Later (BNPL) schemes.

Creditworthy Gap

This leads me to the next point. Creditworthiness is an important tool to protect both consumers and banks. Should someone have perpetual credit issues, these would be flagged and the risk exposure would be limited.

However, BNPL does not share data within the community or the credit rating companies. Thus, the banks and BNPL partners could be issuing loans of higher risks. This lack of visibility can have issues when insolvent customers continue to enjoy lines of credit via BNPL.

Affirm is one of the players in the BNPL space. While they have enjoyed strong revenue growth from $264M (2019) to $1,588M (2023). They have yet to break even and in fact, their losses have continued to grow from $102M (2019) to $982M (2023). Their operating losses are not trending in the right direction. We should monitor defaults and their expenses. These could be one of the sectors greatly affected during a downturn.

Portfolio Balancing and Tax Loss Harvesting

December is also the time for portfolio balancing and tax loss harvesting. Thus, we can expect some movement (especially in the sell-off) in the coming days.

Conclusion

The market has seen record highs in their indices and several companies. Yet, the supply chain is sending signals of slowdown, layoffs and business closures. Supply Chain is the leading indicator of the economy and I do recommend monitoring this sector closely.

The consumer, business and federal government are addicted to debts. Who else is able & willing to fund the deficit of the biggest economy in the world, and for how long? Can the US fund multiple war fronts perpetually? The Q4/2023 earnings season will be upon us in about 2 weeks. Let us consider some hedging.

@TigerStars

$S&P 500(.SPX)$

$FedEx(FDX)$

$Micron Technology(MU)$