This Week in Summary 6/24/2022

Jun 24, 2022 | Bubble Monitor

6/23 Bubble Monitor

The capital markets roller-coaster gave us an exciting ride-up for the week ending Thursday, June 23, 2022, after a harrowing drop the previous week. Not much seemed to change over the week which is why some commentators are calling this a dead cat bounce, a bear market rally. Better to judge by YTD results which show that we are still in a bear market territory with things like the NASDAQ down -28% and the S&P 500 down -20% (right at the brink of the definition of a bear market). Part of the roller-coaster fun is the hope that energy and food prices are actually falling back to normal, but without a valid reason to explain why supply is increasing or, why demand is shrinking (more likely). In any case, our friends at the Fed are talking about more rate hikes, and this translated into higher real estate prices (VNQ) for the week – go figure. Maybe we can attribute this backwardness to the Summer Solstice, as time shifts over the horizon to shorter days.

Weekly Spotlight

As if this brutal economic climate isn’t bad enough, it seems like there is a mental health crisis for men. Drug overdose numbers are skyrocketing, and male labor participation is dropping. To add to the depression, mortgage rates have doubled in a short amount of time. We can’t help but draw comparisons to 2008 and wonder how this will affect the huge mortgage-backed securities market. The Fed & administration say that spiking interest rates won’t necessarily cause a recession, but consumer spending is now dropping as covid savings seem to be drying up for many consumers who are struggling to keep their heads above the water. Finally, while everyone is focused on astronomical oil prices, not many know that coal prices are up nearly 3x over the past year, dwarfing oil’s price inflation.

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Latest Release for Personal Consumption Expenditures (PCE)

The consumer still looks good according to the government’s recent release of personal consumption expenditures (for August 2023) as there have not been any material changes in growth for either disposable income or consumption expenditures.

Small Biz Insights on Trucking Industry

In this post, we discuss the massive post-covid changes to the trucking business with Tony Lovallo who has been running his own freight company since 2010. Tony’s insights provide a 360 look into the shipping business & consumer patterns with important economic implications.

Darden 1Q24: Sales +11.6% Y/Y, Comps +5.5% Y/Y

Darden reported that industry same-restaurant sales increased +0.9% and industry same-restaurant guest counts decreased -4.2% during its fiscal 1Q24. The chain’s comps outperformed the industry by +4.1% and its traffic outperformed by +4.3% (= flattish traffic for Darden during the quarter).

Job Market Looks Solid

In this chart, we subtract total quits from total hires. The excess of hires over quits looks very good relative to the historical level even though the positive gap recently dipped slightly. Workers are staying at their jobs longer even as they continue to have new employment opportunities.

The Economics of Politics

As the U.S. gears up for the 2024 elections, it is important to consider changes to our elections and governance that can unite the citizens of this great country.

2Q23 Retail Same Store Sales

NoBull’s Retail Same Store Sales Report benchmarks 80+ large consumer retail companies by domestic same store sales including annual (2019 – 2022) and quarterly results (2Q22 to 2Q23).

Walmart Investor Presentation: Inflation Here to Stay

While general merchandise prices are lower y/y, they remain elevated compared to 2 years ago. As Walmart does not believe general merchandise and food (dry grocery) & consumable prices are ever going to completely disinflate, management suggests the need for a country-wide wage increase rebalancing.

Interesting Conversation with Fed Chair Powell

Okay, Powell didn’t actually take our call, but we offer a transcript of a potential discussion between the Fed Chair and John Q. Public. It’s very insightful, so please read on.

The Problem with Investment Diversification

Every investment advisor and business student knows that portfolio diversification is key to wealth building. Show me an investor who can beat the S&P 500 Index by buying a few handpicked stocks and I will show you a hedge fund manager in the making. However, there is a huge problem with this strategy that no one is talking about.

Part 3: Analyzing Performance of Low-Income Oriented Retail Companies

We created an index for the financial performance of 5 low-income oriented retail companies to assess the health of this demo. While we recognize that these companies have benefited from the trade-down of higher-income consumers, things look reasonable at least through calendar 2Q23. 

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