Comment of the Day
Video commentary for December 6th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Amazon trouble, oil breaking down but shares only beginning to feel pain, stock susceptible to additional weakness. bonds yield compressing in response to slowing economic activity.
Investors Overseeing $5 Trillion Are Betting That an Economic Recession Can Be Avoided
Thanks to a subscriber for this article from Bloomberg which may be of interest. Here is a section:
Professional investors are loading up on bets that an economic recession can be avoided despite all the warnings to the contrary. It’s a dangerous bet -- for a variety of reasons.
Money managers have been favoring economically sensitive equities, such as industrial companies and commodity producers, according to a study from Goldman Sachs (NYSE:GS) Group Inc. on positioning by mutual funds and hedge funds with assets totaling almost $5 trillion. Shares that tend to do well during economic downturns, like utilities and consumer staples, are currently out of favor, the analysis shows.
The positions amount to wagers that the Federal Reserve can tame inflation without creating a recession, a difficult-to-achieve scenario often referred to as an economic soft landing. The precariousness of such bets was on display Friday and Monday, when strong readings on the labor market and American services sectors drove speculation the Fed will have to maintain its aggressive policies, increasing the risks of a policy error.
“Current sector tilts are consistent with positioning for a soft landing,” Goldman strategists including David Kostin wrote in a note Friday, adding that the fund industry’s thematic and factor exposures point to a similar stance.
Eoin Treacy's view - I am reminded of 2007 and 2008 when commodities were surging and banks beginning to roll over. At the time commodity inflation was running rampant but there was relatively little upward pressure on wages. The growing weakness in the housing sector effectively kept wage demand growth under control. Nevertheless, the spike in energy prices and overleverage in the financial system caused a significant problem.
US Crude Output Set to Tap Record in 2023 Amid Rising Rigs
This note from Bloomberg may be of interest. Here it is in full
U.S. crude oil production in 2023 is forecast at 12.34m b/d, an all-time high and revised up slightly from 12.31m b/d projected in November, EIA says in monthly Short-Term Energy Outlook
2022 output estimated at 11.87m b/d vs 11.83m b/d
Output to grow annually in 2023 at an average rate of 470k b/d vs prior forecast of 480k b/d
See here the forecast for US fuel demand in 2023:
Gasoline demand revised up to 8.77m b/d from 8.75m previous forecast
Distillate consumption seen at 3.94m b/d from 3.93m
Jet fuel use estimated at 1.64m b/d from 1.57m
EIA sees contraction in US economic activity in Q4 2022 and Q1 2023, though will be shorter and milder than previously forecast
Eoin Treacy's view - The go-go days of limitless spending on securing leases and active drilling are receding into the distant past. The peak in the horizontal rig count was in 2014 at almost 1400. Since then the focus of investors and companies has turned towards sustainable profitability. Concurrently many institutional investors now also have to worry much more about environmental sustainability.
Eoin's personal portfolio: stock market index positions closed at profit and shorts opened
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
Amazon set to fire 20,000 employees, including top managers
This article from wionews.com may be of interest. Here is a section:
CEO Andy Jassy had earlier hinted about the layoff, however, he had not clearly specified the number of employees to be laid off. The New York Times had, in November, reported that the company was considering laying off employees.
However, a recent report now claims that the number of employees likely to be fired has now increased to 20,000 and that people at all levels are likely to be fired by the company. Recently, Amazon’s CEO announced that they would continue the process of a layoff and that the employees who will be impacted will be informed after everything is assessed by the company.
Eoin Treacy's view - Amazon is a low margin business. The company just about breaks even on the high volume online marketplace it is synonymous with. Profits are raised first from the Web Services division and more recently from advertising. In boosting advertising and pay-to-play models, the company has taken the bet that convenience trumps quality assurance. It’s not clear that was the right move.
This section continues in the Subscriber's Area.
Email of the day on video playback issues
Video link does not work
And
Same from Dominican Rep...
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still not working
And
Just like British trains over Xmas
Eoin Treacy's view - Thank you for letting me know. This is a maddening issue because the videos play fine for me. I have been in contact with Vimeo's customer support this morning to try and get this issue resolved.
The original reason for using Vimeo was uploading videos was much faster than YouTube. That is no longer true. They are both now equally slow.
My dilemma is I have over 3200 videos sitting on the platform and do not wish to pay for two services just so I don’t lose my archive. Nevertheless, in the interest of ensuring subscribers have access to the full content of the Service I will switch to YouTube for the time being.