Have your cake and eat it

Stocks fell yesterday on increasing worries that peak interest rates may be higher than hoped for. This, in response to a recent spate of stronger than expected economic numbers.

Capitalism is alive and well. There is a basic economic microeconomic assumption that all neophyte economists learn in Micro 101. More is good. I remember first hearing those three words come out of my professor’s mouth. I gazed up at the ceiling and thought “how profound.” I thought to myself, that I knew this for my whole life, indeed since early childhood, but I never attributed it to… well, economics. More cake, more bread, more butter, MORE strudel… yes, it is real. My daydream was abruptly halted by my then-girlfriend, now-wife who was in my class (that was 1986). She nudged me and rolled her eyes. Back to reality.

It is true that if we don’t assume that more is always preferred over less, ALL economic theory, no matter the dogma, makes no sense. We typically associate voracious demand with capitalism. More dollars, more power, more wealth, and more shiny things seems like the reason why so many industrious capitalists rise from their slumber each day and apply themselves behind plough, pencil, and keyboard. Come on, you know the feeling. Even if you can only manage to eat 1 piece of chocolate cake, having the whole cake at your disposal is definitely better. American-style capitalism surely has its extreme hallmarks, but as implied above, it is not uniquely American.

Have you heard of Taiwan Semiconductor Company, or TSMC? It’s ADR trades under the symbol TSM. The $422 billion dollar company, based in Hsinchu Taiwan is considered to be the largest semiconductor assembler in the world. As we have learned in the past few years, semiconductors are pretty important IN JUST ABOUT EVERYTHING we use these days. If they are in short supply, plants literally shut down and workers are furloughed. Prices of goods go up when semiconductors become scarce. Don’t believe me? Just check out the prices of new automobiles over the past 3 years. Yeah, you know. My good friend, who often informs me about the energy industry (I mention him often), recently bought a high-end luxury car. He told me that, though there were buttons on the door panel to maneuver the seats, they were not functional and that he had to manually adjust his seats. The reason, he told me, was that the manufacturer did not have the necessary semiconductors on hand, so it decided instead to sell the car with a $900 discount, sans semiconductor, to get it off the production line. I won’t mention the brand, but it is high-end, and my friend’s model was on the higher end of the company’s products, which means… it was expensive, even with the paltry discount. Back to TSMC. If you watched any financial news channel yesterday, you would have seen President Biden in Arizona surrounded by tech industry titans. He was there to herald the building of a TSMC plant right smack in the middle of America’s southwest. The company would foot most of the $40 billion cost to build the plant which will eventually benefit companies, mostly American companies like Apple, a great deal. Why would the company make such a big investment? Why? To sell MORE chips, of course. No altruism, just basic, raw economics. Ok, the US has a close relationship with Taiwan, which is a capitalist country, though it exists in the shadow of socialist China. I will stay away from the politics, but now that we are on the topic of China.

China is the second largest economy, by GDP, in the world. As we have also learned in the past few years, China’s economic health, despite its economic canon, can also very much impact your pocketbook… and portfolio. This fact has been thrown into sharp focus in the past year as the country struggled to contain COVID outbreaks with its Zero-COVID policy. Every news report of an outbreak sent shockwaves through the commodities markets. China is the second largest consumer of crude oil in the world, so when its economy locks down, the price of global crude oil suffers. Indeed, all markets suffer. In recent weeks, you may have noticed an increasing number of protests in China, specifically over its Zero-COVID policy. Protests in China, as you may know, are atypical and usually amount to… well, very little. But this one was unique. It appears that the Politburo was listening to the rows of workers holding up blank sheets of paper, because the government, surprisingly, announced that it was relaxing, significantly, its restrictive policy. It was a surprising revelation for a country not known to bend to the will of the masses. Why would China do this? Maybe because lawmakers got the draft memo that its exports had fallen by -8.7% in the past 12 months, the biggest drop since February 2020. The drop is attributed to the restrictive lockdowns at a time when China’s economic growth is under pressure. Why did the government change its policy so abruptly? Because it decided that more, is indeed, good. Pass me another piece of that strudel, and don’t hold back on the Schlag (whipped cream), please.

WHAT’S SHAKIN’

Campbell Soup Co (CPD) shares are higher by +2.54% in the premarket after it announced that it beat EPS and Revenue estimates by +16.44% and +5.15% respectively. The company also raised its full year guidance and mentioned that it was on track for $1 billion in annual cost savings. This implies 2 things. Campbell, like most companies is preparing for tougher times and layoffs may be part of that plan, and that, apparently, more soup is good. Dividend yield: 2.79%. Potential average analyst target upside: -8.3%. WHY IS THIS NEGATIVE? Because the current price of the stock is above the average analyst 12-month price target, which can be interpreted as the stock being expensive, though the stock’s price may still rise.

Welltower Inc (WELL) shares are lower by -9.11% in the premarket after Hindenburg Research announced that it was shorting the healthcare REIT’s stock along with a report entitled Welltower, Exposing The Shell Game. Dividend yield: 3.58%. Potential average analyst target upside: +16.2%.

YESTERDAY’S MARKETS

Stocks fell yesterday as fear of higher interest rates and increased economic pressure from China combined for investor indigestion. The S&P500 fell by -1.44%, the Dow Jones Industrial Average slipped by -1.03%, the Nasdaq Composite Index traded lower by -2.00%, and the Russell 2000 declined by -1.50%. Bonds gained and 10-year Treasury note yields fell by -4 basis points to 3.53%.

NEXT UP

• This morning, MBA Mortgage Applications (Dec 2) were announced to have fallen by -1.9% after falling by -0.8% in the prior week.
• The Fed is in press blackout leading up to its upcoming FOMC meeting.